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

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**FORM 10-K**

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**ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

**For the fiscal year ended December 31, 2002**

**Commission file number 1-8644**

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



|**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)
Securities registered pursuant to Section 12(b) of the Act: **None**
                                Securities registered pursuant to Section 12(g) of the Act: **None**

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 at least the past 90 days.   YES [X]    NO [  ]



Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2) 	Yes	[  ] No [X]

At March 17, 2003, 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 I(1)(a) AND (b) FOR FORM 10-K AND IS THEREFORE FILING THIS FORM
WITH A REDUCED DISCLOSURE FORMAT.









IPALCO ENTERPRISES, INC

Annual Report on Form 10-K

December 31, 2002



Table of Contents





|Item No. |                                                                                                | Page No.
|-------- | ---------------------------------------------------------------------------------------------- | --------
|Part I   |                                                                                               
|1.       | Business                                                                                       | 3       
|2.       | Properties                                                                                     | 11      
|3.       | Legal Proceedings                                                                              | 12      
|4.       | Submission of Matters to a Vote of Security Holders                                            | 12      
|         |                                                                                                |         
|Part II  |                                                                                               
|         |                                                                                                |         
|5.       | Market for Registrant's Common Equity and Related Stockholder
Matters                          | 12      
|6.       | Selected Financial Data                                                                        | 13      
|7.       | Management's Discussion and Analysis of Financial Condition and
Results of Operations          | 14      
|7A.      | Quantitative and Qualitative Disclosure About Market
Risk                                      | 30      
|8.       | Financial Statements and Supplementary Data                                                    | 32      
|9.       | Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure           | 76      
|         |                                                                                                |         
|Part III |                                                                                               
|         |                                                                                                |         
|10.      | Directors and Executive Officers of the Registrant                                             | 76      
|11.      | Executive Compensation                                                                         | 76      
|12.      | Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters | 76      
|13.      | Certain Relationships and Related Transactions                                                 | 76      
|         |                                                                                                |         
|Part IV  |                                                                                               
|14.      | Controls and Procedures                                                                        | 77      
|15.      | Exhibits, Financial Statements, Schedules and Reports on Form 8-
K                             | 77      
|         |                                                                                                |         
|         | Signatures                                                                                     | 81      
|         | Certifications                                                                                 | 82      

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Report on Form 10-K includes "forward-looking statements"
including, in particular, the statements about our plans, strategies and
prospects under the headings "Item 1. Business" and "Item 7.
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,
future revenues, income, 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; our ownership by AES, our credit ratings,
fluctuations in customer growth and demand, weather and weather-related damage,
fuel costs, generating unit availability and capacity, purchased power costs and
availability, regulatory action, environmental matters, federal and state
legislation, interest rates, availability and cost of capital, labor strikes,
maintenance and capital expenditures, local economic conditions, the ultimate
disposition of litigation and the specific needs of plants to perform
unanticipated facility maintenance or repairs or outages. The timing of
deregulation and competition, product development and technology changes are
also important potential factors that may cause actual results or outcomes to
differ materially from those discussed in the forward-looking statements. Most
of these factors affect us through our consolidated subsidiary, Indianapolis
Power & Light Company.



PART I

Item 1. Business

Overview

IPALCO Enterprises, Inc. (IPALCO) is a holding company incorporated under
the laws of the State of Indiana on September 14, 1983. Our principal subsidiary
is Indianapolis Power & Light Company (IPL), an electric utility with its
customer base concentrated in Indianapolis, Indiana. Mid-America Capital
Resources, Inc. (Mid-America) is the holding company for our unregulated
activities. During 2000 and 2001, Mid America sold its steam and district
cooling assets and, as a result, it is currently not conducting any business. As
of December 31, 2002, Mid America owned a 6.6% interest in a venture capital
fund valued at approximately $4.2 million. IPALCO is owned by The AES
Corporation ("AES"), which acquired IPALCO in an approximately $2.15
billion stock-for-stock pooling transaction in March 2001. Our total electric
revenues for the fiscal year ended December 31, 2002 were $818.0 million and our
total assets as of December 31, 2002, were $2.0 billion.

Our principal executive offices are located at One Monument Circle,
Indianapolis, Indiana 46204, and our telephone number is (317) 261-8261. Our
internet website address is www.IPALCO.com.

Indianapolis Power & Light Company

General

IPALCO owns all of the outstanding common stock of IPL. IPL was
incorporated under the laws of the State of Indiana in 1926. IPL is engaged
primarily in generating, transmitting, distributing and selling electric energy
to approximately 450,000 customers in the city of Indianapolis and neighboring
areas within the state of Indiana; the most distant point being about 40 miles
from Indianapolis. IPL has an exclusive right to provide retail 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 facility that are used for electric generation. IPL's net
electric generation capability for winter is 3,342 megawatts and net summer
capability is 3,224 megawatts. There have been no significant changes in the
services rendered by IPL, or in their markets or methods of distribution, during
2002.

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. IPL's
business is not dependent on any single customer or group of customers. IPL's
electricity sales for 1998 through 2002 are set forth in the table of
statistical information included at the end of this section.

IPL's generation, transmission and distribution facilities are described
under "Item 2. Properties." IPL's electric system is directly
interconnected with the electric systems of Indiana Michigan Power Company, PSI
Energy, Inc., Southern Indiana Gas and Electric Company, Wabash Valley Power
Association, Hoosier Energy Rural Electric Cooperative, Inc., the Indiana
Municipal Power Agency, West Fork Land Development Company, LLC, and DTE
Georgetown, LLC.

IPL is also a member of the East Central Area Reliability Group, or ECAR, and
is cooperating under an agreement that provides for coordinated planning of
generation and transmission facilities and the operation of such facilities to
promote reliability of bulk power supply in the nine-state region served by
ECAR. Smaller electric utility systems, independent power producers and power
marketers participate as associate members. See "Regulatory Matters-
Wholesale Energy Market" in Item 7 of the report for a discussion of
our participation in the Midwest Independent Transmission System Operator, Inc.
(MISO), a registered transmission organization.

Regulation

IPL is subject to regulation by the Indiana Utility Regulatory
Commission, or IURC, as to its services and facilities, the valuation of
property, the construction, purchase, or lease of electric generating
facilities, the classification of accounts, rates of depreciation, rates and
charges, the issuance of securities (other than evidences of indebtedness
payable less than twelve months after the date of issue), the acquisition and
sale of public utility properties or securities and certain other matters.

In addition, IPL is subject to the jurisdiction of the Federal Energy
Regulatory Commission, or FERC, with respect to short-term borrowing not
regulated by the IURC, the sale of electricity at wholesale and the transmission
of electric energy in interstate commerce, the classification of its accounts,
and the acquisition and sale of utility property in certain circumstances as
provided by the Federal Power Act.

IPL is also affected by the regulatory jurisdiction of the U.S. Environmental
Protection Agency, at the federal level and the Indiana Department of
Environmental Management, at the state level. Other significant regulatory
agencies affecting IPL include, but are not limited to, the U.S. Department of
Labor and the Indiana Occupational Safety and Health Administration. As a
regulated entity, IPL is required to use certain accounting methods prescribed
by regulatory bodies which may differ from those accounting methods required to
be used by nonregulated entities.

Please see "Regulatory Matters" under "Item 7,
Management's Discussion and Analysis of Financial Condition and Results of
Operations" for a more comprehensive discussion of regulatory matters
impacting IPL and IPALCO.

Retail Ratemaking

IPL's tariffs for electric service to retail customers (basic rates and
charges) are set and approved by the IURC after public hearings. Such
proceedings, which have occurred at irregular intervals, involve IPL, the staff
of the IURC, the Office of the Indiana Utility Consumer Counselor, as well as
other interested consumer groups and customers. In Indiana, basic rates and
charges are determined after giving consideration, on a pro-forma basis, to all
allowable costs for ratemaking purposes including a fair return on the fair
value of the utility property used and useful in providing service to customers.
Once set, the basic rates and charges authorized do not assure the realization
of a fair return on the fair value of property. Pursuant to statute, the IURC is
to conduct a periodic review of the basic rates and charges of all utilities at
least once every four years. Other numerous factors including, but not limited
to, weather, inflation, customer growth and usage, the level of actual
maintenance and capital expenditures, fuel costs, generating unit availability
and purchased power costs and availability can affect the return realized.
During 1998, in an order resulting from an IPL initiated proceeding, the IURC
declined to exercise its jurisdiction in part over IPL customers who voluntarily
select service under IPL's Elect Plan options. Under two of these options, the
customer's prices are not adjusted for changes in fuel costs or other factors.
The Elect Plan was extended by an IURC order through December 31, 2006 (See
"Regulatory Matters"under Item 7 of this report.)
Substantially all other IPL customers are served pursuant to retail tariffs that
provide for the monthly billing or crediting to customers of increases or
decreases, respectively, in the actual costs of fuel consumed from estimated
fuel costs embedded in base tariffs, subject to certain restrictions on the
level of operating income. Additionally, most such retail tariffs provide for
billing of current costs resulting from IPL's IURC-approved demand side
management programs. IPL maintains its books and records consistent with
accounting principles generally accepted reflecting the impact of regulation.
See Note 3 to the Consolidated Financial Statements.

Future events, including the advent of retail competition within IPL's
service territory, could result in the deregulation of part of IPL's existing
regulated businesses. Upon deregulation, adjustments to IPL's accounting records
may be required to eliminate the historical impact of regulatory accounting.
Such adjustments, as required by Statement of Financial Accounting Standards
(SFAS) No. 101, "Regulated Enterprises-Accounting for the Discontinuation
of Application of SFAS No. 71," could eliminate the "effects of any
actions of regulators that have been recognized as assets and liabilities. .
.." Required adjustments could include the expensing of any unamortized net
regulatory assets, the elimination of certain tax liabilities, and a write down
of any impaired utility plant balances. We expect IPL to meet the criteria for
the application of SFAS No. 71 for the foreseeable future.

Fuel

In 2002, approximately 99% of the total kWh produced by IPL was generated
from coal. Natural gas and No. 2 fuel oil combined to provide the remaining kWh
generation. Natural gas is used in IPL's newer combustion turbines. Fuel oil is
used for start up and flame stabilization in coal-fired generating units, as
primary fuel in oil-fired steam turbine generating units and three older
combustion turbines, and as an alternate fuel in two newer combustion
turbines.

IPL's long-term coal contracts provide for approximately 70% of its
requirements through the year 2005 and approximately 60% through 2009. The long-
term coal agreements are with four suppliers. All of our coal is currently mined
in the state of Indiana. Approximately 50% of our coal is from one supplier. IPL
has entered into three contracts with this supplier for the provision of coal
from three separate mines. It is presently believed that all coal used by IPL
will be mined by others. IPL normally carries fuel oil and a 30-60 day system
supply of coal to offset unforeseen occurrences such as equipment breakdowns and
transportation or mine delays.

Statistical Information on Electric Operations

The following table of statistical information presents additional data
on our electric operations:

`Year Ended December 31,
                                   -------------------------------------------------
                                     2002      2001      2000      1999      1998
                                   --------- --------- --------- --------- ---------
Operating Revenues (In Thousands):
Residential                        $292,855  $289,779  $285,000  $282,254  $269,351
Small industrial and commercial     130,642   127,863   130,482   127,027   122,082
Large industrial and commercial     335,436   334,387   337,725   328,903   321,103
Public lighting                      10,926    10,415    10,249    10,386     9,754
Miscellaneous                        10,389    10,091    11,153    10,600    12,469
                                   --------- --------- --------- --------- ---------
   Revenues - ultimate consumers    780,248   772,535   774,609   759,170   734,759
Wholesale - REMC                      1,402     1,367     1,222     1,035       936
Wholesale - other                    36,317    54,144    55,124    40,132    50,140
                                   --------- --------- --------- --------- ---------
   Total electric revenues         $817,967  $828,046  $830,955  $800,337  $785,835
                                   ========= ========= ========= ========= =========
Kilowatt hour Sales (In Millions):
Residential                           4,939     4,717     4,614     4,510     4,359
Small industrial and commercial       2,018     1,955     1,990     1,928     1,888
Large industrial and commercial       7,417     7,337     7,432     7,187     7,138
Public lighting                          72        72        71        73        71
                                   --------- --------- --------- --------- ---------
   Sales - ultimate consumers        14,446    14,081    14,107    13,698    13,456
Wholesale - REMC                         47        46        42        33        31
Wholesale - other                     1,691     2,129     2,272     1,968     2,252
                                   --------- --------- --------- --------- ---------
   Total kilowatt hours sold         16,184    16,256    16,421    15,699    15,739
                                   ========= ========= ========= ========= =========
Customers at End of Period:
Residential                         400,130   394,793   391,086   385,799   379,943
Small industrial and commercial      44,428    43,767    43,078    42,610    42,230
Large industrial and commercial       4,337     4,283     4,195     4,107     4,036
Public lighting                         655       622       574       509       445
                                   --------- --------- --------- --------- ---------
   Total ultimate consumers         449,550   443,465   438,933   433,025   426,654
Wholesale - REMC                          1         1         1         1         1
                                   --------- --------- --------- --------- ---------
   Total electric customers         449,551   443,466  $438,934   433,026   426,655
                                   ========= ========= ========= ========= =========`

Environmental Matters

We 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. A 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 compliance with such laws,
regulations and permits.

Under certain environmental laws, we could be held responsible for all of the
costs relating to any contamination at our or our predecessors' past or present
facilities and at third party waste disposal sites. We could also be held liable
for any and all consequences arising out of human exposure to such contamination
or other hazardous substances or for other environmental damage. We cannot
assure you that our costs of complying with current and future environmental and
health and safety laws, and our liabilities arising from past or future releases
of, or exposure to, hazardous substances will not adversely affect our business,
results of operations or financial condition.

In late 1990, Congress passed the Clean Air Act Amendments of 1990, which
affect both new and existing facilities. The Clean Air Act and many state laws
require significant reductions in sulfur dioxide, particulate matter, and
nitrogen oxide (NOx) emissions that result from burning fossil fuels.
The following is a discussion of specific areas that affect our business,
primarily under or related to the Clean Air Act.

NOx SIP Call

On October 27, 1998, U.S. Environmental Protection Agency, or the EPA,
issued a final rule, referred to as the NOx SIP call, calling for
Indiana, along with 21 other states in the eastern third of the United States
and the District of Columbia, to impose more stringent limits on nitrogen oxides
(NOx) emissions from fossil fuel-fired steam electric generators,
including those operated by IPL. IPL lodged a challenge to the NOx
SIP call, which was rejected by the Court of Appeals for the District of
Columbia Circuit in 2002.

The EPA's NOx SIP call requires operators of coal-fired electric
utility boilers in the affected states and the District of Columbia to limit
NOx emissions to 0.15 pounds per million BTUs of heat input as a
system-wide average during the annual ozone season, which extends from the
beginning of May through the end of September of each year. That limit calls for
a reduction of about 85% from 1990 average emissions from coal-fired electric
utility boilers, and a reduction during the ozone season of about 57% from our
current emissions. In 2001, the Indiana Air Pollution Control Board adopted
rules requiring fossil fuel-fired electric generating units, including IPL's, to
adhere to those restrictions defined in the EPA's NOx SIP call by May
2004.

On November 14, 2002, the IURC issued a Certificate of Public Convenience and
Necessity for the construction and use of clean coal technology (CCT) to allow
IPL to meet the NOx emission limits imposed pursuant to EPA's
NOx SIP Call. The IURC approved the use of qualified pollution
control property as defined in I.C. 8-1-2-6.6 and ratemaking treatment through
an Environmental Compliance Cost Recovery Adjustment. The ratemaking treatment
provided for in the IURC order includes a return on the investment in IPL's
planned CCT projects under construction. After the projects have been placed in
service, the approved ratemaking treatment provides for a return on the
investment and recovery of the depreciation expense associated with these
projects, as well as the recovery of operating and maintenance costs associated
with these projects.

Our current estimates are that the NOx SIP call will necessitate
additional capital expenditures of approximately $227 million during 2003-2005
to achieve substantially all of the required NOx emissions
reductions, which could be reduced by purchasing some of the required
NOx emission allowances in the market, subject to IURC
approval.

National Ambient Air Quality Standards

On July 16, 1997, the EPA promulgated final rules tightening the National
Ambient Air Quality Standards for ozone and creating new fine particulate matter
standards. In May 1999, the EPA issued its final guidelines for the revised
ground-level ozone and particulate matter, which further delineated the so-
called "non-attainment regions" and other non-attainment
classifications. In February 2001, the United States Supreme Court upheld the
ozone and particulate matter standards, but held that the EPA's policy of
implementing the new ozone standard in non-attainment areas was unlawful. If the
EPA develops an interpretation of this standard with respect to non-attainment
regions that is consistent with the Supreme Court's decision, our plants may be
faced with further emission reduction requirements that could necessitate the
installation of additional control technology, increased capital expenditures
and related operating costs.

Section 126 Petitions

In February 1998, eight northeastern states filed petitions seeking the
EPA's assistance in reducing ozone in the eastern U.S. under Section 126 of the
Clean Air Act. The EPA believes that Section 126 petitions allow a state to
claim that sources in another state are contributing to its air quality problem
and request the EPA to require the upwind sources to reduce their emissions. In
December 1999, the EPA granted four Section 126 petitions relating to
NOx emissions. On May 15, 2001, the U.S. Appeals Court for the
District of Columbia Circuit upheld the EPA rule requiring some power plants in
the Midwest to reduce nitrogen oxide emissions. This ruling does not currently
affect our Indiana fossil fuel-fired plants. However, we cannot assure you that
our plants will not be affected by these Section 126 petitions in the
future.

New Source Review

The EPA has commenced an investigation of the fossil fuel-fired electric
power generation industry to determine compliance with environmental
requirements under the Clean Air Act associated with repairs, maintenance,
modifications and operational changes made to facilities over the years. The
EPA's focus is on whether the changes were subject to new source review or new
source performance standards, and whether best available control technology was
or should have been installed. The EPA has required us to provide extensive
information regarding our maintenance modification and operational activities
over the last quarter century. In late 2000, we sent the EPA the last batch of
information responding to its request under the Clean Air Act and since then, we
have received no further communication from the EPA.

Regional Haze

The EPA published the final regional haze rule on July 1, 1999. This rule
established planning and emission reduction timelines for states to use to
improve visibility in national parks throughout the U.S. On June 22, 2001, the
EPA signed a proposed rule to guide states in implementing the 1999 rule and in
controlling power plant emissions that cause regional haze problems. The
proposed rule set guidelines for states in setting best available retrofit
technology, or BART, at older power plants. The ultimate effect of the new
regional haze rule could be requirements for (1) newer and cleaner technologies
and additional controls on conventional particulates, and (2) reductions in
SO2, NOx and particulate matter emissions from utility
sources. If the proposed rules are finalized and utility emissions reductions
are required, the compliance cost could be significant. At this time, we cannot,
however, estimate the costs to comply with the final regional haze
rule.

Global Warming

The U.S. and other countries have signed the Kyoto Protocol to the United
Nations Framework Convention on Climate Change, which, if ratified, would
require the U.S. and other countries to make substantial reductions in
"greenhouse gas" emissions. While it seems unlikely the Kyoto Protocol
will be ratified by the U.S. under the Bush Administration, global warming
remains a policy issue that is regularly considered for possible government
regulation and if legislation requiring reductions in greenhouse gases is
adopted, such legislation could substantially affect both the costs and the
operating characteristics of our fossil fuel-fired plants.

Mercury

In December 2000, the EPA announced it would adopt rules to regulate
mercury emission from coal-fired power plants. These regulations are expected to
be proposed by December 2003, with final regulations by December 2004 and
reductions required by 2010. Once these final regulations are issued, the use of
"maximum available control technology," or MACT, i.e. the process that
produces the greatest emissions reductions, regardless of economic, chemical and
physical constraints, may be required to control these emissions. We cannot
predict the outcome or effects of the EPA's determination and any subsequent
regulation.

Cooling Water Intake

In April 2002, the U.S. EPA issued proposed rules governing existing
facilities that have cooling water intake structures. Final rules are
anticipated in February 2004. The impact of the final rules cannot be determined
at this time.

Summary

In summary, environmental laws and regulations presently require
substantial capital expenditures and operating costs. Our capital expenditures
relating to environmental matters were approximately $9.1 million in 2002,
substantially all of which related to the NOx SIP call. We currently
estimate capital expenditures related to the NOx SIP call of
approximately $227 million during 2003-2005, which could be reduced by
purchasing some of the required NOx emission allowances in the
market, subject to IURC approval. Other capital expenditures related to
environmental matters in the near future are not expected to be material. In
addition, environmental laws are complex, change frequently and have tended to
become stringent over time. As a result, our operating expenses and continuing
capital expenditures may increase. More stringent standards may also limit our
operating flexibility. Because other electric power plants will have similar
restrictions, we believe that compliance with more stringent environmental laws
and regulations is not likely to affect our competitive position. However,
depending upon the level of recovery allowed by the IURC, these costs could
adversely affect our financial condition, liquidity and results of
operations.

Competition and Industry Changes

In recent years, various forms of proposed industry-restructuring
legislation and/or rulemakings have been introduced at the federal level and in
several states. Generally, the intent of these initiatives is to encourage an
increase in competition within the regulated electric utility industry. While
federal rulemaking to date has addressed only the electric wholesale market,
various state legislatures are considering or have enacted new laws impacting
the retail energy markets within their respective states.

At times, IPL will purchase power on the wholesale markets, and at other
times IPL will have electric generation capacity available for sale on the
wholesale market in competition with other utilities and power generators. IPL's
ability to compete in the wholesale market for the sale of its excess generation
is dependent on the price, terms and conditions of the sale.

In 2002, the utility industry, and as a consequence, the wholesale markets,
experienced significant change and uncertainty. The industry was faced with the
instability of the California electricity markets, the bankruptcy of Enron
Corp., historically an influential energy trader, and a generally sluggish
economy. Another factor contributing to the uncertainty was the downgrading of
utility company credit by the rating agencies, which influences credit issues on
the wholesale market, and also limits access to the capital markets. In the
Midwest, another factor contributing to the changes in the wholesale market was
the increase in the supply of electricity on the wholesale market. IPL saw an
almost 15% decrease in the average price per kWh and a 20% decrease in wholesale
kWh sales.

Employees

As of December 31, 2002, IPL had 1,298 employees of whom 1,267 were full
time. Of these employees, 923 were represented by the International Brotherhood
of Electrical Workers, AFL-CIO, or IBEW in two bargaining units: a physical unit
and a clerical-technical unit. In November 2002, the membership of the IBEW
physical unit ratified a labor agreement that remains in effect until December
19, 2005. The agreement provides for a 3.0% general pay increase effective in
each of November 2002, December 2003, and December 2004; increased pension
benefits and other changes. The membership of the clerical-technical unit has a
labor agreement extending through February 23, 2004 which provides for a general
pay increase of 2% in February 2003. As of December 31, 2002, neither IPALCO,
nor any of its subsidiaries other than IPL had any employees.

Item 2. Properties

Our executive offices are located at One Monument Circle, Indianapolis,
Indiana. This facility and the remainder of our material properties in our
business and operations are owned directly by IPL. The following is a
description of these material properties.

IPL owns two distribution service centers in Indianapolis at 1230 West Morris
Street and 3600 North Arlington Avenue. IPL also owns the building in
Indianapolis which houses its customer service center located at 2102 North
Illinois Street.

IPL owns and operates two primarily coal-fired generating plants, one
combination coal and gas-fired plant and a separate combustion turbine facility
which are used for electric generation. For electric generation, the net winter
capability is 3,342 MW and net summer capability is 3,224 MW. IPL set new summer
peak and winter peak load records of 3,003 MW and 2,653 MW in July 2002 and
January 2003, respectively.

IPL's sources of electric generation are as follows:

Eagle Valley Plant, located 25 miles southwest of Indianapolis (seven
units in service3⁄4
one each in 1949, 1950, 1951, 1956 and 1967 and two in 1953) with net winter and
summer capabilities of 344 MW and 341 MW, respectively;

Harding Street Station, located in the southwest part of Marion County
(twelve units in service3⁄4
one each in 1941, 1947, 1958, 1961, 1967, 1994, 1995 and 2002 and four in 1973)
with net winter and summer capabilities of 1,196 MW and 1,102 MW,
respectively;

Petersburg Plant, located in Pike County, Indiana (seven units in
service3⁄4
four in 1967 and one each in 1969, 1977 and 1986) with 1,702 MW demonstrated net
capability and net winter and summer capabilities of 1,702 MW; and

Georgetown Combustion Turbine, located in Pike Township on the
northwest side of Indianapolis, Indiana (one unit in service3⁄4
May 2000) with net winter and summer capabilities of 100 MW and 79 MW,
respectively.

Net electrical generation during 2002, at the Petersburg, Harding Street and
Eagle Valley plants and the Georgetown combustion turbine accounted for
approximately 69.3%, 22.6%, 8.0% and 0.1%, respectively, of IPL's total net
generation.

Included in the above totals are three gas turbine units at the Harding
Street plant added in 1973, one gas turbine added in each of 1994, 1995 and 2002
with a combined nameplate rating of 374 MW. Also included is one diesel unit
each at Eagle Valley and Harding Street plants and three diesel units at
Petersburg station, all added in 1967. Each diesel unit has a nameplate rating
of 3 MW.

IPL's transmission system includes 457 circuit miles of 345,000 volt lines,
360 circuit miles of 138,000 volt lines and 269 miles of 34,500 volt lines.
Underground distribution and service facilities include 623 miles of conduit and
6,789 wire miles of conductor. Underground street lighting facilities include 94
miles of conduit and 2,053 wire miles of conductor. Also included in the system
are 75 bulk power substations and 85 distribution substations.

In addition, IPL owns approximately 4,067 acres of land in Morgan County,
Indiana for future plant sites, coal and other minerals underlying 798 acres in
Sullivan County, Indiana, and coal underlying approximately 6,215 acres in Pike
and Gibson Counties, Indiana. IPL also has an option to purchase 876 acres of
land in Switzerland County, Indiana.

All critical facilities owned by IPL are well maintained, in good condition
and meet the present needs of IPL.

Mortgage Financing on Properties

The mortgage and deed of trust of IPL, together with the supplemental
indentures thereto, secure first mortgage bonds issued by IPL. Pursuant to the
terms of the mortgage, substantially all property owned by IPL is subject to a
$562.7 million direct first mortgage lien. In addition, IPALCO has $750 million
principal amount of indebtedness outstanding, which is secured by its pledge of
all of the outstanding common stock of IPL.

Item 3. Legal Proceedings

Please refer to Note 14 of the attached audited financial statements for
a summary of significant legal proceedings involving IPALCO and/or IPL. We are
also subject to routine litigation, claims and administrative proceedings
arising in the ordinary course of business, none of which is expected to have a
material adverse effect on our financial position or results of operations.

Item 4. Submission of Matters to a Vote of Security Holders

Not applicable pursuant to General Instruction I of the Form 10-K.



Part II



Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters

All of the outstanding common stock of IPALCO is owned by AES, and as a
result is not listed for trading on any stock exchange.

Dividends. During 2002 and 2001, we paid quarterly dividends to AES
totaling $180.5 million and $796.0 million, respectively. In addition to
distributions of operating income, the 2002 dividends included income tax
refunds of $53.7 million and the 2001 dividends included $663 million of the net
proceeds from the issuance of the IPALCO Notes (See Item 7). Also during 2001,
we paid $29.0 million of common stock dividends to our shareholders prior to our
acquisition by AES. Future distributions will be determined in the discretion of
the Board of Directors of IPALCO and will depend primarily on dividends received
from IPL and such other factors as the Board of Directors of IPALCO deems
relevant. Please refer to the Liquidity and Capital Resources section of
Item 7 of this report for a discussion of limitations on dividends from IPL.
IPALCO must be in compliance with leverage and interest coverage ratios
contained in the Indenture for the IPALCO Notes prior to paying any dividends to
AES. We do not believe this requirement will be a limiting factor in paying
dividends in the ordinary course of prudent business operations.



---

Item 6. Selected Financial Data



The following table presents our selected consolidated financial data, which
should be read in conjunction with our audited consolidated financial statements
and the related notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations." Other data management
believes is important in understanding trends in IPALCO's business is also
included in this table.

`Year Ended December 31,
                                   -------------------------------------------------------
                                      2002 (3)   2001 (3)   2000 (3)   1999 (3)   1998 (3)
                                   -------------------------------------------------------
                                                     (IN THOUSANDS)
Operating Data:
Total utility operating revenues     $817,967   $828,046   $858,535   $834,652   $821,256
Termination benefit agreement costs        --    (74,765)        --         --         --
Voluntary early retirement program         --    (23,751)   (62,007)        --         --
Utility operating income              200,586    130,641    136,223    183,501    179,511
Allowance for funds used during con     5,738      1,974      3,034      2,201      2,300
Income before extraordinary loss      124,946     77,947    158,842    128,947    130,119
Extraordinary loss on early retirem        --         --     (4,259)        --         --
Net income                            124,946     77,947    154,583    128,947    130,119

Balance Sheet Data (end of period):
Utility plant - net                 1,688,890  1,665,717  1,647,834  1,750,412  1,748,460
Total assets                        2,020,915  2,012,716  1,983,276  2,315,837  2,118,945
Common shareholder's equity (defici   (92,449)     4,229    730,148    677,746    574,191
Cumulative preferred stock of subsi    59,135     59,135     59,135     59,135     59,135
Long term debt (less current
  maturities and sinking fund
  requirements)                     1,372,006  1,371,930    621,863    870,050    907,974
Other Data:
Utility construction expenditures      94,709    126,517     75,712    103,452     79,458
Nonutility construction expenditure       107         --        438        295        975`

(1) Termination benefits represents costs related to the termination of
certain employees as a result of our acquisition by AES. The pretax expenses
included $59.4 million related to termination benefit agreements and severance,
$9.2 million in supplemental retirement costs and $6.2 million in restricted
stock expense.

(2) Voluntary Early Retirement Program (VERP) benefit costs for 2000 represented
$56.8 million pre-tax non-cash pension and $5.2 million other post-retirement
benefit costs. In 2001 we recognized $19.2 million in pre-tax non-cash pension
and $4.6 million other post-retirement benefit costs associated with the VERP
plans implemented in 2001.

(3) In November 2000, we sold our steam operations to Citizens Gas & Coke
Utility using a portion of the net proceeds to retire debt specifically
assignable to the assets sold. In connection with the retirement, we incurred
make-whole payments and wrote off debt issuance costs of $4.3 million, which was
recorded as an extraordinary loss on early retirement of debt.

Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with
our audited financial statements and the notes thereto included in Item 8 of
this Annual Report on Form 10-K. The following discussion contains forward-
looking statements. Our actual results may differ materially from the results
suggested by these forward-looking statements. Please see "Cautionary
Note Regarding Forward-Looking Statements" at the beginning of this
document.

Overview

IPALCO Enterprises, Inc. (IPALCO) is a holding company incorporated under
the laws of the state of Indiana. Our principal subsidiary, Indianapolis Power
& Light Company (IPL), is engaged primarily in generating, transmitting,
distributing and selling electric energy to approximately 450,000 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 retail electric service to those customers. Until November 2000, IPL
also produced, distributed and sold steam within a limited area in Indianapolis.
IPL owns and operates two primarily coal-fired generating plants, one
combination coal and gas-fired plant and a separately-sited combustion turbine
facility that are used for electric generation. IPL's net electric generation
capability for winter is 3,342 megawatts and net summer capability is 3,224
megawatts.

Our other direct subsidiary is Mid-America Capital Resources, Inc. (Mid-
America). Mid-America is the holding company for our unregulated activities. As
of December 31, 2002, Mid-America owned a 6.6% interest in EnerTech Capital
Partners II L.P. (EnerTech), a venture capital fund that invests in service and
technology companies providing products and services that take advantage of
opportunities created by deregulation of the energy and telecommunications
industries. Our regulated business is conducted through IPL. We have
historically had two business segments: electric and "all other." Our
steam distribution system and our chilled water cooling and distribution assets
were in the "all other" segment prior to being sold effective November
20, 2000. The operations of our Cleveland Energy Resources subsidiary (CER) were
in the "all other" segment prior to being sold effective May 21, 2001.
Since these sales, substantially all of our business consists of the generation,
transmission, distribution and sale of electric energy conducted through
IPL.

Acquisition by AES

The AES Corporation, a Delaware corporation (AES) acquired IPALCO in a
stock-for-stock transaction on March 27, 2001 (the AES Acquisition). At the
effective time of the share exchange, each of the outstanding 89,685,177 shares
of IPALCO common stock was converted into the right to receive 0.463 shares of
AES common stock, for an aggregated purchase price of $2.15 billion and $890
million in assumed debt and preferred stock. Following the share exchange, AES
owns all of our outstanding common stock. IPALCO's common stock is pledged under
AES' Amended and Restated Credit and Reimbursement Agreement dated as of Dec 12,
2002 as well as AES' Collateral Trust Agreement dated as of Dec 12, 2002.
Treasury stock of $500.6 million was cancelled as a result of the acquisition.
Accordingly, the common stock balance was reduced by $459.8 million and the
remaining $40.8 million was applied against retained earnings.

During the years ended December 31, 2001 and 2000, we expensed $6.3 million
and $5.8 million of merger related costs, respectively. Total merger related
costs were $12.1 million. As a result of our acquisition by AES, we recorded
$74.8 million, or $46.4 million after tax, of costs related to the termination
of certain employees. The pretax expenses included $59.4 million in costs
associated with termination benefit agreements and severance, $9.2 million in
supplemental retirement costs, and $6.2 million in restricted stock
expense.

Voluntary Early Retirement Program

On November 9, 2000, we implemented a Voluntary Early Retirement Program
(VERP I). This program offered enhanced retirement benefits upon early
retirement to eligible employees. The program was available to all employees,
except officers, whose combined age and years of service totaled at least 75 on
July 1, 2001. Participation was limited to, and subsequently accepted by, 400
qualified employees. Participants elected actual retirement dates in 2001.
Additionally, we currently intend to provide post-retirement medical and life
insurance benefits to VERP I retirees until age 55 at which time they will be
eligible to receive similar benefits from the independent Voluntary Employee
Beneficiary Association (VEBA) trustee. We reserve the right to modify or
terminate post-retirement health care and life insurance benefits being provided
by IPL. We recognized a $56.8 million pre-tax non-cash pension charge and a $5.2
million charge for other post-retirement benefit costs of the program in
December 2000.

On June 1, 2001, we implemented a second Voluntary Early Retirement Program
(VERP II) to 225 individuals, offering substantially the same retirement
enhancements as described in the prior paragraph. Upon expiration of the
revocation period on July 23, 2001, the offer under this program was accepted by
142 individuals, who will take retirement dates between August 1, 2001, and
August 1, 2004. We recognized $17.2 million in pre-tax non-cash pension and $2.6
million in other post-retirement benefit costs associated with this program in
2001.

On September 14, 2001, we implemented a third Voluntary Early Retirement
Program (VERP III) limited to personnel at our Petersburg Generating Station,
offering substantially the same retirement enhancements as described in the
prior paragraphs, except that the eligibility was based upon a combined age and
years of service of 72 as of December 31, 2001. Upon expiration of the
revocation period on October 31, 2001, the offer under this program was accepted
by nine employees, who will take retirement dates as agreed upon between IPL and
the employees. We recognized $2.0 million in pre-tax non-cash pension costs and
$2.0 million in other post-retirement benefit costs associated with this program
in 2001.

On December 23, 2002, we executed an agreement with the administrator of the
independent Voluntary Employee Beneficiary Association Trust (VEBA Trust) to
provide post-retirement medical and life insurance benefits to VERP II and VERP
III participants from age 55 until age 62, subject to our right to modify or
terminate such benefits in the future. The additional cost is estimated to be
$7.5 million to be amortized over 8 years. When those retirees reach age 62,
they will be eligible for benefits from the VEBA Trust.

Pension Plan

Pension plan assets consist of investments in equity and fixed income
securities. Funding for the qualified defined benefit pension plan is based upon
actuarially determined contributions that take into account the amount
deductible for income tax purposes and the minimum contribution required under
the Employee Retirement Income Security Act of 1974, as amended. Due to the
decline in market value of the investment portfolio over the last few years,
assets held in trust to satisfy plan obligations have decreased. Additionally,
recent decreases in long-term interest rates have the effect of increasing the
measured liability for funding purposes. As a result of these events, together
with the Voluntary Early Retirement Programs discussed above, future funding
obligations could increase substantially.

Total pension program-related cash contributions were $15.2 million and $11.6
million for 2002 and 2001, respectively. In addition, we funded $20 million to
the pension plan in January of 2003. We anticipate additional program-related
cash contributions for pension benefits of approximately $149 million over the
three year period of 2003 thru 2005. These estimates are based on actuarial
assumptions using a 6.75% discount rate. This discount rate is based on the
four-year weighted average of 30-year treasury rates.

Critical Accounting Policies

General

We prepare our consolidated financial statements in accordance with
accounting principles generally accepted in the United States of America. As
such, we are required to make certain estimates, judgments and assumptions that
we believe are reasonable based upon the information available. These estimates
and assumptions affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the period presented. The significant accounting policies which
we believe are most critical to understanding and evaluating our reported
financial results include the following: Regulation, Regulatory Assets,
Revenues, Authorized Annual Operating Income, Income Taxes Pensions and
Contingencies.

Regulation:  The retail utility operations of IPL are subject to the
jurisdiction of the Indiana Utility Regulatory Commission (IURC). IPL's
wholesale power transactions are subject to the jurisdiction of the Federal
Energy Regulatory Commission (FERC). These agencies regulate IPL's utility
business operations, tariffs, accounting, depreciation allowances, services,
security issues and the sale and acquisition of utility properties. The
financial statements of IPL are based on accounting principles generally
accepted in the United States of America, including the provisions of Statement
of Financial Accounting Standards No. 71, "Accounting for the Effects of
Certain Types of Regulation," which gives recognition to the ratemaking and
accounting practices of these agencies.

Regulatory Assets:  Regulatory assets represent deferred costs that
have been included as allowable costs for ratemaking purposes. IPL has recorded
regulatory assets relating to certain costs as authorized by the IURC. Specific
regulatory assets are disclosed in Note 6. IPL is amortizing such nontax-related
regulatory assets to expense over periods ranging from 1 to 30 years. Tax-
related regulatory assets represent the net income tax costs to be considered in
future regulatory proceedings generally as the tax-related amounts are paid.

In accordance with regulatory treatment, IPL deferred as a regulatory asset
certain post in-service date carrying charges and certain other costs related to
its investment in Unit 4 at the Petersburg Plant. As authorized in the 1995
Electric Rate Settlement, IPL, effective September 1, 1995, is amortizing this
deferral to expense over a life that generally approximates the useful life of
the related facility. Also in accordance with regulatory treatment, IPL defers
as regulatory assets non-sinking fund debt and preferred stock redemption
premiums and expenses, and amortizes such costs over the life of the original
debt or, in the case of preferred stock redemption premiums, over 20 years.

Revenues:  Revenues related to the sale of energy are generally
recognized when service is rendered or energy is delivered to customers.
However, the determination of the energy sales to individual customers is based
on the reading of their meters, which occurs on a systematic basis through-out
the month. At the end of each month, amounts of energy delivered to customers
since the date of the last meter reading are estimated and the corresponding
unbilled revenue is estimated. This unbilled revenue is estimated each month
based on daily generation volumes, estimated customer usage by class, weather
factors, line losses and applicable customer rates based on regression analyses
reflecting significant historical trends and experience. Customer accounts
receivable include unbilled energy revenues of $32.6 million on a base of annual
revenue of $818.0 million.

A fuel adjustment charge provision, which is established after public
hearing, is applicable to most of the rate schedules of IPL and permits the
billing or crediting of estimated fuel costs above or below the levels included
in such rate schedules. Actual fuel costs in excess of or under estimated fuel
costs billed are deferred or accrued, respectively. Through the date of IPL's
next general electric rate order, IPL is required to file upward and downward
adjustments in fuel cost credits and charges on a quarterly basis, based on
changes in the cost of fuel.

Authorized Annual Operating Income:  Indiana law requires electric
utilities under the jurisdiction of the IURC to meet operating expense and
income test requirements as a condition for approval of requested changes in
fuel adjustment charges. Additionally, customer refunds may result if the
utilities' rolling 12-month operating income, determined at quarterly
measurement dates, exceeds the utilities' authorized annual operating income and
cannot be offset by applicable cumulative net operating income deficiencies. In
such a circumstance, the required customer refund for the quarterly measurement
period is calculated to be one-fourth of the excess annual operating income
grossed up for federal and state taxes as required under I. C. 8-1-2-42.5. See
"Regulatory Matters" for additional information.

Income Taxes:  IPALCO follows a policy of comprehensive interperiod
income tax allocation. Investment tax credits related to utility property have
been deferred and are being amortized over the estimated useful lives of the
related property. IPALCO and its subsidiaries file consolidated federal and
state income tax returns with AES. Under a tax sharing agreement with AES,
IPALCO is responsible for the income taxes associated with its own taxable
income. Income taxes are allocated to the IPALCO subsidiaries based on their
respective taxable income or losses.

Pensions:  Substantially all of our employees are covered by a defined
benefit pension plan, defined contribution plans and a group benefits plan.

The Employees' Retirement Plan of Indianapolis Power & Light Company is a
defined benefit 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. Pension bands are based primarily on job duties and
responsibilities. Benefit accrual was frozen for all non-union participants
effective July 8, 2001. The non-union participants who had their benefit accrual
frozen also were prohibited from making additional contributions to the IPL
defined contribution plan (Thrift Plan). These non-union people became eligible
to participate in the AES defined contribution plan.

In the 4th quarter of 2002, the non-union people who had their defined
benefit pension frozen on July 8, 2001 were given a one-time, irrevocable choice
to either (1) continue as an active participant in the AES defined contribution
plan; or (2) return to the IPL defined benefit plan as an active participant,
and return to the Thrift Plan as an active participant.

Our funding policy for the defined benefit plan is to contribute annually not
less than the minimum required by applicable law, nor more than the maximum
amount that can be deducted for federal income tax purposes.

Additionally, a select group of former management employees of IPALCO and IPL
who have terminated vested benefits are covered under a funded supplemental
retirement plan. During 2000, we recognized a non-cash $6.7 million curtailment
loss for the supplemental retirement plan reflecting the expected near-term
retirement of certain plan participants. In conjunction with recording a minimum
pension liability of $3.5 million for this plan, we recorded an intangible asset
of $1.7 million. The net difference of $1.8 million was recorded as other
comprehensive loss.

The Thrift Plan is a defined contribution plan sponsored by IPL. Participants
elect to make contributions to the Thrift Plan based on a percentage of their
base compensation. Each participant's contribution is matched in amounts up to,
but not exceeding, 4% of the participant's base compensation. Employer
contributions to the Thrift Plan were $1.2 million, $2.2 million and $3.5
million for 2002, 2001 and 2000, respectively.

The AES Profit Sharing and Stock Ownership Plan is a defined contribution
plan sponsored by AES. Participants elect to make contributions to the AES
defined contribution plan based on a percentage of their taxable compensation.
Each participant's contribution is matched in amounts up to, but not exceeding,
5% of the participant's taxable compensation. In addition, the AES defined
contribution plan has a profit sharing component where AES contributes a
percentage of each employee's annual salary into the plan on a pre-tax basis.
The profit sharing percentage is determined by the AES Board on an annual basis.
Employer payroll-matching and profit sharing contributions (by IPL) relating to
the AES defined contribution plan were $3.4 million and $1.7 million for 2002
and 2001, respectively.

The group benefits plan is sponsored by IPL and provides certain health care
and life insurance benefits to active employees. Prior to October 20, 2000, the
plan also provided certain health care and life insurance benefits to employees
who retired from active service on or after attaining age 55 and had rendered at
least 10 years of service. The post-retirement benefit costs of this plan were
funded through the VEBA Trust. In the fourth quarter of 2000, IPL curtailed and
settled for $7.5 million the post-retirement medical and life insurance benefit
portion of its overall group benefits plan. On April 30, 2001, all assets of the
VEBA Trust and its obligations were formally spun-off to an independent trustee
into a newly formed plan, the Voluntary Employee Beneficiary Association Plan
(the "VEBA Plan") that provides post retirement medical and life
benefits to retirees who retired from IPL or IPALCO before October 20, 2000. In
addition, people who were employed by IPL or IPALCO on October 20, 2000, who
subsequently retire from IPL or IPALCO and who meet the retirement requirements
of age 55 or older and 10 or more years service are eligible for post-retirement
health care benefits under the VEBA Trust, except that, as described previously,
such people included in VERP II and VERP III will receive their post-retirement
medical benefits from IPL or IPALCO until age 62. The VEBA Plan is sponsored and
administered by an independent VEBA Committee.

Other benefit estimates were prepared using an expected rate of return on
plan assets of 9.0% for 2000. For measurement purposes, we assumed an annual
rate of increase in the per capita cost of covered medical care benefits of
10.0% for 2003, gradually declining to 5.5% in 2007 and remaining level
thereafter. In addition, we assumed an annual rate of increase in the per capita
cost of covered prescription drugs of 15.0% for 2003, gradually declining to
5.5% in 2012 and remaining level thereafter. The effect of a one percentage
point increase and decrease in the assumed health care cost trend rates on the
aggregate of the service and interest cost components of net periodic post
retirement health care benefit costs is $8,467 and $(8,287), respectively. The
effect of a one percentage point increase and decrease in the assumed health
care cost trend rates on the accumulated post retirement benefit obligation for
health care benefit costs is $597,057 and $(547,234), respectively. We assumed a
5.9% blended rate of increase in the per capita cost of covered health care
benefits (medical and prescription drugs) for 2000. The plan assets were spun-
off on October 20, 2000 to an independent trustee.

In November 2002, IPL and the International Brotherhood of Electrical Workers
(IBEW) union reached an agreement whereby IPL will provide post-retirement
health care benefits to all IBEW members who were employed by IPL after October
20, 2000. The plan was amended accordingly.

Contingencies:  We accrue for loss contingencies when the amount of
the loss is probable and estimable. We are subject to various environmental
regulations, and are involved in certain legal proceedings. If our actual
environmental and/or legal obligations are different from our estimates, the
recognition of the actual amounts may have a material impact on our operating
results and financial condition.



Results of Operations

The year ended December 31, 2002 as compared to the year ended December
31, 2001

Utility Operating Revenues

Utility operating revenues decreased in 2002 from the prior year by $10.1
million, which resulted from the following changes in electric operating
revenues (dollars in thousands):

`2001       2000               Percentage
Electric Operating Revenues   Revenues   Revenues    Change     Change
                             ---------- ---------- ---------- ----------
Retail Revenues               $769,859   $762,444     $7,415        1.0%
Wholesale Revenues              37,719     55,511    (17,792)     -32.1%
Miscellaneous Revenues          10,389     10,091        298        3.0%
                             ---------- ---------- ---------- ----------
Total Electric
 Operating Revenues           $817,967   $828,046   ($10,079)      -1.2%
                             ========== ========== ========== ==========`

The increase in retail revenues in 2002 was primarily due to a 2.6% increase
in retail kWh sales, partially offset by a $1.3 million decrease in 2002 from a
service quality credit IPL was required to refund to its customers (See
"Regulatory Matters-Stipulation and Settlement Agreement".) The
increase in kWh sales was primarily due to overall warmer summer temperatures
and colder winter temperatures in our service area, as evidenced by an
additional 356 cooling degree days and an additional 302 heating degree days in
2002. In addition, IPL increased its retail customer base by 6,085 customers or
1.4%. The decrease in wholesale revenues was primarily due to a 20.1% decrease
in wholesale kWh sales and a 14.9% decrease in the average price per kWh sold.
The decrease in the average wholesale price per kWh sold is due primarily to a
sluggish economy, and an increase in the supply of electricity, as many of the
producers of electricity have increased their production capacity. IPL reduced
its electricity generation due to the reduction in wholesale electricity
prices.

Utility Operating Expenses

Utility operating expenses decreased $80.0 million, or 11.5% during 2002
as compared to 2001. This decrease was primarily the result of $54.5 million of
termination benefit agreement costs in 2001 in connection with the AES
Acquisition; a charge of $23.8 million taken in the third quarter of 2001
relating to two additional VERP's offered in connection with the AES
Acquisition; a $27.2 million decrease in other operating expenses; a $15.7
million decrease in maintenance expenses; and a $9.4 million decrease in fuel
costs, partially offset by a $47.4 million increase in income taxes-net
resulting from an increase in pretax operating income. The decrease in other
operating expenses includes $11.2 million of supplemental retirement expense
incurred in 2001, $6.2 million of restricted stock paid in 2001 and an $8.0
million decrease in power generation operating expenses. The $8.0 million
decrease in power generation operating expenses includes $4.0 million in 2001
for rents related to electricity generators, which were no longer needed after
IPL placed a new gas turbine in service in 2002 and a $4.6 million decrease in
expenses, primarily labor, related to the production of steam for electricity
generation. The decrease in fuel cost is primarily due to a steadier demand for
electricity in 2002, which allowed us to produce a greater proportion of
electricity from our low-cost, base-load, coal-fired units than from less
efficient peaking unit resources. This decrease is partially offset by a $1.1
million increase in power purchased. The maintenance expense decrease is
primarily the result of the timing of major generating unit overhauls.
Maintenance expenses are expected to increase in 2003 because of major
generating unit overhauls which are scheduled to coincide with the
NOx compliance construction program.

As a result of the foregoing, utility operating income increased $69.9
million or 53.5% during 2002 as compared to 2001.

Other Income and Deductions

Other income and deductions increased from income of $12 thousand in 2001
to income of $26.5 million in 2002. This was primarily a result of the
following: net income tax benefits increased by $8.8 million, primarily due to
an increase in interest expense from IPALCO's November 2001 issuance of $750
million of Senior Secured Notes (the IPALCO Notes); we expensed $6.3 million of
merger costs in 2001 related to the AES Acquisition; termination benefit
agreement costs of $4.7 million were recognized in 2001 associated with non-
utility officer termination costs as a result of the AES Acquisition; we
recognized gains of $4.4 million in 2002 related to the sales of noncore real
estate assets; and the allowance for equity funds used during construction
increased by $2.6 million, primarily due to a gas combustion turbine placed in
service in 2002 with a total installed cost of approximately $63 million. At
December 31, 2001 the turbine was included in Other investments and is now
included in Utility plant in service on IPALCO's consolidated balance sheets.
Included in Other-net in 2002 is our $2.2 million share of losses in EnerTech.
In 2001, Other-net includes a $1.8 million impairment provision on the carrying
amounts of the CER assets.

Interest and Other Charges

Interest and other charges increased $49.4 million in 2002 as compared to
2001. This increase was primarily the result of a $49.8 million increase in
interest and a $0.5 million increase in debt cost amortization from the November
2001 issuance of the IPALCO Notes. These increases were partially offset by a
$1.2 million increase in the allowance for borrowed funds used during
construction, which was primarily due to the gas combustion turbine placed in
service in 2002, as described above, and a $1.0 million decrease in other
interest resulting from the December 2001 termination of our commercial paper
program.

The year ended December 31, 2001 as compared to the year ended December 31,
2000

Utility Operating Revenues

Utility operating revenues decreased in 2001 from the prior year by $30.5
million, which resulted from a $27.6 million decrease in steam operating
revenues and a $2.9 million decrease in electric operating revenues. The
decrease in steam revenues was a result of IPL's sale of thermal assets and
associated cessation of steam operations in 2000 (See Note 2 to the Consolidated
Financial Statements). The decrease in electric operating revenues was due to
the following (dollars in thousands):

`2001       2000               Percentage
Electric Operating Revenues   Revenues   Revenues    Change     Change
                             ---------- ---------- ---------- ----------
Retail Revenues               $762,444   $763,456    ($1,012)      -0.1%
Wholesale Revenues              55,511     56,347       (836)      -1.5%
Miscellaneous Revenues          10,091     11,153     (1,062)      -9.5%
                             ---------- ---------- ---------- ----------
Total Electric
 Operating Revenues           $828,046   $830,956    ($2,910)      -0.4%
                             ========== ========== ========== ==========`

The decrease in retail electric revenues in 2001 as compared to 2000 is
primarily the result of a decrease in total fuel costs billed to customers,
resulting primarily from decreases in both heating and cooling degree days and
the overall decreased market prices of oil and natural gas in the fall of 2001
as compared to the same time period in 2000 (See below). Wholesale sales
decreased as a result of softer wholesale markets and increased capacity reserve
margins in the Midwest. The decrease in miscellaneous revenues during 2001
primarily reflects decreased service revenues.

Utility Operating Expenses

Utility operating expenses decreased $24.9 million in 2001 as compared to
2000, primarily as a result of the following: Fuel expense decreased by $8.2
million due to decreases in both heating degree days (-9.6%) and cooling degree
days (-12.6%) and the overall decreased market prices of oil and natural gas in
the fall of 2001 as compared to the same time period in 2000. Other operating
expenses decreased $17.9 million during 2001 over 2000 due to a $21.1 million
reduction in administration and general office expenses, as a result of
decreases in personnel (net of the Voluntary Early Retirement Program and the
Termination Benefit Agreements) and a $5.3 million reduction in purchased steam
due to the sale of IPL's thermal assets, partially offset by a $6.5 million
increase in contract services as a result of decreases in personnel. Power
purchased increased by $3.7 million during 2001, primarily due to obligations
associated with our summer peak power contracts in place to limit market-risk
exposure and the corresponding mild summer. Maintenance expenses decreased $1.7
million during 2001, primarily due to the timing of generating unit overhauls
and outages. A charge of $23.8 million was taken in 2001 relating to two
additional Voluntary Early Retirement Programs taken in 2001. A charge of $54.5
million was taken in 2001 relating to the termination of certain employees. A
charge of $62.0 million was recorded in 2000 as a result of the Voluntary Early
Retirement Program offered to eligible employees. Taxes other than income taxes
decreased by $1.7 million in 2001 over 2000 primarily due to decreased
employment taxes associated with workforce reductions. Income taxes - net
decreased $9.8 million in 2001 over 2000, which coincides with the decrease in
pretax operating income.

As a result of the foregoing, utility operating income decreased $5.6
million or 4.1% during 2001 as compared to 2000.

Other Income and Deductions

Other income and deductions decreased from income of $78.9 million in
2000 to $12 thousand in 2001. This was primarily due to a gain of $102.3 million
on the sale of available-for-sale securities in 2000 (See Note 15 to the
Consolidated Financial Statements), a gain of $30.6 million on the sale of
certain thermal assets during 2000 (See Note 2 to the Consolidated Financial
Statements), termination benefit agreement costs of $4.7 million recognized in
2001 associated with non-utility officer termination costs as a result of the
AES Acquisition and a $0.7 million decrease in the allowance for equity funds
used during construction, which was primarily due to a decreased construction
base. This decrease was partially offset by a $59.2 million decrease in the
income tax provision due to charges in 2001 associated with one-time items
(merger costs, termination benefits, and VERP). Merger costs of $6.3 million and
$5.8 million were recognized in 2001 and 2000, respectively, related to the AES
Acquisition.

Interest and Other Charges

Interest and other charges decreased $3.6 million in 2001 as compared to
2000. This decrease was primarily the result of a $3.8 million decrease in
interest on long-term debt, partially offset by a $0.3 million decrease in the
allowance for borrowed funds used during construction, which was primarily due
to a decreased construction base. The reduction in interest on long-term debt
was primarily due to lower interest rates on our variable-rate debt, which was
reset to fixed-rate debt in August 2001.

Extraordinary Loss on Early Retirement of Debt - net of Taxes

During 2000, we recorded an extraordinary loss on the early
extinguishment of debt when Mid-America incurred make-whole payments and wrote
off debt issuance costs of $4.3 million, net of taxes, in connection with the
sale of certain thermal assets.

Liquidity and Capital Resources

General

As of December 31, 2002, IPALCO had cash and cash equivalents of $31.4
million. In addition, IPL has available borrowing capacity of $75 million under
its existing committed credit facilities. All long-term borrowings by IPL must
first be approved by the IURC. Also, IPL and IPALCO have restrictions on the
amount of new debt they may issue by contractual obligations of the parent
company, AES. Under such restrictions, IPL is allowed to fully draw the $75
million available on its credit facilities, refinance existing debt, issue the
$160 million of long term debt approved by the IURC (see below) and issue
certain other indebtedness. We believe that cash balances, cash flows from
operations and short-term borrowings will be adequate to meet anticipated cash
requirements in the near term.

On February 12, 2003, the IURC issued an Order approving IPL's 2003-2006
financing program, including, among other things, the issuance of up to $160
million of additional long-term debt to pay, in part, for IPL's construction
program during 2003-2005, and the refinancing of $80 million of long-term debt,
which matures in February 2004. In addition, the Order set forth a process
whereby IPL must file a report with the IURC, prior to declaring or paying a
dividend, that sets forth (1) the amount of any proposed dividend, (2) the
amount of dividends distributed during the prior twelve months, (3) an income
statement for the same twelve-month period, (4) the most recent balance sheet,
and (5) IPL's capitalization as of the close of the preceding month, as well as
a pro forma capitalization giving effect to the proposed dividend, with
sufficient detail to indicate the amount of unappropriated retained earnings. If
within twenty (20) calendar days the IURC does not initiate a proceeding to
further explore the implications of the proposed dividend, the proposed dividend
will be deemed approved. The Order stated that such process should continue in
effect during the term of the financing authority, which expires December 31,
2006.

On February 28, 2003, IPL filed a petition for reconsideration, or in the
alternative, for rehearing with the IURC. This petition seeks clarification of
certain provisions of the Order. In addition, the petition requests that the
IURC establish objective criteria in connection with the reporting process
related to IPL's long term debt capitalization ratio. Whether or not such
petition is successful, we have no reason to believe the IURC will prevent IPL
from paying future dividends in the ordinary course of prudent business
operations. On March 14, 2003, IPL filed a Notice of Appeal in the Indiana Court
of Appeals in order to preserve its rights to appeal the IURC Order, if such an
appeal is deemed appropriate.

We are a holding company, and accordingly substantially all of our cash is
generated by the operating activities of our subsidiaries, principally IPL. None
of our subsidiaries, including IPL, are obligated under or have guaranteed the
IPALCO Notes. Accordingly, our ability to make payments on the IPALCO Notes
depends on the ability of our subsidiaries to generate cash and distribute it to
us.

IPL's mortgage and deed of trust and its amended articles of incorporation
contain restrictions on IPL's ability to issue certain securities or pay cash
dividends to us. So long as any of the several series of bonds of IPL issued
under its mortgage remains outstanding, and subject to certain exceptions, IPL
is restricted in the declaration and payment of dividends, or other distribution
on shares of its capital stock of any class, or in the purchase or redemption of
such shares, to the aggregate of its net income, as defined in Section 47 of
such mortgage, after December 31, 1939. The amount which these mortgage
provisions would have permitted IPL to declare and pay as dividends at December
31, 2002, exceeded retained earnings at that date. In addition, pursuant to
IPL's articles, no dividends may be paid or accrued and no other distribution
may be made on IPL's common stock unless dividends on all outstanding shares of
IPL preferred stock have been paid or declared and set apart for payment.

IPL is also restricted in its ability to pay dividends under the terms of its
credit facilities if it is not in compliance with certain financial covenants.
These covenants require IPL to maintain a ratio of EBIT to interest expense not
in excess of 2.5 to 1, and a ratio of total debt to total capitalization not in
excess of .60 to 1, in order to pay dividends. As of December 31, 2002 and as of
the filing of this report, IPL and IPALCO were in compliance with all financial
covenants and no event of default existed.

IPL's amended articles of incorporation also require that, so long as any
shares of preferred stock are outstanding, the net income of IPL, as specified
therein, be at least one and one-half times the total interest on the funded
debt and the pro forma dividend requirements on the outstanding, and any
proposed, preferred stock before any additional preferred stock is issued. The
mortgage requires that net earnings as calculated thereunder be two and one-half
times the annual interest requirements before additional bonds can be
authenticated on the basis of property additions. As of December 31, 2002, the
requirements would not materially restrict IPL's ability to issue additional
preferred stock or first mortgage bonds.

Net cash provided by operating activities was $271.0 million, $191.9 million
and $186.9 million for the fiscal years ended December 31, 2002, 2001 and 2000,
respectively. Net cash provided by (used in) investing activities was $(87.2)
million, $(156.2) million and $205.2 million for the fiscal years ended December
31, 2002, 2001 and 2000, respectively. Net cash used in financing activities was
$181.3 million, $75.4 million and $347.4 million for the fiscal years ended
December 31, 2002, 2001 and 2000, respectively.

Our principal sources of funds in 2002 were net cash provided by operating
activities of $271.0 million and proceeds of approximately $9.9 million from the
sale of noncore assets. Net cash provided by operating activities is net of cash
paid for interest of $95.3 million. The principal uses of funds in 2002 included
$180.5 million in dividends to AES and construction expenditures of $94.7
million. We believe our future principal uses of net cash provided by operating
activities, net of required pension contributions, will be debt service, capital
expenditures and distributions to our parent, AES.

While we believe that our sources of liquidity will be adequate to meet our
needs, this belief is based on a number of material assumptions, including,
without limitation, assumptions about weather, economic conditions, credit
ratings, regulatory constraints and environmental pronouncements. If and to the
extent these assumptions prove to be inaccurate, our sources of liquidity may be
affected.

Our non-contingent contractual obligations as of December 31, 2002 are set
forth below:

`Payment due by period
                                                      (in millions)
                                  Less than    1 to 3     4 to 5     Over 5
                                   one year    years      years      years      Total
                                  ---------- ---------- ---------- ---------- ----------
Indebtedness (excluding interest)      $0.3      $80.0     $138.8   $1,153.9   $1,373.0
Purchase Obligations(1)                 5.8          -          -          -        5.8
Construction commitments               14.4          -          -          -       14.4
Operating /Capital Lease Payments       1.5        2.5        1.4        0.4        5.8
                                  ---------- ---------- ---------- ---------- ----------
Total                                 $22.0      $82.5     $140.2   $1,154.3   $1,399.0
                                  ========== ========== ========== ========== ==========`

(1)	Includes contracts for the purchase of electricity.

In addition, as of December 31, 2002, we had a contractual obligation to
invest additional capital of $9.6 million in EnerTech. In March 2003, we sold
1/3 of our existing ownership position in EnerTech, which reduced our commitment
to $6.4 million. We then funded $1.0 million of such commitment. Our remaining
funding commitment in EnerTech is $5.4 million.

Capital Expenditures

We spent approximately $94.7 million and $126.5 million on capital
expenditures in 2002 and 2001, respectively. Our construction program is
comprised of capital expenditures necessary for prudent utility operations and
compliance with environmental laws and regulations, along with, discretionary
investments designed to improve overall performance. IPL's construction program
for the three-year period 2003-2005 is currently estimated to cost approximately
$455 million. The estimated cost of the overall program by year is $160 million
in 2003, $175 million in 2004 and $120 million in 2005. It includes
approximately $130 million for additions, improvements and extensions to
transmission and distribution lines, substations, power factor and voltage
regulating equipment, generating plants, distribution transformers and street
lighting facilities. The construction program also includes approximately $94
million for power plant related projects, $4 million for energy and outage
management systems and $227 million for construction associated with new
environmental standards imposed by the U.S. Environmental Protection Agency
(EPA) relating to NOx emission reductions. The scope of the
construction program associated with NOx emission reductions could be
reduced by purchasing some of the required NOx emission allowances in
the market, subject to IURC approval.

On November 14, 2002, the IURC issued a Certificate of Public Convenience and
Necessity for the construction and use of clean coal technology (CCT) to allow
IPL to meet the NOx emission limits imposed pursuant to EPA's
NOx SIP Call. The IURC approved the use of qualified pollution
control property as defined in I.C. 8-1-2-6.6 and ratemaking treatment through
an Environmental Compliance Cost Recovery Adjustment. The ratemaking treatment
provided for in the IURC order includes a return on the investment in IPL's
planned CCT projects under construction. After the projects have been placed in
service, the approved ratemaking treatment provides for a return on the
investment and recovery of the depreciation expense associated with these
projects, as well as the recovery of operating and maintenance costs associated
with these projects.

Distributions

All of our outstanding common stock is held by AES. During 2002 and 2001,
we paid $180.5 million and $796.0 million, respectively, in dividends to AES. In
addition to distributions of operating income, the 2002 dividends included
income tax refunds of $53.7 million and the 2001 dividends included $663 million
of the net proceeds from the issuance of the IPALCO Notes. Also during 2001, we
paid $29.0 million of common stock dividends to our shareholders prior to our
acquisition by AES. Future distributions will be determined in the discretion of
the Board of Directors of IPALCO and will depend primarily on dividends received
from IPL, which are affected by IPL's actual results of operations, cash flows,
financial condition, capital requirements, regulatory considerations; and such
other factors as the Board of Directors of IPALCO deems relevant.

Credit Ratings

Our ability to borrow money and the interest rates at which we can borrow
money are both affected by our credit ratings. During 2002, certain of IPALCO
and IPL's credit ratings were downgraded as a result of downgrades in the
ratings of AES, which has weaker credit characteristics. As a result of such
downgrades, the interest rates on the IPALCO Notes were increased by 100 basis
points, effective November 15, 2002. In addition, certain other fees related to
IPL's credit lines have increased due to such downgrades. These downgrades did
not impact the interest rates on IPL's existing long-term debt. Any further
reductions in the credit ratings of AES, IPALCO or IPL would not impact the
interest rates on IPALCO or IPL's outstanding debt, but improvements in IPALCO's
credit ratings could reduce the interest rates on the IPALCO Notes.

The credit ratings of IPALCO and IPL at March 1, 2003 are as follows:

`Standard & Poors
                                 (S&P)          Moody's          Fitch
                            --------------- --------------- ---------------
IPALCO Senior Secured Notes       BB-            Baa1             BB
IPALCO Commercial Paper            -              P2               -
IPL Corporate Credit Rating       BB+            Baa1              -
IPL Senior Secured                BB+             A3             BBB-
IPL Senior Unsecured              BB-            Baa1             BB+
IPL Commercial Paper               -           P2/VMIG-2           -`

Off-Balance Sheet Arrangements

IPL formed IPL Funding Corporation (IPL Funding) in 1996 to purchase, on
a revolving basis, up to $50 million of the retail accounts receivable and
related collections of IPL in exchange for a note payable. IPL Funding is not
consolidated by IPL or IPALCO since it meets requirements set forth in Statement
of Financial Accounting Standards ("SFAS") No. 140, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities" to be
considered a qualified special-purpose entity. IPL Funding has entered into a
purchase facility with unrelated parties (the Purchasers) pursuant to which the
Purchasers agree to purchase from IPL Funding, on a revolving basis, up to $50
million of the receivables purchased from IPL. As of December 31, 2002, the
aggregate amount of receivables purchased pursuant to this facility was $50.0
million. The net cash flows between IPL and IPL Funding are limited to cash
payments made by IPL to IPL Funding for interest charges and processing fees.
These payments totaled approximately $1.1 million, $2.3 million and $3.5 million
for the years ended December 31, 2002, 2001 and 2000, respectively. IPL retains
servicing responsibilities through its role as a collection agent for the
amounts due on the purchased receivables. IPL and IPL Funding provide certain
indemnities to the Purchasers, including indemnification in the event that there
is a breach of representations and warranties made with respect to the purchased
receivables. IPL Funding and IPL each have agreed to indemnify the Purchasers on
an after-tax basis for any and all damages, losses, claims, liabilities,
penalties, taxes, costs and expenses at any time imposed on or incurred by the
indemnified parties arising out of or otherwise relating to the sale agreement,
subject to certain limitations as defined in the agreements. The transfers of
receivables to IPL Funding are recorded as sales however no gain or loss is
recorded on the sale.

Under the receivables sale agreement, if IPL fails to maintain certain
financial covenants regarding interest coverage and debt-to-capital ratios, it
would constitute a "termination event." IPL is in compliance with such
covenants.

As a result of IPL's current credit rating, the facility agent has the
ability to (i) replace IPL as the collection agent; and (ii) declare a
"lock-box" event. Under a lock-box event or a termination event, the
facility agent has the ability to require all proceeds of purchased receivables
of IPL to be directed to lock-box accounts within 45 days of notifying IPL. A
termination event would also (i) give the facility agent the option to take
control of the lock-box account, and (ii) give the Purchasers the option to
discontinue the purchase of new receivables and cause all proceeds of the
purchased receivables to be used to reduce the Purchaser's investment and to pay
other amounts owed to the Purchasers and the facility agent. This would have the
effect of reducing the operating capital available to IPL by the aggregate
amount of such purchased receivables (currently $50 million.)

Regulatory Matters

IPL is a regulated public utility and is principally engaged in providing
electric service to the Indianapolis metropolitan area. As a regulated entity,
IPL is required to use certain accounting methods prescribed by regulatory
bodies which may differ from accounting methods required to be used by
nonregulated entities.

IPL is subject to extensive regulation at both the federal and state level.
IPL is substantially affected by the regulatory jurisdiction of the EPA and the
FERC at the federal level; and the Indiana Department of Environmental
Management and the IURC at the state level. Other significant regulatory
agencies affecting IPL include, but are not limited to, the U.S. Department of
Labor and the Indiana Occupational Safety and Health Administration. The
regulatory power of the IURC over IPL is both comprehensive and typical of the
economic regulation generally imposed by state public utility commissions.

An inherent business risk facing any regulated public utility is that of
unexpected or adverse regulatory action. Regulatory discretion is reasonably
broad in Indiana, as elsewhere. Therefore, IPL attempts to work cooperatively
with regulators and those who participate in the regulatory process, while
remaining vigilant and steadfast in protecting IPL's legal rights in the
regulatory process. IPL takes an active role in addressing regulatory policy
issues in the current regulatory environment. Current federal initiatives
include FERC's proposed Standard Market Design for the wholesale energy markets.
Additionally, there is increased activity by environmental regulators.

Retail Ratemaking

IPL's tariffs for electric service to retail customers (basic rates and
charges) are set and approved by the IURC after public hearings. Such
proceedings, which have occurred at irregular intervals, involve IPL, the staff
of the IURC, the Office of the Indiana Utility Consumer Counselor, as well as
other interested consumer groups and customers. In Indiana, basic rates and
charges are determined after giving consideration, on a pro-forma basis, to all
allowable costs for ratemaking purposes including a fair return on the fair
value of the utility property used and useful in providing service to customers.
Once set, the basic rates and charges authorized do not assure the realization
of a fair return on the fair value of property. Pursuant to statute, the IURC is
to conduct a periodic review of the basic rates and charges of all utilities at
least once every four years. Other numerous factors including, but not limited
to, weather, inflation, customer growth and usage, the level of actual
maintenance and capital expenditures, fuel costs, generating unit availability
and purchased power costs and availability can affect the return realized.
During 1998, in an order resulting from an IPL initiated proceeding, the IURC
declined to exercise its jurisdiction in part over IPL customers who voluntarily
select service under IPL's Elect Plan (See Below). Substantially all other IPL
customers are served pursuant to retail tariffs that provide for the monthly
billing or crediting to customers of increases or decreases, respectively, in
the actual costs of fuel consumed from estimated fuel costs embedded in base
tariffs, subject to certain restrictions on the level of operating income.
Additionally, most such retail tariffs provide for billing of current costs
resulting from IPL's IURC-approved demand side management programs.

IPL is allowed to recover purchased power costs based on a benchmark for most
retail service. If the cost per kWh of power purchases is not greater than the
benchmark, then the purchased power costs should be considered net energy costs
that are presumed fuel costs included in purchased power. If the average cost
per kWh of power purchases is greater than the benchmark, then the costs are
recoverable only through demonstration of the reasonableness of those purchases
to the IURC.

NOx SIP Call

On November 14, 2002, the IURC issued a Certificate of Public Convenience
and Necessity for the construction and use of clean coal technology (CCT) to
allow IPL to meet the NOx emission limits imposed pursuant to EPA's
NOx SIP Call. The IURC approved the use of qualified pollution
control property as defined in I.C. 8-1-2-6.6 and ratemaking treatment through
an Environmental Compliance Cost Recovery Adjustment. The ratemaking treatment
provided for in the IURC order includes a return on the investment in IPL's
planned CCT projects under construction. After the projects have been placed in
service, the approved ratemaking treatment provides for a return on the
investment and recovery of the depreciation expense associated with these
projects, as well as the recovery of operating and maintenance costs associated
with these projects.

Elect Plan

In 1998, the IURC approved a plan that allows IPL to offer customers with
less than 2,000 kilowatts of demand an opportunity to choose from optional
payment or service plans. IPL's authority to offer these options will expire on
December 31, 2006 unless a subsequent plan is approved by the IURC.

Under the plan, eligible IPL customers may enter into written contracts
for:

Fixed Rate3⁄4
Pay a guaranteed fixed rate per unit of consumption for one or more years.

Green Power3⁄4
Purchase environmentally friendly or "green" power.

Additionally, residential customers may choose a "Sure Bill"
option, paying the same bill each month for 12 months, regardless of how much
electricity is used. Customers not choosing one of these options continue to
receive electric service under existing tariffs.

Authorized Annual Operating Income

Indiana law requires electric utilities under the jurisdiction of the
IURC to meet operating expense and income test requirements as a condition for
approval of requested changes in fuel adjustment charges. Additionally, customer
refunds may result if the utilities' rolling 12-month operating income,
determined at quarterly measurement dates, exceeds the utilities' authorized
annual operating income and cannot be offset by applicable cumulative net
operating income deficiencies. In such a circumstance, the required customer
refund for the quarterly measurement period is calculated to be one-fourth of
the excess annual operating income grossed up for federal and state taxes as
required under I. C. 8-1-2-42.5. IPL's authorized annual jurisdictional electric
net operating income, for purposes of quarterly operating income tests, is $163
million. This level will be maintained until changed by an IURC order. During
the four quarterly measurement dates in 2002, the Commission found that IPL's
rolling annual jurisdictional retail electric operating income was less than the
authorized annual operating income at January and April and was greater than the
authorized annual operating income by $5.6 million and $25.2 million at July and
October, respectively. However, because IPL has a cumulative net operating
deficiency, we were not required to make customer refunds. As of IPL's quarterly
measurement date on October 31, 2002, IPL had a cumulative net operating
deficiency of $655.3 million. The operating deficiency is calculated by summing
the quarterly measurement period annual results from the date of the last rate
order. Because of the deficiency, IPL can, for a period of time, earn above $163
million of electric jurisdictional retail net operating income without being
required to make customer refunds.

The IURC approved the use of qualified pollution control property (QPCP) as
defined in I.C. 8-1-2-6.6 and ratemaking treatment through an Environmental
Compliance Cost Recovery Adjustment that allows IPL to meet the NOx
emission limits imposed pursuant to EPA's NOx SIP Call. A return on
the investment in IPL's CCT investments is included in the ratemaking. IPL may
add the approved return on its CCT projects to its net operating income
authorized by the IURC in subsequent fuel adjustment charge proceedings. The
additional amount of return will be dependent on the cumulative amount of QPCP
investment that has been made at the time IPL files with the IURC for ratemaking
treatment on such QPCP investment. Such filings are made at an interval of no
more often than every 6 months.

Competition and Industry Changes

In recent years, various forms of proposed industry-restructuring
legislation and/or rulemakings have been introduced at the federal level and in
several states. Generally, the intent of these initiatives is to encourage an
increase in competition within the regulated electric utility industry. While
federal rulemaking to date has addressed only the electric wholesale market,
various state legislatures are considering or have enacted new laws impacting
the retail energy markets within their respective states. A discussion of the
legislative and regulatory initiatives most likely to affect IPL
follows:

Wholesale Energy Market

In April 1996, the Federal Energy Regulatory Commission, or FERC, issued
Order Nos. 888 and 889 concerning open access transmission service aimed at
promoting competition in the wholesale energy market. In January 2000, IPL filed
its open access transmission service tariff with FERC together with a request to
sell power at wholesale at market-based rates, which FERC accepted.

In December 1999, FERC issued Order No. 2000, which, among other things,
encourages the voluntary formation of regional transmission organizations,
commonly referred to as RTOs, entities created to operate, plan and control
and/or own transmission assets. Order No. 2000 also prescribes certain minimum
characteristics and functions of acceptable RTO proposals; provides a
collaborative process by which public utilities and non-public utilities that
own, operate or control interstate transmission facilities will consider and
develop RTOs; includes a proposal to consider transmission ratemaking reforms on
a case-specific basis; and provides an opportunity for certain non-monetary
regulatory benefits. Order No. 2000 required public utilities that own, operate
or control interstate transmission to file in October 2000, either a proposal to
join an RTO by December 15, 2001 or the reasons for not participating in an RTO
(as well as its plans, if any, for further work towards participating in an
RTO). IPL made its Order 2000 compliance filing in October 2000, stating that at
that time it did not plan to join an RTO. Subsequently, in February 2001, IPL
submitted an application to join the Midwest Independent Transmission System
Operator, Inc. (MISO), which FERC recognized as an RTO in December 2001. Also in
December 2001, FERC granted IPL's request to transfer control over its
transmission facilities to the MISO. The MISO commenced full operations on
February 1, 2002.

On July 31, 2002, FERC issued a Notice of Proposed Rulemaking for Standard
Market Design (SMD) to modify the pro forma open access transmission tariff
established under FERC's Order No. 888 to remedy the remaining undue
discrimination in transmission services and other industry practices. FERC is in
the process of responding to comments to its proposed rulemaking. For IPL many
of the FERC SMD initiatives will be incorporated as part of the Midwest Market
Initiative currently being implemented by the MISO and scheduled to be launched
in December, 2003. This initiative could significantly change IPL's interface
with the wholesale energy markets by incorporating Locational Marginal Pricing
and Financial Transmission Rights. At this time we cannot determine the impact
of the proposed SMD rule to IPL.

Retail Energy Market

The legislatures of several states have enacted, and many other states
are considering, new laws that would allow various forms of competition for
retail sales of electric energy. While each state proposal is different, most
provide for some recovery of a utility's stranded costs and require an extended
transition period before competition is fully effective. Additionally, a few
states have implemented programs that experiment with allowing some form of
customer choice of electricity suppliers.

In Indiana, competition among electric energy providers for sales has focused
primarily on the sale of bulk power to other public and municipal utilities.
Indiana law provides for electricity suppliers to have exclusive retail service
areas.

In 1995, the Indiana General Assembly, anticipating increasing competitive
forces in the regulated public utility industry, enacted I.C. 8-1-2.5. This law
enables the IURC to consider and approve, on an individual utility basis,
utility-initiated proposals wherein the IURC declines to exercise jurisdiction
over the whole or any part of the utility, or its retail energy service or both.
The IPL Elect Plan was approved by the IURC under this law.

During 1997, the Indiana General Assembly authorized a legislative study
committee to assess the issue of electric utility competition and restructuring.
Comprehensive restructuring bills were introduced in the Indiana Senate in 1998,
1999 and 2000, but failed to pass. There was no restructuring legislation
submitted in Indiana in 2001 or 2002.

Current Indiana Legislative Matters

Over the last several years there have been several mergers or
acquisitions of Indiana utilities by entities located outside Indiana. Such
transactions included the acquisition of IPALCO by AES. Pursuant to a decision
by the Supreme Court of Indiana construing current Indiana statutes, the IURC
was without jurisdiction to approve or reject such mergers effected via stock
transactions. In addition, the IURC believes it has insufficient authority to
adequately fine utilities which they determine are not meeting their statutory
obligations to provide reasonably adequate service and facilities.
Representatives of the IURC have advocated statutory changes to correct
perceived deficiencies. In 2002, legislation which would have given the IURC
authority to approve most utility mergers and to levy substantial fines on
utilities was submitted but failed to pass. Such legislation has again been
submitted in 2003. Such proposed legislation also contains provisions beneficial
to utilities, such as sections allowing prompt recovery of governmentally
mandated costs without being subject to a rate case. It is impossible to predict
the content, scope and impact of legislation which may ultimately be passed into
law.

Stipulation and Settlement Agreement

During 2002, the IURC issued an order approving a Stipulation and
Settlement Agreement (the "Settlement Agreement") entered into by IPL,
the Indiana Office of Utility Consumer Counselor, and two intervening parties.
The Settlement Agreement requires IPL to meet certain ongoing performance
measures for system reliability and customer call center performance or pay
penalties of up to $1.75 million per quarter for failure to meet such
performance measures; quarterly reporting by IPL regarding service reliability
and call center performance; reporting following major storm events; upgrading
or replacing IPL's Outage Management System and Energy Management System at a
cost of approximately $6 million; and a provision for a $100 credit to certain
residential customers whose service was interrupted in July 2001 for 36 to 48
hours following severe storms in our service area (the July 2001 Storms). IPL
had previously voluntarily provided a similar credit to residential customers
whose service had been interrupted for more than 48 hours following the storm.
In addition IPL was required to hire an independent auditor to review its
quarterly reports to the IURC. During 2002, IPL issued credits of approximately
$1.16 million to customers whose service was interrupted for 36 to 48 hours
following the July 2001 Storms, which satisfied IPL's remaining liability for
the July 2001 Storms.

IPL was subject to the measures for system reliability and customer call
center performance for the second, third and fourth fiscal quarters of 2002. IPL
met all of the customer call center performance measures in those periods. IPL
did not meet three, four and two of the six service reliability standards in the
second, third and fourth quarter of 2002, respectively. As a result, IPL issued
credits to customers of $500,000 and $750,000 for the second and third quarters
of 2002, respectively. No credits were issued for the fourth quarter, because
fewer than three reliability and performance measures were missed. Management
believes IPL is making significant progress towards compliance with these
measures and expects to reduce or eliminate such penalties going forward.
Meeting the reliability and performance measures is most difficult during
periods of high storm activity and, therefore, such periods could result in
reduced income and cash flows for IPL and IPALCO.

Tariff Liability Limitations and Rulemaking

On May 24, 2001, the IURC on its own motion initiated an industry-wide
investigation into the continuing propriety of provisions in utility tariffs
that limit a utility's liability to its customers for interruptions in service.
IPL has such provisions in its tariff for retail service as do most Indiana
public utilities. On March 6, 2002, the IURC issued an order purporting to find
any and all language in tariffs on file with the IURC which limit a utility's
liability for service interruptions to be void and purporting to strike such
provisions from the tariffs of all Indiana public utilities. After several
utilities, including IPL, initiated an appeal, the IURC vacated its order and
thus reinstated liability limitation language in the tariffs. Subsequently,
however, the IURC initiated a rulemaking proceeding on the subject of tariff
liability limitations, which is still pending. Thusfar, the IURC has not issued
a proposed rule. If an IURC rule were to eliminate IPL's current tariff
protection from liability for service interruptions, it could have a material
adverse effect on IPL.

Recent IURC Order

On February 12, 2003, the IURC issued an Order which approved IPL's 2003-
2006 financing program and set forth a process whereby IPL must file a report
with the IURC, prior to declaring or paying a dividend. Please see
"Liquidity and Capital Resources" for more information relating
to that Order.

Current Business Outlook

The electric utility business is affected by seasonal weather patterns
throughout the year and, therefore, our operating revenues and associated
operating expenses are not generated evenly by month during the year.
Traditionally, retail kWh sales, after adjustments for weather variations, have
grown in reasonable correlation with growth in service territory economic
activity. During the past 10 years, IPL's retail kWh sales have grown at a
compound annual rate of 1.7%, while personal income in our service territory
grew at a compound annual rate of 2.4%.

IPL's wholesale kWh sales decreased $17.8 million or 32.1% in 2002 from the
level achieved in 2001, largely as a result of softer wholesale markets and
increased capacity reserve margins in the Midwest. As IPL's retail sales grow,
the level of generating capacity available for wholesale sales is more limited.
The ability to sell power in the highly competitive wholesale market is also
highly dependent on market conditions and the level and frequency of unplanned
outages.

Operating and maintenance expenses were $617.4 million in 2002. We expect
these expenses to increase in 2003 due to the timing of major generating unit
overhauls. Such expenses are influenced by the level of kWh generation,
generating unit availability and overhaul costs, purchased power costs, cost
control programs and inflation. IPL depends on purchased power, in part, to meet
its retail obligations. Purchased power costs are highly volatile and,
therefore, we are unable to predict the level of those costs for 2003, but such
costs are recoverable under normal business operations as described under Item
7A.

New Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board (FASB) issued new
pronouncements: Statement of Financial Accounting Standards (SFAS) No. 142,
"Goodwill and Other Intangibles" and SFAS No. 143, "Accounting for Asset
Retirement Obligations." SFAS No. 142 requires the use of a non amortization
approach to account for purchased goodwill and certain intangibles. Under a non
amortization approach, goodwill and certain intangibles would not be amortized
into results of operations, but instead would be reviewed for impairment at
least annually and written down and charged to results of operations in the
periods in which the recorded value of goodwill and certain intangibles are
determined to be greater than their fair value. SFAS No. 142 was effective for
us beginning January 1, 2002. The adoption of SFAS No. 142 did not have any
impact on our financial position or results of operations.

SFAS No. 143 addresses financial accounting and reporting for obligations
associated with retirement of tangible long-lived assets and the associated
asset retirement costs. It requires that the fair value of a liability for an
asset retirement obligation be recognized in the period in which it is incurred
if a reasonable estimate of fair value can be made. The associated asset
retirement costs are capitalized as part of the carrying amount of the long-
lived asset. This statement was effective for us beginning January 1, 2003.
Management does not expect the adoption of SFAS No. 143 to have a material
impact on Enterprises financial position or results of operations.

In August 2001, the FASB issued SFAS No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 addresses
accounting for and reporting of the impairment or disposal of long-lived assets
and was effective for us beginning January 1, 2002. The adoption of SFAS No. 144
did not have any impact on our financial position or results of operations.

In June 2002, the FASB issued SFAS No. 146 "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 addresses
accounting for and reporting of costs associated with an exit or disposal
activities. SFAS No. 146 required that a liability for a cost associated with an
exit or disposal activity be recognized when the liability is incurred, rather
then when the entity simply commits to a plan of exit or disposal. SFAS No. 146
is effective for exit or disposal activities initiated after December 31, 2002.
Although we are currently not contemplating exit or disposal activities, SFAS
No. 146 could have a material impact on our financial statements if and when
such activities are initiated.

In December 2002, the FASB issued SFAS No. 148 "Accounting for Stock-
Based Compensation - Transition and Disclosure" an amendment of FASB
Statement No. 123. SFAS No. 148 provides three alternative methods of accounting
for stock-based compensation at fair value: (i) the prospective method; (ii) the
modified prospective method; and (iii) the retroactive restatement method.
Certain of our employees participate in the AES Stock Option Plan. No options
were awarded to our employees during 2002. Effective January 1, 2003, we have
elected to adopt fair value accounting for stock-based compensation using the
prospective method for recognizing stock-based compensation expense. The
prospective method requires recognition of stock-based compensation expense at
fair value for all awards granted in the year of adoption but not for previous
awards. We will continue to use the Black-Scholes option-pricing model to
determine the fair value of options issued. The expense for each award grant,
including awards with graded vesting, will be recognized on a straight-line
basis over the vesting period. Any forfeitures will be recognized when they
occur.

In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" (FIN 45). FIN 45 requires guarantors to
recognize a liability for certain guarantees issued or modified after December
31, 2002, at the inception of such guarantee, for the fair value of the
obligation undertaken in issuing the guarantee. FIN 45 also requires guarantors
to make additional disclosures for certain guarantees including, but not limited
to the nature, terms, carrying amount and maximum potential obligation under
such guarantees. We have included such disclosure in Note 14 to the audited
financial statements.

Item 7A. Quantitative and Qualitative Disclosure about Market Risk

Interest Rate Risk

We use long-term debt as a significant source of capital in our business,
which exposes us to interest rate risk. We do not enter into market risk
sensitive instruments for trading purposes. We manage our exposure to interest
rate risk through the use of fixed-rate debt, interest rate hedging instruments
and by refinancing existing long-term debt at times when it is deemed economic
and prudent. In addition, IPL has two credit facilities that bear interest at
variable rates based primarily on LIBOR. Although there currently is no
outstanding balance on either facility, IPL may use them in the future. Our fair
values relating to financial instruments are dependent upon prevalent market
rates of interest, primarily LIBOR. At December 31, 2002, we had $1,333.0
million principal amount fixed rate debt and a $40 million principal amount
variable rate debt issue. The interest rate in effect on the $40 million
variable rate debt issue was 1.6% as of December 31, 2002, which was effectively
fixed at 5.21% through a floating-to-fixed rate swap, which expires concurrent
with the debt issue in January 2023. The fair value of IPL's swap agreement was
$(8.7) million at December 31, 2002. The following table shows our consolidated
indebtedness (in millions) by maturity as of December 31, 2002:

`2003     2004     2005     2006     2007   Thereafter   Total   Fair Value
                         -------- -------- -------- -------- -------- ---------- --------- ----------

Fixed-rate debt             $0.3    $80.0     $0.0    $58.8    $80.0   $1,113.9  $1,333.0   $1,170.3
Variable-rate debt
  swapped to fixed             0        0        0        0        0         40        40         40
                         -------- -------- -------- -------- -------- ---------- --------- ----------
Total Indebtedness          $0.3    $80.0     $0.0    $58.8    $80.0   $1,153.9  $1,373.0   $1,210.3
                         ======== ======== ======== ======== ======== ========== ========= ==========
Weighted Average Interest
  Rates by Maturity          7.5%    6.05%      N/A     8.0%   7.375%     7.681%    7.582%`

Fuel

IPL has limited exposure to commodity price risk for the purchase of
coal, the primary fuel used by IPL for the production of electricity. IPL
manages this risk by providing for approximately 70% of its current projected
burn under long-term contracts. The balance of IPL's projected burn is purchased
under short term contracts and on the spot market. Management does not
anticipate a significant change in the availability of coal, or the terms of
purchase, on the spot market during 2003. Our exposure to fluctuations in the
price of coal is limited because IURC regulations provide for the recovery of
estimated fuel costs above or below the levels included in IPL's rate schedules.
This recovery is accomplished through a fuel cost adjustment filing with the
IURC.

Power Purchases

IPL depends on purchased power, in part, to meet prudent seasonal
planning reserve margins. As a result, IPL also has limited exposure to
commodity price risk for the purchase of electric energy for its retail
customers. Purchased power costs can be highly volatile. IPL is allowed to
recover purchased power costs on a benchmark for most retail service. If the
cost per kWh of power purchases is not greater than the benchmark, then the
purchased power costs should be considered net energy costs that are presumed
fuel costs included in purchased power. If the average cost per kWh of power
purchases is greater than the benchmark, then the costs are recoverable only
through demonstration of the reasonableness of those purchases to the
IURC.

Wholesale Sales

IPL engages in limited wholesale power marketing after first providing
for its projected load. Power marketing enables IPL to use excess power
generating capacity to earn wholesale revenues. IPL's ability to compete
effectively in the wholesale market is dependent on a variety of factors,
including its available excess generation, the supply of wholesale power, and
the price, terms and conditions of sale proposed by IPL. In 2002, IPL
experienced an almost 15% decrease in the average price per kWh and a 20%
decrease in wholesale kWh sales. During the period from 1998 to 2002, wholesale
revenues represented an average of approximately 6% of IPL's total electric
revenues each year.

Elect Plan

The Elect Plan offered by IPL, and as discussed under "Regulatory
Matters - Elect Plan," allows IPL to offer certain customers the
opportunity to select optional payment or service plans. IPL is subject to the
market risk of both purchased power costs and fuel costs for those customers who
have chosen to receive power under one of the Elect Plan options. These costs
associated with Elect Plan customers are not recovered under the fuel cost
adjustment proceedings as set forth in "Fuel" and "Power Purchases" discussed
above.

Counter-Party Credit Risk

IPL utilizes forward purchase contracts to manage the risk associated
with power purchases, and is exposed to counter-party credit risk in these
contracts. IPL manages this exposure to counter-party credit risk by entering
into contracts with companies that are expected to fully perform under the terms
of the contract. Individual credit limits are implemented for each counter-party
to further mitigate credit risk. IPL may also ask a counter-party to provide
collateral in the event certain credit ratings are not maintained, or certain
financial benchmarks are not maintained.

Remarketing Agreement and Liquidity Facility

IPL has entered into a Remarketing Agreement with J.P. Morgan Securities,
Inc. (J.P. Morgan) for the weekly remarketing of IPL's $40 million City of
Petersburg, Indiana, Pollution Control Refunding Revenue Bonds Adjustable Rate
Tender Securities (ARTS) Series 1995B, Indianapolis Power & Light Company
Project (the Bonds). J.P. Morgan is obligated to use its best efforts to
remarket the Bonds, but is not obligated to buy or take any position in the
Bonds. In addition, one of the conditions precedent to J.P. Morgan's obligations
is that there shall have been no adverse change in the properties, business,
condition (financial or otherwise) or results of operations of IPL. In the event
J.P. Morgan is unable to remarket the Bonds, a liquidity facility is in place in
the form of a Credit Agreement with LaSalle Bank National Association to
purchase the Bonds. The Trustee for the Bonds has sole authority to request an
advance under this facility, and this is only contemplated in the event of a
failed remarketing of the Bonds by J.P. Morgan. The Credit Agreement contains
financial covenants regarding IPL's debt to total capitalization and interest
coverage, with which IPL is in compliance.

Item 8. Financial Statements and Supplementary Data

INDEX TO FINANCIAL STATEMENTS

|                                                                                                                      |     
|--------------------------------------------------------------------------------------------------------------------- | ----
|IPALCO Enterprises, Inc. and Subsidiaries - Consolidated
Financial Statements                                         | Page
|Independent Auditors' Report                                                                                          | 33  
|Consolidated Statements of Income for the years ended December
31, 2002, 2001 and 2000                                | 34  
|Consolidated Balance Sheets as of December 31, 2002 and 2001                                                          | 35  
|Consolidated Statements of Cash Flows for the years ended
December 31, 2002, 2001 and 2000                            | 36  
|Consolidated Statements of Common Shareholder's Equity (Deficit)
for the years ended December 31, 2002, 2001 and 2000 | 37  
|Notes to Consolidated Financial Statements                                                                            | 38  
|Indianapolis Power & Light Company - Financial Statements                                                             |     
|Independent Auditors' Report                                                                                          | 56  
|Statements of Income for the years ended December 31, 2002, 2001
and 2000                                             | 57  
|Balance Sheets as of December 31, 2002 and 2001                                                                       | 58  
|Statements of Cash Flows for the years ended December 31, 2002,
2001 and 2000                                         | 59  
|Statements of Common Shareholder's Equity for the years ended
December 31, 2002, 2001 and 2000                        | 60  
|Notes to Financial Statements                                                                                         | 61  
|                                                                                                                      |     

---





INDEPENDENT AUDITORS' REPORT

To the Shareholder and Board of Directors of IPALCO ENTERPRISES,
INC.:

We have audited the accompanying consolidated balance sheets of IPALCO
Enterprises, Inc. and its subsidiaries (the "Company") as of December
31, 2002 and 2001, and the related consolidated statements of income, common
shareholder's equity (deficit), and cash flows for each of the three years in
the period ended December 31, 2002. Our audits also included the financial
statement schedule listed in the Index at Item 15. These financial statements
and the financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and the financial statement schedule based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of IPALCO Enterprises, Inc. and its
subsidiaries as of December 31, 2002 and 2001, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2002 in conformity with accounting principles generally accepted in
the United States of America. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.

/s/ DELOITTE & TOUCHE LLP



Indianapolis, Indiana

January 17, 2003

(March 14, 2003 as to Note 18)

---

`IPALCO ENTERPRISES, INC. and SUBSIDIARIES
Consolidated Statements of Income
For the Years Ended December 31, 2002, 2001 and 2000`

See notes to consolidated financial statements

---

`IPALCO ENTERPRISES, INC. and SUBSIDIARIES
Consolidated Balance Sheets

(IN THOUSANDS)


                                                               December 31,  December 31,
                            ASSETS                                 2002          2001
UTILITY PLANT:                                                 ------------  ------------
  Utility plant in service                                      $3,144,472    $3,006,190
  Less accumulated depreciation                                  1,536,986     1,443,736
                                                               ------------  ------------
      Utility plant in service - net                             1,607,486     1,562,454
  Construction work in progress                                     73,696        92,522
  Property held for future use                                       7,708        10,741
                                                               ------------  ------------
      Utility plant - net                                        1,688,890     1,665,717
OTHER ASSETS:                                                  ------------  ------------
  Nonutility property - at cost, less accumulated depreciation       1,497         1,742
  Investments                                                       10,033        52,904
                                                               ------------  ------------
      Other assets - net                                            11,530        54,646
                                                               ------------  ------------
CURRENT ASSETS:
  Cash and cash equivalents                                         31,429        28,933
  Accounts receivable and unbilled revenue (less allowance
    for doubtful accounts of $1,556 and $1,095 respectively)        41,601        48,001
  Fuel - at average cost                                            22,023        28,970
  Materials and supplies - at average cost                          47,874        48,376
  Net income tax refunds receivable                                  3,305        16,786
  Prepayments and other current assets                               4,458         1,283
                                                               ------------  ------------
      Total current assets                                         150,690       172,349
                                                               ------------  ------------
DEFERRED DEBITS:
  Regulatory assets                                                140,768        97,809
  Miscellaneous                                                     29,037        22,195
                                                               ------------  ------------
      Total deferred debits                                        169,805       120,004
                                                               ------------  ------------
              TOTAL                                             $2,020,915    $2,012,716
                                                               ============  ============
                CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
  Common shareholder's equity:
    Premium on 4% cumulative preferred stock                          $649          $649
    Retained earnings (Accumulated deficit)                        (40,477)       15,049
    Accumulated other comprehensive loss                           (52,621)      (11,469)
                                                               ------------  ------------
      Total common shareholder's equity (deficit)                  (92,449)        4,229
  Cumulative preferred stock of subsidiary                          59,135        59,135
  Long-term debt (less current maturities and
   sinking fund requirements)                                    1,372,006     1,371,930
                                                               ------------  ------------
      Total capitalization                                       1,338,692     1,435,294
                                                               ------------  ------------
CURRENT LIABILITIES:
  Current maturities and sinking fund requirements                     300           300
  Accounts payable                                                  31,929        47,798
  Accrued expenses                                                  17,258        16,285
  Dividends payable                                                    874           910
  Accrued income and other taxes                                    26,009        26,224
  Accrued interest                                                  22,788        21,892
  Other current liabilities                                         12,827        19,897
                                                               ------------  ------------
      Total current liabilities                                    111,985       133,306
                                                               ------------  ------------
DEFERRED CREDITS AND OTHER LONG-TERM LIABILITIES:
  Accumulated deferred income taxes - net                          337,936       271,195
  Unamortized investment tax credit                                 30,927        33,690
  Accrued postretirement benefits                                    5,965         9,504
  Accrued pension benefits                                         186,761       125,549
  Miscellaneous                                                      8,649         4,178
                                                               ------------  ------------
      Total deferred credits and other long-term liabilities       570,238       444,116
                                                               ------------  ------------
COMMITMENTS AND CONTINGENCIES (Note 14)
              TOTAL                                             $2,020,915    $2,012,716
                                                               ============  ============`

See notes to consolidated financial statements

---

`IPALCO ENTERPRISES, INC. and SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2002, 2001 and 2000`

---

See notes to consolidated financial statements

---

`IPALCO ENTERPRISES, INC. and SUBSIDIARIES
Consolidated Statements of Common Shareholder's Equity (Deficit)
For the Years Ended December 31, 2002, 2001 and 2000

(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
                                                               Premium
                                                                on 4%      Retained   Accumulated
                                                             Cumulative    Earnings      Other
                                                   Common     Preferred  (Accumulated Comprehensive
                                                    Stock       Stock      Deficit)   Income (Loss)    Total
                                                 ----------- ----------- ------------ ------------- -----------
Balance at January 1, 2000                         $439,066        $649     $690,455      $106,733  $1,236,903
   Exercise of stock options                          9,026                                              9,026
   Restricted stock issues / adjustments              3,081                                              3,081
   Restricted stock repurchased                      (1,186)                                            (1,186)
   Cash dividends declared ($.65 per share)                                  (56,540)                  (56,540)
   Subsidiary capital stock expense                                              (57)                      (57)
  Comprehensive Income:
    Net income                                                               154,583                   154,583
    Minimum pension liability adjustment                                                    (1,820)     (1,820)
    Realized gains on securities                                                           (69,101)    (69,101)
    Unrealized losses on securities                                                        (37,625)    (37,625)
                                                 ----------- ----------- ------------ ------------- -----------
 Total Comprehensive Income                               0           0      154,583      (108,546)     46,037
                                                 ----------- ----------- ------------ ------------- -----------
Balance at December 31, 2000                       $449,987        $649     $788,441       ($1,813) $1,237,264
                                                 ----------- ----------- ------------ ------------- -----------
   Exercise of stock options                          1,764                                              1,764
   Restricted stock issues / adjustments              8,250                                              8,250
   Restricted stock repurchased                        (215)                                              (215)
   Adjustment for Pooling of Interests             (459,786)                 (40,765)                 (500,551)
   Cash dividends declared ($.16 per share)                                  (14,574)                  (14,574)
   Distributions to AES                                                     (796,000)                 (796,000)
  Comprehensive Income:
   Net income                                                                 77,947                    77,947
   Minimum pension liability adjustment                                                     (7,332)     (7,332)
   Adjust financial instruments to fair market value                                        (2,324)     (2,324)
                                                 ----------- ----------- ------------ ------------- -----------
 Total Comprehensive Income                               0           0       77,947        (9,656)     68,291
                                                 ----------- ----------- ------------ ------------- -----------
Balance at December 31, 2001                             $0        $649      $15,049      ($11,469)     $4,229
                                                 ----------- ----------- ------------ ------------- -----------
   Distributions to AES                                                     (180,472)                 (180,472)
  Comprehensive Income:
   Net income                                                                124,946                   124,946
   Minimum pension liability adjustment                                                    (38,050)    (38,050)
   Adjust financial instruments to fair market value                                        (3,102)     (3,102)
                                                 ----------- ----------- ------------ ------------- -----------
 Total Comprehensive Income                               0           0      124,946       (41,152)     83,794
                                                 ----------- ----------- ------------ ------------- -----------
Balance at December 31, 2002                             $0        $649     ($40,477)     ($52,621)   ($92,449)
                                                 =========== =========== ============ ============= ===========
See notes to consolidated financial statements.`

---

IPALCO ENTERPRISES, INC. and SUBSIDIARIES

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2002, 2001 and 2000

1.	ORGANIZATION

IPALCO Enterprises, Inc. (IPALCO) is a holding company incorporated under
the laws of the state of Indiana. IPALCO is a wholly-owned subsidiary of The AES
Corporation (AES). IPALCO owns all of the outstanding common stock of its
subsidiaries (collectively referred to as Enterprises). Our principal
subsidiary, Indianapolis Power & Light Company (IPL), is engaged primarily
in generating, transmitting, distributing and selling electric energy to
approximately 450,000 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 retail electric service to
those customers. Until November 2000, IPL also produced, distributed and sold
steam within a limited area in Indianapolis. 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 used for electric generation. IPL's
net electric generation capability for winter is 3,342 megawatts and net summer
capability is 3,224 megawatts.

IPALCO's other direct subsidiary is Mid-America Capital Resources, Inc.,
(Mid-America). Mid-America is the holding company for our unregulated
activities. Mid-America owns a 6.6% interest in a venture capital fund that
invests in service and technology companies providing products and services that
take advantage of opportunities created by deregulation of the energy and
telecommunications industries. Our regulated business is conducted through IPL.
Enterprises has historically had two business segments: electric and "all
other." Our steam operations and other Thermal Assets (See below) were in
the "all other" segment prior to being sold effective November 20,
2000. The operations of our Cleveland Energy Resources subsidiary were in the
"all other" segment prior to being sold effective May 21, 2001 (See
below). Since the sale of these assets, substantially all of our business
consists of the generation, transmission, distribution and sale of electric
energy conducted through IPL.

2.	AES ACQUISITION AND ASSET SALES

AES Acquisition:  On March 27, 2001, AES completed its acquisition of
IPALCO Enterprises, Inc. (IPALCO) through a share exchange transaction in
accordance with the Agreement and Plan of Share Exchange dated as of July 15,
2000, among AES and IPALCO (the Share Exchange Agreement). Pursuant to the Share
Exchange Agreement, IPALCO became a wholly-owned subsidiary of AES, accounted
for as a pooling of interests.

At the effective time of the share exchange, each of the outstanding
89,685,177 shares of IPALCO common stock was converted into the right to receive
0.463 of a share of AES common stock, for an aggregate purchase price of $2.15
billion and $890 million in assumed debt and preferred stock. Following the
share exchange, AES owns all of the outstanding capital stock of IPALCO.
Treasury stock of $500.6 million was cancelled as a result of the acquisition.
Accordingly, the common stock balance was reduced by $459.8 million and the
remaining $40.8 million was applied against retained earnings. The transaction
was subject to certain conditions, including receipt of regulatory approvals,
including that of the Federal Energy Regulatory Commission and the Securities
and Exchange Commission.

During 2001 and 2000, Enterprises expensed $6.3 million and $5.8 million of
merger related costs, respectively, which are included in OTHER INCOME AND
(DEDUCTIONS) Other - net. Total merger related costs were $12.1 million.

As a result of the acquisition by AES, Enterprises recorded $74.8 million
($46.4 million after tax) of costs related to the termination of certain
employees during 2001. The pretax expenses included $59.4 million in costs
associated with termination benefit agreements and severance, $9.2 million in
supplemental retirement costs, and $6.2 million in restricted stock expense.
Substantially all of the supplemental retirement costs and restricted stock
costs were paid out by March 31, 2001. Termination benefit agreement costs
include amounts paid to officers of Enterprises under termination benefit
agreements and severance paid to certain other employees upon termination during
the first half of 2001.

Sale of the Assets of the Steam Operations, Mid-America Energy Resources
and Indianapolis Campus Energy:  On November 20, 2000, Enterprises sold
certain assets (the Thermal Assets) including the Perry K Steam Plant and
downtown steam distribution system (Steam) operated by Indianapolis Power &
Light Company (IPL); the central city chilled water cooling and distribution
system owned by Mid-America Energy Resources, Inc. (MAER), and the chilled water
cooling system owned by Indianapolis Campus Energy, Inc. (ICE) for $161.7
million. The transaction resulted in a gain to Enterprises of $30.6 million
($18.7 million after tax). Of the net proceeds, $87.8 million was used to retire
debt specifically assignable to the Thermal Assets.

Sale of Cleveland Energy Resources:  On May 21, 2001, Enterprises sold
the assets of Cleveland Energy Resources (CER) for $14.6 million. The completion
of the transaction had no significant income statement impact. In the fourth
quarter of 2000, Enterprises recorded, in OTHER INCOME AND (DEDUCTIONS) Other-
net, an impairment provision of $1.8 million ($1.2 million after tax) on the
carrying amounts of the CER assets.

3.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation:  IPALCO's consolidated financial statements
were prepared in accordance with accounting principles generally accepted in the
United States of America (GAAP). The consolidated financial statements include
the accounts of IPALCO, its regulated utility subsidiary, IPL, and its
unregulated subsidiary, Mid-America. All significant intercompany items have
been eliminated in consolidation.

The operating components of all subsidiaries other than IPL, as well as
nonoperating income of IPL, are included below UTILITY OPERATING INCOME in the
accompanying consolidated statements of income.

Regulation:  The retail utility operations of IPL are subject to the
jurisdiction of the Indiana Utility Regulatory Commission (IURC). IPL's
wholesale power transactions are subject to the jurisdiction of the Federal
Energy Regulatory Commission. These agencies regulate IPL's utility business
operations, tariffs, accounting, depreciation allowances, services, security
issues and the sale and acquisition of utility properties. The financial
statements of IPL are based on GAAP, including the provisions of Statement of
Financial Accounting Standards (SFAS) No. 71, "Accounting for the Effects
of Certain Types of Regulation," which gives recognition to the ratemaking
and accounting practices of these agencies.

Revenues:  Revenues related to the sale of energy are generally
recognized when service is rendered or energy is delivered to customers.
However, the determination of the energy sales to individual customers is based
on the reading of their meters, which occurs on a systematic basis through-out
the month. At the end of each month, amounts of energy delivered to customers
since the date of the last meter reading are estimated and the corresponding
unbilled revenue is estimated. This unbilled revenue is estimated each month
based on daily generation volumes, estimated customer usage by class, weather
factors, line losses and applicable customer rates based on regression analyses
reflecting significant historical trends and experience. Customer accounts
receivable include unbilled energy revenues of $32.6 million on a base of annual
revenue of $818.0 million.

A fuel adjustment charge provision, which is established after public
hearing, is applicable to most of the rate schedules of IPL and permits the
billing or crediting of estimated fuel costs above or below the levels included
in such rate schedules. Actual fuel costs in excess of or under estimated fuel
costs billed are deferred or accrued, respectively.

Through the date of IPL's next general electric rate order, IPL is required
to file upward and downward adjustments in fuel cost credits and charges on a
quarterly basis, based on changes in the cost of fuel, irrespective of its level
of earnings.

IPL is allowed to recover purchased power costs based on a benchmark. If the
cost per Mwh of power purchases is not greater than the benchmark, then the
purchased power costs should be considered net energy costs that are presumed
fuel costs included in purchased power. If the average cost per Mwh of power
purchases is greater than the benchmark, then the costs are recoverable only
through demonstration of the reasonableness of those purchases to the IURC.

Regulatory Assets:  Regulatory assets represent deferred costs that
have been included as allowable costs for ratemaking purposes. IPL has recorded
regulatory assets relating to certain costs as authorized by the IURC. Specific
regulatory assets are disclosed in Note 6. IPL is amortizing such nontax-related
regulatory assets to expense over periods ranging from 1 to 30 years. Tax-
related regulatory assets represent the net income tax costs to be considered in
future regulatory proceedings generally as the tax-related amounts are paid.

In accordance with regulatory treatment, IPL deferred as a regulatory asset
certain post in-service date carrying charges and certain other costs related to
its investment in Unit 4 at the Petersburg Plant. As authorized in the 1995
Electric Rate Settlement, IPL, effective September 1, 1995, is amortizing this
deferral to expense over a life that generally approximates the useful life of
the related facility. Also in accordance with regulatory treatment, IPL defers
as regulatory assets non-sinking fund debt and preferred stock redemption
premiums and expenses, and amortizes such costs over the life of the original
debt or, in the case of preferred stock redemption premiums, over 20 years.

Authorized Annual Operating Income:  Indiana law requires electric
utilities under the jurisdiction of the IURC to meet operating expense and
income test requirements as a condition for approval of requested changes in
fuel adjustment charges. Additionally, customer refunds may result if the
utilities' rolling 12-month operating income, determined at quarterly
measurement dates, exceeds the utilities' authorized annual operating income and
cannot be offset by applicable cumulative net operating income deficiencies. In
such a circumstance, the required customer refund for the quarterly measurement
period is calculated to be one-fourth of the excess annual operating income
grossed up for federal and state taxes as required under I. C. 8-1-2-42.5.

IPL's authorized annual jurisdictional electric net operating income, for
purposes of quarterly operating income tests, is $163 million. This level will
be maintained until changed by an IURC order. During the four quarterly
measurement dates in 2002, the Commission found that IPL's rolling annual
jurisdictional retail electric operating income was less than the authorized
annual operating income at January and April and was greater than the authorized
annual operating income by $5.6 million and $25.2 million at July and October,
respectively. However, because IPL has a cumulative net operating deficiency, it
was not required to make customer refunds. As of IPL's quarterly measurement
date on October 31, 2002, IPL had a cumulative net operating deficiency of
$655.3 million. The operating deficiency is calculated by summing the quarterly
measurement period annual results from the date of the last rate order. Because
of the deficiency, IPL can, for a period of time, earn above $163 million of
electric jurisdictional retail net operating income without being required to
make customer refunds.

The IURC approved the use of qualified pollution control property (QPCP) as
defined in I.C. 8-1-2-6.6 and ratemaking treatment through an Environmental
Compliance Cost Recovery Adjustment that allows IPL to meet the NOx
emission limits imposed pursuant to the U.S. Environmental Protection Agency's
NOx SIP Call. A return on the investment in IPL's clean coal
technology (CCT) investments is included in the ratemaking. IPL may add the
approved return on its CCT projects to its net operating income authorized by
the IURC for purposes of annual operating income test requirements in subsequent
fuel adjustment charge proceedings. The additional amount of return will be
dependent on the cumulative amount of QPCP investment that has been made at the
time IPL files with the IURC for ratemaking treatment on such QPCP investment.
Such filings are made at an interval of no more often than every 6 months.

Contingencies:  Enterprises accrues for loss contingencies when the
amount of the loss is probable and estimable. Enterprises is subject to various
environmental regulations, and is involved in certain legal proceedings. If
Enterprises' actual environmental and/or legal obligations are different from
our estimates, the recognition of the actual amounts may have a material impact
on Enterprises' operating results and financial condition.

Concentrations of Risk:  Substantially all of IPL's customers are
located within the Indianapolis area. In addition, approximately 71% of
Enterprises' employees are covered by collective bargaining agreements.

Allowance For Funds Used During Construction:  In accordance with the
prescribed Uniform System of Accounts, IPL capitalizes an allowance for the net
cost of funds (interest on borrowed funds and a reasonable rate on equity funds)
used for construction purposes during the period of construction with a
corresponding credit to income. IPL capitalized amounts using pretax composite
rates of 9.4%, 9.4% and 9.2% during 2002, 2001 and 2000, respectively.

Utility Plant and Depreciation:  Utility plant is stated at original
cost as defined for regulatory purposes. The cost of additions to utility plant
and replacements of retirement units of property, as distinct from renewals of
minor items that are charged to maintenance, are charged to plant accounts.
Units of property replaced or abandoned in the ordinary course of business are
retired from the plant accounts at cost; such amounts plus removal costs, less
salvage, are charged to accumulated depreciation. Depreciation is computed by
the straight-line method based on functional rates approved by the IURC and
averaged 3.7% for 2002 and 3.6% during 2001 and 2000.

Nonutility property is recorded at cost, and depreciation is calculated using
the straight-line method over the estimated service lives of the related
property (see Note 4). Nonutility depreciation expense was $0.1 million, $0.2
million and $3.0 million for 2002, 2001 and 2000, respectively.

Off-Balance Sheet Arrangements:  In 1996, IPL formed IPL Funding
Corporation (IPL Funding) to purchase, on a revolving basis, up to $50 million
of the retail accounts receivable and related collections of IPL in exchange for
a note payable. IPL Funding is not consolidated by IPL or IPALCO since it meets
requirements set forth in Statement of Financial Accounting Standards No. 140,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities" to be considered a qualified special-purpose entity. IPL Funding
has entered into a purchase facility with unrelated parties (the Purchasers)
pursuant to which the Purchasers agree to purchase from IPL Funding, on a
revolving basis, up to $50 million of the receivables purchased from IPL. As of
December 31, 2002, the aggregate amount of receivables purchased pursuant to
this facility was $50.0 million. The net cash flows between IPL and IPL Funding
are limited to cash payments made by IPL to IPL Funding for interest charges and
processing fees. These payments totaled approximately $1.1 million, $2.3 million
and $3.5 million for the years ended December 31, 2002, 2001 and 2000,
respectively. IPL retains servicing responsibilities through its role as a
collection agent for the amounts due on the purchased receivables. IPL and IPL
Funding provide certain indemnities to the Purchasers, including indemnification
in the event that there is a breach of representations and warranties made with
respect to the purchased receivables. IPL Funding and IPL each have agreed to
indemnify the Purchasers on an after-tax basis for any and all damages, losses,
claims, liabilities, penalties, taxes, costs and expenses at any time imposed on
or incurred by the indemnified parties arising out of or otherwise relating to
the sale agreement, subject to certain limitations as defined in the agreements.
The transfers of receivables to IPL Funding are recorded as sales however no
gain or loss is recorded on the sale.

Under the receivables sale agreement, if IPL fails to maintain certain
financial covenants regarding interest coverage and debt-to-capital ratios, it
would constitute a "termination event." IPL is in compliance with such
covenants.

As a result of IPL's current credit rating, the facility agent has the
ability to (i) replace IPL as the collection agent; and (ii) declare a
"lock-box" event. Under a lock-box event or a termination event, the
facility agent has the ability to require all proceeds of purchased receivables
of IPL to be directed to lock-box accounts within 45 days of notifying IPL. A
termination event would also (i) give the facility agent the option to take
control of the lock-box account, and (ii) give the Purchasers the option to
discontinue the purchase of new receivables and cause all proceeds of the
purchased receivables to be used to reduce the Purchaser's investment and to pay
other amounts owed to the Purchasers and the facility agent. This would have the
effect of reducing the operating capital available to IPL by the aggregate
amount of such purchased receivables (currently $50 million.)

Derivatives:  Enterprises has only limited involvement with derivative
financial instruments and does not use them for trading purposes. Enterprises
accounts for its derivatives in accordance with SFAS No. 133 "Accounting
for Derivatives", as amended. Enterprises has one interest rate swap
agreement, which it entered into as a means of managing the interest rate
exposure on its variable-rate debt. Management has formally designated this swap
as a hedge. Enterprises' balance sheets reflect the current fair market value of
this swap and Enterprises records the change in its fair value in accumulated
other comprehensive loss. Management relies on financial institutions, which use
standard market conventions to determine the fair value of our swap. All methods
of assessing fair value result in a general approximation of value and such
value may never be realized.

Income Taxes:  Deferred taxes are provided for all significant
temporary differences between book and taxable income. The effects of income
taxes are measured based on enacted laws and rates. Such differences include the
use of accelerated depreciation methods for tax purposes, the use of different
book and tax depreciable lives, rates and in-service dates and the accelerated
tax amortization of pollution control facilities. Deferred tax assets and
liabilities are recognized for the expected future tax consequences of existing
differences between the financial reporting and tax reporting basis of assets
and liabilities. Those income taxes payable which are includable in allowable
costs for ratemaking purposes in future years are recorded as regulatory assets
with a corresponding deferred tax liability. Investment tax credits that reduced
federal income taxes in the years they arose have been deferred and are being
amortized to income over the useful lives of the properties in accordance with
regulatory treatment.

Cash and Cash Equivalents:  Enterprises considers all highly liquid
investments purchased with original maturities of 90 days or less to be cash
equivalents.

Investments:  See Note 15 for a discussion of the accounting of
Investments.

New Accounting Pronouncements:  In June 2001, the Financial Accounting
Standards Board (FASB) issued new pronouncements: SFAS No. 142, "Goodwill and
Other Intangibles" and SFAS No. 143, "Accounting for Asset Retirement
Obligations." SFAS No. 142 requires the use of a non amortization approach to
account for purchased goodwill and certain intangibles. Under a non amortization
approach, goodwill and certain intangibles would not be amortized into results
of operations, but instead would be reviewed for impairment at least annually
and written down and charged to results of operations in the periods in which
the recorded value of goodwill and certain intangibles are determined to be
greater than their fair value. SFAS No. 142 was effective for Enterprises
beginning January 1, 2002. The adoption of SFAS No. 142 did not have any impact
on Enterprises' financial position or results of operations.

SFAS No. 143 addresses financial accounting and reporting for obligations
associated with retirement of tangible long-lived assets and the associated
asset retirement costs. It requires that the fair value of a liability for an
asset retirement obligation be recognized in the period in which it is incurred
if a reasonable estimate of fair value can be made. The associated asset
retirement costs are capitalized as part of the carrying amount of the long-
lived asset. This statement was effective for Enterprises beginning January 1,
2003. Management does not expect the adoption of SFAS No. 143 to have a material
impact on Enterprises financial position or results of operations.

In August 2001, the FASB issued SFAS No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 addresses
accounting for and reporting of the impairment or disposal of long-lived assets
and was effective for Enterprises beginning January 1, 2002. The adoption of
SFAS No. 144 did not have any impact on Enterprises' financial position or
results of operations.

In June 2002, the FASB issued SFAS No. 146 "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 addresses
accounting for and reporting of costs associated with an exit or disposal
activities. SFAS No. 146 required that a liability for a cost associated with an
exit or disposal activity be recognized when the liability is incurred, rather
then when the entity simply commits to a plan of exit or disposal. SFAS No. 146
is effective for exit or disposal activities initiated after December 31, 2002.
Although Enterprises is currently not contemplating exit or disposal activities,
SFAS No. 146 could have a material impact on our financial statements if and
when such activities are initiated.

In December 2002, the FASB issued SFAS No. 148 "Accounting for Stock-
Based Compensation - Transition and Disclosure" an amendment of FASB
Statement No. 123. SFAS No. 148 provides three alternative methods of accounting
for stock-based compensation at fair value: (i) the prospective method; (ii) the
modified prospective method; and (iii) the retroactive restatement method.
Certain employees of Enterprises participate in the AES Stock Option Plan. No
options were awarded to Enterprises employees during 2002. Effective January 1,
2003, Enterprises has elected to adopt fair value accounting for its stock-based
compensation using the prospective method for recognizing stock-based
compensation expense. The prospective method requires recognition of stock-based
compensation expense at fair value for all awards granted in the year of
adoption but not for previous awards. Enterprises will continue to use the
Black-Scholes option-pricing model to determine the fair value of options
issued. The expense for each award grant, including awards with graded vesting,
will be recognized on a straight-line basis over the vesting period. Any
forfeitures will be recognized when they occur.

In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" (FIN 45). FIN 45 requires guarantors to
recognize a liability for certain guarantees issued or modified after December
31, 2002, at the inception of such guarantee, for the fair value of the
obligation undertaken in issuing the guarantee. FIN 45 also requires guarantors
to make additional disclosures for certain guarantees including, but not limited
to the nature, terms, carrying amount and maximum potential obligation under
such guarantees. Enterprises has included such disclosure in Note 14.

Use of Management Estimates:  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.

Per Share Data: Effective March 27, 2001, as a result of the Share
Exchange Agreement, IPALCO is a wholly-owned subsidiary of AES and no longer
reports earnings on a per-share basis.

Reclassifications: Certain amounts from prior years' consolidated
financial statements have been reclassified to conform to the current year
presentation.

4.	UTILITY PLANT IN SERVICE

The original cost of utility plant in service at December 31, segregated
by functional classifications, follows:

`2002        2001
                                                     ----------- -----------
                                                          (IN THOUSANDS)
Production                                           $1,850,222  $1,771,022
Transmission                                            253,368     253,579
Distribution                                            879,205     826,531
General                                                 161,677     155,058
                                                     ----------- -----------
Total utility plant in service                       $3,144,472  $3,006,190
                                                     =========== ===========`

Substantially all of IPL's property is subject to the lien of the
indenture securing IPL's First Mortgage Bonds (See Note 9.)

5.	DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

The estimated fair value of financial instruments has been determined by
Enterprises using available market information and appropriate valuation
methodologies. However, considerable judgment is required in interpreting market
data to develop the estimates of fair value. Accordingly, the estimates
presented herein are not necessarily indicative of the amounts that Enterprises
could realize in a current market exchange. The use of different market
assumptions and/or estimation methodologies may have a material effect on the
estimated fair value amounts.

Cash and Cash Equivalents:  The carrying amount approximates fair
value due to the short maturity of these instruments.

Long-Term Debt and Cumulative Preferred Stock of Subsidiary:  The fair
value of Enterprises' outstanding fixed rate debt and cumulative preferred stock
have been determined on the basis of the quoted market prices of the specific
securities issued and outstanding. Accordingly, the purpose of this disclosure
is not to approximate the value on the basis of how the debt might be
refinanced. At December 31, 2002, and 2001, the approximate fair value of
Enterprises' long-term debt was $1,210 million and $1,397 million, respectively.
The fair value of the variable-rate debt outstanding at December 31, 2002 and
2001 approximates its face amount, which is $40 million. The fair value of our
interest rate swap agreement has been estimated to be $(8.7) million and $(3.7)
million at December 31, 2002 and 2001, respectively. These amounts estimate what
Enterprises would have to pay to sell its position in the swap. The fair value
of IPL's cumulative preferred stock approximates its carrying amount as IPL is
subject to regulation and gains and losses may be included in rates.

6.	REGULATORY ASSETS

The amounts of regulatory assets at December 31 are as follows:

`2002        2001
                                                     ----------- -----------
                                                          (IN THOUSANDS)
Related to deferred taxes (Note 3)                      $96,762     $52,033
Unamortized reacquisition premium on debt (Note 3)       18,172      19,666
Unamortized Petersburg Unit 4 carrying charges and
  certain other costs (Note 3)                           24,955      26,010
Other                                                       879         100
                                                     ----------- -----------
Total regulatory assets                                $140,768     $97,809
                                                     =========== ===========`

Included in prepayments and other current assets at December 31, 2002 are
deferred fuel costs of $1.4 million.

7.	CAPITAL STOCK

The AES Acquisition: As described in Note 2, on March 27, 2001, AES
acquired all of the outstanding common stock of IPALCO through the Share
Exchange Agreement. Pursuant to the Share Exchange Agreement, IPALCO became a
wholly-owned subsidiary of AES, accounted for as a pooling of interests.

At the effective time of the share exchange, each of the outstanding
89,685,177 shares of IPALCO common stock was converted into the right to receive
0.463 of a share of AES common stock. IPALCO's common stock is pledged under
AES' Amended and Restated Credit and Reimbursement Agreement dated as of Dec 12,
2002 as well as AES' Collateral Trust Agreement dated as of Dec 12, 2002.
Treasury stock of $500.6 million was cancelled as a result of the acquisition.
Accordingly, the common stock balance was reduced by $459.8 million and the
remaining $40.8 million was applied against retained earnings.

There have been no changes to IPALCO's capital stock balances since this
transaction.

Stock-Based Compensation: Prior to the acquisition of IPALCO by AES,
IPALCO had various stock-based compensation plans. No additional grants can be
made under these plans. Certain of Enterprises' employees currently participate
in the AES Stock Option Plan. APB Opinion No. 25, "Accounting for Stock
Issued to Employees," and related interpretations in accounting for the
stock-based plans have been applied by Enterprises. No compensation cost has
been recognized for any of the options granted under IPALCO's plans because the
stock option exercise price is equal to the fair value of the underlying common
stock at the date of grant. Had compensation cost been determined based on the
fair value at the grant dates for awards under the plans consistent with the
method of SFAS No. 123, "Accounting for Stock-Based Compensation,"
Enterprises' net income for the year ended December 31, 2000 would have
decreased from $154.6 million to the pro forma amount of $150.6 million.
Enterprises estimated the SFAS No. 123 fair values by utilizing the binomial
options pricing model with the following assumptions: dividend yields of 2.5% to
4.0%, risk-free rates of 5.2% to 6.7%, volatility of 13% to 22% and expected
lives of five years. Compensation expense of $7.5 million as measured by the
market value of the common stock at the balance sheet date, was recognized in
2000 in accordance with the vesting period for IPALCO's stock option plans. (See
also Note 3 for information relating to the AES Stock Option Plan.)

Dividend Restrictions:  Restrictions on the payment of cash dividends
or other distributions of IPL common stock held by IPALCO and on the purchase or
redemption of such shares by IPL are contained in the indenture securing IPL's
First Mortgage Bonds. In addition, pursuant to IPL's Articles of Incorporation,
no dividends may be paid or accrued and no other distribution may be made on
IPL's common stock unless dividends on all outstanding shares of IPL's preferred
stock have been paid or declared and set apart for payment. All of IPL's
retained earnings at December 31, 2002 were free of such restrictions. IPL is
also restricted in its ability to pay dividends under the terms of its credit
facilities if it is not in compliance with certain financial covenants. These
covenants require IPL to maintain a ratio of earnings before income taxes to
interest expense not in excess of 2.5 to 1, and a ratio of total debt to total
capitalization not in excess of .60 to 1, in order to pay dividends. IPL was in
compliance with such covenants as of December 31, 2002. There are no other
restrictions on the retained earnings of IPALCO. (See also, Note 18.)

Cumulative Preferred Stock of Subsidiary:  Preferred stock
shareholders are entitled to two votes per share for IPL matters, and if four
full quarterly dividends are in default on all shares of the preferred stock
then outstanding, they are entitled to elect the smallest number of IPL
Directors to constitute a majority. IPL has issued and outstanding 500,000
shares of 5.65% Preferred Stock, which are redeemable at par value, subject to
certain restrictions, in whole or in part, at any time on or after January 1,
2008, at the option of IPL. Additionally, IPL has 91,353 shares of preferred
stock which are redeemable solely at the option of IPL and can be redeemed in
whole or in part at any time at specific call prices.

At December 31, preferred stock consisted of the following:

`December 31, 2002      December 31,
                                    ---------------------- ------------------
                                        Shares      Call
                                     Outstanding   Price     2002     2001
                                    ---------------------- ------------------
                                                           (IN THOUSANDS)
Cumulative $100 Par Value,
   authorized 2,000,000 shares
4% Series                                  47,611 $118.00    $4,761   $4,761
4.2% Series                                19,331  103.00     1,933    1,933
4.6% Series                                 2,481  103.00       248      248
4.8% Series                                21,930  101.00     2,193    2,193
5.65% Series                              500,000     --     50,000   50,000
                                    --------------         ------------------
Total cumulative preferred stock          591,353           $59,135  $59,135
                                    ==============         ==================`

Preferred stock dividends were $3.2 million during each of the years 2002,
2001 and 2000.

8.	OTHER CURRENT LIABILITIES

Other current liabilities are as follows at December 31:

`2002        2001
                                                     ----------- -----------
                                                          (IN THOUSANDS)
 Customer deposits                                       $9,046      $8,536
 Accrued payroll                                          2,969       2,441
*Deferred fuel cost                                           -       8,566
 Other                                                      812         354
                                                     ----------- -----------
 Total other current liabilities                        $12,827     $19,897
                                                     =========== ===========`

*Represents a regulatory liability as of December 31, 2001. As of December
31, 2002, Enterprises had a deferred fuel cost asset of $1.4 million.

9.	INDEBTEDNESS

Long-term Debt

Before IPL can incur long-term debt, it must first obtain approval
from the IURC. On February 12, 2003, the IURC approved a petition filed by IPL,
which gives IPL approval to, among other things, issue up to $160 million of new
long-term debt, primarily for the purpose of funding a portion of IPL's planned
capital expenditures over the next three years (See Note 18). Also, IPL and
IPALCO have restrictions on the amount of new debt they may issue by contractual
obligations of the parent company, AES. Under such restrictions, IPL is allowed
to fully draw the $75 million available on its credit facilities, refinance
existing debt, issue the $160 million approved by the IURC and issue certain
other indebtedness.

The following table presents Enterprises' long-term indebtedness as of
December 31, 2002 and 2001:

`December 31,
                                                 ------------
Series                      Due                      2002        2001
-------------------------------------------------------------------------
                                                 (IN THOUSANDS)
IPL First Mortgage Bonds:
6.05%                       February 2004            $80,000     $80,000
8%                          October 2006              58,800      58,800
7.375%                      August 2007               80,000      80,000
6.10%*                      January 2016              41,850      41,850
5.40%*                      August 2017               24,650      24,650
5.50%*                      October 2023              30,000      30,000
7.05%                       February 2024            100,000     100,000
6.625%*                     December 2024             40,000      40,000
5.75%*                      August 2021               40,000      40,000
5.90%*                      December 2024             20,000      20,000
5.95%*                      December 2029             30,000      30,000
5.95%**                     August 2030               17,350      17,350
Unamortized discount - net                              -644        -720
                                                 ------------------------
Total first mortgage bonds                           562,006     561,930
                                                 ------------------------
IPL Unsecured Notes:
1995B*                      January 2023              40,000      40,000
6.375%*                     November 2029             20,000      20,000
                                                 ------------------------
Total IPL Unsecured Notes                             60,000      60,000
                                                 ------------------------
Total long term debt - IPL                           622,006     621,930
Long Term Debt - IPALCO:                         ------------------------
8.375% Senior Secured Notes, due November 2008       375,000     375,000
8.625% Senior Secured Notes, due November 2011       375,000     375,000
                                                 ------------------------
Total long term debt - IPALCO                        750,000     750,000
                                                 ------------------------
Total consolidated IPALCO long term debt          $1,372,006  $1,371,930
                                                 ========================`

*	Notes are issued to the city of Petersburg, Indiana, by IPL to secure
the loan of proceeds from various tax-exempt instruments issued by the city.

**	Notes are issued to the Indiana Development Finance Authority (the
"IDFA"), to secure the loan of proceeds from various tax-exempt
instruments issued by the IDFA.

IPL First Mortgage Bonds. The mortgage and deed of trust of IPL,
together with the supplemental indentures thereto, secure the first mortgage
bonds issued by IPL (IPL First Mortgage Bonds). Pursuant to the terms of the
mortgage, substantially all property owned by IPL is subject to a $562.7 million
direct first mortgage lien. The IPL First Mortgage Bonds require net earnings as
calculated thereunder be at least two and one-half times the annual interest
requirements before additional bonds can be authenticated on the basis of
property additions. IPL was in compliance with such requirements as of December
31, 2002.

The IPALCO Notes. In November 2001, Enterprises issued $375 million of
7.375% and $375 million of 7.625% Senior Secured Notes due November 14, 2008 and
November 14, 2011, respectively (the IPALCO Notes), which are secured by
IPALCO's pledge of all of the outstanding common stock of IPL. Interest on the
IPALCO Notes is paid semi-annually on May 15 and November 15. Effective November
15, 2002, as a result of downgrades of IPALCO's credit rating during 2002, the
interest rates on these notes were increased by 100 basis points. Any further
reductions in the credit ratings of AES, IPALCO or IPL would not impact the
interest rates on IPALCO or IPL's outstanding debt, but improvements in IPALCO's
credit ratings could reduce the interest rates on the IPALCO Notes. The after-
cost proceeds from the offering were used to paydown $74 million of IPALCO's
short term borrowings and distribute $663 million to AES. The IPALCO Notes
contain certain financial covenants based on earnings to interest expense and
debt to capital, with which IPALCO is in compliance.

Variable-Rate Debt. The IPL 1995B notes provide for an interest rate
that varies with the tax-exempt weekly rate. These notes are classified as long-
term liabilities because IPL maintains a $40.6 million long-term credit facility
supporting these agreements, which was unused at December 31, 2002. IPL, at its
option, can change the interest rate mode for the 1995B notes to be based on
other short-term rates. The interest rate on this note is synthetically fixed at
5.21% using a swap agreement. The interest rate swap agreement is accounted for
on a settlement basis.

Extraordinary Loss. In November 2000, Enterprises sold its Thermal
Assets (see Note 2) and used a portion of the net proceeds to retire $87.8
million of debt specifically assignable to those assets. In connection with the
retirement of such debt, Mid-America incurred make-whole payments and wrote off
debt issuance costs of $4.3 million (net of tax), which was recorded as an
extraordinary loss.

Debt Maturities. Maturities on indebtedness subsequent to December 31,
2002, are as follows:

`Year            Amount
-----------------------------------
                    (IN THOUSANDS)
2003                          $300
2004                        80,000
2005                             0
2006                        58,800
2007                        80,000
Thereafter               1,153,850
                    ---------------
Total                   $1,372,950
                    ===============`



Lines Of Credit

IPL has two unused unsecured committed credit
facilities with an aggregate borrowing capacity of $75 million. These facilities
mature on May 23, 2003 and June 13, 2003 and are subject to certain financial
covenants, with which IPL is in compliance.



10.	INCOME TAXES

IPALCO follows a policy of comprehensive interperiod income tax
allocation. Investment tax credits related to utility property have been
deferred and are being amortized over the estimated useful lives of the related
property. IPALCO and its subsidiaries file consolidated federal and state income
tax returns with AES. Under a tax sharing agreement with AES, IPALCO is
responsible for the income taxes associated with its own taxable income. Income
taxes are allocated to the IPALCO subsidiaries based on their respective taxable
income or losses.



Federal and state income taxes charged to income are as follows:

`2002     2001     2000
                                                  ---------------------------
                                                           (IN THOUSANDS)
Utility Operating Expenses:
Current income taxes:
Federal                                            $53,585  $63,824 $102,171
State                                                7,201    8,592   13,580
                                                  ---------------------------
  Total current taxes                               60,786   72,416  115,751
                                                  ---------------------------
Deferred federal income taxes                       42,061   (9,873) (39,520)
Deferred state income taxes                          6,308     (772)  (4,632)
                                                  ---------------------------
  Total deferred income taxes                       48,369  (10,645) (44,152)
                                                  ---------------------------
Net amortization of investment credit               (2,763)  (2,767)  (2,768)
                                                  ---------------------------
  Total charge to utility operating expenses       106,392   59,004   68,831
Net debit (credit) to other income and deductions  (23,184) (14,388)  44,823
                                                  ---------------------------
                                                    83,208   44,616  113,654
Extraordinary loss on early retirement of debt           0        0   (2,602)
                                                  ---------------------------
Total federal and state income tax provisions      $83,208  $44,616 $111,052
                                                  ===========================`

The provision for federal income taxes (including net investment tax
credit adjustments) is different than the amount computed by applying the
statutory tax rate to pretax income. The reasons for the difference, stated as a
percentage of pretax income, are as follows:

`2002     2001     2000
                                                  ---------------------------
Federal statutory tax rate                            35.0%    35.0%    35.0%
Effect of state income taxes                          (1.8)    (2.1)    (1.9)
Amortization of investment tax credits                (1.3)    (2.2)    (1.0)
Preferred dividends of subsidiary                      0.5      0.9      0.4
Nondeductible expenses                                 0.0      0.0      2.8
Other - net                                            1.8     (1.7)     0.6
                                                  ---------------------------
Effective federal tax rate                            34.2%    29.9%    35.9%
                                                  ===========================`

The significant items comprising Enterprises' net accumulated deferred tax
liability recognized in the consolidated balance sheets as of December 31, 2002,
and 2001, are as follows:

`2002        2001
                                                     ----------- -----------
Deferred tax liabilities:                                 (IN THOUSANDS)
Relating to utility property                           $462,369    $404,559
Other                                                     9,590       4,218
                                                     ----------- -----------
Total deferred tax liabilities                          471,959     408,777
Deferred tax assets:                                 ----------- -----------
Relating to utility property                             62,142      57,418
Investment tax credit                                    20,643      20,474
Employee benefit plans                                   53,857      58,740
Other                                                    (3,431)        650
                                                     ----------- -----------
Total deferred tax assets                               133,211     137,282
                                                     ----------- -----------
Accumulated net deferred tax liability                  338,748     271,495
  Less: Current portion of deferred tax liability           812         300
                                                     ----------- -----------
Accumulated deferred income taxes - net                $337,936    $271,195
                                                     =========== ===========`



11.	RATE MATTERS

Demand Side Management (DSM) Program: On August 18, 1999, IPL received an
IURC order approving a settlement agreement authorizing IPL to extend its low
income qualified residential DSM program through July 30, 2000. Subsequent
orders on March 9, 2000 and October 17, 2001 further extended this program
through October 17, 2003. The regulatory asset related to this program has a
balance of approximately $166,000 and $100,000 at December 31, 2002 and 2001,
respectively (see Note 3).

Elect Plan:  During 1998, the IURC approved a plan that allows IPL
customers with less than 2,000 kilowatts of demand an opportunity to choose
optional service or payment plans. This includes a green power option, a fixed-
rate per unit of consumption option and a fixed bill option. Customers not
choosing one of these options continue to receive electric service under
existing tariffs. The Elect Plan was extended by an IURC order through December
31, 2006.

12.	PENSION BENEFITS

Employees' Retirement Plan: Substantially all employees of Enterprises
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. Pension bands are based
primarily on job duties and responsibilities. Benefit accrual was frozen for all
non-union participants effective July 8, 2001. The non-union participants who
had their benefit accrual frozen also were prohibited from making additional
contributions to the IPL defined contribution plan (the Thrift Plan.) These non-
union people became eligible to participate in the AES defined contribution
plan.

In the 4th quarter of 2002, the non-union people who had their defined
benefit pension frozen on July 8, 2001 were given a one-time, irrevocable choice
to either (1) continue as an active participant in the AES defined contribution
plan; or (2) return to the IPL defined benefit plan as an active participant,
and return to the Thrift Plan as an active participant.

Enterprises' funding policy for the Defined Benefit Pension Plan is to
contribute annually not less than the minimum required by applicable law, nor
more than the maximum amount that can be deducted for federal income tax
purposes.

Supplemental Retirement Plan: Additionally, a select group of former
management employees of IPALCO and IPL who have terminated vested benefits are
covered under a funded supplemental retirement plan.



The following tables present information relating to the Defined Benefit
Pension Plan and supplemental retirement plan:

`Pension Benefits
                                                        2002        2001
                                                     ----------- -----------
Change in benefit obligation:                             (IN THOUSANDS)
Benefit obligation at beginning of year                $383,328    $341,855
Service cost                                              2,844       2,705
Interest cost                                            26,722      26,057
Actuarial loss                                           18,850      27,371
Amendments (primarily 11% increase in union member
  pension bands)                                          8,520           -
Partial curtailment loss                                      -       1,017
VERP benefit cost                                             -      18,816
Settlements                                                   -     (13,771)
Settlement loss                                               -         558
Benefits paid                                           (29,634)    (21,280)
                                                     ----------- -----------
  Benefit obligation at end of year                     410,630     383,328
                                                     ----------- -----------
Change in plan assets:
Fair value of plan assets at beginning of year          257,779     311,518
Actual return on plan assets                            (19,447)    (30,327)
Employer contribution                                    15,171      11,639
Settlements                                                   -     (13,771)
Benefits paid                                           (29,634)    (21,280)
                                                     ----------- -----------
  Fair value of plan assets at end of year              223,869     257,779
                                                     ----------- -----------
  Funded status                                        (186,761)   (125,549)
  Unrecognized net gain                                  80,139      20,257
  Unrecognized prior service cost                        14,494       6,686
  Unrecognized net transition asset                      (4,100)     (5,514)
  Adjustment to recognize minimum liability             (90,533)    (21,429)
                                                     ----------- -----------
    Accrued benefit cost                              ($186,761)  ($125,549)
                                                     =========== ===========`

`Pension Benefits
                                                                ---------------------------
                                                                  2002     2001     2000
                                                                ---------------------------
                                                                         (IN THOUSANDS)

Components of net periodic benefit cost
Service cost                                                      $2,844   $2,705   $6,138
Interest cost                                                     26,722   26,057   20,519
Expected return on plan assets                                   (22,203) (26,364) (27,181)
Amortization of transition (asset) obligation                     (1,414)  (1,414)  (1,414)
Amortization of prior service cost                                   712    1,017    1,580
Recognized actuarial gain                                            105   (1,297)  (2,869)
                                                                ---------------------------
Net periodic benefit cost                                          6,766      704   (3,227)
Amount of curtailment (gain)/loss recognized                           -    5,403    6,701
Amount of settlement (gain)/loss recognized                            -    4,000        -
Cost of special or contractual termination benefits recognized         -   18,816   56,771
                                                                ---------------------------
Total pension cost                                                 6,766   28,923   60,245
Less: amounts to other parties                                         -       11      (52)
Less: amounts capitalized                                            830      135     (586)
                                                                ---------------------------
Amount charged to expense                                         $5,936  $28,777  $60,883
                                                                ===========================
Weighted average assumptions as of December 31
Discount rate                                                       6.75%    7.25%     8.0%
Expected return on Defined Benefit Pension Plan assets               8.9%     9.0%     9.0%
Expected return on supplemental retirement plan assets               8.9%     8.0%     8.0%`

On November 9, 2000, Enterprises implemented a Voluntary Early Retirement
Program (VERP I). This program offered enhanced retirement benefits upon early
retirement to eligible employees. VERP I was available to all employees, except
officers, whose combined age and years of service totaled at least 75 on June
30, 2001. Participation was limited to, and subsequently accepted by 400
qualified employees. Participants elected actual retirement dates in 2001.
Additionally, Enterprises currently intends to provide post-retirement benefits
to VERP I retirees until age 55 at which time they will be eligible to receive
benefits from the independent VEBA Trust. Enterprises reserves the right to
modify or terminate post-retirement health care and life insurance benefits
being provided by IPL. Enterprises recognized the $56.8 million pre-tax non-cash
pension and $5.2 million other post-retirement benefit costs of VERP I in
December 2000.

On June 1, 2001, Enterprises implemented a second Voluntary Early Retirement
Program (VERP II). Upon expiration of the revocation period on July 23, 2001,
142 employees accepted VERP II. Enterprises recognized $17.2 million in pre-tax
non-cash pension costs and $2.6 million in other post-retirement benefit costs
associated with VERP II in the third quarter of 2001.

On September 14, 2001, Enterprises implemented a third Voluntary Early
Retirement Program (VERP III) limited to personnel at our Petersburg Generating
Station. Upon expiration of the revocation period on October 31, 2001, nine
employees accepted VERP III. Enterprises recognized $2.0 million in pre-tax non-
cash pension costs and $2.0 million in other post-retirement benefit costs
associated with VERP III in September 2001.

During 2000, IPL recognized a non-cash $6.7 million curtailment loss for the
supplemental retirement plan reflecting the expected near-term retirement of
certain plan participants. In conjunction with recording a minimum pension
liability of $3.5 million for this plan, Enterprises recorded an intangible
asset of $1.7 million. The net difference of $1.8 million was recorded as other
comprehensive loss.

The Thrift Plan: Substantially all employees of Enterprises are
covered by the Thrift Plan, which is a defined contribution plan sponsored by
IPL. Participants elect to make contributions to the Thrift Plan based on a
percentage of their base compensation. Each participant's contribution is
matched in amounts up to, but not exceeding, 4% of the participant's base
compensation. Employer contributions to the Thrift Plan were $1.2 million, $2.2
million and $3.5 million for 2002, 2001 and 2000, respectively.

The Wealth Accumulation Plan: Certain of Enterprises' employees are
also covered by the AES Profit Sharing and Stock Ownership Plan, which is a
defined contribution plan sponsored by AES. Participants elect to make
contributions to the AES defined contribution plan based on a percentage of
their taxable compensation. Each participant's contribution is matched in
amounts up to, but not exceeding, 5% of the participant's taxable compensation.
In addition, the AES defined contribution plan has a profit sharing component
where AES contributes a percentage of each employee's annual salary into the
plan on a pre-tax basis. The profit sharing percentage is determined by the AES
Board on an annual basis. Employer payroll-matching and profit sharing
contributions (by IPL) relating to the AES defined contribution plan were $3.4
million and $1.7 million for 2002 and 2001, respectively.

1. OTHER POST-RETIREMENT BENEFITS

The Group Benefits Plan: IPL sponsors a group benefits plan which
provides certain health care and life insurance benefits to active employees.
Prior to October 20, 2000, the plan also provided certain health care and life
insurance benefits to employees who retired from active service on or after
attaining age 55 and had rendered at least 10 years of service. The post-
retirement benefit costs of this plan were funded through a Voluntary Employee
Beneficiary Association (VEBA) Trust (VEBA Trust). In the fourth quarter of
2000, IPL curtailed and settled for $7.5 million the post-retirement medical and
life insurance benefit portion of its overall group benefits plan. On April 30,
2001, all assets of the VEBA Trust and its obligations were formally spun-off to
an independent trustee into a newly formed plan, the Voluntary Employee
Beneficiary Association Plan (the "VEBA Plan") that provides post
retirement medical and life benefits to retirees who retired from IPL or IPALCO
before October 20, 2000. In addition, people who were employed by IPL or IPALCO
on October 20, 2000, who subsequently retire from IPL or IPALCO and who meet the
retirement requirements of age 55 or older and 10 or more years service are
eligible for post-retirement health care benefits under the VEBA Trust. The VEBA
Plan is sponsored and administered by an independent VEBA Committee.

In November 2002, IPL and the International Brotherhood of Electrical Workers
(IBEW) union reached an agreement whereby IPL will provide post-retirement
health care benefits to IBEW members who were employed by IPL after October 20,
2000. The plan was amended accordingly.

On December 23, 2002, Enterprises executed an agreement with the
administrator of the VEBA Trust to provide post-retirement medical and life
insurance benefits to VERP II and VERP III participants from age 55 until age
62, subject to our right to modify or terminate such benefits in the future. The
additional cost is estimated to be $7.5 million to be amortized over 8 years.
When those retirees reach age 62, they will be eligible for benefits from the
VEBA Trust.

The following tables present information relating to other post retirement
benefits:

`Other Post Retirement Benefits                          2002        2001
                                                     ----------- -----------
Change in benefit obligation:                             (IN THOUSANDS)
Benefit obligation at beginning of year                  $9,504      $5,237
Interest cost                                               438         396
Actuarial (gain) loss                                      (775)        440
Plan amendments                                           5,111           -
Termination benefits                                          -       4,069
Benefits paid                                            (1,620)       (638)
                                                     ----------- -----------
Benefit obligation at end of year                        12,658       9,504
                                                     ----------- -----------
Change in plan assets:
Employer contribution                                     1,620         638
Benefits paid                                            (1,620)       (638)
                                                     ----------- -----------
Fair value of plan assets at end of year                      -           -
                                                     ----------- -----------
Funded status                                           (12,658)     (9,504)
Unrecognized net gain                                      (377)          -
Unrecognized prior service cost                           7,070           -
                                                     ----------- -----------
Accrued benefit cost                                    ($5,965)    ($9,504)
                                                     =========== ===========`

`Other Benefits                                   2002    2001    2000
                                               ------------------------
Components of net periodic benefit cost:            (IN THOUSANDS)
Service cost                                        $0      $0  $3,323
Interest cost                                      438     396   9,846
Expected return on plan assets                       -       -  (9,703)
Amortization of transition (asset) obligation        -       -   5,100
Recognized actuarial gain                          399     440  (2,642)
                                               ------------------------
Net periodic benefit cost                          837     836   5,924
Curtailment charge (credit)                          -       -  55,171
Settlement charge (credit)                           -       - (46,547)
Cost of special or contractual
  termination benefits recognized                    -   2,110       -
Less: amounts capitalized                          103      83   1,076
                                               ------------------------
Amount charged to expense                         $734  $2,863 $13,472
                                               ========================
Discount rate as of December 31                   6.75%   7.25%   7.75%`



Other benefit estimates were prepared using an expected rate of return on
plan assets of 9.0% for 2000. For measurement purposes, we assumed an annual
rate of increase in the per capita cost of covered medical care benefits of
10.0% for 2003, gradually declining to 5.5% in 2007 and remaining level
thereafter. In addition, we assumed an annual rate of increase in the per capita
cost of covered prescription drugs of 15.0% for 2003, gradually declining to
5.5% in 2012 and remaining level thereafter. The effect of a one percentage
point increase and decrease in the assumed health care cost trend rates on the
aggregate of the service and interest cost components of net periodic post
retirement health care benefit costs is $8,467 and $(8,287), respectively. The
effect of a one percentage point increase and decrease in the assumed health
care cost trend rates on the accumulated post retirement benefit obligation for
health care benefit costs is $597,057 and $(547,234), respectively. We assumed a
5.9% blended rate of increase in the per capita cost of covered health care
benefits (medical and prescription drugs) for 2000. The plan assets were spun-
off on October 20, 2000 to an independent trustee.

14.	COMMITMENTS AND CONTINGENCIES

In March 2002, IPALCO and certain former officers and directors of IPALCO
were named as defendants in a purported Employment Retirement Income Security
Act (ERISA) class action lawsuit filed in the U.S. District Court for the
Southern District of Indiana. On May 28, 2002, an amended complaint was filed
asserting that the former members of the pension committee breached their
fiduciary duties to the plaintiffs under the ERISA by investing assets of the
Thrift Plan in the common stock of IPALCO prior to the acquisition of IPALCO by
AES. On July 22, 2002, the defendants filed a motion to dismiss the lawsuit,
which motion was denied. While we cannot predict the outcome, we do not believe
that the suit will have a material adverse effect on Enterprises' financial
condition, results of operations or liquidity.

In September 2002, IPALCO and certain of its former officers and directors
were sued in the U.S. District Court for the Southern District of Indiana in
connection with IPALCO's acquisition by AES. The lawsuit purports to be filed on
behalf of all persons who exchanged their shares of IPALCO common stock for
shares of AES common stock. The complaint alleges violations of Section 11 of
the Securities Act; Sections 10(b), 14(a) and 20(a) of the Exchange Act and
Rules 10b-5 and 14a-9. We believe that we have meritorious defenses to the suit.
While we cannot predict the outcome, we do not believe that the suit will have a
material adverse effect on Enterprises' financial condition, results of
operations or liquidity.

IPL has been named as a defendant in approximately 55 pending lawsuits
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. Many of the original primary defendants3⁄4
the asbestos manufacturers3⁄4
have filed for bankruptcy protection. IPL has insurance coverage for many 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. Although we do not believe that any
of the pending asbestos suits in which IPL is a named defendant will have a
material adverse effect on Enterprises business or operations, we are unable to
predict the number or effect any additional suits may have. Accordingly, we
cannot assure that the pending or any additional suits will not have a material
effect on our business or operations.

In addition, Enterprises is 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
final outcome will not have a material adverse effect on Enterprises'
consolidated financial statements.

With respect to environmental issues, IPL has ongoing discussions with
various regulatory authorities and we continue to believe that IPL is in
compliance with its various permits. On October 27, 1998, the U.S. Environmental
Protection Agency issued a final rule, referred to as the NOx SIP
call, which imposes more stringent limits on nitrogen oxide (NOx)
emissions from fossil fuel-fired steam electric generators. IPL's current
estimates are the NOx SIP call will necessitate additional capital
expenditures of approximately $227 million during 2003-2005 to achieve
substantially all of the required NOx emission reductions. The scope of the construction program associated with
NOx emission reductions could be reduced by purchasing some of the
required NOx emission allowances in the market, subject to IURC
approval.

On November 14, 2002, the IURC issued a Certificate of Public Convenience and
Necessity for the construction and use of clean coal technology (CCT) to allow
IPL to meet the NOx emission limits imposed pursuant to EPA's
NOx SIP Call. The IURC approved the use of qualified pollution
control property as defined in I.C. 8-1-2-6.6 and ratemaking treatment through
an Environmental Compliance Cost Recovery Adjustment. The ratemaking treatment
provided for in the IURC order includes a return on the investment in IPL's
planned CCT projects under construction. After the projects have been placed in
service, the approved ratemaking treatment provides for a return on the
investment and recovery of the depreciation expense associated with these
projects, as well as the recovery of operating and maintenance costs associated
with these projects. The ratemaking
treatment also provides for recovery ofexpenditures related
to the purchase of NOxemission
allowance,should such expenditures be made to supplement
IPL's CCT construction projects.IPL may add the approved return on its CCT projects to its net operating
income authorized by the IURC in subsequent fuel adjustment charge proceedings.
The increase in the amount of rate revenues and authorized net operating income
resulting from IPL's CCT plan will be determined in periodic filings to the IURC
to be made at an interval of no more often than every 6 months and will depend
on the amount of cumulative investment and operating and maintenance
expenditures at the time of each of the filings.

As of December 31, 2002, Mid-America had a commitment to invest additional
capital of $9.6 million in EnerTech Capital Partners II L.P., a venture capital
fund. IPALCO has guaranteed the prompt payment of this commitment when it may
become due pursuant to the terms of the partnership agreement between Mid-
America and EnerTech. As required by GAAP, there is no liability on the
accompanying balance sheets for this guarantee.

In connection with the sale of the Thermal assets, Cleveland Thermal
Energy Corporation (CTEC) and Cleveland District Cooling Corporation (CDCC) have
agreed to indemnify the buyer on an after-tax basis from and against all losses
arising out of: any liabilities excluded from the sale; and certain litigation
and environmental matters existing at the closing date, November 2, 2000. IPALCO
has guaranteed this indemnification up to $14.6 million. Claims regarding a
breach of an environmental representation or regarding an excluded liability
must be brought on or before November 2, 2004. The indemnification provided for
under this agreement will in no event exceed the total aggregate purchase price,
or $14.6 million.

15.	INVESTMENTS

Enterprises has classified its investments in marketable equity
securities as available-for-sale, and any unrealized gains or losses are
recorded as a separate component of shareholder's equity. In 2000, Mid-America
sold a portion of its investment in an internet holding company, resulting in a
realized gain of $112.6 million. The total realized gain is reduced by related
compensation expenses and gross receipts tax of $10.3 million and income taxes
of $42.2 million, which are included in OTHER INCOME AND (DEDUCTIONS). The
after-tax proceeds were applied primarily to the reduction of Enterprises'
outstanding unsecured debt. During 2000, unrealized losses of $61.8 million
($37.6 million after-tax) were recorded to ACCUMULATED OTHER COMPREHENSIVE LOSS
to reflect the decrease in market price for the unsold portion of that
investment.

As of December 31, 2002, Mid-America owned a 6.6% investment in EnerTech
Capital Partners II L.P., a venture capital fund, recorded at approximately $4.2
million.

16.	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 includes the IPALCO Notes, costs
associated with the AES Acquisition, and all of IPALCO's subsidiaries other than
IPL. Our Thermal Assets, which included our steam distribution system and our
chilled water cooling and distribution assets were in the "all other"
category up until their sale on November 20, 2000. The operations of our
Cleveland Energy Resources subsidiary were in the "all other" segment
prior to being sold effective May 21, 2001. The accounting policies of the
identified segments are consistent with those policies and procedures described
in the summary of significant accounting policies. Intersegment sales are
generally based on prices that reflect the current market conditions.

The following tables provide information about Enterprises' business segments
(in millions):

`2002                        2001                        2000
                               --------------------------- --------------------------- ---------------------------
                                         All (1)                       All                         All
                               Electric   Other    Total   Electric   Other    Total   Electric   Other    Total
                               --------------------------- --------------------------- ---------------------------
Operating Revenues                 $818        0     $818      $828        0     $828      $831       28      859
Depreciation and Amortization       118        0      118       111        0      111       108        3      111
Income Taxes                        108      (25)      83        55      (10)      45        69       45      114
Net Income                          166      (41)     125        91      (13)      78        83       72      155
Property - net of Depreciation    1,689        1    1,690     1,666        2    1,668     1,648       12    1,660
Capital Expenditures                 95        0       95       127        0      127        76        0       76`

(1) The All Other segment includes $2.2 million of equity losses in Mid-
America's investment in EnerTech in 2002.

17.	QUARTERLY RESULTS (UNAUDITED)

Operating results for the years ended December 31, 2002, and 2001, by
quarter, are as follows (in thousands):

`2002
                           ------------------------------------------------------------
                              March 31        June 30     September 30    December 31
                           ------------------------------------------------------------
Utility operating revenue        $197,470       $197,168       $226,755       $196,574
Utility operating income           50,974         47,277         61,128         41,207
Net income                         33,384         29,040         40,845         21,677

                                                        2001
                           ------------------------------------------------------------
                            March 31 (1)      June 30     September 30    December 31
                           ------------------------------------------------------------
Utility operating revenue        $209,052       $205,473       $224,960       $188,561
Utility operating income           10,320         46,734         34,799         38,788
Net income                         (9,640)        34,324         24,712         28,551`

(1)	The first quarter 2001 results reflect termination benefit agreement
costs (see Note 2).

The quarterly figures reflect seasonal and weather-related fluctuations
that are normal to IPL's operations.

18.	SUBSEQUENT EVENTS

On February 12, 2003, the IURC issued an Order approving IPL's financing
program, including, among other things, the issuance of up to $160 million of
additional long-term debt to pay, in part, for IPL's construction program during
2003-2005, and the refinancing of $80 million of long-term debt, which matures
in February 2004. The Order approved the requested financing but set forth a
process whereby IPL must file a report with the IURC, prior to declaring or
paying a dividend, that sets forth (1) the amount of any proposed dividend, (2)
the amount of dividends distributed during the prior twelve months, (3) an
income statement for the same twelve-month period, (4) the most recent balance
sheet, and (5) IPL's capitalization as of the close of the preceding month, as
well as a pro forma capitalization giving effect to the proposed dividend, with
sufficient detail to indicate the amount of unappropriated retained earnings. If
within twenty (20) calendar days the IURC does not initiate a proceeding to
further explore the implications of the proposed dividend, the proposed dividend
will be deemed approved. The Order stated that such process should continue in
effect during the term of the financing authority, which expires December 31,
2006.

On February 28, 2003, IPL filed a petition for reconsideration, or in the
alternative, for rehearing with the IURC. This petition seeks clarification of
certain provisions of the Order. In addition, the petition requests that the
IURC establish objective criteria in connection with the reporting process
related to IPL's long term debt capitalization ratio. Whether or not such
petition is successful, we have no reason to believe the IURC will prevent IPL
from paying future dividends in the ordinary course of prudent business
operations. On March 14, 2003, IPL filed a Notice of Appeal in the Indiana Court
of Appeals in order to preserve its rights to appeal the IURC Order, if such an
appeal is deemed appropriate.

---

---

INDEPENDENT AUDITORS' REPORT

To the Board of Directors of Indianapolis Power & Light Company:

We have audited the accompanying balance sheets of Indianapolis Power &
Light Company (the "Company") as of December 31, 2002 and 2001, and
the related statements of income, common shareholder's equity and cash flows for
each of the three years in the period ended December 31, 2002. Our audits also
included the financial statement schedule listed in the Index at Item 15. These
financial statements and the financial statement schedule are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, such financial statements present fairly, in all material
respects, the financial position of Indianapolis Power & Light Company as of
December 31, 2002 and 2001, and its results of operations and cash flows for
each of the three years in the period ended December 31, 2002 in conformity with
accounting principles generally accepted in the United States of America. Also,
in our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, present fairly
in all material respects the information set forth therein.

/s/ DELOITTE & TOUCHE LLP



Indianapolis, Indiana

January 17, 2003

(March 14, 2003 as to Note 17)

---

---

`INDIANAPOLIS POWER & LIGHT COMPANY
Statements of Income
For the Years Ended December 31, 2002, 2001 and 2000`

See notes to financial statements

---

`INDIANAPOLIS POWER & LIGHT COMPANY
Balance Sheets
As of December 31, 2002 and 2001

(IN THOUSANDS)

                             ASSETS                                  2002         2001
UTILITY PLANT:                                                    -----------  -----------
  Utility plant in service                                        $3,144,472   $3,006,190
  Less accumulated depreciation                                    1,536,986    1,443,736
                                                                  -----------  -----------
      Utility plant in service - net                               1,607,486    1,562,454
                                                                  -----------  -----------
  Construction work in progress                                       73,696       92,522
  Property held for future use                                         7,708       10,741
                                                                  -----------  -----------
      Utility plant - net                                          1,688,890    1,665,717
                                                                  -----------  -----------
OTHER PROPERTY -
  At cost, less accumulated depreciation                               5,040        5,730
                                                                  -----------  -----------
CURRENT ASSETS:
  Cash and cash equivalents                                           25,077        9,204
  Accounts receivable and unbilled revenue (less allowances
    for doubtful accounts of $1,526 and $1,065 respectively)          41,473       47,781
  Receivable due from Parent                                              81        1,351
  Fuel - at average cost                                              22,023       28,970
  Materials and supplies - at average cost                            47,880       48,381
  Net income tax refunds receivable                                    4,166        7,900
  Prepayments and other current assets                                 4,498        1,322
                                                                  -----------  -----------
      Total current assets                                           145,198      144,909
                                                                  -----------  -----------
DEFERRED DEBITS:
  Regulatory assets                                                  140,768       97,809
  Miscellaneous                                                       20,153       13,007
                                                                  -----------  -----------
      Total deferred debits                                          160,921      110,816
                                                                  -----------  -----------
              TOTAL                                               $2,000,049   $1,927,172
                                                                  ===========  ===========
                 CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
  Common shareholder's equity:
    Common stock                                                    $324,537     $324,537
    Premium and net gain on preferred stock                            2,642        2,642
    Retained earnings                                                368,950      363,083
    Accumulated other comprehensive loss                             (52,619)     (11,469)
                                                                  -----------  -----------
      Total common shareholder's equity                              643,510      678,793
                                                                  -----------  -----------
  Cumulative preferred stock                                          59,135       59,135
  Long-term debt (less current maturities
    and sinking fund requirements)                                   622,007      621,930
                                                                  -----------  -----------
      Total capitalization                                         1,324,652    1,359,858
                                                                  -----------  -----------
CURRENT LIABILITIES:
  Accounts payable                                                    30,313       47,798
  Accrued expenses                                                    16,136       15,074
  Dividends payable                                                      797          806
  Accrued income and other taxes                                      30,071       25,273
  Accrued interest                                                    14,629       14,514
  Other current liabilities                                           12,827       19,897
                                                                  -----------  -----------
      Total current liabilities                                      104,773      123,362
                                                                  -----------  -----------
DEFERRED CREDITS AND OTHER LONG-TERM LIABILITIES:
  Accumulated deferred income taxes - net                            338,322      271,031
  Unamortized investment tax credit                                   30,927       33,690
  Accrued postretirement benefits                                      5,965        9,504
  Accrued pension benefits                                           186,761      125,549
  Miscellaneous                                                        8,649        4,178
                                                                  -----------  -----------
      Total deferred credits and other long-term liabilities         570,624      443,952
                                                                  -----------  -----------
COMMITMENTS AND CONTINGENCIES (Note 14)

              TOTAL                                               $2,000,049   $1,927,172
                                                                  ===========  ===========`

See notes to financial statements

---

`INDIANAPOLIS POWER & LIGHT COMPANY
Statements of Cash Flows
For the Years Ended December 31, 2002, 2001and 2000`

---

See notes to financial statements

---

`INDIANAPOLIS POWER & LIGHT COMPANY
Statements of Common Shareholder's Equity
For the Years Ended December 31, 2002, 2001 and 2000

(IN THOUSANDS)
                                                                      Premium
                                                                      and Net     Retained     Accumulated
                                                                      Gain on     Earnings        Other
                                                            Common   Preferred  (Accumulated  Comprehensive
                                                            Stock      Stock      Deficit)    Income (Loss)     Total
                                                          ---------- ---------- ------------- --------------  ----------
Balance at January 1, 2000                                 $324,537     $2,642      $453,331             $0    $780,510
   Cash dividends declared - common stock                                           (136,539)                  (136,539)
   Cash dividends declared - cumulative preferred stock                               (3,213)                    (3,213)
  Comprehensive Income:
    Net income                                                                        83,453                     83,453
    Minimum pension liability adjustment                                                            ($1,820)    ($1,820)
                                                          ---------- ---------- ------------- --------------  ----------
 Total Comprehensive Income                                       0          0        83,453         (1,820)     81,633
                                                          ---------- ---------- ------------- --------------  ----------
Balance at December 31, 2000                               $324,537     $2,642      $397,032        ($1,820)   $722,391
   Cash dividends declared - common stock                                           (121,537)                  (121,537)
   Cash dividends declared - cumulative preferred stock                               (3,213)                    (3,213)
  Comprehensive Income:
   Net income                                                                         90,801                     90,801
   Minimum pension liability adjustment                                                              (7,332)     (7,332)
   Adjust financial instruments to fair market value                                                 (2,317)     (2,317)
                                                          ---------- ---------- ------------- --------------  ----------
 Total Comprehensive Income                                       0          0        90,801         (9,649)     81,152
                                                          ---------- ---------- ------------- --------------  ----------
Balance at December 31, 2001                               $324,537     $2,642      $363,083        (11,469)   $678,793
   Cash dividends declared - common stock                                           (157,407)                  (157,407)
   Cash dividends declared - cumulative preferred stock                              ($3,213)                   ($3,213)
  Comprehensive Income:
   Net income                                                                        166,487                    166,487
   Minimum pension liability adjustment                                                             (38,050)    (38,050)
   Adjust financial instruments to fair market value                                                 (3,100)     (3,100)
                                                          ---------- ---------- ------------- --------------  ----------
 Total Comprehensive Income                                       0          0       166,487        (41,150)    125,337
                                                          ---------- ---------- ------------- --------------  ----------
Balance at December 31, 2002                               $324,537     $2,642      $368,950       ($52,619)   $643,510
                                                          ========== ========== ============= ==============  ==========
See notes to financial statements.`

---

---

INDIANAPOLIS POWER & LIGHT COMPANY

Notes to Financial Statements

For the Years Ended December 31, 2002, 2001 and 2000

1.	ORGANIZATION

Indianapolis Power & Light Company (IPL) was incorporated under the
laws of the state of Indiana. All of the outstanding common stock of IPL is
owned by IPALCO Enterprises, Inc. (IPALCO). IPL is engaged primarily in
generating, transmitting, distributing and selling electric energy to
approximately 450,000 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 retail electric service to
those customers. Until November 2000, IPL also produced, distributed and sold
steam within a limited area in Indianapolis. 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 used for electric generation. IPL's
net electric generation capability for winter is 3,342 megawatts and net summer
capability is 3,224 megawatts.

2.	AES ACQUISITION AND ASSET SALES

AES Acquisition:  On March 27, 2001, The AES Corporation (AES) completed
its acquisition of IPALCO through a share exchange transaction in accordance
with the Agreement and Plan of Share Exchange dated as of July 15, 2000, among
AES and IPALCO (the Share Exchange Agreement). Pursuant to the Share Exchange
Agreement, IPALCO became a wholly-owned subsidiary of AES, accounted for as a
pooling of interests.

As a result of the acquisition by AES, IPL has recorded $72.5 million ($44.9
million after tax) of costs related to the termination of certain employees
during 2001. The pretax expenses included $57.1 million in costs associated with
termination benefit agreements and severance, $9.2 million in supplemental
retirement costs, and $6.2 million in restricted stock expense. Substantially
all of the supplemental retirement costs and restricted stock costs were paid
out by March 31, 2001. Termination benefit agreement costs include amounts paid
to officers of IPL under termination benefit agreements and severance paid to
certain other employees upon termination during the first half of 2001.

Sale of the Assets of the Steam Operations:  On November 20, 2000, IPL
sold the Perry K Steam Plant and downtown steam distribution system (Steam) for
$54.7 million. The transaction resulted in a loss to IPL of $21.2 million ($13.4
million after tax). Of the net proceeds, $6.2 million was used to retire debt
specifically assignable to the Steam assets.

3.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Regulation:  The retail utility operations of IPL are subject to the
jurisdiction of the Indiana Utility Regulatory Commission (IURC). IPL's
wholesale power transactions are subject to the jurisdiction of the Federal
Energy Regulatory Commission. These agencies regulate IPL's utility business
operations, tariffs, accounting, depreciation allowances, services, security
issues and the sale and acquisition of utility properties. The financial
statements of IPL are based on accounting principles generally accepted in the
United States of America (GAAP), including the provisions of Statement of
Financial Accounting Standards (SFAS) No. 71, "Accounting for the Effects
of Certain Types of Regulation," which gives recognition to the ratemaking
and accounting practices of these agencies.

Revenues:  Revenues related to the sale of energy are generally
recognized when service is rendered or energy is delivered to customers.
However, the determination of the energy sales to individual customers is based
on the reading of their meters, which occurs on a systematic basis through-out
the month. At the end of each month, amounts of energy delivered to customers
since the date of the last meter reading are estimated and the corresponding
unbilled revenue is estimated. This unbilled revenue is estimated each month
based on daily generation volumes, estimated customer usage by class, weather
factors, line losses and applicable customer rates based on regression analyses
reflecting significant historical trends and experience. Customer accounts
receivable include unbilled energy revenues of $32.6 million on a base of annual
revenue of $818.0 million.

A fuel adjustment charge provision, which is established after public
hearing, is applicable to most of the rate schedules of IPL and permits the
billing or crediting of estimated fuel costs above or below the levels included
in such rate schedules. Actual fuel costs in excess of or under estimated fuel
costs billed are deferred or accrued, respectively.

Through the date of IPL's next general electric rate order, IPL is required
to file upward and downward adjustments in fuel cost credits and charges on a
quarterly basis, based on changes in the cost of fuel, irrespective of its level
of earnings. IPL is allowed to recover purchased power costs based on a
benchmark. If the cost per Mwh of power purchases is not greater than the
benchmark, then the purchased power costs should be considered net energy costs
that are presumed fuel costs included in purchased power. If the average cost
per Mwh of power purchases is greater than the benchmark, then the costs are
recoverable only through demonstration of the reasonableness of those purchases
to the IURC.

Regulatory Assets:  Regulatory assets represent deferred costs that
have been included as allowable costs for ratemaking purposes. IPL has recorded
regulatory assets relating to certain costs as authorized by the IURC. Specific
regulatory assets are disclosed in Note 6. IPL is amortizing such nontax-related
regulatory assets to expense over periods ranging from 1 to 30 years. Tax-
related regulatory assets represent the net income tax costs to be considered in
future regulatory proceedings generally as the tax-related amounts are paid.

In accordance with regulatory treatment, IPL deferred as a regulatory asset
certain post in-service date carrying charges and certain other costs related to
its investment in Unit 4 at the Petersburg Plant. As authorized in the 1995
Electric Rate Settlement, IPL, effective September 1, 1995, is amortizing this
deferral to expense over a life that generally approximates the useful life of
the related facility. Also in accordance with regulatory treatment, IPL defers
as regulatory assets non-sinking fund debt and preferred stock redemption
premiums and expenses, and amortizes such costs over the life of the original
debt or, in the case of preferred stock redemption premiums, over 20 years.

Authorized Annual Operating Income:  Indiana law requires electric
utilities under the jurisdiction of the IURC to meet operating expense and
income test requirements as a condition for approval of requested changes in
fuel adjustment charges. Additionally, customer refunds may result if the
utilities' rolling 12-month operating income, determined at quarterly
measurement dates, exceeds the utilities' authorized annual operating income and
cannot be offset by applicable cumulative net operating income deficiencies. In
such a circumstance, the required customer refund for the quarterly measurement
period is calculated to be one-fourth of the excess annual operating income
grossed up for federal and state taxes as required under I. C. 8-1-2-42.5.

IPL's authorized annual jurisdictional electric net operating income, for
purposes of quarterly operating income tests, is $163 million. This level will
be maintained until changed by an IURC order. During the four quarterly
measurement dates in 2002, the Commission found that IPL's rolling annual
jurisdictional retail electric operating income was less than the authorized
annual operating income at January and April and was greater than the authorized
annual operating income by $5.6 million and $25.2 million at July and October,
respectively. However, because IPL has a cumulative net operating deficiency, it
was not required to make customer refunds. As of IPL's quarterly measurement
date on October 31, 2002, IPL had a cumulative net operating deficiency of
$655.3 million. The operating deficiency is calculated by summing the quarterly
measurement period annual results from the date of the last rate order. Because
of the deficiency, IPL can, for a period of time, earn above $163 million of
electric jurisdictional retail net operating income without being required to
make customer refunds.

The IURC approved the use of qualified pollution control property (QPCP) as
defined in I.C. 8-1-2-6.6 and ratemaking treatment through an Environmental
Compliance Cost Recovery Adjustment that allows IPL to meet the NOx
emission limits imposed pursuant to EPA's NOx SIP Call. A return on
the investment in IPL's clean coal technology (CCT) investments is included in
the ratemaking. IPL may add the approved return on its CCT projects to its net
operating income authorized by the IURC for purposes of annual operating income
test requirements in subsequent fuel adjustment charge proceedings. The
additional amount of return will be dependent on the cumulative amount of QPCP
investment that has been made at the time IPL files with the IURC for ratemaking
treatment on such QPCP investment. Such filings are made at an interval of no
more often than every 6 months.

Contingencies:  IPL accrues for loss contingencies when the amount of
the loss is probable and estimable. IPL is subject to various environmental
regulations, and is involved in certain legal proceedings. If actual
environmental and/or legal obligations are different from our estimates, the
recognition of the actual amounts may have a material impact on IPL's operating
results and financial condition.

Concentrations of Risk:  Substantially all of IPL's customers are
located within the Indianapolis area. In addition, approximately 71% of IPL's
employees are covered by collective bargaining agreements.

Allowance For Funds Used During Construction:  In accordance with the
prescribed Uniform System of Accounts, IPL capitalizes an allowance for the net
cost of funds (interest on borrowed funds and a reasonable rate on equity funds)
used for construction purposes during the period of construction with a
corresponding credit to income. IPL capitalized amounts using pretax composite
rates of 9.4%, 9.4% and 9.2% during 2002, 2001 and 2000, respectively.

Utility Plant and Depreciation:  Utility plant is stated at original
cost as defined for regulatory purposes. The cost of additions to utility plant
and replacements of retirement units of property, as distinct from renewals of
minor items that are charged to maintenance, are charged to plant accounts.
Units of property replaced or abandoned in the ordinary course of business are
retired from the plant accounts at cost; such amounts plus removal costs, less
salvage, are charged to accumulated depreciation. Depreciation is computed by
the straight-line method based on functional rates approved by the IURC and
averaged 3.7% for 2002 and 3.6% during 2001 and 2000.

Off-Balance Sheet Arrangements:  In 1996, IPL formed IPL Funding
Corporation (IPL Funding) to purchase, on a revolving basis, up to $50 million
of the retail accounts receivable and related collections of IPL in exchange for
a note payable. IPL Funding is not consolidated by IPL since it meets
requirements set forth in SFAS No. 140, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities" to be considered a
qualified special-purpose entity. IPL Funding has entered into a purchase
facility with unrelated parties (the Purchasers) pursuant to which the
Purchasers agree to purchase from IPL Funding, on a revolving basis, up to $50
million of the receivables purchased from IPL. As of December 31, 2002, the
aggregate amount of receivables purchased pursuant to this facility was $50.0
million. The net cash flows between IPL and IPL Funding are limited to cash
payments made by IPL to IPL Funding for interest charges and processing fees.
These payments totaled approximately $1.1 million, $2.3 million and $3.5 million
for the years ended December 31, 2002, 2001 and 2000, respectively. IPL retains
servicing responsibilities through its role as a collection agent for the
amounts due on the purchased receivables. IPL and IPL Funding provide certain
indemnities to the Purchasers, including indemnification in the event that there
is a breach of representations and warranties made with respect to the purchased
receivables. IPL Funding and IPL each have agreed to indemnify the Purchasers on
an after-tax basis for any and all damages, losses, claims, liabilities,
penalties, taxes, costs and expenses at any time imposed on or incurred by the
indemnified parties arising out of or otherwise relating to the sale agreement,
subject to certain limitations as defined in the agreements. The transfers of
receivables to IPL Funding are recorded as sales however no gain or loss is
recorded on the sale.

Under the receivables sale agreement, if IPL fails to maintain certain
financial covenants regarding interest coverage and debt-to-capital ratios, it
would constitute a "termination event." IPL is in compliance with such
covenants.

As a result of IPL's current credit rating, the facility agent has the
ability to (i) replace IPL as the collection agent; and (ii) declare a
"lock-box" event. Under a lock-box event or a termination event, the
facility agent has the ability to require all proceeds of purchased receivables
of IPL to be directed to lock-box accounts within 45 days of notifying IPL. A
termination event would also (i) give the facility agent the option to take
control of the lock-box account, and (ii) give the Purchasers the option to
discontinue the purchase of new receivables and cause all proceeds of the
purchased receivables to be used to reduce the Purchaser's investment and to pay
other amounts owed to the Purchasers and the facility agent. This would have the
effect of reducing the operating capital available to IPL by the aggregate
amount of such purchased receivables (currently $50 million.)

Derivatives:  IPL has only limited involvement with derivative
financial instruments and does not use them for trading purposes. IPL accounts
for its derivatives in accordance with SFAS No. 133 "Accounting for
Derivatives", as amended. IPL has one interest rate swap agreement, which
it entered into as a means of managing the interest rate exposure on its
variable-rate debt. Management has formally designated this swap as a hedge.
IPL's balance sheets reflect the current fair market value of this swap and IPL
records the change in its fair value in accumulated other comprehensive loss.
Management relies on financial institutions, which use standard market
conventions to determine the fair value of our swap. All methods of assessing
fair value result in a general approximation of value and such value may never
be realized.

Income Taxes:  Deferred taxes are provided for all significant
temporary differences between book and taxable income. The effects of income
taxes are measured based on enacted laws and rates. Such differences include the
use of accelerated depreciation methods for tax purposes, the use of different
book and tax depreciable lives, rates and in-service dates and the accelerated
tax amortization of pollution control facilities. Deferred tax assets and
liabilities are recognized for the expected future tax consequences of existing
differences between the financial reporting and tax reporting basis of assets
and liabilities. Those income taxes payable which are includable in allowable
costs for ratemaking purposes in future years are recorded as regulatory assets
with a corresponding deferred tax liability. Investment tax credits that reduced
federal income taxes in the years they arose have been deferred and are being
amortized to income over the useful lives of the properties in accordance with
regulatory treatment.

Cash and Cash Equivalents:  IPL considers all highly liquid
investments purchased with original maturities of 90 days or less to be cash
equivalents.

New Accounting Pronouncements:  In June 2001, the Financial Accounting
Standards Board (FASB) issued new pronouncements: SFAS No. 142, "Goodwill and
Other Intangibles" and SFAS No. 143, "Accounting for Asset Retirement
Obligations." SFAS No. 142 requires the use of a non amortization approach to
account for purchased goodwill and certain intangibles. Under a non amortization
approach, goodwill and certain intangibles would not be amortized into results
of operations, but instead would be reviewed for impairment at least annually
and written down and charged to results of operations in the periods in which
the recorded value of goodwill and certain intangibles are determined to be
greater than their fair value. SFAS No. 142 was effective for IPL beginning
January 1, 2002. The adoption of SFAS No. 142 did not have any impact on IPL's
financial position or results of operations.

SFAS No. 143 addresses financial accounting and reporting for obligations
associated with retirement of tangible long-lived assets and the associated
asset retirement costs. It requires that the fair value of a liability for an
asset retirement obligation be recognized in the period in which it is incurred
if a reasonable estimate of fair value can be made. The associated asset
retirement costs are capitalized as part of the carrying amount of the long-
lived asset. This statement was effective for IPL beginning January 1, 2003.
Management does not expect the adoption of SFAS No. 143 to have a material
impact on IPL's financial position or results of
operations.

In August 2001, the FASB issued SFAS No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 addresses
accounting for and reporting of the impairment or disposal of long-lived assets
and was effective for IPL beginning January 1, 2002. The adoption of SFAS No.
144 did not have any impact on IPL's financial position or results of
operations.

In June 2002, the FASB issued SFAS No. 146 "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 addresses
accounting for and reporting of costs associated with an exit or disposal
activities. SFAS No. 146 required that a liability for a cost associated with an
exit or disposal activity be recognized when the liability is incurred, rather
then when the entity simply commits to a plan of exit or disposal. SFAS No. 146
is effective for exit or disposal activities initiated after December 31, 2002.
Although IPL is currently not contemplating exit or disposal activities, SFAS
No. 146 could have a material impact on our financial statements if and when
such activities are initiated.

In December 2002, the FASB issued SFAS No. 148 "Accounting for Stock-
Based Compensation - Transition and Disclosure" an amendment of FASB
Statement No. 123. SFAS No. 148 provides three alternative methods of accounting
for stock-based compensation at fair value: (i) the prospective method; (ii) the
modified prospective method; and (iii) the retroactive restatement method.
Certain employees of IPL participate in the AES Stock Option Plan. No options
were awarded to IPL employees during 2002. Effective January 1, 2003, IPL has
elected to adopt fair value accounting for its stock-based compensation using
the prospective method for recognizing stock-based compensation expense. The
prospective method requires recognition of stock-based compensation expense at
fair value for all awards granted in the year of adoption but not for previous
awards. IPL will continue to use the Black-Scholes option-pricing model to
determine the fair value of options issued. The expense for each award grant,
including awards with graded vesting, will be recognized on a straight-line
basis over the vesting period. Any forfeitures will be recognized when they
occur.

Use of Management Estimates:  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.

Reclassifications: Certain amounts from prior years' financial
statements have been reclassified to conform to the current year
presentation.

4.	UTILITY PLANT IN SERVICE

The original cost of utility plant in service at December 31, segregated
by functional classifications, follows:

`2002        2001
                                                     ----------- -----------
                                                          (IN THOUSANDS)
Production                                           $1,850,222  $1,771,022
Transmission                                            253,368     253,579
Distribution                                            879,205     826,531
General                                                 161,677     155,058
                                                     ----------- -----------
Total utility plant in service                       $3,144,472  $3,006,190
                                                     =========== ===========`

Substantially all of IPL's property is subject to the lien of the
indenture securing IPL's First Mortgage Bonds (See Note 9.)

5.	DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

The estimated fair value of financial instruments has been determined by
IPL using available market information and appropriate valuation methodologies.
However, considerable judgment is required in interpreting market data to
develop the estimates of fair value. Accordingly, the estimates presented herein
are not necessarily indicative of the amounts that IPL could realize in a
current market exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair value
amounts.

Cash and Cash Equivalents:  The carrying amount approximates fair
value due to the short maturity of these instruments.

Long-Term Debt and Cumulative Preferred Stock:  The fair value of
IPL's outstanding fixed rate debt and cumulative preferred stock have been
determined on the basis of the quoted market prices of the specific securities
issued and outstanding. Accordingly, the purpose of this disclosure is not to
approximate the value on the basis of how the debt might be refinanced. At
December 31, 2002, and 2001, the approximate fair value of IPL's long-term debt
was $554 million and $627 million, respectively. The fair value of IPL's
variable-rate debt outstanding at December 31, 2002 and 2001 approximates its
face amount, which is $40 million. The fair value of IPL's interest rate swap
agreement has been estimated to be $(8.7) million and $(3.7) million at December
31, 2002 and 2001, respectively. These amounts estimate what IPL would have to
pay to sell its position in the swap. The fair value of IPL's cumulative
preferred stock approximates its carrying amount as IPL is subject to regulation
and gains and losses may be included in rates.

6.	REGULATORY ASSETS

The amounts of regulatory assets at December 31 are as follows:

`2002        2001
                                                     ----------- -----------
                                                          (IN THOUSANDS)
Related to deferred taxes (Note 3)                      $96,762     $52,033
Unamortized reacquisition premium on debt (Note 3)       18,172      19,666
Unamortized Petersburg Unit 4 carrying charges and
  certain other costs (Note 3)                           24,955      26,010
Other                                                       879         100
                                                     ----------- -----------
Total regulatory assets                                $140,768     $97,809
                                                     =========== ===========`

Included in prepayments and other current assets at December 31, 2002 are
deferred fuel costs of $1.4 million.

7.	CAPITAL STOCK

All of the outstanding common stock of IPL is owned by IPALCO. IPL's
common stock is pledged under IPALCO's $750 million senior secured notes. There
have been no changes in the capital stock of IPL during the period covered by
this report.

Dividend Restrictions:  Restrictions on the payment of cash dividends
or other distributions of IPL common stock and on the purchase or redemption of
such shares by IPL are contained in the indenture securing IPL's First Mortgage
Bonds. In addition, pursuant to IPL's Articles of Incorporation, no dividends
may be paid or accrued and no other distribution may be made on IPL's common
stock unless dividends on all outstanding shares of IPL's preferred stock have
been paid or declared and set apart for payment. All of IPL's retained earnings
at December 31, 2002 were free of such restrictions. IPL is also restricted in
its ability to pay dividends under the terms of its credit facilities if it is
not in compliance with certain financial covenants. These covenants require IPL
to maintain a ratio of earnings before income taxes to interest expense not in
excess of 2.5 to 1, and a ratio of total debt to total capitalization not in
excess of .60 to 1, in order to pay dividends. IPL was in compliance with such
covenants as of December 31, 2002.

Cumulative Preferred Stock:  Preferred stock shareholders are entitled
to two votes per share for IPL matters, and if four full quarterly dividends are
in default on all shares of the preferred stock then outstanding, they are
entitled to elect the smallest number of IPL Directors to constitute a majority.
IPL has issued and outstanding 500,000 shares of 5.65% Preferred Stock, which
are redeemable at par value, subject to certain restrictions, in whole or in
part, at any time on or after January 1, 2008, at the option of IPL.
Additionally, IPL has 91,353 shares of preferred stock which are redeemable
solely at the option of IPL and can be redeemed in whole or in part at any time
at specific call prices.

At December 31, preferred stock consisted of the following:

`December 31, 2002      December 31,
                                    ---------------------- ------------------
                                        Shares      Call
                                     Outstanding   Price     2002     2001
                                    ---------------------- ------------------
                                                           (IN THOUSANDS)
Cumulative $100 Par Value,
   authorized 2,000,000 shares
4% Series                                  47,611 $118.00    $4,761   $4,761
4.2% Series                                19,331  103.00     1,933    1,933
4.6% Series                                 2,481  103.00       248      248
4.8% Series                                21,930  101.00     2,193    2,193
5.65% Series                              500,000     --     50,000   50,000
                                    --------------         ------------------
Total cumulative preferred stock          591,353           $59,135  $59,135
                                    ==============         ==================`

Preferred stock dividends were $3.2 million during each of the years 2002,
2001 and 2000.

8.	OTHER CURRENT LIABILITIES

Other current liabilities are as follows at December 31:

`2002        2001
                                                     ----------- -----------
                                                          (IN THOUSANDS)
 Customer deposits                                       $9,046      $8,536
 Accrued payroll                                          2,969       2,441
*Deferred fuel cost                                           -       8,566
 Other                                                      812         354
                                                     ----------- -----------
 Total other current liabilities                        $12,827     $19,897
                                                     =========== ===========`

*Represents a regulatory liability as of December 31, 2001. As of December
31, 2002, IPL had a deferred fuel cost asset of $1.4 million.

9.	INDEBTEDNESS

Long-term Debt

Before IPL can incur long-term debt, it must first have the approval
of the IURC. On February 12, 2003, the IURC approved a petition filed by IPL,
which gives IPL approval to, among other things, issue up to $160 million of new
long-term debt, primarily for the purpose of funding a portion of IPL's planned
capital expenditures over the next three years (See Note 17). Also, IPL has
restrictions on the amount of new debt it may issue by contractual obligations
of AES. Under such restrictions, IPL is allowed to fully draw the $75 million
available on its credit facilities, refinance existing debt, issue the $160
million approved by the IURC and issue certain other indebtedness.

The following table presents IPL's long-term indebtedness as of December 31,
2002 and 2001:

`December 31,
                                     ---------------------
Series               Due                  2002       2001
----------------------------------------------------------
                                         (IN THOUSANDS)
First Mortgage Bonds:
6.05%                February 2004     $80,000    $80,000
8%                   October 2006       58,800     58,800
7.375%               August 2007        80,000     80,000
6.10%*               January 2016       41,850     41,850
5.40%*               August 2017        24,650     24,650
5.50%*               October 2023       30,000     30,000
7.05%                February 2024     100,000    100,000
6.625%*              December 2024      40,000     40,000
5.75%*               August 2021        40,000     40,000
5.90%*               December 2024      20,000     20,000
5.95%*               December 2029      30,000     30,000
5.95%**              August 2030        17,350     17,350
Unamortized discount - net                -644       -720
                                    ----------------------
Total first mortgage bonds             562,006    561,930
                                    ----------------------
Unsecured Notes:
1995B*               January 2023       40,000     40,000
6.375%*              November 2029      20,000     20,000
                                    ----------------------
Total Unsecured Notes                   60,000     60,000
                                    ----------------------
Total long term debt                  $622,006   $621,930
                                    ======================`

___________________

*	Notes are issued to the city of Petersburg, Indiana, by IPL to secure
the loan of proceeds from various tax-exempt instruments issued by the city.

**	Notes are issued to the Indiana Development Finance Authority (the
"IDFA"), to secure the loan of proceeds from various tax-exempt
instruments issued by the IDFA.

IPL First Mortgage Bonds. The mortgage and deed of trust of IPL,
together with the supplemental indentures thereto, secure the first mortgage
bonds issued by IPL (IPL First Mortgage Bonds). Pursuant to the terms of the
mortgage, substantially all property owned by IPL is subject to a $562.7 million
direct first mortgage lien. The IPL First Mortgage Bonds require net earnings as
calculated thereunder be at least two and one-half times the annual interest
requirements before additional bonds can be authenticated on the basis of
property additions. IPL was in compliance with such requirements as of December
31, 2002.

Variable-Rate Debt. The IPL 1995B notes provide for an interest rate
that varies with the tax-exempt weekly rate. These notes are classified as long-
term liabilities because IPL maintains a $40.6 million long-term credit facility
supporting these agreements, which was unused at December 31, 2002. IPL, at its
option, can change the interest rate mode for the 1995B notes to be based on
other short-term rates. The interest rate on this note is synthetically fixed at
5.21% using a swap agreement. The interest rate swap agreement is accounted for
on a settlement basis.

Debt Maturities. Maturities on indebtedness subsequent to December 31,
2002, are as follows:

`Year           Amount
--------------------------------
                 (IN THOUSANDS)
2003                         $0
2004                     80,000
2005                          0
2006                     58,800
2007                     80,000
Thereafter              403,850
                 ---------------
Total                  $622,650
                 ===============`

Lines Of Credit

IPL has two unused unsecured committed credit
facilities with an aggregate borrowing capacity of $75 million. These facilities
mature on May 23, 2003 and June 13, 2003 and are subject to certain financial
covenants, with which IPL is in compliance.



10.	INCOME TAXES

IPL follows a policy of comprehensive interperiod income tax allocation.
Investment tax credits related to utility property have been deferred and are
being amortized over the estimated useful lives of the related property. IPL
files consolidated federal and state income tax returns with AES. Under a tax
sharing agreement with AES, IPL is responsible for the income taxes associated
with its own taxable income. Income taxes are allocated to IPL based on its
respective taxable income or losses.

Federal and state income taxes charged to income are as follows:

`2002      2001      2000
                                                  ------------------------------
                                                           (IN THOUSANDS)
Utility Operating Expenses:
Current income taxes:
Federal                                             $53,585   $63,824  $102,171
State                                                 7,201     8,592    13,580
                                                  ------------------------------
  Total current taxes                                60,786    72,416   115,751
                                                  ------------------------------
Deferred federal income taxes                        42,061    (9,873)  (39,520)
Deferred state income taxes                           6,308      (772)   (4,632)
                                                  ------------------------------
  Total deferred income taxes                        48,369   (10,645)  (44,152)
                                                  ------------------------------
Net amortization of investment credit                (2,763)   (2,767)   (2,768)
                                                  ------------------------------
  Total charge to utility operating expenses        106,392    59,004    68,831
Net debit (credit) to other income and deductions     1,323    (4,135)   (8,893)
                                                  ------------------------------
Total federal and state income tax provisions      $107,715   $54,869   $59,938
                                                  ==============================`

The provision for federal income taxes (including net investment tax
credit adjustments) is different than the amount computed by applying the
statutory tax rate to pretax income. The reasons for the difference, stated as a
percentage of pretax income, are as follows:

`2002      2001      2000
                                                  ------------------------------
Federal statutory tax rate                             35.0%     35.0%     35.0%
Effect of state income taxes                           (1.8)     (1.7)     (2.0)
Amortization of investment tax credits                 (1.0)     (1.9)     (1.9)
Nondeductible expenses                                  0.0       0.0       3.6
Other - net                                             2.0       1.4       1.5
                                                  ------------------------------
Effective federal tax rate                             34.2%     32.8%     36.2%
                                                  ==============================`

The significant items comprising IPL's net accumulated deferred tax liability
recognized in the balance sheets as of December 31, 2002, and 2001, are as
follows:

`2002       2001
                                                   ---------- ----------
Deferred tax liabilities:                               (IN THOUSANDS)
Relating to utility property                        $462,369   $404,559
Other                                                 10,891      5,397
                                                   ---------- ----------
Total deferred tax liabilities                       473,260    409,956
Deferred tax assets:                               ---------- ----------
Relating to utility property                          62,142     57,418
Investment tax credit                                 20,643     20,474
Employee benefit plans                                53,647     58,530
Other                                                 (2,306)     2,203
                                                   ---------- ----------
Total deferred tax assets                            134,126    138,625
                                                   ---------- ----------
Accumulated net deferred tax liability               339,134    271,331
  Less: Current portion of deferred tax liability        812        300
                                                   ---------- ----------
Accumulated deferred income taxes - net             $338,322   $271,031
                                                   ========== ==========`

11.	RATE MATTERS

Demand Side Management (DSM) Program: On August 18, 1999, IPL received an
IURC order approving a settlement agreement authorizing IPL to extend its low
income qualified residential DSM program through July 30, 2000. Subsequent
orders on March 9, 2000 and October 17, 2001 further extended this program
through October 17, 2003. The regulatory asset related to this program has a
balance of approximately $166,000 and $100,000 at December 31, 2002 and 2001,
respectively (see Note 3).

Elect Plan:  During 1998, the IURC approved a plan that allows IPL
customers with less than 2,000 kilowatts of demand an opportunity to choose
optional service or payment plans. This includes a green power option, a fixed-
rate per unit of consumption option and a fixed bill option. Customers not
choosing one of these options continue to receive electric service under
existing tariffs. The Elect Plan was extended by an IURC order through December
31, 2006.

12.	PENSION BENEFITS

Employees' Retirement Plan: Substantially all employees of IPL 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. Pension bands are based
primarily on job duties and responsibilities. Benefit accrual was frozen for all
non-union participants effective July 8, 2001. The non-union participants who
had their benefit accrual frozen also were prohibited from making additional
contributions to the IPL defined contribution plan (the Thrift Plan.) These non-
union people became eligible to participate in the AES defined contribution
plan.

In the 4th quarter of 2002, the non-union people who had their defined
benefit pension frozen on July 8, 2001 were given a one-time, irrevocable choice
to either (1) continue as an active participant in the AES defined contribution
plan; or (2) return to the IPL defined benefit plan as an active participant,
and return to the Thrift Plan as an active participant.

IPL's funding policy for the Defined Benefit Pension Plan is to contribute
annually not less than the minimum required by applicable law, nor more than the
maximum amount that can be deducted for federal income tax purposes.

Supplemental Retirement Plan: Additionally, a select group of former
management employees of IPALCO and IPL who have terminated vested benefits are
covered under a funded supplemental retirement plan.

The following tables present information relating to the Defined Benefit
Pension Plan and supplemental retirement plan:

`Pension Benefits
                                                        2002        2001
                                                     ----------- -----------
Change in benefit obligation:                             (IN THOUSANDS)
Benefit obligation at beginning of year                $383,328    $341,855
Service cost                                              2,844       2,705
Interest cost                                            26,722      26,057
Actuarial loss                                           18,850      27,371
Amendments (primarily 11% increase in union member
  pension bands)                                          8,520           -
Partial curtailment loss                                      -       1,017
VERP benefit cost                                             -      18,816
Settlements                                                   -     (13,771)
Settlement loss                                               -         558
Benefits paid                                           (29,634)    (21,280)
                                                     ----------- -----------
  Benefit obligation at end of year                     410,630     383,328
                                                     ----------- -----------
Change in plan assets:
Fair value of plan assets at beginning of year          257,779     311,518
Actual return on plan assets                            (19,447)    (30,327)
Employer contribution                                    15,171      11,639
Settlements                                                   -     (13,771)
Benefits paid                                           (29,634)    (21,280)
                                                     ----------- -----------
  Fair value of plan assets at end of year              223,869     257,779
                                                     ----------- -----------
  Funded status                                        (186,761)   (125,549)
  Unrecognized net gain                                  80,139      20,257
  Unrecognized prior service cost                        14,494       6,686
  Unrecognized net transition asset                      (4,100)     (5,514)
  Adjustment to recognize minimum liability             (90,533)    (21,429)
                                                     ----------- -----------
    Accrued benefit cost                              ($186,761)  ($125,549)
                                                     =========== ===========`

`Pension Benefits
                                                                ---------------------------
                                                                  2002     2001     2000
                                                                ---------------------------
                                                                       (IN THOUSANDS)

Components of net periodic benefit cost
Service cost                                                      $2,844   $2,705   $6,138
Interest cost                                                     26,722   26,057   20,519
Expected return on plan assets                                   (22,203) (26,364) (27,181)
Amortization of transition (asset) obligation                     (1,414)  (1,414)  (1,414)
Amortization of prior service cost                                   712    1,017    1,580
Recognized actuarial gain                                            105   (1,297)  (2,869)
                                                                ---------------------------
Net periodic benefit cost                                          6,766      704   (3,227)
Amount of curtailment (gain)/loss recognized                           -    5,403    6,701
Amount of settlement (gain)/loss recognized                            -    4,000        -
Cost of special or contractual termination benefits recognized         -   18,816   56,771
                                                                ---------------------------
Total pension cost                                                 6,766   28,923   60,245
Less: amounts to other parties                                         -       11      (52)
Less: amounts capitalized                                            830      135     (586)
                                                                ---------------------------
Amount charged to expense                                         $5,936  $28,777  $60,883
                                                                ===========================
Weighted average assumptions as of December 31
Discount rate                                                       6.75%    7.25%     8.0%
Expected return on Defined Benefit Pension Plan assets               8.9%     9.0%     9.0%
Expected return on supplemental retirement plan assets               8.9%     8.0%     8.0%`

On November 9, 2000, IPL implemented a Voluntary Early Retirement Program
(VERP I). This program offered enhanced retirement benefits upon early
retirement to eligible employees. VERP I was available to all employees, except
officers, whose combined age and years of service totaled at least 75 on June
30, 2001. Participation was limited to, and subsequently accepted by 400
qualified employees. Participants elected actual retirement dates in 2001.
Additionally, IPL currently intends to provide post-retirement benefits to VERP
I retirees until age 55 at which time they will be eligible to receive benefits
from the independent VEBA Trust. IPL reserves the right to modify or terminate
post-retirement health care and life insurance benefits being provided by IPL.
IPL recognized the $56.8 million pre-tax non-cash pension and $5.2 million other
post-retirement benefit costs of VERP I in December 2000.

On June 1, 2001, IPL implemented a second Voluntary Early Retirement Program
(VERP II). Upon expiration of the revocation period on July 23, 2001, 142
employees accepted VERP II. IPL recognized $17.2 million in pre-tax non-cash
pension costs and $2.6 million in other post-retirement benefit costs associated
with VERP II in the third quarter of 2001.

On September 14, 2001, IPL implemented a third Voluntary Early Retirement
Program (VERP III) limited to personnel at our Petersburg Generating Station.
Upon expiration of the revocation period on October 31, 2001, nine employees
accepted VERP III. IPL recognized $2.0 million in pre-tax non-cash pension costs
and $2.0 million in other post-retirement benefit costs associated with VERP III
in September 2001.

During 2000, IPL recognized a non-cash $6.7 million curtailment loss for the
supplemental retirement plan reflecting the expected near-term retirement of
certain plan participants. In conjunction with recording a minimum pension
liability of $3.5 million for this plan, IPL recorded an intangible asset of
$1.7 million. The net difference of $1.8 million was recorded as other
comprehensive loss.

The Thrift Plan: Substantially all employees of IPL are covered by the
Thrift Plan, which is a defined contribution plan sponsored by IPL. Participants
elect to make contributions to the Thrift Plan based on a percentage of their
base compensation. Each participant's contribution is matched in amounts up to,
but not exceeding, 4% of the participant's base compensation. Employer
contributions to the Thrift Plan were $1.2 million, $2.2 million and $3.5
million for 2002, 2001 and 2000, respectively.

The Wealth Accumulation Plan: Certain of IPL's employees are also
covered by the AES Profit Sharing and Stock Ownership Plan, which is a defined
contribution plan sponsored by AES. Participants elect to make contributions to
the AES defined contribution plan based on a percentage of their taxable
compensation. Each participant's contribution is matched in amounts up to, but
not exceeding, 5% of the participant's taxable compensation. In addition, the
AES defined contribution plan has a profit sharing component where AES
contributes a percentage of each employee's annual salary into the plan on a
pre-tax basis. The profit sharing percentage is determined by the AES Board on
an annual basis. Employer payroll-matching and profit sharing contributions (by
IPL) relating to the AES defined contribution plan were $3.4 million and $1.7
million for 2002 and 2001, respectively.

1. OTHER POST-RETIREMENT BENEFITS

The Group Benefits Plan: IPL sponsors a group benefits plan which
provides certain health care and life insurance benefits to active employees.
Prior to October 20, 2000, the plan also provided certain health care and life
insurance benefits to employees who retired from active service on or after
attaining age 55 and had rendered at least 10 years of service. The post-
retirement benefit costs of this plan were funded through a Voluntary Employee
Beneficiary Association (VEBA) Trust (VEBA Trust). In the fourth quarter of
2000, IPL curtailed and settled for $7.5 million the post-retirement medical and
life insurance benefit portion of its overall group benefits plan. On April 30,
2001, all assets of the VEBA Trust and its obligations were formally spun-off to
an independent trustee into a newly formed plan, the Voluntary Employee
Beneficiary Association Plan (the "VEBA Plan") that provides post
retirement medical and life benefits to retirees who retired from IPL or IPALCO
before October 20, 2000. In addition, people who were employed by IPL or IPALCO
on October 20, 2000, who subsequently retire from IPL or IPALCO and who meet the
retirement requirements of age 55 or older and 10 or more years service are
eligible for post-retirement health care benefits under the VEBA Trust. The VEBA
Plan is sponsored and administered by an independent VEBA Committee.

In November 2002, IPL and the International Brotherhood of Electrical Workers
(IBEW) union reached an agreement whereby IPL will provide post-retirement
health care benefits to IBEW members who were employed by IPL after October 20,
2000. The plan was amended accordingly

On December 23, 2002, IPL executed an agreement with the administrator of the
VEBA Trust to provide post-retirement medical and life insurance benefits to
VERP II and VERP III participants from age 55 until age 62, subject to our right
to modify or terminate such benefits in the future. The additional cost is
estimated to be $7.5 million to be amortized over 8 years. When those retirees
reach age 62, they will be eligible for benefits from the VEBA Trust.

The following tables present information relating to other post retirement
benefits:

`Other Post Retirement Benefits                          2002        2001
                                                     ----------- -----------
Change in benefit obligation:                             (IN THOUSANDS)
Benefit obligation at beginning of year                  $9,504      $5,237
Interest cost                                               438         396
Actuarial (gain) loss                                      (775)        440
Plan amendments                                           5,111           -
Termination benefits                                          -       4,069
Benefits paid                                            (1,620)       (638)
                                                     ----------- -----------
Benefit obligation at end of year                        12,658       9,504
                                                     ----------- -----------
Change in plan assets:
Employer contribution                                     1,620         638
Benefits paid                                            (1,620)       (638)
                                                     ----------- -----------
Fair value of plan assets at end of year                      -           -
                                                     ----------- -----------
Funded status                                           (12,658)     (9,504)
Unrecognized net gain                                      (377)          -
Unrecognized prior service cost                           7,070           -
                                                     ----------- -----------
Accrued benefit cost                                    ($5,965)    ($9,504)
                                                     =========== ===========`

`Other Benefits                                   2002    2001    2000
                                               ------------------------
Components of net periodic benefit cost:            (IN THOUSANDS)
Service cost                                        $0      $0  $3,323
Interest cost                                      438     396   9,846
Expected return on plan assets                       -       -  (9,703)
Amortization of transition (asset) obligation        -       -   5,100
Recognized actuarial gain                          399     440  (2,642)
                                               ------------------------
Net periodic benefit cost                          837     836   5,924
Curtailment charge (credit)                          -       -  55,171
Settlement charge (credit)                           -       - (46,547)
Cost of special or contractual
  termination benefits recognized                    -   2,110       -
Less: amounts capitalized                          103      83   1,076
                                               ------------------------
Amount charged to expense                         $734  $2,863 $13,472
                                               ========================
Discount rate as of December 31                   6.75%   7.25%   7.75%`



Other benefit estimates were prepared using an expected rate of return on
plan assets of 9.0% for 2000. For measurement purposes, we assumed an annual
rate of increase in the per capita cost of covered medical care benefits of
10.0% for 2003, gradually declining to 5.5% in 2007 and remaining level
thereafter. In addition, we assumed an annual rate of increase in the per capita
cost of covered prescription drugs of 15.0% for 2003, gradually declining to
5.5% in 2012 and remaining level thereafter. The effect of a one percentage
point increase and decrease in the assumed health care cost trend rates on the
aggregate of the service and interest cost components of net periodic post
retirement health care benefit costs is $8,467 and $(8,287), respectively. The
effect of a one percentage point increase and decrease in the assumed health
care cost trend rates on the accumulated post retirement benefit obligation for
health care benefit costs is $597,057 and $(547,234), respectively. We assumed a
5.9% blended rate of increase in the per capita cost of covered health care
benefits (medical and prescription drugs) for 2000. The plan assets were spun-
off on October 20, 2000 to an independent trustee.

14.	COMMITMENTS AND CONTINGENCIES

IPL has been named as a defendant in approximately 55 pending lawsuits
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. Many of the original primary defendants3⁄4
the asbestos manufacturers3⁄4
have filed for bankruptcy protection. IPL has insurance coverage for many 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. Although we do not believe that any
of the pending asbestos suits in which IPL is a named defendant will have a
material adverse effect on our business or operations, we are unable to predict
the number or effect any additional suits may have. Accordingly, we cannot
assure that the pending or any additional suits will not have a material effect
on our business or operations.

In addition, IPL is 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 final
outcome will not have a material adverse effect on IPL's financial
statements.

With respect to environmental issues, IPL has ongoing discussions with
various regulatory authorities and we continue to believe that IPL is in
compliance with its various permits. On October 27, 1998, the U.S. Environmental
Protection Agency issued a final rule, referred to as the NOx SIP
call, which imposes more stringent limits on nitrogen oxide (NOx)
emissions from fossil fuel-fired steam electric generators. IPL's current
estimates are the NOx SIP call will necessitate additional capital
expenditures of approximately $227 million during 2003-2005 to achieve
substantially all of the required NOx emission reductions. The scope
of the construction program associated with NOx emission reductions
could be reduced by purchasing some of the required NOx emission
allowances in the market, subject to IURC approval.

On November 14, 2002, the IURC issued a Certificate of Public Convenience and
Necessity for the construction and use of clean coal technology (CCT) to allow
IPL to meet the NOx emission limits imposed pursuant to EPA's
NOx SIP Call. The IURC approved the use of qualified pollution
control property as defined in I.C. 8-1-2-6.6 and ratemaking treatment through
an Environmental Compliance Cost Recovery Adjustment. The ratemaking treatment
provided for in the IURC order includes a return on the investment in IPL's
planned CCT projects under construction. After the projects have been placed in
service, the approved ratemaking treatment provides for a return on the
investment and recovery of the depreciation expense associated with these
projects, as well as the recovery of operating and maintenance costs associated
with these projects. The ratemaking
treatment also provides for recovery ofexpenditures related
to the purchase of NOxemission
allowance,should such expenditures be made to supplement
IPL's CCT construction projects.IPL may add the approved return on its CCT projects to its net operating
income authorized by the IURC in subsequent fuel adjustment charge proceedings.
The increase in the amount of rate revenues and authorized net operating income
resulting from IPL's CCT plan will be determined in periodic filings to the IURC
to be made at an interval of no more often than every 6 months and will depend
on the amount of cumulative investment and operating and maintenance
expenditures at the time of each of the filings.

15.	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. All of IPL's current business operations consist of the generation,
transmission, distribution and sale of electric energy. IPL's reportable
business segments are electric and "all other." The "all
other" category included IPL's steam operations up until their sale on
November 20, 2000. The accounting policies of the identified segments are
consistent with those policies and procedures described in the summary of
significant accounting policies. Intersegment sales are generally based on
prices that reflect the current market conditions.

The following tables provide information about IPL's business segments (in
millions):

`2002                        2001                        2000
                               --------------------------- --------------------------- ---------------------------
                                           All                         All                         All
                               Electric   Other    Total   Electric   Other    Total   Electric   Other    Total
                               --------------------------- --------------------------- ---------------------------
Operating Revenues                 $818        0     $818      $828        0     $828      $831       28     $859
Depreciation and Amortization       118        0      118       111        0      111       108        3      111
Income Taxes                        108        0      108        55        0       55        69        0       69
Net Income                          166        0      166        91        0       91        82        1       83
Property - net of Depreciation    1,689        0    1,689     1,666        0    1,666     1,648        0    1,648
Capital Expenditures                137        0      137       127        0      127        76        0       76`

16.	QUARTERLY RESULTS (UNAUDITED)

Operating results for the years ended December 31, 2002, and 2001, by
quarter, are as follows (in thousands):

`2002
                           --------------------------------------------------------
                              March 31      June 30     September 30  December 31
                           --------------------------------------------------------
Utility operating revenue       $197,470      $197,168      $226,755      $196,574
Utility operating income          50,974        47,277        61,128        41,207
Net income                        43,835        39,274        50,547        32,831

                                                     2001
                           --------------------------------------------------------
                            March 31 (1)    June 30     September 30  December 31
                           --------------------------------------------------------
Utility operating revenue       $209,052      $205,473      $224,960      $188,561
Utility operating income          10,320        46,734        34,799        38,788
Net income                          (893)       36,757        24,416        30,521`

(1)	The first quarter 2001 results reflect termination benefit agreement
costs (see Note 2).

The quarterly figures reflect seasonal and weather-related fluctuations
that are normal to IPL's operations.

17.	SUBSEQUENT EVENTS

On February 12, 2003, the IURC issued an Order approving IPL's 2003-2006
financing program, including, among other things, the issuance of up to $160
million of additional long-term debt to pay, in part, for IPL's construction
program during 2003-2005, and the refinancing of $80 million of long-term debt,
which matures in February 2004. The Order approved the requested financing but
set forth a process whereby IPL must file a report with the IURC, prior to
declaring or paying a dividend, that sets forth (1) the amount of any proposed
dividend, (2) the amount of dividends distributed during the prior twelve
months, (3) an income statement for the same twelve-month period, (4) the most
recent balance sheet, and (5) IPL's capitalization as of the close of the
preceding month, as well as a pro forma capitalization giving effect to the
proposed dividend, with sufficient detail to indicate the amount of
unappropriated retained earnings. If within twenty (20) calendar days the IURC
does not initiate a proceeding to further explore the implications of the
proposed dividend, the proposed dividend will be deemed approved. The Order
stated that such process should continue in effect during the term of the
financing authority, which expires December 31, 2006.

On February 28, 2003, IPL filed a petition for reconsideration, or in the
alternative, for rehearing with the IURC. This petition seeks clarification of
certain provisions of the Order. In addition, the petition requests that the
IURC establish objective criteria in connection with the reporting process
related to IPL's long term debt capitalization ratio. Whether or not such
petition is successful, we have no reason to believe the IURC will prevent IPL
from paying future dividends in the ordinary course of prudent business
operations. On March 14, 2003, IPL filed a Notice of Appeal in the Indiana Court
of Appeals in order to preserve its rights to appeal the IURC Order, if such an
appeal is deemed appropriate.

Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

None.

Part III



Item 10. Directors and Executive Officers of the Registrant

Not applicable pursuant to General Instruction I of the Form 10-K.

Item 11. Executive Compensation

Not applicable pursuant to General Instruction I of the Form 10-K.

Item 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters

Not applicable pursuant to General Instruction I of the Form 10-K.

Item 13. Certain Relationships and Related Transactions

Not applicable pursuant to General Instruction I of the Form 10-K.

Part IV

Item 14. Controls and Procedures

> (a) Evaluation of Disclosure Controls and Procedures.

(b) Changes in Internal Controls. There were no significant
changes in our internal controls or, to our knowledge, in other factors that
could significantly affect such controls subsequent to the Evaluation Date, nor
were there any corrective actions required with regard to significant
deficiencies and material weaknesses.

Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K