0000065984 etr:EntergyTexasMember etr:FERCOctober2011OrderMember 2011-12-01 2011-12-31 0000065984 etr:SystemEnergyMember etr:QualifiedPensionPlansMember 2017-01-01 2017-12-31 0000065984 etr:CustomerMember us-gaap:ElectricityMember 2018-01-01 2018-12-31
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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(Mark One) | |
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X☑ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Fiscal Year Ended December 31, 2019
OR
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| For the Fiscal Year Ended December 31, 2017 |
| OR |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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| For the transition period from ____________ to ____________ |
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Commission File Number | Registrant, State of Incorporation or Organization, Address of Principal Executive Offices, Telephone Number, and IRS Employer Identification No. | |
Commission File Number | Registrant, State of Incorporation or Organization, Address of Principal Executive Offices, Telephone Number, and IRS Employer Identification No. |
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1-11299 | ENTERGY CORPORATION | | 1-35747 | ENTERGY NEW ORLEANS, LLC |
| (a Delaware corporation) 639 Loyola Avenue New Orleans, Louisiana 70113 Telephone (504) 576-4000 72-1229752
| | 1-35747
| ENTERGY NEW ORLEANS, LLC
(a Texas limited liability company) 1600 Perdido Street New Orleans, Louisiana 70112 Telephone (504) 670-3700 |
| 72-1229752 | | | 82-2212934 |
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1-10764 | ENTERGY ARKANSAS, LLC | | 1-34360 | ENTERGY TEXAS, INC. |
| (an Arkansas corporation)a Texas limited liability company) 425 West Capitol Avenue Little Rock, Arkansas 72201 Telephone (501) 377-4000 71-0005900
| | 1-34360
| ENTERGY TEXAS, INC.
(a Texas corporation) 10055 Grogans Mill Road The Woodlands, Texas 77380 Telephone (409) 981-2000 |
| 83-1918668 | | | 61-1435798 |
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1-32718
| ENTERGY LOUISIANA, LLC | | 1-09067 | SYSTEM ENERGY RESOURCES, INC. |
| (a Texas limited liability company) 4809 Jefferson Highway Jefferson, Louisiana 70121 Telephone (504) 576-4000 47-4469646
| | 1-09067
| SYSTEM ENERGY RESOURCES, INC.
(an Arkansas corporation) 1340 Echelon Parkway Jackson, Mississippi 39213 Telephone (601) 368-5000 |
| 47-4469646 | | | 72-0752777 |
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1-31508
| ENTERGY MISSISSIPPI, INC. LLC | | | |
| (a Mississippi corporation)Texas limited liability company) 308 East Pearl Street Jackson, Mississippi 39201 Telephone (601) 368-5000 64-0205830
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| 83-1950019 | | | |
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Securities registered pursuant to Section 12(b) of the Act:
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Registrant | Title of Class | Trading Symbol | Name of Each Exchange on Which Registered |
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Entergy Corporation | Common Stock, $0.01 Par Value – 180,770,383 shares outstanding at January 31, 2018 | ETR | New York Stock Exchange Inc.Chicago Stock Exchange, Inc.
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| Common Stock, $0.01 Par Value | ETR | NYSE Chicago, Inc. |
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Entergy Arkansas, Inc.LLC | Mortgage Bonds, 4.90% Series due December 2052 | EAB | New York Stock Exchange Inc. |
| Mortgage Bonds, 4.75% Series due June 2063 | EAE | New York Stock Exchange Inc. |
| Mortgage Bonds, 4.875% Series due September 2066 | EAI | New York Stock Exchange Inc. |
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Entergy Louisiana, LLC | Mortgage Bonds, 5.25% Series due July 2052 | ELJ | New York Stock Exchange Inc. |
| Mortgage Bonds, 4.70% Series due June 2063 | ELU | New York Stock Exchange Inc. |
| Mortgage Bonds, 4.875% Series due September 2066 | ELC | New York Stock Exchange Inc. |
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Entergy Mississippi, Inc.LLC | Mortgage Bonds, 4.90% Series due October 2066 | EMP | New York Stock Exchange Inc. |
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Entergy New Orleans, LLC | Mortgage Bonds, 5.0% Series due December 2052 | ENJ | New York Stock Exchange Inc. |
| Mortgage Bonds, 5.50% Series due April 2066 | ENO | New York Stock Exchange Inc. |
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Entergy Texas, Inc. | Mortgage Bonds, 5.625% Series due June 2064 | EZT | New York Stock Exchange Inc. |
| 5.375% Series A Preferred Stock, Cumulative, No Par Value (Liquidation Value $25 Per Share) | ETI/PR | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act:
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Registrant | Title of Class |
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Entergy Arkansas, Inc. | Preferred Stock, Cumulative, $100 Par Value |
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Entergy Mississippi, Inc. | Preferred Stock, Cumulative, $100 Par Value |
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Entergy Texas, Inc. | Common Stock, no par value |
Indicate by check mark if the registrants are well-known seasoned issuers, as defined in Rule 405 of the Securities Act.
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| Yes | | No |
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Entergy Corporation | ü | | |
Entergy Arkansas, Inc.LLC | | | ü |
Entergy Louisiana, LLC | ü | | |
Entergy Mississippi, Inc.LLC | | | ü |
Entergy New Orleans, LLC | | | ü |
Entergy Texas, Inc. | ü | | ü |
System Energy Resources, Inc. | | | ü |
Indicate by check mark if the registrants are not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
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| Yes | | No |
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Entergy Corporation | | | ü |
Entergy Arkansas, Inc.LLC | | | ü |
Entergy Louisiana, LLC | | | ü |
Entergy Mississippi, Inc.LLC | | | ü |
Entergy New Orleans, LLC | | | ü |
Entergy Texas, Inc. | | | ü |
System Energy Resources, Inc. | | | ü |
Indicate by check mark whether the registrants (1) have 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 registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yesþ No o
Indicate by check mark whether the registrants have submitted electronically and posted on Entergy’s corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant wasregistrants were required to submit and post such files). Yesþ No o
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 the registrants’ 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. [ü]
Indicate by check mark whether each registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Securities Exchange Act of 1934.
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| Large accelerated
filer Accelerated Filer | | Accelerated filerFiler
| | Non-
accelerated
filer Non-accelerated Filer | | Smaller reporting company | | Emerging growth company |
Entergy Corporation | ü | | | | | | | | |
Entergy Arkansas, Inc.LLC | | | | | ü | | | | |
Entergy Louisiana, LLC | | | | | ü | | | | |
Entergy Mississippi, Inc.LLC | | | | | ü | | | | |
Entergy New Orleans, LLC | | | | | ü | | | | |
Entergy Texas, Inc. | | | | | ü | | | | |
System Energy Resources, Inc. | | | | | ü | | | | |
If an emerging growth company, indicate by check mark if the registrants have elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o☐
Indicate by check mark whether the registrants are shell companies (as defined in Rule 12b-2 of the Exchange Act.) Yes o☐ No þ
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Common Stock Outstanding | | Outstanding at January 31, 2020 |
Entergy Corporation | ($0.01 par value) | 199,726,738 |
System Energy Resources, Inc. meets the requirements set forth in General Instruction I(1) of Form 10-K and is therefore filing this Form 10-K with reduced disclosure as allowed in General Instruction I(2). System Energy Resources, Inc. is reducing its disclosure by not including Part III, Items 10 through 13 in its Form 10-K.
The aggregate market value of Entergy Corporation Common Stock, $0.01 Par Value, held by non-affiliates as of the end of the second quarter of 20172019 was $13.8$20.5 billion based on the reported last sale price of $76.77$102.93 per share for such stock on the New York Stock Exchange on June 30, 2017.28, 2019. Entergy Corporation is the sole holder of the common stock of Entergy Arkansas, Inc., Entergy Mississippi, Inc., Entergy Texas, Inc., and System Energy Resources, Inc. Entergy Corporation is the direct and indirect holder of the common membership interests of Entergy Utility Holding Company, LLC, which is the sole holder of the common membership interests of Entergy Arkansas, LLC, Entergy Louisiana, LLC, Entergy Mississippi, LLC, and Entergy New Orleans, LLC.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement of Entergy Corporation to be filed in connection with its Annual Meeting of Stockholders, to be held May 4, 2018,8, 2020, are incorporated by reference into Part III hereof.
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TABLE OF CONTENTS
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| SEC Form 10-K Reference Number | Page Number |
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Entergy Corporation and Subsidiaries | | |
| Part II. Item 7. | |
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| Part II. Item 6. | |
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| Part II. Item 8. | |
| Part II. Item 8. | |
| Part II. Item 8. | |
| Part II. Item 8. | |
| Part II. Item 8. | |
Notes to Financial Statements | | |
| Part II. Item 8. | |
| Part II. Item 8. | |
| Part II. Item 8. | |
| Part II. Item 8. | |
| Part II. Item 8. | |
| Part II. Item 8. | |
| Part II. Item 8. | |
| Part II. Item 8. | |
| Part II. Item 8. | |
| Part II. Item 8. | |
| Part II. Item 8. | |
| Part II. Item 8. | |
| Part II. Item 8. | |
| Part II. Item 8. | |
| Part II. Item 8. | |
| Part II. Item 8. | |
| Part II. Item 8. | |
| Part II. Item 8. | |
| Part II. Item 8. | |
| Part II. Item 8. | |
| Part II. Item 8. | |
Entergy’s Business | | |
| Part I. Item 1. | |
| Part I. Item 1. | |
| Part I. Item 1. | |
| Part I. Item 1. | |
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| Part I. Item 1A. | |
Unresolved Staff Comments | Part I. Item 1B. | None |
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Entergy Arkansas, Inc.LLC and Subsidiaries | | |
| Part II. Item 7. | |
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| Part II. Item 8. | |
| Part II. Item 8. | |
| Part II. Item 8. | |
| Part II. Item 8. | |
| Part II. Item 8. | |
| Part II. Item 6. | |
Entergy Louisiana, LLC and Subsidiaries | | |
| Part II. Item 7. | |
| | |
| Part II. Item 8. | |
| Part II. Item 8. | |
| Part II. Item 8. | |
| Part II. Item 8. | |
| Part II. Item 8. | |
| Part II. Item 6. | |
Entergy Mississippi, Inc.LLC | | |
| Part II. Item 7. | |
| | |
| Part II. Item 8. | |
| Part II. Item 8. | |
| Part II. Item 8. | |
| Part II. Item 8. | |
| Part II. Item 6. | |
Entergy New Orleans, LLC and Subsidiaries | | |
| Part II. Item 7. | |
| | |
| Part II. Item 8. | |
| Part II. Item 8. | |
| Part II. Item 8. | |
| Part II. Item 8. | |
| Part II. Item 6. | |
Entergy Texas, Inc. and Subsidiaries | | |
| Part II. Item 7. | |
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| Part II. Item 8. | |
| Part II. Item 8. | |
| Part II. Item 8. | |
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| Part II. Item 8. | |
| Part II. Item 6. | |
System Energy Resources, Inc. | | |
| Part II. Item 7. | |
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| Part II. Item 8. | |
| Part II. Item 8. | |
| Part II. Item 8. | |
| Part II. Item 8. | |
| Part II. Item 6. | |
| Part I. Item 2. | |
| Part I. Item 3. | |
| Part I. Item 4. | |
| Part I. and Part III. Item 10. | |
| Part II. Item 5. | |
| Part II. Item 6. | |
| Part II. Item 7. | |
| Part II. Item 7A. | |
| Part II. Item 8. | |
| Part II. Item 9. | |
| Part II. Item 9A. | |
| Part II. Item 9A. | |
| Part III. Item 10. | |
| Part III. Item 11. | |
| Part III. Item 12. | |
| Part III. Item 13. | |
| Part III. Item 14. | |
| Part IV. Item 15. | |
| Part IV. Item 16. | |
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This combined Form 10-K is separately filed by Entergy Corporation and its six “Registrant Subsidiaries:” Entergy Arkansas, Inc.,LLC, Entergy Louisiana, LLC, Entergy Mississippi, Inc.,LLC, Entergy New Orleans, LLC, Entergy Texas, Inc., and System Energy Resources, Inc. Information contained herein relating to any individual company is filed by such company on its own behalf. Each company makes representations only as to itself and makes no other representations whatsoever as to any other company.
The report should be read in its entirety as it pertains to each respective reporting company. No one section of the report deals with all aspects of the subject matter. Separate Item 6, 7, and 8 sections are provided for each reporting company, except for the Notes to the financial statements. The Notes to the financial statements for all of the reporting companies are combined. All Items other than 6, 7, and 8 are combined for the reporting companies.
FORWARD-LOOKING INFORMATION
In this combined report and from time to time, Entergy Corporation and the Registrant Subsidiaries each makes statements as a registrant concerning its expectations, beliefs, plans, objectives, goals, strategies, and future events or performance. Such statements are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “may,” “will,” “could,” “project,” “believe,” “anticipate,” “intend,” “expect,” “estimate,” “continue,” “potential,” “plan,” “predict,” “forecast,” and other similar words or expressions are intended to identify forward-looking statements but are not the only means to identify these statements. Although each of these registrants believes that these forward-looking statements and the underlying assumptions are reasonable, it cannot provide assurance that they will prove correct. Any forward-looking statement is based on information current as of the date of this combined report and speaks only as of the date on which such statement is made. Except to the extent required by the federal securities laws, these registrants undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
Forward-looking statements involve a number of risks and uncertainties. There are factors that could cause actual results to differ materially from those expressed or implied in the forward-looking statements, including (a) those factors discussed or incorporated by reference in Item 1A. Risk Factors, (b) those factors discussed or incorporated by reference in Management’s Financial Discussion and Analysis, and (c) the following factors (in addition to others described elsewhere in this combined report and in subsequent securities filings):
resolution of pending and future rate cases, formula rate proceedings and related negotiations, including various performance-based rate discussions, Entergy’s utility supply plan, and recovery of fuel and purchased power costs;
continuing long-term risks and uncertainties associated with the termination of the System Agreement in 2016, including the potential absence of federal authority to resolve certain issues among the Utility operating companies and their retail regulators;
regulatory and operating challenges and uncertainties and economic risks associated with the Utility operating companies’ participation in MISO, including the benefits of continued MISO participation, the effect of current or projected MISO market rules and market and system conditions in the MISO markets, the allocation of MISO system transmission upgrade costs, the MISO-wide base rate of return on equity allowed or any MISO-related charges and credits required by the FERC, and the effect of planning decisions that MISO makes with respect to future transmission investments by the Utility operating companies;
changes in utility regulation, including with respect to retail and wholesale competition, the ability to recover net utility assets and other potential stranded costs, and the application of more stringent return on equity criteria, transmission reliability requirements or market power criteria by the FERC or the U.S. Department of Justice;
changes in the regulation or regulatory oversight of Entergy’s nuclear generating facilities and nuclear materials and fuel, including with respect to the planned potential, or actual shutdown and sale of each of the nuclear generating facilities owned or operated by Entergy Wholesale Commodities, and the effects of new or existing safety or environmental concerns regarding nuclear power plants and nuclear fuel;
resolution of pending or future applications, and related regulatory proceedings and litigation, for license renewals or modifications or other authorizations required of nuclear generating facilities and the effect of public and political opposition on these applications, regulatory proceedings, and litigation;
the performance of and deliverability of power from Entergy’s generation resources, including the capacity factors at Entergy’s nuclear generating facilities;
increases in costs and capital expenditures that could result from changing regulatory requirements, emerging operating and industry issues, and the commitment of substantial human and capital resources required for the safe and reliable operation and maintenance of Entergy’s nuclear generating facilities;
Entergy’s ability to develop and execute on a point of view regarding future prices of electricity, natural gas, and other energy-related commodities;
prices for power generated by Entergy’s merchant generating facilities and the ability to hedge, meet credit support requirements for hedges, sell power forward or otherwise reduce the market price risk associated with those facilities, including the Entergy Wholesale Commodities nuclear plants, especially in light of the planned shutdown orand sale of each of these nuclear plants;
FORWARD-LOOKING INFORMATION (Continued)
the prices and availability of fuel and power Entergy must purchase for its Utility customers, and Entergy’s ability to meet credit support requirements for fuel and power supply contracts;
volatility and changes in markets for electricity, natural gas, uranium, emissions allowances, and other energy-related commodities, and the effect of those changes on Entergy and its customers;
FORWARD-LOOKING INFORMATION (Continued)
changes in law resulting from federal or state energy legislation or legislation subjecting energy derivatives used in hedging and risk management transactions to governmental regulation;
changes in environmental laws and regulations, agency positions or associated litigation, including requirements for reduced emissions of sulfur dioxide, nitrogen oxide, greenhouse gases, mercury, particulate matter and other regulated air emissions, heat and other regulated air anddischarges to water, emissions, requirements for waste management and disposal and for the remediation of contaminated sites, wetlands protection and permitting, and changes in costs of compliance with these environmental laws and regulations;
changes in laws and regulations, agency positions, or associated litigation related to protected species and associated critical habitat designations;
the effects of changes in federal, state, or local laws and regulations, and other governmental actions or policies, including changes in monetary, fiscal, tax, environmental, trade/tariff, domestic purchase requirements, or energy policies;
the effects of full or partial shutdowns of the federal government or delays in obtaining government or regulatory actions or decisions;
uncertainty regarding the establishment of interim or permanent sites for spent nuclear fuel and nuclear waste storage and disposal and the level of spent fuel and nuclear waste disposal fees charged by the U.S. government or other providers related to such sites;
variations in weather and the occurrence of hurricanes and other storms and disasters, including uncertainties associated with efforts to remediate the effects of hurricanes, ice storms, or other weather events and the recovery of costs associated with restoration, including accessing funded storm reserves, federal and local cost recovery mechanisms, securitization, and insurance;insurance, as well as any related unplanned outages;
the risk that an incident at any nuclear generation facility in the U.S. could lead to the assessment of significant retrospective assessments and/or retrospective insurance premiums as a result of Entergy’s participation in a secondary financial protection system, a utility industry mutual insurance company, and industry self-insurance programs;
effects of climate change, including the potential for increases in extreme weather events and sea levels or coastal land and wetland loss;
changes in the quality and availability of water supplies and the related regulation of water use and diversion;
Entergy’s ability to manage its capital projects, including completion of projects timely and within budget and to obtain the anticipated performance or other benefits, and its operation and maintenance costs;
Entergy’s ability to purchase and sell assets at attractive prices and on other attractive terms;
the economic climate, and particularly economic conditions in Entergy’s Utility service area and the Northeastnorthern United States and events and circumstances that could influence economic conditions in those areas, including power prices, and the risk that anticipated load growth may not materialize;
federal income tax reform, including the enactment of the Tax Cuts and Jobs Act and its intended and unintended consequences on financial results and future cash flows, including the potential impact to credit ratings, which may affect Entergy’s ability to borrow funds or increase the cost of borrowing in the future;flows;
the effects of Entergy’s strategies to reduce tax payments, especially in light of federal income tax reform;
changes in the financial markets and regulatory requirements for the issuance of securities, particularly as they affect access to capital and Entergy’s ability to refinance existing securities, execute share repurchase programs, and fund investments and acquisitions;
actions of rating agencies, including changes in the ratings of debt and preferred stock, changes in general corporate ratings, and changes in the rating agencies’ ratings criteria;
changes in inflation and interest rates;
the effecteffects of litigation and government investigations or proceedings;
FORWARD-LOOKING INFORMATION (Concluded)
changes in technology, including with respect(i) Entergy’s ability to implement new or emerging technologies, (ii) the impact of changes relating to new, developing, or alternative sources of generation such as distributed energy and energy storage, renewable energy, energy efficiency, demand side management and other measures that reduce load;load and government policies incentivizing development of the foregoing, and (iii) competition from other companies offering products and services to Entergy’s customers based on new or emerging technologies or alternative sources of generation;
the effects, including increased security costs, of threatened or actual terrorism, cyber-attacks or data security breaches, natural or man-made electromagnetic pulses that affect transmission or generation infrastructure, accidents, and war or a catastrophic event such as a nuclear accident or a natural gas pipeline explosion;
Entergy’s ability to attract and retain talented management, directors, and employees with specialized skills;
Entergy’s ability to attract, retain and manage an appropriately qualified workforce;
changes in accounting standards and corporate governance;
declines in the market prices of marketable securities and resulting funding requirements and the effects on benefits costs for Entergy’s defined benefit pension and other postretirement benefit plans;
future wage and employee benefit costs, including changes in discount rates and returns on benefit plan assets;
changes in decommissioning trust fund values or earnings or in the timing of, requirements for, or cost to decommission Entergy’s nuclear plant sites and the implementation of decommissioning of such sites following shutdown;
FORWARD-LOOKING INFORMATION (Concluded)
the decision to cease merchant power generation at all Entergy Wholesale Commodities nuclear power plants by mid-2022, including the implementation of the planned shutdowns and sales of Pilgrim, Indian Point 2, Indian Point 3, and Palisades;
the effectiveness of Entergy’s risk management policies and procedures and the ability and willingness of its counterparties to satisfy their financial and performance commitments;
the potential for the factors that couldlisted herein to lead to the impairment of long-lived assets; and
theEntergy and its subsidiaries’ ability to successfully execute on their business strategies, including their ability to complete strategic transactions that Entergy may undertake, including mergers, acquisitions, divestitures, or restructurings, regulatory or other limitations imposed as a result of any such strategic transaction, and the success of the business following any such strategic transaction.undertake.
DEFINITIONS
Certain abbreviations or acronyms used in the text and notes are defined below:
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Abbreviation or Acronym | Term |
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AFUDC | Allowance for Funds Used During Construction |
ALJ | Administrative Law Judge |
ANO 1 and 2 | Units 1 and 2 of Arkansas Nuclear One (nuclear), owned by Entergy Arkansas |
APSC | Arkansas Public Service Commission |
ASLB | Atomic Safety and Licensing Board, the board within the NRC that conducts hearings and performs other regulatory functions that the NRC authorizes |
ASU | Accounting Standards Update issued by the FASB |
Board | Board of Directors of Entergy Corporation |
Cajun | Cajun Electric Power Cooperative, Inc. |
capacity factor | Actual plant output divided by maximum potential plant output for the period |
City Council | Council of the City of New Orleans, Louisiana |
D.C. Circuit | U.S. Court of Appeals for the District of Columbia Circuit |
DOE | United States Department of Energy |
Entergy | Entergy Corporation and its direct and indirect subsidiaries |
Entergy Corporation | Entergy Corporation, a Delaware corporation |
Entergy Gulf States, Inc. | Predecessor company for financial reporting purposes to Entergy Gulf States Louisiana that included the assets and business operations of both Entergy Gulf States Louisiana and Entergy Texas |
Entergy Gulf States Louisiana | Entergy Gulf States Louisiana, L.L.C., a Louisiana limited liability company formally created as part of the jurisdictional separation of Entergy Gulf States, Inc. and the successor company to Entergy Gulf States, Inc. for financial reporting purposes. The term is also used to refer to the Louisiana jurisdictional business of Entergy Gulf States, Inc., as the context requires. Effective October 1, 2015, the business of Entergy Gulf States Louisiana was combined with Entergy Louisiana. |
Entergy Louisiana | Entergy Louisiana, LLC, a Texas limited liability company formally created as part of the combination of Entergy Gulf States Louisiana and the company formerly known as Entergy Louisiana, LLC (Old Entergy Louisiana) into a single public utility company and the successor to Old Entergy Louisiana for financial reporting purposes. |
Entergy Texas | Entergy Texas, Inc., a Texas corporation formally created as part of the jurisdictional separation of Entergy Gulf States, Inc. The term is also used to refer to the Texas jurisdictional business of Entergy Gulf States, Inc., as the context requires. |
Entergy Wholesale Commodities | Entergy’s non-utility business segment primarily comprised of the ownership, operation, and decommissioning of nuclear power plants, the ownership of interests in non-nuclear power plants, and the sale of the electric power produced by its operating power plants to wholesale customers |
EPA | United States Environmental Protection Agency |
ERCOT | Electric Reliability Council of Texas |
FASB | Financial Accounting Standards Board |
FERC | Federal Energy Regulatory Commission |
FitzPatrick | James A. FitzPatrick Nuclear Power Plant (nuclear), previously owned by an Entergy subsidiary in the Entergy Wholesale Commodities business segment, which was sold in March 2017 |
Grand Gulf | Unit No. 1 of Grand Gulf Nuclear Station (nuclear), 90% owned or leased by System Energy |
DEFINITIONS (Continued)
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Abbreviation or Acronym | Term |
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GWh | Gigawatt-hour(s), which equals one million kilowatt-hours |
Independence | Independence Steam Electric Station (coal), owned 16% by Entergy Arkansas, 25% by Entergy Mississippi, and 7% by Entergy Power, LLC |
DEFINITIONS (Continued)
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Abbreviation or Acronym | Term |
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Indian Point 2 | Unit 2 of Indian Point Energy Center (nuclear), owned by an Entergy subsidiary in the Entergy Wholesale Commodities business segment |
Indian Point 3 | Unit 3 of Indian Point Energy Center (nuclear), owned by an Entergy subsidiary in the Entergy Wholesale Commodities business segment |
IRS | Internal Revenue Service |
ISO | Independent System Operator |
kV | Kilovolt |
kW | Kilowatt, which equals one thousand watts |
kWh | Kilowatt-hour(s) |
LDEQ | Louisiana Department of Environmental Quality |
LPSC | Louisiana Public Service Commission |
Mcf | 1,000 cubic feet of gas |
MISO | Midcontinent Independent System Operator, Inc., a regional transmission organization |
MMBtu | One million British Thermal Units |
MPSC | Mississippi Public Service Commission |
MW | Megawatt(s), which equals one thousand kilowatts |
MWh | Megawatt-hour(s) |
Nelson Unit 6 | Unit No. 6 (coal) of the Nelson Steam Electric Generating Station, 70% of which is co-owned by Entergy Louisiana (57.5%) and Entergy Texas (42.5%) and 10.9% of which is owned by an Entergy subsidiary in the Entergy Wholesale Commodities business segment |
Net debt to net capital ratio | Gross debt less cash and cash equivalents divided by total capitalization less cash and cash equivalents |
Net MW in operation | Installed capacity owned and operated |
NRC | Nuclear Regulatory Commission |
NYPA | New York Power Authority |
Palisades | Palisades Nuclear Plant (nuclear), owned by an Entergy subsidiary in the Entergy Wholesale Commodities business segment |
Parent & Other | The portions of Entergy not included in the Utility or Entergy Wholesale Commodities segments, primarily consisting of the activities of the parent company, Entergy Corporation |
Pilgrim | Pilgrim Nuclear Power Station (nuclear), previously owned by an Entergy subsidiary in the Entergy Wholesale Commodities business segment, which ceased power production in May 2019 and was sold in August 2019 |
PPA | Purchased power agreement or power purchase agreement |
PRP | Potentially responsible party (a person or entity that may be responsible for remediation of environmental contamination) |
PUCT | Public Utility Commission of Texas |
Registrant Subsidiaries | Entergy Arkansas, Inc.,LLC, Entergy Louisiana, LLC, Entergy Mississippi, Inc.,LLC, Entergy New Orleans, LLC, Entergy Texas, Inc., and System Energy Resources, Inc. |
DEFINITIONS (Concluded)
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Abbreviation or Acronym | Term |
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River Bend | River Bend Station (nuclear), owned by Entergy Louisiana |
RTO | Regional transmission organization |
SEC | Securities and Exchange Commission |
DEFINITIONS (Concluded)
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Abbreviation or Acronym | Term |
| |
System Agreement | Agreement, effective January 1, 1983, as modified, among the Utility operating companies relating to the sharing of generating capacity and other power resources. The agreement terminated effective August 2016. |
System Energy | System Energy Resources, Inc. |
TWh | Terawatt-hour(s), which equals one billion kilowatt-hours |
Unit Power Sales Agreement | Agreement, dated as of June 10, 1982, as amended and approved by the FERC, among Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy, relating to the sale of capacity and energy from System Energy’s share of Grand Gulf |
Utility | Entergy’s business segment that generates, transmits, distributes, and sells electric power, with a small amount of natural gas distribution |
Utility operating companies | Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and Entergy Texas |
Vermont Yankee | Vermont Yankee Nuclear Power Station (nuclear), previously owned by an Entergy subsidiary in the Entergy Wholesale Commodities business segment, which ceased power production in December 2014 and was disposed of in January 2019 |
Waterford 3 | Unit No. 3 (nuclear) of the Waterford Steam Electric Station, 100% owned or leased by Entergy Louisiana |
weather-adjusted usage | Electric usage excluding the effects of deviations from normal weather |
White Bluff | White Bluff Steam Electric Generating Station, 57% owned by Entergy Arkansas |
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ENTERGY CORPORATION AND SUBSIDIARIES
MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS
Entergy operates primarily through two business segments: Utility and Entergy Wholesale Commodities.
| |
• | The Utility business segment includes the generation, transmission, distribution, and sale of electric power in portions of Arkansas, Mississippi, Texas, and Louisiana, including the City of New Orleans; and operation of a small natural gas distribution business. |
| |
• | The Entergy Wholesale Commodities business segment includes the ownership, operation, and decommissioning of nuclear power plants located in the northern United States and the sale of the electric power produced by its operating plants to wholesale customers. Entergy Wholesale Commodities also provides services to other nuclear power plant owners and owns interests in non-nuclear power plants that sell the electric power produced by those plants to wholesale customers. See “Entergy Wholesale Commodities Exit from the Merchant Power Business” below for discussion of the operation and planned shutdown and sale of each of the Entergy Wholesale Commodities nuclear power plants. |
The Utility business segment includes the generation, transmission, distribution, and sale of electric power in portions of Arkansas, Mississippi, Texas, and Louisiana, including the City of New Orleans; and operation of a small natural gas distribution business.
The Entergy Wholesale Commodities business segment includes the ownership, operation, and decommissioning of nuclear power plants located in the northern United States and the sale of the electric power produced by its operating plants to wholesale customers. Entergy Wholesale Commodities also provides services to other nuclear power plant owners and owns interests in non-nuclear power plants that sell the electric power produced by those plants to wholesale customers. See “Entergy Wholesale Commodities Exit from the Merchant Power Business” below for discussion of the operation and planned shutdown or sale of each of the Entergy Wholesale Commodities nuclear power plants.
Following are the percentages of Entergy’s consolidated revenues generated by its operating segments and the percentage of total assets held by them. Net income or loss generated by the operating segments is discussed in the sections that follow.
| | | % of Revenue | | % of Total Assets | % of Revenue | | % of Total Assets |
Segment | 2017 | 2016 | 2015 | | 2017 | 2016 | 2015 | 2019 | 2018 | 2017 | | 2019 | 2018 | 2017 |
Utility | 85 |
| 83 |
| 82 |
| | 92 |
| 89 |
| 86 |
| 88 |
| 87 |
| 85 |
| | 96 |
| 93 |
| 92 |
|
Entergy Wholesale Commodities | 15 |
| 17 |
| 18 |
| | 12 |
| 15 |
| 18 |
| 12 |
| 13 |
| 15 |
| | 8 |
| 11 |
| 12 |
|
Parent & Other(a) | — |
| — |
| — |
| | (4 | ) | (4 | ) | (4 | ) | — |
| — |
| — |
| | (4 | ) | (4 | ) | (4 | ) |
See Note 13 to the financial statements for further financial information regarding Entergy’s business segments.
Entergy Corporation and Subsidiaries
Management’s Financial Discussion and Analysis
Results of Operations
2017 Compared to 2016
Following are income statement variances for Utility, Entergy Wholesale Commodities, Parent & Other, and Entergy comparing 2017 to 2016 showing how much the line item increased or (decreased) in comparison to the prior period.
|
| | | | | | | | | | | | | | | |
| Utility | | Entergy Wholesale Commodities | | Parent & Other (a) | | Entergy |
| (In Thousands) |
2016 Consolidated Net Income (Loss) |
| $1,151,133 |
| |
| ($1,493,124 | ) | |
| ($222,512 | ) | |
| ($564,503 | ) |
| | | | | | | |
Net revenue (operating revenue less fuel expense, purchased power, and other regulatory charges/credits) | 138,617 |
| | (73,433 | ) | | (16 | ) | | 65,168 |
|
Other operation and maintenance | 108,187 |
| | 13,922 |
| | 4,869 |
| | 126,978 |
|
Asset write-offs, impairments, and related charges | — |
| | (2,297,265 | ) | | — |
| | (2,297,265 | ) |
Taxes other than income taxes | 38,897 |
| | (14,657 | ) | | 814 |
| | 25,054 |
|
Depreciation and amortization | 49,491 |
| | (6,731 | ) | | 31 |
| | 42,791 |
|
Gain on sale of asset | — |
| | 16,270 |
| | — |
| | 16,270 |
|
Other income | 64,815 |
| | 132,734 |
| | 1,962 |
| | 199,511 |
|
Interest expense | (10,245 | ) | | 856 |
| | 5,362 |
| | (4,027 | ) |
Other expenses | 24,859 |
| | 12,874 |
| | — |
| | 37,733 |
|
Income taxes | 370,228 |
| | 1,045,783 |
| | (56,182 | ) | | 1,359,829 |
|
2017 Consolidated Net Income (Loss) |
| $773,148 |
| |
| ($172,335 | ) | |
| ($175,460 | ) | |
| $425,353 |
|
| |
(a) | Parent & Other includes eliminations, which are primarily intersegment activity. |
Entergy Corporation and Subsidiaries
Management’s Financial Discussion and Analysis
Results of Operations
2019 Compared to 2018
Following are income statement variances for Utility, Entergy Wholesale Commodities, Parent & Other, and Entergy comparing 2019 to 2018 showing how much the line item increased or (decreased) in comparison to the prior period.
|
| | | | | | | | | | | | | | | |
| Utility | | Entergy Wholesale Commodities | | Parent & Other (a) | | Entergy |
| (In Thousands) |
2018 Consolidated Net Income (Loss) |
| $1,495,061 |
| |
| ($340,641 | ) | |
| ($291,865 | ) | |
| $862,555 |
|
| | | | | | | |
Operating revenues | 43,315 |
| | (174,186 | ) | | 92 |
| | (130,779 | ) |
Fuel, fuel-related expenses, and gas purchased for resale | (139,200 | ) | | 20,974 |
| | 71 |
| | (118,155 | ) |
Purchased power | (409,276 | ) | | (56,596 | ) | | (67 | ) | | (465,939 | ) |
Other regulatory charges (credits) | (327,269 | ) | | — |
| | — |
| | (327,269 | ) |
Other operation and maintenance | 61,199 |
| | (130,054 | ) | | (5,161 | ) | | (74,016 | ) |
Asset write-offs, impairments, and related charges | — |
| | (242,294 | ) | | — |
| | (242,294 | ) |
Taxes other than income taxes | 20,826 |
| | (17,870 | ) | | (1,163 | ) | | 1,793 |
|
Depreciation and amortization | 110,580 |
| | (1,676 | ) | | 1,670 |
| | 110,574 |
|
Other income | 13,488 |
| | 382,359 |
| | (19,212 | ) | | 376,635 |
|
Interest expense | 36,476 |
| | (4,244 | ) | | 2,845 |
| | 35,077 |
|
Other expenses | 20,703 |
| | 42,692 |
| | — |
| | 63,395 |
|
Income taxes | 752,182 |
| | 107,730 |
| | 7,089 |
| | 867,001 |
|
2019 Consolidated Net Income (Loss) |
| $1,425,643 |
| |
| $148,870 |
| |
| ($316,269 | ) | |
| $1,258,244 |
|
| |
(a) | Parent & Other includes eliminations, which are primarily intersegment activity. |
Refer to “SELECTED FINANCIAL DATA - FIVE-YEAR COMPARISON OF ENTERGY CORPORATION AND SUBSIDIARIES” which accompanies Entergy Corporation’s financial statements in this report for further information with respect to operating statistics.
Results of operations for 20172019 include: 1) $538a loss of $190 million ($350156 million net-of-tax) as a result of the sale of the Pilgrim plant in August 2019; 2) a $156 million reduction in income tax expense recognized by Entergy Wholesale Commodities as a result of an internal restructuring; and 3) impairment charges of $100 million ($79 million net-of-tax) due to costs being charged directly to expense as incurred as a result of the impaired value of the Entergy Wholesale Commodities nuclear plants’ long-lived assets due to the significantly reduced remaining estimated operating lives associated with management’s strategy to reduce the size ofexit the Entergy Wholesale Commodities’ merchant fleet; 2) a reduction in net income of $181 million, including a $34 million net-of-tax reduction of regulatory liabilities, at Utility and $397 million at Entergy Wholesale Commodities and an increase in net income of $52 million at Parent and Other as a result of Entergy’s re-measurement of its deferred tax assets and liabilities not subjectpower business. See Note 3 to the ratemaking process due to the enactmentfinancial statements for further discussion of the Tax Cuts and Jobs Act, in December 2017, which lowered the federal corporate income tax rate from 35% to 21%; and 3) a reduction in income tax expense, net of unrecognized tax benefits, of $373 million as a result of a change in the tax classification of legal entities that own Entergy Wholesale Commodities nuclear power plants. internal restructuring. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Entergy Wholesale Commodities Exit from the Merchant Power Business” below for a discussion of management’s strategy to reduceshut down and sell all of the size of theremaining plants in Entergy Wholesale Commodities’ merchant nuclear fleet and see Note 14 to the financial statements for further discussion of the impairment and related charges. See Note 3 tocharges and the financial statements for further discussionsale of the effects of the Tax Cuts and Jobs Act and the change in the tax classification.Pilgrim plant.
Entergy Corporation and Subsidiaries
Management’s Financial Discussion and Analysis
Results of operations for 20162018 include: 1) $2,836impairment charges of $532 million ($1,829 million net-of-tax) of impairment and related charges primarily to write down the carrying values of the Entergy Wholesale Commodities’ Palisades, Indian Point 2, and Indian Point 3 plants and related assets to their fair values; 2) a reduction of income tax expense, net of unrecognized tax benefits, of $238 million as a result of a change in the tax classification of a legal entity that owned one of the Entergy Wholesale Commodities nuclear power plants; income tax benefits as a result of the settlement of the 2010-2011 IRS audit, including a $75 million tax benefit recognized by Entergy Louisiana related to the treatment of the Vidalia purchased power agreement and a $54 million net benefit recognized by Entergy Louisiana related to the treatment of proceeds received in 2010 for the financing of Hurricane Gustav and Hurricane Ike storm costs pursuant to Louisiana Act 55; and 3) a reduction in expenses of $100 million ($64421 million net-of-tax) due to the effects of recording in 2016 the final court decisions in several lawsuits against the DOE related to spent nuclear fuel storage costs. See Note 14 to the financial statements for further discussion of the impairment and related charges, see Note 3 to the financial statements for additional discussion of the income tax items, and see Note 8 to the financial statements for discussion of the spent nuclear fuel litigation.
Net Revenue
Utility
Following is an analysis of the change in net revenue comparing 2017 to 2016.
|
| | | |
| Amount |
| (In Millions) |
| |
2016 net revenue |
| $6,179 |
|
Retail electric price | 91 |
|
Regulatory credit resulting from reduction of the
federal corporate income tax rate
| 56 |
|
Grand Gulf recovery | 27 |
|
Louisiana Act 55 financing savings obligation | 17 |
|
Volume/weather | (61 | ) |
Other | 9 |
|
2017 net revenue |
| $6,318 |
|
The retail electric price variance is primarily due to:
the implementation of formula rate plan rates effective with the first billing cycle of January 2017 at Entergy Arkansas and an increase in base rates effective February 24, 2016, each as approved by the APSC. A significant portion of the base rate increase was related to the purchase of Power Block 2 of the Union Power Station in March 2016;
a provision recorded in 2016 related to the settlement of the Waterford 3 replacement steam generator prudence review proceeding;
the implementation of the transmission cost recovery factor rider at Entergy Texas, effective September 2016, and an increase in the transmission cost recovery factor rider rate, effective March 2017, as approved by the PUCT; and
an increase in rates at Entergy Mississippi, as approved by the MPSC, effective with the first billing cycle of July 2016.
See Note 2 to the financial statements for further discussion of the rate proceedings and the Waterford 3 replacement steam generator prudence review proceeding. See Note 14 to the financial statements for discussion of the Union Power Station purchase.
Entergy Corporation and Subsidiaries
Management’s Financial Discussion and Analysis
The regulatory credit resulting from reduction of the federal corporate income tax rate variance is due to the reduction of the Vidalia purchased power agreement regulatory liability by $30.5 million and the reduction of the Louisiana Act 55 financing savings obligation regulatory liabilities by $25 million as a result of the enactment of the Tax Cuts and Jobs Act, in December 2017, which lowered the federal corporate income tax rate from 35% to 21%. The effects of the Tax Cuts and Jobs Act are discussed further in Note 3 to the financial statements.
The Grand Gulf recovery variance is primarily due to increased recovery of higher operating costs.
The Louisiana Act 55 financing savings obligation variance results from a regulatory charge in 2016 for tax savings to be shared with customers per an agreement approved by the LPSC. The tax savings resulted from the 2010-2011 IRS audit settlement on the treatment of the Louisiana Act 55 financing of storm costs for Hurricane Gustav and Hurricane Ike. See Note 3 to the financial statements for additional discussion of the settlement and benefit sharing.
The volume/weather variance is primarily due to the effect of less favorable weather on residential and commercial sales, partially offset by an increase in industrial usage. The increase in industrial usage is primarily due to new customers in the primary metals industry and expansion projects and an increase in demand for existing customers in the chlor-alkali industry.
Entergy Wholesale Commodities
Following is an analysis of the change in net revenue comparing 2017 to 2016.
|
| | | |
| Amount |
| (In Millions) |
| |
2016 net revenue |
| $1,542 |
|
FitzPatrick sale | (158 | ) |
Nuclear volume | (89 | ) |
FitzPatrick reimbursement agreement | 57 |
|
Nuclear fuel expenses | 108 |
|
Other | 9 |
|
2017 net revenue |
| $1,469 |
|
As shown in the table above, net revenue for Entergy Wholesale Commodities decreased by approximately $73 million in 2017 primarily due to the absence of net revenue from the FitzPatrick plant after it was sold to Exelon in March 2017 and lower volume in the Entergy Wholesale Commodities nuclear fleet resulting from more outage days in 2017 as compared to 2016. The decrease was partially offset by an increase resulting from the reimbursement agreement with Exelon pursuant to which Exelon reimbursed Entergy for specified out-of-pocket costs associated with preparing for the refueling and operation of FitzPatrick that otherwise would have been avoided had Entergy shut down FitzPatrick in January 2017 and a decrease in nuclear fuel expenses primarily related to the impairments of the Indian Point 2, Indian Point 3, and Palisades plants and related assets. Revenues received from Exelon in 2017 under the reimbursement agreement are offset by other operation and maintenance expenses and taxes other than income taxes and had no effect on net income. See Note 14 to the financial statements for discussion of the sale of FitzPatrick, the reimbursement agreement with Exelon, and the impairments and related charges.
Entergy Corporation and Subsidiaries
Management’s Financial Discussion and Analysis
Following are key performance measures for Entergy Wholesale Commodities for 2017 and 2016.
|
| | | |
| 2017 | | 2016 |
Owned capacity (MW) (a) | 3,962 | | 4,800 |
GWh billed | 30,501 | | 35,881 |
| | | |
Entergy Wholesale Commodities Nuclear Fleet | | | |
Capacity factor | 83% | | 87% |
GWh billed | 28,178 | | 33,551 |
Average energy and capacity revenue per MWh | $50.04 | | $47.31 |
Refueling Outage Days: | | | |
FitzPatrick | 42 | | — |
Indian Point 2 | — | | 102 |
Indian Point 3 | 66 | | — |
Pilgrim | 43 | | — |
Palisades | 27 | | — |
| |
(a) | The reduction in owned capacity is due to Entergy’s sale of the 838 MW FitzPatrick plant to Exelon in March 2017. See Note 14 to the financial statements for discussion of the sale of FitzPatrick. |
Other Income Statement Items
Utility
Other operation and maintenance expenses increased from $2,360 million for 2016 to $2,468 million for 2017 primarily due to:
an increase of $46 million in nuclear generation expenses primarily due to higher nuclear labor costs, including contract labor, to position the nuclear fleet to meet its operational goals, including additional training and initiatives to support management’s operational goals at Grand Gulf, partially offset by a decrease in regulatory compliance costs. The decrease in regulatory compliance costs is primarily related to additional NRC inspection activities in 2016 as a result of the NRC’s March 2015 decision to move ANO into the “multiple/repetitive degraded cornerstone column” of the NRC’s reactor oversight process action matrix. See Note 8 to the financial statements for a discussion of the ANO stator incident and subsequent NRC reviews;
an increase of $24 million in compensation and benefits costs primarily due to higher incentive-based compensation accruals in 2017 as compared to the prior year;
an increase of $20 million in transmission and distribution expenses due to higher vegetation maintenance costs;
the effects of recording in 2016 final court decisions in several lawsuits against the DOE related to spent nuclear fuel storage costs. The damages awarded included the reimbursement of approximately $19 million of spent nuclear fuel storage costs previously recorded as other operation and maintenance expense. See Note 8 to the financial statements for discussion of the spent nuclear fuel litigation; and
the deferral in the first quarter 2016 of $7.7 million of previously-incurred costs related to ANO post-Fukushima compliance and $9.9 million of previously-incurred costs related to ANO flood barrier compliance, as approved by the APSC in February 2016 as part of the Entergy Arkansas 2015 rate case settlement. These costs are being amortized over a ten-year period beginning March 2016. See Note 2 to the financial statements for further discussion of the rate case settlement.
The increase was partially offset by a decrease of $23 million in fossil-fueled generation expenses primarily due to lower long-term service agreement costs.
Entergy Corporation and Subsidiaries
Management’s Financial Discussion and Analysis
Taxes other than income taxes increased primarily due to increases in ad valorem taxes, local franchise taxes, state franchise taxes, and employment taxes. Ad valorem taxes increased primarily due to higher assessments, including the assessment of ad valorem taxes on the Union Power Station beginning in 2017. Local franchise taxes increased primarily due to higher revenues in 2017 as compared to the prior year. State franchise taxes increased primarily due to a change in the Louisiana franchise tax law which became effective for 2017.
Depreciation and amortization expenses increased primarily due to additions to plant in service, including the Union Power Station purchased in March 2016. See Note 14 to the financial statements for discussion of the Union Power Station purchase.
Other income increased primarily due to higher realized gains in 2017 as compared to the prior year on the decommissioning trust fund investments, including portfolio rebalancing in 2017, and an increase in the allowance for equity funds used during construction due to higher construction work in progress in 2017, including the St. Charles Power Station project.
Other expenses increased primarily due to increases in deferred refueling outage amortization costs primarily associated with the most recent ANO plant outages compared to previous outages.
Entergy Wholesale Commodities
Other operation and maintenance expenses increased from $915 million for 2016 to $929 million for 2017 primarily due to:
FitzPatrick’s nuclear refueling outage expenses and expenditures for capital assets being classified as other operation and maintenance expenses as a result of the sale and reimbursement agreements Entergy entered into with Exelon. These costs would have not been incurred absent the sale agreement with Exelon because Entergy planned to shut the plant down in January 2017. The expenses are offset by revenue realized pursuant to the reimbursement agreement and had no effect on net income. See Note 14 to the financial statements for discussion of the sale and reimbursement agreements;
the effect of recording in 2016 final court decisions in litigation against the DOE for the reimbursement of spent nuclear fuel storage costs, which reduced other operation and maintenance expenses in 2016 by $60 million. See Note 8 to the financial statements for discussion of the spent nuclear fuel litigation; and
an increase of $37 million in severance and retention costs in 2017 as compared to the prior year due to management’s strategy to reduce the size of the Entergy Wholesale Commodities’ merchant fleet. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Entergy Wholesale Commodities Exit from the Merchant Power Business” below for a discussion of management’s strategy to reduce the size of the Entergy Wholesale Commodities’ merchant fleet.
The increase was partially offset by a decrease due to the absence of other operation and maintenance expenses from the FitzPatrick plant after it was sold to Exelon in March 2017. See Note 14 to the financial statements for discussion of the sale of FitzPatrick.
The asset write-offs, impairments, and related charges variance is primarily due to $538 million ($350 million net-of-tax) of impairment charges in 2017 compared to $2,836 million ($1,829 million net-of-tax) of impairment and related charges in 2016. The impairment charges in 2017 are due to nuclear fuel spending, nuclear refueling outage spending, and expenditures for capital assets being charged directly to expense as incurred as a result of the impaired value of the Entergy Wholesale Commodities nuclear plants’ long-lived assets due to the significantly reduced remaining estimated operating lives associated with management’s strategy to reduce the size of the Entergy Wholesale Commodities’ merchant fleet. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Entergy Wholesale Commodities Exit from the Merchant Power Business” below for a discussion of management’s strategy to reduce the size of the Entergy Wholesale Commodities’ merchant fleet. The impairment and related charges in 2016 were primarily to write down the carrying values of the Entergy Wholesale Commodities’ Palisades, Indian Point 2,
Entergy Corporation and Subsidiaries
Management’s Financial Discussion and Analysis
associated with management’s strategy to exit the Entergy Wholesale Commodities’ merchant power business; 2) a $170 million reduction of income tax expense and Indian Point 3 plants and related assets to their fair values. See Note 14 to the financial statements for further discussiona regulatory liability of the impairments and related charges.
Taxes other than income taxes decreased primarily due to the absence of ad valorem taxes from the FitzPatrick plant after it was sold to Exelon in March 2017. See Note 14 to the financial statements for discussion of the sale of FitzPatrick.
The gain on sale of assets resulted from the sale in March 2017 of the 838 MW FitzPatrick plant to Exelon. Entergy sold the FitzPatrick plant for approximately $110$40 million which includes($30 million net-of-tax) as a $10 million non-refundable signing fee paid in August 2016, in addition to the assumption by Exelon of certain liabilities related to the FitzPatrick plant, resulting in a pre-tax gain of $16 million on the sale. See Note 14 to the financial statements for a discussion of the sale of FitzPatrick.
Other income increased primarily due to higher realized gains in 2017 as compared to the prior year on the decommissioning trust fund investments, including the result of portfolio rebalancing in 2017, and the increase in value realized upon the receipt from NYPAcustomer credits recognized by Utility, as a result of the decommissioning trust funds for the Indian Point 3 and FitzPatrick plants in January 2017. See Note 9 to the financial statements for discussionan internal restructuring; 3) a $107 million reduction of the trust transfer agreement with NYPA.
Other expenses increased primarily due to increases in decommissioning expenses primarilyincome tax expense, recognized by Entergy Wholesale Commodities, as a result of a trust transfer agreement Entergy entered into with NYPA in August 2016, which closed in January 2017, to transfer the decommissioning trusts and decommissioning liabilities for the Indian Point 3 and FitzPatrick plants to Entergy and revisions to the estimated decommissioning cost liabilities for the Entergy Wholesale Commodities’ Indian Point 2 and Palisades plants as a result of revised decommissioning cost studies in the fourth quarter 2016. The increase was partially offset by a reduction in deferred refueling outage amortization costs related to the impairmentsrestructuring of the Indian Point 2, Indian Point 3, and Palisades plants and related assets. See Note 9 to the financial statements for discussioninvestment holdings in one of theits nuclear plant decommissioning trust transfer agreement with NYPA and the revised decommissioning cost studies. See Note 14 to the financial statements for discussion of the impairments and related charges.
Income Taxes
See Note 3 to the financial statements forfunds; 4) a reconciliation of the federal statutory rate of 35% to the effective$52 million income tax rates, and for additional discussion regarding income taxes.
The effective income tax rate for 2017 was 56.1%. The difference in the effective income tax rate versus the statutory rate of 35% for 2017 was primarily due to the enactment of the Tax Cuts and Jobs Act, signedbenefit, recognized by President Trump in December 2017, which changed the federal corporate income tax rate from 35% to 21% effective in 2018, partially offset by a change in the tax classification of legal entities that own Entergy Wholesale Commodities nuclear power plants, which resulted in both permanent and temporary differences under the income tax accounting standards. See Note 3 to the financial statements for further discussion of the effects of the Tax Cuts and Jobs Act and the change in tax classification.
The effective income tax rate for 2016 was 59.1%. The difference in the effective income tax rate versus the statutory rate of 35% for 2016 was primarily due to a change in the tax classification of a legal entity that owned one of the Entergy Wholesale Commodities nuclear power plants and the reversal of a portion of the provision for uncertain tax positionsLouisiana, as a result of the settlement of the 2010-20112012-2013 IRS audit, partially offsetassociated with the Hurricane Katrina and Hurricane Rita contingent sharing obligation associated with the Louisiana Act 55 financing; and 5) a $23 million reduction of income tax expense, recognized by state income taxes and certain book and tax differences related to utility plant items. See Note 3 to the financial statements for additional discussion of the change in the tax classification and the tax settlement.
Entergy Corporation and Subsidiaries
Management’s Financial Discussion and Analysis
2016 Compared to 2015
Following are income statement variances for Utility, Entergy Wholesale Commodities, Parent & Other,as a result of a state income tax audit. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Entergy Wholesale Commodities Exit from the Merchant Power Business” below for a discussion of management’s strategy to shut down and Entergy comparing 2016 to 2015 showing how muchsell all of the line item increased or (decreased)remaining plants in comparison to the prior period.
|
| | | | | | | | | | | | | | | |
| Utility | | Entergy Wholesale Commodities | | Parent & Other | | Entergy |
| (In Thousands) |
2015 Consolidated Net Income (Loss) |
| $1,114,516 |
| |
| ($1,065,657 | ) | |
| ($205,593 | ) | |
| ($156,734 | ) |
| | | | | | | |
Net revenue (operating revenue less fuel expense, purchased power, and other regulatory charges/credits) | 350,528 |
| | (123,791 | ) | | (33 | ) | | 226,704 |
|
Other operation and maintenance | (83,265 | ) | | 15,269 |
| | 9,726 |
| | (58,270 | ) |
Asset write-offs, impairments, and related charges | (68,672 | ) | | 799,403 |
| | — |
| | 730,731 |
|
Taxes other than income taxes | (10,229 | ) | | (16,259 | ) | | (432 | ) | | (26,920 | ) |
Depreciation and amortization | 49,600 |
| | (39,180 | ) | | (509 | ) | | 9,911 |
|
Gain on sale of asset | — |
| | (154,037 | ) | | — |
| | (154,037 | ) |
Other income | 15,153 |
| | 8,666 |
| | 4,281 |
| | 28,100 |
|
Interest expense | 14,414 |
| | (3,930 | ) | | 12,417 |
| | 22,901 |
|
Other expenses | 19,589 |
| | (15,074 | ) | | — |
| | 4,515 |
|
Income taxes | 407,627 |
| | (581,924 | ) | | (35 | ) | | (174,332 | ) |
2016 Consolidated Net Income (Loss) |
| $1,151,133 |
| |
| ($1,493,124 | ) | |
| ($222,512 | ) | |
| ($564,503 | ) |
Refer to “SELECTED FINANCIAL DATA - FIVE-YEAR COMPARISON OF ENTERGY CORPORATION AND SUBSIDIARIES” which accompanies Entergy Corporation’s financial statements in this report for further information with respect to operating statistics.
Results of operations for 2016 include $2,836 million ($1,829 million net-of-tax) of impairment and related charges primarily to write down the carrying values of the Entergy Wholesale Commodities’ Palisades, Indian Point 2,merchant nuclear fleet and Indian Point 3 plants and related assets to their fair values. Seesee Note 14 to the financial statements for further discussion of the impairment and related charges. Results of operations for 2016 also include a reduction of income tax expense, net of unrecognized tax benefits, of $238 million as a result of a change in the tax classification of a legal entity that owned one of the Entergy Wholesale Commodities nuclear power plants; income tax benefits as a result of the settlement of the 2010-2011 IRS audit, including a $75 million tax benefit recognized by Entergy Louisiana related to the treatment of the Vidalia purchased power agreementSee Notes 2 and a $54 million net benefit recognized by Entergy Louisiana related to the treatment of proceeds received in 2010 for the financing of Hurricane Gustav and Hurricane Ike storm costs pursuant to Louisiana Act 55; and a reduction in expenses of $100 million ($64 million net-of-tax) due to the effects of recording in 2016 the final court decisions in several lawsuits against the DOE related to spent nuclear fuel storage costs. See Note 3 to the financial statements for additional discussion of the income tax items. See Note 8 to the financial statements for discussion of the spent nuclear fuel litigation.
Results of operations for 2015 include $2,036 million ($1,317 million net-of-tax) of impairment and related charges primarily to write down the carrying values of the Entergy Wholesale Commodities’ FitzPatrick, Pilgrim, and Palisades plants and related assets to their fair values. See Note 14 to the financial statements for further discussion of the impairmentinternal restructuring and related charges. As a result of the Entergy Louisiana and Entergy Gulf States Louisiana business combination, results of operations for 2015 also include two items that occurred in October 2015: 1) a deferred tax asset and resulting net increase in tax basis of approximately $334 million and 2) a regulatory liability of $107 million
Entergy Corporation and Subsidiaries
Management’s Financial Discussion and Analysis
($66 million net-of-tax) as a result of customer credits to be realized by electric customers of Entergy Louisiana, consistent with the terms of the stipulated settlement in the business combination proceeding.credits. See Note 23 to the financial statements for further discussion of the business combination and customer credits. Results of operations for 2015 also include the sale in December 2015restructuring of the 583 MW Rhode Island State Energy Center for a realized gain of $154 million ($100 million net-of-tax) ondecommissioning trust fund investment holdings, the saleIRS audit settlement, and the $77 million ($47 million net-of-tax) write-off and regulatory charges to recognize that a portion of the assets associated with the Waterford 3 replacement steam generator project is no longer probable of recovery. See Note 14 to the financial statements for further discussion of the Rhode Island State Energy Center sale. See Note 2 to the financial statements for further discussion of the Waterford 3 replacement steam generator prudence review proceeding.state income tax audit.
Net RevenueOperating Revenues
Utility
Following is an analysis of the change in net revenueoperating revenues comparing 20162019 to 2015.2018:
|
| | | |
| Amount |
| (In Millions) |
2018 operating revenues |
| $9,541 |
|
2015Fuel, rider, and other revenues that do not significantly affect net revenueincome | (523 | $5,829) |
Return of unprotected excess accumulated deferred income taxes to customers | 379 |
|
Retail electric price | 289260 |
|
Louisiana business combination customer credits | 107 |
|
Volume/weather | 14 |
|
Louisiana Act 55 financing savings obligation | (1773 | ) |
Other2019 operating revenues | (43 | ) |
2016 net revenue |
| $6,1799,584 |
|
The Utility operating companies’ results include revenues from rate mechanisms designed to recover fuel, purchased power, and other costs such that the revenues and expenses associated with these items generally offset and do not affect net income. “Fuel, rider, and other revenues that do not significantly affect net income” includes the revenue variance associated with these items.
The return of unprotected excess accumulated deferred income taxes to customers resulted from activity at the Utility operating companies in response to the enactment of the Tax Cuts and Jobs Act. The return of unprotected excess accumulated deferred income taxes began in second quarter 2018. In 2019, $262 million was returned to customers through reductions in operating revenues as compared to $641 million in 2018. There is no effect on net income as the reductions in operating revenues were offset by reductions in income tax expense. See Note 2 to the financial statements for further discussion of regulatory activity regarding the Tax Cuts and Jobs Act.
The retail electric price variance is primarily due to:
an increase in base rates at Entergy Arkansas, as approved by the APSC. The new rates were effective February 24, 2016 and began billing with the first billing cycle of April 2016. The increase included an interim base rate adjustment surcharge, effective with the first billing cycle of April 2016, to recover the incremental revenue requirement for the period February 24, 2016 through March 31, 2016. A significant portion of the increase was related to the purchase of Power Block 2 of the Union Power Station;
an increase in the purchased power and capacity acquisition cost recovery rider for Entergy New Orleans, as approved by the City Council, effective with the first billing cycle of March 2016, primarily related to the purchase of Power Block 1 of the Union Power Station;
an increase in formula rate plan revenues effective September 2018 and an interim increase in formula rate plan revenues effective June 2019 due to the inclusion of the first-year revenue requirement for the St. Charles Power Station, each at Entergy Louisiana, implementedas approved by the LPSC;
an increase in formula rate plan rates effective with the first billing cycle of March 2016, to collectJanuary 2019 at Entergy Arkansas, as approved by the estimated first-year revenue requirement related toAPSC;
Entergy Corporation and Subsidiaries
Management’s Financial Discussion and Analysis
a base rate increase effective October 2018 at Entergy Texas, as approved by the purchase of Power Blocks 3 and 4 of the Union Power Station;PUCT; and
an increase in formula rate plan revenues at Entergy Mississippi, as approved by the MPSC, effective with the first billing cycle of July 2016,2019 and an increaseaccrual in revenues collected through the storm damage rider.fourth quarter 2019 for the interim capacity rate adjustment to the formula rate plan to recover non-fuel related costs of acquiring the Choctaw Generating Station, each at Entergy Mississippi, as approved by the MPSC.
See Note 2 to the financial statements for further discussion of the rate proceedings. See Note 14 to the financial statements for discussion of the Union Power Station purchase.regulatory proceedings discussed above.
The Louisiana business combination customer credits variance is due to a regulatory liability of $107 million recorded by Entergy in October 2015 as a result of the Entergy Gulf States Louisiana and Entergy Louisiana business combination. Consistent with the terms of the stipulated settlement in the business combination proceeding, electric customers of Entergy Louisiana will realize customer credits associated with the business combination; accordingly, in October 2015, Entergy recorded a regulatory liability of $107 million ($66 million net-of-tax). These costs are being
Entergy Corporation and Subsidiaries
Management’s Financial Discussion and Analysis
amortized over a nine-year period beginning December 2015. See Note 2 to the financial statements for further discussion of the business combination and customer credits.
The volume/weather variance is primarily due to the effecta decrease of more favorable weather during the unbilled period and an increase1,587 GWh, or 1%, in industrialbilled electricity usage, partially offset byincluding the effect of less favorable weather on residential sales. The increase in industrial usage is primarily due to expansion projects, primarily in the chemicals industry, and increased demand from new customers, primarily in the industrial gases industry.commercial sales.
The Louisiana Act 55 financing savings obligation variance results from a regulatory charge for tax savings to be shared with customers per an agreement approved by the LPSC. The tax savings resulted from the 2010-2011 IRS audit settlement on the treatment of the Louisiana Act 55 financing of storm costs for Hurricane Gustav and Hurricane Ike. See Note 3 to the financial statements for additional discussion of the settlement and benefit sharing.
Included in Other is a provision of $23 million recorded in 2016 related to the settlement of the Waterford 3 replacement steam generator prudence review proceeding, offset by a provision of $32 million recorded in 2015 related to the uncertainty at that time associated with the resolution of the Waterford 3 replacement steam generator prudence review proceeding. See Note 2 to the financial statements for a discussion of the Waterford 3 replacement steam generator prudence review proceeding.
Entergy Wholesale Commodities
Following is an analysis of the change in net revenue comparing 2016 to 2015.
|
| | | |
| Amount |
| (In Millions) |
| |
2015 net revenue |
| $1,666 |
|
Nuclear realized price changes | (149 | ) |
Rhode Island State Energy Center | (44 | ) |
Nuclear volume | (36 | ) |
FitzPatrick reimbursement agreement | 41 |
|
Nuclear fuel expenses | 68 |
|
Other | (4 | ) |
2016 net revenue |
| $1,542 |
|
As shown in the table above, net revenueOperating revenues for Entergy Wholesale Commodities decreased by approximately $124from $1,469 million in 2016for 2018 to $1,295 million for 2019 primarily due to:
lower realized wholesale energy pricesto the shutdown of Pilgrim in May 2019 and lower capacity prices, the amortization of the Palisades below-market PPA, and Vermont Yankee capacity revenue. The effect of the amortization of the Palisades below-market PPA and Vermont Yankee capacity revenue on the net revenue variance from 2015 to 2016 is minimal;
the sale of the Rhode Island State Energy Center in December 2015. See Note 14 to the financial statements for further discussion of the Rhode Island State Energy Center sale; and
lowerpartially offset by higher volume in the remaining Entergy Wholesale Commodities merchant nuclear fleet resulting from more refuelingfewer outage days in 2016 as compared to 2015 and larger exercise of resupply options in 2016 as compared to 2015. See “Nuclear Matters - Indian Point” below for discussion of the extended Indian Point 2 outage in the second quarter 2016.
days.
Entergy Corporation and Subsidiaries
Management’s Financial Discussion and Analysis
The decrease was partially offset by:
an increase resulting from the reimbursement agreement with Exelon pursuant to which Exelon reimbursed Entergy for specified out-of-pocket costs associated with preparing for the refueling and operation of FitzPatrick that otherwise would have been avoided had Entergy shut down FitzPatrick in January 2017. Revenues received from Exelon under the reimbursement agreement are offset in nuclear fuel expenses and other operation and maintenance expenses and have no material effect on net income. See “Entergy Wholesale Commodities Exit from the Merchant Power Business - Sale of FitzPatrick” below for further discussion of the reimbursement agreement; and
a decrease in nuclear fuel expenses primarily related to the impairments of the FitzPatrick, Pilgrim, and Palisades plants and related assets. See Note 14 to the financial statements for discussion of the impairments.
Following are key performance measures for Entergy Wholesale Commodities for 20162019 and 2015.2018:
| | | 2016 | | 2015 | 2019 | | 2018 |
Owned capacity (MW) (a) | 4,800 | | 4,880 | 3,274 | | 3,962 |
GWh billed | 35,881 | | 39,745 | 28,088 | | 29,875 |
| | |
Entergy Wholesale Commodities Nuclear Fleet | | |
Capacity factor | 87% | | 91% | 93% | | 84% |
GWh billed | 33,551 | | 35,859 | 25,928 | | 27,617 |
Average energy and capacity revenue per MWh | $47.31 | | $50.29 | |
Refueling Outage Days: | | | | |
Average energy price ($/MWh) | | $39.10 | | $37.34 |
Average capacity price ($/kW-month) | | $4.25 | | $6.80 |
Refueling outage days: | | |
Indian Point 2 | 102 | | — | — | | 33 |
Indian Point 3 | — | | 23 | 29 | | — |
Palisades | — | | 32 | — | | 61 |
Pilgrim | — | | 34 | |
| |
(a) | The reduction in owned capacity is due to Entergy’s sale of its 50% membership interest in Top Deer Wind Ventures, LLC in November 2016. See Note 14 to the financial statements for discussionshutdown of the sale.688 MW Pilgrim plant in May 2019. |
Other Income Statement Items
Utility
Other operation and maintenance expenses decreasedincreased from $2,443$2,501 million for 20152018 to $2,360$2,563 million for 20162019 primarily due to:
a decreasean increase of $78$34 million in information technology costs primarily due to higher costs related to applications and infrastructure support, enhanced cyber security, and upgrades and maintenance;
an increase of $32 million in spending on initiatives to explore new customer products and services;
an increase of $21 million in compensation and benefits costs primarily due to higher incentive-based compensation accruals in 2019 as compared to prior year;
a decrease$15 million gain in net periodic pension and other postretirement benefits costs as a result2018 from the sale of an increase in the discount rate used to value the benefit liabilities and a refinement in the approach used to estimate the service cost and interest cost components of pension and other postretirement costs.Entergy Louisiana’s Willow Glen Power Station. See “Critical Accounting Estimates” below and Note 1114 to the financial statements for further discussion of pensionthe sale of Willow Glen;
an increase of $12 million in distribution operations and other postretirement benefit costs;asset management costs primarily due to higher advanced metering customer education costs and higher contract costs for meter reading services; and
Entergy Corporation and Subsidiaries
Management’s Financial Discussion and Analysis
an $11 million write-off in 2019 of specific costs related to the potential construction of scrubbers at the White Bluff plant at Entergy Arkansas.
The increase was partially offset by:
a decrease of $30 million in nuclear generation expenses primarily due to a lower scope of work performed in 2019 as compared to 2018;
the effects of recording in 20162019 final court decisionsjudgments to resolve claims in several lawsuitsthe ANO damages case and the River Bend damages case both against the DOE related to spent nuclear fuel storage costs. The damages awarded include the reimbursement of approximately $19$17 million of spent nuclear fuel storage costs previously recorded as other operation and maintenance expense. See Note 8 to the financial statements for discussion of the spent nuclear fuel litigation;
a decrease of $11 million in energy efficiency costs due to the timing of recovery from customers; and
a decrease of $9 million as a result of the deferral in 20162019 by Entergy New Orleans of $7.7 million of previously-incurred2018 costs related to ANO post-Fukushima complianceits rate case and $9.9 milliona system conversion for Algiers customers as a result of previously-incurred costs related to ANO flood barrier compliance, asthe 2018 combined rate case resolution approved by the APSC in February 2016 as part of the Entergy Arkansas 2015 rate case settlement. These costs are being
Entergy Corporation and Subsidiaries
Management’s Financial Discussion and Analysis
amortized over a ten-year period beginning March 2016.City Council. See Note 2 to the financial statements for further discussion of the rate case settlement;resolution.
Depreciation and amortization expenses increased primarily due to:
additions to plant in service, including the St. Charles Power Station;
a reduction of approximately $26 million in depreciation expense recorded in the third quarter 2018 as part of a settlement approved by the FERC in the Unit Power Sales Agreement proceeding; and
a decrease of $13 million in energy efficiency costs, includingnew depreciation rates at Entergy Mississippi, as approved by the effects of true-ups to energy efficiency filings for fixed costs to be collected from customersMPSC, and incentives recognizedat Entergy Texas, as a result of participation in energy efficiency programs.approved by the PUCT.
The decreaseincrease was partially offset by an increase of $61 millionupdated depreciation rates used in nuclear generationcalculating Grand Gulf plant depreciation and amortization expenses primarily due to higher nuclear labor costs, including contract labor, and an overall higher scope of work done during plant outages in 2016under the Unit Power Sales Agreement, as compared to prior year.
The asset write-offs, impairments, and related charges variance is dueapproved by the FERC. See Note 2 to the financial statements for further discussion of the Unit Power Sales Agreement proceeding.
Other regulatory charges (credits) include the following significant activity:
a regulatory charge recorded in second quarter 2018 to reflect the $45return of unprotected excess accumulated deferred income taxes per an agreement approved by the MPSC in June 2018 that resulted in a reduction in net utility plant of $127 million. There was no effect on net income as the regulatory charge was offset by a reduction in income tax expense in 2018;
regulatory charges of $73 million ($28 million net-of-tax) write-offrecorded in 20152018 to recognize that a portionreflect the effects of regulatory agreements to return the benefits of the assets associated withlower income tax rate in 2018 to Entergy Louisiana customers; and
regulatory charges of $25 million recorded in 2018 to reflect the Waterford 3 replacement steam generator project was no longer probableeffects of recovery; and
a provision in the $23.5 million ($15.3 million net-of-tax) write-offsettlement reached in 2015the 2018 rate case proceeding to return the benefits of the regulatory asset associated with the Spindletop gas storage facility as a result of the approval of the System Agreement termination settlement agreement.lower federal income tax rate in 2018 to Entergy Texas customers.
See Note 2 to the financial statements for further discussion of regulatory activity regarding the asset write-offs.Tax Cuts and Jobs Act.
Depreciation and amortization expensesInterest expense increased primarily due to additions to plant in service, including the Union Power Station purchasedissuance in March 2016, partially offset2019 of $525 million of 4.20% Series mortgage bonds by Entergy Louisiana and the effectsissuance in March 2019 of recording the final court decisions in several lawsuits against the DOE related to spent nuclear fuel storage costs. The damages awarded include the reimbursement$350 million of approximately $11 million in 2016 of spent nuclear fuel storage costs previously recorded as depreciation.4.20% Series mortgage bonds by Entergy Arkansas. See Note 85 to the financial statements for a discussion of long-term debt.
Entergy Wholesale Commodities
Fuel and purchased power expenses decreased from $192 million for 2018 to $157 million for 2019 primarily due to a larger exercise of resupply options in 2018 provided for in purchase power agreements where Entergy Wholesale
Entergy Corporation and Subsidiaries
Management’s Financial Discussion and Analysis
Commodities may elect to supply power from another source when plants are not running.
Other operation and maintenance expenses decreased from $808 million for 2018 to $678 million for 2019 primarily due to:
a decrease of $75 million in nuclear generation expenditures primarily due to the absence of other operation and maintenance expenses from the Pilgrim plant, after it was shut down in May 2019 and subsequently sold. See Note 14 to the financial statements for further discussion of the spentsale of the Pilgrim plant; and
| |
• | a decrease of $44 million in severance and retention expenses. Severance and retention expenses were incurred in 2019 and 2018 due to management’s strategy to exit the Entergy Wholesale Commodities merchant power business. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Entergy Wholesale Commodities Exit from the Merchant Power Business” below for a discussion of management’s strategy to shut down and sell all of the remaining plants in Entergy Wholesale Commodities’ merchant nuclear fleet. See Note 13 to the financial statements for further discussion of severance and retention expenses resulting from management’s strategy to shut down and sell all of the remaining plants in Entergy Wholesale Commodities’ merchant nuclear fleet. |
Asset write-offs, impairments, and related charges for 2019 include a loss of $190 million ($156 million net-of-tax) as a result of the sale of the Pilgrim plant in August 2019 and impairment charges of $100 million ($79 million net-of-tax) primarily related to nuclear refueling outage spending and expenditures for capital assets. Asset write-offs, impairments, and related charges for 2018 include impairment charges of $532 million ($421 million net-of-tax) related to asset retirement obligation revisions, nuclear fuel litigation.spending, nuclear refueling outage spending, and expenditures for capital assets. These costs were charged to expense as incurred as a result of the impaired fair value of the Entergy Wholesale Commodities nuclear plants’ long-lived assets due to the significantly reduced remaining estimated operating lives associated with management’s strategy to exit the Entergy Wholesale Commodities merchant power business. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Entergy Wholesale Commodities Exit from the Merchant Power Business” below for a discussion of management’s strategy to shut down and sell all of the remaining plants in Entergy Wholesale Commodities’ merchant nuclear fleet. See Note 9 to the financial statements for a discussion of asset retirement obligations. See Note 14 to the financial statements for a discussion of the impairment of long-lived assets and the sale of the Pilgrim plant.
Other income increased primarily due to higher gains on decommissioning trust fund investments. See Notes 15 and 16 to the financial statements for a discussion of decommissioning trust fund investments.
Other expenses increased primarily due to an increase in nuclear refueling outage expenses as a result of the amortization in 2019 of higher costs associated with refueling outages and increases in decommissioning expenses in 2016 primarily due to revised decommissioning cost studies in 2015 for Grand Gulf and Waterford 3.
Entergy Wholesale Commodities
Other operation and maintenance expenses increased from $899 million for 2015 to $915 million for 2016 primarily due to:
an increase of $60 million in severance and retention costs related to the planned shutdown or sale of the Pilgrim and FitzPatrick plants. See “Entergy Wholesale Commodities Exit From the Merchant Power Business” below for a discussion of management’s strategy to reduce the size of the Entergy Wholesale Commodities’ merchant fleet;
$41 million associated with preparing to refuel FitzPatrick in January 2017. Exelon reimbursed Entergy for these costs in accordance with the reimbursement agreement discussed in “Entergy Wholesale Commodities Exit From the Merchant Power Business - Sale of FitzPatrick” below; and
an increase of $26 million in costs related to Pilgrim’s response to a planned NRC enhanced inspection as a result of the NRC placing Pilgrim in its “multiple/repetitive degraded cornerstone column” (Column 4) of its Reactor Oversight Process Action Matrix in September 2015. See Note 8 to the financial statements for further discussion of the NRC’s decision and Pilgrim’s response.
The increase was partially offset by:
the effects of recording the final court decisions in several lawsuits against the DOE related to spent nuclear fuel storage costs. The damages awarded include the reimbursement of approximately $60 million in 2016 compared to the reimbursement of approximately $2 million in 2015 of spent nuclear fuel storage costs
Entergy Corporation and Subsidiaries
Management’s Financial Discussion and Analysis
previously recorded as other operation and maintenance expenses. See Note 8 to the financial statements for discussion of the spent nuclear fuel litigation;
a decrease of $32 million as a result of the sale of the Rhode Island State Energy Center in December 2015. See Note 14 to the financial statements for further discussion of the Rhode Island State Energy Center sale; and
a decrease of $21 million in compensation and benefits costs primarily due to a decrease in net periodic pension and other postretirement benefits costs as a result of an increase in the discount rate used to value the benefit liabilities and a refinement in the approach used to estimate the service cost and interest cost components of pension and other postretirement costs. See “Critical Accounting Estimates” below and Note 11 to the financial statements for further discussion of pension and other postretirement benefit costs.
The asset write-offs, impairments, and related charges variance is due to $2,836 million ($1,829 million net-of-tax) in 2016 of impairment and related charges primarily to write down the carrying values of the Entergy Wholesale Commodities’ Palisades, Indian Point 2, and Indian Point 3 plants and related assets to their fair values, partially offset by $2,036 million ($1,317 million net-of-tax) in 2015 of impairment and related charges primarily to write down the carrying values of the Entergy Wholesale Commodities’ FitzPatrick, Pilgrim, and Palisades plants and related assets to their fair values. See Note 14 to the financial statements for further discussion of these charges.
Depreciation and amortization expenses decreased primarily due to:
decreases in depreciable asset balances as a result of the impairments of the FitzPatrick, Pilgrim, and Palisades plants. See Note 14 to the financial statements for further discussion of the impairments;
the effects of recording the final court decisions in several lawsuits against the DOE related to spent nuclear fuel storage costs. The damages awarded include the reimbursement of approximately $15 million in 2016 compared to the reimbursement of approximately $4 million in 2015 of spent nuclear fuel storage costs previously recorded as depreciation. See Note 8 to the financial statements for discussion of the spent nuclear fuel litigation; and
a decrease in depreciable asset balances as a result of the sale of the Rhode Island State Energy Center in December 2015. See Note 14 to the financial statements for further discussion of the Rhode Island State Energy Center sale.
The gain on sale of asset resulted from the sale in December 2015 of the 583 MW Rhode Island State Energy Center in Johnston, Rhode Island, a business wholly-owned by Entergy in the Entergy Wholesale Commodities segment. Entergy sold the Rhode Island State Energy Center for approximately $490 million and realized a pre-tax gain of $154 million on the sale. See Note 14 to the financial statements for further discussion of the Rhode Island State Energy Center sale.
Other expenses decreased primarily due to the reduction in deferred refueling outage amortization costs related to the impairments of the FitzPatrick, Pilgrim, and Palisades plants and related assets, partially offset by increases in decommissioning expenses primarily as a result of a trust transfer agreement Entergy entered into with NYPA in August 2016 to transfer the decommissioning trusts and decommissioning liabilities for the Indian Point 3 and FitzPatrick plants to Entergy and a revision to the estimated decommissioning cost liability for the Entergy Wholesale Commodities’ Pilgrim plant as a result of a revised decommissioning cost study in 2015. See Note 14 to the financial statements for further discussion of the impairments and related charges and Note 9 to the financial statements for further discussion of nuclear decommissioning costs.at Palisades.
Income Taxes
See Note 3 to the financial statements for a reconciliation of the federal statutory rate of 35%21% to the effective income tax rates, and for additional discussion regarding income taxes.
The effective income tax rate for 2019 was (15.6%). The difference in the effective income tax rate versus the federal statutory rate of 21% was primarily due to amortization of excess accumulated deferred income taxes, certain book and tax differences related to utility plant items, tax differences related to the allowance for equity funds used during construction, recognition of a deferred tax asset associated with a previously unrecognized net operating loss carryover, a charitable tax deduction, and the effects of restructuring transactions within Entergy Wholesale Commodities, partially offset by state income taxes and valuation allowances recorded against deferred tax assets associated with the disposition of Vermont Yankee and the carryover of business interest expense. See Notes 2 and 3 to the financial statements for a discussion of the effects and regulatory activity regarding the Tax Cuts and Jobs Act. See Note 3 to the financial statements for a discussion of the internal restructuring at Entergy Wholesale Commodities. See Note 14 to the financial statements for a discussion of the tax effects of the Vermont Yankee disposition.
Entergy Corporation and Subsidiaries
Management’s Financial Discussion and Analysis
The effective income tax rate for 20162018 was 59.1%595%. The difference in the effective income tax rate versus the statutory rate of 35% for 201621% was primarily due to a change inamortization of excess accumulated deferred income taxes, the tax classificationeffects of a legal entity that ownedrestructuring within the Utility, and a restructuring of the investment holdings in one of the Entergy Wholesale CommoditiesCommodities’ nuclear power plantsplant decommissioning trusts for which additional tax basis is now recoverable. See Notes 2 and 3 to the reversal offinancial statements for a portiondiscussion of the provision for uncertain tax positions as a result ofeffects and regulatory activity regarding the settlement of the 2010-2011 IRS audit, partially offset by state income taxesTax Cuts and certain book and tax differences related to utility plant items.Jobs Act. See Note 3 to the financial statements for additionala discussion of the changerestructuring.
2018 Compared to 2017
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Results of Operations” in Entergy’s Annual Report on Form 10-K for the tax classification and the tax settlement.
The effective income tax rateyear ended December 31, 2018 for 2015 was 80.4%. The difference in the effective income tax rate versus the statutory rate of 35% for 2015 was primarily due to the tax effects of the Louisiana business combination. See Note 3 to the financial statements for further discussion of the tax effectsresults of the Louisiana business combination.operations for 2018 compared to 2017.
Income Tax Legislation
On December 22, 2017, President Trump signed into law H.R. 1, also known as the Tax Cuts and Jobs Act (the Act). As a result of the Act, Entergy and the Registrant Subsidiaries re-measured their deferred tax assets and liabilities in December 2017 to reflect the reduction in the federal corporate income tax rate from 35% to 21% that iswas effective January 1, 2018. Note 3 to the financial statements contains additional discussion of the effect of the Act on 2017, 2018, and 2019 results of operations and financial position, the provisions of the Act, and the uncertainties associated with accounting for the Act, and Note 2 to the financial statements discusses the regulatory proceedings commenced or other responses by Entergy’s regulators tothat have considered the effects of the Act.
On a going forward basis, after going through the appropriate regulatory processes Entergy expects the Act to reduce itsEntergy’s operating cash flows becausehave been and will be reduced by the lower federal corporate income tax rate will result in lower income tax expense collected in revenues and asAct, most significantly over the time that the Registrant Subsidiaries are returning unprotected excess deferred income taxes are returned to customers. In general, rateRate base is expected to increase over time as a consequence of the Act as the excess deferred income taxes are returned to customers. Entergy expects to financefinanced its incremental cash requirements as a consequence of these changesthe Act through a combination of Registrant Subsidiary debt and Entergy Corporation debt and equity. In June 2018, Entergy Corporation expectsmarketed an equity offering of 15.3 million shares of common stock. In lieu of issuing equity at the equitytime of the offering, Entergy entered into forward sale agreements with several counterparties. In December 2018, Entergy physically settled a portion of this financingits obligations under the forward sale agreements by delivering 6.8 million shares of its common stock in exchange for cash proceeds of $500 million. In May 2019, Entergy physically settled its remaining obligations under the forward sale agreements by delivering 8.5 million shares of common stock in exchange for cash proceeds of $608 million. See Note 7 to be approximately $1 billion, and currently expects to issue all of this equity before the end of 2019. It is expected that certain credit metrics that incorporate operating cash flows or debt outstanding will be adversely affected by the effectsfinancial statements for further discussion of the Act.forward sale agreements.
The amount and timing of the earnings and cash effects of the Act and the financing of the incremental cash requirements will depend upon regulatory treatment of the effects of the Act. The Registrant Subsidiaries will work directly with their respective regulators to determine the appropriate path forward in each jurisdiction. Potential regulatory options that may be considered include:
determining the period over which certain income tax benefits are provided to customers;
accelerating depreciation or amortization for certain assets or asset classes; and
increasing or modifying capital investments.
Entergy Wholesale Commodities Exit from the Merchant Power Business
Entergy management has undertaken a strategy to manage and reduce the risk of the Entergy Wholesale Commodities business, which includes taking actions to reduce the size of the merchant fleet. Management evaluated the challenges for each of the plants based on a variety of factors such as their market for both energy and capacity, their size, their contracted positions, and the amount of investment required to continue to operate and maintain the safety and integrity of the plants, including the estimated asset retirement costs. Management continues to look for ways to mitigate the operational and decommissioning risks associated with the merchant power business. Assumptions regarding the operating life of the plants and the decommissioning timeline and process continue to be evaluated. Changes to current assumptions could result in revisions to the asset retirement obligations and affect compliance with certain NRC minimum financial assurance requirements for meeting obligations to decommission the plants. Increases in the asset retirement obligations could result in an increase in operating expense in the period of a revision.
Entergy Corporation and Subsidiaries
Management’s Financial Discussion and Analysis
Assumptions regarding the possibility that a plant may have an operating life shorter than previously assumed will likely result in the need for additional contributions to decommissioning trust funds, or the posting of parent guarantees, letters of credit, or other surety mechanisms.
Entergy Wholesale Commodities includes the ownership of the following nuclear reactors:
reactors as of December 31, 2019:
|
| | | | | | | | |
| | Location | | Market | | Capacity | | Planned Transaction |
Vermont Yankee | | Vernon, VT | | ISO-NE | | 605 MW | | Plant in decommissioning phase, planned sale in 2018 |
Pilgrim | | Plymouth, MA | | ISO-NE | | 688 MW | | Planned shutdown in 2019Status |
Indian Point 2 | | Buchanan, NY | | NYISO | | 1,028 MW | | Planned shutdown in 2020 |
Indian Point 3 | | Buchanan, NY | | NYISO | | 1,041 MW | | Planned shutdown in 2021 |
Palisades | | Covert, MI | | MISO | | 811 MW | | Planned shutdown in 2022 |
As discussed below, Entergy sold theits FitzPatrick nuclear power plant to Exelon in March 2017. 2017, transferred its Vermont Yankee plant to NorthStar in January 2019, and sold its Pilgrim plant to Holtec in August 2019. The Palisades and Indian Point plants are under contract to be sold, subject to certain conditions, after they are shut down. Entergy also sold the Rhode Island State Energy Center, a natural gas-fired combined cycle generating plant, in December 2015.
Entergy Corporation and Subsidiaries
Management’s Financial Discussion and Analysis
These plant sales and contracts to sell are the result of a strategy that Entergy has undertaken to manage and reduce the risk of the Entergy Wholesale Commodities business, which includes taking actions to exit the merchant power business. Management evaluated the challenges for each of the plants based on a variety of factors such as their market for both energy and capacity, their size, their contracted positions, and the amount of investment required to continue to operate and maintain the safety and integrity of the plants, including the estimated asset retirement costs. Changes to current assumptions regarding the operating life of a plant, the decommissioning timeline and process, or the length of time that Entergy will continue to own a plant could result in revisions to the asset retirement obligations and affect compliance with certain NRC minimum financial assurance requirements for meeting obligations to decommission the plants. Increases in the asset retirement obligations are likely to result in an increase in operating expense in the period of a revision. The possibility that a plant may have an operating life shorter than previously assumed could result in the need for additional contributions to decommissioning trust funds, or the posting of parent guarantees, letters of credit, or other surety mechanisms.
Entergy Wholesale Commodities also includes the ownership of two non-operating nuclear facilities, Big Rock Point in Michigan and Indian Point 1 in New York that were acquired when Entergy purchased the Palisades and Indian Point 2 nuclear plants, respectively. These facilities are in various stages of the decommissioning process. Big Rock Point is under contract to be sold with the Palisades plant and Indian Point 1 is under contract to be sold with the Indian Point 2 and Indian Point 3 plants. In addition, Entergy Wholesale Commodities provides operations and management services, including decommissioningdecommissioning-related services, to nuclear power plants owned by other utilitiesnon-affiliated entities in the United States. A relatively minor portion of the Entergy Wholesale Commodities business is the ownership of interests in non-nuclear power plants that sell the electric power produced by those plants to wholesale customers.
Shutdown and Planned SaleDisposition of Vermont Yankee
On December 29, 2014, the Vermont Yankee plant ceased power production and entered its decommissioning phase.In November 2016, Entergy entered into an agreement to selltransfer 100% of the membership interests in Entergy Nuclear Vermont Yankee, LLC to a subsidiary of NorthStar. Entergy Nuclear Vermont Yankee iswas the owner of the Vermont Yankee plant and is in the Entergy Wholesale Commodities segment.plant. The sale of Entergy Nuclear Vermont Yankee to NorthStar will includetransaction included the transfer of the nuclear decommissioning trust fund and the asset retirement obligation for the spent fuel management and decommissioning of the plant.
In March 2018, Entergy and NorthStar entered into a settlement agreement and a Memorandum of Understanding with State of Vermont agencies and other interested parties that set forth the terms on which the agencies and parties supported the Vermont Public Utility Commission’s approval of the transaction. The agreements provided additional financial assurance for decommissioning, spent fuel management and site restoration, and detailed the site restoration standards. In October 2018 the NRC issued an order approving the application to transfer Vermont Yankee’s license to NorthStar for decommissioning. In December 2018 the Vermont Public Utility Commission issued an order approving the transaction consistent with the Memorandum of Understanding’s terms. On January 11, 2019, Entergy and NorthStar closed the transaction.
Entergy Nuclear Vermont Yankee hashad an outstanding credit facility with borrowing capacity of $145 millionthat was used to pay for dry fuel storage costs. This credit facility iswas guaranteed by Entergy Corporation. At or before closing, aA subsidiary of Entergy will assumeassumed the obligations under the existing credit facility or enter into a new credit facility, and Entergy will guarantee the credit facility. At the closing of the sale transaction, NorthStar will pay $1,000 for the membership interests incaused Entergy Nuclear Vermont Yankee, andrenamed NorthStar will cause Entergy Nuclear Vermont Yankee, to issue a $139 million promissory note to anthe Entergy affiliate.subsidiary that assumed the credit facility obligations. The amount of the promissory note issued will be equal toincludes the amount drawn underbalance outstanding on the credit facility, or the amount drawn under the new credit facility, plusas well as borrowing fees and costs incurred by Entergy in connection with suchthe credit facility. The principal amount drawn under
With the outstanding credit facility was $104 millionreceipt of the NRC and Vermont Public Utility Commission approvals and the resolution among the parties of the significant conditions of the sale, Entergy concluded that as of December 31, 2017, and the net book value of Entergy Nuclear2018 Vermont Yankee including unrealized gains on the decommissioning trust fund, as of December 31, 2017, was approximately $123 million.
in held for sale status. Entergy plans to transfer all spent nuclear fuel to dry cask storage by the end of 2018accordingly evaluated Vermont Yankee’s asset retirement obligation in advancelight of the plannedterms of the transaction close. Underand evaluated the sale agreement and related agreements to be entered into atremaining values of the closing, NorthStar will commit to initiate decommissioning and site restoration by 2021 and complete those activities by 2030. The original planned completion date, as outlined in Entergy’s Post Shutdown Decommissioning Activities Report filed with the NRC, was 2075. Entergy Nuclear Vermont Yankee under NorthStar ownership, will be required to repayassets. These evaluations resulted in an increase in the promissory note issued to Entergy with certainasset retirement obligation and $173 million of the proceeds from the recovery of damages under its claims against the DOE related to spent nuclear fuel disposal, with any balance remaining due at partial site release, subject to extension not to exceed two years from partial site release.asset impairment and other charges in the
Entergy Corporation and Subsidiaries
Management’s Financial Discussion and Analysis
The transaction is subjectfourth quarter 2018. See Note 9 to certain closing conditions, including approval by the NRC; approval by the State of Vermont Public Utility Commission, including approval of site restoration standards that have been proposed as partfinancial statements for additional discussion of the transaction;asset retirement obligation. See Note 14 to the transfer of all spent nuclear fuel to dry fuel storage on the independent spent fuel storage installation; and that the market valuefinancial statements for discussion of the fund assets held in the decommissioning trust fund forclosing of the Vermont Yankee Nuclear Power Station, less the hypothetical income tax on the aggregate unrealized net gain of such fund assets at closing, is equal to or exceeds $451.95 million, subject to adjustments. Entergy has the option to contribute to the decommissioning trust fund if the value is less than $451.95 million, subject to adjustments. The transaction is planned to close by the end of 2018.transaction.
Sale of Rhode Island State Energy Center
In December 2015, Entergy sold the Rhode Island State Energy Center, a 583 MW natural gas-fired combined-cycle generating plant owned by Entergy in the Entergy Wholesale Commodities segment. Entergy sold the Rhode Island State Energy Center for approximately $490 million and realized a pre-tax gain of $154 million on the sale.
Sale of Top Deer Investment
In November 2016, Entergy sold its 50% membership interest in Top Deer Wind Ventures, LLC, a wind-powered electric generation joint venture owned by Entergy in the Entergy Wholesale Commodities segment and accounted for as an equity method investment. Entergy sold its 50% membership interest in Top Deer for approximately $0.5 million and realized a pre-tax loss of $0.2 million on the sale.
Sale of FitzPatrick
In October 2015, Entergy determined that it would close the FitzPatrick plant. The original expectation was to shut down the FitzPatrick plant at the end of its fuel cycle in January 2017. See Note 14 to the financial statements for discussion of the impairment charges associated with the decision to cease operations earlier than expected.
In August 2016, Entergy entered into a trust transfer agreement with NYPA to transfer the decommissioning trust funds and decommissioning liabilities for the Indian Point 3 and FitzPatrick plants to Entergy. When Entergy purchased Indian Point 3 and FitzPatrick in 2000 from NYPA, NYPA retained the decommissioning trust funds and the decommissioning liabilities. NYPA and Entergy subsidiaries executed decommissioning agreements, which specified their decommissioning obligations. NYPA had the right to require the Entergy subsidiaries to assume each of the decommissioning liabilities provided that it assigned the corresponding decommissioning trust, up to a specified level, to the Entergy subsidiaries. Under the original agreements, if the decommissioning liabilities were retained by NYPA, the Entergy subsidiaries would perform the decommissioning of the plants at a price equal to the lesser of a pre-specified level or the amount in the decommissioning trust funds. At the time of the acquisition of the plants Entergy recorded a contract asset that represented an estimate of the present value of the difference between the stipulated contract amount for decommissioning the plants less the decommissioning costs estimated in independent decommissioning cost studies. The asset was increased by monthly accretion based on the applicable discount rate necessary to ultimately provide for the estimated future value of the decommissioning contract. The monthly accretion was recorded as interest income. As a result of the agreement with NYPA, in the third quarter 2016, Entergy removed the contract asset from its balance sheet, and recorded receivables for the beneficial interests in the decommissioning trust funds and asset retirement obligations for the decommissioning liabilities. The asset retirement obligations are accreted monthly through a charge to decommissioning expense. The decommissioning trust funds for the Indian Point 3 and FitzPatrick plants were transferred to Entergy by NYPA in January 2017. See Note 9 to the financial statements for further discussion of Indian Point 3 and FitzPatrick’s decommissioning liabilities and see Note 16 to the financial statements for further discussion of the receivables for the beneficial interests in Indian Point 3 and FitzPatrick’s decommissioning trust funds as of December 31, 2016.
In August 2016, Entergy entered into an agreement to sell the FitzPatrick plant to Exelon. NRC approval of the sale was received in March 2017. The transaction closed in March 2017 for a purchase price of $110 million, which
Entergy Corporation and Subsidiaries
Management’s Financial Discussion and Analysis
included a $10 million non-refundable signing fee paid in August 2016, in addition to the assumption by Exelon of certain liabilities related to the FitzPatrick plant, resulting in a pre-tax gain on the sale of $16 million. At the transaction close, Exelon paid an additional $8 million for the proration of certain expenses prepaid by Entergy. See Note 14 to the financial statements for further discussion of the sale of FitzPatrick. As discussed in Note 3 to the financial statements, as a result of the sale of FitzPatrick, Entergy re-determined the plant’s tax basis, resulting in a $44 million income tax benefit in the first quarter 2017.
Planned Shutdown and Sale of Pilgrim
In October 2015, Entergy determined that it would close the Pilgrim plant. The decision came after management’s extensive analysis of the economics and operating life of the plant following the NRC’s decision in September 2015 to place the plant in its “multiple/repetitive degraded cornerstone column” (Column 4) of its Reactor Oversight Process Action Matrix. TheIn January 2019 the NRC found that the Pilgrim plant is expectedhad completed the corrective actions required to ceaseaddress the concerns that led to the plant’s placement in Column 4 and had demonstrated sustained improvement. Pilgrim ceased operations onin May 31, 2019, at the end of its current fuel cycle.2019. See Note 14 to the financial statements for discussion of the impairment charges associated with the decision to cease operations earlier than expectedexpected.
On July 30, 2018, Entergy entered into a purchase and see Note 8sale agreement with Holtec International to sell to a Holtec subsidiary 100% of the equity interests in Entergy Nuclear Generation Company, LLC, the owner of Pilgrim, for further discussion$1,000 (subject to adjustments for net liabilities and other amounts). On August 22, 2019 the NRC approved the transfer of Pilgrim’s facility licenses to Holtec. At that time, hearing requests filed by the Commonwealth of Massachusetts and Pilgrim Watch challenging Holtec’s financial qualifications and the sufficiency of the NRC’s review of the associated environmental impacts of the license transfer were pending with the NRC Commissioners. The NRC approval order included a condition acknowledging the NRC’s longstanding authority to modify, condition, or rescind
Entergy Corporation and Subsidiaries
Management’s Financial Discussion and Analysis
the license transfer order as a result of any hearing that may be conducted. On August 26, 2019, as permitted by the August 22 order, Entergy and Holtec closed the transaction. On September 3 and 4, 2019, Pilgrim Watch and Massachusetts each filed with the NRC motions to stay the effectiveness of the August 22 order pending the resolution of the NRC hearing process. On December 17, 2019, the NRC denied the Pilgrim Watch and Massachusetts stay motions. The NRC has not yet ruled on the placementPilgrim Watch and Massachusetts hearing requests. In addition, on September 25, 2019, Massachusetts filed a petition with the U.S. Court of Appeals for the District of Columbia Circuit, asking the court to vacate the NRC’s August 22 license transfer approval order and related approvals. On November 6, 2019, the court granted Entergy and Holtec intervenor status in the U.S. Court of Appeals proceeding. On November 22, 2019, Entergy and Holtec filed a motion to dismiss Massachusetts’ petition; the NRC also filed a motion to dismiss on the same date. On January 17, 2020, the States of New York, Connecticut, Illinois, Iowa, Maryland, Michigan, Minnesota, New Jersey, New Mexico, Oregon, Pennsylvania, and Vermont filed a brief as amici curiae in support of Massachusetts’s petition. The court of appeals has not yet ruled on Massachusetts’ initial petition or on the NRC or Entergy/Holtec motions to dismiss. On January 22, 2020, Massachusetts filed a second petition with the D.C. Circuit asking the court to review the NRC’s December 17 order denying its stay motion. On February 12, 2020, the court granted Entergy and Holtec intervenor status in the proceeding on the second petition and consolidated the proceedings for Massachusetts’ two petitions.
The sale of Entergy Nuclear Generation Company, LLC to Holtec included the transfer of the nuclear decommissioning trust and obligation for spent fuel management and plant decommissioning. The transaction resulted in a loss of $190 million ($156 million net-of-tax) in 2019. See Note 14 to the financial statements for discussion of the closing of the Pilgrim in Column 4.transaction.
Planned Shutdown and Sale of Indian Point 2 and Indian Point 3
In April 2007, Entergy submitted to the NRC a joint application to renew the operating licenses for Indian Point 2 and Indian Point 3 have been involved, and have faced opposition, in extensive licensing proceedings.for an additional 20 years. In January 2017, Entergy announced that it reached a settlement with New York State, to shut downseveral State agencies, and Riverkeeper, Inc., under which Indian Point 2 and Indian Point 3 will cease commercial operation by April 30, 2020 and April 30, 2021, respectively, subject to certain conditions, including New York State’s withdrawal of opposition to Indian Point’s license renewals and issuance of contested permits and similar authorizations. Operations may be extended up to four additional years for each unit by mutual agreement of Entergy and New York State based on an exigent reliability need for Indian Point generation. In September 2018 the NRC issued renewed operating licenses for Indian Point 2 through April 2024 and for Indian Point 3 bythrough April 30, 2021. See further discussion of the licensing proceedings and the settlement reached with New York State in “Entergy Wholesale Commodities Authorizations to Operate Indian Point”below.
As discussed above, in August 2016, Entergy entered into a trust transfer agreement with NYPA to transfer the decommissioning trust fund and decommissioning liability for the Indian Point 3 plant to Entergy. The decommissioning trust fund for the Indian Point 3 plant was transferred to Entergy by NYPA in January 2017.
2025. See Note 14 to the financial statements for further discussion of the impairment charges associated with management’s evaluation of alternativesthe decision to the continued operation ofshut down the Indian Point plants.
Other provisions of the settlement include termination of all then-existing investigations of Indian Point by the parties to the agreement, which include the New York State Department of Environmental Conservation, the New York State Department of State, the New York State Department of Public Service, the New York State Department of Health, and the New York State Attorney General. The settlement recognizes the right of New York State agencies to pursue new investigations and enforcement actions with respect to new circumstances or existing conditions that become materially exacerbated.
Another provision of the settlement obligates Entergy to establish a $15 million fund for environmental projects and community support. Apportionment and allocation of funds to beneficiaries are to be determined by mutual agreement of New York State and Entergy. The settlement recognizes New York State’s right to perform an annual inspection of Indian Point, with scope and timing to be determined by mutual agreement.
In April 2019, Entergy entered into an agreement to sell, directly or indirectly, 100% of the equity interests in the subsidiaries that own Indian Point 1, Indian Point 2, and Indian Point 3, after Indian Point 3 has been shut down and defueled, to a Holtec International subsidiary for decommissioning. The sale includes the transfer of the licenses, spent fuel, decommissioning liabilities, and nuclear decommissioning trusts for the three units.
Entergy Corporation and Subsidiaries
Management’s Financial Discussion and Analysis
The transaction is subject to closing conditions, including approval from the NRC. In November 2019, Entergy and Holtec submitted a license transfer application to the NRC. In January 2020 the NRC indicated that the application contained sufficient information for it to conduct its technical review and anticipated that it would complete its review in January 2021. Entergy and Holtec also submitted a petition to the New York State Public Service Commission in November 2019 seeking an order from the New York Public Service Commission disclaiming jurisdiction or abstaining from review of the transaction or, alternatively, approving the transaction. Closing is also conditioned on obtaining from the New York State Department of Environmental Conservation an agreement related to Holtec’s decommissioning plan as being consistent with applicable standards. The transaction closing is targeted for May 2021, following the defueling of Indian Point 3.
As consideration for the transfer to Holtec of its interest in Indian Point, Entergy will receive nominal cash consideration. The Indian Point transaction is expected to result in a loss based on the difference between Entergy’s adjusted net investment in the subsidiaries at closing and the sale price net of any agreed adjustments. As of December 31, 2019, Entergy’s adjusted net investment in the Indian Point units was $240 million. The primary variables in the ultimate loss that Entergy will incur are the values of the nuclear decommissioning trusts and the asset retirement obligations at closing, the financial results from plant operations until the closing, and the level of any unrealized deferred tax balances at closing. The terms of the transaction include limitations on withdrawals from the nuclear decommissioning trusts to fund decommissioning activities and controls on how Entergy manages the investment of nuclear decommissioning trust assets between signing and closing; however, the agreement does not require a minimum level of funding in the nuclear decommissioning trusts as a condition to closing.
Planned Shutdown and Sale of Palisades
Most of the Palisades output is sold under a power purchase agreement (PPA) with Consumers Energy, entered into when the plant was acquired in 2007, that is scheduled to expire in 2022. The PPA prices currently exceed market prices and escalate each year, up to $61.50/MWh in 2022. In December 2016, Entergy reached an agreement with Consumers Energy to amend the existing PPA to terminate early, on May 31, 2018. Pursuant to the agreement to amend the PPA, Consumers Energy would pay Entergy $172 million for the early termination of the PPA. The PPA amendment agreement was subject to regulatory approvals, including approval by the Michigan Public Service Commission. Separately, Entergy intended to shut down the Palisades nuclear power plant permanently on October 1, 2018, after refueling in the spring of 2017 and operating through the end of that fuel cycle.
In September 2017 the Michigan Public Service Commission issued an order conditionally approving the PPA amendment transaction, but only granting Consumers Energy recovery of $136.6 million of the $172 million requested early termination payment. As a result, Entergy and Consumers Energy agreed to terminate the PPA amendment agreement. Entergy will continuecontinues to operate Palisades under the current PPA with Consumers Energy, instead of shutting down in the fall of 2018 as previously planned. Entergy intends to shut down the Palisades nuclear power plant permanently onno later than May 31, 2022. As a result of the changeincrease in the expected operating life of the plant, the expected probability-weighted undiscounted net cash flows as of September 30, 2017 exceeded the carrying value of the plant and related assets. Accordingly, nuclear fuel spending, nuclear refueling outage spending, and expenditures for capital assets incurred at Palisades after September 30, 2017 are no longer charged to expense as incurred, but recorded as
Entergy Corporation and Subsidiaries
Management’s Financial Discussion and Analysis
assets and depreciated or amortized, subject to the typical periodic impairment reviews prescribed in the accounting rules. See Note 9 to the financial statements for discussion of the associated asset retirement obligation revision. Seerevision, see Note 14 to the financial statements for discussion of the impairment charges associated with the decision to cease operations at Palisades, and see Note 19 to the financial statements for discussion of the updated calculation of the PPA liability amortization associatedamortization.
On July 30, 2018, Entergy entered into a purchase and sale agreement with the PPA and discussionHoltec International to sell to a Holtec subsidiary 100% of the impairment charges associated withequity interests in Entergy Nuclear Palisades, LLC, the decisionowner of Palisades and the Big Rock Point Site. The sale of Entergy Nuclear Palisades will include the transfer of the nuclear decommissioning trust and obligation for spent fuel management and plant decommissioning. At the closing of the sale transaction, the Holtec
Entergy Corporation and Subsidiaries
Management’s Financial Discussion and Analysis
subsidiary will pay $1,000 (subject to ceaseadjustment for net liabilities and other amounts) for the equity interests in Entergy Nuclear Palisades.
The Palisades transaction is subject to certain closing conditions, including: the permanent shutdown of Palisades and the transfer of all nuclear fuel from the reactor vessel to the spent nuclear fuel pool; NRC regulatory approval for the transfer of the Palisades and Big Rock Point operating and independent spent fuel storage installation licenses; receipt of a favorable private letter ruling from the IRS; the market value of the nuclear decommissioning trust for Palisades, less the hypothetical income tax on the aggregate unrealized gain of such fund assets at closing, equaling or exceeding a specified minimum amount; and, the Pilgrim transaction having closed.
Subject to the above conditions, the Palisades transaction is expected to close by the end of 2022. As of December 31, 2019, Entergy’s adjusted net investment in Palisades was $60 million. The primary variables in the ultimate loss or gain that Entergy will incur on the transaction are the values of the nuclear decommissioning trust and the asset retirement obligations at closing, the financial results from plant operations earlier than expected.until the closing, and the level of any unrealized deferred tax balances at closing.
Costs Associated with Exit of the Entergy Wholesale Commodities Strategic TransactionsBusiness
Entergy incurred approximately $91 million in costs in 2019, $139 million in costs in 2018, and $113 million in costs in 2017 and $95 million in costs in 2016 associated with management’s strategy to reduce the size ofexit the Entergy Wholesale Commodities’Commodities merchant fleet,power business, primarily employee retention and severance expenses and other benefits-related costs, and contracted economic development contributions. Entergy expects to incur employee retention and severance expenses of approximately $165$75 million in 2018,2020, and a total of approximately $205$55 million from 20192021 through mid-20222022 associated with these strategic transactions.the exit from the merchant power business. See Note 13 to the financial statements for further discussion of these costs.
In 2017, Entergy Wholesale Commodities incurred $100 million in 2019, $532 million in 2018, and $538 million in 2017 of impairment charges related to nuclear fuel spending, nuclear refueling outage spending, and expenditures for capital assets, of $0.5 billion.and asset retirement obligation revisions. These costs were charged to expense as incurred as a result of the impaired value of the Entergy Wholesale Commodities nuclear plants’ long-lived assets due to the significantly reduced remaining estimated operating lives associated with management’s strategy to reduce the size ofexit the Entergy Wholesale Commodities’Commodities merchant fleet.power business. Entergy expects to continue to incur costs associated with nuclear fuel-related spending and expenditures for capital assets and, except for Palisades, expects to continue to charge these costs to expense as incurred because Entergy expects the value of the plants to continue to be impaired.In 2016, Entergy Wholesale Commodities incurred impairment charges of $2.8 billion primarily to write down the carrying values of the Entergy Wholesale Commodities’ Palisades, Indian Point 2, and Indian Point 3 plants and related assets to their fair values. See Note 14 to the financial statements for further discussion of these impairment charges.
Entergy Wholesale Commodities Authorizations to Operate Indian Point
In April 2007, Entergy submitted to the NRC a joint application to renew the operating licenses for Indian Point 2 and Indian Point 3 for an additional 20 years. The original expiration dates of the NRC operating licenses for Indian Point 2 and Indian Point 3 were in September 2013 and December 2015, respectively. While the NRC staff reviews the license renewal applications, Indian Point 2 and Indian Point 3’s initial license terms have expired and the plants are operating under “timely renewal,” which is a federal statutory rule of general applicability providing for extension of a license for which a renewal application has been timely filed with the licensing agency.
In January 2017, Entergy reached a settlement with New York State, several State agencies, and Riverkeeper, Inc., under which Indian Point 2 and Indian Point 3 will cease commercial operation by April 30, 2020 and April 30, 2021, respectively, subject to certain conditions, including New York State’s withdrawal of opposition to Indian Point’s license renewals and issuance of contested permits and similar authorizations. See Note 14 to the financial statements for a discussion of the impairment and related charges associated with the settlement with New York State.
The Indian Point settlement required New York State agencies to issue environmental certifications needed for license renewal and a renewed water discharge permit based on current plant configuration. It also required the New York State Attorney General and Riverkeeper to withdraw their contentions pending before the Atomic Safety and Licensing Board (ASLB). In exchange, Entergy commits to cease commercial operation of Indian Point 2 by April 30, 2020 and Indian Point 3 by April 30, 2021. These actions have been completed, all New York State approvals required for the NRC to issue renewed licenses have been granted, and the ASLB has terminated proceedings before it following the withdrawal of pending contentions. The NRC is not expected to issue renewed licenses earlier than third quarter 2018, as its staff must complete updates to the record on environmental and safety matters (a supplement to the final supplemental environmental impact statement and a supplement to the final safety evaluation report).
Entergy Corporation and Subsidiaries
Management’s Financial Discussion and Analysis
Operations may be extended up to four additional years for each unit by mutual agreement of Entergy and New York State based on an exigent reliability need for Indian Point generation. In accordance with the FERC-approved tariff of the New York Independent System Operator (NYISO), Entergy submitted to the NYISO a notice of generator deactivation based on the dates in the settlement (no later than April 30, 2020 for Indian Point Unit 2 and April 30, 2021 for Indian Point Unit 3). In December 2017, NYISO issued a report stating there will not be a system reliability need following the deactivation of Indian Point. The NYISO also has advised that it will perform an analysis of the potential competitive impacts of the proposed retirement under provisions of its tariff. The deadline for the NYISO to make a withholding determination is in dispute and is pending before the FERC.
In addition to contractually agreeing to cease commercial operations early, in February 2017 Entergy filed with the NRC an amendment to its license renewal application changing the term of the requested licenses to coincide with the latest possible extension by mutual agreement based on exigent reliability needs: April 30, 2024 for Indian Point 2 and April 30, 2025 for Indian Point 3. If Entergy reasonably determines that the NRC will treat the amendment other than as a routine amendment, Entergy may withdraw the amendment.
Other provisions of the settlement include termination of all then-existing investigations of Indian Point by the agencies signing the agreement, which include the New York State Department of Environmental Conservation, the New York State Department of State, the New York State Department of Public Service, the New York State Department of Health, and the New York State Attorney General. The settlement recognizes the right of New York State agencies to pursue new investigations and enforcement actions with respect to new circumstances or existing conditions that become materially exacerbated.
Another provision of the settlement obligates Entergy to establish a $15 million fund for environmental projects and community support. Apportionment and allocation of funds to beneficiaries are to be determined by mutual agreement of New York State and Entergy. The settlement recognizes New York State’s right to perform an annual inspection of Indian Point, with scope and timing to be determined by mutual agreement.
In May 2017 a plaintiff filed two parallel state court appeals challenging New York State’s actions in signing and implementing the Indian Point settlement with Entergy on the basis that the State failed to perform sufficient environmental analysis of its actions. All signatories to the settlement agreement, including the Entergy affiliates that hold NRC licenses for Indian Point, were named. The appeals were voluntarily dismissed in November 2017.
Liquidity and Capital Resources
This section discusses Entergy’s capital structure, capital spending plans and other uses of capital, sources of capital, and the cash flow activity presented in the cash flow statement.
Capital Structure
Entergy’s capitalizationdebt to capital ratio is balanced between equity and debt, as shown in the following table. The increasedecrease in the debt to capital ratio for Entergy as of December 31, 2017 is primarily due to an increasethe settlement of equity forwards in commercial paper outstanding2019, partially offset by the issuance of long-term debt in 2017 as compared2019. See Note 7 to 2016.the financial statements for a discussion of the equity forward sale agreements and Note 5 to the financial statements for a discussion of long-term debt.
Entergy Corporation and Subsidiaries
Management’s Financial Discussion and Analysis
| | | 2017 | | 2016 | December 31, 2019 | | December 31, 2018 |
Debt to capital | 67.1% | | 64.8% | 65.5% | | 66.7% |
Effect of excluding securitization bonds | (0.8%) | | (1.0%) | (0.4%) | | (0.6%) |
Debt to capital, excluding securitization bonds (a) | 66.3% |
| 63.8% | 65.1% |
| 66.1% |
Effect of subtracting cash | (1.1%) | | (2.0%) | (0.5%) | | (0.6%) |
Net debt to net capital, excluding securitization bonds (a) | 65.2% |
| 61.8% | 64.6% |
| 65.5% |
| |
(a) | Calculation excludes the Arkansas, Louisiana, New Orleans, and Texas securitization bonds, which are non-recourse to Entergy Arkansas, Entergy Louisiana, Entergy New Orleans, and Entergy Texas, respectively. |
Entergy Corporation and Subsidiaries
Management’s Financial Discussion and Analysis
Net debt consists of debt less cash and cash equivalents. Debt consists of notes payable and commercial paper, capitalfinance lease obligations, and long-term debt, including the currently maturing portion. Capital consists of debt, common shareholders’ equity, and subsidiaries’ preferred stock without sinking fund. Net capital consists of capital less cash and cash equivalents. Entergy uses the debt to capital ratios excluding securitization bonds in analyzing its financial condition and believes they provide useful information to its investors and creditors in evaluating Entergy’s financial condition because the securitization bonds are non-recourse to Entergy, as more fully described in Note 5 to the financial statements. Entergy also uses the net debt to net capital ratio excluding securitization bonds in analyzing its financial condition and believes it provides useful information to its investors and creditors in evaluating Entergy’s financial condition because net debt indicates Entergy’s outstanding debt position that could not be readily satisfied by cash and cash equivalents on hand.
Long-term debt, including the currently maturing portion, makes up most of Entergy’s total debt outstanding. Following are Entergy’s long-term debt principal maturities and estimated interest payments as of December 31, 2017.2019. To estimate future interest payments for variable rate debt, Entergy used the rate as of December 31, 2017.2019. The amounts below include payments on System Energy’s Grand Gulf sale-leaseback transaction, which are included in long-term debt on the balance sheet.
| | Long-term debt maturities and estimated interest payments | | 2018 | | 2019 | | 2020 | | 2021-2022 | | after 2022 | | 2020 | | 2021 | | 2022 | | 2023-2024 | | after 2024 |
| | (In Millions) | | (In Millions) |
Utility | |
| $1,427 |
| |
| $1,430 |
| |
| $927 |
| |
| $2,234 |
| |
| $15,102 |
| |
| $1,100 |
| |
| $1,889 |
| |
| $1,034 |
| |
| $3,451 |
| |
| $18,836 |
|
Entergy Wholesale Commodities | | 3 |
| | 3 |
| | 106 |
| | — |
| | — |
| | 5 |
| | 144 |
| | — |
| | — |
| | — |
|
Parent and Other | | 76 |
| | 76 |
| | 520 |
| | 953 |
| | 832 |
| | 531 |
| | 65 |
| | 703 |
| | 511 |
| | 788 |
|
Total | |
| $1,506 |
| |
| $1,509 |
| |
| $1,553 |
| |
| $3,187 |
| |
| $15,934 |
| |
| $1,636 |
| |
| $2,098 |
| |
| $1,737 |
| |
| $3,962 |
| |
| $19,624 |
|
Note 5 to the financial statements provides more detail concerning long-term debt outstanding.
Entergy Corporation has in place a credit facility that has a borrowing capacity of $3.5 billion and expires in August 2022.September 2024. The facility permitsincludes fronting commitments for the issuance of letters of credit against $20 million of the total borrowing capacity of the credit facility. The commitment fee is currently 0.225% of the undrawn commitment amount. Commitment fees and interest rates on loans under the credit facility can fluctuate depending on the senior unsecured debt ratings of Entergy Corporation. The weighted average interest rate for the year ended December 31, 20172019 was 2.55%3.77% on the drawn portion of the facility.
Entergy Corporation and Subsidiaries
Management’s Financial Discussion and Analysis
As of December 31, 2017,2019, amounts outstanding and capacity available under the $3.5 billion credit facility are:
| | Capacity | | Borrowings | | Letters of Credit | | Capacity Available | | Borrowings | | Letters of Credit | | Capacity Available |
(In Millions) | $3,500 | | $210 | | $6 | | $3,284 | | $440 | | $6 | | $3,054 |
A covenant in Entergy Corporation’s credit facility requires Entergy to maintain a consolidated debt ratio, as defined, of 65% or less of its total capitalization. The calculation of this debt ratio under Entergy Corporation’s credit facility is different than the calculation of the debt to capital ratio above. One such difference is that it excludes the effects, among other things, of certain impairments related to the Entergy Wholesale Commodities nuclear generation assets. Entergy is currently in compliance with the covenant and expects to remain in compliance with this covenant. If Entergy fails to meet this ratio, or if Entergy or one of the Utility operating companies (except Entergy New Orleans) defaults on other indebtedness or is in bankruptcy or insolvency proceedings, an acceleration of the Entergy Corporation credit facility’s maturity date may occur.
Entergy Corporation and Subsidiaries
Management’s Financial Discussion and Analysis
Entergy Corporation has a commercial paper program with a Board-approved program limit of up to$2 billion. As of December 31, 2017,2019, Entergy Corporation had $1.467$1.947 billion of commercial paper outstanding. The weighted-average interest rate for the year ended December 31, 20172019 was 1.49%2.71%.
CapitalFinance lease obligations are a minimal part of Entergy’s overall capital structure. Following are Entergy’s payment obligations under those leases.
|
| | | | | | | | | |
| 2018 | | 2019 | | 2020 | | 2021-2022 | | after 2022 |
| (In Millions) |
Capital lease payments | $3 | | $3 | | $3 | | $6 | | $19 |
|
| | | | | | | | | |
| 2020 | | 2021 | | 2022 | | 2023-2024 | | after 2024 |
| (In Millions) |
Finance lease payments | $14 | | $12 | | $11 | | $19 | | $20 |
The capital leasesLeases are discussed in Note 10 to the financial statements.
Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and Entergy Texas each had credit facilities available as of December 31, 20172019 as follows:
|
| | | | | | | | | | |
Company | | Expiration Date | | Amount of Facility | | Interest Rate (a) | | Amount Drawn as of December 31, 20172019 | | Letters of Credit Outstanding as of December 31, 20172019 |
Entergy Arkansas | | April 20182020 | | $20 million (b) | | 2.82%2.92% | | — | | — |
Entergy Arkansas | | August 2022September 2024 | | $150 million (c) | | 2.82%2.92% | | — | | — |
Entergy Louisiana | | August 2022September 2024 | | $350 million (c) | | 2.82% | | — | | $9.1 million |
Entergy Mississippi | | May 2018 | | $10 million (d) | | 3.07%2.92% | | — | | — |
Entergy Mississippi | | May 20182020 | | $2010 million (d) | | 3.07%3.30% | | — | | — |
Entergy Mississippi | | May 20182020 | | $35 million (d) | | 3.07%3.30% | | — | | — |
Entergy Mississippi | | May 20182020 | | $37.5 million (d) | | 3.07%3.30% | | — | | — |
Entergy New Orleans | | November 20182021 | | $25 million (c) | | 3.04%2.92% | | —$20 million | | $0.8 million |
Entergy Texas | | August 2022September 2024 | | $150 million (c) | | 3.07%3.30% | | — | | $25.61.3 million |
| |
(a) | The interest rate is the estimated interest rate as of December 31, 20172019 that would have been applied to outstanding borrowings under the facility. |
| |
(b) | Borrowings under this Entergy Arkansas credit facility may be secured by a security interest in its accounts receivable at Entergy Arkansas’s option. |
Entergy Corporation and Subsidiaries
Management’s Financial Discussion and Analysis
| |
(c) | The credit facility permitsincludes fronting commitments for the issuance of letters of credit against a portion of the borrowing capacity of the facility as follows: $5 million for Entergy Arkansas; $15 million for Entergy Louisiana; $10 million for Entergy New Orleans; and $30 million for Entergy Texas. |
| |
(d) | Borrowings under the Entergy Mississippi credit facilities may be secured by a security interest in its accounts receivable at Entergy Mississippi’s option. |
Each of the credit facilities requires the Registrant Subsidiary borrower to maintain a debt ratio, as defined, of 65% or less of its total capitalization. Each Registrant Subsidiary is in compliance with this covenant.
In addition, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and Entergy Texas each entered into one or more uncommitted standby letter of credit facilities as a means to post collateral to support its obligations to MISO. Following is a summary of the uncommitted standby letter of credit facilities as of December 31, 2017:
Entergy Corporation and Subsidiaries
Management’s Financial Discussion and Analysis
2019:
|
| | | | | | | |
Company | | | Amount of Uncommitted Facility | | Letter of Credit Fee | | Letters of Credit Issued as of December 31, 2017 (a)2019 |
Entergy Arkansas | | | $25 million | | 0.70% | | $1.01 million |
Entergy Louisiana | | | $125 million | | 0.70% | | $29.712.3 million |
Entergy Mississippi | | | $4064 million | | 0.70% | | $15.31.8 million (a) |
Entergy New Orleans | | | $15 million | | 1.00% | | $1.45.6 million |
Entergy Texas | | | $50 million | | 0.70% | | $22.812.1 million |
| |
(a) | As of December 31, 2017,2019, letters of credit posted with MISO covered financial transmission right exposure of $0.2 million for Entergy Arkansas, $0.1 million for Entergy Mississippi, and $0.05 million for Entergy Texas.Mississippi. See Note 15 to the financial statements for discussion of financial transmission rights. |
In January 2019, Entergy Nuclear Vermont Yankee has awas transferred to NorthStar and its credit facility guaranteedwas assumed by Vermont Yankee Asset Retirement Management, LLC, Entergy Corporation withNuclear Vermont Yankee’s parent company that remains an Entergy subsidiary after the transfer. The credit facility has a borrowing capacity of $145$139 million thatand expires in November 2020.December 2021. As of December 31, 2017, $1042019, $139 million in cash borrowings were outstanding under the credit facility. The weighted average interest rate for the year ended December 31, 20172019 was 2.64%3.93% on the drawn portion of the facility. Entergy Nuclear Vermont Yankee also had an uncommitted credit facility guaranteed by Entergy Corporation with a borrowing capacity of $85 million that expired in January 2018. As of December 31, 2017, there were no cash borrowings outstanding under the credit facility. See Note 414 to the financial statements for additional discussion of the transfer of Entergy Nuclear Vermont Yankee credit facilities.to NorthStar.
Operating Lease Obligations and Guarantees of Unconsolidated Obligations
Entergy has a minimal amount of operating lease obligations and guarantees in support of unconsolidated obligations. Entergy’s guarantees in support of unconsolidated obligations are not likely to have a material effect on Entergy’s financial condition, results of operations, or cash flows. Following are Entergy’s payment obligations as of December 31, 20172019 on non-cancelable operating leases with a term over one year:
|
| | | | | | | | | |
| 2018 | | 2019 | | 2020 | | 2021-2022 | | after 2022 |
| (In Millions) |
Operating lease payments | $80 | | $83 | | $67 | | $102 | | $97 |
|
| | | | | | | | | |
| 2020 | | 2021 | | 2022 | | 2023-2024 | | after 2024 |
| (In Millions) |
Operating lease payments | $62 | | $56 | | $48 | | $68 | | $29 |
Operating leasesLeases are discussed in Note 10 to the financial statements.
Entergy Corporation and Subsidiaries
Management’s Financial Discussion and Analysis
Summary of Contractual Obligations of Consolidated Entities
| | Contractual Obligations | | 2018 | | 2019-2020 | | 2021-2022 | | after 2022 | | Total | | 2020 | | 2021-2022 | | 2023-2024 | | after 2024 | | Total |
| | (In Millions) | | (In Millions) |
Long-term debt (a) | |
| $1,506 |
| |
| $3,062 |
| |
| $3,187 |
| |
| $15,934 |
| |
| $23,689 |
| |
| $1,636 |
| |
| $3,835 |
| |
| $3,962 |
| |
| $19,624 |
| |
| $29,057 |
|
Capital lease payments (b) | |
| $3 |
| |
| $6 |
| |
| $6 |
| |
| $19 |
| |
| $34 |
| |
Finance lease payments (b) | | |
| $14 |
| |
| $23 |
| |
| $19 |
| |
| $20 |
| |
| $76 |
|
Operating leases (b) (c) | |
| $80 |
| |
| $150 |
| |
| $102 |
| |
| $97 |
| |
| $429 |
| |
| $62 |
| |
| $104 |
| |
| $68 |
| |
| $29 |
| |
| $263 |
|
Purchase obligations (d) | |
| $1,394 |
| |
| $2,485 |
| |
| $1,992 |
| |
| $4,728 |
| |
| $10,599 |
| |
| $1,371 |
| |
| $2,228 |
| |
| $1,863 |
| |
| $4,326 |
| |
| $9,788 |
|
| |
(a) | Includes estimated interest payments. Long-term debt is discussed in Note 5 to the financial statements. |
| |
(b) | Lease obligations are discussed in Note 10 to the financial statements. |
| |
(c) | Does not include power purchase agreements that are accounted for as leases that are included in purchase obligations. |
| |
(d) | Purchase obligations represent the minimum purchase obligation or cancellation charge for contractual obligations to purchase goods or services. Almost all of the total are fuel and purchased power obligations. |
Entergy Corporation and Subsidiaries
Management’s Financial Discussion and Analysis
In addition to the contractual obligations stated above, Entergy currently expects to contribute approximately $352.1$216.3 million to its pension plans and approximately $52.3$49.1 million to other postretirement plans in 2018,2020, although the 20182020 required pension contributions will be known with more certainty when the January 1, 20182020 valuations are completed, which is expected by April 1, 2018.2020. See “Critical Accounting Estimates - Qualified Pension and Other Postretirement Benefits” below for a discussion of qualified pension and other postretirement benefits funding.
Also in addition to the contractual obligations, Entergy has $916$1,542 million of unrecognized tax benefits and interest net of unused tax attributes for which the timing of payments beyond 12 months cannot be reasonably estimated due to uncertainties in the timing of effective settlement of tax positions. See Note 3 to the financial statements for additional information regarding unrecognized tax benefits.
Capital Funds Agreement
Pursuant to an agreement with certain creditors, Entergy Corporation has agreed to supply System Energy with sufficient capital to:
maintain System Energy’s equity capital at a minimum of 35% of its total capitalization (excluding short-term debt);
permit the continued commercial operation of Grand Gulf;
pay in full all System Energy indebtedness for borrowed money when due; and
enable System Energy to make payments on specific System Energy debt, under supplements to the agreement assigning System Energy’s rights in the agreement as security for the specific debt.
Capital Expenditure Plans and Other Uses of Capital
Following are the amounts of Entergy’s planned construction and other capital investments by operating segment for 20182020 through 2020.2022.
| | Planned construction and capital investments | | 2018 | | 2019 | | 2020 | | 2020 | | 2021 | | 2022 |
| | (In Millions) | | (In Millions) |
Utility: | | | | | | | | | | | | |
Generation | |
| $1,590 |
| |
| $1,410 |
| |
| $1,245 |
| |
| $1,410 |
| |
| $1,475 |
| |
| $1,355 |
|
Transmission | | 990 |
| | 865 |
| | 735 |
| | 955 |
| | 820 |
| | 630 |
|
Distribution | | 860 |
| | 1,030 |
| | 945 |
| | 880 |
| | 690 |
| | 620 |
|
Utility Support | | 480 |
| | 335 |
| | 375 |
| | 865 |
| | 925 |
| | 1,025 |
|
Total | | 3,920 |
| | 3,640 |
| | 3,300 |
| | 4,110 |
| | 3,910 |
| | 3,630 |
|
Entergy Wholesale Commodities | | 245 |
| | 75 |
| | 35 |
| | 35 |
| | 10 |
| | 5 |
|
Total | |
| $4,165 |
| |
| $3,715 |
| |
| $3,335 |
| |
| $4,145 |
| |
| $3,920 |
| |
| $3,635 |
|
Planned construction and capital investments refer to amounts Entergy plans to spend on routine capital projects that are necessary to support reliability of its service, equipment, or systems and to support normal customer growth, and includes spending for the nuclear and non-nuclear plants at Entergy Wholesale Commodities.growth. In addition to routine capital projects, they also refer to amounts Entergy plans to spend on non-routine capital investments for which Entergy is either contractually obligated, has Board approval, or otherwise expects to make to satisfy regulatory or legal requirements. Amounts include the following types of construction and capital investments:
Investments, including the St. Charles Power Station, Lake Charles Power Station, New Orleans Power Station, and Montgomery County Power Station, each discussed below, and potential construction of additional generation.Washington Parish Energy Center, Sunflower Solar
Entergy Wholesale Commodities investments associated with specific investments such as component replacements, software and security, and dry cask storage.
Entergy Corporation and Subsidiaries
Management’s Financial Discussion and Analysis
Facility, New Orleans Power Station, Montgomery County Power Station, and Searcy Solar Facility, each discussed below, and potential construction of additional generation.
Investments in Entergy’s Utility nuclear fleet.
Transmission spending to enhance reliability, reduce congestion, and enable economic growth.
Distribution spending to enhance reliability and improve service to customers, including investment to support advanced metering.
Entergy Wholesale Commodities investments such as component replacements, software and security, and dry cask storage.
For the next several years, the Utility’s owned generating capacity is projected to be adequate to meet MISO reserve requirements; however, in the longer-term additional supply resources will be needed, and its supply plan initiative will continue to seek to transform its generation portfolio with new generation resources. Opportunities resulting from the supply plan initiative, including new projects or the exploration of alternative financing sources, could result in increases or decreases in the capital expenditure estimates given above. Estimated capital expenditures are also subject to periodic review and modification and may vary based on the ongoing effects of business restructuring, regulatory constraints and requirements, environmental regulations, business opportunities, market volatility, economic trends, changes in project plans, and the ability to access capital.
St. Charles Power Station
In August 2015, Entergy Louisiana filed with the LPSC an application seeking certification that the public necessity and convenience would be served by the construction of the St. Charles Power Station, a nominal 980 megawatt combined-cycle generating unit, on land adjacent to the existing Little Gypsy plant in St. Charles Parish, Louisiana. It is currently estimated to cost $869 million to construct, including transmission interconnection and other related costs. The LPSC issued an order approving certification of St. Charles Power Station in December 2016. Construction is in progress and commercial operation is estimated to occur by mid-2019.
Lake Charles Power Station
In November 2016, Entergy Louisiana filed an application with the LPSC seeking certification that the public convenience and necessity would be served by the construction of the Lake Charles Power Station, a nominal 994 megawatt combined-cycle generating unit in Westlake, Louisiana, on land adjacent to the existing Nelson plant in Calcasieu Parish. The current estimated cost of the Lake Charles Power Station is $872 million, including estimated costs of transmission interconnection and other related costs. In May 2017 the parties to the proceeding agreed to an uncontested stipulation finding that construction of the Lake Charles Power Station is in the public interest and authorizing an in-service rate recovery plan. In July 2017 the LPSC issued an order unanimously approving the stipulation and approved certification of the unit. Construction is in progress and commercial operation is expected to occur by mid-2020.
Washington Parish Energy Center
In April 2017, Entergy Louisiana signed an agreement with a subsidiary of Calpine Corporation for the construction and purchase of a peaking plant. Calpine will construct the plant, which will consist of two natural gas-fired combustion turbine units with a total nominal capacity of approximately 361 MW. The plant, named the Washington Parish Energy Center, will be located in Bogalusa, Louisiana. Subject to regulatory approvals, Entergy Louisiana will purchase the plant once it is complete for an estimated total investment of approximately $261 million, including transmission and other related costs. In May 2017, Entergy Louisiana filed an application with the LPSC seeking certification of the plant. In April 2018 the parties reached a settlement recommending certification and cost recovery through the additional capacity mechanism of the formula rate plan, consistent with prior LPSC precedent with respect to the certification and recovery of plants previously acquired by Entergy Louisiana. The LPSC issued an order approving the settlement in May 2018. Construction is in progress and commercial operation is expected to occur by the end of 2020.
Sunflower Solar Facility
In November 2018, Entergy Mississippi announced that it signed an agreement for the purchase of an approximately 100 MW to-be-constructed solar photovoltaic facility that will be sited on approximately 1,000 acres in Sunflower County, Mississippi. The estimated base purchase price is approximately $138.4 million. The estimated total investment, including the base purchase price and other related costs, for Entergy Mississippi to acquire the Sunflower Solar Facility is approximately $153.2 million. The purchase is contingent upon, among other things, obtaining necessary approvals, including full cost recovery, from applicable federal and state regulatory and permitting
Entergy Corporation and Subsidiaries
Management’s Financial Discussion and Analysis
agencies. The project will be built by Sunflower County Solar Project, LLC, a sub-subsidiary of Recurrent Energy, LLC. Entergy Mississippi will purchase the facility upon mechanical completion and after the other purchase contingencies have been met. In December 2018, Entergy Mississippi filed a joint petition with Sunflower Solar Project at the MPSC for Sunflower Solar Project to construct and for Entergy Mississippi to acquire and thereafter own, operate, improve, and maintain the solar facility. Entergy Mississippi proposed revisions to its formula rate plan that would provide for a mechanism, the interim capacity rate adjustment mechanism, in the formula rate plan to recover the non-fuel related costs of additional owned capacity acquired by Entergy Mississippi, including the annual ownership costs of the Sunflower Solar Facility. In December 2019 the MPSC approved Entergy Mississippi’s proposed revisions to its formula rate plan to provide for an interim capacity rate adjustment mechanism. The MPSC must approve recovery through the interim capacity rate adjustment for each new resource. In August 2019 consultants retained by the Mississippi Public Utilities Staff filed a report expressing concerns regarding the project economics and recommended that, should the MPSC wish to approve the project, Entergy Mississippi should be required to guarantee the energy output of the unit. Entergy Mississippi and the Staff are engaged in settlement discussions to address these concerns. A hearing before the MPSC is targeted to occur by the second quarter of 2020. Closing is expected to occur by the end of 2021.
New Orleans Power Station
In JuneMarch 2018 the City Council adopted a resolution approving construction of the New Orleans Power Station, a 128 MW unit composed of natural gas-fired reciprocating engines, and a related cost recovery plan. The cost estimate for the plant, which will be located at the site of the Michoud generating facility that was retired in May 2016, is $210 million. Entergy New Orleans had previously filed an application with the City Council seeking a public interest determination and authorization to construct the New Orleans Power Station, a 226 MW advanced combustion turbine in New Orleans, Louisiana, at the site of the existing Michoud generating facility, which was retired effective May 31, 2016.power station. In January 2017 several intervenors filed testimony opposing the construction of the New Orleans Power Station on various grounds. In July 2017, Entergy New Orleans submitted a supplemental and amending application to the City Council seeking approval to construct either the originally proposed 226 MW advanced combustion turbine power station, or alternatively, athe 128 MW unit composed of natural gas-fired reciprocating engines and a related cost recovery plan. The application included an updated cost estimate of $232 million for the 226 MW advanced combustion turbine. The cost estimate for the alternative 128 MW unit is $210 million.power station. In addition, the application renewed the commitment to pursue up to 100 MW of renewable resources to serve New Orleans.
In testimonyApril 2018 intervenors opposing the construction of the New Orleans Power Station filed subsequent to Entergy New Orleans’s supplemental and amending application, several intervenors oppose City Council approval of either alternative, whilewith the City Council advisorsa request for rehearing, which was subsequently denied, and one intervenor supporta petition for judicial review of the smaller alternative. A contested hearing was held in December 2017City Council’s decision, and post-hearing briefs werealso filed in January 2018.a lawsuit challenging the City Council’s approval based on Louisiana’s open meeting law. In FebruaryMay 2018 the City Council Utility Committee adoptedannounced that it would initiate an investigation into allegations that Entergy New Orleans, Entergy, or some other entity paid or participated in paying certain attendees and speakers in support of the New Orleans Power Station to attend or speak at certain meetings organized by the City Council. In October 2018 investigators for the City Council released their report, concluding that individuals were paid to attend or speak in support of the New Orleans Power Station and that Entergy New Orleans “knew or should have known that such conduct occurred or reasonably might occur.” The City Council issued a resolution requiring Entergy New Orleans to show cause why it should not be fined $5 million as a result of the findings in the report. In November 2018, Entergy New Orleans submitted its response to the show cause resolution, disagreeing with certain characterizations and omissions of fact in the report and asserting that the City Council could not legally impose the proposed fine. Simultaneous with the filing of its response to the show cause resolution, Entergy New Orleans sent a letter to the City Council re-asserting that the City Council’s imposition of the proposed fine would be unlawful, but acknowledging that the actions of a subcontractor, which was retained by an Entergy New Orleans contractor without the knowledge or contractually-required consent of Entergy New Orleans, were contrary to Entergy’s values. In that letter, Entergy New Orleans offered to donate $5 million to the City Council to resolve the show cause proceeding. In January 2019, Entergy New Orleans submitted a new settlement proposal to the City Council. The proposal retains the components of the first offer but adds to it a commitment to make reasonable efforts to limit the costs of the project to the $210 million cost estimate with advanced notification of anticipated cost overruns, additional reporting requirements for cost and environmental items, and a commitment regarding reliability investment and to work with the New Orleans Sewerage and Water Board to provide a reliable source of power. In February 2019 the City Council approved a resolution approving the settlement proposal and allowing the construction of the 128 MW unit. The full City Council is expectedNew Orleans Power Station to commence.
Entergy Corporation and Subsidiaries
Management’s Financial Discussion and Analysis
to vote on the resolution
Also in March 2018. The commercial operation date is dependent on the alternative selected byFebruary 2019 certain intervenors in the City Council proceeding on the New Orleans Power Station filed suit in Louisiana state court challenging the Louisiana Department of Environmental Quality’s issuance of the New Orleans Power Station’s air permit. Entergy New Orleans intervened in that lawsuit and, along with the Louisiana Department of Environmental Quality, filed exceptions seeking dismissal of the lawsuit. In June 2019 the state court judge sustained the exceptions and dismissed the plaintiffs’ petition with prejudice.
Also in June 2019, a state court judge in New Orleans affirmed the City Council’s approval of the New Orleans Power Station and dismissed the petition for judicial review that had been filed in April 2018. The petitioners have filed an appeal of that ruling. Also in June 2019, with regard to the lawsuit challenging the City Council’s decision on the basis of a violation of the open meetings law, the same state court judge in New Orleans ruled that there was a violation of the open meetings law at the February 2018 meeting of the City Council’s Utility Committee at which that Committee considered the New Orleans Power Station approval, and further ruled that, although there was no violation of the open meetings law at the March 2018 full City Council meeting at which the New Orleans Power Station was approved, both the approval of the Utility Committee and the receiptapproval of other permitsthe full City Council were void. The City Council and approvals. Entergy New Orleans each filed a suspensive appeal of the open meetings law ruling. A suspensive appeal suspends the effect of the judgment in the open meetings law proceeding while the appeal is being taken. The petitioners sought in the state appellate court, and then at the Louisiana Supreme Court, to terminate the suspension of the effect of the judgment, but both courts declined to do so. Appellate briefing on the merits both in the open meetings law appeal and in the judicial review appeal occurred in November and December 2019 and oral argument in both cases was heard in January 2020. In February 2020 the state appellate court reversed the lower court’s ruling that the City Council’s approval of the New Orleans Power Station was void due to a violation of the open meetings law at the City Council’s Utility Committee meeting in February 2018. The state appellate court ruled that there was no violation of the open meetings law at the full City Council meeting in March 2018 and that the lower court erred in voiding the City Council resolution approving the New Orleans Power Station. The appellate court’s decision on the appeal of the judicial review decision that affirmed the City Council’s approval of the New Orleans Power Station as in the public interest is still pending. Construction of the plant is on schedule, with commercial operation expected in mid-2020.
Montgomery County Power Station
In October 2016, Entergy Texas filed an application with the PUCT seeking certification that the public convenience and necessity would be served by the construction of the Montgomery County Power Station, a nominal 993 MW combined-cycle generating unit in Montgomery County,Willis, Texas, on land adjacent to the existing Lewis Creek plant. The current estimated cost of the Montgomery County Power Station is $937 million, including approximately $111 million of transmission interconnection and network upgrades and other related costs. The independent monitor, who oversaw the request for proposal process, filed testimony and a report affirming that the Montgomery County Power Station was selected through an objective and fair request for proposal process that showed no undue preference to any proposal. In June 2017 parties to the proceeding filed an unopposed stipulation and settlement agreement. The stipulation contemplates that Entergy Texas’s level of cost-recovery for generation construction costs for Montgomery County Power Station is capped at $831 million, subject to certain exclusions such as force majeure events. Transmission interconnection and network upgrades and other related costs are not subject to the $831 million cap. In July 2017 the PUCT approved the stipulation. Subject to the timely receipt of other permits and approvals, commercial operation is estimated to occur by mid-2021.
Washington Parish Energy CenterSearcy Solar Facility
In April 2017,March 2019, Entergy LouisianaArkansas announced that it signed aan agreement for the purchase of an approximately 100 MW to-be-constructed solar energy facility that will be sited on approximately 800 acres in White County near Searcy, Arkansas. The purchase is contingent upon, among other things, obtaining necessary approvals from applicable federal and sale agreement withstate regulatory and permitting agencies. The project will be constructed by a subsidiary of Calpine Corporation forNextEra Energy Resources. Entergy Arkansas will purchase the acquisition of a peaking plant. Calpine will constructfacility upon mechanical completion and after the plant, which will consist of two natural gas-fired combustion turbine units with a total nominal capacity of approximately 361 MW. The plant, named the Washington Parish Energy Center, will be located in Bogalusa, Louisiana and, subject to permits and approvals,other purchase contingencies have been met. Closing is expected to be completed inoccur by the end of 2021. Subject to regulatory approvals, Entergy Louisiana will purchase the plant once it is complete for an estimated total investment of approximately $261 million, including transmission and other related costs. In May 2017,2019, Entergy LouisianaArkansas filed an application
Entergy Corporation and Subsidiaries
Management’s Financial Discussion and Analysis
a petition with the LPSCAPSC seeking certificationa finding that the transaction is in the public interest and requesting all necessary approvals. In September 2019 other parties filed testimony largely supporting the resource acquisition but disputing Entergy Arkansas’s proposed method of cost recovery. Entergy Arkansas filed its rebuttal testimony in October 2019. In February 2020, Entergy Arkansas, the plant. A procedural schedule has been established, with the deadlines recently extendedAttorney General, and the hearing continued from March 2018 until June 2018APSC general staff filed a partial settlement agreement asking the APSC to approve, based on the record in order to allow the parties an opportunity to reach settlement.
Advanced Metering Infrastructure (AMI)
See Note 2proceeding, all issues except certain issues that are submitted to the financial statementsAPSC for discussion of filings made by the Utility operating companies regarding the deployment of AMI. The filings included estimates of implementation costs for AMI of $208 million for Entergy Arkansas, $330 million for Entergy Louisiana, $132 million for Entergy Mississippi, $75 million for Entergy New Orleans, and $132 million for Entergy Texas.determination.
Dividends and Stock Repurchases
Declarations of dividends on Entergy’s common stock are made at the discretion of the Board. Among other things, the Board evaluates the level of Entergy’s common stock dividends based upon earnings per share from the Utility operating segment and the Parent and Other portion of the business, financial strength, and future investment opportunities. At its January 20182020 meeting, the Board declared a dividend of $0.89$0.93 per share. Entergy paid $712 million in 2019, $648 million in 2018, and $629 million in 2017 $612 million in 2016, and $599 million in 2015 in cash dividends on its common stock.
In accordance with Entergy’s stock-based compensation plans, Entergy periodically grants stock options, restricted stock, performance units, and restricted stock unit awards to key employees, which may be exercised to obtain shares of Entergy’s common stock. According to the plans, these shares can be newly issued shares, treasury stock, or shares purchased on the open market. Entergy’s management has been authorized by the Board to repurchase on the open market shares up to an amount sufficient to fund the exercise of grants under the plans.
Entergy Corporation and Subsidiaries
Management’s Financial Discussion and Analysis
In addition to the authority to fund grant exercises, the Board has authorized share repurchase programs to enable opportunistic purchases in response to market conditions. In October 2010 the Board granted authority for a $500 million share repurchase program. As of December 31, 2017,2019, $350 million of authority remains under the $500 million share repurchase program. The amount of repurchases may vary as a result of material changes in business results or capital spending or new investment opportunities, or if limitations in the credit markets continue for a prolonged period.
Sources of Capital
Entergy’s sources to meet its capital requirements and to fund potential investments include:
internally generated funds;
cash on hand ($781426 million as of December 31, 2017)2019);
securities issuances;debt and equity issuances in the capital markets;
bank financing under new or existing facilities or commercial paper; and
sales of assets.
Circumstances such as weather patterns, fuel and purchased power price fluctuations, and unanticipated expenses, including unscheduled plant outages and storms, could affect the timing and level of internally generated funds in the future. Entergy Corporation expects to finance up to 10% of the amount of the Utility’s capital expenditure plans through equity issuances in the capital markets.
Provisions within the articles of incorporationorganizational documents relating to preferred stock or membership interests of certain of Entergy Corporation’s subsidiaries could restrict the payment of cash dividends or other distributions on their common and preferred stock.equity. All debt and common and preferred equity issuances by the Registrant Subsidiaries require prior regulatory approval and their preferred equity and debt issuances are also subject to issuance tests set forth in corporate charters, bond indentures and other agreements. Entergy believes that the Registrant Subsidiaries have sufficient capacity under these tests to meet foreseeable capital needs.
The FERC has jurisdiction over securities issuances by the Utility operating companies and System Energy, except securities with maturities longer than one year issued by Entergy Arkansas, which is subject to the jurisdiction of the APSC.Energy. The City Council has concurrent jurisdiction over Entergy New Orleans’s securities issuances with maturities longer
Entergy Corporation and Subsidiaries
Management’s Financial Discussion and Analysis
than one year. The APSC has concurrent jurisdiction over Entergy Arkansas’s issuances of securities secured by Arkansas property, including first mortgage bond issuances. No regulatory approvals are necessary for Entergy Corporation to issue securities. The current FERC-authorized short-term borrowing limits and long-term borrowing limits for Entergy New Orleans are effective through October 2019.2021. The current FERC-authorized short-term borrowing limits and long-term financing authorization for Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy have obtained long-term financing authorizations from the FERC that extendare effective through October 2019.November 2020. Entergy Arkansas has obtained long-termfirst mortgage bond/secured financing authorization from the APSC that extends through December 2018.2020. Entergy New Orleans also has obtained long-term financing authorization from the City Council that extends through June 2018.October 2021. Entergy Arkansas, Entergy Louisiana, and System Energy each have obtained long-term financing authorizationsauthorization from the FERC that extendextends through October 2019November 2020 for issuances by its respectivethe nuclear fuel company variable interest entity.entities. In addition to borrowings from commercial banks, the Registrant Subsidiaries may also borrow from the Entergy System money pool and from other internal short-term borrowing arrangements. The money pool and the other internal borrowing arrangements are inter-company borrowing arrangements designed to reduce Entergy’s subsidiaries’ dependence on external short-term borrowings. Borrowings from internal and external short-term borrowings combined may not exceed the FERC-authorized limits. See Notes 4 and 5 to the financial statements for further discussion of Entergy’s borrowing limits, authorizations, and amounts outstanding.
Entergy Corporation and Subsidiaries
Management’s Financial Discussion and Analysis
Cash Flow Activity
As shown in Entergy’s Consolidated Statements of Cash Flows, cash flows for the years ended December 31, 2017, 2016,2019, 2018, and 20152017 were as follows:
| | | 2017 | | 2016 | | 2015 | 2019 | | 2018 | | 2017 |
| (In Millions) | (In Millions) |
Cash and cash equivalents at beginning of period |
| $1,188 |
| |
| $1,351 |
| |
| $1,422 |
|
| $481 |
| |
| $781 |
| |
| $1,188 |
|
|
|
| | | | |
|
| | | | |
Net cash provided by (used in): | |
| | |
| | |
| |
| | |
| | |
|
Operating activities | 2,624 |
| | 2,999 |
| | 3,291 |
| 2,817 |
| | 2,385 |
| | 2,624 |
|
Investing activities | (3,841 | ) | | (3,850 | ) | | (2,609 | ) | (4,510 | ) | | (4,106 | ) | | (3,841 | ) |
Financing activities | 810 |
| | 688 |
| | (753 | ) | 1,638 |
| | 1,421 |
| | 810 |
|
Net decrease in cash and cash equivalents | (407 | ) | | (163 | ) | | (71 | ) | (55 | ) | | (300 | ) | | (407 | ) |
| | | | | | | | | | |
Cash and cash equivalents at end of period |
| $781 |
| |
| $1,188 |
| |
| $1,351 |
|
| $426 |
| |
| $481 |
| |
| $781 |
|
2019 Compared to 2018
Operating Activities
2017 Compared to 2016
Net cash flow provided by operating activities decreasedincreased by $375$432 million in 20172019 primarily due to:
lower Entergy Wholesale Commodities net revenue, excluding the effectdecrease in the return of revenues resulting from the FitzPatrick reimbursement agreement with Exelon, in 2017 as comparedunprotected excess accumulated deferred income taxes to prior year, as discussed above.Utility customers. See Note 14 to the financial statements for discussion of the reimbursement agreement;
an increase of $141 million in spending on nuclear refueling outages in 2017 as compared to the prior year;
an increase of $94 million in severance and retention payments in 2017 as compared to the prior year. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Entergy Wholesale Commodities Exit from the Merchant Power Business” above for a discussion of management’s strategy to reduce the size of the Entergy Wholesale Commodities’ merchant fleet;
a refund to customers in January 2017 of approximately $71 million as a result of the settlement approved by the LPSC related to the Waterford 3 replacement steam generator project. See Note 2 to the financial statements for discussion of the settlement and refund;
proceeds of $23 million received in 2017 compared to proceeds of $102 million received in 2016 from the DOE resulting from litigation regarding spent nuclear fuel storage costs that were previously expensed. See Note 8 to the financial statements for discussion of the spent nuclear fuel litigation; and
an increase of $20 million in pension contributions in 2017. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Critical Accounting Estimates” below and Note 11 to the financial statements for discussion of qualified pension and other postretirement benefits funding.
The decrease was partially offset by:
income tax refunds of $13 million in 2017 compared to income tax payments of $95 million in 2016. Entergy received income tax refunds in 2017 resulting from the carryback of net operating losses. Entergy made income tax payments in 2016 related to the effect of the 2006-2007 IRS audit and for jurisdictions that do not have net operating loss carryovers or jurisdictions in which the utilization of net operating loss carryovers are limited. See Note 3 to the financial statements for a discussion of the income tax audit;
a decrease of $68 million in interest paid in 2017 as compared toregulatory activity regarding the prior year primarily due to an interest payment of $60 million made in March 2016 related to the purchase of a beneficial interest in the Waterford
Entergy CorporationTax Cuts and Subsidiaries
Management’s Financial Discussion and Analysis
3 leased assets. See Note 10 to the financial statements for a discussion of Entergy Louisiana’s purchase of a beneficial interest in the Waterford 3 leased assets; andJobs Act;
an increase due to the timing of recovery of fuel and purchased power costs in 20172019 as compared to the prior year. See Note 2 to the financial statements for a discussion of fuel and purchased power cost recovery.
2016 Compared to 2015
Net cash flow provided by operating activities decreased by $292 million in 2016 primarily due to:
a decrease due to the timing of recovery of fuel and purchased power costs in 2016 as compared to 2015. See Note 2 to the financial statements for a discussion of fuel and purchased power cost recovery;
lower Entergy Wholesale Commodities net revenue in 2016 as compared to 2015, as discussed previously; and
an increase of $83$109 million in interest paid in 2016 as compared to 2015 primarily due to an interest payment of $60 million madeVermont Yankee decommissioning spending in March 2016 related to the purchase of a beneficial interest in the Waterford 3 leased assets and an increase in interest expense primarily due to 2016 net debt issuances by various Utility operating companies,2018, partially offset by a decreasePilgrim decommissioning spending in interest paid in 2016 on the Grand Gulf sale-leaseback obligation. See Note 10 to the financial statements for a discussion of Entergy Louisiana’s purchase of a beneficial interest in the Waterford 3 leased assets2019; and for details of the Grand Gulf lease obligation. See Note 5 to the financial statements for a discussion of long-term debt.
The decrease was partially offset by:
higher Utility net revenues in 2016 as compared to 2015, as discussed above;
proceeds of $102 million received in 2016 from the DOE resulting from litigation regarding spent nuclear fuel storage costs that were previously expensed. See Note 8 to the financial statements for discussion of the spent nuclear fuel litigation;
a decrease of $46$87 million in spending on nuclear refueling outages in 20162019 as compared to 2015; andthe prior year.
a decrease of $19 million in spending related to the shutdown of Vermont Yankee, which ceased power production in December 2014.
Investing Activities
2017 Compared to 2016
Net cash flow used in investing activities decreased by $9 million in 2017 primarily due to the purchase of the Union Power Station for approximately $949 million in March 2016 and proceeds of $100 million from the sale in March 2017 of the FitzPatrick plant to Exelon. See Note 14 to the financial statements for discussion of the Union Power Station purchase and the sale of FitzPatrick. The decrease was partially offset by:
an increase of $827 million in construction expenditures, primarily in the Utility business. The increase in construction expenditures in the Utility business is primarily due to an increase of $452 million in fossil-fueled generation construction expenditures primarily due to higher spending in 2017 on the St. Charles Power Station project and the Lake Charles Power Station project and a higher scope of work performed on various other fossil projects in 2017 as compared to 2016; an increase of $133 million in distribution construction expenditures primarily due to a higher scope of non-storm related work performed in 2017 as compared to 2016 and higher storm restoration spending in 2017; an increase of $102 million in nuclear construction expenditures primarily due to increased spending on various nuclear projects in 2017 as compared to 2016; an increase of $101 million in transmission construction expenditures primarily due to a higher scope of work performed on transmission projects in 2017 as compared to 2016; and an increase of $51 million due to increased spending on advanced metering infrastructure in 2017;
Entergy Corporation and Subsidiaries
Management’s Financial Discussion and Analysis
The increase was partially offset by:
| |
• | an increase of $98 million in severance and retention payments in 2019 as compared to prior year. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Entergy Wholesale Commodities Exit from the Merchant Power Business” above for a discussion of management’s strategy to exit the Entergy Wholesale Commodities’ merchant power business; and |
lower Entergy Wholesale Commodities revenues in 2019.
Investing Activities
Net cash flow used in investing activities increased by $404 million in 2019 primarily due to:
an increase of $334 million in construction expenditures in the Utility business, as discussed below;
the purchase of the Choctaw Generating Station in October 2019 for approximately $305 million. See Note 14 to the financial statements for further discussion of the Choctaw Generating Station purchase; and
a decrease of $144$57 million in proceeds received from the DOE in 20172019 as compared to the prior year resulting from litigation regarding spent nuclear fuel storage costs that were previously capitalized. See Note 8 to the financial statements for discussion of the spent nuclear fuel litigation; andlitigation.
The increase was partially offset by:
a decrease of $63$174 million in nuclear fuel purchases due to variations from year to year in the timing and pricing of fuel reload requirements, material and services deliveries, and the timing of cash payments during the nuclear fuel cycle.cycle; and
2016 Compared to 2015
Net cash flow used in investing activities increased by $1,241a decrease of $85 million in 2016 primarily due to:to changes in collateral posted to provide credit support to secure its obligations under agreements to sell power produced by Entergy Wholesale Commodities’ power plants.
the purchase of the Union Power Station for approximately $949 million in March 2016. See Note 14 to the financial statements for discussion of the Union Power Station purchase;
proceeds of approximately $490 million from the sale in December 2015 of Rhode Island State Energy Center. See Note 14 to the financial statements for further discussion of the sale; and
an increase of $279 million in construction expenditures, primarily in the Utility business. The increase in construction expenditures in the Utility business is primarily due to to:
an increase of $114$211 million in transmission construction expenditures primarily due to an overall higher scope of work performed on transmission projects in 2016 as compared to 2015, an increase of $106 million in nuclear construction expenditures primarily due to a higher scope of work performed in 2019 on various nuclear projects in 2016 as compared to 2015, projects;
an increase of $95$188 million primarily due to investment in the infrastructure of the distribution system, including increased spending on advanced metering infrastructure; and
an increase of $91 million in storm spending in 2019.
The increase in construction expenditures in the Utility business was partially offset by:
a decrease of $62 million in fossil-fueled generation construction expenditures primarily due to lower spending in 2019 on self-build projects in the St. Charles Power Station projectUtility business and a lower scope of work performed in 2016, an increase2019 on various projects;
a decrease of $79$39 million in distributionnuclear construction expenditures primarily due to a higher scope of non-storm related work performed in 2016 as compared to the same period in 2015 and higher storm restorationlower spending in 2016,2019 on various nuclear projects; and an increase
a decrease of $65$33 million in information technology constructioncapital expenditures primarily due to various information technology projects and upgradeslower spending in 2016. The increase was partially offset by a decrease of $148 million in spending related to compliance with NRC post-Fukushima requirements in the Utility and Entergy Wholesale Commodities businesses.2019 on critical infrastructure protection.
The increase was partially offset by:
a decrease of $179 million in nuclear fuel purchases due to variations from year to year in the timing and pricing of fuel reload requirements, material and services deliveries, and the timing of cash payments during the nuclear fuel cycle;
an increase of $151 million in proceeds received from the DOE in 2016 as compared to the prior year resulting from litigation regarding spent nuclear fuel storage costs that were previously capitalized. See Note 8 to the financial statements for discussion of the spent nuclear fuel litigation;
a $71 million NYPA value sharing payment in 2015. See Note 14 to the financial statements for further discussion of Entergy’s NYPA value sharing agreements; and
the deposit of $64 million into Entergy New Orleans’s storm reserve escrow accounts in 2015.
Financing Activities
2017 Compared to 2016
Net cash flow provided by financing activities increased by $122$217 million in 20172019 primarily due to:
Entergy’s net issuances of $1,123long-term debt activity providing approximately $1,685 million of commercial papercash in 20172019 compared to net repayments of $78providing approximately $1,070 million of commercial paper in 2016;2018;
an increase of $95 million resulting from lower redemptions of preferred stock. In 2017, Entergy New Orleans redeemed its $7.8 million of 4.75% Series preferred stock, its $6 million of 5.56% Series preferred stock, and its $6 million of 4.36% Series preferred stock. In 2016, Entergy Arkansas redeemed its $75 million of 6.45%
Entergy Corporation and Subsidiaries
Management’s Financial Discussion and Analysis
Series preferred stock and its $10 million of 6.08% Series preferred stock and Entergy Mississippi redeemed its $30 million of 6.25% Series preferred stock;
an increase of $48 million in treasury stock issuances in 2017 primarily due to a larger amount of previously repurchased Entergy Corporation common stock issued in 2017 to satisfy stock option exercises; and
net borrowings of $41 million by the nuclear fuel company variable interest entities in 2017 compared to net repayments of $1short-term borrowings of $111 million in 2016.
The increase was partially offset by long-term debt activity providing approximately $224 million of cash in 2017 compared to providing approximately $1,489 million of cash in 2016. Included in the long-term debt activity is $490 million in 2017 and $135 million in 2016 for the repayment of borrowings on the Entergy Corporation long-term credit facility.
2016 Compared to 2015
Entergy’s financing activities provided $688 million of cash for 2016 compared to using $753 million of cash for 2015 primarily due to the following activity:
long-term debt activity providing approximately $1,489 million of cash in 2016 compared to providing $41 million of cash in 2015. Included in the long-term debt activity is net repayments of borrowings of $135 million in 2016 compared to net borrowings of $140 million in 2015 on the Entergy Corporation long-term credit facility;
the issuance of $110 million of preferred stock in 2015. See Note 6 to the financial statements for further discussion;
$100 million of common stock repurchased in 2015, as discussed above;
a net increase of $41 million in 2016 in short-term borrowings2018 by the nuclear fuel company variable interest entities; and
an increase of $108 million in proceeds from the issuance of common stock as a decreaseresult of $21 million resulting from higher repurchase/redemptionsthe settlement of preferred stock. In September 2015, Entergy Louisiana redeemed its $100 million 6.95% Series preferred membership interests, of which $16 million was owned by Entergy Louisiana Holdings, an Entergy subsidiary,equity forwards in 2019 and Entergy Gulf States Louisiana repurchased its $10 million Series A 8.25% preferred membership interests as part of a multi-step process to effectuate the Entergy Louisiana and Entergy Gulf States Louisiana business combination.2018. See Note 27 to the financial statements for a discussion of the combination. In 2016, Entergy Arkansas redeemed its $75equity forward sale agreements.
The increase was partially offset by:
a decrease of $471 million in net issuances of 6.45%commercial paper in 2019 compared to 2018;
an increase of $64 million in common stock dividends paid as a result of an increase in the shares outstanding and an increase in the dividend paid in 2019 compared to 2018; and
the issuance of $35 million aggregate liquidation value 5.375% Series A preferred stock and its $10in 2019 by Entergy Texas compared to the issuance of $73 million of 6.08%aggregate liquidation value 6.75% Series C preferred stock andmembership interests in 2018 by Entergy Mississippi redeemed its $30 million of 6.25% Series preferred stock.Utility Holding Company.
For the details of Entergy’s commercial paper program and the nuclear fuel company variable interest entities’ short-term borrowings, see Note 4 to the financial statements. See Note 5 to the financial statements for details of long-term debt.
2018 Compared to 2017
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Liquidity and Capital Resources - Cash Flow Activity” in Entergy’s Annual Report on Form 10-K for the year ended December 31, 2018 for discussion of operating, investing, and financing cash flow activities for 2018 compared to 2017.
Rate, Cost-recovery, and Other Regulation
State and Local Rate Regulation and Fuel-Cost Recovery
The rates that the Utility operating companies and System Energy charge for their services significantly influence Entergy’s financial position, results of operations, and liquidity. These companies are regulated and the rates charged to their customers are determined in regulatory proceedings. Governmental agencies, including the APSC, the LPSC, the MPSC, the City Council, the PUCT, and the FERC, are primarily responsible for approval of the rates charged to customers. Following is a summary of the Utility operating companies’ authorized returns on common equity:
Entergy Corporation and Subsidiaries
Management’s Financial Discussion and Analysis
|
| | |
Company | | Authorized Return on Common Equity |
| | |
Entergy Arkansas | | 9.25% - 10.25% |
Entergy Louisiana | | 9.15%9.2% - 10.75%10.4% Electric; 9.45% - 10.45% Gas |
Entergy Mississippi | | 9.47%9.33% - 11.49%11.35% |
Entergy New Orleans | | 10.7%8.85% - 11.5% Electric; 10.25% - 11.25% Gas9.85% |
Entergy Texas | | 9.8%9.65% |
The Utility operating companies’ base rate, fuel and purchased power cost recovery, and storm cost recovery proceedings are discussed in Note 2 to the financial statements.
Federal Regulation
The FERC regulates wholesale sales of electricity rates and interstate transmission of electricity, including rates for System Energy’s sales of capacity and energy from Grand Gulf to Entergy Arkansas, Entergy Louisiana,
Entergy Corporation and Subsidiaries
Management’s Financial Discussion and Analysis
Entergy Mississippi, and Entergy New Orleans pursuant to the Unit Power Sales Agreement. The current return on equity and capital structure of System Energy are currently the subject of complaints filed by certain of the operating companies’ retail regulators. The current return on equity under the Unit Power Sales Agreement is 10.94%. Prior to each operating company’s termination of participation in the System Agreement (Entergy Arkansas in December 2013, Entergy Mississippi in November 2015, and Entergy Louisiana, Entergy New Orleans, and Entergy Texas each in August 2016), the Utility operating companies engaged in the coordinated planning, construction, and operation of generating and bulk transmission facilities under the terms of the System Agreement, which was a rate schedule approved by the FERC. Certain of the Utility operating companies’ retail regulators are pursuing litigation involving the System Agreement at the FERC and in federal courts. See Note 2 to the financial statements for discussion of the System Agreement proceedings, a complaintthe complaints filed with the FERC challenging System Energy’s return on equity, and System Energy’s proposedthe amendments to the Unit Power Sales Agreement.Agreement approved by the FERC in 2018.
Market and Credit Risk Sensitive Instruments
Market risk is the risk of changes in the value of commodity and financial instruments, or in future net income or cash flows, in response to changing market conditions. Entergy holds commodity and financial instruments that are exposed to the following significant market risks.
The commodity price risk associated with the sale of electricity by the Entergy Wholesale Commodities business.
The interest rate and equity price risk associated with Entergy’s investments in pension and other postretirement benefit trust funds. See Note 11 to the financial statements for details regarding Entergy’s pension and other postretirement benefit trust funds.
The interest rate and equity price risk associated with Entergy’s investments in nuclear plant decommissioning trust funds, particularly in the Entergy Wholesale Commodities business. See Note 16 to the financial statements for details regarding Entergy’s decommissioning trust funds.
The interest rate risk associated with changes in interest rates as a result of Entergy’s outstanding indebtedness. Entergy manages its interest rate exposure by monitoring current interest rates and its debt outstanding in relation to total capitalization. See Notes 4 and 5 to the financial statements for the details of Entergy’s debt outstanding.
The Utility has limited exposure to the effects of market risk because it operates primarily under cost-based rate regulation. To the extent approved by their retail regulators, the Utility operating companies use commodity and financial instruments to hedge the exposure to price volatility inherent in their purchased power, fuel, and gas purchased for resale costs that are recovered from customers.
Entergy Corporation and Subsidiaries
Management’s Financial Discussion and Analysis
Entergy’s commodity and financial instruments are also exposed to credit risk. Credit risk is the risk of loss from nonperformance by suppliers, customers, or financial counterparties to a contract or agreement. Entergy is also exposed to a potential demand on liquidity due to credit support requirements within its supply or sales agreements.
Commodity Price Risk
Power Generation
As a wholesale generator, Entergy Wholesale Commodities’ core business is selling energy, measured in MWh, to its customers. Entergy Wholesale Commodities enters into forward contracts with its customers and also sells energy in the day ahead or spot markets. Entergy Wholesale Commodities also sells unforced capacity, which allows load-serving entities to meet specified reserve and related requirements placed on them by the ISOs in their respective areas. Entergy Wholesale Commodities’ forward physical power contracts consist of contracts to sell energy only, contracts to sell capacity only, and bundled contracts in which it sells both capacity and energy. While the terminology and payment mechanics vary in these contracts, each of these types of contracts requires Entergy Wholesale Commodities to deliver MWh of energy, make capacity available, or both. In addition to its forward physical power
Entergy Corporation and Subsidiaries
Management’s Financial Discussion and Analysis
contracts, Entergy Wholesale Commodities may also usesuse a combination of financial contracts, including swaps, collars, and options, to manage forward commodity price risk. Certain hedge volumes have price downside and upside relative to market price movement. The contracted minimum, expected value, and sensitivities are provided in the table below to show potential variations. The sensitivities may not reflect the total maximum upside potential from higher market prices. The information contained in the following table represents projections at a point in time and will vary over time based on numerous factors, such as future market prices, contracting activities, and generation. Following is a summary of Entergy Wholesale Commodities’ current forward capacity and generation contracts as well as total revenue projections based on market prices as of December 31, 2017.2019.
Entergy Corporation and Subsidiaries
Management’s Financial Discussion and Analysis
Entergy Wholesale Commodities Nuclear Portfolio
| | | | 2018 | | 2019 | | 2020 | | 2021 | | 2022 | | 2020 | | 2021 | | 2022 |
Energy | | |
Percent of planned generation under contract (a): | | |
Unit-contingent (b) | | 98% | | 91% | | 51% | | 74% | | 67% | | 97% | | 92% | | 66% |
Firm LD (c) | | 9% | | —% | | —% | | —% | | —% | |
Offsetting positions (d) | | (9%) | | —% | | —% | | —% | | —% | |
Total | | 98% | | 91% | | 51% | | 74% | | 67% | |
Planned generation (TWh) (e) (f) | | 27.9 | | 25.5 | | 17.9 | | 9.7 | | 2.8 | |
Planned generation (TWh) (c) (d) | | | 17.8 | | 9.6 | | 2.8 |
Average revenue per MWh on contracted volumes: | | |
Expected based on market prices as of December 31, 2017 | | $39.1 | | $40.6 | | $50.5 | | $59.2 | | $58.8 | |
Expected based on market prices as of December 31, 2019 | | | $41.3 | | $56.6 | | $58.8 |
| | |
Capacity | | |
Percent of capacity sold forward (g): | | |
Bundled capacity and energy contracts (h) | | 22% | | 25% | | 36% | | 69% | | 99% | |
Capacity contracts (i) | | 36% | | 13% | | —% | | —% | | —% | |
Percent of capacity sold forward (e): | | |
Bundled capacity and energy contracts (f) | | | 37% | | 68% | | 97% |
Capacity contracts (g) | | | 32% | | —% | | —% |
Total | | 58% | | 38% | | 36% | | 69% | | 99% | | 69% | | 68% | | 97% |
Planned net MW in operation (average) (f) | | 3,568 | | 3,167 | | 2,195 | | 1,158 | | 338 | |
Planned net MW in operation (average) (d) | | | 2,195 | | 1,158 | | 338 |
Average revenue under contract per kW per month (applies to capacity contracts only) | | $7.1 | | $9.1 | | $— | | $— | | $— | | $2.8 | | $— | | $— |
| | |
Total Energy and Capacity Revenues (j) | | |
Total Energy and Capacity Revenues (h) | | |
Expected sold and market total revenue per MWh | | $47.0 | | $46.9 | | $48.9 | | $56.1 | | $47.8 | | $44.3 | | $54.3 | | $46.6 |
Sensitivity: -/+ $10 per MWh market price change | | $46.9 - $47.2 | | $46.0 - $47.8 | | $44.3 - $53.5 | | $53.5 - $58.7 | | $44.5 - $51.1 | | $44.1 - $44.5 | | $53.5 - $55.1 | | $43.2 - $50.1 |
| |
(a) | Percent of planned generation output sold or purchased forward under contracts, forward physical contracts, forward financial contracts, or options that mitigate price uncertainty that may require regulatory approval or approval of transmission rights.uncertainty. Positions that are not classified as hedges are netted in the planned generation under contract. |
| |
(b) | Transaction under which power is supplied from a specific generation asset; if the asset is not operating, the seller is generally not liable to the buyer for any damages. Certain unit-contingent sales include a guarantee of availability. Availability guarantees provide for the payment to the power purchaser of contract damages, if incurred, in the event the seller fails to deliver power as a result of the failure of the specified generation unit to generate power at or above a specified availability threshold. All of Entergy’s outstanding guarantees of availability provide for dollar limits on Entergy’s maximum liability under such guarantees. |
| |
(c) | Transaction that requires receipt or delivery of energy at a specified delivery point (usually at a market hub not associated with a specific asset) or settles financially on notional quantities; if a party fails to deliver or receive energy, defaulting party must compensate the other party as specified in the contract, a portion of which may be capped through the use of risk management products. This also includes option transactions that may expire without being exercised. |
| |
(d) | Transactions for the purchase of energy, generally to offset a Firm LD transaction. |
| |
(e) | Amount of output expected to be generated by Entergy Wholesale Commodities nuclear resources considering plant operating characteristics and outage schedules, and expected market conditions that affect dispatch.schedules. |
| |
(f)(d) | Assumes the planned shutdown of Pilgrim on May 31, 2019, planned shutdown of Indian Point 2 on April 30, 2020, planned shutdown of Indian Point 3 on April 30, 2021, and planned shutdown of Palisades on May 31, 2022. For a discussion regarding the planned shutdown of the Indian Point 2, Indian Point 3, and Palisades plants, see “Entergy Wholesale Commodities Exit from the Merchant Power Business” above. |
Entergy Corporation and Subsidiaries
Management’s Financial Discussion and Analysis
2022. Assumes NRC license renewals for two units, as follows (with current license expirations in parentheses): Indian Point 2 (September 2013 and now operating under its period of extended operations while its application is pending) and Indian Point 3 (December 2015 and now operating under its period of extended operations while its application is pending). For a discussion regarding the planned shutdown of the Pilgrim, Indian Point 2, Indian Point 3, and Palisades plants, see “Entergy Wholesale Commodities Exit from the Merchant Power Business” above. For a discussion regarding the license renewals for Indian Point 2 and Indian Point 3, see “Entergy Wholesale Commodities Authorizations to Operate Indian Point” above.
| |
(g)(e) | Percent of planned qualified capacity sold to mitigate price uncertainty under physical or financial transactions. |
| |
(h)(f) | A contract for the sale of installed capacity and related energy, priced per megawatt-hour sold. |
| |
(i)(g) | A contract for the sale of an installed capacity product in a regional market. |
Entergy Corporation and Subsidiaries
Management’s Financial Discussion and Analysis
| |
(j)(h) | Includes assumptions on converting a portion of the portfolio to contracted with fixed price cost or discount and excludes non-cash revenue from the amortization of the Palisades below-market purchased power agreement, mark-to-market activity, and service revenues. |
Entergy estimates that a positive $10 per MWh change in the annual average energy price in the markets in which the Entergy Wholesale Commodities nuclear business sells power, based on the respective year-end market conditions, planned generation volumes, and hedged positions, would have a corresponding effect on pre-tax income of $3$4 million in 20182020 and would have had a corresponding effect on pre-tax income of $37$6 million in 2017.2019. A negative $10 per MWh change in the annual average energy price in the markets based on the respective year-end market conditions, planned generation volumes, and hedged positions, would have a corresponding effect on pre-tax income of ($3)4) million in 20182020 and would have had a corresponding effect on pre-tax income of ($31)6) million in 2017.2019.
Entergy’s purchase of the FitzPatrick and Indian Point 3 plants from NYPA included value sharing agreements with NYPA. In October 2007, Entergy subsidiaries and NYPA amended and restated the value sharing agreements to clarify and amend certain provisions of the original terms. Under the amended value sharing agreements, Entergy subsidiaries made annual payments to NYPA based on the generation output of the Indian Point 3 and FitzPatrick plants from January 2007 through December 2014. Entergy subsidiaries paid NYPA $6.59 per MWh for power sold from Indian Point 3, up to an annual cap of $48 million, and $3.91 per MWh for power sold from FitzPatrick, up to an annual cap of $24 million. The annual payment for each year’s output was due by January 15 of the following year, and the final payment to NYPA was made in January 2015. Entergy recorded the liability for payments to NYPA as power was generated and sold by Indian Point 3 and FitzPatrick. An amount equal to the liability was recorded to the plant asset account as contingent purchase price consideration for the plants.
Some of the agreements to sell the power produced by Entergy Wholesale Commodities’ power plants contain provisions that require an Entergy subsidiary to provide credit support to secure its obligations under the agreements. The Entergy subsidiary is required to provide credit support based upon the difference between the current market prices and contracted power prices in the regions where Entergy Wholesale Commodities sells power. The primary form of credit support to satisfy these requirements is an Entergy Corporation guaranty.guarantee. Cash and letters of credit are also acceptable forms of credit support. At December 31, 2017,2019, based on power prices at that time, Entergy had liquidity exposure of $167$78 million under the guarantees in place supporting Entergy Wholesale Commodities transactions and $8$19 million of posted cash collateral. In the event of a decrease in Entergy Corporation’s credit rating to below investment grade, based on power prices as of December 31, 2017,2019, Entergy would have been required to provide approximately $98$30 million of additional cash or letters of credit under some of the agreements. As of December 31, 2017,2019, the liquidity exposure associated with Entergy Wholesale Commodities assurance requirements, including return of previously posted collateral from counterparties, would increase by $372$90 million for a $1 per MMBtu increase in gas prices in both the short- and long-term markets.
As of December 31, 2017,2019, substantially all of the credit exposure associated with the planned energy output under contract for Entergy Wholesale Commodities nuclear plants through 2022 is with counterparties or their guarantors that have public investment grade credit ratings.
Entergy Corporation and Subsidiaries
Management’s Financial Discussion and Analysis
Nuclear Matters
Entergy’s Utility and Entergy Wholesale Commodities businesses include the ownership and operation of nuclear generating plants and are, therefore, subject to the risks related to such ownership and operation. These include risks related to: the use, storage, and handling and disposal of high-level and low-level radioactive materials; the substantial financial requirements, both for capital investments and operational needs, to position Entergy’s nuclear fleet to meet its operational goals, including the financial requirements to address emerging issues like stress corrosion cracking of certain materials within the plant systems and the Fukushima event; the implementation of plans to cease merchant generation at allexit the Entergy Wholesale Commodities nuclear plantsmerchant power business by 2022 and the post-shutdown decommissioning of these plants; regulatory requirements and potential future regulatory changes, including changes affecting the regulations governing nuclear plant ownership, operations, license renewal and amendments, and decommissioning; the performance and capacity factors of these nuclear plants; the availability of interim or permanent sites for the disposal of spent nuclear fuel and nuclear waste, including the fees charged for such disposal; the sufficiency of nuclear decommissioning trust fund assets and earnings to complete decommissioning of each site when required; and limitations on the amounts and types of insurance commercially available for losses in connection with nuclear plant operations and catastrophic events such as a nuclear accident.
ANONRC Reactor Oversight Process
See Note 8 to the financial statements for discussion of the NRC’s decision in March 2015 to move ANO into the “multiple/repetitive degraded cornerstone column,” or Column 4, of theThe NRC’s Reactor Oversight Process Action Matrix,is a program to collect information about plant performance, assess the information for its safety significance, and theprovide for appropriate licensee and NRC response. The NRC evaluates plant performance by analyzing two distinct inputs: inspection findings resulting significant additional NRC inspection activities at the ANO site.
Pilgrim
See Note 8 to the financial statements for discussion offrom the NRC’s decision in September 2015 to place Pilgrim in Column 4 of its Reactor Oversight Process Action Matrix due to its finding of continuing weaknesses in Pilgrim’s corrective actioninspection program that contributed to repeated unscheduled shutdowns and equipment failures.
Indian Point
During the scheduled refueling and maintenance outage at Indian Point 2 in the first quarter 2016, comprehensive inspections were done as part of the aging management program that calls for an in-depth inspection of the reactor vessel. Inspections of more than 2,000 bolts in the reactor’s removable insert liner identified issues with roughly 11% of the bolts that required further analysis. Entergy replaced bolts as appropriate, and the unit returned to service in June 2016. In 2016, Entergy evaluated the scope and duration of Indian Point 3’s scheduled refueling outage planned for 2017, which began in March 2017. Based on the results of the 2016 evaluation and analysis, Entergy extended Indian Point 3’s planned 2017 outage duration. Entergy performed the same in-depth inspection of the reactor vessel at Indian Point 3 during Indian Point 3’s spring 2017 refueling and maintenance outage that it performed for Indian Point 2. Based on inspection data, Entergy replaced approximately the same number of bolts at Indian Point 3 that it replaced at Indian Point 2 before returning the plant to service in May 2017.
Grand Gulf
Grand Gulf began a maintenance outage on September 8, 2016 to replace a residual heat removal pump. Although the pump had been replaced, on September 27, 2016 management decided to keep the plant in an outage for additional training and other steps to support management’s operational goals. Grand Gulf returned to service on January 31, 2017.
Based on the plant’s performance indicators, in November 2016 the NRC placed Grand Gulf in the “regulatory response column,” or Column 2, of its Reactor Oversight Process Action Matrix. Entergy is implementing a plan to restore Grand Gulf to Column 1, including addressing the issues related to the three very low safety significance non-
Entergy Corporation and Subsidiaries
Management’s Financial Discussion and Analysis
cited violations identifiedand performance indicators reported by the licensee. The evaluations result in the placement of each plant in one of the NRC’s report on the results of its October 2016 special inspection. Depending on the success of implementing that plan and the plant’s performance indicators, there is risk that the NRC could move Grand Gulf into theReactor Oversight Process Action Matrix columns: “licensee response column,” or Column 1, “regulatory response column,” or Column 2, “degraded cornerstone column,” or Column 3, and “multiple/repetitive degraded cornerstone column,” or Column 4. Plants in Column 1 are subject to normal NRC inspection activities. Plants in Column 2, Column 3, or Column 4 are subject to progressively increasing levels of inspection by the NRC’s Reactor Oversight Process Action Matrix. NRC with, in general, progressively increasing levels of associated costs. Nuclear generating plants owned and operated by Entergy’s Utility and Entergy Wholesale Commodities businesses are currently in Column 1.
Critical Accounting Estimates
The preparation of Entergy’s financial statements in conformity with generally accepted accounting principles requires management to apply appropriate accounting policies and to make estimates and judgments that can have a significant effect on reported financial position, results of operations, and cash flows. Management has identified the following accounting estimates as critical because they are based on assumptions and measurements that involve a high degree of uncertainty, and the potential for future changes in these assumptions and measurements could produce estimates that would have a material effect on the presentation of Entergy’s financial position, results of operations, or cash flows.
Nuclear Decommissioning Costs
Entergy subsidiaries own nuclear generation facilities in both the Utility and Entergy Wholesale Commodities operating segments. Regulations require Entergy subsidiaries to decommission the nuclear power plants after each facility is taken out of service, and cash is deposited in trust funds during the facilities’ operating lives in order to provide for this obligation. Entergy conducts periodic decommissioning cost studies to estimate the costs that will be incurred to decommission the facilities. The following key assumptions have a significant effect on these estimates.
Timing - In projecting decommissioning costs, two assumptions must be made to estimate the timing of plant decommissioning. First, the date of the plant’s retirement must be estimated for those plants that do not have an announced shutdown date. The estimate may include assumptions regarding the possibility that the plant may have an operating life shorter than the operating license expiration, as well as assumptions regarding the probability that the plant’s license will be renewed for those plants that have not yet received operating license renewal. Second, an assumption must be made whether all decommissioning activity will proceed immediately upon plant retirement, or whether the plant will be placed in SAFSTOR status. SAFSTOR is decommissioning a facility by placing it in a safe, stable condition that is maintained until it is subsequently decontaminated and dismantled to levels that permit license termination, normally within 60 years from permanent cessation of operations. A change of assumption regarding either the probability of license renewal, the period of continued operation, or the use of a SAFSTOR period can change the present value of the asset retirement obligation.
Cost Escalation Factors | |
• | Timing - In projecting decommissioning costs, two assumptions must be made to estimate the timing of plant decommissioning. First, the date of the plant’s retirement must be estimated for those plants that do not have an announced shutdown date. The estimate may include assumptions regarding the possibility that the plant may have an operating life shorter than the operating license expiration. Second, an assumption must be made regarding whether all decommissioning activity will proceed immediately upon plant retirement, or whether the plant will be placed in SAFSTOR status. SAFSTOR is decommissioning a facility by placing it in a safe, stable condition that is maintained until it is subsequently decontaminated and dismantled to levels that permit license termination, normally within 60 years from permanent cessation of operations. A change of assumption regarding either the period of continued operation, the use of a SAFSTOR period, or whether Entergy will continue to hold the plant or the plant is held for sale can change the present value of the asset retirement obligation. |
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• | Cost Escalation Factors - Entergy’s current decommissioning cost studies include an assumption that decommissioning costs will escalate over present cost levels by factors ranging from approximately 2% to 3% annually. A 50-basis point change in this assumption could change the estimated present value of the decommissioning liabilities by approximately 3% to 18%. The timing assumption influences the significance of the effect of a change in the estimated inflation or cost escalation rate because the effect increases with the length of time assumed before decommissioning activity ends. Spent Fuel Disposal - Federal law requires the DOE to provide for the permanent storage of spent nuclear fuel, and legislation has been passed by Congress to develop a repository at Yucca Mountain, Nevada. The DOE has not yet begun accepting spent nuclear fuel and is in non-compliance with federal law. The DOE continues to delay meeting its obligation and Entergy’s nuclear plant owners are continuing to pursue damage claims against the DOE for its failure to provide timely spent fuel storage. Until a federal site is available, however, nuclear plant operators must provide for interim spent fuel storage on the nuclear plant site, which can require the construction and maintenance of dry cask storage sites or other facilities. The costs of developing and maintaining these facilities during the decommissioning period can have a significant effect (as much as an average of 20% to 30% of total estimated decommissioning costs). Entergy’s decommissioning studies include an assumption that decommissioning costs will escalate over present cost levels by factors ranging from approximately 2% to 3% annually. A 50-basis point change in this assumption could change the estimated present value of the decommissioning liabilities by approximately 6% to 18%. The timing assumption influences the significance of the effect of a change in the estimated inflation or cost escalation rate because the effect increases with the length of time assumed before decommissioning activity ends.
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• | Spent Fuel Disposal - Federal law requires the DOE to provide for the permanent storage of spent nuclear fuel, and legislation has been passed by Congress to develop a repository at Yucca Mountain, Nevada. The DOE has not yet begun accepting spent nuclear fuel and is in non-compliance with federal law. The DOE continues to delay meeting its obligation and Entergy’s nuclear plant owners are continuing to pursue damage claims against the DOE for its failure to provide timely spent fuel storage. Until a federal site is available, however, nuclear plant operators must provide for interim spent fuel storage on the nuclear plant site, which can require the construction and maintenance of dry cask storage sites or other facilities. The costs of developing and maintaining these facilities during the decommissioning period can have a significant effect (as much as an average of 20% to 30% of total estimated decommissioning costs). Entergy’s decommissioning studies include |
Entergy Corporation and Subsidiaries
Management’s Financial Discussion and Analysis
cost estimates for spent fuel storage. These estimates could change in the future, however, based on the expected timing of when the DOE begins to fulfill its obligation to receive and store spent nuclear fuel. See Note 8 to the financial statements for further discussion of Entergy’s spent nuclear fuel litigation.
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• | Technology and Regulation - Over the past several years, more practical experience with the actual decommissioning of nuclear facilities has been gained and that experience has been incorporated into Entergy’s current decommissioning cost estimates. Given the long duration of decommissioning projects, additional experience, including technological advancements in decommissioning, could be gained and affect current cost estimates. In addition, if regulations regarding nuclear decommissioning were to change, this could affect cost estimates. |
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• | Interest Rates - The estimated decommissioning costs that are the basis for the recorded decommissioning liability are discounted to present value using a credit-adjusted risk-free rate. When the decommissioning liability is revised, increases in cash flows are discounted using the current credit-adjusted risk-free rate. Decreases in estimated cash flows are discounted using the credit-adjusted risk-free rate used previously in estimating the decommissioning liability that is being revised. Therefore, to the extent that a revised cost study results in an increase in estimated cash flows, a change in interest rates from the time of the previous cost estimate will affect the calculation of the present value of the revised decommissioning liability. |
Entergy Corporation and Subsidiaries
Management’s Financial Discussion and Analysis
Technology and Regulation - Over the past several years, more practical experience with the actual decommissioning of nuclear facilities has been gained and that experience has been incorporated into Entergy’s current decommissioning cost estimates. Given the long duration of decommissioning projects, additional experience, including technological advancements in decommissioning, could occur, however, and affect current cost estimates. In addition, if regulations regarding nuclear decommissioning were to change, this could significantly affect cost estimates.
Interest Rates - The estimated decommissioning costs that are the basis for the recorded decommissioning liability are discounted to present value using a credit-adjusted risk-free rate. When the decommissioning liability is revised, increases in cash flows are discounted using the current credit-adjusted risk-free rate. Decreases in estimated cash flows are discounted using the credit-adjusted risk-free rate used previously in estimating the decommissioning liability that is being revised. Therefore, to the extent that a revised cost study results in an increase in estimated cash flows, a change in interest rates from the time of the previous cost estimate will affect the calculation of the present value of the revised decommissioning liability.
Revisions of estimated decommissioning costs that decrease the liability also result in a decrease in the asset retirement cost asset. For the non-rate-regulated portions of Entergy’s business for which the plant’s value is impaired, these reductions will immediately reduce operating expenses in the period of the revision if the reduction of the liability exceeds the amount of the undepreciated plant asset at the date of the revision. Revisions of estimated decommissioning costs that increase the liability result in an increase in the asset retirement cost asset, which is then depreciated over the asset’s remaining economic life. For a plant in the non-rate-regulated portions of Entergy’s business for which the plant’s value is impaired, however, including a plant that is shutdown, or is nearing its shutdown date, the increase in the liability is likely to immediately increase operating expense in the period of the revision and not increase the asset retirement cost asset. See Note 14 to the financial statements for further discussion of impairment of long-lived assets and Note 9 to the financial statements for further discussion of asset retirement obligations.
Utility Regulatory Accounting
Entergy’s Utility operating companies and System Energy are subject to retail regulation by their respective state and local regulators and to wholesale regulation by the FERC. Because these regulatory agencies set the rates the Utility operating companies and System Energy are allowed to charge customers based on allowable costs, including a reasonable return on equity, the Utility operating companies and System Energy apply accounting standards that require the financial statements to reflect the effects of rate regulation, including the recording of regulatory assets and liabilities. Regulatory assets represent incurred costs that have been deferred because they are probable of future recovery from customers through regulated rates. Regulatory liabilities represent the excess recovery of costs that have been deferred because it is probable such amounts will be returned to customers through future regulated rates. See Note 2 to the financial statements for a discussion of rate and regulatory matters, including details of Entergy’s and the Registrant Subsidiaries’ regulatory assets and regulatory liabilities.
For each regulatory jurisdiction in which they conduct business, the Utility operating companies and System Energy assess whether the regulatory assets and regulatory liabilities continue to meet the criteria for probable future recovery or settlement at each balance sheet date and when regulatory events occur. This assessment includes consideration of recent rate orders, historical regulatory treatment for similar costs, and factors such as changes in applicable regulatory and political environments. If the assessments made by the Utility operating companies and System Energy are ultimately different than actual regulatory outcomes, it could materially affect the results of operations, financial position, and cash flows of Entergy or the Registrant Subsidiaries.
Unbilled Revenue
As discussed in Note 1 to the financial statements, Entergy records an estimate of the revenues earned for energy delivered since the latest customer billing. Each month the estimated unbilled revenue amounts are recorded as revenue and a receivable, and the prior month’s estimate is reversed. The difference between the estimate of the unbilled receivable at the beginning of the period and the end of the period is the amount of unbilled revenue recognized
Entergy Corporation and Subsidiaries
Management’s Financial Discussion and Analysis
during the period. The estimate recorded is primarily based upon an estimate of customer usage during the unbilled period and the billed price to customers in that month. Therefore, revenue recognized may be affected by the estimated price and usage at the beginning and end of each period, in addition to changes in certain components of the calculation.
Impairment of Long-lived Assets and Trust Fund Investments
Entergy has significant investments in long-lived assets in both of its operating segments, and Entergy evaluates
Entergy Corporation and Subsidiaries
Management’s Financial Discussion and Analysis
these assets against the market economics and under the accounting rules for impairment when there are indications that an impairment may exist. This evaluation involves a significant degree of estimation and uncertainty. In the Entergy Wholesale Commodities business, Entergy’s investments in merchant generation assets are subject to impairment if adverse market or regulatory conditions arise, particularly if it leads to a decision or an expectation that Entergy will operate or own a plant for a shorter period than previously expected; if there is a significant adverse change in the physical condition of a plant; or, if capital investment in a plant significantly exceeds previously-expected amounts; or, for Indian Point 2 and Indian Point 3, if their operating licenses are not renewed.amounts.
If an asset is considered held for use, and Entergy concludes that events and circumstances are present indicating that an impairment analysis should be performed under the accounting standards, the sum of the expected undiscounted future cash flows from the asset are compared to the asset’s carrying value. The carrying value of the asset includes any capitalized asset retirement cost associated with the decommissioning liability; therefore, changes in assumptions that affect the decommissioning liability can increase or decrease the carrying value of the asset subject to impairment. If the expected undiscounted future cash flows exceed the carrying value, no impairment is recorded. If the expected undiscounted future cash flows are less than the carrying value and the carrying value exceeds the fair value, Entergy is required to record an impairment charge to write the asset down to its fair value. If an asset is considered held for sale, an impairment is required to be recognized if the fair value (less costs to sell) of the asset is less than its carrying value.
The expected future cash flows are based on a number of key assumptions, including:
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• | Future power and fuel prices - Electricity and gas prices can be very volatile. This volatility increases the imprecision inherent in the long-term forecasts of commodity prices that are a key determinant of estimated future cash flows. |
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• | Market value of generation assets - Valuing assets held for sale requires estimating the current market value of generation assets. While market transactions provide evidence for this valuation, these transactions are relatively infrequent, the market for such assets is volatile, and the value of individual assets is affected by factors unique to those assets. |
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• | Future operating costs - Entergy assumes relatively minor annual increases in operating costs. Technological or regulatory changes that have a significant effect on operations could cause a significant change in these assumptions. |
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• | Timing and the life of the asset - Entergy assumes an expected life of the asset. A change in the timing assumption, whether due to management decisions regarding operation of the plant, the regulatory process, or operational or other factors, could have a significant effect on the expected future cash flows and result in a significant effect on operations. |
Future power and fuel prices - Electricity and gas prices can be very volatile. This volatility increases the imprecision inherent in the long-term forecasts of commodity prices that are a key determinant of estimated future cash flows.
Market value of generation assets - Valuing assets held for sale requires estimating the current market value of generation assets. While market transactions provide evidence for this valuation, these transactions are relatively infrequent, the market for such assets is volatile, and the value of individual assets is affected by factors unique to those assets.
Future operating costs - Entergy assumes relatively minor annual increases in operating costs. Technological or regulatory changes that have a significant effect on operations could cause a significant change in these assumptions.
Timing and the life of the asset - Entergy assumes an expected life of the asset. A change in the timing assumption, whether due to management decisions regarding operation of the plant, the regulatory process, or operational or other factors, could have a significant effect on the expected future cash flows and result in a significant effect on operations.
See Note 14 to the financial statements for a discussion of impairment conclusions related to the impairments of the Palisades, Indian Point, FitzPatrick, and PilgrimEntergy Wholesale Commodities nuclear plants.
Entergy evaluates investmentthe available-for-sale debt securities in the Entergy Wholesale Commodities’ nuclear decommissioning trust funds with unrealized losses at the end of each period to determine whether an other-than-temporary impairment has occurred. The assessment of whether an investment in a debt security has suffered an other-than-temporary impairment is based on whether Entergy has the intent to sell or more likely than not will be required to sell the debt security before recovery of its amortized costs. IfFurther, if Entergy does not expect to recover the entire amortized cost basis of the debt security, an other-than-temporary-impairment is considered to have occurred and it is measured by the
Entergy Corporation and Subsidiaries
Management’s Financial Discussion and Analysis
present value of cash flows expected to be collected less the amortized cost basis (credit loss). The assessment of whether an investment in an equity security has suffered an other than temporary impairment is based on a number of factors including, first, whether Entergy has the ability and intent to hold the investment to recover its value, the duration and severity of any losses, and, then, whether it is expected that the investment will recover its value within a reasonable period of time. Entergy’s trusts are managed by third parties who operate in accordance with agreements that define investment guidelines and place restrictions on the purchases and sales of investments. As discussed in Note 1 to the financial statements, unrealized losses on equity securities that are considered other-than-temporarily impaired are recorded in earnings for Entergy Wholesale Commodities. Effective January 1, 2018 with the adoption of ASU 2016-01, unrealized losses and gains on investments in equity securities held by the Entergy Wholesale Commodities’ nuclear decommissioning trust funds will beare recorded in earnings as they occur. See Note 16 to the financial statements for details on the decommissioning trust funds.
Entergy Corporation and Subsidiaries
Management’s Financial Discussion and Analysis
Taxation and Uncertain Tax Positions
Management exercises significant judgment in evaluating the potential tax effects of Entergy’s operations, transactions, and other events. Entergy accounts for uncertain income tax positions using a recognition model under a two-step approach with a more likely-than-not recognition threshold and a measurement approach based on the largest amount of tax benefit that is greater than 50% likely of being realized upon settlement. Management evaluates each tax position based on the technical merits and facts and circumstances of the position, assuming the position will be examined by a taxing authority having full knowledge of all relevant information. Significant judgment is required to determine whether available information supports the assertion that the recognition threshold has been met. Additionally, measurement of unrecognized tax benefits to be recorded in the consolidated financial statements is based on the probability of different potential outcomes. Income tax expense and tax positions recorded could be significantly affected by events such as additional transactions contemplated or consummated by Entergy as well as audits by taxing authorities of the tax positions taken in transactions. Management believes that the financial statement tax balances are accounted for and adjusted appropriately each quarter as necessary in accordance with applicable authoritative guidance; however, the ultimate outcome of tax matters could result in favorable or unfavorable effects on the consolidated financial statements. Entergy’s income taxes, including unrecognized tax benefits, open audits, and other significant tax matters are discussed in Note 3 to the financial statements.
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Income Tax Legislation” above and Note 3 to the financial statements for discussion of the effects of the Tax Cuts and Jobs Act, the federal income tax legislation enacted in December 2017.
Qualified Pension and Other Postretirement Benefits
Entergy sponsors qualified, defined benefit pension plans that cover substantially all employees, including cash balance plans and final average pay plans. Additionally, Entergy currently provides other postretirement health care and life insurance benefits for substantially all full-time employees whose most recent date of hire or rehire is before July 1, 2014 and who reach retirement age and meet certain eligibility requirements while still working for Entergy.
Entergy’s reported costs of providing these benefits, as described in Note 11 to the financial statements, are affected by numerous factors including the provisions of the plans, changing employee demographics, and various actuarial calculations, assumptions, and accounting mechanisms. Because of the complexity of these calculations, the long-term nature of these obligations, and the importance of the assumptions utilized, Entergy’s estimate of these costs is a critical accounting estimate for the Utility and Entergy Wholesale Commodities segments.
Entergy Corporation and Subsidiaries
Management’s Financial Discussion and Analysis
Assumptions
Key actuarial assumptions utilized in determining qualified pension and other postretirement health care and life insurance costs include discount rates, projected healthcare cost rates, expected long-term rate of return on plan assets, rate of increase in future compensation levels, retirement rates, expected timing and form of payments, and mortality rates.
Annually, Entergy reviews and, when necessary, adjusts the assumptions for the pension and other postretirement plans. Every three-to-five years, a formal actuarial assumption experience study that compares assumptions to the actual experience of the pension and other postretirement health care and life insurance plans is conducted. The falling interest rate environment over the past few years and volatility in the financial equity markets have affected Entergy’s funding and reported costs for these benefits.
Entergy Corporation and Subsidiaries
Management’s Financial Discussion and Analysis
Discount rates
In selecting an assumed discount rate to calculate benefit obligations, Entergy uses a yield curve based on high-quality corporate debt. Before 2016debt with cash flows matching the discount rates used to estimateexpected plan benefit payments. In estimating the service cost and interest cost components of net periodic benefit costs werecost, Entergy discounts the same as the weighted-average discount rate used to measure the benefit obligation at the beginning of the year. In 2016, Entergy refined its approach to estimating the service cost and interest cost components. Under the refined approach, instead of using the weighted-average benefit obligation discount rate at the beginning of the year, the 2016 service and interest costs’ expected cash flows were discounted by the applicable spot rates. The refinement had the effect of lowering 2016 qualified pension costs by $61 million and 2016 other postretirement health care and life insurance benefit costs by $15 million.
Projected health care cost trend rates
Entergy’s health care cost trend is affected by both medical cost inflation, and with respect to capped costs under the plan, the effects of general inflation. Entergy reviews actual recent cost trends and projected future trends in establishing its health care cost trend rates.
Expected long-term rate of return on plan assets
In determining its expected long-term rate of return on plan assets used in the calculation of benefit plan costs, Entergy reviews past performance, current and expected future asset allocations, and capital market assumptions of its investment consultant and some of its investment managers. Entergy conducts periodic asset/liability studies in order to set its target asset allocations.
Since 2003, Entergy has targeted an asset allocation for its qualified pension plan assets of roughly 65% equity securities and 35% fixed-income securities.
In 2017, Entergy confirmed the 2011its liability-driven investment strategy for its pension assets, which recommended that the target asset allocation adjust dynamically over time, based on the funded status of the plan, from its current allocation to an ultimate allocation. In 2017, Entergy adopted a new ultimate allocation for pension assets of 35% equity securities and 65% fixed income securities. The ultimate asset allocation is expected to be attained when the plan is 105%100% funded. The target pension asset allocation for 2019 was 58% equity and 42% fixed income securities.
In 2016, the target allocations for both Entergy’s non-taxable other postretirement assets and its taxable other postretirement assets were 65% equity securities and 35% fixed-income securities. During the first quarter of 2017, Entergy implemented a new asset allocation strategy for its non-taxable and taxable other postretirement assets, based on the funded status of each sub-account within each trust, which resulted in an overall shift to more fixed income in the non-taxable trusts and no material changes in asset allocation to the taxable trust. The new strategy no longer focuses on targeting an overall asset allocation for each trust, but rather a target asset allocation for each sub-account within each trust.trust that adjusts dynamically based on the funded status. The 2019 weighted average target postretirement asset allocation is 45% equity and 55% fixed income securities. See Note 11 to the financial statements for discussion of the current asset allocations for Entergy’s pension and other postretirement assets.
Entergy Corporation and Subsidiaries
Management’s Financial Discussion and Analysis
Retirement and mortality rates
In October 2017 the Internal Revenue Service issued updated mortality regulations for single employer plans for determining cash contribution requirements. The regulations, based on the Society of Actuaries’ 2014 mortality table, are effective for plan years beginning on or after January 1, 2018.
Costs and Sensitivities
The estimated 20182020 and actual 20172019 qualified pension and other postretirement costs and related underlying assumptions and sensitivities are shown below:
| | Costs | | Estimated 2018 | | 2017 | | Estimated 2020 | | 2019 |
| | (In Millions) | | (In millions) |
Qualified pension cost | | $254.8 | | $214.2 | | $339.5 | | $277.0 (a) |
Other postretirement cost | | $13.1 | | $25.6 | |
Other postretirement income | | | ($2.2) | | ($5.6) |
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Assumptions | | 2018 | | 2017 | | 2020 | | 2019 |
Discount rates | | |
Qualified pension | | |
Service cost | | 3.89% | | 4.75% | | 3.42% | | 4.57% |
Interest cost | | 3.44% | | 3.73% | | 2.99% | | 4.15% |
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Other postretirement | | |
Service cost | | 3.88% | | 4.60% | | 3.48% | | 4.62% |
Interest cost | | 3.33% | | 3.61% | | 2.79% | | 4.01% |
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Expected long-term rates of return | | |
Qualified pension assets | | 7.50% | | 7.50% | | 7.00% | | 7.25% |
Other postretirement - non-taxable assets | | 6.50% - 7.50% | | 6.50% - 6.90% | | 6.25% - 7.00% | | 6.50% - 7.25% |
Other postretirement - taxable assets - after tax rate | | 5.50% | | 5.75% | | 5.25% | | 5.50% |
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Weighted-average rate of future compensation | | 3.98% | | 3.98% | |
Weighted-average rate of increase in future compensation | | | 3.98% - 4.40% | | 3.98% |
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Assumed health care cost trend rates | | |
Pre-65 retirees | | 6.95% | | 6.55% | | 6.13% | | 6.59% |
Post-65 retirees | | 7.25% | | 7.25% | | 6.25% | | 7.15% |
Ultimate rate | | 4.75% | | 4.75% | | 4.75% | | 4.75% |
Year ultimate rate is reached and beyond | | 2027 | | 2026 | |
Pre-65 retirees | | | 2027 | | 2027 |
Post-65 retirees | | | 2027 | | 2026 |
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(a) | In 2019, qualified pension cost included settlement charges of $23.5 million. |
Actual asset returns have an effect on Entergy’s qualified pension and other postretirement costs. In 2017,2019, Entergy’s actual average annual return on qualified pension assets was approximately 16%21% and for other postretirement assets was approximately 14%17%, as compared with the 20172019 expected long-term rates of return discussed above.
Entergy Corporation and Subsidiaries
Management’s Financial Discussion and Analysis
The following chart reflects the sensitivity of qualified pension cost and qualified pension projected benefit obligation to changes in certain actuarial assumptions (dollars in millions):
| | Actuarial Assumption | | Change in Assumption | | Impact on 2018 Qualified Pension Cost | | Impact on 2017 Qualified Projected Benefit Obligation | | Change in Assumption | | Impact on 2020 Qualified Pension Cost | | Impact on 2019 Qualified Projected Benefit Obligation |
| | Increase/(Decrease) | | Increase/(Decrease) |
Discount rate | | (0.25%) | | $23 | | $250 | | (0.25%) | | $23 | | $237 |
Rate of return on plan assets | | (0.25%) | | $15 | | $— | | (0.25%) | | $15 | | $— |
Rate of increase in compensation | | 0.25% | | $7 | | $34 | | 0.25% | | $8 | | $41 |
The following chart reflects the sensitivity of postretirement benefit cost and accumulated postretirement benefit obligation to changes in certain actuarial assumptions (dollars in millions):
| | Actuarial Assumption | | Change in Assumption | | Impact on 2018 Postretirement Benefit Cost | | Impact on 2017 Accumulated Postretirement Benefit Obligation | | Change in Assumption | | Impact on 2020 Postretirement Benefit Cost | | Impact on 2019 Accumulated Postretirement Benefit Obligation |
| | Increase/(Decrease) | | Increase/(Decrease) |
Discount rate | | (0.25%) | | $3 | | $50 | | (0.25%) | | $2 | | $37 |
Health care cost trend | | 0.25% | | $5 | | $39 | | 0.25% | | $3 | | $26 |
Each fluctuation above assumes that the other components of the calculation are held constant.
Accounting Mechanisms
In accordance with pension accounting standards, Entergy utilizes a number of accounting mechanisms that reduce the volatility of reported pension costs. Differences between actuarial assumptions and actual plan results are deferred and are amortized into expense only when the accumulated differences exceed 10% of the greater of the projected benefit obligation or the market-related value of plan assets. If necessary, the excess is amortized over the average remaining service period of active employees. Additionally, accounting standards allow for the deferral of prior service costs/credits arising from plan amendments that attribute an increase or decrease in benefits to employee service in prior periods. Prior service costs/credits are then amortized into expense over the average future working life of active employees. Certain decisions, including workforce reductions, plan amendments, and plant shutdowns may significantly reduce the expense amortization period and result in immediate recognition of certain previously-deferred costs and gains/losses in the form of curtailment gains or losses. Similarly, payments made to settle benefit obligations, including lump sum benefit payments, can also result in accelerated recognition in the form of settlement losses or gains.
Entergy calculates the expected return on pension and other postretirement benefit plan assets by multiplying the long-term expected rate of return on assets by the market-related value (MRV) of plan assets. In general, Entergy determines the MRV of its pension plan assets by calculating a value that uses a 20-quarter phase-in of the difference between actual and expected returns. Forreturns and for its other postretirement benefit plan assets Entergy uses fair value when determining MRV.value.
Accounting standards require an employer to recognize in its balance sheet the funded status of its benefit plans. See Note 11 to the financial statements for a further discussion of Entergy’s funded status.
FundingEmployer Contributions
Entergy’sEntergy contributed $399.4 million to its qualified pension fundingplans in 2017 was $410 million.2019. Entergy estimates pension contributions will be approximately $352.1$216.3 million in 2018;2020; although the 20182020 required pension contributions will be known with more certainty when the January 1, 20182020 valuations are completed, which is expected by April 1, 2018.2020.
Entergy Corporation and Subsidiaries
Management’s Financial Discussion and Analysis
Minimum required funding calculations as determined under Pension Protection Act guidance are performed annually as of January 1 of each year and are based on measurements of the assets and funding liabilities as measured at that date. Any excess of the funding liability over the calculated fair market value of assets results in a funding shortfall that, under the Pension Protection Act, must be funded over a seven-year rolling period. The Pension Protection Act also imposes certain plan limitations if the funded percentage, which is based on calculated fair market values of assets divided by funding liabilities, does not meet certain thresholds. For funding purposes, asset gains and losses are smoothed in to the calculated fair market value of assets and theassets. The funding liability is based upon a weighted average 24-month corporate bond rate published by the U.S. Treasury; therefore, periodicTreasury which is generally subject to a corridor of the 25-year average of prior segment rates. Periodic changes in asset returns and interest rates can affect funding shortfalls and future cash contributions.
Moving Ahead for Progress in the 21st Century Act (MAP-21) became federal law in July 2012. Under the law, the segment rates used to calculate funding liabilities must be within a corridor of the 25-year average of prior segment rates. The interest rate corridor applies to the determination of minimum funding requirements and benefit restrictions. These pension funding stabilization provisions provide for a near-term reduction in minimum funding requirements for single employer defined benefit plans in response to the historically low interest rates that existed when the law was enacted. The law did not reduce contribution requirements over the long term. The interest rate stabilization periods of MAP-21 were extended by the Highway and Transportation Funding Act in 2014 and the Bipartisan Budget Act in 2015.
Entergy contributed $44.3$46.6 million to its postretirement plans in 20172019 and plans to contribute $52.3$49.1 million in 2018.2020.
Federal Healthcare Legislation
In 2010 the Patient Protection and Affordable Care Act (PPACA), as amended, imposed a 40% excise tax on per capita medical benefit costs that exceed certain thresholds. In January 2018 the effective date of the excise tax was delayed and is currently expected to take effect in 2022. Entergy will continue to monitor developments to determine the possible effect on Entergy.
Other Contingencies
As a company with multi-state utility operations, Entergy is subject to a number of federal and state laws and regulations and other factors and conditions in the areas in which it operates, which potentially subjectsubjects it to environmental, litigation, and other risks. Entergy periodically evaluates its exposure for such risks and records a reserveprovision for those matters which are considered probable and estimable in accordance with generally accepted accounting principles.
Environmental
Entergy must comply with environmental laws and regulations applicable to air emissions, water discharges, solid andwaste (including coal combustion residuals), hazardous waste, toxic substances, protected species, and other environmental matters. Under these various laws and regulations, Entergy could incur substantial costs to comply or address any impacts to the environment. Entergy conducts studies to determine the extent of any required remediation and has recorded liabilities based upon its evaluation of the likelihood of loss and expected dollar amount for each issue. Additional sites or issues could be identified which require environmental remediation or corrective action for which Entergy could be liable. The amounts of environmental liabilities recorded can be significantly affected by the following external events or conditions.
Changes to existing federal, state, or local regulation by governmental authorities having jurisdiction over air quality, water quality, control of toxic substances and hazardous and solid wastes, and other environmental matters.
Entergy Corporation and Subsidiaries
Management’s Financial Discussion and Analysis
The identification of additional impacts, sites, issues, or the filing of other complaints in which Entergy may be asserted to be a potentially responsible party.
The resolution or progression of existing matters through the court system or resolution by the EPA or relevant state or local authority.
Litigation
Entergy is regularly named as a defendant in a number of lawsuits involving employment, customers, and injuries and damages issues, among other matters. Entergy periodically reviews the cases in which it has been named as defendant and assesses the likelihood of loss in each case as probable, reasonably possible, or remote and records liabilities for cases that have a probable likelihood of loss and the loss can be estimated. Given the environment in which Entergy operates, and the unpredictable nature of many of the cases in which Entergy is named as a defendant, the ultimate outcome of the litigation to which Entergy is exposed has the potential to materially affect the results of operations, financial position, and cash flows of Entergy or the Registrant Subsidiaries.
Entergy Corporation and Subsidiaries
Management’s Financial Discussion and Analysis
New Accounting Pronouncements
See Note 1 to the financial statements for discussion of new accounting pronouncements.
ENTERGY CORPORATION AND SUBSIDIARIES
REPORT OF MANAGEMENT
Management of Entergy Corporation and its subsidiaries has prepared and is responsible for the financial statements and related financial information included in this document. To meet this responsibility, management establishes and maintains a system of internal controls over financial reporting designed to provide reasonable assurance regarding the preparation and fair presentation of financial statements in accordance with generally accepted accounting principles. This system includes communication through written policies and procedures, an employee Code of Entegrity, and an organizational structure that provides for appropriate division of responsibility and training of personnel. This system is also tested by a comprehensive internal audit program.
Entergy management assesses the design and effectiveness of Entergy’s internal control over financial reporting on an annual basis. In making this assessment, management uses the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework. The 2013 COSO Framework was utilized for management’s assessment. Management acknowledges, however, that all internal control systems, no matter how well designed, have inherent limitations and can provide only reasonable assurance with respect to financial statement preparation and presentation.
Entergy Corporation’s independent registered public accounting firm, Deloitte & Touche LLP, has issued an attestation report on the effectiveness of Entergy Corporation’s internal control over financial reporting as of December 31, 2017.2019.
In addition, the Audit Committee of the Board of Directors, composed solely of independent Directors, meets with the independent auditors, internal auditors, management, and internal accountants periodically to discuss internal controls, and auditing and financial reporting matters. The Audit Committee appoints the independent auditors annually, seeks shareholder ratification of the appointment, and reviews with the independent auditors the scope and results of the audit effort. The Audit Committee also meets periodically with the independent auditors and the chief internal auditor without management present, providing free access to the Audit Committee.
Based on management’s assessment of internal controls using the 2013 COSO criteria, management believes that Entergy and each of the Registrant Subsidiaries maintained effective internal control over financial reporting as of December 31, 2017.2019. Management further believes that this assessment, combined with the policies and procedures noted above, provides reasonable assurance that Entergy’s and each of the Registrant Subsidiaries’ financial statements are fairly and accurately presented in accordance with generally accepted accounting principles.
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LEO P. DENAULT Chairman of the Board and Chief Executive Officer of Entergy Corporation | ANDREW S. MARSH Executive Vice President and Chief Financial Officer of Entergy Corporation, Entergy Arkansas, Inc.,LLC, Entergy Louisiana, LLC, Entergy Mississippi, Inc.,LLC, Entergy New Orleans, LLC, Entergy Texas, Inc., and System Energy Resources, Inc. |
RICHARD C. RILEYLAURA R. LANDREAUX
ChairmanChair of the Board, President, and Chief Executive Officer of Entergy Arkansas, Inc.LLC
| PHILLIP R. MAY, JR. Chairman of the Board, President, and Chief Executive Officer of Entergy Louisiana, LLC |
HALEY R. FISACKERLY Chairman of the Board, President, and Chief Executive Officer of Entergy Mississippi, Inc.LLC | CHARLES L. RICE, JR.DAVID D. ELLIS
Chairman of the Board, President, and Chief Executive Officer of Entergy New Orleans, LLC |
SALLIE T. RAINER Chair of the Board, President, and Chief Executive Officer of Entergy Texas, Inc. | RODERICK K. WEST Chairman of the Board, President, and Chief Executive Officer of System Energy Resources, Inc. |
| | ENTERGY CORPORATION AND SUBSIDIARIES | SELECTED FINANCIAL DATA - FIVE-YEAR COMPARISON |
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| 2017 |
| 2016 |
| 2015 |
| 2014 |
| 2013 | 2019 |
| 2018 |
| 2017 |
| 2016 |
| 2015 |
| (In Thousands, Except Percentages and Per Share Amounts) | (In Thousands, Except Percentages and Per Share Amounts) |
| | | | | | | | | | | | | | | | | | |
Operating revenues |
| $11,074,481 |
|
|
| $10,845,645 |
| |
| $11,513,251 |
| |
| $12,494,921 |
|
|
| $11,390,947 |
|
| $10,878,673 |
|
|
| $11,009,452 |
| |
| $11,074,481 |
| |
| $10,845,645 |
|
|
| $11,513,251 |
|
Net income (loss) |
| $425,353 |
|
|
| ($564,503 | ) | |
| ($156,734 | ) | |
| $960,257 |
|
|
| $730,572 |
|
| $1,258,244 |
|
|
| $862,555 |
| |
| $425,353 |
| |
| ($564,503 | ) |
|
| ($156,734 | ) |
Earnings (loss) per share: | |
| | | | | |
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| |
| |
| | | | | |
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| |
|
Basic |
| $2.29 |
|
|
| ($3.26 | ) | |
| ($0.99 | ) | |
| $5.24 |
|
|
| $3.99 |
|
| $6.36 |
|
|
| $4.68 |
| |
| $2.29 |
| |
| ($3.26 | ) |
|
| ($0.99 | ) |
Diluted |
| $2.28 |
|
|
| ($3.26 | ) | |
| ($0.99 | ) | |
| $5.22 |
|
|
| $3.99 |
|
| $6.30 |
|
|
| $4.63 |
| |
| $2.28 |
| |
| ($3.26 | ) |
|
| ($0.99 | ) |
Dividends declared per share |
| $3.50 |
|
|
| $3.42 |
| |
| $3.34 |
| |
| $3.32 |
|
|
| $3.32 |
|
| $3.66 |
|
|
| $3.58 |
| |
| $3.50 |
| |
| $3.42 |
|
|
| $3.34 |
|
Return on common equity | 5.12 | % |
| (6.73 | %) | | (1.83 | )% | | 9.58 | % |
| 7.56 | % | 13.02 | % |
| 10.08 | % | | 5.12 | % | | (6.73 | %) |
| (1.83 | %) |
Book value per share, year-end |
| $44.28 |
|
|
| $45.12 |
| |
| $51.89 |
| |
| $55.83 |
|
|
| $54.00 |
|
| $51.34 |
|
|
| $46.78 |
| |
| $44.28 |
| |
| $45.12 |
|
|
| $51.89 |
|
Total assets |
| $46,707,149 |
|
|
| $45,904,434 |
| |
| $44,647,681 |
| |
| $46,414,455 |
|
|
| $43,290,290 |
|
| $51,723,912 |
|
|
| $48,275,066 |
| |
| $46,707,149 |
| |
| $45,904,434 |
|
|
| $44,647,681 |
|
Long-term obligations (a) |
| $14,535,077 |
|
|
| $14,695,422 |
| |
| $13,456,742 |
| |
| $12,627,180 |
|
|
| $12,265,971 |
|
| $17,351,449 |
|
|
| $15,758,083 |
| |
| $14,535,077 |
| |
| $14,695,422 |
|
|
| $13,456,742 |
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(a) Includes long-term debt (excluding currently maturing debt), non-current capital lease obligations, and subsidiary preferred stock without sinking fund that is not presented as equity on the balance sheet. | |
(a) Includes long-term debt (excluding currently maturing debt), non-current finance lease obligations, and subsidiary preferred stock without sinking fund that is not presented as equity on the balance sheet. | | (a) Includes long-term debt (excluding currently maturing debt), non-current finance lease obligations, and subsidiary preferred stock without sinking fund that is not presented as equity on the balance sheet. |
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| 2017 |
| 2016 |
| 2015 |
| 2014 |
| 2013 | 2019 |
| 2018 |
| 2017 |
| 2016 |
| 2015 |
| (Dollars In Millions) | (Dollars In Millions) |
| | | | | | | | | | | | | | | | | | |
Utility electric operating revenues: | |
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| |
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| |
|
| |
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| |
| |
|
| |
|
| |
|
| |
|
| |
|
Residential |
| $3,355 |
|
|
| $3,288 |
|
|
| $3,518 |
|
|
| $3,555 |
|
|
| $3,396 |
|
| $3,532 |
|
|
| $3,566 |
|
|
| $3,355 |
|
|
| $3,288 |
|
|
| $3,518 |
|
Commercial | 2,480 |
|
| 2,362 |
|
| 2,516 |
|
| 2,553 |
|
| 2,415 |
| 2,476 |
|
| 2,426 |
|
| 2,480 |
|
| 2,362 |
|
| 2,516 |
|
Industrial | 2,584 |
|
| 2,327 |
|
| 2,462 |
|
| 2,623 |
|
| 2,405 |
| 2,541 |
|
| 2,499 |
|
| 2,584 |
|
| 2,327 |
|
| 2,462 |
|
Governmental | 231 |
|
| 217 |
|
| 223 |
|
| 227 |
|
| 218 |
| 228 |
|
| 226 |
|
| 231 |
|
| 217 |
|
| 223 |
|
Total retail | 8,650 |
|
| 8,194 |
|
| 8,719 |
|
| 8,958 |
|
| 8,434 |
| |
Total billed retail | | 8,777 |
|
| 8,717 |
|
| 8,650 |
|
| 8,194 |
|
| 8,719 |
|
Sales for resale | 253 |
|
| 236 |
|
| 249 |
|
| 330 |
|
| 210 |
| 286 |
|
| 300 |
|
| 253 |
|
| 236 |
|
| 249 |
|
Other | 376 |
|
| 437 |
|
| 341 |
|
| 304 |
|
| 298 |
| 367 |
|
| 367 |
|
| 376 |
|
| 437 |
|
| 341 |
|
Total |
| $9,279 |
|
|
| $8,867 |
|
|
| $9,309 |
|
|
| $9,592 |
|
|
| $8,942 |
|
| $9,430 |
|
|
| $9,384 |
|
|
| $9,279 |
|
|
| $8,867 |
|
|
| $9,309 |
|
| | | | | | | | | | | | | | | | | | |
Utility billed electric energy sales (GWh): |
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|
|
|
| |
|
| |
|
| |
|
|
|
|
|
| |
|
| |
|
| |
|
Residential | 33,834 |
|
| 35,112 |
|
| 36,068 |
|
| 35,932 |
|
| 35,169 |
| 36,094 |
|
| 37,107 |
|
| 33,834 |
|
| 35,112 |
|
| 36,068 |
|
Commercial | 28,745 |
|
| 29,197 |
|
| 29,348 |
|
| 28,827 |
|
| 28,547 |
| 28,755 |
|
| 29,426 |
|
| 28,745 |
|
| 29,197 |
|
| 29,348 |
|
Industrial | 47,769 |
|
| 45,739 |
|
| 44,382 |
|
| 43,723 |
|
| 41,653 |
| 48,483 |
|
| 48,384 |
|
| 47,769 |
|
| 45,739 |
|
| 44,382 |
|
Governmental | 2,511 |
|
| 2,547 |
|
| 2,514 |
|
| 2,428 |
|
| 2,412 |
| 2,579 |
|
| 2,581 |
|
| 2,511 |
|
| 2,547 |
|
| 2,514 |
|
Total retail | 112,859 |
|
| 112,595 |
|
| 112,312 |
|
| 110,910 |
|
| 107,781 |
| 115,911 |
|
| 117,498 |
|
| 112,859 |
|
| 112,595 |
|
| 112,312 |
|
Sales for resale | 11,550 |
|
| 11,054 |
|
| 9,274 |
|
| 9,462 |
|
| 3,020 |
| 13,210 |
|
| 11,715 |
|
| 11,550 |
|
| 11,054 |
|
| 9,274 |
|
Total | 124,409 |
|
| 123,649 |
|
| 121,586 |
|
| 120,372 |
|
| 110,801 |
| 129,121 |
|
| 129,213 |
|
| 124,409 |
|
| 123,649 |
|
| 121,586 |
|
| | | | | | | | | | | | | | | | | | |
Entergy Wholesale Commodities: | |
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| |
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| |
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| |
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| |
| |
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| |
|
| |
|
| |
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| |
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Operating revenues |
| $1,657 |
| |
| $1,850 |
| |
| $2,062 |
| |
| $2,719 |
| |
| $2,313 |
|
| $1,295 |
| |
| $1,469 |
| |
| $1,657 |
| |
| $1,850 |
| |
| $2,062 |
|
Billed electric energy sales (GWh) | 30,501 |
| | 35,881 |
| | 39,745 |
| | 44,424 |
| | 45,127 |
| 28,088 |
| | 29,875 |
| | 30,501 |
| | 35,881 |
| | 39,745 |
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholdersShareholders and Board of Directors of
Entergy Corporation and Subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Entergy Corporation and Subsidiaries (the “Corporation”) as of December 31, 20172019 and 2016,2018, the related consolidated statements of operations,income, comprehensive income, (loss), cash flows, and changes in equity for each of the three years in the period ended December 31, 2017,2019, and the related notes (collectively, referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Corporation as of December 31, 20172019 and 2016,2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017,2019, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Corporation’s internal control over financial reporting as of December 31, 2017,2019, based on criteria established in Internal Control - IntegratedControl-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 26, 2018,21, 2020, expressed an unqualified opinion on the Corporation’s internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Corporation’s management. Our responsibility is to express an opinion on the Corporation’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Corporation in accordance with the U.S.US federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Impact of Rate Regulation on the Financial Statements-Entergy Corporation and Subsidiaries-Refer to Note 2 to the financial statements
Critical Audit Matter Description
The Corporation is subject to rate regulation by the Arkansas Public Service Commission, Louisiana Public Service Commission, Mississippi Public Service Commission, City Council of New Orleans, Louisiana, and Public Utility
Commission of Texas (the “Commissions”), which have jurisdiction with respect to the rates of electric companies in Arkansas, Louisiana, Mississippi, Texas, and the City of New Orleans, and to wholesale rate regulation by the Federal Energy Regulatory Commission (FERC). Management has determined it meets the requirements under accounting principles generally accepted in the United States of America to prepare its financial statements applying the specialized rules to account for the effects of cost-based rate regulation. Accounting for the economics of rate regulation impacts multiple financial statement line items and disclosures, such as property, plant, and equipment; regulatory assets and liabilities; income taxes; operating revenues; operation and maintenance expense; and depreciation expense.
The Corporation’s rates are subject to regulatory rate-setting processes and annual earnings oversight. Because the Commissions and the FERC set the rates, the Corporation is allowed to charge customers based on allowable costs, including a reasonable return on equity, and the Corporation applies accounting standards that require the financial statements to reflect the effects of rate regulation, including the recording of regulatory assets and liabilities. The Corporation assesses whether the regulatory assets and regulatory liabilities continue to meet the criteria for probable future recovery or settlement at each balance sheet date and when regulatory events occur. This assessment includes consideration of recent rate orders, historical regulatory treatment for similar costs, and factors such as changes in applicable regulatory and political environments. While the Corporation has indicated it expects to recover costs from customers through regulated rates, there is a risk that the Commissions and the FERC will not approve: (1) full recovery of the costs of providing utility service or (2) full recovery of all amounts invested in the utility business and a reasonable return on that investment.
We identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management to support its assertions about impacted account balances and disclosures and the high degree of subjectivity involved in assessing the impact of future regulatory orders on the financial statements. Management judgments include assessing the likelihood of (1) recovery in future rates of incurred costs, (2) a disallowance of all or a portion of the cost of plant under construction, and (3) a refund to customers. Auditing management’s judgments regarding the outcome of future decisions by the Commissions and the FERC involved especially subjective judgment and specialized knowledge of accounting for rate regulation and the rate-setting process.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the uncertainty of future decisions by the Commissions and the FERC included the following, among others:
We tested the effectiveness of management’s controls over the evaluation of the likelihood of (1) the recovery in future rates of costs incurred as property, plant, and equipment and deferred as regulatory assets; and (2) a refund or a future reduction in rates that should be reported as regulatory liabilities. We also tested the effectiveness of management’s controls over the initial recognition of amounts as property, plant, and equipment; regulatory assets or liabilities; and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates or of a future reduction in rates.
We evaluated the Corporation’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.
We read relevant regulatory orders issued by the Commissions and the FERC for the Corporation and other public utilities, regulatory statutes, interpretations, procedural memorandums, filings made by interveners, and other publicly available information to assess the likelihood of recovery in future rates or of a future reduction in rates based on precedence of the Commissions’ and the FERC’s treatment of similar costs under similar circumstances. We evaluated the external information and compared to management’s recorded regulatory asset and liability balances for completeness.
For regulatory matters in process, we inspected the Corporation’s filings with the Commissions and the FERC, including the annual formula rate plan filings, base rate case filings, and open complaints filed with the FERC, and considered the filings with the Commissions and the FERC by intervenors that may impact the Corporation’s future rates, for any evidence that might contradict management’s assertions.
We obtained an analysis from management and letters from internal and external legal counsel, as appropriate, regarding probability of recovery for regulatory assets or refund or future reduction in rates for regulatory liabilities
not yet addressed in a regulatory order to assess management’s assertion that amounts are probable of recovery or a future reduction in rates.
Uncertain Tax Positions-Entergy Corporation and Subsidiaries-Refer to Note 3 to the financial statements
Critical Audit Matter Description
The Corporation accounts for uncertain income tax positions under a two-step approach with a more likely-than-not recognition threshold and a measurement approach based on the largest amount of tax benefit that is greater than fifty percent likely of being realized upon settlement. The Corporation has uncertain tax positions related to internal restructuring transactions, which require management to make significant judgments and assumptions related to the technical merits and facts and circumstances of each position, as well as the probability of different potential outcomes. Uncertain tax positions could be significantly affected by events such as additional transactions contemplated or consummated by the Corporation as well as audits by taxing authorities of the tax positions. The net unrecognized tax benefit of $1.5 billion at December 31, 2019, includes uncertain tax positions related to internal restructuring transactions.
Given the subjectivity of estimating the uncertain tax positions related to the technical merits applied to internal restructuring transactions, auditing the uncertain tax positions on the internal restructuring transactions involved especially subjective judgment.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the uncertain tax positions on internal restructuring transactions included the following, among others:
We tested the effectiveness of controls related to uncertain tax positions on internal restructuring transactions, including those over the recognition and measurement of the income tax benefits.
We evaluated the Corporation’s disclosures, and the balances recorded, related to uncertain tax positions on internal restructuring transactions.
We evaluated the methods and assumptions used by management to estimate the uncertain tax positions on internal restructuring transactions by testing the underlying data that served as the basis for the uncertain tax position on internal restructuring transactions.
With the assistance of our income tax specialists, we assessed the technical merits of the uncertain tax positions on internal restructuring transactions and management’s key estimates and judgments made by:
| |
◦ | Assessing the technical merits of the uncertain tax positions by comparing to similar cases filed with the Internal Revenue Service |
| |
◦ | Evaluating the reasonableness and consistency of the probabilities applied to the uncertain tax position on internal restructuring transactions by comparing to probabilities used on similar internal restructuring transaction uncertain tax positions |
| |
◦ | Considering the impact of changes or settlements in the tax environment on management’s methods and assumptions used to estimate the uncertain tax positions on internal restructuring transactions. |
Nuclear Decommissioning Costs-Entergy Corporation and Subsidiaries-Refer to Note 9 to the financial statements
Critical Audit Matter Description
The Corporation owns nuclear generation facilities in both the Utility and Entergy Wholesale Commodities operating segments where regulation requires the Corporation to decommission its nuclear power plants after each facility is taken out of service. The Corporation periodically conducts decommissioning cost studies, which requires management to make significant judgments and assumptions, specifically related to future dismantlement cost, site restoration, spent fuel management, and license termination. The liability for nuclear decommissioning was $6.2 billion at December 31, 2019.
Auditing management’s judgments regarding the costs for nuclear decommissioning, including estimates for future dismantlement, site restoration, spent fuel management, and license termination, involved especially subjective judgment in evaluating the appropriateness of the estimates and assumptions.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the underlying costs for nuclear decommissioning included the following, among others:
We tested the effectiveness of controls over nuclear decommissioning, including those over the future dismantlement cost, site restoration, spent fuel management, and license termination.
We evaluated the Corporation’s disclosures related to the nuclear decommissioning cost estimates, including the balances recorded and changes in assumptions.
We evaluated management’s ability to accurately estimate the costs for nuclear decommissioning by comparing the cost estimates to actual settlements of similar asset retirement obligations at the Corporation.
We evaluated the methods and assumptions used by management to estimate the cost of nuclear decommissioning by:
| |
◦ | Testing the reasonableness of the underlying data that served as the basis for the estimate |
| |
◦ | Comparing to management’s prior-year assumptions and testing significant changes in judgments or assumptions |
| |
◦ | Comparing changes in cost estimates to other similar cost estimates recorded at the Corporation to confirm consistent assumptions and methods applied across all of the Corporation’s nuclear decommissioning cost estimates. |
With the assistance of our environmental specialists, we:
| |
◦ | Evaluated the methods used by management to estimate the underlying costs for nuclear decommissioning |
| |
◦ | Developed a range of independent estimates for the cost of nuclear decommissioning based on peer industry data and compared to management’s estimate |
| |
◦ | Completed a search of environmental regulations to identify any regulatory changes that may affect the nuclear decommissioning cost estimates. |
/s/ DELOITTE & TOUCHE LLP
New Orleans, Louisiana
February 26, 201821, 2020
We have served as the Corporation’s auditor since 2001.
| | ENTERGY CORPORATION AND SUBSIDIARIES | CONSOLIDATED STATEMENTS OF OPERATIONS | |
CONSOLIDATED INCOME STATEMENTS | | CONSOLIDATED INCOME STATEMENTS |
| | | | |
| | For the Years Ended December 31, | | For the Years Ended December 31, |
| | 2017 | | 2016 | | 2015 | | 2019 | | 2018 | | 2017 |
| | (In Thousands, Except Share Data) | | (In Thousands, Except Share Data) |
OPERATING REVENUES | | | | | | | | | | | | |
Electric | |
| $9,278,895 |
| |
| $8,866,659 |
| |
| $9,308,678 |
| |
| $9,429,978 |
| |
| $9,384,111 |
| |
| $9,278,895 |
|
Natural gas | | 138,856 |
| | 129,348 |
| | 142,746 |
| | 153,954 |
| | 156,436 |
| | 138,856 |
|
Competitive businesses | | 1,656,730 |
| | 1,849,638 |
| | 2,061,827 |
| | 1,294,741 |
| | 1,468,905 |
| | 1,656,730 |
|
TOTAL | | 11,074,481 |
| | 10,845,645 |
| | 11,513,251 |
| | 10,878,673 |
| | 11,009,452 |
| | 11,074,481 |
|
| | | | | | | | | | | | |
OPERATING EXPENSES | | |
| | |
| | |
| | |
| | |
| | |
|
Operation and Maintenance: | | |
| | |
| | |
| | |
| | |
| | |
|
Fuel, fuel-related expenses, and gas purchased for resale | | 1,991,589 |
| | 1,809,200 |
| | 2,452,171 |
| | 2,029,638 |
| | 2,147,793 |
| | 1,991,589 |
|
Purchased power | | 1,427,950 |
| | 1,220,527 |
| | 1,390,805 |
| | 1,192,860 |
| | 1,658,799 |
| | 1,427,950 |
|
Nuclear refueling outage expenses | | 168,151 |
| | 208,678 |
| | 251,316 |
| | 204,927 |
| | 153,826 |
| | 168,151 |
|
Other operation and maintenance | | 3,423,689 |
| | 3,296,711 |
| | 3,354,981 |
| | 3,272,381 |
| | 3,346,397 |
| | 3,306,694 |
|
Asset write-offs, impairments, and related charges | | 538,372 |
| | 2,835,637 |
| | 2,104,906 |
| | 290,027 |
| | 532,321 |
| | 538,372 |
|
Decommissioning | | 405,685 |
| | 327,425 |
| | 280,272 |
| | 400,802 |
| | 388,508 |
| | 405,685 |
|
Taxes other than income taxes | | 617,556 |
| | 592,502 |
| | 619,422 |
| | 643,745 |
| | 641,952 |
| | 617,556 |
|
Depreciation and amortization | | 1,389,978 |
| | 1,347,187 |
| | 1,337,276 |
| | 1,480,016 |
| | 1,369,442 |
| | 1,389,978 |
|
Other regulatory charges (credits) - net | | (131,901 | ) | | 94,243 |
| | 175,304 |
| | (26,220 | ) | | 301,049 |
| | (131,901 | ) |
TOTAL | | 9,831,069 |
| | 11,732,110 |
| | 11,966,453 |
| | 9,488,176 |
| | 10,540,087 |
| | 9,714,074 |
|
| | | | | | | | | | | | |
Gain on sale of asset | | 16,270 |
| | — |
| | 154,037 |
| |
| | | | | | | |
OPERATING INCOME (LOSS) | | 1,259,682 |
| | (886,465 | ) | | (299,165 | ) | |
OPERATING INCOME | | | 1,390,497 |
| | 469,365 |
| | 1,360,407 |
|
| | | | | | | | | | | | |
OTHER INCOME | | |
| | |
| | |
| | |
| | |
| | |
|
Allowance for equity funds used during construction | | 95,088 |
| | 67,563 |
| | 51,908 |
| | 144,974 |
| | 129,602 |
| | 95,088 |
|
Interest and investment income | | 288,197 |
| | 145,127 |
| | 187,062 |
| | 547,912 |
| | 63,864 |
| | 288,197 |
|
Miscellaneous - net | | (12,701 | ) | | (41,617 | ) | | (95,997 | ) | | (252,539 | ) | | (129,754 | ) | | (113,426 | ) |
TOTAL | | 370,584 |
| | 171,073 |
| | 142,973 |
| | 440,347 |
| | 63,712 |
| | 269,859 |
|
| | | | | | | | | | | | |
INTEREST EXPENSE | | |
| | |
| | |
| | |
| | |
| | |
|
Interest expense | | 707,212 |
| | 700,545 |
| | 670,096 |
| | 807,382 |
| | 768,322 |
| | 707,212 |
|
Allowance for borrowed funds used during construction | | (44,869 | ) | | (34,175 | ) | | (26,627 | ) | | (64,957 | ) | | (60,974 | ) | | (44,869 | ) |
TOTAL | | 662,343 |
| | 666,370 |
| | 643,469 |
| | 742,425 |
| | 707,348 |
| | 662,343 |
|
| | | | | | | | | | | | |
INCOME (LOSS) BEFORE INCOME TAXES | | 967,923 |
| | (1,381,762 | ) | | (799,661 | ) | | 1,088,419 |
| | (174,271 | ) | | 967,923 |
|
| | | | | | | | | | | | |
Income taxes | | 542,570 |
| | (817,259 | ) | | (642,927 | ) | | (169,825 | ) | | (1,036,826 | ) | | 542,570 |
|
| | | | | | | | | | | | |
CONSOLIDATED NET INCOME (LOSS) | | 425,353 |
| | (564,503 | ) | | (156,734 | ) | |
CONSOLIDATED NET INCOME | | | 1,258,244 |
| | 862,555 |
| | 425,353 |
|
| | | | | | | | | | | | |
Preferred dividend requirements of subsidiaries | | 13,741 |
| | 19,115 |
| | 19,828 |
| | 17,018 |
| | 13,894 |
| | 13,741 |
|
| | | | | | | | | | | | |
NET INCOME (LOSS) ATTRIBUTABLE TO ENTERGY CORPORATION | |
| $411,612 |
| |
| ($583,618 | ) | |
| ($176,562 | ) | |
NET INCOME ATTRIBUTABLE TO ENTERGY CORPORATION | | |
| $1,241,226 |
| |
| $848,661 |
| |
| $411,612 |
|
| | | | | | | | | | | | |
Earnings (loss) per average common share: | | |
| | |
| | |
| |
Earnings per average common share: | | | |
| | |
| | |
|
Basic | |
| $2.29 |
| |
| ($3.26 | ) | |
| ($0.99 | ) | |
| $6.36 |
| |
| $4.68 |
| |
| $2.29 |
|
Diluted | |
| $2.28 |
| |
| ($3.26 | ) | |
| ($0.99 | ) | |
| $6.30 |
| |
| $4.63 |
| |
| $2.28 |
|
| | | | | | | | | | | | |
Basic average number of common shares outstanding | | 179,671,797 |
| | 178,885,660 |
| | 179,176,356 |
| | 195,195,858 |
| | 181,409,597 |
| | 179,671,797 |
|
Diluted average number of common shares outstanding | | 180,535,893 |
| | 178,885,660 |
| | 179,176,356 |
| | 196,999,284 |
| | 183,378,513 |
| | 180,535,893 |
|
| | | | | | | | | | | | |
See Notes to Financial Statements. | | |
| | |
| | |
| | |
| | |
| | |
|
| | ENTERGY CORPORATION AND SUBSIDIARIES | CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) | |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | | CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME |
| | |
| For the Years Ended December 31, | For the Years Ended December 31, |
| 2017 | | 2016 | | 2015 | 2019 | | 2018 | | 2017 |
| (In Thousands) | (In Thousands) |
| | | | | | | | | | |
Net Income (Loss) |
| $425,353 |
| |
| ($564,503 | ) | |
| ($156,734 | ) | |
Net Income | |
| $1,258,244 |
| |
| $862,555 |
| |
| $425,353 |
|
| | | | | | | | | | |
Other comprehensive income (loss) | |
| | |
| | |
| |
| | |
| | |
|
Cash flow hedges net unrealized gain (loss) | |
| | |
| | |
| |
| | |
| | |
|
(net of tax expense (benefit) of ($22,570), ($55,298), and $3,752) | (41,470 | ) | | (101,977 | ) | | 7,852 |
| |
(net of tax expense (benefit) of $28,516, $5,830, and ($22,570)) | | 115,026 |
| | 22,098 |
| | (41,470 | ) |
Pension and other postretirement liabilities | |
| | |
| | |
| |
| | |
| | |
|
(net of tax expense (benefit) of ($4,057), ($3,952), and $61,576) | (61,653 | ) | | (2,842 | ) | | 103,185 |
| |
(net of tax expense (benefit) of ($6,539), $30,299, and ($4,057)) | | (25,150 | ) | | 90,143 |
| | (61,653 | ) |
Net unrealized investment gains (losses) | |
| | |
| | |
| |
| | |
| | |
|
(net of tax expense (benefit) of $80,069, $57,277, and ($45,904)) | 115,311 |
| | 62,177 |
| | (59,138 | ) | |
(net of tax expense of $14,023, $6,393, and $80,069) | | 27,183 |
| | (28,771 | ) | | 115,311 |
|
Foreign currency translation | |
| | |
| | |
| |
| | |
| | |
|
(net of tax benefit of $403, $689, and $345) | (748 | ) | | (1,280 | ) | | (641 | ) | |
Other comprehensive income (loss) | 11,440 |
| | (43,922 | ) | | 51,258 |
| |
(net of tax benefit of $-, $-, and $403) | | — |
| | — |
| | (748 | ) |
Other comprehensive income | | 117,059 |
| | 83,470 |
| | 11,440 |
|
| | | | | | | | | | |
Comprehensive Income (Loss) | 436,793 |
| | (608,425 | ) | | (105,476 | ) | |
Comprehensive Income | | 1,375,303 |
| | 946,025 |
| | 436,793 |
|
Preferred dividend requirements of subsidiaries | 13,741 |
| | 19,115 |
| | 19,828 |
| 17,018 |
| | 13,894 |
| | 13,741 |
|
Comprehensive Income (Loss) Attributable to Entergy Corporation |
| $423,052 |
| |
| ($627,540 | ) | |
| ($125,304 | ) | |
Comprehensive Income Attributable to Entergy Corporation | |
| $1,358,285 |
| |
| $932,131 |
| |
| $423,052 |
|
| | | | | | | | | | |
See Notes to Financial Statements. | |
| | |
| | |
| |
| | |
| | |
|
| | ENTERGY CORPORATION AND SUBSIDIARIES | CONSOLIDATED STATEMENTS OF CASH FLOWS | | | | | |
| | For the Years Ended December 31, | | For the Years Ended December 31, |
| | 2017 | | 2016 | | 2015 | | 2019 | | 2018 | | 2017 |
| | (In Thousands) | | (In Thousands) |
| | | | | | | | | | | | |
OPERATING ACTIVITIES | | | | | | | | | | | | |
Consolidated net income (loss) | |
| $425,353 |
| |
| ($564,503 | ) | |
| ($156,734 | ) | |
Adjustments to reconcile consolidated net income (loss) to net cash flow provided by operating activities: | | | | | | | |
Consolidated net income | | |
| $1,258,244 |
| |
| $862,555 |
| |
| $425,353 |
|
Adjustments to reconcile consolidated net income to net cash flow provided by operating activities: | | | | | | | |
Depreciation, amortization, and decommissioning, including nuclear fuel amortization | | 2,078,578 |
| | 2,123,291 |
| | 2,117,236 |
| | 2,182,313 |
| | 2,040,555 |
| | 2,078,578 |
|
Deferred income taxes, investment tax credits, and non-current taxes accrued | | 529,053 |
| | (836,257 | ) | | (820,350 | ) | | 193,950 |
| | (256,848 | ) | | 529,053 |
|
Asset write-offs, impairments, and related charges | | 357,251 |
| | 2,835,637 |
| | 2,104,906 |
| | 226,678 |
| | 491,739 |
| | 357,251 |
|
Gain on sale of asset | | (16,270 | ) | | — |
| | (154,037 | ) | |
Changes in working capital: | | |
| | |
| | |
| | |
| | |
| | |
|
Receivables | | (97,637 | ) | | (96,975 | ) | | 38,152 |
| | (101,227 | ) | | 98,546 |
| | (97,637 | ) |
Fuel inventory | | (3,043 | ) | | 38,210 |
| | (12,376 | ) | | (28,173 | ) | | 45,839 |
| | (3,043 | ) |
Accounts payable | | 101,802 |
| | 174,421 |
| | (135,211 | ) | | (71,898 | ) | | 97,312 |
| | 101,802 |
|
Prepaid taxes and taxes accrued | | 33,853 |
| | (28,963 | ) | | 81,969 |
| |
Taxes accrued | | | (20,784 | ) | | 39,272 |
| | 33,853 |
|
Interest accrued | | 742 |
| | (7,335 | ) | | (11,445 | ) | | 937 |
| | 5,220 |
| | 742 |
|
Deferred fuel costs | | 56,290 |
| | (241,896 | ) | | 298,725 |
| | 172,146 |
| | (25,829 | ) | | 56,290 |
|
Other working capital accounts | | (4,331 | ) | | 31,197 |
| | (113,701 | ) | | (3,108 | ) | | (164,173 | ) | | (4,331 | ) |
Changes in provisions for estimated losses | | (3,279 | ) | | 20,905 |
| | 42,566 |
| | 19,914 |
| | 35,706 |
| | (3,279 | ) |
Changes in other regulatory assets | | 595,504 |
| | (48,469 | ) | | 262,317 |
| | (545,559 | ) | | 189,193 |
| | 595,504 |
|
Changes in other regulatory liabilities | | 2,915,795 |
| | 158,031 |
| | 61,241 |
| | (14,781 | ) | | (803,323 | ) | | 2,915,795 |
|
Deferred tax rate change recognized as regulatory liability / asset | | (3,665,498 | ) | | — |
| | — |
| | — |
| | — |
| | (3,665,498 | ) |
Changes in pensions and other postretirement liabilities | | (130,686 | ) | | (136,919 | ) | | (446,418 | ) | | 187,124 |
| | (304,941 | ) | | (130,686 | ) |
Other | | (549,977 | ) | | (421,676 | ) | | 134,344 |
| | (639,149 | ) | | 34,424 |
| | (566,247 | ) |
Net cash flow provided by operating activities | | 2,623,500 |
| | 2,998,699 |
| | 3,291,184 |
| | 2,816,627 |
| | 2,385,247 |
| | 2,623,500 |
|
| | | | | | | | | | | | |
INVESTING ACTIVITIES | | |
| | |
| | |
| | |
| | |
| | |
|
Construction/capital expenditures | | (3,607,532 | ) | | (2,780,222 | ) | | (2,500,860 | ) | | (4,197,667 | ) | | (3,942,010 | ) | | (3,607,532 | ) |
Allowance for equity funds used during construction | | 96,000 |
| | 68,345 |
| | 53,635 |
| | 144,862 |
| | 130,195 |
| | 96,000 |
|
Nuclear fuel purchases | | (377,324 | ) | | (314,706 | ) | | (493,604 | ) | | (128,366 | ) | | (302,584 | ) | | (377,324 | ) |
Payment for purchase of plant or assets | | (16,762 | ) | | (949,329 | ) | | — |
| | (305,472 | ) | | (26,623 | ) | | (16,762 | ) |
Proceeds from sale of assets | | 100,000 |
| | — |
| | 487,406 |
| | 28,932 |
| | 24,902 |
| | 100,000 |
|
Insurance proceeds received for property damages | | 26,157 |
| | 20,968 |
| | 24,399 |
| | 7,040 |
| | 18,270 |
| | 26,157 |
|
Changes in securitization account | | 1,323 |
| | 4,007 |
| | (5,806 | ) | | 3,298 |
| | (5,844 | ) | | 1,323 |
|
NYPA value sharing payment | | — |
| | — |
| | (70,790 | ) | |
Payments to storm reserve escrow account | | (2,878 | ) | | (1,544 | ) | | (69,163 | ) | | (8,038 | ) | | (6,551 | ) | | (2,878 | ) |
Receipts from storm reserve escrow account | | 11,323 |
| | — |
| | 5,916 |
| | — |
| | — |
| | 11,323 |
|
Decrease in other investments | | 1,078 |
| | 9,055 |
| | 571 |
| |
Decrease (increase) in other investments | | | 30,319 |
| | (54,500 | ) | | 1,078 |
|
Litigation proceeds for reimbursement of spent nuclear fuel storage costs | | 25,493 |
| | 169,085 |
| | 18,296 |
| | 2,369 |
| | 59,643 |
| | 25,493 |
|
Proceeds from nuclear decommissioning trust fund sales | | 3,162,747 |
| | 2,408,920 |
| | 2,492,176 |
| | 4,121,351 |
| | 6,484,791 |
| | 3,162,747 |
|
Investment in nuclear decommissioning trust funds | | (3,260,674 | ) | | (2,484,627 | ) | | (2,550,958 | ) | | (4,208,870 | ) | | (6,485,676 | ) | | (3,260,674 | ) |
Net cash flow used in investing activities | | (3,841,049 | ) | | (3,850,048 | ) | | (2,608,782 | ) | | (4,510,242 | ) | | (4,105,987 | ) | | (3,841,049 | ) |
| | | | | | | | | | | | |
See Notes to Financial Statements. | | |
| | |
| | |
| | |
| | |
| | |
|
| | ENTERGY CORPORATION AND SUBSIDIARIES | CONSOLIDATED STATEMENTS OF CASH FLOWS | | | | | |
| | For the Years Ended December 31, | | For the Years Ended December 31, |
| | 2017 | | 2016 | | 2015 | | 2019 | | 2018 | | 2017 |
| | (In Thousands) | | (In Thousands) |
| | | | | | | | | | | | |
FINANCING ACTIVITIES | | | | | | | | | | | | |
Proceeds from the issuance of: | | | | | | | | | | | | |
Long-term debt | | 1,809,390 |
| | 6,800,558 |
| | 3,502,189 |
| | 9,304,396 |
| | 8,035,536 |
| | 1,809,390 |
|
Preferred stock of subsidiary | | 14,399 |
| | — |
| | 107,426 |
| | 33,188 |
| | 73,330 |
| | 14,399 |
|
Treasury stock | | 80,729 |
| | 33,114 |
| | 24,366 |
| | 93,862 |
| | 103,315 |
| | 80,729 |
|
Common stock | | | 607,650 |
| | 499,272 |
| | — |
|
Retirement of long-term debt | | (1,585,681 | ) | | (5,311,324 | ) | | (3,461,518 | ) | | (7,619,380 | ) | | (6,965,738 | ) | | (1,585,681 | ) |
Repurchase of common stock | | — |
| | — |
| | (99,807 | ) | |
Repurchase / redemptions of preferred stock | | (20,599 | ) | | (115,283 | ) | | (94,285 | ) | | (50,000 | ) | | (53,868 | ) | | (20,599 | ) |
Changes in credit borrowings and commercial paper - net | | 1,163,296 |
| | (79,337 | ) | | (104,047 | ) | | 4,389 |
| | 364,031 |
| | 1,163,296 |
|
Other | | (7,731 | ) | | (6,872 | ) | | (9,136 | ) | | (7,732 | ) | | 26,453 |
| | (7,731 | ) |
Dividends paid: | | |
| | |
| | |
| | |
| | |
| | |
|
Common stock | | (628,885 | ) | | (611,835 | ) | | (598,897 | ) | | (711,573 | ) | | (647,704 | ) | | (628,885 | ) |
Preferred stock | | (13,940 | ) | | (20,789 | ) | | (19,758 | ) | | (16,438 | ) | | (14,185 | ) | | (13,940 | ) |
Net cash flow provided by (used in) financing activities | | 810,978 |
| | 688,232 |
| | (753,467 | ) | |
Net cash flow provided by financing activities | | | 1,638,362 |
| | 1,420,442 |
| | 810,978 |
|
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Net decrease in cash and cash equivalents | | (406,571 | ) | | (163,117 | ) | | (71,065 | ) | | (55,253 | ) | | (300,298 | ) | | (406,571 | ) |
| | | | | | | | | | | | |
Cash and cash equivalents at beginning of period | | 1,187,844 |
| | 1,350,961 |
| | 1,422,026 |
| | 480,975 |
| | 781,273 |
| | 1,187,844 |
|
| | | | | | | | | | | | |
Cash and cash equivalents at end of period | |
| $781,273 |
| |
| $1,187,844 |
| |
| $1,350,961 |
| |
| $425,722 |
| |
| $480,975 |
| |
| $781,273 |
|
| | | | | | | | | | | | |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | | |
| | |
| | |
| | |
| | |
| | |
|
Cash paid (received) during the period for: | | |
| | |
| | |
| | |
| | |
| | |
|
Interest - net of amount capitalized | |
| $678,371 |
| |
| $746,779 |
| |
| $663,630 |
| |
| $778,209 |
| |
| $734,845 |
| |
| $678,371 |
|
Income taxes | |
| ($13,375 | ) | |
| $95,317 |
| |
| $103,589 |
| |
| ($40,435 | ) | |
| $19,825 |
| |
| ($13,375 | ) |
| | | | | | | | | | | | |
See Notes to Financial Statements. | | |
| | |
| | |
| | |
| | |
| | |
|
| | ENTERGY CORPORATION AND SUBSIDIARIES | CONSOLIDATED BALANCE SHEETS | ASSETS | | | | | |
| | December 31, | | December 31, |
| | 2017 | | 2016 | | 2019 | | 2018 |
| | (In Thousands) | | (In Thousands) |
| | | | | | | | |
CURRENT ASSETS | | | | | | | | |
Cash and cash equivalents: | | | | | | | | |
Cash | |
| $56,629 |
| |
| $129,579 |
| |
| $34,242 |
| |
| $56,690 |
|
Temporary cash investments | | 724,644 |
| | 1,058,265 |
| | 391,480 |
| | 424,285 |
|
Total cash and cash equivalents | | 781,273 |
| | 1,187,844 |
| | 425,722 |
| | 480,975 |
|
Accounts receivable: | | |
| | |
| | |
| | |
|
Customer | | 673,347 |
| | 654,995 |
| | 595,509 |
| | 558,494 |
|
Allowance for doubtful accounts | | (13,587 | ) | | (11,924 | ) | | (7,404 | ) | | (7,322 | ) |
Other | | 169,377 |
| | 158,419 |
| | 219,870 |
| | 167,722 |
|
Accrued unbilled revenues | | 383,813 |
| | 368,677 |
| | 400,617 |
| | 395,511 |
|
Total accounts receivable | | 1,212,950 |
| | 1,170,167 |
| | 1,208,592 |
| | 1,114,405 |
|
Deferred fuel costs | | 95,746 |
| | 108,465 |
| | — |
| �� | 27,251 |
|
Fuel inventory - at average cost | | 182,643 |
| | 179,600 |
| | 145,476 |
| | 117,304 |
|
Materials and supplies - at average cost | | 723,222 |
| | 698,523 |
| | 824,989 |
| | 752,843 |
|
Deferred nuclear refueling outage costs | | 133,164 |
| | 146,221 |
| | 157,568 |
| | 230,960 |
|
Prepayments and other | | 156,333 |
| | 193,448 |
| | 283,645 |
| | 234,326 |
|
TOTAL | | 3,285,331 |
| | 3,684,268 |
| | 3,045,992 |
| | 2,958,064 |
|
| | | | | | | | |
OTHER PROPERTY AND INVESTMENTS | | |
| | |
| | |
| | |
|
Investment in affiliates - at equity | | 198 |
| | 198 |
| |
Decommissioning trust funds | | 7,211,993 |
| | 5,723,897 |
| | 6,404,030 |
| | 6,920,164 |
|
Non-utility property - at cost (less accumulated depreciation) | | 260,980 |
| | 233,641 |
| | 332,864 |
| | 304,382 |
|
Other | | 441,862 |
| | 469,664 |
| | 496,452 |
| | 437,265 |
|
TOTAL | | 7,915,033 |
| | 6,427,400 |
| | 7,233,346 |
| | 7,661,811 |
|
| | | | | | | | |
PROPERTY, PLANT, AND EQUIPMENT | | |
| | |
| | |
| | |
|
Electric | | 47,287,370 |
| | 45,191,216 |
| | 54,271,467 |
| | 49,831,486 |
|
Property under capital lease | | 620,544 |
| | 619,527 |
| |
Natural gas | | 453,162 |
| | 413,224 |
| | 547,110 |
| | 496,150 |
|
Construction work in progress | | 1,980,508 |
| | 1,378,180 |
| | 2,823,291 |
| | 2,888,639 |
|
Nuclear fuel | | 923,200 |
| | 1,037,899 |
| | 677,181 |
| | 861,272 |
|
TOTAL PROPERTY, PLANT AND EQUIPMENT | | 51,264,784 |
| | 48,640,046 |
| |
TOTAL PROPERTY, PLANT, AND EQUIPMENT | | | 58,319,049 |
| | 54,077,547 |
|
Less - accumulated depreciation and amortization | | 21,600,424 |
| | 20,718,639 |
| | 23,136,356 |
| | 22,103,101 |
|
PROPERTY, PLANT AND EQUIPMENT - NET | | 29,664,360 |
| | 27,921,407 |
| |
PROPERTY, PLANT, AND EQUIPMENT - NET | | | 35,182,693 |
| | 31,974,446 |
|
| | | | | | | | |
DEFERRED DEBITS AND OTHER ASSETS | | |
| | |
| | |
| | |
|
Regulatory assets: | | |
| | |
| | |
| | |
|
Regulatory asset for income taxes - net | | — |
| | 761,280 |
| |
Other regulatory assets (includes securitization property of $485,031 as of December 31, 2017 and $600,996 as of December 31, 2016) | | 4,935,689 |
| | 4,769,913 |
| |
Other regulatory assets (includes securitization property of $239,219 as of December 31, 2019 and $360,790 as of December 31, 2018) | | | 5,292,055 |
| | 4,746,496 |
|
Deferred fuel costs | | 239,298 |
| | 239,100 |
| | 239,892 |
| | 239,496 |
|
Goodwill | | 377,172 |
| | 377,172 |
| | 377,172 |
| | 377,172 |
|
Accumulated deferred income taxes | | 178,204 |
| | 117,885 |
| | 64,461 |
| | 54,593 |
|
Other | | 112,062 |
| | 1,606,009 |
| | 288,301 |
| | 262,988 |
|
TOTAL | | 5,842,425 |
| | 7,871,359 |
| | 6,261,881 |
| | 5,680,745 |
|
| | | | | | | | |
TOTAL ASSETS | |
| $46,707,149 |
| |
| $45,904,434 |
| |
| $51,723,912 |
| |
| $48,275,066 |
|
| | | | | | | | |
See Notes to Financial Statements. | | |
| | |
| | |
| | |
|
| | ENTERGY CORPORATION AND SUBSIDIARIES | CONSOLIDATED BALANCE SHEETS | LIABILITIES AND EQUITY | | | | | |
| | December 31, | | December 31, |
| | 2017 | | 2016 | | 2019 | | 2018 |
| | (In Thousands) | | (In Thousands) |
| | | | | | | | |
CURRENT LIABILITIES | | | | | | | | |
Currently maturing long-term debt | |
| $760,007 |
| |
| $364,900 |
| |
| $795,012 |
| |
| $650,009 |
|
Notes payable and commercial paper | | 1,578,308 |
| | 415,011 |
| | 1,946,727 |
| | 1,942,339 |
|
Accounts payable | | 1,452,216 |
| | 1,285,577 |
| | 1,499,861 |
| | 1,496,058 |
|
Customer deposits | | 401,330 |
| | 403,311 |
| | 409,171 |
| | 411,505 |
|
Taxes accrued | | 214,967 |
| | 181,114 |
| | 233,455 |
| | 254,241 |
|
Interest accrued | | 187,972 |
| | 187,229 |
| | 194,129 |
| | 193,192 |
|
Deferred fuel costs | | 146,522 |
| | 102,753 |
| | 197,687 |
| | 52,396 |
|
Obligations under capital leases | | 1,502 |
| | 2,423 |
| |
Pension and other postretirement liabilities | | 71,612 |
| | 76,942 |
| | 66,184 |
| | 61,240 |
|
Current portion of unprotected excess accumulated deferred income taxes | | | 76,457 |
| | 248,127 |
|
Other | | 221,771 |
| | 180,836 |
| | 201,780 |
| | 134,437 |
|
TOTAL | | 5,036,207 |
| | 3,200,096 |
| | 5,620,463 |
| | 5,443,544 |
|
| | | | | | | | |
NON-CURRENT LIABILITIES | | |
| | |
| | |
| | |
|
Accumulated deferred income taxes and taxes accrued | | 4,466,503 |
| | 7,495,290 |
| | 4,401,190 |
| | 4,107,152 |
|
Accumulated deferred investment tax credits | | 219,634 |
| | 227,147 |
| | 207,113 |
| | 213,101 |
|
Obligations under capital leases | | 22,015 |
| | 24,582 |
| |
Regulatory liability for income taxes-net | | 2,900,204 |
| | — |
| | 1,633,159 |
| | 1,817,021 |
|
Other regulatory liabilities | | 1,588,520 |
| | 1,572,929 |
| | 1,961,005 |
| | 1,620,254 |
|
Decommissioning and asset retirement cost liabilities | | 6,185,814 |
| | 5,992,476 |
| | 6,159,212 |
| | 6,355,543 |
|
Accumulated provisions | | 478,273 |
| | 481,636 |
| | 534,028 |
| | 514,107 |
|
Pension and other postretirement liabilities | | 2,910,654 |
| | 3,036,010 |
| | 2,798,265 |
| | 2,616,085 |
|
Long-term debt (includes securitization bonds of $544,921 as of December 31, 2017 and $661,175 as of December 31, 2016) | | 14,315,259 |
| | 14,467,655 |
| |
Long-term debt (includes securitization bonds of $297,981 as of December 31, 2019 and $423,858 as of December 31, 2018) | | | 17,078,643 |
| | 15,518,303 |
|
Other | | 393,748 |
| | 1,121,619 |
| | 852,749 |
| | 1,006,249 |
|
TOTAL | | 33,480,624 |
| | 34,419,344 |
| | 35,625,364 |
| | 33,767,815 |
|
| | | | | | | | |
Commitments and Contingencies | |
|
| |
|
| |
|
| |
|
|
| | | | | | | | |
Subsidiaries’ preferred stock without sinking fund | | 197,803 |
| | 203,185 |
| |
Subsidiaries’ preferred stock without sinking fund | | | 219,410 |
| | 219,402 |
|
| | | | | | | | |
COMMON EQUITY | | |
| | |
| |
Common stock, $.01 par value, authorized 500,000,000 shares; issued 254,752,788 shares in 2017 and in 2016 | | 2,548 |
| | 2,548 |
| |
EQUITY | | | |
| | |
|
Common stock, $.01 par value, authorized 500,000,000 shares; issued 270,035,180 shares in 2019 and 261,587,009 shares in 2018 | | | 2,700 |
| | 2,616 |
|
Paid-in capital | | 5,433,433 |
| | 5,417,245 |
| | 6,564,436 |
| | 5,951,431 |
|
Retained earnings | | 7,977,702 |
| | 8,195,571 |
| | 9,257,609 |
| | 8,721,150 |
|
Accumulated other comprehensive loss | | (23,531 | ) | | (34,971 | ) | | (446,920 | ) | | (557,173 | ) |
Less - treasury stock, at cost (74,235,135 shares in 2017 and 75,623,363 shares in 2016) | | 5,397,637 |
| | 5,498,584 |
| |
Less - treasury stock, at cost (70,886,400 shares in 2019 and 72,530,866 shares in 2018) | | | 5,154,150 |
| | 5,273,719 |
|
Total common shareholders' equity | | | 10,223,675 |
| | 8,844,305 |
|
Subsidiaries’ preferred stock without sinking fund | | | 35,000 |
| | — |
|
TOTAL | | 7,992,515 |
| | 8,081,809 |
| | 10,258,675 |
| | 8,844,305 |
|
| | | | | | | | |
TOTAL LIABILITIES AND EQUITY | |
| $46,707,149 |
| |
| $45,904,434 |
| |
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | | | $ | 51,723,912 |
| | $ | 48,275,066 |
|
| | | | | | | | |
See Notes to Financial Statements. | | |
| | |
| | |
| | |
|
| | ENTERGY CORPORATION AND SUBSIDIARIES | CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY | For the Years Ended December 31, 2017, 2016, and 2015 | |
For the Years Ended December 31, 2019, 2018, and 2017 | | For the Years Ended December 31, 2019, 2018, and 2017 |
| | | | | | | | | | |
| |
| Common Shareholders’ Equity |
| | |
| Common Shareholders’ Equity |
| |
| Subsidiaries’ Preferred Stock | | Common Stock | | Treasury Stock | | Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Total | Subsidiaries’ Preferred Stock | | Common Stock | | Treasury Stock | | Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Total |
| (In Thousands) | (In Thousands) |
| | | | | | | | | | | | | | |
Balance at December 31, 2014 |
| $94,000 |
| |
| $2,548 |
| |
| ($5,497,526 | ) | |
| $5,375,353 |
| |
| $10,169,657 |
| |
| ($42,307 | ) | |
| $10,101,725 |
| |
| | | | | | | | | | | | | | |
Consolidated net income (loss) (a) | 19,828 |
| | — |
| | — |
| | — |
| | (176,562 | ) | | — |
| | (156,734 | ) | |
Other comprehensive income | — |
| | — |
| | — |
| | — |
| | — |
| | 51,258 |
| | 51,258 |
| |
Common stock repurchases | — |
| | — |
| | (99,807 | ) | | — |
| | — |
| | — |
| | (99,807 | ) | |
Preferred stock repurchases / redemptions | (94,000 | ) | | — |
| | — |
| | — |
| | (285 | ) | | — |
| | (94,285 | ) | |
Common stock issuances related to stock plans | — |
| | — |
| | 44,954 |
| | 28,405 |
| | — |
| | — |
| | 73,359 |
| |
Common stock dividends declared | — |
| | — |
| | — |
| | — |
| | (598,897 | ) | | — |
| | (598,897 | ) | |
Preferred dividend requirements of subsidiaries (a) | (19,828 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (19,828 | ) | |
| | | | | | | | | | | | | | |
Balance at December 31, 2015 |
| $— |
| |
| $2,548 |
| |
| ($5,552,379 | ) | |
| $5,403,758 |
| |
| $9,393,913 |
| |
| $8,951 |
| |
| $9,256,791 |
| |
| | | | | | | | | | | | | | |
Consolidated net income (loss) (a) | 19,115 |
| | — |
| | — |
| | — |
| | (583,618 | ) | | — |
| | (564,503 | ) | |
Other comprehensive loss | — |
| | — |
| | — |
| | — |
| | — |
| | (43,922 | ) | | (43,922 | ) | |
Common stock issuances related to stock plans | — |
| | — |
| | 53,795 |
| | 13,487 |
| | — |
| | — |
| | 67,282 |
| |
Common stock dividends declared | — |
| | — |
| | — |
| | — |
| | (611,835 | ) | | — |
| | (611,835 | ) | |
Subsidiaries' capital stock redemptions | — |
| | — |
| | — |
| | — |
| | (2,889 | ) | | — |
| | (2,889 | ) | |
Preferred dividend requirements of subsidiaries (a) | (19,115 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (19,115 | ) | |
| | | | | | | | | | | | | | |
Balance at December 31, 2016 |
| $— |
| |
| $2,548 |
| |
| ($5,498,584 | ) | |
| $5,417,245 |
| |
| $8,195,571 |
| |
| ($34,971 | ) | |
| $8,081,809 |
|
| $— |
| |
| $2,548 |
| |
| ($5,498,584 | ) | |
| $5,417,245 |
| |
| $8,195,571 |
| |
| ($34,971 | ) | |
| $8,081,809 |
|
| | | | | | | | | | | | | | |
Consolidated net income (a) | 13,741 |
| | — |
| | — |
| | — |
| | 411,612 |
| | — |
| | 425,353 |
| 13,741 |
| | — |
| | — |
| | — |
| | 411,612 |
| | — |
| | 425,353 |
|
Other comprehensive income | — |
| | — |
| | — |
| | — |
| | — |
| | 11,440 |
| | 11,440 |
| — |
| | — |
| | — |
| | — |
| | — |
| | 11,440 |
| | 11,440 |
|
Common stock issuances related to stock plans | — |
| | — |
| | 100,947 |
| | 16,188 |
| | — |
| | — |
| | 117,135 |
| — |
| | — |
| | 100,947 |
| | 16,188 |
| | — |
| | — |
| | 117,135 |
|
Common stock dividends declared | — |
| | — |
| | — |
| | — |
| | (628,885 | ) | | — |
| | (628,885 | ) | — |
| | — |
| | — |
| | — |
| | (628,885 | ) | | — |
| | (628,885 | ) |
Subsidiaries' capital stock redemptions | — |
| | — |
| | — |
| | — |
| | (596 | ) | | — |
| | (596 | ) | — |
| | — |
| | — |
| | — |
| | (596 | ) | | — |
| | (596 | ) |
Preferred dividend requirements of subsidiaries (a) | (13,741 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (13,741 | ) | (13,741 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (13,741 | ) |
Balance at December 31, 2017 | | — |
| | 2,548 |
| | (5,397,637 | ) | | 5,433,433 |
| | 7,977,702 |
| | (23,531 | ) | | 7,992,515 |
|
Implementation of accounting standards | | — |
| | — |
| | — |
| | — |
| | 576,257 |
| | (632,617 | ) | | (56,360 | ) |
Balance at January 1, 2018 | | — |
| | 2,548 |
| | (5,397,637 | ) | | 5,433,433 |
| | 8,553,959 |
| | (656,148 | ) | | 7,936,155 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2017 |
| $— |
| |
| $2,548 |
| |
| ($5,397,637 | ) | |
| $5,433,433 |
| |
| $7,977,702 |
| |
| ($23,531 | ) | |
| $7,992,515 |
| |
Consolidated net income (a) | | 13,894 |
| | — |
| | — |
| | — |
| | 848,661 |
| | — |
| | 862,555 |
|
Other comprehensive income | | — |
| | — |
| | — |
| | — |
| | — |
| | 83,470 |
| | 83,470 |
|
Settlement of equity forwards through common stock issuance | | — |
| | 68 |
| | — |
| | 499,932 |
| | — |
| | — |
| | 500,000 |
|
Common stock issuance costs | | — |
| | — |
| | — |
| | (728 | ) | | — |
| | — |
| | (728 | ) |
Common stock issuances related to stock plans | | — |
| | — |
| | 123,918 |
| | 18,794 |
| | — |
| | — |
| | 142,712 |
|
Common stock dividends declared | | — |
| | — |
| | — |
| | — |
| | (647,704 | ) | | — |
| | (647,704 | ) |
Subsidiaries' capital stock redemptions | | — |
| | — |
| | — |
| | — |
| | (1,723 | ) | | — |
| | (1,723 | ) |
Preferred dividend requirements of subsidiaries (a) | | (13,894 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (13,894 | ) |
Reclassification pursuant to ASU 2018-02 | | — |
| | — |
| | — |
| | — |
| | (32,043 | ) | | 15,505 |
| | (16,538 | ) |
Balance at December 31, 2018 | | — |
| | 2,616 |
| | (5,273,719 | ) | | 5,951,431 |
| | 8,721,150 |
| | (557,173 | ) | | 8,844,305 |
|
Implementation of accounting standards | | — |
| | — |
| | — |
| | — |
| | 6,806 |
| | (6,806 | ) | | — |
|
Balance at January 1, 2019 | | — |
| | 2,616 |
| | (5,273,719 | ) | | 5,951,431 |
| | 8,727,956 |
| | (563,979 | ) | | 8,844,305 |
|
| | | | | | | | | | | | | | |
Consolidated net income (a) | | 17,018 |
| | — |
| | — |
| | — |
| | 1,241,226 |
| | — |
| | 1,258,244 |
|
Other comprehensive income | | — |
| | — |
| | — |
| | — |
| | — |
| | 117,059 |
| | 117,059 |
|
Settlement of equity forwards through common stock issuance | | — |
| | 84 |
| | — |
| | 607,566 |
| | — |
| | — |
| | 607,650 |
|
Common stock issuance costs | | — |
| | — |
| | — |
| | (7 | ) | | — |
| | — |
| | (7 | ) |
Common stock issuances related to stock plans | | — |
| | — |
| | 119,569 |
| | 5,446 |
| | — |
| | — |
| | 125,015 |
|
Common stock dividends declared | | — |
| | — |
| | — |
| | — |
| | (711,573 | ) | | — |
| | (711,573 | ) |
Subsidiary's preferred stock issuance | | 35,000 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 35,000 |
|
Preferred dividend requirements of subsidiaries (a) | | (17,018 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (17,018 | ) |
Balance at December 31, 2019 | |
| $35,000 |
| |
| $2,700 |
| |
| ($5,154,150 | ) | |
| $6,564,436 |
| |
| $9,257,609 |
| |
| ($446,920 | ) | |
| $10,258,675 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
See Notes to Financial Statements. | See Notes to Financial Statements. | | |
| | |
| | |
| | |
| | |
| | |
| See Notes to Financial Statements. | | |
| | |
| | |
| | |
| | |
| | |
|
(a) Consolidated net income and preferred dividend requirements of subsidiaries include $13.7 million for 2017, $19.1 million for 2016, and $14.9 million for 2015 of preferred dividends on subsidiaries’ preferred stock without sinking fund that is not presented as equity. | |
| | | | | | | | | | | | | | |
(a) Consolidated net income and preferred dividend requirements of subsidiaries include $16.5 million for 2019, $13.9 million for 2018, and $13.7 million for 2017 of preferred dividends on subsidiaries’ preferred stock without sinking fund that is not presented as equity. | | (a) Consolidated net income and preferred dividend requirements of subsidiaries include $16.5 million for 2019, $13.9 million for 2018, and $13.7 million for 2017 of preferred dividends on subsidiaries’ preferred stock without sinking fund that is not presented as equity. |
ENTERGY CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)
The accompanying consolidated financial statements include the accounts of Entergy Corporation and its subsidiaries. As required by generally accepted accounting principles in the United States of America, all intercompany transactions have been eliminated in the consolidated financial statements. Entergy’s Registrant Subsidiaries (Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy) also include their separate financial statements in this Form 10-K. The Registrant Subsidiaries and many other Entergy subsidiaries also maintain accounts in accordance with FERC and other regulatory guidelines.
Use of Estimates in the Preparation of Financial Statements
In conformity with generally accepted accounting principles in the United States of America, the preparation of Entergy Corporation’s consolidated financial statements and the separate financial statements of the Registrant Subsidiaries requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses, and the disclosure of contingent assets and liabilities. Adjustments to the reported amounts of assets and liabilities may be necessary in the future to the extent that future estimates or actual results are different from the estimates used.
Revenues and Fuel Costs
Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy Texas generate, transmit, and distribute electric power primarily to retail customers in Arkansas, Louisiana, Mississippi, and Texas, respectively. Entergy Louisiana also distributes natural gas to retail customers in and around Baton Rouge, Louisiana. Entergy New Orleans sells both electric power and natural gas to retail customers in the City of New Orleans, including Algiers. Prior to October 1, 2015, Entergy Louisiana was the electric power supplier for Algiers. The Entergy Wholesale Commodities segment derives almost all of its revenue from sales of electric power generated by plants owned by subsidiaries in that segment.
Entergy recognizes revenue from electric power and natural gas sales when power or gas is delivered to customers. To the extent that deliveries have occurred but a bill has not been issued, Entergy’s Utility operating companies accrue an estimate of the revenues for energy delivered since the latest billings. The Utility operating companies calculate the estimate based upon several factors including billings through the last billing cycle in a month, actual generation in the month, historical line loss factors, and prices in effect in Entergy’s Utility operating companies’ various jurisdictions. Changes are madeSee Note 19 to the inputs in the estimate as needed to reflect changes in billing practices. Each month the estimated unbilled revenue amounts are recorded as revenue and unbilled accounts receivable,financial statements for a discussion of Entergy’s and the prior month’s estimate is reversed. Therefore, changes in priceRegistrant Subsidiaries’ revenues and volume differences resulting from factors such as weather affect the calculation of unbilled revenues from one period to the next, and may result in variability in reported revenues from one period to the next as prior estimates are reversed and new estimates recorded.fuel costs.
For sales under rates implemented subject to refund, Entergy reduces revenue by accruing estimated amounts for probable refunds when Entergy believes it is probable that revenues will be refunded to customers based upon the status of the rate proceeding.
Entergy’s Utility operating companies’ rate schedules include either fuel adjustment clauses or fixed fuel factors, which allow either current recovery in billings to customers or deferral of fuel costs until the costs are billed to customers. Where the fuel component of revenues is billed based on a pre-determined fuel cost (fixed fuel factor), the fuel factor remains in effect until changed as part of a general rate case, fuel reconciliation, or fixed fuel factor filing. System Energy’s operating revenues are intended to recover from Entergy Arkansas, Entergy Louisiana, Entergy
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Mississippi, and Entergy New Orleans operating expenses and capital costs attributable to Grand Gulf. The capital costs are computed by allowing a return on System Energy’s common equity funds allocable to its net investment in Grand Gulf, plus System Energy’s effective interest cost for its debt allocable to its investment in Grand Gulf.
Accounting for MISO transactions
Entergy is a member of MISO, a regional transmission organization that maintains functional control over the combined transmission systems of its members and manages one of the largest energy markets in the U.S. In the MISO market, Entergy offers its generation and bids its load into the market on an hourly basis. MISO settles these hourly offers and bids based on locational marginal prices, which is pricing for energy at a given location based on a market clearing price that takes into account physical limitations on the transmission system, generation, and demand throughout the MISO region. MISO evaluates the market participants’ energy offers and demand bids to economically and reliably dispatch the entire MISO system. Entergy nets purchases and sales within the MISO market on an hourly basis and reports in operating revenues when in a net selling position for an hour period and in operating expenses when in a net purchasing position for an hour period.
Property, Plant, and Equipment
Property, plant, and equipment is stated at original cost less regulatory disallowances and impairments. Depreciation is computed on the straight-line basis at rates based on the applicable estimated service lives of the various classes of property. For the Registrant Subsidiaries, the original cost of plant retired or removed, less salvage, is charged to accumulated depreciation. Normal maintenance, repairs, and minor replacement costs are charged to operating expenses. Certain combined-cycle gas turbine generating units are maintained under long-term service agreements with third-party service providers. The costs under these agreements are split between operating expenses and capital additions based upon the nature of the work performed. Substantially all of the Registrant Subsidiaries’ plant is subject to mortgage liens.
Electric plant includes the portions of Grand Gulf and Waterford 3 that were sold and leased back in prior periods. For financial reporting purposes, these sale and leaseback arrangements are reflected as financing transactions. In March 2016, Entergy Louisiana completed the first step in a two-step transaction to purchase the undivided interests in Waterford 3 that were previously being leased by acquiring a beneficial interest in the Waterford 3 leased assets. In February 2017 the leases were terminated and the leased assets transferred to Entergy Louisiana. See Note 10 to the financial statements for further discussion of Entergy Louisiana’s purchase of the Waterford 3 leased assets.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Net property, plant, and equipment for Entergy (including property under capital lease and associated accumulated amortization) by business segment and functional category, as of December 31, 20172019 and 2016,2018, is shown below:
| | 2017 | | Entergy | | Utility | | Entergy Wholesale Commodities | | Parent & Other | |
2019 | | | Entergy | | Utility | | Entergy Wholesale Commodities | | Parent & Other |
| | (In Millions) | | (In Millions) |
Production | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Nuclear | |
| $6,946 |
| |
| $6,694 |
| |
| $252 |
| |
| $— |
| |
| $7,439 |
| |
| $7,369 |
| |
| $70 |
| |
| $— |
|
Other | | 4,215 |
| | 4,118 |
| | 97 |
| | — |
| | 5,253 |
| | 5,139 |
| | 114 |
| | — |
|
Transmission | | 5,844 |
| | 5,842 |
| | 2 |
| | — |
| | 7,383 |
| | 7,383 |
| | — |
| | — |
|
Distribution | | 8,000 |
| | 8,000 |
| | — |
| | — |
| | 8,972 |
| | 8,972 |
| | — |
| | — |
|
Other | | 1,755 |
| | 1,748 |
| | 3 |
| | 4 |
| | 2,636 |
| | 2,620 |
| | 8 |
| | 8 |
|
Construction work in progress | | 1,981 |
| | 1,951 |
| | 30 |
| | — |
| | 2,823 |
| | 2,814 |
| | 9 |
| | — |
|
Nuclear fuel | | 923 |
| | 822 |
| | 101 |
| | — |
| | 677 |
| | 614 |
| | 63 |
| | — |
|
Property, plant, and equipment - net | |
| $29,664 |
| |
| $29,175 |
| |
| $485 |
| |
| $4 |
| |
| $35,183 |
| |
| $34,911 |
| |
| $264 |
| |
| $8 |
|
56 |
| | | | | | | | | | | | | | | | |
2018 | | Entergy | | Utility | | Entergy Wholesale Commodities | | Parent & Other |
| | (In Millions) |
Production | | |
| | |
| | |
| | |
|
Nuclear | |
| $7,096 |
| |
| $6,964 |
| |
| $132 |
| |
| $— |
|
Other | | 4,171 |
| | 4,069 |
| | 102 |
| | — |
|
Transmission | | 6,592 |
| | 6,590 |
| | 2 |
| | — |
|
Distribution | | 8,343 |
| | 8,343 |
| | — |
| | — |
|
Other | | 2,022 |
| | 2,011 |
| | 2 |
| | 9 |
|
Construction work in progress | | 2,889 |
| | 2,815 |
| | 74 |
| | — |
|
Nuclear fuel | | 861 |
| | 754 |
| | 107 |
| | — |
|
Property, plant, and equipment - net | |
| $31,974 |
| |
| $31,546 |
| |
| $419 |
| |
| $9 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
|
| | | | | | | | | | | | | | | | |
2016 | | Entergy | | Utility | | Entergy Wholesale Commodities | | Parent & Other |
| | (In Millions) |
Production | | |
| | |
| | |
| | |
|
Nuclear | |
| $6,948 |
| |
| $6,524 |
| |
| $424 |
| |
| $— |
|
Other | | 4,047 |
| | 4,000 |
| | 47 |
| | — |
|
Transmission | | 5,226 |
| | 5,223 |
| | 3 |
| | — |
|
Distribution | | 7,648 |
| | 7,648 |
| | — |
| | — |
|
Other | | 1,636 |
| | 1,521 |
| | 111 |
| | 4 |
|
Construction work in progress | | 1,378 |
| | 1,334 |
| | 44 |
| | — |
|
Nuclear fuel | | 1,038 |
| | 817 |
| | 221 |
| | — |
|
Property, plant, and equipment - net | |
| $27,921 |
| |
| $27,067 |
| |
| $850 |
| |
| $4 |
|
Depreciation rates on average depreciable property for Entergy approximated 3.0% in 2017, 2.8% in 2016,2019, 2.8% in 2018, and 2.9%3% in 2015.2017. Included in these rates are the depreciation rates on average depreciable Utility property of 2.6% in 2017,2019, 2.6% in 2016,2018, and 2.7% 2015,2.6% in 2017, and the depreciation rates on average depreciable Entergy Wholesale Commodities property of 22.3%18.3% in 2017, 5.2%2019, 18.6% in 2016,2018, and 5.4%22.3% in 2015.2017. The higher depreciation rate in 2017rates for Entergy Wholesale Commodities reflectsreflect the significantly reduced remaining estimated operating lives associated with management’s strategy to reduceshut down and sell all of the size of theremaining plants in Entergy Wholesale Commodities’ merchant nuclear fleet. The decrease in the depreciation rate in 2018 for Entergy Wholesale Commodities is due to the decision in the third quarter 2017 to continue operating Palisades until May 31, 2022.
Entergy amortizes nuclear fuel using a units-of-production method. Nuclear fuel amortization is included in fuel expense in the income statements. Because the valuevalues of their long-lived assets are impaired, and their remaining estimated operating lives significantly reduced, the Entergy Wholesale Commodities nuclear plants, except for Palisades, charge nuclear fuel costs directly to expense when incurred because their undiscounted cash flows are insufficient to recover the carrying amount of these capital additions.
“Non-utility property - at cost (less accumulated depreciation)” for Entergy is reported net of accumulated depreciation of $167 million and $169$184 million as of December 31, 20172019 and 2016, respectively.$177 million as of December 31, 2018.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Construction expenditures included in accounts payable is $368$406 million and $253 million atas of December 31, 20172019 and 2016, respectively.$311 million as of December 31, 2018.
Net property, plant, and equipment for the Registrant Subsidiaries (including property under capital lease and associated accumulated amortization) by company and functional category, as of December 31, 20172019 and 2016,2018, is shown below:
| | 2017 | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy | |
2019 | | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy |
| | (In Millions) | | (In Millions) |
Production | | | | | | | | | | | | | | | | | | | | | | | | |
Nuclear | |
| $1,368 |
| |
| $3,664 |
| |
| $— |
| |
| $— |
| |
| $— |
| |
| $1,660 |
| |
| $1,611 |
| |
| $4,042 |
| |
| $— |
| |
| $— |
| |
| $— |
| |
| $1,716 |
|
Other | | 806 |
| | 2,016 |
| | 560 |
| | 207 |
| | 531 |
| | — |
| | 785 |
| | 2,789 |
| | 845 |
| | 192 |
| | 528 |
| | — |
|
Transmission | | 1,650 |
| | 2,148 |
| | 900 |
| | 81 |
| | 1,021 |
| | 42 |
| | 1,966 |
| | 2,944 |
| | 1,136 |
| | 96 |
| | 1,202 |
| | 39 |
|
Distribution | | 2,226 |
| | 2,748 |
| | 1,316 |
| | 440 |
| | 1,270 |
| | — |
| | 2,457 |
| | 3,078 |
| | 1,489 |
| | 505 |
| | 1,443 |
| | — |
|
Other | | 247 |
| | 592 |
| | 203 |
| | 204 |
| | 168 |
| | 39 |
| | 454 |
| | 884 |
| | 309 |
| | 270 |
| | 256 |
| | 30 |
|
Construction work in progress | | 281 |
| | 1,281 |
| | 149 |
| | 47 |
| | 102 |
| | 70 |
| | 198 |
| | 1,384 |
| | 88 |
| | 202 |
| | 760 |
| | 165 |
|
Nuclear fuel | | 277 |
| | 337 |
| | — |
| | — |
| | — |
| | 208 |
| | 196 |
| | 268 |
| | — |
| | — |
| | — |
| | 150 |
|
Property, plant, and equipment - net | |
| $6,855 |
| |
| $12,786 |
| |
| $3,128 |
| |
| $979 |
| |
| $3,092 |
| |
| $2,019 |
| |
| $7,667 |
| |
| $15,389 |
| |
| $3,867 |
| |
| $1,265 |
| |
| $4,189 |
| |
| $2,100 |
|
57 |
| | | | | | | | | | | | | | | | | | | | | | | | |
2018 | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy |
| | (In Millions) |
Production | | | | | | | | | | | | |
Nuclear | |
| $1,494 |
| |
| $3,725 |
| |
| $— |
| |
| $— |
| |
| $— |
| |
| $1,745 |
|
Other | | 820 |
| | 2,029 |
| | 509 |
| | 196 |
| | 515 |
| | — |
|
Transmission | | 1,792 |
| | 2,571 |
| | 1,046 |
| | 78 |
| | 1,063 |
| | 40 |
|
Distribution | | 2,329 |
| | 2,882 |
| | 1,342 |
| | 471 |
| | 1,319 |
| | — |
|
Other | | 311 |
| | 699 |
| | 242 |
| | 233 |
| | 193 |
| | 39 |
|
Construction work in progress | | 244 |
| | 1,865 |
| | 128 |
| | 147 |
| | 325 |
| | 70 |
|
Nuclear fuel | | 221 |
| | 298 |
| | — |
| | — |
| | — |
| | 235 |
|
Property, plant, and equipment - net | |
| $7,211 |
| |
| $14,069 |
| |
| $3,267 |
| |
| $1,125 |
| |
| $3,415 |
| |
| $2,129 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
|
| | | | | | | | | | | | | | | | | | | | | | | | |
2016 | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy |
| | (In Millions) |
Production | | | | | | | | | | | | |
Nuclear | |
| $1,201 |
| |
| $3,540 |
| |
| $— |
| |
| $— |
| |
| $— |
| |
| $1,783 |
|
Other | | 801 |
| | 1,966 |
| | 537 |
| | 213 |
| | 483 |
| | — |
|
Transmission | | 1,491 |
| | 1,925 |
| | 740 |
| | 79 |
| | 943 |
| | 45 |
|
Distribution | | 2,144 |
| | 2,632 |
| | 1,242 |
| | 414 |
| | 1,216 |
| | — |
|
Other | | 216 |
| | 517 |
| | 201 |
| | 188 |
| | 106 |
| | 25 |
|
Construction work in progress | | 304 |
| | 670 |
| | 118 |
| | 25 |
| | 111 |
| | 44 |
|
Nuclear fuel | | 307 |
| | 250 |
| | — |
| | — |
| | — |
| | 260 |
|
Property, plant, and equipment - net | |
| $6,464 |
| |
| $11,500 |
| |
| $2,838 |
| |
| $919 |
| |
| $2,859 |
| |
| $2,157 |
|
Depreciation rates on average depreciable property for the Registrant Subsidiaries are shown below:
|
| | | | | | | | | | | |
| Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy |
2019 | 2.5% | | 2.4% | | 3.2% | | 3.2% | | 3.0% | | 2.1% |
2018 | 2.5% | | 2.3% | | 3.2% | | 3.5% | | 2.7% | | 1.9% |
2017 | 2.5% | | 2.3% | | 3.1% | | 3.5% | | 2.6% | | 2.8% |
|
| | | | | | | | | | | |
| Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy |
2017 | 2.5% | | 2.3% | | 3.1% | | 3.5% | | 2.6% | | 2.8% |
2016 | 2.5% | | 2.3% | | 3.1% | | 3.4% | | 2.5% | | 2.8% |
2015 | 2.6% | | 2.3% | | 3.2% | | 3.0% | | 2.6% | | 2.8% |
Non-utility property - at cost (less accumulated depreciation) for Entergy Louisiana is reported net of accumulated depreciation of $152.3 million and $154.4$168.5 million as of December 31, 20172019 and 2016, respectively.$161.2 million as of December 31, 2018. Non-utility property - at cost (less accumulated depreciation) for Entergy Mississippi is reported net of accumulated depreciation of $0.5 million as of December 31, 2019 and $0.5 million as of December 31, 20172018. Non-utility property
Entergy Corporation and 2016, respectively. Non-utility property Subsidiaries
Notes to Financial Statements
- at cost (less accumulated depreciation) for Entergy Texas is reported net of accumulated depreciation of $4.9 million as of December 31, 2019 and $4.9 million as of December 31, 2017 and 2016, respectively.2018.
As of December 31, 2017,2019, construction expenditures included in accounts payable are $58.8$67.9 million for Entergy Arkansas, $160.4$115.1 million for Entergy Louisiana, $17.1$34.2 million for Entergy Mississippi, $2.5$18.4 million for Entergy New Orleans, $32.8$88.1 million for Entergy Texas, and $33.9$23.2 million for System Energy. As of December 31, 2016,2018, construction expenditures included in accounts payable are $40.9$35.7 million for Entergy Arkansas, $114.8$104.6 million for Entergy Louisiana, $11.5$13.6 million for Entergy Mississippi, $2.3$5.8 million for Entergy New Orleans, $9.3$55.6 million for Entergy Texas, and $6.2$26.3 million for System Energy.
Jointly-Owned Generating Stations
Certain Entergy subsidiaries jointly own electric generating facilities with affiliates or third parties. All parties are required to provide their own financing. The investments, fuel expenses, and other operation and maintenance expenses associated with these generating stations are recorded by the Entergy subsidiaries to the extent of their respective undivided ownership interests. As of December 31, 2017,2019, the subsidiaries’ investment and accumulated depreciation in each of these generating stations were as follows:
Entergy Corporation and Subsidiaries
Notes to Financial Statements
| | Generating Stations | Generating Stations | | Fuel Type | | Total Megawatt Capability (a) | | Ownership | | Investment | | Accumulated Depreciation | Generating Stations | | Fuel Type | | Total Megawatt Capability (a) | | Ownership | | Investment | | Accumulated Depreciation |
| | | | | | | | | (In Millions) | | | | | | | | | (In Millions) |
Utility business: | | | | | | | | | | | | | | | | | | | | | | |
Entergy Arkansas - | | | | | | | | | | | | | | | | | | | | | | |
Independence | Unit 1 | | Coal | | 836 |
| | 31.50 | % | |
| $140 |
| |
| $103 |
| Unit 1 | | Coal | | 826 |
| | 31.50 | % | |
| $142 |
| |
| $104 |
|
Independence | Common Facilities | | Coal | | | | 15.75 | % | |
| $34 |
| |
| $27 |
| Common Facilities | | Coal | | | | 15.75 | % | |
| $35 |
| |
| $29 |
|
White Bluff | Units 1 and 2 | | Coal | | 1,636 |
| | 57.00 | % | |
| $531 |
| |
| $364 |
| Units 1 and 2 | | Coal | | 1,638 |
| | 57.00 | % | |
| $555 |
| |
| $380 |
|
Ouachita (b) | Common Facilities | | Gas | |
|
| | 66.67 | % | |
| $172 |
| |
| $150 |
| Common Facilities | | Gas | |
|
| | 66.67 | % | |
| $173 |
| |
| $153 |
|
Union (c) | Units 1 and 2 Common Facilities | | Gas | |
|
| | 50.00 | % | |
| $1 |
| |
| $— |
| Units 1 and 2 Common Facilities | | Gas | |
|
| | 50.00 | % | |
| $0.4 |
| |
| $0.1 |
|
Union (c) | Common Facilities | | Gas | | | | 25.00 | % | |
| $28 |
| |
| $3 |
| Common Facilities | | Gas | | | | 25.00 | % | |
| $29 |
| |
| $6 |
|
Entergy Louisiana - | | | | | | | |
| | | | | | | | | | | |
| | | | |
Roy S. Nelson | Unit 6 | | Coal | | 550 |
| | 40.25 | % | |
| $280 |
| |
| $194 |
| Unit 6 | | Coal | | 525 |
| | 40.25 | % | |
| $286 |
| |
| $207 |
|
Roy S. Nelson | Unit 6 Common Facilities | | Coal | | | | 25.79 | % | |
| $15 |
| |
| $6 |
| Unit 6 Common Facilities | | Coal | | | | 19.95 | % | |
| $20 |
| |
| $9 |
|
Big Cajun 2 | Unit 3 | | Coal | | 574 |
| | 24.15 | % | |
| $150 |
| |
| $117 |
| Unit 3 | | Coal | | 576 |
| | 24.15 | % | |
| $151 |
| |
| $124 |
|
Big Cajun 2 | Unit 3 Common Facilities | | Coal | | | | 8.05 | % | |
| $5 |
| |
| $2 |
| Unit 3 Common Facilities | | Coal | | | | 8.05 | % | |
| $5 |
| |
| $2 |
|
Ouachita (b) | Common Facilities | | Gas | |
|
| | 33.33 | % | |
| $90 |
| |
| $75 |
| Common Facilities | | Gas | |
|
| | 33.33 | % | |
| $90 |
| |
| $77 |
|
Acadia | Common Facilities | | Gas | |
|
| | 50.00 | % | |
| $20 |
| |
| $— |
| Common Facilities | | Gas | |
|
| | 50.00 | % | |
| $20 |
| |
| $1 |
|
Union (c) | Common Facilities | | Gas | | | | 50.00 | % | |
| $55 |
| |
| $3 |
| Common Facilities | | Gas | | | | 50.00 | % | |
| $57 |
| |
| $6 |
|
Entergy Mississippi - | | | | | | | |
| | | | | | | | | | | |
| | | | |
Independence | Units 1 and 2 and Common Facilities | | Coal | | 1,678 |
| | 25.00 | % | |
| $266 |
| |
| $156 |
| Units 1 and 2 and Common Facilities | | Coal | | 1,668 |
| | 25.00 | % | |
| $271 |
| |
| $163 |
|
Entergy New Orleans - | | | | | | | | | | | | | | | | |
Union (c) | Units 1 and 2 Common Facilities | | Gas | |
|
| | 50.00 | % | |
| $1 |
| |
| $— |
| Units 1 and 2 Common Facilities | | Gas | |
|
| | 50.00 | % | |
| $1 |
| |
| $0.1 |
|
Union (c) | Common Facilities | | Gas | | | | 25.00 | % | |
| $28 |
| |
| $3 |
| Common Facilities | | Gas | | | | 25.00 | % | |
| $29 |
| |
| $6 |
|
Entergy Texas - | | | | | | | |
| | | | | | | | | | | |
| | | | |
Roy S. Nelson | Unit 6 | | Coal | | 550 |
| | 29.75 | % | |
| $200 |
| |
| $114 |
| Unit 6 | | Coal | | 525 |
| | 29.75 | % | |
| $204 |
| |
| $120 |
|
Roy S. Nelson | Unit 6 Common Facilities | | Coal | | | | 14.16 | % | |
| $6 |
| |
| $3 |
| Unit 6 Common Facilities | | Coal | | | | 14.75 | % | |
| $7 |
| |
| $3 |
|
Big Cajun 2 | Unit 3 | | Coal | | 574 |
| | 17.85 | % | |
| $113 |
| |
| $76 |
| Unit 3 | | Coal | | 576 |
| | 17.85 | % | |
| $113 |
| |
| $80 |
|
Big Cajun 2 | Unit 3 Common Facilities | | Coal | | | | 5.95 | % | |
| $3 |
| |
| $1 |
| Unit 3 Common Facilities | | Coal | | | | 5.95 | % | |
| $4 |
| |
| $1 |
|
System Energy - | | | | | | | |
| | | | | | | | | | | |
| | | | |
Grand Gulf (d) | Unit 1 | | Nuclear | | 1,414 |
| | 90.00 | % | |
| $4,916 |
| |
| $3,175 |
| Unit 1 | | Nuclear | | 1,393 |
| | 90.00 | % | |
| $5,071 |
| |
| $3,285 |
|
Entergy Wholesale Commodities: | | | | | | | |
| | | | | | | | | | | |
| | | | |
Independence | Unit 2 | | Coal | | 842 |
| | 14.37 | % | |
| $73 |
| |
| $50 |
| Unit 2 | | Coal | | 842 |
| | 14.37 | % | |
| $74 |
| |
| $53 |
|
Independence | Common Facilities | | Coal | | | | 7.18 | % | |
| $17 |
| |
| $12 |
| Common Facilities | | Coal | | | | 7.18 | % | |
| $17 |
| |
| $13 |
|
Roy S. Nelson | Unit 6 | | Coal | | 550 |
| | 10.90 | % | |
| $113 |
| |
| $62 |
| Unit 6 | | Coal | | 525 |
| | 10.90 | % | |
| $115 |
| |
| $66 |
|
Roy S. Nelson | Unit 6 Common Facilities | | Coal | | | | 5.19 | % | |
| $2 |
| |
| $1 |
| Unit 6 Common Facilities | | Coal | | | | 5.40 | % | |
| $3 |
| |
| $1 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
| |
(a) | “Total Megawatt Capability” is the dependable load carrying capability as demonstrated under actual operating conditions based on the primary fuel (assuming no curtailments) that each station was designed to utilize. |
| |
(b) | Ouachita Units 1 and 2 are owned 100% by Entergy Arkansas and Ouachita Unit 3 is owned 100% by Entergy Louisiana. The investment and accumulated depreciation numbers above are only for the common facilities and not for the generating units. |
| |
(c) | Union Unit 1 is owned 100% by Entergy New Orleans, Union Unit 2 is owned 100% by Entergy Arkansas, Union Units 3 and 4 are owned 100% by Entergy Louisiana. The investment and accumulated depreciation numbers above are only for the specified common facilities and not for the generating units. |
| |
(d) | Includes a leasehold interest held by System Energy. System Energy’s Grand Gulf lease obligations are discussed in Note 10 to the financial statements. |
Nuclear Refueling Outage Costs
Nuclear refueling outage costs are deferred during the outage and amortized over the estimated period to the next outage because these refueling outage expenses are incurred to prepare the units to operate for the next operating cycle without having to be taken off line. Because the value of their long-lived assets are impaired, and their remaining estimated operating lives significantly reduced, the Entergy Wholesale Commodities nuclear plants, except for Palisades, charge nuclear refueling outage costs directly to expense when incurred because their undiscounted cash flows are insufficient to recover the carrying amount of these costs.
Allowance for Funds Used During Construction (AFUDC)
AFUDC represents the approximate net composite interest cost of borrowed funds and a reasonable return on the equity funds used for construction by the Registrant Subsidiaries. AFUDC increases both the plant balance and earnings and is realized in cash through depreciation provisions included in the rates charged to customers.
Income Taxes
Entergy Corporation and the majority of its subsidiaries file a United States consolidated federal income tax return. In September 2019, Entergy Utility Holding Company, LLC and its regulated wholly owned subsidiaries including Entergy Arkansas, LLC, Entergy Louisiana, LLC, Entergy Mississippi, LLC, and Entergy New Orleans, LLC are not members ofbecame eligible to and joined the Entergy Corporation consolidated federal income tax filing group but, rather, are included ingroup. These changes do not affect the Entergy Utility Holding Company, LLC consolidated federalaccrual or allocation of income tax filing group.taxes for the Registrant Subsidiaries. Each tax-paying entity records income taxes as if it were a separate taxpayer and consolidating adjustments are allocated to the tax filing entities in accordance with Entergy’s intercompany income tax allocation agreements. Deferred income taxes are recorded for temporary differences between the book and tax basis of assets and liabilities, and for certain losses and credits available for carryforward.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates in the period in which the tax or rate was enacted. See the “Other Tax Matters - Tax Cuts and Jobs Act” section in Note 3 to the financial statements for discussion of the effects of the enactment of the Tax Cuts and Jobs Act in December 2017.
The benefits of investment tax credits are deferred and amortized over the average useful life of the related property, as a reduction of income tax expense, for such credits associated with rate-regulated operations in accordance with ratemaking treatment.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Earnings (Loss) per Share
The following table presents Entergy’s basic and diluted earnings per share calculation included on the consolidated statements of operations:
| | | For the Years Ended December 31, | For the Years Ended December 31, |
| 2017 | | 2016 | | 2015 | 2019 | | 2018 | | 2017 |
| (In Millions, Except Per Share Data) | (In Millions, Except Per Share Data) |
| | | $/share | | | | $/share | | | | $/share | | | $/share | | | | $/share | | | | $/share |
Net income (loss) attributable to Entergy Corporation |
| $411.6 |
| | |
| |
| ($583.6 | ) | | |
| |
| ($176.6 | ) | | |
| |
Basic earnings (loss) per average common share | 179.7 |
| |
| $2.29 |
| | 178.9 |
| |
| ($3.26 | ) | | 179.2 |
| |
| ($0.99 | ) | |
Net income attributable to Entergy Corporation | |
| $1,241.2 |
| | |
| |
| $848.7 |
| | |
| |
| $411.6 |
| | |
|
Basic shares and earnings per average common share | | 195.2 |
| |
| $6.36 |
| | 181.4 |
| |
| $4.68 |
| | 179.7 |
| |
| $2.29 |
|
Average dilutive effect of: | |
| | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
| | |
|
Stock options | 0.2 |
| | — |
| | — |
| | — |
| | — |
| | — |
| 0.6 |
| | (0.02 | ) | | 0.3 |
| | (0.01 | ) | | 0.2 |
| | — |
|
Other equity plans | 0.6 |
| | (0.01 | ) | | — |
| | — |
| | — |
| | — |
| 0.8 |
| | (0.03 | ) | | 0.7 |
| | (0.02 | ) | | 0.6 |
| | (0.01 | ) |
Diluted earnings (loss) per average common shares | 180.5 |
| |
| $2.28 |
| | 178.9 |
| |
| ($3.26 | ) | | 179.2 |
| |
| ($0.99 | ) | |
Equity forwards | | 0.4 |
| | (0.01 | ) | | 1.0 |
| | (0.02 | ) | | — |
| | — |
|
Diluted shares and earnings per average common shares | | 197.0 |
| |
| $6.30 |
| | 183.4 |
| |
| $4.63 |
| | 180.5 |
| |
| $2.28 |
|
The calculation of diluted earnings (loss) per share excluded 173,290 options outstanding at December 31, 2019, 956,550 options outstanding at December 31, 2018, and 2,927,512 options outstanding at December 31, 2017 7,137,210 options outstanding at December 31, 2016, and 7,399,820 options outstanding at December 31, 2015 because they were antidilutive.
Stock-based Compensation Plans
Entergy grants stock options, restricted stock, performance units, and restricted stock unit awards to key employees of the Entergy subsidiaries under its Equity Ownership Plans, which are shareholder-approved stock-based compensation plans. These plans are described more fully in Note 12 to the financial statements. The cost of the stock-based compensation is charged to income over the vesting period. Awards under Entergy’s plans generally vest over three years.
Effective January 1, 2017, Entergy adopted ASU 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” The ASU permits the election of an accounting policy change to the method of recognizingaccounts for forfeitures of stock-based compensation. Previously, Entergy recorded an estimate of the number of forfeitures expected to occur each period. Entergy elected to change this policy to account for forfeiturescompensation when they occur. This accounting change was applied retrospectively, but did not result in an adjustment to retained earnings as of January 1, 2017. As a result of adoption of the ASU, Entergy now prospectively recognizes all income tax effects related to share-based payments through the income statement. In the first quarter 2017, stock option expirations, along with other stock compensation activity, resulted in the write-off of $11.5 million of deferred tax assets.
Accounting for the Effects of Regulation
Entergy’s Utility operating companies and System Energy are rate-regulated enterprises whose rates meet three criteria specified in accounting standards. The Utility operating companies and System Energy have rates that (i) are approved by a body (its regulator) empowered to set rates that bind customers; (ii) are cost-based; and (iii) can be charged to and collected from customers. These criteria may also be applied to separable portions of a utility’s business, such as the generation or transmission functions, or to specific classes of customers. Because the Utility operating companies and System Energy meet these criteria, each of them capitalizes costs whichthat would otherwise be charged to expense if the rate actions of its regulator make it probable that those costs will be recovered in future revenue. Such capitalized costs are reflected as regulatory assets in the accompanying financial statements. When an enterprise
Entergy Corporation and Subsidiaries
Notes to Financial Statements
concludes that recovery of a regulatory asset is no longer probable, the regulatory asset must be removed from the entity’s balance sheet.
An enterprise that ceases to meet the three criteria for all or part of its operations should report that event in its financial statements. In general, the enterprise no longer meeting the criteria should eliminate from its balance sheet all regulatory assets and liabilities related to the applicable operations. Additionally, if it is determined that a regulated enterprise is no longer recovering all of its costs, it is possible that an impairment may exist that could require further write-offs of plant assets.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Entergy Louisiana does not apply regulatory accounting standards to the Louisiana retail deregulated portion of River Bend, the 30% interest in River Bend formerly owned by Cajun, andor its steam business, unless specific cost recovery is provided for in tariff rates. The Louisiana retail deregulated portion of River Bend is operated under a deregulated asset plan representing a portion (approximately 15%) of River Bend plant costs, generation, revenues, and expenses established under a 1992 LPSC order. The plan allows Entergy Louisiana to sell the electricity from the deregulated assets to Louisiana retail customers at 4.6 cents per kWh or off-system at higher prices, with certain provisions for sharing incremental revenue above 4.6 cents per kWh between customers and shareholders.
Regulatory Asset or Liability for Income Taxes
Accounting standards for income taxes provide that a regulatory asset or liability be recorded if it is probable that the currently determinable future increase or decrease in regulatory income tax expense will be recovered from or returned to customers through future rates. There are two main sources of Entergy’s regulatory asset or liability for income taxes. There is a regulatory asset related to the ratemaking treatment of the tax effects of book depreciation for the equity component of AFUDC that has been capitalized to property, plant, and equipment but for which there is no corresponding tax basis. Equity-AFUDC is a component of property, plant, and equipment that is included in rate base when the plant is placed in service. There is a regulatory liability related to the adjustment of Entergy’s net deferred income taxes that was required by the enactment in December 2017 of a change in the federal corporate income tax rate, which is discussed in Note 2 and 3 to the financial statements.
Cash and Cash Equivalents
Entergy considers all unrestricted highly liquid debt instruments with an original maturity of three months or less at date of purchase to be cash equivalents.
Securitization Recovery Trust Accounts
The funds that Entergy Arkansas, Entergy Louisiana, Entergy New Orleans, and Entergy Texas hold in their securitization recovery trust accounts are not classified as cash and cash equivalents or restricted cash and cash equivalents because of their nature, uses, and restrictions. These funds are classified as part of other current assets and other investments, depending on the timeframe within which the Registrant Subsidiary expects to use the funds.
Allowance for Doubtful Accounts
The allowance for doubtful accounts reflects Entergy’s best estimate of losses on the accounts receivable balances. The allowance is based on accounts receivable agings, historical experience, and other currently available evidence. Utility operating company customer accounts receivable are written off consistent with approved regulatory requirements.
Investments
Entergy records decommissioning trust funds on the balance sheet at their fair value. Effective January 1, 2018, with the adoption of ASU 2016-01, unrealized gains and losses on investments in equity securities held by the nuclear decommissioning trust funds are recorded in earnings as they occur rather than in other comprehensive income. Because of the ability of the Registrant Subsidiaries to recover decommissioning costs in rates and in accordance with the regulatory treatment
Entergy Corporation and Subsidiaries
Notes to Financial Statements
for decommissioning trust funds, forthe Registrant Subsidiaries have recorded an offsetting amount of unrealized gains/(losses) on investment securities the Registrant Subsidiaries record an offsetting amount in other regulatory liabilities/assets. For the 30% interest in River Bend formerly owned by Cajun, Entergy Louisiana records an offsetting amount in other deferred credits for the excessunrealized trust earnings not currently expected to be needed to decommission the plant. Decommissioning trust funds for Pilgrim, Indian Point 1, Indian Point 2, Indian Point 3, Vermont Yankee, and Palisadesthe Entergy Wholesale Commodities nuclear plants do not meet the criteria for regulatory accounting treatment. Accordingly, unrealized gains/(losses) recorded on the equity securities in the trust funds are recognized in
Entergy Corporation and Subsidiaries
Notes to Financial Statements
earnings. Unrealized gains recorded on the assetsavailable-for-sale debt securities in thesethe trust funds are recognized in the accumulated other comprehensive income component of shareholders’ equity because these assets are classified as available for sale.equity. Unrealized losses (where cost exceeds fair market value) on the assetsavailable-for-sale debt securities in thesethe trust funds are also recorded in the accumulated other comprehensive income component of shareholders’ equity unless the unrealized loss is other than temporary and therefore recorded in earnings. A portion of Entergy’s decommissioning trust funds are held in a wholly-owned registered investment company, and unrealized gains and losses on both the equity and debt securities held in the registered investment company are recognized in earnings. The assessment of whether an investment in aan available-for-sale debt security has suffered an other-than-temporary impairment is based on whether Entergy has the intent to sell or more likely than not will be required to sell the debt security before recovery of its amortized costs. Further, if Entergy does not expect to recover the entire amortized cost basis of the debt security, an other-than-temporary impairment is considered to have occurred and it is measured by the present value of cash flows expected to be collected less the amortized cost basis (credit loss). The assessment of whether an investment in an equity security has suffered an other-than-temporary impairment is based on a number of factors including, first, whether Entergy has the ability and intent to hold the investment to recover its value, the duration and severity of any losses, and, then, whether it is expected that the investment will recover its value within a reasonable period of time. Effective January 1, 2018 with the adoption of ASU 2016-01, unrealized gains and losses on investments in equity securities held by the nuclear decommissioning trust funds will be recorded in earnings as they occur rather than in other comprehensive income. In accordance with the regulatory treatment of the decommissioning trust funds of the Registrant Subsidiaries, an offsetting amount of unrealized gains/losses will continue to be recorded in other regulatory liabilities/assets. Entergy’s trusts are managed by third parties who operate in accordance with agreements that define investment guidelines and place restrictions on the purchases and sales of investments. See Note 16 to the financial statements for details on the decommissioning trust funds.
Equity Method Investments
Entergy owns investments that are accounted for under the equity method of accounting because Entergy’s ownership level results in significant influence, but not control, over the investee and its operations. Entergy records its share of the investee’s comprehensive earnings and losses in income and as an increase or decrease to the investment account. Any cash distributions are charged against the investment account. Entergy discontinues the recognition of losses on equity investments when its share of losses equals or exceeds its carrying amount for an investee plus any advances made or commitments to provide additional financial support.
Derivative Financial Instruments and Commodity Derivatives
The accounting standards for derivative instruments and hedging activities require that all derivatives be recognized at fair value on the balance sheet, either as assets or liabilities, unless they meet various exceptions including the normal purchase/normal sale criteria. The changes in the fair value of recognized derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and the type of hedge transaction. Due to regulatory treatment, an offsetting regulatory asset or liability is recorded for changes in fair value of recognized derivatives for the Registrant Subsidiaries.
Contracts for commodities that will be physically delivered in quantities expected to be used or sold in the ordinary course of business, including certain purchases and sales of power and fuel, meet the normal purchase, normal sales criteria and are not recognized on the balance sheet. Revenues and expenses from these contracts are reported on a gross basis in the appropriate revenue and expense categories as the commodities are received or delivered.
For other contracts for commodities in which Entergy is hedging the variability of cash flows related to a variable-rate asset, liability, or forecasted transactions that qualify as cash flow hedges, the changes in the fair value of such derivative instruments are reported in other comprehensive income. To qualify for hedge accounting, the
Entergy Corporation and Subsidiaries
Notes to Financial Statements
relationship between the hedging instrument and the hedged item must be documented to include the risk management objective and strategy and, at inception and on an ongoing basis, the effectiveness of the hedge in offsetting the changes in the cash flows of the item being hedged. Gains or losses accumulated in other comprehensive income are reclassified to earnings in the periods when the underlying transactions actually occur. ThePrior to 2019, the ineffective portions of all hedges are recognized in current-period earnings. Effective January 1, 2019 with the adoption of ASU 2017-12 there will no longer be separate recognition of the ineffective portion of highly effective hedges. Changes in the fair value of derivative instruments that are not designated as cash flow hedges are recorded in current-period earnings on a mark-to-market basis.
Entergy has determined that contracts to purchase uranium do not meet the definition of a derivative under the accounting standards for derivative instruments because they do not provide for net settlement and the uranium markets
Entergy Corporation and Subsidiaries
Notes to Financial Statements
are not sufficiently liquid to conclude that forward contracts are readily convertible to cash. If the uranium markets do become sufficiently liquid in the future and Entergy begins to account for uranium purchase contracts as derivative instruments, the fair value of these contracts would be accounted for consistent with Entergy’s other derivative instruments. See Note 15 to the financial statements for further details on Entergy’s derivative instruments and hedging activities.
Fair Values
The estimated fair values of Entergy’s financial instruments and derivatives are determined using historical prices, bid prices, market quotes, and financial modeling. Considerable judgment is required in developing the estimates of fair value. Therefore, estimates are not necessarily indicative of the amounts that Entergy could realize in a current market exchange. Gains or losses realized on financial instruments held by regulated businesses may be reflected in future rates and therefore do not affect net income. Entergy considers the carrying amounts of most financial instruments classified as current assets and liabilities to be a reasonable estimate of their fair value because of the short maturity of these instruments. See Note 15 to the financial statements for further discussion of fair value.
Impairment of Long-lived Assets
Entergy periodically reviews long-lived assets held in all of its business segments whenever events or changes in circumstances indicate that recoverability of these assets is uncertain. Generally, the determination of recoverability is based on the undiscounted net cash flows expected to result from such operations and assets. Projected net cash flows depend on the expected operating life of the assets, the future operating costs associated with the assets, the efficiency and availability of the assets and generating units, and the future market and price for energy and capacity over the remaining life of the assets. Because the values of their long-lived assets are impaired, and their remaining estimated operating lives significantly reduced, the Entergy Wholesale Commodities nuclear plants, except for Palisades, are charging additional expenditures for capital assets directly to expense when incurred because their undiscounted cash flows are insufficient to recover the carrying amount of these capital additions. See Note 14 to the financial statements for further discussions of the impairments of the Entergy Wholesale Commodities nuclear plants.
River Bend AFUDC
The River Bend AFUDC gross-up is a regulatory asset that represents the incremental difference imputed by the LPSC between the AFUDC actually recorded by Entergy Louisiana on a net-of-tax basis during the construction of River Bend and what the AFUDC would have been on a pre-tax basis. The imputed amount was only calculated on that portion of River Bend that the LPSC allowed in rate base and is being amortized through August 2025.
Reacquired Debt
The premiums and costs associated with reacquired debt of Entergy’s Utility operating companies and System Energy (except that portion allocable to the deregulated operations of Entergy Louisiana) are included in regulatory assets and are being amortized over the life of the related new issuances, or over the life of the original debt issuance if the debt is not refinanced, in accordance with ratemaking treatment.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Taxes Imposed on Revenue-Producing Transactions
Governmental authorities assess taxes that are both imposed on and concurrent with a specific revenue-producing transaction between a seller and a customer, including, but not limited to, sales, use, value added, and some excise taxes. Entergy presents these taxes on a net basis, excluding them from revenues, unless required to report them differently by a regulatory authority.
Presentation of Preferred Stock without Sinking Fund
Accounting standards regarding non-controlling interests and the classification and measurement of redeemable securities require the classification of preferred securities between liabilities and shareholders’ equity on the balance sheet if the holders of those securities have protective rights that allow them to gain control of the board of directors in certain circumstances. These rights would have the effect of giving the holders the ability to potentially redeem their securities, even if the likelihood of occurrence of these circumstances is considered remote. The Entergy Arkansas, Entergy Mississippi, and, prior to December 1, 2017, Entergy New Orleans articles of incorporation provide, generally, that the holders of each company’s preferred securities may elect a majority of the respective company’s board of directors if dividends are not paid for a year, until such time as the dividends in arrears are paid. Therefore, Entergy Arkansas, Entergy Mississippi, and Entergy New Orleans present their preferred securities outstanding between liabilities and shareholders’ equity on the balance sheet. In November 2017, Entergy New Orleans redeemed its outstanding preferred securities as part of a multi-step process to undertake an internal restructuring. See Note 2 to the financial statements for a discussion of Entergy New Orleans’s internal restructuring.
The outstanding preferred securities of Entergy Arkansas, Entergy Mississippi, and Entergy New Orleans, and Entergy Utility Holding Company (a Utility subsidiary) and Entergy Finance Holding (an Entergy Wholesale Commodities subsidiary), whose preferred holders also have protective rights, are similarly presented between liabilities and equity on Entergy’s consolidated balance sheets. The preferred dividends or distributions paid by all subsidiaries are reflected for all periods presented outside of consolidated net income.
New Accounting Pronouncements
In May 2014 the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606).” The ASU’s core principle is that “an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.” The ASU details a five-step model that should be followed to achieve the core principle. With FASB issuance of ASU No. 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date,” ASU 2014-09 is effective for Entergy for the first quarter 2018. Entergy has selected the modified retrospective transition method. Entergy’s evaluation of ASU 2014-09 has not identified any effects that it expects will affect materially its results of operations, financial position, or cash flows, other than changes in required financial statement disclosures. The adoption of the ASU did not result in an adjustment to retained earnings as of January 1, 2018.
In January 2016 the FASB issued ASU No. 2016-01 “Financial Instruments (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” The ASU requires investments in equity securities, excluding those accounted for under the equity method or resulting in consolidation of the investee, to be measured at fair value with changes recognized in net income. The ASU requires a qualitative assessment to identify impairments of investments in equity securities that do not have a readily determinable fair value. ASU 2016-01 is effective for Entergy for the first quarter 2018. Entergy expects that ASU 2016-01 will affect its results of operations by requiring unrealized gains and losses on investments in equity securities held by the nuclear decommissioning trust funds to be recorded in earnings rather than in other comprehensive income. In accordance with the regulatory treatment of the decommissioning trust funds of Entergy Arkansas, Entergy Louisiana, and System Energy, an offsetting amount of unrealized gains/losses will continue to be recorded in other regulatory liabilities/assets. Entergy recorded an adjustment to retained earnings of $633 million as of January 1, 2018 for the cumulative effect of the unrealized gains and losses
Entergy Corporation and Subsidiaries
Notes to Financial Statements
on investments in equity securities held by the decommissioning trust funds that do not meet the criteria for regulatory accounting treatment.New Accounting Pronouncements
In February 2016 the FASB issued ASU No. 2016-02, “Leases (Topic 842).” The ASU’s core principle is that “a lessee should recognize the assets and liabilities that arise from leases.” The ASU considers that “all leases create an asset and a liability,” and accordingly requires recording the assets and liabilities related to all leases with a term greater than 12 months. In January 2018 the FASB issued ASU No. 2018-01, “Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842,” providing entities the option to elect not to evaluate existing land easements that are not currently accounted for under the previous lease standard. ASU 2016-02 is effective for Entergy for the first quarter 2019, and Entergy does not expect to early adopt the standard. Entergy expects that ASU 2016-02 will affect its financial position by increasing the assets and liabilities recorded relating to its operating leases. Entergy is evaluating ASU 2016-02 for other effects on its results of operations, financial position, cash flows, and financial statement disclosures, as well as the potential to elect various practical expedients permitted by the standards.
In June 2016 the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” The ASU requires entities to record a valuation allowance on financial instruments recorded at amortized cost or classified as available-for-sale debt securities for the total credit losses expected over the life of the instrument. Increases and decreases in the valuation allowance will be recognized immediately in earnings. Entergy adopted ASU 2016-13 is effective for Entergy forin the first quarter 2020. Entergy is evaluatingAdoption of ASU 2016-13 for the expected effects on itsdid not materially affect Entergy’s results of operations, financial position, andor cash flows.
In October 2016September 2018 the FASB issued ASU No. 2016-16, “Income Taxes (Topic 740)2018-15, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Intra-Entity Transfers of Assets Other Than Inventory.Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service.” The ASU requires entities to recognizecapitalize implementation costs associated with cloud computing arrangements classified as hosting arrangements and amortize those costs over the income tax consequencescontract term. These costs are required to be capitalized in the same line as prepayments of intra-entity asset transfers, other than inventory, at the timecosts, and subsequently amortized in the transfer occurs.same lines as the hosting service element of the arrangement. Entergy adopted ASU 2016-16 is effective for Entergy for2018-15 in the first quarter 2018 and2020. Entergy adopted ASU 2018-15 on a prospective basis, which will affect its statement of financial position by requiring recognition of deferred tax assets or liabilities arising from intra-entity asset transfers. Entergy recorded an adjustment to retained earnings of $56 millionpresenting implementation costs for hosting arrangements as of January 1, 2018 for the cumulative-effect of the recognition of the deferred tax assets arising from intra-entity asset transfers.
In March 2017 the FASB issued ASU No. 2017-07, “Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Costprepayments rather than utility plant, and Net Periodic Postretirement Benefit Cost.” The ASU requires entities to report the service cost component of defined benefit pension cost and postretirement benefit cost (net benefit cost) in the same line item as other compensation costs arising from services rendered during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations. In addition, the ASU allows only the service cost component of net benefit cost to be eligible for capitalization. ASU 2017-07 is effective for Entergy for the first quarter 2018. Entergy does not expect ASU 2017-07 towill affect materially its results of operations financial position, or cash flows.
In August 2017by amortizing those costs as operation and maintenance expense, rather than depreciation and amortization, over the FASB issued ASU No. 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.” The ASU makes a number of amendments to hedge accounting, most significantly changing the recognition and presentation of highly effective hedges. Upon adoptioncontract term of the standard there will no longer be separate recognition or presentation of the ineffective portion of highly effective hedges. In addition, the ASU allows entities to designate a contractually-specified component as the hedged risk, simplifies the process for assessing the effectiveness of hedges, and adds additional disclosure requirements for hedges. ASU 2017-12 is effective for Entergy for the first quarter 2019. Entergy does not expect to early adopt the standard. Entergy expects that ASU 2017-12 will affect its net income by eliminating volatility in earnings related to the ineffective portion of designated hedges on nuclear power sales. Entergy is evaluating ASU 2017-12 for other effects on its results of operations, financial position, or cash flows.arrangement.
In February 2018 the FASB issued ASU No. 2018-02, “Income Statement- Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” The ASU
Entergy Corporation and Subsidiaries
Notes to Financial Statements
allows reclassification from accumulated other comprehensive income to retained earnings for certain tax effects resulting from the Tax Cuts and Jobs Act that would otherwise be stranded in accumulated other comprehensive income . ASU 2018-02 is effective for Entergy for the first quarter 2019, but may be early adopted. Entergy plans to adopt the ASU in the first quarter 2018. Entergy expects that upon the adoption of ASU 2018-02 it will record to the statement of financial position a net reclassification reducing retained earnings and increasing accumulated other comprehensive income by approximately $15 million. Entergy does not expect that ASU 2018-02 will have any other material effect on its results of operations, financial position, or cash flows.
NOTE 2. RATE AND REGULATORY MATTERS (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)
Regulatory Assets and Regulatory Liabilities
Regulatory assets represent probable future revenues associated with costs that Entergy expects to recover from customers through the regulatory ratemaking process under which the Utility business operates. Regulatory liabilities represent probable future reductions in revenues associated with amounts that Entergy expects to benefit customers through the regulatory ratemaking process under which the Utility business operates. In addition to the regulatory assets and liabilities that are specifically disclosed on the face of the balance sheets, the tables below provide detail of “Other regulatory assets” and “Other regulatory liabilities” that are included on Entergy’s and the Registrant Subsidiaries’ balance sheets as of December 31, 20172019 and 2016:2018:
Other Regulatory Assets
Entergy
|
| | | | | | | |
| 2019 | | 2018 |
| (In Millions) |
Pension & postretirement costs (Note 11 – Qualified Pension Plans, Other Postretirement Benefits, and Non-Qualified Pension Plans) (a) |
| $2,942.4 |
| |
| $2,611.5 |
|
Asset retirement obligation - recovery dependent upon timing of decommissioning of nuclear units or dismantlement of non-nuclear power plants (Note 9) (a) | 920.4 |
| | 814.3 |
|
Removal costs - recovered through depreciation rates (Note 9) | 421.0 |
| | 375.8 |
|
Storm damage costs, including hurricane costs - recovered through securitization and retail rates (Note 2 – Storm Cost Recovery Filings with Retail Regulators) (Note 5) | 372.8 |
| | 452.7 |
|
Retired electric and gas meters - recovered through retail rates as determined by retail regulators (Note 2 - Advanced Metering Infrastructure (AMI) Filings) | 205.6 |
| | — |
|
Opportunity Sales - recovery will be determined after final order in proceeding (Note 2 - Entergy Arkansas Opportunity Sales Proceeding) (b) | 116.3 |
| | 116.3 |
|
Unamortized loss on reacquired debt - recovered over term of debt | 66.6 |
| | 74.5 |
|
Little Gypsy costs – recovered through securitization (Note 5 – Entergy Louisiana Securitization Bonds - Little Gypsy) | 29.9 |
| | 52.1 |
|
Attorney General litigation costs (Note 2 - Mississippi Attorney General Complaint) (b) | 29.5 |
| | 23.6 |
|
New nuclear generation development costs (Note 2 - New Nuclear Generation Development Costs) (b) | 21.6 |
| | 29.0 |
|
Retail rate deferrals - recovered through rate riders as rates are redetermined by retail regulators | 15.7 |
| | 39.0 |
|
Other | 150.3 |
| | 157.7 |
|
Entergy Total |
| $5,292.1 |
| |
| $4,746.5 |
|
|
| | | | | | | |
| 2017 | | 2016 |
| (In Millions) |
Pension & postretirement costs (Note 11 – Qualified Pension Plans, Other Postretirement Benefits, and Non-Qualified Pension Plans) (a) |
| $2,642.3 |
| |
| $2,635.5 |
|
Asset retirement obligation - recovery dependent upon timing of decommissioning of nuclear units or dismantlement of non-nuclear power plants (Note 9) (a) | 746.0 |
| | 677.2 |
|
Storm damage costs, including hurricane costs - recovered through securitization and retail rates (Note 2 – Storm Cost Recovery Filings with Retail Regulators) (Note 5) | 558.9 |
| | 637.0 |
|
Removal costs - recovered through depreciation rates (Note 9) (a) | 436.5 |
| | 353.9 |
|
Opportunity Sales - recovery will be determined after final order in proceeding (Note 2 - Entergy Arkansas Opportunity Sales Proceeding) | 109.8 |
| | — |
|
Retail rate deferrals - recovered through rate riders as rates are redetermined by retail regulators | 86.4 |
| | 22.1 |
|
Unamortized loss on reacquired debt - recovered over term of debt | 82.9 |
| | 91.4 |
|
Little Gypsy costs – recovered through securitization (Note 5 – Entergy Louisiana Securitization Bonds - Little Gypsy) | 73.7 |
| | 100.0 |
|
Transition to competition costs - recovered over a 15-year period through February 2021 | 37.7 |
| | 47.9 |
|
New nuclear generation development costs (Note 2 - New Nuclear Generation Development Costs) (b) | 36.4 |
| | 43.7 |
|
Other | 125.1 |
| | 161.2 |
|
Entergy Total |
| $4,935.7 |
| |
| $4,769.9 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Entergy Arkansas
|
| | | | | | | |
| 2019 | | 2018 |
| (In Millions) |
Pension & postretirement costs (Note 11 – Qualified Pension Plans, Other Postretirement Benefits, and Non-Qualified Pension Plans) (a) |
| $796.5 |
| |
| $747.2 |
|
Asset retirement obligation - recovery dependent upon timing of decommissioning of nuclear units or dismantlement of non-nuclear power plants (Note 9) (a) | 433.0 |
| | 381.7 |
|
Removal costs - recovered through depreciation rates (Note 9) | 168.9 |
| | 138.3 |
|
Opportunity sales - recovery will be determined after final order in proceeding (Note 2 - Entergy Arkansas Opportunity Sales Proceeding) (b) | 116.3 |
| | 116.3 |
|
Retired electric meters - recovered over 15-year period through March 2034 (Note 2 - Advanced Metering Infrastructure (AMI) Filings) | 50.4 |
| | — |
|
Storm damage costs - recovered either through securitization or retail rates (Note 5 - Entergy Arkansas Securitization Bonds) | 46.1 |
| | 60.7 |
|
Unamortized loss on reacquired debt - recovered over term of debt | 18.3 |
| | 21.2 |
|
ANO Fukushima and Flood Barrier costs - recovered through retail rates through February 2026 (Note 2 - Retail Rate Proceedings) (b) | 10.9 |
| | 12.6 |
|
Retail rate deferrals - recovered through rate riders as rates are redetermined annually (b) | 2.3 |
| | 20.5 |
|
Other | 24.2 |
| | 36.5 |
|
Entergy Arkansas Total |
| $1,666.9 |
| |
| $1,535.0 |
|
|
| | | | | | | |
| 2017 | | 2016 |
| (In Millions) |
Pension & postretirement costs (Note 11 – Qualified Pension Plans, Other Postretirement Benefits, and Non-Qualified Pension Plans) (a) |
| $757.0 |
| |
| $786.6 |
|
Asset retirement obligation - recovery dependent upon timing of decommissioning of nuclear units or dismantlement of non-nuclear power plants (Note 9) (a) | 345.2 |
| | 322.9 |
|
Removal costs - recovered through depreciation rates (Note 9) (a) | 176.9 |
| | 128.5 |
|
Opportunity sales - recovery will be determined after final order in proceeding (Note 2 - Entergy Arkansas Opportunity Sales Proceeding) | 109.8 |
| | — |
|
Storm damage costs - recovered either through securitization or retail rates (Note 5 - Entergy Arkansas Securitization Bonds) | 76.2 |
| | 88.9 |
|
Retail rate deferrals - recovered through rate riders as rates are redetermined annually | 28.2 |
| | 10.1 |
|
Unamortized loss on reacquired debt - recovered over term of debt | 24.3 |
| | 27.6 |
|
ANO Fukushima and Flood Barrier costs - recovered through retail rates through February 2026 (Note 2 - Retail Rate Proceedings) (b) | 14.4 |
| | 16.1 |
|
Lake Catherine 4 reliability and sustainability cost deferral - recovery through retail rates (b) | 8.9 |
| | 9.8 |
|
Incremental ice storm costs - recovered through 2032 | 7.4 |
| | 7.9 |
|
MISO costs - recovery through retail rates through 2018 (Note 2 - Retail Rate Proceedings) (b) | 5.5 |
| | 11.1 |
|
Human capital management costs - recovery through retail rates through August 2019 (Note 2 - Retail Rate Proceedings) (b) | 4.4 |
| | 7.0 |
|
Other | 9.2 |
| | 11.5 |
|
Entergy Arkansas Total |
| $1,567.4 |
| |
| $1,428.0 |
|
Entergy Louisiana
68 |
| | | | | | | |
| 2019 | | 2018 |
| (In Millions) |
Pension & postretirement costs (Note 11 – Qualified Pension Plans and Non-Qualified Pension Plans) (a) |
| $787.7 |
| |
| $711.8 |
|
Asset Retirement Obligation - recovery dependent upon timing of decommissioning of nuclear units or dismantlement of non-nuclear power plants (Note 9) (a) | 262.5 |
| | 232.9 |
|
Retired electric meters - recovered over a 22-year period through July 2041 (Note 2 - Advanced Metering Infrastructure (AMI) Filings) | 101.1 |
| | — |
|
Storm damage costs - recovered through retail rates (Note 2 - Storm Cost Recovery Filings with Retail Regulators) | 45.7 |
| | 17.9 |
|
Little Gypsy costs – recovered through securitization (Note 5 – Entergy Louisiana Securitization Bonds - Little Gypsy) | 27.6 |
| | 49.8 |
|
New nuclear generation development costs - recovery through formula rate plan December 2014 through November 2022 (Note 2 - New Nuclear Generation Development Costs) (b) | 21.2 |
| | 28.5 |
|
Unamortized loss on reacquired debt - recovered over term of debt | 20.4 |
| | 22.5 |
|
Business combination external costs deferral - recovery through formula rate plan December 2015 through November 2025 (b) | 10.8 |
| | 12.4 |
|
River Bend AFUDC - recovered through August 2025 (Note 1 – River Bend AFUDC) | 9.1 |
| | 11.0 |
|
Other | 29.1 |
| | 18.3 |
|
Entergy Louisiana Total |
| $1,315.2 |
| |
| $1,105.1 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Entergy Louisiana
|
| | | | | | | |
| 2017 | | 2016 |
| (In Millions) |
Pension & postretirement costs (Note 11 – Qualified Pension Plans and Non-Qualified Pension Plans) (a) |
| $724.6 |
| |
| $715.7 |
|
Asset Retirement Obligation - recovery dependent upon timing of decommissioning of nuclear units or dismantlement of non-nuclear power plants (Note 9) (a) | 218.6 |
| | 199.4 |
|
Little Gypsy costs – recovered through securitization (Note 5 – Entergy Louisiana Securitization Bonds - Little Gypsy) | 71.4 |
| | 97.8 |
|
New nuclear generation development costs - recovery through formula rate plan beginning December 2014 through November 2022 (Note 2 - New Nuclear Generation Development Costs) (b) | 35.8 |
| | 43.1 |
|
Unamortized loss on reacquired debt - recovered over term of debt | 24.7 |
| | 27.0 |
|
Storm damage costs - recovered through retail rates (Note 2 - Storm Cost Recovery Filings with Retail Regulators) | 14.3 |
| | — |
|
Business combination external costs deferral - recovery through formula rate plan beginning December 2015 through November 2025 (b) | 14.1 |
| | 15.2 |
|
River Bend AFUDC - recovered through August 2025 (Note 1 – River Bend AFUDC) | 12.9 |
| | 14.8 |
|
Other | 29.4 |
| | 55.1 |
|
Entergy Louisiana Total |
| $1,145.8 |
| |
| $1,168.1 |
|
Entergy Mississippi
|
| | | | | | | |
| 2019 | | 2018 |
| (In Millions) |
Pension & postretirement costs (Note 11 – Qualified Pension Plans, Other Postretirement Benefits, and Non-Qualified Pension Plans) (a) |
| $234.4 |
| |
| $215.9 |
|
Removal costs - recovered through depreciation rates (Note 9) | 80.8 |
| | 63.5 |
|
Attorney General litigation costs (Note 2 - Mississippi Attorney General Complaint) (b) | 29.5 |
| | 23.6 |
|
Unamortized loss on reacquired debt - recovered over term of debt | 14.9 |
| | 16.2 |
|
Asset retirement obligation - recovery dependent upon timing of dismantlement of non-nuclear power plants (Note 9) (a) | 7.8 |
| | 7.2 |
|
Retail rate deferrals - recovered through rate riders as rates are redetermined annually | 7.6 |
| | 16.6 |
|
Other | 3.0 |
| | — |
|
Entergy Mississippi Total |
| $378.0 |
| |
| $343.0 |
|
|
| | | | | | | |
| 2017 | | 2016 |
| (In Millions) |
Pension & postretirement costs (Note 11 – Qualified Pension Plans, Other Postretirement Benefits, and Non-Qualified Pension Plans) (a) |
| $218.7 |
| |
| $217.2 |
|
Removal costs - recovered through depreciation rates (Note 9) (a) | 91.6 |
| | 82.0 |
|
Retail rate deferrals - recovered through rate riders as rates are redetermined annually | 49.4 |
| | 9.3 |
|
Unamortized loss on reacquired debt - recovered over term of debt | 17.6 |
| | 18.9 |
|
Asset retirement obligation - recovery dependent upon timing of dismantlement of non-nuclear power plants (Note 9) (a) | 7.6 |
| | 7.2 |
|
Other | 13.0 |
| | 7.6 |
|
Entergy Mississippi Total |
| $397.9 |
| |
| $342.2 |
|
Entergy New Orleans
69 |
| | | | | | | |
| 2019 | | 2018 |
| (In Millions) |
Pension & postretirement costs (Note 11 – Qualified Pension Plans, Other Postretirement Benefits, and Non-Qualified Pension Plans) (a) |
| $85.9 |
| |
| $96.2 |
|
Storm damage costs, including hurricane costs - recovered through retail rates and securitization (Note 2 - Storm Cost Recovery Filings with Retail Regulators) | 59.6 |
| | 70.4 |
|
Removal costs - recovered through depreciation rates (Note 9) | 52.9 |
| | 49.3 |
|
Retired meters - recovered over a 12-year period through July 2031 (Note 2 - Advanced Metering Infrastructure (AMI) Filings) (b) | 24.6 |
| | — |
|
Retired plant costs - recovered over a 20-year period through July 2039 (Note 2 - Retail Rate Proceedings) | 10.0 |
| | — |
|
Rate case costs - recovered over a 3-year period through July 2022 (Note 2 - Retail Rate Proceedings) | 7.0 |
| | — |
|
Asset retirement obligation - recovery dependent upon timing of dismantlement of non-nuclear power plants (Note 9) (a) | 4.9 |
| | 4.5 |
|
Algiers customer migration costs - recovered over a 5-year period through July 2024 (Note 2 - Retail Rate Proceedings) | 4.9 |
| | — |
|
Unamortized loss on reacquired debt - recovered over term of debt | 2.3 |
| | 2.6 |
|
Other | 7.3 |
| | 6.8 |
|
Entergy New Orleans Total |
| $259.4 |
| |
| $229.8 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Entergy New Orleans
|
| | | | | | | |
| 2017 | | 2016 |
| (In Millions) |
Pension & postretirement costs (Note 11 – Qualified Pension Plans, Other Postretirement Benefits, and Non-Qualified Pension Plans) (a) |
| $102.8 |
| |
| $108.8 |
|
Storm damage costs, including hurricane costs - recovered through retail rates and securitization (Note 2 - Storm Cost Recovery Filings with Retail Regulators) | 82.3 |
| | 93.6 |
|
Removal costs - recovered through depreciation rates (Note 9) (a) | 44.8 |
| | 40.1 |
|
Retail rate deferrals - recovered through rate riders as rates are redetermined monthly or annually | 4.4 |
| | 4.3 |
|
Asset retirement obligation - recovery dependent upon timing of dismantlement of non-nuclear power plants (Note 9) (a) | 4.3 |
| | 4.2 |
|
Unamortized loss on reacquired debt - recovered over term of debt | 3.0 |
| | 3.4 |
|
Rate case costs - recovered over a 6-year period through September 2021 (Note 2 - Retail Rate Proceedings) | 2.6 |
| | 3.0 |
|
Michoud plant maintenance – recovered over a 7-year period through September 2018 | 1.4 |
| | 3.3 |
|
Other | 5.8 |
| | 7.4 |
|
Entergy New Orleans Total |
| $251.4 |
| |
| $268.1 |
|
Entergy Texas
|
| | | | | | | |
| 2019 | | 2018 |
| (In Millions) |
Storm damage costs, including hurricane costs - recovered through securitization and retail rates (Note 5 - Entergy Texas Securitization Bonds) |
| $221.4 |
| |
| $303.6 |
|
Pension & postretirement costs (Note 11 – Qualified Pension Plans, Other Postretirement Benefits, and Non-Qualified Pension Plans) (a) | 167.7 |
| | 171.8 |
|
Removal costs - recovered through depreciation rates (Note 9) | 42.5 |
| | 50.9 |
|
Retired electric meters - recovered over 13-year period through February 2032 (Note 2 - Advanced Metering Infrastructure (AMI) Filings) | 28.4 |
| | — |
|
Neches and Sabine costs - recovered over a 10-year period through September 2028 (Note 2 - Retail Rate Proceedings) | 21.2 |
| | 23.6 |
|
Transition to competition costs - recovered over a 15-year period through February 2021 | 14.9 |
| | 26.7 |
|
Unamortized loss on reacquired debt - recovered over term of debt | 7.7 |
| | 8.2 |
|
Other | 8.8 |
| | 13.2 |
|
Entergy Texas Total |
| $512.6 |
| |
| $598.0 |
|
|
| | | | | | | |
| 2017 | | 2016 |
| (In Millions) |
Storm damage costs, including hurricane costs - recovered through securitization and retail rates (Note 5 - Entergy Texas Securitization Bonds) |
| $386.1 |
| |
| $442.4 |
|
Pension & postretirement costs (Note 11 – Qualified Pension Plans, Other Postretirement Benefits, and Non-Qualified Pension Plans) (a) | 169.2 |
| | 201.7 |
|
Transition to competition costs - recovered over a 15-year period through February 2021 | 37.7 |
| | 47.9 |
|
Removal costs - recovered through depreciation rates (Note 9) (a) | 55.2 |
| | 33.5 |
|
Unamortized loss on reacquired debt - recovered over term of debt | 8.7 |
| | 9.0 |
|
Other | 4.5 |
| | 5.7 |
|
Entergy Texas Total |
| $661.4 |
| |
| $740.2 |
|
System Energy
|
| | | | | | | |
| 2019 | | 2018 |
| (In Millions) |
Asset retirement obligation - recovery dependent upon timing of decommissioning (Note 9) (a) |
| $210.9 |
| |
| $186.9 |
|
Pension & postretirement costs (Note 11 – Qualified Pension Plans and Other Postretirement Benefits) (a) | 200.3 |
| | 179.3 |
|
Removal costs - recovered through depreciation rates (Note 9) | 75.9 |
| | 76.4 |
|
Unamortized loss on reacquired debt - recovered over term of debt | 3.0 |
| | 3.8 |
|
System Energy Total |
| $490.1 |
| |
| $446.4 |
|
|
| | | | | | | |
| 2017 | | 2016 |
| (In Millions) |
Pension & postretirement costs (Note 11 – Qualified Pension Plans and Other Postretirement Benefits) (a) |
| $202.7 |
| |
| $193.5 |
|
Asset retirement obligation - recovery dependent upon timing of decommissioning (Note 9) (a) | 169.1 |
| | 142.5 |
|
Removal costs - recovered through depreciation rates (Note 9) (a) | 67.9 |
| | 69.7 |
|
Unamortized loss on reacquired debt - recovered over term of debt | 4.6 |
| | 5.5 |
|
System Energy Total |
| $444.3 |
| |
| $411.2 |
|
| |
(a) | Does not earn a return on investment, but is offset by related liabilities. |
| |
(b) | Does not earn a return on investment. |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Other Regulatory Liabilities
Entergy
| | | 2017 | | 2016 | 2019 | | 2018 |
| (In Millions) | (In Millions) |
Unrealized gains on nuclear decommissioning trust funds (Note 16) (a) |
| $989.3 |
| |
| $735.5 |
|
| $1,300.1 |
| |
| $815.9 |
|
Vidalia purchased power agreement (Note 8) (b) | 151.6 |
| | 202.4 |
| 127.3 |
| | 139.7 |
|
Louisiana Act 55 financing savings obligation (Note 2 - Storm Cost Recovery Filings with Retail Regulators) (b) | 124.8 |
| | 165.5 |
| 97.1 |
| | 111.1 |
|
Grand Gulf sale-leaseback - (Note 10 - Sale and Leaseback Transactions) | 67.9 |
| | 67.9 |
| |
Business combination guaranteed customer benefits - returned to customers through retail rates and fuel rates beginning December 2015 through November 2024 (Note 2 - Entergy Louisiana and Entergy Gulf States Louisiana Business Combination) | 65.8 |
| | 83.5 |
| |
Retail rate rider over-recovery - refunded through rate riders as rates are redetermined annually | | 62.3 |
| | 84.6 |
|
Grand Gulf sale-leaseback - (Note 5 - Grand Gulf Sale-Leaseback Transactions) | | 55.6 |
| | 55.6 |
|
Future formula rate plan revenue reductions (Note 2 - Retail Rate Proceedings) | | 51.1 |
| | 44.4 |
|
Entergy Arkansas’s accumulated accelerated Grand Gulf amortization - will be returned to customers when approved by the APSC and the FERC | 44.4 |
| | 44.4 |
| 44.4 |
| | 44.4 |
|
Asset retirement obligation - return to customers dependent upon timing of decommissioning (Note 9) (a) | 36.7 |
| | 32.7 |
| 37.2 |
| | 39.1 |
|
Removal costs - returned to customers through depreciation rates (Note 9) (a) | 32.4 |
| | 53.9 |
| |
Business combination guaranteed customer benefits - returned to customers through retail rates and fuel rates December 2015 through November 2024 | | 35.7 |
| | 50.8 |
|
Internal restructuring guaranteed customer credits (Note 2 - Retail Rate Proceedings) | | 33.0 |
| | 39.6 |
|
Advanced metering system (AMS) surcharge - return to customers dependent upon AMS spend (Note 2 - Advanced Metering Infrastructure (AMI) Filings) | | 25.3 |
| | 16.5 |
|
Excess decommissioning recovery for Willow Glen - (Note 14 - Dispositions) | | 21.2 |
| | 31.9 |
|
Entergy Mississippi’s accumulated accelerated Grand Gulf amortization - amortized and credited through the Unit Power Sales Agreement | 32.1 |
| | 39.3 |
| 17.8 |
| | 25.0 |
|
Waterford 3 replacement steam generator provision (Note 2 - Retail Rate Proceedings) | — |
| | 68.0 |
| |
Income tax rate change - returned to electric and gas customers through retail rates (Note 2 - Retail Rate Proceedings) | | 13.9 |
| | 74.7 |
|
Removal costs - returned to customers through depreciation rates (Note 9) | | 2.4 |
| | 18.8 |
|
Other | 43.5 |
| | 79.8 |
| 36.6 |
| | 28.2 |
|
Entergy Total |
| $1,588.5 |
| |
| $1,572.9 |
|
| $1,961.0 |
| |
| $1,620.3 |
|
Entergy Arkansas
|
| | | | | | | |
| 2019 | | 2018 |
| (In Millions) |
Unrealized gains on nuclear decommissioning trust funds (Note 16) (a) |
| $460.3 |
| |
| $297.2 |
|
Future formula rate plan revenue reductions (Note 2 - Retail Rate Proceedings) | 46.6 |
| | 35.1 |
|
Internal restructuring guaranteed customer credits (Note 2 - Retail Rate Proceedings) | 33.0 |
| | 39.6 |
|
Retail rate rider over-recovery - refunded through rate riders as rates are redetermined annually | 19.7 |
| | 30.8 |
|
Entergy Arkansas Total |
| $559.6 |
| |
| $402.7 |
|
|
| | | | | | | |
| 2017 | | 2016 |
| (In Millions) |
Unrealized gains on nuclear decommissioning trust funds (Note 16) (a) |
| $354.0 |
| |
| $280.8 |
|
Other | 9.6 |
| | 25.1 |
|
Entergy Arkansas Total |
| $363.6 |
| |
| $305.9 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Entergy Louisiana
|
| | | | | | | |
| 2019 | | 2018 |
| (In Millions) |
Unrealized gains on nuclear decommissioning trust funds (Note 16) (a) |
| $436.5 |
| |
| $274.1 |
|
Vidalia purchased power agreement (Note 8) (b) | 127.3 |
| | 139.7 |
|
Louisiana Act 55 financing savings obligation (Note 2 - Storm Cost Recovery Filings with Retail Regulators) (b) | 97.1 |
| | 111.1 |
|
Asset Retirement Obligation - return to customers dependent upon timing of decommissioning (Note 9) (a) | 37.1 |
| | 39.1 |
|
Business combination guaranteed customer benefits - returned to customers through retail rates and fuel rates December 2015 through November 2024 | 35.7 |
| | 50.8 |
|
Excess decommissioning recovery for Willow Glen - returned over one-year period through retail rates (Note 14 - Dispositions) | 21.2 |
| | 31.9 |
|
Removal costs - returned to customers through depreciation rates (Note 9) | 2.4 |
| | 18.8 |
|
Income tax rate change - returned to electric customers through retail rates September 2018 through August 2019 (Note 2 - Retail Rate Proceedings) | — |
| | 49.9 |
|
Other | 36.8 |
| | 33.4 |
|
Entergy Louisiana Total |
| $794.1 |
| |
| $748.8 |
|
|
| | | | | | | |
| 2017 | | 2016 |
| (In Millions) |
Unrealized gains on nuclear decommissioning trust funds (Note 16) (a) |
| $323.7 |
| |
| $235.4 |
|
Vidalia purchased power agreement (Note 8) (b) | 151.6 |
| | 202.4 |
|
Louisiana Act 55 financing savings obligation (Note 2 - Storm Cost Recovery Filings with Retail Regulators) (b) | 124.8 |
| | 165.5 |
|
Business combination guaranteed customer benefits - returned to customers through retail rates and fuel rates beginning December 2015 through November 2024 (Note 2 - Entergy Louisiana and Entergy Gulf States Louisiana Business Combination) | 65.8 |
| | 83.5 |
|
Gas hedging costs - refunded through fuel rates (Note 15 - Derivatives) | — |
| | 10.9 |
|
Asset Retirement Obligation - return to customers dependent upon timing of decommissioning (Note 9) (a) | 36.7 |
| | 32.7 |
|
Removal costs - returned to customers through depreciation rates (Note 9) (a) | 32.4 |
| | 53.9 |
|
Waterford 3 replacement steam generator provision (Note 2 - Retail Rate Proceedings) | — |
| | 68.0 |
|
Other | 26.1 |
| | 28.7 |
|
Entergy Louisiana Total |
| $761.1 |
| |
| $881.0 |
|
Entergy Mississippi
|
| | | | | | | |
| 2019 | | 2018 |
| (In Millions) |
Retail rate deferrals - returned to customers through rate riders as rates are redetermined annually |
| $14.6 |
| |
| $1.3 |
|
Future formula rate plan revenue reductions (Note 2 - Retail Rate Proceedings) | 4.5 |
| | 9.3 |
|
Grand Gulf Over-Recovery - returned to customers through rate riders as rates are redetermined annually | 2.4 |
| | 22.6 |
|
Other | — |
| | 0.4 |
|
Entergy Mississippi Total |
| $21.5 |
| |
| $33.6 |
|
Entergy Texas
| | | 2017 | | 2016 | 2019 | | 2018 |
| (In Millions) | (In Millions) |
Advanced metering system (AMS) surcharge - returned to customers dependent upon AMS spend (Note 2 - Advanced Metering Infrastructure (AMI) Filings) | |
| $25.3 |
| |
| $16.5 |
|
Income tax rate change - refunded through a rate rider (Note 2 - Retail Rate Proceedings) | | 10.4 |
| | 23.1 |
|
Transition to competition costs - returned to customers through rate riders when rates are redetermined periodically |
| $4.8 |
| |
| $6.2 |
| 3.8 |
| | 4.2 |
|
Other | 2.1 |
| | 2.3 |
| 2.6 |
| | 4.1 |
|
Entergy Texas Total |
| $6.9 |
| |
| $8.5 |
|
| $42.1 |
| |
| $47.9 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
System Energy
|
| | | | | | | |
| 2019 | | 2018 |
| (In Millions) |
Unrealized gains on nuclear decommissioning trust funds (Note 16) (a) |
| $403.3 |
| |
| $244.6 |
|
Grand Gulf sale-leaseback - (Note 5 - Grand Gulf Sale-Leaseback Transactions) | 55.6 |
| | 55.6 |
|
Entergy Arkansas’s accumulated accelerated Grand Gulf amortization - will be returned to customers when approved by the APSC and the FERC | 44.4 |
| | 44.4 |
|
Entergy Mississippi’s accumulated accelerated Grand Gulf amortization - amortized and credited through the Unit Power Sales Agreement | 17.8 |
| | 25.0 |
|
Other | 12.3 |
| | 12.3 |
|
System Energy Total |
| $533.4 |
| |
| $381.9 |
|
|
| | | | | | | |
| 2017 | | 2016 |
| (In Millions) |
Unrealized gains on nuclear decommissioning trust funds (Note 17) (a) |
| $311.6 |
| |
| $219.3 |
|
Grand Gulf sale-leaseback - (Note 10 - Sale and Leaseback Transactions) | 67.9 |
| | 67.9 |
|
Entergy Arkansas’s accumulated accelerated Grand Gulf amortization - will be returned to customers when approved by the APSC and the FERC | 44.4 |
| | 44.4 |
|
Entergy Mississippi’s accumulated accelerated Grand Gulf amortization - amortized and credited through the Unit Power Sales Agreement | 32.1 |
| | 39.3 |
|
System Energy Total |
| $456.0 |
| |
| $370.9 |
|
| |
(a) | Offset by related asset. |
| |
(b) | As a result of the enactment of the Tax Cuts and Jobs Act, in December 2017, and the lowering of the federal corporate income tax rate from 35% to 21% effective January 2018, the Vidalia purchased power agreement regulatory liability was reduced by $30.5 million and the Louisiana Act 55 financing savings obligation regulatory liabilities were reduced by $25.0 million, with corresponding increases to Other regulatory credits on the income statement. The effects of the Tax Cuts and Jobs Act are discussed further in Note 3 to the financial statements. |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Regulatory activity regarding the Tax Cuts and Jobs Act
See the “Other Tax Matters - Tax Cuts and Jobs Act” section in Note 3 to the financial statements for discussion of the effects of the December 2017 enactment of the Tax Cuts and Jobs Act, in December 2017, including its effects on Entergy’s and the Registrant Subsidiaries’ regulatory asset/liability for income taxes.
After enactment of the Tax Cuts and Jobs Act the APSC issued an order that applies to investor-owned utilities in Arkansas, including Entergy Arkansas. The order requests information regarding certain effects of the Tax Cuts and Jobs Act and requires the utilities to begin, effective January 1, 2018, to record regulatory liabilities to record the effects of the Act, subject to review by the APSC, although the order acknowledges that the exact amount of tax savings and rate reductions cannot be determined at this time. Entergy Arkansas requested clarification or, in the alternative, rehearing regarding the requirement to record a regulatory liability, and also responded to the request for information. In
Consistent with its request for clarification Entergy Arkansas sought clarification that the amount of any regulatory liability would be determined only after the utilities are heard and present evidence on the issue, as this otherwise would be arbitrary and could implicate single-issue and retroactive ratemaking. The APSC has not responded to the request for clarification. In its response to the APSC’s request for information Entergy Arkansas states that its formula rate plan rider already provides the means for customers to realize the benefits of the Act, except for the return of unprotected excess accumulated deferred income taxes. Entergy Arkansas’s next formula rate plan filing is scheduled for July 2018. Entergy Arkansas intendspreviously stated intent to return unprotected excess accumulated deferred income taxes to customers as expeditiously as possible, subjectEntergy Arkansas initiated a tariff proceeding in February 2018 proposing to establish a tax adjustment rider to provide retail customers with certain tax benefits of $467 million associated with the Tax Act. For the residential customer class, unprotected excess accumulated deferred income taxes were returned to customers over a 21-month period from April 2018 through December 2019. For all other customer classes, unprotected excess accumulated deferred income taxes were returned to customers over a nine-month period from April 2018 through December 2018. A true-up provision also was included in the rider, with any over- or under-returned unprotected excess accumulated deferred income taxes credited or billed to customers during the billing month of January 2020, with any residual amounts of over- or under-returned unprotected excess accumulated deferred income taxes to be flowed through Entergy Arkansas’s energy cost recovery rider. In March 2018 the APSC approved the tax adjustment rider effective with the first billing cycle of April 2018.
As discussed below, in July 2018, Entergy Arkansas made its formula rate plan filing to set its formula rate for the 2019 calendar year. A hearing was held in May 2018 regarding the APSC’s inquiries into the effects of the Tax Act, including Entergy Arkansas’s proposal to utilize its formula rate plan rider for its customers to realize the remaining benefits of the Tax Act. Entergy Arkansas’s formula rate plan rider included a netting adjustment that compared actual annual results to the allowed rate of return on common equity. In July 2018 the APSC issued an order agreeing with Entergy Arkansas’s proposal to have the effects of the Tax Act on current income tax expense flow through Entergy Arkansas’s formula rate plan rider and with Entergy Arkansas’s treatment of protected and unprotected excess accumulated deferred income taxes. The APSC also directed Entergy Arkansas to submit in the tax adjustment rider proceeding, discussed above, the adjustments to all other riders affected by the Tax Act and to include an amendment
Entergy Corporation and Subsidiaries
Notes to Financial Statements
for a true up mechanism where a rider affected by the Tax Act does not already contain a true-up mechanism. Pursuant to a subsequent request2018 settlement agreement in Entergy Arkansas’s formula rate plan proceeding, Entergy Arkansas also removed the net operating loss accumulated deferred income tax asset caused by the Tax Act from Entergy Arkansas’s tax adjustment rider. Entergy Arkansas’s compliance tariff filings were accepted by the APSC in October 2018.
Entergy Louisiana
In an electric formula rate plan settlement approved by the LPSC in April 2018 the parties agreed that Entergy Louisiana would return to be madecustomers one-half of its eligible unprotected excess deferred income taxes from May 2018 through December 2018 and return to customers the other half from January 2019 through August 2022. In addition, the settlement provided that in order to flow back to customers certain other tax benefits created by the Tax Act, Entergy Louisiana established a regulatory liability effective January 1, 2018 in the amount of $9.1 million per month to reflect these tax benefits already included in retail rates until new base rates under the formula rate plan were established in September 2018, and this regulatory liability was returned to customers over the September 2018 through August 2019 formula rate plan rate-effective period. The LPSC staff and intervenors in the settlement reserved the right to obtain data from Entergy Louisiana to confirm the determination of excess accumulated deferred income taxes resulting from the Tax Act and the analysis thereof as part of the formula rate plan review proceeding for the 2017 test year filing which, as discussed below, Entergy Louisiana filed in June 2018.
Entergy Mississippi
Entergy Mississippi filed its 2018 formula rate plan in March 2018 and included a proposal to return all of its unprotected excess accumulated deferred income taxes to customers through rates or in exchange for other assets, or a combination of both, by the end of 2018. In June 2018 the MPSC approved a stipulation filed by Entergy ArkansasMississippi and approval by the APSC.Mississippi Public Utilities Staff in Entergy Mississippi’s formula rate plan filing that addressed Entergy Mississippi’s 2018 formula rate plan evaluation report and the ratemaking effects of the Tax Act. The stipulation provided for incorporating the reduction of the statutory federal income tax rate through Entergy Mississippi’s formula rate plan. The stipulation approved in June 2018 provided for the flow-back of protected excess accumulated deferred income taxes over the remaining lives of the assets through the formula rate plan. The stipulation also provided for the offset of unprotected excess accumulated deferred income taxes of $127.2 million against net utility plant and $2.2 million against other regulatory assets, and the return to customers of the remaining balance of unprotected excess accumulated deferred income taxes as recovery of a portion of fuel oil inventory and customer bill credits over a three-month period from July 2018 through September 2018, with an insignificant true-up reflected in the November 2018 power management rider filing. Entergy Mississippi recorded the reduction against net utility plant and other regulatory assets in June 2018. In third quarter 2018, Entergy Mississippi returned unprotected excess accumulated deferred income taxes of $25.8 million through customer bill credits and $5.8 million through the sale of fuel oil inventory.
Entergy New Orleans
After enactment of the Tax Cuts and Jobs Act the LPSC passed an agenda item requiring utilities, including Entergy Louisiana, to file reports regarding certain effects of the Act. Entergy Louisiana responded to the directive and stated in its response that it is working with the LPSC staff and other interested parties to extend its formula rate plan such that its next base rate change will occur effective September 2018, or it would file a base rate case. Entergy Louisiana went on to state that if the formula rate plan is extended Entergy Louisiana’s next adjustment of rates will reflect the new 21% federal corporate income tax rate. Entergy Louisiana stated that it is working with the LPSC staff and interested parties to determine when the tax rate reduction will be reflected in rates, along with when and how the excess accumulated deferred income taxes will be reflected in rates, and how certain tax sharing agreement customer credits will be adjusted. On February 21, 2018, the LPSC issued a special order requiring that all LPSC-jurisdictional utilities, beginning as of January 1, 2018, record as a regulatory liability (deferred liability) the amount required to reflect the reduction in the federal corporate income tax rate from 35% to 21% and the associated savings in excess accumulated deferred income taxes until such time as its rates are changed by the LPSC to reflect these federal tax savings. In the same special order, the LPSC also initiated a new rulemaking docket to consider these issues and the appropriate manner in which to flow through the benefits to Louisiana customers and to provide an opportunity for discovery and comments of jurisdictional utilities and other interested stakeholders. The rulemaking further requires the LPSC staff to report back to the LPSC as soon as practicable and preferably by the March 21, 2018, LPSC Business and Executive Session with recommendations as to how the federal tax-related benefits will be flowed through to Louisiana customers.
After enactment of the Tax Cuts and Jobs Act the MPSC ordered utilities, including Entergy Mississippi, that operate under a formula rate plan to file a description by February 26, 2018, of how the Act will be reflected in the formula rate plan under which the utility operates. In addition to the description that is due February 26, 2018, Entergy Mississippi’s formula rate plan 2018 test year filing is scheduled to be filed by March 15, 2018.
After enactment of the Tax Cuts and Jobs Act the City Council passed a resolution ordering Entergy New Orleans to, effective January 1, 2018, record deferred regulatory liabilities to account for the Tax Act’s effect on Entergy New Orleans’s revenue requirement and to make a filing by mid-March 2018 regarding the Tax Act’s effects on Entergy New Orleans’s operating income and rate base and potential mechanisms for customers to receive benefits of the Tax Act. The City Council’s resolution also directed Entergy New Orleans to request that Entergy Services file with the FERC for revisions of the Unit Power Sales Agreement and MSS-4 replacement tariffs to address the return of excess accumulated deferred income taxes. Entergy planssubmitted filings of this type to make such filings with the FERCFERC.
In March 2018, Entergy New Orleans filed its response to the resolution stating that the Tax Act reduced income tax expense from what was then reflected in rates by approximately $8.2 million annually for electric operations and by approximately $1.3 million annually for gas operations. In the endfiling, Entergy New Orleans proposed to return to customers from June 2018 through August 2019 the benefits of March 2018.the reduction in income tax expense and its unprotected excess accumulated deferred income taxes through a combination of bill credits and investments in energy efficiency
Entergy Corporation and Subsidiaries
Notes to Financial Statements
programs, grid modernization, and Smart City projects. Entergy New Orleans submitted supplemental information in April 2018 and May 2018. Shortly thereafter, Entergy New Orleans and the City Council’s advisors reached an agreement in principle that provides for benefits that will be realized by Entergy New Orleans customers through bill credits that started in July 2018 and offsets to future investments in energy efficiency programs, grid modernization, and Smart City projects, as well as additional benefits related to the filings made at the FERC. The agreement in principle was approved by the City Council in June 2018.
Entergy Texas
After enactment of the Tax Cuts and Jobs Act the PUCT issued an order requiring most utilities, including Entergy Texas, beginning January 25, 2018, to record a regulatory liability for the difference between revenues collected under existing rates and revenues that would have been collected had existing rates been set using the new federal income tax rates and also for the balance of excess accumulated deferred income taxes. The order also directs the PUCT staff to investigate each investor-owned utility on a case-by-case basis to determine the appropriate mechanism to adjust its rates to reflect the changes under the Act. In both a memorandum issued prior to the open meeting when the order was discussed and during the discussions at the open meeting discussing the order, the PUCT indicated that it would consider utility earnings in determining the treatment of the liability and the effects of the Act. Entergy Texas had previously provided information to the PUCT Staff in the docketstaff and stated that it expectsexpected the PUCT to address the lower tax expense as part of Entergy Texas’s rate case expected to be filed in May 2018. Entergy Texas also stated that it would be inappropriate for the PUCT to require a refund of the reduction in income tax expense in 2018 resulting from the Act on a retroactive basis and without a comprehensive review of Entergy Texas’s cost of service and earned return on equity.
In May 2018, Entergy Texas filed its 2018 base rate case with the PUCT. Entergy Texas’s proposed rates and revenues reflected the inclusion of the federal income tax reductions due to the Tax Act. The PUCT issued an order in December 2018 establishing that 1) $25 million be credited to customers through a rider to reflect the lower federal income tax rate applicable to Entergy Texas from January 2018 through the date new rates were implemented, 2) $242.5 million of protected excess accumulated deferred income taxes be returned to customers through base rates under the average rate assumption method over the lives of the associated assets, and 3) $185.2 million of unprotected excess accumulated deferred income taxes be returned to customers through a rider. The unprotected excess accumulated deferred income taxes rider includes carrying charges and is in effect over a period of 12 months for larger customers and over a period of four years for other customers.
System Energy
In a subsequent order issued followingfiling made with the FebruaryFERC in March 2018, open meeting,Entergy proposed revisions to the PUCT clarified that carrying costs need not be recorded as part of the regulatory liability.
The Registrant Subsidiaries will continueUnit Power Sales Agreement, among other agreements, to work with their respective regulators to determine the appropriate path forward in each jurisdiction regardingreflect the effects of the Tax Act. In the filing System Energy proposed to return all of its unprotected excess accumulated deferred income taxes to its customers by the end of 2018. In May 2018 the FERC accepted System Energy’s proposed tax revisions with an effective date of June 1, 2018, subject to refund and the outcome of settlement and hearing procedures. Settlement discussions terminated in April 2019, and the hearing is scheduled for March 2020. The retail regulators of the Utility operating companies that are parties to the Unit Power Sales Agreement are challenging whether there are excess tax liabilities associated with uncertain tax positions related to nuclear decommissioning.
Fuel and purchased power cost recovery
Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and Entergy TexasThe Utility operating companies are allowed to recover fuel and purchased power costs through fuel mechanisms included in electric and gas rates that are recorded as fuel cost recovery revenues. The difference between revenues collected and the current fuel and purchased power costs is generally recorded as “Deferred fuel costs” on the Utility operating companies’ financial statements. The table below shows the amount of deferred fuel costs as of December 31, 20172019 and 20162018 that Entergy expects to recover (or return to customers) through fuel mechanisms, subject to subsequent regulatory review.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
|
| | | | | | | |
| 2017 | | 2016 |
| (In Millions) |
Entergy Arkansas (a) |
| $130.4 |
| |
| $163.6 |
|
Entergy Louisiana (b) |
| $96.7 |
| |
| $119.9 |
|
Entergy Mississippi |
| $32.4 |
| |
| $7.0 |
|
Entergy New Orleans (b) |
| ($3.7 | ) | |
| $8.9 |
|
Entergy Texas |
| ($67.3 | ) | |
| ($54.5 | ) |
|
| | | | | | | |
| 2019 | | 2018 |
| (In Millions) |
Entergy Arkansas (a) |
| $14.0 |
| |
| $86.5 |
|
Entergy Louisiana (b) |
| $112.5 |
| |
| $136.7 |
|
Entergy Mississippi |
| ($70.4 | ) | |
| $8.0 |
|
Entergy New Orleans (b) |
| ($0.8 | ) | |
| $2.8 |
|
Entergy Texas |
| ($13.0 | ) | |
| ($19.7 | ) |
| |
(a) | Includes $67.1$67.7 million in 20172019 and $66.9$67.3 million in 20162018 of fuel and purchased power costs which do not currently earn a return on investment and whose recovery periods are indeterminate but are expected to be recovered over a period greater than twelve months. |
| |
(b) | Includes $168.1 million in each yearboth years for Entergy Louisiana and $4.1 million in each yearboth years for Entergy New Orleans of fuel, purchased power, and capacity costs, which do not currently earn a return on investment and whose recovery periods are indeterminate but are expected to be recovered over a period greater than twelve months. |
Entergy Arkansas
Production Cost Allocation Rider
The APSC approved a production cost allocation rider for recovery from customers of the retail portion of the costs allocated to Entergy Arkansas as a result of the System Agreement proceedings, which are discussed in the “System Agreement Cost Equalization Proceedings” section below. These costs cause an increase in Entergy
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Arkansas’s deferred fuel cost balance because Entergy Arkansas pays the costs over seven months but collects the costs from customers over twelve months.
In May 2014, Entergy Arkansas filed its annual redetermination of the production cost allocation rider to recover the $3 million unrecovered retail balance as of December 31, 2013 and the $67.8 million System Agreement bandwidth remedy payment made in May 2014 as a result of the compliance filing pursuant to the FERC’s February 2014 orders related to the bandwidth payments/receipts for the June - December 2005 period. In January 2015 the APSC issued an order approving Entergy Arkansas’s request for recovery of the $3 million under-recovered amount based on the true-up of the production cost allocation rider and the $67.8 million May 2014 System Agreement bandwidth remedy payment subject to refund with interest, with recovery of these payments concluding with the last billing cycle in December 2015. The APSC also found that Entergy Arkansas is entitled to carrying charges pursuant to the current terms of the production cost allocation rider. Entergy Arkansas made its compliance filing pursuant to the order in January 2015 and the APSC issued its approval order, also in January 2015. The redetermined rate went into effect with the first billing cycle of February 2015.
In May 2015, Entergy Arkansas filed its annual redetermination of the production cost allocation rider, which included a $38 million payment made by Entergy Arkansas as a result of the FERC’s February 2014 order related to the comprehensive bandwidth recalculation for calendar year 2006, 2007, and 2008 production costs. The redetermined rate for the 2015 production cost allocation rider update was added to the redetermined rate from the 2014 production cost allocation rider update and the combined rate was effective with the first billing cycle of July 2015. This combined rate was effective through December 2015. The collection of the remainder of the redetermined rate for the 2015 production cost allocation rider update continued through June 2016.
In May 2016, Entergy Arkansas filed its annual redetermination pursuant to the production cost allocation rider, which reflected recovery of the production cost allocation rider true-up adjustment of the 2014 and 2015 unrecovered retail balance in the amount of $1.9 million. Additionally, the redetermined rates reflected the recovery of a $1.9 million System Agreement bandwidth remedy payment resulting from a compliance filing pursuant to the FERC’s December 2015 order related to test year 2009 production costs. The rates for the 2016 production cost allocation rider update became effective with the first billing cycle of July 2016, and the rates were effective through June 2017.
In May 2017, Entergy Arkansas filed its annual redetermination pursuant to the production cost allocation rider, which reflected a credit amount of $0.3 million resulting from a compliance filing pursuant to the FERC’s September 2016 order. Additionally, the redetermined rate reflected recovery of the production cost allocation rider true-up adjustment of the 2016 unrecovered retail balance in the amount of $0.3 million. Because of the small effect of the 2017 production cost allocation rider update, Entergy Arkansas proposed to reduce the effective period of the update to one month, July 2017. After the one month collection period, rates were set to zero for all rate classes for the period August 2017 through June 2018.
Energy Cost Recovery Rider
Entergy Arkansas’s retail rates include an energy cost recovery rider to recover fuel and purchased energy costs in monthly customer bills. The rider utilizes the prior calendar-year energy costs and projected energy sales for the twelve-month period commencing on April 1 of each year to develop an energy cost rate, which is redetermined annually and includes a true-up adjustment reflecting the over- or under-recovery, including carrying charges, of the energy costs for the prior calendar year. The energy cost recovery rider tariff also allows an interim rate request depending upon the level of over- or under-recovery of fuel and purchased energy costs.
In January 2014, Entergy Arkansas filed a motion with the APSC relating to its redetermination of its energy cost rate that was subsequently filed in March 2014. In that motion, Entergy Arkansas requested that the APSC authorize Entergy Arkansas to exclude $65.9 million of deferred fuel and purchased energy costs incurred in 2013 from the redetermination of its 2014 energy cost rate. The $65.9 million is an estimate of the incremental fuel and replacement
New Orleans
75 |
| | | | | | | |
| 2019 | | 2018 |
| (In Millions) |
Pension & postretirement costs (Note 11 – Qualified Pension Plans, Other Postretirement Benefits, and Non-Qualified Pension Plans) (a) |
| $85.9 |
| |
| $96.2 |
|
Storm damage costs, including hurricane costs - recovered through retail rates and securitization (Note 2 - Storm Cost Recovery Filings with Retail Regulators) | 59.6 |
| | 70.4 |
|
Removal costs - recovered through depreciation rates (Note 9) | 52.9 |
| | 49.3 |
|
Retired meters - recovered over a 12-year period through July 2031 (Note 2 - Advanced Metering Infrastructure (AMI) Filings) (b) | 24.6 |
| | — |
|
Retired plant costs - recovered over a 20-year period through July 2039 (Note 2 - Retail Rate Proceedings) | 10.0 |
| | — |
|
Rate case costs - recovered over a 3-year period through July 2022 (Note 2 - Retail Rate Proceedings) | 7.0 |
| | — |
|
Asset retirement obligation - recovery dependent upon timing of dismantlement of non-nuclear power plants (Note 9) (a) | 4.9 |
| | 4.5 |
|
Algiers customer migration costs - recovered over a 5-year period through July 2024 (Note 2 - Retail Rate Proceedings) | 4.9 |
| | — |
|
Unamortized loss on reacquired debt - recovered over term of debt | 2.3 |
| | 2.6 |
|
Other | 7.3 |
| | 6.8 |
|
Entergy New Orleans Total |
| $259.4 |
| |
| $229.8 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
energy costs that Entergy Arkansas incurred as a result of the ANO stator incident. Entergy Arkansas requested that the APSC authorize Entergy Arkansas to retain that amount in its deferred fuel balance, with recovery to be reviewed in a later period after more information is available regarding various claims associated with the ANO stator incident. The APSC approved Entergy Arkansas’s request in February 2014. In July 2017, Entergy Arkansas filed for a change in rates pursuant to its formula rate plan rider. In that docket, the APSC approved a settlement agreement agreed upon by the parties, including a provision that requires Entergy Arkansas to initiate a docket for the purpose of recovering funds currently withheld from rates and related to the stator incident, including the $65.9 million of deferred fuel and purchased energy costs previously noted, subject to certain timelines and conditions set forth in the settlement agreement. See the “ANO Damage, Outage, and NRC Reviews” section in Note 8 to the financial statements for further discussion of the ANO stator incident.
In March 2017, Entergy Arkansas filed its annual redetermination of its energy cost rate pursuant to the energy cost recovery rider, which reflected an increase in the rate from $0.01164 per kWh to $0.01547 per kWh. The APSC staff filed testimony in March 2017 recommending that the redetermined rate be implemented with the first billing cycle of April 2017 under the normal operation of the tariff. Accordingly, the redetermined rate went into effect on March 31, 2017 pursuant to the tariff. In July 2017 the Arkansas Attorney General requested additional information to support certain of the costs included in Entergy Arkansas’s 2017 energy cost rate redetermination.
Entergy Louisiana
Entergy Louisiana recovers electric fuel and purchased power costs for the billing month based upon the level of such costs incurred two months prior to the billing month. Entergy Louisiana’s purchased gas adjustments include estimates for the billing month adjusted by a surcharge or credit that arises from an annual reconciliation of fuel costs incurred with fuel cost revenues billed to customers, including carrying charges.
In April 2010 the LPSC authorized its staff to initiate an audit of Entergy Louisiana’s fuel adjustment clause filings. The audit included a review of the reasonableness of charges flowed through the fuel adjustment clause by Entergy Louisiana for the period from 2005 through 2009. The LPSC staff issued its audit report in January 2013. The LPSC staff recommended that Entergy Louisiana refund approximately $1.9 million, plus interest, to customers and realign the recovery of approximately $1 million from Entergy Louisiana’s fuel adjustment clause to base rates. The recommended refund was made by Entergy Louisiana in May 2013 in the form of a credit to customers through its fuel adjustment clause filing. In October 2016 the LPSC staff filed testimony affirming the recommendation in its audit report on the lone remaining issue that nuclear dry fuel storage costs should be realigned to base rates. The parties agreed to remove that remaining issue to a separate docket because the same issue was outstanding in the Entergy Gulf States Louisiana audit for the same time period. In November 2016 the LPSC approved the resolution of this audit and the creation of a new docket for the resolution of the proper method of recovery for nuclear dry fuel storage costs. In December 2016 the LPSC opened a new docket in order to resolve the issue regarding the proper methodology for the recovery of nuclear dry fuel storage costs. In October 2017 the LPSC approved the continued recovery of the nuclear dry fuel storage costs through the fuel adjustment clause, resolving the open issue in the audit.
In December 2011 the LPSC authorized its staff to initiate a proceeding to audit the fuel adjustment clause filings of Entergy Gulf States Louisiana and its affiliates. The audit included a review of the reasonableness of charges flowed by Entergy Gulf States Louisiana through its fuel adjustment clause for the period 2005 through 2009. In March 2016 the LPSC staff consultant issued its audit report. In its report, the LPSC staff consultant recommended that Entergy Louisiana refund approximately $8.6 million, plus interest, to customers and realign the recovery of approximately $12.7 million from Entergy Gulf States Louisiana’s fuel adjustment clause to base rates. In September 2016 the LPSC staff filed testimony stating that it was no longer recommending a disallowance of $3.4 million of the $8.6 million discussed above, but otherwise maintained positions from its report. Subsequently, the parties entered into a settlement, which was approved by the LPSC in November 2016. The settlement recognized the dry cask storage recovery method issue, which was addressed in the separate proceeding approved by the LPSC in October 2017, provided for a refund of $5 million, which was made to legacy Entergy Gulf States Louisiana customers in December 2016, and resolved all other issues raised in the audit.
Texas
76 |
| | | | | | | |
| 2019 | | 2018 |
| (In Millions) |
Storm damage costs, including hurricane costs - recovered through securitization and retail rates (Note 5 - Entergy Texas Securitization Bonds) |
| $221.4 |
| |
| $303.6 |
|
Pension & postretirement costs (Note 11 – Qualified Pension Plans, Other Postretirement Benefits, and Non-Qualified Pension Plans) (a) | 167.7 |
| | 171.8 |
|
Removal costs - recovered through depreciation rates (Note 9) | 42.5 |
| | 50.9 |
|
Retired electric meters - recovered over 13-year period through February 2032 (Note 2 - Advanced Metering Infrastructure (AMI) Filings) | 28.4 |
| | — |
|
Neches and Sabine costs - recovered over a 10-year period through September 2028 (Note 2 - Retail Rate Proceedings) | 21.2 |
| | 23.6 |
|
Transition to competition costs - recovered over a 15-year period through February 2021 | 14.9 |
| | 26.7 |
|
Unamortized loss on reacquired debt - recovered over term of debt | 7.7 |
| | 8.2 |
|
Other | 8.8 |
| | 13.2 |
|
Entergy Texas Total |
| $512.6 |
| |
| $598.0 |
|
System Energy
|
| | | | | | | |
| 2019 | | 2018 |
| (In Millions) |
Asset retirement obligation - recovery dependent upon timing of decommissioning (Note 9) (a) |
| $210.9 |
| |
| $186.9 |
|
Pension & postretirement costs (Note 11 – Qualified Pension Plans and Other Postretirement Benefits) (a) | 200.3 |
| | 179.3 |
|
Removal costs - recovered through depreciation rates (Note 9) | 75.9 |
| | 76.4 |
|
Unamortized loss on reacquired debt - recovered over term of debt | 3.0 |
| | 3.8 |
|
System Energy Total |
| $490.1 |
| |
| $446.4 |
|
| |
(a) | Does not earn a return on investment, but is offset by related liabilities. |
| |
(b) | Does not earn a return on investment. |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
In July 2014 the LPSC authorized its staff to initiate an audit of Entergy Gulf States Louisiana’s fuel adjustment clause filings. The audit includes a review of the reasonableness of charges flowed by Entergy Gulf States Louisiana through its fuel adjustment clause for the period from 2010 through 2013. Discovery commenced in July 2015. No report of audit has been issued.Other Regulatory Liabilities
In July 2014 the LPSC authorized its staff to initiate an audit of Entergy Louisiana’s fuel adjustment clause filings. The audit includes a review of the reasonableness of charges flowed by Entergy Louisiana through its fuel adjustment clause for the period from 2010 through 2013. Discovery commenced in July 2015. No report of audit has been issued.
In June 2016 the LPSC staff provided notice of audits of Entergy Louisiana’s fuel adjustment clause filings and purchased gas adjustment clause filings. In recognition of the business combination that occurred in 2015, the audit notice was issued to Entergy Louisiana and will also include a review of charges to legacy Entergy Gulf States Louisiana customers prior to the business combination. The audit includes a review of the reasonableness of charges flowed through Entergy Louisiana’s fuel adjustment clause for the period from 2014 through 2015 and charges flowed through Entergy Louisiana’s purchased gas adjustment clause for the period from 2012 through 2015. Discovery commenced in March 2017. No report of audit has been issued. |
| | | | | | | |
| 2019 | | 2018 |
| (In Millions) |
Unrealized gains on nuclear decommissioning trust funds (Note 16) (a) |
| $1,300.1 |
| |
| $815.9 |
|
Vidalia purchased power agreement (Note 8) (b) | 127.3 |
| | 139.7 |
|
Louisiana Act 55 financing savings obligation (Note 2 - Storm Cost Recovery Filings with Retail Regulators) (b) | 97.1 |
| | 111.1 |
|
Retail rate rider over-recovery - refunded through rate riders as rates are redetermined annually | 62.3 |
| | 84.6 |
|
Grand Gulf sale-leaseback - (Note 5 - Grand Gulf Sale-Leaseback Transactions) | 55.6 |
| | 55.6 |
|
Future formula rate plan revenue reductions (Note 2 - Retail Rate Proceedings) | 51.1 |
| | 44.4 |
|
Entergy Arkansas’s accumulated accelerated Grand Gulf amortization - will be returned to customers when approved by the APSC and the FERC | 44.4 |
| | 44.4 |
|
Asset retirement obligation - return to customers dependent upon timing of decommissioning (Note 9) (a) | 37.2 |
| | 39.1 |
|
Business combination guaranteed customer benefits - returned to customers through retail rates and fuel rates December 2015 through November 2024 | 35.7 |
| | 50.8 |
|
Internal restructuring guaranteed customer credits (Note 2 - Retail Rate Proceedings) | 33.0 |
| | 39.6 |
|
Advanced metering system (AMS) surcharge - return to customers dependent upon AMS spend (Note 2 - Advanced Metering Infrastructure (AMI) Filings) | 25.3 |
| | 16.5 |
|
Excess decommissioning recovery for Willow Glen - (Note 14 - Dispositions) | 21.2 |
| | 31.9 |
|
Entergy Mississippi’s accumulated accelerated Grand Gulf amortization - amortized and credited through the Unit Power Sales Agreement | 17.8 |
| | 25.0 |
|
Income tax rate change - returned to electric and gas customers through retail rates (Note 2 - Retail Rate Proceedings) | 13.9 |
| | 74.7 |
|
Removal costs - returned to customers through depreciation rates (Note 9) | 2.4 |
| | 18.8 |
|
Other | 36.6 |
| | 28.2 |
|
Entergy Total |
| $1,961.0 |
| |
| $1,620.3 |
|
Due to higher fuel costs for the operating month of January 2018 resulting in part from recent cold weather, higher Henry Hub prices, and an increase in total fuel and purchased power costs, Entergy Louisiana plans to cap the average fuel adjustment charge to be billed in March 2018 at $0.03060 per kWh and to defer billing of all fuel costs in excess of the capped amounts by including such costs in the over- or under-recovery account.
Entergy Mississippi
Entergy Mississippi’s rate schedules include an energy cost recovery rider that is adjusted annually to reflect accumulated over- or under-recoveries. Entergy Mississippi’s fuel cost recoveries are subject to annual audits conducted pursuant to the authority of the MPSC.
Entergy Mississippi had a deferred fuel over-recovery balance of $58.3 million as of May 31, 2015, along with an under-recovery balance of $12.3 million under the power management rider. Pursuant to those tariffs, in July 2015, Entergy Mississippi filed for interim adjustments under both the energy cost recovery rider and the power management rider to flow through to customers the approximately $46 million net over-recovery over a six-month period. In August 2015, the MPSC approved the interim adjustments effective with September 2015 bills. In November 2015, Entergy Mississippi filed its annual redetermination of the annual factor to be applied under the energy cost recovery rider. The calculation of the annual factor included a projected over-recovery balance of $48 million projected through January 31, 2016. In January 2016 the MPSC approved the redetermined annual factor effective February 1, 2016. The MPSC further ordered, however, that due to the significant change in natural gas price forecasts since Entergy Mississippi’s filing in November 2015 Entergy Mississippi should file a revised fuel factor with the MPSC no later than February 1, 2016. Pursuant to that order, Entergy Mississippi submitted a revised fuel factor. Additionally, because Entergy Mississippi’s projected over-recovery balance for the period ending January 31, 2016 was $68 million, in February 2016, Entergy Mississippi filed for another interim adjustment to the energy cost factor effective April 2016 to flow through to customers the projected over-recovery balance over a six-month period. That interim adjustment was approved by the MPSC in February 2016 effective for April 2016 bills.
In November 2016, Entergy Mississippi filed its annual redetermination of the annual factor to be applied under the energy cost recovery rider. The calculation of the annual factor included an over-recovery of less than $2 million as of September 30, 2016. In January 2017 the MPSC approved the annual factor effective with February 2017 bills. Also in January 2017 the MPSC certified to the Mississippi Legislature the audit reports of its independent auditors for the fuel year ending September 30, 2016. In its order, the MPSC expressly reserved the right to review and determine the recoverability of any and all purchased power expenditures made during fiscal year 2016. The MPSC hired independent auditors to conduct an annual operations audit and a financial audit. The independent auditors
Arkansas
77 |
| | | | | | | |
| 2019 | | 2018 |
| (In Millions) |
Unrealized gains on nuclear decommissioning trust funds (Note 16) (a) |
| $460.3 |
| |
| $297.2 |
|
Future formula rate plan revenue reductions (Note 2 - Retail Rate Proceedings) | 46.6 |
| | 35.1 |
|
Internal restructuring guaranteed customer credits (Note 2 - Retail Rate Proceedings) | 33.0 |
| | 39.6 |
|
Retail rate rider over-recovery - refunded through rate riders as rates are redetermined annually | 19.7 |
| | 30.8 |
|
Entergy Arkansas Total |
| $559.6 |
| |
| $402.7 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
issued their audit reports in December 2017. The audit reports included several recommendations for action by Entergy Louisiana
|
| | | | | | | |
| 2019 | | 2018 |
| (In Millions) |
Unrealized gains on nuclear decommissioning trust funds (Note 16) (a) |
| $436.5 |
| |
| $274.1 |
|
Vidalia purchased power agreement (Note 8) (b) | 127.3 |
| | 139.7 |
|
Louisiana Act 55 financing savings obligation (Note 2 - Storm Cost Recovery Filings with Retail Regulators) (b) | 97.1 |
| | 111.1 |
|
Asset Retirement Obligation - return to customers dependent upon timing of decommissioning (Note 9) (a) | 37.1 |
| | 39.1 |
|
Business combination guaranteed customer benefits - returned to customers through retail rates and fuel rates December 2015 through November 2024 | 35.7 |
| | 50.8 |
|
Excess decommissioning recovery for Willow Glen - returned over one-year period through retail rates (Note 14 - Dispositions) | 21.2 |
| | 31.9 |
|
Removal costs - returned to customers through depreciation rates (Note 9) | 2.4 |
| | 18.8 |
|
Income tax rate change - returned to electric customers through retail rates September 2018 through August 2019 (Note 2 - Retail Rate Proceedings) | — |
| | 49.9 |
|
Other | 36.8 |
| | 33.4 |
|
Entergy Louisiana Total |
| $794.1 |
| |
| $748.8 |
|
Entergy Mississippi but did not recommend any cost disallowances. In January 2018 the MPSC certified the audit reports to the Mississippi Legislature. In November 2017 the Public Utilities Staff separately engaged a consultant to review the outage at the Grand Gulf Nuclear Station that began in 2016. The review is currently in progress.
In November 2017, Entergy Mississippi filed its annual redetermination of the annual factor to be applied under the energy cost recovery rider. The calculation of the annual factor included an under-recovery of approximately $61.5 million as of September 30, 2017. Entergy Mississippi proposed a two-tiered energy cost factor designed to promote overall rate stability throughout 2018 particularly during the summer months. In January 2018 the MPSC approved the proposed energy cost factors effective for February 2018 bills.
Mississippi Attorney General Complaint
The Mississippi attorney general filed a complaint in state court in December 2008 against Entergy Corporation, Entergy Mississippi, Entergy Services, and Entergy Power alleging, among other things, violations of Mississippi statutes, fraud, and breach of good faith and fair dealing, and requesting an accounting and restitution. The complaint is wide ranging and relates to tariffs and procedures under which Entergy Mississippi purchases power not generated in Mississippi to meet electricity demand. Entergy believes the complaint is unfounded. In December 2008 the defendant Entergy companies removed the Attorney General’s lawsuit to U.S. District Court in Jackson, Mississippi. The Mississippi attorney general moved to remand the matter to state court. In August 2012 the District Court issued an opinion denying the Attorney General’s motion for remand, finding that the District Court has subject matter jurisdiction under the Class Action Fairness Act.
The defendant Entergy companies answered the complaint and filed a counterclaim for relief based upon the Mississippi Public Utilities Act and the Federal Power Act. In May 2009 the defendant Entergy companies filed a motion for judgment on the pleadings asserting grounds of federal preemption, the exclusive jurisdiction of the MPSC, and factual errors in the Attorney General’s complaint. In September 2012 the District Court heard oral argument on Entergy’s motion for judgment on the pleadings.
In January 2014 the U.S. Supreme Court issued a decision in which it held that cases brought by attorneys general as the sole plaintiff to enforce state laws were not considered “mass actions” under the Class Action Fairness Act, so as to establish federal subject matter jurisdiction. One day later the Attorney General renewed his motion to remand the Entergy case back to state court, citing the U.S. Supreme Court’s decision. The defendant Entergy companies responded to that motion reiterating the additional grounds asserted for federal question jurisdiction, and the District Court held oral argument on the renewed motion to remand in February 2014. In April 2015 the District Court entered an order denying the renewed motion to remand, holding that the District Court has federal question subject matter jurisdiction. The Attorney General appealed to the U.S. Fifth Circuit Court of Appeals the denial of the motion to remand. In July 2015 the Fifth Circuit issued an order denying the appeal, and the Attorney General subsequently filed a petition for rehearing of the request for interlocutory appeal, which was also denied. In December 2015 the District Court ordered that the parties submit to the court undisputed and disputed facts that are material to the Entergy defendants’ motion for judgment on the pleadings, as well as supplemental briefs regarding the same. Those filings were made in January 2016.
In September 2016 the Attorney General filed a mandamus petition with the U.S. Fifth Circuit Court of Appeals in which the Attorney General asked the Fifth Circuit to order the chief judge to reassign this case to another judge. In September 2016 the District Court denied the Entergy companies’ motion for judgment on the pleadings. The Entergy companies filed a motion seeking to amend the District Court’s order denying the Entergy companies’ motion for judgment on the pleadings and allowing an interlocutory appeal. In October 2016 the Fifth Circuit granted the Attorney General’s motion for writ of mandamus and directed the chief judge to assign the case to a new judge. The case was reassigned in October 2016. In January 2017 the District Court denied the Entergy companies’ motion to amend the order denying the motion for judgment on the pleadings. In June 2017 the District Court issued a case management order setting a trial date in November 2018. Discovery is currently in progress.
78 |
| | | | | | | |
| 2019 | | 2018 |
| (In Millions) |
Retail rate deferrals - returned to customers through rate riders as rates are redetermined annually |
| $14.6 |
| |
| $1.3 |
|
Future formula rate plan revenue reductions (Note 2 - Retail Rate Proceedings) | 4.5 |
| | 9.3 |
|
Grand Gulf Over-Recovery - returned to customers through rate riders as rates are redetermined annually | 2.4 |
| | 22.6 |
|
Other | — |
| | 0.4 |
|
Entergy Mississippi Total |
| $21.5 |
| |
| $33.6 |
|
Entergy Texas
|
| | | | | | | |
| 2019 | | 2018 |
| (In Millions) |
Advanced metering system (AMS) surcharge - returned to customers dependent upon AMS spend (Note 2 - Advanced Metering Infrastructure (AMI) Filings) |
| $25.3 |
| |
| $16.5 |
|
Income tax rate change - refunded through a rate rider (Note 2 - Retail Rate Proceedings) | 10.4 |
| | 23.1 |
|
Transition to competition costs - returned to customers through rate riders when rates are redetermined periodically | 3.8 |
| | 4.2 |
|
Other | 2.6 |
| | 4.1 |
|
Entergy Texas Total |
| $42.1 |
| |
| $47.9 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
System Energy
|
| | | | | | | |
| 2019 | | 2018 |
| (In Millions) |
Unrealized gains on nuclear decommissioning trust funds (Note 16) (a) |
| $403.3 |
| |
| $244.6 |
|
Grand Gulf sale-leaseback - (Note 5 - Grand Gulf Sale-Leaseback Transactions) | 55.6 |
| | 55.6 |
|
Entergy Arkansas’s accumulated accelerated Grand Gulf amortization - will be returned to customers when approved by the APSC and the FERC | 44.4 |
| | 44.4 |
|
Entergy Mississippi’s accumulated accelerated Grand Gulf amortization - amortized and credited through the Unit Power Sales Agreement | 17.8 |
| | 25.0 |
|
Other | 12.3 |
| | 12.3 |
|
System Energy Total |
| $533.4 |
| |
| $381.9 |
|
| |
(a) | Offset by related asset. |
| |
(b) | As a result of the enactment of the Tax Cuts and Jobs Act, in December 2017, and the lowering of the federal corporate income tax rate from 35% to 21% effective January 2018, the Vidalia purchased power agreement regulatory liability was reduced by $30.5 million and the Louisiana Act 55 financing savings obligation regulatory liabilities were reduced by $25.0 million, with corresponding increases to Other regulatory credits on the income statement. The effects of the Tax Cuts and Jobs Act are discussed further in Note 3 to the financial statements. |
Regulatory activity regarding the Tax Cuts and Jobs Act
See the “Other Tax Matters - Tax Cuts and Jobs Act” section in Note 3 to the financial statements for discussion of the effects of the December 2017 enactment of the Tax Cuts and Jobs Act, including its effects on Entergy’s and the Registrant Subsidiaries’ regulatory asset/liability for income taxes.
Entergy Arkansas
Consistent with its previously stated intent to return unprotected excess accumulated deferred income taxes to customers as expeditiously as possible, Entergy Arkansas initiated a tariff proceeding in February 2018 proposing to establish a tax adjustment rider to provide retail customers with certain tax benefits of $467 million associated with the Tax Act. For the residential customer class, unprotected excess accumulated deferred income taxes were returned to customers over a 21-month period from April 2018 through December 2019. For all other customer classes, unprotected excess accumulated deferred income taxes were returned to customers over a nine-month period from April 2018 through December 2018. A true-up provision also was included in the rider, with any over- or under-returned unprotected excess accumulated deferred income taxes credited or billed to customers during the billing month of January 2020, with any residual amounts of over- or under-returned unprotected excess accumulated deferred income taxes to be flowed through Entergy Arkansas’s energy cost recovery rider. In March 2018 the APSC approved the tax adjustment rider effective with the first billing cycle of April 2018.
As discussed below, in July 2018, Entergy Arkansas made its formula rate plan filing to set its formula rate for the 2019 calendar year. A hearing was held in May 2018 regarding the APSC’s inquiries into the effects of the Tax Act, including Entergy Arkansas’s proposal to utilize its formula rate plan rider for its customers to realize the remaining benefits of the Tax Act. Entergy Arkansas’s formula rate plan rider included a netting adjustment that compared actual annual results to the allowed rate of return on common equity. In July 2018 the APSC issued an order agreeing with Entergy Arkansas’s proposal to have the effects of the Tax Act on current income tax expense flow through Entergy Arkansas’s formula rate plan rider and with Entergy Arkansas’s treatment of protected and unprotected excess accumulated deferred income taxes. The APSC also directed Entergy Arkansas to submit in the tax adjustment rider proceeding, discussed above, the adjustments to all other riders affected by the Tax Act and to include an amendment
Entergy Corporation and Subsidiaries
Notes to Financial Statements
for a true up mechanism where a rider affected by the Tax Act does not already contain a true-up mechanism. Pursuant to a 2018 settlement agreement in Entergy Arkansas’s formula rate plan proceeding, Entergy Arkansas also removed the net operating loss accumulated deferred income tax asset caused by the Tax Act from Entergy Arkansas’s tax adjustment rider. Entergy Arkansas’s compliance tariff filings were accepted by the APSC in October 2018.
Entergy Louisiana
In an electric formula rate plan settlement approved by the LPSC in April 2018 the parties agreed that Entergy Louisiana would return to customers one-half of its eligible unprotected excess deferred income taxes from May 2018 through December 2018 and return to customers the other half from January 2019 through August 2022. In addition, the settlement provided that in order to flow back to customers certain other tax benefits created by the Tax Act, Entergy Louisiana established a regulatory liability effective January 1, 2018 in the amount of $9.1 million per month to reflect these tax benefits already included in retail rates until new base rates under the formula rate plan were established in September 2018, and this regulatory liability was returned to customers over the September 2018 through August 2019 formula rate plan rate-effective period. The LPSC staff and intervenors in the settlement reserved the right to obtain data from Entergy Louisiana to confirm the determination of excess accumulated deferred income taxes resulting from the Tax Act and the analysis thereof as part of the formula rate plan review proceeding for the 2017 test year filing which, as discussed below, Entergy Louisiana filed in June 2018.
Entergy Mississippi
Entergy Mississippi filed its 2018 formula rate plan in March 2018 and included a proposal to return all of its unprotected excess accumulated deferred income taxes to customers through rates or in exchange for other assets, or a combination of both, by the end of 2018. In June 2018 the MPSC approved a stipulation filed by Entergy Mississippi and the Mississippi Public Utilities Staff in Entergy Mississippi’s formula rate plan filing that addressed Entergy Mississippi’s 2018 formula rate plan evaluation report and the ratemaking effects of the Tax Act. The stipulation provided for incorporating the reduction of the statutory federal income tax rate through Entergy Mississippi’s formula rate plan. The stipulation approved in June 2018 provided for the flow-back of protected excess accumulated deferred income taxes over the remaining lives of the assets through the formula rate plan. The stipulation also provided for the offset of unprotected excess accumulated deferred income taxes of $127.2 million against net utility plant and $2.2 million against other regulatory assets, and the return to customers of the remaining balance of unprotected excess accumulated deferred income taxes as recovery of a portion of fuel oil inventory and customer bill credits over a three-month period from July 2018 through September 2018, with an insignificant true-up reflected in the November 2018 power management rider filing. Entergy Mississippi recorded the reduction against net utility plant and other regulatory assets in June 2018. In third quarter 2018, Entergy Mississippi returned unprotected excess accumulated deferred income taxes of $25.8 million through customer bill credits and $5.8 million through the sale of fuel oil inventory.
Entergy New Orleans
After enactment of the Tax Act the City Council passed a resolution ordering Entergy New Orleans to, effective January 1, 2018, record deferred regulatory liabilities to account for the Tax Act’s effect on Entergy New Orleans’s revenue requirement and to make a filing by mid-March 2018 regarding the Tax Act’s effects on Entergy New Orleans’s operating income and rate base and potential mechanisms for customers to receive benefits of the Tax Act. The City Council’s resolution also directed Entergy New Orleans to request that Entergy Services file with the FERC for revisions of the Unit Power Sales Agreement and MSS-4 replacement tariffs to address the return of excess accumulated deferred income taxes. Entergy submitted filings of this type to the FERC.
In March 2018, Entergy New Orleans filed its response to the resolution stating that the Tax Act reduced income tax expense from what was then reflected in rates by approximately $8.2 million annually for electric operations and by approximately $1.3 million annually for gas operations. In the filing, Entergy New Orleans proposed to return to customers from June 2018 through August 2019 the benefits of the reduction in income tax expense and its unprotected excess accumulated deferred income taxes through a combination of bill credits and investments in energy efficiency
Entergy Corporation and Subsidiaries
Notes to Financial Statements
programs, grid modernization, and Smart City projects. Entergy New Orleans submitted supplemental information in April 2018 and May 2018. Shortly thereafter, Entergy New Orleans and the City Council’s advisors reached an agreement in principle that provides for benefits that will be realized by Entergy New Orleans customers through bill credits that started in July 2018 and offsets to future investments in energy efficiency programs, grid modernization, and Smart City projects, as well as additional benefits related to the filings made at the FERC. The agreement in principle was approved by the City Council in June 2018.
Entergy Texas
After enactment of the Tax Act the PUCT issued an order requiring most utilities, including Entergy Texas, beginning January 25, 2018, to record a regulatory liability for the difference between revenues collected under existing rates and revenues that would have been collected had existing rates been set using the new federal income tax rates and also for the balance of excess accumulated deferred income taxes. Entergy Texas had previously provided information to the PUCT staff and stated that it expected the PUCT to address the lower tax expense as part of Entergy Texas’s rate case expected to be filed in May 2018. Entergy Texas also stated that it would be inappropriate for the PUCT to require a refund of the reduction in income tax expense in 2018 resulting from the Act on a retroactive basis and without a comprehensive review of Entergy Texas’s cost of service and earned return on equity.
In May 2018, Entergy Texas filed its 2018 base rate case with the PUCT. Entergy Texas’s proposed rates and revenues reflected the inclusion of the federal income tax reductions due to the Tax Act. The PUCT issued an order in December 2018 establishing that 1) $25 million be credited to customers through a rider to reflect the lower federal income tax rate applicable to Entergy Texas from January 2018 through the date new rates were implemented, 2) $242.5 million of protected excess accumulated deferred income taxes be returned to customers through base rates under the average rate assumption method over the lives of the associated assets, and 3) $185.2 million of unprotected excess accumulated deferred income taxes be returned to customers through a rider. The unprotected excess accumulated deferred income taxes rider includes carrying charges and is in effect over a period of 12 months for larger customers and over a period of four years for other customers.
System Energy
In a filing made with the FERC in March 2018, Entergy proposed revisions to the Unit Power Sales Agreement, among other agreements, to reflect the effects of the Tax Act. In the filing System Energy proposed to return all of its unprotected excess accumulated deferred income taxes to its customers by the end of 2018. In May 2018 the FERC accepted System Energy’s proposed tax revisions with an effective date of June 1, 2018, subject to refund and the outcome of settlement and hearing procedures. Settlement discussions terminated in April 2019, and the hearing is scheduled for March 2020. The retail regulators of the Utility operating companies that are parties to the Unit Power Sales Agreement are challenging whether there are excess tax liabilities associated with uncertain tax positions related to nuclear decommissioning.
Fuel and purchased power cost recovery
The Utility operating companies are allowed to recover fuel and purchased power costs through fuel mechanisms included in electric and gas rates that are recorded as fuel cost recovery revenues. The difference between revenues collected and the current fuel and purchased power costs is generally recorded as “Deferred fuel costs” on the Utility operating companies’ financial statements. The table below shows the amount of deferred fuel costs as of December 31, 2019 and 2018 that Entergy expects to recover (or return to customers) through fuel mechanisms, subject to subsequent regulatory review.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
|
| | | | | | | |
| 2019 | | 2018 |
| (In Millions) |
Entergy Arkansas (a) |
| $14.0 |
| |
| $86.5 |
|
Entergy Louisiana (b) |
| $112.5 |
| |
| $136.7 |
|
Entergy Mississippi |
| ($70.4 | ) | |
| $8.0 |
|
Entergy New Orleans (b) |
| ($0.8 | ) | |
| $2.8 |
|
Entergy Texas |
| ($13.0 | ) | |
| ($19.7 | ) |
| |
(a) | Includes $67.7 million in 2019 and $67.3 million in 2018 of fuel and purchased power costs whose recovery periods are indeterminate but are expected to be recovered over a period greater than twelve months. |
| |
(b) | Includes $168.1 million in both years for Entergy Louisiana and $4.1 million in both years for Entergy New Orleans of fuel, purchased power, and capacity costs, which do not currently earn a return on investment and whose recovery periods are indeterminate but are expected to be recovered over a period greater than twelve months. |
Entergy Arkansas
Production Cost Allocation Rider
The APSC approved a production cost allocation rider for recovery from customers of the retail portion of the costs allocated to Entergy Arkansas as a result of the System Agreement proceedings, which are discussed in the “System Agreement Cost Equalization Proceedings” section below.
Entergy New Orleans
|
| | | | | | | |
| 2019 | | 2018 |
| (In Millions) |
Pension & postretirement costs (Note 11 – Qualified Pension Plans, Other Postretirement Benefits, and Non-Qualified Pension Plans) (a) |
| $85.9 |
| |
| $96.2 |
|
Storm damage costs, including hurricane costs - recovered through retail rates and securitization (Note 2 - Storm Cost Recovery Filings with Retail Regulators) | 59.6 |
| | 70.4 |
|
Removal costs - recovered through depreciation rates (Note 9) | 52.9 |
| | 49.3 |
|
Retired meters - recovered over a 12-year period through July 2031 (Note 2 - Advanced Metering Infrastructure (AMI) Filings) (b) | 24.6 |
| | — |
|
Retired plant costs - recovered over a 20-year period through July 2039 (Note 2 - Retail Rate Proceedings) | 10.0 |
| | — |
|
Rate case costs - recovered over a 3-year period through July 2022 (Note 2 - Retail Rate Proceedings) | 7.0 |
| | — |
|
Asset retirement obligation - recovery dependent upon timing of dismantlement of non-nuclear power plants (Note 9) (a) | 4.9 |
| | 4.5 |
|
Algiers customer migration costs - recovered over a 5-year period through July 2024 (Note 2 - Retail Rate Proceedings) | 4.9 |
| | — |
|
Unamortized loss on reacquired debt - recovered over term of debt | 2.3 |
| | 2.6 |
|
Other | 7.3 |
| | 6.8 |
|
Entergy New Orleans Total |
| $259.4 |
| |
| $229.8 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Entergy Texas
|
| | | | | | | |
| 2019 | | 2018 |
| (In Millions) |
Storm damage costs, including hurricane costs - recovered through securitization and retail rates (Note 5 - Entergy Texas Securitization Bonds) |
| $221.4 |
| |
| $303.6 |
|
Pension & postretirement costs (Note 11 – Qualified Pension Plans, Other Postretirement Benefits, and Non-Qualified Pension Plans) (a) | 167.7 |
| | 171.8 |
|
Removal costs - recovered through depreciation rates (Note 9) | 42.5 |
| | 50.9 |
|
Retired electric meters - recovered over 13-year period through February 2032 (Note 2 - Advanced Metering Infrastructure (AMI) Filings) | 28.4 |
| | — |
|
Neches and Sabine costs - recovered over a 10-year period through September 2028 (Note 2 - Retail Rate Proceedings) | 21.2 |
| | 23.6 |
|
Transition to competition costs - recovered over a 15-year period through February 2021 | 14.9 |
| | 26.7 |
|
Unamortized loss on reacquired debt - recovered over term of debt | 7.7 |
| | 8.2 |
|
Other | 8.8 |
| | 13.2 |
|
Entergy Texas Total |
| $512.6 |
| |
| $598.0 |
|
System Energy
|
| | | | | | | |
| 2019 | | 2018 |
| (In Millions) |
Asset retirement obligation - recovery dependent upon timing of decommissioning (Note 9) (a) |
| $210.9 |
| |
| $186.9 |
|
Pension & postretirement costs (Note 11 – Qualified Pension Plans and Other Postretirement Benefits) (a) | 200.3 |
| | 179.3 |
|
Removal costs - recovered through depreciation rates (Note 9) | 75.9 |
| | 76.4 |
|
Unamortized loss on reacquired debt - recovered over term of debt | 3.0 |
| | 3.8 |
|
System Energy Total |
| $490.1 |
| |
| $446.4 |
|
| |
(a) | Does not earn a return on investment, but is offset by related liabilities. |
| |
(b) | Does not earn a return on investment. |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Other Regulatory Liabilities
Entergy
|
| | | | | | | |
| 2019 | | 2018 |
| (In Millions) |
Unrealized gains on nuclear decommissioning trust funds (Note 16) (a) |
| $1,300.1 |
| |
| $815.9 |
|
Vidalia purchased power agreement (Note 8) (b) | 127.3 |
| | 139.7 |
|
Louisiana Act 55 financing savings obligation (Note 2 - Storm Cost Recovery Filings with Retail Regulators) (b) | 97.1 |
| | 111.1 |
|
Retail rate rider over-recovery - refunded through rate riders as rates are redetermined annually | 62.3 |
| | 84.6 |
|
Grand Gulf sale-leaseback - (Note 5 - Grand Gulf Sale-Leaseback Transactions) | 55.6 |
| | 55.6 |
|
Future formula rate plan revenue reductions (Note 2 - Retail Rate Proceedings) | 51.1 |
| | 44.4 |
|
Entergy Arkansas’s accumulated accelerated Grand Gulf amortization - will be returned to customers when approved by the APSC and the FERC | 44.4 |
| | 44.4 |
|
Asset retirement obligation - return to customers dependent upon timing of decommissioning (Note 9) (a) | 37.2 |
| | 39.1 |
|
Business combination guaranteed customer benefits - returned to customers through retail rates and fuel rates December 2015 through November 2024 | 35.7 |
| | 50.8 |
|
Internal restructuring guaranteed customer credits (Note 2 - Retail Rate Proceedings) | 33.0 |
| | 39.6 |
|
Advanced metering system (AMS) surcharge - return to customers dependent upon AMS spend (Note 2 - Advanced Metering Infrastructure (AMI) Filings) | 25.3 |
| | 16.5 |
|
Excess decommissioning recovery for Willow Glen - (Note 14 - Dispositions) | 21.2 |
| | 31.9 |
|
Entergy Mississippi’s accumulated accelerated Grand Gulf amortization - amortized and credited through the Unit Power Sales Agreement | 17.8 |
| | 25.0 |
|
Income tax rate change - returned to electric and gas customers through retail rates (Note 2 - Retail Rate Proceedings) | 13.9 |
| | 74.7 |
|
Removal costs - returned to customers through depreciation rates (Note 9) | 2.4 |
| | 18.8 |
|
Other | 36.6 |
| | 28.2 |
|
Entergy Total |
| $1,961.0 |
| |
| $1,620.3 |
|
Entergy Arkansas
|
| | | | | | | |
| 2019 | | 2018 |
| (In Millions) |
Unrealized gains on nuclear decommissioning trust funds (Note 16) (a) |
| $460.3 |
| |
| $297.2 |
|
Future formula rate plan revenue reductions (Note 2 - Retail Rate Proceedings) | 46.6 |
| | 35.1 |
|
Internal restructuring guaranteed customer credits (Note 2 - Retail Rate Proceedings) | 33.0 |
| | 39.6 |
|
Retail rate rider over-recovery - refunded through rate riders as rates are redetermined annually | 19.7 |
| | 30.8 |
|
Entergy Arkansas Total |
| $559.6 |
| |
| $402.7 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Entergy Louisiana
|
| | | | | | | |
| 2019 | | 2018 |
| (In Millions) |
Unrealized gains on nuclear decommissioning trust funds (Note 16) (a) |
| $436.5 |
| |
| $274.1 |
|
Vidalia purchased power agreement (Note 8) (b) | 127.3 |
| | 139.7 |
|
Louisiana Act 55 financing savings obligation (Note 2 - Storm Cost Recovery Filings with Retail Regulators) (b) | 97.1 |
| | 111.1 |
|
Asset Retirement Obligation - return to customers dependent upon timing of decommissioning (Note 9) (a) | 37.1 |
| | 39.1 |
|
Business combination guaranteed customer benefits - returned to customers through retail rates and fuel rates December 2015 through November 2024 | 35.7 |
| | 50.8 |
|
Excess decommissioning recovery for Willow Glen - returned over one-year period through retail rates (Note 14 - Dispositions) | 21.2 |
| | 31.9 |
|
Removal costs - returned to customers through depreciation rates (Note 9) | 2.4 |
| | 18.8 |
|
Income tax rate change - returned to electric customers through retail rates September 2018 through August 2019 (Note 2 - Retail Rate Proceedings) | — |
| | 49.9 |
|
Other | 36.8 |
| | 33.4 |
|
Entergy Louisiana Total |
| $794.1 |
| |
| $748.8 |
|
Entergy Mississippi
|
| | | | | | | |
| 2019 | | 2018 |
| (In Millions) |
Retail rate deferrals - returned to customers through rate riders as rates are redetermined annually |
| $14.6 |
| |
| $1.3 |
|
Future formula rate plan revenue reductions (Note 2 - Retail Rate Proceedings) | 4.5 |
| | 9.3 |
|
Grand Gulf Over-Recovery - returned to customers through rate riders as rates are redetermined annually | 2.4 |
| | 22.6 |
|
Other | — |
| | 0.4 |
|
Entergy Mississippi Total |
| $21.5 |
| |
| $33.6 |
|
Entergy Texas
|
| | | | | | | |
| 2019 | | 2018 |
| (In Millions) |
Advanced metering system (AMS) surcharge - returned to customers dependent upon AMS spend (Note 2 - Advanced Metering Infrastructure (AMI) Filings) |
| $25.3 |
| |
| $16.5 |
|
Income tax rate change - refunded through a rate rider (Note 2 - Retail Rate Proceedings) | 10.4 |
| | 23.1 |
|
Transition to competition costs - returned to customers through rate riders when rates are redetermined periodically | 3.8 |
| | 4.2 |
|
Other | 2.6 |
| | 4.1 |
|
Entergy Texas Total |
| $42.1 |
| |
| $47.9 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
System Energy
|
| | | | | | | |
| 2019 | | 2018 |
| (In Millions) |
Unrealized gains on nuclear decommissioning trust funds (Note 16) (a) |
| $403.3 |
| |
| $244.6 |
|
Grand Gulf sale-leaseback - (Note 5 - Grand Gulf Sale-Leaseback Transactions) | 55.6 |
| | 55.6 |
|
Entergy Arkansas’s accumulated accelerated Grand Gulf amortization - will be returned to customers when approved by the APSC and the FERC | 44.4 |
| | 44.4 |
|
Entergy Mississippi’s accumulated accelerated Grand Gulf amortization - amortized and credited through the Unit Power Sales Agreement | 17.8 |
| | 25.0 |
|
Other | 12.3 |
| | 12.3 |
|
System Energy Total |
| $533.4 |
| |
| $381.9 |
|
| |
(a) | Offset by related asset. |
| |
(b) | As a result of the enactment of the Tax Cuts and Jobs Act, in December 2017, and the lowering of the federal corporate income tax rate from 35% to 21% effective January 2018, the Vidalia purchased power agreement regulatory liability was reduced by $30.5 million and the Louisiana Act 55 financing savings obligation regulatory liabilities were reduced by $25.0 million, with corresponding increases to Other regulatory credits on the income statement. The effects of the Tax Cuts and Jobs Act are discussed further in Note 3 to the financial statements. |
Regulatory activity regarding the Tax Cuts and Jobs Act
See the “Other Tax Matters - Tax Cuts and Jobs Act” section in Note 3 to the financial statements for discussion of the effects of the December 2017 enactment of the Tax Cuts and Jobs Act, including its effects on Entergy’s and the Registrant Subsidiaries’ regulatory asset/liability for income taxes.
Entergy Arkansas
Consistent with its previously stated intent to return unprotected excess accumulated deferred income taxes to customers as expeditiously as possible, Entergy Arkansas initiated a tariff proceeding in February 2018 proposing to establish a tax adjustment rider to provide retail customers with certain tax benefits of $467 million associated with the Tax Act. For the residential customer class, unprotected excess accumulated deferred income taxes were returned to customers over a 21-month period from April 2018 through December 2019. For all other customer classes, unprotected excess accumulated deferred income taxes were returned to customers over a nine-month period from April 2018 through December 2018. A true-up provision also was included in the rider, with any over- or under-returned unprotected excess accumulated deferred income taxes credited or billed to customers during the billing month of January 2020, with any residual amounts of over- or under-returned unprotected excess accumulated deferred income taxes to be flowed through Entergy Arkansas’s energy cost recovery rider. In March 2018 the APSC approved the tax adjustment rider effective with the first billing cycle of April 2018.
As discussed below, in July 2018, Entergy Arkansas made its formula rate plan filing to set its formula rate for the 2019 calendar year. A hearing was held in May 2018 regarding the APSC’s inquiries into the effects of the Tax Act, including Entergy Arkansas’s proposal to utilize its formula rate plan rider for its customers to realize the remaining benefits of the Tax Act. Entergy Arkansas’s formula rate plan rider included a netting adjustment that compared actual annual results to the allowed rate of return on common equity. In July 2018 the APSC issued an order agreeing with Entergy Arkansas’s proposal to have the effects of the Tax Act on current income tax expense flow through Entergy Arkansas’s formula rate plan rider and with Entergy Arkansas’s treatment of protected and unprotected excess accumulated deferred income taxes. The APSC also directed Entergy Arkansas to submit in the tax adjustment rider proceeding, discussed above, the adjustments to all other riders affected by the Tax Act and to include an amendment
Entergy Corporation and Subsidiaries
Notes to Financial Statements
for a true up mechanism where a rider affected by the Tax Act does not already contain a true-up mechanism. Pursuant to a 2018 settlement agreement in Entergy Arkansas’s formula rate plan proceeding, Entergy Arkansas also removed the net operating loss accumulated deferred income tax asset caused by the Tax Act from Entergy Arkansas’s tax adjustment rider. Entergy Arkansas’s compliance tariff filings were accepted by the APSC in October 2018.
Entergy Louisiana
In an electric formula rate plan settlement approved by the LPSC in April 2018 the parties agreed that Entergy Louisiana would return to customers one-half of its eligible unprotected excess deferred income taxes from May 2018 through December 2018 and return to customers the other half from January 2019 through August 2022. In addition, the settlement provided that in order to flow back to customers certain other tax benefits created by the Tax Act, Entergy Louisiana established a regulatory liability effective January 1, 2018 in the amount of $9.1 million per month to reflect these tax benefits already included in retail rates until new base rates under the formula rate plan were established in September 2018, and this regulatory liability was returned to customers over the September 2018 through August 2019 formula rate plan rate-effective period. The LPSC staff and intervenors in the settlement reserved the right to obtain data from Entergy Louisiana to confirm the determination of excess accumulated deferred income taxes resulting from the Tax Act and the analysis thereof as part of the formula rate plan review proceeding for the 2017 test year filing which, as discussed below, Entergy Louisiana filed in June 2018.
Entergy Mississippi
Entergy Mississippi filed its 2018 formula rate plan in March 2018 and included a proposal to return all of its unprotected excess accumulated deferred income taxes to customers through rates or in exchange for other assets, or a combination of both, by the end of 2018. In June 2018 the MPSC approved a stipulation filed by Entergy Mississippi and the Mississippi Public Utilities Staff in Entergy Mississippi’s formula rate plan filing that addressed Entergy Mississippi’s 2018 formula rate plan evaluation report and the ratemaking effects of the Tax Act. The stipulation provided for incorporating the reduction of the statutory federal income tax rate through Entergy Mississippi’s formula rate plan. The stipulation approved in June 2018 provided for the flow-back of protected excess accumulated deferred income taxes over the remaining lives of the assets through the formula rate plan. The stipulation also provided for the offset of unprotected excess accumulated deferred income taxes of $127.2 million against net utility plant and $2.2 million against other regulatory assets, and the return to customers of the remaining balance of unprotected excess accumulated deferred income taxes as recovery of a portion of fuel oil inventory and customer bill credits over a three-month period from July 2018 through September 2018, with an insignificant true-up reflected in the November 2018 power management rider filing. Entergy Mississippi recorded the reduction against net utility plant and other regulatory assets in June 2018. In third quarter 2018, Entergy Mississippi returned unprotected excess accumulated deferred income taxes of $25.8 million through customer bill credits and $5.8 million through the sale of fuel oil inventory.
Entergy New Orleans
After enactment of the Tax Act the City Council passed a resolution ordering Entergy New Orleans to, effective January 1, 2018, record deferred regulatory liabilities to account for the Tax Act’s effect on Entergy New Orleans’s revenue requirement and to make a filing by mid-March 2018 regarding the Tax Act’s effects on Entergy New Orleans’s operating income and rate base and potential mechanisms for customers to receive benefits of the Tax Act. The City Council’s resolution also directed Entergy New Orleans to request that Entergy Services file with the FERC for revisions of the Unit Power Sales Agreement and MSS-4 replacement tariffs to address the return of excess accumulated deferred income taxes. Entergy submitted filings of this type to the FERC.
In March 2018, Entergy New Orleans filed its response to the resolution stating that the Tax Act reduced income tax expense from what was then reflected in rates by approximately $8.2 million annually for electric operations and by approximately $1.3 million annually for gas operations. In the filing, Entergy New Orleans proposed to return to customers from June 2018 through August 2019 the benefits of the reduction in income tax expense and its unprotected excess accumulated deferred income taxes through a combination of bill credits and investments in energy efficiency
Entergy Corporation and Subsidiaries
Notes to Financial Statements
programs, grid modernization, and Smart City projects. Entergy New Orleans submitted supplemental information in April 2018 and May 2018. Shortly thereafter, Entergy New Orleans and the City Council’s advisors reached an agreement in principle that provides for benefits that will be realized by Entergy New Orleans customers through bill credits that started in July 2018 and offsets to future investments in energy efficiency programs, grid modernization, and Smart City projects, as well as additional benefits related to the filings made at the FERC. The agreement in principle was approved by the City Council in June 2018.
Entergy Texas
After enactment of the Tax Act the PUCT issued an order requiring most utilities, including Entergy Texas, beginning January 25, 2018, to record a regulatory liability for the difference between revenues collected under existing rates and revenues that would have been collected had existing rates been set using the new federal income tax rates and also for the balance of excess accumulated deferred income taxes. Entergy Texas had previously provided information to the PUCT staff and stated that it expected the PUCT to address the lower tax expense as part of Entergy Texas’s rate case expected to be filed in May 2018. Entergy Texas also stated that it would be inappropriate for the PUCT to require a refund of the reduction in income tax expense in 2018 resulting from the Act on a retroactive basis and without a comprehensive review of Entergy Texas’s cost of service and earned return on equity.
In May 2018, Entergy Texas filed its 2018 base rate case with the PUCT. Entergy Texas’s proposed rates and revenues reflected the inclusion of the federal income tax reductions due to the Tax Act. The PUCT issued an order in December 2018 establishing that 1) $25 million be credited to customers through a rider to reflect the lower federal income tax rate applicable to Entergy Texas from January 2018 through the date new rates were implemented, 2) $242.5 million of protected excess accumulated deferred income taxes be returned to customers through base rates under the average rate assumption method over the lives of the associated assets, and 3) $185.2 million of unprotected excess accumulated deferred income taxes be returned to customers through a rider. The unprotected excess accumulated deferred income taxes rider includes carrying charges and is in effect over a period of 12 months for larger customers and over a period of four years for other customers.
System Energy
In a filing made with the FERC in March 2018, Entergy proposed revisions to the Unit Power Sales Agreement, among other agreements, to reflect the effects of the Tax Act. In the filing System Energy proposed to return all of its unprotected excess accumulated deferred income taxes to its customers by the end of 2018. In May 2018 the FERC accepted System Energy’s proposed tax revisions with an effective date of June 1, 2018, subject to refund and the outcome of settlement and hearing procedures. Settlement discussions terminated in April 2019, and the hearing is scheduled for March 2020. The retail regulators of the Utility operating companies that are parties to the Unit Power Sales Agreement are challenging whether there are excess tax liabilities associated with uncertain tax positions related to nuclear decommissioning.
Fuel and purchased power cost recovery
The Utility operating companies are allowed to recover fuel and purchased power costs through fuel mechanisms included in electric and gas rates that are recorded as fuel cost recovery revenues. The difference between revenues collected and the current fuel and purchased power costs is generally recorded as “Deferred fuel costs” on the Utility operating companies’ financial statements. The table below shows the amount of deferred fuel costs as of December 31, 2019 and 2018 that Entergy expects to recover (or return to customers) through fuel mechanisms, subject to subsequent regulatory review.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
|
| | | | | | | |
| 2019 | | 2018 |
| (In Millions) |
Entergy Arkansas (a) |
| $14.0 |
| |
| $86.5 |
|
Entergy Louisiana (b) |
| $112.5 |
| |
| $136.7 |
|
Entergy Mississippi |
| ($70.4 | ) | |
| $8.0 |
|
Entergy New Orleans (b) |
| ($0.8 | ) | |
| $2.8 |
|
Entergy Texas |
| ($13.0 | ) | |
| ($19.7 | ) |
| |
(a) | Includes $67.7 million in 2019 and $67.3 million in 2018 of fuel and purchased power costs whose recovery periods are indeterminate but are expected to be recovered over a period greater than twelve months. |
| |
(b) | Includes $168.1 million in both years for Entergy Louisiana and $4.1 million in both years for Entergy New Orleans of fuel, purchased power, and capacity costs, which do not currently earn a return on investment and whose recovery periods are indeterminate but are expected to be recovered over a period greater than twelve months. |
Entergy Arkansas
Production Cost Allocation Rider
The APSC approved a production cost allocation rider for recovery from customers of the retail portion of the costs allocated to Entergy Arkansas as a result of the System Agreement proceedings, which are discussed in the “System Agreement Cost Equalization Proceedings” section below.
Energy Cost Recovery Rider
Entergy Arkansas’s retail rates include an energy cost recovery rider to recover fuel and purchased energy costs in monthly customer bills. The rider utilizes the prior calendar-year energy costs and projected energy sales for the twelve-month period commencing on April 1 of each year to develop an energy cost rate, which is redetermined annually and includes a true-up adjustment reflecting the over- or under-recovery, including carrying charges, of the energy costs for the prior calendar year. The energy cost recovery rider tariff also allows an interim rate request depending upon the level of over- or under-recovery of fuel and purchased energy costs.
In January 2014, Entergy Arkansas filed a motion with the APSC relating to its upcoming energy cost rate redetermination filing that was made in March 2014. In that motion, Entergy Arkansas requested that the APSC authorize Entergy Arkansas to exclude from the redetermination of its 2014 energy cost rate $65.9 million of incremental fuel and replacement energy costs incurred in 2013 as a result of the ANO stator incident. Entergy Arkansas requested that the APSC authorize Entergy Arkansas to retain that amount in its deferred fuel balance, with recovery to be reviewed in a later period after more information was available regarding various claims associated with the ANO stator incident. In February 2014 the APSC approved Entergy Arkansas’s request to retain that amount in its deferred fuel balance. In July 2017, Entergy Arkansas filed for a change in rates pursuant to its formula rate plan rider. In that proceeding, the APSC approved a settlement agreement agreed upon by the parties, including a provision that requires Entergy Arkansas to initiate a regulatory proceeding for the purpose of recovering funds currently withheld from rates and related to the stator incident, including the $65.9 million of deferred fuel and purchased energy costs previously noted, subject to certain timelines and conditions set forth in the settlement agreement. See the “ANO Damage, Outage, and NRC Reviews” section in Note 8 to the financial statements for further discussion of the ANO stator incident.
In March 2017, Entergy Arkansas filed its annual redetermination of its energy cost rate pursuant to the energy cost recovery rider, which reflected an increase in the rate from $0.01164 per kWh to $0.01547 per kWh. The APSC staff filed testimony in March 2017 recommending that the redetermined rate be implemented with the first billing cycle of April 2017 under the normal operation of the tariff. Accordingly, the redetermined rate went into effect on
Entergy Corporation and Subsidiaries
Notes to Financial Statements
March 31, 2017 pursuant to the tariff. In July 2017 the Arkansas Attorney General requested additional information to support certain of the costs included in Entergy Arkansas’s 2017 energy cost rate redetermination.
In March 2018, Entergy Arkansas filed its annual redetermination of its energy cost rate pursuant to the energy cost recovery rider, which reflected an increase in the rate from $0.01547 per kWh to $0.01882 per kWh. The Arkansas Attorney General filed a response to Entergy Arkansas’s annual redetermination filing requesting that the APSC suspend the proposed tariff to investigate the amount of the redetermination or, alternatively, to allow recovery subject to refund. Among the reasons the Attorney General cited for suspension were questions pertaining to how Entergy Arkansas forecasted sales and potential implications of the Tax Act. Entergy Arkansas replied to the Attorney General’s filing and stated that, to the extent there are questions pertaining to its load forecasting or the operation of the energy cost recovery rider, those issues exceed the scope of the instant rate redetermination. Entergy Arkansas also stated that potential effects of the Tax Act are appropriately considered in the APSC’s separate proceeding regarding potential implications of the tax law. The APSC general staff filed a reply to the Attorney General’s filing and agreed that Entergy Arkansas’s filing complied with the terms of the energy cost recovery rider. The redetermined rate became effective with the first billing cycle of April 2018. Subsequently in April 2018 the APSC issued an order declining to suspend Entergy Arkansas’s energy cost recovery rider rate and declining to require further investigation at that time of the issues suggested by the Attorney General in the proceeding. Following a period of discovery, the Attorney General filed a supplemental response in October 2018 raising new issues with Entergy Arkansas’s March 2018 rate redetermination and asserting that $45.7 million of the increase should be collected subject to refund pending further investigation. Entergy Arkansas filed to dismiss the Attorney General’s supplemental response, the APSC general staff filed a motion to strike the Attorney General’s filing, and the Attorney General filed a supplemental response disputing Entergy Arkansas and the APSC staff’s filing. Applicable APSC rules and processes authorize its general staff to initiate periodic audits of Entergy Arkansas’s energy cost recovery rider. In late-2018 the APSC general staff notified Entergy Arkansas it has initiated an audit of the 2017 fuel costs. The time in which the audit will be complete is uncertain at this time.
In March 2019, Entergy Arkansas filed its annual redetermination of its energy cost rate pursuant to the energy cost recovery rider, which reflected a decrease from $0.01882 per kWh to $0.01462 per kWh and became effective with the first billing cycle in April 2019. In March 2019 the Arkansas Attorney General filed a response to Entergy Arkansas’s annual adjustment and included with its filing a motion for investigation of alleged overcharges to customers in connection with the FERC’s October 2018 order in the opportunity sales proceeding. Entergy Arkansas filed its response to the Attorney General’s motion in April 2019 in which Entergy Arkansas stated its intent to initiate a proceeding to address recovery issues related to the October 2018 FERC order. In May 2019, Entergy Arkansas initiated the opportunity sales recovery proceeding, discussed below, and requested that the APSC establish that proceeding as the single designated proceeding in which interested parties may assert claims related to the appropriate retail rate treatment of the FERC October 2018 order and related FERC orders in the opportunity sales proceeding. In June 2019 the APSC granted Entergy Arkansas’s request and also denied the Attorney General’s motion in the energy cost recovery proceeding seeking an investigation into Entergy Arkansas’s annual energy cost recovery rider adjustment and referred the evaluation of such matters to the opportunity sales recovery proceeding.
Entergy Louisiana
Entergy Louisiana recovers electric fuel and purchased power costs for the billing month based upon the level of such costs incurred two months prior to the billing month. Entergy Louisiana’s purchased gas adjustments include estimates for the billing month adjusted by a surcharge or credit that arises from an annual reconciliation of fuel costs incurred with fuel cost revenues billed to customers, including carrying charges.
In July 2014 the LPSC authorized its staff to initiate an audit of the fuel adjustment clause filings by Entergy Gulf States Louisiana, whose business was combined with Entergy Louisiana in 2015. The audit includes a review of the reasonableness of charges flowed through Entergy Gulf States Louisiana’s fuel adjustment clause for the period from 2010 through 2013. In January 2019 the LPSC staff consultant issued its audit report. In its report, the LPSC staff consultant recommended that Entergy Louisiana refund approximately $900,000, plus interest, to customers based
Entergy Corporation and Subsidiaries
Notes to Financial Statements
upon the imputation of a claim of vendor fault in servicing its nuclear plant. Entergy Louisiana recorded a provision in the first quarter 2019 for the potential outcome of the audit. In August 2019, Entergy Louisiana filed direct testimony challenging the basis for the LPSC staff’s recommended disallowance and providing an alternative calculation of replacement power costs should it be determined that a disallowance is appropriate. Entergy Louisiana’s calculation would require no refund to customers.
In July 2014 the LPSC authorized its staff to initiate an audit of Entergy Louisiana’s fuel adjustment clause filings. The audit includes a review of the reasonableness of charges flowed by Entergy Louisiana through its fuel adjustment clause for the period from 2010 through 2013. In January 2019 the LPSC staff issued its audit report recommending that Entergy Louisiana refund approximately $7.3 million, plus interest, to customers based upon the imputation of a claim of vendor fault in servicing its nuclear plant. Entergy Louisiana recorded a provision in the first quarter 2019 for the potential outcome of the audit. In August 2019, Entergy Louisiana filed direct testimony challenging the basis for the LPSC staff’s recommended disallowance and providing an alternative calculation of replacement power costs should it be determined that a disallowance is appropriate. Entergy Louisiana’s calculation would require a refund to customers of approximately $4.3 million, plus interest, as compared to the LPSC staff’s recommendation of $7.3 million, plus interest. Responsive testimony was filed by the LPSC staff and intervenors in September 2019; all parties either agreed with or did not oppose Entergy Louisiana’s alternative calculation of replacement power costs.
In November 2019 the pending LPSC proceedings for the 2010-2013 Entergy Louisiana and Entergy Gulf States Louisiana audits were consolidated to facilitate a settlement of both fuel audits. In December 2019 an unopposed settlement was reached that requires a refund to legacy Entergy Louisiana customers of approximately $2.3 million, including interest, and no refund to legacy Entergy Gulf States Louisiana customers. The LPSC approved the settlement in January 2020.
In June 2016 the LPSC issued notice of audits of Entergy Louisiana’s fuel adjustment clause filings and purchased gas adjustment clause filings for the period 2014 through 2015. In recognition of the business combination that occurred in 2015, the audit notice was issued to Entergy Louisiana and also includes a review of charges to legacy Entergy Gulf States Louisiana customers prior to the business combination. The audits include a review of the reasonableness of charges flowed through Entergy Louisiana’s fuel adjustment clause for the period from 2014 through 2015 and charges flowed through Entergy Louisiana’s purchased gas adjustment clause for the period from 2012 through 2015. Discovery commenced in March 2017. No report of audit has been issued.
In May 2018 the LPSC staff provided notice of audits of Entergy Louisiana’s purchased gas adjustment clause filings. The audit includes a review of the reasonableness of charges flowed through Entergy Louisiana’s purchased gas adjustment clause for the period from 2016 through 2017. Discovery commenced in September 2018. No report of audit has been issued.
Entergy Mississippi
Entergy Mississippi’s rate schedules include an energy cost recovery rider that is adjusted annually to reflect accumulated over- or under-recoveries. Entergy Mississippi’s fuel cost recoveries are subject to annual audits conducted pursuant to the authority of the MPSC.
In January 2017 the MPSC certified to the Mississippi Legislature the audit reports of its independent auditors for the fuel year ending September 30, 2016. In November 2017 the Mississippi Public Utilities Staff separately engaged a consultant to review the September 2016 outage at the Grand Gulf Nuclear Station and to review ongoing operations at Grand Gulf. This engagement continues, and subsequently, was expanded to include all outages at Grand Gulf that occurred through 2019.
In November 2017, Entergy Mississippi filed its annual redetermination of the annual factor to be applied under the energy cost recovery rider. The calculation of the annual factor included an under-recovery of approximately
Entergy Corporation and Subsidiaries
Notes to Financial Statements
$61.5 million as of September 30, 2017. In January 2018 the MPSC approved the proposed energy cost factors effective for February 2018 bills.
In November 2018, Entergy Mississippi filed its annual redetermination of the annual factor to be applied under the energy cost recovery rider. The calculation of the annual factor included an under-recovery of approximately $57 million as of September 30, 2018. In January 2019 the MPSC approved the proposed energy cost factor effective for February 2019 bills.
In November 2019, Entergy Mississippi filed its annual redetermination of the annual factor to be applied under the energy cost recovery rider. The calculation of the annual factor included an over-recovery of approximately $39.6 million as of September 30, 2019. In January 2020 the MPSC approved the proposed energy cost factor effective for February 2020 bills.
Mississippi Attorney General Complaint
The Mississippi Attorney General filed a complaint in state court in December 2008 against Entergy Corporation, Entergy Mississippi, Entergy Services, and Entergy Power alleging, among other things, violations of Mississippi statutes, fraud, and breach of good faith and fair dealing, and requesting an accounting and restitution. The complaint is wide ranging and relates to tariffs and procedures under which Entergy Mississippi purchases power not generated in Mississippi to meet electricity demand. Entergy believes the complaint is unfounded. In December 2008 the defendant Entergy companies removed the Attorney General’s lawsuit to U.S. District Court in Jackson, Mississippi. In June 2010 the MPSC authorized the deferral of certain legal expenses associated with this litigation until it is resolved. As of December 31, 2019, Entergy Mississippi has a regulatory asset of $29.5 million for these deferred legal expenses. In April 2019 the District Court remanded the Attorney General’s lawsuit to the Hinds County Chancery Court. A hearing on procedural and dispositive motions was held in August 2019. In December 2019 the Hinds County Chancery Court issued its ruling granting the motion for summary judgment filed by the Entergy defendants. The Chancery Court found it lacked subject matter jurisdiction, and that the claims fall under the purview of the FERC. In February 2020 the Chancery Court entered a final order dismissing all claims. The order was approved by counsel for the Attorney General, and dismisses with prejudice all claims and matters in dispute and states that the plaintiff will not seek an appeal or further relief and that all matters in dispute have been resolved.
Entergy New Orleans
Entergy New Orleans’s electric rate schedules include a fuel adjustment tariff designed to reflect no more than targeted fuel and purchased power costs, adjusted by a surcharge or credit for deferred fuel expense arising from the monthly reconciliation of actual fuel and purchased power costs incurred with fuel cost revenues billed to customers, including carrying charges.
Entergy New Orleans’s gas rate schedules include a purchased gas adjustment to reflect estimated gas costs for the billing month, adjusted by a surcharge or credit similar to that included in the electric fuel adjustment clause, including carrying charges.
Due to higher fuel costs associated in part with the extended Grand Gulf outage and the partially simultaneous Union Power Block 1 planned outage, for the December 2016, January 2017, and February 2017 billing months, the City Council authorized Entergy New Orleans to cap the fuel adjustment charge billed to customers at $0.035 per kWh and to defer billing of all fuel costs in excess of the capped amount by including such costs in the over- or under-recovery account.
Due to higher fuel costs for the operating month of January 2018 resulting in part from recent cold weather, higher Henry Hub prices, and an increase in total fuel and purchased power costs associated in part with certain plant outages, Entergy New Orleans has proposed to cap the fuel adjustment charge to be billed in March 2018 to non-transmission Entergy New Orleans legacy customers and Entergy New Orleans Algiers customers at $0.035323 per kWh and $0.025446 per kWh, respectively. Entergy New Orleans has also proposed to cap the fuel adjustment charge to be billed in March 2018 for Entergy New Orleans legacy transmission customers at $0.034609 per kWh and to defer billing of all fuel costs in excess of the capped amount by including such costs in the over- or under-recovery account.
Entergy Texas
Entergy Texas’s rate schedules include a fixed fuel factor to recover fuel and purchased power costs, including interest, not recovered in base rates. Semi-annual revisions of the fixed fuel factor are made in March and September based on the market price of natural gas and changes in fuel mix. The amounts collected under Entergy Texas’s fixed fuel factor and any interim surcharge or refund are subject to fuel reconciliation proceedings before the PUCT. A fuel reconciliation is required to be filed at least once every three years and outside of a base rate case filing.
In August 2014, Entergy Texas filed an application seeking PUCT approval to implement an interim fuel refund of approximately $24.6 million for over-collected fuel costs incurred during the months of November 2012 through April 2014. This refund resulted from (i) applying $48.6 million in bandwidth remedy payments that Entergy Texas received in May 2014 related to the June - December 2005 period to Entergy Texas’s $8.7 million under-recovered fuel balance as of April 30, 2014 and (ii) netting that fuel balance against the $15.3 million bandwidth remedy payment that Entergy Texas made related to calendar year 2013 production costs. Also in August 2014, Entergy Texas filed an unopposed motion for interim rates to implement these refunds for most customers over a two-month period commencing with September 2014. The PUCT issued its order approving the interim relief in August 2014 and Entergy Texas completed the refunds in October 2014. Parties intervened in this matter, and all parties agreed that the proceeding should be bifurcated such that the proposed interim refund would become final in a separate proceeding, which refund was approved by the PUCT in March 2015. In July 2015 certain parties filed briefs in the opena PUCT proceeding asserting that Entergy Texas should refund to retail customers an additional $10.9 million in bandwidth remedy payments Entergy Texas received related to calendar
Entergy Corporation and Subsidiaries
Notes to Financial Statements
year 2006 production costs. In October 2015 an ALJ issued a proposal for decision recommending that the additional $10.9 million in bandwidth remedy payments be refunded to retail customers. In January 2016 the PUCT issued its order affirming the ALJ’s recommendation, and Entergy Texas filed a motion for rehearing of the PUCT’s decision, which the PUCT denied. In March 2016, Entergy Texas filed a complaint in Federal District Court for the Western District of Texas and a petition in the Travis County (State) District Court appealing the PUCT’s decision. The pending appeals did not stay the PUCT’s decision. In April 2016, Entergy Texas filed with the PUCT an application to refund to customers approximately $56.2 million. The refund resulted from (i) $41.8 million of fuel cost recovery over-collections through February 2016, (ii) the $10.9 million in bandwidth remedy payments,
Entergy Corporation and Subsidiaries
Notes to Financial Statements
discussed above, that Entergy Texas received related to calendar year 2006 production costs, and (iii) $3.5 million in bandwidth remedy payments that Entergy Texas received related to 2006-2008 production costs. In June 2016, Entergy Texas filed an unopposed settlement agreement that added additional over-recovered fuel costs for the months of March and April 2016. The settlement resulted in a $68 million refund. The ALJ approved the refund on an interim basis to beand it was made to most customers over a four-month period beginning with the first billing cycle of July 2016. In July 2016 the PUCT issued an order approving the interim refund. The federal appeal of the PUCT’s January 2016 decision was heard in December 2016, and the Federal District Court granted Entergy Texas’s requested relief. In January 2017 the PUCT and an intervenor filed petitions for appeal of the Federal District Court ruling to the U.S. Court of Appeals for the Fifth Circuit of the Federal District Court ruling.Circuit. Oral argument was held before the U.S. Court of Appeals for the Fifth Circuit in February 2018. In April 2018 and athe Fifth Circuit reversed the decision is pending. The Stateof the Federal District Court, reinstating the original PUCT decision. In October 2018, Entergy Texas filed notice of nonsuit in its appeal ofto the Travis County District Court regarding the PUCT’s January 2016 decision also remains pending.decision.
In July 2016, Entergy Texas filed an application to reconcile its fuel and purchased power costs for the period April 1, 2013 through March 31, 2016. Under a recent PUCT rule change, a fuel reconciliation is required to be filed at least once every three years and outside of a base rate case filing. During the reconciliation period, Entergy Texas incurred approximately $1.77 billion in Texas jurisdictional eligible fuel and purchased power expenses, net of certain revenues credited to such expenses and other adjustments. Entergy Texas estimated an over-recovery balance of approximately $19.3 million, including interest, which Entergy Texas requested authority to carry over as the beginning balance for the subsequent reconciliation period beginning Apri1April 2016. Entergy Texas also noted, however, that the estimated $19.3 million over collection was being refunded to customers as a portion of the interim fuel refund beginning with the first billing cycle of July 2016, discussed above. Entergy Texas also requested a prudence finding for each of the fuel-related contracts and arrangements entered into or modified during the reconciliation period that have not been reviewed by the PUCT in a prior proceeding. In December 2016, Entergy Texas entered into a stipulation and settlement agreement resulting in a $6 million disallowance not associated with any particular issue raised and a refund of the over-recovery balance of $21 million as of November 30, 2016, to most customers beginning April 2017 through June 2017. This settlement was developed concurrently with the stipulation and settlement agreement in the 2016 transmission cost recovery factor rider amendment discussed below, and the terms and conditions in both settlements are interdependent. The fuel reconciliation settlement was approved by the PUCT in March 2017 and the refunds were made.
In June 2017, Entergy Texas filed an application for a fuel refund of approximately $30.7 million for the months of December 2016 through April 2017. For most customers, the refunds flowed through bills for the months of July 2017 through September 2017. The fuel refund was approved by the PUCT in August 2017.
In December 2017, Entergy Texas filed an application for a fuel refund of approximately $30.5 million for the months of May 2017 through October 2017. Also in December 2017, the PUCT’s ALJ approved the refund on an interim basis. For most customers, the refunds flowed through bills beginningfrom January 2018 and will continue through March 2018. A final decisionThe fuel refund was approved by the PUCT in this matter remains pending.
Retail Rate Proceedings
Filings with the APSC (Entergy Arkansas)
Retail Rates
2015 Base Rate FilingMarch 2018.
In September 2019, Entergy Texas filed an application to reconcile its fuel and purchased power costs for the period from April 2015,2016 through March 2019. During the reconciliation period, Entergy Arkansas filed withTexas incurred approximately $1.6 billion in Texas jurisdictional eligible fuel and purchased power expenses, net of certain revenues credited to such expenses and other adjustments. Entergy Texas estimated an under-recovery balance of approximately $25.8 million, including interest, which Entergy Texas requested authority to carry over as the APSCbeginning balance for a general change in rates, charges, and tariffs.the subsequent reconciliation period beginning April 2019. The filing notified the APSC of Entergy Arkansas’s intent to implement a forward test year formula rate plan pursuant to Arkansas legislation passed in 2015, and requested a retail rate increase of $268.4 million, with a net increase in revenue of $167 million. The filing requested a 10.2% return on common equity. In September 2015 the APSC staff and intervenors filed direct testimony, with the APSC staff recommending a revenue requirement of $217.9 million and a 9.65% return on common equity. In December 2015, Entergy Arkansas, the APSC staff, and certain of the intervenorsproceeding is currently pending.
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Notes to Financial Statements
in the rate case filedRetail Rate Proceedings
Filings with the APSC a joint motion for approval of a settlement of the case that proposed a retail rate increase of approximately $225 million with a net increase in revenue of approximately $133 million; an authorized return on common equity of 9.75%; and a formula rate plan tariff that provides a +/- 50 basis point band around the 9.75% allowed return on common equity. A significant portion of the rate increase is related to Entergy Arkansas’s acquisition in March 2016 of Union Power Station Power Block 2 for a base purchase price of $237 million. The settlement agreement also provided for amortization over a 10-year period of $7.7 million of previously-incurred costs related to ANO post-Fukushima compliance and $9.9 million of previously-incurred costs related to ANO flood barrier compliance. A settlement hearing was held in January 2016. In February 2016 the APSC approved the settlement with one exception that reduced the retail rate increase proposed in the settlement by $5 million. The settling parties agreed to the APSC modifications in February 2016. The new rates were effective February 24, 2016 and began billing with the first billing cycle of April 2016. In March 2016, Entergy Arkansas made a compliance filing regarding the new rates that included an interim base rate adjustment surcharge, effective with the first billing cycle of April 2016, to recover the incremental revenue requirement for the period February 24, 2016 through March 31, 2016. The interim base rate adjustment surcharge was designed to recover a total of $21.1 million over the nine-month period from April 2016 through December 2016.(Entergy Arkansas)
2016 Formula Rate Plan FilingRetail Rates
In July 2016, Entergy Arkansas filed with the APSC its 2016 formula rate plan filing showing Entergy Arkansas’s projected earned return on common equity for the twelve months ended December 31, 2017 test period to be below the formula rate plan bandwidth. The filing requested a $67.7 million revenue requirement increase to achieve Entergy Arkansas’s target earned return on common equity of 9.75%. In October 2016, Entergy Arkansas filed with the APSC revised formula rate plan attachments with an updated request for a $54.4 million revenue requirement increase based on acceptance of certain adjustments and recommendations made by the APSC staff and other intervenors, as well as three additional adjustments identified as appropriate by Entergy Arkansas. In November 2016 a hearing was held and the APSC issued an order directing the parties to brief certain issues. In December 2016 the APSC approved the settlement agreement and the $54.4 million revenue requirement increase with approximately $25 million of the $54.4 million revenue requirement subject to possible future adjustment and refund to customers with interest. The APSC requested supplemental information for some of Entergy Arkansas’s requested nuclear expenditures. In December 2016 the APSC approved Entergy Arkansas’s formula rate plan compliance tariff, and the rates became effective with the first billing cycle of January 2017. In April 2017, Entergy Arkansas filed a motion consented to by all parties requesting that it be permitted to submit the supplemental information requested by the APSC in conjunction with its 2017 formula rate plan filing, which was subsequently made in July 2017 and is discussed below. In May 2017 the APSC approved the joint motion and proposal to review Entergy Arkansas’s supplemental information on a concurrent schedule with the 2017 formula rate plan filing. In October 2017, Entergy Arkansas and the parties to the proceeding filed a joint motion to approve a unanimous settlement agreement resolving all issues in the docket and providing for recovery of the 2017 and 2018 nuclear costs. In December 2017 the APSC approved the settlement agreement and recovery of the 2017 and 2018 nuclear costs.
2017 Formula Rate Plan Filing
In July 2017, Entergy Arkansas filed with the APSC its 2017 formula rate plan filing showing Entergy Arkansas’s projected earned return on common equity for the twelve months ended December 31, 2018 test period to be below the formula rate plan bandwidth. The filing projected a $129.7 million revenue requirement increase to achieve Entergy Arkansas’s target earned return on common equity of 9.75%. Entergy Arkansas’s formula rate plan is subject to a four4 percent annual revenue constraint and the projected annual revenue requirement increase exceeded the four4 percent, resulting in a proposed increase for the 2017 formula rate plan of $70.9 million. In October 2017, Entergy Arkansas filed with the APSC revised formula rate plan attachments that projected a $126.2 million revenue requirement increase based on acceptance of certain adjustments and recommendations made by the APSC staff and other intervenors. The revised formula rate plan filing included a proposed $71.1 million revenue requirement increase based on a revision to the four4 percent constraint calculation. In October 2017, Entergy Arkansas and the parties to the proceeding filed a joint motion to approve a unanimous settlement agreement resolving all issues in the docketproceeding and
Entergy Corporation and Subsidiaries
Notes to Financial Statements
providing for recovery of thecertain 2017 and 2018 nuclear costs. In December 2017 the APSC approved the settlement agreement and the $71.1 million revenue requirement increase, as well as Entergy Arkansas’s formula rate plan compliance tariff, and the rates became effective with the first billing cycle of January 2018.
2018 Formula Rate Plan Filing
In July 2018, Entergy Arkansas filed with the APSC its 2018 formula rate plan filing to set its formula rate for the 2019 calendar year. The filing showed Entergy Arkansas’s projected earned return on common equity for the twelve months ended December 31, 2019 test period to be below the formula rate plan bandwidth. Additionally, the filing included the first netting adjustment under the current formula rate plan for the historical test year 2017, reflecting the change in formula rate plan revenues associated with actual 2017 results when compared to the allowed rate of return on equity. The filing included a projected $73.4 millionrevenue deficiency for 2019 and a $95.6 million revenue deficiency for the 2017 historical test year, for a total revenue requirement of $169 million for this filing. By operation of the formula rate plan, Entergy Arkansas’s recovery of the revenue requirement is subject to a 4 percent annual revenue constraint. Because Entergy Arkansas’s revenue requirement in this filing exceeded the constraint, the resulting increase was limited to 4 percent of total revenue, which originally was $65.4 million but was increased to $66.7 million based upon the APSC staff’s updated calculation of 2018 revenue. In October 2018, Entergy Arkansas and the parties to the proceeding filed joint motions to approve a partial settlement agreement as to certain factual issues and agreed to brief contested legal issues. In November 2018 the APSC held a hearing and was briefed on a contested legal issue. In December 2018 the APSC issued a decision related to the initial legal brief, approved the partial settlement agreement and $66.7 million revenue requirement increase, as well as Entergy Arkansas’s formula rate plan, with updated rates going into effect for the first billing cycle of January 2019.
2019 Formula Rate Plan Filing
In July 2019, Entergy Arkansas filed with the APSC its 2019 formula rate plan filing to set its formula rate for the 2020 calendar year. The filing contained an evaluation of Entergy Arkansas’s earnings for the projected year 2020 and a netting adjustment for the historical year 2018. The total proposed formula rate plan rider revenue change designed to produce a target rate of return on common equity of 9.75% is $15.3 million, which is based upon a deficiency of approximately $61.9 million for the 2020 projected year, netted with a credit of approximately $46.6 million in the 2018 historical year netting adjustment. During 2018 Entergy Arkansas experienced higher-than expected sales volume, and actual costs were lower than forecasted. These changes, coupled with a reduced income tax rate resulting from the Tax Cuts and Jobs Act, resulted in the credit for the historical year netting adjustment. In the fourth quarter 2018,
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Entergy Arkansas recorded a provision of $35.1 million that reflected the estimate of the historical year netting adjustment that was expected to be included in the 2019 filing. In 2019, Entergy Arkansas recorded additional provisions totaling $11.5 million to reflect the updated estimate of the historical year netting adjustment included in the 2019 filing. In October 2019 other parties in the proceeding filed their errors and objections requesting certain adjustments to Entergy Arkansas’s filing that would reduce or eliminate Entergy Arkansas’s proposed revenue change. Entergy Arkansas filed its response addressing the requested adjustments in October 2019. In its response, Entergy Arkansas accepted certain of the adjustments recommended by the General Staff of the APSC that would reduce the proposed formula rate plan rider revenue change to $14 million. Entergy Arkansas disputed the remaining adjustments proposed by the parties. In October 2019, Entergy Arkansas filed a unanimous settlement agreement with the other parties in the proceeding seeking APSC approval of a revised total formula rate plan rider revenue change of $10.1 million. In its July 2019 formula rate plan filing, Entergy Arkansas proposed to recover an $11.2 million regulatory asset, amortized over five years, associated with specific costs related to the potential construction of scrubbers at the White Bluff plant. Although Entergy Arkansas does not concede that the regulatory asset lacks merit, for purposes of reaching a settlement on the total formula rate plan rider amount, Entergy Arkansas agreed not to include the White Bluff scrubber regulatory asset cost in the 2019 formula rate plan filing or future filings. Entergy Arkansas recorded a write-off in 2019 of the $11.2 million White Bluff scrubber regulatory asset. In December 2019 the APSC approved the settlement as being in the public interest and approved Entergy Arkansas’s compliance tariff effective with the first billing cycle of January 2020.
Internal Restructuring
In November 2017, Entergy Arkansas filed an application with the APSC seeking authorization to undertake a restructuring that would result in the transfer of substantially all of the assets and operations of Entergy Arkansas to a new entity, which would ultimately be owned by an existing Entergy subsidiary holding company. The restructuring is subject to regulatory review and approval by the APSC, the FERC, and the NRC. Entergy Arkansas also filed a notice with the Missouri Public Service Commission in December 2017 out of an abundance of caution, although Entergy Arkansas does not serve any retail customers in Missouri. If the APSC approves the restructuring by September 1, 2018, and the restructuring closes on or before December 1,In July 2018, Entergy Arkansas proposedfiled a settlement, reached by all parties in its applicationthe APSC proceeding, resolving all issues. The APSC approved the settlement agreement and restructuring in August 2018. Pursuant to the settlement agreement, Entergy Arkansas will credit retail customers $66$39.6 million over six years, beginning in 2019. Entergy Arkansas also received the required FERC and NRC approvals.
In FebruaryNovember 2018, Entergy Arkansas filed supplemental testimony reducing the proposed retail customer credits to $39.6 million over six years. If the APSC, the FERC, and the NRC approvals are obtained, Entergy Arkansas expects the restructuring will be consummated on or before December 1, 2018.
It is currently contemplated that Entergy Arkansas would undertakeundertook a multi-step restructuring, which would includeincluding the following:
Entergy Arkansas, would redeemInc. redeemed its outstanding preferred stock at the aggregate redemption price of approximately $32.7 million, which includes call premiums, plus accumulated and unpaid dividends, if any.million.
Entergy Arkansas, would convertInc. converted from an Arkansas corporation to a Texas corporation.
Under the Texas Business Organizations Code (TXBOC), Entergy Arkansas, will allocateInc. allocated substantially all of its assets to a new subsidiary, Entergy Arkansas Power, LLC, a Texas limited liability company (Entergy Arkansas Power), and Entergy Arkansas Power will assumeassumed substantially all of the liabilities of Entergy Arkansas, Inc., in a transaction regarded as a merger under the TXBOC. Entergy Arkansas, will remainInc. remained in existence and holdheld the membership interests in Entergy Arkansas Power.
Entergy Arkansas, will contributeInc. contributed the membership interests in Entergy Arkansas Power to an affiliate (Entergy Utility Holding Company, LLC, a Texas limited liability company and subsidiary of Entergy Corporation). As a result of the contribution, Entergy Arkansas Power will beis a wholly-owned subsidiary of Entergy Utility Holding Company, LLC.
In December 2018, Entergy Arkansas, will changeInc. changed its name to Entergy Utility Property, Inc., and Entergy Arkansas Power will then changechanged its name to Entergy Arkansas, LLC.
Upon the completion of the restructuring, Entergy Arkansas, LLC will holdholds substantially all of the assets, and will have assumed substantially all of the liabilities, of Entergy Arkansas. Arkansas, Inc. The transaction was accounted for as a transaction between entities under common control.
Entergy Arkansas may modify or supplement the stepsCorporation and Subsidiaries
Notes to be taken to effectuate the restructuring.Financial Statements
Filings with the LPSC (Entergy Louisiana)
Retail Rates - Electric
2014 Formula Rate Plan Filing
In connection with the approval of the business combination of Entergy Gulf States Louisiana and Entergy Louisiana, the LPSC authorized the filing of a single, joint, formula rate plan evaluation report for Entergy Gulf States Louisiana’s and Entergy Louisiana’s 2014 calendar year operations. The joint evaluation report was filed in September 2015 and reflected an earned return on common equity of 9.09%. As such, no adjustment to base formula rate plan revenue was required. The following adjustments were required under the formula rate plan, however: a decrease in the additional capacity mechanism for Entergy Louisiana of $17.8 million; an increase in the additional capacity mechanism for Entergy Gulf States Louisiana of $4.3 million; and a reduction of $5.5 million to the MISO cost recovery
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mechanism to collect approximately $35.7 million on a combined-company basis. Under the order approving the business combination, following completion of the prescribed review period, rates were implemented with the first billing cycle of December 2015, subject to refund. See “Entergy Louisiana and Entergy Gulf States Louisiana Business Combination” below for further discussion of the business combination. In June 2017 the LPSC staff and Entergy Louisiana filed an unopposed joint report of proceedings, which was accepted by the LPSC in June 2017, finalizing the results of this proceeding with no changes to rates already implemented.
2015 Formula Rate Plan Filing
In May 2016, Entergy Louisiana filed its formula rate plan evaluation report for its 2015 calendar year operations. The evaluation report reflected an earned return on common equity of 9.07%. As such, no adjustment to base formula rate plan revenue was required. The following other adjustments, however, were required under the formula rate plan: an increase in the legacy Entergy Louisiana additional capacity mechanism of $14.2 million; a separate increase in legacy Entergy Louisiana revenue of $10 million primarily to reflect the effects of the termination of the System Agreement; an increase in the legacy Entergy Gulf States Louisiana additional capacity mechanism of $0.5 million; a decrease in legacy Entergy Gulf States Louisiana revenue of $58.7 million primarily to reflect the effects of the termination of the System Agreement; and an increase of $11 million to the MISO cost recovery mechanism. Rates were implemented with the first billing cycle of September 2016, subject to refund. Following implementation of the as-filed rates in September 2016, there were several interim updates to Entergy Louisiana’s formula rate plan, including the one submitted in December 2016, reflecting implementation of the settlement of the Waterford 3 replacement steam generator project prudence review described below. In June 2017 the LPSC staff and Entergy Louisiana filed a joint report of proceedings, which was accepted by the LPSC in June 2017, finalizing the results of the May 2016 evaluation report, interim updates, and corresponding proceedings with no changes to rates already implemented.
Extension of MISO Cost Recovery Mechanism Rider
In November 2016, Entergy Louisiana filed with the LPSC a request to extend the MISO cost recovery mechanism rider provision of its formula rate plan. In March 2017 the LPSC staff submitted direct testimony generally supportive of a one-year extension of the MISO cost recovery mechanism and the intervenor in the proceeding did not oppose an extension for this period of time. In July 2017 an uncontested joint stipulation authorizing a one-year extension of the MISO cost recovery mechanism rider was approved.
2016 Formula Rate Plan Filing
In May 2017, Entergy Louisiana filed its formula rate plan evaluation report for its 2016 calendar year operations. The evaluation report reflected an earned return on common equity of 9.84%. As such, no adjustment to base formula rate plan revenue was required. Adjustments, however, were required under the formula rate plan; the 2016 formula rate plan evaluation report showed a decrease in formula rate plan revenue of approximately $16.9 million, comprised of a decrease in legacy Entergy Louisiana formula rate plan revenue of $3.5 million, a decrease in legacy Entergy Gulf States Louisiana formula rate plan revenue of $9.7 million, and a decrease in incremental formula rate plan revenue of $3.7 million. Additionally, the formula rate plan evaluation report called for a decrease of $40.5 million in the MISO cost recovery revenue requirement from the present level of $46.8 million to $6.3 million. Rates reflecting these adjustments were implemented with the first billing cycle of September 2017, subject to refund. In September 2017 the LPSC staff issued its report indicating that no changes to Entergy Louisiana’s original formula rate plan evaluation report were required but reserved for several issues, including Entergy Louisiana’s September 2017 update to its formula rate plan evaluation report. In July 2018, Entergy Louisiana and the LPSC staff filed an unopposed joint report setting forth a correction to the annualization calculation, the effect of which was a net $3.5 million revenue requirement reduction and indicating that there are no outstanding issues with the 2016 formula rate plan report, the supplemental report, or the interim updates. In September 2018 the LPSC approved the unopposed joint report.
Formula Rate Plan Extension RequestThrough 2019 Test Year
In August 2017, Entergy Louisiana filed a request with the LPSC seeking to extend its formula rate plan for three years (2017-2019) with limited modifications toof its terms. Those modificationsIn April 2018 the LPSC approved an unopposed joint motion filed by Entergy Louisiana and the LPSC staff that settled the matter and extended the formula rate plan for three years, providing for rates through at least August 2021. In addition to retaining the major features of the traditional formula rate plan, substantive features of the extended formula rate plan include:
a one-time resettingmid-point reset of formula rate plan revenues to a 9.95% earned return on common equity for the 2017 test year and for the St. Charles Power Station when it enters commercial operation;
a 9.8% target earned return on common equity for the 2018 and 2019 test years;
narrowing of the common equity bandwidth to plus or minus 60 basis points around the target earned return on common equity;
a cap on potential revenue increase of $35 million for the 2018 evaluation period, and $70 million for the cumulative 2018 and 2019 evaluation periods, on formula rate plan cost of service rate increases (the cap excludes rate changes associated with the transmission recovery mechanism described below and rate changes associated with additional capacity);
a framework for the flow back of certain tax benefits created by the Tax Act to customers, as described in “Regulatory activity regarding the Tax Cuts and Jobs Act” above; and
a transmission recovery mechanism providing for the opportunity to recover certain transmission-related expenditures in excess of $100 million annually for projects placed in service up to one month prior to rate change outside of sharing that is designed to operate in a fashion similar to the additional capacity mechanism.
Entergy Louisiana has indicated its intent to seek an extension of its formula rate plan on terms similar to the existing terms.
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Notes to Financial Statements
base rates to the midpoint of the band at2017 Formula Rate Plan Filing
In June 2018, Entergy Louisiana’s authorizedLouisiana filed its formula rate plan evaluation report for its 2017 calendar year operations. The 2017 test year evaluation report produced an earned return on equity of 9.95%8.16%, due in large part to revenue-neutral realignments to other recovery mechanisms. Without these realignments, the evaluation report produces an earned return on equity of 9.88% and a resulting base rider formula rate plan revenue increase of $4.8 million. Excluding the Tax Act credits provided for by the 2017 test year; narrowingtax reform adjustment mechanisms, total formula rate plan revenues were further increased by a total of $98 million as a result of the evaluation report due to adjustments to the additional capacity and MISO cost recovery mechanisms of the formula rate plan, bandwidthand implementation of the transmission recovery mechanism. In August 2018, Entergy Louisiana filed a supplemental formula rate plan evaluation report to reflect changes from the 2016 test year formula rate plan proceedings, a decrease to the transmission recovery mechanism to reflect lower actual capital additions, and a decrease to evaluation period expenses to reflect the terms of a new power sales agreement. Based on the August 2018 update, Entergy Louisiana recognized a total decrease in formula rate plan revenue of 160 basis pointsapproximately $17.6 million. Results of the updated 2017 evaluation report filing were implemented with the September 2018 billing month subject to 80 basis points;refund and review by the LPSC staff and intervenors. In accordance with the terms of the formula rate plan, in September 2018 the LPSC staff and intervenors submitted their responses to Entergy Louisiana’s original formula rate plan evaluation report and supplemental compliance updates. The LPSC staff asserted objections/reservations regarding 1) Entergy Louisiana’s proposed rate adjustments associated with the return of excess accumulated deferred income taxes pursuant to the Tax Act and the treatment of accumulated deferred income taxes related to reductions of rate base; 2) Entergy Louisiana’s reservation regarding treatment of a forward-looking mechanism that would allow regulatory asset related to certain special orders by the LPSC; and 3) test year expenses billed from Entergy Services to Entergy Louisiana. Intervenors also objected to Entergy Louisiana’s treatment of the regulatory asset related to certain special orders by the LPSC. A procedural schedule has not yet been established to resolve these issues.
Entergy Louisiana also included in its filing a presentation of an initial proposal to recover certain transmission-related costs contemporaneously with when those projects begin delivering benefits to customers.combine the legacy Entergy Louisiana requested thatand legacy Entergy Gulf States Louisiana residential rates, which combination, if approved, would be accomplished on a revenue-neutral basis intended not to affect the LPSC considerrates of other customer classes.
Commercial operation at St. Charles Power Station commenced in May 2019. In May 2019, Entergy Louisiana filed an update to its request2017 formula rate plan evaluation report to include the estimated first-year revenue requirement of $109.5 million associated with the St. Charles Power Station. The resulting interim adjustment to rates became effective with the first billing cycle of June 2019.
2018 Formula Rate Plan Filing
In May 2019, Entergy Louisiana filed its formula rate plan evaluation report for its 2018 calendar year operations. The 2018 test year evaluation report produced an earned return on common equity of 10.61% leading to a base rider formula rate plan revenue decrease of $8.9 million. While base rider formula rate plan revenue will decrease as a result of this filing, overall formula rate plan revenues will increase by approximately $118.7 million. This outcome is primarily driven by a reduction to the credits previously flowed through the tax reform adjustment mechanism and an expedited basis,increase in an effortthe transmission recovery mechanism, partially offset by reductions in the additional capacity mechanism revenue requirements and extraordinary cost items. The filing is subject to maintain review by the LPSC. Resulting rates were implemented in September 2019, subject to refund.
Entergy Louisiana’s current cycle for implementing rate adjustments, i.e., September 2018, without the need forLouisiana also included in its filing a full basepresentation of an initial proposal to combine the legacy Entergy Louisiana and legacy Entergy Gulf States Louisiana residential rates, which combination, if approved, would be accomplished on a revenue-neutral basis intended not to affect the rates of other customer classes. Entergy Louisiana contemplates that any combination of residential rates resulting from this request would be implemented with the results of the 2019 test year formula rate case proceeding. plan filing.
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Several parties have intervened in the proceeding and all parties havethe LPSC staff filed its report of objections/reservations in accordance with the applicable provisions of the formula rate plan. In its report the LPSC staff re-urged reservations with respect to the outstanding issues from the 2017 test year formula rate plan filing and disputed the inclusion of certain affiliate costs for test years 2017 and 2018. The LPSC staff objected to Entergy Louisiana’s proposal to combine residential rates but proposed the setting of a status conference to establish a procedural schedule to more fully address the issue. The LPSC staff also reserved its right to object to the treatment of the sale of Willow Glen reflected in the evaluation report and to the August 2019 compliance update, which was made primarily to update the capital additions reflected in the formula rate plan’s transmission recovery mechanism, based on limited time to review it. Additionally, since the completion of certain transmission projects, the LPSC staff has issued supplemental data requests addressing the prudence of Entergy Louisiana’s expenditures in connection with those projects. Entergy Louisiana is in the process of responding to those requests.
Investigation of Costs Billed by Entergy Services
In November 2018 the LPSC issued a notice of proceeding initiating an investigation into costs incurred by Entergy Services that are included in the retail rates of Entergy Louisiana. As stated in the notice of proceeding, the LPSC observed an increase in capital construction-related costs incurred by Entergy Services. Discovery was issued and included efforts to seek highly detailed information on a broad range of matters unrelated to the scope of the audit. There has been participatingno further activity in settlement discussions.the investigation since May 2019.
Waterford 3 Replacement Steam Generator Project
Following the completion of the Waterford 3 replacement steam generator project, the LPSC undertook a prudence review in connection with a filing made by Entergy Louisiana in April 2013 with regard to the following aspects of the replacement project: 1) project management; 2) cost controls; 3) success in achieving stated objectives; 4) the costs of the replacement project; and 5) the outage length and replacement power costs. In July 2014 the LPSC staff filed testimony recommending potential project and replacement power cost disallowances of up to $71 million, citing a need for further explanation or documentation from Entergy Louisiana. An intervenor filed testimony recommending disallowance of $141 million of incremental project costs, claiming the steam generator fabricator was imprudent. Entergy Louisiana provided further documentation and explanation requested by the LPSC staff. An evidentiary hearing was held in December 2014. At the hearing the parties maintained the positions reflected in pre-filed testimony. Entergy Louisiana believed that the replacement steam generator costs were prudently incurred and applicable legal principles supported their recovery in rates. Nevertheless, Entergy Louisiana recorded a write-off of $16 million of Waterford 3’s plant balance in December 2014 because of the uncertainty at the time associated with the resolution of the prudence review. In December 2015 the ALJ issued a proposed recommendation, which was subsequently finalized, concluding that Entergy Louisiana prudently managed the Waterford 3 replacement steam generator project, including the selection, use, and oversight of contractors, and could not reasonably have anticipated the damage to the steam generators. Nevertheless, the ALJ concluded that Entergy Louisiana was liable for the conduct of its contractor and subcontractor and, therefore, recommended a disallowance of $67 million in capital costs. Additionally, the ALJ concluded that Entergy Louisiana did not sufficiently justify the incurrence of $2 million in replacement power costs during the replacement outage. Although the ALJ’s recommendation had not yet been considered by the LPSC, after considering the progress of the proceeding in light of the ALJ recommendation, Entergy Louisiana recorded in the fourth quarter 2015 approximately $77 million in charges, including a $45 million asset write-off and a $32 million regulatory charge, to reflect that a portion of the assets associated with the Waterford 3 replacement steam generator project was no longer probable of recovery. Entergy Louisiana maintained that the ALJ’s recommendation contained significant factual and legal errors.
In October 2016 the parties reached a settlement in this matter. The settlement was approved by the LPSC in December 2016. The settlement effectively provided for an agreed-upon disallowance of $67 million of plant, which had been previously written off by Entergy Louisiana, as discussed above. The refund to customers of approximately $71 million as a result of the settlement approved by the LPSC was made to customers in January 2017. Of the $71 million of refunds, $68 million was credited to customers through Entergy Louisiana’s formula rate plan, outside of sharing, and $3 million through its fuel adjustment clause. Entergy Louisiana had previously recorded a provision of $48
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$48 million for this refund. The previously-recorded provision included the cumulative revenues recorded through December 2016 related to the $67 million of disallowed plant. An additional regulatory charge of $23 million was recorded in fourth quarter 2016 to reflect the effects of the settlement. The settlement also provided that Entergy Louisiana could retain the value associated with potential service credits agreed to by the project contractor, to the extent they are realized in the future. Following a review by the parties, an unopposed joint report of proceedings was filed by the LPSC staff and Entergy Louisiana in May 2017 and the LPSC accepted the joint report of proceedings resolving the matter.
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Notes to Financial Statements
Ninemile 6
In July 2014, Entergy Gulf States Louisiana and Entergy Louisiana filed an unopposed stipulation with the LPSC, which was subsequently approved, that estimated a first year revenue requirement associated with Ninemile 6 and provided a mechanism to update the revenue requirement as the in-service date approached. In late-December 2014, roughly contemporaneous with the unit's placement in service, a final updated estimated revenue requirement of $26.8 million for Entergy Gulf States Louisiana and $51.1 million for Entergy Louisiana was filed. The December 2014 estimate formed the basis of rates implemented effective with the first billing cycle of January 2015. In July 2015, Entergy Louisiana submitted to the LPSC a compliance filing including an estimate at completion, inclusive of interconnection costs and transmission upgrades, of approximately $648 million, or $76 million less than originally estimated, along with other project details and supporting evidence, to enable the LPSC to review the prudence of Entergy Louisiana’s management of the project. Testimony filed by the LPSC staff generally supported the prudence of the management of the project and recovery of the costs incurred to complete the project. The LPSC staff had questioned the warranty coverage for one element of the project. In October 2016 all parties agreed to a stipulation providing that 100% of Ninemile 6 construction costs was prudently incurred and is eligible for recovery from customers, but reserving the LPSC’s rights to review the prudence of Entergy Louisiana’s actions regarding one element of the project. This stipulation was approved by the LPSC in January 2017.
Union Power Station and Deactivation or Retirement Decisions for Entergy Louisiana Plants
In January 2015, Entergy Gulf States Louisiana filed its application with the LPSC for approval of the acquisition and cost recovery of two power blocks of the Union Power Station for an expected base purchase price of approximately $237 million per power block, subject to adjustments. In September 2015, Entergy Gulf States Louisiana agreed to settlement terms with all parties for Entergy Gulf States Louisiana’s purchase of the two power blocks. In October 2015 the LPSC voted unanimously to approve the uncontested settlement which finds, among other things, that acquisition of Power Blocks 3 and 4 is in the public interest and, therefore, prudent. The business combination of Entergy Gulf States Louisiana and Entergy Louisiana received regulatory approval and closed in October 2015 making Entergy Louisiana the named purchaser of Power Blocks 3 and 4 of the Union Power Station. In March 2016, Entergy Louisiana acquired Power Blocks 3 and 4 of Union Power Station for an aggregate purchase price of approximately $474 million and implemented rates to collect the estimated first-year revenue requirement with the first billing cycle of March 2016.
As a term of the LPSC-approved settlement authorizing the purchase of Power Blocks 3 and 4 of the Union Power Station, Entergy Louisiana agreed to make a filing with the LPSC to review its decisions to deactivate Ninemile 3 and Willow Glen 2 and 4 and its decision to retire Little Gypsy 1. In January 2016, Entergy Louisiana made its compliance filing with the LPSC. Entergy Louisiana, LPSC staff, and intervenors participated in a technical conference in March 2016 where Entergy Louisiana presented information on its deactivation/retirement decisions for these four units in addition to information on the current deactivation decisions for the ten-year planning horizon. Parties have requested further proceedings on the prudence of the decision to deactivate Willow Glen 2 and 4. No party contests the prudence of the decision to deactivate Willow Glen 2 and 4 or suggests reactivation of these units; however, issues have been raised related to Entergy Louisiana’s decision to give up its transmission service rights in MISO for Willow Glen 2 and 4 rather than placing the units into suspended status for the three-year term permitted by MISO. An evidentiary hearing was held in August 2017 and post-hearing briefs were submitted in October 2017. A decision is expected in 2018.
Retail Rates - Gas
In accordance with the settlement of Entergy Gulf States Louisiana’s gas rate stabilization plan for the test year ended September 30, 2012, in August 2014, Entergy Gulf States Louisiana submitted for consideration a proposal for implementation of an infrastructure rider to recover expenditures associated with strategic plant investment and relocation projects mandated by local governments. After review by the LPSC staff and inclusion of certain customer safeguards required by the LPSC staff, in December 2014, Entergy Gulf States Louisiana and the LPSC staff submitted
Entergy Corporation and Subsidiaries
Notes to Financial Statements
a joint settlement for implementation of an accelerated gas pipe replacement program providing for the replacement of approximately 100 miles of pipe over the next ten years, as well as relocation of certain existing pipe resulting from local government-related infrastructure projects, and for a rider to recover the investment associated with these projects. The rider allows for recovery of approximately $65 million over ten years. The rider recovery will be adjusted on a quarterly basis to include actual investment incurred for the prior quarter and is subject to the following conditions, among others: a ten-year term; application of any earnings in excess of 10.45% as an offset to the revenue requirement of the infrastructure rider; adherence to a specified spending plan, within plus or minus 20% annually; annual filings comparing actual versus planned rider spending with actual spending and explanation of variances exceeding 10%; and an annual true-up. The joint settlement was approved by the LPSC in January 2015. Implementation of the infrastructure rider commenced with bills rendered on and after the first billing cycle of April 2015.
2014 Rate Stabilization Plan Filing
In January 2015, Entergy Gulf States Louisiana filed with the LPSC its gas rate stabilization plan for the test year ended September 30, 2014. The filing showed an earned return on common equity of 7.20%, which resulted in a $706 thousand rate increase. In April 2015 the LPSC issued findings recommending two adjustments to Entergy Gulf States Louisiana’s as-filed results, and an additional recommendation that did not affect the results. The LPSC staff’s recommended adjustments increase the earned return on equity for the test year to 7.24%. Entergy Gulf States Louisiana accepted the LPSC staff’s recommendations and a revenue increase of $688 thousand was implemented with the first billing cycle of May 2015.
2015 Rate Stabilization Plan Filing
In January 2016, Entergy Louisiana filed with the LPSC its gas rate stabilization plan for the test year ended September 30, 2015. The filing showed an earned return on common equity of 10.22%, which is within the authorized bandwidth, therefore requiring no change in rates. In March 2016 the LPSC staff issued its report stating that the 2015 gas rate stabilization plan filing was in compliance with the exception of several issues that required additional information, explanation, or clarification for which the LPSC staff had reserved the right to further review. In July 2016 the parties to the proceeding filed an unopposed joint report and motion for entry of order accepting the report that indicated no outstanding issues remained in the filing.
In February 2016, Entergy Louisiana filed a motion requesting to extend the term of the gas rate stabilization plan in substantially similar form for an additional three-year term and included a request for sharing of non-jurisdictional compressed natural gas revenues. Following discovery and the filing of testimony by the LPSC staff, Entergy Louisiana and the LPSC submitted a joint motion for hearing an uncontested stipulated settlement resolving the proceeding. A hearing on the stipulation was held in November 2016. The ALJ issued a report of proceedings that was presented with the parties’ stipulation to the LPSC for consideration. The stipulation approving Entergy Louisiana’s requested extension of the rate stabilization plan was approved by the LPSC in December 2016.
2016 Rate Stabilization Plan Filing
In January 2017, Entergy Louisiana filed with the LPSC its gas rate stabilization plan for the test year ended September 30, 2016. The filing of the evaluation report for test year 2016 reflected an earned return on common equity of 6.37%. As part of the original filing, pursuant to the extraordinary cost provision of the rate stabilization plan, Entergy Louisiana sought to recover approximately $1.5 million in deferred operation and maintenance expenses incurred to restore service and repair damage resulting from flooding and widespread rainfall in southeast Louisiana that occurred in August 2016. Entergy Louisiana requested to recover the prudently incurred August 2016 storm restoration costs over ten years, outside of the rate stabilization plan sharing provisions. As a result, Entergy Louisiana’s filing sought an annual increase in revenue of $1.4 million. Following review of the filing, except for the proposed extraordinary cost recovery, the LPSC staff confirmed Entergy Louisiana’s filing was consistent with the principles and requirements of the rate stabilization plan. The extraordinary cost recovery request associated with the 2016 flood-related deferred operation and maintenance expenses incurred for gas operations was removed from the rate stabilization
Entergy Corporation and Subsidiaries
Notes to Financial Statements
plan pending LPSC consideration in a separate docket. In April 2017 the LPSC approved a joint report of proceedings and Entergy Louisiana submitted a revised evaluation report reflecting a $1.2 million annual increase in revenue with rates implemented with the first billing cycle of May 2017.
In connection with the joint report of proceedings accepted by the LPSC, in May 2017, Entergy Louisiana filed an application to initiate a separate proceeding to recover through the extraordinary cost provision of the gas rate stabilization plan the deferred operation and maintenance expenses of $1.4 million incurred to restore service and repair damage resulting from flooding and widespread rainfall in southeast Louisiana that occurred in August 2016. The LPSC staff submitted its direct testimony in the proceeding recommending recovery of $0.9 million. Entergy Louisiana filed rebuttal testimony responding to the LPSC staff’s recommendation. The procedural schedule was suspended to allow the parties to engage in settlement negotiations, and in February 2018 the LPSC staff and Entergy Louisiana filed an unopposed settlement. If approved by the LPSC, the settlement would provide for Entergy Louisiana to recover, over ten years, the approximately $1.4 million in deferred operation and maintenance expense and related carrying charges. The settlement further provides for recovery to commence in May 2018.
2017 Rate Stabilization Plan Filing
In January 2018, Entergy Louisiana filed with the LPSC its gas rate stabilization plan for the test year ended September 30, 2017. The filing of the evaluation report for the test year 2017 reflected an earned return on common equity of 9.06%. This earned return is below the earnings sharing band of the rate stabilization plan and results in a rate increase of $0.1 million. Due to the enactment in late-December 2017 of the Tax Cuts and Jobs Act, Entergy Louisiana did not have adequate time to reflect the effects of this tax legislation in the rate stabilization plan. As a result,In April 2018, Entergy Louisiana will filefiled a supplement to the January 2018supplemental evaluation report for the test year ended September 2017, reflecting the effects of the Tax Act, including a proposal to reflect, among other things, a 21% federal corporateuse the unprotected excess accumulated deferred income tax rate. Any rate change resultingtaxes to offset approximately $1.4 million of storm restoration deferred operation and maintenance costs incurred by Entergy Louisiana in connection with the August 2016 flooding disaster in its gas service area. The supplemental filing reflects an earned return on common equity of 10.79%. As-filed rates from the revisedsupplemental filing were implemented, subject to refund, with customers receiving a cost reduction of approximately $0.7 million effective with bills rendered on and after the first billing cycle of May 2018, as well as a $0.2 million reduction in the gas infrastructure rider effective with bills rendered on and after the first billing cycle of July 2018. In October 2019 the LPSC staff issued its report finding that Entergy Louisiana’s filing complied with the terms of the rate stabilization plan will become effectivebut recommending an additional refund of $0.7 million related to the Tax Act. A procedural schedule has not been established.
2018 Rate Stabilization Plan Filing
In January 2019, Entergy Louisiana filed with the LPSC its gas rate stabilization plan for the test year ended September 30, 2018. The filing of the evaluation report for the test year 2018 reflected an earned return on common equity of 2.69%. This earned return is below the earning sharing band of the gas rate stabilization plan and results in a rate increase of $2.8 million. Entergy Louisiana made a compliance filing in April 2019 and rates were implemented during the first billing cycle of May 2019, subject to refund and final LPSC review. The proceeding is currently in its discovery phase.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Gas Rate Stabilization Plan Extension Request
In August 2019, Entergy Louisiana submitted an application to the LPSC seeking extension of the gas rate stabilization plan for the 2019-2021 test years on the same terms as those approved for the 2018 test year. The LPSC established a procedural schedule to address this request with a hearing scheduled in May 2018.2020. Entergy Louisiana and the LPSC staff recently submitted a joint stipulation that recommends approval of the requested extension with certain modifications to the current terms, including a 9.8% evaluation period cost rate for common equity and provisions for the return of the excess accumulated deferred income tax to customers on a dollar for dollar basis in a manner consistent with IRS normalization rules. The LPSC approved the joint stipulation in January 2020.
2019 Rate Stabilization Plan Filing
In January 2020, Entergy Louisiana filed with the LPSC its gas rate stabilization plan for the test year ended September 30, 2019. The filing of the evaluation report for the test year 2019 reflected an earned return on common equity of 10.78%. This earned return exceeds the earning sharing band of the gas rate stabilization plan leading to a rate reduction of approximately $256 thousand.
Filings with the MPSC (Entergy Mississippi)
Formula Rate Plan Filings
In March 2016, Entergy Mississippi submitted its formula rate plan 2016 test year filing showing Entergy Mississippi’s projected earned return for the 2016 calendar year to be below the formula rate plan bandwidth. The filing showed a $32.6 million rate increase was necessary to reset Entergy Mississippi’s earned return on common equity to the specified point of adjustment of 9.96%, within the formula rate plan bandwidth. In June 2016 the MPSC approved Entergy Mississippi’s joint stipulation with the Mississippi Public Utilities Staff. The joint stipulation provided for a total revenue increase of $23.7 million. The revenue increase includes a $19.4 million increase through the formula rate plan, resulting in a return on common equity point of adjustment of 10.07%. The revenue increase also includes $4.3 million in incremental ad valorem tax expenses to be collected through an updated ad valorem tax adjustment rider. The revenue increase and ad valorem tax adjustment rider were effective with the July 2016 bills.
In March 2017, Entergy Mississippi submitted its formula rate plan 2017 test year filing and 2016 look-back filing showing Entergy Mississippi’s earned return for the historical 2016 calendar year and projected earned return for the 2017 calendar year to be within the formula rate plan bandwidth, resulting in no change in rates. In June 2017, Entergy Mississippi and the Mississippi Public Utilities Staff entered into a stipulation that confirmed that Entergy Mississippi’s earned returns for both the 2016 look-back filing and 2017 test year were within the respective formula rate plan bandwidths. In June 2017 the MPSC approved the stipulation, which resulted in no change in rates.
In March 2018, Entergy Mississippi submitted its formula rate plan 2018 test year filing and 2017 look-back filing showing Entergy Mississippi’s earned return for the historical 2017 calendar year and projected earned return for the 2018 calendar year, in large part as a result of the lower federal corporate income tax rate effective in 2018, to be within the formula rate plan bandwidth, resulting in no change in rates. In June 2018, Entergy Mississippi and the Mississippi Public Utilities Staff entered into a stipulation that confirmed that Entergy Mississippi’s earned returns for both the 2017 look-back filing and 2018 test year were within the respective formula rate plan bandwidths. In June 2018 the MPSC approved the stipulation, which resulted in no change in rates. See “Regulatory activity regarding the Tax Cuts and Jobs Act” above for additional discussion regarding the treatment of the effects of the lower federal corporate income tax rate.
In October 2018, Entergy Mississippi proposed revisions to its formula rate plan that would provide for a mechanism in the formula rate plan, the interim capacity rate adjustment mechanism, to recover the non-fuel related costs of additional owned capacity acquired by Entergy Mississippi, including the non-fuel annual ownership costs of the Choctaw Generating Station, as well as to allow similar cost recovery treatment for other future capacity acquisitions, such as the Sunflower Solar Facility, that are approved by the MPSC. In December 2019 the MPSC approved Entergy Mississippi’s proposed revisions to its formula rate plan to provide for an interim capacity rate adjustment mechanism, which Entergy Mississippi began billing in January 2020. The MPSC must approve recovery through the interim capacity rate adjustment for each new resource. In addition, the MPSC approved revisions to the formula rate plan which allows Entergy Mississippi to begin billing rate adjustments effective April 1 of the filing year on a temporary basis subject to refund or credit to customers, subject to final MPSC order. The MPSC also authorized Entergy Mississippi to remove vegetation management costs from the formula rate plan and recover these costs through the establishment of a vegetation management rider.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
In March 2019, Entergy Mississippi submitted its formula rate plan 2019 test year filing and 2018 look-back filing showing Entergy Mississippi’s earned return for the historical 2018 calendar year to be above the formula rate plan bandwidth and projected earned return for the 2019 calendar year to be below the formula rate plan bandwidth. The 2019 test year filing shows a $36.8 million rate increase is necessary to reset Entergy Mississippi’s earned return on common equity to the specified point of adjustment of 6.94% return on rate base, within the formula rate plan bandwidth. The 2018 look-back filing compares actual 2018 results to the approved benchmark return on rate base and shows a $10.1 million interim decrease in formula rate plan revenues is necessary. In the fourth quarter 2018, Entergy Mississippi recorded a provision of $9.3 million that reflected the estimate of the difference between the 2018 expected earned rate of return on rate base and an established performance-adjusted benchmark rate of return under the formula rate plan performance-adjusted bandwidth mechanism. In the first quarter 2019, Entergy Mississippi recorded a $0.8 million increase in the provision to reflect the amount shown in the look-back filing. In June 2019, Entergy Mississippi and the Mississippi Public Utilities Staff entered into a joint stipulation that confirmed that the 2019 test year filing showed that a $32.8 million rate increase is necessary to reset Entergy Mississippi’s earned return on common equity to the specified point of adjustment of 6.93% return on rate base, within the formula rate plan bandwidth. Additionally, pursuant to the joint stipulation, Entergy Mississippi’s 2018 look-back filing reflected an earned return on rate base of 7.81% in calendar year 2018 which is above the look-back benchmark return on rate base of 7.13%, resulting in an $11 million decrease in formula rate plan revenues on an interim basis through May 2020. In the second quarter 2019, Entergy Mississippi recorded an additional $0.9 million increase in the provision to reflect the $11 million shown in the look-back filing. In June 2019 the MPSC approved the joint stipulation with rates effective for the first billing cycle of July 2019.
Internal Restructuring
In March 2018, Entergy Mississippi filed an application with the MPSC seeking authorization to undertake a restructuring that would result in the transfer of substantially all of the assets and operations of Entergy Mississippi to a new entity, which would ultimately be held by an existing Entergy subsidiary holding company. In September 2018, Entergy Mississippi and the Mississippi Public Utilities Staff entered into and filed a joint stipulation regarding the restructuring filing. In September 2018 the MPSC issued an order accepting the stipulation in its entirety and approving the restructuring and credits of $27 million to retail customers over six years, consisting of annual payments of $4.5 million for the years 2019-2024. Entergy Mississippi also received the required FERC approval.
In November 2018, Entergy Mississippi undertook a multi-step restructuring, including the following:
Entergy Mississippi, Inc. redeemed its outstanding preferred stock, at the aggregate redemption price of approximately $21.2 million.
Entergy Mississippi, Inc. converted from a Mississippi corporation to a Texas corporation.
Under the Texas Business Organizations Code (TXBOC), Entergy Mississippi, Inc. allocated substantially all of its assets to a new subsidiary, Entergy Mississippi Power and Light, LLC, a Texas limited liability company (Entergy Mississippi Power and Light), and Entergy Mississippi Power and Light assumed substantially all of the liabilities of Entergy Mississippi, Inc., in a transaction regarded as a merger under the TXBOC. Entergy Mississippi, Inc. remained in existence and held the membership interests in Entergy Mississippi Power and Light.
Entergy Mississippi, Inc. contributed the membership interests in Entergy Mississippi Power and Light to an affiliate (Entergy Utility Holding Company, LLC, a Texas limited liability company and subsidiary of Entergy Corporation). As a result of the contribution, Entergy Mississippi Power and Light is a wholly-owned subsidiary of Entergy Utility Holding Company, LLC.
In December 2018, Entergy Mississippi, Inc. changed its name to Entergy Utility Enterprises, Inc., and Entergy Mississippi Power and Light then changed its name to Entergy Mississippi, LLC. Entergy Mississippi, LLC holds substantially all of the assets, and assumed substantially all of the liabilities, of Entergy Mississippi, Inc. The restructuring was accounted for as a transaction between entities under common control.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
In December 2018, Entergy Mississippi filed its notice of intent to implement the restructuring credit rider to allow Entergy Mississippi to return credits of $27 million to retail customers over six years. In January 2019 the MPSC approved the proposed restructuring credit adjustment factor, which is effective for bills rendered beginning February 2019.
Filings with the City Council (Entergy New Orleans)
Retail Rates
See “Algiers Asset Transfer” below for discussion of the Algiers asset transfer. As a provision of the settlement agreement approved by the City Council in May 2015 providing for the transfer from Entergy Louisiana to Entergy New Orleans of certain assets that supported the provision of service to Entergy Louisiana’s customers in Algiers, asset transfer, it was agreed that, with limited exceptions, no action may be taken with respect to Entergy New Orleans’s base rates until rates are implemented from a base rate case that must be filed for its electric and gas operations in 2018. This provision eliminated the formula rate plan applicable to Algiers operations. The limited exceptions included continued implementation of the then-remaining two years of the four-year phased-in rate increase for the Algiers area and certain exceptional cost increases or decreases in the base revenue requirement. An additional provision of the settlement agreement allowed for continued recovery of the revenue requirement associated with the capacity and energy from Ninemile 6 received by Entergy New Orleans under a power purchase agreement with Entergy Louisiana (Algiers PPA). The settlement authorized Entergy New Orleans to recover the remaining revenue requirement related to the Algiers PPA through base rates charged to Algiers customers. The settlement also provided for continued implementation of the Algiers MISO recovery rider.
In addition to the Algiers PPA, Entergy New Orleans has a separate power purchase agreement with Entergy Louisiana for 20% of the capacity and energy from Ninemile 6 (Ninemile PPA), which commenced operation in December 2014. Initially, recovery of the non-fuel costs associated with the Ninemile PPA was authorized through a special Ninemile 6 rider billed only to Entergy New Orleans customers outside of Algiers.
In August 2015, Entergy New Orleans filed an application with the City Council seeking authorization to proceed with the purchase of Union Power Block 1, with an expected base purchase price of approximately $237 million, subject to adjustments, and seeking approval of the recovery of the associated costs. In November 2015 the City Council issued written resolutions and an order approving an agreement in principle between Entergy New Orleans and City Council advisors providing that the purchase of Union Power Block 1 and related assets by Entergy New Orleans is prudent and in the public interest. The City Council authorized expansion of the terms of the purchased power and capacity acquisition cost recovery rider to recover the non-fuel purchased power expense from Ninemile 6, the revenue requirement associated with the purchase of Power Block 1 of the Union Power Station, and a credit to customers of $400 thousand monthly beginning June 2016 in recognition of the decrease in other operation and maintenance expenses that would result with the deactivation of Michoud Units 2 and 3. In March 2016, Entergy New Orleans purchased Power Block 1 of the Union Power Station for approximately $237 million and initiated recovery of these costs with March 2016 bills. In July 2016, Entergy New Orleans and the City Council Utility Committee agreed to a temporary increase in the Michoud credit to customers to a total of $1.4 million monthly for August 2016 through December 2016.
A 2008 rate case settlement included $3.1 million per year in electric rates to fund the Energy Smart energy efficiency programs. The rate settlement provided an incentive for Entergy New Orleans to meet or exceed energy savings targets set by the City Council and provided a mechanism for Entergy New Orleans to recover lost contribution to fixed costs associated with the energy savings generated from the energy efficiency programs. In January 2015 the City Council approved funding for the Energy Smart program from April 2015 through March 2017 using the remainder of the approximately $12.8 million of 2014 rough production cost equalization funds, with any remaining costs being recovered through the fuel adjustment clause. This funding methodology was modified in November 2015 when the City Council directed Entergy New Orleans to use a combination of guaranteed customer savings related to a prior agreement with the City Council and rough production cost equalization funds to cover program costs prior to recovering any costs through the fuel adjustment clause. In April 2017 the City Council approved an implementation plan for the Energy Smart program from April 2017 through December 2019. The City Council directed that the $11.8 million balance reported for Energy Smart funds be used to continue funding the program for Entergy New Orleans’s legacy customers and that the Energy Smart Algiers program continue to be funded through the Algiers fuel adjustment clause, until additional customer funding is required for the legacy customers. In September 2017, Entergy New Orleans filed a supplemental plan and proposed several options for an interim cost recovery mechanism necessary to recover program
Entergy Corporation and Subsidiaries
Notes to Financial Statements
costs during the period between when existing funds directed to Energy Smart programs are depleted (estimated to be June 2018) and when new rates from the anticipated 2018 combined rate case, which will includeincludes a cost recovery mechanism for Energy Smart funding, take effect (estimated to be August 2019). Entergy New Orleans requested that the City Council approve a cost recovery mechanism prior to June 2018.effect. In December 2017 the City Council approved an energy efficiency cost recovery rider as an interim funding mechanism for Energy Smart, subject to verification that no additional funding sources exist. In June 2018 the City Council also approved a resolution recommending that Entergy New Orleans allocate approximately $13.5 million of benefits resulting from the Tax Act to Energy Smart. In December 2019, Entergy New Orleans filed an application with the City Council seeking approval of an implementation plan for the Energy Smart program from April 2020 through December 2022. Entergy New Orleans proposed to recover the costs of the program through mechanisms previously approved by the City Council or through the energy efficiency cost recovery rider, which was approved in the 2018 combined rate case resolution. In January 2020 the City Council’s advisors recommended that the City Council allow Entergy New Orleans to earn a utility performance incentive of 7% of Energy Smart costs for each year in which Entergy New Orleans achieves 100% of the City Council’s savings targets for Energy Smart. The City Council is expected to decide on the matter in February 2020.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
In September 2018, Entergy New Orleans filed an electric and gas base rate case with the City Council. The filing requested a 10.5% return on equity for electric operations with opportunity to earn a 10.75% return on equity through a performance adder provision of the electric formula rate plan in subsequent years under a formula rate plan and requested a 10.75% return on equity for gas operations. The proposed electric rates in the revised filing reflect a net reduction of $20.3 million. The reduction in electric rates includes a base rate increase of $135.2 million, of which $131.5 million is associated with moving costs currently collected through fuel and other riders into base rates, plus a request for an advanced metering surcharge to recover $7.1 million associated with advanced metering infrastructure, offset by a net decrease of $31.1 million related to fuel and other riders. The filing also included a proposed gas rate decrease of $142 thousand. Entergy New Orleans’s rates reflected the inclusion of federal income tax reductions due to the Tax Act and the provisions of a previously-approved agreement in principle determining how the benefits of the Tax Act would flow. Entergy New Orleans included cost of service studies for electric and gas operations for the twelve months ended December 31, 2017 and the projected twelve months ending December 31, 2018. In addition, Entergy New Orleans included capital additions expected to be placed into service for the period through December 31, 2019. Entergy New Orleans based its request for a change in rates on the projected twelve months ending December 31, 2018.
The filing’s major provisions included: (1) a new electric rate structure, which realigns the revenue requirement associated with capacity and long-term service agreement expense from certain existing riders to base revenue, provides for the recovery of the cost of advanced metering infrastructure, and partially blends rates for Entergy New Orleans’s customers residing in Algiers with customers residing in the remainder of Orleans Parish through a three-year phase-in; (2) contemporaneous cost recovery riders for investments in energy efficiency/demand response, incremental changes in capacity/long-term service agreement costs, grid modernization investment, and gas infrastructure replacement investment; and (3) formula rate plans for both electric and gas operations. In February 2019 the City Council’s advisors and several intervenors filed testimony in response to Entergy New Orleans’s application. The City Council’s advisors recommended, among other things, overall rate reductions of approximately $33 million in electric rates and $3.8 million in gas rates. Certain intervenors recommended overall rate reductions of up to approximately $49 million in electric rates and $5 million in gas rates. An evidentiary hearing was held in June 2019, and the record and post-hearing briefs were submitted in July 2019.
In October 2019 the City Council’s Utility Committee approved a resolution for a change in electric and gas rates for consideration by the full City Council that included a 9.35% return on common equity, an equity ratio of the lesser of 50% or Entergy New Orleans’s actual equity ratio, and a total reduction in revenues that Entergy New Orleans initially estimated to be approximately $39 million ($36 million electric; $3 million gas). At its November 7, 2019 meeting, the full City Council approved the resolution that had previously been approved by the City Council’s Utility Committee. Based on the approved resolution, in the fourth quarter 2019 Entergy New Orleans recorded an accrual of $10 million that reflects the estimate of the revenue billed in 2019 to be refunded to customers in 2020 based on an August 2019 effective date for the rate decrease. Entergy New Orleans also recorded a total of $12 million in regulatory assets for rate case costs and information technology costs associated with integrating Algiers customers with Entergy New Orleans’s legacy system and records. Entergy New Orleans also transferred $10 million of retired general plant costs to a regulatory asset to be recovered over a 20-year period.
The resolution directed Entergy New Orleans to submit a compliance filing within 30 days of the date of the resolution to facilitate the eventual implementation of rates, including all necessary calculations and conforming rate schedules and riders. The electric formula rate plan rider includes, among other things, 1) a provision for forward-looking adjustments to include known and measurable changes realized up to 12 months after the evaluation period; 2) a decoupling mechanism; and 3) recognition that Entergy New Orleans is authorized to make an in-service adjustment to the formula rate plan to include the non-fuel cost of the New Orleans Power Station in rates, unless the two pending appeals in the New Orleans Power Station proceeding have not concluded. Under this circumstance, Entergy New Orleans shall be permitted to defer the New Orleans Power Station non-fuel costs, including the cost of capital, until Entergy New Orleans commences non-fuel cost recovery. After taking into account the requirements for submission of the compliance filing, the total annual revenue requirement reduction required by the resolution was refined to approximately $45 million ($42 million electric, including $29 million in rider reductions; $3 million gas). In January
Entergy Corporation and Subsidiaries
Notes to Financial Statements
2020 the City Council’s advisors found that the rates calculated by Entergy New Orleans and reflected in the December 2019 compliance filing should be implemented, except with respect to the City Council-approved energy efficiency cost recovery rider, which rider calculation should take into account events to be determined by the City Council in the future. Also in response to the resolution, Entergy New Orleans filed timely a petition for appeal and judicial review and for stay of or injunctive relief alleging that the resolution is unlawful in failing to produce just and reasonable rates. Based on the general acceptance of Entergy New Orleans’s compliance filing, however, during the pendency of its appeal Entergy New Orleans expects to implement the compliance filing rates in April 2020. A hearing on the requested injunction was scheduled in Civil District Court for February 2020, but by joint motion of the City Council and Entergy New Orleans, the Civil District Court issued an order for a limited remand to the City Council to consider a potential agreement in principle/stipulation at its February 20, 2020 meeting. On February 17, 2020, Entergy New Orleans filed with the City Council an agreement in principle between Entergy New Orleans and the City Council’s advisors. On February 20, 2020, the full City Council voted to approve the proposed agreement in principle and issued a resolution modifying the required treatment of certain accumulated deferred income taxes. As a result of the agreement in principle, the total annual revenue requirement reduction will be approximately $45 million ($42 million electric, including $29 million in rider reductions; and $3 million gas). As a result, Entergy New Orleans will fully implement new rates by April 2020. The merits of the appeal will be subject to a separate procedural schedule issued by the Civil District Court.
Internal Restructuring
In July 2016, Entergy New Orleans filed an application with the City Council seeking authorization to undertake a restructuring that would result in the transfer of substantially all of the assets and operations of Entergy New Orleans, Inc. to a new entity, which would ultimately be owned by an existing Entergy subsidiary holding company. The restructuring was subject to regulatory review and approval by the City Council and the FERC. In May 2017 the City Council adopted a resolution approving the proposed internal restructuring pursuant to an agreement in principle with the City Council advisors and certain intervenors. Pursuant to the agreement in principle, Entergy New Orleans would credit retail customers $10 million in 2017, $1.4 million in the first quarter of the year after the transaction closes, and $117,500 each month in the second year after the transaction closes until such time as new base rates go into effect as a result of the anticipatedthen-anticipated 2018 base rate case.case (which has subsequently been filed). Entergy New Orleans began crediting retail customers in June 2017. In June 2017 the FERC approved the transaction and, pursuant to the agreement in principle, Entergy New Orleans will provide additional credits to retail customers of $5 million in each of the years 2018, 2019, and 2020.
In November 2017, pursuant to the agreement in principle, Entergy New Orleans undertook a multi-step restructuring, including the following:
Entergy New Orleans, Inc. redeemed its outstanding preferred stock at a price of approximately $21 million, which included a call premium of approximately $819,000, plus any accumulated and unpaid dividends.
Entergy New Orleans, Inc. converted from a Louisiana corporation to a Texas corporation.
Under the Texas Business Organizations Code (TXBOC), Entergy New Orleans, Inc. allocated substantially all of its assets to a new subsidiary, Entergy New Orleans Power, LLC, a Texas limited liability company (Entergy New Orleans Power), and Entergy New Orleans Power assumed substantially all of the liabilities of Entergy New Orleans, Inc., in a transaction regarded as a merger under the TXBOC. Entergy New Orleans, Inc. remained in existence and held the membership interests in Entergy New Orleans Power.
Entergy New Orleans, Inc. contributed the membership interests in Entergy New Orleans Power to an affiliate (Entergy Utility Holding Company, LLC, a Texas limited liability company and subsidiary of Entergy Corporation). As a result of the contribution, Entergy New Orleans Power is a wholly-owned subsidiary of Entergy Utility Holding Company, LLC.
In December 2017, Entergy New Orleans, Inc. changed its name to Entergy Utility Group, Inc., and Entergy New Orleans Power then changed its name to Entergy New Orleans, LLC. Entergy New Orleans, LLC holds substantially all of the assets, and has assumed substantially all of the liabilities, of Entergy New Orleans, Inc. The restructuring was accounted for as a transaction between entities under common control.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Filings with the PUCT and Texas Cities (Entergy Texas)
Retail Rates
20112018 Base Rate Case
In November 2011,May 2018, Entergy Texas filed a base rate case requesting a $112 million base rate increase reflecting a 10.6% return on common equity based on an adjusted June 2011 test year. The rate case also proposed a purchased power recovery rider. On January 12, 2012,with the PUCT voted not to address the purchased power recovery rider in the rate case, but the PUCT voted to set a baseline in the rate case proceeding that would be applicable if a purchased
Entergy Corporation and Subsidiaries
Notes to Financial Statements
power capacity rider is approved in a separate proceeding. In April 2012 the PUCT Staff filed direct testimony recommending a base rate increase of $66 million and a 9.6% return on common equity. The PUCT Staff, however, subsequently filed a statement of position in the proceeding indicating that it was still evaluating the position it would ultimately take in the case regarding Entergy Texas’s recovery of purchased power capacity costs and Entergy Texas’s proposal to defer its MISO transition expenses. In April 2012, Entergy Texas filed rebuttal testimony indicating a revised request for a $105 million base rate increase. A hearing was held in late-April through early-May 2012.
In September 2012 the PUCT issued an order approving a $28 million rate increase, effective July 2012. The order included a finding that “a return on common equity (ROE) of 9.80 percent will allow [Entergy Texas] a reasonable opportunity to earn a reasonable return on invested capital.” The order also provided for increases in depreciation rates and the annual storm reserve accrual. The order also reduced Entergy Texas’s proposed purchased power capacity costs, stating that they are not known and measurable; reduced Entergy Texas’s regulatory assets associated with Hurricane Rita; excluded from rate recovery capitalized financially-based incentive compensation; included $1.6 million of MISO transition expense in base rates; and reduced Entergy’s Texas’s fuel reconciliation recovery by $4 million because the PUCT disagreed with the line-loss factor used in the calculation. After considering the progress of the proceeding in light of the PUCT order, Entergy Texas recorded in the third quarter 2012 an approximate $24 million charge to recognize that assets associated with Hurricane Rita, financially-based incentive compensation, and fuel recovery are no longer probable of recovery. Entergy Texas believed that it was entitled to recover these prudently incurred costs, however, and it filed a motion for rehearing regarding these and several other issues in the PUCT’s order on October 4, 2012. Several other parties also filed motions for rehearing of the PUCT’s order. The PUCT subsequently denied rehearing of substantive issues. Several parties, including Entergy Texas, appealed various aspects of the PUCT’s order to the Travis County District Court. A hearing was held in July 2014. In October 2014 the Travis County District Court issued an order upholding the PUCT’s decision except as to the line-loss factor issue referenced above, which was found in favor of Entergy Texas. In November 2014, Entergy Texas and other parties, including the PUCT, appealed the Travis County District Court decision to the Third Court of Appeals. Oral argument before the court panel was held in September 2015. In April 2016 the Third Court of Appeals issued its opinion affirming the District Court’s decision on all points. Entergy Texas petitioned the Texas Supreme Court to hear its appeal of the Third Court’s ruling. In September 2017 the Texas Supreme Court denied the petitions for review. Entergy Texas filed a motion for rehearing of the Texas Supreme Court’s denial of the petition for review. In January 2018 the Texas Supreme Court denied Entergy Texas’s motion for rehearing.
Distribution cost recovery factor (DCRF) rider
In September 2015, Entergy Texas filed to amend its DCRF rider. Entergy Texas requestedseeking an increase in recovery underbase rates and rider rates of approximately $166 million, of which $48 million is associated with moving costs currently being collected through riders into base rates such that the ridertotal incremental revenue requirement increase is approximately $118 million. The base rate case was based on a 12-month test year ending December 31, 2017. In addition, Entergy Texas included capital additions placed into service for the period of $6.5 million, forApril 1, 2013 through December 31, 2017, as well as a total collection of $10.1 million annually from retail customers. post-test year adjustment to include capital additions placed in service by June 30, 2018.
In October 2015 intervenors and PUCT staff filed testimony opposing, in part, Entergy Texas’s request. In November 2015, Entergy Texas and2018 the parties filed an unopposed settlement agreementresolving all issues in the proceeding and supporting documents. The settlement established an annual revenue requirement of $8.65 milliona motion for the amended DCRF rider, with the resultinginterim rates effective for usage on and after October 17, 2018. The unopposed settlement reflects the following terms: a base rate increase of $53.2 million (net of costs realigned from riders and including updated depreciation rates), a $25 million refund to reflect the lower federal income tax rate applicable to Entergy Texas from January 1, 2016.25, 2018 through the date new rates are implemented, $6 million of capitalized skylining tree hazard costs will not be recovered from customers, $242.5 million of protected excess accumulated deferred income taxes, which includes a tax gross-up, will be returned to customers through base rates under the average rate assumption method over the lives of the associated assets, and $185.2 million of unprotected excess accumulated deferred income taxes, which includes a tax gross-up, will be returned to customers through a rider. The unprotected excess accumulated deferred income taxes rider will include carrying charges and will be in effect over a period of 12 months for large customers and over a period of four years for other customers. The settlement also provides for the deferral of $24.5 million of costs associated with the remaining book value of the Neches and Sabine 2 plants, previously taken out of service, to be recovered over a ten-year period and the deferral of $20.5 million of costs associated with Hurricane Harvey to be recovered over a 12-year period, each beginning in October 2018. The settlement provides final resolution of all issues in the matter, including those related to the Tax Act. In October 2018 the ALJ granted the unopposed motion for interim rates to be effective for service rendered on or after October 17, 2018. In December 2018 the PUCT issued an order approving the unopposed settlement.
In January 2019, Entergy Texas filed for recovery of rate case expenses totaling $7.2 million. The amounts requested primarily include internal and external expenses related to litigating the 2018 base rate case. Parties filed testimony in April 2019 recommending a disallowance ranging from $3.2 million to $4.2 million of the $7.2 million requested. In May 2019, Entergy Texas filed rebuttal testimony responding to the parties’ positions. In September 2019 an order was issued abating the procedural schedule and scheduled hearing to allow the finalization of a settlement in principle reached among the parties. The settlement provides for a black box disallowance of $1.4 million. In the third quarter 2019, Entergy Texas recorded a provision for the 2018 base rate case expenses based on the settlement in principle. In October 2019 the settlement was filed for review by the PUCT. In February 2020 the PUCT approved the settlement agreement in February 2016.settlement.
Distribution Cost Recovery Factor (DCRF) Rider
In June 2017, Entergy Texas filed an application to amend its DCRF rider by increasing the total collection from $8.65 million to approximately $19 million. In July 2017, Entergy Texas, the PUCT staff, and the two other parties in the proceeding entered into an unopposed stipulation and settlement agreement resulting in an amended DCRF annual revenue requirement of $18.3 million, with the resulting rates effective for usage no later than October 1, 2017.million. In September 2017 the PUCT issued its final order approving the unopposed stipulation and settlement agreement. The amended DCRF rider rates became effective for usage on and after September 1, 2017. DCRF rates were set to 0 upon implementation of new base rates on October 17, 2018, as described above in the discussion of the 2018 base rate case.
Transmission cost recovery factor (TCRF) rider
In September 2015, Entergy Texas filed for a TCRF rider requesting a $13 million increase, incremental to base rates. Testimony was filed in November 2015, with the PUCT staff and other parties proposing various disallowances involving, among other things, MISO charges, vegetation management costs, and bad debt expenses
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Notes to Financial Statements
that would reduce the requested increase by approximately $2 million. In addition to those recommended disallowances, a number of parties recommended thatMarch 2019, Entergy Texas’s request be reduced by an additional $3.4 million to account for load growth since base rates were last set. A hearing on the merits was held in December 2015. In February 2016 a State Office of Administrative Hearings ALJ issued a proposal for decision recommending thatTexas filed with the PUCT disallowa request to set a new DCRF rider. The proposed new DCRF rider is designed to collect approximately $2$3.2 million annually from Entergy Texas’s $13 million request, but recommending that the PUCT not accept the load growth offset.retail customers based on its capital invested in distribution between January 1, 2018 and December 31, 2018. In June 2016 the PUCT indicated that it would take up in a future rulemaking project the issue of whether a load growth adjustment should apply to a TCRF. In July 2016September 2019 the PUCT issued an order generally acceptingapproving rates, which had been effective on an interim basis since June 2019, at the proposal for decision but declining to adjust the TCRF baseline in two instances as recommended by the ALJ, which resulted in a total annual allowance of approximately $10.5 million. The PUCT also ordered its staff and Entergy Texas to track all spare autotransformer transfers going forward so that it could address the appropriate accounting treatment and prudence of such transferslevel proposed in Entergy Texas’s next base rate case. Entergy Texas implemented the TCRF rider beginning with September 2016 bills.application.
Transmission Cost Recovery Factor (TCRF) Rider
In September 2016, Entergy Texas filed with the PUCT a request to amend its TCRF rider. The proposed amended TCRF rider iswas designed to collect approximately $29.5 million annually from Entergy Texas’s retail customers. This amount includes the approximately $10.5 million annually that Entergy Texas is currently authorized to collect through the TCRF rider, as discussed above. In December 2016, concurrent with the 2016 fuel reconciliation stipulation and settlement agreement discussed above, Entergy Texas and the PUCT staff reached a settlement agreeing to the amended TCRF annual revenue requirement of $29.5 million. As discussed above, the terms of the two settlements are interdependent. The PUCT approved the settlement and issued a final order in March 2017. Entergy Texas implemented the amended TCRF rider beginning with bills covering usage on and after March 20, 2017. TCRF rates were set to 0 upon implementation of new base rates on October 17, 2018, as described above in the 2018 base rate case discussion.
In December 2018, Entergy Texas filed with the PUCT a request to set a new TCRF rider. The proposed new TCRF rider is designed to collect approximately $2.7 million annually from Entergy Texas’s retail customers based on its capital invested in transmission between January 1, 2018 and September 30, 2018. In April 2019 parties filed testimony proposing a load growth adjustment, which would fully offset Entergy Texas’s proposed TCRF revenue requirement. In July 2019 the PUCT granted Entergy Texas’s application as filed to begin recovery of the requested $2.7 million annual revenue requirement, rejecting opposing parties’ proposed adjustment; however, the PUCT found that the question of prudence of the actual investment costs should be determined in Entergy Texas’s next rate case similar to the procedure used for the costs recovered through the DCRF rider. In October 2019 the PUCT issued an order on a motion for rehearing, clarifying and affirming its prior order granting Entergy Texas’s application as filed. Also in October 2019 a second motion for rehearing was filed, and Entergy Texas filed a response in opposition to the motion. The second motion for rehearing was overruled by operation of law. In December 2019, Texas Industrial Energy Consumers filed an appeal to the PUCT order in district court alleging that the PUCT erred in declining to apply a load growth adjustment.
In August 2019, Entergy Texas filed with the PUCT a request to amend its TCRF rider. The proposed new TCRF rider is designed to collect approximately $19.4 million annually from Entergy Texas’s retail customers based on its capital invested in transmission between January 1, 2018 and June 30, 2019, which is $16.7 million in incremental annual revenue above the $2.7 million approved in the prior pending TCRF proceeding. In November 2019, Entergy Texas filed an unopposed stipulation and settlement agreement providing for recovery of the requested revenue requirement. In January 2020 the PUCT issued an order approving the unopposed settlement.
Advanced Metering Infrastructure (AMI) Filings
Entergy Arkansas
In September 2016, Entergy Arkansas filed an application seeking a finding from the APSC that Entergy Arkansas’s deployment of AMI is in the public interest. Entergy Arkansas proposed to replace existing meters with advanced meters that enable two-way data communication; design and build a secure and reliable network to support such communications; and implement support systems. AMI is intended to serve as the foundation of Entergy Arkansas’s modernized power grid. The filing included an estimate of implementation costs for AMI of $208 million.The filingmillion and identified a number of quantified and unquantified benefits, and Entergy Arkansas provided a cost benefit analysis showing that its AMI deployment is expected to produce a nominal net benefit to customers of $406 million. Entergy Arkansas also sought to continue to include in rate base the remaining book value of existing meters, which was approximately $57 million at December 31, 2015, that will be retired as part of the AMI deployment and also to depreciate those assets using current depreciation rates.benefits. Entergy Arkansas proposed a 15-year depreciable life for the new advanced meters, the three-year deployment of which is expected to beginbegan in January 2019. Deployment of the communications network is expected to beginbegan in 2018. Entergy Arkansas proposed to include the AMI deployment costs and the quantified benefits in future formula rate plan filings, and the 2018 costs were approved in the 2017 formula rate plan filing. In June 2017 the APSC staff and Arkansas Attorney General filed direct testimony. The APSC staff generally supported Entergy Arkansas’s AMI deployment conditioned on various recommendations. The Arkansas Attorney General’s consultant primarily recommended denial of Entergy Arkansas’s application but alternatively suggested recommendations in the event the APSC approves Entergy Arkansas’s proposal. Entergy Arkansas filed rebuttal testimony in June 2017, substantially accepting the APSC staff’s recommendations. In August 2017, Entergy Arkansas and the parties to the proceeding filed a joint motion to approve a unanimous settlement agreement. In October 2017 the APSC issued an order finding that Entergy Arkansas’s AMI deployment is in the public interest and approving the settlement agreement subject to a minor modification. Entergy Arkansas expectsis recovering the AMI deployment costs and the quantified benefits through its formula rate plan. Entergy Arkansas will
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Notes to Financial Statements
recover the undepreciated balance of its existing meters through a regulatory asset to be amortized over 15 years. Entergy Arkansas has begun discussions withyears, as approved by the other parties to implement the items in the settlement agreement including pre-pay and time of use programs.APSC.
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Notes to Financial Statements
Entergy Louisiana
In November 2016, Entergy Louisiana filed an application seeking a finding from the LPSC that Entergy Louisiana’s deployment of advanced electric and gas metering infrastructure is in the public interest. Entergy Louisiana proposed to deploy advanced meters that enable two-way data communication; design and build a secure and reliable network to support such communications; and implement support systems. AMI is intended to serve as the foundation of Entergy Louisiana’s modernized power grid. The filing included an estimate of implementation costs for AMI of $330 million. The filingmillion and identified a number of quantified and unquantified benefits, and Entergy Louisiana provided a cost/benefit analysis showing that its combined electric and gas AMI deployment is expected to produce a nominal net benefit to customers of $607 million. Entergy Louisiana also sought to continue to include in rate base the remaining book value, approximately $92 million at December 31, 2015, of the existing electric meters and also to depreciate those assets using current depreciation rates.benefits. Entergy Louisiana proposed a 15-year useful life for the new advanced meters, the three-year deployment of which is expected to beginbegan in 2019. TheDeployment of the communications network deployment is expected to begin by late-2018, after the necessary information technology infrastructure isbegan in place.2018. Entergy Louisiana proposed to recover the cost of AMI through the implementation of a customer charge, net of certain benefits, phased in over the period 2019 through 2022. The parties reached an uncontested stipulation permitting implementation of Entergy Louisiana’s proposed AMI system, with modifications to the proposed customer charge. In July 2017 the LPSC approved the stipulation. Entergy Louisiana expects towill recover the undepreciated balance of its existing meters through a regulatory asset to be amortized at current depreciation rates.rates, as approved by the LPSC.
Entergy Mississippi
In November 2016, Entergy Mississippi filed an application seeking an order from the MPSC granting a certificate of public convenience and necessity and finding that Entergy Mississippi’s deployment of AMI is in the public interest. Entergy Mississippi proposed to replace existing meters with advanced meters that enable two-way data communication; to design and build a secure and reliable network to support such communications; and to implement support systems. AMI is intended to serve as the foundation of Entergy Mississippi’s modernized power grid. The filing included an estimate of implementation costs for AMI of $132 million. The filingmillion and identified a number of quantified and unquantified benefits, and Entergy Mississippi provided a cost benefit analysis showing that its AMI deployment is expected to produce a nominal benefit to customers of $496 million over a 15-year period, which when netted against the costs of AMI results in $183 million of net customer benefits. Entergy Mississippi also sought to continue to include in rate base the remaining book value, approximately $56 million at December 31, 2015, of existing meters that will be retired as part of the AMI deployment and also to depreciate those assets using current depreciation rates. Entergy Mississippi proposed a 15-year depreciable life for the new advanced meters, the three-year deployment of which is expected to beginbegan in 2019, subject to approval by the MPSC, with deployment2019. Deployment of the communications network expected to beginbegan in 2018. Entergy Mississippi proposed to include the AMI deployment costs and the quantified benefits in existing rate mechanisms, primarily through future formula rate plan filings and/or future energy cost recovery rider schedule re-determinations, as applicable. In May 2017 the Mississippi Public Utilities Staff and Entergy Mississippi entered into and filed a joint stipulation supporting Entergy Mississippi’s filing, and the MPSC issued an order approving the filing without material changes, finding that Entergy Mississippi’s deployment of AMI is in the public interest and granting a certificate of public convenience and necessity. The MPSC order also confirmed that Entergy Mississippi shall continue to include in rate base the remaining book value of existing meters that will be retired as part of the AMI deployment and also to depreciate those assets using current depreciation rates. In June 2018, as part of the order approving the joint stipulation between the Mississippi Public Utilities Staff and Entergy Mississippi addressing Entergy Mississippi’s 2018 formula rate plan evaluation report and the ratemaking effects of the Tax Act, the MPSC approved the acceleration of the recovery of substantially all of Entergy Mississippi’s existing customer meters in anticipation of AMI deployment.
Entergy New Orleans
In October 2016, Entergy New Orleans filed an application seeking a finding from the City Council that Entergy New Orleans’s deployment of advanced electric and gas metering infrastructure is in the public interest. Entergy New Orleans proposed to deploy advanced meters that enable two-way data communication; design and build a secure and reliable network to support such communications; and implement support systems. AMI is intended to serve as the foundation of Entergy New Orleans’s modernized power grid. The filing included an estimate of implementation costs for AMI of $75 million. The filingmillion and identified a number of quantified and unquantified benefits, and Entergy New
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Notes to Financial Statements
Orleans provided a cost/benefit analysis showing that its combined electric and gas AMI deployment is expected to produce a nominal net benefit to customers of $101 million. Entergy New Orleans also sought to continue to include in rate base the remaining book value, approximately $21 million at December 31, 2015, of the existing electric meters and also to depreciate those assets using current depreciation rates.benefits. Entergy New Orleans proposed a 15-year depreciable life for the new advanced meters, the three-year deployment of which is expected to begin in 2019.meters. Deployment of the information technology infrastructure began in 2017 and deployment of the communications network is expected to beginbegan in 2018. Entergy New Orleans proposed to
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Notes to Financial Statements
recover the cost of AMI through the implementation of a customer charge, net of certain benefits, phased in over the period 2019 through 2022. The City Council’s advisors filed testimony in May 2017 recommending the adoption of AMI subject to certain modifications, including the denial of Entergy New Orleans’s proposed customer charge as a cost recovery mechanism. In January 2018 a settlement was reached between the City Council’s advisors and Entergy New Orleans. In February 2018 the City Council approved the settlement, which deferred cost recovery to the 2018 Entergy New Orleans rate case, but also stated that an adjustment for 2018-2019 AMI costs can be filed in the rate case and that, for all subsequent AMI costs, the mechanism to be approved in the 2018 rate case will allow for the timely recovery of such costs. In April 2018 the City Council adopted a resolution directing Entergy New Orleans to explore the options for accelerating the deployment of AMI. In June 2018 the City Council approved a one-year acceleration of AMI in its service area for an incremental $4.4 million. Entergy New Orleans began deployment of AMI during the first quarter of 2019 and expects to complete deployment by the end of 2020. Entergy New Orleans will recover the undepreciated balance of its existing meters through a regulatory asset to be amortized on a straight-line basis over 12 years, as approved by the City Council.
Entergy Texas
In April 2017 the Texas legislature enacted legislation that extends statutory support for AMI deployment to Entergy Texas and directs that if Entergy Texas elects to deploy AMI, it shall do so as rapidly as practicable. In July 2017, Entergy Texas filed an application seeking an order from the PUCT approving Entergy Texas’s deployment of AMI. Entergy Texas proposed to replace existing meters with advanced meters that enable two-way data communication; design and build a secure and reliable network to support such communications; and implement support systems. AMI is intended to serve as the foundation of Entergy Texas’s modernized power grid. The filing included an estimate of implementation costs for AMI of $132 million. The filingmillion and identified a number of quantified and unquantified benefits, with Entergy Texas showing that its AMI deployment is expected to produce nominal net operational cost savings to customers of $33 million. Entergy Texas also sought to continue to include in rate base the remaining book value, approximately $41 million at December 31, 2016, of existing meters that will be retired as part of the AMI deployment and also to depreciate those assets using current depreciation rates.benefits. Entergy Texas proposed a seven-year depreciable life for the new advanced meters, the three-year deployment of which is expected to begin in 2019.meters. Entergy Texas also proposed a surcharge tariff to recover the reasonable and necessary costs it has and will incur under the deployment plan for the full deployment of advanced meters. Further, Entergy Texas sought approval of fees that would be charged to customers who choose to opt out of receiving service through an advanced meter and instead receive electric service with a non-standard meter. In October 2017, Entergy Texas and other parties entered into and filed an unopposed stipulation and settlement agreement permitting deployment of AMI with limited modifications. The PUCT approved the stipulation and settlement agreement in December 2017. Entergy Texas implemented the AMI surcharge tariff beginning with January 2018 bills. As of December 31, 2019, Entergy Texas has a regulatory liability related to the collection of the surcharge from customers. Consistent with the approval, deployment of the communications network is expected to beginbegan in 2018.2018 and the three-year deployment of the advanced meters began in 2019. Entergy Texas expects towill recover the remaining net book valueundepreciated balance of its existing meters through a regulatory asset to be amortized at current depreciation rates.
Entergy Louisiana and Entergy Gulf States Louisiana Business Combination
Entergy Louisiana and Entergy Gulf States Louisiana filed an application with the LPSC in September 2014 seeking authorization to undertake transactions that would result in the combination of Entergy Louisiana and Entergy Gulf States Louisiana into a single public utility. An uncontested stipulated settlement (stipulated settlement) was filed with the LPSC in July 2015. Through the stipulated settlement, the parties agreed to terms upon which to recommend that the LPSC find that the business combination was in the public interest. The stipulated settlement, which was either joined, or unopposed, by all parties to the LPSC proceeding, represented a compromise of stakeholder positions and was the result of an extensive period of analysis, discovery, and negotiation. The stipulated settlement provided $107 million in guaranteed customer benefits during the first nine years following the transaction’s close. Additionally, the combined company would honor the 2013 Entergy Louisiana and Entergy Gulf States Louisiana rate case settlements, including the commitments that (1) there would be no rate increase for legacy Entergy Gulf States Louisiana customers for the 2014 test year, and (2) through the 2016 test year formula rate plan, Entergy Louisiana (as a combined entity)
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Notes to Financial Statements
would not raise rates, by more than $30 million, net of the $10 million rate increase included in the Entergy Louisiana legacy formula rate plan. The stipulated settlement also provided that Entergy Gulf States Louisiana and Entergy Louisiana would be permitted to defer certain external costs that were incurred to achieve the business combination’s customer benefits. In 2015 deferrals of $16 million for these external costs were recorded, and they are being amortized over a 10-year period. The LPSC approved the business combination in August 2015.
On October 1, 2015, the businesses formerly conducted by Entergy Louisiana and Entergy Gulf States Louisiana were combined into a single public utility. With the completion of the business combination, Entergy Louisiana holds substantially all of the assets, and has assumed the liabilities, of Entergy Louisiana and Entergy Gulf States Louisiana. The combination was accounted for as a transaction between entities under common control. See Note 3 to the financial statements for further discussion of the customer credits resulting from the business combination.
Algiers Asset Transfer (Entergy Louisiana and Entergy New Orleans)
In October 2014, Entergy Louisiana and Entergy New Orleans filed an application with the City Council seeking authorization to undertake a transaction that would result in the transfer from Entergy Louisiana to Entergy New Orleans of certain assets that supported the provision of service to Entergy Louisiana’s customers in Algiers. In April 2015 the FERC issued an order approving the Algiers assets transfer. In May 2015 the parties filed a settlement agreement authorizing the Algiers assets transfer and the settlement agreement was approved by a City Council resolution in May 2015. On September 1, 2015, Entergy Louisiana transferred its Algiers assets to Entergy New Orleans for a purchase price of approximately $85 million. Entergy New Orleans paid Entergy Louisiana $59.6 million, including final true-ups, from available cash and issued a note payable to Entergy Louisiana in the amount of $25.5 million.PUCT.
System Agreement Cost Equalization Proceedings
Prior to its final termination of the System Agreement in 2016, the Utility operating companies historically engaged in the coordinated planning, construction, and operation of generating and bulk transmission facilities under the terms of the System Agreement.that agreement. Entergy Arkansas terminated its participation in the System Agreement in December 2013. Entergy Mississippi terminated its participation in the System Agreement in November 2015. The System Agreement terminated with respect to itsthe remaining participants in August 2016.
Although the System Agreement has terminated, certain of the Utility operating companies’ retail regulators continue to pursue litigation involving the System Agreement at the FERC and in federal courts. The proceedings include challenges to the allocation of costs as defined by the System Agreement and to other matters.
In June 2005 the FERC issued a decision in System Agreement litigation that had been commenced by the LPSC, and essentially affirmed its decision in a December 2005 order on rehearing. The decision included, among other things:
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Notes to Financial Statements
The FERC’s conclusion that the System Agreement no longer roughly equalizesequalized total production costs among the Utility operating companies.
In order to reach rough production cost equalization, the FERC imposed a bandwidth remedy by which each company’s total annual production costs willwould have to be within +/- 11% of Entergy System average total annual production costs.
In calculating the production costs for this purpose under the FERC’s order, output from the Vidalia hydroelectric power plant will not reflect the actual Vidalia price for the year but is priced at that year’s average price paid by Entergy Louisiana for the exchange of electric energy under Service Schedule MSS-3 of the System Agreement, thereby reducing the amount of Vidalia costs reflected in the comparison of the Utility operating companies’ total production costs.
The remedy ordered by the FERC in 2005 required no refunds and became effective based on calendar year 2006 production costs andwith the first reallocation payments were made in 2007.
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The FERC’s decision reallocated total production costs of the Utility operating companies whose relative total production costs expressed as a percentage of Entergy System average production costs are outside an upper or lower bandwidth. This was accomplished by payments from Utility operating companies whose production costs were more than 11% below Entergy System average production costs to Utility operating companies whose production costs were more than the Entergy System average production cost, with payments going first to those Utility operating companies whose total production costs were farthest above the Entergy System average.
The LPSC, APSC, MPSC, and the Arkansas Electric Energy Consumers appealed the FERC’s December 2005 decision to the United States Court of Appeals for the D.C. Circuit. Entergy and the City of New Orleans intervened in the various appeals. The D.C. Circuit issued its decision in April 2008. The D.C. Circuit concluded that the FERC’s orders had failed to adequately explain both its conclusion that it was prohibited from ordering refunds for the 20-month period from September 13, 2001 - May 2, 2003 and its determination to implement the bandwidth remedy commencing on January 1, 2006, rather than June 1, 2005. The D.C. Circuit remanded the case to the FERC for further proceedings on those two issues.
In October 2011 the FERC issued an order addressing the D.C. Circuit remand on the two issues. On the first issue, the FERC concluded that it did have the authority to order refunds, but decided that it would exercise its equitable discretion and not require refunds for the 20-month period from September 13, 2001 - May 2, 2003. Because the ruling on refunds relied on findings in the interruptible load proceeding, which is discussed in a separate section below,FERC proceeding, the FERC concluded that this refund ruling willwould be held in abeyance pending the outcome of the rehearing requests in the interruptible loadother proceeding. On the second issue, the FERC reversed its prior decision and ordered that the prospective bandwidth remedy begin on June 1, 2005 (the date of its initial order in the proceeding) rather than January 1, 2006, as it had previously ordered. Pursuant to the October 2011 order, Entergy was required to calculate bandwidth payments for the period June - December 2005 utilizing the bandwidth formula tariff prescribed by the FERC that was filed in a December 2006 compliance filing and accepted by the FERC in an April 2007 order.
In March 2015, in light of a December 2014 decision by the D.C. Circuit in the interruptible load proceeding, Entergy filed with the FERC a motion to establish a briefing schedule on refund issues and an initial brief addressing refund issues. The initial brief argued that the FERC, in response to the D.C. Circuit decision, should clarify its policy on refunds and find that refunds are not required in this proceeding. In October 2015 the FERC issued three orders related to the commencement of the remedy on June 1, 2005 and the inclusion of interest for the period June 1, 2005 through December 31, 2005. Specifically, the FERC rejected Entergy’s request for rehearing of its decision to include interest for the seven-month period. The FERC also rejected Entergy’s request for rehearing of the order rejecting the compliance filing with regard to the issue of interest. Finally, the FERC set for hearing and settlement procedures the 2014 compliance filing that included the bandwidth calculation for the seven months June 1, 2005 through December 31, 2005. In setting the compliance filing for hearing, the FERC rejected the APSC’s protest that Entergy Arkansas should not be subject to the filing because Entergy Arkansas would be making the payments during a period following its exit from the System Agreement. In January 2018 the D.C.Circuit affirmed the FERC decision that Entergy Arkansas was subject to the filing.
In December 2011, Entergy filed with the FERC its compliance filing that providesprovided the payments and receipts among the Utility operating companies pursuant to the FERC’s October 2011 order. The APSC, the LPSC, the PUCT, and other parties intervened in the December 2011 compliance filing proceeding, and the APSC and the LPSC also filed protests. The filing showsshowed the following payments/receipts among the Utility operating companies:
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|
| |
| Payments (Receipts) |
| (In Millions) |
Entergy Arkansas | $156 |
Entergy Louisiana | ($75) |
Entergy Mississippi | ($33) |
Entergy New Orleans | ($5) |
Entergy Texas | ($43) |
Entergy Arkansas made its payment in January 2012. In February 2012, Entergy Arkansas filed for an interim adjustment to its production cost allocation rider requesting that the $156 million be collected from customers over the 22-month period from March 2012 through December 2013. In March 2012 the APSC issued an order stating that
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Notes to Financial Statements
the payment can be recovered from retail customers through the production cost allocation rider, subject to refund. The LPSC and the APSC requested rehearing of the FERC’s October 2011 order.
In February 2014 the FERC issued a rehearing order addressing its October 2011 order. The FERC denied the LPSC’s request for rehearing on the issues of whether the bandwidth remedy should be made effective earlier than June 1, 2005, and whether refunds should be ordered for the 20-month refund effective period. The FERC granted the LPSC’s rehearing request on the issue of interest on the bandwidth payments/receipts for the June - December 2005 period, requiring that interest be accrued from June 1, 2006 until the date those bandwidth payments/receipts are made. Also in February 2014 the FERC issued an order rejecting the December 2011 compliance filing that calculated the bandwidth payments/receipts for the June - December 2005 period. The FERC order required a new compliance filing that calculates the bandwidth payments/receipts for the June - December 2005 period based on monthly data for the seven individual months including interest pursuant to the February 2014 rehearing order. Entergy sought rehearing of the February 2014 order with respect to the FERC’s determinations regarding interest. In April 2014 the LPSC filed a petition for review of the FERC’s October 2011 and February 2014 orders with the U.S. Court of Appeals for the D.C. Circuit. In August 2017 the D.C. Circuit issued a decision addressingdenying the LPSC’s appeal of the FERC’s October 2011 and February 2014 orders. On the issue of the FERC’s implementation of the prospective remedy as of June 2005 and whether the bandwidth remedy should be extended for an additional 17 months in years 2004-2005, the D.C. Circuit affirmed the FERC’s implementation of the remedy and denied the LPSC’s appeal. On the issue of whether the operating companies should be required to issue refunds for the 20-month period from September 2001 to May 2003, the D.C. Circuit granted the FERC’s request for agency reconsideration and remanded that issue back to the FERC for further proceedings as requested by all parties to the appeal. In response to the D.C. Circuit’s remand, various parties filed briefs with the FERC addressing whether the FERC should require the Utility operating companies to issue refunds for the 20-month refund period from September 2001 to May 2003. The LPSC argued in favor of such remands and Entergy has opposed the LPSC’s request. In an order issued in November 2019, the FERC ruled that refunds are not appropriate for the 20-month refund period.
In April and May 2014, Entergy filed with the FERC an updated compliance filing that providesprovided the payments and receipts among the Utility operating companies pursuant to the FERC’s February 2014 orders. The filing showsshowed the following net payments and receipts, including interest, among the Utility operating companies:
|
| |
| Payments (Receipts) |
| (In Millions) |
Entergy Arkansas | $68 |
Entergy Louisiana | ($10) |
Entergy Mississippi | ($11) |
Entergy New Orleans | $2 |
Entergy Texas | ($49) |
These payments were made in May 2014. The LPSC, City Council, and APSC filed protests.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The hearing on the bandwidth calculation for the seven months June 1, 2005 through December 31, 2005 occurred in July 2016. The presiding judge issued an initial decision in November 2016. In the initial decision, the presiding judge agreed with the Utility operating companies’ position that: (1) interest on the bandwidth payments for the 2005 test period should be accrued from June 1, 2006 until the date that the bandwidth payments for that calculation are paid, which is consistent with how the Utility operating companies performed the calculation; and (2) a portion of Entergy Louisiana’s 2001-vintage Louisiana state net operating loss accumulated deferred income tax that results from the Vidalia tax deduction should be excluded from the 2005 test period bandwidth calculation. Various participants filed briefs on exceptions and/or briefs opposing exceptions, or both, related to the initial decision, including the LPSC, the APSC, the FERC trial staff, and Entergy Services. TheIn May 2018 the FERC issued an order affirming the initial decision is pending beforeand ordered a comprehensive recalculation of the FERC.bandwidth payments/receipts for the seven months June 1,
Entergy Corporation and Subsidiaries
Notes to Financial Statements
2005 through December 31, 2005 and a recalculation of the 2006 and 2007 test years as a result of limited revisions. Entergy filed the comprehensive recalculation of the bandwidth payments/receipts for the seven months June 1, 2005 through December 31, 2005 and the 2006 and 2007 test years in July 2018. The filing shows the additional following payments and receipts among the Utility operating companies:
|
| |
| Payments (Receipts) |
| (In Millions) |
Entergy Arkansas | ($4) |
Entergy Louisiana | ($23) |
Entergy Mississippi | $16 |
Entergy New Orleans | $5 |
Entergy Texas | $6 |
These payments were made in July 2018. In May 2019, the FERC accepted the July 2018 compliance filing, and the LPSC sought rehearing of that decision in June 2019. In December 2019 the FERC denied the LPSC’s request for rehearing, and the LPSC appealed the FERC’s prior orders to the D.C. Circuit in January 2020.
In the course of these proceedings the FERC rejected the APSC’s protest that Entergy Arkansas should not be subject to the 2014 compliance filing because Entergy Arkansas would be making the payments during a period following its exit from the System Agreement. In January 2018 the D.C. Circuit affirmed the FERC decision that Entergy Arkansas was subject to the compliance filing.
Rough Production Cost Equalization Rates
Each May from 2007 through 2016 Entergy filed with the FERC the rates to implement the FERC’s orders in the System Agreement proceeding. These filings showed the following payments/receipts among the Utility operating companies were necessary to achieve rough production cost equalization as defined by the FERC’s orders:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Payments (Receipts) |
| 2007 | | 2008 | | 2009 | | 2010 | | 2011 | | 2012 | | 2013 | | 2014 |
| (In Millions) |
Entergy Arkansas |
| $278 |
| |
| $252 |
| |
| $390 |
| |
| $47 |
| |
| $77 |
| |
| $41 |
| |
| $— |
| |
| $— |
|
Entergy Louisiana |
| ($203 | ) | |
| ($160 | ) | |
| ($247 | ) | |
| ($25 | ) | |
| ($12 | ) | |
| ($41 | ) | |
| $— |
| |
| $— |
|
Entergy Mississippi |
| ($34 | ) | |
| ($20 | ) | |
| ($24 | ) | |
| ($21 | ) | |
| ($40 | ) | |
| $— |
| |
| $— |
| |
| $— |
|
Entergy New Orleans |
| $— |
| |
| ($7 | ) | |
| $— |
| |
| ($1 | ) | |
| ($25 | ) | |
| $— |
| |
| ($15 | ) | |
| ($15 | ) |
Entergy Texas |
| ($41 | ) | |
| ($65 | ) | |
| ($119 | ) | |
| $— |
| |
| $— |
| |
| $— |
| |
| $15 |
| |
| $15 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Payments (Receipts) |
| 2007 | | 2008 | | 2009 | | 2010 | | 2011 | | 2012 | | 2013 | | 2014 |
| (In Millions) |
Entergy Arkansas |
| $252 |
| |
| $252 |
| |
| $390 |
| |
| $41 |
| |
| $77 |
| |
| $41 |
| |
| $— |
| |
| $— |
|
Entergy Louisiana |
| ($211 | ) | |
| ($160 | ) | |
| ($247 | ) | |
| ($22 | ) | |
| ($12 | ) | |
| ($41 | ) | |
| $— |
| |
| $— |
|
Entergy Mississippi |
| ($41 | ) | |
| ($20 | ) | |
| ($24 | ) | |
| ($19 | ) | |
| ($40 | ) | |
| $— |
| |
| $— |
| |
| $— |
|
Entergy New Orleans |
| $— |
| |
| ($7 | ) | |
| $— |
| |
| $— |
| |
| ($25 | ) | |
| $— |
| |
| ($15 | ) | |
| ($15 | ) |
Entergy Texas |
| ($30 | ) | |
| ($65 | ) | |
| ($119 | ) | |
| $— |
| |
| $— |
| |
| $— |
| |
| $15 |
| |
| $15 |
|
The Utility operating companies recorded accounts payable or accounts receivable to reflect the rough production cost equalization payments and receipts required to implement the FERC’s remedy. When accounts payable were recorded, a corresponding regulatory asset was recorded for the right to collect the payments from customers. When accounts receivable were recorded, a corresponding regulatory liability was recorded for the obligations to pass the receipts on to customers. No payments were required in 2016 or 2015 to implement the FERC’s remedy based on calendar year 2015 production costs and 2014 production costs, respectively. The System Agreement terminated in August 2016.
The APSC approved a production cost allocation rider for recovery from customers of the retail portion of the costs allocated to Entergy Arkansas. Entergy Texas recovered its 2013 rough production cost equalization payment over three years beginning April 2014. Entergy Texas included its 2014 rough production cost equalization payment as a component of an interim fuel refund made in 2014. Management believes that any changes in the allocation of production costs resulting from the FERC’s decision and related retail proceedings should result in similar rate changes for retail customers, subject to specific circumstances that have caused trapped costs.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The following rough production cost equalization rate proceedings are still ongoing.
2010 Rate Filing Based on Calendar Year 2009 Production Costs
In May 2010, Entergy filed with the FERC the 2010 rates in accordance with the FERC’s orders in the System Agreement proceeding, and supplemented the filing in September 2010. Several parties intervened in the proceeding at the FERC, including the LPSC and the City Council, which also filed protests. In July 2010 the FERC accepted Entergy’s proposed rates for filing, effective June 1, 2010, subject to refund. After an abeyance of the proceeding schedule, a hearing was held in March 2014 and in December 2015 the FERC issued an order. Among other things, the December 2015 order directed Entergy to submit a compliance filing. In January 2016 the LPSC, the APSC, and Entergy filed requests for rehearing of the FERC’s December 2015 order. In February 2016, Entergy submitted the compliance filing ordered in the December 2015 order. The result of the true-up payments and receipts for the recalculation of production costs resulted in the following payments/receipts among the Utility operating companies:
Entergy Corporation and Subsidiaries
Notes to Financial Statements
|
| |
| Payments (Receipts) |
| (In Millions) |
Entergy Arkansas | $2 |
Entergy Louisiana | $6 |
Entergy Mississippi | ($4) |
Entergy New Orleans | ($1) |
Entergy Texas | ($3) |
In September 2016 the FERC accepted the February 2016 compliance filing subject to a further compliance filing made in November 2016. The further compliance filing was required as a result of an order issued in September 2016 ruling on the January 2016 rehearing requests filed by the LPSC, the APSC, and Entergy. In the order addressing the rehearing requests, the FERC granted the LPSC’s rehearing request and directed that interest be calculated on the payment/receipt amounts. The FERC also granted the APSC’s and Entergy’s rehearing request and ordered the removal of both securitized asset accumulated deferred income taxes and contra-securitization accumulated deferred income taxes from the calculation. In November 2016, Entergy submitted its compliance filing in response to the FERC’s order on rehearing. The compliance filing included a revised refund calculation of the true-up payments and receipts based on 2009 test year data and interest calculations. The LPSC protested the interest calculations. In November 2017 the FERC issued an order rejecting the November 2016 compliance filing. The FERC determined that the payments detailed in the November 2016 compliance filing did not include adequate interest for the payments from Entergy Arkansas to Entergy Louisiana because it did not include interest on the principal portion of the payment that was made in February 2016. In December 2017, Entergy recalculated the interest pursuant to the November 2017 order. As a result of the recalculations, Entergy Arkansas owed very minor payments to Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans.
2011 Rate Filing Based on Calendar Year 2010 Production Costs
In May 2011, Entergy filed with the FERC the 2011 rates in accordance with the FERC’s orders in the System Agreement proceeding. Several parties intervened in the proceeding at the FERC, including the LPSC, which also filed a protest. In July 2011 the FERC accepted Entergy’s proposed rates for filing, effective June 1, 2011, subject to refund. After an abeyance of the proceeding schedule, in December 2014 the FERC consolidated the 2011 rate filing with the 2012, 2013, and 2014 rate filings for settlement and hearing procedures. See discussion below regarding the consolidated settlement and hearing procedures in connection with this proceeding.
2012 Rate Filing Based on Calendar Year 2011 Production Costs
In May 2012, Entergy filed with the FERC the 2012 rates in accordance with the FERC’s orders in the System Agreement proceeding. Several parties intervened in the proceeding at the FERC, including the LPSC, which also filed a protest. In August 2012 the FERC accepted Entergy’s proposed rates for filing, effective June 2012, subject to refund. After an abeyance of the proceeding schedule, in December 2014 the FERC consolidated the 2012 rate filing with the 2011, 2013, and 2014 rate filings for settlement and hearing procedures. See discussion below regarding the consolidated settlement and hearing procedures in connection with this proceeding.
2013 Rate Filing Based on Calendar Year 2012 Production Costs
In May 2013, Entergy filed with the FERC the 2013 rates in accordance with the FERC’s orders in the System Agreement proceeding. Several parties intervened in the proceeding at the FERC, including the LPSC, which also filed a protest. The City Council intervened and filed comments related to including the outcome of a related FERC proceeding in the 2013 cost equalization calculation. In August 2013 the FERC issued an order accepting the 2013 rates, effective June 1, 2013, subject to refund. After an abeyance of the proceeding schedule, in December 2014 the FERC consolidated the 2013 rate filing with the 2011, 2012, and 2014 rate filings for settlement and hearing procedures.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
See discussion below regarding the consolidated settlement and hearing procedures in connection with this proceeding.
2014 Rate Filing Based on Calendar Year 2013 Production Costs
In May 2014, Entergy filed with the FERC the 2014 rates in accordance with the FERC’s orders in the System Agreement proceeding. Several parties intervened in the proceeding at the FERC, including the LPSC, which also filed a protest. The City Council intervened and filed comments. In December 2014 the FERC issued an order accepting the 2014 rates, effective June 1, 2014, subject to refund, set the proceeding for hearing procedures, and consolidated the 2014 rate filing with the 2011, 2012, and 2013 rate filings for settlement and hearing procedures. See discussion below regarding the consolidated settlement and hearing procedures in connection with this proceeding.
Consolidated 2011, 2012, 2013, and 2014 Rate Filing Proceedings
As discussed above, in December 2014 the FERC consolidated the 2011, 2012, 2013, and 2014 rate filings for settlement and hearing procedures. In May 2015, Entergy filed direct testimony in the consolidated rate filings and the LPSC filed direct testimony concerning its complaint proceeding that is consolidated with the rate filings, challenging certain components of the pending bandwidth calculations for prior years. Hearings occurred in November 2015, and the ALJ issued an initial decision in July 2016. In the initial decision, the ALJ generally agreed with Entergy’s bandwidth calculations with one exception on the accounting related to the Waterford 3 sale/leaseback. Briefs were filed in September 2016 and the proceeding is pending.
Utility Operating Company Termination of System Agreement Participation
Entergy Arkansas and Entergy Mississippi ceased participating in the System Agreement effective December 18, 2013 and November 7, 2015, respectively. Entergy Louisiana, Entergy New Orleans, and Entergy Texas terminated participation in the System Agreement on August 31, 2016, which resulted in the termination of the System Agreement in its entirety pursuant to a settlement agreement approved by the FERC in December 2015.
In December 2013 the FERC set one issue for hearing involving whether and how the benefits associated with settlement with Union Pacific regarding certain coal delivery issues should be allocated among Entergy Arkansas and the other Utility operating companies post-termination of the System Agreement. In December 2014 a FERC ALJ issued an initial decision finding that Entergy Arkansas would realize benefits after December 18, 2013 from the 2008 settlement agreement between Entergy Services, Entergy Arkansas, and Union Pacific, related to certain coal delivery issues. The ALJ further found that all of the Utility operating companies should share in those benefits pursuant to a methodology proposed by the MPSC. The Utility operating companies and other parties to the proceeding filed briefs on exceptions and/or briefs opposing exceptions with the FERC challenging various aspects of the December 2014 initial decision. In March 2016 the FERC issued an opinion affirming the December 2014 initial decision with regard to the determination that there were benefits related to the Union Pacific settlement, which were realized post-Entergy Arkansas’s December 2013 withdrawal from the System Agreement, that should be shared with the other Utility operating companies utilizing the methodology proposed by the MPSC and trued-up to actual coal volumes purchased. In May 2016, Entergy made a compliance filing that provided the calculation of Union Pacific settlement benefits utilizing the methodology adopted by the initial decision, trued-up for the actual volumes of coal purchased. The payments were made in May 2016. In August 20162018 the FERC issued an order accepting Entergy’s compliance filing. Also in August 2016affirming the APSC filed a petition for reviewinitial decision. In April 2018 the LPSC requested rehearing of the FERC’s March 20162018 order affirming the ALJ’s initial decision. Entergy filed in May 2018 the bandwidth true-up payments and August 2016 orders with the U.S. Court of Appealsreceipts for the D.C. Circuit. Oral argument before the D.C. Circuit was held on the APSC’s petition in January 2018 and a decision is pending.2011-2014 rate filings (table does not net to zero due to rounding):
In connection with the System Agreement termination settlement agreement, the purchase power agreements, referred to as the jurisdictional separation plan PPAs, between Entergy Texas and Entergy Gulf States Louisiana that were put in place for certain legacy gas units at the time of Entergy Gulf States’s separation into Entergy Texas and Entergy Gulf States Louisiana terminated effective with the System Agreement termination. Similarly, the purchase power agreement between Entergy Gulf States Louisiana and Entergy Texas for the Calcasieu unit also terminated. In
Entergy Corporation and Subsidiaries
Notes to Financial Statements
March 2016, Entergy Services filed with the FERC the notices of termination. The jurisdictional separation plan PPAs were the means by which Entergy Texas received payment for its receivable associated with Entergy Louisiana’s Spindletop gas storage facility regulatory asset. As a result of the System Agreement termination settlement agreement, effective with the termination date, Entergy Texas no longer receives |
| |
| Payments (Receipts) |
| (In Millions) |
Entergy Arkansas | $3 |
Entergy Louisiana | $3 |
Entergy Mississippi | ($1) |
Entergy New Orleans | $1 |
Entergy Texas | ($5) |
These payments from Entergy Louisiana related to the Spindletop storage facility, which resulted in a write-off recorded in 2015 by Entergy Texas of $23.5 million ($15.3 million net-of-tax). Upon termination of the System Agreement, other purchase power agreements entered into under Service Schedule MSS-4 of the System Agreement were replaced with updated agreements under a FERC-jurisdictional tariff effective September 1, 2016.
Interruptible Load Proceeding
In April 2007 the U.S. Court of Appeals for the D.C. Circuit issued its opinion in the LPSC’s appeal of the FERC’s March 2004 and April 2005 orders related to the treatment under the System Agreement of the Utility operating companies’ interruptible loads. In its opinion the D.C. Circuit concluded that the FERC: (1) acted arbitrarily and capriciously by allowing the Utility operating companies to phase-in the effects of the elimination of the interruptible load over a 12-month period of time; (2) failed to adequately explain why refunds could not be ordered under Section 206(c) of the Federal Power Act; and (3) exercised appropriately its discretion to defer addressing the cost of sulfur dioxide allowances until a later time. The D.C. Circuit remanded the matter to the FERC for a more considered determination on the issue of refunds. The FERC issued its order on remand in September 2007, in which it directed Entergy to make a compliance filing removing all interruptible load from the computation of peak load responsibility commencing April 1, 2004 and to issue any necessary refunds to reflect this change. In addition, the order directed the Utility operating companies to make refunds for the period May 1995 through July 1996. In November 2007 the Utility operating companies filed a refund report describing the refunds to be issued pursuant to the FERC’s orders. The LPSC filed a protest to the refund report in December 2007, and the Utility operating companies filed an answer to the protest in January 2008. The refunds were made in October 2008 by the Utility operating companies that owed refunds to the Utility operating companies that were due refunds under the decision.May 2018. The APSC and the Utility operating companies appealed the FERC decisions to the D.C. Circuit.
Following the filing of petitioners’ initial briefs, the FERC filed a motion requesting the D.C. Circuit hold the appeal of the FERC’s decisions ordering refunds in the interruptible load proceeding in abeyance and remand the record to the FERC. The D.C. Circuit granted the FERC’s unopposed motion in June 2009. In December 2009 the FERC established a paper hearing to determine whether the FERC had the authority and, if so, whether it would be appropriate to order refunds resulting from changes in the treatment of interruptible load in the allocation of capacity costs by the Utility operating companies. In August 2010 the FERC issued an order stating that it has the authority and refunds are appropriate. The APSC, the MPSC, and Entergy requested rehearing of the FERC’s decision. In June 2011 the FERC issued an order granting rehearing in part and denying rehearing in part, in which the FERC determined to invoke its discretion to deny refunds. The FERC held that in this case where “the Entergy system as a whole collected the proper level of revenue, but, as was later established, incorrectly allocated peak load responsibility among the various Entergy operating companies….the Commission will apply here our usual practice in such cases, invoking our equitable discretion to not order refunds, notwithstanding our authority to do so.” The LPSC has requested rehearing of the FERC’s June 2011 decision. In July 2011 the refunds made in the fourth quarter 2009 described above were reversed. In October 2011 the FERC issued an “Order Establishing Paper Hearing” inviting parties that oppose refunds to file briefs within 30 days addressing the LPSC’s argument that FERC precedent supports refunds under the circumstances present in this proceeding. Parties that favor refunds were then invited to file reply briefs within 21 days of the date that the initial briefs were due.
In September 2010 the FERC had issued an order setting the refund report filed in the proceeding in November 2007 for hearing and settlement judge procedures. In May 2011, Entergy filed a settlement agreement that resolved all issues relating to the refund report set for hearing. In June 2011 the settlement judge certified the settlement as uncontested. The settlement agreement was approved by the FERC in September 2016.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Prior to the FERC’s June 2011 order on rehearing, Entergy Arkansas filed an application in November 2010 with the APSC for recovery of the refund that it paid. The APSC denied Entergy Arkansas’s application, and also denied Entergy Arkansas’s petition for rehearing. If the FERC were to order Entergy Arkansas to pay refunds on rehearing in the interruptible load proceeding the APSC’s decision would trap FERC-approved costs at Entergy Arkansas with no regulatory-approved mechanism to recover them. In August 2011, Entergy Arkansas filed a complaint in the United States District Court for the Eastern District of Arkansas asking for a declaratory judgment that the rejection of Entergy Arkansas’s application by the APSC is preempted by the Federal Power Act. The APSC filed a motion to dismiss the complaint. In April 2012 the United States district court dismissed Entergy Arkansas’s complaint without prejudice stating that Entergy Arkansas’s claim is not ripe for adjudication and that Entergy Arkansas did not have standing to bring suit at this time.
In March 2013 the FERC issued an order denying the LPSC’s request for rehearing of the FERC’s June 2011 order wherein the FERC concluded it would exercise its discretion and not order refunds in the interruptible load proceeding. Based on its review of the LPSC’s request for rehearing and the briefs filed as part of the paper hearing established in October 2011, the FERC affirmed its earlier ruling and declined to order refunds under the circumstances of the case. In May 2013 the LPSC filed a petition for review with the U.S. Court of Appeals for the D.C. Circuit seeking review of FERC prior orders in the interruptible load proceeding that concluded that the FERC would exercise its discretion and not order refunds in the proceeding. Oral argument was held on the appeal in the D.C. Circuit in September 2014. In December 2014 the D.C. Circuit issued an order on the LPSC’s appeal and remanded the case back to the FERC. The D.C. Circuit rejected the LPSC’s argument that there is a presumption in favor of refunds, but it held that the FERC had not adequately explained its decision to deny refunds and directed the FERC “to consider the relevant factors and weigh them against one another.” In March 2015, Entergy filed with the FERC a motion to establish a briefing schedule on remand and an initial brief on remand to address the December 2014 decision by the D.C. Circuit. The initial brief on remand argued that the FERC, in response to the D.C. Circuit decision, should clarify its policy on refunds and find that refunds are not required in the interruptible load proceeding.
In April 2016 the FERC issued an order on remand that addressed the December 2014 decision by the D.C. Circuit in the interruptible load proceeding. The order on remand affirmed the FERC’s denial of refunds for the 15-month refund effective period. The FERC explained and clarified its policies regarding refunds and concluded that the evidence in the record demonstrated that the relevant equitable factors favored not requiring refunds in this case. The FERC also noted that, under Section 206(c) of the Federal Power Act, in a Section 206 proceeding involving two or more electric utility companies of a registered holding company system, the FERC may order refunds only if it determines the refunds would not cause the registered holding company to experience any reduction in revenues resulting from an inability of an electric utility company in the system to recover the resulting increase in costs. The FERC stated it was not able to find that the Entergy system would not experience a reduction in revenues if refunds were awarded in this proceeding, which further supported the denial of refunds. In May 2016 the LPSC filed a request for rehearing of the FERC’s April 2016 order. In September 2016 the FERC issued an order denying the LPSC’s request for rehearing and reaffirming its denial of refunds for the 15-month refund effective period. The LPSC has appealed the April and September 2016 orders to the U.S. Court of Appeals for the D.C. Circuit. Oral argument before the D.C. Circuit was held before the D.C. Circuit in February 2018 and a decision is pending.
Entergy Arkansas Opportunity Sales Proceeding
In June 2009 the LPSC filed a complaint requesting that the FERC determine that certain of Entergy Arkansas’s sales of electric energy to third parties: (a) violated the provisions of the System Agreement that allocated the energy generated by Entergy System resources; (b) imprudently denied the Entergy System and its ultimate consumers the benefits of low-cost Entergy System generating capacity; and (c) violated the provision of the System Agreement that prohibited sales to third parties by individual companies absent an offer of a right-of-first-refusal to other Utility operating companies. The LPSC’s complaint challenged sales made beginning in 2002 and requested refunds. In July 2009 the Utility operating companies filed a response to the complaint requesting that the FERC dismiss the complaint on the merits without hearing because the LPSC has failed to meet its burden of showing any violation of the System Agreement and failed to produce any evidence of imprudent action by the Entergy System. In their response,
Entergy Corporation and Subsidiaries
Notes to Financial Statements
the Utility operating companies explainedarguing among other things that the System Agreement clearly contemplates that the Utility operating companies may make sales to third parties for their own account, subject to the requirement that those sales be included in the load (or load shape) for the applicable Utility operating company. The FERC subsequently ordered a hearing in the proceeding.
The LPSC filed direct testimony in the proceeding alleging, among other things, (1) that Entergy violated the System Agreement by permitting Entergy Arkansas to make non-requirements sales to non-affiliated third parties rather than making such energy available to the other Utility operating companies’ customers; and (2) that over the period 2000 - 2009, these non-requirements sales caused harm to the Utility operating companies’ customers and these customers should be compensated for this harm by Entergy. In subsequent testimony, the LPSC modified its original damages claim in favor of quantifying damages by re-running intra-system bills. The Utility operating companies believe the LPSC’s allegations are without merit. AAfter a hearing, in the matter was held in August 2010.
In December 2010 the ALJ issued an initial decision.decision in December 2010. The ALJ found that the System Agreement allowed for Entergy Arkansas to make the sales to third parties but concluded that the sales should be accounted for in the same manner as joint account sales. The ALJ concluded that “shareholders” should make refunds of the damages to the Utility operating companies, along with interest. Entergy disagreed with several aspects of the ALJ’s initial decision and in January 2011 filed with the FERC exceptions to the decision.
The FERC issued a decision in June 2012 and held that, while the System Agreement is ambiguous, it does provide authority for individual Utility operating companies to make opportunity sales for their own account and Entergy Arkansas made and priced these sales in good faith. The FERC found, however, that the System Agreement does not provide authority for an individual Utility operating company to allocate the energy associated with such opportunity sales as part of its load but provides a different allocation authority. The FERC further found that the after-the-fact accounting methodology used to allocate the energy used to supply the sales was inconsistent with the System Agreement. Quantifying the effect of the FERC’s decision requires re-running intra-system bills for a ten-year period, and theThe FERC in its decision established further hearing procedures to determine the calculation of the effects. In July 2012, Entergy and the LPSC filed requests for rehearing of the FERC’s June 2012 decision. A hearing was held in May 2013 to quantify the effect of repricing the opportunity sales in accordance with the FERC’s June 2012 decision.
In August The hearing was held in May 2013 and the presiding judgeALJ issued an initial decision in the calculation proceeding. The initial decision concluded that the methodology proposed by the LPSC, rather than the methodologies proposed by Entergy or the FERC Staff, should be used to calculate the payments that Entergy Arkansas is to make to the other Utility operating companies. The initial decision also concluded that the other System Agreement service schedules should not be adjusted and that payments by Entergy Arkansas should not be reflected in the rough production cost equalization bandwidth calculations for the applicable years. The initial decision recognized that the LPSC’s methodology would result in an inequitable windfall to the other Utility operating companies and, therefore, concluded that any payments by Entergy Arkansas should be reduced by 20%.August 2013. The LPSC, the APSC, the City Council, and FERC staff filed briefs on exceptions and/or briefs opposing exceptions. Entergy filed a brief on exceptions requesting that the FERC reverse the initial decision and a brief opposing certain exceptions taken by the LPSC and FERC staff.
In April 2016 the FERC issued orders addressing requests for rehearing filed in July 2012 and the ALJ’s August 2013 initial decision. The first order denied Entergy’s request for rehearing and affirmed the FERC’s earlier rulings that Entergy’s original methodology for allocating energy costs to the opportunity sales was incorrect and, as a result, Entergy Arkansas must make payments to the other Utility operating companies to put them in the same position that they would have been in absent the incorrect allocation. The FERC clarified that interest should be included with the payments. The second order affirmed in part, and reversed in part, the rulings in the ALJ’s August 2013 initial decision regarding the methodology that should be used to calculate the payments Entergy Arkansas is to make to the other Utility operating companies. The FERC affirmed the ALJ’s ruling that a full re-run of intra-system bills should be performed but required that methodology be modified so that the sales have the same priority for purposes of energy
Entergy Corporation and Subsidiaries
Notes to Financial Statements
allocation as joint account sales. The FERC reversed the ALJ’s decision that any payments by Entergy Arkansas should be reduced by 20%. The FERC also reversed the ALJ’s decision that adjustments to other System Agreement service
Entergy Corporation and Subsidiaries
Notes to Financial Statements
schedules and excess bandwidth payments should not be taken into account when calculating the payments to be made by Entergy Arkansas. The FERC held that such adjustments and excess bandwidth payments should be taken into account but ordered further proceedings before an ALJ to address whether a cap on any reduction due to bandwidth payments was necessary and to implement the other adjustments to the calculation methodology.
In May 2016, Entergy Services filed a request for rehearing of the FERC’s April 2016 order arguing that payments made by Entergy Arkansas should be reduced as a result of the timing of the LPSC’s approval of certain contracts. Entergy Services also filed a request for clarification and/or rehearing of the FERC’s April 2016 order addressing the ALJ’s August 2013 initial decision. The APSC and the LPSC also filed requests for rehearing of the FERC’s April 2016 order. In September 2017 the FERC issued an order denying the request for rehearing on the issue of whether any payments by Entergy Arkansas to the other Utility operating companies should be reduced due to the timing of the LPSC’s approval of Entergy Arkansas’s wholesale baseload contract with Entergy Louisiana. In November 2017 the FERC issued an order denying all of the remaining requests for rehearing of the April 2016 order. In November 2017, Entergy Services filed a petition for review in the D.C. Circuit of the FERC’s orders in the first two phases of the opportunity sales case. In December 2017 the D.C. Circuit granted Entergy Services’sServices’ request to hold the appeal in abeyance pending final resolution of the related proceeding still pending withbefore the FERC. In January 2018 the APSC and the LPSC filed separate petitions for review in the D.C. Circuit, and the D.C. Circuit consolidated the appeals with Entergy Services’sServices’ appeal and held all of the appeals in abeyance.
Pursuant to the procedural schedule established in the case, Entergy Services re-ran intra-system bills for the ten-year period 2000-2009 to quantify the effectsabeyance pending final resolution of the FERC's ruling. In Novemberrelated proceeding before the FERC.
The hearing required by the FERC’s April 2016 the LPSC submitted testimony disputing certain aspects of the calculations. A hearingorder was held in May 2017. In July 2017 the ALJ issued an initial decision concluding that Entergy Arkansas should pay $86 million plus interestaddressing whether a cap on any reduction due to bandwidth payments was necessary and whether to implement the other adjustments to the other Utility operating companies.calculation methodology. In August 2017 the Utility operating companies, the LPSC, the APSC, and FERC staff filed individual briefs on exceptions challenging various aspects of the initial decision. In September 2017 the Utility operating companies, the LPSC, the APSC, the MPSC, the City Council, and FERC staff filed separate briefs opposing exceptions taken by various parties. The case is pending before the FERC. No payments will be made or received by the Utility operating companies until the FERC issues an order reviewing the initial decision and Entergy submits a subsequent filing to comply with that order.
The effect of the FERC’s decisions thus far in the case would be that Entergy Arkansas will make payments to some or all of the other Utility operating companies. Because further proceedings will still occur in the case, the amount and recipients of payments by Entergy Arkansas are unknown at this time. Based on testimony previously submitted in the case and its assessment of the April 2016 FERC orders, in the first quarter 2016, Entergy Arkansas recorded a liability of $87 million, which includesincluded interest, for its estimated increased costs and payment to the other Utility operating companies. This estimate is subject to change depending on how the FERC resolves the issues that are still outstanding in the case, including its review of the July 2017 initial decision. Entergy Arkansas’s increased costs will be attributed to Entergy Arkansas’s retailcompanies, and wholesale businesses, and it is not probable that Entergy Arkansas will recover the wholesale portion. Entergy Arkansas, therefore, recorded a deferred fuel regulatory asset in the first quarter 2016 of approximately $75 million, which represents its estimate of the retail portion of the costs.million. Following its assessment of the course of the proceedings, including the FERC’s denial of rehearing in November 2017 described above, in the fourth quarter 2017, Entergy Arkansas recorded an additional liability of $35 million and a regulatory asset of $31 million. Because management currently expects
In October 2018 the FERC issued an order addressing the ALJ’s July 2017 initial decision. The FERC reversed the ALJ’s decision to recovercap the retail portionreduction in Entergy Arkansas’s payment to account for the increased bandwidth payments that Entergy Arkansas made to the other operating companies. The FERC also reversed the ALJ’s decision that Grand Gulf sales from January through September 2000 should be included in the calculation of Entergy Arkansas’s payment. The FERC affirmed on other grounds the ALJ’s rejection of the costs throughLPSC’s claim that certain joint account sales should be accounted for as part of the calculation of Entergy Arkansas’s payment. In November 2018 the LPSC requested rehearing of the FERC’s October 2018 decision. In December 2019 the FERC denied the LPSC’s request for rehearing.
In December 2018, Entergy made a base rate proceeding or newly proposed rider,compliance filing in response to the FERC’s October 2018 order. The compliance filing provided a final calculation of Entergy Arkansas’s payments to the other Utility operating companies, including interest. No protests were filed in response to the December 2018 compliance filing. The December 2018 compliance filing is pending FERC action. Refunds and interest in the following amounts were paid by Entergy Arkansas to the other operating companies in December 2018:
Entergy Corporation and Subsidiaries
Notes to Financial Statements
|
| | | |
| Total refunds including interest |
| Payment/(Receipt) |
| (In Millions) |
| Principal | Interest | Total |
Entergy Arkansas | $68 | $67 | $135 |
Entergy Louisiana | ($30) | ($29) | ($59) |
Entergy Mississippi | ($18) | ($18) | ($36) |
Entergy New Orleans | ($3) | ($4) | ($7) |
Entergy Texas | ($17) | ($16) | ($33) |
Entergy Arkansas previously recognized a regulatory asset is reflected as Other regulatory assetswith a balance of $116 million as of December 31, 2017.2018 for a portion of the payments due as a result of this proceeding.
In February 2019 the LPSC filed a new complaint relating to two issues that were raised in the opportunity sales proceeding, but that, in its October 2018 order, the FERC held were outside the scope of the proceeding. In March 2019, Entergy Services filed an answer and motion to dismiss the new complaint. In November 2019 the FERC issued an order denying the LPSC’s complaint. The order concluded that the settlement agreement approved by FERC in December 2015 terminating the System Agreement barred the LPSC’s new complaint.
In May 2019, Entergy Arkansas filed an application and supporting testimony with the APSC requesting approval of a special rider tariff to recover the costs of these payments from its retail customers over a 24-month period. The application requested that the APSC approve the rider to take effect within 30 days or, if suspended by the APSC as allowed by commission rule, approve the rider to take effect in the first billing cycle of the first month occurring 30 days after issuance of the APSC’s order approving the rider. In June 2019 the APSC suspended Entergy Arkansas’s tariff and granted Entergy Arkansas’s motion asking the APSC to establish the proceeding as the single designated proceeding in which interested parties may assert claims related to the appropriate retail rate treatment of the FERC’s October 2018 order and related FERC orders in the opportunity sales proceeding. In January 2020 the APSC adopted a procedural schedule with a hearing in April 2020. In January 2020 the Attorney General and Arkansas Electric Energy Consumers, Inc. filed a joint motion seeking to dismiss Entergy Arkansas’s application alleging that the APSC, in a prior proceeding, ruled on the issues addressed in the application and determined that Entergy Arkansas’s requested relief violates the filed rate doctrine and the prohibition against retroactive ratemaking. Entergy Arkansas responded to the joint motion in February 2020 rebutting these arguments, including demonstrating that the claims in this proceeding differ substantially from those the APSC addressed previously and that the payment resulting from a FERC tariff violation for which Entergy Arkansas seeks retail cost recovery in this proceeding differs materially from the refunds resulting from a FERC tariff amendment that the APSC previously rejected on filed rate doctrine and the retroactive ratemaking grounds. In addition, in January 2020 the Attorney General and Arkansas Electric Energy Consumers, Inc. filed testimony opposing the recovery by Entergy Arkansas of the opportunity sales payment but also claiming that certain components of the payment should be segregated and refunded to customers.
ComplaintComplaints Against System Energy
Return on Equity and Capital Structure Complaints
In January 2017 the APSC and MPSC filed a complaint with the FERC against System Energy. The complaint seeks a reduction in the return on equity component of the Unit Power Sales Agreement pursuant to which System Energy sells its Grand Gulf capacity and energy to Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans. Entergy Arkansas also sells some of its Grand Gulf capacity and energy to Entergy Louisiana,
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Entergy Mississippi, and Entergy New Orleans under separate agreements. The current return on equity under the Unit Power Sales Agreement is 10.94%. , which was established in a rate proceeding that became final in July 2001.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The APSC and MPSC complaint alleges that the return on equity is unjust and unreasonable because current capital market and other considerations indicate that it is excessive. The complaint requests the FERC to institute proceedings to investigate the return on equity and establish a lower return on equity, and also requests that the FERC establish January 23, 2017 as a refund effective date. The complaint includes return on equity analysis that purports to establish that the range of reasonable return on equity for System Energy is between 8.37% and 8.67%. System Energy answered the complaint in February 2017 and disputes that a return on equity of 8.37% to 8.67% is just and reasonable. The LPSC and the City Council intervened in the proceeding expressing support for the complaint. System Energy is recording a provision against revenue for the potential outcome of this proceeding. In September 2017 the FERC established a refund effective date of January 23, 2017 consolidated the return on equity complaint with the proceeding described in Unit Power Sales Agreement below, and directed the parties to engage in settlement proceedings before an ALJ. The parties have been unable to settle the return on equity issue and a FERC hearing judge was assigned in July 2018. The 15-month refund period in connection with the APSC/MPSC complaint expired on April 23, 2018.
In April 2018 the LPSC filed a complaint with the FERC against System Energy seeking an additional 15-month refund period. The LPSC complaint requests similar relief from the FERC with respect to System Energy’s return on equity and also requests the FERC to investigate System Energy’s capital structure. The APSC, MPSC, and City Council intervened in the proceeding, filed an answer expressing support for the complaint, and asked the FERC to consolidate this proceeding with the proceeding initiated by the complaint of the APSC and MPSC in January 2017. System Energy answered the LPSC complaint in May 2018 and also filed a motion to dismiss the complaint. The 15-month refund period in connection with the LPSC return on equity complaint expired on July 26, 2019.
In August 2018 the FERC issued an order dismissing the LPSC’s request to investigate System Energy’s capital structure and setting for hearing the return on equity complaint, with a refund effective date of April 27, 2018. The portion of the LPSC’s complaint dealing with return on equity was subsequently consolidated with the APSC and MPSC complaint for hearing. The parties are required to address an order (issued in a separate proceeding involving New England transmission owners) that proposed modifying the FERC’s standard methodology for determining return on equity. In September 2018, System Energy filed a request for rehearing and the LPSC filed a request for rehearing or reconsideration of the FERC’s August 2018 order. The LPSC’s request referenced an amended complaint that it filed on the same day raising the same capital structure claim the FERC had earlier dismissed. The FERC initiated a new proceeding for the amended capital structure complaint, and System Energy submitted a response in October 2018. In January 2019 the FERC set the amended complaint for settlement and hearing proceedings. Settlement proceedings in the capital structure proceeding commenced in February 2019. As noted below, in June 2019 settlement discussions were terminated and the amended capital structure complaint was consolidated with the ongoing return on equity proceeding. The 15-month refund period in connection with the capital structure complaint is from September 24, 2018 to December 23, 2019.
In January 2019 the LPSC and the APSC and MPSC filed direct testimony in the return on equity proceeding. For the refund period January 23, 2017 through April 23, 2018, the LPSC argues for an authorized return on equity for System Energy of 7.81% and the APSC and MPSC argue for an authorized return on equity for System Energy of 8.24%. For the refund period April 27, 2018 through July 27, 2019, and for application on a prospective basis, the LPSC argues for an authorized return on equity for System Energy of 7.97% and the APSC and MPSC argue for an authorized return on equity for System Energy of 8.41%. In March 2019, System Energy submitted answering testimony in the return on equity proceeding. For the first refund period, System Energy’s testimony argues for a return on equity of 10.10% (median) or 10.70% (midpoint). For the second refund period, System Energy’s testimony shows that the calculated returns on equity for the first period fall within the range of presumptively just and reasonable returns on equity, and thus the second complaint should be dismissed (and the first period return on equity used going forward). If the parties failFERC nonetheless were to comeset a new return on equity for the second period (and going forward), System Energy argues the return on equity should be either 10.32% (median) or 10.69% (midpoint).
In May 2019 the FERC trial staff filed its direct and answering testimony in the return on equity proceeding. For the first refund period, the FERC trial staff calculates an authorized return on equity for System Energy of 9.89% based on the application of FERC’s proposed methodology. The FERC trial staff’s direct and answering testimony noted that an authorized return on equity of 9.89% for the first refund period was within the range of presumptively
Entergy Corporation and Subsidiaries
Notes to Financial Statements
just and reasonable returns on equity for the second refund period, as calculated using a study period ending January 31, 2019 for the second refund period.
In June 2019, System Entergy filed testimony responding to the testimony filed by the FERC trial staff. Among other things, System Energy’s testimony rebutted arguments raised by the FERC trial staff and provided updated calculations for the second refund period based on the study period ending May 31, 2019. For that refund period, System Energy’s testimony shows that strict application of the return on equity methodology proposed by the FERC staff indicates that the second complaint would not be dismissed, and the new return on equity would be set at 9.65% (median) or 9.74% (midpoint). System Energy’s testimony argues that these results are insufficient in light of benchmarks such as state returns on equity and treasury bond yields, and instead proposes that the calculated returns on equity for the second period should be either 9.91% (median) or 10.3% (midpoint). System Energy’s testimony also argues that, under application of its proposed modified methodology, the 10.10% return on equity calculated for the first refund period would fall within the range of presumptively just and reasonable returns on equity for the second refund period. System Energy is recording a provision against revenue for the potential outcome of this proceeding.
Also in June 2019, the FERC’s Chief ALJ issued an agreement duringorder terminating settlement proceedings,discussions in the amended complaint addressing System Energy’s capital structure. The ALJ consolidated the amended capital structure complaint with the ongoing return on equity proceeding and set new procedural deadlines for the consolidated hearing.
In August 2019 the LPSC and the APSC and MPSC filed rebuttal testimony in the return on equity proceeding and direct and answering testimony relating to System Energy’s capital structure. The LPSC re-argues for an authorized return on equity for System Energy of 7.81% for the first refund period and 7.97% for the second refund period. The APSC and MPSC argue for an authorized return on equity for System Energy of 8.26% for the first refund period and 8.32% for the second refund period. With respect to capital structure, the LPSC proposes that the FERC establish a prehearing conferencehypothetical capital structure for System Energy for ratemaking purposes. Specifically, the LPSC proposes that System Energy’s common equity ratio be set to Entergy Corporation’s equity ratio of 37% equity and 63% debt. In the alternative, the LPSC argues that the equity ratio should be no higher than 49%, the composite equity ratio of System Energy and the other Entergy operating companies who purchase under the Unit Power Sales Agreement. The APSC and MPSC recommend that 35.98% be set as the common equity ratio for System Energy. As an alternative, the APSC and MPSC propose that System Energy’s common equity be set at 46.75% based on the median equity ratio of the proxy group for setting the return on equity.
In September 2019 the FERC trial staff filed its rebuttal testimony in the return on equity proceeding. For the first refund period, the FERC trial staff calculates an authorized return on equity for System Energy of 9.40% based on the application of the FERC’s proposed methodology and an updated proxy group. For the second refund period, based on the study period ending May 31, 2019, the FERC trial staff rebuttal testimony argues for a return on equity of 9.63%. In September 2019 the FERC trial staff also filed direct and answering testimony relating to System Energy’s capital structure. The FERC trial staff argues that the average capital structure of the proxy group used to develop System Energy’s return on equity should be used to establish the capital structure. Using this approach, the FERC trial staff calculates the average capital structure for its proposed proxy group of 46.74% common equity, and 53.26% debt.
In October 2019, System Energy filed answering testimony disputing the FERC trial staff’s, the LPSC’s, and the APSC’s and MPSC’s arguments for the use of a hypothetical capital structure and arguing that the use of System Energy’s actual capital structure is just and reasonable.
In November 2019, in a proceeding that did not involve Entergy, the FERC issued an order addressing the methodology for determining the return on equity applicable to transmission owners in MISO. Thereafter, the participants in the System Energy proceeding agreed to amend the procedural schedule to allow the participants to file testimony addressing the order in the MISO transmission owner proceeding. Under the new schedule, the hearing in the System Energy proceeding will commence in June 2020 and the initial decision will be helddue in October 2020.
Entergy Corporation and Subsidiaries
Notes to establishFinancial Statements
Grand Gulf Sale-leaseback Renewal Complaint
In May 2018 the LPSC filed a complaint against System Energy and Entergy Services related to System Energy’s renewal of a sale-leaseback transaction originally entered into in December 1988 for an 11.5% undivided interest in Grand Gulf Unit 1. The complaint alleges that System Energy violated the filed rate and the FERC’s ratemaking and accounting requirements when it included in Unit Power Sales Agreement billings the cost of capital additions associated with the sale-leaseback interest, and that System Energy is double-recovering costs by including both the lease payments and the capital additions in Unit Power Sales Agreement billings. The complaint also claims that System Energy was imprudent in entering into the sale-leaseback renewal because the Utility operating companies that purchase Grand Gulf’s output from System Energy could have obtained cheaper capacity and energy in the MISO markets. The complaint further alleges that System Energy violated various other reporting and accounting requirements and should have sought prior FERC approval of the lease renewal. The complaint seeks various forms of relief from the FERC. The complaint seeks refunds for capital addition costs for all years in which they were recorded in allegedly non-formula accounts or, alternatively, the disallowance of the return on equity for the capital additions in those years plus interest. The complaint also asks that the FERC disallow and refund the lease costs of the sale-leaseback renewal on grounds of imprudence, investigate System Energy’s treatment of a DOE litigation payment, and impose certain forward-looking procedural scheduleprotections, including audit rights for retail regulators of the Unit Power Sales Agreement formula rates. The APSC, MPSC, and City Council intervened in the proceeding.
In June 2018, System Energy and Entergy Services filed a motion to dismiss and an answer to the LPSC complaint denying that System Energy’s treatment of the sale-leaseback renewal and capital additions violated the terms of the filed rate or any other FERC ratemaking, accounting, or legal requirements or otherwise constituted double recovery. The response also argued that the complaint is inconsistent with a FERC-approved settlement to which the LPSC is a party and that explicitly authorizes System Energy to recover its lease payments. Finally, the response argued that both the capital additions and the sale-leaseback renewal were prudent investments and the LPSC complaint fails to justify any disallowance or refunds. The response also offered to submit formula rate protocols for the Unit Power Sales Agreement similar to the procedures used for reviewing transmission rates under the MISO tariff. In September 2018 the FERC issued an order setting the complaint for hearing and settlement proceedings. The FERC established a refund effective date of May 18, 2018.
In February 2019 the presiding ALJ ruled that the hearing ordered by the FERC includes the issue of whether specific subcategories of accumulated deferred income tax should be included in, or excluded from, System Energy’s formula rate. In March 2019 the LPSC, MPSC, APSC and City Council filed direct testimony. The LPSC testimony seeks refunds that include the renewal lease payments (approximately $17.2 million per year since July 2015), rate base reductions for accumulated deferred income tax associated with uncertain tax positions (claimed to be approximately $334.5 million as of December 2018), and the cost of capital additions associated with the sale-leaseback interest (claimed to be approximately $274.8 million), as well as interest on those amounts. The direct testimony of the City Council and the APSC and MPSC address various issues raised by the LPSC. System Energy disputes that any refunds are owed for billings under the Unit Power Sales Agreement.
In June 2019 System Energy filed answering testimony in the sale-leaseback complaint proceeding arguing that the FERC should reject all claims for refunds. Among other things, System Energy argued that claims for refunds of the costs of lease renewal payments and capital additions should be rejected because those costs were recovered consistent with the Unit Power Sales Agreement formula rate, System Energy was not over or double recovering any costs, and ratepayers will save approximately $850 million over initial and renewal terms of the leases. System Energy argued that claims for refunds associated with liabilities arising from uncertain tax positions should be rejected because the liabilities do not provide cost-free capital, the repayment timing of the liabilities is uncertain, and the outcome of the underlying tax positions is uncertain. System Energy’s testimony also challenged the refund calculations supplied by the other parties.
In August 2019 the FERC trial staff filed direct and answering testimony seeking refunds for rate base reductions for liabilities associated with uncertain tax positions (claimed to be up to approximately $602 million plus interest).
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The FERC trial staff also argued that System Energy recovered $32 million more than it should have in depreciation expense for capital additions. In September 2019, System Energy filed cross-answering testimony disputing the FERC trial staff’s arguments for refunds, stating that the FERC trial staff’s position regarding depreciation rates for capital additions is not unreasonable and explaining that any change in depreciation expense is only one element of a Unit Power Sales Agreement rebilling calculation. Adjustments to depreciation expense in any rebilling under the Unit Power Sales Agreement formula rate will also involve changes to accumulated depreciation, accumulated deferred income taxes, and other formula elements as needed. In October 2019 the LPSC filed rebuttal testimony increasing the amount of refunds sought for liabilities associated with uncertain tax positions. The LPSC now seeks approximately $512 million plus interest. At the same time, the FERC trial staff filed rebuttal testimony conceding that it was no longer seeking up to $602 million related to the uncertain tax positions; instead, it is seeking approximately $511 million plus interest. The LPSC also argued that adjustments to depreciation rates should affect rate base on a prospective basis only.
A hearing was held before a FERC ALJ in November 2019 and the initial decision is due in April 2020.
Unit Power Sales Agreement
In August 2017, System Energy submitted to the FERC proposed amendments to the Unit Power Sales Agreement pursuant to which System Energy sells its Grand Gulf capacity and energy to Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans. The filing proposes limited amendments to the Unit Power Sales Agreement to adopt (1) updated rates for use in calculating Grand Gulf plant depreciation and amortization expenses and (2) updated nuclear decommissioning cost annual revenue requirements, both of which are recovered through the Unit Power Sales Agreement rate formula. The proposed amendments would result in lower charges to the Utility operating companies that buy capacity and energy from System Energy under the Unit Power Sales Agreement. The proposed changes arewere based on updated depreciation and nuclear decommissioning studies that take into account the renewal of Grand Gulf’s operating license for a term through November 1, 2044. System Energy requested that the FERC accept the amendments effective October 1, 2017.
In September 2017 the FERC accepted System Energy’s proposed Unit Power Sales Agreement amendments, subject to further proceedings to consider the justness and reasonableness of the amendments. Because the amendments propose a rate decrease, the FERC also initiated an investigation under Section 206 of the Federal Power Act to determine if the rate decrease should be lower than proposed. The FERC accepted the proposed amendments effective October 1, 2017, subject to refund pending the outcome of the further settlement and/or hearing proceedings, and established a refund effective date of October 11, 2017 with respect to the rate decrease. The FERC also consolidated the Unit Power Sales Agreement amendment proceedingIn June 2018, System Energy filed with the proceeding describedFERC an uncontested settlement relating to the updated depreciation rates and nuclear decommissioning cost annual revenue requirements. In August 2018 the FERC issued an order accepting the settlement. In the third quarter 2018, System Energy recorded a reduction in Complaint Against System Energy above,depreciation expense of approximately $26 million, representing the cumulative difference in depreciation expense resulting from the depreciation rates used from October 11, 2017 through September 30, 2018 and directed the parties to engagedepreciation rates included in the settlement proceedings before an ALJ. Iffiling accepted by the parties fail to come to an agreement during settlement proceedings, a prehearing conference will be held to establish a procedural schedule for hearing proceedings.FERC.
Storm Cost Recovery Filings with Retail Regulators
Entergy Louisiana
Hurricane Isaac
In August 2012, Hurricane Isaac caused extensive damage to Entergy Louisiana’s service area. The storm resulted in widespread power outages, significant damage primarily to distribution infrastructure, and the loss of sales during the power outages. In June 2014 the LPSC authorized Entergy Louisiana to utilize Louisiana Act 55 financing for Hurricane Isaac system restoration costs. Entergy Louisiana committed to pass on to customers a minimum of $30.8 million of customer benefits through annual customer credits of approximately $6.2 million for five years. Approvals for the Act 55 financings were obtained from the Louisiana Utilities Restoration Corporation (LURC) and the Louisiana State Bond Commission.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
In August 2014 the Louisiana Local Government Environmental Facilities and Community Development Authority (LCDA) issued $314.85 million in bonds under Louisiana Act 55. From the $309 million of bond proceeds loaned by the LCDA to the LURC, the LURC deposited $16 million in a restricted escrow account as a storm damage reserve for Entergy Louisiana and transferred $293 million directly to Entergy Louisiana. Entergy Louisiana used the $293 million received from the LURC to acquire 2,935,152.69 Class C preferred, non-voting, membership interest units of Entergy Holdings Company LLC, a company wholly-owned and consolidated by Entergy, that carry a 7.5% annual distribution rate. Distributions are payable quarterly commencing on September 15, 2014, and the membership interests have a liquidation price of $100 per unit. The preferred membership interests are callable at the option of Entergy Holdings Company LLC after ten years under the terms of the LLC agreement. The terms of the membership interests include certain financial covenants to which Entergy Holdings Company LLC is subject, including the requirement to maintain a net worth of at least $1.75 billion.
Entergy and Entergy Louisiana do not report the bonds issued by the LCDA on their balance sheets because the bonds are the obligation of the LCDA and there is no recourse against Entergy or Entergy Louisiana in the event of a bond default. To service the bonds, Entergy Louisiana collects a system restoration charge on behalf of the LURC and remits the collections to the bond indenture trustee. Entergy and Entergy Louisiana do not report the collections as revenue because Entergy Louisiana is merely acting as the billing and collection agent for the state.
Hurricane Gustav and Hurricane Ike
In September 2008, Hurricane Gustav and Hurricane Ike caused catastrophic damage to Entergy Louisiana’s service territory. In December 2009, Entergy Louisiana entered into a stipulation agreement with the LPSC staff regarding its storm costs. In March and April 2010, Entergy Louisiana and other parties to the proceeding filed with the LPSC an uncontested stipulated settlement that included Entergy Louisiana’s proposal to utilize Act 55 financing, which included a commitment to pass on to customers a minimum of $43.3 million of customer benefits through a prospective annual rate reduction of $8.7 million for five years. In April 2010 the LPSC approved the settlement and subsequently issued financing orders and a ratemaking order intended to facilitate the implementation of the Act 55 financings. In June 2010 the Louisiana State Bond Commission approved the Act 55 financing. The settlement agreement allowed for an adjustment to the credits if there was a change in the applicable federal or state income tax rate. As a result of the enactment of the Tax Cuts and Jobs Act, in December 2017, and the lowering of the federal corporate income tax rate from 35% to 21%, the Louisiana Act 55 financing savings obligation regulatory liability related to Hurricane Gustav and Hurricane Ike was reduced by $2.7 million, with a corresponding increase to Other regulatory credits on the income statement. The effects of the Tax Cuts and Jobs Act are discussed further in Note 3 to the financial statements.
In July 2010, the LCDA issued two series of bonds totaling $713.0 million under Act 55. From the $702.7 million of bond proceeds loaned by the LCDA to the LURC, the LURC deposited $290 million in a restricted escrow account as a storm damage reserve for Entergy Louisiana and transferred $412.7 million directly to Entergy Louisiana. From the bond proceeds received by Entergy Louisiana from the LURC, Entergy Louisiana used $412.7 million to acquire 4,126,940.15 Class B preferred, non-voting, membership interest units of Entergy Holdings Company LLC, a company wholly-owned and consolidated by Entergy, that carry a 9% annual distribution rate. Distributions are payable quarterly commencing on September 15, 2010, and the membership interests have a liquidation price of $100 per unit. The preferred membership interests are callable at the option of Entergy Holdings Company LLC after ten years under the terms of the LLC agreement. The terms of the membership interests include certain financial covenants to which Entergy Holdings Company LLC is subject, including the requirement to maintain a net worth of at least $1 billion.
Entergy and Entergy Louisiana do not report the bonds issued by the LCDA on their balance sheets because the bonds are the obligation of the LCDA, and there is no recourse against Entergy or Entergy Louisiana in the event of a bond default. To service the bonds, Entergy Louisiana collects a system restoration charge on behalf of the LURC
Entergy Corporation and Subsidiaries
Notes to Financial Statements
and remits the collections to the bond indenture trustee. Entergy and Entergy Louisiana do not report the collections as revenue because Entergy Louisiana is merely acting as the billing and collection agent for the state.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Hurricane Katrina and Hurricane Rita
In August and September 2005, Hurricanes Katrina and Rita caused catastrophic damage to Entergy Louisiana’s service territory. In March 2008, Entergy Louisiana and the LURC filed at the LPSC an application requesting that the LPSC grant a financing order authorizing the financing of Entergy Louisiana storm costs, storm reserves, and issuance costs pursuant to Louisiana Act 55. The Louisiana Act 55 financing is expected to produce additional customer benefits as compared to traditional securitization. Entergy Louisiana also filed an application requesting LPSC approval for ancillary issues including the mechanism to flow charges and savings to customers via a storm cost offset rider. In April 2008 the Louisiana Public Facilities Authority (LPFA), which is the issuer of the bonds pursuant to the Act 55 financing, approved requests for the Act 55 financing. Also in April 2008, Entergy Louisiana and the LPSC staff filed with the LPSC an uncontested stipulated settlement that included Entergy Louisiana’s proposal under the Act 55 financing, which included a commitment to pass on to customers a minimum of $40 million of customer benefits through a prospective annual rate reduction of $8 million for five years. The LPSC subsequently approved the settlement and issued two financing orders and one ratemaking order intended to facilitate implementation of the Act 55 financing. In May 2008 the Louisiana State Bond Commission granted final approval of the Act 55 financing. The settlement agreement allowed for an adjustment to the credits if there was a change in the applicable federal or state income tax rate. As a result of the enactment of the Tax Cuts and Jobs Act, in December 2017, and the lowering of the federal corporate income tax rate from 35% to 21%, the Louisiana Act 55 financing savings obligation regulatory liability related to Hurricanes Katrina and Rita was reduced by $22.3 million, with a corresponding increase to Other regulatory credits on the income statement. The effects of the Tax Cuts and Jobs Act are discussed further in Note 3 to the financial statements.
In July 2008 the LPFA issued $687.7 million in bonds under the aforementioned Act 55. From the $679 million of bond proceeds loaned by the LPFA to the LURC, the LURC deposited $152 million in a restricted escrow account as a storm damage reserve for Entergy Louisiana and transferred $527 million directly to Entergy Louisiana. From the bond proceeds received by Entergy Louisiana from the LURC, Entergy Louisiana invested $545 million, including $17.8 million that was withdrawn from the restricted escrow account as approved by the April 16, 2008 LPSC orders, in exchange for 5,449,861.85 Class A preferred, non-voting, membership interest units of Entergy Holdings Company LLC, a company wholly-owned and consolidated by Entergy, that carry a 10% annual distribution rate. In August 2008, the LPFA issued $278.4 million in bonds under the aforementioned Act 55. From the $274.7 million of bond proceeds loaned by the LPFA to the LURC, the LURC deposited $87 million in a restricted escrow account as a storm damage reserve for Entergy Louisiana and transferred $187.7 million directly to Entergy Louisiana. From the bond proceeds received by Entergy Louisiana from the LURC, Entergy Louisiana invested $189.4 million, including $1.7 million that was withdrawn from the restricted escrow account as approved by the April 16, 2008 LPSC orders, in exchange for 1,893,918.39 Class A preferred, non-voting, membership interest units of Entergy Holdings Company LLC that carry a 10% annual distribution rate. Distributions are payable quarterly commencing on September 15, 2008 and have a liquidation price of $100 per unit. The preferred membership interests are callable at the option of Entergy Holdings Company LLC after ten years under the terms of the LLC agreement. The terms of the membership interests include certain financial covenants to which Entergy Holdings Company LLC is subject, including the requirement to maintain a net worth of at least $1 billion. In February 2012, Entergy Louisiana sold 500,000 of its Class A preferred membership units
The bonds were repaid in Entergy Holdings Company LLC, a wholly-owned Entergy subsidiary, to a third party in exchange for $51 million plus accrued but unpaid distributions on the units. The 500,000 preferred membership units are mandatorily redeemable in January 2112.
2018. Entergy and Entergy Louisiana dodid not report the bonds issued by the LPFA on their balance sheets because the bonds are the obligation of the LPFA, and there iswas no recourse against Entergy or Entergy Louisiana in the event of a bond default. To service the bonds, Entergy Louisiana collectscollected a system restoration charge on behalf of the LURC and remitsremitted the collections to the bond indenture trustee. Entergy and Entergy Louisiana dodid not report the collections as revenue because Entergy Louisiana iswas merely acting as the billing and collection agent for the state.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Entergy Mississippi
Entergy Mississippi has approval from the MPSC to collect a storm damage provision of $1.75 million per month. If Entergy Mississippi’s accumulated storm damage provision balance exceeds $15 million, the collection of the storm damage provision ceases until such time that the accumulated storm damage provision becomes less than $10 million. As of April 30, 2016, Entergy Mississippi’s storm damage provision balance was less than $10 million, therefore Entergy Mississippi resumed billing the monthly storm damage provision effective with June 2016 bills. As of September 30, 2016, however, Entergy Mississippi’s storm damage provision balance again exceeded $15 million. Accordingly the storm damage provision was reset to zero beginning with November 2016 bills. As of July 31, 2017, the balance in Entergy Mississippi’s accumulated storm damage provision was again less than $10 million, therefore Entergy Mississippi resumed billing the monthly storm damage provision effective with September 2017 bills. As of June 30, 2018, Entergy Mississippi’s storm damage provision balance exceeded $15 million. Accordingly, the storm damage provision was reset to 0 beginning with August 2018 bills. As of May 31, 2019, Entergy Mississippi’s storm damage provision balance was less than $10 million. Accordingly, Entergy Mississippi resumed billing the monthly storm damage provision effective with July 2019 bills.
Entergy New Orleans
In August 2012, Hurricane Isaac caused extensive damage to Entergy New Orleans’s service area. In January 2015 the City Council issued a resolution approving the terms of a joint agreement in principle filed by Entergy New Orleans, Entergy Louisiana, and the City Council Advisors determining, among other things, that Entergy New Orleans’s prudently-incurred storm recovery costs were $49.3 million, of which $31.7 million, net of reimbursements from the storm reserve escrow account, remained recoverable from Entergy New Orleans’s electric customers. The resolution also directed Entergy New Orleans to file an application to securitize the unrecovered City Council-approved storm recovery costs of $31.7 million pursuant to the Louisiana Electric Utility Storm Recovery Securitization Act (Louisiana Act 64). In addition, the resolution found that it was reasonable for Entergy New Orleans to include in the principal amount of its potential securitization the costs to fund and replenish Entergy New Orleans’s storm reserve in an amount that achieved the City Council-approved funding level of $75 million. In January 2015, in compliance with that directive, Entergy New Orleans filed with the City Council an application requesting that the City Council grant a financing order authorizing the financing of Entergy New Orleans’s storm costs, storm reserves, and issuance costs pursuant to Louisiana Act 64. In May 2015 the parties entered into an agreement in principle and the City Council issued a financing order authorizing Entergy New Orleans to issue storm recovery bonds in the aggregate amount of $98.7 million, including $31.8 million for recovery of Entergy New Orleans’s Hurricane Isaac storm recovery costs, including carrying costs, $63.9 million to fund and replenish Entergy New Orleans’s storm reserve, and approximately $3 million for estimated up-front financing costs associated with the securitization. See Note 5 to the financial statements for discussion of the issuance of the securitization bonds in July 2015.
New Nuclear Generation Development Costs
Entergy Louisiana
Entergy Louisiana and Entergy Gulf States Louisiana were developing a project option for new nuclear generation at River Bend. In March 2010, Entergy Louisiana and Entergy Gulf States Louisiana filed with the LPSC seeking approval to continue the limited development activities necessary to preserve an option to construct a new unit at River Bend. At its June 2012 meeting the LPSC voted to uphold an ALJ recommendation that the request of Entergy Louisiana and Entergy Gulf States Louisiana be declined on the basis that the LPSC’s rule on new nuclear development does not apply to activities to preserve an option to develop and on the further grounds that the companies improperly engaged in advanced preparation activities prior to certification. The LPSC directed that Entergy Louisiana and Entergy Gulf States Louisiana be permitted to seek recovery of these costs in their upcoming rate case filings that were subsequently filed in February 2013. In the resolution of the rate case proceeding the LPSC provided for an eight-year amortization of costs incurred in connection with the potential development of new nuclear generation at River Bend, without carrying costs, beginning in December 2014, provided, however, that amortization of these costs shall not result in a future rate increase. As of December 31, 2017,2019, Entergy Louisiana has a regulatory asset of $35.8$21.2 million on its balance sheet related to these new nuclear generation development costs.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
NOTE 3. INCOME TAXES (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)
Income taxes for 2017, 2016,2019, 2018, and 20152017 for Entergy Corporation and Subsidiaries consist of the following:
|
| | | | | | | | | | | |
| 2019 | | 2018 | | 2017 |
| (In Thousands) |
Current: | | | | | |
Federal |
| ($14,416 | ) | |
| $36,848 |
| |
| $29,595 |
|
State | 6,535 |
| | 7,274 |
| | 15,478 |
|
Total | (7,881 | ) | | 44,122 |
| | 45,073 |
|
Deferred and non-current - net | (155,956 | ) | | (1,074,416 | ) | | 505,010 |
|
Investment tax credit adjustments - net | (5,988 | ) | | (6,532 | ) | | (7,513 | ) |
Income taxes |
| ($169,825 | ) | |
| ($1,036,826 | ) | |
| $542,570 |
|
|
| | | | | | | | | | | |
| 2017 | | 2016 | | 2015 |
| (In Thousands) |
Current: | | | | | |
Federal |
| $29,595 |
| |
| $45,249 |
| |
| $77,166 |
|
Foreign | — |
| | 68 |
| | 97 |
|
State | 15,478 |
| | (14,960 | ) | | 157,829 |
|
Total | 45,073 |
| | 30,357 |
| | 235,092 |
|
Deferred and non-current - net | 505,010 |
| | (840,465 | ) | | (864,799 | ) |
Investment tax credit adjustments - net | (7,513 | ) | | (7,151 | ) | | (13,220 | ) |
Income taxes |
| $542,570 |
| |
| ($817,259 | ) | |
| ($642,927 | ) |
Income taxes for 2017, 2016,2019, 2018, and 20152017 for Entergy’s Registrant Subsidiaries consist of the following:
| | 2017 | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy | |
2019 | | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy |
| | (In Thousands) | | (In Thousands) |
Current: | | | | | | | | | | | | | | | | | | | | | | | | |
Federal | |
| $16,086 |
| |
| ($84,250 | ) | |
| ($8,845 | ) | |
| ($30,635 | ) | |
| $6,034 |
| |
| $47,674 |
| |
| ($14,549 | ) | |
| ($20,173 | ) | |
| ($8,939 | ) | |
| ($5,822 | ) | |
| $16,035 |
| |
| $16,256 |
|
State | | 9,191 |
| | 1,480 |
| | (924 | ) | | (728 | ) | | 310 |
| | 5,314 |
| | (714 | ) | | (735 | ) | | 5,823 |
| | 1,856 |
| | 663 |
| | (2,831 | ) |
Total | | 25,277 |
| | (82,770 | ) | | (9,769 | ) | | (31,363 | ) | | 6,344 |
| | 52,988 |
| | (15,263 | ) | | (20,908 | ) | | (3,116 | ) | | (3,966 | ) | | 16,698 |
| | 13,425 |
|
Deferred and non-current - net | | 69,753 |
| | 572,988 |
| | 83,501 |
| | 62,946 |
| | 43,102 |
| | 19,243 |
| | (30,278 | ) | | 147,453 |
| | 34,579 |
| | 4,248 |
| | (69,963 | ) | | 422 |
|
Investment tax credit adjustments - net | | (1,226 | ) | | (4,920 | ) | | 187 |
| | 1,695 |
| | (965 | ) | | (2,262 | ) | | (1,228 | ) | | (4,922 | ) | | (597 | ) | | (96 | ) | | (631 | ) | | 1,502 |
|
Income taxes | |
| $93,804 |
| |
| $485,298 |
| |
| $73,919 |
| |
| $33,278 |
| |
| $48,481 |
| |
| $69,969 |
| |
| ($46,769 | ) | |
| $121,623 |
| |
| $30,866 |
| |
| $186 |
| |
| ($53,896 | ) | |
| $15,349 |
|
| | 2016 | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy | |
2018 | | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy |
| | (In Thousands) | | (In Thousands) |
Current: | | | | | | | | | | | | | | | | | | | | | | | | |
Federal | |
| ($14,748 | ) | |
| ($124,113 | ) | |
| $10,603 |
| |
| ($91,067 | ) | |
| $19,656 |
| |
| $29,628 |
| |
| ($23,638 | ) | |
| ($15,841 | ) | |
| ($11,275 | ) | |
| ($10,813 | ) | |
| $16,190 |
| |
| ($9,786 | ) |
State | | 2,805 |
| | 10,757 |
| | 2,257 |
| | 566 |
| | 1,374 |
| | (25,825 | ) | | (1,617 | ) | | (1,122 | ) | | (1,066 | ) | | 545 |
| | 3,205 |
| | (1,821 | ) |
Total | | (11,943 | ) | | (113,356 | ) | | 12,860 |
| | (90,501 | ) | | 21,030 |
| | 3,803 |
| | (25,255 | ) | | (16,963 | ) | | (12,341 | ) | | (10,268 | ) | | 19,395 |
| | (11,607 | ) |
Deferred and non-current - net | | 120,942 |
| | 208,157 |
| | 46,984 |
| | 119,345 |
| | 42,982 |
| | 71,051 |
| | (270,586 | ) | | (32,725 | ) | | (114,738 | ) | | 7,943 |
| | (44,817 | ) | | (35,329 | ) |
Investment tax credit adjustments - net | | (1,226 | ) | | (5,067 | ) | | 4,010 |
| | (139 | ) | | (915 | ) | | (3,793 | ) | | (1,226 | ) | | (4,923 | ) | | 1,306 |
| | (111 | ) | | (821 | ) | | (739 | ) |
Income taxes | |
| $107,773 |
| |
| $89,734 |
| |
| $63,854 |
| |
| $28,705 |
| |
| $63,097 |
| |
| $71,061 |
| |
| ($297,067 | ) | |
| ($54,611 | ) | |
| ($125,773 | ) | |
| ($2,436 | ) | |
| ($26,243 | ) | |
| ($47,675 | ) |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
|
| | | | | | | | | | | | | | | | | | | | | | | | |
2017 | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy |
| | (In Thousands) |
Current: | | | | | | | | | | | | |
Federal | |
| $16,086 |
| |
| ($84,250 | ) | |
| ($8,845 | ) | |
| ($30,635 | ) | |
| $6,034 |
| |
| $47,674 |
|
State | | 9,191 |
| | 1,480 |
| | (924 | ) | | (728 | ) | | 310 |
| | 5,314 |
|
Total | | 25,277 |
| | (82,770 | ) | | (9,769 | ) | | (31,363 | ) | | 6,344 |
| | 52,988 |
|
Deferred and non-current - net | | 69,753 |
| | 572,988 |
| | 83,501 |
| | 62,946 |
| | 43,102 |
| | 19,243 |
|
Investment tax credit adjustments - net | | (1,226 | ) | | (4,920 | ) | | 187 |
| | 1,695 |
| | (965 | ) | | (2,262 | ) |
Income taxes | |
| $93,804 |
| |
| $485,298 |
| |
| $73,919 |
| |
| $33,278 |
| |
| $48,481 |
| |
| $69,969 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
|
| | | | | | | | | | | | | | | | | | | | | | | | |
2015 | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy |
| | (In Thousands) |
Current: | | | | | | | | | | | | |
Federal | |
| $66,966 |
| |
| $101,382 |
| |
| $25,628 |
| |
| ($9,346 | ) | |
| $53,313 |
| |
| ($63,302 | ) |
State | | 6,265 |
| | 35,406 |
| | 6,832 |
| | 1,784 |
| | 2,450 |
| | 26,755 |
|
Total | | 73,231 |
| | 136,788 |
| | 32,460 |
| | (7,562 | ) | | 55,763 |
| | (36,547 | ) |
Deferred and non-current - net | | (31,463 | ) | | 47,220 |
| | 31,149 |
| | 32,890 |
| | (17,599 | ) | | 93,491 |
|
Investment tax credit adjustments - net | | (1,227 | ) | | (5,337 | ) | | (1,737 | ) | | (138 | ) | | (914 | ) | | (3,867 | ) |
Income taxes | |
| $40,541 |
| |
| $178,671 |
| |
| $61,872 |
| |
| $25,190 |
| |
| $37,250 |
| |
| $53,077 |
|
Total income taxes for Entergy Corporation and Subsidiaries differ from the amounts computed by applying the statutory income tax rate to income before income taxes. The reasons for the differences for the years 2017, 2016,2019, 2018, and 20152017 are:
|
| | | | | | | | | | | |
| 2019 | | 2018 | | 2017 |
| (In Thousands) |
Net income (loss) attributable to Entergy Corporation |
| $1,241,226 |
| |
| $848,661 |
| |
| $411,612 |
|
Preferred dividend requirements of subsidiaries | 17,018 |
| | 13,894 |
| | 13,741 |
|
Consolidated net income (loss) | 1,258,244 |
| | 862,555 |
| | 425,353 |
|
Income taxes | (169,825 | ) | | (1,036,826 | ) | | 542,570 |
|
Income (loss) before income taxes |
| $1,088,419 |
| |
| ($174,271 | ) | |
| $967,923 |
|
Computed at statutory rate (21% for 2019 and 2018) (35% for 2017) |
| $228,568 |
| |
| ($36,597 | ) | |
| $338,773 |
|
Increases (reductions) in tax resulting from: | |
| | |
| | |
|
State income taxes net of federal income tax effect | 61,791 |
| | 21,398 |
| | 44,179 |
|
Regulatory differences - utility plant items | (45,336 | ) | | (37,507 | ) | | 39,825 |
|
Equity component of AFUDC | (30,444 | ) | | (27,216 | ) | | (33,282 | ) |
Amortization of investment tax credits | (8,093 | ) | | (8,304 | ) | | (10,204 | ) |
Flow-through / permanent differences | (2,059 | ) | | 439 |
| | 8,727 |
|
Tax legislation enactment (a) | — |
| | — |
| | 560,410 |
|
Amortization of excess ADIT (a) | (205,614 | ) | | (577,082 | ) | | — |
|
Revisions of the 2017 tax legislation enactment regulatory liability accrual, including the effect of the Entergy Texas 2018 base rate proceeding | — |
| | (40,494 | ) | | — |
|
Utility restructuring (b) | — |
| | (169,918 | ) | | — |
|
Settlement on treatment of regulatory obligations (c) | — |
| | (52,320 | ) | | — |
|
State income tax audit conclusion | — |
| | (23,425 | ) | | — |
|
IRS audit adjustment | — |
| | (8,404 | ) | | — |
|
Entergy Wholesale Commodities nuclear decommissioning trust restructuring (d) | — |
| | (106,833 | ) | | — |
|
Entergy Wholesale Commodities restructuring (d) | (173,725 | ) | | — |
| | (373,277 | ) |
FitzPatrick disposition | — |
| | — |
| | (44,344 | ) |
Charitable contribution (d) | (19,101 | ) |
| — |
|
| — |
|
Net operating loss recognition | (41,427 | ) |
| — |
|
| — |
|
Provision for uncertain tax positions | 7,332 |
| | 24,569 |
| | 8,756 |
|
Valuation allowance | 59,345 |
| | 2,211 |
| | — |
|
Other - net | (1,062 | ) | | 2,657 |
| | 3,007 |
|
Total income taxes as reported |
| ($169,825 | ) | |
| ($1,036,826 | ) | |
| $542,570 |
|
Effective Income Tax Rate | (15.6 | %) | | 595.0 | % | | 56.1 | % |
|
| | | | | | | | | | | |
| 2017 | | 2016 | | 2015 |
| (In Thousands) |
Net income (loss) attributable to Entergy Corporation |
| $411,612 |
| |
| ($583,618 | ) | |
| ($176,562 | ) |
Preferred dividend requirements of subsidiaries | 13,741 |
| | 19,115 |
| | 19,828 |
|
Consolidated net income (loss) | 425,353 |
| | (564,503 | ) | | (156,734 | ) |
Income taxes | 542,570 |
| | (817,259 | ) | | (642,927 | ) |
Income (loss) before income taxes |
| $967,923 |
| |
| ($1,381,762 | ) | |
| ($799,661 | ) |
Computed at statutory rate (35%) |
| $338,773 |
| |
| ($483,617 | ) | |
| ($279,881 | ) |
Increases (reductions) in tax resulting from: | |
| | |
| | |
|
State income taxes net of federal income tax effect | 44,179 |
| | 40,581 |
| | 29,944 |
|
Regulatory differences - utility plant items | 39,825 |
| | 33,581 |
| | 32,089 |
|
Equity component of AFUDC | (33,282 | ) | | (23,647 | ) | | (18,191 | ) |
Amortization of investment tax credits | (10,204 | ) | | (10,889 | ) | | (11,136 | ) |
Flow-through / permanent differences | 8,727 |
| | (19,307 | ) | | (7,872 | ) |
Tax legislation enactment (a) | 560,410 |
| | — |
| | — |
|
Louisiana business combination | — |
| | — |
| | (333,655 | ) |
Entergy Wholesale Commodities restructuring (b) | (373,277 | ) | | (237,760 | ) | | — |
|
Act 55 financing settlement (d) | — |
| | (63,477 | ) | | — |
|
FitzPatrick disposition | (44,344 | ) | | — |
| | — |
|
Provision for uncertain tax positions (c) (d) | 8,756 |
| | (67,119 | ) | | (56,683 | ) |
Valuation allowance | — |
| | 11,411 |
| | — |
|
Other - net | 3,007 |
| | 2,984 |
| | 2,458 |
|
Total income taxes as reported |
| $542,570 |
| |
| ($817,259 | ) | |
| ($642,927 | ) |
Effective Income Tax Rate | 56.1 | % | | 59.1 | % | | 80.4 | % |
| |
(a) | See “Other Tax Matters - Tax Cuts and Jobs Act” below for discussion of the amortization of excess ADIT in 2018 and 2019 and the tax legislation enactment.enactment in 2017. |
| |
(b) | See “Other Tax Matters - Entergy Arkansas and Entergy Mississippi Internal Restructuring” below for discussion of the Utility restructuring. |
| |
(c) | See “Income Tax Audits- 2012-2013 IRS Audit” below for discussion of the settlement. |
| |
(d) | See “Other Tax Matters - Entergy Wholesale Commodities Restructuring” below for discussion of the Entergy Wholesale Commodities restructuring. |
| |
(c) | See “Income Tax Audits- 2008-2009 IRS Audit” below for discussion ofnuclear decommissioning trust restructuring in 2018, the most significant items for 2015.
|
| |
(d) | See “Income Tax Audits- 2010-2011 IRS Audit” below for discussion ofEntergy Wholesale Commodities restructurings in 2017 and 2019, and the most significant items for 2016.charitable contribution in 2019.
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Total income taxes for the Registrant Subsidiaries differ from the amounts computed by applying the statutory income tax rate to income before taxes. The reasons for the differences for the years 2017, 2016,2019, 2018, and 20152017 are:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
2019 | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy |
| | (In Thousands) |
Net income | |
| $262,964 |
| |
| $691,537 |
| |
| $119,925 |
| |
| $52,629 |
| |
| $159,397 |
| |
| $99,120 |
|
Income taxes | | (46,769 | ) | | 121,623 |
| | 30,866 |
| | 186 |
| | (53,896 | ) | | 15,349 |
|
Pretax income | |
| $216,195 |
| |
| $813,160 |
| |
| $150,791 |
| |
| $52,815 |
| |
| $105,501 |
| |
| $114,469 |
|
Computed at statutory rate (21%) | |
| $45,401 |
| |
| $170,764 |
| |
| $31,666 |
| |
| $11,091 |
| |
| $22,155 |
| |
| $24,039 |
|
Increases (reductions) in tax resulting from: | | | | |
| | |
| | |
| | |
| | |
|
State income taxes net of federal income tax effect | | 15,954 |
| | 42,854 |
| | 5,563 |
| | 3,443 |
| | 360 |
| | 5,134 |
|
Regulatory differences - utility plant items | | (10,627 | ) | | (19,421 | ) | | (5,556 | ) | | (1,532 | ) | | (1,987 | ) | | (6,213 | ) |
Equity component of AFUDC | | (3,255 | ) | | (15,545 | ) | | (1,755 | ) | | (2,088 | ) | | (5,973 | ) | | (1,829 | ) |
Amortization of investment tax credits | | (1,201 | ) | | (4,871 | ) | | (160 | ) | | (88 | ) | | (617 | ) | | (1,155 | ) |
Flow-through / permanent differences | | 696 |
| | 439 |
| | 160 |
| | (741 | ) | | 560 |
| | (500 | ) |
Amortization of excess ADIT (b) | | (90,921 | ) | | (28,531 | ) | | 203 |
| | (11,724 | ) | | (69,091 | ) | | (5,550 | ) |
Non-taxable dividend income | | — |
| | (26,795 | ) | | — |
| | — |
| | — |
| | — |
|
Provision for uncertain tax positions | | (3,517 | ) | | 1,519 |
| | 500 |
| | 1,672 |
| | 430 |
| | 1,300 |
|
Other - net | | 701 |
| | 1,210 |
| | 245 |
| | 153 |
| | 267 |
| | 123 |
|
Total income taxes as reported | |
| ($46,769 | ) | |
| $121,623 |
| |
| $30,866 |
| |
| $186 |
| |
| ($53,896 | ) | |
| $15,349 |
|
Effective Income Tax Rate | | (21.6 | %) | | 15.0 | % | | 20.5 | % | | 0.4 | % | | (51.1 | %) | | 13.4 | % |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
2017 | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy |
| | (In Thousands) |
Net income | |
| $139,844 |
| |
| $316,347 |
| |
| $110,032 |
| |
| $44,553 |
| |
| $76,173 |
| |
| $78,596 |
|
Income taxes | | 93,804 |
| | 485,298 |
| | 73,919 |
| | 33,278 |
| | 48,481 |
| | 69,969 |
|
Pretax income | |
| $233,648 |
| |
| $801,645 |
| |
| $183,951 |
| |
| $77,831 |
| |
| $124,654 |
| |
| $148,565 |
|
Computed at statutory rate (35%) | |
| $81,777 |
| |
| $280,576 |
| |
| $64,383 |
| |
| $27,241 |
| |
| $43,629 |
| |
| $51,998 |
|
Increases (reductions) in tax resulting from: | | | | |
| | |
| | |
| | |
| | |
|
State income taxes net of federal income tax effect | | 11,586 |
| | 31,927 |
| | 6,202 |
| | 2,842 |
| | 527 |
| | 5,635 |
|
Regulatory differences - utility plant items | | 7,220 |
| | 12,168 |
| | 1,356 |
| | 619 |
| | 5,581 |
| | 12,880 |
|
Equity component of AFUDC | | (6,458 | ) | | (18,020 | ) | | (3,383 | ) | | (847 | ) | | (2,353 | ) | | (2,221 | ) |
Amortization of investment tax credits | | (1,201 | ) | | (4,871 | ) | | (160 | ) | | (124 | ) | | (951 | ) | | (2,896 | ) |
Flow-through / permanent differences | | 3,098 |
| | 3,774 |
| | 1,567 |
| | (3,352 | ) | | 1,428 |
| | (276 | ) |
Tax legislation enactment (a) | | (3,090 | ) | | 217,258 |
| | 3,492 |
| | 6,153 |
| | 2,981 |
| | (69 | ) |
Non-taxable dividend income | | — |
| | (44,658 | ) | | — |
| | — |
| | — |
| | — |
|
Provision for uncertain tax positions | | 200 |
| | 5,700 |
| | 228 |
| | 600 |
| | (2,617 | ) | | 4,800 |
|
Other - net | | 672 |
| | 1,444 |
| | 234 |
| | 146 |
| | 256 |
| | 118 |
|
Total income taxes as reported | |
| $93,804 |
| |
| $485,298 |
| |
| $73,919 |
| |
| $33,278 |
| |
| $48,481 |
| |
| $69,969 |
|
Effective Income Tax Rate | | 40.1 | % | | 60.5 | % | | 40.2 | % | | 42.8 | % | | 38.9 | % | | 47.1 | % |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
2016 | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy |
| | (In Thousands) |
Net income | |
| $167,212 |
| |
| $622,047 |
| |
| $109,184 |
| |
| $48,849 |
| |
| $107,538 |
| |
| $96,744 |
|
Income taxes | | 107,773 |
| | 89,734 |
| | 63,854 |
| | 28,705 |
| | 63,097 |
| | 71,061 |
|
Pretax income | |
| $274,985 |
| |
| $711,781 |
| |
| $173,038 |
| |
| $77,554 |
| |
| $170,635 |
| |
| $167,805 |
|
Computed at statutory rate (35%) | |
| $96,245 |
| |
| $249,123 |
| |
| $60,563 |
| |
| $27,144 |
| |
| $59,722 |
| |
| $58,732 |
|
Increases (reductions) in tax resulting from: | | |
| | |
| | |
| | |
| | |
| | |
|
State income taxes net of federal income tax effect | | 11,652 |
| | 29,014 |
| | 5,592 |
| | 3,543 |
| | 449 |
| | 7,001 |
|
Regulatory differences - utility plant items | | 10,971 |
| | 8,094 |
| | (1,154 | ) | | 2,329 |
| | 4,140 |
| | 9,201 |
|
Equity component of AFUDC | | (5,985 | ) | | (9,774 | ) | | (2,030 | ) | | (412 | ) | | (2,666 | ) | | (2,780 | ) |
Amortization of investment tax credits | | (1,201 | ) | | (5,019 | ) | | (160 | ) | | (132 | ) | | (900 | ) | | (3,476 | ) |
Flow-through / permanent differences | | (3,848 | ) | | (980 | ) | | 764 |
| | (3,609 | ) | | 634 |
| | (883 | ) |
Act 55 financing settlement (b) | | — |
| | (61,620 | ) | | — |
| | — |
| | (454 | ) | | — |
|
Non-taxable dividend income | | — |
| | (44,658 | ) | | — |
| | — |
| | — |
| | — |
|
Provision for uncertain tax positions (b) | | (717 | ) | | (75,871 | ) | | 50 |
| | (300 | ) | | 1,926 |
| | 3,151 |
|
Other - net | | 656 |
| | 1,425 |
| | 229 |
| | 142 |
| | 246 |
| | 115 |
|
Total income taxes as reported | |
| $107,773 |
| |
| $89,734 |
| |
| $63,854 |
| |
| $28,705 |
| |
| $63,097 |
| |
| $71,061 |
|
Effective Income Tax Rate | | 39.2 | % | | 12.6 | % | | 36.9 | % | | 37.0 | % | | 37.0 | % | | 42.3 | % |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
|
| | | | | | | | | | | | | | | | | | | | | | | | |
2018 | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy |
| | (In Thousands) |
Net income | |
| $252,707 |
| |
| $675,614 |
| |
| $126,078 |
| |
| $53,152 |
| |
| $162,235 |
| |
| $94,109 |
|
Income taxes | | (297,067 | ) | | (54,611 | ) | | (125,773 | ) | | (2,436 | ) | | (26,243 | ) | | (47,675 | ) |
Pretax income | |
| ($44,360 | ) | |
| $621,003 |
| |
| $305 |
| |
| $50,716 |
| |
| $135,992 |
| |
| $46,434 |
|
Computed at statutory rate (21%) | |
| ($9,316 | ) | |
| $130,411 |
| |
| $64 |
| |
| $10,650 |
| |
| $28,558 |
| |
| $9,751 |
|
Increases (reductions) in tax resulting from: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
State income taxes net of federal income tax effect | | (794 | ) | | 26,031 |
| | (1,747 | ) | | 2,322 |
| | 2,576 |
| | 2,812 |
|
Regulatory differences - utility plant items | | (14,916 | ) | | (12,604 | ) | | (4,103 | ) | | (1,502 | ) | | (1,872 | ) | | (2,510 | ) |
Equity component of AFUDC | | (3,477 | ) | | (16,784 | ) | | (1,829 | ) | | (1,248 | ) | | (2,042 | ) | | (1,837 | ) |
Amortization of investment tax credits | | (1,201 | ) | | (4,871 | ) | | (160 | ) | | (109 | ) | | (808 | ) | | (1,155 | ) |
Flow-through / permanent differences | | 570 |
| | 3,203 |
| | 1,893 |
| | (4,222 | ) | | 1,038 |
| | 2,815 |
|
Revisions of the 2017 tax legislation enactment regulatory liability accrual, including the effect of the Entergy Texas 2018 base rate proceeding (a) | | 933 |
| | (2,810 | ) | | (556 | ) | | 884 |
| | (43,799 | ) | | (3,565 | ) |
Amortization of excess ADIT (b) | | (271,570 | ) | | (104,313 | ) | | (120,831 | ) | | (9,878 | ) | | (11,519 | ) | | (58,971 | ) |
Settlement on treatment of regulatory obligations (c) | | — |
| | (52,320 | ) | | — |
| | — |
| | — |
| | — |
|
IRS audit adjustment | | 1,290 |
| | 1,097 |
| | 1,018 |
| | (96 | ) | | 524 |
| | (12 | ) |
Non-taxable dividend income | | — |
| | (26,795 | ) | | — |
| | — |
| | — |
| | — |
|
Provision for uncertain tax positions | | 724 |
| | 3,949 |
| | 240 |
| | 613 |
| | 839 |
| | 4,876 |
|
Other - net | | 690 |
| | 1,195 |
| | 238 |
| | 150 |
| | 262 |
| | 121 |
|
Total income taxes as reported | |
| ($297,067 | ) | |
| ($54,611 | ) | |
| ($125,773 | ) | |
| ($2,436 | ) | |
| ($26,243 | ) | |
| ($47,675 | ) |
Effective Income Tax Rate | | 669.7 | % | | (8.8 | %) | | (41,237.0 | %) | | (4.8 | %) | | (19.3 | %) | | (102.7 | %) |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
2015 | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy |
| | (In Thousands) |
Net income | |
| $74,272 |
| |
| $446,639 |
| |
| $92,708 |
| |
| $44,925 |
| |
| $69,625 |
| |
| $111,318 |
|
Income taxes | | 40,541 |
| | 178,671 |
| | 61,872 |
| | 25,190 |
| | 37,250 |
| | 53,077 |
|
Pretax income | |
| $114,813 |
| |
| $625,310 |
| |
| $154,580 |
| |
| $70,115 |
| |
| $106,875 |
| |
| $164,395 |
|
Computed at statutory rate (35%) | |
| $40,185 |
| |
| $218,859 |
| |
| $54,103 |
| |
| $24,540 |
| |
| $37,406 |
| |
| $57,538 |
|
Increases (reductions) in tax resulting from: | | |
| | |
| | |
| | |
| | |
| | |
|
State income taxes net of federal income tax effect | | 6,643 |
| | 23,650 |
| | 5,219 |
| | 2,887 |
| | 1,621 |
| | 6,403 |
|
Regulatory differences - utility plant items | | 7,299 |
| | 3,013 |
| | 2,383 |
| | 2,201 |
| | 3,703 |
| | 12,167 |
|
Equity component of AFUDC | | (4,979 | ) | | (5,420 | ) | | (1,083 | ) | | (451 | ) | | (1,987 | ) | | (2,973 | ) |
Amortization of investment tax credits | | (1,201 | ) | | (5,252 | ) | | (160 | ) | | (111 | ) | | (900 | ) | | (3,476 | ) |
Flow-through / permanent differences | | (4,062 | ) | | 2,460 |
| | 431 |
| | (4,539 | ) | | 530 |
| | 618 |
|
Non-taxable dividend income | | — |
| | (44,658 | ) | | — |
| | — |
| | — |
| | — |
|
Provision for uncertain tax positions (c) | | (3,978 | ) | | (15,377 | ) | | 756 |
| | 525 |
| | (3,365 | ) | | (17,313 | ) |
Other - net | | 634 |
| | 1,396 |
| | 223 |
| | 138 |
| | 242 |
| | 113 |
|
Total income taxes as reported | |
| $40,541 |
| |
| $178,671 |
| |
| $61,872 |
| |
| $25,190 |
| |
| $37,250 |
| |
| $53,077 |
|
Effective Income Tax Rate | | 35.3 | % | | 28.6 | % | | 40.0 | % | | 35.9 | % | | 34.9 | % | | 32.3 | % |
| |
(a) | See “Other Tax Matters - Tax Cuts and Jobs Act” below for discussion of the tax legislation enactment.
|
| |
(b) | See “Income Tax Audits- 2010-2011 IRS Audit” below for discussion of the most significant items for Entergy Louisiana.
|
| |
(c) | See “Income Tax Audits- 2008-2009 IRS Audit” below for discussion of the most significant items for Entergy Louisiana and System Energy.
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
|
| | | | | | | | | | | | | | | | | | | | | | | | |
2017 | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy |
| | (In Thousands) |
Net income | |
| $139,844 |
| |
| $316,347 |
| |
| $110,032 |
| |
| $44,553 |
| |
| $76,173 |
| |
| $78,596 |
|
Income taxes | | 93,804 |
| | 485,298 |
| | 73,919 |
| | 33,278 |
| | 48,481 |
| | 69,969 |
|
Pretax income | |
| $233,648 |
| |
| $801,645 |
| |
| $183,951 |
| |
| $77,831 |
| |
| $124,654 |
| |
| $148,565 |
|
Computed at statutory rate (35%) | |
| $81,777 |
| |
| $280,576 |
| |
| $64,383 |
| |
| $27,241 |
| |
| $43,629 |
| |
| $51,998 |
|
Increases (reductions) in tax resulting from: | | |
| | |
| | |
| | |
| | |
| | |
|
State income taxes net of federal income tax effect | | 11,586 |
| | 31,927 |
| | 6,202 |
| | 2,842 |
| | 527 |
| | 5,635 |
|
Regulatory differences - utility plant items | | 7,220 |
| | 12,168 |
| | 1,356 |
| | 619 |
| | 5,581 |
| | 12,880 |
|
Equity component of AFUDC | | (6,458 | ) | | (18,020 | ) | | (3,383 | ) | | (847 | ) | | (2,353 | ) | | (2,221 | ) |
Amortization of investment tax credits | | (1,201 | ) | | (4,871 | ) | | (160 | ) | | (124 | ) | | (951 | ) | | (2,896 | ) |
Flow-through / permanent differences | | 3,098 |
| | 3,774 |
| | 1,567 |
| | (3,352 | ) | | 1,428 |
| | (276 | ) |
Tax legislation enactment (b) | | (3,090 | ) | | 217,258 |
| | 3,492 |
| | 6,153 |
| | 2,981 |
| | (69 | ) |
Non-taxable dividend income | | — |
| | (44,658 | ) | | — |
| | — |
| | — |
| | — |
|
Provision for uncertain tax positions | | 200 |
| | 5,700 |
| | 228 |
| | 600 |
| | (2,617 | ) | | 4,800 |
|
Other - net | | 672 |
| | 1,444 |
| | 234 |
| | 146 |
| | 256 |
| | 118 |
|
Total income taxes as reported | |
| $93,804 |
| |
| $485,298 |
| |
| $73,919 |
| |
| $33,278 |
| |
| $48,481 |
| |
| $69,969 |
|
Effective Income Tax Rate | | 40.1 | % | | 60.5 | % | | 40.2 | % | | 42.8 | % | | 38.9 | % | | 47.1 | % |
| |
(a) | See Note 2 to the financial statements for discussion of the Entergy Texas rate case settlement. |
| |
(b) | See “Other Tax Matters - Tax Cuts and Jobs Act” below for discussion of the amortization of excess ADIT in 2018 and 2019 and the tax legislation enactment in 2017. |
| |
(c) | See “Income Tax Audits - 2012-2013 IRS Audit” below for discussion of the settlement for Entergy Louisiana. |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Significant components of accumulated deferred income taxes and taxes accrued for Entergy Corporation and Subsidiaries as of December 31, 20172019 and 20162018 are as follows:
|
| | | | | | | |
| 2019 | | 2018 |
| (In Thousands) |
Deferred tax liabilities: | | | |
Plant basis differences - net |
| ($4,111,761 | ) | |
| ($3,835,211 | ) |
Regulatory assets | (389,573 | ) | | (370,484 | ) |
Nuclear decommissioning trusts/receivables | (1,015,542 | ) | | (1,128,140 | ) |
Pension, net funding | (348,260 | ) | | (307,626 | ) |
Combined unitary state taxes | (11,519 | ) | | (9,440 | ) |
Power purchase agreements | — |
| | (73,335 | ) |
Deferred fuel | (8,360 | ) | | (29,953 | ) |
Other | (445,378 | ) | | (248,997 | ) |
Total | (6,330,393 | ) | | (6,003,186 | ) |
Deferred tax assets: | |
| | |
|
Nuclear decommissioning liabilities | 929,251 |
| | 1,070,583 |
|
Regulatory liabilities | 806,777 |
| | 895,756 |
|
Pension and other post-employment benefits | 297,272 |
| | 305,736 |
|
Sale and leaseback | 102,420 |
| | 121,473 |
|
Compensation | 87,355 |
| | 86,461 |
|
Accumulated deferred investment tax credit | 56,013 |
| | 57,643 |
|
Provision for allowances and contingencies | 126,886 |
| | 135,631 |
|
Power purchase agreements | 231,502 |
| | — |
|
Unbilled/deferred revenues | (10,218 | ) | | 43,762 |
|
Net operating loss carryforwards | 1,133,197 |
| | 628,165 |
|
Capital losses and miscellaneous tax credits | 22,597 |
| | 20,549 |
|
Valuation allowance | (303,307 | ) | | (243,726 | ) |
Other | 289,557 |
| | 125,522 |
|
Total | 3,769,302 |
| | 3,247,555 |
|
Non-current accrued taxes (including unrecognized tax benefits) | (1,775,638 | ) | | (1,296,928 | ) |
Accumulated deferred income taxes and taxes accrued |
| ($4,336,729 | ) | |
| ($4,052,559 | ) |
|
| | | | | | | |
| 2017 | | 2016 |
| (In Thousands) |
Deferred tax liabilities: | | | |
Plant basis differences - net |
| ($3,963,798 | ) | |
| ($6,362,905 | ) |
Regulatory assets | — |
| | (584,572 | ) |
Nuclear decommissioning trusts/receivables | (1,657,808 | ) | | (1,739,977 | ) |
Pension, net funding | (350,743 | ) | | (429,896 | ) |
Combined unitary state taxes | (24,645 | ) | | (33,063 | ) |
Power purchase agreements | (19,621 | ) | | (993 | ) |
Other | (249,327 | ) | | (251,719 | ) |
Total | (6,265,942 | ) | | (9,403,125 | ) |
Deferred tax assets: | |
| | |
|
Nuclear decommissioning liabilities | 964,945 |
| | 1,399,468 |
|
Regulatory liabilities | 841,370 |
| | 255,272 |
|
Pension and other post-employment benefits | 343,817 |
| | 539,456 |
|
Sale and leaseback | 122,397 |
| | 135,866 |
|
Compensation | 75,217 |
| | 99,300 |
|
Accumulated deferred investment tax credit | 59,285 |
| | 92,375 |
|
Provision for allowances and contingencies | 126,391 |
| | 188,390 |
|
Net operating loss carryforwards | 467,255 |
| | 334,025 |
|
Capital losses and miscellaneous tax credits | 16,738 |
| | 18,470 |
|
Valuation allowance | (137,283 | ) | | (104,277 | ) |
Other | 54,058 |
| | 59,079 |
|
Total | 2,934,190 |
| | 3,017,424 |
|
Non-current accrued taxes (including unrecognized tax benefits) | (956,547 | ) | | (991,704 | ) |
Accumulated deferred income taxes and taxes accrued |
| ($4,288,299 | ) | |
| ($7,377,405 | ) |
Entergy’s estimated tax attributes carryovers and their expiration dates as of December 31, 20172019 are as follows:
|
| | | | |
Carryover Description | | Carryover Amount | | Year(s) of expiration |
| | | | |
Federal net operating losses before 1/1/2018 | | $9.8 billion | | 2023-2037 |
Federal net operating losses - 1/1/2018 forward | | $10.7 billion | | 2023-2037N/A |
State net operating losses | | $9.620.8 billion | | 2018-20372020-2039 |
Federal and state charitable contributions | | $395.8 million | | 2020-2024 |
Miscellaneous federal and state credits | | $96.6101.1 million | | 2018-20362020-2038 |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
As a result of the accounting for uncertain tax positions, the amount of the deferred tax assets reflected in the financial statements is less than the amount of the tax effect of the federal and state net operating loss carryovers, tax credit carryovers, and other tax attributes reflected on income tax returns. Entergy evaluates the available positive and negative evidence to estimate whether sufficient future taxable income of the appropriate character will be generated to realize the benefits of existing deferred tax assets. When the evaluation indicates that Entergy will not be able to realize the existing benefits, a valuation allowance is recorded to reduce deferred tax assets to the realizable amount.
Because it is more likely than not that the benefit from certain state net operating loss and credit carryoversother deferred tax assets will not be utilized, valuation allowances of $106totaling $303 million as of December 31, 20172019 and $62$244 million as of December 31, 20162018 have been provided on the deferred tax assets relating to these state net operating loss and credit carryovers. Additionally, valuation allowances totaling $31 million as of December 31, 2017 and $42.3 million as of December 31, 2016 have been provided on deferred tax assets related to federal and state jurisdictions in which Entergy does not currently expect to be able to utilize certain separate company tax return losses,attributes, preventing realization of such deferred tax assets.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Significant components of accumulated deferred income taxes and taxes accrued for the Registrant Subsidiaries as of December 31, 20172019 and 20162018 are as follows:
| | 2017 | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy | |
2019 | | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy |
| | (In Thousands) | | (In Thousands) |
Deferred tax liabilities: | | | | | | | | | | | | | | | | | | | | | | | | |
Plant basis differences - net | |
| ($1,289,827 | ) | |
| ($1,583,100 | ) | |
| ($571,682 | ) | |
| ($85,515 | ) | |
| ($526,596 | ) | |
| ($359,931 | ) | |
| ($979,033 | ) | |
| ($1,987,025 | ) | |
| ($565,202 | ) | |
| ($133,073 | ) | |
| ($551,365 | ) | |
| ($380,594 | ) |
Regulatory assets | | | (170,949 | ) | | (79,117 | ) | | (10,528 | ) | | (16,867 | ) | | (59,745 | ) | | (52,662 | ) |
Nuclear decommissioning trusts/receivables | | (181,911 | ) | | (164,395 | ) | | — |
| | — |
| | — |
| | (119,184 | ) | | (120,306 | ) | | (113,830 | ) | | — |
| | — |
| | — |
| | (100,621 | ) |
Pension, net funding | | (99,971 | ) | | (102,138 | ) | | (26,413 | ) | | (13,040 | ) | | (20,700 | ) | | (21,871 | ) | | (102,685 | ) | | (98,743 | ) | | (27,325 | ) | | (11,859 | ) | | (19,961 | ) | | (21,609 | ) |
Deferred fuel | | (16,530 | ) | | (1,329 | ) | | (19,005 | ) | | (1,894 | ) | | — |
| | (272 | ) | | — |
| | (2,637 | ) | | (609 | ) | | (666 | ) | | (4,380 | ) | | (55 | ) |
Other | | (23,079 | ) | | (98,307 | ) | | (11,306 | ) | | (23,610 | ) | | (8,236 | ) | | (5,955 | ) | | (82,682 | ) | | (94,139 | ) | | (27,905 | ) | | (25,909 | ) | | 2,059 |
| | (7,350 | ) |
Total | | (1,611,318 | ) | | (1,949,269 | ) | | (628,406 | ) | | (124,059 | ) | | (555,532 | ) | | (507,213 | ) | | (1,455,655 | ) | | (2,375,491 | ) | | (631,569 | ) | | (188,374 | ) | | (633,392 | ) | | (562,891 | ) |
Deferred tax assets: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Regulatory liabilities | | 227,489 |
| | 368,156 |
| | 102,676 |
| | 23,526 |
| | 25,428 |
| | 91,271 |
| | 250,410 |
| | 283,507 |
| | 53,421 |
| | 33,258 |
| | 65,602 |
| | 121,011 |
|
Nuclear decommissioning liabilities | | 132,464 |
| | 58,891 |
| | — |
| | — |
| | — |
| | 63,180 |
| | 111,078 |
| | 56,300 |
| | — |
| | — |
| | — |
| | 52,633 |
|
Pension and other post-employment benefits | | (16,252 | ) | | 98,596 |
| | (4,865 | ) | | (9,618 | ) | | (12,044 | ) | | (516 | ) | | (21,828 | ) | | 74,881 |
| | (5,844 | ) | | (12,666 | ) | | (15,406 | ) | | (898 | ) |
Sale and leaseback | | — |
| | 19,915 |
| | — |
| | — |
| | — |
| | 102,482 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 102,480 |
|
Accumulated deferred investment tax credit | | 8,913 |
| | 35,323 |
| | 2,212 |
| | 488 |
| | 2,516 |
| | 9,832 |
| | 8,285 |
| | 32,534 |
| | 2,396 |
| | 556 |
| | 2,217 |
| | 10,025 |
|
Provision for allowances and contingencies | | 4,367 |
| | 80,516 |
| | 11,898 |
| | 24,234 |
| | 4,383 |
| | — |
| | 5,365 |
| | 77,298 |
| | 12,963 |
| | 24,022 |
| | 4,024 |
| | — |
|
Power purchase agreements | | — |
| | (6,924 | ) | | 1,129 |
| | — |
| | — |
| | — |
| | (15,087 | ) | | 18,004 |
| | 1,147 |
| | 7,961 |
| | 26 |
| | — |
|
Unbilled/deferred revenues | | 6,195 |
| | (18,263 | ) | | 4,847 |
| | 1,811 |
| | 7,736 |
| | — |
| | 5,897 |
| | (28,081 | ) | | 4,715 |
| | 1,428 |
| | 5,544 |
| | — |
|
Compensation | | 2,566 |
| | 4,387 |
| | 1,466 |
| | 723 |
| | 1,224 |
| | 332 |
| | 2,550 |
| | 3,670 |
| | 1,625 |
| | 496 |
| | 1,282 |
| | 75 |
|
Net operating loss carryforwards | | 16,172 |
| | 44 |
| | 10,255 |
| | — |
| | 1,690 |
| | — |
| | 112,658 |
| | 65,178 |
| | 21,492 |
| | 5,056 |
| | — |
| | — |
|
Capital losses and miscellaneous tax credits | | 2,678 |
| | — |
| | 5,736 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 45 |
| | — |
| | — |
| | 7,857 |
|
Other | | 473 |
| | 21,922 |
| | 1,307 |
| | 388 |
| | 1,133 |
| | — |
| | 12,541 |
| | 35,401 |
| | 999 |
| | 9,027 |
| | 2,004 |
| | 3 |
|
Total | | 385,065 |
| | 662,563 |
| | 136,661 |
| | 41,552 |
| | 32,066 |
| | 266,581 |
| | 471,869 |
| | 618,692 |
| | 92,959 |
| | 69,138 |
| | 65,293 |
| | 293,186 |
|
Non-current accrued taxes (including unrecognized tax benefits) | | 35,584 |
| | (763,665 | ) | | 2,939 |
| | (200,795 | ) | | (21,176 | ) | | (535,788 | ) | | (199,340 | ) | | (707,714 | ) | | (56,222 | ) | | (235,300 | ) | | (17,314 | ) | | (544,235 | ) |
Accumulated deferred income taxes and taxes accrued | |
| ($1,190,669 | ) | |
| ($2,050,371 | ) | |
| ($488,806 | ) | |
| ($283,302 | ) | |
| ($544,642 | ) | |
| ($776,420 | ) | |
| ($1,183,126 | ) | |
| ($2,464,513 | ) | |
| ($594,832 | ) | |
| ($354,536 | ) | |
| ($585,413 | ) | |
| ($813,940 | ) |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
|
| | | | | | | | | | | | | | | | | | | | | | | | |
2018 | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy |
| | (In Thousands) |
Deferred tax liabilities: | | | | | | | | | | | | |
Plant basis differences - net | |
| ($966,791 | ) | |
| ($1,893,831 | ) | |
| ($579,319 | ) | |
| ($135,143 | ) | |
| ($544,282 | ) | |
| ($403,809 | ) |
Regulatory assets | | (169,482 | ) | | (74,917 | ) | | (1,732 | ) | | (20,009 | ) | | (57,777 | ) | | (46,627 | ) |
Nuclear decommissioning trusts/receivables | | (77,664 | ) | | (71,470 | ) | | — |
| | — |
| | — |
| | (86,882 | ) |
Pension, net funding | | (91,962 | ) | | (92,693 | ) | | (24,398 | ) | | (11,885 | ) | | (20,331 | ) | | (18,898 | ) |
Deferred fuel | | (5,801 | ) | | (6,974 | ) | | (11,819 | ) | | (1,701 | ) | | (2,835 | ) | | (312 | ) |
Other | | (41,025 | ) | | (34,700 | ) | | (13,443 | ) | | (7,640 | ) | | (6,085 | ) | | (4,544 | ) |
Total | | (1,352,725 | ) | | (2,174,585 | ) | | (630,711 | ) | | (176,378 | ) | | (631,310 | ) | | (561,072 | ) |
Deferred tax assets: | | |
| | |
| | |
| | |
| | |
| | |
|
Regulatory liabilities | | 247,964 |
| | 339,126 |
| | 72,570 |
| | 40,181 |
| | 86,032 |
| | 110,370 |
|
Nuclear decommissioning liabilities | | 99,479 |
| | 48,738 |
| | — |
| | — |
| | — |
| | 46,643 |
|
Pension and other post-employment benefits | | (19,068 | ) | | 80,102 |
| | (5,405 | ) | | (11,371 | ) | | (14,215 | ) | | (632 | ) |
Sale and leaseback | | — |
| | 18,999 |
| | — |
| | — |
| | — |
| | 102,481 |
|
Accumulated deferred investment tax credit | | 8,599 |
| | 33,928 |
| | 2,541 |
| | 579 |
| | 2,347 |
| | 9,649 |
|
Provision for allowances and contingencies | | 9,877 |
| | 81,108 |
| | 13,412 |
| | 23,962 |
| | 5,579 |
| | — |
|
Power purchase agreements | | (17,223 | ) | | 19,385 |
| | 1,140 |
| | 12,155 |
| | (18 | ) | | — |
|
Unbilled/deferred revenues | | 7,471 |
| | (17,345 | ) | | 5,527 |
| | 636 |
| | 7,016 |
| | — |
|
Compensation | | 1,708 |
| | 1,959 |
| | 1,265 |
| | 512 |
| | 995 |
| | (260 | ) |
Net operating loss carryforwards | | 6,338 |
| | 20,118 |
| | 4,896 |
| | 480 |
| | 261 |
| | — |
|
Other | | 7,977 |
| | 23,412 |
| | 1,610 |
| | 12,181 |
| | 2,127 |
| | 4 |
|
Total | | 353,122 |
| | 649,530 |
| | 97,556 |
| | 79,315 |
| | 90,124 |
| | 268,255 |
|
Non-current accrued taxes (including unrecognized tax benefits) | | (85,942 | ) | | (701,666 | ) | | (18,714 | ) | | (226,532 | ) | | (11,349 | ) | | (512,479 | ) |
Accumulated deferred income taxes and taxes accrued | |
| ($1,085,545 | ) | |
| ($2,226,721 | ) | |
| ($551,869 | ) | |
| ($323,595 | ) | |
| ($552,535 | ) | |
| ($805,296 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
2016 | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy |
| | (In Thousands) |
Deferred tax liabilities: | | | | | | | | | | | | |
Plant basis differences - net | |
| ($1,857,554 | ) | |
| ($2,357,599 | ) | |
| ($820,971 | ) | |
| ($177,242 | ) | |
| ($835,671 | ) | |
| ($651,394 | ) |
Regulatory assets | | (109,241 | ) | | (219,750 | ) | | (25,309 | ) | | (36,301 | ) | | (153,914 | ) | | (39,879 | ) |
Nuclear decommissioning trusts | | (144,250 | ) | | (119,544 | ) | | — |
| | — |
| | — |
| | (83,891 | ) |
Pension, net funding | | (123,889 | ) | | (122,465 | ) | | (34,284 | ) | | (16,307 | ) | | (28,371 | ) | | (29,357 | ) |
Deferred fuel | | (14,774 | ) | | (1,778 | ) | | (12,770 | ) | | (5,229 | ) | | (2,808 | ) | | (1,137 | ) |
Power purchase agreements | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Other | | (47,785 | ) | | (22,136 | ) | | (12,474 | ) | | (18,536 | ) | | (8,812 | ) | | (2,051 | ) |
Total | | (2,297,493 | ) | | (2,843,272 | ) | | (905,808 | ) | | (253,615 | ) | | (1,029,576 | ) | | (807,709 | ) |
Deferred tax assets: | | |
| | |
| | |
| | |
| | |
| | |
|
Regulatory liabilities | | 5,768 |
| | 175,973 |
| | 18,833 |
| | 25,240 |
| | 15,814 |
| | 13,644 |
|
Nuclear decommissioning liabilities | | 124,206 |
| | 55,408 |
| | — |
| | — |
| | — |
| | 53,113 |
|
Pension and other post-employment benefits | | (24,467 | ) | | 145,401 |
| | (8,042 | ) | | (12,070 | ) | | (19,096 | ) | | (1,182 | ) |
Sale and leaseback | | — |
| | 33,383 |
| | — |
| | — |
| | — |
| | 102,483 |
|
Accumulated deferred investment tax credit | | 13,848 |
| | 54,509 |
| | 3,315 |
| | 239 |
| | 4,527 |
| | 15,936 |
|
Provision for allowances and contingencies | | (1,497 | ) | | 124,309 |
| | 21,817 |
| | 36,466 |
| | 5,904 |
| | — |
|
Power purchase agreements | | (3,094 | ) | | 29,827 |
| | 1,905 |
| | — |
| | 140 |
| | — |
|
Unbilled/deferred revenues | | 6,799 |
| | (35,006 | ) | | 5,085 |
| | 3,751 |
| | 11,902 |
| | — |
|
Compensation | | 2,787 |
| | 5,309 |
| | 1,492 |
| | 685 |
| | 1,587 |
| | 360 |
|
Net operating loss carryforwards | | 69,524 |
| | 17,125 |
| | — |
| | — |
| | — |
| | — |
|
Capital losses and miscellaneous tax credits | | 2,074 |
| | — |
| | 4,487 |
| | — |
| | — |
| | — |
|
Other | | 174 |
| | 17,110 |
| | 1,152 |
| | 496 |
| | 2,955 |
| | — |
|
Total | | 196,122 |
| | 623,348 |
| | 50,044 |
| | 54,807 |
| | 23,733 |
| | 184,354 |
|
Non-current accrued taxes (including unrecognized tax benefits) | | (85,252 | ) | | (471,194 | ) | | (5,567 | ) | | (136,145 | ) | | (21,804 | ) | | (489,510 | ) |
Accumulated deferred income taxes and taxes accrued | |
| ($2,186,623 | ) | |
| ($2,691,118 | ) | |
| ($861,331 | ) | |
| ($334,953 | ) | |
| ($1,027,647 | ) | |
| ($1,112,865 | ) |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The Registrant Subsidiaries’ estimated tax attributes carryovers and their expiration dates as of December 31, 20172019 are as follows:
|
| | | | | | | | | | | | |
| | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy |
| | | | | | | | | | | | |
Federal net operating losses | | $77 million4.4 billion | | $4.3 billion | | $86.6 million2 billion | | $1.1 billion | | $— | | $— |
Year(s) of expiration | | 2030-2037N/A | | 2035-2037 | | 2030-2037N/A | | 2037 | | N/A | | N/A |
| | | | | | | | | | | | |
State net operating losses | | —$4.5 billion | | $55.2 billion | | —$2.1 billion | | $1.2 billion | | $— | | $— |
Year(s) of expiration | | N/A2024 | | 2029-20372035-2039 | | N/A2038-2039 | | 20372038-2039 | | N/A | | N/A |
| | | | | | | | | | | | |
Misc. federal credits | | $2.7— | | $5.2 million | | $1.7— | | $— | | $1.9 million | | $2.7 million | | $2.1 million | | $0.6 million | | $2.53.2 million |
Year(s) of expiration | | 2029-2036N/A | | 2029-20362035-2038 | | 2029-2036N/A | | 2029-2036N/A | | 2029-20362029-2038 | | 2029-20362029-2038 |
| | | | | | | | | | | | |
State credits | | — | | $— | | $4.9— | | $— | | $— | | $2.9 million | | — | | $3.2 million | | $1013.1 million |
Year(s) of expiration | | N/A | | N/A | | 2018-2021N/A | | N/A | | 2026 | | 2018-20212020-2023 |
As a result of the accounting for uncertain tax positions, the amount of the deferred tax assets reflected in the financial statements is less than the amount of the tax effect of the federal and state net operating loss carryovers and tax credit carryovers.
Unrecognized tax benefits
Accounting standards establish a “more-likely-than-not” recognition threshold that must be met before a tax benefit can be recognized in the financial statements. If a tax deduction is taken on a tax return but does not meet the more-likely-than-not recognition threshold, an increase in income tax liability, above what is payable on the tax return, is required to be recorded. A reconciliation of Entergy’s beginning and ending amount of unrecognized tax benefits is as follows:
|
| | | | | | | | | | | |
| 2019 | | 2018 | | 2017 |
| (In Thousands) |
Gross balance at January 1 |
| $7,181,482 |
| |
| $4,871,846 |
| |
| $3,909,855 |
|
Additions based on tax positions related to the current year | 731,276 |
| | 2,276,614 |
| | 1,120,687 |
|
Additions for tax positions of prior years | 151,628 |
| | 506,142 |
| | 283,683 |
|
Reductions for tax positions of prior years | (681,232 | ) | | (274,600 | ) | | (442,379 | ) |
Settlements | — |
| | (198,520 | ) | | — |
|
Gross balance at December 31 | 7,383,154 |
| | 7,181,482 |
| | 4,871,846 |
|
Offsets to gross unrecognized tax benefits: | |
| | |
| | |
|
Carryovers and refund claims | (5,831,587 | ) | | (5,957,992 | ) | | (3,945,524 | ) |
Cash paid to taxing authorities | (10,000 | ) | | (10,000 | ) | | (10,000 | ) |
Unrecognized tax benefits net of unused tax attributes, refund claims and payments (a) |
| $1,541,567 |
| |
| $1,213,490 |
| |
| $916,322 |
|
|
| | | | | | | | | | | |
| 2017 | | 2016 | | 2015 |
| (In Thousands) |
Gross balance at January 1 |
| $3,909,855 |
| |
| $2,611,585 |
| |
| $4,736,785 |
|
Additions based on tax positions related to the current year | 1,120,687 |
| | 1,532,782 |
| | 1,850,705 |
|
Additions for tax positions of prior years | 283,683 |
| | 368,404 |
| | 59,815 |
|
Reductions for tax positions of prior years (a) | (442,379 | ) | | (265,653 | ) | | (3,966,535 | ) |
Settlements | — |
| | (337,263 | ) | | (68,227 | ) |
Lapse of statute of limitations | — |
| | — |
| | (958 | ) |
Gross balance at December 31 | 4,871,846 |
| | 3,909,855 |
| | 2,611,585 |
|
Offsets to gross unrecognized tax benefits: | |
| | |
| | |
|
Carryovers and refund claims | (3,945,524 | ) | | (2,922,085 | ) | | (1,264,483 | ) |
Cash paid to taxing authorities | (10,000 | ) | | (10,000 | ) | | — |
|
Unrecognized tax benefits net of unused tax attributes, refund claims and payments (b) |
| $916,322 |
| |
| $977,770 |
| |
| $1,347,102 |
|
| |
(a) | The primary reduction for 2015 is related to the nuclear decommissioning costs treatment discussed in “Income Tax Audits - 2008-2009 IRS Audit” below.
|
| |
(b) | Potential tax liability above what is payable on tax returns |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The balances of unrecognized tax benefits include $1,462$2,421 million, $1,240$2,161 million, and $955$1,462 million as of December 31, 2017, 2016,2019, 2018, and 2015,2017, respectively, which, if recognized, would lower the effective income tax rates. Because of the effect of deferred tax accounting, the remaining balances of unrecognized tax benefits of $3,410 $4,962
Entergy Corporation and Subsidiaries
Notes to Financial Statements
million, $2,670$5,020 million, and $1,657$3,410 million as of December 31, 2017, 2016,2019, 2018, and 2015,2017, respectively, if disallowed, would not affect the annual effective income tax rate but would accelerate the payment of cash to the taxing authority to an earlier period.
Entergy accrues interest expense, if any, related to unrecognized tax benefits in income tax expense. Entergy’s December 31, 2017, 2016,2019, 2018, and 20152017 accrued balance for the possible payment of interest is approximately $48 million, $44 million, and $38 million, $30respectively. Interest (net-of-tax) of $4 million, $7 million, and $27$8 million was recorded in 2019, 2018, and 2017, respectively.
A reconciliation of the Registrant Subsidiaries’ beginning and ending amount of unrecognized tax benefits for 2017, 2016,2019, 2018, and 20152017 is as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
2019 | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy |
| | (In Thousands) |
Gross balance at January 1, 2019 | |
| $1,298,662 |
| |
| $2,400,171 |
| |
| $508,765 |
| |
| $686,687 |
| |
| $17,802 |
| |
| $467,487 |
|
Additions based on tax positions related to the current year | | 84,335 |
| | 28,705 |
| | 68,594 |
| | 40,676 |
| | 2,312 |
| | 5,496 |
|
Additions for tax positions of prior years | | 20,399 |
| | 25,090 |
| | 1,651 |
| | 489 |
| | 1,299 |
| | 2,186 |
|
Reductions for tax positions of prior years | | (62,154 | ) | | (72,313 | ) | | (12,723 | ) | | (11,079 | ) | | (7 | ) | | (1,838 | ) |
Gross balance at December 31, 2019 | | 1,341,242 |
| | 2,381,653 |
| | 566,287 |
| | 716,773 |
| | 21,406 |
| | 473,331 |
|
Offsets to gross unrecognized tax benefits: | | |
| | |
| | |
| | |
| | |
| | |
|
Loss carryovers | | (1,134,187 | ) | | (1,573,257 | ) | | (506,976 | ) | | (445,430 | ) | | (3,944 | ) | | (8,392 | ) |
Unrecognized tax benefits net of unused tax attributes and payments | |
| $207,055 |
| |
| $808,396 |
| |
| $59,311 |
| |
| $271,343 |
| |
| $17,462 |
| |
| $464,939 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
2017 | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy |
| | (In Thousands) |
Gross balance at January 1, 2017 | |
| $2,503 |
| |
| $2,440,339 |
| |
| $12,206 |
| |
| $166,230 |
| |
| $15,946 |
| |
| $472,372 |
|
Additions based on tax positions related to the current year (a) | | 8,974 |
| | 32,843 |
| | 2,105 |
| | 509,183 |
| | 1,747 |
| | 909 |
|
Additions for tax positions of prior years | | 3,682 |
| | 235,331 |
| | 1,267 |
| | 13,364 |
| | 3,115 |
| | 1,432 |
|
Reductions for tax positions of prior years | | (132,875 | ) | | (190,056 | ) | | (456 | ) | | (9,233 | ) | | (4,409 | ) | | (29,202 | ) |
Gross balance at December 31, 2017 | | (117,716 | ) | | 2,518,457 |
| | 15,122 |
| | 679,544 |
| | 16,399 |
| | 445,511 |
|
Offsets to gross unrecognized tax benefits: | | |
| | |
| | |
| | |
| | |
| | |
|
Loss carryovers | | — |
| | (1,591,907 | ) | | (15,122 | ) | | (441,374 | ) | | (638 | ) | | (12,536 | ) |
Unrecognized tax benefits net of unused tax attributes and payments | |
| ($117,716 | ) | |
| $926,550 |
| |
| $— |
| |
| $238,170 |
| |
| $15,761 |
| |
| $432,975 |
|
| | 2016 | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy | |
2018 | | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy |
| | (In Thousands) | | (In Thousands) |
Gross balance at January 1, 2016 | |
| $25,445 |
| |
| $1,690,661 |
| |
| $19,482 |
| |
| $53,897 |
| |
| $13,462 |
| |
| $478,318 |
| |
Gross balance at January 1, 2018 | | |
| ($117,716 | ) | |
| $2,518,457 |
| |
| $15,122 |
| |
| $679,544 |
| |
| $16,399 |
| |
| $445,511 |
|
Additions based on tax positions related to the current year (a) | | 16,868 |
| | 931,720 |
| | 2,662 |
| | 33,912 |
| | 2,002 |
| | 5,318 |
| | 1,430,828 |
| | 30,577 |
| | 493,039 |
| | 2,261 |
| | 1,978 |
| | 18,271 |
|
Additions for tax positions of prior years | | 2,463 |
| | 157,586 |
| | 336 |
| | 129,784 |
| | 2,888 |
| | 601 |
| | 31,612 |
| | 77,372 |
| | 3,878 |
| | 12,972 |
| | 1,722 |
| | 7,255 |
|
Reductions for tax positions of prior years | | (41,957 | ) | | (144,068 | ) | | (10,219 | ) | | (29,821 | ) | | (1,849 | ) | | (10,266 | ) | | (21,619 | ) | | (158,510 | ) | | (3,253 | ) | | (8,081 | ) | | (2,262 | ) | | (3,253 | ) |
Settlements | | (316 | ) | | (195,560 | ) | | (55 | ) | | (21,542 | ) | | (557 | ) | | (1,599 | ) | | (24,443 | ) | | (67,725 | ) | | (21 | ) | | (9 | ) | | (35 | ) | | (297 | ) |
Gross balance at December 31, 2016 | | 2,503 |
| | 2,440,339 |
| | 12,206 |
| | 166,230 |
| | 15,946 |
| | 472,372 |
| |
Gross balance at December 31, 2018 | | | 1,298,662 |
| | 2,400,171 |
| | 508,765 |
| | 686,687 |
| | 17,802 |
| | 467,487 |
|
Offsets to gross unrecognized tax benefits: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Loss carryovers | | — |
| | (1,783,093 | ) | | (2,373 | ) | | (27,320 | ) | | (376 | ) | | (90,028 | ) | | (1,173,839 | ) | | (1,597,826 | ) | | (478,268 | ) | | (420,813 | ) | | (3,199 | ) | | (42,228 | ) |
Unrecognized tax benefits net of unused tax attributes and payments | |
| $2,503 |
| |
| $657,246 |
| |
| $9,833 |
| |
| $138,910 |
| |
| $15,570 |
| |
| $382,344 |
| |
| $124,823 |
| |
| $802,345 |
| |
| $30,497 |
| |
| $265,874 |
| |
| $14,603 |
| |
| $425,259 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
|
| | | | | | | | | | | | | | | | | | | | | | | | |
2017 | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy |
| | (In Thousands) |
Gross balance at January 1, 2017 | |
| $2,503 |
| |
| $2,440,339 |
| |
| $12,206 |
| |
| $166,230 |
| |
| $15,946 |
| |
| $472,372 |
|
Additions based on tax positions related to the current year (a) | | 8,974 |
| | 32,843 |
| | 2,105 |
| | 509,183 |
| | 1,747 |
| | 909 |
|
Additions for tax positions of prior years | | 3,682 |
| | 235,331 |
| | 1,267 |
| | 13,364 |
| | 3,115 |
| | 1,432 |
|
Reductions for tax positions of prior years | | (132,875 | ) | | (190,056 | ) | | (456 | ) | | (9,233 | ) | | (4,409 | ) | | (29,202 | ) |
Gross balance at December 31, 2017 | | (117,716 | ) | | 2,518,457 |
| | 15,122 |
| | 679,544 |
| | 16,399 |
| | 445,511 |
|
Offsets to gross unrecognized tax benefits: | | |
| | |
| | |
| | |
| | |
| | |
|
Loss carryovers | | — |
| | (1,591,907 | ) | | (15,122 | ) | | (441,374 | ) | | (638 | ) | | (12,536 | ) |
Unrecognized tax benefits net of unused tax attributes and payments | |
| ($117,716 | ) | |
| $926,550 |
| |
| $— |
| |
| $238,170 |
| |
| $15,761 |
| |
| $432,975 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
2015 | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy |
| | (In Thousands) |
Gross balance at January 1, 2015 | |
| $362,912 |
| |
| $1,205,929 |
| |
| $20,144 |
| |
| $53,763 |
| |
| $17,264 |
| |
| $258,242 |
|
Additions based on tax positions related to the current year (b) | | 2,196 |
| | 1,367,058 |
| | 566 |
| | 472 |
| | 657 |
| | 472,304 |
|
Additions for tax positions of prior years | | 1,057 |
| | 7,992 |
| | 8,140 |
| | 48 |
| | 2,914 |
| | 913 |
|
Reductions for tax positions of prior years | | (340,720 | ) | | (859,430 | ) | | — |
| | (386 | ) | | (3,981 | ) | | (253,141 | ) |
Settlements | | — |
| | (30,888 | ) | | (9,368 | ) | | — |
| | (3,392 | ) | | — |
|
Gross balance at December 31, 2015 | | 25,445 |
| | 1,690,661 |
| | 19,482 |
| | 53,897 |
| | 13,462 |
| | 478,318 |
|
Offsets to gross unrecognized tax benefits: | | |
| | |
| | |
| | |
| | |
| | |
|
Loss carryovers | | (3,613 | ) | | (893,764 | ) | | (1,016 | ) | | (506 | ) | | (276 | ) | | (133,611 | ) |
Unrecognized tax benefits net of unused tax attributes and payments | |
| $21,832 |
| |
| $796,897 |
| |
| $18,466 |
| |
| $53,391 |
| |
| $13,186 |
| |
| $344,707 |
|
| |
(a) | The primary additions for Entergy LouisianaMississippi in 20162018, and for Entergy New Orleans in 2017 are related to the mark-to-market treatment discussed in “Other Tax Matters - Tax Accounting Methods” below. |
| |
(b) | The primary additionadditions for Entergy Louisiana and System Energy isArkansas in 2018 are related to the nuclear decommissioning costs treatment and the mark-to-market treatment discussed in “Other Tax Matters - Tax Accounting Methods” below. |
The Registrant Subsidiaries’ balances of unrecognized tax benefits included amounts which, if recognized, would have reduced income tax expense as follows:
|
| | | | | | | | | | | |
| December 31, |
| 2019 | | 2018 | | 2017 |
| (In Millions) |
Entergy Arkansas |
| $203.3 |
| |
| $85.4 |
| |
| $2.6 |
|
Entergy Louisiana |
| $556.3 |
| |
| $594.0 |
| |
| $575.8 |
|
Entergy Mississippi |
| $1.9 |
| |
| $1.5 |
| |
| $— |
|
Entergy New Orleans |
| $242.7 |
| |
| $246.2 |
| |
| $31.7 |
|
Entergy Texas |
| $5.7 |
| |
| $5.1 |
| |
| $4.4 |
|
System Energy |
| $— |
| |
| $— |
| |
| $— |
|
Accrued balances for the possible payment of interest related to unrecognized tax benefits are as follows:
|
| | | | | | | | | | | |
| December 31, |
| 2019 | | 2018 | | 2017 |
| (In Millions) |
Entergy Arkansas |
| $3.1 |
| |
| $1.7 |
| |
| $1.6 |
|
Entergy Louisiana |
| $14.2 |
| |
| $17.9 |
| |
| $14.1 |
|
Entergy Mississippi |
| $1.7 |
| |
| $1.2 |
| |
| $1.0 |
|
Entergy New Orleans |
| $4.7 |
| |
| $2.7 |
| |
| $2.1 |
|
Entergy Texas |
| $1.1 |
| |
| $0.9 |
| |
| $0.4 |
|
System Energy |
| $14.5 |
| |
| $13.2 |
| |
| $8.5 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
|
| | | | | | | | | | | |
| December 31, |
| 2017 | | 2016 | | 2015 |
| (In Millions) |
Entergy Arkansas |
| $2.6 |
| |
| $3.6 |
| |
| $4.5 |
|
Entergy Louisiana |
| $575.8 |
| |
| $473.3 |
| |
| $692.7 |
|
Entergy Mississippi |
| $— |
| |
| $— |
| |
| $8.1 |
|
Entergy New Orleans |
| $31.7 |
| |
| $33.6 |
| |
| $50.7 |
|
Entergy Texas |
| $4.4 |
| |
| $7.0 |
| |
| $5.2 |
|
System Energy |
| $— |
| |
| $— |
| |
| $0.7 |
|
The Registrant Subsidiaries accruerecord interest and penalties related to unrecognized tax benefits in income tax expense. Penalties have not been accrued. Accrued balances for the possible payment of interest areNo penalties were recorded in 2019, 2018, and 2017. Interest (net-of-tax) was recorded as follows:
|
| | | | | | | | | | | |
| 2019 | | 2018 | | 2017 |
| (In Millions) |
Entergy Arkansas |
| $1.4 |
| |
| $0.2 |
| |
| $0.2 |
|
Entergy Louisiana |
| ($3.7 | ) | |
| $3.8 |
| |
| $5.7 |
|
Entergy Mississippi |
| $0.5 |
| |
| $0.2 |
| |
| $0.2 |
|
Entergy New Orleans |
| $2.0 |
| |
| $0.6 |
| |
| $0.6 |
|
Entergy Texas |
| $0.2 |
| |
| $0.5 |
| |
| ($0.8 | ) |
System Energy |
| $1.3 |
| |
| $4.7 |
| |
| $4.8 |
|
|
| | | | | | | | | | | |
| December 31, |
| 2017 | | 2016 | | 2015 |
| (In Millions) |
Entergy Arkansas |
| $1.6 |
| |
| $1.4 |
| |
| $1.3 |
|
Entergy Louisiana |
| $14.1 |
| |
| $8.4 |
| |
| $9.3 |
|
Entergy Mississippi |
| $1.0 |
| |
| $0.8 |
| |
| $0.4 |
|
Entergy New Orleans |
| $2.1 |
| |
| $1.5 |
| |
| $1.8 |
|
Entergy Texas |
| $0.4 |
| |
| $1.2 |
| |
| $1.2 |
|
System Energy |
| $8.5 |
| |
| $3.7 |
| |
| $0.7 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Income Tax Audits
Entergy and its subsidiaries file U.S. federal and various state and foreign income tax returns. IRS examinations are complete for years before 2012.2014. All state taxing authorities’ examinations are complete for years before 2010.2015. Entergy regularly negotiates with the IRS to achieve settlements. The resolution of audit issues could result in significant changes to the amounts of unrecognized tax benefits in the next twelve months.
2006-20072012-2013 IRS Audit
In the first quarter 2015, the IRS finalized tax and interest computations from the 2006-2007 audit that resulted in a reversal of Entergy’s provision for uncertain tax positions related to accrued interest of approximately $20 million, including decreases of approximately $4 million for Entergy Arkansas, $11 million for Entergy Louisiana, and $1 million for System Energy.
2008-2009 IRS Audit
In the fourth quarter 2009, Entergy filed Applications for Change in Accounting Method (the “2009 CAM”) for tax purposes with the IRS for certain costs under Section 263A of the Internal Revenue Code. In the Applications, Entergy proposed to treat the nuclear decommissioning liability associated with the operation of its nuclear power plants as a production cost properly includable in cost of goods sold. The effect of the 2009 CAM was a $5.7 billion reduction in 2009 taxable income. The 2009 CAM was adjusted to $9.3 billion in 2012.
In the fourth quarter 2012, the IRS disallowed the reduction to 2009 taxable income related to the 2009 CAM. In the third quarter 2013, the Internal Revenue Service issued its Revenue Agent Report (RAR) for the tax years 2008-2009. As a result of the issuance of this RAR, Entergy and the IRS resolved all of the 2008-2009 issues described above except for the 2009 CAM. Entergy disagreed with the IRS’s disallowance of the 2009 CAM and filed a protest with the IRS Appeals Division in October 2013.
In August 2015, Entergy and the IRS agreed on the treatment of the 2009 position regarding nuclear decommissioning liabilities from the 2008-2009 audit. The agreement provides that Entergy is entitled to deduct approximately $118 million of the $9.3 billion claimed in 2009. The agreement effectively settled all matters pertaining to the 2009 tax year and increased Entergy’s 2009 federal income tax liability by $2.4 million.
2010-2011 IRS Audit
The IRS completed its examination of the 20102012 and 20112013 tax years and issued its 2010-2011 RAR2012-2013 Revenue Agent Report (RAR) in June 2016.2018. Entergy agreed to all proposed adjustments contained in the RAR. Entergy and the Registrant Subsidiaries recorded the effects of these adjustments in June 2018.
As a result of the issuance of the RAR, Entergy Louisiana was able to recognize previously unrecognized tax benefits as follows:
Entergy andof $52 million related to the IRS agreed that $148.6 million of the proceeds received by Entergy Louisiana in 2010 from the Louisiana Utilities Restoration Corporation (LURC), an instrumentality of the State of Louisiana, for the financing of Hurricane GustavKatrina and Hurricane Ike storm costs pursuant to Act 55 of the Louisiana Regular Session of 2007 (Louisiana Act 55) were not taxable. Because the treatment of the financing is settled, Entergy recognized previously unrecognized tax benefits totaling $63.5 million, of which Entergy Louisiana recorded $61.6 million. Entergy Louisiana also accrued a regulatory liability of $16.1 million ($9.9 million net-of-tax) in accordance with the terms of Entergy Louisiana’s previous settlement agreement approved by the LPSC regarding Entergy Louisiana’sRita contingent sharing obligation to pay to customers savings associated with the Louisiana Act 55 financing.
2014-2015 IRS Audit
The IRS is examining the 2014 and 2015 tax years. Entergy andexpects the IRS agreed uponto complete this examination in 2020. As of December 31, 2019, Entergy has not received any proposed adjustments to taxable income from the tax treatment of Entergy Louisiana’s regulatory liability related to the Vidalia purchased power agreement. As a result, Entergy Louisiana recognized a previously unrecognized tax benefit of $74.5 million.IRS.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Other Tax Matters
Tax Cuts and Jobs Act
Deferred tax liabilities and assets have been adjusted for the effect of the enactment of H.R. 1, also known as the Tax Cuts and Jobs Act (the Act), signed by President Trump on December 22, 2017. The most significant effect of the Act for Entergy and the Registrant Subsidiaries iswas the change in the federal corporate income tax rate from 35% to 21%, effective January 1, 2018. Other significant provisions and their effect on Entergy and the Registrant Subsidiaries are summarized below.
The Act limits the deduction for net business interest expense in certain circumstances.to 30 percent of adjusted taxable income which is similar to earnings before interest, taxes, depreciation, and amortization. The new limitation does not apply to interest expense however, that is properly allocable to a trade or business that furnishes or sells electrical energy, gas, or steam through a local distribution system, or transports gas or steam by pipeline if the rates for such furnishing or sale are subject to ratemaking by a government entity or instrumentality or by a public utility commission. Accordingly,
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The IRS issued proposed regulations relating to this limitation in November 2018. The regulations are generally proposed to be effective for taxable years ending after the potentialdate Treasury adopts the regulations as final. Taxpayers may apply the rules of the proposed regulations to a taxable year beginning after December 31, 2017, so long as taxpayers consistently apply the rules of the proposed regulations. The proposed regulations provide guidance that if 90% of a tax group’s consolidated assets consist of utility property, the entire consolidated tax group will be treated as a regulated public utility and all of the consolidated group’s interest expense disallowance is not expectedwill be currently tax deductible.
As a result of the limitation under the Act, Entergy recorded limitations in 2018 and 2019 and recorded a deferred tax asset on the nondeductible portion, as it has an unlimited carryover period. Entergy recorded a valuation allowance of $24 million due to have a material effect on Entergy’s orlack of earnings from sources other than the Registrant Subsidiaries’ interest deductions.
The Act extends and modifies the additional first-year depreciation deduction (bonus depreciation). The Act excludes from bonus-eligible qualified property, however, any property used in a trade or business that furnishes or sells electrical energy, gas, or steam through a local distribution system, or transportation of gas or steam by pipeline if the rates for furnishing those services are subject to ratemaking by a government entity or instrumentality or by a public utility commission. Accordingly, the extension of bonus depreciation and modifications generally do not apply to Entergy or the Registrant Subsidiaries.Utility.
The Act limits the net operating loss (NOL) deduction for a given year to 80% of taxable income, effective with respect to losses arising in tax years beginning after December 31, 2017. Only NOLs generated after December 31, 2017 are subject to the 80% limitation. Prior law generally provided a two-year carryback and 20-year carryforward for NOLs. The Act providesdoes not allow a carryback period but does provide for the indefinite carryforward of NOLs arising in tax years ending after December 31, 2017, as opposed to the current 20-year carryforward.2017. Because of the indefinite carryforward, the new limitations on NOL utilization are not expected to have a material effect on Entergy or the Registrant Subsidiaries.
The Act also modified Internal Revenue Code section 162(m), which limits the deduction for compensation with respect to certain covered employees to no more than $1 million per year. The IRS issued proposed regulations relating to this limitation in December 2019. The significant provisions of the Act includesand associated proposed regulations require inclusion of performance-based compensation and an expanded definition of “covered employees” in the annual computation of the section 162 limitation. The changes are expected to resultAct amendments and associated proposed regulations resulted in an increase in disallowed compensation expense, but this limitation isdoes not expected to have a material effect on Entergy or the Registrant Subsidiaries.
Other provisions that are not expected to have a material effect on Entergy or the Registrant Subsidiaries include the following:
repeal of the corporate alternative minimum tax (AMT),
modification to the capital contribution rules under Internal Revenue Code section 118,
repeal of domestic production activities deduction, and
fundamental changes to the taxation of multinational entities.
With respect to the federal corporate income tax rate change from 35% to 21%, Entergy and the Registrant Subsidiaries believe it is probable thatrecorded a significant portion ofregulatory liability associated with the decrease in the net accumulated deferred income tax liability, which is often referred to as “excess ADIT,” will be returneda significant portion of which has been paid to customers. Accordingly, it is appropriate for Entergycustomers in 2018 and 2019 in the Registrant Subsidiaries to establish a regulatory liability for the probable reduction in future revenue.form of lower rates. Entergy’s December 31, 20172019 and December 31, 2018 balance sheet reflectssheets reflect a regulatory liability of $2.9$1.7 billion due toand $2.1 billion, respectively, as a result of the re-measurement of deferred tax assets and liabilities resulting from the income tax rate change.change, amortization of excess ADIT, and payments to customers during 2018 and 2019. Entergy’s regulatory liability for income taxes includes a gross-up at the applicable tax rate because of the effect that excess ADIT has on the ratemaking formula. The regulatory liability for income taxes includes the effect of a) the reduction of the net deferred tax liability resulting
Entergy Corporation and Subsidiaries
Notes to Financial Statements
in excess ADIT, b) the tax gross-up of excess ADIT, and c) the effect of the new tax rate on the previous net regulatory asset for income taxes. For the same reasons, the Registrant Subsidiaries’ December 31, 20172019 and December 31, 2018 balance sheets reflect net regulatory liabilities for income taxes as follows: Entergy Arkansas, $986 million; Entergy Louisiana, $725 million; Entergy Mississippi, $411 million; Entergy New Orleans, $119 million; Entergy Texas, $413 million; and System Energy, $246 million.
|
| | | | | | | |
| 2019 | | 2018 |
| (In Millions) |
Entergy Arkansas |
| $487 |
| |
| $605 |
|
Entergy Louisiana |
| $531 |
| |
| $612 |
|
Entergy Mississippi |
| $237 |
| |
| $246 |
|
Entergy New Orleans |
| $59 |
| |
| $86 |
|
Entergy Texas |
| $253 |
| |
| $352 |
|
System Energy |
| $143 |
| |
| $163 |
|
Excess ADIT is generally classified into two categories: 1) the portion that is subject to the normalization requirements of the Act, i.e., “protected”, and 2) the portion that is not subject to such normalization provisions, referred to as “unprotected”. The Act provides that the normalization method of accounting for income taxes is required for
Entergy Corporation and Subsidiaries
Notes to Financial Statements
excess ADIT associated with public utility property. The Act provides for the use of the average rate assumption method (ARAM) for the determination of the timing of the return of excess ADIT associated with such property. Under ARAM, the excess ADIT is reduced over the remaining life of the asset. Remaining asset lives vary for each Registrant Subsidiary, but the average life of public utility property is typically 30 years or longer. Entergy will returnamortize the protected portion of the excess ADIT in conformity with the normalization requirements. The Registrant Subsidiaries’ net regulatory liability for income taxes as of December 31, 2019 and December 31, 2018, includes protected excess ADIT as follows: Entergy Arkansas, $554 million; Entergy Louisiana, $782 million; Entergy Mississippi, $274 million; Entergy New Orleans, $71 million; Entergy Texas, $276 million;
|
| | | | | | | |
| 2019 | | 2018 |
| (In Millions) |
Entergy Arkansas |
| $490 |
| |
| $521 |
|
Entergy Louisiana |
| $797 |
| |
| $812 |
|
Entergy Mississippi |
| $261 |
| |
| $271 |
|
Entergy New Orleans |
| $62 |
| |
| $59 |
|
Entergy Texas |
| $228 |
| |
| $237 |
|
System Energy |
| $186 |
| |
| $202 |
|
During the second quarter of 2018, the Registrant Subsidiaries began paying unprotected excess accumulated deferred income taxes, associated with the effects of the Act, to their customers through rate riders and System Energy, $217 million.
The return periodother means approved by their respective regulatory commissions. Payment of the unprotected excess ADIT is subjectaccumulated deferred income taxes results in a reduction in the regulatory liability for income taxes and a corresponding reduction in income tax expense. This has a significant effect on the effective tax rate for the period as compared to the regulatory process in each jurisdiction and has yet to be determined. Further, a portion of the unprotected excess ADIT amount is associated with amounts previously securitized and may be treated differently than other unprotected excess ADIT consistent with applicable agreements and/or not be subject to the same schedule for the return to customers as the remaining unprotected excess ADIT.statutory tax rate. The Registrant Subsidiaries’ net regulatory liability for income taxes as of December 31, 2019 and December 31, 2018, includes unprotected excess ADIT as follows: Entergy Arkansas, $467 million; Entergy Louisiana, $410 million; Entergy Mississippi, $162 million; Entergy New Orleans, $37 million; Entergy Texas, $198 million;
|
| | | | | | | |
| 2019 | | 2018 |
| (In Millions) |
Entergy Arkansas |
| $9 |
| |
| $117 |
|
Entergy Louisiana |
| $242 |
| |
| $295 |
|
Entergy New Orleans |
| $9 |
| |
| $25 |
|
Entergy Texas |
| $83 |
| |
| $171 |
|
System Energy |
| $— |
| |
| $4 |
|
The return of unprotected excess accumulated deferred income taxes reduced Entergy’s and System Energy, $76 million. the Registrant Subsidiaries’ regulatory liability for income taxes as follows for 2019 and 2018:
|
| | | | | | | |
| 2019 | | 2018 |
| (In Millions) |
Entergy |
| $273 |
| |
| $776 |
|
Entergy Arkansas |
| $126 |
| |
| $368 |
|
Entergy Louisiana |
| $39 |
| |
| $141 |
|
Entergy Mississippi |
| $— |
| |
| $159 |
|
Entergy New Orleans |
| $14 |
| |
| $13 |
|
Entergy Texas |
| $87 |
| |
| $15 |
|
System Energy |
| $7 |
| |
| $80 |
|
In addition to the protected and unprotected excess ADIT amounts, the net regulatory liability for income taxes includes other regulatory assets and liabilities for income taxes associated with AFUDC, which is described in Note 1 to the financial statements.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
For a discussion of the proceedings commenced or other responses by Entergy’s regulators to the Act, see Note 2 to the financial statements.
Not all of Entergy’s excess ADIT is included in ratemaking. Consequently, Entergy recorded a net decrease in deferred tax assets of $560 million for which there iswas a corresponding charge to income tax expense for the year ended December 31, 2017. The corresponding income tax expense (or benefit) recorded by the Registrant Subsidiaries iswas as follows: Entergy Arkansas, ($3 million); Entergy Louisiana, $217 million; Entergy Mississippi, $3 million; Entergy New Orleans, $6 million; Entergy Texas, $3 million; and System Energy, $0.
Included in the effect of the computation of the changes in deferred tax assets and liabilities is the recognition threshold and measurement of uncertain tax positions resulting in unrecognized tax benefits. The final economic outcome of such unrecognized tax benefits is generally the result of a negotiated settlement with the IRS that often differs from the amount that is recorded as realizable under GAAP. The intrinsic uncertainty with respect to all such tax positions means that the difference between current estimates of such amounts likely to be realized and actual amounts realized upon settlement may have an effect on income tax expense and the regulatory liability for income taxes in future periods.
Entergy’s accounting for the effects of the Act is complete using the best estimates and information available to it at this time. Entergy anticipates that the Act, including the federal corporate income tax rate change, however, willmay continue to have ramifications that require adjustments in the future as certain events occur. These events include: 1) the evaluation by regulators in all of Entergy’s jurisdictions regarding the ratemaking treatment of the Act and excess ADIT; 2) the filingIRS audit adjustments to or amendments of all applicable federal and state income tax returns that include any tax elections that may change estimates accrued inmodifications to the year-end recording process;computation of taxable income resulting from the Act; and 3) additional guidance, interpretations, or rulings by the U.S. Department of the Treasury or the IRS. The potential exists for these types of events to result in future tax expense adjustments
Entergy Corporation and Subsidiaries
Notes to Financial Statements
because of the difference in the federal corporate income tax rate between past and future periods and the effect of the tax rate change on ratemaking. In turn, these items also willcould potentially affect the regulatory liability for income taxes.
Louisiana Business Combination
In October 2015 two of Entergy’s Louisiana utilities, Entergy Gulf States Louisiana and Entergy Louisiana, combined their businesses into a legal entity which is identified as Entergy Louisiana herein. The structure of the business combination generated both a permanent difference and a temporary difference under FASB ASC Topic 740. The permanent difference resulted from recognition of the Waterford 3 and River Bend decommissioning liabilities as part of the business combination. Recognition of such decommissioning liabilities required Entergy to also recognize a taxable gain. The taxable gain resulted in a temporary difference because the gain provided for an increase in tax basis. Entergy Louisiana maintained a carryover tax basis in the assets received; and, to the extent that the increase in tax basis will provide additional tax depreciation, Entergy recorded a deferred tax asset. Entergy Louisiana obtained the corresponding deferred tax asset in the business combination. The permanent tax benefit net of ancillary tax charges was approximately $334 million. Consistent with the terms of the stipulated settlement in the business combination proceeding, electric customers of Entergy Louisiana will realize customer credits associated with the business combination. Accordingly, in October 2015, Entergy recorded a regulatory liability of $107 million ($66 million net-of-tax) which partially offsets the effect of the aforementioned deferred tax asset. The deferred tax asset and the regulatory liability, net-of-tax, increased Entergy Louisiana’s member’s equity by $268 million. See Note 2 to the financial statements for further discussion of the business combination.
Entergy Wholesale Commodities Restructuring
The tax classification of the entity that owned FitzPatrick changed in the second quarter 2016. The change in tax classification required Entergy to recognize the plant’s nuclear decommissioning liability for income tax purposes resulting in a tax accounting permanent difference that reduced income tax expense, net of unrecognized tax benefits, by $238 million. The accrual of the nuclear decommissioning liability also required Entergy to recognize a gain for income tax purposes, a significant portion of which resulted in an increase in tax basis of the assets. Recognition of the gain and the increase in tax basis of the assets represents a tax accounting temporary difference. Entergy sold FitzPatrick on March 31, 2017. The removal of the contingencies regarding the sale of the plant and the receipt of NRC approval for the sale allowed Entergy to re-determine the plant’s tax basis. The re-determined basis resulted in a $44 million income tax benefit in the first quarter 2017.
In the second quarter 2017, Entergy changed the tax classification of legal entities that own Entergy Wholesale Commodities nuclear power plants. The change in tax classification required Entergy to recognize the plants’ nuclear decommissioning liabilities for income tax purposes resulting in a tax accounting permanent difference that reduced income tax expense, net of unrecognized tax benefits, by $373 million. The accrual of the nuclear decommissioning liabilities also required Entergy to recognize a gain for income tax purposes, a portion of which resulted in an increase in tax basis of the assets. Recognition of the gain and the increase in tax basis of the assets represents a tax accounting temporary difference.
In the third quarter 2018, Entergy completed a restructuring of the investment holdings in one of the Entergy Wholesale Commodities nuclear plant decommissioning trusts that resulted in an adjustment to tax basis for the trust. The accounting standards provide that a taxable temporary difference does not exist if the tax law provides a means by which an amount can be recovered without incurrence of tax. The restructuring allows Entergy to recover assets from the trust without incurring tax. As such, the tax basis recognized resulted in the reversal of a deferred tax liability and reduction of income tax expense of approximately $107 million.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
In the fourth quarter 2019, two separate events occurred resulting in a reduction of tax expense of $174 million. In November 2019 an Entergy Wholesale Commodities subsidiary recognized a reduction in income tax expense of $18 million in connection with the accounting method on power contracts associated with the Palisades nuclear power station. Additionally, Entergy’s ownership of Indian Point 2 and Indian Point 3 was restructured. The restructuring required Entergy to recognize Indian Point 2 and Indian Point 3 nuclear decommissioning liabilities for income tax purposes resulting in a tax accounting permanent difference that reduced income tax expense, net of unrecognized tax benefits, by $156 million. The accrual of the nuclear decommissioning liabilities also required Entergy to recognize a gain for income tax purposes, a portion of which resulted in an increase in the tax basis of the assets. Recognition of the gain and the increase in the tax basis of the assets represents a tax accounting temporary difference.
Immediately prior to the restructuring, through its ownership of Indian Point 2 and Indian Point 3, Entergy donated property to Stony Brook University and recognized an associated tax deduction resulting in a decrease to tax expense of $19 million.
Entergy Wholesale Commodities Tax Audit
A state income tax audit involving Entergy Wholesale Commodities was concluded during the third quarter 2018. Upon conclusion of the audit, subsidiaries within Entergy Wholesale Commodities reversed a portion of the provision for uncertain tax positions totaling approximately $23 million, net of tax and interest paid.
Tax Accounting Methods
In the fourth quarter 2015, System Energy and Entergy Louisiana adopted a new method of accounting for income tax return purposes in which the companies’their nuclear decommissioning costs will be treated as production costs of electricity includable in cost of goods sold. The new method resultsresulted in a reduction of taxable income of $1.2 billion for System Energy and $2.2 billion for Energy Louisiana. In the fourth quarter 2018, Entergy Louisiana.Arkansas adopted the same method of accounting for its nuclear decommissioning costs which resulted in a $2.2 billion reduction in taxable income.
In 2016, Entergy Louisiana elected mark-to-market income tax treatment for various wholesale electric power purchase and sale agreements, including Entergy Louisiana’s contract to purchase electricity from the Vidalia hydroelectric facility and from System Energy under the Unit Power Sales Agreement. The election resulted in a $2.2
Entergy Corporation and Subsidiaries
Notes to Financial Statements
billion deductible temporary difference. In 2017, Entergy New Orleans also elected mark-to-market income tax treatment with respect to the Unit Power Sales Agreement resultingfor wholesale electric contracts which resulted in a $1.1 billion deductible temporary difference. In 2018, Entergy Arkansas and Entergy Mississippi accrued deductible temporary differences related to mark-to-market tax accounting for wholesale electric contracts of $2.1 billion and $1.9 billion, respectively.
Accounting PronouncementsEntergy Arkansas and Entergy Mississippi Internal Restructuring
In the firstfourth quarter 2017,2018, Entergy implemented ASU No. 2016-09, “Compensation - Stock Compensation (Topic 718): ImprovementsArkansas and Entergy Mississippi became wholly-owned subsidiaries of Entergy Utility Holding Company, LLC. The change in ownership required Entergy to Employee Share-Based Payment Accounting.”recognize Entergy will now prospectivelyArkansas’s nuclear decommissioning liabilities for income tax purposes resulting in a tax accounting permanent difference that reduced income tax expense, net of unrecognized tax benefits, by $165 million. The accrual of the nuclear decommissioning liabilities also required Entergy to recognize alla gain for income tax purposes, a portion of which resulted in an increase in the tax basis of the assets. Recognition of the gain and the increase in the tax basis of the assets represents a tax accounting temporary difference. Additionally, Entergy recorded a $5 million reduction of income tax expense associated with state income tax effects resulting in a total reduction of income tax expense of $170 million from the restructuring. Entergy recorded a regulatory liability of $40 million ($30 million net-of-tax) which partially offsets the reduction of income tax expense. Entergy Arkansas’s member’s equity increased by $94 million as a result of the restructuring. See Note 2 to the financial statements for further discussion of the internal restructuring.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Arkansas Corporate Income Tax Rate Reduction
In April 2019 the state of Arkansas enacted corporate income tax law changes that phase in an Arkansas tax rate reduction from the current rate of 6.5% to 6.2% in 2021 and 5.9% in 2022. The rate reduction will eventually reduce Entergy Arkansas’s combined federal and state applicable tax rate by less than 0.5% once fully adopted. As a result of the rate reduction, Entergy Arkansas recorded a regulatory liability for income taxes of approximately $25 million which includes a tax gross-up related to share-based payments through the treatment of income statement. taxes in the ratemaking formula. The Arkansas tax law enactment also phases in an increase to the net operating loss carryover period from five to ten years.
Consolidated Income Tax Return of Entergy Corporation
In September 2019, Entergy Utility Holding Company, LLC and its regulated, wholly-owned subsidiaries including Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans, became eligible to and joined the Entergy Corporation consolidated federal income tax group. As a result of these four Utility operating companies re-joining the Entergy Corporation consolidated tax return group, Entergy was able to recognize a $41 million deferred tax asset associated with a previously unrecognized Arkansas net operating loss carryover.
Additionally, in September 2019, Entergy Texas issued $35 million of 5.375% Series A preferred stock with a liquidation value of $25 per share resulting in the disaffiliation and de-consolidation of Entergy Texas from the consolidated federal income tax return of Entergy Corporation. These changes will not affect the accrual or allocation of income taxes for the Registrant Subsidiaries. See Note 6 to the financial statements for discussion of the preferred stock issuance.
Vermont Yankee
The Vermont Yankee transaction resulted in Entergy generating a net deferred tax asset in January 2019. The deferred tax asset could not be fully realized by Entergy in the first quarter 2017, stock option expirations, along with other stock compensation activity, resulted inof 2019; accordingly, Entergy accrued a net tax expense of $29 million on the write-offdisposition of $11.5 million of deferred tax assets. Entergy’s stock-based compensation plans are discussed inVermont Yankee. See Note 1214 to the financial statements.statements for discussion of the Vermont Yankee transaction.
NOTE 4. REVOLVING CREDIT FACILITIES, LINES OF CREDIT, AND SHORT-TERM BORROWINGS (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)
Entergy Corporation has in place a credit facility that has a borrowing capacity of $3.5 billion and expires in August 2022.September 2024. The facility permitsincludes fronting commitments for the issuance of letters of credit against $20 million of the total borrowing capacity of the credit facility. The commitment fee is currently 0.225% of the undrawn commitment amount. Commitment fees and interest rates on loans under the credit facility can fluctuate depending on the senior unsecured debt ratings of Entergy Corporation. The weighted average interest rate for the year ended December 31, 20172019 was 2.55%3.77% on the drawn portion of the facility. Following is a summary of the borrowings outstanding and capacity available under the facility as of December 31, 2017.2019.
| | Capacity | | Borrowings | | Letters of Credit | | Capacity Available | | Borrowings | | Letters of Credit | | Capacity Available |
(In Millions) | $3,500 | | $210 | | $6 | | $3,284 | | $440 | | $6 | | $3,054 |
Entergy Corporation’s credit facility requires Entergy to maintain a consolidated debt ratio, as defined, of 65% or less of its total capitalization. Entergy is in compliance with this covenant. If Entergy fails to meet this ratio, or if Entergy Corporation or one of the Utility operating companies (except Entergy New Orleans) defaults on other indebtedness or is in bankruptcy or insolvency proceedings, an acceleration of the facility maturity date may occur.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Entergy Corporation has a commercial paper program with a Board-approved program limit of up to$2 billion. As of December 31, 2017,2019, Entergy Corporation had $1.467$1.947 billion of commercial paper outstanding. The weighted-average interest rate for the year ended December 31, 20172019 was 1.49%2.71%.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and Entergy Texas each had credit facilities available as of December 31, 20172019 as follows:
|
| | | | | | | | | | |
Company | | Expiration Date | | Amount of Facility | | Interest Rate (a) | | Amount Drawn as of December 31, 20172019 | | Letters of Credit Outstanding as of December 31, 20172019 |
Entergy Arkansas | | April 20182020 | | $20 million (b) | | 2.82%2.92% | | — | | — |
Entergy Arkansas | | August 2022September 2024 | | $150 million (c) | | 2.82%2.92% | | — | | — |
Entergy Louisiana | | August 2022September 2024 | | $350 million (c) | | 2.82% | | — | | $9.1 million |
Entergy Mississippi | | May 2018 | | $10 million (d) | | 3.07%2.92% | | — | | — |
Entergy Mississippi | | May 20182020 | | $2010 million (d) | | 3.07%3.30% | | — | | — |
Entergy Mississippi | | May 20182020 | | $35 million (d) | | 3.07%3.30% | | — | | — |
Entergy Mississippi | | May 20182020 | | $37.5 million (d) | | 3.07%3.30% | | — | | — |
Entergy New Orleans | | November 20182021 | | $25 million (c) | | 3.04%2.92% | | —$20 million | | $0.8 million |
Entergy Texas | | August 2022September 2024 | | $150 million (c) | | 3.07%3.30% | | — | | $25.61.3 million |
| |
(a) | The interest rate is the estimated interest rate as of December 31, 20172019 that would have been applied to outstanding borrowings under the facility. |
| |
(b) | Borrowings under this Entergy Arkansas credit facility may be secured by a security interest in its accounts receivable at Entergy Arkansas’s option. |
| |
(c) | The credit facility permitsincludes fronting commitments for the issuance of letters of credit against a portion of the borrowing capacity of the facility as follows: $5 million for Entergy Arkansas; $15 million for Entergy Louisiana; $10 million for Entergy New Orleans; and $30 million for Entergy Texas. |
| |
(d) | Borrowings under the Entergy Mississippi credit facilities may be secured by a security interest in its accounts receivable at Entergy Mississippi’s option. |
The commitment fees on the credit facilities range from 0.075% to 0.275%0.225% of the undrawn commitment amount. Each of the credit facilities requires the Registrant Subsidiary borrower to maintain a debt ratio, as defined, of 65% or less of its total capitalization. Each Registrant Subsidiary is in compliance with this covenant.
In addition, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and Entergy Texas each entered into one or more uncommitted standby letter of credit facilities as a means to post collateral to support its obligations to MISO. Following is a summary of the uncommitted standby letter of credit facilities as of December 31, 2017:2019:
|
| | | | | | |
Company | | Amount of Uncommitted Facility | | Letter of Credit Fee | | Letters of Credit Issued as of December 31, 20172019 (a) |
Entergy Arkansas | | $25 million | | 0.70% | | $1.0 million |
Entergy Louisiana | | $125 million | | 0.70% | | $29.712.3 million |
Entergy Mississippi | | $4064 million | | 0.70% | | $15.31.8 million |
Entergy New Orleans | | $15 million | | 1.00% | | $1.45.6 million |
Entergy Texas | | $50 million | | 0.70% | | $22.812.1 million |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
| |
(a) | As of December 31, 2017,2019, letters of credit posted with MISO covered financial transmission right exposure of $0.2 million for Entergy Arkansas, $0.1 million for Entergy Mississippi, and $0.05 million for Entergy Texas.Mississippi. See Note 15 to the financial statements for discussion of financial transmission rights. |
The short-term borrowings of the Registrant Subsidiaries are limited to amounts authorized by the FERC. The current FERC-authorized limits for Entergy New Orleans are effective through October 31, 2019.2021. The current FERC-authorized limits for Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy Texas, and System Energy are effective through November 8, 2020. In addition to borrowings from commercial
Entergy Corporation and Subsidiaries
Notes to Financial Statements
banks, these companies may also borrow from the Entergy System money pool and from other internal short-term borrowing arrangements. The money pool and the other internal borrowing arrangements are inter-company borrowing arrangements designed to reduce the Utility subsidiaries’ dependence on external short-term borrowings. Borrowings from internal and external short termshort-term borrowings combined may not exceed the FERC-authorized limits. The following are the FERC-authorized limits for short-term borrowings and the outstanding short-term borrowings as of December 31, 20172019 (aggregating both internal and external short-term borrowings) for the Registrant Subsidiaries:
|
| | | |
| Authorized | | Borrowings |
| (In Millions) |
Entergy Arkansas | $250 | | $22 |
Entergy Louisiana | $450 | | $83 |
Entergy Mississippi | $175 | | — |
Entergy New Orleans | $150 | | — |
Entergy Texas | $200 | | — |
System Energy | $200 | | — |
|
| | | |
| Authorized | | Borrowings |
| (In Millions) |
Entergy Arkansas | $250 | | $166 |
Entergy Louisiana | $450 | | — |
Entergy Mississippi | $175 | | — |
Entergy New Orleans | $150 | | — |
Entergy Texas | $200 | | — |
System Energy | $200 | | — |
Vermont Yankee Asset Retirement Management, LLC Credit Facility
In January 2019, Entergy Nuclear Vermont Yankee Credit Facilities
was transferred to NorthStar and its credit facility was assumed by Vermont Yankee Asset Retirement Management, LLC, Entergy Nuclear Vermont Yankee has aYankee’s parent company that remains an Entergy subsidiary after the transfer. The credit facility guaranteed by Entergy Corporation withhas a borrowing capacity of $145$139 million thatand expires in November 2020. Entergy Nuclear Vermont Yankee does not have the ability to issue letters of credit against the credit facility. This facility provides working capital to Entergy Nuclear Vermont Yankee for general business purposes including, without limitation, the decommissioning of Vermont Yankee.December 2021. The commitment fee is currently 0.20% of the undrawn commitment amount. As of December 31, 2017, $1042019, $139 million in cash borrowings were outstanding under the credit facility. The weighted average interest rate for the year ended December 31, 20172019 was 2.64%3.93% on the drawn portion of the facility.
See Note 14 to the financial statements for discussion of the transfer of Entergy Nuclear Vermont Yankee also had an uncommitted credit facility guaranteed by Entergy Corporationto NorthStar.
with a borrowing capacity of $85 million that expired in January 2018. As of December 31, 2017, there were no cash borrowings outstanding under the credit facility. The estimated interest rate for the year ended December 31, 2017 would have been 3.07% on the drawn portion of the facility.
Variable Interest Entities (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, and System Energy)
See Note 17 to the financial statements for a discussion of the consolidation of the nuclear fuel company variable interest entities (VIE). To finance the acquisition and ownership of nuclear fuel, the nuclear fuel company VIEs have credit facilities and three of the four VIEs also issue commercial paper, details of which follow as of December 31, 2017:2019:
|
| | | | | | | | |
Company | | Expiration Date | | Amount of Facility | | Weighted Average Interest Rate on Borrowings (a) | | Amount Outstanding as of December 31, 2019 |
| | (Dollars in Millions) |
Entergy Arkansas VIE | | September 2021 | | $80 | | 3.33% | | $15.1 |
Entergy Louisiana River Bend VIE | | September 2021 | | $105 | | 3.23% | | $70.3 |
Entergy Louisiana Waterford VIE | | September 2021 | | $105 | | 3.30% | | $49.9 |
System Energy VIE | | September 2021 | | $120 | | 3.34% | | $31.6 |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
|
| | | | | | | | | | |
Company | | Expiration Date | | Amount of Facility | | Weighted Average Interest Rate on Borrowings (a) | | Amount Outstanding as of December 31, 2017 |
| | (Dollars in Millions) |
Entergy Arkansas VIE | | May 2019 | | $80 | | 2.87% | |
| $74.9 | (b) |
Entergy Louisiana River Bend VIE | | May 2019 | | $105 | | 2.38% | |
| $65.7 |
|
Entergy Louisiana Waterford VIE | | May 2019 | | $85 | | 2.64% | |
| $79.9 | (c) |
System Energy VIE | | May 2019 | | $120 | | 2.52% | |
| $67.8 | (d) |
| |
(a) | Includes letter of credit fees and bank fronting fees on commercial paper issuances by the nuclear fuel company variable interest entities for Entergy Arkansas, Entergy Louisiana, and System Energy. The nuclear fuel |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
company variable interest entity for Entergy Louisiana River Bend does not issue commercial paper, but borrows directly on its bank credit facility.
| |
(b) | Includes borrowings on the credit facility and commercial paper. Commercial paper is classified as a current liability and the amount outstanding for Entergy Arkansas VIE as of December 31, 2017 was $50 million. |
| |
(c) | Includes borrowings on the credit facility and commercial paper. Commercial paper is classified as a current liability and the amount outstanding for Entergy Louisiana Waterford VIE as of December 31, 2017 was $43.5 million. |
| |
(d) | Includes borrowingsRiver Bend does not issue commercial paper, but borrows directly on theits bank credit facility and commercial paper. Commercial paper is classified as a current liability and the amount outstanding for System Energy VIE as of December 31, 2017 was $17.8 million.facility. |
The commitment fees on the credit facilities are 0.10% of the undrawn commitment amount for the Entergy Arkansas, Entergy Louisiana, and System Energy VIEs. Each credit facility requires the respective lessee of nuclear fuel (Entergy Arkansas, Entergy Louisiana, or Entergy Corporation as guarantor for System Energy) to maintain a consolidated debt ratio, as defined, of 70% or less of its total capitalization.
The nuclear fuel company variable interest entities had notes payable that are included in debt on the respective balance sheets as of December 31, 20172019 as follows:
|
| | | | |
Company | | Description | | Amount |
Entergy Arkansas VIE | | 3.65% Series L due July 2021 | | $90 million |
Entergy Arkansas VIE | | 3.17% Series M due December 2023 | | $40 million |
Entergy Louisiana River Bend VIE | | 3.38% Series R due August 2020 | | $70 million |
Entergy Louisiana Waterford VIE | | 3.92% Series H due February 2021 | | $40 million |
Entergy Louisiana Waterford VIE | | 3.22% Series I due December 2023 | | $20 million |
System Energy VIE | | 3.78%3.42% Series IJ due October 2018April 2021 | | $85100 million |
In accordance with regulatory treatment, interest on the nuclear fuel company variable interest entities’ credit facilities, commercial paper, and long-term notes payable is reported in fuel expense.
Entergy Arkansas, Entergy Louisiana, and System Energy each have obtained long-term financing authorizations from the FERC that extend through October 2019November 2020 for issuances by its nuclear fuel company variable interest entities.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
NOTE 5. LONG - TERM DEBT (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)
Long-term debt for Entergy Corporation and subsidiaries as of December 31, 20172019 and 20162018 consisted of:
| | Type of Debt and Maturity | | Weighted Average Interest Rate December 31, 2017 | | Interest Rate Ranges at December 31, | | Outstanding at December 31, | | Weighted Average Interest Rate December 31, 2019 | | Interest Rate Ranges at December 31, | | Outstanding at December 31, |
2017 | | 2016 | | 2017 | | 2016 | 2019 | | 2018 | | 2019 | | 2018 |
| | | | | | | | (In Thousands) | | | | | | | | (In Thousands) |
Mortgage Bonds | | | | | | | | | | | | | | | | | | | | |
2018-2022 | | 4.39% | | 2.55%-7.125% | | 2.55%-7.125% | |
| $2,550,000 |
| |
| $2,550,000 |
| |
2023-2027 | | 3.72% | | 2.40%-5.59% | | 2.40%-5.59% | | 4,735,000 |
| | 3,765,000 |
| |
2028-2031 | | 3.06% | | 2.85%-3.25% | | 2.85%-3.25% | | 1,125,000 |
| | 1,125,000 |
| |
2019-2023 | | | 3.65% | | 2.55%-5.10% | | 2.55%-7.125% | |
| $2,400,000 |
| |
| $3,050,000 |
|
2024-2028 | | | 3.59% | | 2.40%-5.59% | | 2.40%-5.59% | | 4,610,000 |
| | 4,610,000 |
|
2029-2039 | | | 4.05% | | 3.05%-4.52% | | 3.05%-4.52% | | 1,890,000 |
| | 1,190,000 |
|
2044-2066 | | 5.00% | | 4.70%-5.625% | | 4.70%-5.625% | | 2,960,000 |
| | 2,960,000 |
| | 4.63% | | 3.55%-5.625% | | 4.20%-5.625% | | 5,170,000 |
| | 3,560,000 |
|
Governmental Bonds (a) | | | | | | | | | | | | | | | | | | | | |
2017-2022 | | 5.20% | | 2.375%-5.875% | | 1.55%-5.875% | | 179,000 |
| | 233,700 |
| |
2021-2022 | | | 2.48% | | 2.375%-2.50% | | 2.375%-5.875% | | 179,000 |
| | 179,000 |
|
2028-2030 | | 3.45% | | 3.375%-3.50% | | 3.375%-3.50% | | 198,680 |
| | 198,680 |
| | 3.45% | | 3.375%-3.50% | | 3.375%-3.50% | | 198,680 |
| | 198,680 |
|
Securitization Bonds | | | | | | | | | | | | | | | | | | | | |
2018-2027 | | 3.79% | | 2.04%-5.93% | | 2.04%-5.93% | | 551,499 |
| | 669,310 |
| |
2021-2027 | | | 3.73% | | 2.04%-5.93% | | 2.04%-5.93% | | 302,145 |
| | 429,118 |
|
Variable Interest Entities Notes Payable (Note 4) | | | | | | | | | | | | | | | | |
2017-2023 | | 3.48% | | 3.17%-3.92% | | 2.62%-4.02% | | 345,000 |
| | 555,000 |
| |
2020-2023 | | | 3.41% | | 3.17%-3.92% | | 3.17%-3.92% | | 360,000 |
| | 360,000 |
|
Entergy Corporation Notes | | | | | | | | | | | | | | | | | | | | |
due September 2020 | | n/a | | 5.125% | | 5.125% | | 450,000 |
| | 450,000 |
| | n/a | | 5.125% | | 5.125% | | 450,000 |
| | 450,000 |
|
due July 2022 | | n/a | | 4.00% | | 4.00% | | 650,000 |
| | 650,000 |
| | n/a | | 4.00% | | 4.00% | | 650,000 |
| | 650,000 |
|
due September 2026 | | n/a | | 2.95% | | 2.95% | | 750,000 |
| | 750,000 |
| | n/a | | 2.95% | | 2.95% | | 750,000 |
| | 750,000 |
|
Entergy New Orleans Unsecured Term Loan | | | n/a | | 3.00% | | — | | 70,000 |
| | — |
|
5 Year Credit Facility (Note 4) | | n/a | | 2.55% | | 2.23% | | 210,000 |
| | 700,000 |
| | n/a | | 3.77% | | 3.60% | | 440,000 |
| | 220,000 |
|
Entergy New Orleans Credit Facility (Note 4) | | | n/a | | 2.92% | | — | | 20,000 |
| | — |
|
Vermont Yankee Credit Facility (Note 4) | | n/a | | 2.64% | | 2.17% | | 103,500 |
| | 44,500 |
| | n/a | | 3.93% | | 3.50% | | 139,000 |
| | 139,000 |
|
Entergy Arkansas VIE Credit Facility (Note 4) | | n/a | | 2.87% | | — | | 24,900 |
| | — |
| | n/a | | 3.33% | | 3.48% | | 15,100 |
| | 59,600 |
|
Entergy Louisiana River Bend VIE Credit Facility (Note 4) | | n/a | | 2.38% | | — | | 65,650 |
| | — |
| | n/a | | 3.23% | | 3.44% | | 70,300 |
| | 38,600 |
|
Entergy Louisiana Waterford VIE Credit Facility (Note 4) | | n/a | | 2.64% | | — | | 36,360 |
| | — |
| | n/a | | 3.30% | | 3.35% | | 49,900 |
| | 82,000 |
|
System Energy VIE Credit Facility (Note 4) | | n/a | | 2.52% | | — | | 50,000 |
| | — |
| | n/a | | 3.34% | | 3.44% | | 31,600 |
| | 113,900 |
|
Long-term DOE Obligation (b) | | — | | — | | — | | 183,435 |
| | 181,853 |
| | — | | — | | — | | 191,114 |
| | 186,864 |
|
Waterford 3 Lease Obligation (c) | | n/a | | — | | 8.09% | | — |
| | 57,492 |
| |
Waterford Series Collateral Trust Mortgage Notes due 2017 (c) | | n/a | | — | | (d) | | — |
| | 42,703 |
| |
Grand Gulf Lease Obligation (c) | | n/a | | 5.13% | | 5.13% | | 34,356 |
| | 34,359 |
| |
Grand Gulf Sale-Leaseback Obligation | | | n/a | | — | | — | | 34,346 |
| | 34,352 |
|
Unamortized Premium and Discount - Net | | | | | | (13,911 | ) | | (19,397 | ) | | | | | | (16,124 | ) | | (14,784 | ) |
Unamortized Debt Issuance Costs | | (126,033 | ) | | (128,849 | ) | | (143,502 | ) | | (130,612 | ) |
Other | | | | | | | | 12,830 |
| | 13,204 |
| | | | | | | | 12,096 |
| | 12,594 |
|
Total Long-Term Debt | | | | | | | | 15,075,266 |
| | 14,832,555 |
| | | | | | | | 17,873,655 |
| | 16,168,312 |
|
Less Amount Due Within One Year | | | | | | 760,007 |
| | 364,900 |
| | | | | | 795,012 |
| | 650,009 |
|
Long-Term Debt Excluding Amount Due Within One Year | | | |
| $14,315,259 |
| |
| $14,467,655 |
| | | |
| $17,078,643 |
| |
| $15,518,303 |
|
Fair Value of Long-Term Debt (e) | | | |
| $15,367,453 |
| |
| $14,815,535 |
| | | |
| $19,059,950 |
| |
| $16,101,455 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
| |
(a) | Consists of pollution control revenue bonds and environmental revenue bonds, some of which are secured by collateral mortgage bonds. |
| |
(b) | Pursuant to the Nuclear Waste Policy Act of 1982, Entergy’s nuclear owner/licensee subsidiaries have contracts with the DOE for spent nuclear fuel disposal service. The contracts include a one-time fee for generation prior to April 7, 1983. Entergy Arkansas is the only Entergy company that generated electric power with nuclear fuel prior to that date and includes the one-time fee, plus accrued interest, in long-term debt. |
| |
(c) | See Note 10 to the financial statements for further discussion of the Waterford 3 lease obligation and Entergy Louisiana’s acquisition of the equity participant’s beneficial interest in the Waterford 3 leased assets and for further discussion of the Grand Gulf lease obligation. |
| |
(d) | This note did not have a stated interest rate, but had an implicit interest rate of 7.458%. |
| |
(e) | The fair value excludes lease obligations of $34 million at System Energy and long-term DOE obligations of $183 million at Entergy Arkansas, and includes debt due within one year. Fair values are classified as Level 2 in the fair value hierarchy discussed in Note 15 to the financial statements and are based on prices derived from inputs such as benchmark yields and reported trades. |
The annual long-term debt maturities (excluding lease obligations and long-term DOE obligations) for debt outstanding as of December 31, 2017,2019, for the next five years are as follows:
|
| | | |
| Amount |
| (In Thousands) |
2020 |
| $795,000 |
|
2021 |
| $1,358,159 |
|
2022 |
| $1,104,289 |
|
2023 |
| $1,865,154 |
|
2024 |
| $1,175,000 |
|
|
| | | |
| Amount |
| (In Thousands) |
2018 |
| $760,000 |
|
2019 |
| $857,679 |
|
2020 |
| $898,500 |
|
2021 |
| $960,764 |
|
2022 |
| $1,304,431 |
|
In November 2000, Entergy’s non-utility nuclear business purchased the FitzPatrick and Indian Point 3 power plants in a seller-financed transaction. As part of the purchase agreement with NYPA, Entergy recorded a liability representing the net present value of the payments Entergy would be liable to NYPA for each year that the FitzPatrick and Indian Point 3 power plants would run beyond their respective original NRC license expiration date. In October 2015, Entergy announced a planned shutdown of FitzPatrick at the end of its fuel cycle. As a result of the announcement, Entergy reduced this liability by $26.4 million pursuant to the terms of the purchase agreement. In August 2016, Entergy entered into a trust transfer agreement with NYPA to transfer the decommissioning trust funds and decommissioning liabilities for the Indian Point 3 and FitzPatrick plants to Entergy. As part of the trust transfer agreement, the original decommissioning agreements were amended, and the Entergy subsidiaries’ obligation to make additional license extension payments to NYPA was eliminated. In the third quarter 2016, Entergy removed the note payable of $35.1 million from the consolidated balance sheet.
Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy have obtained long-term financing authorizations from the FERC that extend through November 2020. Entergy New Orleans has obtained long-term financing authorization from the FERC and the City Council that extends through October 2019.2021. Entergy Arkansas has also obtained long-termfirst mortgage bond/secured financing authorization from the APSC that extends through December 2018. Entergy New Orleans has also obtained long-term financing authorization from the City Council that extends through June 2018, as the City Council has concurrent jurisdiction with the FERC over such issuances.2020.
Capital Funds Agreement
Pursuant to an agreement with certain creditors, Entergy Corporation has agreed to supply System Energy with sufficient capital to:
maintain System Energy’s equity capital at a minimum of 35% of its total capitalization (excluding short-term debt);
Entergy Corporation and Subsidiaries
Notes to Financial Statements
permit the continued commercial operation of Grand Gulf;
pay in full all System Energy indebtedness for borrowed money when due; and
enable System Energy to make payments on specific System Energy debt, under a supplement to the agreement assigning System Energy’s rights in the agreement as security for the specific debt.
Long-term debt for the Registrant Subsidiaries as of December 31, 20172019 and 20162018 consisted of:
|
| | | | | | | | |
| | 2019 | | 2018 |
| | (In Thousands) |
Entergy Arkansas | | | | |
Mortgage Bonds: | | | | |
3.75% Series due February 2021 | |
| $350,000 |
| |
| $350,000 |
|
3.05% Series due June 2023 | | 250,000 |
| | 250,000 |
|
3.7% Series due June 2024 | | 375,000 |
| | 375,000 |
|
3.5% Series due April 2026 | | 600,000 |
| | 600,000 |
|
4.0% Series due June 2028 | | 250,000 |
| | 250,000 |
|
4.95% Series due December 2044 | | 250,000 |
| | 250,000 |
|
4.20% Series due April 2049 | | 350,000 |
| | — |
|
4.90% Series due December 2052 | | 200,000 |
| | 200,000 |
|
4.75% Series due June 2063 | | 125,000 |
| | 125,000 |
|
4.875% Series due September 2066 | | 410,000 |
| | 410,000 |
|
Total mortgage bonds | | 3,160,000 |
| | 2,810,000 |
|
Governmental Bonds (a): | | | | |
2.375% Series due 2021, Independence County (c) | | 45,000 |
| | 45,000 |
|
Total governmental bonds | | 45,000 |
| | 45,000 |
|
Variable Interest Entity Notes Payable and Credit Facility (Note 4): | | | | |
3.65% Series L due July 2021 | | 90,000 |
| | 90,000 |
|
3.17% Series M due December 2023 | | 40,000 |
| | 40,000 |
|
Credit Facility due September 2021, weighted avg rate 3.33% | | 15,100 |
| | 59,600 |
|
Total variable interest entity notes payable and credit facility | | 145,100 |
| | 189,600 |
|
Securitization Bonds: | | | | |
2.30% Series Senior Secured due August 2021 | | 7,259 |
| | 21,692 |
|
Total securitization bonds | | 7,259 |
| | 21,692 |
|
Other: | | | | |
Long-term DOE Obligation (b) | | 191,114 |
| | 186,864 |
|
Unamortized Premium and Discount – Net | | 1,664 |
| | 4,408 |
|
Unamortized Debt Issuance Costs | | (34,936 | ) | | (33,831 | ) |
Other | | 2,007 |
| | 2,026 |
|
Total Long-Term Debt | | 3,517,208 |
| | 3,225,759 |
|
Less Amount Due Within One Year | | — |
| | — |
|
Long-Term Debt Excluding Amount Due Within One Year | |
| $3,517,208 |
| |
| $3,225,759 |
|
Fair Value of Long-Term Debt | |
| $3,747,914 |
| |
| $3,189,491 |
|
|
| | | | | | | | |
| | 2017 | | 2016 |
| | (In Thousands) |
Entergy Arkansas | | | | |
Mortgage Bonds: | | | | |
3.75% Series due February 2021 | |
| $350,000 |
| |
| $350,000 |
|
3.05% Series due June 2023 | | 250,000 |
| | 250,000 |
|
3.7% Series due June 2024 | | 375,000 |
| | 375,000 |
|
3.5% Series due April 2026 | | 600,000 |
| | 380,000 |
|
4.95% Series due December 2044 | | 250,000 |
| | 250,000 |
|
4.90% Series due December 2052 | | 200,000 |
| | 200,000 |
|
4.75% Series due June 2063 | | 125,000 |
| | 125,000 |
|
4.875% Series due September 2066 | | 410,000 |
| | 410,000 |
|
Total mortgage bonds | | 2,560,000 |
| | 2,340,000 |
|
Governmental Bonds (a): | | | | |
1.55% Series due 2017, Jefferson County (d) | | — |
| | 54,700 |
|
2.375% Series due 2021, Independence County (d) | | 45,000 |
| | 45,000 |
|
Total governmental bonds | | 45,000 |
| | 99,700 |
|
Variable Interest Entity Notes Payable and Credit Facility (Note 4): | | | | |
2.62% Series K due December 2017 | | — |
| | 60,000 |
|
3.65% Series L due July 2021 | | 90,000 |
| | 90,000 |
|
3.17% Series M due December 2023 | | 40,000 |
| | 40,000 |
|
Credit Facility due May 2019, weighted avg rate 2.87% | | 24,900 |
| | — |
|
Total variable interest entity notes payable and credit facility | | 154,900 |
| | 190,000 |
|
Securitization Bonds: | | | | |
2.30% Series Senior Secured due August 2021 | | 35,764 |
| | 49,548 |
|
Total securitization bonds | | 35,764 |
| | 49,548 |
|
Other: | | | | |
Long-term DOE Obligation (b) | | 183,435 |
| | 181,853 |
|
Unamortized Premium and Discount – Net | | 5,307 |
| | 984 |
|
Unamortized Debt Issuance Costs | | (34,049 | ) | | (34,357 | ) |
Other | | 2,042 |
| | 2,057 |
|
Total Long-Term Debt | | 2,952,399 |
| | 2,829,785 |
|
Less Amount Due Within One Year | | — |
| | 114,700 |
|
Long-Term Debt Excluding Amount Due Within One Year | |
| $2,952,399 |
| |
| $2,715,085 |
|
Fair Value of Long-Term Debt (c) | |
| $2,865,844 |
| |
| $2,623,910 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
|
| | | | | | | | |
| | 2019 | | 2018 |
| | (In Thousands) |
Entergy Louisiana | | | | |
Mortgage Bonds: | | | | |
3.95% Series due October 2020 | |
| $250,000 |
| |
| $250,000 |
|
4.8% Series due May 2021 | | 200,000 |
| | 200,000 |
|
3.3% Series due December 2022 | | 200,000 |
| | 200,000 |
|
4.05% Series due September 2023 | | 325,000 |
| | 325,000 |
|
5.59% Series due October 2024 | | 300,000 |
| | 300,000 |
|
5.40% Series due November 2024 | | 400,000 |
| | 400,000 |
|
3.78% Series due April 2025 | | 110,000 |
| | 110,000 |
|
3.78% Series due April 2025 | | 190,000 |
| | 190,000 |
|
4.44% Series due January 2026 | | 250,000 |
| | 250,000 |
|
2.40% Series due October 2026 | | 400,000 |
| | 400,000 |
|
3.12% Series due September 2027 | | 450,000 |
| | 450,000 |
|
3.25% Series due April 2028 | | 425,000 |
| | 425,000 |
|
3.05% Series due June 2031 | | 325,000 |
| | 325,000 |
|
4.0% Series due March 2033 | | 750,000 |
| | 750,000 |
|
5.0% Series due July 2044 | | 170,000 |
| | 170,000 |
|
4.95% Series due January 2045 | | 450,000 |
| | 450,000 |
|
4.20% Series due September 2048 | | 600,000 |
| | 600,000 |
|
4.20% Series due April 2050 | | 525,000 |
| | — |
|
5.25% Series due July 2052 | | 200,000 |
| | 200,000 |
|
4.70% Series due June 2063 | | 100,000 |
| | 100,000 |
|
4.875% Series due September 2066 | | 270,000 |
| | 270,000 |
|
Total mortgage bonds | | 6,890,000 |
| | 6,365,000 |
|
Governmental Bonds (a): | | | | |
3.375 % Series due 2028, Louisiana Public Facilities Authority (c) | | 83,680 |
| | 83,680 |
|
3.50% Series due 2030, Louisiana Public Facilities Authority (c) | | 115,000 |
| | 115,000 |
|
Total governmental bonds | | 198,680 |
| | 198,680 |
|
Variable Interest Entity Notes Payable and Credit Facilities (Note 4): | | | | |
3.38% Series R due August 2020 | | 70,000 |
| | 70,000 |
|
3.92% Series H due February 2021 | | 40,000 |
| | 40,000 |
|
3.22% Series I due December 2023 | | 20,000 |
| | 20,000 |
|
Credit Facility due September 2021, weighted avg rate 3.23% | | 70,300 |
| | 38,600 |
|
Credit Facility due September 2021, weighted avg rate 3.30% | | 49,900 |
| | 82,000 |
|
Total variable interest entity notes payable and credit facilities | | 250,200 |
| | 250,600 |
|
Securitization Bonds: | | | | |
2.04% Series Senior Secured due September 2023 | | 34,185 |
| | 56,910 |
|
Total securitization bonds | | 34,185 |
| | 56,910 |
|
Other: | | | | |
Unamortized Premium and Discount - Net | | (17,372 | ) | | (14,955 | ) |
Unamortized Debt Issuance Costs | | (58,089 | ) | | (57,011 | ) |
Other | | 6,065 |
| | 6,544 |
|
Total Long-Term Debt | | 7,303,669 |
| | 6,805,768 |
|
Less Amount Due Within One Year | | 320,002 |
| | 2 |
|
Long-Term Debt Excluding Amount Due Within One Year | |
| $6,983,667 |
| |
| $6,805,766 |
|
Fair Value of Long-Term Debt | |
| $7,961,168 |
| |
| $6,834,134 |
|
|
| | | | | | | | |
| | 2017 | | 2016 |
| | (In Thousands) |
Entergy Louisiana | | | | |
Mortgage Bonds: | | | | |
6.0% Series due May 2018 | |
| $375,000 |
| |
| $375,000 |
|
6.50% Series due September 2018 | | 300,000 |
| | 300,000 |
|
3.95% Series due October 2020 | | 250,000 |
| | 250,000 |
|
4.8% Series due May 2021 | | 200,000 |
| | 200,000 |
|
3.3% Series due December 2022 | | 200,000 |
| | 200,000 |
|
4.05% Series due September 2023 | | 325,000 |
| | 325,000 |
|
5.59% Series due October 2024 | | 300,000 |
| | 300,000 |
|
5.40% Series due November 2024 | | 400,000 |
| | 400,000 |
|
3.78% Series due April 2025 | | 110,000 |
| | 110,000 |
|
3.78% Series due April 2025 | | 190,000 |
| | 190,000 |
|
4.44% Series due January 2026 | | 250,000 |
| | 250,000 |
|
2.40% Series due October 2026 | | 400,000 |
| | 400,000 |
|
3.12% Series due September 2027 | | 450,000 |
| | — |
|
3.25% Series due April 2028 | | 425,000 |
| | 425,000 |
|
3.05% Series due June 2031 | | 325,000 |
| | 325,000 |
|
5.0% Series due July 2044 | | 170,000 |
| | 170,000 |
|
4.95% Series due January 2045 | | 450,000 |
| | 450,000 |
|
5.25% Series due July 2052 | | 200,000 |
| | 200,000 |
|
4.70% Series due June 2063 | | 100,000 |
| | 100,000 |
|
4.875% Series due September 2066 | | 270,000 |
| | 270,000 |
|
Total mortgage bonds | | 5,690,000 |
| | 5,240,000 |
|
Governmental Bonds (a): | | | | |
3.375 % Series due 2028, Louisiana Public Facilities Authority (d) | | 83,680 |
| | 83,680 |
|
3.50% Series due 2030, Louisiana Public Facilities Authority (d) | | 115,000 |
| | 115,000 |
|
Total governmental bonds | | 198,680 |
| | 198,680 |
|
Variable Interest Entity Notes Payable and Credit Facilities (Note 4): | | | | |
3.25% Series G due July 2017 | | — |
| | 25,000 |
|
3.25% Series Q due July 2017 | | — |
| | 75,000 |
|
3.38% Series R due August 2020 | | 70,000 |
| | 70,000 |
|
3.92% Series H due February 2021 | | 40,000 |
| | 40,000 |
|
3.22% Series I due December 2023 | | 20,000 |
| | 20,000 |
|
Credit Facility due May 2019, weighted avg rate 2.38% | | 65,650 |
| | — |
|
Credit Facility due May 2019, weighted avg rate 2.64% | | 36,360 |
| | — |
|
Total variable interest entity notes payable and credit facilities | | 232,010 |
| | 230,000 |
|
Securitization Bonds: | | | | |
2.04% Series Senior Secured due September 2023 | | 79,228 |
| | 100,972 |
|
Total securitization bonds | | 79,228 |
| | 100,972 |
|
Other: | | | | |
Waterford 3 Lease Obligation (Note 10) (e) | | — |
| | 57,492 |
|
Waterford Series Collateral Trust Mortgage Notes due 2017 (Note 10) (f) | | — |
| | 42,703 |
|
Unamortized Premium and Discount - Net | | (13,877 | ) | | (14,917 | ) |
Unamortized Debt Issuance Costs | | (48,540 | ) | | (48,972 | ) |
Other | | 6,570 |
| | 6,833 |
|
Total Long-Term Debt | | 6,144,071 |
| | 5,812,791 |
|
Less Amount Due Within One Year | | 675,002 |
| | 200,198 |
|
Long-Term Debt Excluding Amount Due Within One Year | |
| $5,469,069 |
| |
| $5,612,593 |
|
Fair Value of Long-Term Debt (c) | |
| $6,389,774 |
| |
| $5,929,488 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
|
| | | | | | | | |
| | 2019 | | 2018 |
| | (In Thousands) |
Entergy Mississippi | | | | |
Mortgage Bonds: | | | | |
6.64% Series due July 2019 | |
| $— |
| |
| $150,000 |
|
3.1% Series due July 2023 | | 250,000 |
| | 250,000 |
|
3.75% Series due July 2024 | | 100,000 |
| | 100,000 |
|
3.25% Series due December 2027 | | 150,000 |
| | 150,000 |
|
2.85% Series due June 2028 | | 375,000 |
| | 375,000 |
|
4.52% Series due December 2038 | | 55,000 |
| | 55,000 |
|
3.85% Series due June 2049 | | 435,000 |
| | — |
|
4.90% Series due October 2066 | | 260,000 |
| | 260,000 |
|
Total mortgage bonds | | 1,625,000 |
| | 1,340,000 |
|
Other: | | | | |
Unamortized Premium and Discount – Net | | 6,127 |
| | (989 | ) |
Unamortized Debt Issuance Costs | | (16,998 | ) | | (13,261 | ) |
Total Long-Term Debt | | 1,614,129 |
| | 1,325,750 |
|
Less Amount Due Within One Year | | — |
| | 150,000 |
|
Long-Term Debt Excluding Amount Due Within One Year | |
| $1,614,129 |
| |
| $1,175,750 |
|
Fair Value of Long-Term Debt | |
| $1,709,505 |
| |
| $1,276,452 |
|
|
| | | | | | | | |
| | 2017 | | 2016 |
| | (In Thousands) |
Entergy Mississippi | | | | |
Mortgage Bonds: | | | | |
6.64% Series due July 2019 | |
| $150,000 |
| |
| $150,000 |
|
3.1% Series due July 2023 | | 250,000 |
| | 250,000 |
|
3.75% Series due July 2024 | | 100,000 |
| | 100,000 |
|
3.25% Series due December 2027 | | 150,000 |
| | — |
|
2.85% Series due June 2028 | | 375,000 |
| | 375,000 |
|
4.90% Series due October 2066 | | 260,000 |
| | 260,000 |
|
Total mortgage bonds | | 1,285,000 |
| | 1,135,000 |
|
Other: | | | | |
Unamortized Premium and Discount – Net | | (1,155 | ) | | (766 | ) |
Unamortized Debt Issuance Costs
| | (13,723 | ) | | (13,318 | ) |
Total Long-Term Debt | | 1,270,122 |
| | 1,120,916 |
|
Less Amount Due Within One Year | | — |
| | — |
|
Long-Term Debt Excluding Amount Due Within One Year | |
| $1,270,122 |
| |
| $1,120,916 |
|
Fair Value of Long-Term Debt (c) | |
| $1,285,741 |
| |
| $1,086,203 |
|
|
| | | | | | | | |
| | 2019 | | 2018 |
| | (In Thousands) |
Entergy New Orleans | | | | |
Mortgage Bonds: | | | | |
5.10% Series due December 2020 | |
| $25,000 |
| |
| $25,000 |
|
3.9% Series due July 2023 | | 100,000 |
| | 100,000 |
|
4.0% Series due June 2026 | | 85,000 |
| | 85,000 |
|
4.51% Series due September 2033 | | 60,000 |
| | 60,000 |
|
5.0% Series due December 2052 | | 30,000 |
| | 30,000 |
|
5.50% Series due April 2066 | | 110,000 |
| | 110,000 |
|
Total mortgage bonds | | 410,000 |
| | 410,000 |
|
Securitization Bonds: | | | | |
2.67% Series Senior Secured due June 2027 | | 54,443 |
| | 65,666 |
|
Total securitization bonds | | 54,443 |
|
| 65,666 |
|
Other: | | | | |
3.0% Unsecured Term Loan due May 2022 | | 70,000 |
| | — |
|
Credit Facility due November 2021, weighted avg rate 2.92% | | 20,000 |
| | — |
|
Payable to associated company due November 2035 | | 14,367 |
| | 16,346 |
|
Unamortized Premium and Discount – Net | | (129 | ) | | (168 | ) |
Unamortized Debt Issuance Costs | | (7,775 | ) | | (8,140 | ) |
Total Long-Term Debt | | 560,906 |
| | 483,704 |
|
Less Amount Due Within One Year | | 26,838 |
| | 1,979 |
|
Long-Term Debt Excluding Amount Due Within One Year | |
| $534,068 |
| |
| $481,725 |
|
Fair Value of Long-Term Debt | |
| $523,846 |
| |
| $491,569 |
|
|
| | | | | | | | |
| | 2017 | | 2016 |
| | (In Thousands) |
Entergy New Orleans | | | | |
Mortgage Bonds: | | | | |
5.10% Series due December 2020 | |
| $25,000 |
| |
| $25,000 |
|
3.9% Series due July 2023 | | 100,000 |
| | 100,000 |
|
4.0% Series due June 2026 | | 85,000 |
| | 85,000 |
|
5.0% Series due December 2052 | | 30,000 |
| | 30,000 |
|
5.50% Series due April 2066 | | 110,000 |
| | 110,000 |
|
Total mortgage bonds | | 350,000 |
| | 350,000 |
|
Securitization Bonds: | | | | |
2.67% Series Senior Secured due June 2027 | | 76,707 |
| | 87,307 |
|
Total securitization bonds | | 76,707 |
|
| 87,307 |
|
Other: | | | | |
Payable to Entergy Louisiana due November 2035 | | 18,423 |
| | 20,527 |
|
Unamortized Premium and Discount – Net | | (206 | ) | | (245 | ) |
Unamortized Debt Issuance Costs
| | (8,054 | ) | | (8,595 | ) |
Total Long-Term Debt | | 436,870 |
| | 448,994 |
|
Less Amount Due Within One Year | | 2,077 |
| | 2,104 |
|
Long-Term Debt Excluding Amount Due Within One Year | |
| $434,793 |
| |
| $446,890 |
|
Fair Value of Long-Term Debt (c) | |
| $455,968 |
| |
| $455,459 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
|
| | | | | | | | |
| | 2019 | | 2018 |
| | (In Thousands) |
Entergy Texas | | | | |
Mortgage Bonds: | | | | |
7.125% Series due February 2019 | |
| $— |
| |
| $500,000 |
|
2.55% Series due June 2021 | | 125,000 |
| | 125,000 |
|
4.1% Series due September 2021 | | 75,000 |
| | 75,000 |
|
3.45% Series due December 2027 | | 150,000 |
| | 150,000 |
|
4.0% Series due March 2029 | | 300,000 |
| | — |
|
4.5% Series due March 2039 | | 400,000 |
| | — |
|
5.15% Series due June 2045 | | 250,000 |
| | 250,000 |
|
3.55% Series due September 2049 | | 300,000 |
| | — |
|
5.625% Series due June 2064 | | 135,000 |
| | 135,000 |
|
Total mortgage bonds | | 1,735,000 |
| | 1,235,000 |
|
Securitization Bonds: | | | | |
5.93% Series Senior Secured, Series A due June 2022 | | 50,289 |
| | 81,237 |
|
4.38% Series Senior Secured, Series A due November 2023 | | 155,969 |
| | 203,613 |
|
Total securitization bonds | | 206,258 |
| | 284,850 |
|
Other: | | | | |
Unamortized Premium and Discount - Net | | (4,814 | ) | | (992 | ) |
Unamortized Debt Issuance Costs | | (17,510 | ) | | (9,145 | ) |
Other | | 4,022 |
| | 4,022 |
|
Total Long-Term Debt | | 1,922,956 |
| | 1,513,735 |
|
Less Amount Due Within One Year | | — |
| | 500,000 |
|
Long-Term Debt Excluding Amount Due Within One Year | |
| $1,922,956 |
| |
| $1,013,735 |
|
Fair Value of Long-Term Debt | |
| $2,090,215 |
| |
| $1,528,828 |
|
|
| | | | | | | | |
| | 2017 | | 2016 |
| | (In Thousands) |
Entergy Texas | | | | |
Mortgage Bonds: | | | | |
7.125% Series due February 2019 | |
| $500,000 |
| |
| $500,000 |
|
2.55% Series due June 2021 | | 125,000 |
| | 125,000 |
|
4.1% Series due September 2021 | | 75,000 |
| | 75,000 |
|
3.45% Series due December 2027 | | 150,000 |
| | — |
|
5.15% Series due June 2045 | | 250,000 |
| | 250,000 |
|
5.625% Series due June 2064 | | 135,000 |
| | 135,000 |
|
Total mortgage bonds | | 1,235,000 |
| | 1,085,000 |
|
Securitization Bonds: | | | | |
5.79% Series Senior Secured, Series A due October 2018 | | — |
| | 23,584 |
|
3.65% Series Senior Secured, Series A due August 2019 | | 30,769 |
| | 74,899 |
|
5.93% Series Senior Secured, Series A due June 2022 | | 110,431 |
| | 114,400 |
|
4.38% Series Senior Secured, Series A due November 2023 | | 218,600 |
| | 218,600 |
|
Total securitization bonds | | 359,800 |
| | 431,483 |
|
Other: | | | | |
Unamortized Premium and Discount - Net | | (1,498 | ) | | (1,579 | ) |
Unamortized Debt Issuance Costs
| | (10,366 | ) | | (10,809 | ) |
Other | | 4,214 |
| | 4,312 |
|
Total Long-Term Debt | | 1,587,150 |
| | 1,508,407 |
|
Less Amount Due Within One Year | | — |
| | — |
|
Long-Term Debt Excluding Amount Due Within One Year | |
| $1,587,150 |
| |
| $1,508,407 |
|
Fair Value of Long-Term Debt (c) | |
| $1,661,902 |
| |
| $1,600,156 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
|
| | | | | | | | |
| | 2019 | | 2018 |
| | (In Thousands) |
System Energy | | | | |
Mortgage Bonds: | | | | |
4.1% Series due April 2023 | |
| $250,000 |
| |
| $250,000 |
|
Total mortgage bonds | | 250,000 |
| | 250,000 |
|
Governmental Bonds (a): | | | | |
5.875% Series due 2022, Mississippi Business Finance Corp. | | — |
| | 134,000 |
|
2.5% Series due 2022, Mississippi Business Finance Corp. | | 134,000 |
| | — |
|
Total governmental bonds | | 134,000 |
| | 134,000 |
|
Variable Interest Entity Notes Payable and Credit Facility (Note 4): | | | | |
3.42% Series J due April 2021 | | 100,000 |
| | 100,000 |
|
Credit Facility due September 2021, weighted avg rate 3.34% | | 31,600 |
| | 113,900 |
|
Total variable interest entity notes payable and credit facility | | 131,600 |
| | 213,900 |
|
Other: | | | | |
Grand Gulf Sale-Leaseback Obligation | | 34,346 |
| | 34,352 |
|
Unamortized Premium and Discount – Net | | (144 | ) | | (328 | ) |
Unamortized Debt Issuance Costs | | (1,697 | ) | | (1,176 | ) |
Other | | 2 |
| | 2 |
|
Total Long-Term Debt | | 548,107 |
| | 630,750 |
|
Less Amount Due Within One Year | | 10 |
| | 6 |
|
Long-Term Debt Excluding Amount Due Within One Year | |
| $548,097 |
| |
| $630,744 |
|
Fair Value of Long-Term Debt | |
| $565,209 |
| |
| $630,475 |
|
|
| | | | | | | | |
| | 2017 | | 2016 |
| | (In Thousands) |
System Energy | | | | |
Mortgage Bonds: | | | | |
4.1% Series due April 2023 | |
| $250,000 |
| |
| $250,000 |
|
Total mortgage bonds | | 250,000 |
| | 250,000 |
|
Governmental Bonds (a): | | | | |
5.875% Series due 2022, Mississippi Business Finance Corp. | | 134,000 |
| | 134,000 |
|
Total governmental bonds | | 134,000 |
| | 134,000 |
|
Variable Interest Entity Notes Payable and Credit Facility (Note 4): | | | | |
4.02% Series H due February 2017 | | — |
| | 50,000 |
|
3.78% Series I due October 2018 | | 85,000 |
| | 85,000 |
|
Credit Facility due May 2019, weighted avg rate 2.52% | | 50,000 |
| | — |
|
Total variable interest entity notes payable and credit facility | | 135,000 |
| | 135,000 |
|
Other: | | | | |
Grand Gulf Lease Obligation 5.13% (Note 10) | | 34,356 |
| | 34,359 |
|
Unamortized Premium and Discount – Net | | (415 | ) | | (503 | ) |
Unamortized Debt Issuance Costs | | (1,455 | ) | | (1,727 | ) |
Other | | 2 |
| | 3 |
|
Total Long-Term Debt | | 551,488 |
| | 551,132 |
|
Less Amount Due Within One Year | | 85,004 |
| | 50,003 |
|
Long-Term Debt Excluding Amount Due Within One Year | |
| $466,484 |
| |
| $501,129 |
|
Fair Value of Long-Term Debt (c) | |
| $529,119 |
| |
| $529,520 |
|
| |
(a) | Consists of pollution control revenue bonds and environmental revenue bonds. |
| |
(b) | Pursuant to the Nuclear Waste Policy Act of 1982, Entergy’s nuclear owner/licensee subsidiaries have contracts with the DOE for spent nuclear fuel disposal service. The contracts include a one-time fee for generation prior to April 7, 1983. Entergy Arkansas is the only Entergy company that generated electric power with nuclear fuel prior to that date and includes the one-time fee, plus accrued interest, in long-term debt. |
| |
(c) | The fair value excludes lease obligations of $34 million at System Energy and long-term DOE obligations of $183 million at Entergy Arkansas, and includes debt due within one year. Fair values are classified as Level 2 in the fair value hierarchy discussed in Note 15 to the financial statements and are based on prices derived from inputs such as benchmark yields and reported trades. |
| |
(d) | The bonds are secured by a series of collateral mortgage bonds. |
| |
(e) | The interest rate as of December 31, 2016 was 8.09%. See Note 10 to the financial statements for further discussion of Entergy Louisiana’s acquisition of the equity participant’s beneficial interest in the Waterford 3 leased assets in March 2016. |
| |
(f) | This note did not have a stated interest rate, but had an implicit interest rate of 7.458%. |
The annual long-term debt maturities (excluding lease obligations and long-term DOE obligations) for debt outstanding as of December 31, 2017,2019, for the next five years are as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy |
| (In Thousands) |
2020 |
| $— |
| |
| $320,000 |
| |
| $— |
| |
| $25,000 |
| |
| $— |
| |
| $— |
|
2021 |
| $507,359 |
| |
| $360,200 |
| |
| $— |
| |
| $20,000 |
| |
| $200,000 |
| |
| $131,600 |
|
2022 |
| $— |
| |
| $200,000 |
| |
| $— |
| |
| $70,000 |
| |
| $50,289 |
| |
| $134,000 |
|
2023 |
| $290,000 |
| |
| $379,185 |
| |
| $250,000 |
| |
| $100,000 |
| |
| $155,969 |
| |
| $250,000 |
|
2024 |
| $375,000 |
| |
| $700,000 |
| |
| $100,000 |
| |
| $— |
| |
| $— |
| |
| $— |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy |
| (In Thousands) |
2018 |
| $— |
| |
| $675,000 |
| |
| $— |
| |
| $2,077 |
| |
| $— |
| |
| $85,000 |
|
2019 |
| $24,900 |
| |
| $102,010 |
| |
| $150,000 |
| |
| $1,979 |
| |
| $530,769 |
| |
| $50,000 |
|
2020 |
| $— |
| |
| $320,000 |
| |
| $— |
| |
| $26,838 |
| |
| $— |
| |
| $— |
|
2021 |
| $520,764 |
| |
| $240,000 |
| |
| $— |
| |
| $1,618 |
| |
| $200,000 |
| |
| $— |
|
2022 |
| $— |
| |
| $200,000 |
| |
| $— |
| |
| $1,326 |
| |
| $110,431 |
| |
| $134,000 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Entergy Arkansas Securitization Bonds
In June 2010 the APSC issued a financing order authorizing the issuance of bonds to recover Entergy Arkansas’s January 2009 ice storm damage restoration costs, including carrying costs of $11.5 million and $4.6 million of up-front financing costs. In August 2010, Entergy Arkansas Restoration Funding, LLC, a company wholly-owned and consolidated by Entergy Arkansas, issued $124.1 million of storm cost recovery bonds. The bonds have a coupon of 2.30%. Although the principal amount is not due until August 2021, Entergy Arkansas Restoration Funding expects to make principal payments on the bonds over the next three years in the amount of $14.1 million for 2018, $14.4 million for 2019, and $7.3 million for 2020. With the proceeds, Entergy Arkansas Restoration Funding purchased from Entergy Arkansas the storm recovery property, which is the right to recover from customers through a storm recovery charge amounts sufficient to service the securitization bonds. The storm recovery property is reflected as a regulatory asset on the consolidated Entergy Arkansas balance sheet. The creditors of Entergy Arkansas do not have recourse to the assets or revenues of Entergy Arkansas Restoration Funding, including the storm recovery property, and the creditors of Entergy Arkansas Restoration Funding do not have recourse to the assets or revenues of Entergy Arkansas. Entergy Arkansas has no payment obligations to Entergy Arkansas Restoration Funding except to remit storm recovery charge collections.
Entergy Louisiana Securitization Bonds – Little Gypsy
In August 2011 the LPSC issued a financing order authorizing the issuance of bonds to recover Entergy Louisiana’s investment recovery costs associated with the canceled Little Gypsy repowering project. In September 2011, Entergy Louisiana Investment Recovery Funding I, L.L.C., a company wholly-owned and consolidated by Entergy Louisiana, issued $207.2 million of senior secured investment recovery bonds. The bonds have an interest rate of 2.04%. Although the principal amount is not due until September 2023, Entergy Louisiana Investment Recovery Funding expects to make principal payments on the bonds over the next fourtwo years in the amounts of $22.3 million for 2018, $22.7 million for 2019, $23.2 million for 2020 and $11 million for 2021. With the proceeds, Entergy Louisiana Investment Recovery Funding purchased from Entergy Louisiana the investment recovery property, which is the right to recover from customers through an investment recovery charge amounts sufficient to service the bonds. In accordance with the financing order, Entergy Louisiana will apply the proceeds it received from the sale of the investment recovery property as a reimbursement for previously-incurred investment recovery costs. The investment recovery property is reflected as a regulatory asset on the consolidated Entergy Louisiana balance sheet. The creditors of Entergy Louisiana do not have recourse to the assets or revenues of Entergy Louisiana Investment Recovery Funding, including the investment recovery property, and the creditors of Entergy Louisiana Investment Recovery Funding do not have recourse to the assets or revenues of Entergy Louisiana. Entergy Louisiana has no payment obligations to Entergy Louisiana Investment Recovery Funding except to remit investment recovery charge collections.
Entergy New Orleans Securitization Bonds - Hurricane Isaac
In May 2015 the City Council issued a financing order authorizing the issuance of securitization bonds to recover Entergy New Orleans’s Hurricane Isaac storm restoration costs of $31.8 million, including carrying costs, the costs of funding and replenishing the storm recovery reserve in the amount of $63.9 million, and approximately $3 million of up-front financing costs associated with the securitization. In July 2015, Entergy New Orleans Storm Recovery Funding I, L.L.C., a company wholly owned and consolidated by Entergy New Orleans, issued $98.7 million of storm cost recovery bonds. The bonds have a coupon of 2.67%. Although the principal amount is not due until June 2027, Entergy New Orleans Storm Recovery Funding expects to make principal payments on the bonds over the next five years in the amounts of $11 million for 2018, $11.2 million for 2019, $11.6 million for 2020, $11.9 million for 2021, and $12.2 million for 2022.2022, $12.5 million for 2023, and $6.2 million for 2024. With the proceeds, Entergy New Orleans Storm Recovery Funding purchased from Entergy New Orleans the storm recovery property, which is the right to recover from customers through a storm recovery charge amounts sufficient to service the securitization bonds. The storm recovery property is reflected as a regulatory asset on the consolidated Entergy New Orleans balance sheet. The creditors of Entergy New Orleans do not have recourse to the assets or revenues of Entergy New Orleans Storm Recovery Funding, including the storm recovery property, and the creditors of Entergy New Orleans Storm Recovery Funding do not have recourse to the
Entergy Corporation and Subsidiaries
Notes to Financial Statements
assets or revenues of Entergy New Orleans. Entergy New Orleans has no payment obligations to Entergy New Orleans Storm Recovery Funding except to remit storm recovery charge collections.
Entergy Texas Securitization Bonds - Hurricane Rita
In April 2007 the PUCT issued a financing order authorizing the issuance of securitization bonds to recover $353 million of Entergy Texas’s Hurricane Rita reconstruction costs and up to $6 million of transaction costs, offset by $32 million of related deferred income tax benefits. In June 2007, Entergy Gulf States Reconstruction Funding I, LLC, a company that is now wholly-owned and consolidated by Entergy Texas, issued $329.5 million of senior secured transition bonds (securitization bonds) as follows:
|
| | | |
| Amount |
| (In Thousands) |
Senior Secured Transition Bonds, Series A: | |
|
Tranche A-1 (5.51%) due October 2013 |
| $93,500 |
|
Tranche A-2 (5.79%) due October 2018 | 121,600 |
|
Tranche A-3 (5.93%) due June 2022 (a) | 114,400 |
|
Total senior secured transition bonds |
| $329,500 |
|
(a). As of December 31, 2017 the remaining amount outstanding on Tranche A-3 was $110.4 million.
Although the principal amount of each tranche is not due until the dates given above,2019, $50.3 million at 5.93% remain outstanding. Entergy Gulf States Reconstruction Funding expects to make principal payments on the bonds over the next fourtwo years in the amounts of $29.2 million for 2018, $30.9 million for 2019, $32.8 million for 2020 and $17.5 million for 2021. All of the scheduled principal payments for 2018-2021 are for Tranche A-3. Tranche A-1 and Tranche A-2 have been paid.
With the proceeds, Entergy Gulf States Reconstruction Funding purchased from Entergy Texas the transition property, which is the right to recover from customers through a transition charge amounts sufficient to service the securitization bonds. The transition property is reflected as a regulatory asset on the consolidated Entergy Texas balance sheet. The creditors of Entergy Texas do not have recourse to the assets or revenues of Entergy Gulf States Reconstruction Funding, including the transition property, and the creditors of Entergy Gulf States Reconstruction Funding do not have recourse to the assets or revenues of Entergy Texas. Entergy Texas has no payment obligations to Entergy Gulf States Reconstruction Funding except to remit transition charge collections.
Entergy Texas Securitization Bonds - Hurricane Ike and Hurricane Gustav
In September 2009 the PUCT authorized the issuance of securitization bonds to recover $566.4 million of Entergy Texas’s Hurricane Ike and Hurricane Gustav restoration costs, plus carrying costs and transaction costs, offset by insurance proceeds. In November 2009, Entergy Texas Restoration Funding, LLC (Entergy Texas Restoration Funding), a company wholly-owned and consolidated by Entergy Texas, issued $545.9 million of senior secured transition bonds (securitization bonds), as follows:
|
| | | |
| Amount |
| (In Thousands) |
Senior Secured Transition Bonds: | |
|
Tranche A-1 (2.12%) due February 2016 |
| $182,500 |
|
Tranche A-2 (3.65%) due August 2019 (a) | 144,800 |
|
Tranche A-3 (4.38%) due November 2023 | 218,600 |
|
Total senior secured transition bonds |
| $545,900 |
|
(a). As of December 31, 2017 the remaining amount outstanding on Tranche A-2 was $30.8 million.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Although the principal amount of each tranche is not due until the dates given above,2019, $156 million at 4.38% remain outstanding. Entergy Texas Restoration Funding expects to make principal payments on the bonds over the next fivethree years in the amount of $45.8 million for 2018, $47.6 million for 2019, $49.8 million for 2020, $52 million for 2021, and $54.3 million for 2022. Of the scheduled principal payments for 2018, $30.8 million are for Tranche A-2 and $15 million are for Tranche A-3. All of the scheduled principle payments for 2019-2022 are for Tranche A-3. Tranche A-1 has been paid.
With the proceeds, Entergy Texas Restoration Funding purchased from Entergy Texas the transition property, which is the right to recover from customers through a transition charge amounts sufficient to service the securitization bonds. The transition property is reflected as a regulatory asset on the consolidated Entergy Texas balance sheet. The creditors of Entergy Texas do not have recourse to the assets or revenues of Entergy Texas Restoration Funding, including the transition property, and the creditors of Entergy Texas Restoration Funding do not have recourse to the assets or revenues of Entergy Texas. Entergy Texas has no payment obligations to Entergy Texas Restoration Funding except to remit transition charge collections.
Grand Gulf Sale-Leaseback Transactions
In 1988, in two separate but substantially identical transactions, System Energy sold and leased back undivided ownership interests in Grand Gulf for the aggregate sum of $500 million. The initial term of the leases expired in July 2015. System Energy renewed the leases for fair market value with renewal terms expiring in July 2036. At the end of the new lease renewal terms, System Energy has the option to repurchase the leased interests in Grand Gulf or renew the leases at fair market value. In the event that System Energy does not renew or purchase the interests, System Energy would surrender such interests and their associated entitlement of Grand Gulf’s capacity and energy.
System Energy is required to report the sale-leaseback as a financing transaction in its financial statements. As such, it has recognized debt for the lease obligation and retained the portion of the plant subject to the sale-leaseback on its balance sheet. For financial reporting purposes, System Energy has recognized interest expense on the debt balance and depreciation on the applicable plant balance. The lease payments are recognized as principal and interest
Entergy Corporation and Subsidiaries
Notes to Financial Statements
payments on the debt balance. However, operating revenues include the recovery of the lease payments because the transactions are accounted for as a sale and leaseback for ratemaking purposes. Consistent with a recommendation contained in a FERC audit report, System Energy initially recorded as a net regulatory asset the difference between the recovery of the lease payments and the amounts expensed for interest and depreciation and continues to record this difference as a regulatory asset or liability on an ongoing basis, resulting in a 0 net balance for the regulatory asset at the end of the lease term. The amount was a net regulatory liability of $55.6 million as of December 31, 2019 and 2018.
As of December 31, 2019, System Energy, in connection with the Grand Gulf sale and leaseback transactions, had future minimum lease payments that are recorded as long-term debt, as follows, which reflects the effect of the December 2013 renewal:
|
| | | |
| Amount |
| (In Thousands) |
| |
2020 |
| $17,188 |
|
2021 | 17,188 |
|
2022 | 17,188 |
|
2023 | 17,188 |
|
2024 | 17,188 |
|
Years thereafter | 206,250 |
|
Total | 292,190 |
|
Less: Amount representing interest | 257,844 |
|
Present value of net minimum lease payments |
| $34,346 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
NOTE 6. PREFERRED EQUITY (Entergy Corporation Entergy Arkansas, Entergy Mississippi, and Entergy New Orleans)Texas)
The number of shares and units authorized and outstanding and dollar value of preferred stock, preferred membership interests, and non-controlling interest for Entergy Corporation subsidiaries as of December 31, 20172019 and 20162018 are presented below. All series of the Utility preferred stock are redeemable at the option of the related company.
|
| | | | | | | | | | | | | | | | | | | | |
| | Shares/Units Authorized | | Shares/Units Outstanding | | | | |
| | 2019 | | 2018 | | 2019 | | 2018 | | 2019 | | 2018 |
Entergy Corporation | | | | | | | | (Dollars in Thousands) |
Utility: | | | | | | | | | | | | |
Preferred Stock or Preferred Membership Interests without sinking fund: | | | | | | | | | | | | |
Entergy Utility Holding Company, LLC, 7.5% Series (a) | | 110,000 |
| | 110,000 |
| | 110,000 |
| | 110,000 |
| |
| $107,425 |
| |
| $107,425 |
|
Entergy Utility Holding Company, LLC, 6.25% Series (b) | | 15,000 |
| | 15,000 |
| | 15,000 |
| | 15,000 |
| | 14,366 |
| | 14,366 |
|
Entergy Utility Holding Company, LLC, 6.75% Series (c) | | 75,000 |
| | 75,000 |
| | 75,000 |
| | 75,000 |
| | 73,370 |
| | 73,362 |
|
Entergy Texas, 5.375% Series | | 1,400,000 |
| | — |
| | 1,400,000 |
| | — |
| | 35,000 |
| | — |
|
Total Utility Preferred Stock or Preferred Membership Interests without sinking fund | | 1,600,000 |
| | 200,000 |
| | 1,600,000 |
| | 200,000 |
| | 230,161 |
| | 195,153 |
|
Entergy Wholesale Commodities: | | | | | | | | | | | | |
Preferred Stock without sinking fund: | | | | | | | | | | | | |
Entergy Finance Holding, Inc. 8.75% (d) | | 250,000 |
| | 250,000 |
| | 250,000 |
| | 250,000 |
| | 24,249 |
| | 24,249 |
|
Total Subsidiaries’ Preferred Stock or Preferred Membership Interests without sinking fund | | 1,850,000 |
| | 450,000 |
| | 1,850,000 |
| | 450,000 |
| |
| $254,410 |
| |
| $219,402 |
|
|
| | | | | | | | | | | | | | | | | | | | |
| | Shares/Units Authorized | | Shares/Units Outstanding | | | | |
| | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 |
Entergy Corporation | | | | | | | | (Dollars in Thousands) |
Utility: | | | | | | | | | | | | |
Preferred Stock or Preferred Membership Interests without sinking fund: | | | | | | | | | | | | |
Entergy Arkansas, 4.32%-4.72% Series | | 313,500 |
| | 313,500 |
| | 313,500 |
| | 313,500 |
| |
| $31,350 |
| |
| $31,350 |
|
Entergy Utility Holding Company, LLC, 7.5% Series (a) | | 110,000 |
| | 110,000 |
| | 110,000 |
| | 110,000 |
| | 107,425 |
| | 107,425 |
|
Entergy Utility Holding Company, LLC, 6.25% Series (b) | | 15,000 |
| | — |
| | 15,000 |
| | — |
| | 14,398 |
| | — |
|
Entergy Mississippi, 4.36%-4.92% Series | | 203,807 |
| | 203,807 |
| | 203,807 |
| | 203,807 |
| | 20,381 |
| | 20,381 |
|
Entergy New Orleans, 4.36%-5.56% Series | | — |
| | 197,798 |
| | — |
| | 197,798 |
| | — |
| | 19,780 |
|
Total Utility Preferred Stock or Preferred Membership Interests without sinking fund | | 642,307 |
| | 825,105 |
| | 642,307 |
| | 825,105 |
| | 173,554 |
| | 178,936 |
|
Entergy Wholesale Commodities: | | | | | | | | | | | | |
Preferred Stock without sinking fund: | | | | | | | | | | | | |
Entergy Finance Holding, Inc. 8.75% (c) | | 250,000 |
| | 250,000 |
| | 250,000 |
| | 250,000 |
| | 24,249 |
| | 24,249 |
|
Total Subsidiaries’ Preferred Stock without sinking fund | | 892,307 |
| | 1,075,105 |
| | 892,307 |
| | 1,075,105 |
| |
| $197,803 |
| |
| $203,185 |
|
| |
(a) | In October 2015, Entergy Utility Holding Company, LLC issued 110,000 units of $1,000 liquidation value 7.5% Series A Preferred Membership Interests, all of which are outstanding as of December 31, 2019. The distributions are cumulative and payable quarterly. These units are redeemable on or after January 1, 2036, at Entergy Utility Holding Company, LLC’s option, at the fixed redemption price of $1,000 per unit. Dollar amount outstanding is net of $2,575 thousand of preferred stock issuance costs. |
| |
(b) | In November 2017, Entergy Utility Holding Company, LLC issued 15,000 units of $1,000 liquidation value 6.25% Series B Preferred Membership Interests, all of which are outstanding as of December 31, 2019. The distributions are cumulative and payable quarterly. These units are redeemable on or after February 28, 2038, at Entergy Utility Holding Company, LLC’s option, at the fixed redemption price of $1,000 per unit. Dollar amount outstanding is net of $602$634 thousand of preferred stock issuance costs. |
| |
(c) | In November 2018, Entergy Utility Holding Company, LLC issued 75,000 units of $1,000 liquidation value 6.75% Series C Preferred Membership Interests, all of which are outstanding as of December 31, 2019. The distributions are cumulative and payable quarterly. These units are redeemable on or after February 28, 2039, at Entergy Utility Holding Company, LLC’s option, at the fixed redemption price of $1,000 per unit. Dollar amount outstanding is net of $1,630 thousand of preferred stock issuance costs. |
| |
(d) | In December 2013, Entergy Finance Holding, Inc. issued 250,000 shares of $100 par value 8.75% Series Preferred Stock, all of which are outstanding as of December 31, 2019. The dividends are cumulative and payable quarterly. The preferred stock is redeemable on or after December 16, 2023, at Entergy Finance Holding, Inc.’s option, at the fixed redemption price of $100 per share. Dollar amount outstanding is net of $751 thousand of preferred stock issuance costs. |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
In November 2017, Entergy Utility Holding Company, LLC issued 15,000 shares of $1,000 par value 6.25% Series B Preferred Membership Interests, all of which are outstanding as of December 31, 2017. The distributions are cumulative and payable quarterly. These units are redeemable on or after February 28, 2038, at Entergy Utility Holding Company, LLC’s option, at the fixed redemption price of $1,000 per share.
In October 2015, Entergy Utility Holding Company, LLC issued 110,000 shares of $1,000 par value 7.5% Series A Preferred Membership Interests, all of which are outstanding as of December 31, 2017. The distributions are cumulative and payable quarterly. These units are redeemable on or after January 1, 2036, at Entergy Utility Holding Company, LLC’s option, at the fixed redemption price of $1,000 per share.
In December 2013, Entergy Finance Holding, Inc. issued 250,000 shares of $100 par value 8.75% Series Preferred Stock, all of which are outstanding as of December 31, 2017. The dividends are cumulative and payable quarterly. The preferred stock is redeemable on or after December 16, 2023, at Entergy Finance Holding, Inc.’s option, at the fixed redemption price of $100 per share.
The number of shares and units authorized and outstanding and dollar value of preferred stock for Entergy Arkansas, Entergy Mississippi, and Entergy New OrleansTexas as of December 31, 20172019 and 20162018 are presented below. All series of the Utility operating companies’ preferred stock are redeemable at the respective company’s option at the call prices presented. Dividends and distributions paid on all of Entergy’s preferred stock and membership interests series are eligible for the dividends received deduction.
|
| | | | | | | | | | | | | | | | | | |
| | Shares Authorized and Outstanding | | | | Call Price per Share as of December 31, |
| | 2017 | | 2016 | | 2017 | | 2016 | | 2017 |
Entergy Arkansas Preferred Stock | | | | | | (Dollars in Thousands) | | |
Without sinking fund: | | | | | | | | | | |
Cumulative, $100 par value: | | | | | | | | | | |
4.32% Series | | 70,000 |
| | 70,000 |
| |
| $7,000 |
| |
| $7,000 |
| |
| $103.65 |
|
4.72% Series | | 93,500 |
| | 93,500 |
| | 9,350 |
| | 9,350 |
| |
| $107.00 |
|
4.56% Series | | 75,000 |
| | 75,000 |
| | 7,500 |
| | 7,500 |
| |
| $102.83 |
|
4.56% 1965 Series | | 75,000 |
| | 75,000 |
| | 7,500 |
| | 7,500 |
| |
| $102.50 |
|
Total without sinking fund | | 313,500 |
| | 313,500 |
| |
| $31,350 |
| |
| $31,350 |
| | |
|
| | | | | | | | | | | | | | | | | | |
| | Shares Authorized and Outstanding | | | | Call Price per Share as of December 31, |
| | 2017 | | 2016 | | 2017 | | 2016 | | 2017 |
Entergy Mississippi Preferred Stock | | | | | | (Dollars in Thousands) | | |
Without sinking fund: | | | | | | | | | | |
Cumulative, $100 par value: | | | | | | | | | | |
4.36% Series | | 59,920 |
| | 59,920 |
| |
| $5,992 |
| |
| $5,992 |
| |
| $103.86 |
|
4.56% Series | | 43,887 |
| | 43,887 |
| | 4,389 |
| | 4,389 |
| |
| $107.00 |
|
4.92% Series | | 100,000 |
| | 100,000 |
| | 10,000 |
| | 10,000 |
| |
| $102.88 |
|
Total without sinking fund | | 203,807 |
| | 203,807 |
| |
| $20,381 |
| |
| $20,381 |
| | |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
|
| | | | | | | | | | | | | | | | | | |
| | Shares Authorized and Outstanding | | | | Call Price per Share as of December 31, |
| | 2019 | | 2018 | | 2019 | | 2018 | | 2019 |
Entergy Texas Preferred Stock | | | | | | (Dollars in Thousands) | | |
Without sinking fund: | | | | | | | | | | |
Cumulative, $25 par value: | | | | | | | | | | |
5.375% Series (a) | | 1,400,000 |
| | — |
| |
| $35,000 |
| |
| $— |
| |
| $— |
|
Total without sinking fund | | 1,400,000 |
| | — |
| |
| $35,000 |
| |
| $— |
| | |
|
| | | | | | | | | | | | | | | | | | |
| | Shares Authorized and Outstanding | | | | | | Call Price per Share as of December 31, |
| | 2017 | | 2016 | | 2017 | | 2016 | | 2017 |
Entergy New Orleans Preferred Stock | | | | | (Dollars in Thousands) | | |
Without sinking fund: | | | | | | | | | | |
Cumulative, $100 par value: | | | | | | | | | | |
4.36% Series (a) | | — |
| | 60,000 |
| |
| $— |
| |
| $6,000 |
| |
| $— |
|
4.75% Series (a) | | — |
| | 77,798 |
| | — |
| | 7,780 |
| |
| $— |
|
5.56% Series (a) | | — |
| | 60,000 |
| | — |
| | 6,000 |
| |
| $— |
|
Total without sinking fund | | — |
| | 197,798 |
| |
| $— |
| |
| $19,780 |
| | |
| |
(a) | In November 2017,September 2019, Entergy New Orleans redeemed its $6Texas issued $35 million of 4.36%5.375% Series $7.8 millionA Preferred Stock, a total of 4.75% Series,1,400,000 shares with a liquidation value of $25 per share, all of which are outstanding as of December 31, 2019. The dividends are cumulative and $6 millionpayable quarterly. The preferred stock is redeemable on or after October 15, 2024 at Entergy Texas’s option, at a fixed redemption price of 5.56% Series of preferred membership interests as part of a multi-step internal restructuring.$25 per share. |
Dividends and distributions paid on all of Entergy Corporation’s subsidiaries’ preferred stock and membership interests series may be eligible for the dividends received deduction.
Presentation of Preferred Stock without Sinking Fund
Accounting standards regarding non-controlling interests and the classification and measurement of redeemable securities require the classification of preferred securities between liabilities and shareholders’ equity on the balance sheet if the holders of those securities have protective rights that allow them to gain control of the board of directors in certain circumstances. These rights would have the effect of giving the holders the ability to potentially redeem their securities, even if the likelihood of occurrence of these circumstances is considered remote. The outstanding preferred stock of Entergy Texas has protective rights with respect to unpaid dividends but provides for the election of board members that would not constitute a majority of the board, and the preferred stock of Entergy Texas is therefore classified as a component of equity.
The outstanding preferred securities of Entergy Utility Holding Company (a Utility subsidiary) and Entergy Finance Holding (an Entergy Wholesale Commodities subsidiary), whose preferred holders have protective rights, are presented between liabilities and equity on Entergy’s consolidated balance sheets. The preferred dividends or distributions paid by all subsidiaries are reflected for all periods presented outside of consolidated net income.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
NOTE 7. COMMON EQUITY (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)
Common Stock
Common stock and treasury stock shares activity for Entergy for 2017, 2016,2019, 2018, and 20152017 is as follows:
|
| | | | | | | | | | | | | | | | | |
| 2019 | | 2018 | | 2017 |
| Common Shares Issued | |
Treasury Shares | | Common Shares Issued | | Treasury Shares | | Common Shares Issued | | Treasury Shares |
Beginning Balance, January 1 | 261,587,009 |
| | 72,530,866 |
| | 254,752,788 |
| | 74,235,135 |
| | 254,752,788 |
| | 75,623,363 |
|
Issuances: | |
| | |
| | |
| | |
| | |
| | |
|
Equity forwards settled | 8,448,171 |
| | — |
| | 6,834,221 |
| | — |
| | — |
| | — |
|
Employee Stock-Based Compensation Plans | — |
| | (1,624,358 | ) | | — |
| | (1,683,174 | ) | | — |
| | (1,377,363 | ) |
Directors’ Plan | — |
| | (20,108 | ) | | — |
| | (21,095 | ) | | — |
| | (10,865 | ) |
Ending Balance, December 31 | 270,035,180 |
| | 70,886,400 |
| | 261,587,009 |
| | 72,530,866 |
| | 254,752,788 |
| | 74,235,135 |
|
|
| | | | | | | | | | | | | | | | | |
| 2017 | | 2016 | | 2015 |
| Common Shares Issued | |
Treasury Shares | | Common Shares Issued | | Treasury Shares | | Common Shares Issued | | Treasury Shares |
Beginning Balance, January 1 | 254,752,788 |
| | 75,623,363 |
| | 254,752,788 |
| | 76,363,763 |
| | 254,752,788 |
| | 75,512,079 |
|
Repurchases | — |
| | — |
| | — |
| | — |
| | — |
| | 1,468,984 |
|
Issuances: | |
| | |
| | |
| | |
| | |
| | |
|
Employee Stock-Based Compensation Plans | — |
| | (1,377,363 | ) | | — |
| | (729,073 | ) | | — |
| | (610,409 | ) |
Directors’ Plan | — |
| | (10,865 | ) | | — |
| | (11,327 | ) | | — |
| | (6,891 | ) |
Ending Balance, December 31 | 254,752,788 |
| | 74,235,135 |
| | 254,752,788 |
| | 75,623,363 |
| | 254,752,788 |
| | 76,363,763 |
|
Entergy Corporation reissues treasury shares to meet the requirements of the Stock Plan for Outside Directors (Directors’ Plan), three4 Equity Ownership Plans of Entergy Corporation and Subsidiaries, and certain other stock benefit plans. The Directors’ Plan awards to non-employee directors a portion of their compensation in the form of a fixed dollar value of shares of Entergy Corporation common stock.
In October 2010 the Board granted authority for a $500 million share repurchase program. As of December 31, 2017,2019, $350 million of authority remains under the $500 million share repurchase program.
Dividends declared per common share were $3.66 in 2019, $3.58 in 2018, and $3.50 in 2017, $3.42 in 2016, and $3.34 in 2015.2017.
(System Energy)
System Energy paid its parent, Entergy Corporation, distributions out of its common stock of $56.5 million in 2018 and $21 million in 20172017.
Equity Forward Sale Agreements
In June 2018, Entergy marketed an equity offering of 15.3 million shares of common stock. In lieu of issuing equity at the time of the offering, Entergy entered into forward sale agreements with various investment banks. The equity forwards required Entergy to, at its election prior to June 7, 2019, either (i) physically settle the transactions by issuing the total of 15.3 million shares of its common stock to the investment banks in exchange for net proceeds at the then-applicable forward sale price specified by the agreements (initially $74.45 per share) or (ii) net settle the transactions in whole or in part through the delivery or receipt of cash or shares. The forward sale price was subject to adjustment on a daily basis based on a floating interest rate factor and $40 milliondecreased by other fixed amounts specified in 2016.the agreements.
In December 2018, Entergy physically settled a portion of its obligations under the forward sale agreements by delivering 6,834,221 shares of common stock in exchange for cash proceeds of $500 million. The forward sale price used to determine the cash proceeds received by Entergy was calculated based on the initial forward sale price
Entergy Corporation and Subsidiaries
Notes to Financial Statements
of $74.45 per share as adjusted in accordance with the forward sale agreements. Entergy incurred approximately $728 thousand of common stock issuance costs with the settlement.
In May 2019, Entergy physically settled its remaining obligations under the forward sale agreements by delivering 8,448,171 shares of common stock in exchange for cash proceeds of $608 million. The forward sale price used to determine the cash proceeds received by Entergy was calculated based on the initial forward sale price of $74.45 per share as adjusted in accordance with the forward sale agreements. Entergy incurred approximately $7 thousand of common stock issuance costs with the settlement.
Entergy used the net proceeds for general corporate purposes, which included repayment of commercial paper, outstanding loans under Entergy’s revolving credit facility, and other debt.
Retained Earnings and Dividend RestrictionsDividends
Provisions withinEntergy implemented ASU No. 2016-01 “Financial Instruments (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities” effective January 1, 2018. The ASU requires investments in equity securities, excluding those accounted for under the articlesequity method or resulting in consolidation of incorporation relatingthe investee, to preferred stockbe measured at fair value with changes recognized in net income. Entergy implemented this standard using a modified retrospective method, and recorded an adjustment increasing retained earnings and reducing accumulated other comprehensive income by $633 million as of eachJanuary 1, 2018 for the cumulative effect of the unrealized gains and losses on investments in equity securities held by the decommissioning trust funds that do not meet the criteria for regulatory accounting treatment. See Note 16 to the financial statements for further discussion of effects of the new standard.
Entergy Arkansasimplemented ASU No. 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory” effective January 1, 2018. The ASU requires entities to recognize the income tax consequences of intra-entity asset transfers, other than inventory, at the time the transfer occurs. Entergy implemented this standard using a modified retrospective method, and recorded an adjustment decreasing retained earnings by $56 million as of January 1, 2018 for the cumulative effect of recording deferred tax assets on previously-recognized intra-entity asset transfers.
Entergy Mississippi could restrictadopted ASU No. 2018-02, “Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income,” in the paymentfirst quarter 2018. The ASU allows a one-time reclassification from accumulated other comprehensive income to retained earnings for certain tax effects resulting from the Tax Cuts and Jobs Act that would otherwise be stranded in accumulated other comprehensive income. Entergy’s policy for releasing income tax effects from accumulated other comprehensive income for available-for-sale securities is to use the portfolio approach. Entergy elected to reclassify the $15.5 million of cash dividendsstranded tax effects in accumulated other comprehensive income resulting from the Tax Cuts and Jobs Act to retained earnings ($32 million decrease) or the regulatory liability for income taxes ($16.5 million increase). Entergy’s reclassification only includes the effect of the change in the federal corporate income tax rate on accumulated other distributionscomprehensive income.
Entergy implemented ASU No. 2017-12 “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities” effective January 1, 2019. The ASU makes a number of amendments to hedge accounting, most significantly changing the recognition and presentation of highly effective hedges. Entergy implemented this standard using a modified retrospective method, and recorded an adjustment increasing retained earnings and increasing accumulated other comprehensive loss by approximately $8 million as of January 1, 2019 for the cumulative effect of the ineffectiveness portion of designated hedges on their commonnuclear power sales.
Entergy implemented ASU 2017-08 “Receivables (Topic 310): Nonrefundable Fees and preferred equity if such payment wereOther Costs” effective January 1, 2019. The ASU amends the amortization period for certain purchased callable debt securities held at a premium to occur when, or result in, a ratiothe earliest call date. Entergy implemented this standard using the modified retrospective approach, and
Entergy Corporation and Subsidiaries
Notes to total capitalizationFinancial Statements
recorded an adjustment decreasing retained earnings and decreasing accumulated other comprehensive loss by approximately $1 million as of 25% or less. January 1, 2019 for the cumulative effect of the amended amortization period.
Entergy Corporation received dividend payments and distributions from subsidiaries totaling $124 million in 2019, $27 million in 2018, and $201 million in 2017, $165 million in 2016, and $615 million in 2015.2017.
Comprehensive Income
Accumulated other comprehensive income (loss) is included in the equity section of the balance sheets of Entergy and Entergy Louisiana. The following table presents changes in accumulated other comprehensive income (loss) for Entergy for the year ended December 31, 20172019 by component:
| | | Cash flow hedges net unrealized gain (loss) | | Pension and other postretirement liabilities | | Net unrealized investment gain (loss) | | Foreign currency translation | | Total Accumulated Other Comprehensive Income (Loss) | Cash flow hedges net unrealized gain (loss) | | Pension and other postretirement liabilities | | Net unrealized investment gain (loss) | | Total Accumulated Other Comprehensive Income (Loss) |
| (In Thousands) | (In Thousands) |
| | | | | | | | | | | | | | | | |
Beginning balance, January 1, 2017 |
| $3,993 |
| |
| ($469,446 | ) | |
| $429,734 |
| |
| $748 |
| |
| ($34,971 | ) | |
Ending balance, December 31, 2018 | |
| ($23,135 | ) | |
| ($531,922 | ) | |
| ($2,116 | ) | |
| ($557,173 | ) |
Implementation of accounting standards | | (7,685 | ) | | — |
| | 879 |
| | (6,806 | ) |
Beginning balance, January 1, 2019 | |
| ($30,820 | ) | |
| ($531,922 | ) | |
| ($1,237 | ) | |
| ($563,979 | ) |
| | | | | | | | |
Other comprehensive income (loss) before reclassifications | 28,602 |
| | (104,029 | ) | | 171,099 |
| | (748 | ) | | 94,924 |
| 191,147 |
| | (93,696 | ) | | 32,914 |
| | 130,365 |
|
Amounts reclassified from accumulated other comprehensive income (loss) | (70,072 | ) | | 42,376 |
| | (55,788 | ) | | — |
| | (83,484 | ) | (76,121 | ) | | 68,546 |
| | (5,731 | ) | | (13,306 | ) |
Net other comprehensive income (loss) for the period | (41,470 | ) | | (61,653 | ) | | 115,311 |
| | (748 | ) | | 11,440 |
| 115,026 |
| | (25,150 | ) | | 27,183 |
| | 117,059 |
|
Ending balance, December 31, 2017 |
| ($37,477 | ) | |
| ($531,099 | ) | |
| $545,045 |
| |
| $— |
| |
| ($23,531 | ) | |
Ending balance, December 31, 2019 | |
| $84,206 |
| |
| ($557,072 | ) | |
| $25,946 |
| |
| ($446,920 | ) |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The following table presents changes in accumulated other comprehensive income (loss) for Entergy for the year ended December 31, 20162018 by component:
|
| | | | | | | | | | | | | | | | | | | |
| Cash flow hedges net unrealized gain (loss) | | Pension and other postretirement liabilities | | Net unrealized investment gain (loss) | | Foreign currency translation | | Total Accumulated Other Comprehensive Income (Loss) |
| (In Thousands) |
| | | | | | | | | |
Beginning balance, January 1, 2016 |
| $105,970 |
|
|
| ($466,604 | ) |
|
| $367,557 |
|
|
| $2,028 |
| |
| $8,951 |
|
Other comprehensive income (loss) before reclassifications | 87,740 |
| | (26,997 | ) | | 68,465 |
| | (1,280 | ) | | 127,928 |
|
Amounts reclassified from accumulated other comprehensive income (loss) | (189,717 | ) | | 24,155 |
| | (6,288 | ) | | — |
| | (171,850 | ) |
Net other comprehensive income (loss) for the period | (101,977 | ) | | (2,842 | ) | | 62,177 |
| | (1,280 | ) | | (43,922 | ) |
Ending balance, December 31, 2016 |
| $3,993 |
| |
| ($469,446 | ) | |
| $429,734 |
| |
| $748 |
| |
| ($34,971 | ) |
|
| | | | | | | | | | | | | | | |
| Cash flow hedges net unrealized gain (loss) | | Pension and other postretirement liabilities | | Net unrealized investment gain (loss) | | Total Accumulated Other Comprehensive Income (Loss) |
| (In Thousands) |
| | | | | | | |
Ending balance, December 31, 2017 |
| ($37,477 | ) | |
| ($531,099 | ) | |
| $545,045 |
| |
| ($23,531 | ) |
Implementation of accounting standards | — |
| | — |
| | (632,617 | ) | | (632,617 | ) |
Beginning balance, January 1, 2018 |
| ($37,477 | ) | |
| ($531,099 | ) | |
| ($87,572 | ) | |
| ($656,148 | ) |
| | | | | | | |
Other comprehensive income (loss) before reclassifications | (31,933 | ) | | 26,702 |
| | (46,574 | ) | | (51,805 | ) |
Amounts reclassified from accumulated other comprehensive income (loss) | 54,031 |
| | 63,441 |
| | 17,803 |
| | 135,275 |
|
Net other comprehensive income (loss) for the period | 22,098 |
| | 90,143 |
| | (28,771 | ) | | 83,470 |
|
Reclassification pursuant to ASU 2018-02 | (7,756 | ) | | (90,966 | ) | | 114,227 |
| | 15,505 |
|
Ending balance, December 31, 2018 |
| ($23,135 | ) | |
| ($531,922 | ) | |
| ($2,116 | ) | |
| ($557,173 | ) |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The following table presents changes in accumulated other comprehensive income (loss) for Entergy Louisiana for the year ended December 31, 2017:2019:
|
| | | | |
| | Pension and Other Postretirement Liabilities |
| | (In Thousands) |
| | |
Beginning balance, January 1, 20172019 | |
| ($48,4426,153 | ) |
Other comprehensive income (loss) before reclassifications | | 3,46214,591 |
|
Amounts reclassified from accumulated other comprehensive income (loss) | | (1,4203,876 | ) |
Net other comprehensive income (loss) for the period | | 2,04210,715 |
|
Ending balance, December 31, 20172019 | |
| ($46,4004,562 | )
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The following table presents changes in accumulated other comprehensive income (loss) for Entergy Louisiana for the year ended December 31, 2016:2018:
|
| | | | |
| | Pension and Other
Postretirement Liabilities |
| | (In Thousands) |
| | |
Beginning balance, January 1, 20162018 | |
| ($56,41246,400 | ) |
Other comprehensive income (loss) before reclassifications | | 8,92652,299 |
|
Amounts reclassified from accumulated other comprehensive income (loss) | | (9562,003 | ) |
Net other comprehensive income (loss) for the period | | 7,97050,296 |
|
| | |
Reclassification pursuant to ASU 2018-02 | |
| ($10,049 | ) |
| | |
Ending balance, December 31, 20162018 | |
| ($48,4426,153 | ) |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Total reclassifications out of accumulated other comprehensive income (loss) (AOCI) for Entergy for the years ended December 31, 20172019 and 20162018 are as follows:
| | | | Amounts reclassified from AOCI | | Income Statement Location | | Amounts reclassified from AOCI | | Income Statement Location |
| | 2017 | | 2016 | | | 2019 | | 2018 | |
| | (In Thousands) | | | | (In Thousands) | | |
Cash flow hedges net unrealized gain (loss) | | | | | | | | | | |
Power contracts | |
| $108,606 |
| |
| $293,268 |
| | Competitive business operating revenues | |
| $96,549 |
| |
| ($68,067 | ) | | Competitive business operating revenues |
Interest rate swaps | | (803 | ) | | (1,395 | ) | | Miscellaneous - net | | (194 | ) | | (327 | ) | | Miscellaneous - net |
Total realized gain (loss) on cash flow hedges | | 107,803 |
| | 291,873 |
| | | 96,355 |
| | (68,394 | ) | |
| | (37,731 | ) | | (102,156 | ) | | Income taxes | |
Income taxes | | | (20,234 | ) | | 14,363 |
| | Income taxes |
Total realized gain (loss) on cash flow hedges (net of tax) | |
| $70,072 |
| |
| $189,717 |
| | |
| $76,121 |
| |
| ($54,031 | ) | |
| | | |
| | | | |
| |
Pension and other postretirement liabilities | | |
| | |
| | | |
| | |
| |
Amortization of prior-service costs | |
| $26,251 |
| |
| $29,414 |
| | (a) | |
| $21,300 |
| |
| $21,700 |
| | (a) |
Acceleration of prior-service cost due to curtailment | | — |
| | (1,045 | ) | | (a) | |
Amortization of loss | | (86,002 | ) | | (60,693 | ) | | (a) | | (83,246 | ) | | (99,186 | ) | | (a) |
Settlement loss | | (7,544 | ) | | (2,007 | ) | | (a) | | (25,155 | ) | | (3,207 | ) | | (a) |
Total amortization | | (67,295 | ) | | (34,331 | ) | | |
| | 24,919 |
| | 10,176 |
| | Income taxes | |
Total amortization (net of tax) | |
| ($42,376 | ) | |
| ($24,155 | ) | | |
Total | | | (87,101 | ) | | (80,693 | ) | |
Income taxes | | | 18,555 |
| | 17,252 |
| | Income taxes |
Total amortization and settlement loss (net of tax) | | |
| ($68,546 | ) | |
| ($63,441 | ) | |
| | | |
| | | | |
| |
Net unrealized investment gain (loss) | | | |
| | | | |
| |
Realized gain (loss) | |
| $109,388 |
| |
| $12,329 |
| | Interest and investment income | |
| $9,069 |
| |
| ($28,170 | ) | | Interest and investment income |
| | (53,600 | ) | | (6,041 | ) | | Income taxes | |
Income taxes | | | (3,338 | ) | | 10,367 |
| | Income taxes |
Total realized investment gain (loss) (net of tax) | |
| $55,788 |
| |
| $6,288 |
| | |
| $5,731 |
| |
| ($17,803 | ) | |
| | | |
| | | | |
| |
Total reclassifications for the period (net of tax) | |
| $83,484 |
| |
| $171,850 |
| | |
| $13,306 |
| |
| ($135,275 | ) | |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
|
| |
(a) | These accumulated other comprehensive income (loss) components are included in the computation of net periodic pension and other postretirement cost. See Note 11 to the financial statements for additional details. |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Total reclassifications out of accumulated other comprehensive income (loss) (AOCI) for Entergy Louisiana for the years ended December 31, 20172019 and 20162018 are as follows:
| | | | Amounts reclassified from AOCI | | Income Statement Location | | Amounts reclassified from AOCI | | Income Statement Location |
| | 2017 | | 2016 | | | | 2019 | | 2018 | | |
| | (In Thousands) | | | (In Thousands) | |
| | | | | | | | | | |
Pension and other postretirement liabilities | | | | | | | | | | |
Amortization of prior-service costs | |
| $7,734 |
| |
| $7,786 |
| | (a) | |
| $7,349 |
| |
| $7,735 |
| | (a) |
Amortization of loss | | (5,327 | ) | | (6,281 | ) | | (a) | | (2,106 | ) | | (5,025 | ) | | (a) |
Total amortization | | 2,407 |
| | 1,505 |
| | | 5,243 |
| | 2,710 |
| |
| | (987 | ) | | (549 | ) | | Income taxes | |
Income taxes | | | (1,367 | ) | | (707 | ) | | Income taxes |
Total amortization (net of tax) | | 1,420 |
| | 956 |
| | | 3,876 |
| | 2,003 |
| |
| | | |
| | | | |
| |
Total reclassifications for the period (net of tax) | |
| $1,420 |
| |
| $956 |
| | |
| $3,876 |
| |
| $2,003 |
| |
|
| |
(a) | These accumulated other comprehensive income (loss) components are included in the computation of net periodic pension and other postretirement cost. See Note 11 to the financial statements for additional details. |
NOTE 8. COMMITMENTS AND CONTINGENCIES (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)
Entergy and the Registrant Subsidiaries are involved in a number of legal, regulatory, and tax proceedings before various courts, regulatory commissions, and governmental agencies in the ordinary course of business. While management is unable to predict with certainty the outcome of such proceedings, management does not believe that the ultimate resolution of these matters will have a material adverse effect on Entergy’s results of operations, cash flows, or financial condition. Entergy discusses regulatory proceedings in Note 2 to the financial statements and discusses tax proceedings in Note 3 to the financial statements.
Vidalia Purchased Power Agreement
Entergy Louisiana has an agreement extending through the year 2031 to purchase energy generated by a hydroelectric facility known as the Vidalia project. Entergy Louisiana made payments under the contract of approximately $135.5 million in 2019, $137.6 million in 2018, and $122.9 million in 2017, $158.7 million in 2016, and $146 million in 2015.2017. If the maximum percentage (94%) of the energy is made available to Entergy Louisiana, current production projections would require estimated payments of approximately $129$131 million in 2018,2020, and a total of $1.68$1.44 billion for the years 20192021 through 2031. Entergy Louisiana currently recovers the costs of the purchased energy through its fuel adjustment clause.
In an LPSC-approved settlement related to tax benefits from the tax treatment of the Vidalia contract, Entergy Louisiana agreed to credit rates by $11 million each year for up to 10 years, beginning in October 2002. In October 2011 the LPSC approved a settlement under which Entergy Louisiana agreed to provide credits to customers by crediting billings an additional $20.235 million per year for 15 years beginning January 2012. Entergy Louisiana recorded a regulatory charge and a corresponding regulatory liability to reflect this obligation. The settlement agreement allowed for an adjustment to the credits if, among other things, there was a change in the applicable federal or state income tax rate. As a result of the enactment of the Tax Cuts and Jobs Act, in December 2017, and the lowering of the federal
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Notes to Financial Statements
corporate income tax rate from 35% to 21%, the Vidalia purchased power regulatory liability was reduced by $30.5 million, with a corresponding increase to Other regulatory credits on the income statement. The effects of the Tax Cuts and Jobs Act are discussed further in Note 3 to the financial statements.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
ANO Damage, Outage, and NRC Reviews
In March 2013, during a scheduled refueling outage at ANO 1, a contractor-owned and operated heavy-lifting apparatus collapsed while moving the generator stator out of the turbine building. The collapse resulted in the death of an ironworker and injuries to several other contract workers, caused ANO 2 to shut down, and damaged the ANO turbine building. The total cost of assessment, restoration of off-site power, site restoration, debris removal, and replacement of damaged property and equipment was approximately $95 million. Entergy Arkansas is pursuinghas pursued its options for recovering damages that resulted from the stator drop, including its insurance coverage and legal action. During 2014, Entergy Arkansas collected $50 million in 2014 from Nuclear Electric Insurance Limited (NEIL), a mutual insurance company that provides property damage coverage to the members’ nuclear generating plants. Litigation remains pending.Entergy Arkansas also collected a total of $21 million in 2018 as a result of stator-related settlements.
In addition, Entergy Arkansas incurred replacement power costs for ANO 2 power during its outage and incurred incremental replacement power costs for ANO 1 power because the outage extended beyond the originally-planned duration of the refueling outage. In February 2014 the APSC approved Entergy Arkansas’s request to exclude from the calculation of its revised energy cost rate $65.9 million of deferred fuel and purchased energy costs incurred in 2013 as a result of the ANO stator incident. The APSC authorized Entergy Arkansas to retain the $65.9 million in its deferred fuel balance with recovery to be reviewed in a later period after more information regarding various claims associated with the ANO stator incident is available.
In March 2015, after several NRC inspections and regulatory conferences, arising from the stator incident, the NRC placed ANO into the “multiple/repetitive degraded cornerstone column,” or Column 4, of the NRC’s Reactor Oversight Process Action Matrix. Entergy Arkansas incurred incremental costs of approximately $53 million in 2015 to prepare for the NRC inspections that began in early 2016 in order to address the issues required to move ANO back to “licensee response” or Column 1 of the NRC’s Reactor Oversight Process Action Matrix. Excluding remediation and response costs that resulted from the additional NRC inspection activities, Entergy Arkansas incurred approximately $44 million in 2016 and $7 million in 2017 in support of NRC inspection activities and to implement Entergy Arkansas’s performance improvement initiatives developed in 2015. In June 2018 the NRC moved ANO 1 and ANO 2 into the “licensee response column,” or Column 1, of the NRC’s Reactor Oversight Process Action Matrix.
In July 2017, Entergy Arkansas filed for a change in rates pursuant to its formula rate plan rider. In that proceeding, the APSC approved a settlement agreement agreed upon by the parties, including a provision that requires Entergy Arkansas to initiate a regulatory proceeding for the purpose of recovering funds currently withheld from rates and related to the stator incident, including the $65.9 million of deferred fuel and purchased energy costs and costs related to the incremental oversight previously noted, subject to certain timelines and conditions set forth in the settlement agreement.
Shortly after the stator incident, the NRC deployed an augmented inspection team to review the plant’s response. In July 2013 a second team of NRC inspectors visited ANO to evaluate certain items that were identified as requiring follow-up inspection to determine whether performance deficiencies existed. In March 2014 the NRC issued an inspection report on the follow-up inspection that discussed two preliminary findings, one that was preliminarily determined to be “red with high safety significance” for Unit 1 and one that was preliminarily determined to be “yellow with substantial safety significance” for Unit 2, with the NRC indicating further that these preliminary findings may warrant additional regulatory oversight. This report also noted that one additional item related to flood barrier effectiveness was still under review. In June 2014 the NRC classified both findings as “yellow with substantial safety significance.”
In March 2015, after several NRC inspections and regulatory conferences, the NRC issued a letter notifying Entergy of its decision to move ANO into the “multiple/repetitive degraded cornerstone column,” or Column 4, of the NRC’s Reactor Oversight Process Action Matrix. Placement into Column 4 requires significant additional NRC inspection activities at the ANO site, including a review of the site’s root cause evaluation associated with flood barrier effectiveness and stator issues, an assessment of the effectiveness of the site’s corrective action program, an additional design basis inspection, a safety culture assessment, and possibly other inspection activities consistent with the NRC’s Inspection Procedure. Entergy Arkansas incurred incremental costs of approximately $53 million in 2015 to prepare for the NRC inspection that began in early 2016. Excluding remediation and response costs that may result from the additional NRC inspection activities, Entergy Arkansas also incurred approximately $44 million in 2016 in support of NRC inspection activities and to implement Entergy Arkansas’s performance improvement initiatives developed in 2015. A lesser amount of incremental expense is expected to be ongoing annually after 2016, until ANO transitions out of Column 4.
The NRC completed the supplemental inspection required for ANO’s Column 4 designation in February 2016, and published its inspection report in June 2016. In its inspection report, the NRC concluded that the ANO site is being operated safely and that Entergy understands the depth and breadth of performance concerns associated with ANO’s performance decline. Also in June 2016, the NRC issued a confirmatory action letter to confirm the actions Entergy Arkansas has taken and will continue to take to improve performance at ANO. The NRC will verify the
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Notes to Financial Statements
completion of those actions through quarterly follow-up inspections, the results of which will determine when ANO should transition out of Column 4. There have been no significant issues arising from the follow-up inspections.
Pilgrim NRC Oversight and Planned Shutdown
In September 2015 the NRC placed Pilgrim in its “multiple/repetitive degraded cornerstone column,” or Column 4, of its Reactor Oversight Process Action Matrix due to its finding of continuing weaknesses in Pilgrim’s corrective action program that contributed to repeated unscheduled shutdowns and equipment failures. The preliminary estimate of direct costs of Pilgrim’s response to a planned NRC enhanced inspection ranges from $45 million to $60 million, of which $50 million has been incurred through the end of 2017 in operation and maintenance expense. The estimate does not include potential capital expenditures, which will be charged directly to expense when incurred, or other costs to address issues that may arise in the inspection.
Entergy determined in October 2015 that it would close Pilgrim no later than June 1, 2019 because of poor market conditions that led to reduced revenues, a poor market design that failed to properly compensate nuclear generators for the benefits they provide, and increased operational costs. The decision came after management’s extensive analysis of the economics and operating life of the plant following the NRC’s decision to place the plant in Column 4. Entergy determined in April 2016 that it intends to refuel Pilgrim in 2017 and then cease operations May 31, 2019. Pilgrim currently has approximately 677 MW of Capacity Supply Obligations in ISO New England through May 2019.
See Note 14 to the financial statements for discussion of the impairment of the Pilgrim plant and related long-lived assets.
Spent Nuclear Fuel Litigation
Under the Nuclear Waste Policy Act of 1982, the DOE is required, for a specified fee, to construct storage facilities for, and to dispose of, all spent nuclear fuel and other high-level radioactive waste generated by domestic nuclear power reactors. Entergy’s nuclear owner/licensee subsidiaries have been charged fees for the estimated future disposal costs of spent nuclear fuel in accordance with the Nuclear Waste Policy Act of 1982. The affected Entergy companies entered into contracts with the DOE, whereby the DOE is to furnish disposal services at a cost of one mill per net kWh generated and sold after April 7, 1983, plus a one-time fee for generation prior to that date. Entergy considers all costs incurred for the disposal of spent nuclear fuel, except accrued interest, to be proper components of nuclear fuel expense. Provisions to recover such costs have been or will be made in applications to regulatory authorities for the Utility plants. Following the defunding of the Yucca Mountain spent fuel repository program, the National Association of Regulatory Utility Commissioners and others sued the government seeking cessation of collection of the one mill per net kWh generated and sold after April 7, 1983 fee. In November 2013 the D.C. Circuit Court of
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Notes to Financial Statements
Appeals ordered the DOE to submit a proposal to Congress to reset the fee to zero0 until the DOE complies with the Nuclear Waste Policy Act or Congress enacts an alternative waste disposal plan. In January 2014 the DOE submitted the proposal to Congress under protest, and also filed a petition for rehearing with the D.C. Circuit. The petition for rehearing was denied. The zero spent fuel fee went into effect prospectively in May 2014. Management cannot predict the potential timing or magnitude of future spent fuel fee revisions that may occur.
Because the DOE has not begun accepting spent fuel, it is in non-compliance with the Nuclear Waste Policy Act of 1982 and has breached its spent fuel disposal contracts. As a result of the DOE’s failure to begin disposal of spent nuclear fuel in 1998 pursuant to the Nuclear Waste Policy Act of 1982 and the spent fuel disposal contracts, Entergy’s nuclear owner/licensee subsidiaries have incurred and will continue to incur damages. Beginning in November 2003 these subsidiaries have pursued litigation to recover the damages caused by the DOE’s delay in performance. Following are details of final judgments recorded by Entergy in 20162017, 2018, and 2019 related to Entergy’s nuclear owner licensee subsidiaries’ litigation with the DOE.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
In December 2015 the U.S. Court of Federal Claims issued a judgment in the amount of $81 million in favor of Entergy Nuclear Indian Point 3 and Entergy Nuclear FitzPatrick in the first round Indian Point 3/FitzPatrick damages case, and Entergy received the payment from the U.S. Treasury in June 2016. The effect of recording the Indian Point 3 proceeds was a reduction to plant, other operation and maintenance expense, and depreciation expense. The Indian Point 3 damages awarded included $45 million related to costs previously capitalized and $2 million related to costs previously recorded as other operation and maintenance expense. Of the $45 million, Entergy recorded $8 million as a reduction to previously-recorded depreciation expense. Entergy reduced its Indian Point 3 plant asset balance by the remaining $37 million. The effect of recording the FitzPatrick proceeds was a reduction to plant and other operation and maintenance expense. The FitzPatrick damages awarded included $32 million related to costs previously capitalized and $2 million related to costs previously recorded as other operation and maintenance expense. Of the $32 million, Entergy recorded $1 million as a reduction to previously-recorded depreciation expense, a $10 million reduction to bring its remaining FitzPatrick plant asset balance to zero, and the excess was recorded as a reduction to other operations and maintenance expense. See Note 14 for further discussion on the fair value analysis performed for FitzPatrick and the related impairment charge.
In April 2016 the U.S. Court of Federal Claims issued a partial judgment in the amount of $42 million in favor of Entergy Louisiana and against the DOE in the first round River Bend damages case. Entergy Louisiana received payment from the U.S. Treasury in August 2016. The effects of recording the final judgment in the third quarter 2016 were reductions to plant, nuclear fuel expense, other operation and maintenance expense, and depreciation expense. The River Bend damages awarded included $17 million related to costs previously capitalized, $23 million related to costs previously recorded as nuclear fuel expense, and $2 million related to costs previously recorded as other operation and maintenance expense. Of the $17 million, Entergy Louisiana recorded $3 million as a reduction to previously-recorded depreciation expense. Entergy Louisiana reduced its River Bend plant asset balance by the remaining $14 million. In September 2016 the U.S. Court of Federal Claims issued a further judgment in the River Bend case in the amount of $5 million. Entergy Louisiana recorded a receivable for that amount, and subsequently received payment from the U.S. Treasury in January 2017. The River Bend damages awarded included $2 million related to costs previously recorded as nuclear fuel expense and $3 million related to costs previously recorded as other operation and maintenance expense. In May 2017 the U.S. Court of Federal Claims issued a final judgment in the first round River Bend damages case for $0.6 million, awarding certain cask loading costs that had not previously been adjudicated by the court.
In May 2016, Entergy Nuclear Vermont Yankee and the DOE entered into a stipulation agreement and the U.S. Court of Federal Claims issued a judgment in the amount of $19 million in favor of Entergy Nuclear Vermont Yankee and against the DOE in the second round Vermont Yankee damages case. Entergy received payment from the U.S. Treasury in June 2016. The effect of recording the proceeds was a reduction to other operation and maintenance expense and depreciation expense. The damages awarded included $15 million related to costs previously capitalized and $4 million related to costs previously recorded as other operation and maintenance expense. Of the $15 million, Entergy recorded $2 million as a reduction to previously-recorded depreciation expense. The remaining $13 million would have been recorded as a reduction to Vermont Yankee’s plant asset balance, but was recorded as a reduction to other operation and maintenance expense because Vermont Yankee’s plant asset balance is fully impaired.
In June 2016 the U.S. Court of Federal Claims issued a final judgment in the amount of $49 million in favor of System Energy and against the DOE in the second round Grand Gulf damages case. System Energy received payment from the U.S. Treasury in August 2016. The effects of recording the judgment in the third quarter 2016 were reductions to plant, nuclear fuel expense, other operation and maintenance expense, and depreciation expense. The amounts of Grand Gulf damages awarded related to System Energy’s 90% ownership of Grand Gulf included $16 million related to costs previously capitalized, $19 million related to costs previously recorded as nuclear fuel expense, and $9 million related to costs previously recorded as other operation and maintenance expense. Of the $16 million, System Energy recorded $5 million as a reduction to previously-recorded depreciation expense. System Energy reduced its Grand Gulf plant asset balance by the remaining $11 million.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
In July 2016 the U.S. Court of Federal Claims issued a final judgment in the amount of $31 million in favor of Entergy Arkansas and against the DOE in the second round ANO damages case. Entergy Arkansas received payment from the U.S. Treasury in October 2016. The effects of recording the judgment were reductions to plant, nuclear fuel expense, and other operation and maintenance expense. The ANO damages awarded included $6 million related to costs previously capitalized, $19 million related to costs previously recorded as nuclear fuel expense, $5 million related to costs previously recorded as other operation and maintenance expense, and $1 million related to costs previously recorded as taxes other than income taxes.
In August 2016 the U.S. Court of Federal Claims issued a partial judgment in the amount of $53 million in favor of Entergy Louisiana and against the DOE in the first round Waterford 3 damages case. Entergy Louisiana received payment from the U.S. Treasury in November 2016. The effects of recording the judgment were reductions to plant, nuclear fuel expense, other operation and maintenance expense, and depreciation expense. The Waterford 3 damages awarded included $41 million related to costs previously capitalized, $10 million related to costs previously recorded as nuclear fuel expense, and $2 million related to costs previously recorded as other operation and maintenance expense. Of the $41 million, Entergy Louisiana recorded $3 million as a reduction to previously-recorded depreciation expense.
In September 2016 the U.S. Court of Federal Claims issued a judgment in the Entergy Nuclear Palisades case in the amount of $14 million. Entergy Nuclear Palisades recorded a receivable for that amount, and subsequently received payment from the U.S. Treasury in January 2017. The effects of recording the judgment were reductions to plant and other operation and maintenance expenses. The Palisades damages awarded included $11 million related to costs previously capitalized and $3 million related to costs previously recorded as other operation and maintenance expense. Of the $11 million, Entergy recorded $1 million as a reduction to previously-recorded depreciation expense. Entergy reduced its Palisades plant asset balance by the remaining $10 million. The Court previously issued a partial judgment in the case in the amount of $21 million, which was paid by the U.S. Treasury in October 2015.
In October 2016 the U.S. Court of Federal Claims issued a judgment in the second round Entergy Nuclear Indian Point 2 case in the amount of $34 million. Entergy Nuclear Indian Point 2 recorded a receivable for that amount, and subsequently received payment from the U.S. Treasury in January 2017. The effects of recording the judgment were reductions to plant and other operation and maintenance expenses. The Indian Point 2 damages awarded included $14 million related to costs previously capitalized, $15 million related to costs previously recorded as other operation and maintenance expense, $3 million related to previously recorded decommissioning expense, and $2 million related to costs previously recorded as taxes other than income taxes. Of the $14 million, Entergy recorded $3 million as a reduction to previously-recorded depreciation expense. Entergy reduced its Indian Point 2 plant asset balance by the remaining $11 million.
In September 2018 the DOE submitted an offer of judgment to resolve claims in the second round Entergy Nuclear Generation Company case involving Pilgrim. The $62 million offer was accepted by Entergy Nuclear Generation Company, and the U.S. Court of Federal Claims issued a judgment in that amount in favor of Entergy Nuclear Generation Company. Entergy received payment from the U.S. Treasury in October 2018. The effect in 2018 of recording the judgment was a reduction to plant and other operation and maintenance expenses. The Pilgrim damages awarded included $60 million related to costs previously capitalized and $2 million related to costs previously recorded as other operation and maintenance expense. Of the $60 million, Entergy recorded $4 million as a reduction to previously-recorded depreciation expense, a $10 million reduction to bring its remaining Pilgrim plant asset balance to 0, and the excess $46 million as a reduction to other operation and maintenance expense because Pilgrim’s plant asset balance is fully impaired.
In August 2019 the U.S. Court of Federal Claims issued a final judgment in the amount of $19 million in favor of Entergy Louisiana against the DOE in the second round River Bend damages case. Entergy Louisiana received payment from the U.S. Treasury in September 2019. The effects in 2019 of recording the judgment were reductions to plant, nuclear fuel expense, and other operation and maintenance expense. The River Bend damages awarded included $12 million related to costs previously recorded as nuclear fuel expense, $5 million related to costs previously recorded as other operation and maintenance expense, and $2 million in costs previously capitalized.
In December 2019 the DOE submitted an offer of judgment to resolve claims in the third round ANO damages case. The $80 million offer was accepted by Entergy Arkansas, and the U.S. Court of Federal Claims issued a judgment
Entergy Corporation and Subsidiaries
Notes to Financial Statements
in that amount in favor of Entergy Arkansas and against the DOE. Entergy Arkansas received payment from the U.S. Treasury in January 2020. The effects in 2019 of recording the judgment were reductions to plant, nuclear fuel expense, other operation and maintenance expense, depreciation expense, and taxes other than income taxes. The ANO damages awarded included $55 million in costs previously capitalized, $12 million related to costs previously recorded as nuclear fuel expense, $12 million related to costs previously recorded as other operation and maintenance expense, and $1 million related to costs previously recorded as taxes other than income taxes. Of the $55 million, Entergy Arkansas, recorded $5 million as a reduction to previously-recorded depreciation expense.
In December 2019 the Entergy FitzPatrick Properties (formerly Entergy Nuclear FitzPatrick) and the DOE entered into a settlement agreement and the U.S. Court of Federal Claims issued a judgment in the amount of $7 million in favor of Entergy FitzPatrick Properties against the DOE in the second round FitzPatrick damages case. Entergy received payment from the U.S. Treasury in January 2020. Substantially all of the FitzPatrick damages awarded relate to costs previously expensed as asset write-offs, impairments, and related charges, and in December 2019 Entergy recorded $7 million as a reduction to asset write-offs, impairments, and related charges.
Management cannot predict the timing or amount of any potential recoveries on other claims filed by Entergy subsidiaries, and cannot predict the timing of any eventual receipt from the DOE of the U.S. Court of Federal Claims damage awards.
Nuclear Insurance
Third Party Liability Insurance
The Price-Anderson Act requires that reactor licensees purchase insurance and participate in a secondary insurance pool that provides insurance coverage for the public in the event of a nuclear power plant accident. The costs of this insurance are borne by the nuclear power industry. Congress amended and renewed the Price-Anderson Act in 2005 for a term through 2025. The Price-Anderson Act requires nuclear power plants to show evidence of financial protection in the event of a nuclear accident. This protection must consist of two2 layers of coverage:
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1. | The primary level is private insurance underwritten by American Nuclear Insurers (ANI) and provides public liability insurance coverage of $450 million for each operating reactor (prior to January 1, 2017, the primary level of insurance was $375 million).reactor. If this amount is not sufficient to cover claims arising from an accident, the second level, Secondary Financial Protection, applies. |
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Notes to Financial Statements
the second level, Secondary Financial Protection, applies. In 2016 the NRC approved Vermont Yankee’s exemption request to lower their limits from $375 million to $100 million effective April 15, 2016.
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2. | Within the Secondary Financial Protection level, each nuclear reactor has a contingent obligation to pay a retrospective premium, equal to its proportionate share of the loss in excess of the primary level, regardless of proximity to the incident or fault, up to a maximum of approximately $127.3$137.6 million per reactor per incident (Entergy’s maximum total contingent obligation per incident is $1.146$1.101 billion). This retrospective premium is payable at a rate currently set at approximately $19$21 million per year per incident per nuclear power reactor. |
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3. | In the event that one or more acts of terrorism cause a nuclear power plant accident, which results in third-party damages – off-site property and environmental damage, off-site bodily injury, and on-site third-party bodily injury (i.e. contractors), the primary level provided by ANI combined with the Secondary Financial Protection would provide approximately $13$14 billion in coverage. The Terrorism Risk Insurance Reauthorization Act of 2007 created a government program that provides for up to $100 billion in coverage in excess of existing coverage for a terrorist event. Under current law, the Terrorism Risk Insurance Act extends through 2020. |
Currently, 10298 nuclear reactors are participating in the Secondary Financial Protection program. Effective April 15, 2016 the NRC granted Vermont Yankee’s exemption request and it was allowed to withdraw from participation in this layer of financial protection. The Secondary Financial Protection program that provides approximately $13$14 billion in secondary layer insurance coverage to compensate the public in the event of a nuclear power reactor accident. The Price-Anderson Act provides that all potential liability for a nuclear accident is limited to the amounts of insurance coverage available under the primary and secondary layers.
Entergy Arkansas and Entergy Louisiana each have two2 licensed reactors. System Energy has one1 licensed reactor (10% of Grand Gulf is owned by a non-affiliated company (Cooperative Energy) that would share on a pro-ratapro-
Entergy Corporation and Subsidiaries
Notes to Financial Statements
rata basis in any retrospective premium assessment to System Energy under the Price-Anderson Act). The Entergy Wholesale Commodities segment includes the ownership, operation, and decommissioning of 3 nuclear power reactors and the ownership of the shutdown Indian Point 1 reactor and Big Rock Point facility. The Entergy Wholesale Commodities segment previously included two nuclear power reactors that were sold in 2019. Vermont Yankee was sold in January 2019 and Pilgrim was sold in August 2019.
Property Insurance
Entergy’s nuclear owner/licensee subsidiaries are members of NEIL, a mutual insurance company that provides property damage coverage, including decontamination and premature decommissioning expense,reactor stabilization, to the members’ nuclear generating plants. The property damage insurance limits procured by Entergy for its Utility plants and Entergy Wholesale Commodity plants are in compliance with the financial protection requirements of the NRC.
The Utility plants’ (ANO 1 and 2, Grand Gulf, River Bend, and Waterford 3) property damage insurance limits are $1.5 billion per occurrence at each plant with an additional $100 million per occurrence that is shared among the plants. Property damage from earthquake and volcanic eruption is excluded from the first $500 million in coverage for all Utility plants. Property damage from flood is excluded from the first $500 million in coverage at ANO 1 and 2 and Grand Gulf. Property damage from flood is included in the first $500 million for Waterford 3 and River Bend.Bend includes a deductible of $10 million plus an additional 10% of the amount of the loss in excess of $10 million, up to a maximum deductible of $50 million. Property damage from wind for all of the Utility nuclear plants includes a deductible of $10 million plus an additional 10% of the amount of the loss in excess of $10 million, up to a total maximum deductible of $50 million.
The Entergy Wholesale Commodities’ plants (Pilgrim, Palisades,(Palisades, Indian Point Vermont Yankee,2, Indian Point 3, and Big Rock Point) have property damage insurance limits as follows: Vermont YankeeBig Rock Point - $50 million per occurrence; Big Rock Point - $500 million per occurrence; Pilgrim and Palisades - $1.115 billion per occurrence; and Indian Point - $1.6 billion per occurrence. For losses that are considered non-nuclear in nature, the property damage insurance limit at Pilgrim, Palisades and Indian Point is $500 million and at Vermont Yankee is $50 million. Property damage from wind and flood at Indian Point includes a deductible of $10 million plus an additional 10% of the amount of the loss in excess of $10 million, up to a maximum deductible of $50 million, but property damage from earthquake and volcanic eruption at Indian Point is excluded from the first $500 million. Property damage from wind, at Pilgrim includes a deductible of $10 million plus an additional 10% of the amount of the loss in excess of $10 million, up to a maximum
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Notes to Financial Statements
deductible of $50 million, but property damage from flood, earthquake, and volcanic eruption at Pilgrim is excluded from the first $500 million. Property damage from wind, flood, earthquake, and volcanic eruption at Vermont Yankee and Palisades includes a deductible of $10 million plus an additional 10% of the amount of the loss in excess of $10 million, up to a maximum deductible of $50 million. Property damage from wind, flood, earthquake, and volcanic eruption at Big Rock Point includes a deductible of $10 million plus an additional 10% of the amount of the loss in excess of $10 million, up to a maximum deductible of $14 million.
The value of the insured property at the time of an accident at Pilgrim, Palisades and Vermont Yankee has been changed from replacement cost to actual cash value.
In addition, Waterford 3 and Grand Gulf are also covered under NEIL’s Accidental Outage Coverage program. Due to Entergy’s gradual exit from the merchant/wholesale power business, Entergy no longer purchases Accidental Outage Coverage for its non-regulated, non-generation assets. Accidental outage coverage provides indemnification for the actual cost incurred in the event of an unplanned outage resulting from property damage covered under the NEIL Primary Property Insurance policy, subject to a deductible period. The indemnification for the actual cost incurred is based on market power prices at the time of the loss. For non-nuclear events, the maximum indemnity, under this policy, is limited to $327.6 million per occurrence. After the deductible period has passed, weekly indemnities for an unplanned outage, covered under NEIL’s Accidental Outage Coverage program, would be paid according to the amounts listed below:
100% of the weekly indemnity for each week for the first payment period of 52 weeks; then
80% of the weekly indemnity for each week for the second payment period of 52 weeks; and thereafter
80% of the weekly indemnity for an additional 58 weeks for the third and final payment period.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Under the property damage and accidental outage insurance programs, all NEIL insured plants could be subject to assessments should losses exceed the accumulated funds available from NEIL. Effective April 1, 2017,2019, the maximum amounts of such possible assessments per occurrence were as follows:
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| Assessments |
| (In Millions) |
Utility: | |
Entergy Arkansas | $40.336.2 |
Entergy Louisiana | $49.451.5 |
Entergy Mississippi | $0.110.12 |
Entergy New Orleans | $0.110.12 |
Entergy Texas | N/A |
System Energy | $22.324.1 |
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Entergy Wholesale Commodities | $— |
Potential assessments for the Entergy Wholesale Commodities plants are covered by insurance obtained through NEIL’s reinsurers.
NRC regulations provide that the proceeds of this insurance must be used, first, to render the reactor safe and stable, and second, to complete decontamination operations. Only after proceeds are dedicated for such use and regulatory approval is secured would any remaining proceeds be made available for the benefit of plant owners or their creditors.
In the event that one or more acts of terrorism causes property damage under one or more or all nuclear insurance policies issued by NEIL (including, but not limited to, those described above) within 12 months from the date the first property damage occurs, the maximum recovery under all such nuclear insurance policies shall be an aggregate not exceeding $3.24 billion plus the additional amounts recovered for such losses from reinsurance, indemnity, and any other sources applicable to such losses.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Non-Nuclear Property Insurance
Entergy’s non-nuclear property insurance program provides coverage on a system-wide basis for Entergy’s non-nuclear assets. The insurance program provides coverage for property damage up to $400 million per occurrence “each and every loss” basis in excess of a $20 million self-insured retention with the exception ofexcept for property damage caused by the following: earthquake shock, flood, and named windstorm, including associated storm surge. For earthquake shock and flood, the insurance program provides coverage up to $400 million on an annual aggregate basis in excess of a $40 million self-insured retention. For named windstorm and associated storm surge, the insurance program provides coverage up to $125 million on an annual aggregate basis in excess of a $40 million self-insured retention. The coverage provided by the insurance program for the Entergy New Orleans gas distribution system is limited to $50 million per occurrence and is subject to the same annual aggregate limits and retentions listed above for earthquake shock, flood, and named windstorm, including associated storm surge.
Covered property generally includes power plants, substations, facilities, inventories, and gas distribution-related properties. Excluded property generally includes transmission and distribution lines, poles, and towers. For substations valued at $5 million or less, coverage for named windstorm and associated storm surge is excluded. This coverage is in place for Entergy Corporation, the Registrant Subsidiaries, and certain other Entergy subsidiaries, including the owners of the nuclear power plants in the Entergy Wholesale Commodities segment. Entergy also purchases $300 million in terrorism insurance coverage for its conventional property. The Terrorism Risk Insurance Reauthorization Act of 2007 created a government program that provides for up to $100 billion in coverage in excess of existing coverage for a terrorist event. Under current law, the Terrorism Risk Insurance Act extends through 2020.
Entergy Corporation and Subsidiaries
Notes to June 1, 2017, Entergy purchased additional coverage for some of its non-regulated, non-generation assets in addition to the insurance procured via the conventional property insurance program. The policy served to buy-down the conventional property insurance policy’s $20 million deductible and was placed on a scheduled location basis. Due to Entergy’s gradual exit from the merchant/wholesale power business, effective June 1, 2017, Entergy no longer purchases this additional coverage ($20 million per occurrence) for some of its non-regulated, non-generation assets.Financial Statements
Employment and Labor-related Proceedings
The Registrant Subsidiaries and other Entergy subsidiaries are responding to various lawsuits in both state and federal courts and to other labor-related proceedings filed by current and former employees, recognized bargaining representatives, and certain third parties not selected for open positions or providing services directly or indirectly to one or more of the Registrant Subsidiaries and other Entergy subsidiaries.parties. Generally, the amount of damages being sought is not specified in these proceedings. These actions include, but are not limited to, allegations of wrongful employment actions; wage disputes and other claims under the Fair Labor Standards Act or its state counterparts; claims of race, gender, age, and disability discrimination; disputes arising under collective bargaining agreements; unfair labor practice proceedings and other administrative proceedings before the National Labor Relations Board or concerning the National Labor Relations Act; claims of retaliation; claims of harassment and hostile work environment; and claims for or regarding benefits under various Entergy Corporation-sponsored plans. Entergy and the Registrant Subsidiaries are responding to these lawsuits and proceedings and deny liability to the claimants. Management believes that loss exposure has been and will continue to be handled so that the ultimate resolution of these matters will not be material, in the aggregate, to the financial position, results of operation, or cash flows of Entergy or the Utility operating companies.
Asbestos Litigation (Entergy Arkansas, Entergy Louisiana, Entergy New Orleans, and Entergy Texas)
Numerous lawsuits have been filed in federal and state courts, primarily by contractor employees who worked in the 1940-1980s timeframe, primarily against Entergy Texas, and to a lesser extent the other Utility operating companies, as premises owners of power plants, for damages caused by alleged exposure to asbestos. Many other defendants are named in these lawsuits as well. Currently, there are approximately 200 lawsuits involving
Entergy Corporation and Subsidiaries
Notes to Financial Statements
approximately 500400 claimants. Management believes that adequate provisions have been established to cover any exposure. Additionally, negotiations continue with insurers to recover reimbursements. Management believes that loss exposure has been and will continue to be handled so that the ultimate resolution of these matters will not be material, in the aggregate, to the financial position, results of operation, or cash flows of the Utility operating companies.
Grand Gulf - Related Agreements
Capital Funds Agreement (Entergy Corporation and System Energy)
System Energy has entered into agreements with Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans whereby they are obligated to purchase their respective entitlements of capacity and energy from System Energy’s interest in Grand Gulf, and to make payments that, together with other available funds, are adequate to cover System Energy’s operating expenses. System Energy would have to secure funds from other sources, including Entergy Corporation’s obligations under the Capital Funds Agreement, to cover any shortfalls from payments received from Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans under these agreements.
Unit Power Sales Agreement (Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy)
System Energy has agreed to sell all of its share of capacity and energy from Grand Gulf to Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans in accordance with specified percentages (Entergy Arkansas-36%, Entergy Louisiana-14%, Entergy Mississippi-33%, and Entergy New Orleans-17%) as ordered by the FERC. Charges under this agreement are paid in consideration for the purchasing companies’ respective entitlement to receive capacity and energy and are payable irrespective of the quantity of energy delivered. The agreement will remain in effect until terminated by the parties and the termination is approved by the FERC, most likely upon Grand Gulf’s retirement from service. In December 2016 the NRC granted the extension of Grand Gulf’s operating license to 2044. Monthly obligations are based on actual capacity and energy costs. The average monthly payments for 20172019 under the agreement arewere approximately $19.5$17.6 million for Entergy Arkansas, $7.8$7 million for Entergy Louisiana, $17$15.5 million for Entergy Mississippi, and $9.4$8.5 million for Entergy New Orleans. See Note 2 to the financial statements for discussion of the complaintcomplaints filed with the FERC against System Energy seeking a reduction in the return on equity component of the Unit Power Sales Agreement.
Availability Agreement (Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy)
Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans are individually obligated to make payments or subordinated advances to System Energy in accordance with stated percentages (Entergy Arkansas-17.1%, Entergy Louisiana-26.9%, Entergy Mississippi-31.3%, and Entergy New Orleans-24.7%) in amounts that, when added to amounts received under the Unit Power Sales Agreement or otherwise, are adequate to cover all
Entergy Corporation and Subsidiaries
Notes to Financial Statements
of System Energy’s operating expenses as defined, including an amount sufficient to amortize the cost of Grand Gulf 2 over 27 years (See Reallocation Agreement terms below) and expenses incurred in connection with a permanent shutdown of Grand Gulf. System Energy has assigned its rights to payments and advances to certain creditors as security for certain obligations. Since commercial operation of Grand Gulf began, payments under the Unit Power Sales Agreement have exceeded the amounts payable under the Availability Agreement. Accordingly, no payments under the Availability Agreement have ever been required. If Entergy Arkansas or Entergy Mississippi fails to make its Unit Power Sales Agreement payments, and System Energy is unable to obtain funds from other sources, Entergy Louisiana and Entergy New Orleans could become subject to claims or demands by System Energy or its creditors for payments or advances under the Availability Agreement (or the assignments thereof) equal to the difference between their required Unit Power Sales Agreement payments and their required Availability Agreement payments.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Reallocation Agreement (Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy)
System Energy, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans entered into the Reallocation Agreement relating to the sale of capacity and energy from Grand Gulf and the related costs, in which Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans agreed to assume all of Entergy Arkansas’s responsibilities and obligations with respect to Grand Gulf under the Availability Agreement. The FERC’s decision allocating a portion of Grand Gulf capacity and energy to Entergy Arkansas supersedes the Reallocation Agreement as it relates to Grand Gulf. Responsibility for any Grand Gulf 2 amortization amounts has been individually allocated (Entergy Louisiana-26.23%, Entergy Mississippi-43.97%, and Entergy New Orleans-29.80%) under the terms of the Reallocation Agreement. However, the Reallocation Agreement does not affect Entergy Arkansas’s obligation to System Energy’s lenders under the assignments referred to in the preceding paragraph. Entergy Arkansas would be liable for its share of such amounts if Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans were unable to meet their contractual obligations. No payments of any amortization amounts will be required so long as amounts paid to System Energy under the Unit Power Sales Agreement, including other funds available to System Energy, exceed amounts required under the Availability Agreement, which is expected to be the case for the foreseeable future.
NOTE 9. ASSET RETIREMENT OBLIGATIONS (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)
Accounting standards require companies to record liabilities for all legal obligations associated with the retirement of long-lived assets that result from the normal operation of the assets. For Entergy, substantially all of its asset retirement obligations consist of its liability for decommissioning its nuclear power plants. In addition, an insignificant amount of removal costs associated with non-nuclear power plants is also included in the decommissioning and asset retirement costs line item on the balance sheets.
These liabilities are recorded at their fair values (which are the present values of the estimated future cash outflows) in the period in which they are incurred, with an accompanying addition to the recorded cost of the long-lived asset. The asset retirement obligation is accreted each year through a charge to expense, to reflect the time value of money for this present value obligation. The accretion will continue through the completion of the asset retirement activity. The amounts added to the carrying amounts of the long-lived assets will be depreciated over the useful lives of the assets. The application of accounting standards related to asset retirement obligations is earnings neutral to the rate-regulated business of the Registrant Subsidiaries.
In accordance with ratemaking treatment and as required by regulatory accounting standards, the depreciation provisions for the Registrant Subsidiaries include a component for removal costs that are not asset retirement obligations under accounting standards. In accordance with regulatory accounting principles, the Registrant Subsidiaries have recorded regulatory assets (liabilities) in the following amounts to reflect their estimates of the difference between estimated incurred removal costs and estimated removal costs recovered in rates:
|
| | | |
| December 31, |
| 2017 | | 2016 |
| (In Millions) |
Entergy Arkansas | $176.9 | | $128.5 |
Entergy Louisiana | ($32.4) | | ($53.9) |
Entergy Mississippi | $91.6 | | $82.0 |
Entergy New Orleans | $44.8 | | $40.1 |
Entergy Texas | $55.2 | | $33.5 |
System Energy | $67.9 | | $69.7 |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
|
| | | |
| December 31, |
| 2019 | | 2018 |
| (In Millions) |
Entergy Arkansas | $168.9 | | $138.3 |
Entergy Louisiana | ($2.4) | | ($18.8) |
Entergy Mississippi | $80.8 | | $63.5 |
Entergy New Orleans | $52.9 | | $49.3 |
Entergy Texas | $42.5 | | $50.9 |
System Energy | $75.9 | | $76.4 |
The cumulative decommissioning and retirement cost liabilities and expenses recorded in 20172019 and 20162018 by Entergy were as follows:
| | | Liabilities as of December 31, 2016 | | Accretion | | Change in Cash Flow Estimate | | Spending | | Dispositions | | Liabilities as of December 31, 2017 | Liabilities as of December 31, 2018 | | Accretion | | Change in Cash Flow Estimate | | Spending | | Dispositions | | Liabilities as of December 31, 2019 |
| (In Millions) | (In Millions) |
Utility: | | | | | | | | | | | | |
Entergy | |
| $6,923.4 |
| |
| $414.0 |
| |
| $273.7 |
| |
| ($45.6 | ) | |
| ($1,406.3 | ) | |
| $6,159.2 |
|
| | | | | | | | | | | | |
Utility | | | | | | | | | | | | |
Entergy Arkansas |
| $924.4 |
| |
| $56.8 |
| |
| $— |
| |
| $— |
| |
| $— |
| |
| $981.2 |
| 1,048.4 |
| | 68.0 |
| | 126.2 |
| | — |
| | — |
| | 1,242.6 |
|
Entergy Louisiana | 1,082.7 |
| | 57.8 |
| | — |
| | — |
| | — |
| | 1,140.5 |
| 1,280.3 |
| | 69.5 |
| | 147.5 |
| | — |
| | — |
| | 1,497.3 |
|
Entergy Mississippi | 8.7 |
| | 0.5 |
| | — |
| | — |
| | — |
| | 9.2 |
| 9.2 |
| | 0.5 |
| | — |
| | — |
| | — |
| | 9.7 |
|
Entergy New Orleans | 2.9 |
| | 0.2 |
| | — |
| | — |
| | — |
| | 3.1 |
| 3.3 |
| | 0.2 |
| | — |
| | — |
| | — |
| | 3.5 |
|
Entergy Texas | 6.5 |
| | 0.3 |
| | — |
| | — |
| | — |
| | 6.8 |
| 7.2 |
| | 0.4 |
| | — |
| | — |
| | — |
| | 7.6 |
|
System Energy | 854.2 |
| | 43.4 |
| | (35.9 | ) | | — |
| | — |
| | 861.7 |
| 896.0 |
| | 35.7 |
| | — |
| | — |
| | — |
| | 931.7 |
|
Total | 2,879.4 |
| | 159.0 |
| | (35.9 | ) | | — |
| | — |
| | 3,002.5 |
| |
| | | | | | | | | | | | | | | | | | | | | | |
Entergy Wholesale Commodities: | | | | | | | | | | |
Entergy Wholesale Commodities | | Entergy Wholesale Commodities | | | | | | | | | |
Big Rock Point | 37.9 |
| | 3.1 |
| | — |
| | (2.1 | ) | | — |
| | 38.9 |
| 39.7 |
| | 3.2 |
| | — |
| | (2.6 | ) | | — |
| | 40.3 |
|
FitzPatrick | 714.3 |
| (a) | 13.9 |
| | — |
| | (0.9 | ) | | (727.3 | ) | (b) | — |
| |
Indian Point 1 | 207.6 |
| | 17.7 |
| | — |
| | (7.7 | ) | | — |
| | 217.6 |
| 227.9 |
| | 19.5 |
| | — |
| | (8.8 | ) | | — |
| | 238.6 |
|
Indian Point 2 | 653.1 |
| | 55.8 |
| | — |
| | (0.2 | ) | | — |
| | 708.7 |
| 768.0 |
| | 65.5 |
| | — |
| | (4.5 | ) | | — |
| | 829.0 |
|
Indian Point 3 | 641.1 |
| | 53.5 |
| | — |
| | (0.1 | ) | | — |
| | 694.5 |
| 750.6 |
| | 62.5 |
| | — |
| | (4.7 | ) | | — |
| | 808.4 |
|
Palisades | 500.3 |
| | 41.3 |
| | (68.7 | ) | | (2.5 | ) | | — |
| | 470.4 |
| 508.0 |
| | 42.9 |
| | — |
| | (1.1 | ) | | — |
| | 549.8 |
|
Pilgrim | 602.3 |
| | 52.8 |
| | — |
| | (3.7 | ) | | — |
| | 651.4 |
| 816.5 |
| | 44.1 |
| | — |
| | (23.9 | ) | | (836.7 | ) | (b) | — |
|
Vermont Yankee | 470.5 |
| | 34.4 |
| | — |
| | (103.4 | ) | | — |
| | 401.5 |
| 567.9 |
| | 1.7 |
| | — |
| | — |
| | (569.6 | ) | (b) | — |
|
Other (c)(a) | 0.3 |
| | — |
| | — |
| | — |
| | — |
| | 0.3 |
| 0.4 |
| | 0.1 |
| | — |
| | — |
| | — |
| | 0.5 |
|
Total | 3,827.4 |
| | 272.5 |
| | (68.7 | ) | | (120.6 | ) | | (727.3 | ) | | 3,183.3 |
| |
| | | | | | | | | | | | |
Entergy Total |
| $6,706.8 |
| |
| $431.5 |
| |
| ($104.6 | ) | |
| ($120.6 | ) | |
| ($727.3 | ) | |
| $6,185.8 |
| |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
| | | Liabilities as of December 31, 2015 | | Liabilities Incurred | | Accretion | | Change in Cash Flow Estimate | | Spending | | Liabilities as of December 31, 2016 | | Liabilities as of December 31, 2017 | | Accretion | | Change in Cash Flow Estimate | | Spending | | Liabilities as of December 31, 2018 | |
| (In Millions) | | (In Millions) | |
Utility: | | | | | | | | | | | | | |
Entergy | |
| $6,185.8 |
| |
| $423.5 |
| |
| $505.4 |
| |
| ($191.3 | ) | |
| $6,923.4 |
| |
| | | | | | | | | | | |
Utility | | | | | | | | | | | |
Entergy Arkansas |
| $872.3 |
| |
| $— |
| |
| $53.6 |
| |
| $— |
| |
| ($1.5 | ) | |
| $924.4 |
| | 981.2 |
| | 60.4 |
| | 8.9 |
| | (2.1 | ) | | 1,048.4 |
| |
Entergy Louisiana | 1,027.9 |
| | — |
| | 54.8 |
| | — |
| | — |
| | 1,082.7 |
| | 1,140.5 |
| | 63.2 |
| | 85.4 |
| | (8.8 | ) | | 1,280.3 |
| |
Entergy Mississippi | 8.3 |
| | — |
| | 0.4 |
| | — |
| | — |
| | 8.7 |
| | 9.2 |
| | 0.5 |
| | 0.5 |
| | (1.0 | ) | | 9.2 |
| |
Entergy New Orleans | 2.7 |
| | — |
| | 0.2 |
| | — |
| | — |
| | 2.9 |
| | 3.1 |
| | 0.2 |
| | — |
| | — |
| | 3.3 |
| |
Entergy Texas | 6.1 |
| | — |
| | 0.4 |
| | — |
| | — |
| | 6.5 |
| | 6.8 |
| | 0.4 |
| | — |
| | — |
| | 7.2 |
| |
System Energy | 803.4 |
| | — |
| | 50.8 |
| | — |
| | — |
| | 854.2 |
| | 861.7 |
| | 34.3 |
| | — |
| | — |
| | 896.0 |
| |
Total | 2,720.7 |
| | — |
| | 160.2 |
| | — |
| | (1.5 | ) | | 2,879.4 |
| | |
| | | | | | | | | | | | | | | | | | | | | | |
Entergy Wholesale Commodities: | |
|
| |
|
| |
|
| |
|
| | |
Entergy Wholesale Commodities | | Entergy Wholesale Commodities | | | | | | | | |
Big Rock Point | 28.0 |
| | — |
| | 2.2 |
| | 10.1 |
| | (2.4 | ) | | 37.9 |
| | 38.9 |
| | 3.2 |
| | — |
| | (2.4 | ) | | 39.7 |
| |
FitzPatrick | — |
| (d) | 696.2 |
| | 18.1 |
| | — |
| | — |
| | 714.3 |
| (a) | |
Indian Point 1 | 197.9 |
| | — |
| | 17.1 |
| | (0.3 | ) | | (7.1 | ) | | 207.6 |
| | 217.6 |
| | 18.6 |
| | — |
| | (8.3 | ) | | 227.9 |
| |
Indian Point 2 | 390.1 |
| | — |
| | 33.0 |
| | 230.0 |
| | — |
| | 653.1 |
| | 708.7 |
| | 60.6 |
| | — |
| | (1.3 | ) | | 768.0 |
| |
Indian Point 3 | — |
| (d) | 466.3 |
| | 12.1 |
| | 162.7 |
| | — |
| | 641.1 |
| | 694.5 |
| | 58.0 |
| | — |
| | (1.9 | ) | | 750.6 |
| |
Palisades | 342.0 |
| | — |
| | 29.5 |
| | 128.8 |
| | — |
| | 500.3 |
| | 470.4 |
| | 39.6 |
| | — |
| | (2.0 | ) | | 508.0 |
| |
Pilgrim | 551.2 |
| | — |
| | 48.4 |
| | 3.2 |
| | (0.5 | ) | | 602.3 |
| | 651.4 |
| | 58.6 |
| | 117.5 |
| | (11.0 | ) | | 816.5 |
| |
Vermont Yankee | 560.0 |
| | — |
| | 39.3 |
| | — |
| | (128.8 | ) | | 470.5 |
| | 401.5 |
| | 25.9 |
| | 293.0 |
| | (152.5 | ) | | 567.9 |
| (c) |
Other (c)(a) | 0.3 |
| | — |
| | — |
| | — |
| | — |
| | 0.3 |
| | 0.3 |
| | — |
| | 0.1 |
| | — |
| | 0.4 |
| |
Total | 2,069.5 |
| | 1,162.5 |
| | 199.7 |
| | 534.5 |
| | (138.8 | ) | | 3,827.4 |
| | |
| | | | | | | | | | | | | |
Entergy Total |
| $4,790.2 |
| |
| $1,162.5 |
| |
| $359.9 |
| |
| $534.5 |
| |
| ($140.3 | ) | |
| $6,706.8 |
| | |
| |
(a) | See “Coal Combustion Residuals” below for additional discussion regarding the asset retirement obligations related to coal combustion residuals management. |
| |
(b) | See Note 14 to the financial statements for discussion of the sale of the Pilgrim plant to Holtec International in August 2019 and the sale of the Vermont Yankee plant to NorthStar in January 2019. |
| |
(c) | The FitzPatrickVermont Yankee asset retirement obligation was classified as held for sale within other non-current liabilities on the consolidated balance sheet as of December 31, 2016. See Note 14 to the financial statements for discussion of the sale of the FitzPatrick plant to Exelon in March 2017. |
| |
(b) | See Note 14 to the financial statements for discussion of the sale of the FitzPatrick plant to Exelon in March 2017. |
| |
(c) | See “Coal Combustion Residuals” below for additional discussion regarding the asset retirement obligations related to coal combustion residuals management.
|
| |
(d) | See “Entergy Wholesale Commodities” in “Nuclear Plant Decommissioning” below for additional discussion regarding the decommissioning agreements with NYPA and the associated asset retirement obligations. 2018. |
Nuclear Plant Decommissioning
Entergy periodically reviews and updates estimated decommissioning costs. The actual decommissioning costs may vary from the estimates because of the timing of plant decommissioning, regulatory requirements, changes in technology, and increased costs of labor, materials, and equipment. As described below, during 20172019, 2018, and 2016,2017, Entergy updated decommissioning cost estimates for certain nuclear power plants.
Utility
In the secondfirst quarter 2017, System Energy2018, Entergy Louisiana recorded a revision to its estimated decommissioning cost liability for Grand GulfRiver Bend as a result of a revised decommissioning cost study. The revised estimate resulted in a $35.9an $85.4 million
Entergy Corporation and Subsidiaries
Notes to Financial Statements
reduction increase in its decommissioning cost liability, along with a corresponding reductionincrease in the related asset retirement cost asset that will be depreciated over the remaining life of the unit.
Entergy Wholesale Commodities
In August 2013 the Board approved a plan to close and decommission Vermont Yankee at the end of 2014. Vermont Yankee submitted notification of permanent cessation of operations and permanent removal of fuel from the reactor in January 2015 after final shutdown in December 2014. Vermont Yankee’s future certifications to satisfy the NRC’s financial assurance requirements will now be based on the site specific cost estimate, including the estimated cost of managing spent fuel, rather than the NRC minimum formula for estimating decommissioning costs. Filings with the NRC for planned shutdown activities will determine whether any other financial assurance may be required and will specifically address funding for spent fuel management, which will be required until the federal government takes possession of the fuel and removes it from the site, per its current obligation.
Entergy expects that amounts available in Vermont Yankee’s decommissioning trust fund, including expected earnings, together with borrowings under its credit facility that are expected to be repaid with recoveries from DOE litigation related to spent fuel storage, and the site restoration trust, will be sufficient to cover Vermont Yankee’s expected costs of decommissioning, spent fuel management costs, and site restoration. See Note 4 to the financial statements for discussion of the credit facility and Note 16 to the financial statements for discussion of the decommissioning trust fund. In June 2015 the NRC staff issued an exemption from its regulations to allow Vermont Yankee to use its decommissioning trust fund to pay for approximately $225 million of estimated future spent fuel management costs that will not be paid for using funds from its credit facility. In August 2015, Vermont and two Vermont utilities filed a petition in the U.S. Court of Appeals for the D.C. Circuit challenging the NRC’s issuance of that exemption. In February 2016 the court dismissed the petition as premature because Vermont and the utilities had requested the NRC to reconsider a number of issues related to Vermont Yankee's use of the decommissioning trust fund including its use to pay for spent fuel management expenses pursuant to the exemption granted in June 2015. In October 2016 the NRC denied Vermont's and the utilities' request for a hearing and other relief but directed the NRC staff to conduct an assessment of any environmental impacts associated with the exemption. In December 2017 the NRC issued its final environmental assessment, concluding that the exemption did not, and will not, have a significant effect on the environment.
In the fourthfirst quarter 2016,2019, Entergy Wholesale CommoditiesArkansas recorded a revision to its estimated decommissioning cost liabilities for ANO 1 and ANO 2 as a result of a revised decommissioning cost study. The revised estimates resulted in a $126.2
Entergy Corporation and Subsidiaries
Notes to Financial Statements
million increase in its decommissioning cost liabilities, along with corresponding increases in the related asset retirement cost assets that will be depreciated over the remaining lives of the units.
In the second quarter 2019, Entergy Louisiana recorded a revision to its estimated decommissioning cost liability for PalisadesWaterford 3 as a result of a revised decommissioning cost study. The revised estimate resulted in a $129$147.5 million increase in theits decommissioning cost liability, along with a corresponding increase in the related asset retirement cost asset. The increase inasset that will be depreciated over the estimated decommissioning cost liability resulted from the change in expectation regarding the timing of decommissioning cash flows due to the decision to cease operationsremaining useful life of the plant on October 1, 2018, subject to regulatory approval. The asset retirement cost asset was included in the Palisades carrying value that was written down to fair value in the fourth quarter 2016. See Note 14 to the financial statements for discussion of the impairment of the value and planned shutdown of the Palisades plant.unit.
Entergy Wholesale Commodities
Palisades
In the third quarter 2017, Entergy Wholesale Commodities recorded a revision to its estimated decommissioning cost liability for Palisades. The revised estimate resulted in a $68.7 million reduction in its decommissioning cost liability, along with a corresponding reduction in the plant asset. The reduction in its estimated decommissioning cost liability resulted from the change in expectation regarding the timing of decommissioning cash flows due to the decision to continue to operate the plant until May 31, 2022.
ForPilgrim
Entergy Nuclear Generation Company filed its Post-Shutdown Decommissioning Activities report (PSDAR) with the Indian Point 3 and FitzPatrick plants purchasedNRC in 2000 from NYPA, NYPA retained the decommissioning trust funds andfourth quarter 2018 for the decommissioning liabilities. NYPA and Entergy subsidiaries executed decommissioning agreements, which specified their decommissioning obligations. NYPA had the right to require the Entergy subsidiaries to assume eachPilgrim plant in anticipation of its May 2019 shutdown. As part of the decommissioning liabilities provided that it assigned the corresponding decommissioning trust, up to a specified level, to the Entergy subsidiaries. Under the original agreements, if the decommissioning liabilities were retained by NYPA, the Entergy subsidiaries would perform the decommissioning of
Entergy Corporation and Subsidiaries
Notes to Financial Statements
the plants at a price equal to the lesser of a pre-specified level or the amount in the decommissioning trust funds. At the timedevelopment of the acquisition of the plantsPSDAR, Entergy recordedobtained a contract asset that represented an estimate of the present value of the difference between the stipulated contract amount for decommissioning the plants less the decommissioning costs estimated in independentrevised decommissioning cost studies. The asset was increased by monthly accretion based on the applicable discount rate necessary to ultimately provide for the estimated future value of the decommissioning contract. The monthly accretion was recorded as interest income.
In the third quarter 2015, Entergy Wholesale Commodities recorded a revision to the contract asset for the FitzPatrick plant. Due to a change in expectation regarding the timing of decommissioning cash flows, the result was a write down of the contract asset from $335 million to $131 million, for a charge of $204 million.
In August 2016, Entergy entered into a trust transfer agreement with NYPA to transfer the decommissioning trust funds and decommissioning liabilities for the Indian Point 3 and FitzPatrick plants to Entergy. As a result of the agreement with NYPA,study in the third quarter 2016 Entergy removed the contract asset from its balance sheet, and recorded receivables for the beneficial interests2018. The revised estimate resulted in a $117.5 million increase in the decommissioning trust fundscost liability and asset retirement obligations for the decommissioning liabilities. The transaction was contingent upon receiving approval from the NRC, which was received in January 2017. The decommissioning trust funds for the Indian Point 3 and FitzPatrick plants were transferred to Entergy by NYPA in January 2017. In March 2017, Entergy sold the FitzPatrick plant to Exelon, and as part of the transaction, the FitzPatrick decommissioning trust fund, along with the decommissioning obligation for that plant, was transferred to Exelon. See Note 14 to the financial statements for discussion of the sale of FitzPatrick.a corresponding impairment charge.
Vermont Yankee
In the fourth quarter 2016,2018, Entergy Wholesale Commodities recorded a revision to its estimated decommissioning cost liabilitiesliability for Indian Point 1, Indian Point 2, and Indian Point 3 as a result of revised decommissioning cost studies.Vermont Yankee. The revised estimatesestimate resulted in a $392$293 million increase in the decommissioning cost liabilities,liability, along with a corresponding increase in the related asset retirement cost assets.asset. The increase inrevision was prompted by the estimated decommissioning cost liabilities resulted from the change in expectation regarding the timing of decommissioning cash flows due to the decision to cease operationsprogress of the Indian Point 2 plant no later than April 2020 and the Indian Point 3 plant no later than April 2021. The asset retirement cost assets were includedVermont Yankee sales transaction, which is described in the carrying value that was written down to fair value in the fourth quarter 2016. See Note 14 to the financial statements for discussionstatements. Entergy accordingly evaluated the Vermont Yankee asset retirement obligation in light of the impairmentterms of the valuesale transaction, upon determining that Vermont Yankee was in held for sale status. Based on the terms of the sales agreement, which include Entergy receiving a note receivable from the purchaser, Entergy determined that $165 million of the asset retirement cost was impaired, and planned shutdown of Indian Point Energy Center.it was accordingly written down in the fourth quarter 2018. The Vermont Yankee plant was sold to NorthStar in January 2019.
As the Entergy Wholesale Commodities nuclear plants individually approach and begin decommissioning, the Entergy Wholesale Commodities plant owners will submit filings with the NRC for planned shutdown activities. These filings with the NRC will determine whether any other financial assurance may be required. The plants’Filings Regarding Trust Funding Levels
Plant owners are required to provide the NRC with a biennial report (annually for units that have shut down or will shut down within five years), based on values as of December 31, addressing the owners’ ability to meet the NRC minimum funding levels. Depending on the value of the trust funds, the Entergy Wholesale Commodities plant owners may be required to take steps, such as providing financial guarantees through letters of credit or parent company guarantees or making additional contributions to the trusts, which could be significant, to ensure that the trusts are adequately funded and that NRC minimum funding requirements are met.
As nuclear plants individually approach and begin decommissioning, filings will be submitted to the NRC for planned shutdown activities. These filings with the NRC also determine whether financial assurance may be required in addition to the nuclear decommissioning trust fund.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Entergy maintains decommissioning trust funds that are committed to meeting its obligations for the costs of decommissioning the nuclear power plants. The fair values of the decommissioning trust funds and the related asset retirement obligation regulatory assets (liabilities) of Entergy as of December 31, 2017 and 2016 are as follows:
|
| | | | | | | | | | | | | |
| 2017 | | 2016 |
| Decommissioning Trust Fair Values | | Regulatory Asset (Liability) | | Decommissioning Trust Fair Values | | Regulatory Asset (Liability) |
| (In Millions) | | (In Millions) |
Utility: | | | | | | | |
ANO 1 and ANO 2 |
| $944.9 |
| | $337.9 | |
| $834.7 |
| |
| $316.3 |
|
River Bend |
| $818.2 |
| | ($30.6) | |
| $712.8 |
| |
| ($28.4 | ) |
Waterford 3 |
| $493.9 |
| | $188.9 | |
| $427.9 |
| |
| $172.8 |
|
Grand Gulf |
| $905.7 |
| | $169.1 | |
| $780.5 |
| |
| $142.5 |
|
Entergy Wholesale Commodities |
| $4,049.3 |
| | $— | |
| $2,968.0 |
| |
| $— |
|
As a result of the agreement with NYPA discussed above, in the third quarter 2016, Entergy removed the contract asset from its balance sheet, and recorded receivables of $1.5 billion for the beneficial interests in the decommissioning trust funds for Indian Point 3 and FitzPatrick. At December 31, 2016, the fair values of the decommissioning trust funds held by NYPA were $719 million for the Indian Point 3 plant and $785 million for the FitzPatrick plant. See Note 16 to the financial statements for further discussion of the transfer of the decommissioning trust funds held by NYPA to Entergy.
Coal Combustion Residuals
In June 2010 the EPA issued a proposed rule on coal combustion residuals (CCRs) that contained two primary regulatory options: (1) regulating CCRs destined for disposal in landfills or received (including stored) in surface impoundments as so-called “special wastes” under the hazardous waste program of RCRAResource Conservation and Recovery Act (RCRA) Subtitle C; or (2) regulating CCRs destined for disposal in landfills or surface impoundments as non-hazardous wastes under Subtitle D of RCRA. Under both options, CCRs that are beneficially reused in certain processes would remain excluded from hazardous waste regulation. In April 2015 the EPA published the final CCR rule with the material being regulated under the second scenario presented above - as non-hazardous wastes regulated under RCRA Subtitle D. The final regulations create new compliance requirements including modified storage, new notification and reporting practices, product disposal considerations, and CCR unit closure criteria. Entergy believes that on-site disposal options will be available at its facilities, to the extent needed for CCR that cannot be transferred for beneficial reuse. In December 2016, the Water Infrastructure Improvements for the Nation Act (WIIN Act) was signed into law, which authorizes states to regulate coal ash rather than leaving primary enforcement to citizen suit actions. States may submit to the EPA proposals for permit programs. In September 2017 the EPA agreed to reconsider certain provisions of the CCRcoal combustion residuals (CCR) rule in light of the WIIN Act. In March 2018 the EPA published its proposed revisions to the CCR rule with comments due at the end of April 2018. In July 2018 the EPA released its initial revisions extending certain deadlines and incorporating some risk-based standards. The EPA has not yet initiatedis expected to release additional revisions in another rulemaking. In August 2018 the D.C. Circuit vacated several provisions of the CCR rule on the basis that they were inconsistent with the Resource Conservation and Recovery Act and remanded the matter to the EPA to conduct further rulemaking. In August 2019 the EPA released its second set of proposed revisions to the CCR rule and plans at least three additional rulemakings.
In 2018 revisions to the CCR asset retirement obligations were made as a new roundresult of rulemakingrevised closure and has not extendedpost-closure cost estimates. The revised estimates resulted in increases of $8.9 million at Entergy Arkansas, $0.5 million at Entergy Mississippi, and $0.1 million at Entergy Wholesale Commodities in decommissioning cost liabilities, along with corresponding increases in related asset retirement cost assets that will be depreciated over the existing mid-October 2017 groundwater monitoring deadline. Entergy metremaining useful lives of the existing monitoring deadline, is monitoring state agency actions, and will participate in the regulatory development process.respective units.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
NOTE 10. LEASES (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)
Entergy implemented ASU 2016-02, “Leases (Topic 842),” effective January 1, 2019. The ASU’s core principle is that “a lessee should recognize the assets and liabilities that arise from leases.” The ASU considers that “all leases create an asset and a liability,” and accordingly requires recording the assets and liabilities related to all leases with a term greater than 12 months. Concurrent with the implementation of ASU 2016-02, Entergy implemented ASU 2018-01, “Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842,” which provided Entergy the option to elect not to evaluate existing land easements that are not currently accounted for as leases under the previous lease standard, and ASU 2018-11, “Leases (Topic 842): Targeted Improvements,” which intended to simplify the transition requirement giving Entergy the option to apply the transition provisions of the new standard at the date of adoption instead of at the earliest comparative period. In implementing these ASUs, Entergy elected the options provided in both ASU 2018-01 and ASU 2018-11. This accounting was applied to all lease agreements using the modified retrospective method, which required an adjustment to retained earnings for the cumulative effect of adopting the standard as of the effective date, and when implemented with ASU 2018-11, allowed Entergy to recognize the leased assets and liabilities on its balance sheet beginning on January 1, 2019 without restating prior periods. In adopting the standard in January 2019, Entergy recognized right-of-use assets and corresponding lease liabilities totaling approximately $263 million, including $59 million for Entergy Arkansas, $51 million for Entergy Louisiana, $26 million for Entergy Mississippi, $7 million for Entergy New Orleans, and $16 million for Entergy Texas. Implementation of the standards had no material effect on consolidated net income; therefore, no adjustment to retained earnings was recorded. The adoption of the standards had no effect on cash flows.
General
As of December 31, 2017,2019, Entergy and the Registrant Subsidiaries held operating and finance leases for fleet vehicles used in operations, real estate, and aircraft. Excluded are power purchase agreements not meeting the definition of a lease, nuclear fuel leases, and the Grand Gulf sale-leaseback which were determined not to be leases under the accounting standards.
Leases have remaining terms of one year to 60 years. Real estate leases generally include at least one five-year renewal option; however, renewal is not typically considered reasonably certain unless Entergy or a Registrant Subsidiary makes significant leasehold improvements or other modifications that would hinder its ability to easily move. In certain of the lease agreements for fleet vehicles used in operations, Entergy and the Registrant Subsidiaries provide residual value guarantees to the lessor. Due to the nature of the agreements and Entergy’s continuing relationship with the lessor, however, Entergy and the Registrant Subsidiaries expect to renegotiate or refinance the leases prior to conclusion of the lease. As such, Entergy and the Registrant Subsidiaries do not believe it is probable that they will be required to pay anything pertaining to the residual value guarantee, and the lease liabilities and right-of-use assets are measured accordingly.
Entergy incurred the following total lease costs for the year ended December 31, 2019:
|
| | | | |
| | (In Thousands) |
Operating lease cost | |
| $63,566 |
|
Finance lease cost: | | |
Amortization of right-of-use assets | |
| $16,048 |
|
Interest on lease liabilities | |
| $3,667 |
|
The lease costs disclosed above materially approximate the cash flows used by Entergy for leases with all costs included within operating activities on the Consolidated Statements of Cash Flows, except for the finance lease costs which are included in financing activities.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The Registrant Subsidiaries incurred the following lease costs for the year ended December 31, 2019:
|
| | | | | | | | | | | | | | | | | | | |
| Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas |
| (In Thousands) |
Operating lease cost |
| $13,213 |
| |
| $11,975 |
| |
| $6,927 |
| |
| $1,406 |
| |
| $4,259 |
|
Finance lease cost: | | | | | | | | | |
Amortization of right-of-use assets |
| $3,643 |
| |
| $5,940 |
| |
| $2,097 |
| |
| $1,042 |
| |
| $1,568 |
|
Interest on lease liabilities |
| $594 |
| |
| $895 |
| |
| $353 |
| |
| $168 |
| |
| $241 |
|
The lease costs disclosed above materially approximate the cash flows used by the Registrant Subsidiaries for leases with all costs included within operating activities on the respective Statements of Cash Flows, except for the finance lease costs which are included in financing activities.
Entergy has elected to account for short-term leases in accordance with policy options provided by accounting guidance; therefore, there are no related lease liabilities or right-of-use assets for the costs recognized above by Entergy or by its Registrant Subsidiaries in the table below.
Included within Property, Plant, and Equipment on Entergy’s consolidated balance sheet at December 31, 2019 are $234 million related to operating leases and $61 million related to finance leases.
Included within Utility Plant on the Registrant Subsidiaries’ respective balance sheets at December 31, 2019 are the following amounts:
|
| | | | | | | | | | | | | | | | | | | |
| Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas |
| (In Thousands) |
Operating leases |
| $52,317 |
| |
| $36,034 |
| |
| $16,900 |
| |
| $3,878 |
| |
| $14,020 |
|
Finance leases |
| $11,216 |
| |
| $17,209 |
| |
| $6,869 |
| |
| $3,291 |
| |
| $5,273 |
|
The following lease-related liabilities are recorded within the respective Other lines on Entergy’s consolidated balance sheet as of December 31, 2019:
|
| | | | |
| | (In Thousands) |
Current liabilities: | | |
Operating leases | |
| $52,678 |
|
Finance leases | |
| $11,413 |
|
Non-current liabilities: | | |
Operating leases | |
| $181,339 |
|
Finance leases | |
| $53,396 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The following lease-related liabilities are recorded within the respective Other lines on the Registrant Subsidiaries’ respective balance sheets at December 31, 2019:
|
| | | | | | | | | | | | | | | | | | | |
| Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas |
| (In Thousands) |
Current liabilities: | | | | | | | | | |
Operating leases |
| $11,443 |
| |
| $10,331 |
| |
| $5,633 |
| |
| $1,134 |
| |
| $3,698 |
|
Finance leases |
| $2,442 |
| |
| $3,919 |
| |
| $1,487 |
| |
| $647 |
| |
| $1,222 |
|
Non-current liabilities: | | | | | | | | |
Operating leases |
| $40,880 |
| |
| $25,743 |
| |
| $11,232 |
| |
| $2,746 |
| |
| $10,364 |
|
Finance leases |
| $8,768 |
| |
| $13,376 |
| |
| $5,382 |
| |
| $2,644 |
| |
| $4,009 |
|
The following information contains the weighted average remaining lease term in years and the weighted average discount rate for the operating and finance leases of Entergy at December 31, 2019:
|
| | | |
Weighted average remaining lease terms: | | |
Operating leases | | 5.14 |
|
Finance leases | | 6.69 |
|
Weighted average discount rate: | | |
Operating leases | | 3.86 | % |
Finance leases | | 4.60 | % |
The following information contains the weighted average remaining lease term in years and the weighted average discount rate for the operating and finance leases of the Registrant Subsidiaries at December 31, 2019:
|
| | | | | | | | | | | | | | |
| Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas |
| |
Weighted average remaining lease terms: | | | | | | | | | |
Operating leases | 5.84 |
| | 4.33 |
| | 5.04 |
| | 5.62 |
| | 4.54 |
|
Finance leases | 5.43 |
| | 5.24 |
| | 5.32 |
| | 5.93 |
| | 5.12 |
|
Weighted average discount rate: | | | | | | | | | |
Operating leases | 3.67 | % | | 3.65 | % | | 3.75 | % | | 3.88 | % | | 3.73 | % |
Finance leases | 3.68 | % | | 3.65 | % | | 3.67 | % | | 3.74 | % | | 3.82 | % |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Maturity of the lease liabilities for Entergy as of December 31, 2019 are as follows:
|
| | | | | | | | |
Year | | Operating Leases | | Finance Leases |
| | (In Thousands) |
| | | | |
2020 | |
| $62,124 |
| |
| $14,014 |
|
2021 | | 56,386 |
| | 12,457 |
|
2022 | | 47,919 |
| | 11,253 |
|
2023 | | 37,228 |
| | 10,121 |
|
2024 | | 30,376 |
| | 8,454 |
|
Years thereafter | | 29,138 |
| | 20,010 |
|
Minimum lease payments | | 263,171 |
| | 76,309 |
|
Less: amount representing interest | | 29,153 |
| | 11,500 |
|
Present value of net minimum lease payments | |
| $234,018 |
| |
| $64,809 |
|
Maturity of the lease liabilities for the Registrant Subsidiaries as of December 31, 2019 are as follows:
Operating Leases
|
| | | | | | | | | | | | | | | | | | | | |
Year | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas |
| | (In Thousands) |
| | | | | | | | | | |
2020 | |
| $13,010 |
| |
| $11,376 |
| |
| $6,112 |
| |
| $1,248 |
| |
| $4,339 |
|
2021 | | 11,165 |
| | 9,645 |
| | 4,983 |
| | 991 |
| | 3,611 |
|
2022 | | 8,788 |
| | 6,935 |
| | 3,566 |
| | 711 |
| | 2,689 |
|
2023 | | 7,193 |
| | 4,916 |
| | 1,454 |
| | 549 |
| | 2,336 |
|
2024 | | 5,866 |
| | 3,089 |
| | 731 |
| | 310 |
| | 1,684 |
|
Years thereafter | | 12,021 |
| | 2,972 |
| | 1,972 |
| | 522 |
| | 1,119 |
|
Minimum lease payments | | 58,043 |
| | 38,933 |
| | 18,818 |
| | 4,331 |
| | 15,778 |
|
Less: amount representing interest | | 5,720 |
| | 2,860 |
| | 1,953 |
| | 452 |
| | 1,716 |
|
Present value of net minimum lease payments | |
| $52,323 |
| |
| $36,073 |
| |
| $16,865 |
| |
| $3,879 |
| |
| $14,062 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Finance Leases
|
| | | | | | | | | | | | | | | | | | | | |
Year | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas |
| | (In Thousands) |
| | | | | | | | | | |
2020 | |
| $2,772 |
| |
| $4,422 |
| |
| $1,692 |
| |
| $744 |
| |
| $1,382 |
|
2021 | | 2,369 |
| | 3,766 |
| | 1,527 |
| | 634 |
| | 1,188 |
|
2022 | | 2,079 |
| | 3,325 |
| | 1,334 |
| | 581 |
| | 981 |
|
2023 | | 1,833 |
| | 2,856 |
| | 1,111 |
| | 532 |
| | 839 |
|
2024 | | 1,489 |
| | 2,092 |
| | 838 |
| | 449 |
| | 648 |
|
Years thereafter | | 1,787 |
| | 2,476 |
| | 1,038 |
| | 713 |
| | 706 |
|
Minimum lease payments | | 12,329 |
| | 18,937 |
| | 7,540 |
| | 3,653 |
| | 5,744 |
|
Less: amount representing interest | | 1,119 |
| | 1,641 |
| | 670 |
| | 362 |
| | 512 |
|
Present value of net minimum lease payments | |
| $11,210 |
| |
| $17,296 |
| |
| $6,870 |
| |
| $3,291 |
| |
| $5,232 |
|
In allocating consideration in lease contracts to the lease and non-lease components, Entergy and the Registrant Subsidiaries have made the accounting policy election to combine lease and non-lease components related to fleet vehicles used in operations, fuel storage agreements, and purchased power agreements and to allocate the contract consideration to both lease and non-lease components for real estate leases.
In accordance with ASU 2018-11, below is the lease disclosure from Note 10 to the financial statements in the Form 10-K for the year ended December 31, 2018.
General
As of December 31, 2018, Entergy had capital leases and non-cancelable operating leases for equipment, buildings, vehicles, and fuel storage facilities with minimum lease payments as follows (excluding power purchase agreement operating leases, nuclear fuel leases, and the Grand Gulf sale and leaseback transaction, all of which are discussed elsewhere):
|
| | | | | | | | |
Year | | Operating Leases | | Capital Leases |
| | (In Thousands) |
2019 | |
| $94,043 |
| |
| $2,887 |
|
2020 | | 82,191 |
| | 2,887 |
|
2021 | | 75,147 |
| | 2,887 |
|
2022 | | 60,808 |
| | 2,887 |
|
2023 | | 47,391 |
| | 2,887 |
|
Years thereafter | | 88,004 |
| | 16,117 |
|
Minimum lease payments | | 447,584 |
| | 30,552 |
|
Less: Amount representing interest | | — |
| | 8,555 |
|
Present value of net minimum lease payments | |
| $447,584 |
| |
| $21,997 |
|
|
| | | | | | | | |
Year | | Operating Leases | | Capital Leases |
| | (In Thousands) |
2018 | |
| $80,368 |
| |
| $3,018 |
|
2019 | | 82,516 |
| | 2,887 |
|
2020 | | 67,385 |
| | 2,887 |
|
2021 | | 58,507 |
| | 2,887 |
|
2022 | | 43,760 |
| | 2,887 |
|
Years thereafter | | 96,550 |
| | 19,004 |
|
Minimum lease payments | | 429,086 |
| | 33,570 |
|
Less: Amount representing interest | | — |
| | 10,051 |
|
Present value of net minimum lease payments | |
| $429,086 |
| |
| $23,519 |
|
Total rental expenses for all leases (excluding power purchase agreement operating leases, nuclear fuel leases, and the Grand Gulf and Waterford 3 sale and leaseback transactions) amounted to $47.8 million in 2018, $53.1 million in 2017, and $44.4 million in 2016,2016.
Entergy Corporation and $63.9 million in 2015.Subsidiaries
Notes to Financial Statements
As of December 31, 20172018, the Registrant Subsidiaries had non-cancelable operating leases for equipment, buildings, vehicles, and fuel storage facilities with minimum lease payments as follows (excluding power purchase agreement operating leases, nuclear fuel leases, and the Grand Gulf lease obligation, all of which are discussed elsewhere):
Operating Leases
| | Year | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas |
| | (In Thousands) | | (In Thousands) |
2018 | |
| $17,009 |
| |
| $21,814 |
| |
| $11,771 |
| |
| $1,646 |
| |
| $3,469 |
| |
2019 | | 17,665 |
| | 22,875 |
| | 10,611 |
| | 1,579 |
| | 2,893 |
| |
| $20,421 |
| |
| $25,970 |
| |
| $9,344 |
| |
| $2,493 |
| |
| $5,744 |
|
2020 | | 11,483 |
| | 17,790 |
| | 8,969 |
| | 1,382 |
| | 1,934 |
| | 13,918 |
| | 21,681 |
| | 8,763 |
| | 2,349 |
| | 4,431 |
|
2021 | | 9,363 |
| | 13,762 |
| | 7,059 |
| | 1,033 |
| | 1,299 |
| | 11,931 |
| | 19,514 |
| | 7,186 |
| | 1,901 |
| | 3,625 |
|
2022 | | 6,834 |
| | 10,067 |
| | 5,007 |
| | 662 |
| | 862 |
| | 9,458 |
| | 15,756 |
| | 5,675 |
| | 1,314 |
| | 2,218 |
|
2023 | | | 7,782 |
| | 12,092 |
| | 2,946 |
| | 1,043 |
| | 1,561 |
|
Years thereafter | | 23,598 |
| | 19,443 |
| | 5,817 |
| | 1,797 |
| | 2,173 |
| | 23,297 |
| | 22,003 |
| | 4,417 |
| | 2,323 |
| | 2,726 |
|
Minimum lease payments | |
| $85,952 |
| |
| $105,751 |
| |
| $49,234 |
| |
| $8,099 |
| |
| $12,630 |
| |
| $86,807 |
| |
| $117,016 |
| |
| $38,331 |
| |
| $11,423 |
| |
| $20,305 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Rental Expenses
|
| | | | | | | | | | | | | | | | | | | | | | | | |
Year | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy |
| | (In Millions) |
2018 | |
| $6.2 |
| |
| $20.2 |
| |
| $4.6 |
| |
| $2.5 |
| |
| $3.1 |
| |
| $1.9 |
|
2017 | |
| $7.5 |
| |
| $23.0 |
| |
| $5.6 |
| |
| $2.5 |
| |
| $3.4 |
| |
| $2.2 |
|
2016 | |
| $8.0 |
| |
| $17.8 |
| |
| $4.0 |
| |
| $0.9 |
| |
| $2.8 |
| |
| $1.6 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
Year | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy |
| | (In Millions) |
2017 | |
| $7.5 |
| |
| $23.0 |
| |
| $5.6 |
| |
| $2.5 |
| |
| $3.4 |
| |
| $2.2 |
|
2016 | |
| $8.0 |
| |
| $17.8 |
| |
| $4.0 |
| |
| $0.9 |
| |
| $2.8 |
| |
| $1.6 |
|
2015 | |
| $13.6 |
| |
| $21.8 |
| |
| $5.4 |
| |
| $1.6 |
| |
| $4.0 |
| |
| $2.9 |
|
In addition to the above rental expense, railcar operating lease payments and oil tank facilities lease payments are recorded in fuel expense in accordance with regulatory treatment. Railcar operating lease payments were $4.0$2.8 million in 2018, $4 million in 2017, and $3.4 million in 2016 and $4.7 million in 2015 for Entergy Arkansas and $0.4 million in 2018, $0.3 million in 2017, and $0.3 million in 2016 and $1.1 million in 2015 for Entergy Louisiana. Oil tank facilities lease payments for Entergy Mississippi were $0.1 million in 2018, $1.6 million in 2017, $1.6 million in 2016, and $1.6 million in 2015.2016.
Power Purchase Agreements
As of December 31, 2017,2018, Entergy Texas had a power purchase agreement that is accounted for as an operating lease under the accounting standards. The lease payments are recovered in fuel expense in accordance with regulatory treatment. The minimum lease payments under the power purchase agreement are as follows:
| | Year | | Entergy Texas (a) | | Entergy | | Entergy Texas (a) | | Entergy |
| | (In Thousands) | | (In Thousands) |
2018 | |
| $30,458 |
| |
| $30,458 |
| |
2019 | | 31,159 |
| | 31,159 |
| |
| $31,159 |
| |
| $31,159 |
|
2020 | | 31,876 |
| | 31,876 |
| | 31,876 |
| | 31,876 |
|
2021 | | 32,609 |
| | 32,609 |
| | 32,609 |
| | 32,609 |
|
2022 | | 10,180 |
| | 10,180 |
| | 10,180 |
| | 10,180 |
|
Years thereafter | | — |
| | — |
| |
Minimum lease payments | |
| $136,282 |
| |
| $136,282 |
| |
| $105,824 |
| |
| $105,824 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
| |
(a) | Amounts reflect 100% of minimum payments. Under a separate contract, which expires May 31, 2022, Entergy Louisiana purchases 50% of the capacity and energy from the power purchase agreement from Entergy Texas. |
Total capacity expense under the power purchase agreement accounted for as an operating lease at Entergy Texas was $30.5 million in 2018, $34.1 million in 2017, and $26.1 million in 2016, and $29.9 million in 2015.2016.
Sales and Leaseback Transactions
Waterford 3 Lease Obligation
In 1989, in three separate but substantially identical transactions, Entergy Louisiana sold and leased back undivided interests in Waterford 3 for the aggregate sum of $353.6 million. The leases were scheduled to expire in July 2017. Entergy Louisiana was required to report the sale-leaseback as a financing transaction in its financial statements.
In December 2015, Entergy Louisiana agreed to purchase the undivided interests in Waterford 3 that were previously being leased. The purchase was accomplished in a two-step transaction in which Entergy Louisiana first
Entergy Corporation and Subsidiaries
Notes to Financial Statements
acquired the equity participant’s beneficial interest in the leased assets, followed by a termination of the leases and transfer of the leased assets to Entergy Louisiana when the outstanding lessor debt is paid.
In March 2016, Entergy Louisiana completed the first step in the two-step transaction by acquiring the equity participant’s beneficial interest in the leased assets. Entergy Louisiana paid $60 million in cash and $52 million through the issuance of a non-interest bearing collateral trust mortgage note, payable in installments through July 2017. Entergy Louisiana continued to make payments on the lessor debt that remained outstanding and whichthat matured in January 2017. The combination of payments on the $52 million collateral trust mortgage note issued and the debt service on the lessor debt was equal in timing and amount to the remaining lease payments due from the closing of the transaction through the end of the lease term in July 2017.
Throughout the term of the lease, Entergy Louisiana had accrued a liability for the amount it expected to pay to retain the use of the undivided interests in Waterford 3 at the end of the lease term. Since the sale-leaseback transaction was accounted for as a financing transaction, the accrual of this liability was accounted for as additional interest expense. As of December 2015, the balance of this liability was $62.7 million. Upon entering into the agreement to purchase the equity participant’s beneficial interest in the undivided interests, Entergy Louisiana reduced the balance of the liability to $60 million, and recorded the $2.7 million difference as a credit to interest expense. The $60 million remaining liability was eliminated upon payment of the cash portion of the purchase price in 2016.
As of December 31, 2016, Entergy Louisiana, in connection with the Waterford 3 lease obligation, had a future minimum lease payment (reflecting an interest rate of 8.09%) of $57.5 million, including $2.3 million in interest, due January 2017 that was recorded as long-term debt.
In February 2017 the leases were terminated and the leased assets were conveyed to Entergy Louisiana.
Grand Gulf Lease Obligations
In 1988, in two separate but substantially identical transactions, System Energy sold and leased back undivided ownership interests in Grand Gulf for the aggregate sum of $500 million. The initial term of the leases expired in July 2015. System Energy renewed the leases in December 2013 for fair market value with renewal terms expiring in July 2036. At the end of the new lease renewal terms, System Energy has the option to repurchase the leased interests in Grand Gulf or renew the leases at fair market value. In the event that System Energy does not renew or purchase the interests, System Energy would surrender such interests and their associated entitlement of Grand Gulf’s capacity and energy.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
System Energy is required to report the sale-leaseback as a financing transaction in its financial statements. For financial reporting purposes, System Energy expenses the interest portion of the lease obligation and the plant depreciation. However, operating revenues include the recovery of the lease payments because the transactions are accounted for as a sale and leaseback for ratemaking purposes. Consistent with a recommendation contained in a FERC audit report, System Energy initially recorded as a net regulatory asset the difference between the recovery of the lease payments and the amounts expensed for interest and depreciation and continues to record this difference as a regulatory asset or liability on an ongoing basis, resulting in a zero net balance for the regulatory asset at the end of the lease term. The amount was a net regulatory liability of $55.6 million as of December 31, 20172018 and 2016.2017.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
As of December 31, 2017,2018, System Energy, in connection with the Grand Gulf sale and leaseback transactions, had future minimum lease payments (reflecting an implicit rate of 5.13%) that are recorded as long-term debt, as follows:follows, which reflects the effect of the December 2013 renewal:
|
| | | |
| Amount |
| (In Thousands) |
| |
2019 |
| $17,188 |
|
2020 | 17,188 |
|
2021 | 17,188 |
|
2022 | 17,188 |
|
2023 | 17,188 |
|
Years thereafter | 223,437 |
|
Total | 309,377 |
|
Less: Amount representing interest | 275,025 |
|
Present value of net minimum lease payments |
| $34,352 |
|
|
| | | |
| Amount |
| (In Thousands) |
| |
2018 |
| $17,188 |
|
2019 | 17,188 |
|
2020 | 17,188 |
|
2021 | 17,188 |
|
2022 | 17,188 |
|
Years thereafter | 240,625 |
|
Total | 326,565 |
|
Less: Amount representing interest | 292,209 |
|
Present value of net minimum lease payments |
| $34,356 |
|
NOTE 11. RETIREMENT, OTHER POSTRETIREMENT BENEFITS, AND DEFINED CONTRIBUTION PLANS (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)
Qualified Pension Plans
Entergy has eight8 defined benefit qualified pension plans covering substantially all employees. The Entergy Corporation Retirement Plan for Non-Bargaining Employees (Non-Bargaining Plan I), the Entergy Corporation Retirement Plan for Bargaining Employees (Bargaining Plan I),the Entergy Corporation Retirement Plan II for Non-Bargaining Employees (Non-Bargaining Plan II), the Entergy Corporation Retirement Plan II for Bargaining Employees, the Entergy Corporation Retirement Plan III, and the Entergy Corporation Retirement Plan IV for Bargaining Employees are non-contributory final average pay plans and provide pension benefits that are based on employees’ credited service and compensation during employment. Effective as of the close of business on December 31, 2016, the Entergy Corporation Retirement Plan IV for Non-Bargaining Employees (Non-Bargaining Plan IV) was merged with and into Non-Bargaining Plan II. At the close of business on December 31, 2016, the liabilities for the accrued benefits and the assets attributable to such liabilities of all participants in Non-Bargaining Plan IV were assumed by and transferred to Non-Bargaining Plan II. There was no loss of vesting or benefit options or reduction of accrued benefits to affected participants as a result of this plan merger. Non-bargaining employees whose most recent date of hire is after June 30, 2014 participate in the Entergy Corporation Cash Balance Plan for Non-Bargaining Employees (Non-Bargaining Cash Balance Plan). Certain bargaining employees hired or rehired after June 30, 2014, or such later date provided for in their applicable collective bargaining agreements, participate in the Entergy Corporation Cash Balance Plan for Bargaining Employees (Bargaining Cash Balance Plan). The Registrant Subsidiaries participate in these four4 plans: Non-Bargaining Plan I, Bargaining Plan I, Non-Bargaining Cash Balance Plan, and Bargaining Cash Balance Plan.
The assets of the six6 final average pay defined benefit qualified pension plans are held in a master trust established by Entergy, and the assets of the two2 cash balance pension plans are held in a second master trust established by Entergy. Each pension plan has an undivided beneficial interest in each of the investment accounts in its respective master trust that is maintained by a trustee. Use of the master trusts permits the commingling of the trust assets of the pension plans of Entergy Corporation and its Registrant Subsidiaries for investment and administrative
Entergy Corporation and Subsidiaries
Notes to Financial Statements
purposes. Although assets in the master trusts are commingled, the trustee maintains supporting records for the purpose of allocating the trust level equity in net earnings (loss) and the administrative expenses of the investment accounts in each trust to the various participating pension plans in that particular trust. The fair value of the trusts’ assets is determined by the trustee and certain investment managers. For each trust, the trustee calculates a daily earnings factor, including realized and
Entergy Corporation and Subsidiaries
Notes to Financial Statements
unrealized gains or losses, collected and accrued income, and administrative expenses, and allocates earnings to each plan in the master trusts on a pro rata basis.
Within each pension plan, the record of each Registrant Subsidiary’s beneficial interest in the plan assets is maintained by the plan’s actuary and is updated quarterly. Assets for each Registrant Subsidiary are increased for investment net income and contributions, and are decreased for benefit payments. A plan’s investment net income/loss (i.e. interest and dividends, realized and unrealized gains and losses and expenses) is allocated to the Registrant Subsidiaries participating in that plan based on the value of assets for each Registrant Subsidiary at the beginning of the quarter adjusted for contributions and benefit payments made during the quarter.
Entergy Corporation and its subsidiaries fund pension plans in an amount not less than the minimum required contribution under the Employee Retirement Income Security Act of 1974, as amended, and the Internal Revenue Code of 1986, as amended. The assets of the plans include common and preferred stocks, fixed-income securities, interest in a money market fund, and insurance contracts. The Registrant Subsidiaries’ pension costs are recovered from customers as a component of cost of service in each of their respective jurisdictions.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Components of Qualified Net Pension Cost and Other Amounts Recognized as a Regulatory Asset and/or Accumulated Other Comprehensive Income (AOCI)
Entergy Corporation and its subsidiaries’ total 2017, 2016,2019, 2018, and 20152017 qualified pension costs and amounts recognized as a regulatory asset and/or other comprehensive income, including amounts capitalized, included the following components:
|
| | | | | | | | | | | |
| 2019 | | 2018 | | 2017 |
| (In Thousands) |
Net periodic pension cost: | |
| | |
| | |
|
Service cost - benefits earned during the period |
| $134,193 |
| |
| $155,010 |
| |
| $133,641 |
|
Interest cost on projected benefit obligation | 293,114 |
| | 267,415 |
| | 260,824 |
|
Expected return on assets | (414,947 | ) | | (442,142 | ) | | (408,225 | ) |
Amortization of prior service cost | — |
| | 398 |
| | 261 |
|
Recognized net loss | 241,117 |
| | 274,104 |
| | 227,720 |
|
Settlement charges | 23,492 |
| | 828 |
| | — |
|
Net periodic pension costs |
| $276,969 |
| |
| $255,613 |
| |
| $214,221 |
|
Other changes in plan assets and benefit obligations recognized as a regulatory asset and/or AOCI (before tax) | | | | | |
Arising this period: | | | | | |
Net loss |
| $614,600 |
| |
| $394,951 |
| |
| $368,067 |
|
Amounts reclassified from regulatory asset and/or AOCI to net periodic pension cost in the current year: | | | | | |
Amortization of prior service cost | — |
| | (398 | ) | | (261 | ) |
Amortization of net loss | (241,117 | ) | | (274,104 | ) | | (227,720 | ) |
Settlement charge | (23,492 | ) | | (828 | ) | | — |
|
Total |
| $349,991 |
| |
| $119,621 |
| |
| $140,086 |
|
Total recognized as net periodic pension cost, regulatory asset, and/or AOCI (before tax) |
| $626,960 |
| |
| $375,234 |
| |
| $354,307 |
|
Estimated amortization amounts from regulatory asset and/or AOCI to net periodic cost in the following year: | | | | | |
Prior service cost |
| $— |
| |
| $— |
| |
| $398 |
|
Net loss |
| $349,038 |
| |
| $233,677 |
| |
| $274,104 |
|
|
| | | | | | | | | | | |
| 2017 | | 2016 | | 2015 |
| (In Thousands) |
Net periodic pension cost: | |
| | |
| | |
|
Service cost - benefits earned during the period |
| $133,641 |
| |
| $143,244 |
| |
| $175,046 |
|
Interest cost on projected benefit obligation | 260,824 |
| | 261,613 |
| | 302,777 |
|
Expected return on assets | (408,225 | ) | | (389,465 | ) | | (394,618 | ) |
Amortization of prior service cost | 261 |
| | 1,079 |
| | 1,561 |
|
Recognized net loss | 227,720 |
| | 195,298 |
| | 235,922 |
|
Curtailment loss | — |
| | 3,084 |
| | 374 |
|
Special termination benefit | — |
| | — |
| | 76 |
|
Net periodic pension costs |
| $214,221 |
| |
| $214,853 |
| |
| $321,138 |
|
Other changes in plan assets and benefit obligations recognized as a regulatory asset and/or AOCI (before tax) | | | | | |
Arising this period: | | | | | |
Net loss |
| $368,067 |
| |
| $203,229 |
| |
| $50,762 |
|
Amounts reclassified from regulatory asset and/or AOCI to net periodic pension cost in the current year: | | | | | |
Amortization of prior service cost | (261 | ) | | (1,079 | ) | | (1,561 | ) |
Acceleration of prior service cost to curtailment | — |
| | (1,045 | ) | | (374 | ) |
Amortization of net loss | (227,720 | ) | | (195,298 | ) | | (235,922 | ) |
Total |
| $140,086 |
| |
| $5,807 |
| |
| ($187,095 | ) |
Total recognized as net periodic pension cost, regulatory asset, and/or AOCI (before tax) |
| $354,307 |
| |
| $220,660 |
| |
| $134,043 |
|
Estimated amortization amounts from regulatory asset and/or AOCI to net periodic cost in the following year: | | | | | |
Prior service cost |
| $398 |
| |
| $261 |
| |
| $1,079 |
|
Net loss |
| $274,104 |
| |
| $227,720 |
| |
| $195,321 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The Registrant Subsidiaries’ total 2017, 2016,2019, 2018, and 20152017 qualified pension costs and amounts recognized as a regulatory asset and/or other comprehensive income, including amounts capitalized, for their employees included the following components:
| | 2017 | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy | |
2019 | | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy |
| | (In Thousands) | | (In Thousands) |
Net periodic pension cost: | | | | | | | | | | | | | | | | | | | | | | | | |
Service cost - benefits earned during the period | |
| $20,358 |
| |
| $27,698 |
| |
| $5,890 |
| |
| $2,500 |
| |
| $5,455 |
| |
| $6,145 |
| |
| $21,043 |
| |
| $29,137 |
| |
| $6,516 |
| |
| $2,274 |
| |
| $5,401 |
| |
| $6,199 |
|
Interest cost on projected benefit obligation | | 51,776 |
| | 59,235 |
| | 14,927 |
| | 7,163 |
| | 13,569 |
| | 12,364 |
| | 56,701 |
| | 63,529 |
| | 16,272 |
| | 7,495 |
| | 14,451 |
| | 13,456 |
|
Expected return on assets | | (81,707 | ) | | (92,067 | ) | | (24,526 | ) | | (11,199 | ) | | (24,722 | ) | | (18,650 | ) | | (80,705 | ) | | (90,607 | ) | | (23,873 | ) | | (10,785 | ) | | (23,447 | ) | | (18,710 | ) |
Recognized net loss | | 46,560 |
| | 49,417 |
| | 12,213 |
| | 6,632 |
| | 9,241 |
| | 11,857 |
| | 47,361 |
| | 46,571 |
| | 12,416 |
| | 6,117 |
| | 9,335 |
| | 11,400 |
|
Net pension cost | |
| $36,987 |
| |
| $44,283 |
| |
| $8,504 |
| |
| $5,096 |
| |
| $3,543 |
| |
| $11,716 |
| |
| $44,400 |
| |
| $48,630 |
| |
| $11,331 |
| |
| $5,101 |
| |
| $5,740 |
| |
| $12,345 |
|
Other changes in plan assets and benefit obligations recognized as a regulatory asset and/or AOCI (before tax) | | | | | | | | | | | | | | | | | | | | | | | | |
Arising this period: | | | | | | | | | | | | | | | | | | | | | | | | |
Net loss | |
| $51,569 |
| |
| $57,510 |
| |
| $14,681 |
| |
| $8,601 |
| |
| $1,109 |
| |
| $27,733 |
| |
| $118,898 |
| |
| $99,346 |
| |
| $41,088 |
| |
| $6,531 |
| |
| $10,869 |
| |
| $36,711 |
|
Amounts reclassified from regulatory asset and/or AOCI to net periodic pension cost in the current year: | | | | | | | | | | | | | | | | | | | | | | | | |
Amortization of net loss | | (46,560 | ) | | (49,417 | ) | | (12,213 | ) | | (6,632 | ) | | (9,241 | ) | | (11,857 | ) | | (47,361 | ) | | (46,571 | ) | | (12,416 | ) | | (6,117 | ) | | (9,335 | ) | | (11,400 | ) |
Total | |
| $5,009 |
| |
| $8,093 |
| |
| $2,468 |
| |
| $1,969 |
| |
| ($8,132 | ) | |
| $15,876 |
| |
| $71,537 |
| |
| $52,775 |
| |
| $28,672 |
| |
| $414 |
| |
| $1,534 |
| |
| $25,311 |
|
Total recognized as net periodic pension (income)/cost, regulatory asset, and/or AOCI (before tax) | |
| $41,996 |
| |
| $52,376 |
| |
| $10,972 |
| |
| $7,065 |
| |
| ($4,589 | ) | |
| $27,592 |
| |
Total recognized as net periodic pension cost, regulatory asset, and/or AOCI (before tax) | | |
| $115,937 |
| |
| $101,405 |
| |
| $40,003 |
| |
| $5,515 |
| |
| $7,274 |
| |
| $37,656 |
|
Estimated amortization amounts from regulatory asset and/or AOCI to net periodic cost in the following year | | | | | | | | | | | | | | | | | | | | | | | | |
Net loss | |
| $53,650 |
| |
| $57,800 |
| |
| $14,438 |
| |
| $7,816 |
| |
| $10,503 |
| |
| $14,859 |
| |
| $67,588 |
| |
| $66,509 |
| |
| $18,994 |
| |
| $8,018 |
| |
| $13,060 |
| |
| $17,117 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
| | 2016 | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy | |
2018 | | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy |
| | (In Thousands) | | (In Thousands) |
Net periodic pension cost: | | | | | | | | | | | | | | | | | | | | | | | | |
Service cost - benefits earned during the period | |
| $20,724 |
| |
| $28,194 |
| |
| $6,250 |
| |
| $2,625 |
| |
| $5,664 |
| |
| $6,263 |
| |
| $24,757 |
| |
| $33,783 |
| |
| $7,286 |
| |
| $2,693 |
| |
| $6,356 |
| |
| $7,102 |
|
Interest cost on projected benefit obligation | | 52,219 |
| | 59,478 |
| | 15,245 |
| | 7,256 |
| | 14,228 |
| | 11,966 |
| | 52,017 |
| | 59,761 |
| | 15,075 |
| | 7,253 |
| | 13,390 |
| | 12,907 |
|
Expected return on assets | | (79,087 | ) | | (88,383 | ) | | (23,923 | ) | | (10,748 | ) | | (24,248 | ) | | (17,836 | ) | | (87,404 | ) | | (99,236 | ) | | (26,007 | ) | | (11,973 | ) | | (26,091 | ) | | (19,963 | ) |
Recognized net loss | | 43,745 |
| | 47,783 |
| | 11,938 |
| | 6,460 |
| | 9,358 |
| | 10,415 |
| | 53,650 |
| | 57,800 |
| | 14,438 |
| | 7,816 |
| | 10,503 |
| | 14,859 |
|
Net pension cost | |
| $37,601 |
| |
| $47,072 |
| |
| $9,510 |
| |
| $5,593 |
| |
| $5,002 |
| |
| $10,808 |
| |
| $43,020 |
| |
| $52,108 |
| |
| $10,792 |
| |
| $5,789 |
| |
| $4,158 |
| |
| $14,905 |
|
Other changes in plan assets and benefit obligations recognized as a regulatory asset and/or AOCI (before tax) | | | | | | | | | | | | | | | | | | | | | | | | |
Arising this period: | | | | | | | | | | | | | | | | | | | | | | | | |
Net loss | |
| $60,968 |
| |
| $46,742 |
| |
| $10,942 |
| |
| $5,463 |
| |
| $3,816 |
| |
| $20,805 |
| |
Net (gain)/loss | | |
| $74,570 |
| |
| $41,642 |
| |
| $19,244 |
| |
| $2,351 |
| |
| $24,121 |
| |
| ($2,359 | ) |
Amounts reclassified from regulatory asset and/or AOCI to net periodic pension cost in the current year: | | | | | | | | | | | | | | | | | | | | | | | | |
Amortization of net loss | | (43,745 | ) | | (47,783 | ) | | (11,938 | ) | | (6,460 | ) | | (9,358 | ) | | (10,415 | ) | | (53,650 | ) | | (57,800 | ) | | (14,438 | ) | | (7,816 | ) | | (10,503 | ) | | (14,859 | ) |
Total | |
| $17,223 |
| |
| ($1,041 | ) | |
| ($996 | ) | |
| ($997 | ) | |
| ($5,542 | ) | |
| $10,390 |
| |
| $20,920 |
| |
| ($16,158 | ) | |
| $4,806 |
| |
| ($5,465 | ) | |
| $13,618 |
| |
| ($17,218 | ) |
Total recognized as net periodic pension (income)/ cost, regulatory asset, and/or AOCI (before tax) | |
| $54,824 |
| |
| $46,031 |
| |
| $8,514 |
| |
| $4,596 |
| |
| ($540 | ) | |
| $21,198 |
| |
Total recognized as net periodic pension cost, regulatory asset, and/or AOCI (before tax) | | |
| $63,940 |
| |
| $35,950 |
| |
| $15,598 |
| |
| $324 |
| |
| $17,776 |
| |
| ($2,313 | ) |
Estimated amortization amounts from regulatory asset and/or AOCI to net periodic cost in the following year | | | | | | | | | | | | | | | | | | | | | | | | |
Net loss | |
| $46,560 |
| |
| $49,417 |
| |
| $12,213 |
| |
| $6,632 |
| |
| $9,241 |
| |
| $11,857 |
| |
| $47,361 |
| |
| $46,571 |
| |
| $12,416 |
| |
| $6,117 |
| |
| $9,335 |
| |
| $11,400 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
|
| | | | | | | | | | | | | | | | | | | | | | | | |
2017 | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy |
| | (In Thousands) |
Net periodic pension cost: | | | | | | | | | | | | |
Service cost - benefits earned during the period | |
| $20,358 |
| |
| $27,698 |
| |
| $5,890 |
| |
| $2,500 |
| |
| $5,455 |
| |
| $6,145 |
|
Interest cost on projected benefit obligation | | 51,776 |
| | 59,235 |
| | 14,927 |
| | 7,163 |
| | 13,569 |
| | 12,364 |
|
Expected return on assets | | (81,707 | ) | | (92,067 | ) | | (24,526 | ) | | (11,199 | ) | | (24,722 | ) | | (18,650 | ) |
Recognized net loss | | 46,560 |
| | 49,417 |
| | 12,213 |
| | 6,632 |
| | 9,241 |
| | 11,857 |
|
Net pension cost | |
| $36,987 |
| |
| $44,283 |
| |
| $8,504 |
| |
| $5,096 |
| |
| $3,543 |
| |
| $11,716 |
|
Other changes in plan assets and benefit obligations recognized as a regulatory asset and/or AOCI (before tax) | | | | | | | | | | | | |
Arising this period: | | | | | | | | | | | | |
Net loss | |
| $51,569 |
| |
| $57,510 |
| |
| $14,681 |
| |
| $8,601 |
| |
| $1,109 |
| |
| $27,733 |
|
Amounts reclassified from regulatory asset and/or AOCI to net periodic pension cost in the current year: | | | | | | | | | | | | |
Amortization of net loss | | (46,560 | ) | | (49,417 | ) | | (12,213 | ) | | (6,632 | ) | | (9,241 | ) | | (11,857 | ) |
Total | |
| $5,009 |
| |
| $8,093 |
| |
| $2,468 |
| |
| $1,969 |
| |
| ($8,132 | ) | |
| $15,876 |
|
Total recognized as net periodic pension cost, regulatory asset, and/or AOCI (before tax) | |
| $41,996 |
| |
| $52,376 |
| |
| $10,972 |
| |
| $7,065 |
| |
| ($4,589 | ) | |
| $27,592 |
|
Estimated amortization amounts from regulatory asset and/or AOCI to net periodic cost in the following year | | | | | | | | | | | | |
Net loss | |
| $53,650 |
| |
| $57,800 |
| |
| $14,438 |
| |
| $7,816 |
| |
| $10,503 |
| |
| $14,859 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
2015 | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy |
| | (In Thousands) |
Net periodic pension cost: | | | | | | | | | | | | |
Service cost - benefits earned during the period | |
| $26,646 |
| |
| $34,396 |
| |
| $7,929 |
| |
| $3,395 |
| |
| $6,582 |
| |
| $7,827 |
|
Interest cost on projected benefit obligation | | 61,885 |
| | 69,465 |
| | 18,007 |
| | 8,432 |
| | 17,414 |
| | 13,970 |
|
Expected return on assets | | (80,102 | ) | | (90,803 | ) | | (24,420 | ) | | (10,899 | ) | | (24,887 | ) | | (18,271 | ) |
Recognized net loss | | 54,254 |
| | 59,802 |
| | 14,896 |
| | 8,053 |
| | 12,950 |
| | 13,055 |
|
Net pension cost | |
| $62,683 |
| |
| $72,860 |
| |
| $16,412 |
| |
| $8,981 |
| |
| $12,059 |
| |
| $16,581 |
|
Other changes in plan assets and benefit obligations recognized as a regulatory asset and/or AOCI (before tax) | | | | | | | | | | | | |
Arising this period: | | | | | | | | | | | | |
Net (gain)/loss | |
| $16,687 |
| |
| $16,618 |
| |
| $6,329 |
| |
| $1,853 |
| |
| ($4,488 | ) | |
| $101 |
|
Amounts reclassified from regulatory asset and/or AOCI to net periodic pension cost in the current year: | | | | | | | | | | | | |
Amortization of net loss | | (54,254 | ) | | (59,802 | ) | | (14,896 | ) | | (8,053 | ) | | (12,950 | ) | | (13,055 | ) |
Total | |
| ($37,567 | ) | |
| ($43,184 | ) | |
| ($8,567 | ) | |
| ($6,200 | ) | |
| ($17,438 | ) | |
| ($12,954 | ) |
Total recognized as net periodic pension (income)/cost, regulatory asset, and/or AOCI (before tax) | |
| $25,116 |
| |
| $29,676 |
| |
| $7,845 |
| |
| $2,781 |
| |
| ($5,379 | ) | |
| $3,627 |
|
Estimated amortization amounts from regulatory asset and/or AOCI to net periodic cost in the following year | | | | | | | | | | | | |
Net loss | |
| $43,747 |
| |
| $47,809 |
| |
| $11,938 |
| |
| $6,460 |
| |
| $9,358 |
| |
| $10,414 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Qualified Pension Obligations, Plan Assets, Funded Status, Amounts Recognized in the Balance Sheet
Qualified pension obligations, plan assets, funded status, amounts recognized in the Consolidated Balance Sheets for Entergy Corporation and its Subsidiaries as of December 31, 20172019 and 20162018 are as follows:
|
| | | | | | | |
| 2019 | | 2018 |
| (In Thousands) |
Change in Projected Benefit Obligation (PBO) | |
| | |
|
Balance at January 1 |
| $7,404,917 |
| |
| $7,987,087 |
|
Service cost | 134,193 |
| | 155,010 |
|
Interest cost | 293,114 |
| | 267,415 |
|
Actuarial (gain)/loss | 1,292,767 |
| | (395,242 | ) |
Benefits paid (including settlement lump sum benefit payments of ($68,203) in 2019 and ($1,794) in 2018) | (718,788 | ) | | (609,353 | ) |
Balance at December 31 |
| $8,406,203 |
| |
| $7,404,917 |
|
Change in Plan Assets | |
| | |
|
Fair value of assets at January 1 |
| $5,497,415 |
| |
| $6,071,316 |
|
Actual return on plan assets | 1,093,114 |
| | (348,051 | ) |
Employer contributions | 399,419 |
| | 383,503 |
|
Benefits paid (including settlement lump sum benefit payments of ($68,203) in 2019 and ($1,794) in 2018) | (718,788 | ) | | (609,353 | ) |
Fair value of assets at December 31 |
| $6,271,160 |
| |
| $5,497,415 |
|
Funded status |
| ($2,135,043 | ) | |
| ($1,907,502 | ) |
Amount recognized in the balance sheet | | | |
Non-current liabilities |
| ($2,135,043 | ) | |
| ($1,907,502 | ) |
Amount recognized as a regulatory asset | | | |
Net loss |
| $2,831,408 |
| |
| $2,468,987 |
|
Amount recognized as AOCI (before tax) | | | |
Net loss |
| $724,575 |
| |
| $737,004 |
|
|
| | | | | | | |
| 2017 | | 2016 |
| (In Thousands) |
Change in Projected Benefit Obligation (PBO) | |
| | |
|
Balance at January 1 |
| $7,142,567 |
| |
| $6,848,238 |
|
Service cost | 133,641 |
| | 143,244 |
|
Interest cost | 260,824 |
| | 261,613 |
|
Curtailment | — |
| | 2,039 |
|
Actuarial loss | 767,849 |
| | 209,360 |
|
Employee contributions | 40 |
| | 23 |
|
Benefits paid | (317,834 | ) | | (321,950 | ) |
Balance at December 31 |
| $7,987,087 |
| |
| $7,142,567 |
|
Change in Plan Assets | |
| | |
|
Fair value of assets at January 1 |
| $5,171,202 |
| |
| $4,707,433 |
|
Actual return on plan assets | 808,007 |
| | 395,596 |
|
Employer contributions | 409,901 |
| | 390,100 |
|
Employee contributions | 40 |
| | 23 |
|
Benefits paid | (317,834 | ) | | (321,950 | ) |
Fair value of assets at December 31 |
| $6,071,316 |
| |
| $5,171,202 |
|
Funded status |
| ($1,915,771 | ) | |
| ($1,971,365 | ) |
Amount recognized in the balance sheet | | | |
Non-current liabilities |
| ($1,915,771 | ) | |
| ($1,971,365 | ) |
Amount recognized as a regulatory asset | | | |
Net loss |
| $2,418,206 |
| |
| $2,326,349 |
|
Amount recognized as AOCI (before tax) | | | |
Prior service cost |
| $398 |
| |
| $659 |
|
Net loss | 667,766 |
| | 619,276 |
|
|
| $668,164 |
| |
| $619,935 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Qualified pension obligations, plan assets, funded status, amounts recognized in the Balance Sheets for the Registrant Subsidiaries as of December 31, 20172019 and 20162018 are as follows:
| | 2017 | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy | |
2019 | | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy |
| | (In Thousands) | | (In Thousands) |
Change in Projected Benefit Obligation (PBO) | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at January 1 | |
| $1,454,310 |
| |
| $1,624,233 |
| |
| $419,201 |
| |
| $197,464 |
| |
| $386,366 |
| |
| $335,381 |
| |
| $1,443,808 |
| |
| $1,599,916 |
| |
| $414,089 |
| |
| $191,190 |
| |
| $369,604 |
| |
| $339,034 |
|
Service cost | | 20,358 |
| | 27,698 |
| | 5,890 |
| | 2,500 |
| | 5,455 |
| | 6,145 |
| | 21,043 |
| | 29,137 |
| | 6,516 |
| | 2,274 |
| | 5,401 |
| | 6,199 |
|
Interest cost | | 51,776 |
| | 59,235 |
| | 14,927 |
| | 7,163 |
| | 13,569 |
| | 12,364 |
| | 56,701 |
| | 63,529 |
| | 16,272 |
| | 7,495 |
| | 14,451 |
| | 13,456 |
|
Actuarial loss | | 131,729 |
| | 147,704 |
| | 38,726 |
| | 19,507 |
| | 25,339 |
| | 45,471 |
| | 248,213 |
| | 248,509 |
| | 79,453 |
| | 24,299 |
| | 49,235 |
| | 66,460 |
|
Benefits paid | | (77,417 | ) | | (73,170 | ) | | (21,195 | ) | | (8,738 | ) | | (20,009 | ) | | (15,312 | ) | | (154,681 | ) | | (156,617 | ) | | (44,820 | ) | | (18,296 | ) | | (41,927 | ) | | (31,542 | ) |
Balance at December 31 | |
| $1,580,756 |
| |
| $1,785,700 |
| |
| $457,549 |
| |
| $217,896 |
| |
| $410,720 |
| |
| $384,049 |
| |
| $1,615,084 |
| |
| $1,784,474 |
| |
| $471,510 |
| |
| $206,962 |
| |
| $396,764 |
| |
| $393,607 |
|
Change in Plan Assets | | | | | | | | | | | | | | | | | | | | | | | | |
Fair value of assets at January 1 | |
| $1,041,592 |
| |
| $1,169,147 |
| |
| $314,349 |
| |
| $142,488 |
| |
| $317,576 |
| |
| $235,144 |
| |
| $1,068,842 |
| |
| $1,215,926 |
| |
| $316,716 |
| |
| $145,968 |
| |
| $315,514 |
| |
| $245,516 |
|
Actual return on plan assets | | 161,868 |
| | 182,261 |
| | 48,572 |
| | 22,104 |
| | 48,952 |
| | 36,387 |
| | 210,020 |
| | 239,770 |
| | 62,238 |
| | 28,552 |
| | 61,814 |
| | 48,460 |
|
Employer contributions | | 79,625 |
| | 87,503 |
| | 19,116 |
| | 9,893 |
| | 17,004 |
| | 18,213 |
| | 75,854 |
| | 64,951 |
| | 20,794 |
| | 4,553 |
| | 3,725 |
| | 20,234 |
|
Benefits paid | | (77,417 | ) | | (73,170 | ) | | (21,195 | ) | | (8,738 | ) | | (20,009 | ) | | (15,312 | ) | | (154,681 | ) | | (156,617 | ) | | (44,820 | ) | | (18,296 | ) | | (41,927 | ) | | (31,542 | ) |
Fair value of assets at December 31 | |
| $1,205,668 |
| |
| $1,365,741 |
| |
| $360,842 |
| |
| $165,747 |
| |
| $363,523 |
| |
| $274,432 |
| |
| $1,200,035 |
| |
| $1,364,030 |
| |
| $354,928 |
| |
| $160,777 |
| |
| $339,126 |
| |
| $282,668 |
|
Funded status | |
| ($375,088 | ) | |
| ($419,959 | ) | |
| ($96,707 | ) | |
| ($52,149 | ) | |
| ($47,197 | ) | |
| ($109,617 | ) | |
| ($415,049 | ) | |
| ($420,444 | ) | |
| ($116,582 | ) | |
| ($46,185 | ) | |
| ($57,638 | ) | |
| ($110,939 | ) |
Amounts recognized in the balance sheet (funded status) | | | | | | | | | | | | | | | | | | | | | | | | |
Non-current liabilities | |
| ($375,088 | ) | |
| ($419,959 | ) | |
| ($96,707 | ) | |
| ($52,149 | ) | |
| ($47,197 | ) | |
| ($109,617 | ) | |
| ($415,049 | ) | |
| ($420,444 | ) | |
| ($116,582 | ) | |
| ($46,185 | ) | |
| ($57,638 | ) | |
| ($110,939 | ) |
Amounts recognized as regulatory asset | | | | | | | | | | | | |
| | | | | | | | | | | | |
|
Net loss | |
| $706,783 |
| |
| $701,324 |
| |
| $191,877 |
| |
| $96,913 |
| |
| $145,412 |
| |
| $185,774 |
| |
| $799,235 |
| |
| $759,228 |
| |
| $225,354 |
| |
| $91,862 |
| |
| $160,564 |
| |
| $193,870 |
|
Amounts recognized as AOCI (before tax) | | | | | | | | | | | | | | | | | | | | | | | | |
Net loss | |
| $— |
| |
| $44,765 |
| |
| $— |
| |
| $— |
| |
| $— |
| |
| $— |
| |
| $— |
| |
| $23,481 |
| |
| $— |
| |
| $— |
| |
| $— |
| |
| $— |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
|
| | | | | | | | | | | | | | | | | | | | | | | | |
2018 | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy |
| | (In Thousands) |
Change in Projected Benefit Obligation (PBO) | | | | | | | | | | | | |
Balance at January 1 | |
| $1,580,756 |
| |
| $1,785,700 |
| |
| $457,549 |
| |
| $217,896 |
| |
| $410,720 |
| |
| $384,049 |
|
Service cost | | 24,757 |
| | 33,783 |
| | 7,286 |
| | 2,693 |
| | 6,356 |
| | 7,102 |
|
Interest cost | | 52,017 |
| | 59,761 |
| | 15,075 |
| | 7,253 |
| | 13,390 |
| | 12,907 |
|
Actuarial gain | | (79,621 | ) | | (133,520 | ) | | (26,611 | ) | | (18,844 | ) | | (21,656 | ) | | (37,842 | ) |
Benefits paid | | (134,101 | ) | | (145,808 | ) | | (39,210 | ) | | (17,808 | ) | | (39,206 | ) | | (27,182 | ) |
Balance at December 31 | |
| $1,443,808 |
| |
| $1,599,916 |
| |
| $414,089 |
| |
| $191,190 |
| |
| $369,604 |
| |
| $339,034 |
|
Change in Plan Assets | | | | | | | | | | | | |
Fair value of assets at January 1 | |
| $1,205,668 |
| |
| $1,365,741 |
| |
| $360,842 |
| |
| $165,747 |
| |
| $363,523 |
| |
| $274,432 |
|
Actual return on plan assets | | (66,787 | ) | | (75,926 | ) | | (19,849 | ) | | (9,221 | ) | | (19,686 | ) | | (15,520 | ) |
Employer contributions | | 64,062 |
| | 71,919 |
| | 14,933 |
| | 7,250 |
| | 10,883 |
| | 13,786 |
|
Benefits paid | | (134,101 | ) | | (145,808 | ) | | (39,210 | ) | | (17,808 | ) | | (39,206 | ) | | (27,182 | ) |
Fair value of assets at December 31 | |
| $1,068,842 |
| |
| $1,215,926 |
| |
| $316,716 |
| |
| $145,968 |
| |
| $315,514 |
| |
| $245,516 |
|
Funded status | |
| ($374,966 | ) | |
| ($383,990 | ) | |
| ($97,373 | ) | |
| ($45,222 | ) | |
| ($54,090 | ) | |
| ($93,518 | ) |
Amounts recognized in the balance sheet (funded status) | | | | | | | | | | | | |
Non-current liabilities | |
| ($374,966 | ) | |
| ($383,990 | ) | |
| ($97,373 | ) | |
| ($45,222 | ) | |
| ($54,090 | ) | |
| ($93,518 | ) |
Amounts recognized as regulatory asset | | | | | | | | | | | | |
Net loss | |
| $727,703 |
| |
| $686,138 |
| |
| $196,683 |
| |
| $91,448 |
| |
| $159,030 |
| |
| $168,559 |
|
Amounts recognized as AOCI (before tax) | | |
| | | | | | | | | | |
Net loss | |
| $— |
| |
| $43,796 |
| |
| $— |
| |
| $— |
| |
| $— |
| |
| $— |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
2016 | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy |
| | (In Thousands) |
Change in Projected Benefit Obligation (PBO) | | | | | | | | | | | | |
Balance at January 1 | |
| $1,400,511 |
| |
| $1,564,710 |
| |
| $408,604 |
| |
| $191,064 |
| |
| $383,627 |
| |
| $311,542 |
|
Service cost | | 20,724 |
| | 28,194 |
| | 6,250 |
| | 2,625 |
| | 5,664 |
| | 6,263 |
|
Interest cost | | 52,219 |
| | 59,478 |
| | 15,245 |
| | 7,256 |
| | 14,228 |
| | 11,966 |
|
Actuarial loss | | 62,187 |
| | 48,357 |
| | 11,343 |
| | 5,573 |
| | 4,274 |
| | 20,661 |
|
Benefits paid | | (81,331 | ) | | (76,506 | ) | | (22,241 | ) | | (9,054 | ) | | (21,427 | ) | | (15,051 | ) |
Balance at December 31 | |
| $1,454,310 |
| |
| $1,624,233 |
| |
| $419,201 |
| |
| $197,464 |
| |
| $386,366 |
| |
| $335,381 |
|
Change in Plan Assets | | | | | | | | | | | | |
Fair value of assets at January 1 | |
| $959,618 |
| |
| $1,071,234 |
| |
| $292,297 |
| |
| $129,975 |
| |
| $298,378 |
| |
| $212,006 |
|
Actual return on plan assets | | 80,306 |
| | 89,998 |
| | 24,325 |
| | 10,858 |
| | 24,705 |
| | 17,692 |
|
Employer contributions | | 82,999 |
| | 84,421 |
| | 19,968 |
| | 10,709 |
| | 15,920 |
| | 20,497 |
|
Benefits paid | | (81,331 | ) | | (76,506 | ) | | (22,241 | ) | | (9,054 | ) | | (21,427 | ) | | (15,051 | ) |
Fair value of assets at December 31 | |
| $1,041,592 |
| |
| $1,169,147 |
| |
| $314,349 |
| |
| $142,488 |
| |
| $317,576 |
| |
| $235,144 |
|
Funded status | |
| ($412,718 | ) | |
| ($455,086 | ) | |
| ($104,852 | ) | |
| ($54,976 | ) | |
| ($68,790 | ) | |
| ($100,237 | ) |
Amounts recognized in the balance sheet (funded status) | | | | | | | | | | | | |
Non-current liabilities | |
| ($412,718 | ) | |
| ($455,086 | ) | |
| ($104,852 | ) | |
| ($54,976 | ) | |
| ($68,790 | ) | |
| ($100,237 | ) |
Amounts recognized as regulatory asset | | | | | | | | | | | | |
Net loss | |
| $701,774 |
| |
| $686,337 |
| |
| $189,409 |
| |
| $94,944 |
| |
| $153,544 |
| |
| $169,897 |
|
Amounts recognized as AOCI (before tax) | | |
| | | | | | | | | | |
Net loss | |
| $— |
| |
| $51,660 |
| |
| $— |
| |
| $— |
| |
| $— |
| |
| $— |
|
Accumulated Pension Benefit Obligation
The accumulated benefit obligation for Entergy’s qualified pension plans was $7.4$7.8 billion and $6.7$6.9 billion at December 31, 20172019 and 2016,2018, respectively.
The qualified pension accumulated benefit obligation for each of the Registrant Subsidiaries for their employees as of December 31, 20172019 and 20162018 was as follows:
|
| | | | | | | |
| December 31, |
| 2019 | | 2018 |
| (In Thousands) |
Entergy Arkansas |
| $1,519,998 |
| |
| $1,362,425 |
|
Entergy Louisiana |
| $1,643,759 |
| |
| $1,481,158 |
|
Entergy Mississippi |
| $438,817 |
| |
| $387,635 |
|
Entergy New Orleans |
| $192,561 |
| |
| $179,907 |
|
Entergy Texas |
| $371,589 |
| |
| $347,852 |
|
System Energy |
| $368,771 |
| |
| $317,848 |
|
|
| | | | | | | |
| December 31, |
| 2017 | | 2016 |
| (In Thousands) |
Entergy Arkansas |
| $1,492,876 |
| |
| $1,379,265 |
|
Entergy Louisiana |
| $1,652,939 |
| |
| $1,513,884 |
|
Entergy Mississippi |
| $430,268 |
| |
| $396,081 |
|
Entergy New Orleans |
| $205,316 |
| |
| $186,247 |
|
Entergy Texas |
| $387,083 |
| |
| $365,251 |
|
System Energy |
| $359,258 |
| |
| $315,131 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Other Postretirement Benefits
Entergy also currently offers retiree medical, dental, vision, and life insurance benefits (other postretirement benefits) for eligible retired employees. Employees who commenced employment before July 1, 2014 and who satisfy certain eligibility requirements (including retiring from Entergy after a certain age and/or years of service with Entergy and immediately commencing their Entergy pension benefit), may become eligible for other postretirement benefits.
Entergy uses a December 31 measurement date for its postretirement benefit plans.
Effective January 1, 1993, Entergy adopted an accounting standard requiring a change from a cash method to an accrual method of accounting for postretirement benefits other than pensions. Entergy Arkansas, Entergy Mississippi, Entergy New Orleans, and Entergy Texas have received regulatory approval to recover accrued other postretirement benefit costs through rates. The LPSC ordered Entergy Louisiana to continue the use of the pay-as-you-go method for ratemaking purposes for postretirement benefits other than pensions. However, the LPSC retains the flexibility to examine individual companies’ accounting for other postretirement benefits to determine if special exceptions to this order are warranted. Pursuant to regulatory directives, Entergy Arkansas, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy contribute the other postretirement benefit costs collected in rates into external trusts. System Energy is funding, on behalf of Entergy Operations, other postretirement benefits associated with Grand Gulf.
Trust assets contributed by participating Registrant Subsidiaries are in master trusts, established by Entergy Corporation and maintained by a trustee. Each participating Registrant Subsidiary holds a beneficial interest in the trusts’ assets. The assets in the master trusts are commingled for investment and administrative purposes. Although assets are commingled, supporting records are maintained for the purpose of allocating the beneficial interest in net earnings/(losses) and the administrative expenses of the investment accounts to the various participating plans and participating Registrant Subsidiaries. Beneficial interest in an investment account’s net income/(loss) is comprised of interest and dividends, realized and unrealized gains and losses, and expenses. Beneficial interest from these investments is allocated to the plans and participating Registrant Subsidiary based on their portion of net assets in the pooled accounts.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Components of Net Other Postretirement Benefit Cost and Other Amounts Recognized as a Regulatory Asset and/or AOCI
Entergy Corporation’s and its subsidiaries’ total 2017, 2016,2019, 2018, and 20152017 other postretirement benefit costs, including amounts capitalized and amounts recognized as a regulatory asset and/or other comprehensive income, included the following components:
|
| | | | | | | | | | | |
| 2019 | | 2018 | | 2017 |
| (In Thousands) |
Other postretirement costs: | | | | | |
Service cost - benefits earned during the period |
| $18,699 |
| |
| $27,129 |
| |
| $26,915 |
|
Interest cost on accumulated postretirement benefit obligation (APBO) | 47,901 |
| | 50,725 |
| | 55,838 |
|
Expected return on assets | (38,246 | ) | | (41,493 | ) | | (37,630 | ) |
Amortization of prior service credit | (35,377 | ) | | (37,002 | ) | | (41,425 | ) |
Recognized net loss | 1,430 |
| | 13,729 |
| | 21,905 |
|
Net other postretirement benefit (income)/cost |
| ($5,593 | ) | |
| $13,088 |
| |
| $25,603 |
|
Other changes in plan assets and benefit obligations recognized as a regulatory asset and /or AOCI (before tax) | | | | | |
Arising this period: | | | | | |
Prior service credit for period |
| $— |
| |
| $— |
| |
| ($2,564 | ) |
Net gain | (38,526 | ) | | (274,354 | ) | | (66,922 | ) |
Amounts reclassified from regulatory asset and /or AOCI to net periodic benefit cost in the current year: | | | | | |
Amortization of prior service credit | 35,377 |
| | 37,002 |
| | 41,425 |
|
Amortization of net loss | (1,430 | ) | | (13,729 | ) | | (21,905 | ) |
Total |
| ($4,579 | ) | |
| ($251,081 | ) | |
| ($49,966 | ) |
Total recognized as net periodic benefit (income)/cost, regulatory asset, and/or AOCI (before tax) |
| ($10,172 | ) | |
| ($237,993 | ) | |
| ($24,363 | ) |
Estimated amortization amounts from regulatory asset and/or AOCI to net periodic benefit (income)/cost in the following year | | | | | |
Prior service credit |
| ($17,563 | ) | |
| ($35,377 | ) | |
| ($37,002 | ) |
Net loss |
| $800 |
| |
| $1,430 |
| |
| $13,729 |
|
|
| | | | | | | | | | | |
| 2017 | | 2016 | | 2015 |
| (In Thousands) |
Other postretirement costs: | | | | | |
Service cost - benefits earned during the period |
| $26,915 |
| |
| $32,291 |
| |
| $45,305 |
|
Interest cost on accumulated postretirement benefit obligation (APBO) | 55,838 |
| | 56,331 |
| | 71,934 |
|
Expected return on assets | (37,630 | ) | | (41,820 | ) | | (45,375 | ) |
Amortization of prior service credit | (41,425 | ) | | (45,490 | ) | | (37,280 | ) |
Recognized net loss | 21,905 |
| | 18,214 |
| | 31,573 |
|
Net other postretirement benefit cost |
| $25,603 |
| |
| $19,526 |
| |
| $66,157 |
|
Other changes in plan assets and benefit obligations recognized as a regulatory asset and /or AOCI (before tax) | | | | | |
Arising this period: | | | | | |
Prior service credit for period |
| ($2,564 | ) | |
| ($20,353 | ) | |
| ($48,192 | ) |
Net (gain)/loss | (66,922 | ) | | 49,805 |
| | (154,339 | ) |
Amounts reclassified from regulatory asset and /or AOCI to net periodic benefit cost in the current year: | | | | | |
Amortization of prior service credit | 41,425 |
| | 45,490 |
| | 37,280 |
|
Amortization of net loss | (21,905 | ) | | (18,214 | ) | | (31,573 | ) |
Total |
| ($49,966 | ) | |
| $56,728 |
| |
| ($196,824 | ) |
Total recognized as net periodic benefit income/(cost), regulatory asset, and/or AOCI (before tax) |
| ($24,363 | ) | |
| $76,254 |
| |
| ($130,667 | ) |
Estimated amortization amounts from regulatory asset and/or AOCI to net periodic benefit cost in the following year | | | | | |
Prior service credit |
| ($37,002 | ) | |
| ($41,425 | ) | |
| ($45,485 | ) |
Net loss |
| $13,729 |
| |
| $21,905 |
| |
| $18,214 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Total 2017, 2016,2019, 2018, and 20152017 other postretirement benefit costs of the Registrant Subsidiaries, including amounts capitalized and deferred, for their employees included the following components:
| | 2017 | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy | |
2019 | | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy |
| | | | |
Other postretirement costs: | | | | | | | | | | | | | | | | | | | | | | | | |
Service cost - benefits earned during the period | |
| $3,451 |
| |
| $6,373 |
| |
| $1,160 |
| |
| $567 |
| |
| $1,488 |
| |
| $1,278 |
| |
| $2,363 |
| |
| $4,639 |
| |
| $1,046 |
| |
| $367 |
| |
| $943 |
| |
| $973 |
|
Interest cost on APBO | | 9,020 |
| | 12,101 |
| | 2,759 |
| | 1,874 |
| | 4,494 |
| | 2,236 |
| | 7,226 |
| | 10,664 |
| | 2,681 |
| | 1,581 |
| | 3,415 |
| | 1,902 |
|
Expected return on assets | | (15,836 | ) | | — |
| | (4,801 | ) | | (4,635 | ) | | (8,720 | ) | | (2,869 | ) | | (15,962 | ) | | — |
| | (4,794 | ) | | (4,947 | ) | | (9,103 | ) | | (2,788 | ) |
Amortization of prior service credit | | (5,110 | ) | | (7,735 | ) | | (1,823 | ) | | (745 | ) | | (2,316 | ) | | (1,513 | ) | | (4,950 | ) | | (7,349 | ) | | (1,756 | ) | | (682 | ) | | (2,243 | ) | | (1,450 | ) |
Recognized net loss | | 4,460 |
| | 1,859 |
| | 1,675 |
| | 418 |
| | 3,303 |
| | 1,560 |
| |
Recognized net (gain)/ loss | | | 576 |
| | (695 | ) | | 723 |
| | 231 |
| | 485 |
| | 354 |
|
Net other postretirement benefit (income)/cost | |
| ($4,015 | ) | |
| $12,598 |
| |
| ($1,030 | ) | |
| ($2,521 | ) | |
| ($1,751 | ) | |
| $692 |
| |
| ($10,747 | ) | |
| $7,259 |
| |
| ($2,100 | ) | |
| ($3,450 | ) | |
| ($6,503 | ) | |
| ($1,009 | ) |
Other changes in plan assets and benefit obligations recognized as a regulatory asset and/or AOCI (before tax) | | | | | | | | | | | | | | | | | | | | | | | | |
Arising this period: | | | | | | | | | | | | | | | | | | | | | | | | |
Net gain | | |
| ($26,707 | ) | |
| ($2,220 | ) | |
| ($11,950 | ) | |
| ($10,967 | ) | |
| ($6,406 | ) | |
| ($5,539 | ) |
Amounts reclassified from regulatory asset and/or AOCI to net periodic benefit cost in the current year: | | |
| | | | | | | | | | |
Amortization of prior service credit | | | 4,950 |
| | 7,349 |
| | 1,756 |
| | 682 |
| | 2,243 |
| | 1,450 |
|
Amortization of net (gain)/loss | | | (576 | ) | | 695 |
| | (723 | ) | | (231 | ) | | (485 | ) | | (354 | ) |
Total | | |
| ($22,333 | ) | |
| $5,824 |
| |
| ($10,917 | ) | |
| ($10,516 | ) | |
| ($4,648 | ) | |
| ($4,443 | ) |
Total recognized as net periodic other postretirement (income)/cost, regulatory asset, and/or AOCI (before tax) | | |
| ($33,080 | ) | |
| $13,083 |
| |
| ($13,017 | ) | |
| ($13,966 | ) | |
| ($11,151 | ) | |
| ($5,452 | ) |
Estimated amortization amounts from regulatory asset and/or AOCI to net periodic (income)/cost in the following year | | | | | | | | | | | | | |
Prior service credit | | |
| ($3,174 | ) | |
| ($3,142 | ) | |
| ($1,037 | ) | |
| $— |
| |
| ($1,421 | ) | |
| ($747 | ) |
Net (gain)/loss | | (29,534 | ) | | (1,256 | ) | | 506 |
| | (7,342 | ) | | (22,255 | ) | | (5,459 | ) | |
| $4 |
| |
| ($1,030 | ) | |
| $75 |
| |
| ($246 | ) | |
| $810 |
| |
| $51 |
|
Amounts reclassified from regulatory asset and/or AOCI to net periodic pension cost in the current year: | |
| | | | | | | | | | | |
Amortization of prior service credit | | 5,110 |
| | 7,735 |
| | 1,823 |
| | 745 |
| | 2,316 |
| | 1,513 |
| |
Amortization of net loss | | (4,460 | ) | | (1,859 | ) | | (1,675 | ) | | (418 | ) | | (3,303 | ) | | (1,560 | ) | |
Total | |
| ($28,884 | ) | |
| $4,620 |
| |
| $654 |
| |
| ($7,015 | ) | |
| ($23,242 | ) | |
| ($5,506 | ) | |
Total recognized as net periodic other postretirement income/(cost), regulatory asset, and/or AOCI (before tax) | |
| ($32,899 | ) | |
| $17,218 |
| |
| ($376 | ) | |
| ($9,536 | ) | |
| ($24,993 | ) | |
| ($4,814 | ) | |
Estimated amortization amounts from regulatory asset and/or AOCI to net periodic cost in the following year | | | | | | | | | | | | | |
Prior service credit | |
| ($5,110 | ) | |
| ($7,735 | ) | |
| ($1,823 | ) | |
| ($745 | ) | |
| ($2,316 | ) | |
| ($1,513 | ) | |
Net loss | |
| $1,154 |
| |
| $1,550 |
| |
| $1,508 |
| |
| $137 |
| |
| $823 |
| |
| $932 |
| |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
| | 2016 | | Entergy Arkansas |
| Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy | |
2018 | | | Entergy Arkansas |
| Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy |
| | (In Thousands) | | (In Thousands) |
Other postretirement costs: | | | | | | | | | | | | | | | | | | | | | | | | |
Service cost - benefits earned during the period | |
| $3,913 |
| |
| $7,476 |
| |
| $1,543 |
| |
| $622 |
| |
| $1,590 |
| |
| $1,337 |
| |
| $3,170 |
| |
| $6,225 |
| |
| $1,284 |
| |
| $516 |
| |
| $1,319 |
| |
| $1,223 |
|
Interest cost on APBO | | 9,297 |
| | 13,041 |
| | 2,835 |
| | 1,791 |
| | 4,154 |
| | 2,117 |
| | 7,986 |
| | 11,154 |
| | 2,731 |
| | 1,669 |
| | 3,754 |
| | 1,998 |
|
Expected return on assets | | (17,855 | ) | | — |
| | (5,517 | ) | | (4,617 | ) | | (9,575 | ) | | (3,257 | ) | | (17,368 | ) | | — |
| | (5,213 | ) | | (5,250 | ) | | (9,784 | ) | | (3,130 | ) |
Amortization of prior service credit | | (5,472 | ) | | (7,787 | ) | | (934 | ) | | (745 | ) | | (2,722 | ) | | (1,570 | ) | | (5,110 | ) | | (7,735 | ) | | (1,823 | ) | | (745 | ) | | (2,316 | ) | | (1,513 | ) |
Recognized net loss | | 4,256 |
| | 2,926 |
| | 893 |
| | 146 |
| | 2,148 |
| | 1,149 |
| | 1,154 |
| | 1,550 |
| | 1,508 |
| | 137 |
| | 823 |
| | 932 |
|
Net other postretirement benefit (income)/cost | |
| ($5,861 | ) | |
| $15,656 |
| |
| ($1,180 | ) | |
| ($2,803 | ) | |
| ($4,405 | ) | |
| ($224 | ) | |
| ($10,168 | ) | |
| $11,194 |
| |
| ($1,513 | ) | |
| ($3,673 | ) | |
| ($6,204 | ) | |
| ($490 | ) |
Other changes in plan assets and benefit obligations recognized as a regulatory asset and/or AOCI (before tax) | | | | | | | | | | | | | | | | | | | | | | | | |
Arising this period: | | | | | | | | | | | | | | | | | | | | | | | | |
Prior service credit for the period | |
| ($1,007 | ) | |
| ($4,647 | ) | |
| ($6,219 | ) | |
| $— |
| |
| $— |
| |
| $— |
| |
Net (gain)/loss | | 3,331 |
| | (13,117 | ) | | 8,715 |
| | 5,717 |
| | 13,378 |
| | 4,997 |
| |
Amounts reclassified from regulatory asset and/or AOCI to net periodic pension cost in the current year: | | | | | | | | | | | | | |
Net gain | | |
| ($32,219 | ) | |
| ($73,249 | ) | |
| ($7,794 | ) | |
| ($981 | ) | |
| ($10,561 | ) | |
| ($6,680 | ) |
Amounts reclassified from regulatory asset and/or AOCI to net periodic benefit cost in the current year: | | | | | | | | | | | | | |
Amortization of prior service credit | | 5,472 |
| | 7,787 |
| | 934 |
| | 745 |
| | 2,722 |
| | 1,570 |
| | 5,110 |
| | 7,735 |
| | 1,823 |
| | 745 |
| | 2,316 |
| | 1,513 |
|
Amortization of net loss | | (4,256 | ) | | (2,926 | ) | | (893 | ) | | (146 | ) | | (2,148 | ) | | (1,149 | ) | | (1,154 | ) | | (1,550 | ) | | (1,508 | ) | | (137 | ) | | (823 | ) | | (932 | ) |
Total | |
| $3,540 |
| |
| ($12,903 | ) | |
| $2,537 |
| |
| $6,316 |
| |
| $13,952 |
| |
| $5,418 |
| |
| ($28,263 | ) | |
| ($67,064 | ) | |
| ($7,479 | ) | |
| ($373 | ) | |
| ($9,068 | ) | |
| ($6,099 | ) |
Total recognized as net periodic other postretirement income/(cost), regulatory asset, and/or AOCI (before tax) | |
| ($2,321 | ) | |
| $2,753 |
| |
| $1,357 |
| |
| $3,513 |
| |
| $9,547 |
| |
| $5,194 |
| |
Estimated amortization amounts from regulatory asset and/or AOCI to net periodic cost in the following year | | | | | | | | | | | | | |
Total recognized as net periodic other postretirement (income)/cost, regulatory asset, and/or AOCI (before tax) | | |
| ($38,431 | ) | |
| ($55,870 | ) | |
| ($8,992 | ) | |
| ($4,046 | ) | |
| ($15,272 | ) | |
| ($6,589 | ) |
Estimated amortization amounts from regulatory asset and/or AOCI to net periodic (income)/cost in the following year | | | | | | | | | | | | | |
Prior service credit | |
| ($5,110 | ) | |
| ($7,739 | ) | |
| ($1,824 | ) | |
| ($745 | ) | |
| ($2,316 | ) | |
| ($1,513 | ) | |
| ($4,950 | ) | |
| ($7,349 | ) | |
| ($1,756 | ) | |
| ($682 | ) | |
| ($2,243 | ) | |
| ($1,450 | ) |
Net loss | |
| $4,460 |
| |
| $1,859 |
| |
| $1,675 |
| |
| $418 |
| |
| $3,303 |
| |
| $1,560 |
| |
Net (gain)/loss | | |
| $576 |
| |
| ($695 | ) | |
| $723 |
| |
| $231 |
| |
| $485 |
| |
| $354 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
|
| | | | | | | | | | | | | | | | | | | | | | | | |
2017 | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy |
| | (In Thousands) |
Other postretirement costs: | | | | | | | | | | | | |
Service cost - benefits earned during the period | |
| $3,451 |
| |
| $6,373 |
| |
| $1,160 |
| |
| $567 |
| |
| $1,488 |
| |
| $1,278 |
|
Interest cost on APBO | | 9,020 |
| | 12,101 |
| | 2,759 |
| | 1,874 |
| | 4,494 |
| | 2,236 |
|
Expected return on assets | | (15,836 | ) | | — |
| | (4,801 | ) | | (4,635 | ) | | (8,720 | ) | | (2,869 | ) |
Amortization of prior service credit | | (5,110 | ) | | (7,735 | ) | | (1,823 | ) | | (745 | ) | | (2,316 | ) | | (1,513 | ) |
Recognized net loss | | 4,460 |
| | 1,859 |
| | 1,675 |
| | 418 |
| | 3,303 |
| | 1,560 |
|
Net other postretirement benefit (income)/cost | |
| ($4,015 | ) | |
| $12,598 |
| |
| ($1,030 | ) | |
| ($2,521 | ) | |
| ($1,751 | ) | |
| $692 |
|
Other changes in plan assets and benefit obligations recognized as a regulatory asset and/or AOCI (before tax) | | | | | | | | | | | | |
Arising this period: | | | | | | | | | | | | |
Net (gain)/loss | | (29,534 | ) | | (1,256 | ) | | 506 |
| | (7,342 | ) | | (22,255 | ) | | (5,459 | ) |
Amounts reclassified from regulatory asset and/or AOCI to net periodic benefit cost in the current year: | | | | | | | | | | | | |
Amortization of prior service credit | | 5,110 |
| | 7,735 |
| | 1,823 |
| | 745 |
| | 2,316 |
| | 1,513 |
|
Amortization of net loss | | (4,460 | ) | | (1,859 | ) | | (1,675 | ) | | (418 | ) | | (3,303 | ) | | (1,560 | ) |
Total | |
| ($28,884 | ) | |
| $4,620 |
| |
| $654 |
| |
| ($7,015 | ) | |
| ($23,242 | ) | |
| ($5,506 | ) |
Total recognized as net periodic other postretirement (income)/cost, regulatory asset, and/or AOCI (before tax) | |
| ($32,899 | ) | |
| $17,218 |
| |
| ($376 | ) | |
| ($9,536 | ) | |
| ($24,993 | ) | |
| ($4,814 | ) |
Estimated amortization amounts from regulatory asset and/or AOCI to net periodic (income)/cost in the following year | | | | | | | | | | | | |
Prior service credit | |
| ($5,110 | ) | |
| ($7,735 | ) | |
| ($1,823 | ) | |
| ($745 | ) | |
| ($2,316 | ) | |
| ($1,513 | ) |
Net loss | |
| $1,154 |
| |
| $1,550 |
| |
| $1,508 |
| |
| $137 |
| |
| $823 |
| |
| $932 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
2015 | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy |
| | (In Thousands) |
Other postretirement costs: | | | | | | | | | | | | |
Service cost - benefits earned during the period | |
| $6,957 |
| |
| $9,893 |
| |
| $2,028 |
| |
| $818 |
| |
| $2,000 |
| |
| $1,881 |
|
Interest cost on APBO | | 12,518 |
| | 16,311 |
| | 3,436 |
| | 2,608 |
| | 5,366 |
| | 2,511 |
|
Expected return on assets | | (19,190 | ) | | — |
| | (6,166 | ) | | (4,804 | ) | | (10,351 | ) | | (3,644 | ) |
Amortization of prior service credit | | (2,441 | ) | | (7,467 | ) | | (916 | ) | | (709 | ) | | (2,723 | ) | | (1,465 | ) |
Recognized net loss | | 5,356 |
| | 7,118 |
| | 860 |
| | 470 |
| | 2,740 |
| | 1,198 |
|
Net other postretirement benefit (income)/cost | |
| $3,200 |
| |
| $25,855 |
| |
| ($758 | ) | |
| ($1,617 | ) | |
| ($2,968 | ) | |
| $481 |
|
Other changes in plan assets and benefit obligations recognized as a regulatory asset and/or AOCI (before tax) | | | | | | | | | | | | |
Arising this period: | | | | | | | | | | | | |
Prior service credit for the period | |
| ($18,035 | ) | |
| ($1,361 | ) | |
| $— |
| |
| $— |
| |
| $— |
| |
| ($644 | ) |
Net (gain)/loss | | (11,978 | ) | | (47,043 | ) | | 774 |
| | (5,810 | ) | | (4,907 | ) | | 305 |
|
Amounts reclassified from regulatory asset and/or AOCI to net periodic pension cost in the current year: | | | | | | | | | | | | |
Amortization of prior service credit | | 2,441 |
| | 7,467 |
| | 916 |
| | 709 |
| | 2,723 |
| | 1,465 |
|
Amortization of net loss | | (5,356 | ) | | (7,118 | ) | | (860 | ) | | (470 | ) | | (2,740 | ) | | (1,198 | ) |
Total | |
| ($32,928 | ) | |
| ($48,055 | ) | |
| $830 |
| |
| ($5,571 | ) | |
| ($4,924 | ) | |
| ($72 | ) |
Total recognized as net periodic other postretirement income/(cost), regulatory asset, and/or AOCI (before tax) | |
| ($29,728 | ) | |
| ($22,200 | ) | |
| $72 |
| |
| ($7,188 | ) | |
| ($7,892 | ) | |
| $409 |
|
Estimated amortization amounts from regulatory asset and/or AOCI to net periodic cost in the following year | | | | | | | | | | | | |
Prior service credit | |
| ($5,472 | ) | |
| ($7,783 | ) | |
| ($933 | ) | |
| ($745 | ) | |
| ($2,722 | ) | |
| ($1,570 | ) |
Net loss | |
| $4,256 |
| |
| $2,926 |
| |
| $893 |
| |
| $146 |
| |
| $2,148 |
| |
| $1,149 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Other Postretirement Benefit Obligations, Plan Assets, Funded Status, and Amounts Not Yet Recognized and Recognized in the Balance Sheet
Other postretirement benefit obligations, plan assets, funded status, and amounts not yet recognized and recognized in the Consolidated Balance Sheets of Entergy Corporation and its Subsidiaries as of December 31, 20172019 and 20162018 are as follows:
|
| | | | | | | |
| 2019 | | 2018 |
| (In Thousands) |
Change in APBO | |
| | |
|
Balance at January 1 |
| $1,232,619 |
| |
| $1,563,487 |
|
Service cost | 18,699 |
| | 27,129 |
|
Interest cost | 47,901 |
| | 50,725 |
|
Plan participant contributions | 38,640 |
| | 37,049 |
|
Actuarial (gain)/loss | 23,673 |
| | (346,429 | ) |
Benefits paid | (109,223 | ) | | (99,785 | ) |
Medicare Part D subsidy received | 594 |
| | 443 |
|
Balance at December 31 |
| $1,252,903 |
| |
| $1,232,619 |
|
Change in Plan Assets | |
| | |
|
Fair value of assets at January 1 |
| $609,782 |
| |
| $659,327 |
|
Actual return on plan assets | 100,445 |
| | (30,582 | ) |
Employer contributions | 46,618 |
| | 43,773 |
|
Plan participant contributions | 38,640 |
| | 37,049 |
|
Benefits paid | (109,223 | ) | | (99,785 | ) |
Fair value of assets at December 31 |
| $686,262 |
| |
| $609,782 |
|
Funded status |
| ($566,641 | ) | |
| ($622,837 | ) |
Amounts recognized in the balance sheet | | | |
Current liabilities |
| ($48,040 | ) | |
| ($44,276 | ) |
Non-current liabilities | (518,601 | ) | | (578,561 | ) |
Total funded status |
| ($566,641 | ) | |
| ($622,837 | ) |
Amounts recognized as a regulatory asset | | | |
Prior service credit |
| ($11,899 | ) | |
| ($25,778 | ) |
Net (gain)/loss | (5,081 | ) | | 51,774 |
|
|
| ($16,980 | ) | |
| $25,996 |
|
Amounts recognized as AOCI (before tax) | | | |
Prior service credit |
| ($21,231 | ) | |
| ($42,730 | ) |
Net gain | (16,670 | ) | | (33,569 | ) |
|
| ($37,901 | ) | |
| ($76,299 | ) |
|
| | | | | | | |
| 2017 | | 2016 |
| (In Thousands) |
Change in APBO | |
| | |
|
Balance at January 1 |
| $1,568,963 |
| |
| $1,530,829 |
|
Service cost | 26,915 |
| | 32,291 |
|
Interest cost | 55,838 |
| | 56,331 |
|
Plan amendments | (2,564 | ) | | (20,353 | ) |
Plan participant contributions | 35,080 |
| | 27,686 |
|
Actuarial (gain)/loss | (23,409 | ) | | 46,201 |
|
Benefits paid | (97,829 | ) | | (104,477 | ) |
Medicare Part D subsidy received | 493 |
| | 455 |
|
Balance at December 31 |
| $1,563,487 |
| |
| $1,568,963 |
|
Change in Plan Assets | |
| | |
|
Fair value of assets at January 1 |
| $596,660 |
| |
| $579,069 |
|
Actual return on plan assets | 81,143 |
| | 38,216 |
|
Employer contributions | 44,273 |
| | 56,166 |
|
Plan participant contributions | 35,080 |
| | 27,686 |
|
Benefits paid | (97,829 | ) | | (104,477 | ) |
Fair value of assets at December 31 |
| $659,327 |
| |
| $596,660 |
|
Funded status |
| ($904,160 | ) | |
| ($972,303 | ) |
Amounts recognized in the balance sheet | | | |
Current liabilities |
| ($45,237 | ) | |
| ($45,255 | ) |
Non-current liabilities | (858,923 | ) | | (927,048 | ) |
Total funded status |
| ($904,160 | ) | |
| ($972,303 | ) |
Amounts recognized as a regulatory asset | | | |
Prior service credit |
| ($40,461 | ) | |
| ($54,896 | ) |
Net loss | 144,966 |
| | 222,540 |
|
|
| $104,505 |
| |
| $167,644 |
|
Amounts recognized as AOCI (before tax) | | | |
Prior service credit |
| ($65,047 | ) | |
| ($89,474 | ) |
Net loss | 161,322 |
| | 172,575 |
|
|
| $96,275 |
| |
| $83,101 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Other postretirement benefit obligations, plan assets, funded status, and amounts not yet recognized and recognized in the Balance Sheets of the Registrant Subsidiaries as of December 31, 20172019 and 20162018 are as follows:
| | 2017 | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy | |
2019 | | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy |
| | (In Thousands) | | (In Thousands) |
Change in APBO | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at January 1 | |
| $258,787 |
| |
| $342,500 |
| |
| $78,485 |
| |
| $55,515 |
| |
| $127,700 |
| |
| $62,498 |
| |
| $187,830 |
| |
| $275,269 |
| |
| $68,976 |
| |
| $41,987 |
| |
| $88,310 |
| |
| $48,791 |
|
Service cost | | 3,451 |
| | 6,373 |
| | 1,160 |
| | 567 |
| | 1,488 |
| | 1,278 |
| | 2,363 |
| | 4,639 |
| | 1,046 |
| | 367 |
| | 943 |
| | 973 |
|
Interest cost | | 9,020 |
| | 12,101 |
| | 2,759 |
| | 1,874 |
| | 4,494 |
| | 2,236 |
| | 7,226 |
| | 10,664 |
| | 2,681 |
| | 1,581 |
| | 3,415 |
| | 1,902 |
|
Plan participant contributions | | 7,875 |
| | 7,855 |
| | 2,160 |
| | 1,151 |
| | 2,453 |
| | 1,779 |
| | 8,125 |
| | 8,876 |
| | 2,197 |
| | 1,343 |
| | 2,602 |
| | 1,765 |
|
Actuarial (gain)/loss | | (11,691 | ) | | (1,256 | ) | | 5,858 |
| | (899 | ) | | (12,469 | ) | | (2,233 | ) | | 166 |
| | (2,220 | ) | | (3,778 | ) | | (4,234 | ) | | 8,279 |
| | (891 | ) |
Benefits paid | | (18,497 | ) | | (22,273 | ) | | (5,823 | ) | | (4,670 | ) | | (6,980 | ) | | (4,205 | ) | | (20,048 | ) | | (23,160 | ) | | (5,159 | ) | | (2,598 | ) | | (8,830 | ) | | (5,229 | ) |
Medicare Part D subsidy received | | 74 |
| | 89 |
| | 22 |
| | 10 |
| | 16 |
| | 28 |
| | 82 |
| | 107 |
| | 16 |
| | 14 |
| | 23 |
| | 37 |
|
Balance at December 31 | |
| $249,019 |
| |
| $345,389 |
| |
| $84,621 |
| |
| $53,548 |
| |
| $116,702 |
| |
| $61,381 |
| |
| $185,744 |
| |
| $274,175 |
| |
| $65,979 |
| |
| $38,460 |
| |
| $94,742 |
| |
| $47,348 |
|
Change in Plan Assets | | | | | | | | | | | | | | | | | | | | | | | | |
Fair value of assets at January 1 | |
| $250,926 |
| |
| $— |
| |
| $75,945 |
| |
| $74,236 |
| |
| $137,069 |
| |
| $44,885 |
| |
| $252,055 |
| |
| $— |
| |
| $75,853 |
| |
| $81,774 |
| |
| $144,846 |
| |
| $43,670 |
|
Actual return on plan assets | | 33,679 |
| | — |
| | 10,153 |
| | 11,078 |
| | 18,506 |
| | 6,095 |
| | 42,835 |
| | — |
| | 12,966 |
| | 11,680 |
| | 23,788 |
| | 7,436 |
|
Employer contributions | | 695 |
| | 14,418 |
| | (2 | ) | | 3,709 |
| | 3,123 |
| | 570 |
| | 1,257 |
| | 14,284 |
| | 228 |
| | 1,659 |
| | (596 | ) | | 829 |
|
Plan participant contributions | | 7,875 |
| | 7,855 |
| | 2,160 |
| | 1,151 |
| | 2,453 |
| | 1,779 |
| | 8,125 |
| | 8,876 |
| | 2,197 |
| | 1,343 |
| | 2,602 |
| | 1,765 |
|
Benefits paid | | (18,497 | ) | | (22,273 | ) | | (5,823 | ) | | (4,670 | ) | | (6,980 | ) | | (4,205 | ) | | (20,048 | ) | | (23,160 | ) | | (5,159 | ) | | (2,598 | ) | | (8,830 | ) | | (5,229 | ) |
Fair value of assets at December 31 | |
| $274,678 |
| |
| $— |
| |
| $82,433 |
| |
| $85,504 |
| |
| $154,171 |
| |
| $49,124 |
| |
| $284,224 |
| |
| $— |
| |
| $86,085 |
| |
| $93,858 |
| |
| $161,810 |
| |
| $48,471 |
|
Funded status | |
| $25,659 |
| |
| ($345,389 | ) | |
| ($2,188 | ) | |
| $31,956 |
| |
| $37,469 |
| |
| ($12,257 | ) | |
| $98,480 |
| |
| ($274,175 | ) | |
| $20,106 |
| |
| $55,398 |
| |
| $67,068 |
| |
| $1,123 |
|
Amounts recognized in the balance sheet | | | | | | | | | | | | | | | | | | | | | | | | |
Current liabilities | |
| $— |
| |
| ($18,794 | ) | |
| $— |
| |
| $— |
| |
| $— |
| |
| $— |
| |
| $— |
| |
| ($18,467 | ) | |
| $— |
| |
| $— |
| |
| $— |
| |
| $— |
|
Non-current liabilities | | 25,659 |
| | (326,595 | ) | | (2,188 | ) | | 31,956 |
| | 37,469 |
| | (12,257 | ) | | 98,480 |
| | (255,708 | ) | | 20,106 |
| | 55,398 |
| | 67,068 |
| | 1,123 |
|
Total funded status | |
| $25,659 |
| |
| ($345,389 | ) | |
| ($2,188 | ) | |
| $31,956 |
| |
| $37,469 |
| |
| ($12,257 | ) | |
| $98,480 |
| |
| ($274,175 | ) | |
| $20,106 |
| |
| $55,398 |
| |
| $67,068 |
| |
| $1,123 |
|
Amounts recognized in regulatory asset | | | | | | | | | | | | | | | | | | | | | | | | |
Prior service credit | |
| ($16,574 | ) | |
| $— |
| |
| ($6,687 | ) | |
| ($1,427 | ) | |
| ($5,980 | ) | |
| ($3,819 | ) | |
| ($6,515 | ) | |
| $— |
| |
| ($3,108 | ) | |
| $— |
| |
| ($1,422 | ) | |
| ($854 | ) |
Net loss | | 42,394 |
| | — |
| | 25,247 |
| | 4,269 |
| | 24,478 |
| | 16,386 |
| |
Net (gain)/loss | | | (18,262 | ) | | — |
| | 3,272 |
| | (8,046 | ) | | 6,203 |
| | 2,881 |
|
| |
| $25,820 |
| |
| $— |
| |
| $18,560 |
| |
| $2,842 |
| |
| $18,498 |
| |
| $12,567 |
| |
| ($24,777 | ) | |
| $— |
| |
| $164 |
| |
| ($8,046 | ) | |
| $4,781 |
| |
| $2,027 |
|
Amounts recognized in AOCI (before tax) | | | | | | | | | | | | | | | | | | | | | | | | |
Prior service credit | |
| $— |
| |
| ($19,999 | ) | |
| $— |
| |
| $— |
| |
| $— |
| |
| $— |
| |
| $— |
| |
| ($4,915 | ) | |
| $— |
| |
| $— |
| |
| $— |
| |
| $— |
|
Net loss | | — |
| | 51,585 |
| | — |
| | — |
| | — |
| | — |
| |
Net gain | | | — |
| | (24,739 | ) | | — |
| | — |
| | — |
| | — |
|
| |
| $— |
| |
| $31,586 |
| |
| $— |
| |
| $— |
| |
| $— |
| |
| $— |
| |
| $— |
| |
| ($29,654 | ) | |
| $— |
| |
| $— |
| |
| $— |
| |
| $— |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
|
| | | | | | | | | | | | | | | | | | | | | | | | |
2018 | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy |
| | (In Thousands) |
Change in APBO | | | | | | | | | | | | |
Balance at January 1 | |
| $249,019 |
| |
| $345,389 |
| |
| $84,621 |
| |
| $53,548 |
| |
| $116,702 |
| |
| $61,381 |
|
Service cost | | 3,170 |
| | 6,225 |
| | 1,284 |
| | 516 |
| | 1,319 |
| | 1,223 |
|
Interest cost | | 7,986 |
| | 11,154 |
| | 2,731 |
| | 1,669 |
| | 3,754 |
| | 1,998 |
|
Plan participant contributions | | 8,136 |
| | 8,162 |
| | 2,233 |
| | 1,171 |
| | 2,565 |
| | 1,837 |
|
Actuarial gain | | (61,960 | ) | | (73,249 | ) | | (16,762 | ) | | (10,847 | ) | | (27,527 | ) | | (11,985 | ) |
Benefits paid | | (18,581 | ) | | (22,476 | ) | | (5,145 | ) | | (4,078 | ) | | (8,516 | ) | | (5,685 | ) |
Medicare Part D subsidy received | | 60 |
| | 64 |
| | 14 |
| | 8 |
| | 13 |
| | 22 |
|
Balance at December 31 | |
| $187,830 |
| |
| $275,269 |
| |
| $68,976 |
| |
| $41,987 |
| |
| $88,310 |
| |
| $48,791 |
|
Change in Plan Assets | | | | | | | | | | | | |
Fair value of assets at January 1 | |
| $274,678 |
| |
| $— |
| |
| $82,433 |
| |
| $85,504 |
| |
| $154,171 |
| |
| $49,124 |
|
Actual return on plan assets | | (12,373 | ) | | — |
| | (3,755 | ) | | (4,616 | ) | | (7,182 | ) | | (2,175 | ) |
Employer contributions | | 195 |
| | 14,314 |
| | 87 |
| | 3,793 |
| | 3,808 |
| | 569 |
|
Plan participant contributions | | 8,136 |
| | 8,162 |
| | 2,233 |
| | 1,171 |
| | 2,565 |
| | 1,837 |
|
Benefits paid | | (18,581 | ) | | (22,476 | ) | | (5,145 | ) | | (4,078 | ) | | (8,516 | ) | | (5,685 | ) |
Fair value of assets at December 31 | |
| $252,055 |
| |
| $— |
| |
| $75,853 |
| |
| $81,774 |
| |
| $144,846 |
| |
| $43,670 |
|
Funded status | |
| $64,225 |
| |
| ($275,269 | ) | |
| $6,877 |
| |
| $39,787 |
| |
| $56,536 |
| |
| ($5,121 | ) |
Amounts recognized in the balance sheet | | | | | | | | | | | | |
Current liabilities | |
| $— |
| |
| ($17,740 | ) | |
| $— |
| |
| $— |
| |
| $— |
| |
| $— |
|
Non-current liabilities | | 64,225 |
| | (257,529 | ) | | 6,877 |
| | 39,787 |
| | 56,536 |
| | (5,121 | ) |
Total funded status | |
| $64,225 |
| |
| ($275,269 | ) | |
| $6,877 |
| |
| $39,787 |
| |
| $56,536 |
| |
| ($5,121 | ) |
Amounts recognized in regulatory asset | | | | | | | | | | | | |
Prior service credit | |
| ($11,465 | ) | |
| $— |
| |
| ($4,864 | ) | |
| ($681 | ) | |
| ($3,665 | ) | |
| ($2,304 | ) |
Net loss | | 9,021 |
| | — |
| | 15,945 |
| | 3,151 |
| | 13,094 |
| | 8,774 |
|
| |
| ($2,444 | ) | |
| $— |
| |
| $11,081 |
| |
| $2,470 |
| |
| $9,429 |
| |
| $6,470 |
|
Amounts recognized in AOCI (before tax) | | | | | | | | | | | | |
Prior service credit | |
| $— |
| |
| ($12,264 | ) | |
| $— |
| |
| $— |
| |
| $— |
| |
| $— |
|
Net gain | | — |
| | (23,214 | ) | | — |
| | — |
| | — |
| | — |
|
| |
| $— |
| |
| ($35,478 | ) | |
| $— |
| |
| $— |
| |
| $— |
| |
| $— |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
2016 | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy |
| | (In Thousands) |
Change in APBO | | | | | | | | | | | | |
Balance at January 1 | |
| $258,900 |
| |
| $356,253 |
| |
| $77,382 |
| |
| $51,951 |
| |
| $114,582 |
| |
| $57,645 |
|
Service cost | | 3,913 |
| | 7,476 |
| | 1,543 |
| | 622 |
| | 1,590 |
| | 1,337 |
|
Interest cost | | 9,297 |
| | 13,041 |
| | 2,835 |
| | 1,791 |
| | 4,154 |
| | 2,117 |
|
Plan amendments | | (1,007 | ) | | (4,647 | ) | | (6,219 | ) | | — |
| | — |
| | — |
|
Plan participant contributions | | 6,330 |
| | 6,273 |
| | 1,721 |
| | 1,213 |
| | 1,927 |
| | 1,390 |
|
Actuarial (gain)/loss | | 2,453 |
| | (13,117 | ) | | 8,230 |
| | 4,774 |
| | 12,389 |
| | 4,806 |
|
Benefits paid | | (21,178 | ) | | (22,893 | ) | | (7,031 | ) | | (4,852 | ) | | (6,977 | ) | | (4,818 | ) |
Medicare Part D subsidy received | | 79 |
| | 114 |
| | 24 |
| | 16 |
| | 35 |
| | 21 |
|
Balance at December 31 | |
| $258,787 |
| |
| $342,500 |
| |
| $78,485 |
| |
| $55,515 |
| |
| $127,700 |
| |
| $62,498 |
|
Change in Plan Assets | | | | | | | | | | | | |
Fair value of assets at January 1 | |
| $243,206 |
| |
| $— |
| |
| $75,538 |
| |
| $69,881 |
| |
| $130,374 |
| |
| $44,917 |
|
Actual return on plan assets | | 16,977 |
| | — |
| | 5,032 |
| | 3,674 |
| | 8,586 |
| | 3,066 |
|
Employer contributions | | 5,591 |
| | 16,620 |
| | 685 |
| | 4,320 |
| | 3,159 |
| | 330 |
|
Plan participant contributions | | 6,330 |
| | 6,273 |
| | 1,721 |
| | 1,213 |
| | 1,927 |
| | 1,390 |
|
Benefits paid | | (21,178 | ) | | (22,893 | ) | | (7,031 | ) | | (4,852 | ) | | (6,977 | ) | | (4,818 | ) |
Fair value of assets at December 31 | |
| $250,926 |
| |
| $— |
| |
| $75,945 |
| |
| $74,236 |
| |
| $137,069 |
| |
| $44,885 |
|
Funded status | |
| ($7,861 | ) | |
| ($342,500 | ) | |
| ($2,540 | ) | |
| $18,721 |
| |
| $9,369 |
| |
| ($17,613 | ) |
Amounts recognized in the balance sheet | | | | | | | | | | | | |
Current liabilities | |
| $— |
| |
| ($19,209 | ) | |
| $— |
| |
| $— |
| |
| $— |
| |
| $— |
|
Non-current liabilities | | (7,861 | ) | | (323,291 | ) | | (2,540 | ) | | 18,721 |
| | 9,369 |
| | (17,613 | ) |
Total funded status | |
| ($7,861 | ) | |
| ($342,500 | ) | |
| ($2,540 | ) | |
| $18,721 |
| |
| $9,369 |
| |
| ($17,613 | ) |
Amounts recognized in regulatory asset | | | | | | | | | | | | |
Prior service credit | |
| ($21,684 | ) | |
| $— |
| |
| ($8,511 | ) | |
| ($2,172 | ) | |
| ($8,296 | ) | |
| ($5,332 | ) |
Net loss | | 76,388 |
| | — |
| | 26,416 |
| | 12,029 |
| | 50,036 |
| | 23,405 |
|
| |
| $54,704 |
| |
| $— |
| |
| $17,905 |
| |
| $9,857 |
| |
| $41,740 |
| |
| $18,073 |
|
Amounts recognized in AOCI (before tax) | | | | | | | | | | | | |
Prior service credit | |
| $— |
| |
| ($27,735 | ) | |
| $— |
| |
| $— |
| |
| $— |
| |
| $— |
|
Net loss | | — |
| | 54,700 |
| | — |
| | — |
| | — |
| | — |
|
| |
| $— |
| |
| $26,965 |
| |
| $— |
| |
| $— |
| |
| $— |
| |
| $— |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Non-Qualified Pension Plans
Entergy also sponsors non-qualified, non-contributory defined benefit pension plans that provide benefits to certain key employees. Entergy recognized net periodic pension cost related to these plans of $22.6 million in 2019, $24.4 million in 2018, and $37.6 million in 2017, $24.9 million in 2016,2017. In 2019, 2018, and $22.8 million in 2015. In 2017 2016, and 2015 Entergy recognized $20.3$7.4 million, $8.1$7.7 million, and $5.1$20.3 million, respectively in settlement charges related to the payment of lump sum benefits out of the plan that is included in the non-qualified pension plan cost above.
The projected benefit obligation was $162.3 million and $169.3$162.8 million as of December 31, 20172019 of which $18.1 million was a current liability and 2016, respectively.$144.6 million was a non-current liability. The projected benefit obligation was $147 million as of December 31, 2018 of which $17 million was a current liability and $130 million was a non-current liability. The accumulated benefit obligation was $144.7$143.4 million and $151.0$131.9 million as of December 31, 20172019 and 2016, respectively.
Entergy’s non-qualified, non-current pension liability at December 31, 2017 and 2016 was $136 million and $137.6 million, respectively; and its current liability was $26.4 million and $31.7 million,2018, respectively. The unamortized prior service cost and net loss are recognized in regulatory assets ($55.258.8 million at December 31, 20172019 and $59.8$51.9 million at December 31, 2016)2018) and accumulated other comprehensive income before taxes ($35.924.9 million at December 31, 20172019 and $31.6$19.2 million at December 31, 2016)2018).
The following Registrant Subsidiaries participate in Entergy’s non-qualified, non-contributory defined benefit pension plans that provide benefits to certain key employees. The net periodic pension cost for their employees for the non-qualified plans for 2017, 2016,2019, 2018, and 2015,2017, was as follows:
|
| | | | | | | | | | | | | | | | | | | |
| Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas |
| (In Thousands) |
2019 |
| $275 |
| |
| $159 |
| |
| $326 |
| |
| $20 |
| |
| $481 |
|
2018 |
| $474 |
| |
| $180 |
| |
| $300 |
| |
| $81 |
| |
| $650 |
|
2017 |
| $679 |
| |
| $185 |
| |
| $251 |
| |
| $73 |
| |
| $499 |
|
|
| | | | | | | | | | | | | | | | | | | |
| Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas |
| (In Thousands) |
2017 |
| $679 |
| |
| $185 |
| |
| $251 |
| |
| $73 |
| |
| $499 |
|
2016 |
| $1,819 |
| |
| $231 |
| |
| $236 |
| |
| $65 |
| |
| $504 |
|
2015 |
| $446 |
| |
| $377 |
| |
| $235 |
| |
| $64 |
| |
| $595 |
|
Included in the 2019 net periodic pension cost above are settlement charges of $40 thousand for Entergy Mississippi related to the lump sum benefits paid out of the plan. Included in the 2018 net periodic pension cost above are settlement charges of $30 thousand and $139 thousand for Entergy Arkansas and Entergy Texas, respectively, related to the lump sum benefits paid out of the plan. Included in the 2017 net periodic pension cost above are settlement charges of $269 thousand for Entergy Arkansas related to the lump sum benefits paid out of the plan. Included in the 2016 net periodic pension cost above are settlement charges of $1.4 million and $1 thousand for Entergy Arkansas and Entergy Mississippi, respectively, related to the lump sum benefits paid out of the plan. Included in the 2015 net periodic pension cost above are settlement charges of $108 thousand and $2 thousand for Entergy Louisiana and Entergy Mississippi, respectively, related to the lump sum benefits paid out of the plan.
The projected benefit obligation for their employees for the non-qualified plans as of December 31, 20172019 and 20162018 was as follows:
|
| | | | | | | | | | | | | | | | | | | |
| Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas |
| (In Thousands) |
2019 |
| $2,755 |
| |
| $1,682 |
| |
| $3,286 |
| |
| $231 |
| |
| $7,783 |
|
2018 |
| $2,752 |
| |
| $1,881 |
| |
| $2,732 |
| |
| $206 |
| |
| $7,952 |
|
|
| | | | | | | | | | | | | | | | | | | |
| Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas |
| (In Thousands) |
2017 |
| $4,221 |
| |
| $2,061 |
| |
| $2,737 |
| |
| $583 |
| |
| $8,913 |
|
2016 |
| $3,897 |
| |
| $2,134 |
| |
| $2,296 |
| |
| $514 |
| |
| $8,665 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The accumulated benefit obligation for their employees for the non-qualified plans as of December 31, 20172019 and 20162018 was as follows:
|
| | | | | | | | | | | | | | | | | | | |
| Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas |
| (In Thousands) |
2019 |
| $2,248 |
| |
| $1,682 |
| |
| $2,938 |
| |
| $230 |
| |
| $7,391 |
|
2018 |
| $2,519 |
| |
| $1,881 |
| |
| $2,427 |
| |
| $206 |
| |
| $7,724 |
|
|
| | | | | | | | | | | | | | | | | | | |
| Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas |
| (In Thousands) |
2017 |
| $3,825 |
| |
| $2,061 |
| |
| $2,250 |
| |
| $519 |
| |
| $8,602 |
|
2016 |
| $3,439 |
| |
| $2,134 |
| |
| $1,961 |
| |
| $452 |
| |
| $8,333 |
|
The following amounts were recorded on the balance sheet as of December 31, 20172019 and 2016:2018:
| | 2017 | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | |
2019 | | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas |
| | (In Thousands) | | (In Thousands) |
Current liabilities | |
| ($376 | ) | |
| ($231 | ) | |
| ($135 | ) | |
| ($21 | ) | |
| ($788 | ) | |
| ($249 | ) | |
| ($216 | ) | |
| ($357 | ) | |
| ($17 | ) | |
| ($723 | ) |
Non-current liabilities | | (3,845 | ) | | (1,830 | ) | | (2,603 | ) | | (562 | ) | | (8,125 | ) | | (2,506 | ) | | (1,467 | ) | | (2,930 | ) | | (215 | ) | | (7,060 | ) |
Total funded status | |
| ($4,221 | ) | |
| ($2,061 | ) | |
| ($2,738 | ) | |
| ($583 | ) | |
| ($8,913 | ) | |
| ($2,755 | ) | |
| ($1,683 | ) | |
| ($3,287 | ) | |
| ($232 | ) | |
| ($7,783 | ) |
Regulatory asset/(liability) | |
| $2,995 |
| |
| $166 |
| |
| $1,186 |
| |
| ($140 | ) | |
| $133 |
| |
| $1,232 |
| |
| $3 |
| |
| $1,432 |
| |
| ($559 | ) | |
| ($603 | ) |
Accumulated other comprehensive income (before taxes) | |
| $— |
| |
| $11 |
| |
| $— |
| |
| $— |
| |
| $— |
| |
|
| | | | | | | | | | | | | | | | | | | | |
2018 | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas |
| | (In Thousands) |
Current liabilities | |
| ($198 | ) | |
| ($229 | ) | |
| ($128 | ) | |
| ($16 | ) | |
| ($672 | ) |
Non-current liabilities | | (2,554 | ) | | (1,652 | ) | | (2,604 | ) | | (191 | ) | | (7,280 | ) |
Total funded status | |
| ($2,752 | ) | |
| ($1,881 | ) | |
| ($2,732 | ) | |
| ($207 | ) | |
| ($7,952 | ) |
Regulatory asset/(liability) | |
| $1,314 |
| |
| $79 |
| |
| $1,009 |
| |
| ($579 | ) | |
| ($517 | ) |
Accumulated other comprehensive income (before taxes) | |
| $— |
| |
| $5 |
| |
| $— |
| |
| $— |
| |
| $— |
|
|
| | | | | | | | | | | | | | | | | | | | |
2016 | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas |
| | (In Thousands) |
Current liabilities | |
| ($242 | ) | |
| ($233 | ) | |
| ($137 | ) | |
| ($20 | ) | |
| ($773 | ) |
Non-current liabilities | | (3,655 | ) | | (1,901 | ) | | (2,159 | ) | | (495 | ) | | (7,892 | ) |
Total funded status | |
| ($3,897 | ) | |
| ($2,134 | ) | |
| ($2,296 | ) | |
| ($515 | ) | |
| ($8,665 | ) |
Regulatory asset/(liability) | |
| $2,914 |
| |
| $175 |
| |
| $876 |
| |
| ($148 | ) | |
| ($316 | ) |
Accumulated other comprehensive income (before taxes) | |
| $— |
| |
| $13 |
| |
| $— |
| |
| $— |
| |
| $— |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Reclassification out of Accumulated Other Comprehensive Income (Loss)
Entergy and Entergy Louisiana reclassified the following costs out of accumulated other comprehensive income (loss) (before taxes and including amounts capitalized) as of December 31, 2017:2019:
| | | Qualified Pension Costs | | Other Postretirement Costs | | Non-Qualified Pension Costs | | Total | Qualified Pension Costs | | Other Postretirement Costs | | Non-Qualified Pension Costs | | Total |
| (In Thousands) | (In Thousands) |
Entergy | | | | | | | | | | | | | | |
Amortization of prior service cost |
| ($261 | ) | |
| $26,867 |
| |
| ($355 | ) | |
| $26,251 |
|
| $— |
| |
| $21,498 |
| |
| ($198 | ) | |
| $21,300 |
|
Amortization of loss | (73,800 | ) | | (8,805 | ) | | (3,397 | ) | | (86,002 | ) | (82,284 | ) | | 1,230 |
| | (2,192 | ) | | (83,246 | ) |
Settlement loss | — |
| | — |
| | (7,544 | ) | | (7,544 | ) | (23,458 | ) | | — |
| | (1,697 | ) | | (25,155 | ) |
|
| ($74,061 | ) | |
| $18,062 |
| |
| ($11,296 | ) | |
| ($67,295 | ) |
| ($105,742 | ) | |
| $22,728 |
| |
| ($4,087 | ) | |
| ($87,101 | ) |
Entergy Louisiana | | | | | | | | | | | | | | |
Amortization of prior service cost |
| $— |
| |
| $7,735 |
| |
| ($1 | ) | |
| $7,734 |
|
| $— |
| |
| $7,349 |
| |
| $— |
| |
| $7,349 |
|
Amortization of loss | (3,459 | ) | | (1,859 | ) | | (9 | ) | | (5,327 | ) | (2,795 | ) | | 695 |
| | (6 | ) | | (2,106 | ) |
|
| ($3,459 | ) | |
| $5,876 |
| |
| ($10 | ) | |
| $2,407 |
|
| ($2,795 | ) | |
| $8,044 |
| |
| ($6 | ) | |
| $5,243 |
|
Entergy and Entergy Louisiana reclassified the following costs out of accumulated other comprehensive income (loss) (before taxes and including amounts capitalized) as of December 31, 2016:2018:
|
| | | | | | | | | | | | | | | |
| Qualified Pension Costs | | Other Postretirement Costs | | Non-Qualified Pension Costs | | Total |
| (In Thousands) |
Entergy | | | | | | | |
Amortization of prior service cost |
| ($398 | ) |
|
| $22,379 |
| |
| ($281 | ) | |
| $21,700 |
|
Amortization of loss | (87,828 | ) | | (7,730 | ) | | (3,628 | ) | | (99,186 | ) |
Settlement loss | (828 | ) | | — |
| | (2,379 | ) | | (3,207 | ) |
|
| ($89,054 | ) | |
| $14,649 |
| |
| ($6,288 | ) | |
| ($80,693 | ) |
Entergy Louisiana | | | | | | | |
Amortization of prior service cost |
| $— |
|
|
| $7,735 |
| |
| $— |
| |
| $7,735 |
|
Amortization of loss | (3,468 | ) | | (1,550 | ) | | (7 | ) | | (5,025 | ) |
|
| ($3,468 | ) | |
| $6,185 |
| |
| ($7 | ) | |
| $2,710 |
|
|
| | | | | | | | | | | | | | | |
| Qualified Pension Costs | | Other Postretirement Costs | | Non-Qualified Pension Costs | | Total |
| (In Thousands) |
Entergy | | | | | | | |
Amortization of prior service cost |
| ($1,079 | ) |
|
| $30,949 |
| |
| ($456 | ) | |
| $29,414 |
|
Acceleration of prior service cost due to curtailment | (1,045 | ) | | — |
| | — |
| | (1,045 | ) |
Amortization of loss | (49,930 | ) | | (8,248 | ) | | (2,515 | ) | | (60,693 | ) |
Settlement loss | — |
| | — |
| | (2,007 | ) | | (2,007 | ) |
|
| ($52,054 | ) | |
| $22,701 |
| |
| ($4,978 | ) | |
| ($34,331 | ) |
Entergy Louisiana | | | | | | | |
Amortization of prior service cost |
| $— |
|
|
| $7,787 |
| |
| ($1 | ) | |
| $7,786 |
|
Amortization of loss | (3,345 | ) | | (2,926 | ) | | (10 | ) | | (6,281 | ) |
|
| ($3,345 | ) | |
| $4,861 |
| |
| ($11 | ) | |
| $1,505 |
|
Accounting for Pension and Other Postretirement Benefits
Accounting standards require an employer to recognize in its balance sheet the funded status of its benefit plans. This is measured as the difference between plan assets at fair value and the benefit obligation. Entergy uses a December 31 measurement date for its pension and other postretirement plans. Employers are to record previously unrecognized gains and losses, prior service costs, and any remaining transition asset or obligation (that resulted from adopting prior pension and other postretirement benefits accounting standards) as comprehensive income and/or as a regulatory asset reflective of the recovery mechanism for pension and other postretirement benefit costs in the Registrant Subsidiaries’ respective regulatory jurisdictions. For the portion of Entergy Louisiana that is not regulated, the unrecognized prior service cost, gains and losses, and transition asset/obligation for its pension and other postretirement benefit obligations are recorded as other comprehensive income. Entergy Louisiana recovers other postretirement benefit costs on a pay-as-you-go basis and records the unrecognized prior service cost, gains and losses, and transition obligation for its other postretirement benefit obligation as other comprehensive income. Accounting standards also
Entergy Corporation and Subsidiaries
Notes to Financial Statements
require that changes in the funded status be recorded as other comprehensive income and/or a regulatory asset in the period in which the changes occur.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
With regard to pension and other postretirement costs, Entergy calculates the expected return on pension and other postretirement benefit plan assets by multiplying the long-term expected rate of return on assets by the market-related value (MRV) of plan assets. In general, Entergy determines the MRV of its pension plan assets by calculating a value that uses a 20-quarter phase-in of the difference between actual and expected returns. Forreturns and for its other postretirement benefit plan assets Entergy generally uses fair value when determining MRV.value.
In accordance with ASU No. 2017-07, “Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost”, the other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations and are presented by Entergy in miscellaneous - net in other income.
Qualified Pension and Other Postretirement Plans’ Assets
The Plan Administrator’s trust asset investment strategy is to invest the assets in a manner whereby long-term earnings on the assets (plus cash contributions) provide adequate funding for retiree benefit payments. The mix of assets is based on an optimization study that identifies asset allocation targets in order to achieve the maximum return for an acceptable level of risk, while minimizing the expected contributions and pension and postretirement expense.
In the optimization studies, the Plan Administrator formulates assumptions about characteristics, such as expected asset class investment returns, volatility (risk), and correlation coefficients among the various asset classes. The future market assumptions used in the optimization study are determined by examining historical market characteristics of the various asset classes and making adjustments to reflect future conditions expected to prevail over the study period.
The target asset allocation for pension adjusts dynamically based on the pension plans’ funded status. The current targets are shown below. The expectation is that the allocation to fixed income securities will increase as the pension plans’ funded status increases. The following ranges were established to produce an acceptable, economically efficient plan to manage around the targets.
For postretirement assets the target and range asset allocations (as shown below) reflect recommendations made in the latest optimization study. The target asset allocations for postretirement assets adjust dynamically based on the funded status of each sub-account within each trust. The current weighted average targets shown below represent the aggregate of all targets for all sub-accounts within all trusts.
Entergy’s qualified pension and postretirement weighted-average asset allocations by asset category at December 31, 20172019 and 20162018 and the target asset allocation and ranges for 20172018 are as follows:
|
| | | | | | | | | | |
Pension Asset Allocation | | Target | | Range | | Actual 2019 | | Actual 2018 |
Domestic Equity Securities | | 39% | | 32% | to | 46% | | 39% | | 40% |
International Equity Securities | | 19% | | 15% | to | 23% | | 19% | | 18% |
Fixed Income Securities | | 42% | | 39% | to | 45% | | 41% | | 41% |
Other | | 0% | | 0% | to | 10% | | 1% | | 1% |
|
| | | | | | | | | | |
Pension Asset Allocation | | Target | | Range | | Actual 2017 | | Actual 2016 |
Domestic Equity Securities | | 45% | | 37% | to | 53% | | 45% | | 46% |
International Equity Securities | | 20% | | 16% | to | 24% | | 20% | | 20% |
Fixed Income Securities | | 35% | | 32% | to | 38% | | 34% | | 33% |
Other | | 0% | | 0% | to | 10% | | 1% | | 1% |
|
| | | | | | | | | | |
Postretirement Asset Allocation | | Non-Taxable and Taxable |
| | Target | | Range | | Actual 2019 | | Actual 2018 |
Domestic Equity Securities | | 27% | | 22% | to | 32% | | 29% | | 27% |
International Equity Securities | | 18% | | 13% | to | 23% | | 18% | | 17% |
Fixed Income Securities | | 55% | | 50% | to | 60% | | 53% | | 56% |
Other | | 0% | | 0% | to | 5% | | 0% | | 0% |
|
| | | | | | | | | | |
Postretirement Asset Allocation | | Non-Taxable and Taxable |
| | Target | | Range | | Actual 2017 | | Actual 2016 |
Domestic Equity Securities | | 27% | | 22% | to | 32% | | 30% | | 40% |
International Equity Securities | | 18% | | 13% | to | 23% | | 20% | | 27% |
Fixed Income Securities | | 55% | | 50% | to | 60% | | 50% | | 33% |
Other | | 0% | | 0% | to | 5% | | 0% | | 0% |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
In determining its expected long-term rate of return on plan assets used in the calculation of benefit plan costs, Entergy reviews past performance, current and expected future asset allocations, and capital market assumptions of its investment consultant and some investment managers.
The expected long-term rate of return for the qualified pension plans’ assets is based primarily on the geometric average of the historical annual performance of a representative portfolio weighted by the target asset allocation defined in the table above, along with other indications of expected return on assets. The time period reflected is a long datedlong-dated period spanning several decades.
The expected long-term rate of return for the non-taxable postretirement trust assets is determined using the same methodology described above for pension assets, but the aggregate asset allocation specific to the non-taxable postretirement assets is used.
For the taxable postretirement trust assets, the investment allocation includes tax-exempt fixed income securities. This asset allocation, in combination with the same methodology employed to determine the expected return for other postretirement assets (as described above), and with a modification to reflect applicable taxes, is used to produce the expected long-term rate of return for taxable postretirement trust assets.
Concentrations of Credit Risk
Entergy’s investment guidelines mandate the avoidance of risk concentrations. Types of concentrations specified to be avoided include, but are not limited to, investment concentrations in a single entity, type of industry, foreign country, geographic area and individual security issuance. As of December 31, 2017,2019, all investment managers and assets were materially in compliance with the approved investment guidelines, therefore there were no significant concentrations (defined as greater than 10 percent of plan assets) of credit risk in Entergy’s pension and other postretirement benefit plan assets.
Fair Value Measurements
Accounting standards provide the framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).
The three levels of the fair value hierarchy are described below:
Level 1 - Level 1 inputs are unadjusted quoted prices for identical assets or liabilities in active markets that the Plan has the ability to access at the measurement date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2 - Level 2 inputs are inputs other than quoted prices included in Level 1 that are, either directly or indirectly, observable for the asset or liability at the measurement date. Assets are valued based on prices derived by an independent party that uses inputs such as benchmark yields, reported trades, broker/dealer quotes, and issuer spreads. Prices are reviewed and can be challenged with the independent parties and/or overridden if it is believed such would be more reflective of fair value. Level 2 inputs include the following:
- quoted prices for similar assets or liabilities in active markets;
- quoted prices for identical assets or liabilities in inactive markets;
- inputs other than quoted prices that are observable for the asset or liability; or
Entergy Corporation and Subsidiaries
Notes to Financial Statements
- inputs that are derived principally from or corroborated by observable market data by correlation or other means.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
If an asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability.
Level 3 - Level 3 refers to securities valued based on significant unobservable inputs.
Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The following tables set forth by level within the fair value hierarchy, measured at fair value on a recurring basis at December 31, 2017,2019, and December 31, 2016,2018, a summary of the investments held in the master trusts for Entergy’s qualified pension and other postretirement plans in which the Registrant Subsidiaries participate.
Qualified Defined Benefit Pension Plan Trusts
| | 2017 | | Level 1 | | Level 2 | | Level 3 | | Total | |
2019 | | | Level 1 | | Level 2 | | Level 3 | | Total |
| | (In Thousands) | | (In Thousands) |
Equity securities: | | | | | | | | | | | | | | | | |
Corporate stocks: | | | | | | | | | | | | | | | | |
Preferred | |
| $11,461 |
| (b) |
| $— |
| |
| $— |
| |
| $11,461 |
| | $ | 10,379 |
| (b) | $ | — |
| | — |
| | $ | 10,379 |
|
Common | | 663,923 |
| (b) | 34 |
| (b) | — |
| | 663,957 |
| | 857,159 |
| (b) | — |
| (b) | — |
| | 857,159 |
|
Common collective trusts (c) | |
|
| |
|
| |
|
| | 3,198,799 |
| |
|
| |
|
| |
|
| | 2,698,697 |
|
Registered investment companies | | 125,174 |
| (d) | — |
| | — |
| | 125,174 |
| | 132,389 |
| (d) | — |
| | — |
| | 132,389 |
|
Fixed income securities: | | | | | | | | | | | | | | | | |
U.S. Government securities | | — |
| (b) | 638,832 |
| (a) | — |
| | 638,832 |
| | — |
| | 805,671 |
| (a) | — |
| | 805,671 |
|
Corporate debt instruments | | — |
| | 619,735 |
| (a) | — |
| | 619,735 |
| | — |
| | 762,577 |
| (a) | — |
| | 762,577 |
|
Registered investment companies (e) | | 45,768 |
| (d) | 2,735 |
| (d) | — |
| | 764,251 |
| | 53,842 |
| (d) | 2,903 |
| (d) | — |
| | 1,008,371 |
|
Other | | 46 |
| (f) | 62,559 |
| (f) | — |
| | 62,605 |
| | 73 |
| (f) | 43,106 |
| (f) | — |
| | 43,179 |
|
Other: | | | | | | | | | | | | | | | | |
Insurance company general account (unallocated contracts) | | — |
| | 37,994 |
| (g) | — |
| | 37,994 |
| | — |
| | 40,452 |
| (g) | — |
| | 40,452 |
|
Total investments | |
| $846,372 |
| |
| $1,361,889 |
| |
| $— |
| |
| $6,122,808 |
| |
| $1,053,842 |
| |
| $1,654,709 |
| |
| $— |
| |
| $6,358,874 |
|
Cash | | | | | | | | 1,508 |
| | | | | | | | 1,407 |
|
Other pending transactions | | | | | | | | 5,179 |
| | | | | | | | (22,549 | ) |
Less: Other postretirement assets included in total investments | | | | | | | | (58,179 | ) | | | | | | | | (66,572 | ) |
Total fair value of qualified pension assets | | | | | | | |
| $6,071,316 |
| | | | | | | |
| $6,271,160 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
| | 2016 | | Level 1 | | Level 2 | | Level 3 | | Total | |
2018 | | | Level 1 | | Level 2 | | Level 3 | | Total |
| | (In Thousands) | | (In Thousands) |
Short-term investments | |
| $— |
| |
| $3,610 |
| (a) |
| $— |
| |
| $3,610 |
| |
| $— |
| |
| $7,715 |
| (a) |
| $— |
| |
| $7,715 |
|
Equity securities: | | | | | | | | | | | | | | | | |
Corporate stocks: | | | | | | | | | | | | | | | | |
Preferred | | 6,423 |
| (b) | — |
| | — |
| | 6,423 |
| |
| $8,250 |
| (b) |
| $— |
| |
| $— |
| |
| $8,250 |
|
Common | | 745,715 |
| (b) | 39 |
| (b) | — |
| | 745,754 |
| | 695,003 |
| (b) | — |
| (b) | — |
| | 695,003 |
|
Common collective trusts (c) | |
|
| |
|
| |
|
| | 2,072,743 |
| |
|
| |
|
| |
|
| | 2,408,053 |
|
103-12 investment entities (h) | |
| |
| |
| | 335,818 |
| |
Registered investment companies | | 258,879 |
| (d) | — |
| | — |
| | 258,879 |
| | 108,740 |
| (d) | — |
| | — |
| | 108,740 |
|
Fixed income securities: | | | | | | | | | | | | | | | | |
U.S. Government securities | | 136 |
| (b) | 370,545 |
| (a) | — |
| | 370,681 |
| | — |
| (b) | 675,880 |
| (a) | — |
| | 675,880 |
|
Corporate debt instruments | | — |
| | 630,726 |
| (a) | — |
| | 630,726 |
| | — |
| | 619,310 |
| (a) | — |
| | 619,310 |
|
Registered investment companies (e) | | 35,216 |
| (d) | 2,695 |
| (d) | — |
| | 640,836 |
| | 29,374 |
| (d) | 2,697 |
| (d) | — |
| | 931,439 |
|
Other | | 34 |
| (f) | 105,613 |
| (f) | — |
| | 105,647 |
| | 1,866 |
| (f) | 48,482 |
| (f) | — |
| | 50,348 |
|
Other: | | | | | | | | | | | | | | | | |
Insurance company general account (unallocated contracts) | | — |
| | 37,111 |
| (g) | — |
| | 37,111 |
| | — |
| | 39,322 |
| (g) | — |
| | 39,322 |
|
Total investments | |
| $1,046,403 |
| |
| $1,150,339 |
| |
| $— |
| |
| $5,208,228 |
| |
| $843,233 |
| |
| $1,393,406 |
| |
| $— |
| |
| $5,544,060 |
|
Cash | | | | | | | | 929 |
| | | | | | | | 2,591 |
|
Other pending transactions | | | | | | | | 8,869 |
| | | | | | | | 5,956 |
|
Less: Other postretirement assets included in total investments | | | | | | | | (46,824 | ) | | | | | | | | (55,192 | ) |
Total fair value of qualified pension assets | | | | | | | |
| $5,171,202 |
| | | | | | | |
| $5,497,415 |
|
Other Postretirement Trusts
| | 2017 | | Level 1 | | Level 2 | | Level 3 | | Total | |
2019 | | | Level 1 | | Level 2 | | Level 3 | | Total |
| | (In Thousands) | | (In Thousands) |
Equity securities: | | | | | | | | | | | | | | | | |
Common collective trust (c) | | | | | | | |
| $300,139 |
| | | | | | | |
| $289,398 |
|
Fixed income securities: | | | | | | | | |
| | | | | | | | |
|
U.S. Government securities | | 81,602 |
| (b) | 76,790 |
| (a) | — |
| | 158,392 |
| | 49,930 |
| (b) | 89,297 |
| (a) | — |
| | 139,227 |
|
Corporate debt instruments | | — |
| | 92,869 |
| (a) | — |
| | 92,869 |
| | — |
| | 130,333 |
| (a) | — |
| | 130,333 |
|
Registered investment companies | | 3,127 |
| (d) | — |
| | — |
| | 3,127 |
| | 1,877 |
| (d) | — |
| | — |
| | 1,877 |
|
Other | | — |
| | 45,627 |
| (f) | — |
| | 45,627 |
| | — |
| | 57,210 |
| (f) | — |
| | 57,210 |
|
Total investments | |
| $84,729 |
| |
| $215,286 |
| |
| $— |
| |
| $600,154 |
| |
| $51,807 |
| |
| $276,840 |
| |
| $— |
| |
| $618,045 |
|
Other pending transactions | | | | | | | | 994 |
| | | | | | | | 1,645 |
|
Plus: Other postretirement assets included in the investments of the qualified pension trust | | | | | | | | 58,179 |
| | | | | | | | 66,572 |
|
Total fair value of other postretirement assets | | | | | | | |
| $659,327 |
| | | | | | | |
| $686,262 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
| | 2016 | | Level 1 | | Level 2 | | Level 3 | | Total | |
2018 | | | Level 1 | | Level 2 | | Level 3 | | Total |
| | (In Thousands) | | (In Thousands) |
Equity securities: | | | | | | | | | | | | | | | | |
Common collective trust (c) | | | | | | | |
| $368,704 |
| | | | | | | |
| $244,729 |
|
Fixed income securities: | | | | | | | | |
| | | | | | | | |
|
U.S. Government securities | | 30,632 |
| (b) | 43,097 |
| (a) | — |
| | 73,729 |
| | 63,174 |
| (b) | 80,039 |
| (a) | — |
| | 143,213 |
|
Corporate debt instruments | | — |
| | 58,787 |
| (a) | — |
| | 58,787 |
| | — |
| | 105,989 |
| (a) | — |
| | 105,989 |
|
Registered investment companies | | 3,123 |
| (d) | — |
| | — |
| | 3,123 |
| | 2,442 |
| (d) | — |
| | — |
| | 2,442 |
|
Other | | — |
| | 45,389 |
| (f) | — |
| | 45,389 |
| | — |
| | 56,980 |
| (f) | — |
| | 56,980 |
|
Total investments | |
| $33,755 |
| |
| $147,273 |
| |
| $— |
| |
| $549,732 |
| |
| $65,616 |
| |
| $243,008 |
| |
| $— |
| |
| $553,353 |
|
Other pending transactions | | | | | | | | 104 |
| | | | | | | | 1,237 |
|
Plus: Other postretirement assets included in the investments of the qualified pension trust | | | | | | | | 46,824 |
| | | | | | | | 55,192 |
|
Total fair value of other postretirement assets | | | | | | | |
| $596,660 |
| | | | | | | |
| $609,782 |
|
| |
(a) | Certain preferred stocks and certain fixed income debt securities (corporate, government, and securitized) are stated at fair value as determined by broker quotes. |
| |
(b) | Common stocks, certain preferred stocks, and certain fixed income debt securities (government) are stated at fair value determined by quoted market prices. |
| |
(c) | The common collective trusts hold investments in accordance with stated objectives. The investment strategy of the trusts is to capture the growth potential of equity markets by replicating the performance of a specified index. Net asset value per share of common collective trusts estimate fair value. Certain of these common collective trusts are not publicly quoted and are valued by the fund administrators using net asset value as a practical expedient. Accordingly, these funds are not assigned a level in the fair value table.table, but are included in the total. In 2018 the fund administrator of these investments allowed trading three times in a 30-day period at the net asset value for certain of these common collective trusts. |
| |
(d) | Registered investment companies are money market mutual funds with a stable net asset value of one dollar per share. Registered investment companies may hold investments in domestic and international bond markets or domestic equities and estimate fair value using net asset value per share. |
| |
(e) | Certain of these registered investment companies are not publicly quoted and are valued by the fund administrators using net asset value as a practical expedient. Accordingly, these funds are not assigned a level in the fair value table.table, but are included in the total. |
| |
(f) | The other remaining assets are U.S. municipal and foreign government bonds stated at fair value as determined by broker quotes. |
| |
(g) | The unallocated insurance contract investments are recorded at contract value, which approximates fair value. The contract value represents contributions made under the contract, plus interest, less funds used to pay benefits and contract expenses, and less distributions to the master trust. |
| |
(h) | 103-12 investment entities hold investments in accordance with stated objectives. The investment strategy of the investment entities is to capture the growth potential of international equity markets by replicating the performance of a specified index. 103-12 investment entities estimate fair value using net asset value as a practical expedient. Accordingly, these funds are not assigned a level in the fair value table. |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Estimated Future Benefit Payments
Based upon the assumptions used to measure Entergy’s qualified pension and other postretirement benefit obligations at December 31, 2017,2019, and including pension and other postretirement benefits attributable to estimated future employee service, Entergy expects that benefits to be paid and the Medicare Part D subsidies to be received over the next ten years for Entergy Corporation and its subsidiaries will be as follows:
| | | Estimated Future Benefits Payments | | | Estimated Future Benefits Payments | | |
| Qualified Pension | | Non-Qualified Pension | | Other Postretirement (before Medicare Subsidy) | | Estimated Future Medicare Subsidy Receipts | Qualified Pension | | Non-Qualified Pension | | Other Postretirement (before Medicare Subsidy) | | Estimated Future Medicare D Subsidy Receipts |
| (In Thousands) | (In Thousands) |
Year(s) | | | | | | | | | | | | | | |
2018 |
| $412,057 |
| |
| $26,375 |
| |
| $82,087 |
| |
| $745 |
| |
2019 |
| $435,880 |
| |
| $10,108 |
| |
| $86,685 |
| |
| $842 |
| |
2020 |
| $447,224 |
| |
| $13,364 |
| |
| $89,508 |
| |
| $956 |
|
| $548,493 |
| |
| $18,144 |
| |
| $81,100 |
| |
| $359 |
|
2021 |
| $462,624 |
| |
| $10,765 |
| |
| $92,087 |
| |
| $1,071 |
|
| $543,704 |
| |
| $15,724 |
| |
| $82,207 |
| |
| $398 |
|
2022 |
| $470,846 |
| |
| $17,425 |
| |
| $94,427 |
| |
| $1,195 |
|
| $549,488 |
| |
| $20,421 |
| |
| $82,619 |
| |
| $446 |
|
2023 - 2027 |
| $2,478,959 |
| |
| $72,181 |
| |
| $475,991 |
| |
| $8,109 |
| |
2023 | |
| $550,184 |
| |
| $19,720 |
| |
| $82,044 |
| |
| $491 |
|
2024 | |
| $554,602 |
| |
| $15,142 |
| |
| $80,649 |
| |
| $539 |
|
2025 - 2029 | |
| $2,604,810 |
| |
| $65,010 |
| |
| $373,404 |
| |
| $3,402 |
|
Based upon the same assumptions, Entergy expects that benefits to be paid and the Medicare Part D subsidies to be received over the next ten years for the Registrant Subsidiaries for their employees will be as follows:
| | Estimated Future Qualified Pension Benefits Payments | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy |
| | (In Thousands) | | (In Thousands) |
Year(s) | | | | | | | | | | | | | | | | | | | | | | | | |
2018 | |
| $87,295 |
| |
| $93,155 |
| |
| $25,833 |
| |
| $11,484 |
| |
| $25,333 |
| |
| $17,780 |
| |
2019 | |
| $87,832 |
| |
| $96,060 |
| |
| $25,977 |
| |
| $12,202 |
| |
| $25,656 |
| |
| $18,566 |
| |
2020 | |
| $88,905 |
| |
| $100,179 |
| |
| $27,198 |
| |
| $12,463 |
| |
| $26,399 |
| |
| $19,398 |
| |
| $117,460 |
| |
| $123,520 |
| |
| $37,805 |
| |
| $14,865 |
| |
| $33,558 |
| |
| $26,332 |
|
2021 | |
| $90,278 |
| |
| $103,810 |
| |
| $27,508 |
| |
| $13,087 |
| |
| $26,756 |
| |
| $20,279 |
| |
| $112,562 |
| |
| $124,235 |
| |
| $36,552 |
| |
| $14,598 |
| |
| $32,552 |
| |
| $26,529 |
|
2022 | |
| $92,061 |
| |
| $107,609 |
| |
| $27,389 |
| |
| $13,207 |
| |
| $26,310 |
| |
| $21,714 |
| |
| $112,749 |
| |
| $124,692 |
| |
| $35,779 |
| |
| $14,628 |
| |
| $32,041 |
| |
| $26,996 |
|
2023 - 2027 | |
| $479,160 |
| |
| $571,926 |
| |
| $141,912 |
| |
| $69,595 |
| |
| $130,905 |
| |
| $117,835 |
| |
2023 | | |
| $110,326 |
| |
| $123,347 |
| |
| $34,984 |
| |
| $14,472 |
| |
| $30,992 |
| |
| $27,040 |
|
2024 | | |
| $108,186 |
| |
| $122,228 |
| |
| $33,842 |
| |
| $14,028 |
| |
| $29,124 |
| |
| $26,696 |
|
2025 - 2029 | | |
| $512,732 |
| |
| $574,928 |
| |
| $152,681 |
| |
| $64,517 |
| |
| $127,736 |
| |
| $127,243 |
|
| | Estimated Future Non-Qualified Pension Benefits Payments | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas |
| | (In Thousands) | | (In Thousands) |
Year(s) | | | | | | | | | | | | | | | | | | | | |
2018 | |
| $376 |
| |
| $231 |
| |
| $135 |
| |
| $21 |
| |
| $788 |
| |
2019 | |
| $300 |
| |
| $219 |
| |
| $137 |
| |
| $55 |
| |
| $764 |
| |
2020 | |
| $355 |
| |
| $208 |
| |
| $290 |
| |
| $36 |
| |
| $895 |
| |
| $249 |
| |
| $216 |
| |
| $357 |
| |
| $17 |
| |
| $723 |
|
2021 | |
| $310 |
| |
| $196 |
| |
| $192 |
| |
| $39 |
| |
| $723 |
| |
| $278 |
| |
| $200 |
| |
| $335 |
| |
| $17 |
| |
| $817 |
|
2022 | |
| $506 |
| |
| $186 |
| |
| $201 |
| |
| $41 |
| |
| $662 |
| |
| $340 |
| |
| $184 |
| |
| $329 |
| |
| $17 |
| |
| $756 |
|
2023 - 2027 | |
| $2,196 |
| |
| $749 |
| |
| $1,462 |
| |
| $459 |
| |
| $3,762 |
| |
2023 | | |
| $269 |
| |
| $168 |
| |
| $301 |
| |
| $21 |
| |
| $844 |
|
2024 | | |
| $235 |
| |
| $154 |
| |
| $356 |
| |
| $19 |
| |
| $721 |
|
2025 - 2029 | | |
| $1,152 |
| |
| $574 |
| |
| $1,510 |
| |
| $102 |
| |
| $2,970 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
| | Estimated Future Other Postretirement Benefits Payments (before Medicare Part D Subsidy) | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy |
| | (In Thousands) | | (In Thousands) |
Year(s) | | | | | | | | | | | | | | | | | | | | | | | | |
2018 | |
| $15,282 |
| |
| $18,962 |
| |
| $4,677 |
| |
| $3,954 |
| |
| $6,485 |
| |
| $3,246 |
| |
2019 | |
| $15,398 |
| |
| $19,767 |
| |
| $4,818 |
| |
| $4,000 |
| |
| $6,842 |
| |
| $3,363 |
| |
2020 | |
| $15,349 |
| |
| $20,287 |
| |
| $5,043 |
| |
| $3,952 |
| |
| $7,101 |
| |
| $3,381 |
| |
| $13,088 |
| |
| $18,545 |
| |
| $4,046 |
| |
| $3,384 |
| |
| $6,292 |
| |
| $2,932 |
|
2021 | |
| $15,483 |
| |
| $20,756 |
| |
| $5,218 |
| |
| $3,899 |
| |
| $7,369 |
| |
| $3,537 |
| |
| $13,074 |
| |
| $18,703 |
| |
| $4,205 |
| |
| $3,255 |
| |
| $6,468 |
| |
| $3,044 |
|
2022 | |
| $15,419 |
| |
| $21,250 |
| |
| $5,331 |
| |
| $3,800 |
| |
| $7,519 |
| |
| $3,595 |
| |
| $12,801 |
| |
| $18,754 |
| |
| $4,261 |
| |
| $3,112 |
| |
| $6,520 |
| |
| $3,055 |
|
2023 - 2027 | |
| $75,293 |
| |
| $108,290 |
| |
| $26,723 |
| |
| $17,698 |
| |
| $36,897 |
| |
| $17,677 |
| |
2023 | | |
| $12,450 |
| |
| $18,588 |
| |
| $4,249 |
| |
| $2,997 |
| |
| $6,446 |
| |
| $2,990 |
|
2024 | | |
| $12,155 |
| |
| $18,087 |
| |
| $4,250 |
| |
| $2,864 |
| |
| $6,239 |
| |
| $2,893 |
|
2025 - 2029 | | |
| $55,553 |
| |
| $84,395 |
| |
| $20,672 |
| |
| $12,151 |
| |
| $29,004 |
| |
| $13,110 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
Estimated Future Medicare Part D Subsidy | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy |
| | (In Thousands) |
Year(s) | | | | | | | | | | | | |
2020 | |
| $78 |
| |
| $78 |
| |
| $27 |
| |
| $15 |
| |
| $28 |
| |
| $13 |
|
2021 | |
| $86 |
| |
| $87 |
| |
| $28 |
| |
| $15 |
| |
| $31 |
| |
| $14 |
|
2022 | |
| $95 |
| |
| $95 |
| |
| $31 |
| |
| $17 |
| |
| $32 |
| |
| $16 |
|
2023 | |
| $104 |
| |
| $104 |
| |
| $32 |
| |
| $17 |
| |
| $35 |
| |
| $19 |
|
2024 | |
| $111 |
| |
| $114 |
| |
| $35 |
| |
| $17 |
| |
| $38 |
| |
| $22 |
|
2025 - 2029 | |
| $685 |
| |
| $719 |
| |
| $205 |
| |
| $94 |
| |
| $222 |
| |
| $152 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
Estimated Future Medicare Part D Subsidy | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy |
| | (In Thousands) |
Year(s) | | | | | | | | | | | | |
2018 | |
| $164 |
| |
| $168 |
| |
| $58 |
| |
| $38 |
| |
| $64 |
| |
| $23 |
|
2019 | |
| $185 |
| |
| $187 |
| |
| $65 |
| |
| $39 |
| |
| $69 |
| |
| $27 |
|
2020 | |
| $209 |
| |
| $210 |
| |
| $70 |
| |
| $41 |
| |
| $75 |
| |
| $33 |
|
2021 | |
| $230 |
| |
| $234 |
| |
| $76 |
| |
| $43 |
| |
| $81 |
| |
| $38 |
|
2022 | |
| $254 |
| |
| $257 |
| |
| $82 |
| |
| $46 |
| |
| $88 |
| |
| $46 |
|
2023 - 2027 | |
| $1,646 |
| |
| $1,720 |
| |
| $514 |
| |
| $259 |
| |
| $552 |
| |
| $346 |
|
Contributions
Entergy currently expects to contribute approximately $352.1$216.3 million to its qualified pension plans and approximately $52.3$49.1 million to other postretirement plans in 2018.2020. The expected 20182020 pension and other postretirement plan contributions of the Registrant Subsidiaries for their employees are shown below. The 20182020 required pension contributions will be known with more certainty when the January 1, 20182020 valuations are completed, which is expected by April 1, 2018.2020.
The Registrant Subsidiaries expect to contribute approximately the following to the qualified pension and other postretirement plans for their employees in 2018:2020:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy |
| (In Thousands) |
Pension Contributions |
| $32,512 |
| |
| $38,766 |
| |
| $7,768 |
| |
| $3,248 |
| |
| $3,549 |
| |
| $10,544 |
|
Other Postretirement Contributions |
| $509 |
| |
| $18,545 |
| |
| $130 |
| |
| $162 |
| |
| $61 |
| |
| $21 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy |
| (In Thousands) |
Pension Contributions |
| $64,062 |
| |
| $71,917 |
| |
| $14,933 |
| |
| $7,250 |
| |
| $10,883 |
| |
| $13,786 |
|
Other Postretirement Contributions |
| $472 |
| |
| $18,962 |
| |
| $110 |
| |
| $3,669 |
| |
| $3,231 |
| |
| $16 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Actuarial Assumptions
The significant actuarial assumptions used in determining the pension PBO and the other postretirement benefit APBO as of December 31, 20172019 and 20162018 were as follows:
|
| | | |
| 2019 | | 2018 |
Weighted-average discount rate: | | | |
Qualified pension | 3.26% - 3.43% Blended 3.39% | | 4.37% - 4.52% Blended 4.47% |
Other postretirement | 3.26% | | 4.42% |
Non-qualified pension | 2.72% | | 3.98% |
Weighted-average rate of increase in future compensation levels | 3.98% - 4.40% | | 3.98% |
Assumed health care trend rate: | | | |
Pre-65 | 6.13% | | 6.59% |
Post-65 | 6.25% | | 7.15% |
Ultimate rate | 4.75% | | 4.75% |
Year ultimate rate is reached and beyond: |
| | |
Pre-65 | 2027 | | 2027 |
Post-65 | 2027 | | 2026 |
|
| | | |
| 2017 | | 2016 |
Weighted-average discount rate: | | | |
Qualified pension | 3.70% - 3.82% Blended 3.78% | | 4.30% - 4.49% Blended 4.39% |
Other postretirement | 3.72% | | 4.30% |
Non-qualified pension | 3.34% | | 3.63% |
Weighted-average rate of increase in future compensation levels | 3.98% | | 3.98% |
Assumed health care trend rate: | | | |
Pre-65 | 6.95% | | 6.55% |
Post-65 | 7.25% | | 7.25% |
Ultimate rate | 4.75% | | 4.75% |
Year ultimate rate is reached and beyond: |
| | |
Pre-65 | 2027 | | 2026 |
Post-65 | 2027 | | 2026 |
The significant actuarial assumptions used in determining the net periodic pension and other postretirement benefit costs for 2017, 2016,2019, 2018, and 20152017 were as follows:
|
| | | | | |
| 2019 | | 2018 | | 2017 |
Weighted-average discount rate: | | | | | |
Qualified pension: | | | | | |
Service cost | 4.57% | | 3.89% | | 4.75% |
Interest cost | 4.15% | | 3.44% | | 3.73% |
Other postretirement: | | | | | |
Service cost | 4.62% | | 3.88% | | 4.60% |
Interest cost | 4.01% | | 3.33% | | 3.61% |
Non-qualified pension: | | | | | |
Service cost | 3.94% | | 3.35% | | 3.65% |
Interest cost | 3.46% | | 2.76% | | 3.10% |
Weighted-average rate of increase in future compensation levels | 3.98% | | 3.98% | | 3.98% |
Expected long-term rate of return on plan assets: | | | | | |
Pension assets | 7.25% | | 7.50% | | 7.50% |
Other postretirement non-taxable assets | 6.5%-7.25% | | 6.50% - 7.50% | | 6.50% - 7.50% |
Other postretirement taxable assets | 5.50% | | 5.50% | | 5.75% |
Assumed health care trend rate: | | | | | |
Pre-65 | 6.59% | | 6.95% | | 6.55% |
Post-65 | 7.15% | | 7.25% | | 7.25% |
Ultimate rate | 4.75% | | 4.75% | | 4.75% |
Year ultimate rate is reached and beyond: |
| |
| |
|
Pre-65 | 2027 | | 2027 | | 2026 |
Post-65 | 2026 | | 2027 | | 2026 |
|
| | | | | |
| 2017 | | 2016 | | 2015 |
Weighted-average discount rate: | | | | | |
Qualified pension: | | | | | |
Service cost | 4.75% | | 5.00% | | 4.27% |
Interest cost | 3.73% | | 3.90% | | 4.27% |
Other postretirement: | | | | | |
Service cost | 4.60% | | 4.92% | | 4.23% |
Interest cost | 3.61% | | 3.78% | | 4.23% |
Non-qualified pension: | | | | | |
Service cost | 3.65% | | 3.65% | | 3.61% |
Interest cost | 3.10% | | 3.10% | | 3.61% |
Weighted-average rate of increase in future compensation levels | 3.98% | | 4.23% | | 4.23% |
Expected long-term rate of return on plan assets: | | | | | |
Pension assets | 7.50% | | 7.75% | | 8.25% |
Other postretirement non-taxable assets | 6.50% - 7.50% | | 7.75% | | 8.05% |
Other postretirement taxable assets | 5.75% | | 6.00% | | 6.25% |
Assumed health care trend rate: | | | | | |
Pre-65 | 6.55% | | 6.75% | | 7.10% |
Post-65 | 7.25% | | 7.55% | | 7.70% |
Ultimate rate | 4.75% | | 4.75% | | 4.75% |
Year ultimate rate is reached and beyond: |
| |
| |
|
Pre-65 | 2026 | | 2024 | | 2023 |
Post-65 | 2026 | | 2024 | | 2023 |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
In 2016, Entergy refined its approach to estimating the service cost and interest cost components of qualified pension, other postretirement, and non-qualified pension costs. Under the refined approach, instead of using the weighted-average obligation discount rates at the beginning of the year, 2016 service cost and interest costs’ expected cash flows were discounted by the applicable spot rates. The refinement in approach was a change in accounting estimate and, accordingly, the effect was reflected prospectively. The measurement of the benefit obligation was not affected.
With respect to the mortality assumptions, Entergy used the RP-2014Pri-2012 Employee and Healthy Annuitant Tables (adjusted to base year 2006) with a fully generational MP-2017MP-2019 projection scale, in determining its December 31, 20172019 pension plans’ PBOs and the Pri.H 2012 (headcount weighted) Employee and Healthy Annuitant Tables with a fully generational MP-2019 projection scale, in determining its December 31, 2019 other postretirement benefit APBO. Entergy used the RP-2014 Employee and Healthy Annuitant Tables (adjusted to base year 2006) with a fully generational MP-2016MP-2018 projection scale, in determining its December 31, 20162018 pension plans’ PBOs and other postretirement benefit APBO.
Entergy’s health care cost trend is affected by both medical cost inflation, and with respect to capped costs, the effects of general inflation. A one percentage point change in Entergy’s assumed health care cost trend rate for 20172019 would have the following effects:
|
| | | | | | | | | | | | | | | | |
| | 1 Percentage Point Increase | | 1 Percentage Point Decrease |
2019 | | Impact on the APBO | | Impact on the sum of service costs and interest cost | | Impact on the APBO | | Impact on the sum of service costs and interest cost |
| | Increase /(Decrease) (In Thousands) |
Entergy Corporation and its subsidiaries | |
| $109,954 |
| |
| $7,310 |
| |
| ($92,504 | ) | |
| ($5,970 | ) |
|
| | | | | | | | | | | | | | | | |
| | 1 Percentage Point Increase | | 1 Percentage Point Decrease |
2017 | | Impact on the APBO | | Impact on the sum of service costs and interest cost | | Impact on the APBO | | Impact on the sum of service costs and interest cost |
| | Increase /(Decrease) (In Thousands) |
Entergy Corporation and its subsidiaries | |
| $166,814 |
| |
| $10,221 |
| |
| ($139,648 | ) | |
| ($8,385 | ) |
The Registrant Subsidiaries’ health care cost trend is affected by both medical cost inflation, and with respect to capped costs, the effects of general inflation. A one percentage point change in the assumed health care cost trend rate for 20172019 would have the following effects for the Registrant Subsidiaries for their employees:
|
| | | | | | | | | | | | | | | | |
| | 1 Percentage Point Increase | | 1 Percentage Point Decrease |
2019 | | Impact on the APBO | | Impact on the sum of service costs and interest cost | | Impact on the APBO | | Impact on the sum of service costs and interest cost |
| | Increase/(Decrease) (In Thousands) |
Entergy Arkansas | |
| $14,480 |
| |
| $908 |
| |
| ($12,259 | ) | |
| ($748 | ) |
Entergy Louisiana | |
| $24,987 |
| |
| $1,769 |
| |
| ($21,017 | ) | |
| ($1,443 | ) |
Entergy Mississippi | |
| $6,085 |
| |
| $420 |
| |
| ($5,122 | ) | |
| ($343 | ) |
Entergy New Orleans | |
| $2,763 |
| |
| $179 |
| |
| ($2,363 | ) | |
| ($148 | ) |
Entergy Texas | |
| $8,561 |
| |
| $482 |
| |
| ($7,230 | ) | |
| ($397 | ) |
System Energy | |
| $4,876 |
| |
| $364 |
| |
| ($4,048 | ) | |
| ($294 | ) |
|
| | | | | | | | | | | | | | | | |
| | 1 Percentage Point Increase | | 1 Percentage Point Decrease |
2017 | | Impact on the APBO | | Impact on the sum of service costs and interest cost | | Impact on the APBO | | Impact on the sum of service costs and interest cost |
| | Increase/(Decrease) (In Thousands) |
Entergy Arkansas | |
| $23,612 |
| |
| $1,369 |
| |
| ($19,810 | ) | |
| ($1,133 | ) |
Entergy Louisiana | |
| $37,240 |
| |
| $2,333 |
| |
| ($31,063 | ) | |
| ($1,909 | ) |
Entergy Mississippi | |
| $8,666 |
| |
| $448 |
| |
| ($7,276 | ) | |
| ($370 | ) |
Entergy New Orleans | |
| $4,585 |
| |
| $251 |
| |
| ($3,895 | ) | |
| ($208 | ) |
Entergy Texas | |
| $12,444 |
| |
| $751 |
| |
| ($10,452 | ) | |
| ($618 | ) |
System Energy | |
| $7,334 |
| |
| $475 |
| |
| ($6,074 | ) | |
| ($387 | ) |
Defined Contribution Plans
Entergy sponsors the Savings Plan of Entergy Corporation and Subsidiaries (System Savings Plan). The System Savings Plan is a defined contribution plan covering eligible employees of Entergy and certain of its subsidiaries. The participating Entergy subsidiary makes matching contributions to the System Savings Plan for all eligible participating employees in an amount equal to either 70% or 100% of the participants’ basic contributions, up to 6% of their eligible earnings per pay period. The matching contribution is allocated to investments as directed by the employee.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Entergy also sponsors the Savings Plan of Entergy Corporation and Subsidiaries IV (established in March 2002), the Savings Plan of Entergy Corporation and Subsidiaries VI (established in April 2007), and the Savings Plan of Entergy Corporation and Subsidiaries VII (established in April 2007) to which matching contributions are also made. The plans are defined contribution plans that cover eligible employees, as defined by each plan, of Entergy and certain of its subsidiaries. Effective as of the close of business on December 31, 2017, the Savings Plan of Entergy Corporation and Subsidiaries IV (Entergy Savings Plan IV) was merged into the System Savings Plan and all of the assets of Entergy Savings Plan IV were transferred to the System Savings Plan.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Entergy’s subsidiaries’ contributions to defined contribution plans collectively were $57.6 million in 2019, $54.3 million in 2018, and $49.1 million in 2017, $47 million in 2016, and $44.4 million in 2015.2017. The majority of the contributions were to the System Savings Plan.
The Registrant Subsidiaries’ 2017, 2016,2019, 2018, and 20152017 contributions to defined contribution plans for their employees were as follows:
|
| | | | | | | | | | | | | | | | | | | | |
Year | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas |
| | (In Thousands) |
2019 | |
| $4,111 |
| |
| $5,641 |
| |
| $2,424 |
| |
| $882 |
| |
| $2,136 |
|
2018 | |
| $3,985 |
| |
| $5,450 |
| |
| $2,307 |
| |
| $795 |
| |
| $1,992 |
|
2017 | |
| $3,741 |
| |
| $5,079 |
| |
| $2,133 |
| |
| $731 |
| |
| $1,865 |
|
|
| | | | | | | | | | | | | | | | | | | | |
Year | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas |
| | (In Thousands) |
2017 | |
| $3,741 |
| |
| $5,079 |
| |
| $2,133 |
| |
| $731 |
| |
| $1,865 |
|
2016 | |
| $3,528 |
| |
| $4,746 |
| |
| $1,997 |
| |
| $708 |
| |
| $1,778 |
|
2015 | |
| $3,242 |
| |
| $4,324 |
| |
| $1,920 |
| |
| $721 |
| |
| $1,620 |
|
NOTE 12. STOCK-BASED COMPENSATION (Entergy Corporation)
Entergy grants stock options, restricted stock, performance units, and restricted stock unit awardsunits to key employees of the Entergy subsidiaries under its Equity Ownership Plans which are shareholder-approved stock-based compensation plans. Effective May 8, 2015,3, 2019, Entergy’s shareholders approved the 2015 Equity Ownership and Long-Term Cash2019 Omnibus Incentive Plan (2015(2019 Plan). The maximum number of common shares that can be issued from the 20152019 Plan for stock-based awards is 6,900,000 with no more than 1,500,0007,300,000 all of which are available for incentive stock option grants. The 20152019 Plan only applies to awards granted on or after May 8, 20153, 2019 and awards will expire ten years from the date of grant. As of December 31, 2017,2019, there were 3,498,7887,266,822 authorized shares remaining for stock-based awards, including 1,500,000 for incentive stock option grants.awards.
Stock Options
Stock options are granted at exercise prices that equal the closing market price of Entergy Corporation common stock on the date of grant. Generally, stock options granted will become exercisable in equal amounts on each of the first three anniversaries of the date of grant. Unless they are forfeited previously under the terms of the grant, options expire 10 years after the date of the grant if they are not exercised.
The following table includes financial information for stock options for each of the years presented:
|
| | | | | |
| 2019 | | 2018 | | 2017 |
| (In Millions) |
Compensation expense included in Entergy’s consolidated net income | $3.8 | | $4.3 | | $4.4 |
Tax benefit recognized in Entergy’s consolidated net income | $1.0 | | $1.1 | | $1.7 |
Compensation cost capitalized as part of fixed assets and inventory | $1.4 | | $0.7 | | $0.7 |
|
| | | | | |
| 2017 | | 2016 | | 2015 |
| (In Millions) |
Compensation expense included in Entergy’s consolidated net income | $4.4 | | $4.4 | | $4.3 |
Tax benefit recognized in Entergy’s consolidated net income | $1.7 | | $1.7 | | $1.6 |
Compensation cost capitalized as part of fixed assets and inventory | $0.7 | | $0.7 | | $0.7 |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Entergy determines the fair value of the stock option grants by considering factors such as lack of marketability, stock retention requirements, and regulatory restrictions on exercisability in accordance with accounting standards. The stock option weighted-average assumptions used in determining the fair values are as follows:
|
| | | | | |
| 2019 | | 2018 | | 2017 |
Stock price volatility | 17.23% | | 17.44% | | 18.39% |
Expected term in years | 7.32 | | 7.33 | | 7.35 |
Risk-free interest rate | 2.50% | | 2.54% | | 2.31% |
Dividend yield | 4.50% | | 4.75% | | 4.75% |
Dividend payment per share | $3.66 | | $3.58 | | $3.50 |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
|
| | | | | |
| 2017 | | 2016 | | 2015 |
Stock price volatility | 18.39% | | 20.38% | | 23.62% |
Expected term in years | 7.35 | | 7.25 | | 7.06 |
Risk-free interest rate | 2.31% | | 1.77% | | 1.59% |
Dividend yield | 4.75% | | 4.50% | | 4.50% |
Dividend payment per share | $3.50 | | $3.42 | | $3.34 |
Stock price volatility is calculated based upon the daily public stock price volatility of Entergy Corporation common stock over a period equal to the expected term of the award. The expected term of the options is based upon historical option exercises and the weighted average life of options when exercised and the estimated weighted average life of all vested but unexercised options. In 2008, Entergy implemented stock ownership guidelines for its senior executive officers. These guidelines require an executive officer to own shares of Entergy Corporation common stock equal to a specified multiple of his or her salary. Until an executive officer achieves this ownership position the executive officer is required to retain 75% of the net-of-tax net profit upon exercise of the option to be held in Entergy Corporation common stock. The reduction in fair value of the stock options due to this restriction is based upon an estimate of the call option value of the reinvested gain discounted to present value over the applicable reinvestment period.
A summary of stock option activity for the year ended December 31, 20172019 and changes during the year are presented below:
|
| | | | | | | | |
| Number of Options | | Weighted- Average Exercise Price | | Aggregate Intrinsic Value | | Weighted- Average Contractual Life |
Options outstanding as of January 1, 2019 | 2,993,333 |
| | $75.14 | | | | |
Options granted | 693,161 |
| | $89.19 | | | | |
Options exercised | (1,227,047 | ) | | $76.35 | | | | |
Options forfeited/expired | (10,534 | ) | | $81.68 | | | | |
Options outstanding as of December 31, 2019 | 2,448,913 |
| | $78.48 | | $101,178,880 | | 7.03 years |
Options exercisable as of December 31, 2019 | 1,160,665 |
| | $73.97 | | $53,192,483 | | 5.47 years |
Weighted-average grant-date fair value of options granted during 2019 | $8.32 | | | | | | |
|
| | | | | | | | |
| Number of Options | | Weighted- Average Exercise Price | | Aggregate Intrinsic Value | | Weighted- Average Contractual Life |
Options outstanding as of January 1, 2017 | 7,137,210 |
| | $84.91 | | | | |
Options granted | 791,900 |
| | $70.53 | | | | |
Options exercised | (1,109,306 | ) | | $72.74 | | | | |
Options forfeited/expired | (1,654,950 | ) | | $91.36 | | | | |
Options outstanding as of December 31, 2017 | 5,164,854 |
| | $83.26 | | $— | | 4.18 years |
Options exercisable as of December 31, 2017 | 4,027,902 |
| | $86.37 | | $— | | 2.94 years |
Weighted-average grant-date fair value of options granted during 2017 | $6.54 | | | | | | |
The weighted-average grant-date fair value of options granted during the year was $7.40$6.99 for 20162018 and $11.41$6.54 for 2015.2017. The total intrinsic value of stock options exercised was $29 million during 2019, $19 million during 2018, and $11 million during 2017, $5 million during 2016, and $5 million during 2015.2017. The intrinsic value, which has no effect on net income, of the outstanding stock options exercised is calculated by the positive difference between the weighted average exercise price of the stock options granted and Entergy Corporation’s common stock price as of December 31, 2017. Because Entergy’s year-end common stock price was less than the weighted average exercise price, the2019. The aggregate intrinsic value of the stock options outstanding as of December 31, 20172019 was zero.$101 million. The intrinsic value of “in the money” stock options is $32$101 million as of December 31, 2017.2019. Entergy recognizes compensation cost over the vesting period of the options based on their grant-date fair value. The total fair value of options that vested was approximately $5 million during 2019, $4 million during 2018, and $6 million during 2017, $5 million during 2016, and $4 million during 2015.2017. Cash received from option exercises was $81$93 million for the year ended December 31, 2017.2019. The tax benefits realized from options exercised was $4$7 million for the year ended December 31, 2017.2019.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The following table summarizes information about stock options outstanding as of December 31, 2017:2019:
|
| | | | | | | | | | | | | | | |
| | | Options Outstanding | | Options Exercisable |
Range of Exercise Price | | As of December 31, 2019 | | Weighted-Average Remaining Contractual Life-Yrs. | | Weighted Average Exercise Price | | Number Exercisable as of December 31, 2019 | | Weighted Average Exercise Price |
| $51 | - | $64.99 | | 244,200 |
| | 3.72 | | $63.69 | | 244,200 |
| | $63.69 |
| $65 | - | $78.99 | | 1,323,452 |
| | 6.89 | | $73.97 | | 694,093 |
| | $72.50 |
| $79 | - | $91.99 | | 881,261 |
| | 8.15 | | $89.36 | | 222,372 |
| | $89.85 |
| $51 | - | $89.90 | | 2,448,913 |
| | 7.03 | | $78.48 | | 1,160,665 |
| | $73.97 |
|
| | | | | | | | | | | | | | | |
| | | Options Outstanding | | Options Exercisable |
Range of | | As of | | Weighted-Average Remaining Contractual Life-Yrs. | | Weighted Average Exercise Price | | Number Exercisable as of | | Weighted Average Exercise Price |
Exercise Prices | | 12/31/2017 | | | | 12/31/2017 | |
| $51 | - | $64.99 | | 502,709 |
| | 5.73 | | $63.68 | | 502,709 |
| | $63.68 |
| $65 | - | $78.99 | | 2,790,045 |
| | 5.56 | | $72.94 | | 1,751,402 |
| | $74.36 |
| $79 | - | $91.99 | | 441,000 |
| | 7.08 | | $89.90 | | 342,691 |
| | $89.90 |
| $92 | - | $108.20 | | 1,431,100 |
| | 0.06 | | $108.20 | | 1,431,100 |
| | $108.20 |
| $51 | - | $108.20 | | 5,164,854 |
| | 4.18 | | $83.26 | | 4,027,902 |
| | $86.37 |
Stock-based compensation cost related to non-vested stock options outstanding as of December 31, 20172019 not yet recognized is approximately $6 million and is expected to be recognized over a weighted-average period of 1.701.74 years.
Restricted Stock Awards
Entergy grants restricted stock awards earned under its stock benefit plans in the form of stock units. One-third of the restricted stock awards will vest upon each anniversary of the grant date and are expensed ratably over the three yearthree-year vesting period. Shares of restricted stock have the same dividend and voting rights as other common stock and are considered issued and outstanding shares of Entergy upon vesting. In January 20172019 the Board approved and Entergy granted 379,850355,537 restricted stock awards under the 2015 Equity Ownership and Long-term Cash Incentive Plan. The restricted stock awards were made effective as of January 26, 201731, 2019 and were valued at $70.53$89.19 per share, which was the closing price of Entergy Corporation’s common stock on that date.
The following table includes information about the restricted stock awards outstanding as of December 31, 2017:2019:
|
| | | | |
| Shares | | Weighted-Average Grant Date Fair Value Per Share |
Outstanding shares at January 1, 2019 | 693,527 |
| | $74.17 |
Granted | 379,690 |
| | $88.75 |
Vested | (346,842 | ) | | $72.96 |
Forfeited | (34,241 | ) | | $78.66 |
Outstanding shares at December 31, 2019 | 692,134 |
| | $82.56 |
|
| | | | |
| Shares | | Weighted-Average Grant Date Fair Value Per Share |
Outstanding shares at January 1, 2017 | 683,474 |
| | $74.80 |
Granted | 410,787 |
| | $70.71 |
Vested | (330,816 | ) | | $73.61 |
Forfeited | (53,834 | ) | | $75.63 |
Outstanding shares at December 31, 2017 | 709,611 |
| | $72.92 |
The following table includes financial information for restricted stock for each of the years presented:
|
| | | | | |
| 2019 | | 2018 | | 2017 |
| (In Millions) |
Compensation expense included in Entergy’s consolidated net income | $20.2 | | $19.8 | | $19.7 |
Tax benefit recognized in Entergy’s consolidated net income | $5.1 | | $5.1 | | $7.6 |
Compensation cost capitalized as part of fixed assets and inventory | $7.1 | | $5.7 | | $5.2 |
|
| | | | | |
| 2017 | | 2016 | | 2015 |
| (In Millions) |
Compensation expense included in Entergy’s consolidated net income | $19.7 | | $19.8 | | $19.5 |
Tax benefit recognized in Entergy’s consolidated net income | $7.6 | | $7.6 | | $7.5 |
Compensation cost capitalized as part of fixed assets and inventory | $5.2 | | $4.5 | | $3.9 |
The total fair value of the restricted stock awards granted was $34 million, $28 million, and $29 million for each of the years ended December 31, 2017, 2016,2019, 2018, and 2015.2017.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The total fair value of the restricted stock awards vested was $24$25 million, $23$25 million, and $29$24 million for the years ended December 31, 2017, 2016,2019, 2018, and 2015,2017, respectively.
Long-Term Performance Unit Program
Entergy grants long-term incentive awards earned under its stock benefit plans in the form of performance units, which represents the value of, and are settled with, one share of Entergy Corporation common stock at the end of the three-year performance period, plus dividends accrued during the performance period.period on the number of performance units earned. The Long-Term Performance Unit Program specifies a minimum, target, and maximum achievement level, the achievement of which will determine the number of performance units that may be earned. Entergy measures performance by assessing Entergy’s total shareholder return relative to the total shareholder return of the companies in the Philadelphia Utility Index. There is no payout forFor the 2019-2020 performance that falls within the lowest quartile ofperiod, performance of the peer companies. For top quartile performance,will be measured based 80 percent on relative total shareholder return and 20 percent on a maximum payout of 200% of target is earned.cumulative adjusted earnings per share metric.
The costs of incentive awards are charged to income over the 3-year period. In January 20172019 the Board approved and Entergy granted 220,450180,824 performance units under the 2015 Equity Ownership and Long-Term Cash Incentive Plan. The performance units were made effectivegranted as of January 26, 2017,31, 2019, and eighty percent were valued at $71.40$102.07 per share. Sharesshare based on various factors, primarily market conditions; and twenty percent were valued at $89.19 per share, the closing price of the performanceEntergy Corporation’s common stock on that date. Performance units have the same dividend and voting rights as other common stock, are considered issued and outstanding shares of Entergy upon vesting, and are expensed ratably over the 3-year vesting period.period, and compensation cost for the portion of the award based on cumulative adjusted earnings per share will be adjusted based on the number of units that ultimately vest.
The following table includes information about the long-term performance units outstanding at the target level as of December 31, 2017:2019:
|
| | | | |
| Shares | | Weighted-Average Grant Date Fair Value Per Share |
Outstanding shares at January 1, 2019 | 566,626 |
| | $79.21 |
Granted | 241,406 |
| | $96.18 |
Vested | (226,252 | ) | | $84.52 |
Forfeited | (29,847 | ) | | $87.43 |
Outstanding shares at December 31, 2019 | 551,933 |
| | $84.01 |
|
| | | | |
| Shares | | Weighted-Average Grant Date Fair Value Per Share |
Outstanding shares at January 1, 2017 | 571,551 |
| | $82.02 |
Granted | 258,808 |
| | $72.28 |
Vested | (86,964 | ) | | $67.16 |
Forfeited | (209,244 | ) | | $72.12 |
Outstanding shares at December 31, 2017 | 534,151 |
| | $83.60 |
The following table includes financial information for the long-term performance units for each of the years presented:
|
| | | | | | | | | |
| 2019 | | 2018 | | 2017 |
| (In Millions) |
Compensation expense included in Entergy’s consolidated net income | $11.1 | |
| $11.5 |
| |
| $10.8 |
|
Tax benefit recognized in Entergy’s consolidated net income | $2.8 | |
| $2.9 |
| |
| $4.2 |
|
Compensation cost capitalized as part of fixed assets and inventory | $4.0 | |
| $3.3 |
| |
| $3.0 |
|
|
| | | | | | | | | |
| 2017 | | 2016 | | 2015 |
| (In Millions) |
Compensation expense included in Entergy’s consolidated net income | $10.8 | |
| $12.3 |
| |
| $11.8 |
|
Tax benefit recognized in Entergy’s consolidated net income | $4.2 | |
| $4.8 |
| |
| $4.5 |
|
Compensation cost capitalized as part of fixed assets and inventory | $3.0 | |
| $2.9 |
| |
| $2.3 |
|
The total fair value of the long-term performance units granted was $19$23 million, $21$16 million, and $16$19 million for the years ended December 31, 2017, 2016,2019, 2018, and 2015,2017, respectively.
In January 2019, Entergy issued 226,208 shares of Entergy Corporation common stock at a share price of $86.03 for awards earned and dividends accrued under the 2016-2018 Long-Term Performance Unit Program. In
Entergy Corporation and Subsidiaries
Notes to Financial Statements
January 2018, Entergy issued 50,812 shares of Entergy Corporation common stock at a share price of $78.51 for awards earned and dividends accrued under the 2015-2017 Long-Term Performance Unit Program. In January 2017, Entergy issued 86,964 shares of Entergy Corporation common stock at a share price of $71.89 for awards earned and dividends accrued under the 2014-2016 Long-Term Performance Unit Program. In January 2016, Entergy issued 54,103 shares of Entergy Corporation common stock at a share price of $68.09 for awards earned and dividends accrued under the 2013-2015 Long-Term Performance Unit Program. In January 2015, Entergy issued 105,503 shares of Entergy Corporation common stock at a share price of $88.67 for awards earned and dividends accrued under the 2012-2014 Long-Term Performance Unit Program.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Restricted Stock Unit Awards
Entergy grants restricted stock unit awards earned under its stock benefit plans in the form of stock units that are subject to time-based restrictions. The restricted stock units may be settled in shares of Entergy Corporation common stock or the cash value of shares of Entergy Corporation common stock at the time of vesting. The costs of restricted stock unit awards are charged to income over the restricted period, which varies from grant to grant. The average vesting period for restricted stock unit awards granted is 4135 months. As of December 31, 2017,2019, there were 201,570130,463 unvested restricted stock units that are expected to vest over an average period of 2419 months.
The following table includes information about the restricted stock unit awards outstanding as of December 31, 2017:2019:
|
| | | | |
| Shares | | Weighted-Average Grant Date Fair Value Per Share |
Outstanding shares at January 1, 2019 | 186,763 |
| | $76.43 |
Granted | 26,700 |
| | $109.10 |
Vested | (83,000 | ) | | $77.05 |
Outstanding shares at December 31, 2019 | 130,463 |
| | $82.72 |
|
| | | | |
| Shares | | Weighted-Average Grant Date Fair Value Per Share |
Outstanding shares at January 1, 2017 | 181,650 |
| | $74.94 |
Granted | 40,170 |
| | $79.10 |
Vested | (5,800 | ) | | $73.22 |
Forfeited | (14,450 | ) | | $79.69 |
Outstanding shares at December 31, 2017 | 201,570 |
| | $75.48 |
The following table includes financial information for restricted stock unit awards for each of the years presented:
|
| | | | | |
| 2019 | | 2018 | | 2017 |
| (In Millions) |
Compensation expense included in Entergy’s consolidated net income | $2.2 | | $2.9 | | $2.5 |
Tax benefit recognized in Entergy’s consolidated net income | $0.6 | | $0.7 | | $1.0 |
Compensation cost capitalized as part of fixed assets and inventory | $0.9 | | $0.7 | | $0.6 |
|
| | | | | |
| 2017 | | 2016 | | 2015 |
| (In Millions) |
Compensation expense included in Entergy’s consolidated net income | $2.5 | | $2.2 | | $0.9 |
Tax benefit recognized in Entergy’s consolidated net income | $1.0 | | $0.8 | | $0.4 |
Compensation cost capitalized as part of fixed assets and inventory | $0.6 | | $0.4 | | $0.3 |
The total fair value of the restricted stock unit awards granted was $3 million, $5$2 million, and $4$3 million for the years ended December 31, 2017, 2016,2019, 2018, and 2015,2017, respectively.
The total fair value of the restricted stock unit awards vested was $0.4$6 million, $2$3 million, and $1$0.4 million for the years ended December 31, 2017, 2016,2019, 2018, and 2015,2017, respectively.
NOTE 13. BUSINESS SEGMENT INFORMATION (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)
Entergy’s reportable segments as of December 31, 20172019 are Utility and Entergy Wholesale Commodities. Utility includes the generation, transmission, distribution, and sale of electric power in portions of Arkansas, Louisiana, Mississippi, and Texas, and natural gas utility service in portions of Louisiana. Entergy Wholesale Commodities includes the ownership, operation, and decommissioning of nuclear power plants located in the northern United States and the sale of the electric power produced by its operating plants to wholesale customers. Entergy Wholesale Commodities also includes the ownership of interests in non-nuclear power plants that sell the electric power produced by those plants to wholesale customers. “All Other” includes the parent company, Entergy Corporation, and other business activity.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Entergy’s segment financial information is as follows:
| | 2017 | | Utility | | Entergy Wholesale Commodities* | | All Other | | Eliminations | | Consolidated | |
2019 | | | Utility | | Entergy Wholesale Commodities* | | All Other | | Eliminations | | Consolidated |
| | (In Thousands) | | (In Thousands) |
Operating revenues | |
| $9,417,866 |
| |
| $1,656,730 |
| |
| $— |
| |
| ($115 | ) | |
| $11,074,481 |
| |
| $9,583,985 |
| |
| $1,294,719 |
| |
| $21 |
| |
| ($52 | ) | |
| $10,878,673 |
|
Asset write-offs, impairments, and related charges | |
| $— |
| |
| $538,372 |
| |
| $— |
| |
| $— |
| |
| $538,372 |
| |
| $— |
| |
| $290,027 |
| |
| $— |
| |
| $— |
| |
| $290,027 |
|
Depreciation, amortization, & decommissioning | |
| $1,345,906 |
| |
| $448,079 |
| |
| $1,678 |
| |
| $— |
| |
| $1,795,663 |
| |
| $1,493,167 |
| |
| $384,707 |
| |
| $2,944 |
| |
| $— |
| |
| $1,880,818 |
|
Interest and investment income | |
| $218,317 |
| |
| $224,121 |
| |
| $21,669 |
| |
| ($175,910 | ) | |
| $288,197 |
| |
| $289,570 |
| |
| $414,636 |
| |
| $26,295 |
| |
| ($182,589 | ) | |
| $547,912 |
|
Interest expense | |
| $547,301 |
| |
| $23,714 |
| |
| $139,619 |
| |
| ($48,291 | ) | |
| $662,343 |
| |
| $589,395 |
| |
| $29,450 |
| |
| $178,575 |
| |
| ($54,995 | ) | |
| $742,425 |
|
Income taxes | |
| $794,616 |
| |
| ($146,480 | ) | |
| ($105,566 | ) | |
| $— |
| |
| $542,570 |
| |
| $19,634 |
| |
| ($161,295 | ) | |
| ($28,164 | ) | |
| $— |
| |
| ($169,825 | ) |
Consolidated net income (loss) | |
| $773,148 |
| |
| ($172,335 | ) | |
| ($47,840 | ) | |
| ($127,620 | ) | |
| $425,353 |
| |
| $1,425,643 |
| |
| $148,870 |
| |
| ($188,675 | ) | |
| ($127,594 | ) | |
| $1,258,244 |
|
Total assets | |
| $42,978,669 |
| |
| $5,638,009 |
| |
| $1,011,612 |
| |
| ($2,921,141 | ) | |
| $46,707,149 |
| |
| $49,557,664 |
| |
| $4,154,961 |
| |
| $514,020 |
| |
| ($2,502,733 | ) | |
| $51,723,912 |
|
Investment in affiliates - at equity | |
| $198 |
| |
| $— |
| |
| $— |
| |
| $— |
| |
| $198 |
| |
Cash paid for long-lived asset additions | |
| $3,680,513 |
| |
| $320,667 |
| |
| $438 |
| |
| $— |
| |
| $4,001,618 |
| |
| $4,527,045 |
| |
| $104,300 |
| |
| $160 |
| |
| $— |
| |
| $4,631,505 |
|
| | 2016 | | Utility | | Entergy Wholesale Commodities* | | All Other | | Eliminations | | Consolidated | |
2018 | | | Utility | | Entergy Wholesale Commodities* | | All Other | | Eliminations | | Consolidated |
| | (In Thousands) | | (In Thousands) |
Operating revenues | |
| $8,996,106 |
| |
| $1,849,638 |
| |
| $— |
| |
| ($99 | ) | |
| $10,845,645 |
| |
| $9,540,670 |
| |
| $1,468,905 |
| |
| $— |
| |
| ($123 | ) | |
| $11,009,452 |
|
Asset write-offs, impairments, and related charges | |
| $— |
| |
| $2,835,637 |
| |
| $— |
| |
| $— |
| |
| $2,835,637 |
| |
| $— |
| |
| $532,321 |
| |
| $— |
| |
| $— |
| |
| $532,321 |
|
Depreciation, amortization, & decommissioning | |
| $1,298,043 |
| |
| $374,922 |
| |
| $1,647 |
| |
| $— |
| |
| $1,674,612 |
| |
| $1,367,944 |
| |
| $388,732 |
| |
| $1,274 |
| |
| $— |
| |
| $1,757,950 |
|
Interest and investment income | |
| $189,994 |
| |
| $108,466 |
| |
| $27,385 |
| |
| ($180,718 | ) | |
| $145,127 |
| |
| $203,936 |
| |
| $14,543 |
| |
| $31,602 |
| |
| ($186,217 | ) | |
| $63,864 |
|
Interest expense | |
| $557,546 |
| |
| $22,858 |
| |
| $139,090 |
| |
| ($53,124 | ) | |
| $666,370 |
| |
| $552,919 |
| |
| $33,694 |
| |
| $179,358 |
| |
| ($58,623 | ) | |
| $707,348 |
|
Income taxes | |
| $424,388 |
| |
| ($1,192,263 | ) | |
| ($49,384 | ) | |
| $— |
| |
| ($817,259 | ) | |
| ($732,548 | ) | |
| ($269,025 | ) | |
| ($35,253 | ) | |
| $— |
| |
| ($1,036,826 | ) |
Consolidated net income (loss) | |
| $1,151,133 |
| |
| ($1,493,124 | ) | |
| ($94,917 | ) | |
| ($127,595 | ) | |
| ($564,503 | ) | |
| $1,495,061 |
| |
| ($340,641 | ) | |
| ($164,271 | ) | |
| ($127,594 | ) | |
| $862,555 |
|
Total assets | |
| $41,098,751 |
| |
| $6,696,038 |
| |
| $1,283,816 |
| |
| ($3,174,171 | ) | |
| $45,904,434 |
| |
| $44,777,167 |
| |
| $5,459,275 |
| |
| $733,366 |
| |
| ($2,694,742 | ) | |
| $48,275,066 |
|
Investment in affiliates - at equity | |
| $198 |
| |
| $— |
| |
| $— |
| |
| $— |
| |
| $198 |
| |
Cash paid for long-lived asset additions | |
| $3,754,225 |
| |
| $289,639 |
| |
| $393 |
| |
| $— |
| |
| $4,044,257 |
| |
| $3,987,424 |
| |
| $283,707 |
| |
| $86 |
| |
| $— |
| |
| $4,271,217 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
| | 2015 | | Utility | | Entergy Wholesale Commodities* | | All Other | | Eliminations | | Consolidated | |
2017 | | | Utility | | Entergy Wholesale Commodities* | | All Other | | Eliminations | | Consolidated |
| | (In Thousands) | | (In Thousands) |
Operating revenues | |
| $9,451,486 |
| |
| $2,061,827 |
| |
| $— |
| |
| ($62 | ) | |
| $11,513,251 |
| |
| $9,417,866 |
| |
| $1,656,730 |
| |
| $— |
| |
| ($115 | ) | |
| $11,074,481 |
|
Asset write-offs, impairments, and related charges | |
| $68,672 |
| |
| $2,036,234 |
| |
| $— |
| |
| $— |
| |
| $2,104,906 |
| |
| $— |
| |
| $538,372 |
| |
| $— |
| |
| $— |
| |
| $538,372 |
|
Depreciation, amortization, & decommissioning | |
| $1,238,832 |
| |
| $376,560 |
| |
| $2,156 |
| |
| $— |
| |
| $1,617,548 |
| |
| $1,345,906 |
| |
| $448,079 |
| |
| $1,678 |
| |
| $— |
| |
| $1,795,663 |
|
Interest and investment income | |
| $191,546 |
| |
| $148,654 |
| |
| $34,303 |
| |
| ($187,441 | ) | |
| $187,062 |
| |
| $218,317 |
| |
| $224,121 |
| |
| $21,669 |
| |
| ($175,910 | ) | |
| $288,197 |
|
Interest expense | |
| $543,132 |
| |
| $26,788 |
| |
| $129,750 |
| |
| ($56,201 | ) | |
| $643,469 |
| |
| $547,301 |
| |
| $23,714 |
| |
| $139,619 |
| |
| ($48,291 | ) | |
| $662,343 |
|
Income taxes | |
| $16,761 |
| |
| ($610,339 | ) | |
| ($49,349 | ) | |
| $— |
| |
| ($642,927 | ) | |
| $794,616 |
| |
| ($146,480 | ) | |
| ($105,566 | ) | |
| $— |
| |
| $542,570 |
|
Consolidated net income (loss) | |
| $1,114,516 |
| |
| ($1,065,657 | ) | |
| ($74,353 | ) | |
| ($131,240 | ) | |
| ($156,734 | ) | |
| $773,148 |
| |
| ($172,335 | ) | |
| ($47,840 | ) | |
| ($127,620 | ) | |
| $425,353 |
|
Total assets | |
| $38,356,906 |
| |
| $8,210,183 |
| |
| ($461,505 | ) | |
| ($1,457,903 | ) | |
| $44,647,681 |
| |
| $42,978,669 |
| |
| $5,638,009 |
| |
| $1,011,612 |
| |
| ($2,921,141 | ) | |
| $46,707,149 |
|
Investment in affiliates - at equity | |
| $199 |
| |
| $4,142 |
| |
| $— |
| |
| $— |
| |
| $4,341 |
| |
| $198 |
| |
| $— |
| |
| $— |
| |
| $— |
| |
| $198 |
|
Cash paid for long-lived asset additions | |
| $2,495,194 |
| |
| $569,824 |
| |
| $236 |
| |
| $— |
| |
| $3,065,254 |
| |
| $3,680,513 |
| |
| $320,667 |
| |
| $438 |
| |
| $— |
| |
| $4,001,618 |
|
Businesses marked with * are sometimes referred to as the “competitive businesses.” Eliminations are primarily intersegment activity. Almost all of Entergy’s goodwill is related to the Utility segment.
On December 29, 2014,In March 2017, Entergy sold the FitzPatrick plant, which it had intended to shut down, to Exelon. In January 2019, Entergy sold the Vermont Yankee plant, ceased power production and entered its decommissioning phase.which it had previously shut down, to NorthStar. In December 2015, Rhode Island State Energy Center, a natural gas-fired combined cycle generating plant, was sold. In October 2015 management announced the intention to shutdown the FitzPatrick plant in 2017 andAugust 2019, Entergy sold the Pilgrim plant, in 2019, earlier thanwhich it had previously expected. In 2016 management announced the planned sale of Vermont Yankee in 2018, the planned sale of FitzPatrick in 2017, and the planned amendment of the Consumers Energy PPA to terminate early, in May 2018, and the subsequent plan to shut down, the Palisades plant in 2018, earlier than expected. In January 2017 managementto Holtec. Entergy has also announced a settlement with New York Stateplans to shut down Indian Point 2 in 2020, and Indian Point 3 in 2021, both earlier than expected. In March 2017 the FitzPatrick plant was soldand Palisades in 2022, and has purchase and sale agreements with Holtec for each of them expected to Exelon. In September 2017 management announced the termination of the PPA amendment agreement with Consumers Energy and the revised plan to continue to operate Palisades under the current PPA and toclose after they are shut down Palisades permanently on May 31, 2022.
down. Management expects these transactions to result in the cessation of merchant power generation at all Entergy Wholesale Commodities nuclear power plants owned and operated by Entergy by 2022. Entergy will continue to have the obligation to decommission the nuclear plants owned by Entergy.pending their sales to third parties.
TheseThe decisions to shut down these plants and the related transactions resulted in asset impairments; employee retention and severance expenses and other benefits-related costs; and contracted economic development contributions. The employee retention and severance expenses and other benefits-related costs and contracted economic development contributions are included in "Other operation and maintenance" in the consolidated statement of operations.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Total restructuring charges in 2019, 2018, and 2017 were comprised of the following:
| | | | Employee retention and severance expenses and other benefits-related costs
| | Contracted economic development costs | | Total | | Employee retention and severance expenses and other benefits-related costs | | Contracted economic development costs | | Total |
| | (In Millions) | | (In Millions) |
Balance as of January 1, 2017 | |
| $70 |
| |
| $21 |
| |
| $91 |
| |
Balance as of December 31, 2016 | | |
| $70 |
| |
| $21 |
| |
| $91 |
|
Restructuring costs accrued | | 113 |
| | — |
| | 113 |
| | 113 |
| | — |
| | 113 |
|
Non-cash portion | | — |
| | (7 | ) | | (7 | ) | | — |
| | (7 | ) | | (7 | ) |
Cash paid out | | 100 |
| | — |
| | 100 |
| | 100 |
| | — |
| | 100 |
|
Balance as of December 31, 2017 | |
| $83 |
| |
| $14 |
| |
| $97 |
| |
| $83 |
| |
| $14 |
| |
| $97 |
|
Restructuring costs accrued | | | 139 |
| | — |
| | 139 |
|
Cash paid out | | | 43 |
| | — |
| | 43 |
|
Balance as of December 31, 2018 | | |
| $179 |
| |
| $14 |
| |
| $193 |
|
Restructuring costs accrued | | | 91 |
| | — |
| | 91 |
|
Cash paid out | | | 141 |
| | — |
| | 141 |
|
Balance as of December 31, 2019 | | |
| $129 |
| |
| $14 |
| |
| $143 |
|
Total restructuring charges in 2016 were comprised of the following:
|
| | | | | | | | | | | | |
| | Employee retention and severance expenses and other benefits-related costs
| | Contracted economic development costs | | Total |
| | (In Millions) |
Balance as of January 1, 2016 | |
| $— |
| |
| $— |
| |
| $— |
|
Restructuring costs accrued | | 74 |
| | 21 |
| | 95 |
|
Non-cash portion | | (3 | ) | | — |
| | (3 | ) |
Cash paid out | | 1 |
| | — |
| | 1 |
|
Balance as of December 31, 2016 | |
| $70 |
| |
| $21 |
| |
| $91 |
|
In addition, Entergy Wholesale Commodities incurred $0.5 billion$290 million in 2019, $532 million in 2018, and $538 million in 2017 and $2.8 billion in 2016 of impairment, loss on sales, and other related charges associated with these strategic decisions and transactions. See Note 14 to the financial statements for further discussion of these impairment charges.
Going forward, Entergy Wholesale Commodities expects to incur employee retention and severance expenses of approximately $165$75 million in 20182020 and a total of approximately $205$55 million from 20192021 through mid-20222022 associated with these strategic transactions.
Geographic Areas
For the years ended December 31, 2017, 2016,2019, 2018, and 2015,2017, the amount of revenue Entergy derived from outside of the United States was insignificant. As of December 31, 20172019 and 2016,2018, Entergy had no long-lived assets located outside of the United States.
Registrant Subsidiaries
Each of the Registrant Subsidiaries has one reportable segment, which is an integrated utility business, except for System Energy, which is an electricity generation business. Each of the Registrant Subsidiaries’ operations is managed on an integrated basis by that company because of the substantial effect of cost-based rates and regulatory oversight on the business process, cost structures, and operating results.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
NOTE 14. ACQUISITIONS, DISPOSITIONS, AND IMPAIRMENT OF LONG-LIVED ASSETS (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans)
Acquisitions
Union PowerChoctaw Generating Station
In March 2016,October 2019, Entergy Arkansas, Entergy Louisiana, and Entergy New OrleansMississippi purchased the Union PowerChoctaw Generating Station, a 1,980an 810 MW (summer rating) power generation facilitynatural gas fired combined-cycle turbine plant located near El Dorado, Arkansas,French Camp, Mississippi, from Union Power Partners, L.P.a subsidiary of GenOn Energy Inc. The Union Power Station consists of four natural gas-fired, combined-cycle gas turbine power blocks, each rated at 495 MW (summer rating). Entergy Louisiana purchased two of the power blocks and a 50% undivided ownership interest in certain assets related to the facility, and Entergy Arkansas and Entergy New Orleans each purchased one power block and a 25% undivided ownership interest in such related assets. The aggregate purchase price for the Union PowerChoctaw Generating Station was approximately $949 million (approximately $237 million for each power block$305 million.
Dispositions
Pilgrim
In July 2018, Entergy entered into a purchase and associated assets).
Palisades Purchased Power Agreement
Entergy’s purchase of the Palisades plant in 2007 includedsale agreement with Holtec International to sell to a unit-contingent, 15-year purchased power agreement (PPA) with Consumers Energy forHoltec subsidiary 100% of the plant’s output, excluding any future uprates. Prices underequity interests in Entergy Nuclear Generation Company, the PPA range from $43.50/MWhowner of the Pilgrim plant. In August 2019 the NRC approved the sale of the plant to Holtec. The transaction closed in 2007August 2019 for a purchase price of $1,000 (subject to $61.50/MWhadjustments for net liabilities and other amounts). The sale included the transfer of the Pilgrim nuclear decommissioning trust and obligation for spent fuel management and plant decommissioning. The transaction resulted in 2022,a loss of $190 million ($156 million net-of-tax) in the third quarter 2019. The disposition-date fair value of the nuclear decommissioning trust fund was approximately $1,030 million and the average price under the PPA is $51/MWh. For the PPA, which was at below-market prices at the timedisposition-date fair value of the acquisition, Entergy will amortizeasset retirement obligation was $837 million. The transaction also included property, plant, and equipment with a liability to revenue over the lifenet book value of the agreement. The amount that will be amortized each period is based upon the present value, calculated at the date of acquisition, of each year’s difference between revenue under the agreement0, materials and revenue based on estimated market prices. Amounts amortized to revenue were $28 million in 2017, $13 million in 2016,supplies, and $15 million in 2015. prepaid assets.
Willow Glen
In December 2016,2018, Entergy reached an agreement with Consumers Energy to amendLouisiana sold the existing PPA to terminate early, on May 31, 2018. Pursuant to the agreement to amend the PPA, Consumers Energy would payWillow Glen Power Station, a non-operating gas plant. Entergy $172 millionLouisiana sold Willow Glen for the early termination of the PPA. The PPA amendment agreement was subject to regulatory approvals, including approval by the Michigan Public Service Commission. Separately, Entergy intended to shut down the Palisades nuclear power plant permanently on October 1, 2018, after refueling in the spring of 2017 and operating through the end of that fuel cycle. Entergy updated the liability amortization calculation to reflect the expected early termination of the PPA.
In September 2017 the Michigan Public Service Commission issued an order conditionally approving the PPA amendment transaction, but only granting Consumers Energy recovery of $136.6 million of the $172 million requested early termination payment. As a result, Entergy and Consumers Energy agreed to terminate the PPA amendment agreement. Entergy will continue to operate Palisades under the current PPA with Consumers Energy, instead of shutting down in the fall of 2018 as previously planned. Entergy intends to shut down the Palisades nuclear power plant permanently on May 31, 2022. Based on that decision, the amounts to be amortized to revenue for the next five years will be approximately $6 million in 2018, $10 million in 2019, $11 million in 2020, $12 million in 2021,cash and $5 million in 2022.
NYPA Value Sharing Agreements
Entergy’s purchasethe transfer of the FitzPatrick and Indian Point 3 plants from NYPA included value sharing agreements with NYPA. In October 2007,obligation to decommission the plant. Entergy subsidiaries and NYPA amended and restated the value sharing agreements to clarify and amend certain provisionsLouisiana recognized a regulatory liability of the original terms. Under the amended value sharing agreements,$5.7 million for return of removal costs previously collected in rates. Entergy subsidiaries made annual payments to NYPA basedLouisiana realized a pre-tax gain of $14.8 million on the generation output ofsale. Entergy Louisiana recorded a $31.9 million regulatory liability to recognize the Indian Point 3 and FitzPatrick plants from January 2007 through December 2014. Entergy subsidiaries paid NYPA $6.59 per MWhobligation to refund excess customer collections for power sold from Indian Point 3, up to an annual cap of $48 million, and $3.91 per MWh for power sold from FitzPatrick, up to an annualdecommissioning Willow Glen.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
cap of $24 million. The annual payment for each year’s output was due by January 15 of the following year, and the final payment to NYPA was made in January 2015. Entergy recorded the liability for payments to NYPA as power was generated and sold by Indian Point 3 and FitzPatrick. An amount equal to the liability was recorded to the plant asset account as contingent purchase price consideration for the plants.
Dispositions
Vermont Yankee
In November 2016, Entergy entered into an agreement to sell 100% of the membership interests in Entergy Nuclear Vermont Yankee, LLC to a subsidiary of NorthStar. Entergy Nuclear Vermont Yankee iswas the owner of the Vermont Yankee plant and is in the Entergy Wholesale Commodities segment.plant. The sale of Entergy Nuclear Vermont Yankee to NorthStar will includeincluded the transfer of the nuclear decommissioning trust fund and the asset retirement obligation for the spent fuel management and decommissioning of the plant.
In March 2018, Entergy and NorthStar entered into a settlement agreement and a Memorandum of Understanding with State of Vermont agencies and other interested parties that set forth the terms on which the agencies and parties support the Vermont Public Utility Commission’s approval of the transaction. The agreements provide additional financial assurance for decommissioning, spent fuel management and site restoration, and detail the site restoration standards. In October 2018 the NRC issued an order approving the application to transfer Vermont Yankee’s license to NorthStar for decommissioning. In December 2018, the Vermont Public Utility Commission issued an order approving the transaction consistent with the Memorandum of Understanding’s terms. On January 11, 2019, Entergy and NorthStar closed the transaction.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Entergy Nuclear Vermont Yankee hashad an outstanding credit facility with borrowing capacity of $145 millionthat was used to pay for dry fuel storage costs. This credit facility iswas guaranteed by Entergy Corporation. At or before closing, aA subsidiary of Entergy will assumeassumed the obligations under the existing credit facility or enter into a new credit facility and Entergy will guarantee the credit facility. At the closing of the sale transaction, NorthStar will pay $1,000 for the membership interests incaused Entergy Nuclear Vermont Yankee, andrenamed NorthStar will cause Entergy Nuclear Vermont Yankee, to issue a $139 million promissory note to anthe Entergy subsidiary.subsidiary that assumed the credit facility obligations. The amount of the promissory note issued will be equal toincluded the amount drawn underbalance outstanding on the credit facility, or the amount drawn under the new credit facility, plusas well as borrowing fees and costs incurred by Entergy in connection with suchthe credit facility. The principal amount drawn under
With the outstanding credit facility was $104 millionreceipt of the NRC and Vermont Public Utility Commission approvals and the resolution among the parties of the significant conditions of the sale, Entergy concluded that as of December 31, 2017, and the net book value of Entergy Nuclear2018 Vermont Yankee including unrealized gainswas in held for sale status. Entergy accordingly evaluated the Vermont Yankee asset retirement obligation in light of the terms of the sale transaction and evaluated the remaining values of the Vermont Yankee assets. These evaluations resulted in an increase in the asset retirement obligation and $173 million of asset impairment and related other charges in the fourth quarter 2018. See Note 9 to the financial statements for additional discussion of the asset retirement obligation. Upon closing of the transaction in January 2019, the Vermont Yankee decommissioning trust, along with the decommissioning obligation for the plant, was transferred to NorthStar. The assets and liabilities associated with the sale of Vermont Yankee were classified as held for sale on the decommissioning trust fund,Entergy Corporation and Subsidiaries Consolidated Balance Sheet as of December 31, 2017, was approximately $123 million.
Entergy plans to transfer all spent nuclear fuel to dry cask storage by2018. As of December 31, 2018, the end of 2018 in advancevalue of the planned transaction close. Underdecommissioning trust was $532 million. As of December 31, 2018, the sale agreementasset retirement cost asset was $127 million, classified within other deferred debits, and related agreements to be entered into at the closing, NorthStar will commit to initiate decommissioning and site restoration by 2021 and complete those activities by 2030. The original planned completion date, as outlined in Entergy’s Post Shutdown Decommissioning Activities Report filed with the NRC,asset retirement cost obligation was 2075. Entergy Nuclear$568 million, classified within other non-current liabilities.
The Vermont Yankee under NorthStar ownership, will be required to repay the promissory note issued to Entergy with certain of the proceeds from the recovery of damages under its claims against the DOE related to spent nuclear fuel disposal with any balance remaining due at partial site release, subjectcontract was assigned to extension not to exceed two years from partial site release.
The transaction is subject to certain closing conditions, including approval by the NRC; approval by the State of Vermont Public Utility Commission, including approval of revised site restoration standards that have been proposedNorthStar as part of the transaction;transaction. The Vermont Yankee transaction resulted in Entergy generating a net deferred tax asset in January 2019. The deferred tax asset could not be fully realized by Entergy in the transferfirst quarter of all spent nuclear fuel to dry fuel storage2019; accordingly, Entergy accrued a net tax expense of $29 million on the independent spent fuel storage installation; and that the market valuedisposition of the fund assets heldVermont Yankee. The transaction also resulted in other charges of $5.4 million ($4.2 million net-of-tax) in the decommissioning trust fund for the Vermont Yankee Nuclear Power Station, less the hypothetical income tax on the aggregate unrealized net gain of such fund assets at closing, is equal to or exceeds $451.95 million, subject to adjustments. Entergy has the option to contribute to the decommissioning trust fund if the value is less than $451.95 million, subject to adjustments. The transaction is planned to close by the end of 2018.first quarter 2019.
FitzPatrick
In August 2016, Entergy entered into an agreement to sell the FitzPatrick plant, an 838 MW nuclear power plant that was owned by Entergy in the Entergy Wholesale Commodities segment. As a result of the sales agreement and the status of the necessary regulatory approvals, the assets and liabilities associated with the sale of FitzPatrick to Exelon were classified as held for sale on Entergy Corporation and Subsidiaries’ Consolidated Balance Sheet as of December 31, 2016. At December 31, 2016, the receivable for the beneficial interest in the decommissioning trust fund was $785 million, classified within other deferred debits, and the asset retirement obligation was $714 million, classified within
Entergy Corporation and Subsidiaries
Notes to Financial Statements
other non-current liabilities. See Note 9 to the financial statements for further discussion of FitzPatrick’s decommissioning liability and see Note 16 to the financial statements for further discussion of the receivables for the beneficial interest in FitzPatrick’s decommissioning trust fund.
In March 2017 the NRC approved the sale of the plant to Exelon. The transaction closed in March 2017 for a purchase price of $110 million, which included a $10 million non-refundable signing fee paid in August 2016, in addition to the assumption by Exelon of certain liabilities related to the FitzPatrick plant, resulting in a pre-tax gain on the sale of $16 million. At the transaction close, Exelon paid an additional $8 million for the proration of certain expenses prepaid by Entergy. The disposition-date fair value of the decommissioning trust fund was $805 million, classified within other deferred debits, and the disposition-date fair value of the asset retirement obligation was $727 million, classified within other non-current liabilities. The transaction also included property, plant, and equipment with a net book value of zero,0, materials and supplies, and prepaid assets.
As part of the transaction, Entergy entered into a reimbursement agreement with Exelon pursuant to which Exelon reimbursed Entergy for specified out-of-pocket costs associated with Entergy’s operation of FitzPatrick prior to closing of the sale. In the first quarter 2017, Entergy billed Exelon for reimbursement of $98 million of other operation and maintenance expenses, $7 million in lost operating revenues, and $3 million in taxes other than income taxes, partially offset by a $10 million defueling credit to Exelon.
As discussed in Note 3 to the financial statements, as a result of the sale of FitzPatrick on March 31, 2017, Entergy redetermined the plant’s tax basis, resulting in a $44 million income tax benefit in the first quarter 2017.
Top Deer
In November 2016, Entergy sold its 50% membership interest in Top Deer Wind Ventures, LLC, a wind-powered electric generation joint venture owned by Entergy in the Entergy Wholesale Commodities segment and accounted for as an equity method investment. Entergy sold its 50% membership interest in Top Deer for approximately $0.5 million and realized a pre-tax loss of $0.2 million on the sale.
Rhode Island State Energy Center
In December 2015, Entergy sold the Rhode Island State Energy Center, a 583 MW natural gas-fired combined-cycle generating plant owned by Entergy in the Entergy Wholesale Commodities segment. Entergy sold the Rhode Island State Energy Center for approximately $490 million and realized a pre-tax gain of $154 million on the sale.
Impairment of Long-lived Assets
2015 Impairment Conclusions
Entergy determined in October 2015 that it would close FitzPatrick at the end of its fuel cycle, which was planned for January 27, 2017, because of poor market conditions that led to reduced revenues, a poor market design that failed to properly compensate nuclear generators for the benefits they provide, and increased operational costs. This decision came after management’s extensive analysis of whether it was advisable economically to refuel the plant, as scheduled, in the fall of 2016. Entergy also had discussions with the State of New York regarding the future of FitzPatrick. Because of the uncertainty regarding the refueling decision and its implications to the plant’s expected operating life, Entergy tested the recoverability of the plant and related assets as of September 30, 2015. See above in the Dispositions section for further information on the subsequent decision to sell the FitzPatrick plant.
Entergy determined in October 2015 that it would close Pilgrim no later than June 1, 2019 because of poor market conditions that led to reduced revenues, a poor market design that failed to properly compensate nuclear generators for the benefits they provide, and increased operational costs. The decision came after management’s extensive analysis of the economics and operating life of the plant following the NRC’s decision in September 2015
Entergy Corporation and Subsidiaries
Notes to Financial Statements
to place the plant in its “multiple/repetitive degraded cornerstone column” (Column 4)Impairment of its Reactor Oversight Process Action Matrix. Because of the uncertainty regarding the plant’s operating life created by the NRC’s decisionLong-lived Assets
2017, 2018, and management’s analysis of the plant, Entergy tested the recoverability of the plant and related assets as of September 30, 2015.2019 Impairments
Due to the announced plant closures in October 2015, as well as the continued challenging market price trend, the high level of investment required to continue to operate the Entergy Wholesale Commodities plants, and the inadequate compensation provided to nuclear generators for their capacity benefits under the current market design, in the fourth quarter 2015, Entergy tested the recoverability of the plant and related assets of the two remaining operating nuclear power generating facilities in the Entergy Wholesale Commodities business, Palisades and Indian Point. For purposes of that evaluation, Entergy considered a number of factors associated with the facilities’ continued operation, including the status of the associated NRC licenses, the status of state regulatory issues, existing power purchase agreements, and the supply region in which the nuclear facilities sell energy and capacity.
Under generally accepted accounting principles the determination of an asset’s recoverability is based on the probability-weighted undiscounted net cash flows expected to be generated by the plant and related assets. Projected net cash flows primarily depend on the status of the operations of the plant and pending legal and state regulatory matters, as well as projections of future revenues and costs over the estimated remaining life of the plant.
The tests for FitzPatrick and Pilgrim indicated that the probability-weighted undiscounted net cash flows did not exceed the carrying values of the plants and related assets as of September 30, 2015.
The test for Palisades indicated that the probability-weighted undiscounted net cash flows did not exceed the carrying value of the plant and related assets as of December 31, 2015.
The test for Indian Point indicated that the probability-weighted undiscounted net cash flows exceeded the carrying value of the plant and related assets as of December 31, 2015. As such, the carrying value of Indian Point was not impaired as of December 31, 2015.
As of September 30, 2015, the estimated fair value of the FitzPatrick plant and related long-lived assets was $29 million, while the carrying value was $742 million, resulting in an impairment charge of $713 million. Materials and supplies were evaluated and written down by $48 million. In addition, FitzPatrick had a contract asset recorded for an agreement between Entergy subsidiaries and NYPA entered when Entergy subsidiaries purchased FitzPatrick from NYPA in 2000 and NYPA retained the decommissioning trusts and the decommissioning liabilities. The agreement gave NYPA the right to require the Entergy subsidiaries to assume the decommissioning liability provided that it assigns the decommissioning trust, up to a specified level, to Entergy. If NYPA retained the decommissioning liabilities, the Entergy subsidiaries would perform the decommissioning of the plant at a price equal to the lesser of a pre-specified level or the amount in the decommissioning trusts. The contract asset represented an estimate of the present value of the difference between the Entergy subsidiaries’ stipulated contract amount for decommissioning the plants less the decommissioning costs estimated in independent decommissioning cost studies. See Note 9 for further discussion of the contract asset. Due to a change in expectation regarding the timing of decommissioning cash flows, the result was a write down of the contract asset from $335 million to $131 million, for a charge of $204 million. In summary, as of September 30, 2015, the impairment and related charges for FitzPatrick was $965 million ($624 million net-of-tax).
As of September 30, 2015, the estimated fair value of the Pilgrim plant and related long-lived assets is $65 million, while the carrying value was $718 million, resulting in an impairment charge of $653 million. Materials and supplies were evaluated and written down by $24 million. In summary, as of September 30, 2015, the total impairment loss and related charges for Pilgrim was $677 million ($438 million net-of-tax). The pre-impairment carrying value of $718 million includes the effect of a $134 million increase in Pilgrim’s estimated decommissioning cost liability and the related asset retirement cost asset. The increase in the estimated decommissioning cost liability primarily resulted from the change in expectation regarding the timing of decommissioning cash flows.
Entergy Corporation and Subsidiaries
Notescontinues to Financial Statements
As of December 31, 2015, the estimated fair value of the Palisades plant and related long-lived assets was $463 million, while the carrying value was $859 million, resulting in an impairment charge of $396 million ($256 million net-of-tax). The pre-impairment carrying value of $859 million includes the effect of a $42 million increase in Palisades’ estimated decommissioning cost liability and the related asset retirement cost asset. The increase in the estimated decommissioning cost liability primarily resulted from the assessment of the estimated decommissioning cash flows that occurred in conjunction with the impairment analysis.
2016 Impairment Conclusions
As discussed in more detail above in the Acquisitionssection, in December 2016, Entergy reached an agreement with Consumers Energy to amend the existing PPA to terminate early, on May 31, 2018. The PPA amendment agreement was subject to regulatory approvals, including approval by the Michigan Public Service Commission. Separately, Entergy intendedexecute its strategy to shut down the Palisades nuclear power plant permanently on October 1, 2018, after refueling in the spring of 2017 and operating through the end of that fuel cycle. As a resultsell all of the planned PPA termination and its intention to shut down the plant, Entergy tested the recoverability of the plant and related assets as of December 31, 2016. Entergy and Consumers Energy subsequently agreed to terminate the PPA amendment agreement and Entergy now intends to shut down the Palisades plant permanently on May 31, 2022.
Indian Point 2 and Indian Point 3 have an application pending for renewed NRC licenses. Various parties, including the State of New York, expressed opposition to renewal of the licenses. Under federal law, nuclear powerremaining plants may continue to operate beyond their original license expiration dates while their timely filed renewal applications are pending NRC approval. Indian Point 2 reached the expiration date of its original NRC operating license on September 28, 2013, and Indian Point 3 reached the expiration date of its original NRC operating license on December 12, 2015. Upon expiration of their operating licenses, each plant entered into a period of extended operation under the timely renewal rule.
In January 2017, Entergy announced that it reached a settlement with New York State to shut down Indian Point 2 by April 30, 2020 and Indian Point 3 by April 30, 2021, and resolve all New York State-initiated legal challenges to Indian Point’s operating license renewal. As part of the settlement, New York State agreed to issue Indian Point’s water quality certification and Coastal Zone Management Act consistency certification and to withdraw its objection to license renewal before the NRC. New York State also agreed to issue a water discharge permit, which is required regardless of whether the plant is seeking a renewed NRC license. The shutdowns are conditioned, among other things, upon such actions being taken by New York State. As a result of its evaluation of alternatives to the continued operation of the Indian Point plants, and taking into consideration the status of negotiations with the State of New York, Entergy tested the recoverability of the plants and related assets as of December 31, 2016.
The tests for Palisades and Indian Point indicated that the probability-weighted undiscounted net cash flows did not exceed the carrying values of the plants and related assets as of December 31, 2016.
As of December 31, 2016 the estimated fair value of the Palisades plant and related long-lived assets was $206 million, while the carrying value was $558 million, resulting in an impairment charge of $352 million. Materials and supplies were evaluated and written down by $48 million. In summary, as of December 31, 2016, the total impairment loss and related charges for Palisades was $400 million ($258 million net-of-tax). The pre-impairment carrying value of $558 million included the effect of a $129 million increase in Palisades’ estimated decommissioning cost liability and the related asset retirement cost asset. The increase in the estimated decommissioning cost liability primarily resulted from the change in expectation regarding the timing of decommissioning cash flows. See Note 9 to the financial statements for further discussion regarding the Palisades decommissioning cost revision.
As of December 31, 2016 the estimated fair value of the Indian Point plants and related long-lived assets was $433 million, while the carrying value was $2,619 million, resulting in an impairment charge of $2,186 million. Materials and supplies were evaluated and written down by $157 million. In summary, as of December 31, 2016, the total impairment loss and related charges for Indian Point was $2,343 million ($1,511 million net-of-tax). The pre-
Entergy Corporation and Subsidiaries
Notes to Financial Statements
impairment carrying value of $2,619 million included the effect of a $392 million increase in Indian Point’s estimated decommissioning cost liability and the related asset retirement cost asset. The increase in the estimated decommissioning cost liability primarily resulted from the change in expectation regarding the timing of decommissioning cash flows. See Note 9 to the financial statements for further discussion regarding the Indian Point decommissioning cost revision.
2017 Impairment Conclusions
In 2017 Entergy management continued to execute the strategy to reduce the size of Entergy Wholesale Commodities’ merchant nuclear fleet, with the planned shutdowns of Pilgrim by May 31, 2019, Indian Point 2 by April 30, 2020, Indian Point 3 by April 30, 2021, and as discussed in further detail above in the Acquisitions section, Palisades onby May 31, 2022. The remaining three Entergy Wholesale Commodities’ nuclear plants, FitzPatrick, Vermont Yankee, and Pilgrim, have been sold. The FitzPatrick plant was classified as held-for-sale at December 31, 2016, and subsequently sold to Exelon in March 2017. The Vermont Yankee plant was classified as held-for-sale at December 31, 2018, and subsequently sold to NorthStar on January 11, 2019. The Pilgrim plant was sold to Holtec International on August 26, 2019.
In 2017 Entergy Wholesale Commodities incurred $100 million in 2019, $532 million in 2018, and $538 million in 2017 of impairment charges related to nuclear fuel spending, nuclear refueling outage spending, and expenditures for capital assets.assets, and asset retirement obligation revisions. These costs were charged to expense as incurred as a result of the impaired fair value of the Entergy Wholesale Commodities nuclear plants’ long-lived assets due to the significantly reduced remaining estimated operating lives associated with management’s strategy to reduce the size ofexit the Entergy Wholesale Commodities’Commodities merchant fleet.
As discussed above inpower business. Entergy expects to continue to incur costs associated with nuclear fuel-related spending, expenditures for capital assets and, except for Palisades, expects to continue to charge these costs to expense as incurred because Entergy expects the Acquisitions section, as a resultvalue of the Michigan Public Service Commission only grantingplants to continue to be impaired.
With respect to Palisades, Entergy and Consumers Energy partial recovery ofhad agreed to amend the requestedexisting PPA so that it would terminate early, termination payment,on May 31, 2018. In September 2017, however, Entergy and Consumers Energy agreed to terminate the PPA amendment agreement in September 2017.agreement. Entergy will continuecontinues to operate Palisades under the current PPA with Consumers Energy, instead of shutting down in the fall of 2018 as previously planned. Entergy intends to shut down the Palisades plant permanently onno later than May 31, 2022. As a result of the change in expected operating life of the Palisades plant, the expected probability-weighted undiscounted net cash flows as of September 30, 2017 exceeded the carrying value of the plant and related assets. Accordingly, nuclear fuel spending, nuclear refueling outage spending, and expenditures for capital assets incurred at Palisades after September 30, 2017 are no longer charged to expense as incurred, but recorded as assets and depreciated or amortized, subject to the typical periodic impairment reviews prescribed in the accounting rules.
Overall Regarding All Impairments
The impairments and other related charges are recorded as a separate line item in Entergy’s consolidated statements of operations and are included within the results of the Entergy Wholesale Commodities segment. In addition to the impairments and other related charges, Entergy expects to incur additional charges through mid-2022 associated with these strategic transactions. See Note 13 to the financial statements for further discussion of these additional charges.
2018 Pilgrim Impairment
The fair value analysesPilgrim plant ceased operations on May 31, 2019, at the end of its current fuel cycle. Entergy Nuclear Generation Company filed its Post-Shutdown Decommissioning Activities Report (PSDAR) with the NRC in the fourth quarter 2018 for FitzPatrick,the Pilgrim and Palisades in 2015, and Palisades and Indian Point in 2016, were performed based on the income approach, a discounted cash flow method, to determine the amount of impairment. The estimates of fair value were based on the prices that Entergy would expect to receive in hypothetical salesplant. As part of the FitzPatrick,development of the PSDAR, Entergy obtained a revised decommissioning cost study in the third quarter 2018. The revised estimate resulted in a $117.5 million increase in the decommissioning cost liability and a corresponding impairment charge in the third quarter 2018. As discussed above in Dispositions, on August 26, 2019, Entergy sold the Pilgrim Palisades, and Indian Point plants and related assetsplant to a market participant. In orderHoltec International subsidiary.
2018 Vermont Yankee Impairment
As discussed above in Dispositions, on January 11, 2019, Entergy sold the Vermont Yankee plant to determine these prices, Entergy used significant observable inputs, including quoted forward powerNorthStar. With the receipt of the NRC and gas prices, where available. Significant unobservable inputs, such as projected long-term pre-tax operating margins (cash basis) and estimated weighted-average costs of capital, were also used in the estimation of fair value. In addition, Entergy made certain assumptions regarding future tax deductions associated with the plants and related assets, the amount and timing of recoveries from future litigation with the DOE related to spent fuel storage costs,Vermont Public Utility Commission approvals and the expected operating liferesolution among the parties of the plant. Based on the use of significant unobservable inputs, the fair value measurement for the entiretyconditions of the asset group, and for each typesale, Entergy concluded that as of asset within the asset group, are classified as Level 3December 31, 2018 Vermont Yankee was in the fair value hierarchy discussed in Note 15 to the financial statements.held-
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The following table sets forth a description of significant unobservable inputs usedfor- sale status. Entergy accordingly evaluated the Vermont Yankee asset retirement obligation in the valuationlight of the FitzPatrick, Pilgrim, Palisades, and Indian Point plants and related assets:
|
| | | | |
Significant Unobservable Inputs | | Amount | | Weighted-Average |
2015 | | | | |
Weighted-average cost of capital | | | | |
FitzPatrick | | 7.5% | | 7.5% |
Pilgrim (a) | | 7.5%-8.0% | | 7.9% |
Palisades | | 7.5% | | 7.5% |
| | | | |
Long-term pre-tax operating margin (cash basis) | | | | |
FitzPatrick | | 10.2% | | 10.2% |
Pilgrim (a) | | 2.4%-10.6% | | 8.1% |
Palisades (b) | | 30.8% | | 30.8% |
| | | | |
2016 | | | | |
Weighted-average cost of capital | | | | |
Indian Point (c) | | 7.0%-7.5%
| | 7.2% |
Palisades | | 6.5% | | 6.5% |
| | | | |
Long-term pre-tax operating margin (cash basis) | | | | |
Indian Point | | 19.7% | | 19.7% |
Palisades (b) (d) | | 17.8%-38.8%
| | 34.6% |
| |
(a) | The fair value of Pilgrim was based on the probability weighting of two potential scenarios. |
| |
(b) | Most of the Palisades output is sold under a 15-year power purchase agreement, entered at the plant’s acquisition in 2007, that is scheduled to expire in 2022. The power purchase agreement prices currently exceed market prices and escalate each year, up to $61.50/MWh in 2022. |
| |
(c) | The cash flows extending through the 2021 shutdown at Indian Point 3 were assigned a higher discount factor to incorporate the increased risk associated with longer operations. |
| |
(d) | The fair value of Palisades at December 31, 2016 is based on the probability weighting of whether the PPA will terminate before the originally scheduled termination in 2022. |
Entergy’s Accounting Policy and Entergy Wholesale Commodities Accounting group, which reports to the Chief Accounting Officer, was primarily responsible for determining the valuationterms of the FitzPatrick, Pilgrim, Palisadessale transaction, and Indian Point plants and related assets, in consultation with external advisors. Entergy’s Accounting Policy group obtained and reviewed information from other Entergy departments with expertise onevaluated the various inputs and assumptions that were necessary to calculate the fairremaining values of the Vermont Yankee assets. These evaluations resulted in $173 million of asset groups.impairment and related charges in the fourth quarter 2018. See Note 9 to the financial statements for additional discussion of the revision of the asset retirement obligation.
NOTE 15. RISK MANAGEMENT AND FAIR VALUES (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)
Market Risk
In the normal course of business, Entergy is exposed to a number of market risks. Market risk is the potential loss that Entergy may incur as a result of changes in the market or fair value of a particular commodity or instrument. All financial and commodity-related instruments, including derivatives, are subject to market risk including commodity
Entergy Corporation and Subsidiaries
Notes to Financial Statements
price risk, equity price, and interest rate risk. Entergy uses derivatives primarily to mitigate commodity price risk, particularly power price and fuel price risk.
The Utility has limited exposure to the effects of market risk because it operates primarily under cost-based rate regulation. To the extent approved by their retail regulators, the Utility operating companies use derivative instruments to hedge the exposure to price volatility inherent in their purchased power, fuel, and gas purchased for resale costs that are recovered from customers.
As a wholesale generator, Entergy Wholesale Commodities’ core business is selling energy, measured in MWh, to its customers. Entergy Wholesale Commodities enters into forward contracts with its customers and also sells energy and capacity in the day ahead or spot markets. In addition to its forward physical power and gas contracts, Entergy Wholesale Commodities may also usesuse a combination of financial contracts, including swaps, collars, and options, to mitigate commodity price risk. When the market price falls, the combination of instruments is expected to settle in gains that offset lower revenue from generation, which results in a more predictable cash flow.
Entergy’s exposure to market risk is determined by a number of factors, including the size, term, composition, and diversification of positions held, as well as market volatility and liquidity. For instruments such as options, the time period during which the option may be exercised and the relationship between the current market price of the underlying instrument and the option’s contractual strike or exercise price also affects the level of market risk. A significant factor influencing the overall level of market risk to which Entergy is exposed is its use of hedging techniques to mitigate such risk. Hedging instruments and volumes are chosen based on ability to mitigate risk associated with future energy and capacity prices; however, other considerations are factored into hedge product and volume decisions including corporate liquidity, corporate credit ratings, counterparty credit risk, hedging costs, firm settlement risk, and product availability in the marketplace. Entergy manages market risk by actively monitoring compliance with stated risk management policies as well as monitoring the effectiveness of its hedging policies and strategies. Entergy’s risk management policies limit the amount of total net exposure and rolling net exposure during the stated periods. These policies, including related risk limits, are regularly assessed to ensure their appropriateness given Entergy’s objectives.
Derivatives
Some derivative instruments are classified as cash flow hedges due to their financial settlement provisions while others are classified as normal purchase/normal sale transactions due to their physical settlement provisions. Normal purchase/normal sale risk management tools include power purchase and sales agreements, fuel purchase agreements, capacity contracts, and tolling agreements. Financially-settled cash flow hedges can include natural gas and electricity swaps and options and interest rate swaps. Entergy may enter into financially-settled swap and option contracts to manage market risk that may or may not be designated as hedging instruments.
Entergy enters into derivatives to manage natural risks inherent in its physical or financial assets or liabilities.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Electricity over-the-counter instruments and futures contracts that financially settle against day-ahead power pool prices are used to manage price exposure for Entergy Wholesale Commodities generation. The maximum length of time over which Entergy Wholesale Commodities is currently hedging the variability in future cash flows with derivatives for forecasted power transactions at December 31, 20172019 is approximately 3.251.25 years. Planned generation currently under contract from Entergy Wholesale Commodities nuclear power plants is 98%97% for 2018,2020, of which approximately 79%65% is sold under financial derivatives and the remainder under normal purchase/normal sale contracts. Total planned generation for 20182020 is 27.917.8 TWh.
Entergy may use standardized master netting agreements to help mitigate the credit risk of derivative instruments. These master agreements facilitate the netting of cash flows associated with a single counterparty and may include collateral requirements. Cash, letters of credit, and parental/affiliate guarantees may be obtained as security from counterparties in order to mitigate credit risk. The collateral agreements require a counterparty to post cash or letters of credit in the event an exposure exceeds an established threshold. The threshold represents an unsecured credit limit, which may be supported by a parental/affiliate guaranty,guarantee, as determined in accordance with Entergy’s credit policy.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
In addition, collateral agreements allow for termination and liquidation of all positions in the event of a failure or inability to post collateral.
Certain of the agreements to sell the power produced by Entergy Wholesale Commodities power plants contain provisions that require an Entergy subsidiary to provide credit support to secure its obligations depending on the mark-to-market values of the contracts. The primary form of credit support to satisfy these requirements is an Entergy Corporation guarantee. As of December 31, 2017,2019, there were no derivative contracts with eight counterparties were in a liability position (approximately $65 million total).position. In addition to the corporate guarantee, $1$11 million in cash collateral was required to be posted by the Entergy subsidiary to its counterparties and $4$1 million in cash collateral and $34$98 million in letters of credit were required to be posted by its counterparties to the Entergy subsidiary. As of December 31, 2016,2018, derivative contracts with three6 counterparties were in a liability position (approximately $8$34 million total). In addition to the corporate guarantee, $2$19 million in cash collateral was required to be posted by the Entergy subsidiary to its counterparties. If the Entergy Corporation credit rating falls below investment grade, Entergy would have to post collateral equal to the estimated outstanding liability under the contract at the applicable date.
Entergy manages fuel price volatility for its Louisiana jurisdictions (Entergy Louisiana and Entergy New Orleans) and Entergy Mississippi through the purchase of short-term natural gas swaps and options that financially settle against either the average Henry Hub Gas Daily prices or the NYMEX futures.Henry Hub. These swaps and options are marked-to-market through fuel expense with offsetting regulatory assets or liabilities. All benefits or costs of the program are recorded in fuel costs. The notional volumes of these swaps are based on a portion of projected annual exposure to gas price volatility for electric generation at Entergy Louisiana and Entergy Mississippi and projected winter purchases for gas distribution at Entergy New Orleans. The maximum length of time over which Entergy has executed natural gas swaps and options as of December 31, 2019 is 4.25 years for Entergy Louisiana and the maximum length of time over which Entergy has executed natural gas swaps as of December 31, 2019 is 10 months for Entergy Mississippi and 3 months Entergy New Orleans. The total volume of natural gas swaps and options outstanding as of December 31, 20172019 is 38,540,75040,926,000 MMBtu for Entergy, including 31,361,50031,040,000 MMBtu for Entergy Louisiana, 6,714,2509,330,000 MMBtu for Entergy Mississippi, and 465,000556,000 MMBtu for Entergy New Orleans. Credit support for these natural gas swaps and options is covered by master agreements that do not require Entergy to provide collateral based on mark-to-market value but do carry adequate assurance language that may lead to requests for collateral.
During the second quarter 2017,2019, Entergy participated in the annual financial transmission rights auction process for the MISO planning year of June 1, 20172019 through May 31, 2018.2020. Financial transmission rights are derivative instruments whichthat represent economic hedges of future congestion charges that will be incurred in serving Entergy’s customer load. They are not designated as hedging instruments. Entergy initially records financial transmission rights at their estimated fair value and subsequently adjusts the carrying value to their estimated fair value at the end of each accounting period prior to settlement. Unrealized gains or losses on financial transmission rights held by Entergy Wholesale Commodities are included in operating revenues. The Utility operating companies recognize regulatory liabilities or assets for unrealized gains or losses on financial transmission rights. The total volume of financial
Entergy Corporation and Subsidiaries
Notes to Financial Statements
transmission rights outstanding as of December 31, 20172019 is 46,47448,825 GWh for Entergy, including 10,47911,078 GWh for Entergy Arkansas, 20,59022,282 GWh for Entergy Louisiana, 6,3916,195 GWh for Entergy Mississippi, 2,3662,331 GWh for Entergy New Orleans, and 6,3226,741 GWh for Entergy Texas. Credit support for financial transmission rights held by the Utility operating companies is covered by cash and/or letters of credit issued by each Utility operating company as required by MISO. Credit support for financial transmission rights held by Entergy Wholesale Commodities is covered by cash. No cash or letters of credit were required to be posted for financial transmission rights exposure for Entergy Wholesale Commodities as of December 31, 20172019 and December 31, 2016.2018. Letters of credit posted with MISO covered the financial transmission rights exposure for Entergy Arkansas,Mississippi as of December 31, 2019 and Entergy Mississippi and Entergy Texas as of December 31, 2017 and for Entergy Arkansas and Entergy Mississippi as of December 31, 2016.2018.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The fair values of Entergy’s derivative instruments in the consolidated balance sheet as of December 31, 20172019 are shown in the table below. Certain investments, including those not designated as hedging instruments, are subject to master netting agreements and are presented in the balance sheet on a net basis in accordance with accounting guidance for derivatives and hedging.
| | Instrument | | Balance Sheet Location | | Fair Value (a) | | Offset (b) | | Net (c) (d) | | Business | | Balance Sheet Location | | Gross Fair Value (a) | | Offsetting Position (b) | | Net Fair Value (c) (d) | | Business |
| | (In Millions) | | | (In Millions) | |
Derivatives designated as hedging instruments | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Assets: | | | | | | | | | | | | | | | | |
Electricity swaps and options | | Prepayments and other (current portion) | | $19 | | ($19) | | $— | | Entergy Wholesale Commodities | | Prepayments and other (current portion) | | $92 | | ($1) | | $91 | | Entergy Wholesale Commodities |
Electricity swaps and options |
| Other deferred debits and other assets (non-current portion) | | $19 | | ($14) | | $5 | | Entergy Wholesale Commodities |
| Other deferred debits and other assets (non-current portion) | | $17 | | $— | | $17 | | Entergy Wholesale Commodities |
| | | | | | | | | | | | | | | | |
Liabilities: | | | | | | | | | | | | | | | | |
Electricity swaps and options | | Other current liabilities (current portion) | | $86 | | ($20) | | $66 | | Entergy Wholesale Commodities | | Other current liabilities (current portion) | | $1 | | ($1) | | $— | | Entergy Wholesale Commodities |
Electricity swaps and options | | Other non-current liabilities (non-current portion) | | $17 | | ($14) | | $3 | | Entergy Wholesale Commodities | |
|
| | | | | | | | | | |
Derivatives not designated as hedging instruments | | | | | | | | | | |
| | | | | | | | | | |
Assets: | | | | | | | | | | |
Electricity swaps and options | | Prepayments and other (current portion) | | $9 | | ($9) | | $— | | Entergy Wholesale Commodities |
Financial transmission rights | | Prepayments and other | | $22 | | ($1) | | $21 | | Utility and Entergy Wholesale Commodities |
| | | | | | | | | | |
Liabilities: | | | | | | | | | | |
Electricity swaps and options | | Other current liabilities (current portion) | | $9 | | ($8) | | $1 | | Entergy Wholesale Commodities |
Natural gas swaps | | Other current liabilities | | $6 | | $— | | $6 | | Utility |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
|
| | | | | | | | | | |
Derivatives not designated as hedging instruments | | | | | | | | | | |
| | | | | | | | | | |
Assets: | | | | | | | | | | |
Electricity swaps and options | | Prepayments and other (current portion) | | $11 | | ($1) | | $10 | | Entergy Wholesale Commodities |
Natural gas swaps and options | | Other deferred debits and other assets (non-current portion) | | $1 | | $— | | $1 | | Utility |
Financial transmission rights | | Prepayments and other | | $10 | | $— | | $10 | | Utility and Entergy Wholesale Commodities |
| | | | | | | | | | |
Liabilities: | | | | | | | | | | |
Electricity swaps and options | | Other current liabilities (current portion) | | $2 | | ($2) | | $— | | Entergy Wholesale Commodities |
Natural gas swaps and options | | Other current liabilities (current portion) | | $5 | | $— | | $5 | | Utility |
Natural gas swaps and options | | Other non-current liabilities (non-current portion) | | $2 | | $— | | $2 | | Utility |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The fair values of Entergy’s derivative instruments in the consolidated balance sheet as of December 31, 20162018 are shown in the table below. Certain investments, including those not designated as hedging instruments, are subject to master netting agreements and are presented in the balance sheet on a net basis in accordance with accounting guidance for derivatives and hedging.
| | Instrument | | Balance Sheet Location | | Fair Value (a) | | Offset (b) | | Net (c) (d) | | Business | | Balance Sheet Location | | Gross Fair Value (a) | | Offsetting Position (b) | | Net Fair Value (c) (d) | | Business |
| | (In Millions) | | | (In Millions) | |
Derivatives designated as hedging instruments | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Assets: | | | | | | | | | | | | | | | | |
Electricity swaps and options | | Prepayments and other (current portion) | | $25 | | ($14) | | $11 | | Entergy Wholesale Commodities | | Prepayments and other (current portion) | | $32 | | ($32) | | $— | | Entergy Wholesale Commodities |
Electricity swaps and options | | Other deferred debits and other assets (non-current portion) | | $6 | | ($6) | | $— | | Entergy Wholesale Commodities | | Other deferred debits and other assets (non-current portion) | | $7 | | ($7) | | $— | | Entergy Wholesale Commodities |
| | | | | | | | | | | | | | | | |
Liabilities: | | | | | | | | | | | | | | | | |
Electricity swaps and options | | Other current liabilities (current portion) | | $11 | | ($10) | | $1 | | Entergy Wholesale Commodities | | Other current liabilities (current portion) | | $54 | | ($33) | | $21 | | Entergy Wholesale Commodities |
Electricity swaps and options | | Other non-current liabilities (non-current portion) | | $16 | | ($7) | | $9 | | Entergy Wholesale Commodities | | Other non-current liabilities (non-current portion) | | $20 | | ($7) | | $13 | | Entergy Wholesale Commodities |
|
| | | | | | | | | | |
Derivatives not designated as hedging instruments | | | | | | | | | | |
| | | | | | | | | | |
Assets: | | | | | | | | | | |
Electricity swaps and options | | Prepayments and other (current portion) | | $4 | | ($2) | | $2 | | Entergy Wholesale Commodities |
Electricity swaps and options | | Other deferred debits and other assets (non-current portion) | | $1 | | $— | | $1 | | Entergy Wholesale Commodities |
Natural gas swaps and options | | Other deferred debits and other assets (non-current portion) | | $2 | | $— | | $2 | | Utility |
Financial transmission rights | | Prepayments and other | | $16 | | ($1) | | $15 | | Utility and Entergy Wholesale Commodities |
| | | | | | | | | | |
Liabilities: | | | | | | | | | | |
Electricity swaps and options | | Other current liabilities (current portion) | | $1 | | ($1) | | $— | | Entergy Wholesale Commodities |
Natural gas swaps and options | | Other current liabilities | | $1 | | $— | | $1 | | Utility |
|
| | | | | | | | | | |
Derivatives not designated as hedging instruments | | | | | | | | | | |
| | | | | | | | | | |
Assets: | | | | | | | | | | |
Electricity swaps and options | | Prepayments and other (current portion) | | $18 | | ($13) | | $5 | | Entergy Wholesale Commodities |
Electricity swaps and options | | Other deferred debits and other assets (non-current portion) | | $5 | | ($5) | | $— | | Entergy Wholesale Commodities |
Natural gas swaps | | Prepayments and other | | $13 | | $— | | $13 | | Utility |
Financial transmission rights | | Prepayments and other | | $22 | | ($1) | | $21 | | Utility and Entergy Wholesale Commodities |
| | | | | | | | | | |
Liabilities: | | | | | | | | | | |
Electricity swaps and options | | Other current liabilities (current portion) | | $18 | | ($17) | | $1 | | Entergy Wholesale Commodities |
Electricity swaps and options | | Other non-current liabilities (non-current portion) | | $4 | | ($4) | | $— | | Entergy Wholesale Commodities |
| |
(a) | Represents the gross amounts of recognized assets/liabilities |
| |
(b) | Represents the netting of fair value balances with the same counterparty |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
| |
(c) | Represents the net amounts of assets/liabilities presented on the Entergy Corporation and Subsidiaries’ Consolidated Balance Sheet |
| |
(d) | Excludes cash collateral in the amount of $1$11 million posted and $4$1 million held as of December 31, 20172019 and $2$19 million posted as of December 31, 2016.2018. Also excludes $34 million in letters of credit in the amount of $98 million held as of December 31, 2017.2019 and $4 million posted as of December 31, 2018. |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The effects of Entergy’s derivative instruments designated as cash flow hedges on the consolidated income statements for the years ended December 31, 2017, 2016,2019, 2018, and 20152017 are as follows:
|
| | | | | | |
Instrument | | Amount of gain (loss) recognized in other comprehensive income | | Income Statement location | | Amount of gain (loss) reclassified from accumulated other comprehensive income into income (a) |
| | (In Millions) | | | | (In Millions) |
2019 | | | | | | |
Electricity swaps and options | | $232 | | Competitive business operating revenues | | $97 |
| | | | | | |
2018 | | | | | | |
Electricity swaps and options | | ($40) | | Competitive business operating revenues | | ($68) |
| | | | | | |
2017 | | | | | | |
Electricity swaps and options | | $44 | | Competitive business operating revenues | | $109 |
|
| | | | | | |
Instrument | | Amount of gain recognized in other comprehensive income | | Income Statement location | | Amount of gain (loss) reclassified from accumulated other comprehensive income into income (a) |
| | (In Millions) | | | | (In Millions) |
2017 | | | | | | |
Electricity swaps and options | | $44 | | Competitive business operating revenues | | $109 |
| | | | | | |
2016 | | | | | | |
Electricity swaps and options | | $135 | | Competitive business operating revenues | | $293 |
| | | | | | |
2015 | | | | | | |
Electricity swaps and options | | $254 | | Competitive business operating revenues | | ($244) |
| |
(a) | Before taxes of $38$20 million, $103($14) million, and ($85)$38 million, for the years ended December 31, 2017, 2016,2019, 2018, and 2015,2017, respectively |
At each reporting period,Prior to the adoption of ASU 2017-12, Entergy measuresmeasured its hedges for ineffectiveness. Any ineffectiveness iswas recognized in earnings during the period. The ineffective portion of cash flow hedges iswas recorded in competitive businesses operating revenues. The change in fair value of Entergy’s cash flow hedges due to ineffectiveness was ($5.9) million and ($3) million ($356) thousand, and $150 thousand for the years ended December 31, 2017, 2016,2018 and 2015,2017, respectively.
Based on market prices as of December 31, 2017,2019, unrealized gains (losses) recorded in accumulated other comprehensive income on cash flow hedges relating to power sales totaled $55$108 million of net unrealized losses. Approximately ($59)$91 million is expected to be reclassified from accumulated other comprehensive income to operating revenues in the next twelve months. The actual amount reclassified from accumulated other comprehensive income, however, could vary due to future changes in market prices.
Entergy may effectively liquidate a cash flow hedge instrument by entering into a contract offsetting the original hedge, and then de-designating the original hedge in this situation. Gains or losses accumulated in other comprehensive income prior to de-designation continue to be deferred in other comprehensive income until they are included in income as the original hedged transaction occurs. From the point of de-designation, the gains or losses on the original hedge and the offsetting contract are recorded as assets or liabilities on the balance sheet and offset as they flow through to earnings.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The effects of Entergy’s derivative instruments not designated as hedging instruments on the consolidated income statements for the years ended December 31, 2017, 2016,2019, 2018, and 20152017 are as follows:
|
| | | | |
Instrument | | Income Statement location | | Amount of gain (loss) recorded in the income statement |
| | | | (In Millions) |
2019 | | | | |
Natural gas swaps and options | | Fuel, fuel-related expenses, and gas purchased for resale | (a) | ($13) |
Financial transmission rights | | Purchased power expense | (b) | $94 |
Electricity swaps and options (c) | | Competitive business operating revenues | | $12 |
| | | | |
2018 | | | | |
Natural gas swaps | | Fuel, fuel-related expenses, and gas purchased for resale | (a) | $8 |
Financial transmission rights | | Purchased power expense | (b) | $131 |
Electricity swaps and options (c) | | Competitive business operating revenues | | $8 |
| | | | |
2017 | | | | |
Natural gas swaps | | Fuel, fuel-related expenses, and gas purchased for resale | (a) | ($31) |
Financial transmission rights | | Purchased power expense | (b) | $139 |
|
| | | | | | |
Instrument | | Amount of gain recognized in accumulated other comprehensive income | | Income Statement location | | Amount of gain (loss) recorded in the income statement |
| | (In Millions) | | | | (In Millions) |
2017 | | | | | | |
Natural gas swaps | | $— | | Fuel, fuel-related expenses, and gas purchased for resale | (a) | ($31) |
Financial transmission rights | | $— | | Purchased power expense | (b) | $139 |
Electricity swaps and options | | $— | (c) | Competitive business operating revenues | | $— |
| | | | | | |
2016 | | | | | | |
Natural gas swaps | | $— | | Fuel, fuel-related expenses, and gas purchased for resale | (a) | $11 |
Financial transmission rights | | $— | | Purchased power expense | (b) | $125 |
Electricity swaps and options | | $— | (c) | Competitive business operating revenues | | ($11) |
| | | | | | |
2015 | | | | | | |
Natural gas swaps | | $— | | Fuel, fuel-related expenses, and gas purchased for resale | (a) | ($41) |
Financial transmission rights | | $— | | Purchased power expense | (b) | $166 |
Electricity swaps and options | | $12 | (c) | Competitive business operating revenues | | ($19) |
| |
(a) | Due to regulatory treatment, the natural gas swaps and options are marked-to-market through fuel, fuel-related expenses, and gas purchased for resale and then such amounts are simultaneously reversed and recorded as an offsetting regulatory asset or liability. The gains or losses recorded as fuel expenses when the swaps and options are settled are recovered or refunded through fuel cost recovery mechanisms. |
| |
(b) | Due to regulatory treatment, the changes in the estimated fair value of financial transmission rights for the Utility operating companies are recorded through purchased power expense and then such amounts are simultaneously reversed and recorded as an offsetting regulatory asset or liability. The gains or losses recorded as purchased power expense when the financial transmission rights for the Utility operating companies are settled are recovered or refunded through fuel cost recovery mechanisms. |
| |
(c) | Amount of gain (loss)There were no gains (losses) recognized in accumulated other comprehensive income from electricity swaps and options de-designated as hedged items.options. |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The fair values of the Registrant Subsidiaries’ derivative instruments not designated as hedging instruments on their balance sheets as of December 31, 20172019 and 20162018 are shown in the table below. Certain investments, including those not designated as follows:hedging instruments, are subject to master netting agreements and are presented in the balance sheet on a net basis in accordance with accounting guidance for derivatives and hedging.
|
| | | | | | | | | | |
Instrument | | Balance Sheet Location | | Gross Fair Value (a) | | Offsetting Position (b) | | Net Fair Value (c) (d) | | Registrant |
| | | | (In Millions) | | |
2019 | | | | | | | | | | |
Assets: | | | | | | | | | | |
Natural gas swaps and options | | Other deferred debits and other assets | | $0.8 | | $— | | $0.8 | | Entergy Louisiana |
| | | | | | | | | | |
Financial transmission rights | | Prepayments and other | | $3.4 | | ($0.1) | | $3.3 | | Entergy Arkansas |
Financial transmission rights | | Prepayments and other | | $4.5 | | $— | | $4.5 | | Entergy Louisiana |
Financial transmission rights | | Prepayments and other | | $0.8 | | $— | | $0.8 | | Entergy Mississippi |
Financial transmission rights | | Prepayments and other | | $0.3 | | $— | | $0.3 | | Entergy New Orleans |
Financial transmission rights | | Prepayments and other | | $1.0 | | ($0.1) | | $0.9 | | Entergy Texas |
| | | | | | | | | | |
Liabilities: | | | | | | | | | | |
Natural gas swaps and options | | Other current liabilities | | $2.4 | | $— | | $2.4 | | Entergy Louisiana |
Natural gas swaps and options | | Other non-current liabilities | | $2.2 | | $— | | $2.2 | | Entergy Louisiana |
Natural gas swaps | | Other current liabilities | | $2.3 | | $— | | $2.3 | | Entergy Mississippi |
Natural gas swaps | | Other current liabilities | | $0.2 | | $— | | $0.2 | | Entergy New Orleans |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
|
| | | | | | |
Instrument | | Balance Sheet Location | | Fair Value (a) | | Registrant |
| | | | (In Millions) | | |
2017 | | | | | | |
Assets: | | | | | | |
Financial transmission rights | | Prepayments and other | | $3.0 | | Entergy Arkansas |
Financial transmission rights | | Prepayments and other | | $10.2 | | Entergy Louisiana |
Financial transmission rights | | Prepayments and other | | $2.1 | | Entergy Mississippi |
Financial transmission rights | | Prepayments and other | | $2.2 | | Entergy New Orleans |
Financial transmission rights | | Prepayments and other | | $3.4 | | Entergy Texas |
| | | | | | |
Liabilities: | | | | | | |
Natural gas swaps | | Other current liabilities | | $5.0 | | Entergy Louisiana |
Natural gas swaps | | Other current liabilities | | $1.2 | | Entergy Mississippi |
Natural gas swaps | | Other current liabilities | | $0.2 | | Entergy New Orleans |
| | | | | | |
2016 | | | | | | |
Assets: | | | | | | |
Natural gas swaps | | Prepayments and other | | $10.9 | | Entergy Louisiana |
Natural gas swaps | | Prepayments and other | | $2.3 | | Entergy Mississippi |
Natural gas swaps | | Prepayments and other | | $0.2 | | Entergy New Orleans |
| | | | | | |
Financial transmission rights | | Prepayments and other | | $5.4 | | Entergy Arkansas |
Financial transmission rights | | Prepayments and other | | $8.5 | | Entergy Louisiana |
Financial transmission rights | | Prepayments and other | | $3.2 | | Entergy Mississippi |
Financial transmission rights | | Prepayments and other | | $1.1 | | Entergy New Orleans |
Financial transmission rights | | Prepayments and other | | $3.1 | | Entergy Texas |
|
| | | | | | | | | | |
Instrument | | Balance Sheet Location | | Gross Fair Value (a) | | Offsetting Position (b) | | Net Fair Value (c) (d) | | Registrant |
| | | | | | | | | | |
2018 | | | | | | | | | | |
Assets: | | | | | | | | | | |
Natural gas swaps and options | | Prepayments and other | | $0.3 | | $— | | $0.3 | | Entergy Louisiana |
Natural gas swaps and options | | Other deferred debits and other assets | | $1.6 | | $— | | $1.6 | | Entergy Louisiana |
| | | | | | | | | | |
Financial transmission rights | | Prepayments and other | | $3.6 | | ($0.2) | | $3.4 | | Entergy Arkansas |
Financial transmission rights | | Prepayments and other | | $8.4 | | ($0.1) | | $8.3 | | Entergy Louisiana |
Financial transmission rights | | Prepayments and other | | $2.2 | | $— | | $2.2 | | Entergy Mississippi |
Financial transmission rights | | Prepayments and other | | $1.3 | | $— | | $1.3 | | Entergy New Orleans |
| | | | | | | | | | |
Liabilities: | | | | | | | | | | |
Natural gas swaps and options | | Other current liabilities | | $1.1 | | $— | | $1.1 | | Entergy Louisiana |
Natural gas swaps | | Other current liabilities | | $0.1 | | $— | | $0.1 | | Entergy New Orleans |
| | | | | | | | | | |
Financial transmission rights | | Other current liabilities | | $0.9 | | ($1.4) | | ($0.5) | | Entergy Texas |
| |
(a) | Represents the gross amounts of recognized assets/liabilities |
| |
(b) | Represents the netting of fair value balances with the same counterparty |
| |
(c) | Represents the net amounts of assets/liabilities presented on the Registrant Subsidiaries’ balance sheets |
| |
(d) | As of December 31, 2017,2019, letters of credit posted with MISO covered financial transmission rights exposure of $0.2 million for Entergy Arkansas, $0.1 million for Entergy Mississippi, and $0.05 million for Entergy Texas.Mississippi. As of December 31, 2016,2018, letters of credit posted with MISO covered financial transmission rights exposure of $0.3$0.2 million for Entergy ArkansasMississippi and $0.1$4.1 million for Entergy Mississippi.Texas. |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The effects of the Registrant Subsidiaries’ derivative instruments not designated as hedging instruments on their income statements for the years ended December 31, 2017, 2016,2019, 2018, and 20152017 are as follows:
|
| | | | | | |
Instrument | | Income Statement Location | | Amount of gain (loss) recorded in the income statement | | Registrant |
| | | | (In Millions) | | |
2019 | | | | | | |
Natural gas swaps and options | | Fuel, fuel-related expenses, and gas purchased for resale | | ($5.3) | (a) | Entergy Louisiana |
Natural gas swaps | | Fuel, fuel-related expenses, and gas purchased for resale | | ($7.7) | (a) | Entergy Mississippi |
| | | | | | |
Financial transmission rights | | Purchased power | | $22.3 | (b) | Entergy Arkansas |
Financial transmission rights | | Purchased power | | $46.7 | (b) | Entergy Louisiana |
Financial transmission rights | | Purchased power | | $6.8 | (b) | Entergy Mississippi |
Financial transmission rights | | Purchased power | | $2.7 | (b) | Entergy New Orleans |
Financial transmission rights | | Purchased power | | $15.7 | (b) | Entergy Texas |
| | | | | | |
2018 | | | | | | |
Natural gas swaps and options | | Fuel, fuel-related expenses, and gas purchased for resale | | $4.4 | (a) | Entergy Louisiana |
Natural gas swaps | | Fuel, fuel-related expenses, and gas purchased for resale | | $3.2 | (a) | Entergy Mississippi |
Natural gas swaps | | Fuel, fuel-related expenses, and gas purchased for resale | | $0.2 | (a) | Entergy New Orleans |
| | | | | | |
Financial transmission rights | | Purchased power | | $25.3 | (b) | Entergy Arkansas |
Financial transmission rights | | Purchased power | | $72.7 | (b) | Entergy Louisiana |
Financial transmission rights | | Purchased power | | $26.3 | (b) | Entergy Mississippi |
Financial transmission rights | | Purchased power | | $13.8 | (b) | Entergy New Orleans |
Financial transmission rights | | Purchased power | | ($6.0) | (b) | Entergy Texas |
| | | | | | |
2017 | | | | | | |
Natural gas swaps | | Fuel, fuel-related expenses, and gas purchased for resale | | ($25.4) | (a) | Entergy Louisiana |
Natural gas swaps | | Fuel, fuel-related expenses, and gas purchased for resale | | ($5.2) | (a) | Entergy Mississippi |
Natural gas swaps | | Fuel, fuel-related expenses, and gas purchased for resale | | ($0.3) | (a) | Entergy New Orleans |
| | | | | | |
Financial transmission rights | | Purchased power | | $41.7 | (b) | Entergy Arkansas |
Financial transmission rights | | Purchased power | | $45.8 | (b) | Entergy Louisiana |
Financial transmission rights | | Purchased power | | $18.9 | (b) | Entergy Mississippi |
Financial transmission rights | | Purchased power | | $9.1 | (b) | Entergy New Orleans |
Financial transmission rights | | Purchased power | | $22.3 | (b) | Entergy Texas |
| | | | | | |
2016 | | | | | | |
Natural gas swaps | | Fuel, fuel-related expenses, and gas purchased for resale | | $8.4 | (a) | Entergy Louisiana |
Natural gas swaps | | Fuel, fuel-related expenses, and gas purchased for resale | | $3.1 | (a) | Entergy Mississippi |
Natural gas swaps | | Fuel, fuel-related expenses, and gas purchased for resale | | ($0.4) | (a) | Entergy New Orleans |
| | | | | | |
Financial transmission rights | | Purchased power | | $23.2 | (b) | Entergy Arkansas |
Financial transmission rights | | Purchased power | | $69.7 | (b) | Entergy Louisiana |
Financial transmission rights | | Purchased power | | $16.6 | (b) | Entergy Mississippi |
Financial transmission rights | | Purchased power | | $4.1 | (b) | Entergy New Orleans |
Financial transmission rights | | Purchased power | | $10.2 | (b) | Entergy Texas |
| | | | | | |
2015 | | | | | | |
Natural gas swaps | | Fuel, fuel-related expenses, and gas purchased for resale | �� | ($33.2) | (a) | Entergy Louisiana |
Natural gas swaps | | Fuel, fuel-related expenses, and gas purchased for resale | | ($6.1) | (a) | Entergy Mississippi |
Natural gas swaps | | Fuel, fuel-related expenses, and gas purchased for resale | | ($1.4) | (a) | Entergy New Orleans |
| | | | | | |
Financial transmission rights | | Purchased power | | $68.7 | (b) | Entergy Arkansas |
Financial transmission rights | | Purchased power | | $55.4 | (b) | Entergy Louisiana |
Financial transmission rights | | Purchased power | | $16.5 | (b) | Entergy Mississippi |
Financial transmission rights | | Purchased power | | $8.5 | (b) | Entergy New Orleans |
Financial transmission rights | | Purchased power | | $16.8 | (b) | Entergy Texas |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
| |
(a) | Due to regulatory treatment, the natural gas swaps and options are marked-to-market through fuel, fuel-related expenses, and gas purchased for resale and then such amounts are simultaneously reversed and recorded as an offsetting regulatory asset or liability. The gains or losses recorded as fuel expenses when the swaps are settled are recovered or refunded through fuel cost recovery mechanisms. |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
offsetting regulatory asset or liability. The gains or losses recorded as fuel expenses when the swaps and options are settled are recovered or refunded through fuel cost recovery mechanisms.
| |
(b) | Due to regulatory treatment, the changes in the estimated fair value of financial transmission rights for the Utility operating companies are recorded through purchased power expense and then such amounts are simultaneously reversed and recorded as an offsetting regulatory asset or liability. The gains or losses recorded as purchased power expense when the financial transmission rights for the Utility operating companies are settled are recovered or refunded through fuel cost recovery mechanisms. |
Fair Values
The estimated fair values of Entergy’s financial instruments and derivatives are determined using historical prices, bid prices, market quotes, and financial modeling. Considerable judgment is required in developing the estimates of fair value. Therefore, estimates are not necessarily indicative of the amounts that Entergy could realize in a current market exchange. Gains or losses realized on financial instruments other than those instruments held by the Entergy Wholesale Commodities business are reflected in future rates and therefore do not affect net income. Entergy considers the carrying amounts of most financial instruments classified as current assets and liabilities to be a reasonable estimate of their fair value because of the short maturity of these instruments.
Accounting standards define fair value as an exit price, or the price that would be received to sell an asset or the amount that would be paid to transfer a liability in an orderly transaction between knowledgeable market participants at the date of measurement. Entergy and the Registrant Subsidiaries use assumptions or market input data that market participants would use in pricing assets or liabilities at fair value. The inputs can be readily observable, corroborated by market data, or generally unobservable. Entergy and the Registrant Subsidiaries endeavor to use the best available information to determine fair value.
Accounting standards establish a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy establishes the highest priority for unadjusted market quotes in an active market for the identical asset or liability and the lowest priority for unobservable inputs.
The three levels of the fair value hierarchy are:
Level 1 - Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the entity has the ability to access at the measurement date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 primarily consists of individually owned common stocks, cash equivalents (temporary cash investments, securitization recovery trust account, and escrow accounts), debt instruments, and gas hedge contracts.swaps traded on exchanges with active markets. Cash equivalents includes all unrestricted highly liquid debt instruments with an original or remaining maturity of three months or less at the date of purchase.
Level 2 - Level 2 inputs are inputs other than quoted prices included in Level 1 that are, either directly or indirectly, observable for the asset or liability at the measurement date. Assets are valued based on prices derived by independent third parties that use inputs such as benchmark yields, reported trades, broker/dealer quotes, and issuer spreads. Prices are reviewed and can be challenged with the independent parties and/or overridden by Entergy if it is believed such would be more reflective of fair value. Level 2 inputs include the following:
| |
– | quoted prices for similar assets or liabilities in active markets; |
| |
– | quoted prices for identical assets or liabilities in inactive markets; |
| |
– | inputs other than quoted prices that are observable for the asset or liability; or |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
| |
– | inputs that are derived principally from or corroborated by observable market data by correlation or other means. |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Level 2 consists primarily of individually-owned debt instruments.instruments and gas swaps and options valued using observable inputs.
Level 3 - Level 3 inputs are pricing inputs that are generally less observable or unobservable from objective sources. These inputs are used with internally developed methodologies to produce management’s best estimate of fair value for the asset or liability. Level 3 consists primarily of financial transmission rights and derivative power contracts used as cash flow hedges of power sales at merchant power plants.
The values for power contract assets or liabilities are based on both observable inputs including public market prices and interest rates, and unobservable inputs such as implied volatilities, unit contingent discounts, expected basis differences, and credit adjusted counterparty interest rates. They are classified as Level 3 assets and liabilities. The valuations of these assets and liabilities are performed by the Business Unit Risk Control group and the Accounting Policy and Entergy Wholesale Commodities Accounting group. The primary functions of the Business Unit Risk Control group include: gathering, validating and reporting market data, providing market risk analyses and valuations in support of Entergy Wholesale Commodities’ commercial transactions, developing and administering protocols for the management of market risks, and implementing and maintaining controls around changes to market data in the energy trading and risk management system. The Business Unit Risk Control group is also responsible for managing the energy trading and risk management system, forecasting revenues, forward positions and analysis. The Accounting Policy and Entergy Wholesale Commodities Accounting group performs functions related to market and counterparty settlements, revenue reporting and analysis and financial accounting. The Business Unit Risk Control group reports to the Vice President and Treasurer while the Accounting Policy and Entergy Wholesale Commodities Accounting group reports to the Chief Accounting Officer.
The amounts reflected as the fair value of electricity swaps are based on the estimated amount that the contracts are in-the-money at the balance sheet date (treated as an asset) or out-of-the-money at the balance sheet date (treated as a liability) and would equal the estimated amount receivable to or payable by Entergy if the contracts were settled at that date. These derivative contracts include cash flow hedges that swap fixed for floating cash flows for sales of the output from the Entergy Wholesale Commodities business. The fair values are based on the mark-to-market comparison between the fixed contract prices and the floating prices determined each period from quoted forward power market prices. The differences between the fixed price in the swap contract and these market-related prices multiplied by the volume specified in the contract and discounted at the counterparties’ credit adjusted risk free rate are recorded as derivative contract assets or liabilities. For contracts that have unit contingent terms, a further discount is applied based on the historical relationship between contract and market prices for similar contract terms.
The amounts reflected as the fair values of electricity options are valued based on a Black Scholes model, and are calculated at the end of each month for accounting purposes. Inputs to the valuation include end of day forward market prices for the period when the transactions will settle, implied volatilities based on market volatilities provided by a third partythird-party data aggregator, and U.S. Treasury rates for a risk-free return rate. As described further below, prices and implied volatilities are reviewed and can be adjusted if it is determined that there is a better representation of fair value.
On a daily basis, the Business Unit Risk Control group calculates the mark-to-market for electricity swaps and options. The Business Unit Risk Control group also validates forward market prices by comparing them to other sources of forward market prices or to settlement prices of actual market transactions. Significant differences are analyzed and potentially adjusted based on these other sources of forward market prices or settlement prices of actual market transactions. Implied volatilities used to value options are also validated using actual counterparty quotes for Entergy Wholesale Commodities transactions when available and compared with other sources of market implied volatilities. Moreover, on at least a monthlyquarterly basis, the Office of Corporate Risk Oversight confirms the mark-to-market calculations and prepares price scenarios and credit downgrade scenario analysis. The scenario analysis is communicated to senior management within Entergy and within Entergy Wholesale Commodities. Finally, for all
Entergy Corporation and Subsidiaries
Notes to Financial Statements
proposed derivative transactions, an analysis is completed to assess the risk of adding the proposed derivative to Entergy
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Wholesale Commodities’ portfolio. In particular, the credit and liquidity effects are calculated for this analysis. This analysis is communicated to senior management within Entergy and Entergy Wholesale Commodities.
The values of financial transmission rights are based on unobservable inputs, including estimates of congestion costs in MISO between applicable generation and load pricing nodes based on the 50th percentile of historical prices. They are classified as Level 3 assets and liabilities. The valuations of these assets and liabilities are performed by the Business Unit Risk Control group. The values are calculated internally and verified against the data published by MISO. Entergy’s Accounting Policy and Entergy Wholesale Commodities Accounting group reviewsgroups review these valuations for reasonableness, with the assistance of others within the organization with knowledge of the various inputs and assumptions used in the valuation. The Business Unit Risk Control groups report to the Vice President and Treasurer. The Accounting Policy and Entergy Wholesale Commodities Accounting group reportsgroups report to the Chief Accounting Officer.
The following tables set forth, by level within the fair value hierarchy, Entergy’s assets and liabilities that are accounted for at fair value on a recurring basis as of December 31, 20172019 and December 31, 2016.2018. The assessment of the significance of a particular input to a fair value measurement requires judgment and may affect their placement within the fair value hierarchy levels.
| | 2017 | | Level 1 | | Level 2 | | Level 3 | | Total | |
2019 | | | Level 1 | | Level 2 | | Level 3 | | Total |
| | (In Millions) | | (In Millions) |
Assets: | | | | | | | | | | | | | | | | |
Temporary cash investments | |
| $725 |
| |
| $— |
| |
| $— |
| |
| $725 |
| |
| $391 |
| |
| $— |
| |
| $— |
| |
| $391 |
|
Decommissioning trust funds (a): | | | | | | | | | | | | | | | | |
Equity securities | | 526 |
| | — |
| | — |
| | 526 |
| | 905 |
| | — |
| | — |
| | 905 |
|
Debt securities | | 1,125 |
| | 1,425 |
| | — |
| | 2,550 |
| | 1,139 |
| | 1,824 |
| | — |
| | 2,963 |
|
Common trusts (b) | | | | | | | | 4,136 |
| | | | | | | | 2,536 |
|
Power contracts | | — |
| | — |
| | 5 |
| | 5 |
| | — |
| | — |
| | 118 |
| | 118 |
|
Securitization recovery trust account | | 45 |
| | — |
| | — |
| | 45 |
| | 47 |
| | — |
| | — |
| | 47 |
|
Escrow accounts | | 406 |
| | — |
| | — |
| | 406 |
| | 459 |
| | — |
| | — |
| | 459 |
|
Gas hedge contracts | | | — |
| | 1 |
| | — |
| | 1 |
|
Financial transmission rights | | — |
| | — |
| | 21 |
| | 21 |
| | — |
| | — |
| | 10 |
| | 10 |
|
| |
| $2,827 |
| |
| $1,425 |
| |
| $26 |
| |
| $8,414 |
| |
| $2,941 |
| |
| $1,825 |
| |
| $128 |
| |
| $7,430 |
|
Liabilities: | | | | | | | | | | | | | | | | |
Power contracts | |
| $— |
| |
| $— |
| |
| $70 |
| |
| $70 |
| |
Gas hedge contracts | | 6 |
| | — |
| | — |
| | 6 |
| |
| $5 |
| |
| $2 |
| |
| $— |
| |
| $7 |
|
| |
| $6 |
| |
| $— |
| |
| $70 |
| |
| $76 |
| |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
|
| | | | | | | | | | | | | | | | |
2018 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | (In Millions) |
Assets: | | | | | | | | |
Temporary cash investments | |
| $424 |
| |
| $— |
| |
| $— |
| |
| $424 |
|
Decommissioning trust funds (a): | | | | | | | | |
Equity securities | | 1,686 |
| | — |
| | — |
| | 1,686 |
|
Debt securities | | 1,259 |
| | 1,625 |
| | — |
| | 2,884 |
|
Common trusts (b) | | | | | | | | 2,350 |
|
Power contracts | | — |
| | — |
| | 3 |
| | 3 |
|
Securitization recovery trust account | | 51 |
| | — |
| | — |
| | 51 |
|
Escrow accounts | | 403 |
| | — |
| | — |
| | 403 |
|
Gas hedge contracts | | — |
| | 2 |
| | — |
| | 2 |
|
Financial transmission rights | | — |
| | — |
| | 15 |
| | 15 |
|
| |
| $3,823 |
| |
| $1,627 |
| |
| $18 |
| |
| $7,818 |
|
Liabilities: | | | | | | | | |
Power contracts | |
| $— |
| |
| $— |
| |
| $34 |
| |
| $34 |
|
Gas hedge contracts | | 1 |
| | — |
| | — |
| | 1 |
|
| |
| $1 |
| |
| $— |
| |
| $34 |
| |
| $35 |
|
|
| | | | | | | | | | | | | | | | |
2016 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | (In Millions) |
Assets: | | | | | | | | |
Temporary cash investments | |
| $1,058 |
| |
| $— |
| |
| $— |
| |
| $1,058 |
|
Decommissioning trust funds (a): | | | | | | | | |
Equity securities | | 480 |
| | — |
| | — |
| | 480 |
|
Debt securities | | 985 |
| | 1,228 |
| | — |
| | 2,213 |
|
Common trusts (b) | | | | | | | | 3,031 |
|
Power contracts | | — |
| | — |
| | 16 |
| | 16 |
|
Securitization recovery trust account | | 46 |
| | — |
| | — |
| | 46 |
|
Escrow accounts | | 433 |
| | — |
| | — |
| | 433 |
|
Gas hedge contracts | | 13 |
| | — |
| | — |
| | 13 |
|
Financial transmission rights | | — |
| | — |
| | 21 |
| | 21 |
|
| |
| $3,015 |
| |
| $1,228 |
| |
| $37 |
| |
| $7,311 |
|
Liabilities: | | | | | | | | |
Power contracts | |
| $— |
| |
| $— |
| |
| $11 |
| |
| $11 |
|
| |
(a) | The decommissioning trust funds hold equity and fixed income securities. Equity securities are invested to approximate the returns of major market indices. Fixed income securities are held in various governmental and corporate securities. See Note 916 to the financial statements for additional information on the investment portfolios. |
| |
(b) | Common trust funds are not publicly quoted and are valued by the fund administrators using net asset value as a practical expedient. Accordingly, these funds are not assigned a level in the fair value table. The fund administrator of these investments allows daily trading at the net asset value and trades settle at a later date. |
The following table sets forth a reconciliation of changes in the net assets (liabilities) for the fair value of derivatives classified as Level 3 in the fair value hierarchy for the years ended December 31, 2017, 2016,2019, 2018, and 2015:2017:
|
| | | | | | | | | | | | | | | | | | | | |
| 2019 | | 2018 | | 2017 |
| Power Contracts | Financial transmission rights | | Power Contracts | Financial transmission rights | | Power Contracts | Financial transmission rights |
| (In Millions) |
Balance as of January 1, |
| ($31 | ) |
| $15 |
| |
| ($65 | ) |
| $21 |
| |
| $5 |
|
| $21 |
|
Total gains (losses) for the period (a) | | | | | | | | |
Included in earnings | 12 |
| — |
| | 2 |
| (1 | ) | | (3 | ) | 1 |
|
Included in other comprehensive income | 232 |
| — |
| | (40 | ) | — |
| | 44 |
| — |
|
Included as a regulatory liability/asset | — |
| 54 |
| | — |
| 80 |
| | — |
| 76 |
|
Issuances of financial transmission rights | — |
| 35 |
| | — |
| 46 |
| | — |
| 62 |
|
Settlements | (95 | ) | (94 | ) | | 72 |
| (131 | ) | | (111 | ) | (139 | ) |
Balance as of December 31, |
| $118 |
|
| $10 |
| |
| ($31 | ) |
| $15 |
| |
| ($65 | ) |
| $21 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
|
| | | | | | | | | | | | | | | | | | | | |
| 2017 | | 2016 | | 2015 |
| Power Contracts | Financial transmission rights | | Power Contracts | Financial transmission rights | | Power Contracts | Financial transmission rights |
| (In Millions) |
Balance as of January 1, |
| $5 |
|
| $21 |
| |
| $189 |
|
| $23 |
| |
| $215 |
|
| $47 |
|
Total gains (losses) for the period (a) | | | | | | | | |
Included in earnings | (3 | ) | 1 |
| | (10 | ) | — |
| | (20 | ) | (1 | ) |
Included in other comprehensive income | 44 |
| — |
| | 135 |
| — |
| | 254 |
| — |
|
Included as a regulatory liability/asset | — |
| 76 |
| | — |
| 68 |
| | — |
| 63 |
|
Issuances of financial transmission rights | — |
| 62 |
| | — |
| 55 |
| | — |
| 80 |
|
Purchases | — |
| — |
| | — |
| — |
| | 15 |
| — |
|
Settlements | (111 | ) | (139 | ) | | (309 | ) | (125 | ) | | (275 | ) | (166 | ) |
Balance as of December 31, |
| ($65 | ) |
| $21 |
| |
| $5 |
|
| $21 |
| |
| $189 |
|
| $23 |
|
| |
(a) | Change in unrealized gains or losses for the period included in earnings for derivatives held at the end of the reporting period is $0.9($9.2) million, $0.2($3.5) million, and $3$0.9 million for the years ended December 31, 2017, 2016,2019, 2018, and 2015,2017, respectively. |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The following table sets forth a description of the types of transactions classified as Level 3 in the fair value hierarchy and significant unobservable inputs to each which cause that classification, as of December 31, 2017:2019:
|
| | | | | | | | |
Transaction Type | | Fair Value as of December 31, 2019 | | Significant Unobservable Inputs | | Range from Average % | | Effect on Fair Value |
| | (In Millions) | | | | | | (In Millions) |
Power contracts - electricity swaps | | $118 | | Unit contingent discount | | +/- 4.75% | | $11 |
|
| | | | | | | | |
Transaction Type | | Fair Value as of December 31, 2017 | | Significant Unobservable Inputs | | Range from Average % | | Effect on Fair Value |
| | (In Millions) | | | | | | (In Millions) |
Power contracts - electricity swaps | | ($65) | | Unit contingent discount | | +/- 4% - 4.75% | | $6 - $7 |
The values of financial transmission rights are based on unobservable inputs calculated internally and verified against historical pricing data published by MISO.
The following table sets forth an analysis of each of the types of unobservable inputs impacting the fair value of items classified as Level 3 within the fair value hierarchy, and the sensitivity to changes to those inputs:
|
| | | | | | | | |
Significant Unobservable Input | | Transaction Type | | Position | | Change to Input | | Effect on Fair Value |
| | | | | | | | |
Unit contingent discount | | Electricity swaps | | Sell | | Increase (Decrease) | | Decrease (Increase) |
The following table sets forth, by level within the fair value hierarchy, the Registrant Subsidiaries’ assets and liabilities that are accounted for at fair value on a recurring basis as of December 31, 20172019 and December 31, 2016.2018. The assessment of the significance of a particular input to a fair value measurement requires judgment and may affect its placement within the fair value hierarchy levels.
Entergy Arkansas
| | 2017 | | Level 1 | | Level 2 | | Level 3 | | Total | |
2019 | | | Level 1 | | Level 2 | | Level 3 | | Total |
| | (In Millions) | | (In Millions) |
Assets: | | | | | | | | | | | | | | | | |
Decommissioning trust funds (a): | | | | | | | | | | | | | | | | |
Equity securities | |
| $11.7 |
| |
| $— |
| |
| $— |
| |
| $11.7 |
| |
| $0.6 |
| |
| $— |
| |
| $— |
| |
| $0.6 |
|
Debt securities | | 115.8 |
| | 232.4 |
| | — |
| | 348.2 |
| | 108.7 |
| | 304.1 |
| | — |
| | 412.8 |
|
Common trusts (b) | | | | | | | | 585.0 |
| | | | | | | | 687.9 |
|
Securitization recovery trust account | | 3.7 |
| | — |
| | — |
| | 3.7 |
| | 4.0 |
| | — |
| | — |
| | 4.0 |
|
Escrow accounts | | 2.4 |
| | — |
| | — |
| | 2.4 |
| |
Financial transmission rights | | — |
| | — |
| | 3.0 |
| | 3.0 |
| | — |
| | — |
| | 3.3 |
| | 3.3 |
|
| |
| $133.6 |
| |
| $232.4 |
| |
| $3.0 |
| |
| $954.0 |
| |
| $113.3 |
| |
| $304.1 |
| |
| $3.3 |
| |
| $1,108.6 |
|
|
| | | | | | | | | | | | | | | | |
2018 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | (In Millions) |
Assets: | | | | | | | | |
Decommissioning trust funds (a): | | | | | | | | |
Equity securities | |
| $4.0 |
| |
| $— |
| |
| $— |
| |
| $4.0 |
|
Debt securities | | 94.8 |
| | 286.5 |
| | — |
| | 381.3 |
|
Common trusts (b) | | | | | | | | 526.7 |
|
Securitization recovery trust account | | 4.7 |
| | — |
| | — |
| | 4.7 |
|
Financial transmission rights | | — |
| | — |
| | 3.4 |
| | 3.4 |
|
| |
| $103.5 |
| |
| $286.5 |
| |
| $3.4 |
| |
| $920.1 |
|
|
| | | | | | | | | | | | | | | | |
2016 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | (In Millions) |
Assets: | | | | | | | | |
Decommissioning trust funds (a): | | | | | | | | |
Equity securities | |
| $3.6 |
| |
| $— |
| |
| $— |
| |
| $3.6 |
|
Debt securities | | 112.5 |
| | 196.8 |
| | — |
| | 309.3 |
|
Common trusts (b) | | | | | | | | 521.8 |
|
Securitization recovery trust account | | 4.1 |
| | — |
| | — |
| | 4.1 |
|
Escrow accounts | | 7.1 |
| | — |
| | — |
| | 7.1 |
|
Financial transmission rights | | — |
| | — |
| | 5.4 |
| | 5.4 |
|
| |
| $127.3 |
| |
| $196.8 |
| |
| $5.4 |
| |
| $851.3 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Entergy Louisiana
| | 2017 | | Level 1 | | Level 2 | | Level 3 | | Total | |
2019 | | | Level 1 | | Level 2 | | Level 3 | | Total |
| | (In Millions) | | (In Millions) |
Assets: | | | | | | | | | | | | | | | | |
Temporary cash investments | |
| $30.1 |
| |
| $— |
| |
| $— |
| |
| $30.1 |
| |
| $1.5 |
| |
| $— |
| |
| $— |
| |
| $1.5 |
|
Decommissioning trust funds (a): | | | | | | | | | | | | | | | | |
Equity securities | | 15.2 |
| | — |
| | — |
| | 15.2 |
| | 4.3 |
| | — |
| | — |
| | 4.3 |
|
Debt securities | | 143.3 |
| | 350.5 |
| | — |
| | 493.8 |
| | 180.8 |
| | 420.7 |
| | — |
| | 601.5 |
|
Common trusts (b) | | | | | | | | 803.1 |
| | | | | | | | 958.0 |
|
Escrow accounts | | 289.5 |
| | — |
| | — |
| | 289.5 |
| | 295.9 |
| | — |
| | — |
| | 295.9 |
|
Securitization recovery trust account | | 2.0 |
| | — |
| | — |
| | 2.0 |
| | 3.7 |
| | — |
| | — |
| | 3.7 |
|
Gas hedge contracts | | | — |
| | 0.8 |
| | — |
| | 0.8 |
|
Financial transmission rights | | — |
| | — |
| | 10.2 |
| | 10.2 |
| | — |
| | — |
| | 4.5 |
| | 4.5 |
|
| | |
| $486.2 |
| |
| $421.5 |
| |
| $4.5 |
| |
| $1,870.2 |
|
| |
| $480.1 |
| |
| $350.5 |
| |
| $10.2 |
| |
| $1,643.9 |
| | | | | | | | |
Liabilities: | | | | | | | | | | | | | | | | |
Gas hedge contracts | |
| $5.0 |
| |
| $— |
| |
| $— |
| |
| $5.0 |
| |
| $2.4 |
| |
| $2.2 |
| |
| $— |
| |
| $4.6 |
|
|
| | | | | | | | | | | | | | | | |
2018 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | (In Millions) |
Assets: | | | | | | | | |
Temporary cash investments | |
| $43.1 |
| |
| $— |
| |
| $— |
| |
| $43.1 |
|
Decommissioning trust funds (a): | | | | | | | | |
Equity securities | | 13.3 |
| | — |
| | — |
| | 13.3 |
|
Debt securities | | 162.0 |
| | 370.9 |
| | — |
| | 532.9 |
|
Common trusts (b) | | | | | | | | 738.8 |
|
Escrow accounts | | 289.5 |
| | — |
| | — |
| | 289.5 |
|
Securitization recovery trust account | | 3.6 |
| | — |
| | — |
| | 3.6 |
|
Gas hedge contracts | | — |
| | 1.9 |
| | — |
| | 1.9 |
|
Financial transmission rights | | — |
| | — |
| | 8.3 |
| | 8.3 |
|
| |
| $511.5 |
| |
| $372.8 |
| |
| $8.3 |
| |
| $1,631.4 |
|
| | | | | | | | |
Liabilities: | | | | | | | | |
Gas hedge contracts | |
| $0.7 |
| |
| $0.4 |
| |
| $— |
| |
| $1.1 |
|
|
| | | | | | | | | | | | | | | | |
2016 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | (In Millions) |
Assets: | | | | | | | | |
Temporary cash investments | |
| $163.9 |
| |
| $— |
| |
| $— |
| |
| $163.9 |
|
Decommissioning trust funds (a): | | | | | | | | |
Equity securities | | 13.9 |
| | — |
| | — |
| | 13.9 |
|
Debt securities | | 132.3 |
| | 292.5 |
| | — |
| | 424.8 |
|
Common trusts (b) | | | | | | | | 702.0 |
|
Escrow accounts | | 305.7 |
| | — |
| | — |
| | 305.7 |
|
Securitization recovery trust account | | 2.8 |
| | — |
| | — |
| | 2.8 |
|
Gas hedge contracts | | 10.9 |
| | — |
| | — |
| | 10.9 |
|
Financial transmission rights | | — |
| | — |
| | 8.5 |
| | 8.5 |
|
| |
| $629.5 |
| |
| $292.5 |
| |
| $8.5 |
| |
| $1,632.5 |
|
Entergy Mississippi
| | 2017 | | Level 1 | | Level 2 | | Level 3 | | Total | |
2019 | | | Level 1 | | Level 2 | | Level 3 | | Total |
| | (In Millions) | | (In Millions) |
Assets: | | | | | | | | | | | | | | | | |
Temporary cash investments | |
| $4.5 |
| |
| $— |
| |
| $— |
| |
| $4.5 |
| |
| $51.6 |
| |
| $— |
| |
| $— |
| |
| $51.6 |
|
Escrow accounts | | 32.0 |
| | — |
| | — |
| | 32.0 |
| | 80.2 |
| | — |
| | — |
| | 80.2 |
|
Financial transmission rights | | — |
| | — |
| | 2.1 |
| | 2.1 |
| | — |
| | — |
| | 0.8 |
| | 0.8 |
|
| |
| $36.5 |
| |
| $— |
| |
| $2.1 |
| |
| $38.6 |
| |
| $131.8 |
| |
| $— |
| |
| $0.8 |
| |
| $132.6 |
|
Liabilities: | | | | | | | | | | | | | | | | |
Gas hedge contracts | |
| $1.2 |
| |
| $— |
| |
| $— |
| |
| $1.2 |
| |
| $2.3 |
| |
| $— |
| |
| $— |
| |
| $2.3 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
|
| | | | | | | | | | | | | | | | |
2018 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | (In Millions) |
Assets: | | | | | | | | |
Temporary cash investments | |
| $36.9 |
| |
| $— |
| |
| $— |
| |
| $36.9 |
|
Escrow accounts | | 32.4 |
| | — |
| | — |
| | 32.4 |
|
Financial transmission rights | | — |
| | — |
| | 2.2 |
| | 2.2 |
|
| |
| $69.3 |
| |
| $— |
| |
| $2.2 |
| |
| $71.5 |
|
|
| | | | | | | | | | | | | | | | |
2016 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | (In Millions) |
Assets: | | | | | | | | |
Temporary cash investments | |
| $76.8 |
| |
| $— |
| |
| $— |
| |
| $76.8 |
|
Escrow accounts | | 31.8 |
| | — |
| | — |
| | 31.8 |
|
Gas hedge contracts | | 2.3 |
| | — |
| | — |
| | 2.3 |
|
Financial transmission rights | | — |
| | — |
| | 3.2 |
| | 3.2 |
|
| |
| $110.9 |
| |
| $— |
| |
| $3.2 |
| |
| $114.1 |
|
Entergy New Orleans
| | 2017 | | Level 1 | | Level 2 | | Level 3 | | Total | |
2019 | | | Level 1 | | Level 2 | | Level 3 | | Total |
| | (In Millions) | | (In Millions) |
Assets: | | | | | | | | | | | | | | | | |
Temporary cash investments | |
| $32.7 |
| |
| $— |
| |
| $— |
| |
| $32.7 |
| |
| $6.0 |
| |
| $— |
| |
| $— |
| |
| $6.0 |
|
Securitization recovery trust account | | 1.5 |
| | — |
| | — |
| | 1.5 |
| | 2.0 |
| | — |
| | — |
| | 2.0 |
|
Escrow accounts | | 81.9 |
| | — |
| | — |
| | 81.9 |
| | 82.6 |
| | — |
| | — |
| | 82.6 |
|
Financial transmission rights | | — |
| | — |
| | 2.2 |
| | 2.2 |
| | — |
| | — |
| | 0.3 |
| | 0.3 |
|
| |
| $116.1 |
| |
| $— |
| |
| $2.2 |
| |
| $118.3 |
| |
| $90.6 |
| |
| $— |
| |
| $0.3 |
| |
| $90.9 |
|
| | | | | | | | | |
Liabilities: | | | | | | | | | | | | | | | | |
Gas hedge contracts | |
| $0.2 |
| |
| $— |
| |
| $— |
| |
| $0.2 |
| |
| $0.2 |
| |
| $— |
| |
| $— |
| |
| $0.2 |
|
|
| | | | | | | | | | | | | | | | |
2018 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | (In Millions) |
Assets: | | | | | | | | |
Temporary cash investments | |
| $19.7 |
| |
| $— |
| |
| $— |
| |
| $19.7 |
|
Securitization recovery trust account | | 2.2 |
| | — |
| | — |
| | 2.2 |
|
Escrow accounts | | 80.9 |
| | — |
| | — |
| | 80.9 |
|
Financial transmission rights | | — |
| | — |
| | 1.3 |
| | 1.3 |
|
| |
| $102.8 |
| |
| $— |
| |
| $1.3 |
| |
| $104.1 |
|
| | | | | | | | |
Liabilities: | | | | | | | | |
Gas hedge contracts | |
| $0.1 |
| |
| $— |
| |
| $— |
| |
| $0.1 |
|
|
| | | | | | | | | | | | | | | | |
2016 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | (In Millions) |
Assets: | | | | | | | | |
Temporary cash investments | |
| $103.0 |
| |
| $— |
| |
| $— |
| |
| $103.0 |
|
Securitization recovery trust account | | 1.7 |
| | — |
| | — |
| | 1.7 |
|
Escrow accounts | | 88.6 |
| | — |
| | — |
| | 88.6 |
|
Gas hedge contracts | | 0.2 |
| | — |
| | — |
| | 0.2 |
|
Financial transmission rights | | — |
| | — |
| | 1.1 |
| | 1.1 |
|
| |
| $193.5 |
| |
| $— |
| |
| $1.1 |
| |
| $194.6 |
|
Entergy Texas
| | 2017 | | Level 1 | | Level 2 | | Level 3 | | Total | |
2019 | | | Level 1 | | Level 2 | | Level 3 | | Total |
| | (In Millions) | | (In Millions) |
Assets: | | | | | | | | | | | | | | | | |
Temporary cash investments | |
| $115.5 |
| |
| $— |
| |
| $— |
| |
| $115.5 |
| |
| $12.9 |
| |
| $— |
| |
| $— |
| |
| $12.9 |
|
Securitization recovery trust account | | 37.7 |
| | — |
| | — |
| | 37.7 |
| | 37.7 |
| | — |
| | — |
| | 37.7 |
|
Financial transmission rights | | — |
| | — |
| | 3.4 |
| | 3.4 |
| | — |
| | — |
| | 0.9 |
| | 0.9 |
|
| |
| $153.2 |
| |
| $— |
| |
| $3.4 |
| |
| $156.6 |
| |
| $50.6 |
| |
| $— |
| |
| $0.9 |
| |
| $51.5 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
|
| | | | | | | | | | | | | | | | |
2018 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | (In Millions) |
Assets: | | | | | | | | |
Securitization recovery trust account | |
| $40.2 |
| |
| $— |
| |
| $— |
| |
| $40.2 |
|
| | | | | | | | |
Liabilities: | | | | | | | | |
Financial transmission rights | |
| $— |
| |
| $— |
| |
| $0.5 |
| |
| $0.5 |
|
|
| | | | | | | | | | | | | | | | |
2016 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | (In Millions) |
Assets: | | | | | | | | |
Temporary cash investments | |
| $5.0 |
| |
| $— |
| |
| $— |
| |
| $5.0 |
|
Securitization recovery trust account | | 37.5 |
| | — |
| | — |
| | 37.5 |
|
Financial transmission rights | | — |
| | — |
| | 3.1 |
| | 3.1 |
|
| |
| $42.5 |
| |
| $— |
| |
| $3.1 |
| |
| $45.6 |
|
System Energy
| | 2017 | | Level 1 | | Level 2 | | Level 3 | | Total | |
2019 | | | Level 1 | | Level 2 | | Level 3 | | Total |
| | (In Millions) | | (In Millions) |
Assets: | | | | | | | | | | | | | | | | |
Temporary cash investments | |
| $287.1 |
| |
| $— |
| |
| $— |
| |
| $287.1 |
| |
| $68.4 |
| |
| $— |
| |
| $— |
| |
| $68.4 |
|
Decommissioning trust funds (a): | | | | | | | | | | | | | | | | |
Equity securities | | 3.1 |
| | — |
| | — |
| | 3.1 |
| | 13.3 |
| | — |
| | — |
| | 13.3 |
|
Debt securities | | 187.2 |
| | 143.3 |
| | — |
| | 330.5 |
| | 176.3 |
| | 209.9 |
| | — |
| | 386.2 |
|
Common trusts (b) | | | | | | | | 572.1 |
| | | | | | | | 654.6 |
|
| |
| $477.4 |
| |
| $143.3 |
| |
| $— |
| |
| $1,192.8 |
| |
| $258.0 |
| |
| $209.9 |
| |
| $— |
| |
| $1,122.5 |
|
|
| | | | | | | | | | | | | | | | |
2018 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | (In Millions) |
Assets: | | | | | | | | |
Temporary cash investments | |
| $95.6 |
| |
| $— |
| |
| $— |
| |
| $95.6 |
|
Decommissioning trust funds (a): | | | | | | | | |
Equity securities | | 4.4 |
| | — |
| | — |
| | 4.4 |
|
Debt securities | | 224.5 |
| | 139.7 |
| | — |
| | 364.2 |
|
Common trusts (b) | | | | | | | | 500.9 |
|
| |
| $324.5 |
| |
| $139.7 |
| |
| $— |
| |
| $965.1 |
|
|
| | | | | | | | | | | | | | | | |
2016 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | (In Millions) |
Assets: | | | | | | | | |
Temporary cash investments | |
| $245.1 |
| |
| $— |
| |
| $— |
| |
| $245.1 |
|
Decommissioning trust funds (a): | | | | | | | | |
Equity securities | | 0.3 |
| | — |
| | — |
| | 0.3 |
|
Debt securities | | 248.3 |
| | 58.3 |
| | — |
| | 306.6 |
|
Common trusts (b) | | | | | | | | 473.6 |
|
| |
| $493.7 |
| |
| $58.3 |
| |
| $— |
| |
| $1,025.6 |
|
| |
(a) | The decommissioning trust funds hold equity and fixed income securities. Equity securities are invested to approximate the returns of major market indices. Fixed income securities are held in various governmental and corporate securities. See Note 916 to the financial statements for additional information on the investment portfolios. |
| |
(b) | Common trust funds are not publicly quoted and are valued by the fund administrators using net asset value as a practical expedient. Accordingly, these funds are not assigned a level in the fair value table. The fund administrator of these investments allows daily trading at the net asset value and trades settle at a later date. |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The following table sets forth a reconciliation of changes in the net assets for the fair value of derivatives classified as Level 3 in the fair value hierarchy for the year ended December 31, 2019.
|
| | | | | | | | | | | | | | | | | | | |
| Entergy Arkansas | | Entergy Louisiana |
| Entergy Mississippi |
| Entergy New Orleans |
| Entergy Texas |
| (In Millions) |
| | |
|
|
|
|
|
|
|
|
|
|
|
Balance as of January 1, 2019 |
| $3.4 |
| |
| $8.3 |
| |
| $2.2 |
| |
| $1.3 |
| |
| ($0.5 | ) |
Issuances of financial transmission rights | 9.6 |
| | 18.7 |
| | 3.9 |
| | 2.7 |
| | 0.1 |
|
Gains (losses) included as a regulatory liability/asset | 12.6 |
| | 24.2 |
| | 1.5 |
| | (1.0 | ) | | 17.0 |
|
Settlements | (22.3 | ) | | (46.7 | ) | | (6.8 | ) | | (2.7 | ) | | (15.7 | ) |
Balance as of December 31, 2019 |
| $3.3 |
| |
| $4.5 |
| |
| $0.8 |
| |
| $0.3 |
| |
| $0.9 |
|
The following table sets forth a reconciliation of changes in the net assets (liabilities) for the fair value of derivatives classified as Level 3 in the fair value hierarchy for the year ended December 31, 2017.2018.
|
| | | | | | | | | | | | | | | | | | | |
| Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas |
| (In Millions) |
| | | | | | | | | |
Balance as of January 1, 2018 |
| $3.0 |
| |
| $10.2 |
| |
| $2.1 |
| |
| $2.2 |
| |
| $3.4 |
|
Issuances of financial transmission rights | 11.8 |
| | 20.0 |
| | 4.5 |
| | 3.7 |
| | 6.1 |
|
Gains (losses) included as a regulatory liability/asset | 13.9 |
| | 50.8 |
| | 21.9 |
| | 9.2 |
| | (16.0 | ) |
Settlements | (25.3 | ) | | (72.7 | ) | | (26.3 | ) | | (13.8 | ) | | 6.0 |
|
Balance as of December 31, 2018 |
| $3.4 |
| |
| $8.3 |
| |
| $2.2 |
| |
| $1.3 |
| |
| ($0.5 | ) |
|
| | | | | | | | | | | | | | | | | | | |
| Entergy Arkansas | | Entergy Louisiana |
| Entergy Mississippi |
| Entergy New Orleans |
| Entergy Texas |
| (In Millions) |
| | |
|
|
|
|
|
|
|
|
|
|
|
Balance as of January 1, |
| $5.4 |
| |
| $8.5 |
| |
| $3.2 |
| |
| $1.1 |
| |
| $3.1 |
|
Issuances of financial transmission rights | 8.9 |
| | 31.0 |
| | 9.6 |
| | 5.0 |
| | 7.1 |
|
Gains (losses) included as a regulatory liability/asset | 30.4 |
| | 16.5 |
| | 8.2 |
| | 5.2 |
| | 15.5 |
|
Settlements | (41.7 | ) | | (45.8 | ) | | (18.9 | ) | | (9.1 | ) | | (22.3 | ) |
Balance as of December 31, |
| $3.0 |
| |
| $10.2 |
| |
| $2.1 |
| |
| $2.2 |
| |
| $3.4 |
|
The following table sets forth a reconciliation of changes in the net assets (liabilities) for the fair value of derivatives classified as Level 3 in the fair value hierarchy for the year ended December 31, 2016.
|
| | | | | | | | | | | | | | | | | | | |
| Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas |
| (In Millions) |
| | | | | | | | | |
Balance as of January 1, |
| $7.9 |
| |
| $8.5 |
| |
| $2.4 |
| |
| $1.5 |
| |
| $2.2 |
|
Issuances of financial transmission rights | 18.8 |
| | 18.1 |
| | 5.9 |
| | 2.8 |
| | 9.3 |
|
Gains included as a regulatory liability/asset | 1.9 |
| | 51.6 |
| | 11.5 |
| | 0.9 |
| | 1.8 |
|
Settlements | (23.2 | ) | | (69.7 | ) | | (16.6 | ) | | (4.1 | ) | | (10.2 | ) |
Balance as of December 31, |
| $5.4 |
| |
| $8.5 |
| |
| $3.2 |
| |
| $1.1 |
| |
| $3.1 |
|
NOTE 16. DECOMMISSIONING TRUST FUNDS (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, and System Energy)
Entergy holds debt and equity securities, classified as available-for-sale, in nuclear decommissioning trust accounts. The NRC requires Entergy subsidiaries to maintain nuclear decommissioning trusts to fund the costs of decommissioning ANO 1, ANO 2, River Bend, Waterford 3, Grand Gulf, Pilgrim, Indian Point 1, Indian Point 2, Indian Point 3, Vermont Yankee, and Palisades. TheEntergy’s nuclear decommissioning trust funds are invested primarilyinvest in equity securities, fixed-rate debt securities, and cash and cash equivalents.
ForEntergy implemented ASU No. 2016-01 “Financial Instruments (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities” effective January 1, 2018. The ASU requires investments in equity securities, excluding those accounted for under the Indian Point 3equity method or resulting in consolidation of the investee, to be measured at fair value with changes recognized in net income. Entergy implemented this ASU using a modified retrospective method, and FitzPatrick plants purchasedEntergy recorded an adjustment increasing retained earnings and increasing accumulated other comprehensive loss by $633 million as of January 1, 2018, for the cumulative effect of the unrealized gains and losses on investments in 2000 from NYPA, NYPA retainedequity securities held by the decommissioning trust funds that do not meet the criteria for regulatory accounting treatment. Beginning in 2018, unrealized gains and losses on investments in equity securities held by the nuclear decommissioning liabilities. NYPA and Entergy subsidiaries executed decommissioning agreements, which specified their decommissioning obligations. Attrust funds are recorded in earnings as they occur rather than in other comprehensive income. In accordance with the timeregulatory treatment of the acquisition of the plants Entergy recorded a contract asset that represented an estimate of the present value of the difference between the stipulated contract amount for decommissioning the plants less the decommissioning costs estimated in independent decommissioning cost studies.
In August 2016, Entergy entered into a trust transfer agreement with NYPA to transfer the decommissioning trust funds and decommissioning liabilities forof the Indian Point 3 and FitzPatrick plants to Entergy. The transaction
Entergy Corporation and Subsidiaries
Notes to Financial Statements
was contingent upon receiving approval from the NRC, which was received in January 2017. As a resultRegistrant Subsidiaries, an offsetting amount of the agreement with NYPA, in the third quarter 2016, Entergy removed the contract asset from its balance sheet, and recorded receivables for the beneficial interests in the decommissioning trust funds and recorded asset retirement obligations for the decommissioning liabilities. At December 31, 2016, the fair values of the decommissioning trust funds held by NYPA were $719 million for the Indian Point 3 plant and $785 million for the FitzPatrick plant. The fair values were based on the trust statements received from NYPA and were valued by the fund administrator using net asset value as a practical expedient. Accordingly, these funds were not assigned a level in the fair value hierarchy. For Indian Point 3, the receivable for the beneficial interest in the decommissioning trust fund wasunrealized gains/(losses) will continue to be recorded in other deferred debits onregulatory liabilities/assets.
As discussed in Note 14 to the consolidated balance sheet as of December 31, 2016. For FitzPatrick,financial statements, in January 2019, Entergy completed the receivable for the beneficial interest in the decommissioning trust fund was classified as held for sale within other deferred debits on the consolidated balance sheet as of December 31, 2016. In January 2017, NYPA transferred to Entergy the Indian Point 3 decommissioning trust funds with a fair value of $726 million and the FitzPatrick decommissioning trust fund with a fair value of $793 million. In March 2017, Entergy closed on the saletransfer of the FitzPatrickVermont Yankee plant to Exelon.NorthStar. As part of the transaction, Entergy transferred the FitzPatrickVermont Yankee decommissioning trust fund to Exelon. The FitzPatrickNorthStar. As of December 31, 2018, the fair value of the decommissioning trust fund had a disposition-date fair value of $805was $532 million. See Note 9 to the financial statements for further discussion of the decommissioning agreements with NYPA and see
As discussed in Note 14 to the financial statements, for further discussionin August 2019, Entergy completed the transfer of the salePilgrim plant to Holtec. As part of FitzPatrick.the transaction, Entergy transferred the Pilgrim decommissioning trust fund to Holtec. The disposition-date fair value of the decommissioning trust fund was approximately $1,030 million.
Entergy records decommissioning trust funds on the balance sheet at their fair value. Because of the ability of the Registrant Subsidiaries to recover decommissioning costs in rates and in accordance with the regulatory treatment for decommissioning trust funds, the Registrant Subsidiaries have recorded an offsetting amount of unrealized gains/(losses) on investment securities in other regulatory liabilities/assets. For the 30% interest in River Bend formerly owned by Cajun, Entergy Louisiana records an offsetting amount in other deferred credits for the excessunrealized trust earnings not currently expected to be needed to decommission the plant. Decommissioning trust funds for Pilgrim, Indian Point 1, Indian Point 2, Indian Point 3, Vermont Yankee, and Palisadesthe Entergy Wholesale Commodities nuclear plants do not meet the criteria for regulatory accounting treatment. Accordingly, unrealized gains/(losses) recorded on the equity securities in the trust funds are recognized in earnings. Unrealized gains recorded on the assetsavailable-for-sale debt securities in thesethe trust funds are recognized in the accumulated other comprehensive income component of shareholders’ equity because these assets are classified as available for sale.equity. Unrealized losses (where cost exceeds fair market value) on the assetsavailable-for-sale debt securities in thesethe trust funds are also recorded in the accumulated other comprehensive income component of shareholders’ equity unless the unrealized loss is other than temporary and therefore recorded in earnings. A portion of Entergy’s decommissioning trust funds are held in a wholly-owned registered investment company, and unrealized gains and losses on both the equity and debt securities held in the registered investment company are recognized in earnings. Generally, Entergy records realized gains and losses on its debt and equity securities using the specific identification method to determine the cost basis of its securities.
The unrealized gains/(losses) recognized during the year ended December 31, 2019 on equity securities still held as of December 31, 2017 and 2016 are summarized as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 2017 | | 2016 |
| | Fair Value | | Total Unrealized Gains | | Total Unrealized Losses | | Fair Value | | Total Unrealized Gains | | Total Unrealized Losses |
| | (In Millions) |
Equity Securities | |
| $4,662 |
| |
| $2,131 |
| |
| $1 |
| |
| $3,511 |
| |
| $1,673 |
| |
| $1 |
|
Debt Securities | | 2,550 |
| | 44 |
| | 16 |
| | 2,213 |
| | 34 |
| | 27 |
|
Total | |
| $7,212 |
| |
| $2,175 |
| |
| $17 |
| |
| $5,724 |
| |
| $1,707 |
| |
| $28 |
|
The fair values of the decommissioning trust funds related to the Entergy Wholesale Commodities nuclear plants as of December 31, 2017 are $491 million for Indian Point 1, $621 million for Indian Point 2, $798 million for Indian Point 3, $458 million for Palisades, $1,068 million for Pilgrim, and $613 million for Vermont Yankee. The fair values of the decommissioning trust funds related to the Entergy Wholesale Commodities nuclear plants as of December 31, 2016 are $443 million for Indian Point 1, $564 million for Indian Point 2, $412 million for Palisades, $960 million for Pilgrim, and $584 million for Vermont Yankee. The fair values of the decommissioning trust funds for the Registrant Subsidiaries’ nuclear plants are detailed below.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Deferred taxes on unrealized gains/(losses) are recorded in other comprehensive income (loss) for the decommissioning trusts which do not meet the criteria for regulatory accounting treatment as described above. Unrealized gains/(losses) above are reported before deferred taxes of $479 million and $399 million as of December 31, 2017 and 2016, respectively. The amortized cost of debt securities was $2,539 million as of December 31, 2017 and $2,212 million as of December 31, 2016. As of December 31, 2017, the debt securities have an average coupon rate of approximately 3.24%, an average duration of approximately 6.33 years, and an average maturity of approximately 9.99 years.2019 were $640 million. The equity securities are generally held in funds that are designed to approximate or somewhat exceed the return of the Standard & Poor’s 500 Index. A relatively small percentage of the equity securities are held in funds intended to replicate the return of the Wilshire 4500 Indexindex or the Russell 3000 Index. The debt securities are generally held in individual government and credit issuances.
The available-for-sale securities held as of December 31, 2019 and 2018 are summarized as follows:
|
| | | | | | | | | | | | |
| | Fair Value | | Total Unrealized Gains | | Total Unrealized Losses |
| | (In Millions) |
2019 | | | | | | |
Debt Securities (a) | |
| $2,456 |
| |
| $96 |
| |
| $6 |
|
| | | | | | |
2018 | | | | | | |
Debt Securities (a) | |
| $2,495 |
| |
| $19 |
| |
| $35 |
|
| |
(a) | Debt securities presented herein do not include the $507 million and $389 million of debt securities held in the wholly-owned registered investment company as of December 31, 2019 and 2018, respectively, which are not accounted for as available-for-sale. |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The unrealized gains/(losses) above are reported before deferred taxes of $13 million as of December 31, 2019 and ($1) million as of December 31, 2018 for debt securities. The amortized cost of available-for-sale debt securities was $2,366 million as of December 31, 2019 and $2,511 million as of December 31, 2018. As of December 31, 2019, available-for-sale debt securities have an average coupon rate of approximately 3.27%, an average duration of approximately 6.62 years, and an average maturity of approximately 10.42 years.
The fair value and gross unrealized losses of available-for-sale equity and debt securities, summarized by investment type and length of time that the securities have been in a continuous loss position, are as follows as of December 31, 2017 and 2016:2019:
| | | 2017 | | 2016 | |
| Equity Securities | | Debt Securities | | Equity Securities | | Debt Securities | | | | | | | |
| Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses | Fair Value | | Gross Unrealized Losses |
| (In Millions) | (In Millions) |
Less than 12 months |
| $8 |
| |
| $1 |
| |
| $1,099 |
| |
| $7 |
| |
| $23 |
| |
| $1 |
| |
| $1,169 |
| |
| $26 |
|
| $404 |
| |
| $5 |
|
More than 12 months | — |
| | — |
| | 265 |
| | 9 |
| | 1 |
| | — |
| | 20 |
| | 1 |
| 38 |
| | 1 |
|
Total |
| $8 |
| |
| $1 |
| |
| $1,364 |
| |
| $16 |
| |
| $24 |
| |
| $1 |
| |
| $1,189 |
| |
| $27 |
|
| $442 |
| |
| $6 |
|
The fair value and gross unrealized losses of available-for-sale debt securities, summarized by length of time that the securities have been in a continuous loss position, are as follows as of December 31, 2018:
|
| | | | | | | |
| Fair Value | | Gross Unrealized Losses |
| (In Millions) |
Less than 12 months |
| $652 |
| |
| $9 |
|
More than 12 months | 782 |
| | 26 |
|
Total |
| $1,434 |
| |
| $35 |
|
The fair value of available-for-sale debt securities, summarized by contractual maturities, as of December 31, 20172019 and 20162018 are as follows:
|
| | | | | | | |
| 2019 | | 2018 |
| (In Millions) |
Less than 1 year |
| $128 |
| |
| $199 |
|
1 year - 5 years | 807 |
| | 1,066 |
|
5 years - 10 years | 666 |
| | 544 |
|
10 years - 15 years | 125 |
| | 77 |
|
15 years - 20 years | 126 |
| | 78 |
|
20 years+ | 604 |
| | 531 |
|
Total |
| $2,456 |
| |
| $2,495 |
|
|
| | | | | | | |
| 2017 | | 2016 |
| (In Millions) |
less than 1 year |
| $74 |
| |
| $125 |
|
1 year - 5 years | 902 |
| | 763 |
|
5 years - 10 years | 812 |
| | 719 |
|
10 years - 15 years | 147 |
| | 109 |
|
15 years - 20 years | 100 |
| | 73 |
|
20 years+ | 515 |
| | 424 |
|
Total |
| $2,550 |
| |
| $2,213 |
|
During the years ended December 31, 2017, 2016,2019, 2018, and 2015,2017, proceeds from the dispositions of available-for-sale securities amounted to $3,163$1,427 million, $2,409$2,406 million, and $2,492$3,163 million, respectively. During the years ended December 31, 2017, 2016,2019, 2018, and 2015,2017, gross gains of $149$25 million, $32$7 million, and $72$149 million, respectively, and gross losses of $13$4 million, $13$47 million, and $13 million, respectively, related to available-for-sale securities were reclassified out of other comprehensive income or other regulatory liabilities/assets into earnings.
The fair values of the decommissioning trust funds related to the Entergy Wholesale Commodities nuclear plants as of December 31, 2019 are $556 million for Indian Point 1, $701 million for Indian Point 2, $930 million for Indian Point 3, and $498 million for Palisades. The fair values of the decommissioning trust funds related to the Entergy
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Wholesale Commodities nuclear plants as of December 31, 2018 are $471 million for Indian Point 1, $598 million for Indian Point 2, $781 million for Indian Point 3, $444 million for Palisades, $1,028 million for Pilgrim, and $532 million for Vermont Yankee. The fair values of the decommissioning trust funds for the Registrant Subsidiaries’ nuclear plants are detailed below.
Entergy Arkansas
Entergy Arkansas holds debt and equity securities classified asand available-for-sale debt securities in nuclear decommissioning trust accounts. The available-for-sale securities held as of December 31, 20172019 and 20162018 are summarized as follows:
|
| | | | | | | | | | | | |
| | Fair Value | | Total Unrealized Gains | | Total Unrealized Losses |
| | (In Millions) |
2019 | | | | | | |
Debt Securities | |
| $412.8 |
| |
| $9.9 |
| |
| $2.6 |
|
| | | | | | |
2018 | | | | | | |
Debt Securities | |
| $381.3 |
| |
| $0.6 |
| |
| $8.2 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 2017 | | 2016 |
| | Fair Value | | Total Unrealized Gains | | Total Unrealized Losses | | Fair Value | | Total Unrealized Gains | | Total Unrealized Losses |
| | (In Millions) |
Equity Securities | |
| $596.7 |
| |
| $354.9 |
| |
| $— |
| |
| $525.4 |
| |
| $281.5 |
| |
| $— |
|
Debt Securities | | 348.2 |
| | 2.1 |
| | 3.0 |
| | 309.3 |
| | 3.4 |
| | 4.2 |
|
Total | |
| $944.9 |
| |
| $357.0 |
| |
| $3.0 |
| |
| $834.7 |
| |
| $284.9 |
| |
| $4.2 |
|
The amortized cost of available-for-sale debt securities was $349.1$405.4 million as of December 31, 20172019 and $310.1$389 million as of December 31, 2016.2018. As of December 31, 2017,2019, the available-for-sale debt securities have an average coupon rate of approximately 2.64%2.79%, an average duration of approximately 5.616.83 years, and an average maturity of approximately 7.008.81 years.
The unrealized gains/(losses) recognized during the year ended December 31, 2019 on equity securities still held as of December 31, 2019 were $147.7 million. The equity securities are generally held in funds that are designed to approximate the return of the Standard & Poor’s 500 Index. A relatively small percentage of the equity securities are held in funds intended to replicate the return of the Wilshire 4500 Index.
The fair value and gross unrealized losses of available-for-sale equity and debt securities, summarized by investment type and length of time that the securities have been in a continuous loss position, are as follows as of December 31, 2017 and 2016:2019:
| | | 2017 | | 2016 | |
| Equity Securities | | Debt Securities | | Equity Securities | | Debt Securities | | | | | | | |
| Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses | Fair Value | | Gross Unrealized Losses |
| (In Millions) | (In Millions) |
Less than 12 months |
| $— |
| |
| $— |
| |
| $168.0 |
| |
| $1.2 |
| |
| $— |
| |
| $— |
| |
| $146.7 |
| |
| $4.2 |
|
| $104.8 |
| |
| $2.5 |
|
More than 12 months | — |
| | — |
| | 41.4 |
| | 1.8 |
| | — |
| | — |
| | — |
| | — |
| 7.7 |
| | 0.1 |
|
Total |
| $— |
| |
| $— |
| |
| $209.4 |
| |
| $3.0 |
| |
| $— |
| |
| $— |
| |
| $146.7 |
| |
| $4.2 |
|
| $112.5 |
| |
| $2.6 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The fair value and gross unrealized losses of available-for-sale debt securities, summarized by length of time that the securities have been in a continuous loss position, are as follows as of December 31, 2018:
|
| | | | | | | |
| Fair Value | | Gross Unrealized Losses |
| (In Millions) |
Less than 12 months |
| $65.8 |
| |
| $0.5 |
|
More than 12 months | 231.1 |
| | 7.7 |
|
Total |
| $296.9 |
| |
| $8.2 |
|
The fair value of available-for-sale debt securities, summarized by contractual maturities, as of December 31, 20172019 and 20162018 are as follows:
|
| | | | | | | |
| 2019 | | 2018 |
| (In Millions) |
Less than 1 year |
| $44.1 |
| |
| $32.5 |
|
1 year - 5 years | 109.1 |
| | 170.3 |
|
5 years - 10 years | 156.0 |
| | 114.0 |
|
10 years - 15 years | 31.3 |
| | 10.3 |
|
15 years - 20 years | 23.8 |
| | 8.1 |
|
20 years+ | 48.5 |
| | 46.1 |
|
Total |
| $412.8 |
| |
| $381.3 |
|
|
| | | | | | | |
| 2017 | | 2016 |
| (In Millions) |
less than 1 year |
| $13.0 |
| |
| $16.7 |
|
1 year - 5 years | 123.4 |
| | 106.2 |
|
5 years - 10 years | 180.6 |
| | 161.2 |
|
10 years - 15 years | 4.8 |
| | 7.7 |
|
15 years - 20 years | 3.4 |
| | 1.0 |
|
20 years+ | 23.0 |
| | 16.5 |
|
Total |
| $348.2 |
| |
| $309.3 |
|
During the years ended December 31, 2017, 2016,2019, 2018, and 2015,2017, proceeds from the dispositions of available-for-sale securities amounted to $339.4$110.6 million, $197.4$82.1 million, and $213$339.4 million, respectively. During the years ended December 31, 2019, 2018, and 2017, gross gains of $2.9 million, $0.1 million, and $17.7 million, respectively, and gross losses of $0.1 million, $2.9 million, and $0.6 million, respectively, related to available-for-sale securities were reclassified out of other regulatory liabilities/assets into earnings.
Entergy Louisiana
Entergy Louisiana holds equity securities and available-for-sale debt securities in nuclear decommissioning trust accounts. The available-for-sale securities held as of December 31, 2019 and 2018 are summarized as follows:
221 |
| | | | | | | | | | | | |
| | Fair Value | | Total Unrealized Gains | | Total Unrealized Losses |
| | (In Millions) |
2019 | | | | | | |
Debt Securities | |
| $601.5 |
| |
| $29.3 |
| |
| $0.8 |
|
| | | | | | |
2018 | | | | | | |
Debt Securities | |
| $532.9 |
| |
| $4.1 |
| |
| $6.0 |
|
The amortized cost of available-for-sale debt securities was $573 million as of December 31, 2019 and $534.8 million as of December 31, 2018. As of December 31, 2019, the available-for-sale debt securities have an average coupon rate of approximately 3.82%, an average duration of approximately 6.80 years, and an average maturity of approximately 13.26 years.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
2017, 2016, and 2015, gross gains of $17.7 million, $1.8 million, and $5.9 million, respectively, and gross losses of $0.6 million, $0.8 million, and $0.3 million, respectively, were recorded in earnings.
Entergy Louisiana
Entergy Louisiana holds debt andThe unrealized gains/(losses) recognized during the year ended December 31, 2019 on equity securities classified as available-for-sale, in nuclear decommissioning trust accounts. The securitiesstill held as of December 31, 2017 and 2016 are summarized as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 2017 | | 2016 |
| | Fair Value | | Total Unrealized Gains | | Total Unrealized Losses | | Fair Value | | Total Unrealized Gains | | Total Unrealized Losses |
| | (In Millions) |
Equity Securities | |
| $818.3 |
| |
| $461.2 |
| |
| $— |
| |
| $715.9 |
| |
| $346.6 |
| |
| $— |
|
Debt Securities | | 493.8 |
| | 10.9 |
| | 3.6 |
| | 424.8 |
| | 8.0 |
| | 5.0 |
|
Total | |
| $1,312.1 |
| |
| $472.1 |
| |
| $3.6 |
| |
| $1,140.7 |
| |
| $354.6 |
| |
| $5.0 |
|
The amortized cost of debt securities was $490 million as of December 31, 2017 and $421.9 million as of December 31, 2016. As of December 31, 2017, the debt securities have an average coupon rate of approximately 3.88%, an average duration of approximately 6.17 years, and an average maturity of approximately 12.06 years.2019 were $208.1 million. The equity securities are generally held in funds that are designed to approximate the return of the Standard & Poor’s 500 Index. A relatively small percentage of the equity securities are held in funds intended to replicate the return of the Wilshire 4500 Index.
The fair value and gross unrealized losses of available-for-sale equity and debt securities, summarized by investment type and length of time that the securities have been in a continuous loss position, are as follows as of December 31, 2017 and 2016:2019:
| | | 2017 | | 2016 | |
| Equity Securities | | Debt Securities | | Equity Securities | | Debt Securities | | | | | | | |
| Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses | Fair Value | | Gross Unrealized Losses |
| (In Millions) | (In Millions) |
Less than 12 months |
| $— |
| |
| $— |
| |
| $135.3 |
| |
| $1.1 |
| |
| $— |
| |
| $— |
| |
| $198.8 |
| |
| $4.8 |
|
| $71.2 |
| |
| $0.8 |
|
More than 12 months | — |
| | — |
| | 84.4 |
| | 2.5 |
| | — |
| | — |
| | 4.8 |
| | 0.2 |
| 7.9 |
| | — |
|
Total |
| $— |
| |
| $— |
| |
| $219.7 |
| |
| $3.6 |
| |
| $— |
| |
| $— |
| |
| $203.6 |
| |
| $5.0 |
|
| $79.1 |
| |
| $0.8 |
|
The fair value and gross unrealized losses of available-for-sale debt securities, summarized by length of time that the securities have been in a continuous loss position, are as follows as of December 31, 2018:
|
| | | | | | | |
| Fair Value | | Gross Unrealized Losses |
| (In Millions) |
Less than 12 months |
| $170.1 |
| |
| $2.1 |
|
More than 12 months | 145.8 |
| | 3.9 |
|
Total |
| $315.9 |
| |
| $6.0 |
|
The fair value of available-for-sale debt securities, summarized by contractual maturities, as of December 31, 20172019 and 20162018 are as follows:
|
| | | | | | | |
| 2019 | | 2018 |
| (In Millions) |
Less than 1 year |
| $40.7 |
| |
| $31.1 |
|
1 year - 5 years | 142.0 |
| | 130.5 |
|
5 years - 10 years | 132.4 |
| | 111.0 |
|
10 years - 15 years | 39.8 |
| | 29.0 |
|
15 years - 20 years | 49.2 |
| | 37.1 |
|
20 years+ | 197.4 |
| | 194.2 |
|
Total |
| $601.5 |
| |
| $532.9 |
|
|
| | | | | | | |
| 2017 | | 2016 |
| (In Millions) |
less than 1 year |
| $23.2 |
| |
| $31.4 |
|
1 year - 5 years | 122.8 |
| | 99.1 |
|
5 years - 10 years | 109.3 |
| | 122.8 |
|
10 years - 15 years | 52.7 |
| | 41.4 |
|
15 years - 20 years | 50.7 |
| | 30.9 |
|
20 years+ | 135.1 |
| | 99.2 |
|
Total |
| $493.8 |
| |
| $424.8 |
|
During the years ended December 31, 2019, 2018, and 2017, proceeds from the dispositions of available-for-sale securities amounted to $186 million, $401.7 million, and $231.3 million, respectively. During the years ended December 31, 2019, 2018, and 2017, gross gains of $4.8 million, $2.1 million, and $12 million, respectively, and gross losses of $0.3 million, $7.5 million, and $0.4 million, respectively, related to available-for-sale securities were reclassified out of other regulatory liabilities/assets into earnings.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
During the years ended December 31, 2017, 2016, and 2015, proceeds from the dispositions of securities amounted to $231.3 million, $219.2 million, and $123.5 million, respectively. During the years ended December 31, 2017, 2016, and 2015, gross gains of $12 million, $3.9 million, and $1.9 million, respectively, and gross losses of $0.4 million, $0.4 million, and $0.3 million, respectively, were recorded in earnings.
System Energy
System Energy holds debt and equity securities classified asand available-for-sale debt securities in nuclear decommissioning trust accounts. The available-for-sale securities held as of December 31, 20172019 and 20162018 are summarized as follows:
|
| | | | | | | | | | | | |
| | Fair Value | | Total Unrealized Gains | | Total Unrealized Losses |
| | (In Millions) |
2019 | | | | | | |
Debt Securities | |
| $386.2 |
| |
| $15.1 |
| |
| $0.3 |
|
| | | | | | |
2018 | | | | | | |
Debt Securities | |
| $364.2 |
| |
| $2.9 |
| |
| $5.8 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 2017 | | 2016 |
| | Fair Value | | Total Unrealized Gains | | Total Unrealized Losses | | Fair Value | | Total Unrealized Gains | | Total Unrealized Losses |
| | (In Millions) |
Equity Securities | |
| $575.2 |
| |
| $308.6 |
| |
| $— |
| |
| $473.9 |
| |
| $221.9 |
| |
| $0.1 |
|
Debt Securities | | 330.5 |
| | 4.2 |
| | 1.2 |
| | 306.6 |
| | 2.0 |
| | 4.5 |
|
Total | |
| $905.7 |
| |
| $312.8 |
| |
| $1.2 |
| |
| $780.5 |
| |
| $223.9 |
| |
| $4.6 |
|
The amortized cost of available-for-sale debt securities was $327.5$371.4 million as of December 31, 20172019 and $309.1$367.1 million as of December 31, 2016.2018. As of December 31, 2017,2019, the available-for-sale debt securities have an average coupon rate of approximately 2.67%3.12%, an average duration of approximately 6.486.75 years, and an average maturity of approximately 9.2210.41 years.
The unrealized gains/(losses) recognized during the year ended December 31, 2019 on equity securities still held as of December 31, 2019 were $140.5 million. The equity securities are generally held in funds that are designed to approximate the return of the Standard & Poor’s 500 Index. A relatively small percentage of the equity securities are held in funds intended to replicate the return of the Wilshire 4500 Index.
The fair value and gross unrealized losses of available-for-sale equity and debt securities, summarized by investment type and length of time that the securities have been in a continuous loss position, are as follows as of December 31, 2017 and 2016:2019:
| | | 2017 | | 2016 | |
| Equity Securities | | Debt Securities | | Equity Securities | | Debt Securities | | | | | | | |
| Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses | Fair Value | | Gross Unrealized Losses |
| (In Millions) | (In Millions) |
Less than 12 months |
| $— |
| |
| $— |
| |
| $196.9 |
| |
| $1.0 |
| |
| $— |
| |
| $— |
| |
| $220.9 |
| |
| $4.4 |
|
| $56.9 |
| |
| $0.3 |
|
More than 12 months | — |
| | — |
| | 10.4 |
| | 0.2 |
| | — |
| | 0.1 |
| | 0.8 |
| | 0.1 |
| 0.3 |
| | — |
|
Total |
| $— |
| |
| $— |
| |
| $207.3 |
| |
| $1.2 |
| |
| $— |
| |
| $0.1 |
| |
| $221.7 |
| |
| $4.5 |
|
| $57.2 |
| |
| $0.3 |
|
The fair value and gross unrealized losses of available-for-sale debt securities, summarized by length of time that the securities have been in a continuous loss position, are as follows as of December 31, 2018:
|
| | | | | | | |
| Fair Value | | Gross Unrealized Losses |
| (In Millions) |
Less than 12 months |
| $89.7 |
| |
| $2.4 |
|
More than 12 months | 79.8 |
| | 3.4 |
|
Total |
| $169.5 |
| |
| $5.8 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The fair value of available-for-sale debt securities, summarized by contractual maturities, as of December 31, 20172019 and 20162018 are as follows:
|
| | | | | | | |
| 2019 | | 2018 |
| (In Millions) |
Less than 1 year |
| $8.5 |
| |
| $22.8 |
|
1 year - 5 years | 154.6 |
| | 188.0 |
|
5 years - 10 years | 92.3 |
| | 73.4 |
|
10 years - 15 years | 13.4 |
| | 5.2 |
|
15 years - 20 years | 14.4 |
| | 10.2 |
|
20 years+ | 103.0 |
| | 64.6 |
|
Total |
| $386.2 |
| |
| $364.2 |
|
|
| | | | | | | |
| 2017 | | 2016 |
| (In Millions) |
less than 1 year |
| $4.1 |
| |
| $6.6 |
|
1 year - 5 years | 173.0 |
| | 188.2 |
|
5 years - 10 years | 78.5 |
| | 78.5 |
|
10 years - 15 years | 1.0 |
| | 1.3 |
|
15 years - 20 years | 6.9 |
| | 7.8 |
|
20 years+ | 67.0 |
| | 24.2 |
|
Total |
| $330.5 |
| |
| $306.6 |
|
During the years ended December 31, 2017, 2016,2019, 2018, and 2015,2017, proceeds from the dispositions of available-for-sale securities amounted to $565.4$338.1 million, $499.3$361.9 million, and $390.4$565.4 million, respectively. During the years ended December 31, 2017, 2016,2019, 2018, and 2015,2017, gross gains of $1.4$5.4 million, $3.5$0.5 million, and $3.3$1.4 million, respectively, and gross losses of $0.7 million, $6.1 million, and $3.3 million, $1.7 million, and $0.5 million, respectively, related to available-for-sale securities were recorded inreclassified out of other regulatory liabilities/assets into earnings.
Other-than-temporary impairments and unrealized gains and losses
Entergy evaluates investmentthe available-for-sale debt securities in the Entergy Wholesale Commodities’ nuclear decommissioning trust funds with unrealized losses at the end of each period to determine whether an other-than-temporary impairment has occurred. The assessment of whether an investment in a debt security has suffered an other-than-temporary impairment is based on whether Entergy has the intent to sell or more likely than not will be required to sell the debt security before recovery of its amortized costs. Further, if Entergy does not expect to recover the entire amortized cost basis of the debt security, an other-than-temporary impairment is considered to have occurred and it is measured by the present value of cash flows expected to be collected less the amortized cost basis (credit loss). Entergy did not have any material other-than-temporary impairments relating to credit losses on debt securities for the years ended December 31, 2017, 2016,2019, 2018, and 2015. The assessment of whether an investment in an equity security has suffered an other-than-temporary impairment is based on a number of factors including, first, whether Entergy has the ability and intent to hold the investment to recover its value, the duration and severity of any losses, and, then, whether it is expected that the investment will recover its value within a reasonable period of time.2017. Entergy’s trusts are managed by third parties who operate in accordance with agreements that define investment guidelines and place restrictions on the purchases and sales of investments. Entergy did not record material charges to other income in 2017, 2016, or 2015 resulting from the recognition of the other-than-temporary impairment of equity securities held in its decommissioning trust funds.
NOTE 17. VARIABLE INTEREST ENTITIES (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)
Under applicable authoritative accounting guidance, a variable interest entity (VIE) is an entity that conducts a business or holds property that possesses any of the following characteristics: an insufficient amount of equity at risk to finance its activities, equity owners who do not have the power to direct the significant activities of the entity (or have voting rights that are disproportionate to their ownership interest), or where equity holders do not receive expected losses or returns. An entity may have an interest in a VIE through ownership or other contractual rights or obligations, and is required to consolidate a VIE if it is the VIE’s primary beneficiary. The primary beneficiary of a VIE is the entity that has the power to direct the activities of the VIE that most significantly affect the VIE’s economic performance and has the obligation to absorb losses or has the right to residual returns that would potentially be significant to the entity.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Entergy Arkansas, Entergy Louisiana, and System Energy consolidate the respective companies from which they lease nuclear fuel, usually in a sale and leaseback transaction. This is because Entergy directs the nuclear fuel companies with respect to nuclear fuel purchases, assists the nuclear fuel companies in obtaining financing, and, if financing cannot be arranged, the lessee (Entergy Arkansas, Entergy Louisiana, or System Energy) is responsible to repurchase nuclear fuel to allow the nuclear fuel company (the VIE) to meet its obligations. During the term of the
Entergy Corporation and Subsidiaries
Notes to Financial Statements
arrangements, none of the Entergy operating companies have been required to provide financial support apart from their scheduled lease payments. See Note 4 to the financial statements for details of the nuclear fuel companies’ credit facility and commercial paper borrowings and long-term debt that are reported by Entergy, Entergy Arkansas, Entergy Louisiana, and System Energy. These amounts also represent Entergy’s and the respective Registrant Subsidiary’s maximum exposure to losses associated with their respective interests in the nuclear fuel companies.
Entergy Gulf States Reconstruction Funding I, LLC, and Entergy Texas Restoration Funding, LLC, companies wholly-owned and consolidated by Entergy Texas, are variable interest entities and Entergy Texas is the primary beneficiary. In June 2007, Entergy Gulf States Reconstruction Funding issued senior secured transition bonds (securitization bonds) to finance Entergy Texas’s Hurricane Rita reconstruction costs. In November 2009, Entergy Texas Restoration Funding issued senior secured transition bonds (securitization bonds) to finance Entergy Texas’s Hurricane Ike and Hurricane Gustav restoration costs. With the proceeds, the variable interest entities purchased from Entergy Texas the transition property, which is the right to recover from customers through a transition charge amounts sufficient to service the securitization bonds. The transition property is reflected as a regulatory asset on the consolidated Entergy Texas balance sheet. The creditors of Entergy Texas do not have recourse to the assets or revenues of the variable interest entities, including the transition property, and the creditors of the variable interest entities do not have recourse to the assets or revenues of Entergy Texas. Entergy Texas has no payment obligations to the variable interest entities except to remit transition charge collections. See Note 5 to the financial statements for additional details regarding the securitization bonds.
Entergy Arkansas Restoration Funding, LLC, a company wholly-owned and consolidated by Entergy Arkansas, is a variable interest entity and Entergy Arkansas is the primary beneficiary. In August 2010, Entergy Arkansas Restoration Funding issued storm cost recovery bonds to finance Entergy Arkansas’s January 2009 ice storm damage restoration costs. With the proceeds, Entergy Arkansas Restoration Funding purchased from Entergy Arkansas the storm recovery property, which is the right to recover from customers through a storm recovery charge amounts sufficient to service the securitization bonds. The storm recovery property is reflected as a regulatory asset on the consolidated Entergy Arkansas balance sheet. The creditors of Entergy Arkansas do not have recourse to the assets or revenues of Entergy Arkansas Restoration Funding, including the storm recovery property, and the creditors of Entergy Arkansas Restoration Funding do not have recourse to the assets or revenues of Entergy Arkansas. Entergy Arkansas has no payment obligations to Entergy Arkansas Restoration Funding except to remit storm recovery charge collections. See Note 5 to the financial statements for additional details regarding the storm cost recovery bonds.
Entergy Louisiana Investment Recovery Funding I, L.L.C., a company wholly-owned and consolidated by Entergy Louisiana, is a variable interest entity and Entergy Louisiana is the primary beneficiary. In September 2011, Entergy Louisiana Investment Recovery Funding issued investment recovery bonds to recover Entergy Louisiana’s investment recovery costs associated with the canceled Little Gypsy repowering project. With the proceeds, Entergy Louisiana Investment Recovery Funding purchased from Entergy Louisiana the investment recovery property, which is the right to recover from customers through an investment recovery charge amounts sufficient to service the bonds. The investment recovery property is reflected as a regulatory asset on the consolidated Entergy Louisiana balance sheet. The creditors of Entergy Louisiana do not have recourse to the assets or revenues of Entergy Louisiana Investment Recovery Funding, including the investment recovery property, and the creditors of Entergy Louisiana Investment Recovery Funding do not have recourse to the assets or revenues of Entergy Louisiana. Entergy Louisiana has no payment obligations to Entergy Louisiana Investment Recovery Funding except to remit investment recovery charge collections. See Note 5 to the financial statements for additional details regarding the investment recovery bonds.
Entergy New Orleans Storm Recovery Funding I, L.L.C., a company wholly-owned and consolidated by Entergy New Orleans, is a variable interest entity, and Entergy New Orleans is the primary beneficiary. In July 2015,
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Entergy New Orleans Storm Recovery Funding issued storm cost recovery bonds to recover Entergy New Orleans’s Hurricane Isaac storm restoration costs, including carrying costs, the costs of funding and replenishing the storm recovery reserve, and up-front financing costs associated with the securitization. With the proceeds, Entergy New Orleans Storm Recovery Funding purchased from Entergy New Orleans the storm recovery property, which is the right to recover from customers through a storm recovery charge amounts sufficient to service the securitization bonds. The
Entergy Corporation and Subsidiaries
Notes to Financial Statements
storm recovery property is reflected as a regulatory asset on the consolidated Entergy New Orleans balance sheet. The creditors of Entergy New Orleans do not have recourse to the assets or revenues of Entergy New Orleans Storm Recovery Funding, including the storm recovery property, and the creditors of Entergy New Orleans Storm Recovery Funding do not have recourse to the assets or revenues of Entergy New Orleans. Entergy New Orleans has no payment obligations to Entergy New Orleans Storm Recovery Funding except to remit storm recovery charge collections. See Note 5 to the financial statements for additional details regarding the securitization bonds.
Entergy Louisiana was considered to hold a variable interest in the lessor from which it leased an undivided interest in the Waterford 3 nuclear plant. After Entergy Louisiana acquired a beneficial interest in the leased assets in March 2016, however, the lessor was no longer considered a variable interest entity. Entergy Louisiana made payments on its lease, including interest, of $9.2 million through March 2016 and $28.8 million in 2015. See Note 10 to the financial statements for a discussion of Entergy Louisiana’s purchase of the Waterford 3 leased assets.
System Energy is considered to hold a variable interest in the lessor from which it leases an undivided interest in the Grand Gulf nuclear plant. System Energy is the lessee under this arrangement, which is described in more detail in Note 10 to the financial statements. System Energy made payments on its lease, including interest, of $17.2 million in 2017,2019, $17.2 million in 2016,2018, and $52.3$17.2 million in 2015.2017. The lessor is a bank acting in the capacity of owner trustee for the benefit of equity investors in the transaction pursuant to trust agreement entered solely for the purpose of facilitating the lease transaction. It is possible that System Energy may be considered as the primary beneficiary of the lessor, but Entergyit is unable to apply the authoritative accounting guidance with respect to this VIE because the lessor is not required to, and could not, provide the necessary financial information to consolidate the lessor. Because EntergySystem Energy accounts for this leasing arrangement as a capital financing, however, EntergySystem Energy believes that consolidating the lessor would not materially affect the financial statements. In the unlikely event of default under a lease, remedies available to the lessor include payment by the lessee of the fair value of the undivided interest in the plant, payment of the present value of the basic rent payments, or payment of a predetermined casualty value. EntergySystem Energy believes, however, that the obligations recorded on the balance sheet materially represent the company’sits potential exposure to loss.
Entergy has also reviewed various lease arrangements, power purchase agreements, including agreements for renewable power, and other agreements that represent variable interests in other legal entities which have been determined to be variable interest entities. In these cases, Entergy has determined that it is not the primary beneficiary of the related VIE because it does not have the power to direct the activities of the VIE that most significantly affect the VIE’s economic performance, or it does not have the obligation to absorb losses or the right to residual returns that would potentially be significant to the entity, or both.
NOTE 18. TRANSACTIONS WITH AFFILIATES (Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)
Each Registrant Subsidiary purchases electricity from or sells electricity to the other Registrant Subsidiaries, or both, under rate schedules filed with the FERC. The Registrant Subsidiaries receive management, technical, advisory, operating, and administrative services from Entergy Services; and receive management, technical, and operating services from Entergy Operations. These transactions are on an “at cost” basis.
As described in Note 1 to the financial statements, all of System Energy’s operating revenues consist of billings to Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
As described in Note 4 to the financial statements, the Registrant Subsidiaries participate in Entergy’s money pool and earn interest income from the money pool. As described in Note 2 to the financial statements, Entergy Louisiana receives preferred membership interest distributions from Entergy Holdings Company.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The tables below contain the various affiliate transactions of the Utility operating companies, System Energy, and other Entergy affiliates.
Intercompany Revenues
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy |
| (In Millions) |
2017 |
| $127.8 |
| |
| $282.4 |
| |
| $1.7 |
| |
| $— |
| |
| $57.9 |
| |
| $633.5 |
|
2016 |
| $49.4 |
| |
| $376.6 |
| |
| $2.9 |
| |
| $30.3 |
| |
| $180.2 |
| |
| $548.3 |
|
2015 |
| $127.9 |
| |
| $420.2 |
| |
| $86.0 |
| |
| $66.1 |
| |
| $259.1 |
| |
| $632.4 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy |
| (In Millions) |
2019 |
| $117.5 |
| |
| $277.8 |
| |
| $1.4 |
| |
| $— |
| |
| $51.6 |
| |
| $584.1 |
|
2018 |
| $104.3 |
| |
| $299.0 |
| |
| $2.5 |
| |
| $— |
| |
| $58.8 |
| |
| $456.7 |
|
2017 |
| $127.8 |
| |
| $282.4 |
| |
| $1.7 |
| |
| $— |
| |
| $57.9 |
| |
| $633.5 |
|
Intercompany Operating Expenses
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy |
| (In Millions) |
2019 |
| $534.0 |
| |
| $665.4 |
| |
| $306.7 |
| |
| $292.1 |
| |
| $255.0 |
| |
| $156.2 |
|
2018 |
| $471.9 |
| |
| $627.8 |
| |
| $266.8 |
| |
| $256.4 |
| |
| $240.2 |
| |
| $176.5 |
|
2017 |
| $510.2 |
| |
| $619.5 |
| |
| $310.5 |
| |
| $286.1 |
| |
| $234.6 |
| |
| $197.0 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy |
| (In Millions) |
2017 |
| $510.2 |
| |
| $619.5 |
| |
| $310.5 |
| |
| $286.1 |
| |
| $234.6 |
| |
| $197.0 |
|
2016 |
| $467.4 |
| |
| $670.8 |
| |
| $256.5 |
| |
| $276.7 |
| |
| $343.7 |
| |
| $146.0 |
|
2015 |
| $508.5 |
| |
| $929.4 |
| |
| $331.8 |
| |
| $278.4 |
| |
| $413.7 |
| |
| $155.1 |
|
Intercompany Interest and Investment Income
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy |
| | | (In Millions) |
| | | | | | | | | | | |
2019 |
| $0.4 |
| |
| $128.5 |
| |
| $0.4 |
| |
| $— |
| |
| $0.4 |
| |
| $1.0 |
|
2018 |
| $0.4 |
| |
| $128.2 |
| |
| $— |
| |
| $— |
| |
| $0.2 |
| |
| $1.2 |
|
2017 |
| $— |
| |
| $128.0 |
| |
| $— |
| |
| $0.2 |
| |
| $— |
| |
| $0.9 |
|
|
| | | | | | | | | | | | | | | | |
| | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | System Energy |
| | (In Millions) |
| | | | | | | | |
2017 | |
| $128.0 |
| |
| $— |
| |
| $0.2 |
| |
| $0.9 |
|
2016 | |
| $127.7 |
| |
| $0.1 |
| |
| $— |
| |
| $0.1 |
|
2015 | |
| $133.6 |
| |
| $— |
| |
| $— |
| |
| $— |
|
Transactions with Equity Method Investees
EWO Marketing, LLC, an indirect wholly-owned subsidiary of Entergy, paid capacity charges and gas transportation to RS Cogen in the amounts of $24.5 million in 2019, $24 million in 2018, and $24.6 million in 2017, $24.7 million in 2016, and $24.5 million in 2015.2017.
Entergy’s operating transactions with its other equity method investees were not significant in 2017, 2016,2019, 2018, or 2015.2017.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
NOTE 19. REVENUE (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)
Entergy implemented ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” effective January 1, 2018. Topic 606 requires entities to “recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.” The ASU details a five-step model that should be followed to achieve the core principle. This accounting was applied to all contracts using the modified retrospective method, which requires an adjustment to retained earnings for the cumulative effect of adopting the standard as of the effective date. Because the standard did not result in any material change in Entergy’s revenue recognition no adjustment to retained earnings was required upon implementation. Similarly, there was no effect on revenues recognized under Topic 606 for the year ended December 31, 2018.
Revenues from electric service and the sale of natural gas are recognized when services are transferred to the customer in an amount equal to what Entergy has the right to bill the customer because this amount represents the value of services provided to customers.
Entergy’s total revenues for the years ended December 31, 2019 and 2018 are as follows:
|
| | | | | | | | |
| | 2019 | | 2018 |
| | (In Thousands) |
Utility: | | | | |
Residential | |
| $3,531,500 |
| |
| $3,565,522 |
|
Commercial | | 2,475,586 |
| | 2,426,477 |
|
Industrial | | 2,541,287 |
| | 2,499,227 |
|
Governmental | | 228,470 |
| | 225,882 |
|
Total billed retail | | 8,776,843 |
| | 8,717,108 |
|
| | | | |
Sales for resale (a) | | 285,722 |
| | 299,567 |
|
Other electric revenues (b) | | 343,143 |
| | 326,910 |
|
Revenues from contracts with customers | | 9,405,708 |
| | 9,343,585 |
|
Other revenues (c) | | 24,270 |
| | 40,526 |
|
Total electric revenues | | 9,429,978 |
| | 9,384,111 |
|
| | | | |
Natural gas | | 153,954 |
| | 156,436 |
|
| | | | |
Entergy Wholesale Commodities: | | | | |
Competitive businesses sales from contracts with customers (a) | | 1,164,552 |
| | 1,547,994 |
|
Other revenues (c) | | 130,189 |
| | (79,089 | ) |
Total competitive businesses revenues | | 1,294,741 |
| | 1,468,905 |
|
| | | | |
Total operating revenues | |
| $10,878,673 |
| |
| $11,009,452 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The Registrant Subsidiaries’ total revenues for the year ended December 31, 2019 were as follows:
|
| | | | | | | | | | | | | | | | | | | | |
2019 | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas |
| | (In Thousands) |
| | | | | | | | | | |
Residential | |
| $795,269 |
| |
| $1,270,478 |
| |
| $562,219 |
| |
| $245,081 |
| |
| $658,453 |
|
Commercial | | 538,850 |
| | 947,412 |
| | 444,173 |
| | 202,138 |
| | 343,013 |
|
Industrial | | 520,958 |
| | 1,450,966 |
| | 164,491 |
| | 31,824 |
| | 373,048 |
|
Governmental | | 20,795 |
| | 71,046 |
| | 44,300 |
| | 70,865 |
| | 21,464 |
|
Total billed retail | | 1,875,872 |
| | 3,739,902 |
| | 1,215,183 |
| | 549,908 |
| | 1,395,978 |
|
Sales for resale (a) | | 257,864 |
| | 333,395 |
| | 39,295 |
| | 38,626 |
| | 59,074 |
|
Other electric revenues (b) | | 112,618 |
| | 135,783 |
| | 58,269 |
| | 9,842 |
| | 32,424 |
|
Revenues from contracts with customers | | 2,246,354 |
| | 4,209,080 |
| | 1,312,747 |
| | 598,376 |
| | 1,487,476 |
|
Other revenues (c) | | 13,240 |
| | 13,947 |
| | 10,296 |
| | (3,959 | ) | | 1,479 |
|
Total electric revenues | | 2,259,594 |
| | 4,223,027 |
| | 1,323,043 |
| | 594,417 |
| | 1,488,955 |
|
Natural gas | | — |
| | 62,148 |
| | — |
| | 91,806 |
| | — |
|
Total operating revenues | |
| $2,259,594 |
| |
| $4,285,175 |
| |
| $1,323,043 |
| |
| $686,223 |
| |
| $1,488,955 |
|
The Registrant Subsidiaries’ total revenues for the year ended December 31, 2018 were as follows:
|
| | | | | | | | | | | | | | | | | | | | |
2018 | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas |
| | (In Thousands) |
| | | | | | | | | | |
Residential | |
| $807,098 |
| |
| $1,244,413 |
| |
| $578,568 |
| |
| $261,585 |
| |
| $673,858 |
|
Commercial | | 425,523 |
| | 941,321 |
| | 461,832 |
| | 217,182 |
| | 380,619 |
|
Industrial | | 434,387 |
| | 1,462,462 |
| | 175,056 |
| | 33,371 |
| | 393,951 |
|
Governmental | | 16,537 |
| | 68,587 |
| | 43,747 |
| | 72,058 |
| | 24,953 |
|
Total billed retail | | 1,683,545 |
| | 3,716,783 |
| | 1,259,203 |
| | 584,196 |
| | 1,473,381 |
|
Sales for resale (a) | | 248,861 |
| | 356,603 |
| | 25,812 |
| | 29,506 |
| | 97,478 |
|
Other electric revenues (b) | | 111,875 |
| | 144,978 |
| | 39,897 |
| | 4,718 |
| | 31,413 |
|
Revenues from contracts with customers | | 2,044,281 |
| | 4,218,364 |
| | 1,324,912 |
| | 618,420 |
| | 1,602,272 |
|
Other revenues (c) | | 16,362 |
| | 14,177 |
| | 10,200 |
| | 6,313 |
| | 3,630 |
|
Total electric revenues | | 2,060,643 |
| | 4,232,541 |
| | 1,335,112 |
| | 624,733 |
| | 1,605,902 |
|
Natural gas | | — |
| | 63,779 |
| | — |
| | 92,657 |
| | — |
|
Total operating revenues | |
| $2,060,643 |
| |
| $4,296,320 |
| |
| $1,335,112 |
| |
| $717,390 |
| |
| $1,605,902 |
|
| |
(a) | Sales for resale and competitive businesses sales include day-ahead sales of energy in a market administered by an ISO. These sales represent financially binding commitments for the sale of physical energy the next day. These sales are adjusted to actual power generated and delivered in the real time market. Given the short duration of these transactions, Entergy does not consider them to be derivatives subject to fair value adjustments, and includes them as part of customer revenues. |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
| |
(b) | Other electric revenues consist primarily of transmission and ancillary services provided to participants of an ISO-administered market and unbilled revenue. |
| |
(c) | Other revenues include the settlement of financial hedges, occasional sales of inventory, alternative revenue programs, provisions for revenue subject to refund, and late fees. |
Electric Revenues
Entergy’s primary source of revenue is from retail electric sales sold under tariff rates approved by regulators in its various jurisdictions. Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and Entergy Texas generate, transmit, and distribute electric power primarily to retail customers in Arkansas, Louisiana, Mississippi, and Texas. Entergy’s Utility operating companies provide power to customers on demand throughout the month, measured by a meter located at the customer’s property. Approved rates vary by customer class due to differing requirements of the customers and market factors involved in fulfilling those requirements. Entergy issues monthly bills to customers at rates approved by regulators for power and related services provided during the previous billing cycle.
To the extent that deliveries have occurred but a bill has not been issued, Entergy’s Utility operating companies record an estimate for energy delivered since the latest billings. The Utility operating companies calculate the estimate based upon several factors including billings through the last billing cycle in a month, actual generation in the month, historical line loss factors, and market prices of power in the respective jurisdiction. The inputs are revised as needed to approximate actual usage and cost. Each month, estimated unbilled amounts are recorded as unbilled revenue and accounts receivable, and the prior month’s estimate is reversed. Price and volume differences resulting from factors such as weather affect the calculation of unbilled revenues from one period to the other.
Entergy may record revenue based on rates that are subject to refund. Such revenues are reduced by estimated refund amounts when Entergy believes refunds are probable based on the status of rate proceedings as of the date financial statements are prepared. Because these refunds will be made through a reduction in future rates, and not as a reduction in bills previously issued, they are presented as other revenues in the table above.
System Energy’s only source of revenue is the sale of electric power and capacity generated from its 90% interest in the Grand Gulf nuclear plant to Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans. System Energy issues monthly bills to its affiliated customers equal to its actual operating costs plus a return on common equity approved by the FERC.
Entergy’s Utility operating companies also sell excess power not needed for its own customers, primarily through transactions with MISO, a regional transmission organization that maintains functional control over the combined transmission systems of its members and manages one of the largest energy markets in the U.S. In the MISO market, Entergy offers its generation and bids its load into the market. MISO settles these offers and bids based on locational marginal prices. These represent pricing for energy at a given location based on a market clearing price that takes into account physical limitations on the transmission system, generation, and demand throughout the MISO region. MISO evaluates each market participant’s energy offers and demand bids to economically and reliably dispatch the entire MISO system. Entergy nets purchases and sales within the MISO market and reports in operating revenues when in a net selling position and in operating expenses when in a net purchasing position.
Natural Gas
Entergy Louisiana and Entergy New Orleans also distribute natural gas to retail customers in and around Baton Rouge, Louisiana, and New Orleans, Louisiana, respectively. Gas transferred to customers is measured by a meter at the customer’s property. Entergy issues monthly invoices to customers at rates approved by regulators for the volume of gas transferred to date.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Competitive Businesses Revenues
The Entergy Wholesale Commodities segment derives almost all of its revenue from sales of electric power and capacity produced by its operating plants to wholesale customers. The majority of Entergy Wholesale Commodities’ revenues are from Entergy’s nuclear power plants located in the northern United States. Entergy issues monthly invoices to the counterparties for these electric sales at the respective contracted or ISO market rate of electricity and related services provided during the previous month.
Most of the Palisades nuclear plant output is sold under a 15-year PPA with Consumers Energy, executed as part of the acquisition of the plant in 2007 and expiring in 2022. Prices under the PPA range from $43.50/MWh in 2007 to $61.50/MWh in 2022, and the average price under the PPA is $51/MWh. Entergy issues monthly invoices to Consumers Energy for electric sales based on the actual output of electricity and related services provided during the previous month at the contract price. The PPA was at below-market prices at the time of the acquisition and Entergy amortizes a liability to revenue over the life of the agreement. The amount amortized each period is based upon the present value, calculated at the date of acquisition, of each year’s difference between revenue under the agreement and revenue based on estimated market prices. Amounts amortized to revenue were $10 million in 2019, $6 million in 2018, and $28 million in 2017. Amounts to be amortized to revenue through the remaining life of the agreement will be approximately $11 million in 2020, $12 million in 2021, and $5 million in 2022.
Practical Expedients and Exceptions
Entergy has elected not to disclose the value of unsatisfied performance obligations for contracts with an original expected term of one year or less, or for revenue recognized in an amount equal to what Entergy has the right to bill the customer for services performed.
Most of Entergy’s contracts, except in a few cases where there are defined minimums or stated terms, are on demand. This results in customer bills that vary each month based on an approved tariff and usage. Entergy imposes monthly or annual minimum requirements on some customers primarily as credit and cost recovery guarantees and not as pricing for unsatisfied performance obligations. These minimums typically expire after the initial term or when specified costs have been recovered. The minimum amounts are part of each month’s bill and recognized as revenue accordingly. Some of the subsidiaries within the Entergy Wholesale Commodities segment have operations and maintenance services contracts that have fixed components and terms longer than one year. The total fixed consideration related to these unsatisfied performance obligations, however, is not material to Entergy revenues.
Recovery of Fuel Costs
Entergy’s Utility operating companies’ rate schedules include either fuel adjustment clauses or fixed fuel factors, which allow either current recovery in billings to customers or deferral of fuel costs until the costs are billed to customers. Where the fuel component of revenues is based on a pre-determined fuel cost (fixed fuel factor), the fuel factor remains in effect until changed as part of a general rate case, fuel reconciliation, or fixed fuel factor filing. System Energy’s operating revenues are intended to recover from Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans operating expenses and capital costs attributable to Grand Gulf. The capital costs are based on System Energy’s common equity funds allocable to its net investment in Grand Gulf, plus System Energy’s effective interest cost for its debt allocable to its investment in Grand Gulf.
Taxes Imposed on Revenue-Producing Transactions
Governmental authorities assess taxes that are both imposed on and concurrent with a specific revenue-producing transaction between a seller and a customer, including, but not limited to, sales, use, value added, and some excise taxes. Entergy presents these taxes on a net basis, excluding them from revenues.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
NOTE 20. QUARTERLY FINANCIAL DATA (UNAUDITED) (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)
Operating results for the four quarters of 20172019 and 20162018 for Entergy Corporation and subsidiaries were:
| | | Operating Revenues | | Operating Income (Loss) | | Consolidated Net Income (Loss) | | Net Income (Loss) Attributable to Entergy Corporation | Operating Revenues | | Operating Income (Loss) | | Consolidated Net Income (Loss) | | Net Income (Loss) Attributable to Entergy Corporation |
| (In Thousands) | (In Thousands) |
2017: | | | | |
2019: | | | | |
First Quarter |
| $2,588,458 |
| |
| $174,803 |
| |
| $86,051 |
| |
| $82,605 |
|
| $2,609,584 |
| |
| $283,254 |
| |
| $258,646 |
| |
| $254,537 |
|
Second Quarter |
| $2,618,550 |
| |
| $143,509 |
| |
| $413,368 |
| |
| $409,922 |
|
| $2,666,209 |
| |
| $338,775 |
| |
| $240,533 |
| |
| $236,424 |
|
Third Quarter |
| $3,243,628 |
| |
| $729,469 |
| |
| $401,644 |
| |
| $398,198 |
|
| $3,140,575 |
| |
| $519,929 |
| |
| $369,459 |
| |
| $365,240 |
|
Fourth Quarter |
| $2,623,845 |
| |
| $211,901 |
| |
| ($475,710 | ) | |
| ($479,113 | ) |
| $2,462,305 |
| |
| $248,539 |
| |
| $389,606 |
| |
| $385,025 |
|
2016: | | | | |
2018: | | | | |
First Quarter |
| $2,609,852 |
| |
| $498,218 |
| |
| $235,242 |
| |
| $229,966 |
|
| $2,723,881 |
| |
| $335,664 |
| |
| $136,200 |
| |
| $132,761 |
|
Second Quarter |
| $2,462,562 |
| |
| $442,258 |
| |
| $572,590 |
| |
| $567,314 |
|
| $2,668,770 |
| |
| $91,597 |
| |
| $248,860 |
| |
| $245,421 |
|
Third Quarter |
| $3,124,703 |
| |
| $772,060 |
| |
| $393,204 |
| |
| $388,170 |
|
| $3,104,319 |
| |
| $271,035 |
| |
| $539,818 |
| |
| $536,379 |
|
Fourth Quarter |
| $2,648,528 |
| |
| ($2,599,001 | ) | |
| ($1,765,539 | ) | |
| ($1,769,068 | ) |
| $2,512,482 |
| |
| ($228,931 | ) | |
| ($62,323 | ) | |
| ($65,900 | ) |
Earnings (loss) per average common share
|
| | | | | | | | | | | | | | | |
| 2019 | | 2018 |
| Basic | | Diluted | | Basic | | Diluted |
First Quarter |
| $1.34 |
| |
| $1.32 |
| |
| $0.73 |
| |
| $0.73 |
|
Second Quarter |
| $1.22 |
| |
| $1.22 |
| |
| $1.36 |
| |
| $1.34 |
|
Third Quarter |
| $1.84 |
| |
| $1.82 |
| |
| $2.96 |
| |
| $2.92 |
|
Fourth Quarter |
| $1.96 |
| |
| $1.94 |
| |
| ($0.37 | ) | |
| ($0.36 | ) |
|
| | | | | | | | | | | | | | | |
| 2017 | | 2016 |
| Basic | | Diluted | | Basic | | Diluted |
First Quarter |
| $0.46 |
| |
| $0.46 |
| |
| $1.29 |
| |
| $1.28 |
|
Second Quarter |
| $2.28 |
| |
| $2.27 |
| |
| $3.17 |
| |
| $3.16 |
|
Third Quarter |
| $2.22 |
| |
| $2.21 |
| |
| $2.17 |
| |
| $2.16 |
|
Fourth Quarter |
| ($2.67 | ) | |
| ($2.66 | ) | |
| ($9.89 | ) | |
| ($9.86 | ) |
Results of operations for 20172019 include: 1) $538a loss of $190 million ($350156 million net-of-tax) as a result of the sale of the Pilgrim plant in August 2019; 2) a $156 million reduction in income tax expense recognized by Entergy Wholesale Commodities as a result of an internal restructuring; and 3) impairment charges of $100 million ($79 million net-of-tax) due to costs being charged directly to expense as incurred as a result of the impaired value of the Entergy Wholesale Commodities nuclear plants’ long-lived assets due to the significantly reduced remaining estimated operating lives associated with management’s strategy to reduce the size ofexit the Entergy Wholesale Commodities’ merchant fleet; 2) a reduction in incomepower business. See Note 3 to the financial statements for further discussion of $181the internal restructuring. See Note 14 to the financial statements for further discussion of the sale of the Pilgrim plant.
Results of operations for 2018 include: 1) $532 million including a $34($421 million net-of-tax reductionnet-of-tax) of regulatory liabilities, at Utility and $397 million at Entergy Wholesale Commodities and an increase in income of $52 million at Parent and Otherimpairment charges due to costs being charged directly to expense as incurred as a result of Entergy’s re-measurementthe impaired value of its deferred taxthe Entergy Wholesale Commodities nuclear plants’ long-lived assets and liabilities not subject to the ratemaking process due to the enactmentsignificantly reduced remaining estimated operating lives associated with management’s strategy to exit the Entergy Wholesale Commodities’ merchant power business; 2) a $170 million reduction of the Tax Cuts and Jobs Act, in December 2017, which lowered the federal corporate income tax rate from 35% to 21%; and 3) a reduction in income tax expense netand a regulatory liability of unrecognized$40 million ($30 million net-of-tax) as a result of customer credits recognized by Utility, as a result of an internal restructuring; 3) a $107 million reduction of income tax benefits, of $373 millionexpense, recognized by Entergy Wholesale Commodities, as a result of a changerestructuring of the investment holdings in one of its nuclear plant decommissioning trust funds; 4) a $52 million income tax benefit, recognized by Entergy Louisiana, as a result of the settlement of the 2012-2013 IRS audit, associated with the Hurricane Katrina and Hurricane Rita contingent sharing obligation associated with the Louisiana Act 55 financing; and 5) a $23 million
Entergy Corporation and Subsidiaries
Notes to Financial Statements
reduction of income tax classification of legal entities that ownexpense, recognized by Entergy Wholesale Commodities, nuclear power plants.as a result of a state income tax audit. See Note 14 to the financial statements for further discussion of the impairment and related charges. See Notes 2 and 3 to the financial statements for further discussion of the internal restructuring and customer credits. See Note 3 to the financial statements for further discussion of the effectsIRS audit settlement, the state income tax audit, and restructuring of the Tax Cuts and Jobs Act and the change in the tax classification.decommissioning trust fund investment holdings.
Results of operations for 2016 include: 1) $2,836 million ($1,829 million net-of-tax) of impairment and related charges primarily to write down the carrying values of the Entergy Wholesale Commodities’ Palisades, Indian Point 2, and Indian Point 3 plants and related assets to their fair values; 2) a reduction of income tax expense, net of unrecognized tax benefits, of $238 million as a result of a change in the tax classification of a legal entity that owned one of the Entergy Wholesale Commodities nuclear power plants; income tax benefits as a result of the settlement of the 2010-2011 IRS audit, including a $75 million tax benefit recognized by Entergy Louisiana related to the treatment
Entergy Corporation and Subsidiaries
Notes to Financial Statements
of the Vidalia purchased power agreement and a $54 million net benefit recognized by Entergy Louisiana related to the treatment of proceeds received in 2010 for the financing of Hurricane Gustav and Hurricane Ike storm costs pursuant to Louisiana Act 55; and 3) a reduction in expenses of $100 million ($64 million net-of-tax) due to the effects of recording in 2016 the final court decisions in several lawsuits against the DOE related to spent nuclear fuel storage costs. See Note 14 to the financial statements for further discussion of the impairment and related charges, see Note 3 to the financial statements for additional discussion of the income tax items, and see Note 8 to the financial statements for discussion of the spent nuclear fuel litigation.
The business of the Utility operating companies is subject to seasonal fluctuations with the peak periods occurring during the third quarter. Operating results for the Registrant Subsidiaries for the four quarters of 20172019 and 20162018 were:
Operating Revenues
| | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy |
| (In Thousands) | (In Thousands) |
2017: | | | | | | | | | | | | |
2019: | | | | | | | | | | | | |
First Quarter |
| $474,351 |
| |
| $880,783 |
| |
| $258,443 |
| |
| $168,989 |
| |
| $363,927 |
| |
| $154,787 |
|
| $545,812 |
| |
| $959,330 |
| |
| $282,244 |
| |
| $163,194 |
| |
| $340,474 |
| |
| $140,104 |
|
Second Quarter |
| $496,662 |
| |
| $1,083,434 |
| |
| $291,212 |
| |
| $176,222 |
| |
| $378,488 |
| |
| $164,956 |
|
| $542,929 |
| |
| $1,106,317 |
| |
| $302,737 |
| |
| $175,793 |
| |
| $363,580 |
| |
| $139,009 |
|
Third Quarter |
| $673,226 |
| |
| $1,290,494 |
| |
| $349,197 |
| |
| $199,017 |
| |
| $432,909 |
| |
| $156,106 |
|
| $687,526 |
| |
| $1,231,677 |
| |
| $398,732 |
| |
| $194,204 |
| |
| $442,877 |
| |
| $145,472 |
|
Fourth Quarter |
| $495,680 |
| |
| $1,045,839 |
| |
| $299,377 |
| |
| $171,842 |
| |
| $369,569 |
| |
| $157,609 |
|
| $483,327 |
| |
| $987,851 |
| |
| $339,330 |
| |
| $153,032 |
| |
| $342,024 |
| |
| $148,825 |
|
2016: | | | | | | | | | | | | |
2018: | | | | | | | | | | | | |
First Quarter |
| $465,373 |
| |
| $955,145 |
| |
| $263,046 |
| |
| $149,340 |
| |
| $378,304 |
| |
| $137,693 |
|
| $551,024 |
| |
| $1,029,344 |
| |
| $315,743 |
| |
| $188,275 |
| |
| $348,940 |
| |
| $148,443 |
|
Second Quarter |
| $504,252 |
| |
| $999,034 |
| |
| $248,138 |
| |
| $164,920 |
| |
| $412,922 |
| |
| $151,323 |
|
| $494,605 |
| |
| $1,072,788 |
| |
| $353,689 |
| |
| $178,446 |
| |
| $403,486 |
| |
| $112,456 |
|
Third Quarter |
| $654,599 |
| |
| $1,249,452 |
| |
| $309,739 |
| |
| $201,336 |
| |
| $442,085 |
| |
| $114,039 |
|
| $568,399 |
| |
| $1,206,612 |
| |
| $367,734 |
| |
| $200,182 |
| |
| $477,231 |
| |
| $78,965 |
|
Fourth Quarter |
| $462,384 |
| |
| $973,417 |
| |
| $273,726 |
| |
| $149,867 |
| |
| $382,308 |
| |
| $145,236 |
|
| $446,615 |
| |
| $987,576 |
| |
| $297,946 |
| |
| $150,487 |
| |
| $376,245 |
| |
| $116,843 |
|
Operating Income (Loss)
| | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy |
| (In Thousands) | (In Thousands) |
2017: | | | | | | | | | | | | |
2019: | | | | | | | | | | | | |
First Quarter |
| $39,847 |
| |
| $152,648 |
| |
| $39,608 |
| |
| $21,762 |
| |
| $38,842 |
| |
| $41,544 |
|
| $42,471 |
| |
| $153,944 |
| |
| $30,792 |
| |
| $16,136 |
| |
| $16,741 |
| |
| $31,368 |
|
Second Quarter |
| $68,994 |
| |
| $193,779 |
| |
| $55,262 |
| |
| $27,606 |
| |
| $47,787 |
| |
| $40,717 |
|
| $69,774 |
| |
| $241,520 |
| |
| $45,607 |
| |
| $17,509 |
| |
| $36,022 |
| |
| $24,300 |
|
Third Quarter |
| $169,755 |
| |
| $290,089 |
| |
| $84,035 |
| |
| $33,415 |
| |
| $78,950 |
| |
| $37,459 |
|
| $182,176 |
| |
| $336,754 |
| |
| $87,024 |
| |
| $28,876 |
| |
| $69,510 |
| |
| $29,086 |
|
Fourth Quarter |
| $14,507 |
| |
| $210,325 |
| |
| $42,169 |
| |
| $12,333 |
| |
| $33,800 |
| |
| $41,073 |
|
| $32,576 |
| |
| $164,424 |
| |
| $40,331 |
| |
| $6,164 |
| |
| $24,229 |
| |
| $30,231 |
|
2016: | | | | | | | | | | | | |
2018: | | | | | | | | | | | | |
First Quarter |
| $54,378 |
| |
| $181,618 |
| |
| $41,573 |
| |
| $21,880 |
| |
| $41,269 |
| |
| $47,466 |
|
| $66,647 |
| |
| $141,319 |
| |
| $41,432 |
| |
| $17,869 |
| |
| $41,082 |
| |
| $30,941 |
|
Second Quarter |
| $73,447 |
| |
| $193,752 |
| |
| $61,890 |
| |
| $26,913 |
| |
| $58,039 |
| |
| $45,020 |
|
| $26,501 |
| |
| $150,160 |
| |
| ($63,801 | ) | |
| $27,943 |
| |
| $58,637 |
| |
| $23,406 |
|
Third Quarter |
| $188,660 |
| |
| $312,951 |
| |
| $88,312 |
| |
| $42,279 |
| |
| $107,964 |
| |
| $43,886 |
|
| $34,785 |
| |
| $236,518 |
| |
| $45,215 |
| |
| $21,544 |
| |
| $99,966 |
| |
| ($17,879 | ) |
Fourth Quarter |
| $29,843 |
| |
| $111,066 |
| |
| $32,464 |
| |
| $8,807 |
| |
| $38,338 |
| |
| $44,781 |
|
| ($82,704 | ) | |
| $147,774 |
| |
| $23,600 |
| |
| $6,836 |
| |
| $6,741 |
| |
| $7,212 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Net Income (Loss)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy |
| (In Thousands) |
2019: | | | | | | | | | | | |
First Quarter |
| $39,121 |
| |
| $127,633 |
| |
| $15,398 |
| |
| $9,023 |
| |
| $21,342 |
| |
| $23,578 |
|
Second Quarter |
| $50,299 |
| |
| $183,084 |
| |
| $26,667 |
| |
| $13,003 |
| |
| $38,936 |
| |
| $24,472 |
|
Third Quarter |
| $149,716 |
| |
| $255,260 |
| |
| $56,237 |
| |
| $24,908 |
| |
| $73,224 |
| |
| $25,031 |
|
Fourth Quarter |
| $23,828 |
| |
| $125,560 |
| |
| $21,623 |
| |
| $5,695 |
| |
| $25,895 |
| |
| $26,039 |
|
2018: | | | | | | | | | | | |
First Quarter |
| $36,255 |
| |
| $111,593 |
| |
| $22,843 |
| |
| $10,882 |
| |
| $17,350 |
| |
| $22,308 |
|
Second Quarter |
| $82,556 |
| |
| $184,358 |
| |
| $38,242 |
| |
| $18,269 |
| |
| $30,789 |
| |
| $23,387 |
|
Third Quarter |
| $128,890 |
| |
| $218,308 |
| |
| $50,733 |
| |
| $21,407 |
| |
| $65,846 |
| |
| $22,972 |
|
Fourth Quarter |
| $5,006 |
| |
| $161,355 |
| |
| $14,260 |
| |
| $2,594 |
| |
| $48,250 |
| |
| $25,442 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy |
| (In Thousands) |
2017: | | | | | | | | | | | |
First Quarter |
| $14,304 |
| |
| $94,378 |
| |
| $17,158 |
| |
| $10,978 |
| |
| $10,854 |
| |
| $20,347 |
|
Second Quarter |
| $38,550 |
| |
| $124,479 |
| |
| $28,303 |
| |
| $14,882 |
| |
| $21,101 |
| |
| $19,350 |
|
Third Quarter |
| $92,638 |
| |
| $186,284 |
| |
| $46,545 |
| |
| $18,529 |
| |
| $39,588 |
| |
| $20,583 |
|
Fourth Quarter |
| ($5,648 | ) | |
| ($88,794 | ) | |
| $18,026 |
| |
| $164 |
| |
| $4,630 |
| |
| $18,316 |
|
2016: | | | | | | | | | | | |
First Quarter |
| $19,294 |
| |
| $111,606 |
| |
| $17,118 |
| |
| $11,167 |
| |
| $14,562 |
| |
| $25,958 |
|
Second Quarter |
| $33,891 |
| |
| $253,325 |
| |
| $32,194 |
| |
| $11,843 |
| |
| $24,058 |
| |
| $25,090 |
|
Third Quarter |
| $110,148 |
| |
| $189,506 |
| |
| $46,612 |
| |
| $23,701 |
| |
| $56,133 |
| |
| $22,370 |
|
Fourth Quarter |
| $3,879 |
| |
| $67,610 |
| |
| $13,260 |
| |
| $2,138 |
| |
| $12,785 |
| |
| $23,326 |
|
Earnings (Loss) Applicable to Common EquityEquity/Stock
|
| | | | | | | | | | | | | | | |
| Entergy Arkansas | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas |
| (In Thousands) |
2019: | | | | | | | |
First Quarter |
| $39,121 |
| |
| $15,398 |
| |
| $9,023 |
| |
| $21,342 |
|
Second Quarter |
| $50,299 |
| |
| $26,667 |
| |
| $13,003 |
| |
| $38,936 |
|
Third Quarter |
| $149,716 |
| |
| $56,237 |
| |
| $24,908 |
| |
| $73,114 |
|
Fourth Quarter |
| $23,828 |
| |
| $21,623 |
| |
| $5,695 |
| |
| $25,425 |
|
2018: | | | | | | | |
First Quarter |
| $35,898 |
| |
| $22,605 |
| |
| $10,882 |
| |
| $17,350 |
|
Second Quarter |
| $82,199 |
| |
| $38,003 |
| |
| $18,269 |
| |
| $30,789 |
|
Third Quarter |
| $128,533 |
| |
| $50,495 |
| |
| $21,407 |
| |
| $65,846 |
|
Fourth Quarter |
| $4,828 |
| |
| $14,141 |
| |
| $2,594 |
| |
| $48,250 |
|
|
| | | | | | | | | | | |
| Entergy Arkansas | | Entergy Mississippi | | Entergy New Orleans |
| (In Thousands) |
2017: | | | | | |
First Quarter |
| $13,947 |
| |
| $16,920 |
| |
| $10,737 |
|
Second Quarter |
| $38,193 |
| |
| $28,064 |
| |
| $14,641 |
|
Third Quarter |
| $92,281 |
| |
| $46,307 |
| |
| $18,288 |
|
Fourth Quarter |
| ($6,005 | ) | |
| $17,788 |
| |
| $46 |
|
2016: | | | | | |
First Quarter |
| $17,576 |
| |
| $16,411 |
| |
| $10,926 |
|
Second Quarter |
| $32,173 |
| |
| $31,487 |
| |
| $11,602 |
|
Third Quarter |
| $108,672 |
| |
| $45,905 |
| |
| $23,460 |
|
Fourth Quarter |
| $3,521 |
| |
| $12,938 |
| |
| $1,896 |
|
Part I Item 1
Entergy Corporation, Utility operating companies, and System Energy
ENTERGY’S BUSINESS
Entergy is an integrated energy company engaged primarily in electric power production and retail distribution operations. Entergy owns and operates power plants with approximately 30,000 MW of electric generating capacity, including nearlyapproximately 9,000 MW of nuclear power. Entergy delivers electricity to 2.9 million utility customers in Arkansas, Louisiana, Mississippi, and Texas. Entergy had annual revenues of $11.1$10.9 billion in 20172019 and had more than 13,000 employees as of December 31, 2017.2019.
Entergy operates primarily through two business segments: Utility and Entergy Wholesale Commodities.
| |
• | The Utility business segment includes the generation, transmission, distribution, and sale of electric power in portions of Arkansas, Mississippi, Texas, and Louisiana, including the City of New Orleans; and operation of a small natural gas distribution business. |
| |
• | The Entergy Wholesale Commodities business segment includes the ownership, operation, and decommissioning of nuclear power plants located in the northern United States and the sale of the electric power produced by its operating plants to wholesale customers. Entergy Wholesale Commodities also provides services to other nuclear power plant owners and owns interests in non-nuclear power plants that sell the electric power produced by those plants to wholesale customers. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Entergy Wholesale Commodities Exit from the Merchant Power Business” for discussion of the operation and planned shutdown and sale of each of the Entergy Wholesale Commodities nuclear power plants. |
The Utility business segment includes the generation, transmission, distribution, and sale of electric power in portions of Arkansas, Mississippi, Texas, and Louisiana, including the City of New Orleans; and operation of a small natural gas distribution business.
The Entergy Wholesale Commodities business segment includes the ownership, operation, and decommissioning of nuclear power plants located in the northern United States and the sale of the electric power produced by its operating plants to wholesale customers. Entergy Wholesale Commodities also provides services to other nuclear power plant owners and owns interests in non-nuclear power plants that sell the electric power produced by those plants to wholesale customers. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Entergy Wholesale Commodities Exit from the Merchant Power Business” for discussion of the operation and planned shutdown or sale of each of the Entergy Wholesale Commodities nuclear power plants.
See Note 13 to the financial statements for financial information regarding Entergy’s business segments.
Strategy
Entergy’s missionstrategy is to operate and grow a world-class energyutility business that creates sustainable value for its owners, customers, employees, communities, and communities. Entergy aspires to achieve top quartile total shareholder returns in a socially and environmentally responsible fashion by leveraging the scale and expertise inherent in its operations.owners. Entergy’s current scope includes electricity generation, transmission, and distribution as well as natural gas distribution. Entergy focuses on operational excellence with an emphasis on safety, reliability, customer service, sustainability, cost efficiency, risk management, and engaged employees. Entergy also continually seeks opportunities to grow its utility business to benefit all stakeholders and to optimize its portfolio of assets in an ever-dynamic market through periodic buy, build, hold, or disposal decisions. To accomplish this, Entergy has established strategic imperatives for eachmarket. The Utility business segment. For the Utility, the strategic imperative issegment will continue to modernize its operations, maintain reliability, and better serve its customers while growing the business. ForThe Entergy Wholesale Commodities the strategic imperative is tobusiness segment will continue to manage the risk of its operating portfolio as Entergy completes its exit from the merchant power business.
Utility
The Utility business segment includes five wholly-owned retail electric utility subsidiaries: Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and Entergy Texas. These companies generate, transmit, distribute, and sell electric power to retail and wholesale customers in Arkansas, Louisiana, Mississippi, and Texas. Entergy Louisiana and Entergy New Orleans also provide natural gas utility services to customers in and around Baton Rouge, Louisiana, and New Orleans, Louisiana, respectively. Also included in the Utility is System Energy, a wholly-owned subsidiary of Entergy Corporation that owns or leases 90 percent of Grand Gulf. System Energy sells its power and capacity from Grand Gulf at wholesale to Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans. The five retail utility subsidiaries are each regulated by the FERC and by state utility commissions, or, in the case of Entergy New Orleans, the City Council. System Energy is regulated by the FERC because all of its transactions are at wholesale. The overall generation portfolio of the Utility, which relies heavily on natural gas and nuclear generation, is consistent with Entergy’s strong support for the environment.
Part I Item 1
Entergy Corporation, Utility operating companies, and System Energy
Customers
As of December 31, 2017,2019, the Utility operating companies provided retail electric and gas service to customers in Arkansas, Louisiana, Mississippi, and Texas, as follows:
| | | | | Electric Customers | | Gas Customers | | | Electric Customers | | Gas Customers |
| Area Served | | (In Thousands) | | (%) | | (In Thousands) | | (%) | Area Served | | (In Thousands) | | (%) | | (In Thousands) | | (%) |
Entergy Arkansas | Portions of Arkansas | | 709 |
| | 25 | % | | | | | Portions of Arkansas | | 715 |
| | 25 | % | | | | |
Entergy Louisiana | Portions of Louisiana | | 1,078 |
| | 37 | % | | 93 |
| | 47 | % | Portions of Louisiana | | 1,091 |
| | 37 | % | | 94 |
| | 47 | % |
Entergy Mississippi | Portions of Mississippi | | 449 |
| | 16 | % | | | | | Portions of Mississippi | | 451 |
| | 15 | % | | | | |
Entergy New Orleans | City of New Orleans | | 200 |
| | 7 | % | | 106 |
| | 53 | % | City of New Orleans | | 205 |
| | 7 | % | | 108 |
| | 53 | % |
Entergy Texas | Portions of Texas | | 448 |
| | 15 | % | | | | | Portions of Texas | | 461 |
| | 16 | % | | | | |
Total customers | | | 2,884 |
| | 100 | % | | 199 |
| | 100 | % | | | 2,923 |
| | 100 | % | | 202 |
| | 100 | % |
Electric Energy Sales
The electric energy sales of the Utility operating companies are subject to seasonal fluctuations, with the peak sales period normally occurring during the third quarter of each year. On July 20, 2017,August 12, 2019, Entergy reached a 20172019 peak demand of 21,67121,598 MWh, compared to the 20162018 peak of 21,38721,587 MWh recorded on July 21, 2016.20, 2018. Selected electric energy sales data is shown in the table below:
Selected 20172019 Electric Energy Sales Data
| | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy | | Entergy (a) | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy | | Entergy (a) |
| (In GWh) | (In GWh) |
Sales to retail customers | 20,888 |
| | 55,243 |
| | 13,048 |
| | 5,622 |
| | 18,058 |
| | — |
| | 112,859 |
| 21,818 |
| | 56,027 |
| | 13,236 |
| | 5,821 |
| | 19,008 |
| | — |
| | 115,911 |
|
Sales for resale: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Affiliates | 1,782 |
| | 4,793 |
| | — |
| | — |
| | 1,534 |
| | 6,675 |
| | — |
| 2,180 |
| | 4,813 |
| | — |
| | — |
| | 1,472 |
| | 9,940 |
| | — |
|
Others | 6,549 |
| | 1,711 |
| | 857 |
| | 1,703 |
| | 729 |
| | — |
| | 11,550 |
| 7,206 |
| | 1,924 |
| | 1,776 |
| | 1,961 |
| | 343 |
| | — |
| | 13,210 |
|
Total | 29,219 |
| | 61,747 |
| | 13,905 |
| | 7,325 |
| | 20,321 |
| | 6,675 |
| | 124,409 |
| 31,204 |
| | 62,764 |
| | 15,012 |
| | 7,782 |
| | 20,823 |
| | 9,940 |
| | 129,121 |
|
Average use per residential customer (kWh) | 12,349 |
| | 14,377 |
| | 14,142 |
| | 11,986 |
| | 14,597 |
| | — |
| | 13,716 |
| 13,432 |
| | 14,941 |
| | 15,005 |
| | 12,761 |
| | 14,956 |
| | — |
| | 14,433 |
|
| |
(a) | Includes the effect of intercompany eliminations. |
The following table illustrates the Utility operating companies’ 20172019 combined electric sales volume as a percentage of total electric sales volume, and 20172019 combined electric revenues as a percentage of total 20172019 electric revenue, each by customer class.
| | Customer Class | | % of Sales Volume | | % of Revenue | | % of Sales Volume | | % of Revenue |
Residential | | 27.2 | | 36.2 | | 28.0 | | 37.4 |
Commercial | | 23.1 | | 26.7 | | 22.3 | | 26.3 |
Industrial (a) | | 38.4 | | 27.8 | | 37.5 | | 27.0 |
Governmental | | 2.0 | | 2.5 | | 2.0 | | 2.4 |
Wholesale/Other | | 9.3 | | 6.8 | | 10.2 | | 6.9 |
| |
(a) | Major industrial customers are primarily in the petroleum refining and chemical industries. |
Part I Item 1
Entergy Corporation, Utility operating companies, and System Energy
See “Selected Financial Data” for each of the Utility operating companies for the detail of their sales by customer class for 2013-2017.2015-2019.
Selected 20172019 Natural Gas Sales Data
Entergy New Orleans and Entergy Louisiana provide both electric power and natural gas to retail customers. Entergy New Orleans and Entergy Louisiana sold 9,745,87411,099,812 and 6,017,1747,090,878 Mcf, respectively, of natural gas to retail customers in 2017.2019. In 2017,2019, 99% of Entergy Louisiana’s operating revenue was derived from the electric utility business, and only 1% from the natural gas distribution business. For Entergy New Orleans, 88%87% of operating revenue was derived from the electric utility business and 12%13% from the natural gas distribution business in 2017.2019.
Following is data concerning Entergy New Orleans’s 20172019 retail operating revenue sources.
| | Customer Class | | Electric Operating Revenue | | Natural Gas Operating Revenue | | Electric Operating Revenue | | Natural Gas Operating Revenue |
Residential | | 42% | | 46% | | 44% | | 48% |
Commercial | | 39% | | 28% | | 37% | | 27% |
Industrial | | 6% | | 7% | | 6% | | 6% |
Governmental/Municipal | | 13% | | 19% | | 13% | | 19% |
Part I Item 1
Entergy Corporation, Utility operating companies, and System Energy
Retail Rate Regulation
General (Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas)
Each Utility operating company regularly participates in retail rate proceedings. The status of material retail rate proceedings is described in Note 2 to the financial statements. Certain aspects of the Utility operating companies’ retail rate mechanisms are discussed below.
|
| | | | | | | | | | | |
| | Rate base (in billions) | | Current authorized return on common equity | | Weighted average cost of capital (after-tax) | | Equity ratio | | Regulatory construct | |
| | | | | | | | | | | |
Entergy Arkansas | | $7.095 (a) | | 9.25% -10.25% | | 4.67% | | 31.69% | | - forward test year formula rate plan
- riders: MISO, capacity, Grand Gulf, energy efficiency, fuel and purchased power | |
| | | | | | | | | | | |
Entergy Louisiana (electric) | | $8.303 (b) | | 9.15% - 10.75% | | 7.35% | | 49.64% | | - formula rate plan through 2016 test year
- riders/specific recovery: MISO, capacity, fuel | |
| | | | | | | | | | | |
Entergy Louisiana (gas) | | $0.059 (c) | | 9.45% - 10.45% | | 7.54% | | 51.63% | | - gas rate stabilization plan
- rider: gas infrastructure | |
| | | | | | | | | | | |
Entergy Mississippi | | $2.131 (d) | | 9.47% - 11.49% | | 7.35% | | 49.37% | | - formula rate plan with forward-looking features
- riders: power management, Grand Gulf, fuel, MISO, unit power cost, storm damage, energy efficiency, ad valorem tax adjustment
| |
| | | | | | | | | | | |
Entergy New Orleans (electric) | | $0.299 (e) | | 10.7% - 11.5% | | 8.58% | | 50.08% | | - rate case
- riders/specific recovery: fuel, capacity | |
| | | | | | | | | | | |
Entergy New Orleans (gas) | | $0.089 (f) | | 10.25% - 11.25% | | 8.40% | | 50.08% | | - rate case
- rider: purchased gas | |
| | | | | | | | | | | |
Entergy Texas | | $1.634 (g) | | 9.8% | | 8.22% | | 48.6% | | - rate case
- riders: fuel, distribution and transmission, RPCE payments and rate case expenses, among others | |
| | | | | | | | | | | |
System Energy | | $1.201 (h) | | 10.94% | | 8.90% | | 65% | | - monthly cost of service | |
Part I Item 1
Entergy Corporation, Utility operating companies, and System Energy
|
| | | | | | | | | | | |
| | Rate base (in billions) | | Current authorized return on common equity | | Weighted average cost of capital (after-tax) | | Equity ratio | | Regulatory construct | |
| | | | | | | | | | | |
Entergy Arkansas | | $8.0 (a) | | 9.25% - 10.25% | | 5.20% | | 36.49% | | - forward test year formula rate plan
- riders: MISO, capacity, Grand Gulf, tax adjustment, energy efficiency, fuel and purchased power | |
| | | | | | | | | | | |
Entergy Louisiana (electric) | | $10.4 (b) | | 9.2% - 10.4% | | 6.98% | | 48.64% | | - formula rate plan through 2019 test year
- riders/specific recovery: MISO, capacity, transmission, fuel | |
| | | | | | | | | | | |
Entergy Louisiana (gas) | | $0.07 (c) | | 9.45% - 10.45% | | 7.04% | | 48.26% | | - gas rate stabilization plan
- rider: gas infrastructure | |
| | | | | | | | | | | |
Entergy Mississippi | | $2.6 (d) | | 9.33% - 11.35% | | 7.24% | | 49.67% | | - formula rate plan with forward-looking features
- riders: power management, Grand Gulf, fuel, MISO, unit power cost, storm damage, energy efficiency, ad valorem tax adjustment, vegetation, grid modernization, restructuring credit | |
| | | | | | | | | | | |
Entergy New Orleans (electric) | | $0.8 (e) | | 9.35% | | 7.09% | | 50% | | - formula rate plan with forward-looking features
- specific recovery: fuel | |
| | | | | | | | | | | |
Entergy New Orleans (gas) | | $0.1 (e) | | 9.35% | | 7.09% | | 50% | | - formula rate plan with forward-looking features
- rider: purchased gas | |
| | | | | | | | | | | |
Entergy Texas | | $2.4 (f) | | 9.65% | | 7.73% | | 50.9% | | - rate case
- riders: fuel, distribution and transmission, rate case expenses, AMI surcharge, tax reform, among others | |
| | | | | | | | | | | |
System Energy | | $1.4 (g) | | 10.94% (h) | | 8.50% | | 65% (h) | | - monthly cost of service | |
| |
(a) | Based on 2018 forward2020 test year. |
| |
(b) | Based on December 31, 20162018 test year.year and excludes approximately $800 million for the St. Charles Power Station, included in capacity rider, and $300 million of transmission plant, included in transmission rider. |
| |
(c) | Based on September 30, 20162018 test year. |
| |
(d) | Based on 20172019 forward test year. |
| |
(e) | Based on December 31, 20112018 test year and excludes approximately $228 million first-year average rate base for Union.known and measurables through December 31, 2019. |
Part I Item 1
Entergy Corporation, Utility operating companies, and System Energy
| |
(f) | Based on December 31, 20112017 test year. |
| |
(g) | Based on Marchcalculation as of December 31, 2013 adjusted test year and excludes approximately $331 million for rate base being recovered through the distribution cost recovery rider and the transmission cost recovery rider2019. |
| |
(h) | BasedSee Note 2 to the financial statements for discussion of ongoing proceedings at the FERC challenging System Energy’s authorized return on calculation as of December 31, 2017.common equity and capital structure. |
Entergy Arkansas
Fuel and Purchased Power Cost Recovery
Entergy Arkansas’s rate schedules include an energy cost recovery rider to recover fuel and purchased power costs in monthly bills. The rider utilizes prior calendar year energy costs and projected energy sales for the twelve-month period commencing on April 1 of each year to develop an energy cost rate, which is redetermined annually and includes a true-up adjustment reflecting the over-recovery or under-recovery, including carrying charges, of the energy cost for the prior calendar year. The energy cost recovery rider tariff also allows an interim rate request depending upon the level of over- or under-recovery of fuel and purchased energy costs. In December 2007 the APSC issued an order stating that Entergy Arkansas’s energy cost recovery rider will remain in effect, and any future termination of the rider would be subject to eighteen months advance notice by the APSC, which would occur following notice and hearing.
Entergy Louisiana
Fuel Recovery
Entergy Louisiana’s rate schedules include a fuel adjustment clause designed to recover the cost of fuel and purchased power costs. The fuel adjustment clause contains a surcharge or credit for deferred fuel expense and related carrying charges arising from the monthly reconciliation of actual fuel costs incurred with fuel cost revenues billed to customers, including carrying charges. See Note 2 to the financial statements for a discussion of proceedings related to audits of Entergy Louisiana’s fuel adjustment clause filings.
To help stabilize electricity costs, Entergy Louisiana received approval from the LPSC to hedge its exposure to natural gas price volatility through the use of financial instruments. Entergy Louisiana hedges approximately one-third of the projected exposure to natural gas price changes for the gas used to serve its native electric load for all months of the year. The hedge quantity is reviewed on an annual basis. In January 2018, Entergy Louisiana filed an application with the LPSC to suspend these seasonal hedging programs and implement financial hedges with terms up to five years for a portion of its natural gas exposure. A decision is expectedexposure, which was approved in November 2018.
Entergy Louisiana’s gas rates include a purchased gas adjustment clause based on estimated gas costs for the billing month adjusted by a surcharge or credit that arises from an annual reconciliation of fuel costs incurred with fuel cost revenues billed to customers, including carrying charges.
To help stabilize retailRetail Rates - Gas
In accordance with the settlement of Entergy Gulf States Louisiana’s gas costs,rate stabilization plan for the test year ended September 30, 2012, in August 2014, Entergy Gulf States Louisiana received approval fromsubmitted for consideration a proposal for implementation of an infrastructure rider to recover expenditures associated with strategic plant investment and relocation projects mandated by local governments. After review by the LPSC staff and inclusion of certain customer safeguards required by the LPSC staff, in December 2014, Entergy Gulf States Louisiana and the LPSC staff submitted a joint settlement for implementation of an accelerated gas pipe replacement program providing for the replacement of approximately 100 miles of pipe over the next ten years, as well as relocation of certain existing pipe resulting from local government-related infrastructure projects, and for a rider to hedge its exposurerecover the investment associated with these projects. The rider allows for recovery of approximately $65 million over ten years. The rider recovery will be adjusted on a quarterly basis to natural gas price volatilityinclude actual investment incurred for its gas purchased for resale through the use of financial instruments. Entergy Louisiana hedges approximately one-half ofprior quarter and is subject to the projected natural gas volumes used to serve its natural gas customers for November through March. The hedge quantity is reviewed on an annual basis.following conditions,
Part I Item 1
Entergy Corporation, Utility operating companies, and System Energy
Due to higher fuel costs for the operating monthamong others: a ten-year term; application of January 2018 resulting in part from recent cold weather, higher Henry Hub prices, and an increase in total fuel and purchased power costs, Entergy Louisiana plans to cap the average fuel adjustment charge to be billed in March 2018 at $0.03060 per kWh and to defer billing of all fuel costsany earnings in excess of the capped amountsupper end of the earnings band as an offset to the revenue requirement of the infrastructure rider; adherence to a specified spending plan, within plus or minus 20% annually; annual filings comparing actual versus planned rider spending with actual spending and explanation of variances exceeding 10%; and an annual true-up. The joint settlement was approved by including such coststhe LPSC in January 2015. Implementation of the over- or under-recovery account.infrastructure rider commenced with bills rendered on and after the first billing cycle of April 2015.
Storm Cost Recovery
See Note 2 to the financial statements for a discussion of Entergy Louisiana’s filings to recover storm-related costs.
Other
In March 2016 the LPSC opened two dockets to examine, on a generic basis, issues that it identified in connection with its review of Cleco Corporation’s acquisition by third party investors. The first docket is captioned “In re: Investigation of double leveraging issues for all LPSC-jurisdictional utilities,” and the second is captioned “In re: Investigation of tax structure issues for all LPSC-jurisdictional utilities.” In April 2016 the LPSC clarified that the concerns giving rise to the two dockets arose as a result of its review of the structure of the recently-approved Cleco-Macquarie transaction and that the specific intent of the directives is to seek more information regarding intra-corporate debt financing of a utility’s capital structure as well as the use of investment tax credits to mitigate the tax obligation at the parent level of a consolidated entity. No schedule has been set for either docket, and limited discovery has occurred.
In December 2019 an LPSC commissioner issued an unopposed directive to staff to research customer-centered options for all customer classes, as well as other regulatory environments, and recommend a plan for how to ensure customers are the focus. There was no opposition to the directive from other commissioners but several remarked that the intent of the directive was not initiated to pursue retail open access. In furtherance of the directive, the LPSC issued a notice of the opening of a docket to conduct a rulemaking to research and evaluate customer-centered options for all electric customer classes as well as other regulatory environments in January 2020.
Entergy Mississippi
Fuel Recovery
Entergy Mississippi’s rate schedules include energy cost recovery riders to recover fuel and purchased power costs. The energy cost rate for each calendar year is redetermined annually and includes a true-up adjustment reflecting the over-recovery or under-recovery of the energy costs as of the 12-month period ended September 30. Entergy Mississippi’s fuel cost recoveries are subject to annual audits conducted pursuant to the authority of the MPSC.
To help stabilize electricity costs, Entergy Mississippi received approval from the MPSC to hedge its exposure to natural gas price volatility through the use of financial instruments. Entergy Mississippi hedges approximately one-third of the projected exposure to natural gas price changes for the gas used to serve its native electric load for all months of the year. The hedge quantity is reviewed on an annual basis.
Storm Cost Recovery
See Note 2 to the financial statements for a discussion of proceedings regarding recovery of Entergy Mississippi’s storm-related costs.
Part I Item 1
Entergy Corporation, Utility operating companies, and System Energy
Formula Rate Plan
In August 2012 the MPSC opened inquiries to review whether the current formulaic methodology used to calculate the return on common equity in both Entergy Mississippi’s formula rate plan and Mississippi Power Company’s annual formula rate plan was still appropriate or could be improved to better serve the public interest. The intent of this inquiry and review was for informational purposes only; the evaluation of any recommendations for changes to the existing methodology would take place in a general rate case or in the existing formula rate plan docket.proceeding. In March 2013 the Mississippi Public Utilities Staff filed its consultant’s report which noted the return on common equity estimation methods used by Entergy Mississippi and Mississippi Power Company are commonly used throughout the electric utility industry. The report suggested ways in which the methods used by Entergy Mississippi and Mississippi Power Company might be improved, but did not recommend specific changes in the return on common equity formulas
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or calculations at that time. In June 2014 the MPSC expanded the scope of the August 2012 inquiry to study the merits of adopting a uniform formula rate plan that could be applied, where possible in whole or in part, to both Entergy Mississippi and Mississippi Power Company in order to achieve greater consistency in the plans. The MPSC directed the Mississippi Public Utilities Staff to investigate and review Entergy Mississippi’s formula rate plan rider schedule and Mississippi Power Company’s Performance Evaluation Plan by considering the merits and deficiencies and possibilities for improvement of each and then to propose a uniform formula rate plan that, where possible, could be applicable to both companies. No procedural schedule has been set. In October 2014 the Mississippi Public Utilities Staff conducted a public technical conference to discuss performance benchmarking and its potential application to the electric utilities’ formula rate plans. The docket remains open.
Entergy New Orleans
Fuel Recovery
Entergy New Orleans’s electric rate schedules include a fuel adjustment tariff designed to reflect no more than targeted fuel and purchased power costs, adjusted by a surcharge or credit for deferred fuel expense arising from the monthly reconciliation of actual fuel and purchased power costs incurred with fuel cost revenues billed to customers, including carrying charges.
Entergy New Orleans’s gas rate schedules include a purchased gas adjustment to reflect estimated gas costs for the billing month, adjusted by a surcharge or credit similar to that included in the electric fuel adjustment clause, including carrying charges.
To help stabilize gas costs, Entergy New Orleans seeks approval annually from the City Council to continue implementation of its natural gas hedging program consistent with the City Council’s stated policy objectives. The program uses financial instruments to hedge exposure to volatility in the wholesale price of natural gas purchased to serve Entergy New Orleans gas customers. Entergy New Orleans hedges up to 25% of actual gas sales made during the winter months.
Due to higher fuel costs associated in part with the extended Grand Gulf outage and the partially simultaneous Union Power Block 1 planned outage, for the December 2016, January 2017, and February 2017 billing months, the City Council authorized Entergy New Orleans to cap the fuel adjustment charge billed to customers at $0.035 per kWh and to defer billing of all fuel costs in excess of the capped amount by including such costs in the over- or under-recovery account.
Due to higher fuel costs for the operating month of January 2018 resulting in part from recent cold weather, higher Henry Hub prices, and an increase in total fuel and purchased power costs associated in part with certain plant outages, Entergy New Orleans has proposed to cap the fuel adjustment charge to be billed in March 2018 to non-transmission Entergy New Orleans legacy customers and Entergy New Orleans Algiers customers at $0.035323 per kWh and $0.025446 per kWh, respectively. Entergy New Orleans has also proposed to cap the fuel adjustment charge to be billed in March 2018 for Entergy New Orleans legacy transmission customers at $0.034609 per kWh and to defer billing of all fuel costs in excess of the capped amount by including such costs in the over- or under-recovery account.
Storm Cost Recovery
See Note 2 to the financial statements for a discussion of Entergy New Orleans’s efforts to recover storm-related costs.
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Entergy Texas
Fuel Recovery
Entergy Texas’s rate schedules include a fixed fuel factor to recover fuel and purchased power costs, including interest, that are not included in base rates. Semi-annual revisions of the fixed fuel factor are made in March and September based on the market price of natural gas and changes in fuel mix. The amounts collected under Entergy
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Texas’s fixed fuel factor and any interim surcharge or refund are subject to fuel reconciliation proceedings before the PUCT. The PUCT fuel cost proceedings are discussed in Note 2 to the financial statements.
At the PUCT’s April 2013 open meeting, the PUCT Commissioners discussed their view that a purchased power capacity rider was good public policy. The PUCT issued an order in May 2013 adopting the rule allowing for a purchased power capacity rider, subject to an offsetting adjustment for load growth. The rule, as adopted, also includes a process for obtaining pre-approval by the PUCT of purchased power agreements. Entergy Texas has not exercised the option to recover its capacity costs under the new rider mechanism, but will continue to evaluate the benefits of utilizing the new rider to recover future capacity costs.
Electric Industry Restructuring
In June 2009, a law was enacted in Texas that required Entergy Texas to cease all activities relating to Entergy Texas’s transition to competition. The law allows Entergy Texas to remain a part of the SERC Reliability Corporation (SERC) Region, although it does not prevent Entergy Texas from joining another power region. The law provides that proceedings to certify a power region that Entergy Texas belongs to as a qualified power region can be initiated by the PUCT, or on motion by another party, when the conditions supporting such a proceeding exist. Under the law, the PUCT may not approve a transition to competition plan for Entergy Texas until the expiration of four years from the PUCT’s certification of Entergy Texas’s power region.
The law also contains provisions that allow Entergy Texas to take advantage of a cost recovery mechanism that permits annual filings for the recovery of reasonable and necessary expenditures for transmission infrastructure improvement and changes in wholesale transmission charges. This mechanism was previously available to other non-ERCOT Texas utility companies, but not to Entergy Texas.
The law further amended already existing law that had required Entergy Texas to propose for PUCT approval a tariff to allow eligible customers the ability to contract for competitive generation. The amending language in the law provides, among other things, that: 1) the tariff shall not be implemented in a manner that harms the sustainability or competitiveness of manufacturers who choose not to participate in the tariff; 2) Entergy Texas shall “purchase competitive generation service, selected by the customer, and provide the generation at retail to the customer”;customer;” and 3) Entergy Texas shall provide and price transmission service and ancillary services under that tariff at a rate that is unbundled from its cost of service. The law directs that the PUCT may not issue an order on the tariff that is contrary to an applicable decision, rule, or policy statement of a federal regulatory agency having jurisdiction.
Entergy Texas and the other parties to the PUCT proceeding to determine the design of the competitive generation tariff were involved in negotiations throughout 2011 and 2012 with the objective of resolving as many disputed issues as possible regarding the tariff. The PUCT determined that unrecovered costs that couldmay be recovered through the rider consist only of those costs necessary to implement and administer the competitive generation program and do not include lost revenues or embedded generation costs. The PUCT also ruled that the amount of customer load that may be included in the competitive generation service program is limited to 115 MW. After additional negotiations, and ultimately the scheduling of a hearing to resolve remaining contested issues, the PUCT issued the order approving the competitive generation service rider in July 2013. Entergy Texas filed for rehearing of the PUCT’s July 2013 order, which the PUCT denied. Entergy Texas has since filed its appeal of that PUCT order to the Travis County District Court, which found in favor of the PUCT in an order issued in October 2014. In November 2014, Entergy Texas appealed the District Court’s order which moves the appeal to the Third Court of Appeals. Entergy
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Texas and opposing parties filed briefs and responses in the first quarter 2015. Oral argument was held in May 2015. In March 2016 the Court of Appeals upheld the District Court’s ruling favoring the PUCT. In May 2016, Entergy Texas filed with the Texas Supreme Court a petition for review of the Court of Appeals ruling. In January 2017, Entergy Texas filed its petitioner’s brief on the merits with the Texas Supreme Court. In June 2017 the Texas Supreme Court denied Entergy Texas’s petition in this matter.
In September 2011 the PUCT adopted a proposed rule implementing a distribution cost recovery factor to recover capital and capital-related costs related to distribution infrastructure. The distribution cost recovery factor permits utilities once per year to implement an increase or decrease in rates above or below amounts reflected in base rates to reflect depreciation expense, federal income tax and other taxes, and return on investment. The distribution cost recovery factor rider may be changed a maximum of four times between base rate cases.
In September 2019 the PUCT initiated a rulemaking to promulgate a generation cost recovery factor rule, implementing legislation passed in the 2019 Texas legislative session intended to allow electric utilities to recover generation investments between base rate proceedings. The draft rule was approved for publication at the PUCT’s February 2020 open meeting, and two rounds of public comment will be taken in March and April 2020. The PUCT is expected to approve a final rule within six months of publication.
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Franchises
Entergy Arkansas holds exclusive franchises to provide electric service in approximately 308 incorporated cities and towns in Arkansas. These franchises are unlimited in duration and continue unless the municipalities purchase the utility property. In Arkansas franchises are considered to be contracts and, therefore, are terminable pursuant to the terms of the franchise agreement and applicable statutes.
Entergy Louisiana holds non-exclusive franchises to provide electric service in approximately 175 incorporated municipalities and in the unincorporated areas of approximately 59 parishes of Louisiana. Entergy Louisiana holds non-exclusive franchises to provide natural gas service to customers in the City of Baton Rouge and in East Baton Rouge Parish. Municipal franchise agreement terms range from 25 to 60 years while parish franchise terms range from 25 to 99 years.
Entergy Mississippi has received from the MPSC certificates of public convenience and necessity to provide electric service to areas within 45 counties, including a number of municipalities, in western Mississippi. Under Mississippi statutory law, such certificates are exclusive. Entergy Mississippi may continue to serve in such municipalities upon payment of a statutory franchise fee, regardless of whether an original municipal franchise is still in existence.
Entergy New Orleans provides electric and gas service in the City of New Orleans pursuant to indeterminate permits set forth in city ordinances. These ordinances contain a continuing option for the City of New Orleans to purchase Entergy New Orleans’s electric and gas utility properties.
Entergy Texas holds a certificate of convenience and necessity from the PUCT to provide electric service to areas within approximately 27 counties in eastern Texas, and holds non-exclusive franchises to provide electric service in approximately 68 incorporated municipalities. Entergy Texas typically obtains 25-year franchise agreements as existing agreements expire. Entergy Texas’s electric franchises expire during 2018-2058.over the period 2020-2058.
The business of System Energy is limited to wholesale power sales. It has no distribution franchises.
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Entergy Corporation, Utility operating companies, and System Energy
Property and Other Generation Resources
Owned Generating Stations
The total capability of the generating stations owned and leased by the Utility operating companies and System Energy as of December 31, 2017,2019, is indicated below:
| | | | Owned and Leased Capability MW(a) | | Owned and Leased Capability MW(a) |
Company | | Total | | Gas/Oil | | Nuclear | | Coal | | Hydro | | Solar | | Total | | Gas/Oil | | Nuclear | | Coal | | Hydro | | Solar |
Entergy Arkansas | | 5,217 |
| | 2,136 |
| | 1,821 |
| | 1,189 |
| | 71 |
| | — |
| | 5,183 |
| | 2,106 |
| | 1,810 |
| | 1,194 |
| | 73 |
| | — |
|
Entergy Louisiana | | 9,099 |
| | 6,603 |
| | 2,136 |
| | 360 |
| | — |
| | — |
| | 10,050 |
| | 7,556 |
| | 2,144 |
| | 350 |
| | — |
| | — |
|
Entergy Mississippi | | 3,359 |
| | 2,944 |
| | — |
| | 414 |
| | — |
| | 1 |
| | 3,342 |
| | 2,923 |
| | — |
| | 417 |
| | — |
| | 2 |
|
Entergy New Orleans | | 492 |
| | 491 |
| | — |
| | — |
| | — |
| | 1 |
| | 508 |
| | 507 |
| | — |
| | — |
| | — |
| | 1 |
|
Entergy Texas | | 2,331 |
| | 2,065 |
| | — |
| | 266 |
| | — |
| | — |
| | 2,293 |
| | 2,034 |
| | — |
| | 259 |
| | — |
| | — |
|
System Energy | | 1,271 |
| | — |
| | 1,271 |
| | — |
| | — |
| | — |
| | 1,393 |
| | — |
| | 1,393 |
| | — |
| | — |
| | — |
|
Total | | 21,769 |
| | 14,239 |
| | 5,228 |
| | 2,229 |
| | 71 |
| | 2 |
| | 22,769 |
| | 15,126 |
| | 5,347 |
| | 2,220 |
| | 73 |
| | 3 |
|
| |
(a) | “Owned and Leased Capability” is the dependable load carrying capability as demonstrated under actual operating conditions based on the primary fuel (assuming no curtailments) that each station was designed to utilize. |
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Summer peak load for the Utility has averaged 21,53321,636 MW over the previous decade.
The Utility operating companies’ load and capacity projections are reviewed periodically to assess the need and timing for additional generating capacity and interconnections. These reviews consider existing and projected demand, the availability and price of power, the location of new load, the economy, environmental regulations, public policy goals, and the age and condition of Entergy’s existing infrastructure.
The Utility operating companies’ long-term resource strategy (Portfolio Transformation Strategy) calls for the bulk of capacity needs to be met through long-term resources, whether owned or contracted. Over the past decade, the Portfolio Transformation Strategy has resulted in the addition of about 6,8007,314 MW of new long-term resources and the deactivation of over 5,2004,465 MW of legacy generation. As MISO market participants, the Utility operating companies also participate in MISO’s Day Ahead and Real Time Energy and Ancillary Services markets to economically dispatch generation and purchase energy to serve customers reliably and at the lowest reasonable cost.
Other Generation Resources
RFP Procurements
The Utility operating companies from time to time issue requests for proposals (RFP) to procure supply-side resources from sources other than the spot market to meet the unique regional needs of the Utility operating companies. The RFPs issued by the Utility operating companies have sought resources needed to meet near-term MISO reliability requirements as well as longer-term requirements through a broad range of wholesale power products, including limited-term (1 to 3 years) and long-term contractual products and asset acquisitions. The RFP process has resulted in selections or acquisitions, including, among other things:
Entergy Louisiana’s June 2005 purchase of the 718 MW, gas-fired Perryville plant, of which 35% of the output is sold to Entergy Texas;
Entergy Arkansas’s September 2008 purchase of the 789 MW, combined-cycle, gas-fired Ouachita Generating Facility. Entergy Louisiana, as successor in interest to Entergy Gulf States Louisiana, owns one-third of the facility;
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Entergy Corporation, Utility operating companies, and System Energy
Entergy Arkansas’s November 2012 purchase of the 620 MW, combined-cycle, gas-fired Hot Spring Energy facility;
Entergy Mississippi’s November 2012 purchase of the 450 MW, combined-cycle, gas-fired Hinds Energy facility;
Entergy Louisiana’s construction of the 560 MW, combined-cycle, gas turbine Ninemile 6 generating facility at its existing Ninemile Point electric generating station. The facility reachedbegan commercial operation in December 2014;
Entergy Louisiana’s construction of the 980 MW, combined-cycle, gas turbine St. Charles generating facility at its existing Little Gypsy electric generating station. Entergy Louisiana received regulatory approval from the LPSCThe facility began commercial operation in December 2016 and the facility is scheduled to be in service by mid-2019;May 2019;
Entergy Texas’s construction of the 993 MW, combined-cycle, gas turbine Montgomery County generating facility at its existing Lewis Creek electric generating station. Entergy Texas received regulatory approval from the PUCT in July 2017 and the facility is scheduled to be in service by mid-2021; and
Entergy Louisiana’s construction of the 994 MW, combined-cycle, gas turbine Lake Charles generating facility at its existing Nelson electric generating station. Entergy Louisiana received regulatory approval from the LPSC in July 2017 and the facility is scheduled to be in service by mid-2020.mid-2020;
In October 2018, Entergy Mississippi signed an asset acquisition agreement for the purchase of an approximately 100 MW to-be-constructed solar photovoltaic facility located in Sunflower County, Mississippi. In December 2018, Entergy Mississippi filed for regulatory approval. A hearing before the MPSC is targeted to occur by the second quarter 2020, and closing is expected to occur by the end of 2021;
In March 2019, Entergy Arkansas signed an agreement for the purchase of an approximately 100 MW to-be- constructed solar energy facility that will be sited on approximately 800 acres in White County near Searcy, Arkansas. In May 2019, Entergy Arkansas filed a petition with the APSC seeking a finding that the transaction
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is in the public interest and requesting all necessary approvals. Closing is expected to occur by the end of 2021; and
Entergy New Orleans’s construction of the 20 MW, self-build solar project New Orleans Solar Station located at the NASA Michoud Facility. In August 2019, Entergy New Orleans received regulatory approval and the facility is scheduled to be in service as early as late-2020.
The RFP process has also resulted in the selection, or confirmation of the economic merits of, long-term purchased power agreements (PPAs), including, among others:
River Bend 30% life-of-unit PPA between Entergy Louisiana and Entergy New Orleans for 100 MW related to Entergy Louisiana’s unregulated portion of the River Bend nuclear station, which portion was formerly owned by Cajun;
Entergy Arkansas wholesale base load capacity life-of-unit PPAs executed in 2003 totaling approximately 220 MW between Entergy Arkansas and Entergy Louisiana (110 MW) and between Entergy Arkansas and Entergy New Orleans (110 MW) related to the sale of a portion of Entergy Arkansas’s coal and nuclear base load resources (which had not been included in Entergy Arkansas’s retail rates);
In December 2009, Entergy Texas and Exelon Generation Company, LLC executed a 10-year agreement for 150-300 MW from the Frontier Generating Station located in Grimes County, Texas;
In May 2011, Entergy Texas and Calpine Energy Services, L.P. executed a 10-year agreement for 485 MW from the Carville Energy Center located in St. Gabriel, Louisiana. Entergy Louisiana purchases 50% of the facility’s capacity and energy from Entergy Texas. In July 2014, LS Power purchased the Carville Energy Center and replaced Calpine Energy Services as the counterparty to the agreement;
In September 2012, Entergy Gulf States Louisiana executed a 20-year agreement for 28 MW, with the potential to purchase an additional 9 MW when available, from Rain CII Carbon LLC’s petpetroleum coke calcining facility in Sulphur, Louisiana. The facility began commercial operation in May 2013. Entergy Louisiana, as successor in interest to Entergy Gulf States Louisiana, now holds the agreement with the facility;
In March 2013, Entergy Gulf States Louisiana executed a 20-year agreement for 8.5 MW from Agrilectric Power Partners, LP’s refurbished rice hull-fueled electric generation facility located in Lake Charles, Louisiana. Entergy Louisiana, as successor in interest to Entergy Gulf States Louisiana, now holds the agreement with Agrilectric;
In September 2013, Entergy Louisiana executed a 10-year agreement with TX LFG Energy, LP, a wholly-owned subsidiary of Montauk Energy Holdings, LLC, to purchase approximately 3 MW from its landfill gas-fueled power generation facility located in Cleveland, Texas;
Entergy Mississippi’s cost-based purchase, beginning in January 2013, of 90 MW from Entergy Arkansas’s share of Grand Gulf (only 60 MW of this PPA came through the RFP process). Cost recovery for the 90 MW was approved by the MPSC in January 2013;
In April 2015, Entergy Arkansas and Stuttgart Solar, LLC executed a 20-year agreement for 81 MW from a solar photovoltaic electric generation facility located near Stuttgart, Arkansas. The APSC has approved the project and the expected commercial operation date isdeliveries pursuant to that agreement commenced in June 2019;
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2018;
In November 2016, Entergy Louisiana and LS Power executed a 10-year agreement for 485 MW from the Carville Energy Center located in St. Gabriel, Louisiana. The transaction has received regulatory approval and will begin in June 2022;
In November 2016, Entergy Louisiana and Occidental Chemical Corporation executed a 10-year agreement for 500 MW from the Taft Cogeneration facility located in Hahnville, Louisiana. The transaction has received regulatory approval and will beginbegan in June 2018; and
In June 2017, Entergy Arkansas and Chicot Solar, LLC executed a 20-year agreement for 100 MW from a solar photovoltaic electric generating facility located in Chicot County, Arkansas. The transaction received regulatory approval and will begin in August 2020;
In February 2018, Entergy Arkansas filedLouisiana and LA3 West Baton Rouge, LLC (Capital Region Solar project) executed a 20-year agreement for 50 MW from a solar photovoltaic electric generating facility located in West Baton Rouge Parish, Louisiana. The transaction received regulatory approval in October 2017.February 2019 and the agreement is expected to begin in second quarter 2020;
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In June 2016, Entergy Services, on behalf of Entergy Louisiana, issued an RFP for long-term renewable generation resources. The RFP was seeking up to 200 MW of renewable resources that could provide energy, fuel diversity, and other benefits to customers. Two proposals were placed in the primary selection list and the transactions are currently in negotiations.
In July 2016, Entergy Services, on behalf of Entergy New Orleans, issued an RFP for long-term renewable generation resources. The RFP was seeking up to 20 MW of renewable resources that could provide increased depth and diversity to Entergy New Orleans’s generation resource portfolio. In May 2017, Entergy New Orleans selected three proposals, including a 5 MW self-build option for an aggregated solar photovoltaic resource located within Orleans Parish, Louisiana. In October 2017, Entergy New Orleans filed an application seeking City Council approval for the self-build option, which is pending before the City Council. Following unsuccessful negotiations related to the other proposals selected in May 2017, Entergy New Orleans suspended negotiations in November 2017 and invited bidders to re-submit proposals with current information. From these submissions, in January 2018, Entergy New Orleans selected three proposals with an anticipated total capacity of 90 MW.and St. James Solar, LLC executed a 20-year agreement for 20 MW from a solar photovoltaic electric generating facility located in St. James Parish, Louisiana. The updated proposals selected aretransaction received regulatory approval in addition to the self-build option.July 2019; and
In February 2019, Entergy New Orleans and Iris Solar, LLC executed a 20-year agreement for 50 MW from a solar photovoltaic electric generating facility located in Washington Parish, Louisiana. The transaction received regulatory approval in July 2019.
Other Procurements From Third PartiesNatural Gas
Entergy Louisiana and Entergy New Orleans also distribute natural gas to retail customers in and around Baton Rouge, Louisiana, and New Orleans, Louisiana, respectively. Gas transferred to customers is measured by a meter at the customer’s property. Entergy issues monthly invoices to customers at rates approved by regulators for the volume of gas transferred to date.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Competitive Businesses Revenues
The UtilityEntergy Wholesale Commodities segment derives almost all of its revenue from sales of electric power and capacity produced by its operating companies have also made resource acquisitions outsideplants to wholesale customers. The majority of Entergy Wholesale Commodities’ revenues are from Entergy’s nuclear power plants located in the northern United States. Entergy issues monthly invoices to the counterparties for these electric sales at the respective contracted or ISO market rate of electricity and related services provided during the previous month.
Most of the RFP process, including Entergy Mississippi’s January 2006Palisades nuclear plant output is sold under a 15-year PPA with Consumers Energy, executed as part of the acquisition of the 480 MW, combined-cycle, gas-fired Attala power plant;plant in 2007 and expiring in 2022. Prices under the PPA range from $43.50/MWh in 2007 to $61.50/MWh in 2022, and the average price under the PPA is $51/MWh. Entergy Gulf States Louisiana’s March 2008issues monthly invoices to Consumers Energy for electric sales based on the actual output of electricity and related services provided during the previous month at the contract price. The PPA was at below-market prices at the time of the acquisition and Entergy amortizes a liability to revenue over the life of the agreement. The amount amortized each period is based upon the present value, calculated at the date of acquisition, of each year’s difference between revenue under the 322 MW, simple-cycle, gas-fired Calcasieu Generating Facility; Entergy Louisiana’s April 2011 acquisitionagreement and revenue based on estimated market prices. Amounts amortized to revenue were $10 million in 2019, $6 million in 2018, and $28 million in 2017. Amounts to be amortized to revenue through the remaining life of the 580 MW, combined-cycle, gas-fired Acadia Energy Center Unit 2;agreement will be approximately $11 million in 2020, $12 million in 2021, and $5 million in 2022.
Practical Expedients and Exceptions
Entergy Arkansas’s (Power Block 2)has elected not to disclose the value of unsatisfied performance obligations for contracts with an original expected term of one year or less, or for revenue recognized in an amount equal to what Entergy has the right to bill the customer for services performed.
Most of Entergy’s contracts, except in a few cases where there are defined minimums or stated terms, are on demand. This results in customer bills that vary each month based on an approved tariff and usage. Entergy imposes monthly or annual minimum requirements on some customers primarily as credit and cost recovery guarantees and not as pricing for unsatisfied performance obligations. These minimums typically expire after the initial term or when specified costs have been recovered. The minimum amounts are part of each month’s bill and recognized as revenue accordingly. Some of the subsidiaries within the Entergy Wholesale Commodities segment have operations and maintenance services contracts that have fixed components and terms longer than one year. The total fixed consideration related to these unsatisfied performance obligations, however, is not material to Entergy revenues.
Recovery of Fuel Costs
Entergy’s Utility operating companies’ rate schedules include either fuel adjustment clauses or fixed fuel factors, which allow either current recovery in billings to customers or deferral of fuel costs until the costs are billed to customers. Where the fuel component of revenues is based on a pre-determined fuel cost (fixed fuel factor), the fuel factor remains in effect until changed as part of a general rate case, fuel reconciliation, or fixed fuel factor filing. System Energy’s operating revenues are intended to recover from Entergy Louisiana’s (Power Blocks 3 and 4),Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans’s (Power BlockOrleans operating expenses and capital costs attributable to Grand Gulf. The capital costs are based on System Energy’s common equity funds allocable to its net investment in Grand Gulf, plus System Energy’s effective interest cost for its debt allocable to its investment in Grand Gulf.
Taxes Imposed on Revenue-Producing Transactions
Governmental authorities assess taxes that are both imposed on and concurrent with a specific revenue-producing transaction between a seller and a customer, including, but not limited to, sales, use, value added, and some excise taxes. Entergy presents these taxes on a net basis, excluding them from revenues.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
NOTE 20. QUARTERLY FINANCIAL DATA (UNAUDITED) (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)
Operating results for the four quarters of 2019 and 2018 for Entergy Corporation and subsidiaries were:
|
| | | | | | | | | | | | | | | |
| Operating Revenues | | Operating Income (Loss) | | Consolidated Net Income (Loss) | | Net Income (Loss) Attributable to Entergy Corporation |
| (In Thousands) |
2019: | | | |
First Quarter |
| $2,609,584 |
| |
| $283,254 |
| |
| $258,646 |
| |
| $254,537 |
|
Second Quarter |
| $2,666,209 |
| |
| $338,775 |
| |
| $240,533 |
| |
| $236,424 |
|
Third Quarter |
| $3,140,575 |
| |
| $519,929 |
| |
| $369,459 |
| |
| $365,240 |
|
Fourth Quarter |
| $2,462,305 |
| |
| $248,539 |
| |
| $389,606 |
| |
| $385,025 |
|
2018: | | | |
First Quarter |
| $2,723,881 |
| |
| $335,664 |
| |
| $136,200 |
| |
| $132,761 |
|
Second Quarter |
| $2,668,770 |
| |
| $91,597 |
| |
| $248,860 |
| |
| $245,421 |
|
Third Quarter |
| $3,104,319 |
| |
| $271,035 |
| |
| $539,818 |
| |
| $536,379 |
|
Fourth Quarter |
| $2,512,482 |
| |
| ($228,931 | ) | |
| ($62,323 | ) | |
| ($65,900 | ) |
Earnings (loss) per average common share
|
| | | | | | | | | | | | | | | |
| 2019 | | 2018 |
| Basic | | Diluted | | Basic | | Diluted |
First Quarter |
| $1.34 |
| |
| $1.32 |
| |
| $0.73 |
| |
| $0.73 |
|
Second Quarter |
| $1.22 |
| |
| $1.22 |
| |
| $1.36 |
| |
| $1.34 |
|
Third Quarter |
| $1.84 |
| |
| $1.82 |
| |
| $2.96 |
| |
| $2.92 |
|
Fourth Quarter |
| $1.96 |
| |
| $1.94 |
| |
| ($0.37 | ) | |
| ($0.36 | ) |
Results of operations for 2019 include: 1) March 2016 acquisitionsa loss of the 1,980 MW (summer rating), natural gas-fired, combined-cycle gas turbine Union Power Station power blocks, each rated at 495 MW (summer rating). The Utility operating companies have also entered into various limited- and long-term contracts in recent years$190 million ($156 million net-of-tax) as a result of bilateral negotiations.the sale of the Pilgrim plant in August 2019; 2) a $156 million reduction in income tax expense recognized by Entergy Wholesale Commodities as a result of an internal restructuring; and 3) impairment charges of $100 million ($79 million net-of-tax) due to costs being charged directly to expense as incurred as a result of the impaired value of the Entergy Wholesale Commodities nuclear plants’ long-lived assets due to the significantly reduced remaining estimated operating lives associated with management’s strategy to exit the Entergy Wholesale Commodities’ merchant power business. See Note 3 to the financial statements for further discussion of the internal restructuring. See Note 14 to the financial statements for further discussion of the sale of the Pilgrim plant.
Results of operations for 2018 include: 1) $532 million ($421 million net-of-tax) of impairment charges due to costs being charged directly to expense as incurred as a result of the impaired value of the Entergy Wholesale Commodities nuclear plants’ long-lived assets due to the significantly reduced remaining estimated operating lives associated with management’s strategy to exit the Entergy Wholesale Commodities’ merchant power business; 2) a $170 million reduction of income tax expense and a regulatory liability of $40 million ($30 million net-of-tax) as a result of customer credits recognized by Utility, as a result of an internal restructuring; 3) a $107 million reduction of income tax expense, recognized by Entergy Wholesale Commodities, as a result of a restructuring of the investment holdings in one of its nuclear plant decommissioning trust funds; 4) a $52 million income tax benefit, recognized by Entergy Louisiana, as a result of the settlement of the 2012-2013 IRS audit, associated with the Hurricane Katrina and Hurricane Rita contingent sharing obligation associated with the Louisiana Act 55 financing; and 5) a $23 million
Entergy Corporation and Subsidiaries
Notes to Financial Statements
reduction of income tax expense, recognized by Entergy Wholesale Commodities, as a result of a state income tax audit. See Note 14 to the financial statements for further discussion of the impairment and related charges. See Notes 2 and 3 to the financial statements for further discussion of the internal restructuring and customer credits. See Note 3 to the financial statements for further discussion of the IRS audit settlement, the state income tax audit, and restructuring of the decommissioning trust fund investment holdings.
The Washington Parish Energy Center is a 361 MW natural gas-fired peaking power plant under advanced development approximately 60 miles northbusiness of New Orleans on a partially developed site Calpine has owned since 2001. This simple-cycle power plant is proposed to be developed pursuant to an agreement with Entergy Louisiana, which will purchase the plant upon completion in 2021 for a fixed payment to reimburse construction costs plus an associated premium. In May 2017, Entergy Louisiana filed an application with the LPSC seeking certification of the plant. The application is pending.
Interconnections
The Utility operating companies’ generating units are interconnected by a transmission system operating at various voltages up to 500 kV. These generating units consist primarily of steam-electric production facilities and are provided dispatch instructions by MISO. Entergy’s Utility operating companies are MISO market participantsis subject to seasonal fluctuations with the peak periods occurring during the third quarter. Operating results for the Registrant Subsidiaries for the four quarters of 2019 and are interconnected with many neighboring utilities. MISO is an essential link in the safe, cost-effective delivery of electric power across all or parts of 15 U.S. states and the Canadian province of Manitoba. As a Regional Transmission Organization, MISO assures consumers of unbiased regional grid management and open access to the transmission2018 were:
Operating Revenues
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy |
| (In Thousands) |
2019: | | | | | | | | | | | |
First Quarter |
| $545,812 |
| |
| $959,330 |
| |
| $282,244 |
| |
| $163,194 |
| |
| $340,474 |
| |
| $140,104 |
|
Second Quarter |
| $542,929 |
| |
| $1,106,317 |
| |
| $302,737 |
| |
| $175,793 |
| |
| $363,580 |
| |
| $139,009 |
|
Third Quarter |
| $687,526 |
| |
| $1,231,677 |
| |
| $398,732 |
| |
| $194,204 |
| |
| $442,877 |
| |
| $145,472 |
|
Fourth Quarter |
| $483,327 |
| |
| $987,851 |
| |
| $339,330 |
| |
| $153,032 |
| |
| $342,024 |
| |
| $148,825 |
|
2018: | | | | | | | | | | | |
First Quarter |
| $551,024 |
| |
| $1,029,344 |
| |
| $315,743 |
| |
| $188,275 |
| |
| $348,940 |
| |
| $148,443 |
|
Second Quarter |
| $494,605 |
| |
| $1,072,788 |
| |
| $353,689 |
| |
| $178,446 |
| |
| $403,486 |
| |
| $112,456 |
|
Third Quarter |
| $568,399 |
| |
| $1,206,612 |
| |
| $367,734 |
| |
| $200,182 |
| |
| $477,231 |
| |
| $78,965 |
|
Fourth Quarter |
| $446,615 |
| |
| $987,576 |
| |
| $297,946 |
| |
| $150,487 |
| |
| $376,245 |
| |
| $116,843 |
|
Operating Income (Loss)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy |
| (In Thousands) |
2019: | | | | | | | | | | | |
First Quarter |
| $42,471 |
| |
| $153,944 |
| |
| $30,792 |
| |
| $16,136 |
| |
| $16,741 |
| |
| $31,368 |
|
Second Quarter |
| $69,774 |
| |
| $241,520 |
| |
| $45,607 |
| |
| $17,509 |
| |
| $36,022 |
| |
| $24,300 |
|
Third Quarter |
| $182,176 |
| |
| $336,754 |
| |
| $87,024 |
| |
| $28,876 |
| |
| $69,510 |
| |
| $29,086 |
|
Fourth Quarter |
| $32,576 |
| |
| $164,424 |
| |
| $40,331 |
| |
| $6,164 |
| |
| $24,229 |
| |
| $30,231 |
|
2018: | | | | | | | | | | | |
First Quarter |
| $66,647 |
| |
| $141,319 |
| |
| $41,432 |
| |
| $17,869 |
| |
| $41,082 |
| |
| $30,941 |
|
Second Quarter |
| $26,501 |
| |
| $150,160 |
| |
| ($63,801 | ) | |
| $27,943 |
| |
| $58,637 |
| |
| $23,406 |
|
Third Quarter |
| $34,785 |
| |
| $236,518 |
| |
| $45,215 |
| |
| $21,544 |
| |
| $99,966 |
| |
| ($17,879 | ) |
Fourth Quarter |
| ($82,704 | ) | |
| $147,774 |
| |
| $23,600 |
| |
| $6,836 |
| |
| $6,741 |
| |
| $7,212 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Net Income
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy |
| (In Thousands) |
2019: | | | | | | | | | | | |
First Quarter |
| $39,121 |
| |
| $127,633 |
| |
| $15,398 |
| |
| $9,023 |
| |
| $21,342 |
| |
| $23,578 |
|
Second Quarter |
| $50,299 |
| |
| $183,084 |
| |
| $26,667 |
| |
| $13,003 |
| |
| $38,936 |
| |
| $24,472 |
|
Third Quarter |
| $149,716 |
| |
| $255,260 |
| |
| $56,237 |
| |
| $24,908 |
| |
| $73,224 |
| |
| $25,031 |
|
Fourth Quarter |
| $23,828 |
| |
| $125,560 |
| |
| $21,623 |
| |
| $5,695 |
| |
| $25,895 |
| |
| $26,039 |
|
2018: | | | | | | | | | | | |
First Quarter |
| $36,255 |
| |
| $111,593 |
| |
| $22,843 |
| |
| $10,882 |
| |
| $17,350 |
| |
| $22,308 |
|
Second Quarter |
| $82,556 |
| |
| $184,358 |
| |
| $38,242 |
| |
| $18,269 |
| |
| $30,789 |
| |
| $23,387 |
|
Third Quarter |
| $128,890 |
| |
| $218,308 |
| |
| $50,733 |
| |
| $21,407 |
| |
| $65,846 |
| |
| $22,972 |
|
Fourth Quarter |
| $5,006 |
| |
| $161,355 |
| |
| $14,260 |
| |
| $2,594 |
| |
| $48,250 |
| |
| $25,442 |
|
Earnings Applicable to Common Equity/Stock
|
| | | | | | | | | | | | | | | |
| Entergy Arkansas | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas |
| (In Thousands) |
2019: | | | | | | | |
First Quarter |
| $39,121 |
| |
| $15,398 |
| |
| $9,023 |
| |
| $21,342 |
|
Second Quarter |
| $50,299 |
| |
| $26,667 |
| |
| $13,003 |
| |
| $38,936 |
|
Third Quarter |
| $149,716 |
| |
| $56,237 |
| |
| $24,908 |
| |
| $73,114 |
|
Fourth Quarter |
| $23,828 |
| |
| $21,623 |
| |
| $5,695 |
| |
| $25,425 |
|
2018: | | | | | | | |
First Quarter |
| $35,898 |
| |
| $22,605 |
| |
| $10,882 |
| |
| $17,350 |
|
Second Quarter |
| $82,199 |
| |
| $38,003 |
| |
| $18,269 |
| |
| $30,789 |
|
Third Quarter |
| $128,533 |
| |
| $50,495 |
| |
| $21,407 |
| |
| $65,846 |
|
Fourth Quarter |
| $4,828 |
| |
| $14,141 |
| |
| $2,594 |
| |
| $48,250 |
|
Part I Item 1
Entergy Corporation, Utility operating companies, and System Energy
facilities under MISO’s functional supervision. In addition, the Utility operating companies are membersENTERGY’S BUSINESS
Entergy is an integrated energy company engaged primarily in electric power production and retail distribution operations. Entergy owns and operates power plants with approximately 30,000 MW of the SERC Reliability Corporation (SERC). SERC is a nonprofit corporation responsible for promotingelectric generating capacity, including approximately 9,000 MW of nuclear power. Entergy delivers electricity to 2.9 million utility customers in Arkansas, Louisiana, Mississippi, and improving the reliability, adequacy,Texas. Entergy had annual revenues of $10.9 billion in 2019 and critical infrastructure of the bulk power supply systems in all or portions of 16 central and southeastern states.SERC serveshad more than 13,000 employees as a regional entity with delegated authority from the North American Electric Reliability Corporation (NERC) for the purpose of proposing and enforcing reliability standards within the SERC Region.
Gas Property
As of December 31, 2017, 2019.
Entergy New Orleans distributedoperates primarily through two business segments: Utility and transportedEntergy Wholesale Commodities.
| |
• | The Utility business segment includes the generation, transmission, distribution, and sale of electric power in portions of Arkansas, Mississippi, Texas, and Louisiana, including the City of New Orleans; and operation of a small natural gas distribution business. |
| |
• | The Entergy Wholesale Commodities business segment includes the ownership, operation, and decommissioning of nuclear power plants located in the northern United States and the sale of the electric power produced by its operating plants to wholesale customers. Entergy Wholesale Commodities also provides services to other nuclear power plant owners and owns interests in non-nuclear power plants that sell the electric power produced by those plants to wholesale customers. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Entergy Wholesale Commodities Exit from the Merchant Power Business” for discussion of the operation and planned shutdown and sale of each of the Entergy Wholesale Commodities nuclear power plants. |
See Note 13 to the financial statements for financial information regarding Entergy’s business segments.
Strategy
Entergy’s strategy is to operate and grow a world-class utility business that creates sustainable value for its customers, employees, communities, and owners. Entergy’s current scope includes electricity generation, transmission, and distribution as well as natural gas for distribution within New Orleans, Louisiana, through approximately 2,500 milesdistribution. Entergy focuses on operational excellence with an emphasis on safety, reliability, customer service, sustainability, cost efficiency, risk management, and engaged employees. Entergy also continually seeks opportunities to grow its utility business to benefit all stakeholders and to optimize its portfolio of gas pipeline. Asassets in an ever-dynamic market. The Utility business segment will continue to modernize its operations, maintain reliability, and better serve its customers while growing the business. The Entergy Wholesale Commodities business segment will continue to manage the risk of December 31, 2017,its operating portfolio as Entergy completes its exit from the gas properties of Entergy Louisiana, which are located in and around Baton Rouge, Louisiana, were not material to Entergy Louisiana’s financial position.merchant power business.
Utility
The Utility operating companies’ generating stations are generally located on properties owned in fee simple. Most of the substations and transmission and distribution lines are constructed on private property or public rights-of-way pursuant to easements, servitudes, or appropriate franchises. Some substation properties are owned in fee simple. The Utility operating companies generally have the right of eminent domain, whereby they may perfect title to, or secure easements or servitudes on, private property for theirbusiness segment includes five retail electric utility operations.
Substantially all of the physical properties and assets owned bysubsidiaries: Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and Entergy Texas,Texas. These companies generate, transmit, distribute, and sell electric power to retail and wholesale customers in Arkansas, Louisiana, Mississippi, and Texas. Entergy Louisiana and Entergy New Orleans also provide natural gas utility services to customers in and around Baton Rouge, Louisiana, and New Orleans, Louisiana, respectively. Also included in the Utility is System Energy, are subject to the liens of mortgages securing bonds issued by those companies. The Lewis Creek generating station is owned by GSG&T, Inc., a wholly-owned subsidiary of Entergy Texas,Corporation that owns or leases 90 percent of Grand Gulf. System Energy sells its power and capacity from Grand Gulf at wholesale to Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans. The five retail utility subsidiaries are each regulated by the FERC and by state utility commissions, or, in the case of Entergy New Orleans, the City Council. System Energy is not subject toregulated by the FERC because all of its mortgage lien. Lewis Creektransactions are at wholesale. The overall generation portfolio of the Utility, which relies heavily on natural gas and nuclear generation, is leased to and operated by Entergy Texas.
Fuel Supply
The sources of generation and average fuel cost per kWhconsistent with Entergy’s strong support for the Utility operating companies and System Energy for the years 2015-2017 were:environment.
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Natural Gas | | Nuclear | | Coal | | Purchased Power | | MISO Purchases |
Year | | % of Gen | | Cents Per kWh | | % of Gen | | Cents Per kWh | | % of Gen | | Cents Per kWh | | % of Gen | | Cents Per kWh | | % of Gen | | Cents Per kWh |
2017 | | 38 | | 2.60 |
| | 26 | | 0.86 |
| | 8 | | 2.35 |
| | 8 | | 4.02 |
| | 20 | | 3.09 |
|
2016 | | 41 | | 2.44 |
| | 28 | | 0.63 |
| | 7 | | 2.65 |
| | 9 | | 3.71 |
| | 15 | | 3.13 |
|
2015 | | 35 | | 2.65 |
| | 31 | | 0.85 |
| | 7 | | 2.85 |
| | 11 | | 3.63 |
| | 16 | | 3.24 |
|
Part I Item 1
Entergy Corporation, Utility operating companies, and System Energy
ActualCustomers
As of December 31, 2019, the Utility operating companies provided retail electric and gas service to customers in Arkansas, Louisiana, Mississippi, and Texas, as follows:
|
| | | | | | | | | | | | | |
| | | Electric Customers | | Gas Customers |
| Area Served | | (In Thousands) | | (%) | | (In Thousands) | | (%) |
Entergy Arkansas | Portions of Arkansas | | 715 |
| | 25 | % | | | | |
Entergy Louisiana | Portions of Louisiana | | 1,091 |
| | 37 | % | | 94 |
| | 47 | % |
Entergy Mississippi | Portions of Mississippi | | 451 |
| | 15 | % | | | | |
Entergy New Orleans | City of New Orleans | | 205 |
| | 7 | % | | 108 |
| | 53 | % |
Entergy Texas | Portions of Texas | | 461 |
| | 16 | % | | | | |
Total customers | | | 2,923 |
| | 100 | % | | 202 |
| | 100 | % |
Electric Energy Sales
The electric energy sales of the Utility operating companies are subject to seasonal fluctuations, with the peak sales period normally occurring during the third quarter of each year. On August 12, 2019, Entergy reached a 2019 peak demand of 21,598 MWh, compared to the 2018 peak of 21,587 MWh recorded on July 20, 2018. Selected electric energy sales data is shown in the table below:
Selected 2019 Electric Energy Sales Data
|
| | | | | | | | | | | | | | | | | | | | |
| Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy | | Entergy (a) |
| (In GWh) |
Sales to retail customers | 21,818 |
| | 56,027 |
| | 13,236 |
| | 5,821 |
| | 19,008 |
| | — |
| | 115,911 |
|
Sales for resale: | | | | | | | | | | | | | |
Affiliates | 2,180 |
| | 4,813 |
| | — |
| | — |
| | 1,472 |
| | 9,940 |
| | — |
|
Others | 7,206 |
| | 1,924 |
| | 1,776 |
| | 1,961 |
| | 343 |
| | — |
| | 13,210 |
|
Total | 31,204 |
| | 62,764 |
| | 15,012 |
| | 7,782 |
| | 20,823 |
| | 9,940 |
| | 129,121 |
|
Average use per residential customer (kWh) | 13,432 |
| | 14,941 |
| | 15,005 |
| | 12,761 |
| | 14,956 |
| | — |
| | 14,433 |
|
| |
(a) | Includes the effect of intercompany eliminations. |
The following table illustrates the Utility operating companies’ 2019 combined electric sales volume as a percentage of total electric sales volume, and 2019 combined electric revenues as a percentage of total 2019 electric revenue, each by customer class.
|
| | | | |
Customer Class | | % of Sales Volume | | % of Revenue |
Residential | | 28.0 | | 37.4 |
Commercial | | 22.3 | | 26.3 |
Industrial (a) | | 37.5 | | 27.0 |
Governmental | | 2.0 | | 2.4 |
Wholesale/Other | | 10.2 | | 6.9 |
| |
(a) | Major industrial customers are primarily in the petroleum refining and chemical industries. |
Part I Item 1
Entergy Corporation, Utility operating companies, and System Energy
See “Selected Financial Data” for each of the Utility operating companies for the detail of their sales by customer class for 2015-2019.
Selected 2019 Natural Gas Sales Data
Entergy New Orleans and Entergy Louisiana provide both electric power and natural gas to retail customers. Entergy New Orleans and Entergy Louisiana sold 11,099,812 and 7,090,878 Mcf, respectively, of natural gas to retail customers in 2019. In 2019, 99% of Entergy Louisiana’s operating revenue was derived from the electric utility business, and only 1% from the natural gas distribution business. For Entergy New Orleans, 87% of operating revenue was derived from the electric utility business and 13% from the natural gas distribution business in 2019.
Following is data concerning Entergy New Orleans’s 2019 retail operating revenue sources.
|
| | | | |
Customer Class | | Electric Operating Revenue | | Natural Gas Operating Revenue |
Residential | | 44% | | 48% |
Commercial | | 37% | | 27% |
Industrial | | 6% | | 6% |
Governmental/Municipal | | 13% | | 19% |
Retail Rate Regulation
General (Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas)
Each Utility operating company regularly participates in retail rate proceedings. The status of material retail rate proceedings is described in Note 2 to the financial statements. Certain aspects of the Utility operating companies’ retail rate mechanisms are discussed below.
Part I Item 1
Entergy Corporation, Utility operating companies, and System Energy
|
| | | | | | | | | | | |
| | Rate base (in billions) | | Current authorized return on common equity | | Weighted average cost of capital (after-tax) | | Equity ratio | | Regulatory construct | |
| | | | | | | | | | | |
Entergy Arkansas | | $8.0 (a) | | 9.25% - 10.25% | | 5.20% | | 36.49% | | - forward test year formula rate plan
- riders: MISO, capacity, Grand Gulf, tax adjustment, energy efficiency, fuel and purchased power | |
| | | | | | | | | | | |
Entergy Louisiana (electric) | | $10.4 (b) | | 9.2% - 10.4% | | 6.98% | | 48.64% | | - formula rate plan through 2019 test year
- riders/specific recovery: MISO, capacity, transmission, fuel | |
| | | | | | | | | | | |
Entergy Louisiana (gas) | | $0.07 (c) | | 9.45% - 10.45% | | 7.04% | | 48.26% | | - gas rate stabilization plan
- rider: gas infrastructure | |
| | | | | | | | | | | |
Entergy Mississippi | | $2.6 (d) | | 9.33% - 11.35% | | 7.24% | | 49.67% | | - formula rate plan with forward-looking features
- riders: power management, Grand Gulf, fuel, MISO, unit power cost, storm damage, energy efficiency, ad valorem tax adjustment, vegetation, grid modernization, restructuring credit | |
| | | | | | | | | | | |
Entergy New Orleans (electric) | | $0.8 (e) | | 9.35% | | 7.09% | | 50% | | - formula rate plan with forward-looking features
- specific recovery: fuel | |
| | | | | | | | | | | |
Entergy New Orleans (gas) | | $0.1 (e) | | 9.35% | | 7.09% | | 50% | | - formula rate plan with forward-looking features
- rider: purchased gas | |
| | | | | | | | | | | |
Entergy Texas | | $2.4 (f) | | 9.65% | | 7.73% | | 50.9% | | - rate case
- riders: fuel, distribution and transmission, rate case expenses, AMI surcharge, tax reform, among others | |
| | | | | | | | | | | |
System Energy | | $1.4 (g) | | 10.94% (h) | | 8.50% | | 65% (h) | | - monthly cost of service | |
| |
(a) | Based on 2020 test year. |
| |
(b) | Based on December 31, 2018 test year and excludes approximately $800 million for the St. Charles Power Station, included in capacity rider, and $300 million of transmission plant, included in transmission rider. |
| |
(c) | Based on September 30, 2018 test year. |
| |
(d) | Based on 2019 forward test year. |
| |
(e) | Based on December 31, 2018 test year and known and measurables through December 31, 2019. |
Part I Item 1
Entergy Corporation, Utility operating companies, and System Energy
| |
(f) | Based on December 31, 2017 test year. |
| |
(g) | Based on calculation as of December 31, 2019. |
| |
(h) | See Note 2 to the financial statements for discussion of ongoing proceedings at the FERC challenging System Energy’s authorized return on common equity and capital structure. |
Entergy Arkansas
Fuel and Purchased Power Cost Recovery
Entergy Arkansas’s rate schedules include an energy cost recovery rider to recover fuel and purchased power costs in monthly bills. The rider utilizes prior calendar year energy costs and projected energy sales for the twelve-month period commencing on April 1 of each year to develop an energy cost rate, which is redetermined annually and includes a true-up adjustment reflecting the over-recovery or under-recovery, including carrying charges, of the energy cost for the prior calendar year. The energy cost recovery rider tariff also allows an interim rate request depending upon the level of over- or under-recovery of fuel and purchased energy costs. In December 2007 the APSC issued an order stating that Entergy Arkansas’s energy cost recovery rider will remain in effect, and any future termination of the rider would be subject to eighteen months advance notice by the APSC, which would occur following notice and hearing.
Entergy Louisiana
Fuel Recovery
Entergy Louisiana’s rate schedules include a fuel adjustment clause designed to recover the cost of fuel and purchased power costs. The fuel adjustment clause contains a surcharge or credit for deferred fuel expense and related carrying charges arising from the monthly reconciliation of actual fuel costs incurred with fuel cost revenues billed to customers, including carrying charges. See Note 2 to the financial statements for a discussion of proceedings related to audits of Entergy Louisiana’s fuel adjustment clause filings.
To help stabilize electricity costs, Entergy Louisiana received approval from the LPSC to hedge its exposure to natural gas price volatility through the use of financial instruments. Entergy Louisiana hedges approximately one-third of the projected exposure to natural gas price changes for the gas used to serve its native electric load for all months of the year. The hedge quantity is reviewed on an annual basis. In January 2018, sourcesEntergy Louisiana filed an application with the LPSC to suspend these seasonal hedging programs and implement financial hedges with terms up to five years for a portion of its natural gas exposure, which was approved in November 2018.
Entergy Louisiana’s gas rates include a purchased gas adjustment clause based on estimated gas costs for the billing month adjusted by a surcharge or credit that arises from an annual reconciliation of fuel costs incurred with fuel cost revenues billed to customers, including carrying charges.
Retail Rates - Gas
In accordance with the settlement of Entergy Gulf States Louisiana’s gas rate stabilization plan for the test year ended September 30, 2012, in August 2014, Entergy Gulf States Louisiana submitted for consideration a proposal for implementation of an infrastructure rider to recover expenditures associated with strategic plant investment and relocation projects mandated by local governments. After review by the LPSC staff and inclusion of certain customer safeguards required by the LPSC staff, in December 2014, Entergy Gulf States Louisiana and the LPSC staff submitted a joint settlement for implementation of an accelerated gas pipe replacement program providing for the replacement of approximately 100 miles of pipe over the next ten years, as well as relocation of certain existing pipe resulting from local government-related infrastructure projects, and for a rider to recover the investment associated with these projects. The rider allows for recovery of approximately $65 million over ten years. The rider recovery will be adjusted on a quarterly basis to include actual investment incurred for the prior quarter and is subject to the following conditions,
Part I Item 1
Entergy Corporation, Utility operating companies, and System Energy
among others: a ten-year term; application of any earnings in excess of the upper end of the earnings band as an offset to the revenue requirement of the infrastructure rider; adherence to a specified spending plan, within plus or minus 20% annually; annual filings comparing actual versus planned rider spending with actual spending and explanation of variances exceeding 10%; and an annual true-up. The joint settlement was approved by the LPSC in January 2015. Implementation of the infrastructure rider commenced with bills rendered on and after the first billing cycle of April 2015.
Storm Cost Recovery
See Note 2 to the financial statements for a discussion of Entergy Louisiana’s filings to recover storm-related costs.
Other
In March 2016 the LPSC opened two dockets to examine, on a generic basis, issues that it identified in connection with its review of Cleco Corporation’s acquisition by third party investors. The first docket is captioned “In re: Investigation of double leveraging issues for all LPSC-jurisdictional utilities,” and the second is captioned “In re: Investigation of tax structure issues for all LPSC-jurisdictional utilities.” In April 2016 the LPSC clarified that the concerns giving rise to the two dockets arose as a result of its review of the structure of the Cleco-Macquarie transaction and that the specific intent of the directives is to seek more information regarding intra-corporate debt financing of a utility’s capital structure as well as the use of investment tax credits to mitigate the tax obligation at the parent level of a consolidated entity. No schedule has been set for either docket, and limited discovery has occurred.
In December 2019 an LPSC commissioner issued an unopposed directive to staff to research customer-centered options for all customer classes, as well as other regulatory environments, and recommend a plan for how to ensure customers are the focus. There was no opposition to the directive from other commissioners but several remarked that the intent of the directive was not initiated to pursue retail open access. In furtherance of the directive, the LPSC issued a notice of the opening of a docket to conduct a rulemaking to research and evaluate customer-centered options for all electric customer classes as well as other regulatory environments in January 2020.
Entergy Mississippi
Fuel Recovery
Entergy Mississippi’s rate schedules include energy cost recovery riders to recover fuel and purchased power costs. The energy cost rate for each calendar year is redetermined annually and includes a true-up adjustment reflecting the over-recovery or under-recovery of the energy costs as of the 12-month period ended September 30. Entergy Mississippi’s fuel cost recoveries are subject to annual audits conducted pursuant to the authority of the MPSC.
To help stabilize electricity costs, Entergy Mississippi received approval from the MPSC to hedge its exposure to natural gas price volatility through the use of financial instruments. Entergy Mississippi hedges approximately one-third of the projected exposure to natural gas price changes for the gas used to serve its native electric load for all months of the year. The hedge quantity is reviewed on an annual basis.
Storm Cost Recovery
See Note 2 to the financial statements for a discussion of proceedings regarding recovery of Entergy Mississippi’s storm-related costs.
Part I Item 1
Entergy Corporation, Utility operating companies, and System Energy
Formula Rate Plan
In August 2012 the MPSC opened inquiries to review whether the current formulaic methodology used to calculate the return on common equity in both Entergy Mississippi’s formula rate plan and Mississippi Power Company’s annual formula rate plan was still appropriate or could be improved to better serve the public interest. The intent of this inquiry and review was for informational purposes only; the evaluation of any recommendations for changes to the existing methodology would take place in a general rate case or in the existing formula rate plan proceeding. In March 2013 the Mississippi Public Utilities Staff filed its consultant’s report which noted the return on common equity estimation methods used by Entergy Mississippi and Mississippi Power Company are commonly used throughout the electric utility industry. The report suggested ways in which the methods used by Entergy Mississippi and Mississippi Power Company might be improved, but did not recommend specific changes in the return on common equity formulas or calculations at that time. In June 2014 the MPSC expanded the scope of the August 2012 inquiry to study the merits of adopting a uniform formula rate plan that could be applied, where possible in whole or in part, to both Entergy Mississippi and Mississippi Power Company in order to achieve greater consistency in the plans. The MPSC directed the Mississippi Public Utilities Staff to investigate and review Entergy Mississippi’s formula rate plan rider schedule and Mississippi Power Company’s Performance Evaluation Plan by considering the merits and deficiencies and possibilities for improvement of each and then to propose a uniform formula rate plan that, where possible, could be applicable to both companies. No procedural schedule has been set. In October 2014 the Mississippi Public Utilities Staff conducted a public technical conference to discuss performance benchmarking and its potential application to the electric utilities’ formula rate plans. The docket remains open.
Entergy New Orleans
Fuel Recovery
Entergy New Orleans’s electric rate schedules include a fuel adjustment tariff designed to reflect no more than targeted fuel and purchased power costs, adjusted by a surcharge or credit for deferred fuel expense arising from the monthly reconciliation of actual fuel and purchased power costs incurred with fuel cost revenues billed to customers, including carrying charges.
Entergy New Orleans’s gas rate schedules include a purchased gas adjustment to reflect estimated gas costs for the billing month, adjusted by a surcharge or credit similar to that included in the electric fuel adjustment clause, including carrying charges.
To help stabilize gas costs, Entergy New Orleans seeks approval annually from the City Council to continue implementation of its natural gas hedging program consistent with the City Council’s stated policy objectives. The program uses financial instruments to hedge exposure to volatility in the wholesale price of natural gas purchased to serve Entergy New Orleans gas customers. Entergy New Orleans hedges up to 25% of actual gas sales made during the winter months.
Storm Cost Recovery
See Note 2 to the financial statements for a discussion of Entergy New Orleans’s efforts to recover storm-related costs.
Entergy Texas
Fuel Recovery
Entergy Texas’s rate schedules include a fixed fuel factor to recover fuel and purchased power costs, including interest, that are not included in base rates. Semi-annual revisions of the fixed fuel factor are made in March and September based on the market price of natural gas and changes in fuel mix. The amounts collected under Entergy
Part I Item 1
Entergy Corporation, Utility operating companies, and System Energy
Texas’s fixed fuel factor and any interim surcharge or refund are subject to fuel reconciliation proceedings before the PUCT. The PUCT fuel cost proceedings are discussed in Note 2 to the financial statements.
At the PUCT’s April 2013 open meeting, the PUCT Commissioners discussed their view that a purchased power capacity rider was good public policy. The PUCT issued an order in May 2013 adopting the rule allowing for a purchased power capacity rider, subject to an offsetting adjustment for load growth. The rule, as adopted, also includes a process for obtaining pre-approval by the PUCT of purchased power agreements. Entergy Texas has not exercised the option to recover its capacity costs under the new rider mechanism, but will continue to evaluate the benefits of utilizing the new rider to recover future capacity costs.
Electric Industry Restructuring
In June 2009, a law was enacted in Texas that required Entergy Texas to cease all activities relating to Entergy Texas’s transition to competition. The law allows Entergy Texas to remain a part of the SERC Reliability Corporation (SERC) Region, although it does not prevent Entergy Texas from joining another power region. The law provides that proceedings to certify a power region that Entergy Texas belongs to as a qualified power region can be initiated by the PUCT, or on motion by another party, when the conditions supporting such a proceeding exist. Under the law, the PUCT may not approve a transition to competition plan for Entergy Texas until the expiration of four years from the PUCT’s certification of Entergy Texas’s power region.
The law also contains provisions that allow Entergy Texas to take advantage of a cost recovery mechanism that permits annual filings for the recovery of reasonable and necessary expenditures for transmission infrastructure improvement and changes in wholesale transmission charges. This mechanism was previously available to other non-ERCOT Texas utility companies, but not to Entergy Texas.
The law further amended already existing law that had required Entergy Texas to propose for PUCT approval a tariff to allow eligible customers the ability to contract for competitive generation. The amending language in the law provides, among other things, that: 1) the tariff shall not be implemented in a manner that harms the sustainability or competitiveness of manufacturers who choose not to participate in the tariff; 2) Entergy Texas shall “purchase competitive generation service, selected by the customer, and provide the generation at retail to the customer;” and 3) Entergy Texas shall provide and price transmission service and ancillary services under that tariff at a rate that is unbundled from its cost of service. The law directs that the PUCT may not issue an order on the tariff that is contrary to an applicable decision, rule, or policy statement of a federal regulatory agency having jurisdiction.
The PUCT determined that unrecovered costs that may be recovered through the rider consist only of those costs necessary to implement and administer the competitive generation program and do not include lost revenues or embedded generation costs. The amount of customer load that may be included in the competitive generation service program is limited to 115 MW.
In September 2011 the PUCT adopted a proposed rule implementing a distribution cost recovery factor to recover capital and capital-related costs related to distribution infrastructure. The distribution cost recovery factor permits utilities once per year to implement an increase or decrease in rates above or below amounts reflected in base rates to reflect depreciation expense, federal income tax and other taxes, and return on investment. The distribution cost recovery factor rider may be changed a maximum of four times between base rate cases.
In September 2019 the PUCT initiated a rulemaking to promulgate a generation cost recovery factor rule, implementing legislation passed in the 2019 Texas legislative session intended to allow electric utilities to recover generation investments between base rate proceedings. The draft rule was approved for publication at the PUCT’s February 2020 open meeting, and two rounds of public comment will be taken in March and April 2020. The PUCT is expected to approve a final rule within six months of publication.
Part I Item 1
Entergy Corporation, Utility operating companies, and System Energy
Franchises
Entergy Arkansas holds exclusive franchises to provide electric service in approximately 308 incorporated cities and towns in Arkansas. These franchises are unlimited in duration and continue unless the municipalities purchase the utility property. In Arkansas franchises are considered to be contracts and, therefore, are terminable pursuant to the terms of the franchise agreement and applicable statutes.
Entergy Louisiana holds non-exclusive franchises to provide electric service in approximately 175 incorporated municipalities and in the unincorporated areas of approximately 59 parishes of Louisiana. Entergy Louisiana holds non-exclusive franchises to provide natural gas service to customers in the City of Baton Rouge and in East Baton Rouge Parish. Municipal franchise agreement terms range from 25 to 60 years while parish franchise terms range from 25 to 99 years.
Entergy Mississippi has received from the MPSC certificates of public convenience and necessity to provide electric service to areas within 45 counties, including a number of municipalities, in western Mississippi. Under Mississippi statutory law, such certificates are exclusive. Entergy Mississippi may continue to serve in such municipalities upon payment of a statutory franchise fee, regardless of whether an original municipal franchise is still in existence.
Entergy New Orleans provides electric and gas service in the City of New Orleans pursuant to indeterminate permits set forth in city ordinances. These ordinances contain a continuing option for the City of New Orleans to purchase Entergy New Orleans’s electric and gas utility properties.
Entergy Texas holds a certificate of convenience and necessity from the PUCT to provide electric service to areas within approximately 27 counties in eastern Texas, and holds non-exclusive franchises to provide electric service in approximately 68 incorporated municipalities. Entergy Texas typically obtains 25-year franchise agreements as existing agreements expire. Entergy Texas’s electric franchises expire over the period 2020-2058.
The business of System Energy is limited to wholesale power sales. It has no distribution franchises.
Property and Other Generation Resources
Owned Generating Stations
The total capability of the generating stations owned and leased by the Utility operating companies and System Energy including certain power purchases from affiliates under lifeas of unit power purchase agreements, including the Unit Power Sales Agreement, are:December 31, 2019, is indicated below:
| | | Natural Gas | | Nuclear | | Coal | | Purchased Power (d) | | MISO Purchases (e) | | Owned and Leased Capability MW(a) |
| 2017 | | 2018 | | 2017 | | 2018 | | 2017 | | 2018 | | 2017 | | 2018 | | 2017 | | 2018 | |
Company | | | Total | | Gas/Oil | | Nuclear | | Coal | | Hydro | | Solar |
Entergy Arkansas (a) | 28 | % | | 33 | % | | 49 | % | | 51 | % | | 18 | % | | 15 | % | | — | % | | 1 | % | | 5 | % | | — | | 5,183 |
| | 2,106 |
| | 1,810 |
| | 1,194 |
| | 73 |
| | — |
|
Entergy Louisiana | 38 | % | | 49 | % | | 26 | % | | 33 | % | | 3 | % | | 4 | % | | 9 | % | | 14 | % | | 24 | % | | — | | 10,050 |
| | 7,556 |
| | 2,144 |
| | 350 |
| | — |
| | — |
|
Entergy Mississippi (b) | 47 | % | | 55 | % | | 18 | % | | 30 | % | | 13 | % | | 15 | % | | — | % | | — |
| | 22 | % | | — | | 3,342 |
| | 2,923 |
| | — |
| | 417 |
| | — |
| | 2 |
|
Entergy New Orleans (b) | 53 | % | | 57 | % | | 33 | % | | 41 | % | | 2 | % | | 1 | % | | — | % | | 1 | % | | 12 | % | | — | | 508 |
| | 507 |
| | — |
| | — |
| | — |
| | 1 |
|
Entergy Texas | 30 | % | | 33 | % | | 10 | % | | 17 | % | | 7 | % | | 9 | % | | 28 | % | | 41 | % | | 25 | % | | — | | 2,293 |
| | 2,034 |
| | — |
| | 259 |
| | — |
| | — |
|
System Energy (c) | — |
| | — |
| | 100 | % | | 100 | % | | — |
| | — |
| | — |
| | — |
| | — |
| | — | | 1,393 |
| | — |
| | 1,393 |
| | — |
| | — |
| | — |
|
Utility (a) (b) | 38 | % | | 44 | % | | 26 | % | | 36 | % | | 8 | % | | 9 | % | | 8 | % | | 11 | % | | 20 | % | | — | |
Total | | | 22,769 |
| | 15,126 |
| | 5,347 |
| | 2,220 |
| | 73 |
| | 3 |
|
| |
(a) | Hydroelectric power provided less than 1% of Entergy Arkansas’s generation in 2017“Owned and Leased Capability” is expectedthe dependable load carrying capability as demonstrated under actual operating conditions based on the primary fuel (assuming no curtailments) that each station was designed to provide about less than1% of its generation in 2018. |
| |
(b) | Solar power provided less than 1% of Entergy Mississippi’s and Entergy New Orleans's generation in 2017 and is expected to provide less than 1% of each of Entergy Mississippi’s and Entergy New Orleans's generation in 2018. |
| |
(c) | Capacity and energy from System Energy’s interest in Grand Gulf is allocated as follows under the Unit Power Sales Agreement: Entergy Arkansas - 36%; Entergy Louisiana - 14%; Entergy Mississippi - 33%; and Entergy New Orleans - 17%. Pursuant to purchased power agreements, Entergy Arkansas is selling a portion of its owned capacity and energy from Grand Gulf to Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans. |
| |
(d) | Excludes MISO purchases |
| |
(e) | In December 2013, Entergy integrated its transmission system into the MISO RTO. Entergy offers all of its generation into the MISO energy market on a day-ahead and real-time basis and bids for power in the MISO energy market to serve the demand of its customers, with MISO making dispatch decisions. MISO purchases cannot be projected for 2018.utilize. |
Some
Part I Item 1
Entergy Corporation, Utility operating companies, and System Energy
Summer peak load for the Utility has averaged 21,636 MW over the previous decade.
The Utility operating companies’ load and capacity projections are reviewed periodically to assess the need and timing for additional generating capacity and interconnections. These reviews consider existing and projected demand, the availability and price of power, the location of new load, the economy, environmental regulations, public policy goals, and the age and condition of Entergy’s existing infrastructure.
The Utility operating companies’ long-term resource strategy (Portfolio Transformation Strategy) calls for the bulk of capacity needs to be met through long-term resources, whether owned or contracted. Over the past decade, the Portfolio Transformation Strategy has resulted in the addition of about 7,314 MW of new long-term resources and the deactivation of over 4,465 MW of legacy generation. As MISO market participants, the Utility operating companies also participate in MISO’s Day Ahead and Real Time Energy and Ancillary Services markets to economically dispatch generation and purchase energy to serve customers reliably and at the lowest reasonable cost.
Other Generation Resources
RFP Procurements
The Utility operating companies from time to time issue requests for proposals (RFP) to procure supply-side resources from sources other than the spot market to meet the unique regional needs of the Utility’s gas-fired plants are also capable of using fuel oil, if necessary. Although based on current economicsUtility operating companies. The RFPs issued by the Utility doesoperating companies have sought resources needed to meet near-term MISO reliability requirements as well as longer-term requirements through a broad range of wholesale power products, including limited-term (1 to 3 years) and long-term contractual products and asset acquisitions. The RFP process has resulted in selections or acquisitions, including, among other things:
Entergy Louisiana’s June 2005 purchase of the 718 MW, gas-fired Perryville plant, of which 35% of the output is sold to Entergy Texas;
Entergy Arkansas’s September 2008 purchase of the 789 MW, combined-cycle, gas-fired Ouachita Generating Facility. Entergy Louisiana, as successor in interest to Entergy Gulf States Louisiana, owns one-third of the facility;
Entergy Arkansas’s November 2012 purchase of the 620 MW, combined-cycle, gas-fired Hot Spring Energy facility;
Entergy Mississippi’s November 2012 purchase of the 450 MW, combined-cycle, gas-fired Hinds Energy facility;
Entergy Louisiana’s construction of the 560 MW, combined-cycle, gas turbine Ninemile 6 generating facility at its existing Ninemile Point electric generating station. The facility began commercial operation in December 2014;
Entergy Louisiana’s construction of the 980 MW, combined-cycle, gas turbine St. Charles generating facility at its existing Little Gypsy electric generating station. The facility began commercial operation in May 2019;
Entergy Texas’s construction of the 993 MW, combined-cycle, gas turbine Montgomery County generating facility at its existing Lewis Creek electric generating station. Entergy Texas received regulatory approval from the PUCT in July 2017 and the facility is scheduled to be in service by mid-2021;
Entergy Louisiana’s construction of the 994 MW, combined-cycle, gas turbine Lake Charles generating facility at its existing Nelson electric generating station. Entergy Louisiana received regulatory approval from the LPSC in July 2017 and the facility is scheduled to be in service by mid-2020;
In October 2018, Entergy Mississippi signed an asset acquisition agreement for the purchase of an approximately 100 MW to-be-constructed solar photovoltaic facility located in Sunflower County, Mississippi. In December 2018, Entergy Mississippi filed for regulatory approval. A hearing before the MPSC is targeted to occur by the second quarter 2020, and closing is expected to occur by the end of 2021;
In March 2019, Entergy Arkansas signed an agreement for the purchase of an approximately 100 MW to-be- constructed solar energy facility that will be sited on approximately 800 acres in White County near Searcy, Arkansas. In May 2019, Entergy Arkansas filed a petition with the APSC seeking a finding that the transaction
Part I Item 1
Entergy Corporation, Utility operating companies, and System Energy
is in the public interest and requesting all necessary approvals. Closing is expected to occur by the end of 2021; and
Entergy New Orleans’s construction of the 20 MW, self-build solar project New Orleans Solar Station located at the NASA Michoud Facility. In August 2019, Entergy New Orleans received regulatory approval and the facility is scheduled to be in service as early as late-2020.
The RFP process has also resulted in the selection, or confirmation of the economic merits of, long-term purchased power agreements (PPAs), including, among others:
River Bend 30% life-of-unit PPA between Entergy Louisiana and Entergy New Orleans for 100 MW related to Entergy Louisiana’s unregulated portion of the River Bend nuclear station, which portion was formerly owned by Cajun;
Entergy Arkansas wholesale base load capacity life-of-unit PPAs executed in 2003 totaling approximately 220 MW between Entergy Arkansas and Entergy Louisiana (110 MW) and between Entergy Arkansas and Entergy New Orleans (110 MW) related to the sale of a portion of Entergy Arkansas’s coal and nuclear base load resources (which had not expect fuel oil usebeen included in Entergy Arkansas’s retail rates);
In December 2009, Entergy Texas and Exelon Generation Company, LLC executed a 10-year agreement for 150-300 MW from the Frontier Generating Station located in Grimes County, Texas;
In May 2011, Entergy Texas and Calpine Energy Services, L.P. executed a 10-year agreement for 485 MW from the Carville Energy Center located in St. Gabriel, Louisiana. Entergy Louisiana purchases 50% of the facility’s capacity and energy from Entergy Texas. In July 2014, LS Power purchased the Carville Energy Center and replaced Calpine Energy Services as the counterparty to the agreement;
In September 2012, Entergy Gulf States Louisiana executed a 20-year agreement for 28 MW, with the potential to purchase an additional 9 MW when available, from Rain CII Carbon LLC’s petroleum coke calcining facility in Sulphur, Louisiana. The facility began commercial operation in May 2013. Entergy Louisiana, as successor in interest to Entergy Gulf States Louisiana, now holds the agreement with the facility;
In March 2013, Entergy Gulf States Louisiana executed a 20-year agreement for 8.5 MW from Agrilectric Power Partners, LP’s refurbished rice hull-fueled electric generation facility located in Lake Charles, Louisiana. Entergy Louisiana, as successor in interest to Entergy Gulf States Louisiana, now holds the agreement with Agrilectric;
In September 2013, Entergy Louisiana executed a 10-year agreement with TX LFG Energy, LP, a wholly-owned subsidiary of Montauk Energy Holdings, LLC, to purchase approximately 3 MW from its landfill gas-fueled power generation facility located in Cleveland, Texas;
Entergy Mississippi’s cost-based purchase, beginning in January 2013, of 90 MW from Entergy Arkansas’s share of Grand Gulf (only 60 MW of this PPA came through the RFP process). Cost recovery for the 90 MW was approved by the MPSC in January 2013;
In April 2015, Entergy Arkansas and Stuttgart Solar, LLC executed a 20-year agreement for 81 MW from a solar photovoltaic electric generation facility located near Stuttgart, Arkansas. The APSC approved the project and deliveries pursuant to that agreement commenced in June 2018;
In November 2016, Entergy Louisiana and LS Power executed a 10-year agreement for 485 MW from the Carville Energy Center located in St. Gabriel, Louisiana. The transaction received regulatory approval and will begin in June 2022;
In November 2016, Entergy Louisiana and Occidental Chemical Corporation executed a 10-year agreement for 500 MW from the Taft Cogeneration facility located in Hahnville, Louisiana. The transaction received regulatory approval and began in June 2018;
In June 2017, Entergy Arkansas and Chicot Solar, LLC executed a 20-year agreement for 100 MW from a solar photovoltaic electric generating facility located in Chicot County, Arkansas. The transaction received regulatory approval and will begin in August 2020;
In February 2018, itEntergy Louisiana and LA3 West Baton Rouge, LLC (Capital Region Solar project) executed a 20-year agreement for 50 MW from a solar photovoltaic electric generating facility located in West Baton Rouge Parish, Louisiana. The transaction received regulatory approval in February 2019 and the agreement is possible that various operational events including weather or pipeline maintenance may require the useexpected to begin in second quarter 2020;
Part I Item 1
Entergy Corporation, Utility operating companies, and System Energy
In July 2018, Entergy New Orleans and St. James Solar, LLC executed a 20-year agreement for 20 MW from a solar photovoltaic electric generating facility located in St. James Parish, Louisiana. The transaction received regulatory approval in July 2019; and
In February 2019, Entergy New Orleans and Iris Solar, LLC executed a 20-year agreement for 50 MW from a solar photovoltaic electric generating facility located in Washington Parish, Louisiana. The transaction received regulatory approval in July 2019.
Natural Gas
Entergy Louisiana and Entergy New Orleans also distribute natural gas to retail customers in and around Baton Rouge, Louisiana, and New Orleans, Louisiana, respectively. Gas transferred to customers is measured by a meter at the customer’s property. Entergy issues monthly invoices to customers at rates approved by regulators for the volume of gas transferred to date.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Competitive Businesses Revenues
The Entergy Wholesale Commodities segment derives almost all of its revenue from sales of electric power and capacity produced by its operating plants to wholesale customers. The majority of Entergy Wholesale Commodities’ revenues are from Entergy’s nuclear power plants located in the northern United States. Entergy issues monthly invoices to the counterparties for these electric sales at the respective contracted or ISO market rate of electricity and related services provided during the previous month.
Most of the Palisades nuclear plant output is sold under a 15-year PPA with Consumers Energy, executed as part of the acquisition of the plant in 2007 and expiring in 2022. Prices under the PPA range from $43.50/MWh in 2007 to $61.50/MWh in 2022, and the average price under the PPA is $51/MWh. Entergy issues monthly invoices to Consumers Energy for electric sales based on the actual output of electricity and related services provided during the previous month at the contract price. The PPA was at below-market prices at the time of the acquisition and Entergy amortizes a liability to revenue over the life of the agreement. The amount amortized each period is based upon the present value, calculated at the date of acquisition, of each year’s difference between revenue under the agreement and revenue based on estimated market prices. Amounts amortized to revenue were $10 million in 2019, $6 million in 2018, and $28 million in 2017. Amounts to be amortized to revenue through the remaining life of the agreement will be approximately $11 million in 2020, $12 million in 2021, and $5 million in 2022.
Practical Expedients and Exceptions
Entergy has elected not to disclose the value of unsatisfied performance obligations for contracts with an original expected term of one year or less, or for revenue recognized in an amount equal to what Entergy has the right to bill the customer for services performed.
Most of Entergy’s contracts, except in a few cases where there are defined minimums or stated terms, are on demand. This results in customer bills that vary each month based on an approved tariff and usage. Entergy imposes monthly or annual minimum requirements on some customers primarily as credit and cost recovery guarantees and not as pricing for unsatisfied performance obligations. These minimums typically expire after the initial term or when specified costs have been recovered. The minimum amounts are part of each month’s bill and recognized as revenue accordingly. Some of the subsidiaries within the Entergy Wholesale Commodities segment have operations and maintenance services contracts that have fixed components and terms longer than one year. The total fixed consideration related to these unsatisfied performance obligations, however, is not material to Entergy revenues.
Recovery of Fuel Costs
Entergy’s Utility operating companies’ rate schedules include either fuel adjustment clauses or fixed fuel factors, which allow either current recovery in billings to customers or deferral of fuel costs until the costs are billed to customers. Where the fuel component of revenues is based on a pre-determined fuel cost (fixed fuel factor), the fuel factor remains in effect until changed as part of a general rate case, fuel reconciliation, or fixed fuel factor filing. System Energy’s operating revenues are intended to recover from Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans operating expenses and capital costs attributable to Grand Gulf. The capital costs are based on System Energy’s common equity funds allocable to its net investment in Grand Gulf, plus System Energy’s effective interest cost for its debt allocable to its investment in Grand Gulf.
Taxes Imposed on Revenue-Producing Transactions
Governmental authorities assess taxes that are both imposed on and concurrent with a specific revenue-producing transaction between a seller and a customer, including, but not limited to, sales, use, value added, and some excise taxes. Entergy presents these taxes on a net basis, excluding them from revenues.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
NOTE 20. QUARTERLY FINANCIAL DATA (UNAUDITED) (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)
Operating results for the four quarters of 2019 and 2018 for Entergy Corporation and subsidiaries were:
|
| | | | | | | | | | | | | | | |
| Operating Revenues | | Operating Income (Loss) | | Consolidated Net Income (Loss) | | Net Income (Loss) Attributable to Entergy Corporation |
| (In Thousands) |
2019: | | | |
First Quarter |
| $2,609,584 |
| |
| $283,254 |
| |
| $258,646 |
| |
| $254,537 |
|
Second Quarter |
| $2,666,209 |
| |
| $338,775 |
| |
| $240,533 |
| |
| $236,424 |
|
Third Quarter |
| $3,140,575 |
| |
| $519,929 |
| |
| $369,459 |
| |
| $365,240 |
|
Fourth Quarter |
| $2,462,305 |
| |
| $248,539 |
| |
| $389,606 |
| |
| $385,025 |
|
2018: | | | |
First Quarter |
| $2,723,881 |
| |
| $335,664 |
| |
| $136,200 |
| |
| $132,761 |
|
Second Quarter |
| $2,668,770 |
| |
| $91,597 |
| |
| $248,860 |
| |
| $245,421 |
|
Third Quarter |
| $3,104,319 |
| |
| $271,035 |
| |
| $539,818 |
| |
| $536,379 |
|
Fourth Quarter |
| $2,512,482 |
| |
| ($228,931 | ) | |
| ($62,323 | ) | |
| ($65,900 | ) |
Earnings (loss) per average common share
|
| | | | | | | | | | | | | | | |
| 2019 | | 2018 |
| Basic | | Diluted | | Basic | | Diluted |
First Quarter |
| $1.34 |
| |
| $1.32 |
| |
| $0.73 |
| |
| $0.73 |
|
Second Quarter |
| $1.22 |
| |
| $1.22 |
| |
| $1.36 |
| |
| $1.34 |
|
Third Quarter |
| $1.84 |
| |
| $1.82 |
| |
| $2.96 |
| |
| $2.92 |
|
Fourth Quarter |
| $1.96 |
| |
| $1.94 |
| |
| ($0.37 | ) | |
| ($0.36 | ) |
Results of operations for 2019 include: 1) a loss of $190 million ($156 million net-of-tax) as a result of the sale of the Pilgrim plant in August 2019; 2) a $156 million reduction in income tax expense recognized by Entergy Wholesale Commodities as a result of an internal restructuring; and 3) impairment charges of $100 million ($79 million net-of-tax) due to costs being charged directly to expense as incurred as a result of the impaired value of the Entergy Wholesale Commodities nuclear plants’ long-lived assets due to the significantly reduced remaining estimated operating lives associated with management’s strategy to exit the Entergy Wholesale Commodities’ merchant power business. See Note 3 to the financial statements for further discussion of the internal restructuring. See Note 14 to the financial statements for further discussion of the sale of the Pilgrim plant.
Results of operations for 2018 include: 1) $532 million ($421 million net-of-tax) of impairment charges due to costs being charged directly to expense as incurred as a result of the impaired value of the Entergy Wholesale Commodities nuclear plants’ long-lived assets due to the significantly reduced remaining estimated operating lives associated with management’s strategy to exit the Entergy Wholesale Commodities’ merchant power business; 2) a $170 million reduction of income tax expense and a regulatory liability of $40 million ($30 million net-of-tax) as a result of customer credits recognized by Utility, as a result of an internal restructuring; 3) a $107 million reduction of income tax expense, recognized by Entergy Wholesale Commodities, as a result of a restructuring of the investment holdings in one of its nuclear plant decommissioning trust funds; 4) a $52 million income tax benefit, recognized by Entergy Louisiana, as a result of the settlement of the 2012-2013 IRS audit, associated with the Hurricane Katrina and Hurricane Rita contingent sharing obligation associated with the Louisiana Act 55 financing; and 5) a $23 million
Entergy Corporation and Subsidiaries
Notes to Financial Statements
reduction of income tax expense, recognized by Entergy Wholesale Commodities, as a result of a state income tax audit. See Note 14 to the financial statements for further discussion of the impairment and related charges. See Notes 2 and 3 to the financial statements for further discussion of the internal restructuring and customer credits. See Note 3 to the financial statements for further discussion of the IRS audit settlement, the state income tax audit, and restructuring of the decommissioning trust fund investment holdings.
The business of the Utility operating companies is subject to seasonal fluctuations with the peak periods occurring during the third quarter. Operating results for the Registrant Subsidiaries for the four quarters of 2019 and 2018 were:
Operating Revenues
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy |
| (In Thousands) |
2019: | | | | | | | | | | | |
First Quarter |
| $545,812 |
| |
| $959,330 |
| |
| $282,244 |
| |
| $163,194 |
| |
| $340,474 |
| |
| $140,104 |
|
Second Quarter |
| $542,929 |
| |
| $1,106,317 |
| |
| $302,737 |
| |
| $175,793 |
| |
| $363,580 |
| |
| $139,009 |
|
Third Quarter |
| $687,526 |
| |
| $1,231,677 |
| |
| $398,732 |
| |
| $194,204 |
| |
| $442,877 |
| |
| $145,472 |
|
Fourth Quarter |
| $483,327 |
| |
| $987,851 |
| |
| $339,330 |
| |
| $153,032 |
| |
| $342,024 |
| |
| $148,825 |
|
2018: | | | | | | | | | | | |
First Quarter |
| $551,024 |
| |
| $1,029,344 |
| |
| $315,743 |
| |
| $188,275 |
| |
| $348,940 |
| |
| $148,443 |
|
Second Quarter |
| $494,605 |
| |
| $1,072,788 |
| |
| $353,689 |
| |
| $178,446 |
| |
| $403,486 |
| |
| $112,456 |
|
Third Quarter |
| $568,399 |
| |
| $1,206,612 |
| |
| $367,734 |
| |
| $200,182 |
| |
| $477,231 |
| |
| $78,965 |
|
Fourth Quarter |
| $446,615 |
| |
| $987,576 |
| |
| $297,946 |
| |
| $150,487 |
| |
| $376,245 |
| |
| $116,843 |
|
Operating Income (Loss)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy |
| (In Thousands) |
2019: | | | | | | | | | | | |
First Quarter |
| $42,471 |
| |
| $153,944 |
| |
| $30,792 |
| |
| $16,136 |
| |
| $16,741 |
| |
| $31,368 |
|
Second Quarter |
| $69,774 |
| |
| $241,520 |
| |
| $45,607 |
| |
| $17,509 |
| |
| $36,022 |
| |
| $24,300 |
|
Third Quarter |
| $182,176 |
| |
| $336,754 |
| |
| $87,024 |
| |
| $28,876 |
| |
| $69,510 |
| |
| $29,086 |
|
Fourth Quarter |
| $32,576 |
| |
| $164,424 |
| |
| $40,331 |
| |
| $6,164 |
| |
| $24,229 |
| |
| $30,231 |
|
2018: | | | | | | | | | | | |
First Quarter |
| $66,647 |
| |
| $141,319 |
| |
| $41,432 |
| |
| $17,869 |
| |
| $41,082 |
| |
| $30,941 |
|
Second Quarter |
| $26,501 |
| |
| $150,160 |
| |
| ($63,801 | ) | |
| $27,943 |
| |
| $58,637 |
| |
| $23,406 |
|
Third Quarter |
| $34,785 |
| |
| $236,518 |
| |
| $45,215 |
| |
| $21,544 |
| |
| $99,966 |
| |
| ($17,879 | ) |
Fourth Quarter |
| ($82,704 | ) | |
| $147,774 |
| |
| $23,600 |
| |
| $6,836 |
| |
| $6,741 |
| |
| $7,212 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Net Income
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy |
| (In Thousands) |
2019: | | | | | | | | | | | |
First Quarter |
| $39,121 |
| |
| $127,633 |
| |
| $15,398 |
| |
| $9,023 |
| |
| $21,342 |
| |
| $23,578 |
|
Second Quarter |
| $50,299 |
| |
| $183,084 |
| |
| $26,667 |
| |
| $13,003 |
| |
| $38,936 |
| |
| $24,472 |
|
Third Quarter |
| $149,716 |
| |
| $255,260 |
| |
| $56,237 |
| |
| $24,908 |
| |
| $73,224 |
| |
| $25,031 |
|
Fourth Quarter |
| $23,828 |
| |
| $125,560 |
| |
| $21,623 |
| |
| $5,695 |
| |
| $25,895 |
| |
| $26,039 |
|
2018: | | | | | | | | | | | |
First Quarter |
| $36,255 |
| |
| $111,593 |
| |
| $22,843 |
| |
| $10,882 |
| |
| $17,350 |
| |
| $22,308 |
|
Second Quarter |
| $82,556 |
| |
| $184,358 |
| |
| $38,242 |
| |
| $18,269 |
| |
| $30,789 |
| |
| $23,387 |
|
Third Quarter |
| $128,890 |
| |
| $218,308 |
| |
| $50,733 |
| |
| $21,407 |
| |
| $65,846 |
| |
| $22,972 |
|
Fourth Quarter |
| $5,006 |
| |
| $161,355 |
| |
| $14,260 |
| |
| $2,594 |
| |
| $48,250 |
| |
| $25,442 |
|
Earnings Applicable to Common Equity/Stock
|
| | | | | | | | | | | | | | | |
| Entergy Arkansas | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas |
| (In Thousands) |
2019: | | | | | | | |
First Quarter |
| $39,121 |
| |
| $15,398 |
| |
| $9,023 |
| |
| $21,342 |
|
Second Quarter |
| $50,299 |
| |
| $26,667 |
| |
| $13,003 |
| |
| $38,936 |
|
Third Quarter |
| $149,716 |
| |
| $56,237 |
| |
| $24,908 |
| |
| $73,114 |
|
Fourth Quarter |
| $23,828 |
| |
| $21,623 |
| |
| $5,695 |
| |
| $25,425 |
|
2018: | | | | | | | |
First Quarter |
| $35,898 |
| |
| $22,605 |
| |
| $10,882 |
| |
| $17,350 |
|
Second Quarter |
| $82,199 |
| |
| $38,003 |
| |
| $18,269 |
| |
| $30,789 |
|
Third Quarter |
| $128,533 |
| |
| $50,495 |
| |
| $21,407 |
| |
| $65,846 |
|
Fourth Quarter |
| $4,828 |
| |
| $14,141 |
| |
| $2,594 |
| |
| $48,250 |
|
Part I Item 1
Entergy Corporation, Utility operating companies, and System Energy
ENTERGY’S BUSINESS
Entergy is an integrated energy company engaged primarily in electric power production and retail distribution operations. Entergy owns and operates power plants with approximately 30,000 MW of electric generating capacity, including approximately 9,000 MW of nuclear power. Entergy delivers electricity to 2.9 million utility customers in Arkansas, Louisiana, Mississippi, and Texas. Entergy had annual revenues of $10.9 billion in 2019 and had more than 13,000 employees as of December 31, 2019.
Entergy operates primarily through two business segments: Utility and Entergy Wholesale Commodities.
| |
• | The Utility business segment includes the generation, transmission, distribution, and sale of electric power in portions of Arkansas, Mississippi, Texas, and Louisiana, including the City of New Orleans; and operation of a small natural gas distribution business. |
| |
• | The Entergy Wholesale Commodities business segment includes the ownership, operation, and decommissioning of nuclear power plants located in the northern United States and the sale of the electric power produced by its operating plants to wholesale customers. Entergy Wholesale Commodities also provides services to other nuclear power plant owners and owns interests in non-nuclear power plants that sell the electric power produced by those plants to wholesale customers. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Entergy Wholesale Commodities Exit from the Merchant Power Business” for discussion of the operation and planned shutdown and sale of each of the Entergy Wholesale Commodities nuclear power plants. |
See Note 13 to the financial statements for financial information regarding Entergy’s business segments.
Strategy
Entergy’s strategy is to operate and grow a world-class utility business that creates sustainable value for its customers, employees, communities, and owners. Entergy’s current scope includes electricity generation, transmission, and distribution as well as natural gas distribution. Entergy focuses on operational excellence with an emphasis on safety, reliability, customer service, sustainability, cost efficiency, risk management, and engaged employees. Entergy also continually seeks opportunities to grow its utility business to benefit all stakeholders and to optimize its portfolio of assets in an ever-dynamic market. The Utility business segment will continue to modernize its operations, maintain reliability, and better serve its customers while growing the business. The Entergy Wholesale Commodities business segment will continue to manage the risk of its operating portfolio as Entergy completes its exit from the merchant power business.
Utility
The Utility business segment includes five retail electric utility subsidiaries: Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and Entergy Texas. These companies generate, transmit, distribute, and sell electric power to retail and wholesale customers in Arkansas, Louisiana, Mississippi, and Texas. Entergy Louisiana and Entergy New Orleans also provide natural gas utility services to customers in and around Baton Rouge, Louisiana, and New Orleans, Louisiana, respectively. Also included in the Utility is System Energy, a wholly-owned subsidiary of Entergy Corporation that owns or leases 90 percent of Grand Gulf. System Energy sells its power and capacity from Grand Gulf at wholesale to Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans. The five retail utility subsidiaries are each regulated by the FERC and by state utility commissions, or, in the case of Entergy New Orleans, the City Council. System Energy is regulated by the FERC because all of its transactions are at wholesale. The overall generation portfolio of the Utility, which relies heavily on natural gas and nuclear generation, is consistent with Entergy’s strong support for the environment.
Part I Item 1
Entergy Corporation, Utility operating companies, and System Energy
Customers
As of December 31, 2019, the Utility operating companies provided retail electric and gas service to customers in Arkansas, Louisiana, Mississippi, and Texas, as follows:
|
| | | | | | | | | | | | | |
| | | Electric Customers | | Gas Customers |
| Area Served | | (In Thousands) | | (%) | | (In Thousands) | | (%) |
Entergy Arkansas | Portions of Arkansas | | 715 |
| | 25 | % | | | | |
Entergy Louisiana | Portions of Louisiana | | 1,091 |
| | 37 | % | | 94 |
| | 47 | % |
Entergy Mississippi | Portions of Mississippi | | 451 |
| | 15 | % | | | | |
Entergy New Orleans | City of New Orleans | | 205 |
| | 7 | % | | 108 |
| | 53 | % |
Entergy Texas | Portions of Texas | | 461 |
| | 16 | % | | | | |
Total customers | | | 2,923 |
| | 100 | % | | 202 |
| | 100 | % |
Electric Energy Sales
The electric energy sales of the Utility operating companies are subject to seasonal fluctuations, with the peak sales period normally occurring during the third quarter of each year. On August 12, 2019, Entergy reached a 2019 peak demand of 21,598 MWh, compared to the 2018 peak of 21,587 MWh recorded on July 20, 2018. Selected electric energy sales data is shown in the table below:
Selected 2019 Electric Energy Sales Data
|
| | | | | | | | | | | | | | | | | | | | |
| Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy | | Entergy (a) |
| (In GWh) |
Sales to retail customers | 21,818 |
| | 56,027 |
| | 13,236 |
| | 5,821 |
| | 19,008 |
| | — |
| | 115,911 |
|
Sales for resale: | | | | | | | | | | | | | |
Affiliates | 2,180 |
| | 4,813 |
| | — |
| | — |
| | 1,472 |
| | 9,940 |
| | — |
|
Others | 7,206 |
| | 1,924 |
| | 1,776 |
| | 1,961 |
| | 343 |
| | — |
| | 13,210 |
|
Total | 31,204 |
| | 62,764 |
| | 15,012 |
| | 7,782 |
| | 20,823 |
| | 9,940 |
| | 129,121 |
|
Average use per residential customer (kWh) | 13,432 |
| | 14,941 |
| | 15,005 |
| | 12,761 |
| | 14,956 |
| | — |
| | 14,433 |
|
| |
(a) | Includes the effect of intercompany eliminations. |
The following table illustrates the Utility operating companies’ 2019 combined electric sales volume as a percentage of total electric sales volume, and 2019 combined electric revenues as a percentage of total 2019 electric revenue, each by customer class.
|
| | | | |
Customer Class | | % of Sales Volume | | % of Revenue |
Residential | | 28.0 | | 37.4 |
Commercial | | 22.3 | | 26.3 |
Industrial (a) | | 37.5 | | 27.0 |
Governmental | | 2.0 | | 2.4 |
Wholesale/Other | | 10.2 | | 6.9 |
| |
(a) | Major industrial customers are primarily in the petroleum refining and chemical industries. |
Part I Item 1
Entergy Corporation, Utility operating companies, and System Energy
See “Selected Financial Data” for each of the Utility operating companies for the detail of their sales by customer class for 2015-2019.
Selected 2019 Natural Gas Sales Data
Entergy New Orleans and Entergy Louisiana provide both electric power and natural gas to retail customers. Entergy New Orleans and Entergy Louisiana sold 11,099,812 and 7,090,878 Mcf, respectively, of natural gas to retail customers in 2019. In 2019, 99% of Entergy Louisiana’s operating revenue was derived from the electric utility business, and only 1% from the natural gas distribution business. For Entergy New Orleans, 87% of operating revenue was derived from the electric utility business and 13% from the natural gas distribution business in 2019.
Following is data concerning Entergy New Orleans’s 2019 retail operating revenue sources.
|
| | | | |
Customer Class | | Electric Operating Revenue | | Natural Gas Operating Revenue |
Residential | | 44% | | 48% |
Commercial | | 37% | | 27% |
Industrial | | 6% | | 6% |
Governmental/Municipal | | 13% | | 19% |
Retail Rate Regulation
General (Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas)
Each Utility operating company regularly participates in retail rate proceedings. The status of material retail rate proceedings is described in Note 2 to the financial statements. Certain aspects of the Utility operating companies’ retail rate mechanisms are discussed below.
Part I Item 1
Entergy Corporation, Utility operating companies, and System Energy
|
| | | | | | | | | | | |
| | Rate base (in billions) | | Current authorized return on common equity | | Weighted average cost of capital (after-tax) | | Equity ratio | | Regulatory construct | |
| | | | | | | | | | | |
Entergy Arkansas | | $8.0 (a) | | 9.25% - 10.25% | | 5.20% | | 36.49% | | - forward test year formula rate plan
- riders: MISO, capacity, Grand Gulf, tax adjustment, energy efficiency, fuel and purchased power | |
| | | | | | | | | | | |
Entergy Louisiana (electric) | | $10.4 (b) | | 9.2% - 10.4% | | 6.98% | | 48.64% | | - formula rate plan through 2019 test year
- riders/specific recovery: MISO, capacity, transmission, fuel | |
| | | | | | | | | | | |
Entergy Louisiana (gas) | | $0.07 (c) | | 9.45% - 10.45% | | 7.04% | | 48.26% | | - gas rate stabilization plan
- rider: gas infrastructure | |
| | | | | | | | | | | |
Entergy Mississippi | | $2.6 (d) | | 9.33% - 11.35% | | 7.24% | | 49.67% | | - formula rate plan with forward-looking features
- riders: power management, Grand Gulf, fuel, MISO, unit power cost, storm damage, energy efficiency, ad valorem tax adjustment, vegetation, grid modernization, restructuring credit | |
| | | | | | | | | | | |
Entergy New Orleans (electric) | | $0.8 (e) | | 9.35% | | 7.09% | | 50% | | - formula rate plan with forward-looking features
- specific recovery: fuel | |
| | | | | | | | | | | |
Entergy New Orleans (gas) | | $0.1 (e) | | 9.35% | | 7.09% | | 50% | | - formula rate plan with forward-looking features
- rider: purchased gas | |
| | | | | | | | | | | |
Entergy Texas | | $2.4 (f) | | 9.65% | | 7.73% | | 50.9% | | - rate case
- riders: fuel, distribution and transmission, rate case expenses, AMI surcharge, tax reform, among others | |
| | | | | | | | | | | |
System Energy | | $1.4 (g) | | 10.94% (h) | | 8.50% | | 65% (h) | | - monthly cost of service | |
| |
(a) | Based on 2020 test year. |
| |
(b) | Based on December 31, 2018 test year and excludes approximately $800 million for the St. Charles Power Station, included in capacity rider, and $300 million of transmission plant, included in transmission rider. |
| |
(c) | Based on September 30, 2018 test year. |
| |
(d) | Based on 2019 forward test year. |
| |
(e) | Based on December 31, 2018 test year and known and measurables through December 31, 2019. |
Part I Item 1
Entergy Corporation, Utility operating companies, and System Energy
| |
(f) | Based on December 31, 2017 test year. |
| |
(g) | Based on calculation as of December 31, 2019. |
| |
(h) | See Note 2 to the financial statements for discussion of ongoing proceedings at the FERC challenging System Energy’s authorized return on common equity and capital structure. |
Entergy Arkansas
Fuel and Purchased Power Cost Recovery
Entergy Arkansas’s rate schedules include an energy cost recovery rider to recover fuel and purchased power costs in monthly bills. The rider utilizes prior calendar year energy costs and projected energy sales for the twelve-month period commencing on April 1 of each year to develop an energy cost rate, which is redetermined annually and includes a true-up adjustment reflecting the over-recovery or under-recovery, including carrying charges, of the energy cost for the prior calendar year. The energy cost recovery rider tariff also allows an interim rate request depending upon the level of over- or under-recovery of fuel and purchased energy costs. In December 2007 the APSC issued an order stating that Entergy Arkansas’s energy cost recovery rider will remain in effect, and any future termination of the rider would be subject to eighteen months advance notice by the APSC, which would occur following notice and hearing.
Entergy Louisiana
Fuel Recovery
Entergy Louisiana’s rate schedules include a fuel adjustment clause designed to recover the cost of fuel and purchased power costs. The fuel adjustment clause contains a surcharge or credit for deferred fuel expense and related carrying charges arising from the monthly reconciliation of actual fuel costs incurred with fuel cost revenues billed to customers, including carrying charges. See Note 2 to the financial statements for a discussion of proceedings related to audits of Entergy Louisiana’s fuel adjustment clause filings.
To help stabilize electricity costs, Entergy Louisiana received approval from the LPSC to hedge its exposure to natural gas price volatility through the use of financial instruments. Entergy Louisiana hedges approximately one-third of the projected exposure to natural gas price changes for the gas used to serve its native electric load for all months of the year. The hedge quantity is reviewed on an annual basis. In January 2018, Entergy Louisiana filed an application with the LPSC to suspend these seasonal hedging programs and implement financial hedges with terms up to five years for a portion of its natural gas exposure, which was approved in November 2018.
Entergy Louisiana’s gas rates include a purchased gas adjustment clause based on estimated gas costs for the billing month adjusted by a surcharge or credit that arises from an annual reconciliation of fuel costs incurred with fuel cost revenues billed to customers, including carrying charges.
Retail Rates - Gas
In accordance with the settlement of Entergy Gulf States Louisiana’s gas rate stabilization plan for the test year ended September 30, 2012, in August 2014, Entergy Gulf States Louisiana submitted for consideration a proposal for implementation of an infrastructure rider to recover expenditures associated with strategic plant investment and relocation projects mandated by local governments. After review by the LPSC staff and inclusion of certain customer safeguards required by the LPSC staff, in December 2014, Entergy Gulf States Louisiana and the LPSC staff submitted a joint settlement for implementation of an accelerated gas pipe replacement program providing for the replacement of approximately 100 miles of pipe over the next ten years, as well as relocation of certain existing pipe resulting from local government-related infrastructure projects, and for a rider to recover the investment associated with these projects. The rider allows for recovery of approximately $65 million over ten years. The rider recovery will be adjusted on a quarterly basis to include actual investment incurred for the prior quarter and is subject to the following conditions,
Part I Item 1
Entergy Corporation, Utility operating companies, and System Energy
among others: a ten-year term; application of any earnings in excess of the upper end of the earnings band as an offset to the revenue requirement of the infrastructure rider; adherence to a specified spending plan, within plus or minus 20% annually; annual filings comparing actual versus planned rider spending with actual spending and explanation of variances exceeding 10%; and an annual true-up. The joint settlement was approved by the LPSC in January 2015. Implementation of the infrastructure rider commenced with bills rendered on and after the first billing cycle of April 2015.
Storm Cost Recovery
See Note 2 to the financial statements for a discussion of Entergy Louisiana’s filings to recover storm-related costs.
Other
In March 2016 the LPSC opened two dockets to examine, on a generic basis, issues that it identified in connection with its review of Cleco Corporation’s acquisition by third party investors. The first docket is captioned “In re: Investigation of double leveraging issues for all LPSC-jurisdictional utilities,” and the second is captioned “In re: Investigation of tax structure issues for all LPSC-jurisdictional utilities.” In April 2016 the LPSC clarified that the concerns giving rise to the two dockets arose as a result of its review of the structure of the Cleco-Macquarie transaction and that the specific intent of the directives is to seek more information regarding intra-corporate debt financing of a utility’s capital structure as well as the use of investment tax credits to mitigate the tax obligation at the parent level of a consolidated entity. No schedule has been set for either docket, and limited discovery has occurred.
In December 2019 an LPSC commissioner issued an unopposed directive to staff to research customer-centered options for all customer classes, as well as other regulatory environments, and recommend a plan for how to ensure customers are the focus. There was no opposition to the directive from other commissioners but several remarked that the intent of the directive was not initiated to pursue retail open access. In furtherance of the directive, the LPSC issued a notice of the opening of a docket to conduct a rulemaking to research and evaluate customer-centered options for all electric customer classes as well as other regulatory environments in January 2020.
Entergy Mississippi
Fuel Recovery
Entergy Mississippi’s rate schedules include energy cost recovery riders to recover fuel and purchased power costs. The energy cost rate for each calendar year is redetermined annually and includes a true-up adjustment reflecting the over-recovery or under-recovery of the energy costs as of the 12-month period ended September 30. Entergy Mississippi’s fuel cost recoveries are subject to annual audits conducted pursuant to the authority of the MPSC.
To help stabilize electricity costs, Entergy Mississippi received approval from the MPSC to hedge its exposure to natural gas price volatility through the use of financial instruments. Entergy Mississippi hedges approximately one-third of the projected exposure to natural gas price changes for the gas used to serve its native electric load for all months of the year. The hedge quantity is reviewed on an annual basis.
Storm Cost Recovery
See Note 2 to the financial statements for a discussion of proceedings regarding recovery of Entergy Mississippi’s storm-related costs.
Part I Item 1
Entergy Corporation, Utility operating companies, and System Energy
Formula Rate Plan
In August 2012 the MPSC opened inquiries to review whether the current formulaic methodology used to calculate the return on common equity in both Entergy Mississippi’s formula rate plan and Mississippi Power Company’s annual formula rate plan was still appropriate or could be improved to better serve the public interest. The intent of this inquiry and review was for informational purposes only; the evaluation of any recommendations for changes to the existing methodology would take place in a general rate case or in the existing formula rate plan proceeding. In March 2013 the Mississippi Public Utilities Staff filed its consultant’s report which noted the return on common equity estimation methods used by Entergy Mississippi and Mississippi Power Company are commonly used throughout the electric utility industry. The report suggested ways in which the methods used by Entergy Mississippi and Mississippi Power Company might be improved, but did not recommend specific changes in the return on common equity formulas or calculations at that time. In June 2014 the MPSC expanded the scope of the August 2012 inquiry to study the merits of adopting a uniform formula rate plan that could be applied, where possible in whole or in part, to both Entergy Mississippi and Mississippi Power Company in order to achieve greater consistency in the plans. The MPSC directed the Mississippi Public Utilities Staff to investigate and review Entergy Mississippi’s formula rate plan rider schedule and Mississippi Power Company’s Performance Evaluation Plan by considering the merits and deficiencies and possibilities for improvement of each and then to propose a uniform formula rate plan that, where possible, could be applicable to both companies. No procedural schedule has been set. In October 2014 the Mississippi Public Utilities Staff conducted a public technical conference to discuss performance benchmarking and its potential application to the electric utilities’ formula rate plans. The docket remains open.
Entergy New Orleans
Fuel Recovery
Entergy New Orleans’s electric rate schedules include a fuel adjustment tariff designed to reflect no more than targeted fuel and purchased power costs, adjusted by a surcharge or credit for deferred fuel expense arising from the monthly reconciliation of actual fuel and purchased power costs incurred with fuel cost revenues billed to customers, including carrying charges.
Entergy New Orleans’s gas rate schedules include a purchased gas adjustment to reflect estimated gas costs for the billing month, adjusted by a surcharge or credit similar to that included in the electric fuel adjustment clause, including carrying charges.
To help stabilize gas costs, Entergy New Orleans seeks approval annually from the City Council to continue implementation of its natural gas hedging program consistent with the City Council’s stated policy objectives. The program uses financial instruments to hedge exposure to volatility in the wholesale price of natural gas purchased to serve Entergy New Orleans gas customers. Entergy New Orleans hedges up to 25% of actual gas sales made during the winter months.
Storm Cost Recovery
See Note 2 to the financial statements for a discussion of Entergy New Orleans’s efforts to recover storm-related costs.
Entergy Texas
Fuel Recovery
Entergy Texas’s rate schedules include a fixed fuel factor to recover fuel and purchased power costs, including interest, that are not included in base rates. Semi-annual revisions of the fixed fuel factor are made in March and September based on the market price of natural gas and changes in fuel mix. The amounts collected under Entergy
Part I Item 1
Entergy Corporation, Utility operating companies, and System Energy
Texas’s fixed fuel factor and any interim surcharge or refund are subject to fuel reconciliation proceedings before the PUCT. The PUCT fuel cost proceedings are discussed in Note 2 to the financial statements.
At the PUCT’s April 2013 open meeting, the PUCT Commissioners discussed their view that a purchased power capacity rider was good public policy. The PUCT issued an order in May 2013 adopting the rule allowing for a purchased power capacity rider, subject to an offsetting adjustment for load growth. The rule, as adopted, also includes a process for obtaining pre-approval by the PUCT of purchased power agreements. Entergy Texas has not exercised the option to recover its capacity costs under the new rider mechanism, but will continue to evaluate the benefits of utilizing the new rider to recover future capacity costs.
Electric Industry Restructuring
In June 2009, a law was enacted in Texas that required Entergy Texas to cease all activities relating to Entergy Texas’s transition to competition. The law allows Entergy Texas to remain a part of the SERC Reliability Corporation (SERC) Region, although it does not prevent Entergy Texas from joining another power region. The law provides that proceedings to certify a power region that Entergy Texas belongs to as a qualified power region can be initiated by the PUCT, or on motion by another party, when the conditions supporting such a proceeding exist. Under the law, the PUCT may not approve a transition to competition plan for Entergy Texas until the expiration of four years from the PUCT’s certification of Entergy Texas’s power region.
The law also contains provisions that allow Entergy Texas to take advantage of a cost recovery mechanism that permits annual filings for the recovery of reasonable and necessary expenditures for transmission infrastructure improvement and changes in wholesale transmission charges. This mechanism was previously available to other non-ERCOT Texas utility companies, but not to Entergy Texas.
The law further amended already existing law that had required Entergy Texas to propose for PUCT approval a tariff to allow eligible customers the ability to contract for competitive generation. The amending language in the law provides, among other things, that: 1) the tariff shall not be implemented in a manner that harms the sustainability or competitiveness of manufacturers who choose not to participate in the tariff; 2) Entergy Texas shall “purchase competitive generation service, selected by the customer, and provide the generation at retail to the customer;” and 3) Entergy Texas shall provide and price transmission service and ancillary services under that tariff at a rate that is unbundled from its cost of service. The law directs that the PUCT may not issue an order on the tariff that is contrary to an applicable decision, rule, or policy statement of a federal regulatory agency having jurisdiction.
The PUCT determined that unrecovered costs that may be recovered through the rider consist only of those costs necessary to implement and administer the competitive generation program and do not include lost revenues or embedded generation costs. The amount of customer load that may be included in the competitive generation service program is limited to 115 MW.
In September 2011 the PUCT adopted a proposed rule implementing a distribution cost recovery factor to recover capital and capital-related costs related to distribution infrastructure. The distribution cost recovery factor permits utilities once per year to implement an increase or decrease in rates above or below amounts reflected in base rates to reflect depreciation expense, federal income tax and other taxes, and return on investment. The distribution cost recovery factor rider may be changed a maximum of four times between base rate cases.
In September 2019 the PUCT initiated a rulemaking to promulgate a generation cost recovery factor rule, implementing legislation passed in the 2019 Texas legislative session intended to allow electric utilities to recover generation investments between base rate proceedings. The draft rule was approved for publication at the PUCT’s February 2020 open meeting, and two rounds of public comment will be taken in March and April 2020. The PUCT is expected to approve a final rule within six months of publication.
Part I Item 1
Entergy Corporation, Utility operating companies, and System Energy
Franchises
Entergy Arkansas holds exclusive franchises to provide electric service in approximately 308 incorporated cities and towns in Arkansas. These franchises are unlimited in duration and continue unless the municipalities purchase the utility property. In Arkansas franchises are considered to be contracts and, therefore, are terminable pursuant to the terms of the franchise agreement and applicable statutes.
Entergy Louisiana holds non-exclusive franchises to provide electric service in approximately 175 incorporated municipalities and in the unincorporated areas of approximately 59 parishes of Louisiana. Entergy Louisiana holds non-exclusive franchises to provide natural gas service to customers in the City of Baton Rouge and in East Baton Rouge Parish. Municipal franchise agreement terms range from 25 to 60 years while parish franchise terms range from 25 to 99 years.
Entergy Mississippi has received from the MPSC certificates of public convenience and necessity to provide electric service to areas within 45 counties, including a number of municipalities, in western Mississippi. Under Mississippi statutory law, such certificates are exclusive. Entergy Mississippi may continue to serve in such municipalities upon payment of a statutory franchise fee, regardless of whether an original municipal franchise is still in existence.
Entergy New Orleans provides electric and gas service in the City of New Orleans pursuant to indeterminate permits set forth in city ordinances. These ordinances contain a continuing option for the City of New Orleans to purchase Entergy New Orleans’s electric and gas utility properties.
Entergy Texas holds a certificate of convenience and necessity from the PUCT to provide electric service to areas within approximately 27 counties in eastern Texas, and holds non-exclusive franchises to provide electric service in approximately 68 incorporated municipalities. Entergy Texas typically obtains 25-year franchise agreements as existing agreements expire. Entergy Texas’s electric franchises expire over the period 2020-2058.
The business of System Energy is limited to wholesale power sales. It has no distribution franchises.
Property and Other Generation Resources
Owned Generating Stations
The total capability of the generating stations owned and leased by the Utility operating companies and System Energy as of December 31, 2019, is indicated below:
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| | | | | | | | | | | | | | | | | | |
| | Owned and Leased Capability MW(a) |
Company | | Total | | Gas/Oil | | Nuclear | | Coal | | Hydro | | Solar |
Entergy Arkansas | | 5,183 |
| | 2,106 |
| | 1,810 |
| | 1,194 |
| | 73 |
| | — |
|
Entergy Louisiana | | 10,050 |
| | 7,556 |
| | 2,144 |
| | 350 |
| | — |
| | — |
|
Entergy Mississippi | | 3,342 |
| | 2,923 |
| | — |
| | 417 |
| | — |
| | 2 |
|
Entergy New Orleans | | 508 |
| | 507 |
| | — |
| | — |
| | — |
| | 1 |
|
Entergy Texas | | 2,293 |
| | 2,034 |
| | — |
| | 259 |
| | — |
| | — |
|
System Energy | | 1,393 |
| | — |
| | 1,393 |
| | — |
| | — |
| | — |
|
Total | | 22,769 |
| | 15,126 |
| | 5,347 |
| | 2,220 |
| | 73 |
| | 3 |
|
| |
(a) | “Owned and Leased Capability” is the dependable load carrying capability as demonstrated under actual operating conditions based on the primary fuel (assuming no curtailments) that each station was designed to utilize. |
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Summer peak load for the Utility has averaged 21,636 MW over the previous decade.
The Utility operating companies’ load and capacity projections are reviewed periodically to assess the need and timing for additional generating capacity and interconnections. These reviews consider existing and projected demand, the availability and price of power, the location of new load, the economy, environmental regulations, public policy goals, and the age and condition of Entergy’s existing infrastructure.
The Utility operating companies’ long-term resource strategy (Portfolio Transformation Strategy) calls for the bulk of capacity needs to be met through long-term resources, whether owned or contracted. Over the past decade, the Portfolio Transformation Strategy has resulted in the addition of about 7,314 MW of new long-term resources and the deactivation of over 4,465 MW of legacy generation. As MISO market participants, the Utility operating companies also participate in MISO’s Day Ahead and Real Time Energy and Ancillary Services markets to economically dispatch generation and purchase energy to serve customers reliably and at the lowest reasonable cost.
Other Generation Resources
RFP Procurements
The Utility operating companies from time to time issue requests for proposals (RFP) to procure supply-side resources from sources other than the spot market to meet the unique regional needs of the Utility operating companies. The RFPs issued by the Utility operating companies have sought resources needed to meet near-term MISO reliability requirements as well as longer-term requirements through a broad range of wholesale power products, including limited-term (1 to 3 years) and long-term contractual products and asset acquisitions. The RFP process has resulted in selections or acquisitions, including, among other things:
Entergy Louisiana’s June 2005 purchase of the 718 MW, gas-fired Perryville plant, of which 35% of the output is sold to Entergy Texas;
Entergy Arkansas’s September 2008 purchase of the 789 MW, combined-cycle, gas-fired Ouachita Generating Facility. Entergy Louisiana, as successor in interest to Entergy Gulf States Louisiana, owns one-third of the facility;
Entergy Arkansas’s November 2012 purchase of the 620 MW, combined-cycle, gas-fired Hot Spring Energy facility;
Entergy Mississippi’s November 2012 purchase of the 450 MW, combined-cycle, gas-fired Hinds Energy facility;
Entergy Louisiana’s construction of the 560 MW, combined-cycle, gas turbine Ninemile 6 generating facility at its existing Ninemile Point electric generating station. The facility began commercial operation in December 2014;
Entergy Louisiana’s construction of the 980 MW, combined-cycle, gas turbine St. Charles generating facility at its existing Little Gypsy electric generating station. The facility began commercial operation in May 2019;
Entergy Texas’s construction of the 993 MW, combined-cycle, gas turbine Montgomery County generating facility at its existing Lewis Creek electric generating station. Entergy Texas received regulatory approval from the PUCT in July 2017 and the facility is scheduled to be in service by mid-2021;
Entergy Louisiana’s construction of the 994 MW, combined-cycle, gas turbine Lake Charles generating facility at its existing Nelson electric generating station. Entergy Louisiana received regulatory approval from the LPSC in July 2017 and the facility is scheduled to be in service by mid-2020;
In October 2018, Entergy Mississippi signed an asset acquisition agreement for the purchase of an approximately 100 MW to-be-constructed solar photovoltaic facility located in Sunflower County, Mississippi. In December 2018, Entergy Mississippi filed for regulatory approval. A hearing before the MPSC is targeted to occur by the second quarter 2020, and closing is expected to occur by the end of 2021;
In March 2019, Entergy Arkansas signed an agreement for the purchase of an approximately 100 MW to-be- constructed solar energy facility that will be sited on approximately 800 acres in White County near Searcy, Arkansas. In May 2019, Entergy Arkansas filed a petition with the APSC seeking a finding that the transaction
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is in the public interest and requesting all necessary approvals. Closing is expected to occur by the end of 2021; and
Entergy New Orleans’s construction of the 20 MW, self-build solar project New Orleans Solar Station located at the NASA Michoud Facility. In August 2019, Entergy New Orleans received regulatory approval and the facility is scheduled to be in service as early as late-2020.
The RFP process has also resulted in the selection, or confirmation of the economic merits of, long-term purchased power agreements (PPAs), including, among others:
River Bend 30% life-of-unit PPA between Entergy Louisiana and Entergy New Orleans for 100 MW related to Entergy Louisiana’s unregulated portion of the River Bend nuclear station, which portion was formerly owned by Cajun;
Entergy Arkansas wholesale base load capacity life-of-unit PPAs executed in 2003 totaling approximately 220 MW between Entergy Arkansas and Entergy Louisiana (110 MW) and between Entergy Arkansas and Entergy New Orleans (110 MW) related to the sale of a portion of Entergy Arkansas’s coal and nuclear base load resources (which had not been included in Entergy Arkansas’s retail rates);
In December 2009, Entergy Texas and Exelon Generation Company, LLC executed a 10-year agreement for 150-300 MW from the Frontier Generating Station located in Grimes County, Texas;
In May 2011, Entergy Texas and Calpine Energy Services, L.P. executed a 10-year agreement for 485 MW from the Carville Energy Center located in St. Gabriel, Louisiana. Entergy Louisiana purchases 50% of the facility’s capacity and energy from Entergy Texas. In July 2014, LS Power purchased the Carville Energy Center and replaced Calpine Energy Services as the counterparty to the agreement;
In September 2012, Entergy Gulf States Louisiana executed a 20-year agreement for 28 MW, with the potential to purchase an additional 9 MW when available, from Rain CII Carbon LLC’s petroleum coke calcining facility in Sulphur, Louisiana. The facility began commercial operation in May 2013. Entergy Louisiana, as successor in interest to Entergy Gulf States Louisiana, now holds the agreement with the facility;
In March 2013, Entergy Gulf States Louisiana executed a 20-year agreement for 8.5 MW from Agrilectric Power Partners, LP’s refurbished rice hull-fueled electric generation facility located in Lake Charles, Louisiana. Entergy Louisiana, as successor in interest to Entergy Gulf States Louisiana, now holds the agreement with Agrilectric;
In September 2013, Entergy Louisiana executed a 10-year agreement with TX LFG Energy, LP, a wholly-owned subsidiary of Montauk Energy Holdings, LLC, to purchase approximately 3 MW from its landfill gas-fueled power generation facility located in Cleveland, Texas;
Entergy Mississippi’s cost-based purchase, beginning in January 2013, of 90 MW from Entergy Arkansas’s share of Grand Gulf (only 60 MW of this PPA came through the RFP process). Cost recovery for the 90 MW was approved by the MPSC in January 2013;
In April 2015, Entergy Arkansas and Stuttgart Solar, LLC executed a 20-year agreement for 81 MW from a solar photovoltaic electric generation facility located near Stuttgart, Arkansas. The APSC approved the project and deliveries pursuant to that agreement commenced in June 2018;
In November 2016, Entergy Louisiana and LS Power executed a 10-year agreement for 485 MW from the Carville Energy Center located in St. Gabriel, Louisiana. The transaction received regulatory approval and will begin in June 2022;
In November 2016, Entergy Louisiana and Occidental Chemical Corporation executed a 10-year agreement for 500 MW from the Taft Cogeneration facility located in Hahnville, Louisiana. The transaction received regulatory approval and began in June 2018;
In June 2017, Entergy Arkansas and Chicot Solar, LLC executed a 20-year agreement for 100 MW from a solar photovoltaic electric generating facility located in Chicot County, Arkansas. The transaction received regulatory approval and will begin in August 2020;
In February 2018, Entergy Louisiana and LA3 West Baton Rouge, LLC (Capital Region Solar project) executed a 20-year agreement for 50 MW from a solar photovoltaic electric generating facility located in West Baton Rouge Parish, Louisiana. The transaction received regulatory approval in February 2019 and the agreement is expected to begin in second quarter 2020;
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In July 2018, Entergy New Orleans and St. James Solar, LLC executed a 20-year agreement for 20 MW from a solar photovoltaic electric generating facility located in St. James Parish, Louisiana. The transaction received regulatory approval in July 2019; and
In February 2019, Entergy New Orleans and Iris Solar, LLC executed a 20-year agreement for 50 MW from a solar photovoltaic electric generating facility located in Washington Parish, Louisiana. The transaction received regulatory approval in July 2019.
Other Procurements From Third Parties
The Utility operating companies have also made resource acquisitions outside of the RFP process, including Entergy Mississippi’s January 2006 acquisition of the 480 MW, combined-cycle, gas-fired Attala power plant; Entergy Gulf States Louisiana’s March 2008 acquisition of the 322 MW, simple-cycle, gas-fired Calcasieu Generating Facility; Entergy Louisiana’s April 2011 acquisition of the 580 MW, combined-cycle, gas-fired Acadia Energy Center Unit 2; Entergy Arkansas’s (Power Block 2), Entergy Louisiana’s (Power Blocks 3 and 4), and Entergy New Orleans’s (Power Block 1) March 2016 acquisitions of the 1,980 MW (summer rating), natural gas-fired, combined-cycle gas turbine Union Power Station power blocks, each rated at 495 MW (summer rating); and Entergy Mississippi’s October 2019 acquisition of the 810 MW, combined-cycle, natural gas-fired Choctaw Generating Station. The Utility operating companies have also entered into various limited- and long-term contracts in recent years as a result of bilateral negotiations.
The Washington Parish Energy Center is a 361 MW natural gas-fired peaking power plant under construction approximately 60 miles north of New Orleans on a site Entergy Louisiana purchased from Calpine in 2019. In May 2018, Entergy Louisiana received LPSC approval of its certification application for this simple-cycle power plant to be developed pursuant to an agreement between Calpine and Entergy Louisiana. Calpine began construction on the plant in early 2019 and Entergy Louisiana will purchase the plant upon completion, anticipated to be later in 2020, for a fixed payment to reimburse construction costs plus an associated premium.
Interconnections
The Utility operating companies’ generating units are interconnected by a transmission system operating at various voltages up to 500 kV. These generating units consist primarily of steam-electric production facilities and are provided dispatch instructions by MISO. Entergy’s Utility operating companies are MISO market participants and are interconnected with many neighboring utilities. MISO is an essential link in the safe, cost-effective delivery of electric power across all or parts of 15 U.S. states and the Canadian province of Manitoba. As a Regional Transmission Organization, MISO assures consumers of unbiased regional grid management and open access to the transmission facilities under MISO’s functional supervision. In addition, the Utility operating companies are members of SERC. SERC is a nonprofit corporation responsible for promoting and improving the reliability, adequacy, and critical infrastructure of the bulk power supply systems in all or portions of 16 central and southeastern states.SERC serves as a regional entity with delegated authority from the North American Electric Reliability Corporation (NERC) for the purpose of proposing and enforcing reliability standards within the SERC Region.
Gas Property
As of December 31, 2019, Entergy New Orleans distributed and transported natural gas for distribution within New Orleans, Louisiana, through approximately 2,600 miles of gas pipeline. As of December 31, 2019, the gas properties of Entergy Louisiana, which are located in and around Baton Rouge, Louisiana, were not material to Entergy Louisiana’s financial position.
Title
The Utility operating companies’ generating stations are generally located on properties owned in fee simple. Most of the substations and transmission and distribution lines are constructed on private property or public
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rights-of-way pursuant to easements, servitudes, or appropriate franchises. Some substation properties are owned in fee simple. The Utility operating companies generally have the right of eminent domain, whereby they may perfect title to, or secure easements or servitudes on, private property for their utility operations.
Substantially all of the physical properties and assets owned by Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy are subject to the liens of mortgages securing bonds issued by those companies. The Lewis Creek generating station of Entergy Texas was acquired by merger with a subsidiary of Entergy Texas and is currently not subject to the lien of the Entergy Texas indenture.
Fuel Supply
The sources of generation and average fuel cost per kWh for the Utility operating companies and System Energy for the years 2017-2019 were:
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Natural Gas | | Nuclear | | Coal | | Purchased Power | | MISO Purchases |
Year | | % of Gen | | Cents Per kWh | | % of Gen | | Cents Per kWh | | % of Gen | | Cents Per kWh | | % of Gen | | Cents Per kWh | | % of Gen | | Cents Per kWh |
2019 | | 40 | | 2.33 |
| | 28 | | 0.73 |
| | 6 | | 2.31 |
| | 8 | | 4.86 |
| | 18 | | 2.71 |
|
2018 | | 39 | | 2.84 |
| | 27 | | 0.84 |
| | 9 | | 2.24 |
| | 8 | | 5.23 |
| | 17 | | 3.71 |
|
2017 | | 38 | | 2.60 |
| | 26 | | 0.86 |
| | 8 | | 2.35 |
| | 8 | | 4.02 |
| | 20 | | 3.09 |
|
Actual 2019 and projected 2020 sources of generation for the Utility operating companies and System Energy, including certain power purchases from affiliates under life of unit power purchase agreements, including the Unit Power Sales Agreement, are:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Natural Gas | | Nuclear | | Coal | | Purchased Power (d) | | MISO Purchases (e) |
| 2019 | | 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 | | 2020 |
Entergy Arkansas (a) | 28 | % | | 33 | % | | 53 | % | | 53 | % | | 15 | % | | 13 | % | | 1 |
| | 1 | % | | 3 | % | | — |
Entergy Louisiana | 43 | % | | 56 | % | | 25 | % | | 28 | % | | 2 | % | | 4 | % | | 10 | % | | 12 | % | | 20 | % | | — |
Entergy Mississippi (b) | 49 | % | | 72 | % | | 25 | % | | 19 | % | | 9 | % | | 9 | % | | — |
| | — |
| | 17 | % | | — |
Entergy New Orleans (b) | 51 | % | | 58 | % | | 39 | % | | 39 | % | | 2 | % | | 2 | % | | 1 | % | | 1 | % | | 7 | % | | — |
Entergy Texas | 29 | % | | 32 | % | | 9 | % | | 18 | % | | 4 | % | | 11 | % | | 30 | % | | 39 | % | | 28 | % | | — |
System Energy (c) | — |
| | — |
| | 100 | % | | 100 | % | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
Utility (a) (b) | 40 | % | | 51 | % | | 28 | % | | 32 | % | | 6 | % | | 7 | % | | 8 | % | | 10 | % | | 18 | % | | — |
| |
(a) | Hydroelectric power provided less than 1% of Entergy Arkansas’s generation in 2019 and is expected to provide less than 1% of its generation in 2020. |
| |
(b) | Solar power provided less than 1% of Entergy Mississippi’s and Entergy New Orleans's generation in 2019 and is expected to provide less than 1% of each of Entergy Mississippi’s and Entergy New Orleans's generation in 2020. |
| |
(c) | Capacity and energy from System Energy’s interest in Grand Gulf is allocated as follows under the Unit Power Sales Agreement: Entergy Arkansas - 36%; Entergy Louisiana - 14%; Entergy Mississippi - 33%; and Entergy New Orleans - 17%. Pursuant to purchased power agreements, Entergy Arkansas is selling a portion of its owned capacity and energy from Grand Gulf to Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans. |
| |
(d) | Excludes MISO purchases. |
| |
(e) | In December 2013, Entergy integrated its transmission system into the MISO RTO. Entergy offers all of its generation into the MISO energy market on a day-ahead and real-time basis and bids for power in the MISO energy market to serve the demand of its customers, with MISO making dispatch decisions. The MISO purchases metric provided for 2019 is not projected for 2020. |
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Some of the Utility’s gas-fired plants are also capable of using fuel oil, if necessary. Although based on current economics the Utility does not expect fuel oil use in 2020, it is possible that various operational events including weather or pipeline maintenance may require the use of fuel oil.
Natural Gas
The Utility operating companies have long-term firm and short-term interruptible gas contracts for both supply and transportation. Over 50% of the Utility operating companies’ power plants maintain some level of long-term firm transportation. Short-term contracts and spot-market purchases satisfy additional gas requirements. Entergy Texas owns a gas storage facility that provides reliable and flexible natural gas service to certain generating stations.
Many factors, including wellhead deliverability, storage, pipeline capacity, and demand requirements of end users, influence the availability and price of natural gas supplies for power plants. Demand is primarily tied to weather conditions as well as to the prices and availability of other energy sources. Pursuant to federal and state regulations, gas supplies to power plants may be interrupted during periods of shortage. To the extent natural gas supplies are disrupted or natural gas prices significantly increase, the Utility operating companies willmay in some instances use alternate fuels, such as oil when available, or rely to a larger extent on coal, nuclear generation, and purchased power.
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Coal
Entergy Arkansas has committed to eightseven one- to three-year and two spot contracts that will supply approximately 85% of the total coal supply needs in 2018.2020. These contracts are staggered in term so that not all contracts have to be renewed the same year. The remaining 15% of total coal requirements will be satisfied by contracts with a term of less than one year. Based on continued improved Powder River Basin (PRB) coal deliveries by rail and the high cost of alternate sources and modes of transportation, no alternative coal consumption is expected at Entergy Arkansas during 2018.2020. Coal will be transported to Arkansas via an existing transportation agreement that is expected to provide all of Entergy Arkansas’s rail transportation requirements for 2018.2020.
Entergy Louisiana has committed to fivefour one- to three-year contracts that will supply approximately 90% of Nelson Unit 6 coal needs in 2018.2020. If needed, additional PRB coal will be purchased through contracts with a term of less than one year to provide the remaining supply needs. For the same reasons as for Entergy Arkansas’s plants, no alternative coal consumption is expected at Nelson Unit 6 during 2018.2020. Coal will be transported to Nelson primarily via an existing transportation agreement that is expected to provide all of Entergy Louisiana’s rail transportation requirements for 2018.2020.
For the year 2017,2019, coal transportation delivery rates to Entergy Arkansas-and Entergy Louisiana-operated coal-fired units was adequate forwere satisfactory to meet supply needs and obligations. Delivery rates improved in the majoritysecond half of the year but experienced some delays inas track restoration efforts were completed by the fourth quarter of 2017. It is expected that delivery times will improve in 2018.railroads following spring flooding events, although flooding impacts were overall inconsequential to the companies’ coal operations. Both Entergy Arkansas and Entergy Louisiana control a sufficient number of railcars to satisfy the rail transportation requirement.
The operator of Big Cajun 2 - Unit 3, Louisiana Generating, LLC, has advised Entergy Louisiana and Entergy Texas that it has adequate rail car and barge capacity to meet the volumes of PRB coal requested for 2018.2020. Entergy Louisiana’s and Entergy Texas’s coal nomination requests to Big Cajun 2 - Unit 3 are made on an annual basis.
Nuclear Fuel
The nuclear fuel cycle consists of the following:
mining and milling of uranium ore to produce a concentrate;
conversion of the concentrate to uranium hexafluoride gas;
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enrichment of the uranium hexafluoride gas;
fabrication of nuclear fuel assemblies for use in fueling nuclear reactors; and
disposal of spent fuel.
The Registrant Subsidiaries that own nuclear plants, Entergy Arkansas, Entergy Louisiana, and System Energy, are responsible through a shared regulated uranium pool for contracts to acquire nuclear material to be used in fueling Entergy’s Utility nuclear units. These companies own the materials and services in this shared regulated uranium pool on a pro rata fractional basis determined by the nuclear generation capability of each company. Any liabilities for obligations of the pooled contracts are on a several but not joint basis. The shared regulated uranium pool maintains inventories of nuclear materials during the various stages of processing. The Registrant Subsidiaries purchase enriched uranium hexafluoride for their nuclear plant reload requirements at the average inventory cost from the shared regulated uranium pool. Entergy Operations, Inc. contracts separately for the fabrication of nuclear fuel as agent on behalf of each of the Registrant Subsidiaries that owns a nuclear plant. All contracts for the disposal of spent nuclear fuel are between the DOE and the owner of a nuclear power plant.
Based upon currently planned fuel cycles, the Utility nuclear units in both the Utility and Entergy Wholesale Commodities segments have a diversified portfolio of contracts and inventory that provides substantially adequate nuclear fuel materials and conversion and enrichment services at what Entergy believes are reasonably predictable or fixed prices through most of 2018 or beyond. The nuclear fuel supply portfolio for the Entergy Wholesale Commodities segment is being adjusted to reflect reduced overall requirements related to the planned permanent shutdowns of the
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Palisades, Pilgrim, Indian Point 2, and Indian Point 3 plants.2023. Entergy’s ability to purchase nuclear fuel at reasonably predictable prices, however, depends upon the performance reliability of uranium miners. There are a number of possible supply alternatives that may be accessed to mitigate any supplier performance failure, including potentially drawing upon Entergy’s inventory intended for later generation periods depending upon its risk management strategy at that time, although the pricing of any alternate uranium supply from the market will be dependent upon the market for uranium supply at that time. In addition, some nuclear fuel contracts are on a non-fixed price basis subject to prevailing prices at the time of delivery.
The effects of market price changes may be reduced and deferred by risk management strategies, such as negotiation of floor and ceiling amounts for long-term contracts, buying for inventory or entering into forward physical contracts at fixed prices when Entergy believes it is appropriate and useful. Entergy buys uranium from a diversified mix of sellers located in a diversified mix of countries, and from time to time purchases from nearly all qualified reliable major market participants worldwide that sell into the U.S.
Entergy’s ability to assure nuclear fuel supply also depends upon the performance reliability of conversion, enrichment, and fabrication services providers. There are fewer of these providers than for uranium. For conversion and enrichment services, like uranium, Entergy diversifies its supply by supplier and country and may take special measures as needed to ensure supply of enriched uranium for the reliable fabrication of nuclear fuel. For fabrication services, each plant is dependent upon the effective performance of the fabricator of that plant’s nuclear fuel, therefore, Entergy provides additional monitoring, inspection, and oversight for the fabrication process to assure reliability and quality.
Entergy Arkansas, Entergy Louisiana, and System Energy each have made arrangements to lease nuclear fuel and related equipment and services. The lessors, which are consolidated in the financial statements of Entergy and the applicable Registrant Subsidiary, finance the acquisition and ownership of nuclear fuel through credit agreements and the issuance of notes. These credit facilities are subject to periodic renewal, and the notes are issued periodically, typically for terms between three and seven years.
Natural Gas Purchased for Resale
Entergy New Orleans has several suppliers of natural gas. Its system is interconnected with threeone interstate and three intrastate pipelines. Entergy New Orleans has a “no-notice” service gas purchase contract with CenterpointCenterPoint Energy Services which guarantees Entergy New Orleans gas delivery at specific delivery points and at any volume within the minimum and maximum set forth in the contract amounts. The CenterpointCenterPoint Energy Service gas supply is
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transported to Entergy New Orleans pursuant to a transportation service agreement with Gulf South Pipeline Co. This service is subject to FERC-approved rates. Entergy New Orleans also makes interruptible spot market purchases.
Entergy Louisiana purchased natural gas for resale in 20172019 under a firm contract from Sequent Energy Management L.P. The gas is delivered through a combination of intrastate and interstate pipelines.
As a result of the implementation of FERC-mandated interstate pipeline restructuring in 1993, curtailments of interstate gas supply could occur if Entergy Louisiana’s or Entergy New Orleans’s suppliers failed to perform their obligations to deliver gas under their supply agreements. Gulf South Pipeline Co. could curtail transportation capacity only in the event of pipeline system constraints.
Federal Regulation of the Utility
State or local regulatory authorities, as described above, regulate the retail rates of the Utility operating companies. The FERC regulates wholesale sales of electricity rates and interstate transmission of electricity, including System Energy’s sales of capacity and energy from Grand Gulf to Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans pursuant to the Unit Power Sales Agreement. See Note 2 to the financial statements for further discussion of federal regulation proceedings.
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System Agreement (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and Entergy Texas)
Prior to each operating company’s termination of participation in the System Agreement (Entergy Arkansas in December 2013, Entergy Mississippi in November 2015, and Entergy Louisiana, Entergy New Orleans, and Entergy Texas each in August 2016), the Utility operating companies engaged in the coordinated planning, construction, and operation of generating and bulk transmission facilities under the terms of the System Agreement, which was a rate schedule approved by the FERC. Under the terms of the System Agreement, generating capacity and other power resources were jointly operated by the Utility operating companies that were participating in the System Agreement. The System Agreement provided, among other things, that parties having generating reserves greater than their allocated share of reserves (long companies) would receive payments from those parties having generating reserves that were less than their allocated share of reserves (short companies). Such payments were at amounts sufficient to cover certain of the long companies’ costs for intermediate and peaking oil/gas-fired generation, including operating expenses, fixed charges on debt, dividend requirements on preferred equity, and a fair rate of return on common equity investment. Under the System Agreement, the rates used to compensate long companies were based on costs associated with the long companies’ steam electric generating units fueled by oil or gas and having an annual average heat rate above 10,000 Btu/kWh. In addition, for all energy exchanged among the Utility operating companies under the System Agreement, the companies purchasing exchange energy were required to pay the cost of fuel consumed in generating such energy plus a charge to cover other associated costs. Entergy Arkansas terminated its participation in the System Agreement in December 2013. Entergy Mississippi terminated its participation in the System Agreement in November 2015. The System Agreement terminated with respect to its remaining participants in August 2016.
Although the System Agreement has terminated, certain of the Utility operating companies’ and their retail regulators are pursuing litigation involving the System Agreement at the FERC and in federal courts. The proceedings include challenges to the allocation of costs as defined by the System Agreement and other matters. See Note 2 to the financial statements for discussion of legal proceedings at the FERC and in federal courts involving the System Agreement.
Transmission and MISO Markets
OnIn December 19, 2013 the Utility operating companies integrated into the MISO RTO. Although becoming a member of MISO doesdid not affect the ownership by the Utility operating companies of their transmission facilities or the responsibility for maintaining those facilities, MISO maintains functional control over the combined transmission systems of its members and administers wholesale energy and ancillary services markets for market participants in the MISO region, including the Utility operating companies. MISO also exercises functional control of transmission
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planning and congestion management and provides schedules and pricing for the commitment and dispatch of generation that is offered into MISO’s markets, as well as pricing for load that bids into the markets. The Utility operating companies sell capacity, energy, and ancillary services on a bilateral basis to certain wholesale customers and offer available electricity production of their generating facilities into the MISO day-ahead and real-time energy markets pursuant to the MISO tariff and market rules. Each Utility operating company has its own transmission pricing zone and a formula rate template (included as Attachment O to the MISO tariff) used to establish transmission rates within MISO. The terms and conditions of the MISO tariff, including provisions related to the design and implementation of wholesale markets and the allocation of transmission upgrade costs, are subject to regulation by the FERC.
System Energy and Related Agreements
System Energy recovers costs related to its interest in Grand Gulf through rates charged to Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans for capacity and energy under the Unit Power Sales Agreement (described below). In December 1995, System Energy commencedJuly 2001 a rate proceeding commenced by System Energy at the FERC. In July 2001 the rate proceedingFERC in 1995 became final, with the FERC approving a prospective 10.94% return on equity. In 1998 the FERC approved requests by Entergy Arkansas and Entergy Mississippi to accelerate a portion of their Grand Gulf purchased power obligations. Entergy Arkansas’s and Entergy Mississippi’s acceleration of Grand Gulf purchased
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power obligations ceased effective July 2001 and July 2003, respectively, as approved by the FERC. See Note 2 to the financial statements for discussion of a complaintcomplaints filed with the FERC in January 2017 regarding System Energy’s return on equity.
Unit Power Sales Agreement
The Unit Power Sales Agreement allocates capacity, energy, and the related costs from System Energy’s ownership and leasehold interests in Grand Gulf to Entergy Arkansas (36%), Entergy Louisiana (14%), Entergy Mississippi (33%), and Entergy New Orleans (17%). Each of these companies is obligated to make payments to System Energy for its entitlement of capacity and energy on a full cost-of-service basis regardless of the quantity of energy delivered. Payments under the Unit Power Sales Agreement are System Energy’s only source of operating revenue. The financial condition of System Energy depends upon the continued commercial operation of Grand Gulf and the receipt of such payments. Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans generally recover payments made under the Unit Power Sales Agreement through rates charged to their customers.
In the case of Entergy Arkansas and Entergy Louisiana, payments are also recovered through sales of electricity from their respective retained shares of Grand Gulf. Under a settlement agreement entered into with the APSC in 1985 and amended in 1988, Entergy Arkansas retains 22% of its 36% share of Grand Gulf-related costs and recovers the remaining 78% of its share in rates. In the event that Entergy Arkansas is not able to sell its retained share to third parties, it may sell such energy to its retail customers at a price equal to its avoided cost, which is currently less than Entergy Arkansas’s cost from its retained share. Entergy Arkansas has life-of-resources purchased power agreements with Entergy Louisiana and Entergy New Orleans that sell a portion of the output of Entergy Arkansas’s retained share of Grand Gulf to those companies, with the remainder of the retained share being sold to Entergy Mississippi through a separate life-of-resources purchased power agreement. In a series of LPSC orders, court decisions, and agreements from late 1985 to mid-1988, Entergy Louisiana was granted rate relief with respect to costs associated with Entergy Louisiana’s share of capacity and energy from Grand Gulf, subject to certain terms and conditions. Entergy Louisiana retains and does not recover from retail ratepayers 18% of its 14% share of the costs of Grand Gulf capacity and energy and recovers the remaining 82% of its share in rates. Entergy Louisiana is allowed to recover through the fuel adjustment clause at 4.6 cents per kWh for the energy related to its retained portion of these costs. Alternatively, Entergy Louisiana may sell such energy to non-affiliated parties at prices above the fuel adjustment clause recovery amount, subject to the LPSC’s approval. Entergy Arkansas also has a life-of-resources purchased power agreement with Entergy Mississippi to sell a portion of the output of Entergy Arkansas’s non-retained share of Grand Gulf. Entergy Mississippi was granted rate relief for those purchases by the MPSC through its annual unit power cost rate mechanism.
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Availability Agreement
The Availability Agreement among System Energy and Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans was entered into in 1974 in connection with the financing by System Energy of Grand Gulf. The Availability Agreement provides that System Energy make available to Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans all capacity and energy available from System Energy’s share of Grand Gulf.
Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans also agreed severally to pay System Energy monthly for the right to receive capacity and energy from Grand Gulf in amounts that (when added to any amounts received by System Energy under the Unit Power Sales Agreement) would at least equal System Energy’s total operating expenses for Grand Gulf (including depreciation at a specified rate and expenses incurred in a permanent shutdown of Grand Gulf) and interest charges.
The allocation percentages under the Availability Agreement are fixed as follows: Entergy Arkansas - 17.1%; Entergy Louisiana - 26.9%; Entergy Mississippi - 31.3%; and Entergy New Orleans - 24.7%. The allocation percentages under the Availability Agreement would remain in effect and would govern payments made under such agreement in
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the event of a shortfall of funds available to System Energy from other sources, including payments under the Unit Power Sales Agreement.
System Energy has assigned its rights to payments and advances from Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans under the Availability Agreement as security for its one outstanding series of first mortgage bonds. In these assignments, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans further agreed that, in the event they were prohibited by governmental action from making payments under the Availability Agreement (for example, if the FERC reduced or disallowed such payments as constituting excessive rates), they would then make subordinated advances to System Energy in the same amounts and at the same times as the prohibited payments. System Energy would not be allowed to repay these subordinated advances so long as it remained in default under the related indebtedness or in other similar circumstances.
Each of the assignment agreements relating to the Availability Agreement provides that Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans will make payments directly to System Energy. However, if there is an event of default, those payments must be made directly to the holders of indebtedness that are the beneficiaries of such assignment agreements. The payments must be made pro rata according to the amount of the respective obligations secured.
The obligations of Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans to make payments under the Availability Agreement are subject to the receipt and continued effectiveness of all necessary regulatory approvals. Sales of capacity and energy under the Availability Agreement would require that the Availability Agreement be submitted to the FERC for approval with respect to the terms of such sale. No such filing with the FERC has been made because sales of capacity and energy from Grand Gulf are being made pursuant to the Unit Power Sales Agreement. If, for any reason, sales of capacity and energy are made in the future pursuant to the Availability Agreement, the jurisdictional portions of the Availability Agreement would be submitted to the FERC for approval.
Since commercial operation of Grand Gulf began, payments under the Unit Power Sales Agreement to System Energy have exceeded the amounts payable under the Availability Agreement and, therefore, no payments under the Availability Agreement have ever been required. If Entergy Arkansas or Entergy Mississippi fails to make its Unit Power Sales Agreement payments, and System Energy is unable to obtain funds from other sources, Entergy Louisiana and Entergy New Orleans could become subject to claims or demands by System Energy or its creditors for payments or advances under the Availability Agreement (or the assignments thereof) equal to the difference between their required Unit Power Sales Agreement payments and their required Availability Agreement payments because their Availability Agreement obligations exceed their Unit Power Sales Agreement obligations.
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The Availability Agreement may be terminated, amended, or modified by mutual agreement of the parties thereto, without further consent of any assignees or other creditors.
Capital Funds Agreement
System Energy and Entergy Corporation have entered into the Capital Funds Agreement, whereby Entergy Corporation has agreed to supply System Energy with sufficient capital to (i) maintain System Energy’s equity capital at an amount equal to a minimum of 35% of its total capitalization (excluding short-term debt) and (ii) permit the continued commercial operation of Grand Gulf and pay in full all indebtedness for borrowed money of System Energy when due.
Entergy Corporation has entered into various supplements to the Capital Funds Agreement. System Energy has assigned its rights under such a supplement as security for its one outstanding series of first mortgage bonds. The supplement provides that permitted indebtedness for borrowed money incurred by System Energy in connection with the financing of Grand Gulf may be secured by System Energy’s rights under the Capital Funds Agreement on a pro rata basis (except for the Specific Payments, as defined below). In addition, in the supplements to the Capital Funds Agreement relating to the specific indebtedness being secured, Entergy Corporation has agreed to make cash capital
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contributions directly to System Energy sufficient to enable System Energy to make payments when due on such indebtedness (Specific Payments). However, if there is an event of default, Entergy Corporation must make those payments directly to the holders of indebtedness benefiting from the supplemental agreements. The payments (other than the Specific Payments) must be made pro rata according to the amount of the respective obligations benefiting from the supplemental agreements.
The Capital Funds Agreement may be terminated, amended, or modified by mutual agreement of the parties thereto, upon obtaining the consent, if required, of those holders of System Energy’s indebtedness then outstanding who have received the assignments of the Capital Funds Agreement. No such consent would be required to terminate the Capital Funds Agreement or the supplement thereto at this time.
Service Companies
Entergy Services, a corporationlimited liability company wholly-owned by Entergy Corporation, provides management, administrative, accounting, legal, engineering, and other services primarily to the Utility operating companies, but also provides services to Entergy Wholesale Commodities. Entergy Operations is also wholly-owned by Entergy Corporation and provides nuclear management, operations and maintenance services under contract for ANO, River Bend, Waterford 3, and Grand Gulf, subject to the owner oversight of Entergy Arkansas, Entergy Louisiana, and System Energy, respectively. Entergy Services and Entergy Operations provide their services to the Utility operating companies and System Energy on an “at cost” basis, pursuant to cost allocation methodologies for these service agreements that were approved by the FERC.
Jurisdictional Separation of Entergy Gulf States, Inc. into Entergy Gulf States Louisiana and Entergy Texas
Effective December 31, 2007, Entergy Gulf States, Inc. completed a jurisdictional separation into two vertically integrated utility companies, one operating under the sole retail jurisdiction of the PUCT, Entergy Texas, and the other operating under the sole retail jurisdiction of the LPSC, Entergy Gulf States Louisiana. Entergy Texas owns all Entergy Gulf States, Inc. distribution and transmission assets located in Texas, the gas-fired generating plants located in Texas, undivided 42.5% ownership shares of Entergy Gulf States, Inc.’s 70% ownership interest in Nelson Unit 6 and 42% ownership interest in Big Cajun 2, Unit 3, which are coal-fired generating plants located in Louisiana, and other assets and contract rights to the extent related to utility operations in Texas. Entergy Louisiana, as successor in interest to Entergy Gulf States Louisiana, owns all of the remaining assets that were owned by Entergy Gulf States, Inc. On a book value basis, approximately 58.1% of the Entergy Gulf States, Inc. assets were allocated to Entergy Gulf States Louisiana and approximately 41.9% were allocated to Entergy Texas.
Entergy Texas purchases from Entergy Louisiana pursuant to a life-of-unit purchased power agreement a 42.5% share of capacity and energy from the 70% of River Bend subject to retail regulation. Entergy Texas was allocated a share of River Bend’s nuclear and environmental liabilities that is identical to the share of the plant’s output purchased by Entergy Texas under the purchased power agreement. In connection with the termination of the System Agreement effective August 31, 2016, the purchased power agreements that were put in place for certain legacy units at the time of the jurisdictional separation were also terminated at that time. See Note 2 to the financial statements for additional discussion of the purchased power agreements.
Entergy Louisiana and Entergy Gulf States Louisiana Business Combination
On October 1, 2015, the businesses formerly conducted by Entergy Louisiana (Old Entergy Louisiana) and Entergy Gulf States Louisiana (Old Entergy Gulf States Louisiana) were combined into a single public utility. In order to effect the business combination, under the Texas Business Organizations Code (TXBOC), Old Entergy Louisiana allocated substantially all of its assets to a new subsidiary, Entergy Louisiana Power, LLC, a Texas limited liability company (New Entergy Louisiana), and New Entergy Louisiana assumed the liabilities of Old Entergy Louisiana, in a transaction regarded as a merger under the TXBOC. Under the TXBOC, Old Entergy Gulf States Louisiana allocated substantially all of its assets to a new subsidiary (New Entergy Gulf States Louisiana) and New Entergy Gulf States
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Louisiana assumed the liabilities of Old Entergy Gulf States Louisiana, in a transaction regarded as a merger under the TXBOC. New Entergy Gulf States Louisiana then merged into New Entergy Louisiana with New Entergy Louisiana surviving the merger. Thereupon, Old Entergy Louisiana changed its name from “Entergy Louisiana, LLC” to “EL Investment Company, LLC” and New Entergy Louisiana changed its name from “Entergy Louisiana Power, LLC” to “Entergy Louisiana, LLC” (Entergy Louisiana). With the completion of the business combination, Entergy Louisiana holds substantially all of the assets, and has assumed the liabilities, of Old Entergy Louisiana and Old Entergy Gulf States Louisiana. See Note 2 to the financial statements for additional discussion
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Entergy New Orleans Internal Restructuring
In November 2017, pursuant to the agreement in principle, Entergy New Orleans, Inc. undertook a multi-step restructuring, including the following:
Entergy New Orleans, Inc. redeemed its outstanding preferred stock at a price of approximately $21 million, which included a call premium of approximately $819,000, plus any accumulated and unpaid dividends.
Entergy New Orleans, Inc. converted from a Louisiana corporation to a Texas corporation.
Under the Texas Business Organizations Code (TXBOC), Entergy New Orleans, Inc. allocated substantially all of its assets to a new subsidiary, Entergy New Orleans Power, LLC, a Texas limited liability company (Entergy New Orleans Power), and Entergy New Orleans Power assumed substantially all of the liabilities of Entergy New Orleans, Inc. in a transaction regarded as a merger under the TXBOC. Entergy New Orleans, Inc. remained in existence and held the membership interests in Entergy New Orleans Power.
Entergy New Orleans, Inc. contributed the membership interests in Entergy New Orleans Power to an affiliate (Entergy Utility Holding Company, LLC, a Texas limited liability company and subsidiary of Entergy Corporation). As a result of the contribution, Entergy New Orleans Power is a wholly-owned subsidiary of Entergy Utility Holding Company, LLC.
In December 2017, Entergy New Orleans, Inc. changed its name to Entergy Utility Group, Inc., and Entergy New Orleans Power then changed its name to Entergy New Orleans, LLC. Entergy New Orleans, LLC holds substantially all of the assets, and has assumed substantially all of the liabilities, of Entergy New Orleans, Inc. The restructuring was accounted for as a transaction between entities under common control.
Earnings RatiosEntergy Arkansas Internal Restructuring
In November 2018, Entergy Arkansas undertook a multi-step restructuring, including the following:
Entergy Arkansas, Inc. redeemed its outstanding preferred stock at the aggregate redemption price of Registrant Subsidiariesapproximately $32.7 million.
Entergy Arkansas, Inc. converted from an Arkansas corporation to a Texas corporation.
Under the Texas Business Organizations Code (TXBOC), Entergy Arkansas, Inc. allocated substantially all of its assets to a new subsidiary, Entergy Arkansas Power, LLC, a Texas limited liability company (Entergy Arkansas Power), and Entergy Arkansas Power assumed substantially all of the liabilities of Entergy Arkansas, Inc., in a transaction regarded as a merger under the TXBOC. Entergy Arkansas, Inc. remained in existence and held the membership interests in Entergy Arkansas Power.
Entergy Arkansas, Inc. contributed the membership interests in Entergy Arkansas Power to an affiliate (Entergy Utility Holding Company, LLC, a Texas limited liability company and subsidiary of Entergy Corporation). As a result of the contribution, Entergy Arkansas Power is a wholly-owned subsidiary of Entergy Utility Holding Company, LLC.
In December 2018, Entergy Arkansas, Inc. changed its name to Entergy Utility Property, Inc., and Entergy Arkansas Power then changed its name to Entergy Arkansas, LLC. Entergy Arkansas, LLC holds substantially all of the assets, and assumed substantially all of the liabilities, of Entergy Arkansas, Inc. The Registrant Subsidiaries’ ratiostransaction was accounted for as a transaction between entities under common control.
Entergy Mississippi Internal Restructuring
In November 2018, Entergy Mississippi undertook a multi-step restructuring, including the following:
Entergy Mississippi, Inc. redeemed its outstanding preferred stock, at the aggregate redemption price of earningsapproximately $21.2 million.
Entergy Mississippi, Inc. converted from a Mississippi corporation to fixed charges and ratios of earnings to combined fixed charges and preferred dividends or distributions pursuant to Item 503 of SEC Regulation S-K are as follows:a Texas corporation.
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| | | | | | | | | |
| Ratios of Earnings to Fixed Charges Years Ended December 31, |
| 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
Entergy Arkansas | 2.87 | | 3.32 | | 2.04 | | 3.08 | | 3.62 |
Entergy Louisiana | 3.85 | | 3.57 | | 3.36 | | 3.44 | | 3.30 |
Entergy Mississippi | 4.49 | | 3.96 | | 3.59 | | 3.23 | | 3.19 |
Entergy New Orleans | 4.50 | | 4.61 | | 4.90 | | 3.55 | | 1.85 |
Entergy Texas | 2.41 | | 2.92 | | 2.22 | | 2.39 | | 1.94 |
System Energy | 4.91 | | 5.39 | | 4.53 | | 4.04 | | 5.66 |
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Under the Texas Business Organizations Code (TXBOC), Entergy Mississippi, Inc. allocated substantially all of its assets to a new subsidiary, Entergy Mississippi Power and Light, LLC, a Texas limited liability company (Entergy Mississippi Power and Light), and Entergy Mississippi Power and Light assumed substantially all of the liabilities of Entergy Mississippi, Inc., in a transaction regarded as a merger under the TXBOC. Entergy Mississippi, Inc. remained in existence and held the membership interests in Entergy Mississippi Power and Light. |
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| Ratios of Earnings to Combined Fixed Charges and Preferred Dividends or Distributions Years Ended December 31, |
| 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
Entergy Arkansas | 2.81 | | 3.09 | | 1.85 | | 2.76 | | 3.25 |
Entergy Louisiana | 3.85 | | 3.57 | | 3.24 | | 3.28 | | 3.14 |
Entergy Mississippi | 4.36 | | 3.71 | | 3.34 | | 3.00 | | 2.97 |
Entergy New Orleans | 4.24 | | 4.30 | | 4.50 | | 3.26 | | 1.70 |
Entergy Mississippi, Inc. contributed the membership interests in Entergy Mississippi Power and Light to an affiliate (Entergy Utility Holding Company, LLC, a Texas limited liability company and subsidiary of Entergy Corporation). As a result of the contribution, Entergy Mississippi Power and Light is a wholly-owned subsidiary of Entergy Utility Holding Company, LLC.
In December 2018, Entergy Mississippi, Inc. changed its name to Entergy Utility Enterprises, Inc., and Entergy Mississippi Power and Light then changed its name to Entergy Mississippi, LLC. Entergy Mississippi, LLC holds substantially all of the assets, and assumed substantially all of the liabilities, of Entergy Mississippi, Inc. The Registrant Subsidiaries accrue interest expense related to unrecognized tax benefits in income tax expense and do not include it in fixed charges.restructuring was accounted for as a transaction between entities under common control.
Entergy Wholesale Commodities
Entergy Wholesale Commodities includes the ownership, operation, and decommissioning of nuclear power plants, located in the northern United States and the sale of the electric power produced by its operating plants to wholesale customers. Entergy Wholesale Commodities revenues are primarily derived from sales of energy and generation capacity from these plants. Entergy Wholesale Commodities also provides operations and management services, including decommissioningdecommissioning-related services, to nuclear power plants owned by other utilitiesnon-affiliated entities in the United States. Entergy Wholesale Commodities also includes the ownership of interests in non-nuclear power plants that sell the electric power produced by those plants to wholesale customers.
On December 29, 2014, Entergy Wholesale Commodities’ Vermont Yankee plant was removed from the grid, after 42 years of operations. The decision to close and decommission Vermont Yankee, which was announced in August 2013, was due to numerous issues including sustained low natural gas and wholesale energy prices, the high cost structure of the plant, and lack of a market structure that adequately compensates merchant nuclear plants for their environmental and fuel diversity benefits in the Northeast region. In November 2016, Entergy entered into an agreement to sell 100% of its membership interest in Entergy Nuclear Vermont Yankee, LLC to a subsidiary of NorthStar. Entergy Nuclear Vermont Yankee is the owner of the Vermont Yankee plant. The sale of Entergy Nuclear Vermont Yankee to NorthStar will include the transfer of Entergy Nuclear Vermont Yankee’s nuclear decommissioning trust fund and the asset retirement obligation for spent fuel management and decommissioning of the plant. Entergy plans to transfer all spent nuclear fuel to dry cask storage by the end of 2018 in advance of the planned transaction close. Under the sale and related agreements to be entered into at the closing, NorthStar will commit to initiate decommissioning and site restoration by 2021 and complete those activities, along with partial restoration of the Vermont Yankee site, with the exception of the independent spent fuel storage installation and switchyard, by 2030. The original completion date, as outlined in Entergy’s Post Shutdown Decommissioning Activities Report filed with the NRC, was 2075. The transaction is contingent upon certain closing conditions, including approval by the NRC; approval by the State of Vermont Public Utility Commission, including approval of site restoration standards that will be proposed as part of the transaction; the transfer of all spent nuclear fuel to dry fuel storage on the independent spent fuel storage installation; and that the market value of the assets held in the decommissioning trust fund for the Vermont Yankee Nuclear Power Station, less the hypothetical income tax on the aggregate unrealized net gain of such assets at closing, is equal to or exceeds $451.95 million, subject to adjustments.
In October 2015, Entergy determined that it would close the FitzPatrick plant at the end of its fuel cycle in January 2017. In August 2016, Entergy entered into an agreement to sell the FitzPatrick plant to Exelon. The transaction was contingent upon, among other things, the expiration of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, the receipt of necessary regulatory approvals from the FERC, the NRC, and the Public Service Commission of the State of New York (NYPSC), and the receipt of a private letter ruling from the IRS. Because certain specified conditions were satisfied in November 2016, including the continued effectiveness of the Clean Energy Standards/Zero Emissions Credit program (CES/ZEC), the establishment of certain long-term agreements on acceptable terms with the Energy Research and Development Authority of the State of New York in connection with the CES/ZEC program, and NYPSC approval of the transaction on acceptable terms, Entergy
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refueled the FitzPatrick plant in January and February 2017. The sale closed in March 2017 after obtaining all the necessary approvals.
In October 2015, Entergy determined that it would close the Pilgrim plant. The decision came after management’s extensive analysis of the economics and operating life of the plant following the NRC’s decision in September 2015 to place the plant in its “multiple/repetitive degraded cornerstone column” (Column 4) of its Reactor Oversight Process Action Matrix. The Pilgrim plant is expected to cease operations on May 31, 2019, after refueling in the spring of 2017 and operating through the end of that fuel cycle.
In December 2015, Entergy Wholesale Commodities closed on the sale of its 583 MW Rhode Island State Energy Center, in Johnston, Rhode Island. The base sales price, excluding adjustments, was approximately $490 million. Entergy Wholesale Commodities purchased the Rhode Island State Energy Center for $346 million in December 2011.
In December 2016, Entergy announced that it had reached an agreement with Consumers Energy to terminate the existing PPA for the Palisades plant on May 31, 2018. Pursuant to the agreement, Consumers Energy would pay Entergy $172 million for the early termination of the PPA. The PPA amendment agreement was subject to regulatory approvals, including approval by the Michigan Public Service Commission. Separately, Entergy intended to shut down the Palisades nuclear power plant permanently on October 1, 2018, after refueling in the spring of 2017 and operating through the end of that fuel cycle. In September 2017 the Michigan Public Service Commission issued an order conditionally approving the PPA amendment transaction, but granting Consumers Energy recovery of only $136.6 million of the $172 million requested early termination payment. As a result, Entergy and Consumers Energy agreed to terminate the PPA amendment agreement. Entergy will continue to operate Palisades under the current PPA with Consumers Energy, instead of shutting down in the fall of 2018 as previously planned. Entergy intends to shut down the Palisades nuclear power plant permanently on May 31, 2022.
In January 2017, Entergy reached a settlement with New York State, several State agencies, and Riverkeeper, Inc., under which Indian Point 2 and Indian Point 3 will cease commercial operation by April 30, 2020 and April 30, 2021, respectively, subject to certain conditions, including New York State’s withdrawal of opposition to Indian Point’s license renewals and issuance of contested permits and similar authorizations. See Note 14 to the financial statements for a discussion of the impairment and related charges associated with the settlement with New York State.
The Indian Point settlement required New York State agencies to issue environmental certifications needed for license renewal and a renewed water discharge permit based on current plant configuration. It also required the New York State Attorney General and Riverkeeper to withdraw their contentions pending before the Atomic Safety and Licensing Board (ASLB). In exchange, Entergy commits to cease commercial operation of Indian Point 2 by April 30, 2020 and Indian Point 3 by April 30, 2021. These actions have been completed, all New York State approvals required for the NRC to issue renewed licenses have been granted, and the ASLB has terminated proceedings before it following the withdrawal of pending contentions. The NRC is not expected to issue renewed licenses earlier than third quarter 2018, as its staff must complete updates to the record on environmental and safety matters (a supplement to the final supplemental environmental impact statement and a supplement to the final safety evaluation report).
With the settlement concerning Indian Point, Entergy has announced plans for the disposition of all of the Entergy Wholesale Commodities nuclear power plants, including the sales of Vermont Yankee and FitzPatrick, and the earlier than previously expected shutdowns of Pilgrim, Palisades, Indian Point 2, and Indian Point 3. See “Entergy Wholesale Commodities Exit from the Merchant Power Business” in Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for further discussion.discussion of the operation and planned shutdown and sale of each of the remaining Entergy Wholesale Commodities nuclear power plants.
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Property
Nuclear Generating Stations
Entergy Wholesale Commodities includes the ownership of the following nuclear power plants:
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Power Plant | | Market | | In Service Year | | Acquired | | Location | | Capacity - Reactor Type | | License Expiration Date |
Pilgrim (a) | | ISO-NE | | 1972 | | July 1999 | | Plymouth, MA | | 688 MW - Boiling Water | | 2032 (a) |
Indian Point 3 (b)(a) | | NYISO | | 1976 | | Nov. 2000 | | Buchanan, NY | | 1,041 MW - Pressurized Water | | 2015 (b)2025 (a) |
Indian Point 2 (b)(a) | | NYISO | | 1974 | | Sept. 2001 | | Buchanan, NY | | 1,028 MW - Pressurized Water | | 2013 (b) |
Vermont Yankee (c) | | IS0-NE | | 1972 | | July 2002 | | Vernon, VT | | 605 MW - Boiling Water | | 2032 (c)2024 (a) |
Palisades (d)(b) | | MISO | | 1971 | | Apr. 2007 | | Covert, MI | | 811 MW - Pressurized Water | | 2031 (d)(b) |
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(a) | In October 2015, Entergy determined that it would close the Pilgrim plant no later than June 1, 2019, as discussed above.The Indian Point 2 and Indian Point 3 plants are expected to cease operation by April 30, 2020 and April 30, 2021, respectively. |
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(b) | In January 2017, Entergy announced that it reached a settlement with New York State to shut down Indian Point 2 by April 30, 2020 and Indian Point 3 by April 30, 2021, and resolve all New York State-initiated legal challenges to Indian Point’s operating license renewal. See below for discussion of Indian Point 2 and Indian Point 3 entering their “period of extended operation” after expiration of the plants’ initial license terms under “timely renewal.” |
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(c) | On December 29, 2014, the Vermont Yankee plant ceased power production. In November 2016, Entergy entered into an agreement to sell 100% of the membership interest in Entergy Nuclear Vermont Yankee, to NorthStar. Entergy Nuclear Vermont Yankee is the owner of the Vermont Yankee plant. |
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(d) | In December 2016, Entergy announced that it had reached an agreement with Consumers Energy to terminate the existing PPA for theThe Palisades plant in 2018. Separately, and assuming regulatory approvals are obtained for the PPA termination agreement, Entergy intendedis expected to shut down the Palisades nuclear power plant permanently on October 1, 2018, after refueling in the spring of 2017 and operating through the end of that fuel cycle. In September 2017, as a result of the Michigan Public Service Commission’s order, Entergy and Consumers Energy agreed to terminate the PPA amendment agreement. Entergy intends to shut down the Palisades nuclear power plant permanently oncease operations no later than May 31, 2022. |
In October 2015, See “Entergy determined that it would closeWholesale Commodities Exit from the FitzPatrick plant at the endMerchant Power Business” in Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for further discussion of the fuel cycle, in January 2017, but in August 2016,operation and planned shutdown and sale of each of the remaining Entergy entered into an agreement to sell the FitzPatrick plant to Exelon,Wholesale Commodities nuclear power plants.
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Entergy Wholesale Commodities also includes the ownership of two non-operating nuclear facilities, Big Rock Point in Michigan and Indian Point 1 in New York that were acquired when Entergy purchased the Palisades and Indian Point 2 nuclear plants, respectively. These facilities are in various stages of the decommissioning process.
In April 2007, Entergy submitted to the NRC a joint application to renew the operating licenses for Indian Both Big Rock Point 2 and Indian Point 3 for an additional 20 years. The original expiration dates of the NRC operating licenses for Indian Point 2 and Indian Point 3 were September 28, 2013 and December 12, 2015, respectively. Authorization1 are under contract to operate Indian Point 2 and Indian Point 3 rests on Entergy’s having timely filed a license renewal application that remains pending before the NRC. Indian Point 2 and Indian Point 3 have now enteredbe sold with their “period of extended operation” after expiration of the plants’ initial license term under “timely renewal,” which is a federal statutory rule of general applicability providing for extension of a license for which a renewal application has been timely filed with the licensing agency until the license renewal process has been completed. The license renewal application for Indian Point 2 and Indian Point 3 qualifies for timely renewal protection because it met NRC regulatory standards for timely filing. The NRC is not expected to issue renewed licenses earlier than third quarter 2018. For additional discussion of the license renewal applications and the settlement with New York State, see “Entergy Wholesale Commoditiesrespective plants.
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Authorizations to Operate Indian Point” in Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis.
Non-nuclear Generating Stations
In November 2016, Entergy sold its 50% membership interest in Top Deer Wind Ventures, LLC, a wind-powered electric generation joint venture owned in the Entergy Wholesale Commodities segment and accounted for as an equity method investment. Entergy sold its 50% membership interest in Top Deer for $0.5 million and realized a pre-tax loss of $0.2 million.
Entergy Wholesale Commodities includes the ownership, or interests in joint ventures that own, the following non-nuclear power plants:
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Plant | | Location | | Ownership | | Net Owned Capacity (a) | | Type |
Independence Unit 2; 842 MW | | Newark, AR | | 14% | | 121 MW(b) | | Coal |
RS Cogen; 425 MW (c) | | Lake Charles, LA | | 50% | | 213 MW | | Gas/Steam |
Nelson Unit 6; 550 MW | | Westlake, LA | | 11% | | 60 MW(b) | | Coal |
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(a) | “Net Owned Capacity” refers to the nameplate rating on the generating unit. |
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(b) | The owned MW capacity is the portion of the plant capacity owned by Entergy Wholesale Commodities. For a complete listing of Entergy’s jointly-owned generating stations, refer to “Jointly-Owned Generating Stations” in Note 1 to the financial statements. |
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(c) | Indirectly owned through interests in unconsolidated joint ventures. |
Independent System Operators
The Pilgrim plant falls under the authority of the Independent System Operator New England (ISO-NE) and the Indian Point plants fall under the authority of the New York Independent System Operator (NYISO). The Palisades plant falls under the authority of the MISO. The primary purpose of ISO-NE, NYISO and MISO is to direct the operations of the major generation and transmission facilities in their respective regions; ensure grid reliability; administer and monitor wholesale electricity markets; and plan for their respective region’s energy needs.
Energy and Capacity Sales
As a wholesale generator, Entergy Wholesale Commodities’ core business is selling energy, measured in MWh, to its customers. Entergy Wholesale Commodities enters into forward contracts with its customers and also sells energy in the day ahead or spot markets. Entergy Wholesale Commodities also sells unforced capacity, which allows load-serving entities to meet specified reserve and related requirements placed on them by the ISOs in their respective areas. Entergy Wholesale Commodities’ forward physical power contracts consist of contracts to sell energy only, contracts to sell capacity only, and bundled contracts in which it sells both capacity and energy. While the terminology and payment mechanics vary in these contracts, each of these types of contracts requires Entergy Wholesale Commodities to deliver MWh of energy, make capacity available, or both. See “Market and Credit Risk Sensitive Instruments” in Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for additional information regarding these contracts.
As part of the purchase of the Palisades plant in 2007, Entergy executed a 15-year PPA with the seller, Consumers Energy, for 100% of the plant’s output, excluding any future uprates. Under the purchased power agreement, Consumers Energy receives the value of any new environmental credits for the first ten years of the agreement. Palisades and Consumers Energy will share on a 50/50 basis the value of any new environmental credits for years 11 through 15 of the agreement. The environmental credits are defined as benefits from a change in law that causes capability of the plant as of the purchase date to become a tradable attribute (e.g., emission credit, renewable energy credit, environmental credit, “green” credit, etc.) or otherwise to have a market value. Entergy intends to shut down the Palisades nuclear power plant permanently on May 31, 2022 and transfer to Holtec thereafter.
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credit, “green” credit, etc.) or otherwise to have a market value. In December 2016, Entergy announced that it reached an agreement with Consumers Energy to terminate the existing PPA for the Palisades plant in 2018. Entergy intended to shut down the Palisades nuclear power plant permanently on October 1, 2018, after refueling in the spring of 2017 and operating through the end of that fuel cycle. In September 2017, as a result of the Michigan Public Service Commission’s order, Entergy and Consumers Energy agreed to terminate the PPA amendment agreement. Entergy intends to shut down the Palisades nuclear power plant permanently on May 31, 2022. See discussion above for additional details regarding the agreement.
Customers
Entergy Wholesale Commodities’ customers for the sale of both energy and capacity from its nuclear plants include retail power providers, utilities, electric power co-operatives, power trading organizations, and other power generation companies. These customers include Consolidated Edison and Consumers Energy, companiesthe company from which Entergy purchased plants,the Palisades plant, and ISO-NE, NYISO and MISO. Substantially all of the credit exposure associated with the planned energy output under contract for Entergy Wholesale Commodities nuclear plants is with counterparties or their guarantors that have public investment grade credit ratings.
Competition
The ISO-NE and NYISO markets aremarket is highly competitive. Entergy Wholesale Commodities has numerous competitors in New England and New York including generation companies affiliated with regulated utilities, other independent power producers, municipal and co-operative generators, owners of co-generation plants and wholesale power marketers. Entergy Wholesale Commodities is an independent power producer, which means it generates power for sale to third parties at day ahead or spot market prices to the extent that the power is not sold under a fixed price contract. Municipal and co-operative generators also generate power but use most of it to deliver power to their municipal or co-operative power customers. Owners of co-generation plants produce power primarily for their own consumption. Wholesale power marketers do not own generation; rather they buy power from generators or other market participants and resell it to retail providers or other market participants. Competition in the New England and New York power marketsmarket is affected by, among other factors, the amount of generation and transmission capacity in these markets. MISO does not have a centralized clearing capacity market, but load serving entities do meet the majority of their capacity needs through bilateral contracts and self-supply with a smaller portion coming through voluntary MISO auctions. The majority of Palisades’ current output is contracted to Consumers Energy through 2022. Entergy Wholesale Commodities does not expect to be materially affected by competition in the MISO market in the near term.
Seasonality
Entergy Wholesale Commodities’ revenues and operating income are subject to fluctuations during the year due to seasonal factors, weather conditions, and contract pricing. Refueling outages are generally in the spring and fall, and cause volumetric decreases during those seasons. When outdoor and cooling water temperatures are low, generally during colder months, Entergy Wholesale Commodities nuclear power plants operate more efficiently, and consequently, generate more electricity. Many of Entergy Wholesale Commodities’ contracts provide for shaped pricing over the course of the year. As a result of these factors, Entergy Wholesale Commodities’ revenues are typically higher in the first and third quarters than in the second and fourth quarters.
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Fuel Supply
Nuclear Fuel
See “Fuel Supply - Nuclear Fuel” in the Utility portion of Part I, Item 1 for a discussion of the nuclear fuel cycle and markets. Entergy Nuclear Fuels Company, a wholly-owned subsidiary, is responsible for contracts to acquire nuclear materials, except for fuel fabrication, for Entergy Wholesale Commodities nuclear power plants, while Entergy Nuclear Operations, Inc. acts as the agent for the purchase of nuclear fuel assembly fabrication services. All contracts for the disposal of spent nuclear fuel are between the DOE and each of the nuclear power plant owners. The nuclear fuel supply portfolio for the Entergy Wholesale Commodities segment has been adjusted to reflect reduced overall requirements related to the planned permanent shutdowns of the Indian Point 2, Indian Point 3, and Palisades plants. Fuel procurement for the Entergy Wholesale Commodities segment is limited to the requirements of the Palisades plant’s final refueling in 2020.
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Other Business Activities
Entergy Nuclear Power Marketing, LLC (ENPM) was formed in 2005 to centralize the power marketing function for Entergy Wholesale Commodities nuclear plants. Upon its formation, ENPM entered into long-term power purchase agreements with the Entergy Wholesale Commodities subsidiaries that own nuclear power plants (generating subsidiaries). As part of a series of agreements, ENPM agreed to assume and/or otherwise service the existing power purchase agreements that were in effect between the generating subsidiaries and their customers. ENPM’s functions include origination of new energy and capacity transactions and generation scheduling.
Entergy Nuclear, Inc. can pursue service agreements with other nuclear power plant owners who seek the advantages of Entergy’s scale and expertise but do not necessarily want to sell their assets. Services provided by either Entergy Nuclear, Inc. or other Entergy Wholesale Commodities subsidiaries include engineering, operations and maintenance, fuel procurement, management and supervision, technical support and training, administrative support, and other managerial or technical services required to operate, maintain, and decommission nuclear electric power facilities. Entergy Nuclear, Inc. provided decommissioning services for the Maine Yankee nuclear power plant.
TLG Services, a subsidiary of Entergy Nuclear, Inc., offers decommissioning, engineering, and related services to nuclear power plant owners.
In September 2003, Entergy agreed to provideprovides plant operation support services for the 800 MW Cooper Nuclear Station located near Brownville, Nebraska. The original contract was to expire in 2014 corresponding to the original operating license life of the plant. In 2006 an Entergy subsidiary signed an agreement to provide license renewal services for the Cooper Nuclear Station. The Cooper Nuclear Station received its license renewal from the NRC in November 2010. In 2010 an Entergy subsidiary signed an agreement to extend the management support services to Cooper Nuclear Station by 15 years, through January 2029. In 2017 the contract was amended so that it could not be terminated prior to December 21, 2022.
Regulation of Entergy’s Business
Federal Power Act
The Federal Power Act provides the FERC the authority to regulate:
the transmission and wholesale sale of electric energy in interstate commerce;
the reliability of the high voltage interstate transmission system through reliability standards;
sale or acquisition of certain assets;
securities issuances;
the licensing of certain hydroelectric projects;
certain other activities, including accounting policies and practices of electric and gas utilities; and
changes in control of FERC jurisdictional entities or rate schedules.
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The Federal Power Act gives the FERC jurisdiction over the rates charged by System Energy for Grand Gulf capacity and energy provided to Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans and over some of the rates charged by Entergy Arkansas and Entergy Louisiana.Louisiana to unaffiliated wholesale customers. The FERC also regulates wholesale power sales between the provisions ofUtility operating companies. In addition, the System Agreement, including the rates, and the provision of transmission service to wholesale market participants. The FERC also regulates the MISO RTO, an independent entity that maintains functional control over the combined transmission systems of its members and administers wholesale energy, capacity, and ancillary services markets for market participants in the MISO region, including the Utility operating companies. FERC regulation of the MISO RTO includes regulation of the design and implementation of the wholesale markets administered by the MISO RTO, as well as the rates, terms, and conditions of open access transmission service over the member systems and the allocation of costs associated with transmission upgrades.
Entergy Arkansas holds a FERC license that expires in 2053 for two hydroelectric projects totaling 70 MW of capacity.
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State Regulation
Utility
Entergy Arkansas is subject to regulation by the APSC which includesas to the authority to:following:
oversee utility service;
set utility service areas;
retail rates and charges, including depreciation rates;
determine reasonablefuel cost recovery, including audits of the energy cost recovery rider;
terms and adequateconditions of service;
control leasing;service standards;
control the acquisition, sale, or salelease of any public utility plant or property constituting an operating unit or system;
set rates of depreciation;
issue certificates of convenience and necessity and certificates of environmental compatibility and public need;need, as applicable, for generating and transmission facilities;
avoided cost payments to Qualifying Facilities;
net energy metering;
integrated resource planning;
utility mergers and acquisitions and other changes of control; and
regulate the issuance and sale of certain securities.
Additionally, Entergy Arkansas serves a limited number of retail customers in Tennessee. Pursuant to recent legislation enacted in Tennessee, Entergy Arkansas is subject to complaints before the Tennessee Regulatory Authority only if it fails to treat its retail customers in Tennessee in the same manner as its retail customers in Arkansas. Additionally, Entergy Arkansas maintains limited facilities in Missouri but does not provide retail electric service to customers in Missouri. Although Entergy Arkansas obtained a certificate with respect to its Missouri facilities, Entergy Arkansas is not subject to the retail rate or regulatory scheme in Missouri.
Entergy Louisiana’s electric and gas business is subject to regulation by the LPSC as to:to the following:
utility service;
retail rates and charges;charges, including depreciation rates;
fuel cost recovery, including audits of the fuel adjustment clause and purchased gas adjustment charge;
terms and conditions of service;
service standards;
certification of generating facilities and certain transmission projects;
certification of power or capacity acquisitions, both for owned capacity and purchase power contracts;
auditprocurement process to acquire over 50 MW;
audits of the fuel adjustment charge, environmental adjustment charge, and avoided cost payment to Qualifying Facilities;Facilities, and energy efficiency rider;
integrated resource planning;
net energy metering; and
utility mergers and acquisitions and other changes of control;control.
Entergy Mississippi is subject to regulation by the MPSC as to the following:
utility service;
utility service areas;
retail rates and charges, including depreciation rates;
depreciationfuel cost recovery, including audits of the energy cost recovery mechanism;
terms and other matters.conditions of service;
service standards;
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Entergy Mississippi is subject to regulation by the MPSC as to the following:
utility service;
service areas;
facilities;
certification of generating facilities and certain transmission projects;
retail rates;avoided cost payments to Qualifying Facilities;
fuel cost recovery;integrated resource planning;
depreciation rates;net energy metering; and
utility mergers, acquisitions, and other changes of control.
Entergy Mississippi is also subject to regulation by the APSC as to the certificate of environmental compatibility and public need for the Independence Station, which is located in Arkansas.
Entergy New Orleans is subject to regulation by the City Council as to the following:
utility service;
retail rates and charges;charges, including depreciation rates;
standardsfuel cost recovery, including audits of the fuel adjustment charge and purchased gas adjustment charge;
terms and conditions of service;
depreciation and other matters;service standards;
audit of the environmental adjustment charge;
certification of the construction or extension of any new plant, equipment, property, or facility that comprises more than 2% of the utility’s rate base;
integrated resource planning;
net energy metering;
issuance and sale of certain securities; and
utility mergers and acquisitions and other changes of control.
To the extent authorized by governing legislation, Entergy Texas is subject to the original jurisdiction of the municipal authorities of a number of incorporated cities in Texas with appellate jurisdiction over such matters residing in the PUCT. Entergy Texas is also subject to regulation by the PUCT as to:to the following:
retail rates and charges, including depreciation rates, and terms and conditions of service in unincorporated areas of its service territory, and in municipalities that have ceded jurisdiction to the PUCT;
customer fuel recovery, including reconciliations (audits) of the fuel adjustment charges;
service standards;
certification of certain transmission and generation projects;
utility service areas, including extensions into new areas;
avoided cost payments to Qualifying Facilities; and
extensionsutility mergers, sales/acquisitions/leases of service into new areas.plants over $10 million, sales of greater than 50% voting stock of utilities, and transfers of controlling interest in or operation of utilities.
Regulation of the Nuclear Power Industry
Atomic Energy Act of 1954 and Energy Reorganization Act of 1974
Under the Atomic Energy Act of 1954 and the Energy Reorganization Act of 1974, the operation of nuclear plants is heavily regulated by the NRC, which has broad power to impose licensing and safety-related requirements. The NRC has broad authority to impose finescivil penalties or shut down a unit, or both, depending upon its assessment of the severity of the situation, until compliance is achieved. Entergy Arkansas, Entergy Louisiana, and System Energy, as owners of all or portions of ANO, River Bend and Waterford 3, and Grand Gulf, respectively, and Entergy Operations, as the licensee and operator of these units, are subject to the jurisdiction of the NRC. Entergy subsidiaries in the Entergy Wholesale Commodities segment are subject to the NRC’s jurisdiction as the owners and operators of Pilgrim, Indian Point Energy Center, Vermont Yankee,Palisades, and Palisades. Substantial capital expenditures, increased operating expenses, and/or higher decommissioning costs at Entergy’s nuclear plants because of revised safety requirements of the NRC could be required in the future.Big Rock Point.
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Nuclear Waste Policy Act of 1982
Spent Nuclear Fuel
Under the Nuclear Waste Policy Act of 1982, the DOE is required, for a specified fee, to construct storage facilities for, and to dispose of, all spent nuclear fuel and other high-level radioactive waste generated by domestic nuclear power reactors. Entergy’s nuclear owner/licensee subsidiaries have been charged fees for the estimated future disposal costs of spent nuclear fuel in accordance with the Nuclear Waste Policy Act of 1982. The affected Entergy companies entered into contracts with the DOE, whereby the DOE is to furnish disposal services at a cost of one mill per net kWh generated and sold after April 7, 1983, plus a one-time fee for generation prior to that date. Entergy Arkansas is the only one of the Utility operating companies that generated electric power with nuclear fuel prior to that date and has a recorded liability as of December 31, 20172019 of $183.3$191.1 million for the one-time fee. Entergy accepted assignment of the Pilgrim, FitzPatrick and Indian Point 3, Indian Point 1 and Indian Point 2, Vermont Yankee, Palisades, and Big Rock Point spent fuel disposal contracts with the DOE held by their previous owners. The FitzPatrick spent fuel disposal contract was assigned to Exelon as part of the sale of the plant, completed in March 2017. The Vermont Yankee spent fuel disposal contract was assigned to NorthStar as part of the sale of the plant which was completed in January 2019. The Pilgrim spent fuel disposal contract was transferred to Holtec as part of the sale of Entergy Nuclear Generation Company in August 2019. The owners of these plants previous ownersto Entergy have paid or retained liability for the fees for all generation prior to the purchase dates of those plants. The fees payable to the DOE may be adjusted in the future to assure full recovery. Entergy considers all costs incurred for the disposal of spent nuclear fuel, except accrued interest, to be proper components of nuclear fuel expense. Provisions to recover such costs have been or will be made in applications to regulatory authorities for the Utility plants. Entergy’s total spent fuel fees to date, including the one-time fee liability of Entergy Arkansas, have surpassed $1.6 billion (exclusive of amounts relating to Entergy plants that were paid or are owed by prior owners of those plants).
The permanent spent fuel repository in the U.S. has been legislated to be Yucca Mountain, Nevada. The DOE is required by law to proceed with the licensing (the DOE filed the license application in June 2008) and, after the license is granted by the NRC, proceed with the repository construction and commencement of receipt of spent fuel. Because the DOE has not begun accepting spent fuel, it is in non-compliance with the Nuclear Waste Policy Act of 1982 and has breached its spent fuel disposal contracts. The DOE continues to delay meeting its obligation. Specific steps were taken to discontinue the Yucca Mountain project, including a motion to the NRC to withdraw the license application with prejudice and the establishment of a commission to develop recommendations for alternative spent fuel storage solutions. In August 2013 the U.S. Court of Appeals for the D.C. Circuit ordered the NRC to continue with the Yucca Mountain license review, but only to the extent of funds previously appropriated by Congress for that purpose and not yet used. Although the NRC completed the safety evaluation report for the license review in 2015, the previously appropriated funds are not sufficient to complete the review, including required hearings. The government has taken no effective action to date related to the recommendations of the appointed spent fuel study commission. Accordingly, large uncertainty remains regarding the time frame under which the DOE will begin to accept spent fuel from Entergy’s facilities for storage or disposal. As a result, continuing future expenditures will be required to increase spent fuel storage capacity at Entergy’s nuclear sites.
Following the defunding of the Yucca Mountain spent fuel repository program, the National Association of Regulatory Utility Commissioners and others sued the government seeking cessation of collection of the one mill per net kWh generated and sold after April 7, 1983 fee. In November 2013 the D.C. Circuit Court of Appeals ordered the DOE to submit a proposal to Congress to reset the fee to zero until the DOE complies with the Nuclear Waste Policy Act or Congress enacts an alternative waste disposal plan. In January 2014 the DOE submitted the proposal to Congress under protest, and also filed a petition for rehearing with the D.C. Circuit. The petition for rehearing was denied. The zero spent fuel fee went into effect prospectively in May 2014. Management cannot predict the potential timing or magnitude of future spent fuel fee revisions that may occur.
As a result of the DOE’s failure to begin disposal of spent nuclear fuel in 1998 pursuant to the Nuclear Waste Policy Act of 1982 and the spent fuel disposal contracts, Entergy’s nuclear owner/licensee subsidiaries have incurred and will continue to incur damages. These subsidiaries have been, and continue to be, involved in litigation to recover the damages caused by the DOE’s delay in performance. Through 2017, Entergy’s subsidiaries won and collected on judgments against the government totaling over $500 million.
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In April 2015 the U.S. Courtdamages caused by the DOE’s delay in performance. See Note 8 to the financial statements for discussion of Federal Claims issued a judgmentfinal judgments recorded by Entergy in 2017, 2018, and 2019 related to Entergy’s nuclear owner licensee subsidiaries’ litigation with the amount of $29 million in favor of Entergy ArkansasDOE. Through 2019, Entergy’s subsidiaries won and collected on judgments against the DOE in the second round ANO damages case. Also in April 2015 the U.S. Court of Federal Claims issued a judgment in the amount of $44 million in favor of System Energy and against the DOE in the second round Grand Gulf damages case. In June 2015, Entergy Arkansas and System Energy appealed to the U.S. Court of Appeals for the Federal Circuit portions of those decisions relating to cask loading costs. In April 2016 the Federal Circuit issued a decision in both appeals in favor of Entergy Arkansas and System Energy, and remanded the cases back to the U.S. Court of Federal Claims. In June 2016 the U.S. Court of Federal Claims issued a final judgment in the amount of $49 million in favor of System Energy and against the DOE in the second round Grand Gulf damages case, and Entergy received the payment from the U.S. Treasury in August 2016. In July 2016 the U.S. Court of Federal Claims issued a final judgment in the amount of $31 million in favor of Entergy Arkansas and against the DOE in the second round ANO damages case, and Entergy received payment from the U.S. Treasury in October 2016.government totaling over $600 million.
In May 2015 the U.S. Court of Federal Claims issued a final partial summary judgment on a portion, $21 million, of the claims in the Palisades case. The DOE did not appeal that decision, and Entergy received the payment from the U.S. Treasury in October 2015.
In December 2015 the U.S. Court of Federal Claims issued a judgment in the amount of $81 million in favor of Entergy Nuclear Indian Point 3 and Entergy Nuclear FitzPatrick in the first round Indian Point 3/FitzPatrick damages case, and Entergy received the payment from the U.S. Treasury in June 2016.
In January 2016 the U.S. Court of Federal Claims issued a judgment in the amount of $49 million in favor of Entergy Louisiana and against the DOE in the first round Waterford 3 damages case. In April 2016, Entergy Louisiana appealed to the U.S. Court of Appeals for the Federal Circuit the portion of that decision relating to cask loading costs. After the ANO and Grand Gulf appeal was rendered, the U.S. Court of Appeals for the Federal Circuit remanded the Waterford 3 case back to the U.S. Court of Federal Claims for decision in accordance with the U.S. Court of Appeals ruling on cask loading costs. In August 2016 the U.S. Court of Federal Claims issued a final judgment in the Waterford 3 case in the amount of $53 million, and Entergy Louisiana received the payment from the U.S. Treasury in November 2016.
In April 2016 the U.S. Court of Federal Claims issued a partial judgment in the amount of $42 million in favor of Entergy Louisiana and against the DOE in the first round River Bend damages case, reserving the issue of cask loading costs pending resolution of the appeal on the same issues in the Entergy Arkansas and System Energy cases. Entergy Louisiana received payment from the U.S. Treasury in August 2016. In September 2016 the U.S. Court of Federal Claims issued a further judgment in the River Bend case in the amount of $5 million. Entergy Louisiana received the payment from the U.S. Treasury in January 2017. In May 2017 the U.S. Court of Federal Claims issued a final judgment in the first round River Bend damages case for $0.6 million, awarding certain cask loading costs that had not previously been adjudicated by the court.
In May 2016, Entergy Nuclear Vermont Yankee and the DOE entered into a stipulated agreement and the U.S. Court of Federal Claims issued a judgment in the amount of $19 million in favor of Entergy Nuclear Vermont Yankee and against the DOE in the second round Vermont Yankee damages case. Entergy received payment from the U.S. Treasury in June 2016.
In September 2016 the U.S. Court of Federal Claims issued a final judgment in the Entergy Nuclear Palisades case in the amount of $14 million. Entergy Nuclear Palisades received payment from the U.S. Treasury in January 2017.
In October 2016 the U.S. Supreme Court of Federal Claims issued a judgment in the second round Entergy Nuclear Indian Point 2 case in the amount of $34 million. Entergy Nuclear Indian Point 2 received payment from the U.S. Treasury in January 2017.
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Management cannot predict the timing or amount of any potential recoveries on other claims filed by Entergy subsidiaries, and cannot predict the timing of any eventual receipt from the DOE of the U.S. Court of Federal Claims damage awards.
Pending DOE acceptance and disposal of spent nuclear fuel, the owners of nuclear plants are providing their own spent fuel storage. Storage capability additions using dry casks began operations at Palisades in 1993, at ANO in 1996, at FitzPatrick in 2002, at River Bend in 2005, at Grand Gulf in 2006, at Indian Point and Vermont Yankee in 2008, and at Waterford 3 in 2011, and at Pilgrim in 2015.2011. These facilities will be expanded as needed.
Nuclear Plant Decommissioning
Entergy Arkansas, Entergy Louisiana, and System Energy are entitled to recover from customers through electric rates the estimated decommissioning costs for ANO, Waterford 3, and Grand Gulf, respectively. In addition, Entergy Louisiana and Entergy Texas are entitled to recover from customers through electric rates the estimated decommissioning costs for the portion of River Bend subject to retail rate regulation. The collections are deposited in trust funds that can only be used for future decommissioning costs.in accordance with NRC and other applicable regulatory requirements. Entergy periodically reviews and updates the estimated decommissioning costs to reflect inflation and changes in regulatory requirements and technology, and then makes applications to the regulatory authorities to reflect, in rates, the changes in projected decommissioning costs.
In July 2010 the LPSC approved increased decommissioning collections for Waterford 3 and the Louisiana regulated share of River Bend and in December 2010 the PUCT approved increased decommissioning collections for the Texas share of River Bend to address previously identified funding shortfalls. This LPSC decision contemplated that the level of decommissioning collections could be revisited should the NRC grant license extensions for both Waterford 3 and River Bend. In July 2019, following the NRC approval of license extensions for Waterford 3 and River Bend, Entergy made a filing with the LPSC seeking to adjust decommissioning and depreciation rates for those plants, including one proposed scenario that would adjust Louisiana-jurisdictional decommissioning collections to zero for both plants (including an offsetting increase in depreciation rates). An evidentiary hearing on the filing has been scheduled for July 2020, and management cannot predict the outcome of the case. In December 20162018 the APSC ordered continued collections in rates for decommissioning for ANO 2, while finding that ANO 1’s decommissioning was adequately funded without continued collections. In December 2017 the APSC ordered continued collections for decommissioning for ANO 2 and again found that ANO 1’s decommissioning was adequately funded without continuedadditional collections. In November 2019, Entergy Arkansas filed a revised decommissioning cost recovery tariff for ANO indicating that both ANO 1 and ANO 2 decommissioning trusts were adequately funded without further collections, and in December 2019, the APSC ordered zero collections for ANO 1 and ANO 2 decommissioning. In December 2018 the PUCT approved a settlement that eliminated River Bend decommissioning collections for the Texas jurisdictional share of the plant based on a determination by Entergy Texas that the existing decommissioning fund was adequate following license renewal. In September 2016 the NRC issued a 20-year operating license renewal for Grand Gulf. In a 2017 filing at the FERC, System Energy stated that with the renewed operating license, Grand Gulf’s decommissioning trust was sufficiently funded, and proposed (among other things) to cease decommissioning collections for Grand Gulf effective October 1, 2017. The FERC accepted the proposal subject to refund, and appointed a settlement judge to oversee settlement negotiationsincluding the proposed decommissioning revenue requirement by letter order in the case.August 2018. Entergy currently believes its decommissioning funding will be sufficient for its nuclear plants subject to retail rate regulation, although decommissioning cost inflation and trust fund performance will ultimately determine the adequacy of the funding amounts.
In November 2016,January 2019, Entergy entered into an agreement to sellsold 100% of the membership interest in Entergy Nuclear Vermont Yankee to a subsidiary of NorthStar. Upon closingAs a result of the sale, NorthStar will assumeassumed ownership of Vermont Yankee and its decommissioning and site restoration trusts, together with complete responsibility for the facility’s decommissioning and site restoration. The sale is subject to certain closing conditions, including approval from the NRC and the State of Vermont Public Utility Commission. See Note 9 to the financial statements for further discussion of Vermont Yankee decommissioning costs and see “Entergy Wholesale Commodities Exit from the Merchant Power Business” in Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for further discussion of the NorthStar transaction.
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In August 2019, Entergy sold 100% of the equity interests in Entergy Nuclear Generation Company, LLC to a subsidiary of Holtec International. As a result of the sale, Holtec assumed ownership of Pilgrim and its decommissioning trust, together with complete responsibility for the facility’s decommissioning and site restoration. See Note 14 to the financial statements for further discussion of the sale.
For the Indian Point 3 and FitzPatrick plants purchased in 2000 from NYPA, NYPA retained the decommissioning trust funds and the decommissioning liabilities with the right to require the Entergy subsidiaries to assume each of the decommissioning liabilities provided that it assigns the corresponding decommissioning trust, up to a specified level, to the Entergy subsidiaries. In August 2016, Entergy entered into a trust transfer agreement with NYPA to transfer the decommissioning trust funds and decommissioning liabilities for the Indian Point 3 and FitzPatrick plants to Entergy, which was completed in January 2017. In March 2017, Entergy sold the FitzPatrick plant to Exelon, and as part of the transaction, the FitzPatrick decommissioning trust fund, along with the decommissioning obligation for that plant, was transferred to Exelon. The FitzPatrick spent fuel disposal contract was assigned to Exelon as part of the transaction. See Note 14 to the financial statements for discussion of the FitzPatrick sale.
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In March 20172019 filings with the NRC were made for certain Entergy subsidiaries’ nuclear plants reporting on decommissioning funding. Those reports showed that decommissioning funding for each of those nuclear plants met the NRC’s financial assurance and planning requirements.
Additional information with respect to Entergy’s decommissioning costs and decommissioning trust funds is found in Note 9 and Note 16 to the financial statements.
Price-Anderson Act
The Price-Anderson Act requires that reactor licensees purchase and maintain the maximum amount of nuclear liability insurance available and participate in an industry assessment program called Secondary Financial Protection in order to protect the public in the event of a nuclear power plant accident. The costs of this insurance are borne by the nuclear power industry. Congress amended and renewed the Price-Anderson Act in 2005 for a term through 2025. The Price-Anderson Act limits the contingent liability for a single nuclear incident to a maximum assessment of approximately $127.3$137.6 million per reactor (with 10298 nuclear industry reactors currently participating). In the case of a nuclear event in which Entergy Arkansas, Entergy Louisiana, System Energy, or an Entergy Wholesale Commodities company is liable, protection is afforded through a combination of private insurance and the Secondary Financial Protection program. In addition to this, insurance for property damage, costs of replacement power, and other risks relating to nuclear generating units is also purchased. The Price-Anderson Act and insurance applicable to the nuclear programs of Entergy are discussed in more detail in Note 8 to the financial statements.
NRC Reactor Oversight Process
The NRC’s Reactor Oversight Process is a program to collect information about plant performance, assess the information for its safety significance, and provide for appropriate licensee and NRC response. The NRC evaluates plant performance by analyzing two distinct inputs: inspection findings resulting from the NRC’s inspection program and performance indicators reported by the licensee. The evaluations result in the placement of each plant in one of the NRC’s Reactor Oversight Process Action Matrix columns: “licensee response column,” or Column 1, “regulatory response column,” or Column 2, “degraded cornerstone column,” or Column 3, and “multiple/repetitive degraded cornerstone column,” or Column 4. Plants in Column 1 are subject to normal NRC inspection activities. Plants in Column 2, Column 3, or Column 4 are subject to progressively increasing levels of inspection by the NRC with, in general, progressively increasing levels of associated costs. Waterford 3, River Bend, Indian Point 2, Indian Point 3,The nuclear generating plants owned and Palisadesoperated by Entergy’s Utility and Entergy Wholesale Commodities businesses are currently in Column 1. Grand Gulf is in Column 2. ANO
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Entergy Corporation, Utility operating companies, and 2 are in Column 4, and are subject to an extensive set of required NRC inspections. Pilgrim is also in Column 4 and is subject to an extensive, but limited, set of required NRC inspections. See Note 8 to the financial statements for further discussion of the placement of ANO 1 and 2, and Pilgrim in Column 4 of the NRC’s matrix.System Energy
Environmental Regulation
Entergy’s facilities and operations are subject to regulation by various governmental authorities having jurisdiction over air quality, water quality, control of toxic substances and hazardous and solid wastes, and other environmental matters. Management believes that Entergy’s businesses are in substantial compliance with environmental regulations currently applicable to its facilities and operations, with reference to possible exceptions noted below. Because environmental regulations are subject to change, future compliance requirements and costs cannot be precisely estimated. Except to the extent discussed below, at this time compliance with federal, state, and local provisions regulating the discharge of materials into the environment, or otherwise protecting the environment, is incorporated into the routine cost structure of Entergy’s businesses and is not expected to have a material effect on their competitive position, results of operations, cash flows, or financial position.
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Clean Air Act and Subsequent Amendments
The Clean Air Act and its amendments establish several programs that currently or in the future may affect Entergy’s fossil-fueled generation facilities and, to a lesser extent, certain operations at nuclear and other facilities. Individual states also operate similar independent state programs or delegated federal programs that may include requirements more stringent than federal regulatory requirements. These programs include:
New source review and preconstruction permits for new sources of criteria air pollutants, greenhouse gases, and significant modifications to existing facilities;
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• | Acid rain program for control of sulfur dioxide (SO2) and nitrogen oxides (NOx); |
Nonattainment area programs for control of criteria air pollutants, which could include fee assessments for air pollutant emission sources under Section 185 of the Clean Air Act if attainment is not reached in a timely manner;
Hazardous air pollutant emissions reduction programs;
Interstate Air Transport;
Operating permit programs and enforcement of these and other Clean Air Act programs;
Regional Haze programs; and
New and existing source standards for greenhouse gas and other air emissions.
New Source Review (NSR)
Preconstruction permits are required for new facilities and for existing facilities that undergo a modification that results in a significant net emissions increase and is not classified as routine repair, maintenance, or replacement. Units that undergo certain non-routine modifications must obtain a permit modification and may be required to install additional air pollution control technologies. In August 2019 the EPA proposed to amend the NSR regulations to clarify when a physical change or change in the method of operation will constitute such a modification. Entergy has an established process for identifying modifications requiring additional permitting approval and followsis monitoring the regulations and associated guidance provided by the states and the federal government with regard to the determination of routine repair, maintenance, and replacement. In recentSeveral years ago, however, the EPA has begunimplemented an enforcement initiative, aimed primarily at coal plants, to identify modifications that it does not consider routine for which the unit did not obtain a modified permit. Various courts and the EPA have been inconsistent in their judgments regarding modifications that are considered routine and on other legal issues that affect this program.
In February 2011, Entergy received a request from the EPA for several categories of information concerning capital and maintenance projects at the White Bluff and Independence facilities, both located in Arkansas, in order to determine compliance with the Clean Air Act, including NSR requirements and air permits issued by the Arkansas Department of Environmental Quality. In August 2011, Entergy’s Nelson facility, located in Louisiana, received a similar request for information from the EPA. In September 2015 a subsequentan additional request for similar information was received for the White Bluff facility. Entergy responded to all requests. None of these EPA requests for information alleged that the facilities were in violation of law.
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In January 2018 and February 2018, Entergy Arkansas, Entergy Mississippi, Entergy Power, and other co-owners received 60-day notice of intent to sue letters from the Sierra Club and the National Parks Conservation Association concerning allegations of violations of new source review and permitting provisions of the Clean Air Act at the Independence and White Bluff coal-burning units, respectively. In November 2018, following extensive negotiations, Entergy Arkansas, Entergy Mississippi, and Entergy Power entered a proposed settlement resolving those claims as well as other issues facing Entergy Arkansas’s fossil generation plants. The settlement, which formally resolves a complaint filed by the Sierra Club and the National Parks Conservation Association, is reviewing these claims and will respond accordingly.subject to approval by the U.S. District Court for the District of Arkansas. In October 2019 the District Court requested supplemental briefing on several issues to be resolved prior to addressing the motion to approve the settlement. For further information about the settlement, see “Regional Haze” discussed below.
National Ambient Air Quality Standards
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Ozone Nonattainment
Entergy Texas operates one fossil-fueled generating facility (Lewis Creek)those standards. When an area fails to meet an ambient standard, it is considered to be in nonattainment and is in the process of permitting and constructing one fossil-fueled facility (Montgomery Count Power Station) in a geographic area that is not in attainment with the currently-enforced national ambient air quality standards (NAAQS) for ozone. The nonattainment area that affects Entergy Texas is the Houston-Galveston-Brazoria area. Areas in nonattainment are classified as “marginal,” “moderate,” “serious,” or “severe.” When an area fails to meet the ambient air standard, the EPA requires state regulatory authorities to prepare state implementation plans meant to cause progress toward bringing the area into attainment with applicable standards.
The Houston-Galveston-BrazoriaOzone Nonattainment
Entergy Texas operates one fossil-fueled generating facility (Lewis Creek) and is in the process of constructing another fossil-fueled generating facility (Montgomery County Power Station) in a geographic area was originally classified as “moderate” nonattainment under the 1997 8-hour ozone standard with an attainment date of June 15, 2010. In June 2007 the Texas governor petitioned the EPA to reclassify Houston-Galveston-Brazoria from “moderate” to “severe” and the EPA granted the request in October 2008. In February 2015 the Texas Commission on Environmental Quality (TCEQ) submitted a request to the EPA for a finding that the Houston-Galveston-Brazoria area is not in attainment with the 1997 8-hourapplicable NAAQS for ozone. The ozone standard. The EPA issued this finding in December 2015. In April 2015 the EPA revoked the 1997 ozone NAAQS and in May 2016, the EPA issued a proposed rule approving a substitute fornonattainment area that affects Entergy Texas is the Houston-Galveston-Brazoria area. This redesignation indicates thatBoth Lewis Creek and the Montgomery County Power Station hold all necessary permits for construction and operation and comply with applicable air quality program regulations. Measures enacted to return the area has attained the revoked 1997 8-hourto ozone NAAQS due to permanent and enforceable emission reductions and that it will maintain that NAAQS for 10 years from the date of the approval. Final approval, which was effective in December 2016, resulted in the area no longer being subject to any remaining anti-backsliding or non-attainment new source review requirements associated with the revoked 1997 NAAQS.
In March 2008 the EPA revised the NAAQS for ozone, creating the potential for additional counties and parishes in which Entergy operates to be placed in nonattainment status. In April 2012 the EPA released its final non-attainment designations for the 2008 ozone NAAQS. In Entergy’s utility service area, the Houston-Galveston-Brazoria, Texas; Baton Rouge, Louisiana; and Memphis, Tennessee/Mississippi/Arkansas areas were designated as in “marginal” nonattainment. In August 2015 and January 2016, the EPA proposed determinations that the Baton Rouge and Memphis areas had attained the 2008 standard. In May 2016 the EPA finalized those determinations and extended the Houston-Galveston-Brazoria area’s attainment date for the 2008 Ozone standard to July 20, 2016 and reclassified the Baton Rouge area as attainment for ozone under the 2008 8-hour ozone standard. In December 2016 the EPA determined that the Houston-Galveston-Brazoria area had failed to attain the 2008 ozone standard by the 2016 attainment date. This finding reclassifies the Houston-Galveston-Brazoria area from marginal to “moderate.”
In October 2015 the EPA issued a final rule lowering the primary and secondary NAAQS for ozone to a level of 70 parts per billion. States were required to assess their attainment status and recommend designations to the EPA. In January 2018 the EPA proposed that the following counties and parishes in Entergy’s service territory be listed as in non-attainment: in Louisiana, Ascension Parish, East Baton Rouge Parish, West Baton Rouge Parish, Iberville Parish, and Livingston Parish; in Texas, Montgomery County. In addition to Lewis Creek in Montgomery County, Texas, Entergy owns or operates fossil-fueled generating units in East Baton Rouge Parish (Louisiana Station) and in Iberville Parish (Willow Glen), Louisiana. The EPA’s final designations are pending.could make these program regulations more stringent. Entergy will continue to work with state environmental agencies on appropriate methods for assessing attainment and non-attainmentnonattainment with the new standard and, where necessary, in planning for compliance. Following designations by the EPA, states will be required to develop plans intended to return non-attainment areas to a condition of attainment. The timing for that action depends largely on the severity of non-attainment in a given area.ozone NAAQS.
Potential SO2Nonattainment
The EPA issued a final rule in June 2010 adopting an SO2 1-hour national ambient air quality standard of 75 parts per billion. The EPA designations for counties in attainment and nonattainment were originally due in June 2012, but the EPA indicated that it would delay designations except for those areas with existing monitoring data from 2009 to 2011 indicating violations of the new standard. In August 2013 the EPA issued final designations for these areas. In Entergy’s utility service territory, only St. Bernard Parish and Evangeline Parish in Louisiana isare designated as non-attainment for the SO2
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1-hour national ambient air quality standard of 75 parts per billion. Entergy does not have a generation asset in that parish. In July 2016 the EPA finalized another round of designations for areas with newly monitored violations of the 2010 standard and those with stationary sources that emit over a threshold amount of SO2. Counties and parishes in which Entergy owns and operates fossil generating facilities that were included in this round of designations include Independence County and Jefferson County, Arkansas and Calcasieu Parish, Louisiana. Independence County and Calcasieu Parish were designated “unclassifiable,” and Jefferson County was designated “unclassifiable/attainment.” In August 2015 the EPA issued a final data requirement rule for the SO2 1-hour standard. This rule will guide the process to be followed by the states and the EPA to determine the appropriate designation for the remaining unclassified areas in the country.nonattainment. In August 2017 the EPA issued a letter indicating that East Baton Rouge and St. Charles parishes would be designated by December 31, 2020, as monitors were installed to determine compliance. In January 2018 the EPA published a final rule designating a third round of attainment and non-attainment areas. Evangeline Parish, Louisiana, was designated non-attainment. Entergy does not have a generation asset in that parish. Additional capital projects or operational changes may be requiredcontinues to continue operating Entergy facilities in areas eventually designated as in non-attainment of the standard or designated as contributing to non-attainment areas.monitor this situation.
Hazardous Air Pollutants
The EPA released the final Mercury and Air Toxics Standard (MATS) rule in December 2011, which had a compliance date, with a widely granted one-year extension, of April 2016. The required controls have been installed and are operational at all affected Entergy units.
Cross-State Air Pollution
In March 2005February 2019 the EPA finalizedpublished its proposed rule that finds that it is not “appropriate and necessary” to regulate hazardous air pollutants from electric steam generating units under the provisions of section 112(n) of the Clean Air Interstate Rule (CAIR), which was intended to reduce SO2 and NOx emissions from electric generation plants in order to improve air quality in twenty-nine eastern states. The rule requiredAct. This is a combination of capital investment to install pollution control equipment and increased operating costs through the purchase of emission allowances. Entergy began implementation in 2007, including installation of controls at several facilities and the development of an emission allowance procurement strategy.
Based on several court challenges, CAIR and its subsequent versions, now known as the Cross State Air Pollution Rule (CSAPR), have been remanded to and modified by the EPA on multiple occasions. In July 2015 the D.C. Circuit invalidated the allowance budgets created by the EPA for several states, including Texas, and remanded that portionreversal of the EPA’s previous finding requiring such regulation. However, the proposal does not seek to revise the MATS rule at this time. Entergy will continue to the EPA for further action. The court did not stay or vacate the rule in the interim. CSAPR remains in effect.monitor this situation.
The CSAPR Phase
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Entergy has developed a compliance plan that could, over time, include both installation of controls at certain facilitiesCorporation, Utility operating companies, and an emission allowance procurement strategy.System Energy
In September 2016 the EPA finalized the CSAPR Update Rule to address interstate transport for the 2008 ozone NAAQS. Starting in 2017 the final rule will require reductions in summer nitrogen oxides (NOx) emissions. Several states, including Arkansas and Texas, filed a challenge to the Update Rule, which remains pending.
Regional Haze
In June 2005 the EPA issued its final Clean Air Visibility Rule (CAVR) regulations that potentially could result in a requirement to install SO2 and NOx pollution control technology as Best Available Retrofit Control Technology (BART) to continue operating certain of Entergy’s fossil generation units. The rule leaves certain CAVR determinations to the states.
In Arkansas, the Arkansas Department of Environmental Quality prepared a state implementation plan (SIP) for Arkansas facilities to implement its obligations under the CAVR. In April 2012 the EPA finalized a decision
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addressing the Arkansas Regional Haze SIP, in which it disapproved a large portion of the Arkansas plan, including the emission limits for NOx and SO2 at White Bluff. In April 2015 the EPA published a proposed federal implementation plan (FIP) for Arkansas, taking comment on requiring installation of scrubbers and low NOx burners to continue operating both units at the White Bluff plant and both units at the Independence plant and NOx controls to continue operating the Lake Catherine plant. Entergy filed comments by the deadline in August 2015. Among other comments, including opposition to the EPA’s proposed controls on the Independence units, Entergy proposed to meet more stringent SO2 and NOx limits at both White Bluff and Independence within three years of the effective date of the final FIP and to cease the use of coal at the White Bluff units at a later date.
In September 2016 the EPA published the final Arkansas Regional Haze FIP. In most respects, the EPA finalized its original proposal but shortened the time for compliance for installation of the NOx controls. The FIP required an emission limitation consistent with SO2 scrubbers at both White Bluff and Independence by October 2021 and NOx controls by April 2018. The EPA declined to adopt Entergy’s proposals related to ceasing coal use as an alternative to SO2 scrubbers for White Bluff SO2 BART. In November 2016, Entergy and other interested parties, including the State of Arkansas, filed petitions for administrative reconsideration and stay at the EPA as well as petitions for judicial review in the U.S. Court of Appeals for the Eighth Circuit. The Eighth Circuit continues to review its prior grant ofgranted the government’s motion to hold the appeal litigation in abeyancestay pending settlement discussions and pending the State’s development of a SIP that, if approved by the EPA, would replace the FIP. The state has proposed its replacement SIP in two parts: Part I considers NOx requirements, and Part II considers SO2 requirements. The EPA approved the Part I NOx SIP in January 2018. The Part I SIP requires that Entergy address NOx impacts on visibility via compliance with the Cross State Air Pollution Rule ozone-season emission trading program. Arkansas has proposedfinalized a Part II SIP which has been approved by the EPA but is still under considerationcurrently pending a state court appeal. That appeal has been stayed pending the outcome of a federal court case, which may resolve many of the issues on appeal. The final Part II SIP requires that Entergy achieve SO2 emission reductions via the use of low-sulfur coal at both White Bluff and Independence within three years. The Part II SIP also requires that Entergy cease to use coal at White Bluff by December 31, 2028 and notes the current planning assumption that Entergy’s Independence units will cease to burn coal by December 31, 2030.
In January and February 2018, Entergy Arkansas, Entergy Mississippi, Entergy Power, and other co-owners received 60-day notice of intent to sue letters from the Sierra Club and the National Parks Conservation Association concerning allegations of violations of new source review and permitting provisions of the Clean Air Act at the state level. The public comment period onIndependence and White Bluff coal-burning units, respectively. In November 2018, following extensive negotiations, Entergy Arkansas, Entergy Mississippi, and Entergy Power entered a proposed settlement resolving those claims and reducing the risk that Entergy Arkansas, as operator of Independence and White Bluff, might be compelled under the Clean Air Act’s regional haze program to install costly emissions control technologies. Consistent with the terms of the settlement and in many cases also the Part II endedSIP, Entergy Arkansas, along with co-owners, will begin using only low-sulfur coal at Independence and White Bluff by mid-2021; cease to use coal at White Bluff and Independence by the end of 2028 and 2030, respectively; cease operation of the remaining gas unit at Lake Catherine by the end of 2027; reserve the option to develop new generating sources at each plant site; and commit to install or propose to regulators at least 800 MWs of renewable generation by the end of 2027, with at least half installed or proposed by the end of 2022 (which includes two existing Entergy Arkansas projects) and with all qualifying co-owner projects counting toward satisfaction of the obligation. Under the settlement, the Sierra Club and the National Parks Conservation Association also waive certain potential existing claims under federal and state environmental law with respect to specified generating plants. The settlement, which formally resolves a complaint filed by the Sierra Club and the
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National Parks Conservation Association, is subject to approval by the U.S. District Court for the Eastern District of Arkansas. The EPA, which is allowed to comment on February 2, 2018.such a settlement agreement, has stated that it has no objections to the settlement. Pending before the court are a motion by the plaintiffs to approve the settlement, in support of which Entergy made a filing, and motions by the Arkansas Attorney General and the Arkansas Affordable Energy Coalition to intervene and to stay the proceedings. The Arkansas Attorney General also filed an application before the APSC in December 2018 seeking an investigation into the effects of the settlement. The Arkansas Affordable Energy Coalition filed to support the application, and Entergy Arkansas filed a motion to dismiss. The application remains pending before the APSC. In October 2019 the District Court requested supplemental briefing on several issues to be resolved prior to addressing the motion to approve the settlement.
In Louisiana, Entergy has worked with the Louisiana Department of Environmental Quality (LDEQ) and the EPA to revise the Louisiana SIP for regional haze, which washad been disapproved in part in 2012. The LDEQ submitted a revised SIP in February 2017. In May 2017 the EPA proposed to approve a majority of the revisions. In September 2017 the EPA issued a proposed SIP approval for the Nelson plant, requiring an emission limitation consistent with the use of low-sulfur coal, with a compliance date three years from the effective date of the finalJanuary 22, 2021. The EPA approval. The EPA’sissued final approval decision was issued in December 2017 and is on appeal2017. The EPA approval was appealed to the U.S. Court of Appeals for the Fifth Circuit. In October 2019 the Fifth Circuit affirmed EPA’s SIP approval.
New and Existing Source Performance Standards for Greenhouse Gas Emissions
As a part of a climate plan announced in June 2013,In July 2019 the EPA was directedreleased the Affordable Clean Energy Rule (ACE), which applies only to (i) reissue proposed carbon pollution standardsexisting coal-fired electric generating units. The ACE determines that heat rate improvements are the best system of emission reductions and lists six candidate technologies for new power plantsconsideration by September 20, 2013, with finalization of the rules to occur in a timely manner; (ii) issue proposed carbon pollution standards, regulations, or guidelines, as appropriate, for modified, reconstructed,states at each coal unit. The rule and existing power plants no later than June 1, 2014; (iii) finalize those rulesassociated rulemakings by no later than June 1, 2015; and (iv) include in the guidelines addressing existing power plants a requirement that states submit to the EPA replace the implementation plans required under Section 111(d) of the Clean Air Act and its implementing regulations by no later than June 30, 2016. In January 2014 the EPA issued the proposed New Source Performance Standards rule for new sources. In June 2014 the EPA issued proposed standards for existing power plants. Entergy was actively engaged in the rulemaking process, and submitted comments to the EPA in December 2014. The EPA issued the final rules for both new and existing sources in August 2015, and they were published in the Federal Register in October 2015. The existing source rule, also called theObama administration’s Clean Power Plan requiresrule. The ACE rule provides states discretion in determining how the best system for emission reductions applies to develop plans for compliance withindividual units, including through the EPA’s emission standards. In February 2016consideration of technical feasibility and the U.S. Supreme Court issued a stay halting the effectivenessremaining useful life of the rule untilfacility. Entergy is evaluating the rule is reviewed byfinal Affordable Clean Energy Rule’s impacts on its coal units and will monitor litigation challenging the D.C. Circuit and by the U.S. Supreme Court, if further review is granted. In March 2017 the current administration issued an executive order entitled “Promoting Energy Independence and Economic Growth” instructing the EPA to review and then to suspend, revise, or rescind the Clean Power Plan, if appropriate.rule. The EPA subsequently asked the D.C. Circuit to hold the challengesalso has proposed a revision to the Clean Power Plan and the greenhouse gas new source performance standards in abeyancestandard on greenhouse gas emissions that primarily impacts new coal units and, signed a notice of withdrawal of the proposed federal plan, model trading rules, and the Clean Energy Incentive Program. The court placed the litigation in abeyance in April 2017. The EPA Administrator also sent a letter to the affected governors explaining that states aretherefore, should not currently required to meet Clean Power Plan deadlines, some of which have passed. In October 2017 the EPA proposed a new rule that would repeal the Clean Power Plan on the grounds that it exceeds the EPA’s statutory authority under the Clean Air Act. In Decemberimpact Entergy.
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2017 the EPA issued an advanced notice of proposed rulemaking regarding section 111(d), seeking comment on the form and content of a replacement for the Clean Power Plan, if one is promulgated. Entergy will continue to be engaged in this rulemaking process.
Potential Legislative, Regulatory, and Judicial Developments
In addition to the specific instances described above, there are a number of legislative and regulatory initiatives concerning air emissions, as well as other media, that are under consideration at the federal, state, and local level. Because of the nature of Entergy’s business, the imposition of any of these initiatives could affect Entergy’s operations. Entergy continues to monitor these initiatives and activities in order to analyze their potential operational and cost implications. These initiatives include:
designation by the EPA and state environmental agencies of areas that are not in attainment with national ambient air quality standards;
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• | introduction of bills in Congress and development of regulations by the EPA proposing further limits on NOx, SO2, mercury, and carbon dioxide and other air emissions. New legislation or regulations applicable to stationary sources could take the form of market-based cap-and-trade programs, direct requirements for the installation of air emission controls onto air emission sources, or other or combined regulatory programs; |
efforts in Congress or at the EPA to establish a mandatory federal carbon dioxide emission tax, control structure or unit performance standards;
revisions to the estimates of the Social Cost of Carbon and its use for regulatory impact analysis of Federal laws and regulations;
implementation of the Regional Greenhouse Gas Initiative by several states in the northeastern United States and similar actions in other regions of the United States;
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efforts on the state and federal level to codify renewable portfolio standards, a clean energy standard,standards, or a similar mechanism requiring utilities to produce or purchase a certain percentage of their power from defined renewable energy sources or energy sources with lower emissions;
efforts to develop more stringent state water quality standards, effluent limitations for Entergy’s industry sector, stormwater runoff control regulations, and cooling water intake structure requirements;
efforts to restrict the previously-approved continued use of oil-filled equipment containing certain levels of PCBs;
efforts by certain external groups to encourage reporting and disclosure of carbon dioxide emissions and risk;
the listing of additional species as threatened or endangered, the protection of critical habitat for these species, and developments in the legal protection of eagles and migratory birds; and
the regulation of the management, disposal, and beneficial reuse of coal combustion residuals.
Entergy continues to support national legislation that would increase planning certainty for electric utilities while addressing carbon dioxide emissions in a responsible and flexible manner. By virtue of its proportionally large investment in low-emitting gas-fired and nuclear generation technologies, Entergy has a low overall carbon dioxide emission “intensity,” or rate of carbon dioxide emitted per megawatt-hour of electricity generated. In anticipation of the imposition of carbon dioxide emission limits on the electric industry, in the future, Entergy initiated actions designed to reduce its exposure to potential new governmental requirements related to carbon dioxide emissions. These voluntary actions included establishment of a formal program to stabilize owned power plant carbon dioxide emissions at 2000 levels through 2005, and Entergy succeeded in reducing emissions below 2000 levels. Total carbon dioxide emissions representing Entergy’s ownership share of power plants in the United States were approximately 53.2 million tons in 2000 and 35.6 million tons in 2005. In 2006, Entergy changed its method of calculating emissions to includestarted including emissions from controllable power purchases as well asin addition to its ownership share of generation. Entergygeneration and established a second formal voluntary program to stabilize power plant carbon dioxide emissions and emissions from controllable power purchases, cumulatively over the period, at 20% below 2000 levels through 2010. In 2011, Entergy extended this commitment through 2020. Total carbon dioxide emissions representing Entergy’s ownership share of power plants and controllable power purchases in the United States were approximately 46.140.7 million tons in 2011, 45.5 million2019 and 43.7 tons in 2012, 46.2 million tons in 2013, 42.4 million tons in 2014, 39.5 million tons in 2015, 42.5 million tons in 2016, and 39.9 million tons in 2017. The decrease2018.
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published a comprehensive report in this number from 2014 to 2015 was largely attributable toMarch 2019. The report follows the impact on the calculation methodologyframework and recommendations of the Utility operating companies’ transition into the MISO system. Participation in this systemTask Force on Climate-related Disclosures, describing climate-related governance, strategy, risk management, and metrics and targets. Scenario analysis resulted in fewer power purchases being classified as “controllable”Entergy developing and thus included inpublishing a new goal of reducing the calculation of the emissions total.Utility’s emission rate by 50 percent from 2000 levels by 2030.
Entergy participates in the M.J. Bradley & Associates’ Annual Benchmarking Air Emissions Report, an annual analysis of the 100 largest U.S. electric power producers. The report is available on the M.J. Bradley website. Entergy’s annual CO2greenhouse gas emissions auditinventory is also third-party verified, and that certification is made available on the American Carbon Registry website. Entergy participates annually in the Dow Jones Sustainability Index and in 20172019 was listed on the North American Index. Entergy has been listed on the World or North American Index, or both, for eighteen consecutive years.
Clean Water Act
The 1972 amendments to the Federal Water Pollution Control Act (known as the Clean Water Act) provide the statutory basis for the National Pollutant Discharge Elimination System (NPDES) permit program, section 402, and the basic structure for regulating the discharge of pollutants from point sources to waters of the United States. The Clean Water Act requires virtually all discharges of pollutants to waters of the United States to be permitted. Section 316(b) of the Clean Water Act regulates cooling water intake structures, section 401 of the Clean Water Act requires a water quality certification from the state in support of certain federal actions and approvals, and section 404 regulates the dredge and fill of waters of the United States, including jurisdictional wetlands.
NPDES Permits and Section 401 Water Quality Certifications
NPDES permits are subject to renewal every five years. Consequently, Entergy is currently in various stages of the data evaluation and discharge permitting process for its power plants.
For thirteen years, Entergy participated in an administrative permitting process with the New York State Department of Environmental Conservation (NYSDEC) for renewal of the Indian Point 2 and Indian Point 3 discharge permit. That proceeding recently was settled along with other ongoing proceedings. For a discussion of the recent Indian Point settlement, see “Entergy Wholesale Commodities Authorization to Operate Indian Point” in Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis.
316(b) Cooling Water Intake Structures
The EPA finalized regulations in July 2004 governing the intake of water at large existing power plants employing cooling water intake structures. The rule sought to reduce perceived impacts on aquatic resources by requiring covered facilities to implement technology or other measures to meet EPA-targeted reductions in water use and corresponding perceived aquatic impacts. Entergy, other industry members and industry groups, environmental groups, and a coalition of northeastern and mid-Atlantic states challenged various aspects of the rule. After litigation, the EPA issued a new final 316(b) rule in August 2014. Entergy is developing a compliance plan for each affected facility in accordance with the requirements of the final rule.
Entergy filed a petition for review of the final rule as a co-petitioner with the Utility Water Act Group. The U.S. Court of Appeals for the Second Circuit heard oral argument in September 2017. A decision is expected in 2018.
Coastal Zone Management Act
Before a federal licensing agency (such as the NRC) may issue a major license or permit for an activity within the federally designated coastal zone, the agency must be satisfied that the requirements of the Coastal Zone Management Act (CZMA), as applicable, have been met. In many cases, CZMA requirements are satisfied by the state’s written concurrence with a “consistency determination” filed by the federal license applicant explaining why the activity proposed to be federally licensed is consistent with the state’s coastal management program. For a discussion of the recent Indian Point settlement, including the CZMA proceedings related to Indian Point license renewal, see “Entergy
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Wholesale Commodities AuthorizationsSteam Electric Effluent Guidelines
The 2015 Steam Electric Effluent Limitations Guidelines (ELG) rule requires, among other things, that there be no discharge of bottom ash transport water. The no-discharge requirement contains no exceptions and could cause compliance problems for Entergy’s coal facilities during heavy storm events and under certain non-routine operational conditions. The ELG rule’s compliance dates currently are delayed while the EPA reconsiders the rule. Additionally, the Fifth Circuit Court of Appeals recently vacated and remanded the provisions of the rule related to Operate Indian Point” inlegacy wastewater and leachate. In November 2019 the EPA released a proposed rule revision on bottom ash transport water that will allow some flexibility for storm events and non-routine operations. A separate rulemaking is expected to address the legacy wastewater and leachate issues. Despite the impending rulemaking, Entergy Corporationis implementing projects at its White Bluff and Subsidiaries Management’s Financial DiscussionIndependence plants to convert to zero-discharge systems to comply with the ELG rule and Analysis.the coal combustion residuals restrictions on impoundments. Additionally, the Nelson Unit 6 facility is implementing operational and maintenance measures to ensure its original zero-discharge design is maintained for compliance with the ELG rule.
Federal Jurisdiction of Waters of the United States
In September 2013February 2019 the EPA and the U.S. Army Corpspublished its proposed revised definition of Engineers announced the intention to propose a rule to clarify federal Clean Water Act jurisdiction over waters of the United States. The announcement was made in conjunction with the EPA’s release of a draft scientific report on the “connectivity” of waters that the agency said would inform the rulemaking. This report was finalized in January 2015. The final rule was published in the Federal Register in June 2015. The rule could significantly increase the number and types of waters included in the EPA’s and the U.S. Army Corps of Engineers’ jurisdiction, which in turn could pose additional permitting and pollutant management burdens on Entergy’s operations. The final rule has been challenged in various federal courts by several parties, including most states. In August 2015 the District Court for North Dakota issued a preliminary injunction staying the new rule in 13 states, including Arkansas. In October 2015 the U.S. Court of Appeals for the Sixth Circuit issued a nationwide stay of the rule. In February 2017 the current administration issued an executive order instructing the EPA and the U.S. Army Corps of Engineers to review the Waters of the United States, which proposes to narrow the scope of Clean Water Act jurisdiction, as compared to a 2015 definition which had been stayed by several federal courts. The final rule and to revise or rescind, as appropriate.was released in January 2020. In June 2017October 2019 the EPA and the U.S. Army Corps of Engineers released a proposed rule that rescinds the June 2015 rule and recodifies the definition of “waters of the U.S.” that was in effect prior to the 2015 rule. The administration is expected to propose a definition of “waters of the U.S.” at a later date. In January 2018 the Supreme Court determined that the Sixth Circuit lacked jurisdiction over the petition to reviewrepealed the 2015 rule and thatre-codified the pre-existing regulations. That rule was effective late December 2019. Numerous challenges should be heard in the federal district court. The matter has been remanded to the Sixth Circuit, which isare expected to lift the nationwide stay. After the Supreme Court decision, the EPA and the U.S. Army Corps of Engineers finalized a rule delaying the applicability date of the 2015 rule to early 2020. In February 2018 the states of Louisiana, Mississippi, and Texas filed suit in Texas federal district court seeking a preliminary injunction of the 2015 rule. Entergy will continue to monitor this rulemaking and litigation.for both rules.
Groundwater at Certain Nuclear Sites
The NRC requires nuclear power plants to monitor and report regularly the presence of radioactive material in the environment. Entergy joined other nuclear utilities and the Nuclear Energy Institute in 2006 to develop a voluntary groundwater monitoring and protection program. This initiative began after detection of very low levels of radioactive material, primarily tritium, in groundwater at several plants in the United States. Tritium is a radioactive form of hydrogen that occurs naturally and is also a byproduct of nuclear plant operations. In addition to tritium, other radionuclides have been found in site groundwater at nuclear plants.
As part of the groundwater monitoring and protection program, Entergy has: (1) performed reviews of plant groundwater characteristics (hydrology) and historical records of past events on site that may have potentially impacted groundwater; (2) implemented fleet procedures on how to handle events that could impact groundwater; and (3) installed groundwater monitoring wells and began periodic sampling. The program also includes protocols for notifying local officials if contamination is found. To date, radionuclides such as tritium have been detected at Arkansas Nuclear One, Indian Point, Palisades, Pilgrim, Grand Gulf, Vermont Yankee, and River Bend. Each of these sites has installed groundwater monitoring wells and implemented a program for testing groundwater at the sites for the presence of tritium and other radionuclides. Based on current information, the concentrations and locations of radionuclides detected at these plants pose no threat to public health or safety, but each site continues to evaluate the results from its groundwater monitoring program.
In February 2016, Entergy disclosed that elevated tritium levels had been detected in samples from several monitoring wells that are part of Indian Point’s groundwater monitoring program. Investigation of the source of elevated tritium has determined that the source is related to a temporary system to process water in preparation for the regularly scheduled refueling outage at Indian Point 2. The system was secured and is no longer in use and additional measures have been taken to prevent reoccurrence should the system be needed again. In June 2016, Indian Point detected trace amounts of cobalt 58 in a single well. This was associated with the draining and disassembly of a temporary heat
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exchanger operated in support of the Indian Point 2 outage. Oversight by NRC and other federal/state government bodies continues. The NRC has issued a green notice of violation related to the adequacy of Entergy’s controls to prevent the introduction of radioactivity into the site groundwater. Entergy has completed all required corrective actions and expects the NRC to close the notice of violation by March 2018.
Comprehensive Environmental Response, Compensation, and Liability Act of 1980
The Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended (CERCLA), authorizes the EPA to mandate clean-up by, or to collect reimbursement of clean-up costs from, owners or operators of sites at which hazardous substances may be or have been released. Certain private parties also may use CERCLA to recover response costs. Parties that transported hazardous substances to these sites or arranged for the disposal of the substances are also deemed liable by CERCLA. CERCLA has been interpreted to impose strict, joint and several liability on responsible parties. Many states have adopted programs similar to CERCLA. Entergy subsidiaries in the Utility and Entergy Wholesale Commodities businesses have sent waste materials to various disposal
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sites over the years, and releases have occurred at Entergy facilities.facilities including nuclear facilities that have been or will be sold to decommissioning companies. In addition, environmental laws now regulate certain of Entergy’s operating procedures and maintenance practices that historically were not subject to regulation. Some disposal sites used by Entergy subsidiaries have been the subject of governmental action under CERCLA or similar state programs, resulting in site clean-up activities. Entergy subsidiaries have participated to various degrees in accordance with their respective potential liabilities in such site clean-ups and have developed experience with clean-up costs. The affected Entergy subsidiaries have established provisions for the liabilities for such environmental clean-up and restoration activities. Details of potentially material CERCLA and similar state program liabilities are discussed in the “Other Environmental Matters” section below.
Coal Combustion Residuals
In June 2010 the EPA issued a proposed rule on coal combustion residuals (CCRs) that contained two primary regulatory options: (1) regulating CCRs destined for disposal in landfills or received (including stored) in surface impoundments as so-called “special wastes” under the hazardous waste program of RCRA Subtitle C; or (2) regulating CCRs destined for disposal in landfills or surface impoundments as non-hazardous wastes under Subtitle D of RCRA. Under both options, CCRs that are beneficially reused in certain processes would remain excluded from hazardous waste regulation. In April 2015 the EPA published the final CCR rule with the material being regulated under the second scenario presented above - as non-hazardous wastes regulated under RCRA Subtitle D.
The final regulations create new compliance requirements including modified storage, new notification and reporting practices, product disposal considerations, and CCR unit closure criteria. Entergy believes that on-site disposal options will be available at its facilities, to the extent needed for CCR that cannot be transferred for beneficial reuse. As of December 31, 2017, Entergy’s2019, Entergy has recorded asset retirement obligations related to CCR management of $8.6 million, including $3.9 million at Entergy Arkansas, $1.8 million at Entergy Louisiana, $1.1 million at Entergy Mississippi, and $1.3 million at Entergy Texas.$19.2 million.
In December 2016 the Water Infrastructure Improvements for the Nation Act (WIIN Act) was signed into law, which authorizes states to regulate coal ash rather than leaving primary enforcement to citizen suit actions. States may submit to the EPA proposals for a permit programs.program. In September 2017 the EPA agreed to reconsider certain provisions of the CCR rule in light of the WIIN Act. TheIn July 2018 the EPA released its initial revisions extending certain deadlines and incorporating some risk-based standards. In August 2018 the D.C. Circuit vacated several provisions of the CCR rule on the basis that they were inconsistent with the Resource Conservation and Recovery Act and remanded the matter to the EPA to conduct further rulemaking. In August 2019 the EPA released its second set of proposed revisions to the CCR rule and plans at least three additional rulemakings.
Pursuant to the EPA Rule, Entergy operates groundwater monitoring systems surrounding its coal combustion residual landfills located at White Bluff, Independence, and Nelson. Monitoring to date has detected concentrations of certain listed constituents in the area, but has not yet initiated a new round of rulemakingindicated that these constituents originated at the active landfill cells. Reporting has occurred as required, and did not extenddetection monitoring will continue as the existing mid-October 2017 groundwater monitoring deadline. Entergy met the existing monitoring deadline, is monitoring state agency actions, and will participate in the regulatory development process.
rule requires. In late-2017, Entergy determined that certain in-ground wastewater treatment system recycle ponds at its White Bluff and Independence facilities require management under the new EPA regulations. Entergy is takingIn order to meet these regulations, one of two recycle ponds at White Bluff commenced closure in October 2018. Additionally, the second recycle pond at White Bluff plans to initiate closure on or before October 31, 2020. Any potential requirements for corrective action or operational changes under the new EPA rule continue to address the operational and regulatory management of these facilities. Entergy alsobe assessed. Notably, ongoing litigation has monitored levels of constituentsresulted in the groundwater monitoring system surrounding its coal combustion residual landfills at these locations that require reportingEPA’s continuing review of the rule. Consequently, the nature and cost of additional monitoring. Reporting has occurred as required, and monitoring will continue. Any potentialcorrective action requirements may depend, in part, on the outcome of the EPA’s review.
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requirements for corrective action or operational changes under the new EPA rule are currently being assessed. Moreover, the rule is currently under review at the EPA for potential changes, and the nature and cost of any corrective action requirements may depend, in part, on the outcome of the EPA’s review.
Other Environmental Matters
Entergy Louisiana and Entergy Texas
Entergy Louisiana, as successor in interest to Entergy Gulf States Louisiana, currently is involved in the second phase of the remedial investigation of the Lake Charles Service Center site, located in Lake Charles, Louisiana. A manufactured gas plant (MGP) is believed to have operated at this site from approximately 1916 to 1931. Coal tar, a by-product of the distillation process employed at MGPs, apparently was routed to a portion of the property for disposal. The same area also has been used as a landfill. In 1999, Entergy Gulf States, Inc. signed a second administrative consent order with the EPA to perform a removal action at the site. Removal actions addressed contaminated source material, soil, and sediment and included capping certain soil on and off-site. In 2002 approximately 7,400 tons of contaminated soil and debris were excavated and disposed of from an area within the service center. In 2003 a cap was constructed over the remedial area to prevent the migration of contamination to the surface. In August 2005 an administrative order was issued by the EPA requiring that a 10-year groundwater study be conducted at this site. The groundwater monitoring study commenced in January 2006 and is continuing.2006. The EPA released the second Five Year Review in 2015. TheIn that review, the EPA indicated that the current remediation technique was insufficient and that Entergy would need to utilize other remediation technologies on the site. In July 2015, Entergy submitted a Focused Feasibility Study to the EPA outlining the potential remedies and suggesting installation of the new remedial method, a waterloo barrier. The estimated cost for this remedy is approximately $2 million.million, to be allocated between Entergy is awaiting commentsLouisiana and direction from the EPA on the Focused Feasibility Study and potential remedy selection.Entergy Texas. In early 2017 the EPA indicated that the new remedial method, a waterloo barrier may not be necessary and requested revisions to the Focused Feasibility Study. The EPA plans to provide comments onreleased the revised 2017 Focused Feasibility Study in the nextthird Five Year Review in 2020. Entergylate-2019 confirming that a new remedial method is continuing discussions withnot necessary but requiring continuation of the current groundwater monitoring. The site’s remedy includes monitored natural attenuation of groundwater, and institutional controls to restrict groundwater and land use. The EPA regardinghas determined that no additional actions are needed for the ongoing actions atremedy to be protective over the site.long-term, and the remedy is protective of human health and the environment.
Entergy Arkansas, Entergy Louisiana, Entergy New Orleans, and Entergy Texas
The Texas Commission on Environmental Quality (TCEQ) notified Entergy Arkansas, Entergy Louisiana, Entergy New Orleans, and Entergy Texas that the TCEQ believes those entities are potentially responsible parties (PRPs) concerning contamination existing at the San Angelo Electric Service Company (SESCO) facility in San Angelo, Texas. The facility operated as a transformer repair and scrapping facility from the 1930s until 2003. Both soil and groundwater contamination existsexisted at the site. Entergy subsidiaries sent transformers to this facility. Entergy Arkansas, Entergy Louisiana, and Entergy Texas responded to an information request from the TCEQ and continue to cooperate in this investigation.TCEQ. Entergy Louisiana and Entergy Texas joined a group of PRPs responding to site conditions in cooperation with the State of Texas, creating cost allocation models based on review of SESCO documents and employee interviews, and investigating contribution actions against other PRPs. Entergy Louisiana and Entergy Texas have agreed to contribute to the remediation of contaminated soil and groundwater at the site in a measure proportionate to those companies’ involvement at the site, while Entergy Arkansas likely will pay a de minimis amount.site. Current estimates, although variable depending on ultimate remediation design and performance, indicate that Entergy’s total share of remediation costs likely will be approximately $1.5 million to $2 million. Remediation activities continueGroundwater monitoring wells at the site.site were plugged and abandoned in December 2019 following receipt of a certificate of completion issued by the TCEQ. Site decommissioning activities will occur, and final disposition of the property will be determined at a later time.
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Entergy Texas
In December 2016 a transformer inside the Hartburg, Texas Substation had an internal fault resulting in a release of approximately 15,000 gallons of non-PCB mineral oil. Cleanup ensued immediately; however, rain caused much of the oil to spread across the substation yard and into a nearby wetland. The Texas Commission on Environmental Quality (TCEQ) and the National Response Center were immediately notified, and the TCEQ responded to the site approximately two hours after the cleanup was initiated. The remediation liability is estimated at $2.2 million; however, this number could fluctuate depending on the remediation extent and wetland mitigation requirements. In July 2017,
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Entergy entered into the Voluntary Cleanup Program with the TCEQ. Additional direction is expected from TCEQ regarding final remediation requirements forIn November 2017, additional soil sampling was completed in the site.
Entergy
In May 2015wetland area and, in February 2018, a transformer at the Indian Point facility failed, resulting in a fire and the releasesite summary report of non-PCB oilfindings was submitted to the ground surface.TCEQ. The fire was extinguished byTCEQ responded in June 2018 and requested an ecological exclusion criteria checklist/Tier II screening-level ecological risk assessment, and additional site assessment, additional soil samples, groundwater samples, and some additional diagrams and maps. In October 2018, Entergy submitted the facility’s fire deluge system. No injuries occurred duerequested information to the transformer failure or company response. An estimated 3,000 gallons of oil were released intoTCEQ. In January 2019 the facility’s discharge canalTCEQ responded with another request for information. In March 2019, Entergy submitted the requested information to the TCEQ. In August 2019 the TCEQ responded with a request for additional information including an Affected Property Assessment Report (APAR) and water well survey. The TCEQ has agreed that the environment surrounding the transformer and discharge canal, including the Hudson River, as a resultnecessity of the failure, fire,water well survey is dependent on the results of the groundwater resampling that will occur. Groundwater sampling was completed in December 2019 and fire suppression. Once the fire was extinguished, Indian Point personnel and contractors began recovering free-product from the damaged transformer, the transformer containment moat, and the area surrounding the transformer. The United States Coast Guard designated Entergy as the responsible party under the Oil Pollution Act of 1990 and assessed a $1,000 civil penalty for the discharge of oil into navigable waters. As required, Entergy established a claims process including a voluntary hotline. Entergy received no reportsresults were submitted to the voluntary hotline or claims underTCEQ for review. Based on the established claims process. In September 2016, Indian Point personnel identified an oil sheen ingroundwater sampling results, the discharge canal. Further investigation revealedTCEQ has indicated that an estimated 600 gallons of lubricating oil had leaked from the Indian Point 3 turbine system.a water well survey is not necessary. The leaking component has been taken out of service and no oil has been discovered in the Hudson River. In October 2016 the New York Department of Environmental Conservation issued two notices of violation, onedeadline for each of these events, and a proposed order on consent for the 2015 event. In January 2017, Entergy and the New York Department of Environmental Conservation resolved this matter with an order on consent. Pursuant to the order, Entergy paid approximately $600 thousand in civil penalties, natural resource damages, and oversight costs. Additionally, Entergy repaired a sectionsubmittal of the discharge canal wall andAPAR will conduct daily visual inspectionsbe 180 days following the receipt of the discharge canal wall to help identify additional material erosion or material structural deficiencies. Entergy has completed all compliance obligations underTCEQ’s letter confirming approval of the consent order and the Department of Environmental Conservation closed the matter in December 2017.groundwater sampling results.
Litigation
Entergy uses legal and appropriate means to contest litigation threatened or filed against it, but certain states in which Entergy operates have proven to be unusually litigious environments. Judges and juries in Louisiana, Mississippi, and Texas have demonstrated a willingness to grant large verdicts, including punitive damages, to plaintiffs in personal injury, property damage, and business tort cases. The litigation environment in these states poses a significant business risk to Entergy.
Ratepayer and Fuel Cost Recovery Lawsuits (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and Entergy Texas)
Mississippi Attorney General Complaint
See Note 2 to the financial statements for a discussion of this proceeding.
Asbestos Litigation(Entergy Arkansas, Entergy Louisiana, Entergy New Orleans, and Entergy Texas)
See Note 8 to the financial statements for a discussion of this litigation.
Employment and Labor-related Proceedings (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)
See Note 8 to the financial statements for a discussion of these proceedings.
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Employees
Employees are an integral part of Entergy’s commitment to serving customers. As of December 31, 2017,2019, Entergy subsidiaries employed 13,50413,635 people.
|
| | |
Utility: | |
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Entergy Arkansas | 1,2781,251 |
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Entergy Louisiana | 1,7131,670 |
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Entergy Mississippi | 737745 |
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Entergy New Orleans | 274308 |
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Entergy Texas | 616643 |
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System Energy | — |
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Entergy Operations | 3,3613,564 |
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Entergy Services | 3,2643,899 |
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Entergy Nuclear Operations | 2,2111,505 |
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Other subsidiaries | 50 |
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Total Entergy | 13,50413,635 |
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Approximately 4,6004,100 employees are represented by the International Brotherhood of Electrical Workers, the Utility Workers Union of America, the International Brotherhood of Teamsters, the United Government Security Officers of America, and the International Union, Security, Police, and Fire Professionals of America.
Availability of SEC filings and other information on Entergy’s website
Entergy electronically files reports with the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxies, and amendments to such reports. The public may read and copy any materials that Entergy files with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an internet site that contains reports, proxy and information statements, and other information regarding registrants that file electronically with the SEC at http://www.sec.gov. Copies of the reports that Entergy files with the SEC can be obtained at the SEC’s website.
Entergy uses its website, http://www.entergy.com, as a routine channel for distribution of important information, including news releases, analyst presentations and financial information. Filings made with the SEC are posted and available without charge on Entergy’s website as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC. These filings include annual and quarterly reports on Forms 10-K and 10-Q (including related filings in Inline XBRL format) and current reports on Form 8-K; proxy statements; and any amendments to those reports or statements. All such postings and filings are available on Entergy’s Investor Relations website free of charge. Entergy is providing the address to its internet site solely for the information of investors and does not intend the address to be an active link. The contents of the website are not incorporated into this report.
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RISK FACTORS
Investors should review carefully the following risk factors and the other information in this Form 10-K. The risks that Entergy faces are not limited to those in this section. There may be additional risks and uncertainties (either currently unknown or not currently believed to be material) that could adversely affect Entergy’s financial condition, results of operations, and liquidity. See “FORWARD-LOOKING INFORMATION.”
Utility Regulatory Risks
(Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)
The terms and conditions of service, including electric and gas rates, of the Utility operating companies and System Energy are determined through regulatory approval proceedings that can be lengthy and subject to appeal that could result in delays in effecting rate changes and uncertainty as to ultimate results.
The Utility operating companies are regulated on a cost-of-service and rate of return basis and are subject to statutes and regulatory commission rules and procedures. The rates that the Utility operating companies and System Energy charge reflect their capital expenditures, operations and maintenance costs, allowed rates of return, financing costs, and related costs of service. These rates significantly influence the financial condition, results of operations, and liquidity of Entergy and each of the Utility operating companies and System Energy. These rates are determined in regulatory proceedings and are subject to periodic regulatory review and adjustment, including adjustment upon the initiative of a regulator or affected stakeholders.
In addition, regulators may initiate proceedings to investigate the prudence of costs in the Utility operating companies’ base rates and examine, among other things, the reasonableness or prudence of the companies’ operation and maintenance practices, level of expenditures (including storm costs and costs associated with capital projects), allowed rates of return and rate base, proposed resource acquisitions, and previously incurred capital expenditures that the operating companies seek to place in rates. The regulators may disallow costs subject to their jurisdiction found not to have been prudently incurred or found not to have been incurred in compliance with applicable tariffs, creating some risk to the ultimate recovery of those costs. Regulatory proceedings relating to rates and other matters typically involve multiple parties seeking to limit or reduce rates. Traditional base rate proceedings, as opposed to formula rate plans, generally have long timelines, are primarily based on historical costs, and may or may not be limited in scope or duration by statute. The length of these base rate proceedings can cause the Utility operating companies and System Energy to experience regulatory lag in recovering costs through rates.rates, such that the Utility operating companies may not fully recover all costs during the rate effective period and the Utility operating companies may, therefore, earn less than their allowed returns. Decisions are typically subject to appeal, potentially leading to additional uncertainty associated with rate case proceedings.
The Utility operating companies have large customer and stakeholder bases and, as a result, could be the subject of public criticism or adverse publicity focused on issues including the operation of their assets and infrastructure or the quality of their service. Criticism or adverse publicity of this nature could render legislatures and other governing bodies, public service commissions and other regulatory authorities, and government officials less likely to view the applicable operating company in a favorable light and could potentially negatively affect legislative or regulatory processes or outcomes, as well as lead to increased regulatory oversight or more stringent legislative or regulatory requirements.
The base rates of Entergy Texas are established largely in traditional base rate case proceedings. Apart fromBetween base rate proceedings, Entergy Texas has also filed to useavailable rate riders to recover the revenue requirements associated with certain authorized historicalincremental costs. For example, Entergy Texas has recovered distribution-related capital investments through the distribution cost recovery factor rider mechanism, transmission-related capital investments and certain non-fuel MISO charges through the transmission cost recovery factor rider mechanism, and MISO fuel and energy-related costs
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through the fixed fuel factor mechanism. Entergy Texas is also required to make a filing every three years, at a minimum, reconciling its fuel and purchased power costs and fuel factor revenues. In the course of this reconciliation, the PUCT determines whether eligible fuel and fuel-related expenses and revenues are necessary and reasonable, and makes a prudence finding for each of the fuel-related contracts for the reconciliation period.
Between base rate cases, Entergy Arkansas and Entergy Mississippi are able to adjust base rates annually through formula rate plans that utilize a forward test year (Entergy Arkansas) or forward-looking features (Entergy Mississippi). In response to Entergy Arkansas’s application for a general change in rates in 2015, the APSC approved the formula rate plan tariff proposed by Entergy Arkansas including its use of a projected year test period and an initial five-year term. The initial five-year term expires in 2021 unless Entergy Arkansas requests, and the APSC approves, the extension of the formula rate plan tariff for an additional five years through 2026. In the event thatIf Entergy Arkansas’s formula rate plan iswere terminated or is not extended beyond the initial term, Entergy Arkansas could file an
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application for a general change in rates that may include a request for continued regulation under a formula rate review mechanism. If Entergy Mississippi’s formula rate plan is terminated, it would revert to the more traditional rate case environment or seek approval of a new formula rate plan. Entergy Arkansas and Entergy Mississippi recover fuel and purchased energy and certain non-fuel costs through other APSC-approved and MPSC-approved tariffs, respectively.
Entergy Louisiana historically sets electric base rates annually through a formula rate plan using an historic test year. The form of the formula rate plan, on a combined basis, was approved in connection with the business combination of Entergy Louisiana and Entergy Gulf States Louisiana and largely followed the formula rate plans that were approved by the LPSC in connection with the full electric base rate cases filed by those companies in February 2013. The formula rate plan was approved for continued usemost recently extended through the test year 2016 filing2019; certain modifications were made in that extension, including a decrease to the allowed return on equity and included a cap in cost of service increases at a cumulative total of $30 million through the formula rate plan cycle, which cap was not reached. The LPSC also approved in the business combination Entergy Louisiana’s continuationaddition of a mechanism to recover non-fuel MISO-related costs, which are calculated separately from the formula rate plan requirements, but embedded in the formula rate plan factor applied on customer bills. Thistransmission cost recovery mechanism expired following the 2015 test year, but was renewed for the 2016 test year. MISO fuel and energy-related costs are recoverable in Entergy Louisiana’s fuel adjustment clause.mechanism. The formula rate plan includescontinues to include exceptions from the rate cap and sharing requirements for certain large capital investment projects, including acquisition or construction of generating facilities as well asand purchase power agreements approved by the LPSC and as noted, for certain transmission investment, among other items. In August 2017,MISO fuel and energy-related costs are recoverable in Entergy Louisiana filed to extend the formula rate plan for an additional three years and to reset rates to the authorized mid-point return on equity of 9.95%. The filing also seeks certain modifications to the formula rate plan, including a narrower, 80 basis points earnings sharing bandwidth and implementation of a rider to recover certain transmission-related investments, when those investments begin delivering benefits to customers.Louisiana’s fuel adjustment clause. In the event that the electric formula rate plan is not renewed or extended, Entergy Louisiana would revert to the more traditional rate case environment.
Entergy New Orleans previously operated under a formula rate plan that ended with the 2011 test year. Currently, basedBased on a settlement agreement approved by the City Council, with limited exceptions, no action may be taken with respect tothe base rates of Entergy New Orleans’s base ratesOrleans were frozen until rates arewere implemented from ain connection with the base rate case that must be filed for its electric and gas operationsby Entergy New Orleans in 2018. The limited exceptions include implementation of the final year of a four-year phased-in rate increase for its Algiers operations in the Fifteenth Ward ofIn November 2019 the City ofCouncil issued a resolution resolving the rate case, with rates to become effective retroactive to August 2019. The resolution allows Entergy New Orleans to implement a three-year formula rate plan, beginning with the 2019 test year as adjusted for forward-looking known and certain exceptional cost increases or decreases in its base revenue requirement.measurable changes. Entergy New Orleans has appealed the resolution. See Note 2 to the financial statements for further discussion.
The rates of System Energy are established by the FERC, and the costs allowed to be charged pursuant to these rates are, in turn, passed through to the participating Utility operating companies through the Unit Power Sales Agreement, which allows monthly adjustments to reflect the current operating costs of, and investment in, Grand Gulf. The Unit Power Sales Agreement is currently the subject of several litigation proceedings at the FERC, including a challenge with respect to System Energy’s authorized return on equity and capital structure and a request in a separate proceeding for FERC to initiate a broader investigation of rates under the Unit Power Sales Agreement. See Note 2 to the financial statements for further discussion of the proceedings. The Utility operating companies have agreed to implement certain protocols for providing retail regulators with information regarding rates billed under the Unit Power Sales Agreement.
The Utility operating companies and System Energy, and the energy industry as a whole, have experienced a period of rising costs and investments, and an upward trend in spending, especially with respect to infrastructure investments, which is likely to continue in the foreseeable future and could result in more frequent rate cases and
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requests for, and the continuation of, cost recovery mechanisms. For information regarding rate case proceedings and formula rate plans applicable to the Utility operating companies, see Note 2 to the financial statements.
Changes to state or federal legislation or regulation affecting electric generation, electric and natural gas transmission, distribution and related activities could adversely affect Entergy and the Utility operating companies’ financial position, results of operations or cash flows and their utility businesses.
If legislative and regulatory structures evolve in a manner that erodes the Utility operating companies’ exclusive rights to serve their regulated customers, they could lose customers and sales and their results of operations, financial position or cash flows could be materially affected. Additionally, technological advances in energy efficiency and distributed energy resources are reducing the costs of these technologies and together with ongoing state and federal subsidies, the increasing penetration of these technologies could result in reduced sales by the Utility operating companies. Such loss of sales could put upward pressure on rates, resulting in adverse regulatory actions to mitigate such effects on rates. Entergy and the Utility operating companies cannot predict if or when they may be subject to changes in legislation or regulation, or the extent and timing of reductions of the cost of distributed energy resources, nor can they predict the impact of these changes on their results of operations, financial position or cash flows.
The Utility operating companies recover fuel, purchased power, and associated costs through rate mechanisms that are subject to risks of delay or disallowance in regulatory proceedings.
The Utility operating companies recover their fuel, purchased power, and associated costs from their customers through rate mechanisms subject to periodic regulatory review and adjustment. Because regulatory review can result in the disallowance of incurred costs found not to have been prudently incurred, including the cost of replacement power purchased when generators experience outages, with the possibility of refunds to ratepayers, there exists some risk to the ultimate recovery of those costs. Regulators may also initiate proceedings to investigate the continued usage or the adequacy and operation of the fuel and purchased power recovery clauses of the Utility operating companies and, therefore, there can be no assurance that existing recovery mechanisms will remain unchanged or in effect at all.
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The Utility operating companies’ cash flows can be negatively affected by the time delays between when gas, power, or other commodities are purchased and the ultimate recovery from customers of the costs in rates. On occasion, when the level of incurred costs for fuel and purchased power rises very dramatically, some of the Utility operating companies may agree to defer recovery of a portion of that period’s fuel and purchased power costs for recovery at a later date, which could increase the near-term working capital and borrowing requirements of those companies. For a description of fuel and purchased power recovery mechanisms and information regarding the regulatory proceedings for fuel and purchased power costs recovery, see Note 2 to the financial statements.
There remains uncertainty regarding the effect of the termination of the System Agreement on the Utility operating companies.
The Utility operating companies historically have engaged in the coordinated planning, construction, and operation of generating resources and bulk transmission facilities under the terms of the System Agreement, which is a rate schedule that had been approved by the FERC. The System Agreement terminated in its entirety on August 31, 2016.
There remains uncertainty regarding the long-term effect of the termination of the System Agreement on the Utility operating companies because of the significant effect of the agreement on the generation and transmission functions of the Utility operating companies and the significant period of time (over 30 years) that it had been in existence. In the absence of the System Agreement, there remains uncertainty around the effectiveness of governance processes and the potential absence of federal authority to resolve certain issues among the Utility operating companies and their retail regulators.
In addition, although the System Agreement terminated in its entirety in August 2016, there are a number of outstanding System Agreement proceedings at the FERC that may require future adjustments, including challenges to
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the level and timing of payments made by Entergy Arkansas under the System Agreement. The outcome and timing of these FERC proceedings and resulting recovery and impact on rates cannot be predicted at this time.
For further information regarding the regulatory proceedings relating to the System Agreement, see Note 2 to the financial statements.
The Utility operating companies are subject to economic risks associated with participation in the MISO markets and the allocation of transmission upgrade costs. The operation of the Utility operating companies’ transmission system pursuant to the MISO RTO tariff and their participation in the MISO RTO’s wholesale markets may be adversely affected by regulatory or market design changes, as well as liability under, or any future inability to comply with, existing or future regulations or requirements.
On December 19, 2013, the Utility operating companies integrated into the MISO RTO. MISO maintains functional control over the combined transmission systems of its members and administers wholesale energy and ancillary services markets for market participants in the MISO region, including the Utility operating companies. The Utility operating companies sell capacity, energy, and ancillary services on a bilateral basis to certain wholesale customers and offer available electricity production of their generating facilities into the MISO day-ahead and real-time energy markets pursuant to the MISO tariff and market rules. The Utility operating companies are subject to economic risks associated with participation in the MISO markets. MISO tariff rules and system conditions, including transmission congestion, could affect the Utility operating companies’ ability to sell power in certain regions and/or the economic value of such sales, and MISO market rules may change in ways that cause additional risk.
The Utility operating companies participate in the MISO regional transmission planning process and are subject to risks associated with planning decisions that MISO makes in the exercise of control over the planning of the Utility operating companies’ transmission assets that are under MISO’s functional control. The Utility operating companies pay transmission rates that reflect the cost of transmission projects that the Utility operating companies do not own, which could increase cash or financing needs. MISO is currently evaluating through its stakeholder process potentialhas made filings with FERC proposing changes in the transmission project criteria in MISO. These changes, if adopted, could potentially result in a larger
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volume of competitively bid and regionally cost allocated transmission projects. In addition to the cash and financing-related risks arising from the potential additional cost allocation to the Utility operating companies from these projects, there is a risk that the Utility operating companies’ business and financial position could be harmed as a result of lost investment opportunities and other effects that flow from an increased number of competitive projects being approved and constructed that are interconnected with their transmission systems. Further, the terms and conditions of the MISO tariff, including provisions related to the design and implementation of wholesale markets, and the allocation of transmission upgrade costs, the MISO-wide allowed base rate of return on equity, and any required MISO-related charges and credits are subject to regulation by the FERC. The operation of the Utility operating companies’ transmission system pursuant to the MISO tariff and their participation in the MISO wholesale markets may be adversely affected by regulatory or market design changes, as well as liability under, or any future inability to comply with, existing or future regulations or requirements. In addition, orders from each of the Utility operating companies’ respective retail regulators generally require that the Utility operating companies make periodic filings, or generally allow the retail regulator to direct the making of such filings, setting forth the results of analysis of the costs and benefits realized from MISO membership as well as the projected costs and benefits of continued membership in MISO and/or requesting approval of their continued membership in MISO. These filings have been submitted periodically by each of the Utility operating companies as required by their respective retail regulators, and the outcome of the resulting proceedings may affect the Utility operating companies’ continued membership in MISO.
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Entergy Corporation, Utility operating companies, and System Energy
(Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and Entergy Texas)
A delay or failure in recovering amounts for storm restoration costs incurred as a result of severe weather could have material effects on Entergy and those Utility operating companies affected by severe weather.
Entergy’s and its Utility operating companies’ results of operations, liquidity, and financial condition can be materially affected by the destructive effects of severe weather. Severe weather can also result in significant outages for the customers of the Utility operating companies and, therefore, reduced revenues for the Utility operating companies during the period of the outages. A delay or failure in recovering amounts for storm restoration costs incurred or revenues lost as a result of severe weather could have a material effect on Entergy and those Utility operating companies affected by severe weather.
Nuclear Operating, Shutdown and Regulatory Risks
(Entergy Corporation, Entergy Arkansas, Entergy Louisiana, and System Energy)
Certain of the Utility operating companies, System Energy, and Entergy Wholesale Commodities must consistently operate their nuclear power plants at high capacity factors in order to be successful, and lower capacity factors could materially affect Entergy’s and their results of operations, financial condition, and liquidity.
Nuclear capacity factors significantly affect the results of operations of certain Utility operating companies, System Energy, and Entergy Wholesale Commodities. Nuclear plant operations involve substantial fixed operating costs. Consequently, to be successful, a plant owner must consistently operate its nuclear power plants at high capacity factors, consistent with safety requirements. For the Utility operating companies that own nuclear plants, lower capacity factors can increase production costs by requiring the affected companies to generate additional energy, sometimes at higher costs, from their fossilowned or contractually controlled facilities or purchase additional energy in the spot or forward markets in order to satisfy their supply needs. For the Entergy Wholesale Commodities nuclear plants, lower capacity factors directly affect revenues and cash flow from operations. Entergy Wholesale Commodities’ forward sales are comprised of various hedge products, many of which have some degree of operational-contingent price risk. Certain unit-contingent contracts guarantee specified minimum capacity factors. In the event plants with these contracts were operating below the guaranteed capacity factors, Entergy would be subject to price risk for the undelivered power. Further, Entergy Wholesale Commodities’ nuclear forward sales contracts can also be on a firm LD basis, which subjects Entergy to increasing price risk as capacity factors decrease. Many of these firm hedge products have damages risk, capped through the use of risk management products.risk.
Part I Item 1A & 1B
Entergy Corporation, Utility operating companies, and System Energy
Certain of the Utility operating companies, System Energy, and the Entergy Wholesale Commodities nuclear plant owners periodically shut down their nuclear power plants to replenish fuel. Plant maintenance and upgrades are often scheduled during such refueling outages. If refueling outages last longer than anticipated or if unplanned outages arise, Entergy’s and their results of operations, financial condition, and liquidity could be materially affected.
Outages at nuclear power plants to replenish fuel require the plant to be “turned off.” Refueling outages generally are planned to occur once every 18 to 24 months and average approximately 30 days in duration.months. Plant maintenance and upgrades are often scheduled during such planned outages.outages, which typically extends the planned outage duration. When refueling outages last longer than anticipated or a plant experiences unplanned outages, capacity factors decrease, and maintenance costs may increase. Lower than forecasted capacity factors may cause Entergy Wholesale Commodities to experience reduced revenues and may also create damages risk with certain hedge products as previously discussed.
Part I Item 1A & 1B
Entergy Corporation, Utility operating companies, and System Energy
Certain of the Utility operating companies, System Energy, and Entergy Wholesale Commodities face risks related to the purchase of uranium fuel (and its conversion, enrichment, and fabrication). These risks could materially affect Entergy’s and their results of operations, financial condition and liquidity.
Based upon currently planned fuel cycles, Entergy’s nuclear units have a diversified portfolio of contracts and inventory that provides substantially adequate nuclear fuel materials and conversion and enrichment services at what Entergy believes are reasonably predictable prices through most of 2018.2020 and beyond. The nuclear fuel supply portfolio for the Entergy Wholesale Commodities segment is beinghas been adjusted to reflect reduced overall requirements related to the planned permanent shutdown and sale of the Palisades, Pilgrim, Indian Point 2 and Indian Point 3 plants over the next twothree years and fuel procurement is limited to five yearsthe final refueling of the Palisades plant in 2020. Entergy’s ability to purchase nuclear fuel at reasonably predictable prices, however, depends upon the performance reliability of uranium miners. While there are a number of possible alternate suppliers that may be accessed to mitigate any supplier performance failure, the pricing of any such alternate uranium supply from the market will be dependent upon the market for uranium supply at that time. Entergy buys uranium from a diversified mix of sellers located in a diversified mix of countries, and from time to time purchases from nearly all qualified reliable major market participants worldwide that sell into the U.S. Market prices for nuclear fuel have been extremely volatile from time to time in the past.past and may be subject to increased volatility due to the imposition of tariffs, domestic purchase requirements or shifting trade arrangements between countries. Although Entergy’s nuclear fuel contract portfolio provides a degree of hedging against market risks for several years, costs for nuclear fuel in the future cannot be predicted with certainty due to normal inherent market uncertainties, and price changes could materially affect the liquidity, financial condition, and results of operations of certain of the Utility operating companies, System Energy, and Entergy Wholesale Commodities.
Entergy’s ability to assure nuclear fuel supply also depends upon the performance and reliability of conversion, enrichment, and fabrication services providers. These service providers are fewer in number than uranium suppliers. For conversion and enrichment services, Entergy diversifies its supply by supplier and country and may take special measures to ensure a reliable supply of enriched uranium for fabrication into nuclear fuel. For fabrication services, each plant is dependent upon the performance of the fabricator of that plant’s nuclear fuel; therefore, Entergy relies upon additional monitoring, inspection, and oversight of the fabrication process to assure reliability and quality of its nuclear fuel. Certain of the suppliers and service providers are located in or dependent upon countries, such as Russia, in which deteriorating economic conditionsinternational sanctions or international sanctionstariffs could restrict the ability of such suppliers to continue to supply fuel or provide such services.services at acceptable prices or at all. The inability of such suppliers or service providers to perform such obligations could materially affect the liquidity, financial condition, and results of operations of certain of the Utility operating companies, System Energy, and Entergy Wholesale Commodities.
Entergy Arkansas, Entergy Louisiana, System Energy, and the Entergy Wholesale Commodities business face the risk that the NRC will change or modify its regulations, suspend not renew, or revoke their licenses, or increase oversight of their nuclear plants, which could materially affect Entergy’s and their results of operations, financial condition, and liquidity.
Under the Atomic Energy Act and Energy Reorganization Act, the NRC regulates the operation of nuclear power plants. The NRC may modify, suspend, not renew, or revoke licenses, shut down a nuclear facility and impose civil penalties for failure to comply with the Atomic Energy Act, related regulations, or the terms of the licenses for
Part I Item 1A & 1B
Entergy Corporation, Utility operating companies, and System Energy
nuclear facilities. The license renewal process in some cases may be the subject of significant public debate and legislative review and scrutiny at the federal and, in some cases, state level, though the decision whether to renew is subject to the exclusive jurisdiction of the NRC. Interested parties may also intervene which could result in prolonged proceedings. A change in the Atomic Energy Act, other applicable statutes, or the applicable regulations or licenses, or the NRC’s interpretation thereof, may require a substantial increase in capital expenditures or may result in increased operating or decommissioning costs and could materially affect the results of operations, liquidity, or financial condition of Entergy (through Entergy Wholesale Commodities), its Utility operating companies, or System Energy. A change in the classification of a plant owned by one of these companies under the NRC’s Reactor Oversight Process, which is the NRC’s program to collect information about plant performance, assess the information for its safety significance, and provide for appropriate licensee and NRC response, also could cause the owner of the plant to incur material additional costs as a result of the increased oversight activity and potential response costs associated with the change in classification.For additional information concerning the current classification of the plants owned by Entergy Arkansas, Entergy Louisiana, System Energy, and
Part I Item 1A & 1B
Entergy Corporation, Utility operating companies, and System Energy
the Entergy Wholesale Commodities business, see “Regulation of Entergy’s Business- Regulation of the Nuclear Power Industry - NRC Reactor Oversight Process” in Part I, Item 1 and Note 8 to the financial statements.
Events at nuclear plants owned by one of these companies, as well as those owned by others, may lead to a change in laws or regulations or the terms of the applicable licenses, or the NRC’s interpretation thereof, or may cause the NRC to increase oversight activity or initiate actions to modify, suspend, or revoke licenses, shut down a nuclear facility, or impose civil penalties. As a result, if an incident were to occur at any nuclear generating unit, whether an Entergy nuclear generating unit or not, it could materially affect the financial condition, results of operations, and liquidity of Entergy, certain of the Utility operating companies, System Energy, or Entergy Wholesale Commodities.
Certain of the Utility operating companies, System Energy, and Entergy Wholesale Commodities are exposed to risks and costs related to operating and maintaining their nuclear power plants, and their failure to maintain operational efficiency at their nuclear power plants could materially affect Entergy’s and their results of operations, financial condition, and liquidity.
The nuclear generating units owned by certain of the Utility operating companies, System Energy,and the Entergy Wholesale Commodities business began commercial operations in the 1970s-1980s. Older equipment may require more capital expenditures to keep each of these nuclear power plants operating safely and efficiently. This equipment is also likely to require periodic upgrading and improvement. Any unexpected failure, including failure associated with breakdowns, forced outages, or any unanticipated capital expenditures, could result in increased costs, some of which costs may not be fully recoverable by the Utility operating companies and System Energy in regulatory proceedings.proceedings should there be a determination of imprudence. Operations at any of the nuclear generating units owned and operated by Entergy’s subsidiaries could degrade to the point where the affected unit needs to be shut down or operated at less than full capacity. If this were to happen, identifying and correcting the causes may require significant time and expense. A decision may be made to close a unit rather than incur the expense of restarting it or returning the unit to full capacity. For the Utility operating companies and System Energy, this could result in certain costs being stranded and potentially not fully recoverable in regulatory proceedings. For Entergy Wholesale Commodities, this could result in lost revenue and increased fuel and purchased power expense to meet supply commitments and penalties for failure to perform under their contracts with customers. In addition, the operation and maintenance of Entergy’s nuclear facilities require the commitment of substantial human resources that can result in increased costs.
The nuclear industry continues to address susceptibility to the effects of stress corrosion cracking and other corrosion mechanisms on certain materials within plant systems. The issue is applicable at all nuclear units to varying degrees and is managed in accordance with industry standard practices and guidelines that include in-service examinations, replacements, and mitigation strategies. Developments in the industry or identification of issues at the nuclear units could require unanticipated remediation efforts that cannot be quantified in advance.
Moreover, Entergy is becoming more dependent on fewer suppliers for key parts of Entergy’s nuclear power plants that may need to be replaced or refurbished.refurbished, and in some cases, parts are no longer available and have to be reverse-engineered for replacement. In addition, certain major parts have long lead-times to manufacture
Part I Item 1A & 1B
Entergy Corporation, Utility operating companies, and System Energy
if an unplanned replacement is needed. This dependence on a reduced number of suppliers and long lead-times on certain major parts for unplanned replacements could result in delays in obtaining qualified replacement parts and, therefore, greater expense for Entergy.
The costs associated with the storage of the spent nuclear fuel of certain of the Utility operating companies, System Energy, and the owners of the Entergy Wholesale Commodities nuclear power plants, as well as the costs of and their ability to fully decommission their nuclear power plants, could be significantly affected by the timing of the opening of a spent nuclear fuel disposal facility, as well as interim storage and transportation requirements.
Certain of the Utility operating companies, System Energy and the owners of the Entergy Wholesale Commodities nuclear plants incur costs for the on-site storage of spent nuclear fuel. The approval of a license for a national repository for the disposal of spent nuclear fuel, such as the one proposed for Yucca Mountain, Nevada, or
Part I Item 1A & 1B
Entergy Corporation, Utility operating companies, and System Energy
any interim storage facility, and the timing of such facility opening, will significantly affect the costs associated with on-site storage of spent nuclear fuel. For example, while the DOE is required by law to proceed with the licensing of Yucca Mountain and, after the license is granted by the NRC, to construct the repository and commence the receipt of spent fuel, the NRC licensing of the Yucca Mountain repository is effectively at a standstill. These actions are prolonging the time before spent fuel is removed from Entergy’s plant sites. Because the DOE has not accomplished its objectives, it is in non-compliance with the Nuclear Waste Policy Act of 1982 and has breached its spent fuel disposal contracts, and Entergy has sued the DOE for such breach. Furthermore, Entergy is uncertain as to when the DOE will commence acceptance of spent fuel from its facilities for storage or disposal. As a result, continuing future expenditures will be required to increase spent fuel storage capacity at the companies’ nuclear sites and maintenance costs on existing storage facilities, including aging management of fuel storage casks, may increase. The costs of on-site storage are also affected by regulatory requirements for such storage. In addition, the availability of a repository or other off-site storage facility for spent nuclear fuel may affect the ability to fully decommission the nuclear units and the costs relating to decommissioning. For further information regarding spent fuel storage, see the “Critical Accounting Estimates – Nuclear Decommissioning Costs – Spent Fuel Disposal” section of Management’s Financial Discussion and Analysis for Entergy, Entergy Arkansas, Entergy Louisiana, and System Energy and Note 8 to the financial statements.
Certain of the Utility operating companies, System Energy, and the Entergy Wholesale Commodities nuclear plant owners may be required to pay substantial retrospective premiums imposed under the Price-Anderson Act in the event of a nuclear incident, and losses not covered by insurance could have a material effect on Entergy’s and their results of operations, financial condition, or liquidity.
Accidents and other unforeseen problems at nuclear power plants have occurred both in the United States and elsewhere. The Price-Anderson Act limits each reactor owner’s public liability (off-site) for a single nuclear incident to the payment of retrospective premiums into a secondary insurance pool, ofwhich is referred to as Secondary Financial Protection, up to approximately $127.3$137.6 million per reactor. With 10298 reactors currently participating, this translates to a total public liability cap of approximately $13$14 billion per incident. The limit is subject to change to account for the effects of inflation, a change in the primary limit of insurance coverage, and changes in the number of licensed reactors. As required by the Price-Anderson Act, the Utility operating companies, System Energy, and Entergy Wholesale Commodities carry the maximum available amount of primary nuclear off-site liability insurance with American Nuclear Insurers, (whichwhich is $450 million for each operating site as of January 1, 2018).site. Claims for any nuclear incident exceeding that amount are covered under the retrospective premiums paid into the secondary insurance pool.Secondary Financial Protection. As a result, in the event of a nuclear incident that causes damages (off-site) in excess of the primary insurance coverage, each owner of a nuclear plant reactor, including Entergy’s Utility operating companies, System Energy, and the Entergy Wholesale Commodities plant owners, regardless of fault or proximity to the incident, will be required to pay a retrospective premium, equal to its proportionate share of the loss in excess of the primary insurance level, up to a maximum of approximately $127.3$137.6 million per reactor per incident (Entergy’s maximum total contingent obligation per incident is $1.146$1.101 billion). The retrospective premium payment is currently limited to approximately $19$21 million per year per incident per reactor until the aggregate public liability for each licensee is paid up to the $127.3$137.6 million cap.
Part I Item 1A & 1B
Entergy Corporation, Utility operating companies, and System Energy
NEIL is a utility industry mutual insurance company, owned by its members, including the Utility operating companies, System Energy, and the owners of the Entergy Wholesale Commodities plants. All member plants could be subject to an annual assessment (retrospective premium of up to 10 times current annual premium for all policies) should the NEIL surplus (reserve) be significantly depleted due toinsured losses. As of December 31, 2017,2019, the maximum annual assessment amounts total $112.2$112 million for the Utility plants. Retrospective premium insurance available through NEIL’s reinsurance treaty can cover the potential assessments and the Entergy Wholesale Commodities plants currently maintain the retrospective premium insurance to cover those potential assessments.
As an owner of nuclear power plants, Entergy participates in industry self-insurance programs and could be liable to fund claims should a plant owned by a different company experience a major event. Any resulting liability from a nuclear accident may exceed the applicable primary insurance coverage and require contribution of additional funds through the industry-wide program that could significantly affect the results of operations, financial condition,
Part I Item 1A & 1B
Entergy Corporation, Utility operating companies, and System Energy
or liquidity of Entergy, certain of the Utility operating companies, System Energy, or the Entergy Wholesale Commodities subsidiaries.
The decommissioning trust fund assets for the nuclear power plants owned by the Utility operating companies, System Energy and the Entergy Wholesale Commodities nuclear plant owners may not be adequate to meet decommissioning obligations if market performance and other changes decrease the value of assets in the decommissioning trusts, if one or more of Entergy’s nuclear power plants is retired earlier than the anticipated shutdown date, if the plants cost more to decommission than estimated, or if current regulatory requirements change, which then could require significant additional funding.
Owners of nuclear generating plants have an obligation to decommission those plants. Certain of the Utility operating companies, System Energy, and owners of the Entergy Wholesale Commodities nuclear power plants maintain decommissioning trust funds for this purpose. Certain of the Utility operating companies collect funds from their customers, which are deposited into the trusts covering the units operated for or on behalf of those companies. Those rate collections, as adjusted from time to time by rate regulators, are generally based upon operating license lives and trust fund balances as well as estimated trust fund earnings and decommissioning costs. Assets in these trust funds are subject to market fluctuations, will yield uncertain returns that may fall below projected return rates, and may result in losses resulting from the recognition of impairments of the value of certain securities held in these trust funds.
In connection with the acquisition of certain nuclear plants, the Entergy Wholesale Commodities plant owners acquired decommissioning trust funds that are funded in accordance with NRC regulations. Under NRC regulations, Entergy Wholesale Commodities’ nuclear subsidiariesplant owners are permitted to project the NRC-required decommissioning amount, based on an NRC formula or a site-specific estimate, and the amount that will be available in each of the Entergy Wholesale Commodities nuclear power plant’s decommissioning trusts combined with any other decommissioning financial assurances in place. The projections are made based on the operating license expiration date and the mid-point of the subsequent decommissioning process, or the anticipated actual completion of decommissioning if a site-specific estimate is used, for each of these nuclear power plants. As a result, ifused. If the projected amount of each individual plants’plant’s decommissioning trusts exceeds the NRC-required decommissioning amount, then its decommissioning obligations are considered to be funded in accordance with NRC regulations. If the projected costs do not sufficiently reflect the actual costs the applicable Entergy subsidiaries would be required to incur to decommission these nuclear power plants, or funding is otherwise inadequate, or if the formula, formula inputs, or site-specific estimate is changed to require increased funding, additional resources or commitments would be required. Furthermore, depending upon the level of funding available in the trust funds, the NRC may not permit the trust funds to be used to pay for related costs such as the management of spent nuclear fuel that are not included in the NRC’s formula. The NRC may also require a plan for the provision of separate funding for spent fuel management costs. In addition to NRC requirements, there are other decommissioning-related obligations for certain of the Entergy Wholesale Commodities nuclear power plants, which management believes it will be able to satisfy.
Further, federal or state regulatory changes, including mandated increases in decommissioning funding or changes in the methods or standards for decommissioning operations, may also increase the funding requirements of,
Part I Item 1A & 1B
Entergy Corporation, Utility operating companies, and System Energy
or accelerate the timing for funding of, the obligations related to the decommissioning of the Utility operating companies, System Energy, or Entergy Wholesale Commodities nuclear power plants or may restrict the decommissioning-related costs that can be paid from the decommissioning trusts. Such changes also could result in the need for additional contributions to decommissioning trusts, or the posting of parent guarantees, letters of credit, or other surety mechanisms. As a result, under any of these circumstances, Entergy’s results of operations, liquidity, and financial condition could be materially affected.
An early plant shutdown (either generally or relative to current expectations), poor investment results or higher than anticipated decommissioning costs (including as a result of changing regulatory requirements) could cause trust fund assets to be insufficient to meet the decommissioning obligations, with the result that the Utility operating companies, System Energy or the Entergy Wholesale Commodities nuclear plant owners may be required to provide significant additional funds or credit support to satisfy regulatory requirements for decommissioning, which, with respect to the Utility operating companies, may not be recoverable from customers in a timely fashion or at all.
For further information regarding nuclear decommissioning costs, management’s decision to exit the merchant
Part I Item 1A & 1B
Entergy Corporation, Utility operating companies, and System Energy
power business, and the impairment charges that resulted from such decision, and the planned sale of Palisades (which will include the transfer of the decommissioning trust), see the “Critical Accounting Estimates- Nuclear Decommissioning Costs” section of Management’s Financial Discussion and Analysis for Entergy, Entergy Arkansas, Entergy Louisiana, and System Energy, the “Entergy Wholesale Commodities Exit from the Merchant Power Business” section of Management’s Financial Discussion and Analysis for Entergy Corporation and Subsidiaries, and Notes 9 and 14 to the financial statements.
Changes in NRC regulations or other binding regulatory requirements may cause increased funding requirements for nuclear plant decommissioning trusts.
NRC regulations require certain minimum financial assurance requirements for meeting obligations to decommission nuclear power plants. Those financial assurance requirements may change from time to time, and certain changes may result in a material increase in the financial assurance required for decommissioning the Utility operating companies’, System Energy’s, and owners of Entergy Wholesale Commodities nuclear power plants. Such changes could result in the need for additional contributions to decommissioning trusts, or the posting of parent guarantees, letters of credit, or other surety mechanisms. For further information regarding nuclear decommissioning costs, see the “Critical Accounting Estimates– Nuclear Decommissioning Costs” section of Management’s Financial Discussion and Analysis for Entergy, Entergy Arkansas, Entergy Louisiana, and System Energy and Note 9 to the financial statements.
New or existing safety concerns regarding operating nuclear power plants and nuclear fuel could lead to restrictions upon the operation and decommissioning of Entergy’s nuclear power plants.
New and existing concerns are being expressed in public forums about the safety of nuclear generating units and nuclear fuel, in particular in the northeastern United States, which is where most of the current fleet of Entergy Wholesale Commodities nuclear power plants is located.fuel. These concerns have led to, and are expected tomay continue to lead to, various proposals to Federal regulators and governing bodies in some localities where Entergy’s subsidiaries own nuclear generating units for legislative and regulatory changes that couldmight lead to the shutdown of nuclear units, denial of license renewal applications, additional requirements or restrictions related to spent nuclear fuel on-site storage and eventual disposal, or other adverse effects on owning, operating and decommissioning nuclear generating units. Entergy vigorously responds to these concerns and proposals. If any of the existing proposals, or any proposals that may arise in the future with respect to legislative and regulatory changes, become effective, they could have a material effect on Entergy’s results of operations and financial condition, and liquidity.condition.
(Entergy Corporation)
A failure to obtain renewed licenses or other approvals required for the continued operation of the Entergy Wholesale Commodities’ Indian Point nuclear power plants could have a material effect on Entergy’s results of operations, financial condition, and liquidity and could lead to an acceleration of the timing for the funding of decommissioning obligations.
Part I Item 1A & 1B
Entergy Corporation, Utility operating companies, and System Energy
The license renewal and related processes for the Entergy Wholesale Commodities’ Indian Point nuclear power plants have been and may continue to be the subject of significant public debate and regulatory and legislative review and scrutiny at the federal and, in certain cases, state level. The original expiration date of the operating license for Indian Point 2 was September 2013 and the original expiration date of the operating license for Indian Point 3 was December 2015. Because these plants filed timely license renewal applications, the NRC’s rules provide that these plants may continue to operate under their existing operating licenses until their renewal applications have been finally determined.
In January 2017, Entergy announced that it plans to shut down Indian Point 2 in 2020 and Indian Point 3 in 2021. The early and orderly shutdown is part of a settlement under which New York State has agreed to drop legal challenges and support renewal of the operating licenses for Indian Point. For additional discussion of the settlement agreement with New York State, see the “Entergy Wholesale Commodities Authorizations to Operate Indian Point” in Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis.
If the NRC were to deny the applications for the renewal of operating licenses for the Indian Point nuclear power plants, or if Indian Point fails to obtain other approvals, Entergy’s results of operations, financial condition, and liquidity could be materially affected by loss of revenue and cash flow associated with the plant or plants until the proposed shutdown date, potential impairments of the carrying value of the plants, increased depreciation rates, and an accelerated need for decommissioning funds, which could require additional funding. In addition, Entergy may incur increased operating costs depending on any conditions that may be imposed in connection with license renewal. For further discussion regarding the license renewal processes for the Indian Point nuclear power plants, see the “Entergy Wholesale Commodities Authorizations to Operate Indian Point” in Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis.
Entergy Wholesale Commodities nuclear power plants are exposed to price risk.
Entergy and its subsidiaries do not have a regulator-authorized rate of return on their capital investments in non-utility businesses. As a result, the sale of capacity and energy from the Entergy Wholesale Commodities nuclear power plants, unless otherwise contracted, is subject to the fluctuation of market power prices. In order to reduce future price risk to desired levels, Entergy Wholesale Commodities utilizes contracts that are unit-contingent and Firm LD and various products such as forward sales, options, and collars. As of December 31, 2017,2019, Entergy Wholesale Commodities’ nuclear power generation plants had sold forward 98% in 2018, 91% in 2019, 51%97% in 2020, 74%92% in 2021, and 67%66% in 2022 of its generation portfolio’s planned energy output, reflecting the planned shutdown orand sale of the remaining Entergy Wholesale Commodities nuclear power plants by mid-2022.
Market conditions such as product cost, market liquidity, and other portfolio considerations influence the product and contractual mix. The obligations under unit-contingent agreements depend on a generating asset that is operating; if the generation asset is not operating, the seller generally is not liable for damages. For some unit-contingent obligations, however, there is also a guarantee of availability that provides for the payment to the power purchaser of contract damages, if incurred, in the event the unit owner fails to deliver power as a result of the failure of the specified generation unit to generate power at or above a specified availability threshold. Firm LD sales transactions may be exposed to substantial operational price risk, a portion of which may be capped through the use of risk management products, to the extent that the plants do not run as expected and market prices exceed contract prices.
Market prices may fluctuate substantially, sometimes over relatively short periods of time, and at other times experience sustained increases or decreases. Demand for electricity and its fuel stock can fluctuate dramatically, creating periods of substantial under- or over-supply. During periods of over-supply, prices might be depressed. Also, from time to time there may be political pressure, or pressure from regulatory authorities with jurisdiction over wholesale and retail energy commodity and transportation rates, to impose price limitations, credit requirements, bidding rules and other mechanisms to address volatility and other issues in these markets.
Part I Item 1A & 1B
Entergy Corporation, Utility operating companies, and System Energy
The effects of sustained low natural gas prices and power market structure challenges have resulted in lower market prices for electricity in the power regions where the Entergy Wholesale Commodities nuclear power plants are located. In addition, currently the market design under which the plants operate does not adequately compensate merchant nuclear plants for their environmental and fuel diversity benefits in the region. These conditions were primary
Part I Item 1A & 1B
Entergy Corporation, Utility operating companies, and System Energy
factors leading to Entergy’s decision to shut down (or sell) Entergy Wholesale Commodities’ nuclear power plants before the end of their operating licenses (or requested operating licenses for Indian Point 2 and Indian Point 3).
The price that different counterparties offer for various products including forward sales is influenced both by market conditions as well as the contract terms such as damage provisions, credit support requirements, and the number of available counterparties interested in contracting for the desired forward period. Depending on differences between market factors at the time of contracting versus current conditions, Entergy Wholesale Commodities’ contract portfolio may have average contract prices above or below current market prices, including at the expiration of the contracts, which may significantly affect Entergy Wholesale Commodities’ results of operations, financial condition, or liquidity. New hedges are generally layered into on a rolling forward basis, which tends to drive hedge over-performance to market in a falling price environment, and hedge underperformance to market in a rising price environment; however, hedge timing, product choice, and hedging costs will also affect these results. See the “Market and Credit Risk Sensitive Instruments” section of Management’s Financial Discussion and Analysis for Entergy Corporation and Subsidiaries. Since Entergy Wholesale Commodities has announced the closure (or sale) of its nuclear plants, Entergy Wholesale Commodities may enter into fewer forward sales contracts for output from such plants.
Among the factors that could affect market prices for electricity and fuel, all of which are beyond Entergy’s control to a significant degree, are:
prevailing market prices for natural gas, uranium (and its conversion, enrichment, and fabrication), coal, oil, and other fuels used in electric generation plants, including associated transportation costs, and supplies of such commodities;
seasonality and realized weather deviations compared to normalized weather forecasts;
availability of competitively priced alternative energy sources and the requirements of a renewable portfolio standard;
changes in production and storage levels of natural gas, lignite, coal and crude oil, and refined products;
liquidity in the general wholesale electricity market, including the number of creditworthy counterparties available and interested in entering into forward sales agreements for Entergy’s full hedging term;
the actions of external parties, such as the FERC and local independent system operators and other state or Federal energy regulatory bodies, that may impose price limitations and other mechanisms to address some of the volatility in the energy markets;
electricity transmission, competing generation or fuel transportation constraints, inoperability, or inefficiencies;
the general demand for electricity, which may be significantly affected by national and regional economic conditions;
weather conditions affecting demand for electricity or availability of hydroelectric power or fuel supplies;
the rate of growth in demand for electricity as a result of population changes, regional economic conditions, and the implementation of conservation programs or distributed generation;
regulatory policies of state agencies that affect the willingness of Entergy Wholesale Commodities customers to enter into long-term contracts generally, and contracts for energy in particular;
increases in supplies due to actions of current Entergy Wholesale Commodities competitors or new market entrants, including the development of new generation facilities, expansion of existing generation facilities, the disaggregation of vertically integrated utilities, and improvements in transmission that allow additional supply to reach Entergy Wholesale Commodities’ nuclear markets;
union and labor relations;
changes in Federal and state energy and environmental laws and regulations and other initiatives, such as the Regional Greenhouse Gas Initiative, including but not limited to, the price impacts of proposed emission controls;
Part I Item 1A & 1B
Entergy Corporation, Utility operating companies, and System Energy
changes in law resulting from federal or state energy legislation or legislation subjecting energy derivatives used in hedging and risk management transactions to governmental regulation; and
natural disasters, terrorist actions, wars, embargoes, and other catastrophic events.
The Entergy Wholesale Commodities business is subject to substantial governmental regulation and may be adversely affected by legislative, regulatory or market design changes, as well as liability under, or any future inability to comply with, existing or future regulations or requirements.
The Entergy Wholesale Commodities business is subject to extensive regulation under federal, state, and local laws. Compliance with the requirements under these various regulatory regimes may cause the Entergy Wholesale Commodities business to incur significant additional costs, and failure to comply with such requirements could result in the shutdown of the non-complying facility, the imposition of liens, fines and/or civil or criminal liability.
Public utilities under the Federal Power Act are required to obtain FERC acceptance of their rate schedules for wholesale sales of electricity. Each of the owners of the Entergy Wholesale Commodities nuclear power plants that generates electricity, as well as Entergy Nuclear Power Marketing, LLC, is a “public utility” under the Federal Power Act by virtue of making wholesale sales of electric energy and/or owning wholesale electric transmission facilities. The FERC has granted these generating and power marketing companies the authority to sell electricity at market-based rates. The FERC’s orders that grant the Entergy Wholesale Commodities’ generating and power marketing companies market-based rate authority reserve the right to revoke or revise that authority if the FERC subsequently determines that the Entergy Wholesale Commodities business can exercise market power in transmission or generation, create barriers to entry, or engage in abusive affiliate transactions. In addition, the Entergy Wholesale Commodities’ market-based sales are subject to certain market behavior rules, and if any of its generating and power marketing companies were deemed to have violated one of those rules, they would be subject to potential disgorgement of profits associated with the violation and/or suspension or revocation of their market-based rate authority and potential penalties of up to $1 million per day per violation. If the Entergy Wholesale Commodities’ generating or power marketing companies were to lose their market-based rate authority, such companies would be required to obtain the FERC’s acceptance of a cost-of-service rate schedule and could become subject to the accounting, record-keeping, and reporting requirements that are imposed on utilities with cost-based rate schedules. This could have an adverse effect on the rates the Entergy Wholesale Commodities business charges for power from its facilities.
The Entergy Wholesale Commodities business is also affected by legislative and regulatory changes, as well as changes to market design, market rules, tariffs, cost allocations, and bidding rules imposed by the existing Independent System Operators. The Independent System Operators that oversee most of the wholesale power markets may impose, and in the future may continue to impose, mitigation, including price limitations, offer caps and other mechanisms, to address some of the volatility and the potential exercise of market power in these markets. These types of price limitations and other regulatory mechanisms may have an adverse effect on the profitability of the Entergy Wholesale Commodities business’ generation facilities that sell energy and capacity into the wholesale power markets. Further, the New York Independent System Operator could determine that the timing of the shutdown of the Indian Point units could be inconsistent with its market power rules, and impose certain penalties that could affect Entergy Wholesale Commodities. For further information regarding federal, state and local laws and regulation applicable to the Entergy Wholesale Commodities business, see the “Regulation of Entergy’s Business” section in Part I, Item 1.
Part I Item 1A & 1B
Entergy Corporation, Utility operating companies, and System Energy
The regulatory environment applicable to the electric power industry is subject to changes as a result of restructuring initiatives at both the state and federal levels. Entergy cannot predict the future design of the wholesale power markets or the ultimate effect that the changing regulatory environment will have on the Entergy Wholesale Commodities business. In addition, in some of these markets, interested parties have proposed material market design changes, including the elimination of a single clearing price mechanism, have raised claims that the competitive marketplace is not working because energy prices in wholesale markets exceed the marginal cost of operating nuclear power plants, and have made proposals to re-regulate the markets, impose a generation tax, or require divestitures by generating companies to reduce their market share. Other proposals to re-regulate may be made and legislative or other attention to the electric power market restructuring process may delay or reverse the deregulation process, which
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could require material changes to business planning models. If competitive restructuring of the electric power markets is reversed, modified, discontinued, or delayed, the Entergy Wholesale Commodities business’ results of operations, financial condition, and liquidity could be materially affected.
The power plants owned by the Entergy Wholesale Commodities business are subject to impairment charges in certain circumstances, which could have a material effect on Entergy’s results of operations, financial condition or liquidity.
Entergy reviews long-lived assets held in all of its business segments whenever events or changes in circumstances indicate that recoverability of these assets is uncertain. Generally, the determination of recoverability is based on the undiscounted net cash flows expected to result from the operations of such assets. Projected net cash flows depend on the expected operating life of the assets, the future operating costs associated with the assets, the efficiency and availability of the assets and generating units, and the future market and price for energy and capacity over the remaining life of the assets. In particular, the remaining assets of the Entergy Wholesale Commodities business are subject to further impairment in connection with the closure orand sale of the plants discussed below.its nuclear power plants. Moreover, prior to the closure orand sale of these plants, the failure of the Entergy Wholesale Commodities business to achieve forecasted operating results and cash flows, an unfavorable change in forecasted operating results or cash flows, a reduction in the expected remaining useful life of a unit, (including if the operating licenses for the Indian Point power plants are not renewed by the NRC), or a decline in observable industry market multiples could all result in potential additional impairment charges for the affected assets.
On August 27, 2013, Entergy announced its plan to close and decommission Vermont Yankee. Vermont Yankee ceased power production in the fourth quarter 2014 at the end of a fuel cycle. This decision was approved by the Board in August 2013, and resulted in the recognition of impairment charges in 2013 and 2014. In October 2015, Entergy determined that it will close the Pilgrim and FitzPatrick plants. The Pilgrim plant will cease operations no later than June 1, 2019. FitzPatrick was expected to shut down at the end of its current fuel cycle, planned for January 27, 2017, but in March 2017, Entergy sold the FitzPatrick plant to Exelon Generation Company, LLC which continues to operate the plant. During the third quarter 2015, Entergy recorded impairment and other related charges to write down the carrying values of the FitzPatrick and Pilgrim plants and related assets to their fair values. In addition, in the fourth quarter 2015, Entergy recorded impairment and other related charges to write down the carrying value of the Palisades plant and related assets to their fair value. In December 2016, Entergy reached an agreement with Consumers Energy to terminate the PPA for the Palisades plant and to shut down the plant in 2018, but the agreement was terminated in September 2017 after the Michigan Public Service Commission decided that Consumers Power could not recover costs incurred under the agreement. Entergy intends to shut down the Palisades plant permanently on May 31, 2022. In January 2017, Entergy announced that it reached a settlement with New York State and plans to close the Indian Point 2 plant in 2020 and the Indian Point 3 plant in 2021. As a result, in the fourth quarter of 2016, Entergy recorded impairment and other related charges to write down the carrying values of the Palisades and Indian Point 2 and Indian Point 3 plants and related assets to their fair value. In addition to the impairments and other related charges, Entergy has incurred severance and employee retention costs and expects to incur additional charges through 2022 relating to the decisions to shut down Vermont Yankee, Palisades, Pilgrim, Indian Point 2 and Indian Point 3, and the sale of FitzPatrick.
If Entergy concludes that any of its nuclear power plants is unlikely to operate through its planned shutdown date, which conclusion would be based on a variety of factors, such a conclusion could result in a further impairment of part or all of the carrying value of the plant. Any impairment charge taken by Entergy with respect to its long-lived assets, including the remaining power plants owned by the Entergy Wholesale Commodities business, would likely be material in the quarter that the charge is taken and could otherwise have a material effect on Entergy’s results of operations, financial condition, or liquidity. For further information regarding evaluating long-lived assets for impairment, see the “Critical Accounting Estimates - Impairment of Long-lived Assets and Trust Fund Investments” section of Management’s Financial Discussion and Analysis for Entergy Corporation and Subsidiaries and for further discussion of the impairment charges, see Note 14 to the financial statements.
Part I Item 1A & 1B
Entergy Corporation, Utility operating companies, and System Energy
General Business
(Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and Entergy Texas)
Entergy and the Utility operating companies depend on access to the capital markets and, at times, may face potential liquidity constraints, which could make it more difficult to handle future contingencies such as natural disasters or substantial increases in gas and fuel prices. Disruptions in the capital and credit markets may adversely affect Entergy’s and its subsidiaries’ ability to meet liquidity needs, access capital and operate and grow their businesses, and the cost of capital.
Entergy’s business is capital intensive and dependent upon its ability to access capital at reasonable rates and
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other terms. At times there are also spikes in the price for natural gas and other commodities that increase the liquidity requirements of the Utility operating companies and Entergy Wholesale Commodities. In addition, Entergy’s and the Utility operating companies’ liquidity needs could significantly increase in the event of a hurricane or other weather-related or unforeseen disaster similar to that experienced in Entergy’s service territory with Hurricane Katrina and Hurricane Rita in 2005, Hurricane Gustav and Hurricane Ike in 2008, and Hurricane Isaac in 2012. The occurrence of one or more contingencies, including a delay in regulatory recovery of fuel or purchased power costs or storm restoration costs, higher than expected pension contributions, an acceleration of payments or decreased credit lines, less cash flow from operations than expected, changes in regulation or governmental policy (including tax and trade policy), or other unknown events, could cause the financing needs of Entergy and its subsidiaries to increase. In addition, accessing the debt capital markets more frequently in these situations may result in an increase in leverage. Material leverage increases could negatively affect the credit ratings of Entergy and the Utility operating companies, which in turn could negatively affect access to the capital markets.
The inability to raise capital on favorable terms, particularly during times of high interest rates, and uncertainty or reduced liquidity in the capital markets, could negatively affect Entergy and its subsidiaries’ ability to maintain and to expand their businesses. Access to capital markets could be restricted and/or borrowing costs could be increased due to certain sources of debt and equity capital being unwilling to invest in companies that experience extreme weather events, that rely on fossil fuels or offerings to fund fossil fuel projects, or due to risks related to climate change. Events beyond Entergy’s control may create uncertainty that could increase its cost of capital or impair its ability to access the capital markets, including the ability to draw on its bank credit facilities. Entergy and its subsidiaries are unable to predict the degree of success they will have in renewing or replacing their credit facilities as they come up for renewal. Moreover, the size, terms, and covenants of any new credit facilities may not be comparable to, and may be more restrictive than, existing facilities. If Entergy and its subsidiaries are unable to access the credit and capital markets on terms that are reasonable, they may have to delay raising capital, issue shorter-term securities and/or bear an unfavorable cost of capital, which, in turn, could impact their ability to grow their businesses, decrease earnings, significantly reduce financial flexibility and/or limit Entergy Corporation’s ability to sustain its current common stock dividend level.
(Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)
A downgrade in Entergy Corporation’s or its subsidiaries’ credit ratings could negatively affect Entergy Corporation’s and its subsidiaries’ ability to access capital and/or could require Entergy Corporation or its subsidiaries to post collateral, accelerate certain payments, or repay certain indebtedness.
There are a number of factors that rating agencies evaluate to arrive at credit ratings for each of Entergy Corporation and the Registrant Subsidiaries, including each Registrant’s regulatory framework, ability to recover costs and earn returns, diversification and financial strength and liquidity. If one or more rating agencies downgrade Entergy Corporation’s, any of the Utility operating companies’, or System Energy’s ratings, particularly below investment grade, borrowing costs would increase, the potential pool of investors and funding sources would likely decrease, and cash or letter of credit collateral demands may be triggered by the terms of a number of commodity contracts, leases, and other agreements.
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Entergy Corporation, Utility operating companies, and System Energy
Most of Entergy Corporation’s and its subsidiaries’ large customers, suppliers and counterparties require sufficient creditworthiness to enter into transactions. If Entergy Corporation’s or its subsidiaries’ ratings decline, particularly below investment grade, or if certain counterparties believe Entergy Corporation or the Utility operating companies are losing creditworthiness and demand adequate assurance under fuel, gas, and purchased power contracts, the counterparties may require posting of collateral in cash or letters of credit, prepayment for fuel, gas or purchased power or accelerated payment, or counterparties may decline business with Entergy Corporation or its subsidiaries. At December 31, 2017,2019, based on power prices at that time, Entergy had liquidity exposure of $167$78 million under the guarantees in place supporting Entergy Wholesale Commodities transactions and $8$19 million of posted cash collateral. In the event of a decrease in Entergy Corporation’s credit rating to below investment grade, based on power prices as
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of December 31, 2017,2019, Entergy would have been required to provide approximately $98$30 million of additional cash or letters of credit under some of the agreements. In the event of a decrease in the credit ratings of Entergy’s Utility operating companies to below investment grade, those companies collectively could be required to provide up to $50 million of additional cash or letters of credit to MISO. As of December 31, 2017,2019, the liquidity exposure associated with Entergy Wholesale Commodities assurance requirements, including return of previously receivedposted collateral from counterparties, would increase by $372$90 million for a $1 per MMBtu increase in gas prices in both the short- and long-term markets.
Recent U.S. tax legislation may materially adversely affect Entergy’s financial condition, results of operations, and cash flows, and credit ratings.flows.
The recently enacted H.R. 1, also known as the Tax Cuts and Jobs Act of 2017 will significantly changechanged the U.S. Internal Revenue Code, including taxation of U.S. corporations, by, among other things, reducing the federal corporate income tax rate, limiting interest deductions, and altering the expensing of capital expenditures. The legislation isand interpretive guidance from the IRS are unclear in certain respects and will require further interpretations and implementing regulations by the IRS, as well as state tax authorities, and the legislation could be subject to potential amendments and technical corrections, any of which could lessen or increase certain impacts of the legislation. In addition, the regulatory treatment of the impacts of this legislation, particularly on companies like Entergy and the Registrant Subsidiaries, will be subject to the discretion of federal, state, and local public utility regulators.
As further described in Note 3 to the financial statements, Entergy recordedas a reductionresult of certainamortization of its netaccumulated deferred income tax assets (including the valuetaxes and payment of its net operating loss carryforwards) and regulatory liabilities, resultingsuch amounts to customers in a charge against earnings in the fourth quarter 2017 of $526 million, including a $34 million net-of-tax reduction of regulatory liabilities, and Entergy and the Utility operating companies recorded a reduction of approximately $3.7 billion on a consolidated basis in certain of its net deferred tax liabilities and a corresponding increase in2019, Entergy’s net regulatory liabilities.liability for income taxes balance is $1.7 billion as of December 31, 2019. Depending on the outcome of the ratemaking process, IRS examinations or tax positions and elections that Entergy may elect,make, Entergy and the Registrant Subsidiaries may be required to record additional charges or credits to income tax expense. Further, the amount and timing of the return of the deferred taxes to customers is dependent upon the regulatory treatment received, and, if the Registrant Subsidiaries are unsuccessful in receiving balanced regulatory treatment, Entergy’s or the Utility operating companies’ cash flow could be materially adversely affected. Further, there may be other material effects resulting from the legislation that have not been identified. While Entergy plans to finance its cash needs that result from the Act through a combination of Registrant Subsidiary debt and Entergy Corporation debt and equity, there can be no assurance that Entergy or the Registrant Subsidiaries will obtain debt or equity financing on terms that are satisfactory or consistent with their current expectations.
In addition, while Moody’s changed the ratings outlooks for Entergy Corporation to negative from stable in reaction to the legislation, it is unclear when or how capital markets, other credit rating agencies, the FERC or state or local regulators may respond to this legislation. Entergy expects that certain financial metrics used by credit rating agencies will be negatively affected as a result of the return of excess deferred taxes to customers, increased debt, and the decrease in the Registrant Subsidiaries’ revenue requirements, and related decrease in operating cash flows, expected as a consequence of the lower federal corporate income tax rate while, at the same time, the loss of the bonus depreciation tax deduction will increase taxable income in the future. Also, the timing of the return of excess deferred income taxes
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to customers will not exactly match the lower taxes that Entergy will be paying which will result in cash outflows to customers. It is also uncertain how other credit rating agencies will treat the impacts of this legislation on their credit ratings and metrics, and whether additional avenues will evolve for companies to manage the adverse aspects of this legislation. These avenues, to the extent available and if successfully applied, could lessen the impacts on certain credit metrics, although there can be no assurance in this regard.
Entergy believes that interpretations and implementing regulations by the IRS, as well as potential amendments and technical corrections, could result in lessening the impacts of certain aspects of this legislation. If Entergy is unable to successfully pursue avenues to manage the effects of the new tax legislation, or if additional interpretations, regulations, amendments, or technical corrections exacerbate the effects of the legislation, the legislation could have a material effect on Entergy’s results of operations, financial condition, and cash flows, and could result in additional credit rating agency actions. Any such actions by credit rating agencies may make it more difficult and costly for Entergy to issue debt securities and certain other types of financing and could increase borrowing costs under its credit facilities.
For further information regarding the effects of the Act, see the “Income Tax Legislation” section of Management’s Financial Discussion and Analysis for Entergy. Also, Note 3 to the financial statements contains additional discussion of the effect of the Act on 2017, 2018 and 2019 results of operations and financial position, the provisions of the Act, and the uncertainties associated with accounting for the Act, and Note 2 to the financial statements discusses the regulatory proceedings commenced or other responses by Entergy’s regulators tothat have considered the effects of the Act.
Changes in taxation as well as the inherent difficulty in quantifying potential tax effects of business decisions could negatively impact Entergy’s, the Utility operating companies’, and System Energy’s results of operations, financial condition and liquidity.
Entergy and its subsidiaries make judgments regarding the potential tax effects of various transactions and results of operations to estimate their obligations to taxing authorities. These tax obligations include income, franchise, real estate, sales and use, and employment-related taxes. These judgments include provisions for potential adverse outcomes regarding tax positions that have been taken. Entergy and its subsidiaries also estimate their ability to utilize tax benefits, including those in the form of carryforwards for which the benefits have already been reflected in the financial statements. Changes in federal, state, or local tax laws, adverse tax audit results or adverse tax rulings on positions taken by Entergy and its subsidiaries could negatively affect Entergy’s, the Utility operating companies’, and System Energy’s results of operations, financial condition, and liquidity. For further information regarding Entergy’s income taxes, see Note 3 to the financial statements.
Entergy and its subsidiaries’ ability to successfully complete strategic transactions,execute on their business strategies, including merger, acquisition, divestiture, joint venture, restructuring or othertheir ability to complete strategic transactions, is subject to significant risks, including the risk that required regulatory or governmental approvals may not be obtained, risks relating to unknown or undisclosed problems or liabilities, and, the risk that for these or other reasons, Entergy and its subsidiariesas a result, they may be unable to achieve some or all of the anticipated results of such strategies, which could materially affect their future prospects, results of operations and benefits that they anticipate from such transactions.
From timeEntergy and its subsidiaries’ future prospects and results of operations significantly depend on their ability to time,successfully implement their business strategies, which are subject to business, regulatory, economic and other risks and uncertainties, many of which are beyond their control. As a result, Entergy and its subsidiaries may be unable to fully achieve the anticipated results of such strategies.
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Additionally, Entergy and its subsidiaries have pursued and may continue to pursue strategic transactions including merger, acquisition, divestiture, joint venture, restructuring or other strategic transactions. For example, in November 2016, Entergy announced that it hadhas entered into a purchasean agreement to sell its equity interests in the subsidiary that owns the Palisades Nuclear Plant and salethe decommissioned Big Rock Point Nuclear Power Plant and an agreement with NorthStar forto sell the saleequity interests of 100%Indian Point 1, Indian Point 2, and Indian Point 3, in each case after each of the membership interests in Entergy Nuclear Vermont Yankee, which owns the Vermont Yankee plant. In addition, as partplants has been shut down and defueled. Also, a significant portion of Entergy’s plan to exitutility business over the merchant power business, it plans to shut down its remaining merchant nuclear power plants by mid-2022.next several years includes the construction and /or purchase of a variety of generating units. These transactions and plans are or may become subject to regulatory approval and other material conditions or contingencies. The failure to complete these transactions or plans or any future strategic transaction successfully or on a timely basis could have an adverse effect on Entergy’s or its subsidiaries’ financial condition or results of operations and the market’s perception of Entergy’s ability to execute its strategy. Further, these transactions, and any completed or future strategic transactions, involve substantial risks, including the following:
Part I Item 1A & 1B
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the disposition of a business or asset may involve continued financial involvement in the divested business, such as through continuing equity ownership, transition service agreements, guarantees, indemnities, or other current or contingent financial obligations;
Entergy may encounter difficulty in finding buyers or executing alternative exit strategies on acceptable terms in a timely manner when it decides to sell an asset or a business, which could delay the accomplishment of its strategic objectives. Alternatively, Entergy may dispose of a business or asset at a price or on terms that are less than what it had anticipated, or with the exclusion of assets that must be divested or run off separately;
the disposition of a business could result in impairments and related write-offs of the carrying values of the relevant assets;
acquired businesses or assets may not produce revenues, earnings or cash flow at anticipated levels;
acquired businesses or assets could have environmental, permitting or other problems for which contractual protections prove inadequate;
Entergy and/or its subsidiaries may assume liabilities that were not disclosed to them, that exceed their estimates, or for which their rights to indemnification from the seller are limited;
Entergy may experience issues integrating businesses into its internal controls over financial reporting;
the disposition of a business, including Entergy’s planned exit from the merchant power business, could divert management’s attention from other business concerns;
Entergy and/or its subsidiaries may be unable to obtain the necessary regulatory or governmental approvals to close a transaction, such approvals may be granted subject to terms that are unacceptable to them, or Entergy or its subsidiaries otherwise may be unable to achieve anticipated regulatory treatment of any such transaction or acquired business or assets; and
Entergy or its subsidiaries otherwise may be unable to achieve the full strategic and financial benefits that they anticipate from the transaction, or such benefits may be delayed or may not occur at all.
Entergy and its subsidiaries may not be successful in managing these or any other significant risks that itthey may encounter in acquiring or divesting a business, or engaging in other strategic transactions, which could have a material effect on its business.their business, financial condition or results of operations.
The completion of capital projects, including the construction of and capital improvements to, power generation facilities, and other capital improvements involve substantial risks. Should construction or capital improvementsuch efforts be unsuccessful, the financial condition, results of operations, or liquidity of Entergy and the Utility operating companies could be materially affected.
Entergy’s and the Utility operating companies’ ability to complete capital projects, including the construction of power generation facilities, or make other capital improvements, in a timely manner and within budget is contingent upon many variables and subject to substantial risks. These variables include, but are not limited to, project management expertise, and escalating costs for materials, labor, and environmental compliance.compliance, and reliance on suppliers for timely and satisfactory performance. Delays in obtaining permits, shortages in materials and qualified labor, levels of public support or opposition, suppliers and contractors not performing as expected or required under their contracts and/or experiencing financial problems that inhibit their ability to fulfill their obligations under contracts, changes in the scope and timing of projects, poor quality initial cost estimates from contractors, the inability to raise capital on favorable terms, changes in commodity prices affecting revenue, fuel costs, or materials costs, downward changes in the economy, changes in law or regulation, including environmental compliance requirements, and other events beyond the control of the Utility operating companies or the Entergy Wholesale Commodities business may occur that may materially affect the schedule, cost, and performance of these projects. If these projects or other capital improvements are significantly delayed or become subject to cost overruns or cancellation, Entergy and the Utility operating companies could incur additional costs and termination payments, or face increased risk of potential write-off of the investment in the project. In addition, the Utility operating companies could be exposed to higher costs and market volatility, which could affect cash flow and cost recovery, should their respective regulators decline to approve the construction of the project or new generation needed to meet the reliability needs of customers at the lowest reasonable cost.
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Entergy Corporation, Utility operating companies, and System Energy
For further information regarding capital expenditure plans and other uses of capital in connection with capital projects, including the potential construction and/or purchase of additional generation supply sources within the Utility operating companies’ service territory, and as to the Entergy Wholesale Commodities business, see the “Capital Expenditure Plans and Other Uses of Capital” section of Management’s Financial Discussion and Analysis for Entergy and each of the Registrant Subsidiaries.
Part I Item 1A & 1B
We rely on a large and changing workforce of team members, including employees, contractors and temporary staffing. Certain events, such as an aging workforce, mismatching of skill sets, failing to appropriately anticipate future workforce needs, or the unavailability of contract resources may lead to operating challenges and increased costs. The challenges include lack of resources, loss of knowledge base and the time required for skill development. In this case, costs, including costs for contractors to replace employees, productivity costs and safety costs, may increase. Failure to hire and adequately train replacement employees, or the future availability and cost of contract labor may adversely affect the ability to manage and operate the business, especially considering the workforce needs associated with nuclear generation facilities and new skills required to operate a modernized, technology-enabled power grid. If Entergy Corporation, Utility operating companies, and System Energyits subsidiaries are unable to successfully attract, retain and manage an appropriately qualified workforce, their results of operations, financial position and cash flows could be negatively affected.
The Utility operating companies, System Energy, and the Entergy Wholesale Commodities business may incur substantial costs to fulfill their obligations related to environmental and other matters.
The businesses in which the Utility operating companies, System Energy, and the Entergy Wholesale Commodities business operate are subject to extensive environmental regulation by local, state, and federal authorities. These laws and regulations affect the manner in which the Utility operating companies, System Energy, and the Entergy Wholesale Commodities business conduct their operations and make capital expenditures. These laws and regulations also affect how the Utility operating companies, System Energy, and the Entergy Wholesale Commodities business manage air emissions, discharges to water, wetlands impacts, solid and hazardous waste storage and disposal, cooling and service water intake, the protection of threatened and endangered species, certain migratory birds and eagles, hazardous materials transportation, and similar matters. Federal, state, and local authorities continually revise these laws and regulations, and the laws and regulations are subject to judicial interpretation and to the permitting and enforcement discretion vested in the implementing agencies. Developing and implementing plans for facility compliance with these requirements can lead to capital, personnel, and operation and maintenance expenditures. Violations of these requirements can subject the Utility operating companies, System Energy, and the Entergy Wholesale Commodities business to enforcement actions, capital expenditures to bring existing facilities into compliance, additional operating costs or operating restrictions to achieve compliance, remediation and clean-up costs, civil penalties, and exposure to third parties’ claims for alleged health or property damages or for violations of applicable permits or standards. In addition, the Utility operating companies, System Energy, and the Entergy Wholesale Commodities business potentially are subject to liability under these laws for the costs of remediation of environmental contamination of property now or formerly owned or operated by the Utility operating companies, System Energy, and Entergy Wholesale Commodities and of property contaminated by hazardous substances they generate. The Utility operating companies are currently involved in proceedings relating to sites where hazardous substances have been released and may be subject to additional proceedings in the future. The Utility operating companies, System Energy, and the Entergy Wholesale Commodities business have incurred and expect to incur significant costs related to environmental compliance.
Emissions of nitrogen and sulfur oxides, mercury, particulates, greenhouse gases, and other regulated air emissions from generating plants are potentially subject to increased regulation, controls and mitigation expenses. In addition, existing air regulations and programs promulgated by the EPA often are challenged legally, or are revised or withdrawn by the EPA, sometimes resulting in large-scale changes to anticipated regulatory regimes and the resulting need to shift course, both operationally and economically, depending on the nature of the changes. Risks relating to
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global climate change, initiatives to compel greenhouse gas emission reductions, and water availability issues are discussed below.
Entergy and its subsidiaries may not be able to obtain or maintain all required environmental regulatory approvals. If there is a delay in obtaining any required environmental regulatory approvals, or if Entergy and its subsidiaries fail to obtain, maintain, or comply with any such approval, the operation of its facilities could be stopped or become subject to additional costs. For further information regarding environmental regulation and environmental matters, see the “Regulation of Entergy’s Business– Environmental Regulation” section of Part I, Item 1.
The Utility operating companies, System Energy, and the Entergy Wholesale Commodities business may incur substantial costs related to reliability standards.
Entergy’s business is subject to extensive and mandatory reliability standards. Such standards, which are established by the North American Electric Reliability Corporation (NERC),NERC, the SERC, Reliability Corporation (SERC), and other regional enforcement entities, are approved by the FERC and frequently are reviewed, amended, and supplemented. Failure to comply with such standards could result in the imposition of fines or civil penalties, and potential exposure to third party claims for alleged violations of such standards. The standards, as well as the laws and regulations that govern them, are subject to judicial interpretation and to the enforcement discretion vested in the implementing agencies. In addition to exposure to civil penalties and fines, the Utility operating companies have incurred and expect to incur significant costs related to compliance with new and existing reliability standards, including costs associated with the Utility operating companies’ transmission system and generation assets. In addition, the retail regulators of the Utility operating companies possess the jurisdiction, and in some cases have exercised such jurisdiction, to impose standards governing the reliable operation of the Utility operating companies’ distribution systems, including penalties if these standards are not met. The changes to the
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reliability standards applicable to the electric power industry are ongoing, and Entergy cannot predict the ultimate effect that the reliability standards will have on its Utility and Entergy Wholesale Commodities.Commodities businesses.
(Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and Entergy Texas)
The effects of weather andWeather, economic conditions, technological developments, and the relatedother factors may have a material impact on electricity and gas usage mayand otherwise materially affect the Utility operating companies’ results of operations.
Temperatures above normal levels in the summer tend to increase electric cooling demand and revenues, and temperatures below normal levels in the winter tend to increase electric and gas heating demand and revenues. As a corollary, moderatemild temperatures in either season tend to decrease energy usage of energy and resulting revenues. SeasonalHigher consumption levels coupled with seasonal pricing differentials coupled with higher consumption levels, typically cause the Utility operating companies to report higher revenues in the third quarter of the fiscal year than in the other quarters. Extreme weather conditions including hurricanes or tropical storms, however,flooding events, or ice storms may stress the Utility operating companies’ generation facilities and transmission and distribution systems, resulting in increased maintenance and capital costs (and potential increased financing needs), limits on their ability to meet peak customer demand, increased regulatory oversight, and lowerreduced customer satisfaction. These extreme conditions could have a material effect on the Utility operating companies’ financial condition, results of operations, and liquidity.
Entergy’s electricity sales volumes are affected by a number of factors including weather and economic conditions, weather, customer bill sizes (large bills tend to induce conservation), trends in energy efficiency, new technologies and self-generation alternatives, including the willingness and ability of large industrial customers to develop co-generation facilities that greatly reduce their demand from Entergy.grid demand. Some of these factors are inherently cyclical or temporary in nature, such as the weather or economic conditions, and rarely have a long-lasting effect on Entergy’s operating results. Others, such as the increasingorganic turnover of appliances and their replacement with more efficient ones, adoption of energy efficient appliances,newer technologies including smart thermostats, new building codes, distributed energy resources, energy storage, demand side management, and new technologies such as rooftop solar are having a more permanent effect ofby reducing sales growth rates from historical norms. As a result of these emerging efficiencies and technologies, the Utility operating companies may lose customers or experience lower usageaverage use per customer in the residential and commercial classes, and furthercontinuing advances have the potential to further limit sales growth in the future. The
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Utility operating companies also may face competition from other companies offering products and services to Entergy’s customers. Electricity sales to industrial customers, in particular, benefit from steady economic growth and favorable commodity prices;markets; however, theyindustrial sales are sensitive to changes in conditions in the markets in which its customers operate. Any negative changeNegative changes in any of these or other factors, hasparticularly sustained economic downturns or sluggishness, have the potential to result in slower sales growth or sales declines and increased bad debt expense, which could materially affect Entergy’s and the Utility operating companies’ results of operations, financial condition, and liquidity.
The effects of climate change and environmental and regulatory obligations intended to compel greenhouse gas emission reductions or increase clean or renewable energy requirements or to place a price on greenhouse gas emissions could materially affect the financial condition, results of operations, and liquidity of Entergy, the Utility operating companies, System Energy, and the Entergy Wholesale Commodities business.
In an effort to address climate change concerns, some federal, state, and local authorities are calling for additional laws and regulations aimed at known or suspected causes of climate change. For example, in response to the United States Supreme Court’s 2007 decision holding that the EPA has authority to regulate emissions of CO2 and other “greenhouse gases” under the Clean Air Act, the EPA, various environmental interest groups, and other organizations are focusingfocused considerable attention on CO2 emissions from power generation facilities and their potential role in climate change. In 2010, the EPA promulgated its first regulations controlling greenhouse gas emissions from certain vehicles and from new and significantly modified stationary sources of emissions, including electric generating units. During 2012 and 2014, the EPA proposed CO2 emission standards for new and existing sources. The EPA finalized these standards in 2015; however, in late 2017,June 2019, the EPA proposed to repeal the regulationsrepealed and issued an Advanced Notice of Proposed Rulemaking for replacingreplaced certain aspects of the standards for existing sources.those regulations. As examples of state action, in the Northeast, the Regional Greenhouse Gas Initiative establishes a cap on CO2 emissions from electric power plants and requires generators to purchase emission permits to cover their CO2 emissions, and a similar program has been
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Entergy Corporation, Utility operating companies, and System Energy
developed in California. The impact that recentcontinued changes in the federal governmentgovernmental response to climate change risk will have on existing and pending environmental laws and regulations related to greenhouse gas emissions is currently unclear.
Developing and implementing plans for compliance with greenhouse gas emissions reduction or clean/renewable energy requirements can lead to additional capital, personnel, and operation and maintenance expenditures and could significantly affect the economic position of existing facilities and proposed projects; moreover,projects. The operations of low or non-emitting generating units (such as nuclear units) at lower than expected capacity factors could require increased generation from higher emitting units, thus increasing the company’s greenhouse gas emission rate. Moreover, long-term planning to meet environmental requirements can be negatively impacted and costs may increase to the extent laws and regulations change prior to full implementation. These requirements could, in turn, lead to changes in the planning or operations of balancing authorities or organized markets in areas where the Utility operating companies, System Energy, or Entergy Wholesale Commodities do business. Violations of such requirements may subject Entergy Wholesale Commodities and the Utility operating companies to enforcement actions, capital expenditures to bring existing facilities into compliance, additional operating costs or operating restrictions to achieve compliance, civil penalties, and exposure to third parties’ claims for alleged health or property damages or for violations of applicable permits or standards. To the extent Entergy believes any of these costs are recoverable in rates, however, additional material rate increases for customers could be resisted by Entergy’s regulators and, in extreme cases, Entergy’s regulators might deny or defer timely recovery of these costs. Future changes in environmental regulation governing the emission of CO2 and other greenhouse gases or mix of generation sources could (i) result in significant additional costs to Entergy’s utility operating companies, their suppliers or customers, (ii) make some of Entergy’s electric generating units uneconomical to maintain or operate, (iii) result in the early retirement of generation facilities and stranded costs if Entergy’s utility operating companies are unable to fully recover the costs and investment in generation and (iv) could increase the difficulty that Entergy and its subsidiariesutility operating companies have with obtaining or maintaining required environmental regulatory approvals, each of which could also materially affect the financial condition, results of operations and liquidity of Entergy and its subsidiaries. In addition, lawsuits have occurred or are reasonably expected against emitters of greenhouse gases alleging that these companies are liable for personal injuries and property damage caused by climate change. These lawsuits may seek injunctive relief, monetary compensation, and punitive damages.
Part I Item 1A & 1B
Entergy Corporation, Utility operating companies, and System Energy
In addition to the regulatory and financial risks associated with climate change discussed above, potential physical risks from climate change include an increase in sea level, wind and storm surge damages, wildfires, wetland and barrier island erosion, risks of flooding and changes in weather conditions, (such as increases in precipitation, drought, or changes in average temperatures), and potential increased impacts of extreme weather conditions or storms. Entergy subsidiaries own assets in, and serve, communities that are at risk from sea level rise, changes in weather conditions, storms, and loss of the protection offered by coastal wetlands. A significant portion of the nation’s oil and gas infrastructure is located in these areas and susceptible to storm damage that could be aggravated by wetland and barrier island erosion,the physical impacts of climate change, which could give rise to fuel supply interruptions and price spikes. Entergy and its subsidiaries also face the risk that climate change could impact the availability and quality of water supply necessary for operations.
These and other physical changes could result in changes in customer demand, increased costs associated with repairing and maintaining generation facilities and transmission and distribution systems resulting in increased maintenance and capital costs (and potential increased financing needs), limits on the Entergy System’s ability to meet peak customer demand, more frequent and longer lasting outages, increased regulatory oversight, and lower customer satisfaction. Also, to the extent that climate change adversely impacts the economic health of a region or results in energy conservation or demand side management programs, it may adversely impact customer demand and revenues. Such physical or operational risks could have a material effect on Entergy’s, Entergy Wholesale Commodities’, System Energy’s, and the Utility operating companies’ financial condition, results of operations, and liquidity.
Continued and future availability and quality of water for cooling, process, and sanitary uses could materially affect the financial condition, results of operations, and liquidity of the Utility operating companies, System Energy, and the Entergy Wholesale Commodities business.
Water is a vital natural resource that is also critical to the Utility operating companies’, System Energy’s, and Entergy Wholesale Commodities’ business operations. Entergy’s facilities use water for cooling, boiler make-up, sanitary uses, potable supply, and many other uses. Three of Entergy’s Utility operating companies also own and/or operate hydroelectric facilities. Accordingly, water availability and quality are critical to Entergy’s business operations. Impacts to water availability or quality could negatively impact both operations and revenues.
Part I Item 1A & 1B
Entergy Corporation, Utility operating companies, and System Energy
Entergy secures water through various mechanisms (ground water wells, surface waters intakes, municipal supply, etc.) and operates under the provisions and conditions set forth by the provider and/or regulatory authorities. Entergy also obtains and operates in substantial compliance with water discharge permits issued under various provisions of the Clean Water Act and/or state water pollution control provisions. Regulations and authorizations for both water intake and use and for waste discharge can become more stringent in times of water shortages, low flows in rivers, low lake levels, low groundwater aquifer volumes, and similar conditions. The increased use of water by industry, agriculture, and the population at large, population growth, and the potential impacts of climate change on water resources may cause water use restrictions that affect Entergy and its subsidiaries.
Entergy and its subsidiaries may not be adequately hedged against changes in commodity prices, which could materially affect Entergy’s and its subsidiaries’ results of operations, financial condition, and liquidity.
To manage near-term financial exposure related to commodity price fluctuations, Entergy and its subsidiaries, including the Utility operating companies and the Entergy Wholesale Commodities business, may enter into contracts to hedge portions of their purchase and sale commitments, fuel requirements, and inventories of natural gas, uranium and its conversion and enrichment, coal, refined products, and other commodities, within established risk management guidelines. As part of this strategy, Entergy and its subsidiaries may utilize fixed- and variable-price forward physical purchase and sales contracts, futures, financial swaps, and option contracts traded in the over-the-counter markets or on exchanges. However, Entergy and its subsidiaries normally cover only a portion of the exposure of their assets and positions to market price volatility, and the coverage will vary over time. In addition, Entergy also elects to leave certain volumes during certain years unhedged. To the extent Entergy and its subsidiaries have unhedged positions,
Part I Item 1A & 1B
Entergy Corporation, Utility operating companies, and System Energy
fluctuating commodity prices can materially affect Entergy’s and its subsidiaries’ results of operations and financial position.
Although Entergy and its subsidiaries devote a considerable effort to these risk management strategies, they cannot eliminate all the risks associated with these activities. As a result of these and other factors, Entergy and its subsidiaries cannot predict with precision the impact that risk management decisions may have on their business, results of operations, or financial position.
Entergy’s over-the-counter financial derivatives are subject to rules implementing the Dodd-Frank Wall Street Reform and Consumer Protection Act that are designed to promote transparency, mitigate systemic risk and protect against market abuse. Entergy cannot predict the impact any proposed or not fully-implemented final rules will have on its ability to hedge its commodity price risk or on over-the-counter derivatives markets as a whole, but such rules and regulations could have a material effect on Entergy's risk exposure, as well as reduce market liquidity and further increase the cost of hedging activities.
Entergy has guaranteed or indemnified the performance of a portion of the obligations relating to hedging and risk management activities. Reductions in Entergy’s or its subsidiaries’ credit quality or changes in the market prices of energy commodities could increase the cash or letter of credit collateral required to be posted in connection with hedging and risk management activities, which could materially affect Entergy’s or its subsidiaries’ liquidity and financial position.
The Utility operating companies and the Entergy Wholesale Commodities business are exposed to the risk that counterparties may not meet their obligations, which may materially affect the Utility operating companies and Entergy Wholesale Commodities.
The hedging and risk management practices of the Utility operating companies and the Entergy Wholesale Commodities business are exposed to the risk that counterparties that owe Entergy and its subsidiaries money, energy, or other commodities will not perform their obligations. Currently, some hedging agreements contain provisions that require the counterparties to provide credit support to secure all or part of their obligations to Entergy or its subsidiaries. If the counterparties to these arrangements fail to perform, Entergy or its subsidiaries may enforce and recover the proceeds from the credit support provided and acquire alternative hedging arrangements, which credit
Part I Item 1A & 1B
Entergy Corporation, Utility operating companies, and System Energy
support may not always be adequate to cover the related obligations. In such event, Entergy and its subsidiaries might incur losses in addition to amounts, if any, already paid to the counterparties. In addition, the credit commitments of Entergy’s lenders under its bank facilities may not be honored for a variety of reasons, including unexpected periods of financial distress affecting such lenders, which could materially affect the adequacy of its liquidity sources.
Market performance and other changes may decrease the value of benefit plan assets, which then could require additional funding and result in increased benefit plan costs.
The performance of the capital markets affects the values of the assets held in trust under Entergy’s pension and postretirement benefit plans. A decline in the market value of the assets may increase the funding requirements relating to Entergy’s benefit plan liabilities and also result in higher benefit costs. As the value of the assets decreases, the “expected return on assets” component of benefit costs decreases, resulting in higher benefits costs. Additionally, asset losses are incorporated into benefit costs over time, thus increasing benefits costs. Volatility in the capital markets has affected the market value of these assets, which may affect Entergy’s planned levels of contributions in the future. Additionally, changes in interest rates affect the liabilities under Entergy’s pension and postretirement benefit plans; as interest rates decrease, the liabilities increase, potentially requiring additional funding and recognition of higher liability carrying costs. The funding requirements of the obligations related to the pension benefit plans can also increase as a result of changes in, among other factors, retirement rates, life expectancy assumptions, or Federal regulations. For further information regarding Entergy’s pension and other postretirement benefit plans, refer to the “Critical Accounting Estimates– Qualified Pension and Other Postretirement Benefits” section of Management’s Financial Discussion and Analysis for Entergy and each of its Registrant Subsidiaries and Note 11 to the financial statements.
Part I Item 1A & 1B
Entergy Corporation, Utility operating companies, and System Energy
The litigation environment in the states in which certain Entergy subsidiaries operate poses a significant risk to those businesses.
Entergy and its subsidiaries are involved in the ordinary course of business in a number of lawsuits involving employment, commercial, asbestos, hazardous material and ratepayer matters, and injuries and damages issues, among other matters. The states in which the Utility operating companies operate, in particular Louisiana, Mississippi, and Texas, have proven to be unusually litigious environments. Judges and juries in these states have demonstrated a willingness to grant large verdicts, including punitive damages, to plaintiffs in personal injury, property damage, and business tort cases. Entergy and its subsidiaries use legal and appropriate means to contest litigation threatened or filed against them, but the litigation environment in these states poses a significant business risk.
Domestic or international terroristTerrorist attacks, including cyber attacks, andsystem failures or data breaches of Entergy’s and its subsidiaries’ or our suppliers’ technology systems may adversely affect Entergy’s results of operations.
Entergy and its subsidiaries operate in a business that requires evolving information technology systems that include sophisticated data collection, processing systems, software, network infrastructure and other technologies that are becoming more complex and may be subject to mandatory and prescriptive reliability and security standards. The functionality of Entergy’s technology systems depends on its own and its suppliers’ and their contractors’ technology. Suppliers’ and their contractors’ technology systems to which Entergy is connected directly or indirectly support a variety of business processes and activities to store sensitive data, including (i) intellectual property, (ii) proprietary business information, (iii) personally identifiable information of customers and employees, and (iv) data with respect to invoicing and the collection of payments, accounting, procurement, and supply chain activities. Any significant failure or malfunction of such information technology systems could result in loss of data or disruptions of operations.
There have been attacks and threats of attacks on energy infrastructure by cyber actors, including those associated with foreign governments. As power generators and distributors,an operator of critical infrastructure, Entergy and its subsidiaries face heightened risk of an act or threat of terrorism, including physical and cyber attacks, eitherand data breaches, whether as a direct or indirect act against one of Entergy’s generation, transmission or distribution facilities, transmission operations centers, infrastructure, or distribution infrastructureinformation technology systems used to manage, monitor, and transport power to customers.customers and perform day-to-day business functions. An actual act could affect Entergy’s ability to operate, including its ability to operate the information technology systems and network infrastructure on which it relies to conduct its business. While malware was recently discovered on our corporate network
Given the rapid technological advancements of existing and remediated on a timely basis, it did not affect the company’s operational systems, nuclear plants or transmission network, nor did it have a material effect on our operations. Additionally, withinemerging threats, Entergy’s industry, there have been attacks on energy infrastructure, but with minimal impact to operations, and there may be more attacks in the future. The Utility operating companies also face heightened risk of an act or threat by cyber criminals intent on accessing personal information for the purpose of committing identity theft, taking company-sensitive data, or disrupting the company’s ability to operate.
Entergy and its subsidiaries operate in a highly regulated industry that requires the continued operation of sophisticated information technology systems remain inherently vulnerable despite implementations and network infrastructure in accordance with mandatory and prescriptive standards. Despiteenhancements of the implementation of multiple layers of security by Entergy and its subsidiaries,
Part I Item 1A & 1B
Entergy Corporation, Utility operating companies, and System Energy
technology systems remain vulnerable to potential threats that could lead to unauthorized access or loss of availability to critical systems essential to the reliable operation of Entergy’s electric system. Moreover, the functionality of Entergy’s technology systems depends on both its and third-party systems to which Entergy is connected directly or indirectly (such as systems belonging to suppliers, vendors and contractors). While Entergy has processes in place to assess systems of certain of these suppliers, vendors and contractors, Entergy does not ultimately control the adequacy of their defenses against cyber and other attacks, but has implemented oversight measures to assess maturity and manage third-party risk.controls. If Entergy’s or its subsidiaries’ technology systems were compromised and unable to detect or recover in a timely fashion to a normal state of operations, Entergy or its subsidiaries maycould be unable to perform critical business functions that are essential to the company’s well-being and the health, safety, and security needs of its customers. In addition, an attack on its information technology infrastructure maycould result in a loss of its confidential, sensitive, and proprietary information, including personal information of its customers, employees, vendors,suppliers, and others in Entergy’s care. Although malware was discovered on Entergy’s business network in 2018, it was remediated on a timely basis and did not affect Entergy’s operational systems, generation plants (including nuclear), or transmission and distribution networks, nor did it have a material effect on Entergy’s business operations.
Any such attacks, failures or data breaches could have a material effect on Entergy’s and the Utility operating companies’ business, financial condition, results of operations or reputation. Insurance may not be adequate to cover losses that might arise in connection with these events. The risk of such attacks, failures, or breaches may cause Entergy and the Utility operating companies to incur increased capital and operating costs to implement increased security for its power generation, transmission, and distribution assets and other facilities, such as additional physical facility security and security personnel, and for systems to protect its information technology and network infrastructure systems. Such events may also expose Entergy to an increased risk of litigation (and associated damages and fines).
Part I Item 1A & 1B
Entergy Corporation, Utility operating companies, and System Energy
(Entergy New Orleans)
The effect of higher purchased gas cost charges to customers taking gas service may adversely affect Entergy New Orleans’s results of operations and liquidity.
Gas rates charged to retail gas customers are comprised primarily of purchased gas cost charges, which provide no return or profit to Entergy New Orleans, and distribution charges, which provide a return or profit to the utility. Distribution charges recover fixed costs on a volumetric basis and, thus, are affected by the amount of gas sold to customers. When purchased gas cost charges increase due to higher gas procurement costs, customer usage may decrease, especially in weaker economic times, resulting in lower distribution charges for Entergy New Orleans, which could adversely affect results of operations. Purchased gas cost charges, which comprise most of a customer’s bill and may be adjusted monthly, represent gas commodity costs that Entergy New Orleans recovers from its customers. Entergy New Orleans’s cash flows can be affected by differences between the time period when gas is purchased and the time when ultimate recovery from customers occurs. When purchased gas cost charges increase substantially reflecting higher gas procurement costs incurred by Entergy New Orleans, customer usage may decrease, especially in weaker economic times, resulting in lower distribution charges for Entergy New Orleans, which could adversely affect results of operations.
(System Energy)
System Energy owns and, through an affiliate, operates a single nuclear generating facility, and it is dependent on affiliated companies for all of its revenues.
System Energy’s operating revenues are derived from the allocation of the capacity, energy, and related costs associated with its 90% ownership/leasehold interest in Grand Gulf. Charges under the Unit Power Sales Agreement are paid by the Utility operating companies as consideration for their respective entitlements to receive capacity and energy. The useful economic life of Grand Gulf is finite and is limited by the terms of its operating license, which expires in November 2044. System Energy’s financial condition depends both on the receipt of payments from the Utility operating companies under the Unit Power Sales Agreement and on the continued commercial operation of Grand Gulf. The Unit Power Sales Agreement is currently the subject of several litigation proceedings at the FERC, including a challenge with respect to System Energy’s authorized return on equity and capital structure and a request in separate proceeding for FERC to initiate a broader investigation of rates under the Unit Power Sales Agreement. See Note 2 to the financial statements for further discussion of the proceedings. The Utility operating companies have agreed to implement certain protocols for providing retail regulators with information regarding rates billed under the Unit Power Sales Agreement.
For information regarding the Unit Power Sales Agreement, the sale and leaseback transactions and certain other agreements relating to the Entergy System companies’ support of System Energy, (including the Capital Funds
Part I Item 1A & 1B
Entergy Corporation, Utility operating companies, and System Energy
Agreement), see Notes 8 and 10 to the financial statements and the “Utility - System Energy and Related Agreements” section of Part I, Item 1.
(Entergy Corporation)
As a holding company, Entergy Corporation depends on cash distributions from its subsidiaries to meet its debt service and other financial obligations and to pay dividends on its common stock.
Entergy Corporation is a holding company with no material revenue generating operations of its own or material assets other than the stock of its subsidiaries. Accordingly, all of its operations are conducted by its subsidiaries. Entergy Corporation’s ability to satisfy its financial obligations, including the payment of interest and principal on its outstanding debt, and to pay dividends on its common stock depends on the payment to it of dividends or distributions by its subsidiaries. The subsidiaries of Entergy Corporation are separate and distinct legal entities and have no obligation, contingent or otherwise, to pay any dividends or make distributions to Entergy Corporation. The ability of such subsidiaries to make payments of dividends or distributions to Entergy Corporation by its subsidiaries in turn dependdepends on their results of operations and cash flows and other items affecting retained earnings, and on any applicable legal, regulatory, or contractual limitations on subsidiaries’ ability to pay such dividends or distributions. Provisions in the articles of incorporation of certain of Entergy Corporation’s subsidiaries restrict the payment of cash dividendsPrior to Entergy Corporation. For further information regarding dividend or distribution restrictionsproviding funds to Entergy Corporation, see Note 7such subsidiaries have financial and regulatory obligations that must be satisfied, including among others, debt service and, in the case of Entergy Utility Holding Company and Entergy Texas, dividends and distributions on preferred securities. Any distributions from the Registrant Subsidiaries other than Entergy Texas and System Energy
Part I Item 1A & 1B
Entergy Corporation, Utility operating companies, and System Energy
are paid directly to the financial statements.Entergy Utility Holding Company and are therefore subject to prior payment of distributions on its preferred securities.
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ENTERGY ARKANSAS, INC.LLC AND SUBSIDIARIES
MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS
Results of Operations
2019 Compared to 2018
Net Income
2017 Compared to 2016
Net income decreased $27.4increased $10.3 million primarily due to higher retail electric price and lower nuclear refueling outage expenses, higher depreciation and amortization expenses, higher taxes other than income taxes, andpartially offset by lower volume/weather, higher interest expense, partially offset by higher other income.
2016 Compared to 2015
Net income increased $92.9 million primarily due to higher net revenue and lower other operation and maintenance expenses, partially offset by a higher effective income tax rate and higher depreciation and amortization expenses.
Net RevenueOperating Revenues
2017 Compared to 2016
Net revenue consists of operating revenues net of: 1) fuel, fuel-related expenses, and gas purchased for resale, 2) purchased power expenses, and 3) other regulatory charges (credits). Following is an analysis of the change in net revenueoperating revenues comparing 20172019 to 2016.2018:
|
| | | |
| Amount |
| (In Millions) |
2018 operating revenues |
| $2,060.6 |
|
2016Fuel, rider, and other revenues that do not significantly affect net revenueincome | (74.9 | $1,520.5) |
Return of unprotected excess accumulated deferred income taxes to customers | 241.4 |
|
Retail electric price | 33.866.7 |
|
Opportunity sales | 5.6 |
|
Asset retirement obligation | (14.8 | )
|
Volume/weather | (29.034.2 | ) |
Other2019 operating revenues | 6.5 |
|
2017 net revenue |
| $1,522.62,259.6 |
|
Entergy Arkansas’s results include revenues from rate mechanisms designed to recover fuel, purchased power, and other costs such that the revenues and expenses associated with these items generally offset and do not affect net income. “Fuel, rider, and other revenues that do not significantly affect net income” includes the revenue variance associated with these items.
The retail electric price variance is primarily duereturn of unprotected excess accumulated deferred income taxes to customers resulted from the implementationreturn of formula rate plan rates effective withunprotected excess accumulated deferred income taxes through a tax adjustment rider beginning in April 2018. In 2019, $126.3 million was returned to customers as compared to $367.7 million in 2018. There was no effect on net income as the first billing cycle of January 2017 and an increasereduction in base rates effective February 24, 2016,operating revenues in each as approved by the APSC. A significant portion of the base rate increaseperiod was related to the purchase of Power Block 2 of the Union Power Station in March 2016. The increase was partially offset by decreasesa reduction in the energy efficiency rider, as approved by the APSC, effective April 2016 and January 2017.income tax expense. See Note 2 to the financial statements for further discussion of regulatory activity regarding the rate caseTax Cuts and formula rate plan filings. See Note 14 to the financial statements for further discussion of the Union Power Station purchase.Jobs Act.
The opportunity sales variance results from the estimated net revenue effect of the 2017 and 2016 FERC orders in the opportunity sales proceeding attributable to wholesale customers. See Note 2 to the financial statements for further discussion of the opportunity sales proceeding.
Entergy Arkansas, Inc. and Subsidiaries
Management’s Financial Discussion and Analysis
The asset retirement obligation affects net revenue because Entergy Arkansas records a regulatory charge or credit for the difference between asset retirement obligation-related expenses and decommissioning trust fund earnings plus asset retirement obligation-related costs collected in revenue. The variance is primarily caused by a decrease in regulatory credits because of an increase in decommissioning trust fund earnings, including portfolio rebalancing for the ANO 1 and ANO 2 decommissioning trust funds.
The volume/weather variance is primarily due to the effect of less favorable weather on residential and commercial sales during the billed and unbilled sales periods. The decrease was partially offset by an increase of 733 GWh, or 11%, in industrial usage primarily due to a new customer in the primary metals industry.
2016 Compared to 2015
Net revenue consists of operating revenues net of: 1) fuel, fuel-related expenses, and gas purchased for resale, 2) purchased power expenses, and 3) other regulatory charges (credits). Following is an analysis of the change in net revenue comparing 2016 to 2015.
|
| | | |
| Amount |
| (In Millions) |
| |
2015 net revenue |
| $1,362.2 |
|
Retail electric price | 161.5 |
|
Other | (3.2 | ) |
2016 net revenue |
| $1,520.5 |
|
The retail electric price variance is primarily due to an increase in baseformula rate plan rates as approved by the APSC. The new base rates were effective February 24, 2016 and began billing with the first billing cycle of April 2016. The increase includes an interim base rate adjustment surcharge, effective with the first billing cycle of April 2016, to recoverJanuary 2019, as approved by the incremental revenue requirement for the period February 24, 2016 through March 31, 2016. A significant portion of the increase was related to the purchase of Power Block 2 of the Union Power Station in March 2016.APSC. See Note 2 to the financial statements for further discussion of the formula rate case. See Note 14plan filing.
The volume/weather variance is primarily due to a decrease of 707 GWh, or 3%, in billed electricity usage, including the financial statements for further discussioneffect of the Union Power Station purchase.less favorable weather on residential and commercial sales and a decrease in industrial usage. The decrease in industrial usage is primarily due to a decrease in small industrial sales.
Other Income Statement Variances
2017 Compared to 2016
Nuclear refueling outage expenses increaseddecreased primarily due to the amortization of higherlower costs associated with the most recent outages as compared to previous outages.
Entergy Arkansas, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
Other operation and maintenance expenses increaseddecreased primarily due to:
the deferral in the first quarter 2016a decrease of $7.7 million of previously-incurred costs related to ANO post-Fukushima compliance and $9.9 million of previously-incurred costs related to ANO flood barrier compliance, as approved by the APSC as part of the 2015 rate case settlement. These costs are being amortized over a ten-year period beginning March 2016. See Note 2 to the financial statements for further discussion of the rate case settlement;
an increase of $9.5$20.2 million in transmission and distributionnuclear generation expenses primarily due to higher vegetation maintenance costs and higher labor costs, including contract labor;
an increasea lower scope of $5.9 million in compensation and benefits costs primarily due to higher incentive-based compensation accrualswork performed in 20172019 as compared to the prior year; and
2018;the effecteffects of recording in July 20162019 a final judgment to resolve claims in the final court decision in a lawsuitANO damages case against the DOE related to spent nuclear fuel storage costs. The damages awarded includedinclude the reimbursement of $5.5approximately $11.9 million of spent nuclear fuel
Entergy Arkansas, Inc. and Subsidiaries
Management’s Financial Discussion and Analysis
storage costs previously recorded as other operation and maintenance expense. See Note 8 to the financial statements for further discussion of Entergy Arkansas’sthe spent nuclear fuel litigation.litigation; and
| |
• | a decrease of $5.5 million in vegetation maintenance costs. |
The increasedecrease was partially offset by:
a decreasean $11.2 million write-off in 2019 of $16specific costs related to the potential construction of scrubbers at the White Bluff plant;
an increase of $8.5 million in nuclear generationinformation technology expenses primarily due to a decrease in regulatory compliancehigher costs compared to the prior year, partially offset by higher nuclear labor costs, including contract labor, to position the nuclear fleet to meet its operational goals. The decrease in regulatory compliance costs is primarily related to NRC inspection activities in 2016 as a resultapplications and infrastructure support, enhanced cyber security, and upgrades and maintenance;
an increase of the NRC’s March 2015 decision$7.4 million due to move ANO into the “multiple/repetitive degraded cornerstone column”spending on initiatives to explore new customer products and services; and
an increase of the NRC’s reactor oversight process action matrix. See Note 8 to the financial statements for a discussion of the ANO stator incident and subsequent NRC reviews;
a decrease of $11.5$5.5 million in energy efficiency expensescompensation and benefits costs primarily due to the timing of recovery from customers; and
a decrease of $5.2 millionhigher incentive-based compensation accruals in fossil-fueled generation expenses primarily due to lower long-term service agreement costs, partially offset by an overall higher scope of work including plant outages in 20172019 as compared to 2016.prior year.
Taxes other than income taxes increased primarily due to anincreases in local franchise taxes and ad valorem taxes. The increase in local franchise taxes is primarily due to higher electric retail revenues. The increase in ad valorem taxes is primarily due to higher assessments and higher millage rates and an increase in local franchise taxes primarily due to higher billing factors.rates.
Depreciation and amortization expenses increased primarily due to additions to plant in service including Power Block 2 of the Union Power Station purchasedand an increase in March 2016. See Note 14 to the financial statements for further discussion of the Union Power Station purchase.
Other income increased primarily due to higher realized gains in 2017 compared to 2016 on the decommissioning trust fund investments, including portfolio rebalancing for the ANO 1 and ANO 2 decommissioning trust funds.asset retirement cost assets. See Note 9 to the financial statements for discussion of the increase in the asset retirement cost assets.
Interest expense increased primarily due to:
an increase of $3.3 million in estimated interest expense recorded in connection with the opportunity sales proceeding. See Note 2 to the financial statements for further discussionissuance of the opportunity sales proceeding; and
the issuance in May 2017 of $220$350 million of 3.5%4.20% Series first mortgage bonds in March 2019 and the issuance in June 2016 of $55$250 million of 3.5%4.00% Series first mortgage bonds partially offset byin May 2018.
The effective income tax rates were (21.6%) for 2019 and 669.7% for 2018. The differences in the redemption in July 2016effective income tax rates versus the federal statutory rate of $60 million of 6.38% Series first mortgage bonds21% for 2019 and the redemption in February 2016 of $175 million of 5.66% Series first mortgage bonds. See Note 5 to the financial statements for further discussion of long-term debt.
2016 Compared to 2015
Nuclear refueling outage expenses increased2018 were primarily due to the amortization of higher costs associated with the most recent outages compared to previous outages.
Other operation and maintenance expenses decreased primarily due to:
a decrease of $21.6 million in compensation and benefits costs primarily due to a decrease in net periodic pension and other postretirement benefits costs as a result of an increase in the discount rate used to value the benefit liabilities and a refinement in the approach used to estimate the service cost and interest cost components of pension and other postretirement costs. See “Critical Accounting Estimates” below and Note 11 to the financial statements for further discussion of pension and other postretirement benefits costs;
Entergy Arkansas, Inc. and Subsidiaries
Management’s Financial Discussion and Analysis
the deferral of $7.7 million of previously-incurred costs related to ANO post-Fukushima compliance and $9.9 million of previously-incurred costs related to ANO flood barrier compliance, as approved by the APSC as part of the 2015 rate case settlement. These costs are being amortized over a ten-year period beginning March 2016. See Note 2 to the financial statements for further discussion of the rate case settlement; and
a decrease of $7.2 million in energy efficiency costs, including the effects of true-ups to the energy efficiency filings for fixed costs to be collected from customers and incentives recognized as a result of participation in energy efficiency programs.
The decrease was partially offset by an increase of $24.1 million in nuclear generation expenses primarily due to an overall higher scope of work performed during plant outages and higher nuclear labor costs compared to prior year and an increase of $8.2 million in fossil-fueled generation expenses primarily due to the purchase of Power Block 2 of the Union Power Station in March 2016. See Note 14 to the financial statements for further discussion of the Union Power Station purchase.
Taxes other thanexcess accumulated deferred income taxes decreased primarily due to a decrease in local franchise taxes resulting from lower residential and commercial revenues compared to the prior year and a decrease in payroll taxes.
Depreciation and amortization expenses increased primarily due to additions to plant in service, including Power Block 2 of the Union Power Station purchased in March 2016. See Note 14 to the financial statements for further discussion of the Union Power Station purchase.
Interest expense increased primarily due to:
$5.1 million in estimated interest expense recorded in connection with the FERC orders issued in April 2016 in the opportunity sales proceeding. See Note 2 to the financial statements for further discussion of the opportunity sales proceeding; and
the net issuance of $230 million of first mortgage bonds in 2016. See Note 5 to the financial statements for further discussion of long-term debt.
Income Taxes
The effective income tax rates for 2017, 2016, and 2015 were 40.1%, 39.2%, and 35.3%, respectively. See Note 3 to the financial statements for a reconciliation of the federal statutory rate of 35%21% to the effective income tax rates.
2018 Compared to 2017
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Results of Operations” in Entergy Arkansas’s Annual Report on Form 10-K for the year ended December 31, 2018 for discussion of results of operations for 2018 compared to 2017.
Income Tax Legislation
See the “Income Tax Legislation” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for discussion of the Tax Cuts and Jobs Act, the federal income tax legislation enacted in December 2017. Note 3 to the financial statements contains additional discussion of the effect of the Act on 2017, 2018, and 2019 results of operations and financial position, the provisions of the Act, and the uncertainties associated with accounting for the Act, and Note 2 to the financial statements discusses the regulatory proceedings commenced or other responses by Entergy’s regulators tothat have considered the effects of the Act.
Entergy Arkansas, Inc.LLC and Subsidiaries
Management’s Financial Discussion and Analysis
Liquidity and Capital Resources
Cash Flow
Cash flows for the years ended December 31, 2017, 2016,2019, 2018, and 20152017 were as follows:
| | | 2017 | | 2016 | | 2015 | 2019 | | 2018 | | 2017 |
| (In Thousands) | (In Thousands) |
Cash and cash equivalents at beginning of period |
| $20,509 |
| |
| $9,135 |
| |
| $218,505 |
|
| $119 |
| |
| $6,216 |
| |
| $20,509 |
|
| | | | | | | | | | |
Net cash provided by (used in): | | | |
| | |
| | | | | |
|
Operating activities | 555,556 |
| | 676,511 |
| | 474,890 |
| 677,766 |
| | 211,825 |
| | 555,556 |
|
Investing activities | (829,312 | ) | | (947,995 | ) | | (685,274 | ) | (676,293 | ) | | (688,727 | ) | | (829,312 | ) |
Financing activities | 259,463 |
| | 282,858 |
| | 1,014 |
| 1,927 |
| | 470,805 |
| | 259,463 |
|
Net increase (decrease) in cash and cash equivalents | (14,293 | ) | | 11,374 |
| | (209,370 | ) | 3,400 |
| | (6,097 | ) | | (14,293 | ) |
| | | | | | | | | | |
Cash and cash equivalents at end of period |
| $6,216 |
| |
| $20,509 |
| |
| $9,135 |
|
| $3,519 |
| |
| $119 |
| |
| $6,216 |
|
2019 Compared to 2018
Operating Activities
Net cash flow provided by operating activities decreased $121increased $465.9 million in 20172019 primarily due to:
a decrease in the return of unprotected excess accumulated deferred income taxes to customers in 2019 as compared to 2018. See Note 2 to the financial statements for further discussion of regulatory activity regarding the Tax Cuts and Jobs Act;
payments in 2018 of $135 million to the other Utility operating companies as a result of a compliance filing made in response to the FERC’s October 2018 order in the opportunity sales proceeding. See Note 2 to the financial statements for further discussion of the opportunity sales proceeding;
income tax refunds of $8.1$34 million in 20172019 compared to income tax refundspayments of $135.7$44.4 million in 2016.2018. Entergy Arkansas had income tax refunds in 20162019 and 2017income tax payments in 2018 in accordance with an intercompany income tax allocation agreement. The income tax refunds in 20172019 resulted from the utilization of Entergy Arkansas’s net operating losses. The 2016 income tax refundspayments in 2018 primarily resulted primarily from adjustments associated with the settlement of the 2010-2011 IRS audit. See Note 3 to the financial statements for 2012-2013 audit;
a discussiondecrease of the income tax audit.
Net cash flow provided by operating activities increased $201.6$44.1 million in 2016 primarily due to:
income tax refunds of $135.7 millionspending on nuclear refueling outages in 2016 compared to income tax payments of $103.3 million in 2015. Entergy Arkansas had income tax refunds in 2016 and income tax payments in 2015 in accordance with an intercompany income tax allocation agreement. The 2016 income tax refunds resulted primarily from adjustments associated with the settlement of the 2010-2011 IRS audit whereas the income tax payments in 2015 resulted primarily from final settlement of amounts outstanding associated with the 2006-2007 IRS audit as well as adjustments associated with the settlement of the 2008-2009 IRS audit. See Note 3 to the financial statements for further discussion of the income tax audits;
the timing of payments to vendors;2019; and
an increase in net revenue.
The increase was partially offset by a decrease due to the timing of recovery of fuel and purchased power costs.
The increase was partially offset by the timing of collection of receivables from customers and an increase of $11.8 million in pension contributions in 2019. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Critical Accounting Estimates” below and Note 11 to the financial statements for a discussion of qualified pension and other postretirement benefits funding.
Entergy Arkansas, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
Investing Activities
Net cash flow used in investing activities decreased $118.7$12.4 million in 20172019 primarily due to:
a decrease of $32.1 million in nuclear construction expenditures primarily due to the purchasea lower scope of Power Block 2 of the Union Power Stationwork performed on various nuclear projects in March 2016 for approximately $237 million and 2019 as compared to 2018;
a decrease of $35.5$25.8 million in transmission construction expenditures primarily due to a lower scope of work performed in 2017. See Note 14 to the financial statements for further discussion of the Union Power Station purchase.
Entergy Arkansas, Inc. and Subsidiaries
Management’s Financial Discussion and Analysis
The decrease was partially offset by:
an increase of $50.4 million in nuclear construction expenditures primarily due to a higher scope of work performed on various nuclear projects in 2017;2019 as compared to 2018; and
an increasea decrease of $37.7$13 million as a result of fluctuations in nuclear fuel activity because of variations from year to year in the timing and pricing of fuel reload requirements in the Utility business, material and service deliveries, and the timing of cash payments during the nuclear fuel cycle;cycle.
The decrease was partially offset by an increase of $32.9$35.6 million in information technologydistribution construction expenditures primarily due to investment in the reliability and infrastructure of Entergy Arkansas’s distribution system, including increased spending on substation technology upgrades;
advanced metering infrastructure, and an increase of $22.3$15.6 million in fossil-fueled generation construction expendituresstorm spending.
Financing Activities
Entergy Arkansas’s cash provided by financing activities decreased $468.9 million in 2019 primarily due to:
a $350 million capital contribution from Entergy Corporation in May 2018 in anticipation of the return of unprotected excess accumulated deferred income taxes to a higher scopecustomers and upcoming planned capital investments;
the issuance of work performed$250 million of 4.0% Series first mortgage bonds in May 2018;
money pool activity;
net repayments of long-term borrowings of $44.5 million in 2019 compared to net long-term borrowings of $34.7 million in 2018 on various projects in 2017;the Entergy Arkansas nuclear fuel company variable interest entity credit facility; and
an increase of $11.2 million due to increased spending on advanced metering infrastructure.
Net cash flow used in investing activities increased $262.7 million in 2016 primarily due to the purchase of Power Block 2 of the Union Power Station in March 2016 for approximately $237 million. See Note 14 to the financial statements for further discussion of the Union Power Station purchase. The increase was partially offset by fluctuations in nuclear fuel activity because of variations from year to year in the timing and pricing of fuel reload requirements in the Utility business, material and service deliveries, and the timing of cash payments during the nuclear fuel cycle.
Financing Activities
Net cash flow provided by financing activities decreased $23.4 million in 2017 primarily due to:
a $200 million capital contribution received from Entergy Corporation in March 2016 primarily in anticipation of Entergy Arkansas’s purchase of Power Block 2 of the Union Power Station;
the net issuance of $119.1 million of long-term debt in 2017 compared to the net issuance of $189.1 million of long-term debt in 2016; and
$15$23.2 million in common stock dividendsequity distributions paid in 2017 resulting from2019 primarily to maintain Entergy Arkansas’s routine evaluation of its ability to pay dividends. There were no common stock dividends paid in 2016 in anticipation of the purchase of Power Block 2 of the Union Power Station.capital structure.
The decrease was partially offset by:
money pool activity;
the redemptionsissuance of $75$350 million of 6.45%4.20% Series preferred stock and $10 million of 6.08% Series preferred stockmortgage bonds in 2016; andMarch 2019;
net repayments of short-term borrowings of $50 million on the Entergy Arkansas nuclear fuel company variable interest entity credit facility in 2017 compared to net repayments of $11.7 million in 2016.
Increases in Entergy Arkansas’s payable to the money pool are a source of cash flow,2018; and Entergy Arkansas’s payable to the money pool increased by $114.9 million in 2017 compared to decreasing by $1.5 million in 2016. The money pool is an inter-company borrowing arrangement designed to reduce the Utility subsidiaries’ need for external short-term borrowings.
Net cash flow provided by financing activities increased $281.8 million in 2016 primarily due to:
the net issuanceredemption of $189.1$31.4 million of long-term debt in 2016 compared to the net retirement of $13.2 million of long-term debt in 2015;
a $200 million capital contribution received from Entergy Corporation in March 2016 primarily in anticipation of Entergy Arkansas’s purchase of Power Block 2 of the Union Power Station; and
net repayments of $11.7 million on the Entergy Arkansas nuclear fuel company variable interest entity credit facility in 2016 compared to net repayments of $36.3 million in 2015.
Entergy Arkansas, Inc. and Subsidiaries
Management’s Financial Discussion and Analysis
The increase was partially offset by the redemptions of $75 million of 6.45% Series preferred stock and $10 million of 6.08% Series preferred stock in 20162018 in connection with the internal restructuring. See Note 2 to the financial statements for further discussion of the internal restructuring and money poolNote 6 to the financial statements for details of preferred stock activity.
Decreases in Entergy Arkansas’s payable to the money pool are a use of cash flow, and Entergy Arkansas’s payable to the money pool decreased by $1.5$161.1 million in 20162019 compared to increasing by $52.7$16.6 million in 2015.2018. The money pool is an inter-company borrowing arrangement designed to reduce the Utility subsidiaries’ need for external short-term borrowings.
See Note 5 to the financial statements for further details of long-term debt.
Entergy Arkansas, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
2018 Compared to 2017
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Liquidity and Capital Resources - Cash Flow” in Entergy Arkansas’s Annual Report on Form 10-K for the year ended December 31, 2018 for discussion of operating, investing, and financing cash flow activities for 2018 compared to 2017.
Capital Structure
Entergy Arkansas’s capitalizationdebt to capital ratio is balanced between equity and debt, as shown in the following table. The increase in the debt to capital ratio is primarily due to the issuance of long-term debt in 2019.
| | | December 31, 2017 | | December 31, 2016 | December 31, 2019 | | December 31, 2018 |
Debt to capital | 55.5% | | 55.3% | 53.0% | | 52.0% |
Effect of excluding the securitization bonds | (0.3%) | | (0.4%) | —% | | (0.2%) |
Debt to capital, excluding securitization bonds (a) | 55.2% | | 54.9% | 53.0% | | 51.8% |
Effect of subtracting cash | —% | | (0.2%) | —% | | —% |
Net debt to net capital, excluding securitization bonds (a) | 55.2% | | 54.7% | 53.0% | | 51.8% |
| |
(a) | Calculation excludes the securitization bonds, which are non-recourse to Entergy Arkansas. |
Net debt consists of debt less cash and cash equivalents. Debt consists of short-term borrowings, finance lease obligations, and long-term debt, including the currently maturing portion. Capital consists of debt preferred stock without sinking fund, and common equity. Net capital consists of capital less cash and cash equivalents. Entergy Arkansas uses the debt to capital ratios excluding securitization bonds in analyzing its financial condition and believes they provide useful information to its investors and creditors in evaluating Entergy Arkansas’s financial condition because the securitization bonds are non-recourse to Entergy Arkansas, as more fully described in Note 5 to the financial statements. Entergy Arkansas also uses the net debt to net capital ratio excluding securitization bonds in analyzing its financial condition and believes it provides useful information to its investors and creditors in evaluating Entergy Arkansas’s financial condition because net debt indicates Entergy Arkansas’s outstanding debt position that could not be readily satisfied by cash and cash equivalents on hand.
Entergy Arkansas seeks to optimize its capital structure in accordance with its regulatory requirements and to control its cost of capital while also maintaining equity capitalization at a level consistent with investment-grade debt ratings. To the extent that operating cash flows are in excess of planned investments, cash may be used to reduce outstanding debt or may be paid as a dividend,distribution, or both, in appropriate amounts to maintain the targeted capital structure. To the extent that operating cash flows are insufficient to support planned investments, Entergy Arkansas may issue incremental debt or reduce dividends,distributions, or both, to maintain its targeted capital structure. In addition, in certain infrequent circumstances, such as large transactions that would materially alter the capital structure if financed entirely with debt and reducing dividends,distributions, Entergy Arkansas may receive equity contributions to maintain the targetedits capital structure.
Uses of Capital
Entergy Arkansas requires capital resources for:
construction and other capital investments;
debt and preferred stock maturities or retirements;
working capital purposes, including the financing of fuel and purchased power costs; and
dividenddistribution and interest payments.
Entergy Arkansas, Inc.LLC and Subsidiaries
Management’s Financial Discussion and Analysis
Following are the amounts of Entergy Arkansas’s planned construction and other capital investments.
| | | 2018 | | 2019 | | 2020 | 2020 | | 2021 | | 2022 |
| (In Millions) | (In Millions) |
Planned construction and capital investment: | | | |
| | |
| | | |
| | |
|
Generation |
| $190 |
| |
| $240 |
| |
| $225 |
|
| $250 |
| |
| $445 |
| |
| $595 |
|
Transmission | 170 |
| | 165 |
| | 175 |
| 110 |
| | 50 |
| | 65 |
|
Distribution | 225 |
| | 245 |
| | 225 |
| 190 |
| | 125 |
| | 125 |
|
Utility Support | 110 |
| | 85 |
| | 85 |
| 185 |
| | 165 |
| | 240 |
|
Total |
| $695 |
| |
| $735 |
| |
| $710 |
|
| $735 |
| |
| $785 |
| |
| $1,025 |
|
Following are the amounts of Entergy Arkansas’s existing debt and lease obligations (includes estimated interest payments) and other purchase obligations.
| | | 2018 | | 2019-2020 | | 2021-2022 | | after 2022 | | Total | 2020 | | 2021-2022 | | 2023-2024 | | After 2024 | | Total |
| (In Millions) | (In Millions) |
Long-term debt (a) |
| $125 |
| |
| $266 |
| |
| $672 |
| |
| $4,208 |
| |
| $5,271 |
|
| $142 |
| |
| $737 |
| |
| $877 |
| |
| $4,377 |
| |
| $6,133 |
|
Operating leases(b) |
| $17 |
| |
| $29 |
| |
| $16 |
| |
| $24 |
| |
| $86 |
|
| $13 |
| |
| $20 |
| |
| $13 |
| |
| $12 |
| |
| $58 |
|
Purchase obligations (b) |
| $595 |
| |
| $1,050 |
| |
| $863 |
| |
| $5,369 |
| |
| $7,877 |
| |
Finance leases (b) | |
| $3 |
| |
| $4 |
| |
| $3 |
| |
| $2 |
| |
| $12 |
|
Purchase obligations (c) | |
| $553 |
| |
| $939 |
| |
| $561 |
| |
| $4,485 |
| |
| $6,538 |
|
| |
(a) | Includes estimated interest payments. Long-term debt is discussed in Note 5 to the financial statements. |
| |
(b) | Lease obligations are discussed in Note 10 to the financial statements. |
| |
(c) | Purchase obligations represent the minimum purchase obligation or cancellation charge for contractual obligations to purchase goods or services. For Entergy Arkansas, almost all of the total consists of unconditional fuel and purchased power obligations, including its obligations under the Unit Power Sales Agreement, which are discussed in Note 8 to the financial statements. |
In addition to the contractual obligations given above, Entergy Arkansas currently expects to contribute approximately $64.1$32.5 million to its qualified pension plans and approximately $472$509 thousand to its other postretirement health care and life insurance plans in 2018,2020, although the 20182020 required pension contributions will be known with more certainty when the January 1, 20182020 valuations are completed, which is expected by April 1, 2018.2020. See “Critical Accounting Estimates– Qualified Pension and Other Postretirement Benefits” below for a discussion of qualified pension and other postretirement benefits funding.
Also in addition to the contractual obligations, Entergy Arkansas has ($117.7)$207.1 million of unrecognized tax benefits and interest net of unused tax attributes for which the timing of payments beyond 12 months cannot be reasonably estimated due to uncertainties in the timing of effective settlement of tax positions. See Note 3 to the financial statements for additional information regarding unrecognized tax benefits.
In addition to routine capital spending to maintain operations, the planned capital investment estimate for Entergy Arkansas includes specific investments, such as transmission projects to enhance reliability, reduce congestion, and enable economic growth; distribution spending to enhance reliability and improve service to customers, including investment to support advanced metering;meters and related investments; resource planning, including potential generation projects; system improvements; investments in ANO 1 and 2; software and security; and other investments. Estimated capital expenditures are subject to periodic review and modification and may vary based on the ongoing effects of regulatory constraints and requirements, environmental compliance, business opportunities, market volatility, economic trends, business restructuring, changes in project plans, and the ability to access capital. Management provides more information on long-term debt and preferred stock maturities in NotesNote 5 and 6 to the financial statements.
As discussed above in “Capital Structure,” Entergy Arkansas routinely evaluates its ability to pay dividends to Entergy Corporation from its earnings. Provisions in Entergy Arkansas’s articles of incorporation relating to preferred
Entergy Arkansas, Inc.LLC and Subsidiaries
Management’s Financial Discussion and Analysis
stock restrict the amountAs a wholly-owned subsidiary of retainedEntergy Utility Holding Company, LLC, Entergy Arkansas pays distributions from its earnings availableat a percentage determined monthly.
Searcy Solar Facility
In March 2019, Entergy Arkansas announced that it signed an agreement for the paymentpurchase of cash dividends oran approximately 100 MW to-be-constructed solar energy facility that will be sited on approximately 800 acres in White County near Searcy, Arkansas. The purchase is contingent upon, among other distributions on its commonthings, obtaining necessary approvals from applicable federal and preferred stock.
Advanced Metering Infrastructure (AMI)
state regulatory and permitting agencies. The project will be constructed by a subsidiary of NextEra Energy Resources. Entergy Arkansas will purchase the facility upon mechanical completion and after the other purchase contingencies have been met. Closing is expected to occur by the end of 2021. In September 2016,May 2019, Entergy Arkansas filed an applicationa petition with the APSC seeking a finding fromthat the APSC that Entergy Arkansas’s deployment of AMI is in the public interest. Entergy Arkansas proposed to replace existing meters with advanced meters that enable two-way data communication; design and build a secure and reliable network to support such communications; and implement support systems. AMI is intended to serve as the foundation of Entergy Arkansas’s modernized power grid. The filing included an estimate of implementation costs for AMI of $208 million. The filing identified a number of quantified and unquantified benefits, and Entergy Arkansas provided a cost benefit analysis showing that its AMI deployment is expected to produce a nominal net benefit to customers of $406 million. Entergy Arkansas also sought to continue to include in rate base the remaining book value of existing meters, which was approximately $57 million at December 31, 2015, that will be retired as part of the AMI deployment and also to depreciate those assets using current depreciation rates. Entergy Arkansas proposed a 15-year depreciable life for the new advanced meters, the three-year deployment of which is expected to begin in 2019. Deployment of the communications network is expected to begin in 2018. Entergy Arkansas proposed to include the AMI deployment costs and the quantified benefits in future formula rate plan filings, and the 2018 costs were approved in the 2017 formula rate plan filing. In June 2017 the APSC staff and Arkansas Attorney General filed direct testimony. The APSC staff generally supported Entergy Arkansas’s AMI deployment conditioned on various recommendations. The Arkansas Attorney General’s consultant primarily recommended denial of Entergy Arkansas’s application but alternatively suggested recommendations in the event the APSC approves Entergy Arkansas’s proposal. Entergy Arkansas filed rebuttal testimony in June 2017, substantially accepting the APSC staff’s recommendations. In August 2017, Entergy Arkansas and the parties to the proceeding filed a joint motion to approve a unanimous settlement agreement. In October 2017 the APSC issued an order finding that Entergy Arkansas’s AMI deploymenttransaction is in the public interest and approvingrequesting all necessary approvals. In September 2019 other parties filed testimony largely supporting the resource acquisition but disputing Entergy Arkansas’s proposed method of cost recovery. Entergy Arkansas filed its rebuttal testimony in October 2019. In February 2020, Entergy Arkansas, the Attorney General, and the APSC general staff filed a partial settlement agreement subjectasking the APSC to a minor modification. Entergy Arkansas expects to recoverapprove, based on the undepreciated balance of its existing meters through a regulatory asset to be amortized over 15 years. Entergy Arkansas has begun discussions with the other parties to implement the itemsrecord in the settlement agreement including pre-pay and time of use programs.proceeding, all issues except certain issues that are submitted to the APSC for determination.
Sources of Capital
Entergy Arkansas’s sources to meet its capital requirements include:
internally generated funds;
cash on hand;
debt or preferred stockmembership interest issuances;
capital contributions; and
bank financing under new or existing facilities.
Entergy Arkansas may refinance, redeem, or otherwise retire debt and preferred stock prior to maturity, to the extent market conditions and interest and dividend rates are favorable.
All debt and common and preferred stockmembership interest issuances by Entergy Arkansas require prior regulatory approval. Preferred stock and debtDebt issuances are also subject to issuance tests set forth in Entergy Arkansas’s corporate charters, bond indentures and other agreements. Entergy Arkansas has sufficient capacity under these tests to meet its foreseeable capital needs.
Entergy Arkansas, Inc. and Subsidiaries
Management’s Financial Discussion and Analysis
Entergy Arkansas’s receivables from or (payables to)payables to the money pool were as follows as of December 31 for each of the following years.
|
| | | | | | |
2017 | | 2016 | | 2015 | | 2014 |
(In Thousands) |
($166,137) | | ($51,232) | | ($52,742) | | $2,218 |
|
| | | | | | |
2019 | | 2018 | | 2017 | | 2016 |
(In Thousands) |
$21,634 | | $182,738 | | $166,137 | | $51,232 |
See Note 4 to the financial statements for a description of the money pool.
Entergy Arkansas has a credit facility in the amount of $150 million scheduled to expire in August 2022.September 2024. Entergy Arkansas also has a $20 million credit facility scheduled to expire in April 2018.2020. The $150 million credit facility permitsincludes fronting commitments for the issuance of letters of credit against $5 million of the borrowing capacity of the facility. As of December 31, 2017,2019, there were no cash borrowings and no letters of credit outstanding under the credit facilities. In addition, Entergy Arkansas is a party to an uncommitted letter of credit facility as a means to post collateral to support its obligations to MISO. As of December 31, 2017,2019, a $1 million letter of credit was outstanding under Entergy Arkansas’s uncommitted letter of credit facility. See Note 4 to the financial statements for further discussion of the credit facilities.
Entergy Arkansas, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
The Entergy Arkansas nuclear fuel company variable interest entity has a credit facility in the amount of $80 million scheduled to expire in May 2019.September 2021. As of December 31, 2017, $50 million in letters of credit to support a like amount of commercial paper issued and $24.92019, $15.1 million in loans were outstanding under the Entergy Arkansas nuclear fuel company variable interest entity credit facility. See Note 4 to the financial statements for further discussion of the nuclear fuel company variable interest entity credit facility.
Entergy Arkansas obtained authorizationsauthorization from the FERC through October 2019November 2020 for short-term borrowings not to exceed an aggregate amount of $250 million at any time outstanding and borrowings by its nuclear fuel company variable interest entity. See Note 4 to the financial statements for further discussion of Entergy Arkansas’s short-term borrowing limits. The long-term securities issuances of Entergy Arkansas are limited to amounts authorized by the FERC. The APSC andhas concurrent jurisdiction over Entergy Arkansas’s first mortgage bond/secured issuances. Entergy Arkansas has obtained long-term financing authorization from the currentFERC that extends through November 2020. Entergy Arkansas has obtained first mortgage bond/secured financing authorization from the APSC that extends through December 2018.2020.
State and Local Rate Regulation and Fuel-Cost Recovery
Retail Rates
2015 Base Rate Filing
In April 2015, Entergy Arkansas filed with the APSC for a general change in rates, charges, and tariffs. The filing notified the APSC of Entergy Arkansas’s intent to implement a forward test year formula rate plan pursuant to Arkansas legislation passed in 2015, and requested a retail rate increase of $268.4 million, with a net increase in revenue of $167 million. The filing requested a 10.2% return on common equity. In September 2015 the APSC staff and intervenors filed direct testimony, with the APSC staff recommending a revenue requirement of $217.9 million and a 9.65% return on common equity. In December 2015, Entergy Arkansas, the APSC staff, and certain of the intervenors in the rate case filed with the APSC a joint motion for approval of a settlement of the case that proposed a retail rate increase of approximately $225 million with a net increase in revenue of approximately $133 million; an authorized return on common equity of 9.75%; and a formula rate plan tariff that provides a +/- 50 basis point band around the 9.75% allowed return on common equity. A significant portion of the rate increase is related to Entergy Arkansas’s acquisition in March 2016 of Union Power Station Power Block 2 for a base purchase price of $237 million. The settlement agreement also provided for amortization over a 10-year period of $7.7 million of previously-incurred costs related to ANO post-Fukushima compliance and $9.9 million of previously-incurred costs related to ANO flood barrier compliance. A settlement hearing was held in January 2016. In February 2016 the APSC approved the settlement with one exception that reduced the retail rate increase proposed in the settlement by $5 million. The settling parties agreed to the APSC modifications in February 2016. The new rates were effective February 24, 2016 and began billing with the first billing cycle of April 2016. In March 2016, Entergy Arkansas made a compliance filing regarding the
Entergy Arkansas, Inc. and Subsidiaries
Management’s Financial Discussion and Analysis
new rates that included an interim base rate adjustment surcharge, effective with the first billing cycle of April 2016, to recover the incremental revenue requirement for the period February 24, 2016 through March 31, 2016. The interim base rate adjustment surcharge was designed to recover a total of $21.1 million over the nine-month period from April 2016 through December 2016.
2016 Formula Rate Plan Filing
In July 2016, Entergy Arkansas filed with the APSC its 2016 formula rate plan filing showing Entergy Arkansas’s projected earned return on common equity for the twelve months ended December 31, 2017 test period to be below the formula rate plan bandwidth. The filing requested a $67.7 million revenue requirement increase to achieve Entergy Arkansas’s target earned return on common equity of 9.75%. In October 2016, Entergy Arkansas filed with the APSC revised formula rate plan attachments with an updated request for a $54.4 million revenue requirement increase based on acceptance of certain adjustments and recommendations made by the APSC staff and other intervenors, as well as three additional adjustments identified as appropriate by Entergy Arkansas. In November 2016 a hearing was held and the APSC issued an order directing the parties to brief certain issues. In December 2016 the APSC approved the settlement agreement and the $54.4 million revenue requirement increase with approximately $25 million of the $54.4 million revenue requirement subject to possible future adjustment and refund to customers with interest. The APSC requested supplemental information for some of Entergy Arkansas’s requested nuclear expenditures. In December 2016 the APSC approved Entergy Arkansas’s formula rate plan compliance tariff, and the rates became effective with the first billing cycle of January 2017. In April 2017, Entergy Arkansas filed a motion consented to by all parties requesting that it be permitted to submit the supplemental information requested by the APSC in conjunction with its 2017 formula rate plan filing, which was subsequently made in July 2017 and is discussed below. In May 2017 the APSC approved the joint motion and proposal to review Entergy Arkansas’s supplemental information on a concurrent schedule with the 2017 formula rate plan filing. In October 2017, Entergy Arkansas and the parties to the proceeding filed a joint motion to approve a unanimous settlement agreement resolving all issues in the docket and providing for recovery of the 2017 and 2018 nuclear costs. In December 2017 the APSC approved the settlement agreement and recovery of the 2017 and 2018 nuclear costs.
2017 Formula Rate Plan Filing
In July 2017, Entergy Arkansas filed with the APSC its 2017 formula rate plan filing showing Entergy Arkansas’s projected earned return on common equity for the twelve months ended December 31, 2018 test period to be below the formula rate plan bandwidth. The filing projected a $129.7 million revenue requirement increase to achieve Entergy Arkansas’s target earned return on common equity of 9.75%. Entergy Arkansas’s formula rate plan is subject to a four percent annual revenue constraint and the projected annual revenue requirement increase exceeded the four percent, resulting in a proposed increase for the 2017 formula rate plan of $70.9 million. In October 2017, Entergy Arkansas filed with the APSC revised formula rate plan attachments that projected a $126.2 million revenue requirement increase based on acceptance of certain adjustments and recommendations made by the APSC staff and other intervenors. The revised formula rate plan filing included a proposed $71.1 million revenue requirement increase based on a revision to the four percent constraint calculation. In October 2017, Entergy Arkansas and the parties to the proceeding filed a joint motion to approve a unanimous settlement agreement resolving all issues in the docketproceeding and providing for recovery of thecertain 2017 and 2018 nuclear costs. In December 2017 the APSC approved the settlement agreement and the $71.1 million revenue requirement increase, as well as Entergy Arkansas’s formula rate plan compliance tariff, and the rates became effective with the first billing cycle of January 2018.
2018 Formula Rate Plan Filing
In July 2018, Entergy Arkansas filed with the APSC its 2018 formula rate plan filing to set its formula rate for the 2019 calendar year. The filing showed Entergy Arkansas’s projected earned return on common equity for the twelve months ended December 31, 2019 test period to be below the formula rate plan bandwidth. Additionally, the filing includes the first netting adjustment under the current formula rate plan for the historical test year 2017, reflecting the change in formula rate plan revenues associated with actual 2017 results when compared to the allowed rate of return on equity. The filing includes a projected $73.4 millionrevenue deficiency for 2019 and a $95.6 million revenue deficiency for the 2017 historical test year, for a total revenue requirement of $169 million for this filing. By operation of the formula rate plan, Entergy Arkansas’s recovery of the revenue requirement is subject to a four percent annual revenue constraint. Because Entergy Arkansas’s revenue requirement in this filing exceeds the constraint, the resulting increase is limited to four percent of total revenue, which originally was $65.4 million but was increased to $66.7 million based upon the APSC staff’s updated calculation of 2018 revenue. In October 2018, Entergy Arkansas and the parties to the proceeding filed joint motions to approve a partial settlement agreement as to certain factual issues and agreed to brief contested legal issues. In November 2018 the APSC held a hearing and was briefed on a certain contested legal issue. In December 2018 the APSC issued a decision related to the initial legal brief, approved the
Entergy Arkansas, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
partial settlement agreement and $66.7 million revenue requirement increase, as well as Entergy Arkansas’s formula rate plan, with updated rates going into effect for the first billing cycle of January 2019.
2019 Formula Rate Plan Filing
In July 2019, Entergy Arkansas filed with the APSC its 2019 formula rate plan filing to set its formula rate for the 2020 calendar year. The filing contained an evaluation of Entergy Arkansas’s earnings for the projected year 2020 and a netting adjustment for the historical year 2018. The total proposed formula rate plan rider revenue change designed to produce a target rate of return on common equity of 9.75% is $15.3 million, which is based upon a deficiency of approximately $61.9 million for the 2020 projected year, netted with a credit of approximately $46.6 million in the 2018 historical year netting adjustment. During 2018 Entergy Arkansas experienced higher-than expected sales volume, and actual costs were lower than forecasted. These changes, coupled with a reduced income tax rate resulting from the Tax Cuts and Jobs Act, resulted in the credit for the historical year netting adjustment. In the fourth quarter 2018 Entergy Arkansas recorded a provision of $35.1 million that reflected the estimate of the historical year netting adjustment that was expected to be included in the 2019 filing. In 2019, Entergy Arkansas recorded additional provisions totaling $11.5 million to reflect the updated estimate of the historical year netting adjustment included in the 2019 filing. In October 2019 other parties in the proceeding filed their errors and objections requesting certain adjustments to Entergy Arkansas’s filing that would reduce or eliminate Entergy Arkansas’s proposed revenue change. Entergy Arkansas filed its response addressing the requested adjustments in October 2019. In its response, Entergy Arkansas accepted certain of the adjustments recommended by the General Staff of the APSC that would reduce the proposed formula rate plan rider revenue change to $14 million. Entergy Arkansas disputed the remaining adjustments proposed by the parties. In October 2019, Entergy Arkansas filed a unanimous settlement agreement with the other parties in the proceeding seeking APSC approval of a revised total formula rate plan rider revenue change of $10.1 million. In its July 2019 formula rate plan filing, Entergy Arkansas proposed to recover an $11.2 million regulatory asset, amortized over five years, associated with specific costs related to the potential construction of scrubbers at the White Bluff plant. Although Entergy Arkansas does not concede that the regulatory asset lacks merit, for purposes of reaching a settlement on the total formula rate plan rider amount, Entergy Arkansas agreed not to include the White Bluff scrubber regulatory asset cost in the 2019 formula rate plan filing or future filings. Entergy Arkansas recorded a write-off in 2019 of the $11.2 million White Bluff scrubber regulatory asset. In December 2019, the APSC approved the settlement as being in the public interest and approved Entergy Arkansas’s compliance tariff effective with the first billing cycle of January 2020.
Internal Restructuring
In November 2017, Entergy Arkansas filed an application with the APSC seeking authorization to undertake a restructuring that would result in the transfer of substantially all of the assets and operations of Entergy Arkansas to a new entity, which would ultimately be owned by an existing Entergy subsidiary holding company. The restructuring is subject to regulatory review and approval by the APSC, the FERC, and the NRC. Entergy Arkansas also filed a notice with the Missouri Public Service Commission in December 2017 out of an abundance of caution, although
Entergy Arkansas, Inc. and Subsidiaries
Management’s Financial Discussion and Analysis
Entergy Arkansas does not serve any retail customers in Missouri. If the APSC approves the restructuring by September 1, 2018, and the restructuring closes on or before December 1,In July 2018, Entergy Arkansas proposedfiled a settlement, reached by all parties in its applicationthe APSC proceeding, resolving all issues. The APSC approved the settlement agreement and restructuring in August 2018. Pursuant to the settlement agreement, Entergy Arkansas will credit retail customers $66$39.6 million over six years, beginning in 2019. Entergy Arkansas also received the required FERC and NRC approvals.
In FebruaryNovember 2018, Entergy Arkansas filed supplemental testimony reducing the proposed retail customer credits to $39.6 million over six years. If the APSC, the FERC, and the NRC approvals are obtained, Entergy Arkansas expects the restructuring will be consummated on or before December 1, 2018.
It is currently contemplated that Entergy Arkansas would undertakeundertook a multi-step restructuring, which would includeincluding the following:
Entergy Arkansas, would redeemInc. redeemed its outstanding preferred stock at the aggregate redemption price of approximately $32.7 million, which includes call premiums, plus accumulated and unpaid dividends, if any.million.
Entergy Arkansas, would convertInc. converted from an Arkansas corporation to a Texas corporation.
Under the Texas Business Organizations Code (TXBOC), Entergy Arkansas, will allocateInc. allocated substantially all of its assets to a new subsidiary, Entergy Arkansas Power, LLC, a Texas limited liability company (Entergy Arkansas Power), and Entergy Arkansas Power will assumeassumed substantially all of the liabilities of Entergy Arkansas, Inc., in a transaction regarded as a merger under the TXBOC. Entergy Arkansas, will remainInc. remained in existence and holdheld the membership interests in Entergy Arkansas Power.
Entergy Arkansas, will contributeLLC and Subsidiaries
Management’s Financial Discussion and Analysis
Entergy Arkansas, Inc. contributed the membership interests in Entergy Arkansas Power to an affiliate (Entergy Utility Holding Company, LLC, a Texas limited liability company and subsidiary of Entergy Corporation). As a result of the contribution, Entergy Arkansas Power will beis a wholly-owned subsidiary of Entergy Utility Holding Company, LLC.
In December 2018, Entergy Arkansas, will changeInc. changed its name to Entergy Utility Property, Inc., and Entergy Arkansas Power will then changechanged its name to Entergy Arkansas, LLC.
Upon the completion of the restructuring, Entergy Arkansas, LLC will holdholds substantially all of the assets, and will have assumed substantially all of the liabilities, of Entergy Arkansas.Arkansas, Inc. The transaction was accounted for as a transaction between entities under common control.
Advanced Metering Infrastructure (AMI)
In September 2016, Entergy Arkansas may modify or supplementfiled an application seeking a finding from the stepsAPSC that Entergy Arkansas’s deployment of AMI is in the public interest. Entergy Arkansas proposed to replace existing meters with advanced meters that enable two-way data communication; design and build a secure and reliable network to support such communications; and implement support systems. AMI is intended to serve as the foundation of Entergy Arkansas’s modernized power grid. The filing included an estimate of implementation costs for AMI of $208 million and identified a number of quantified and unquantified benefits. Entergy Arkansas proposed a 15-year depreciable life for the new advanced meters, the three-year deployment of which began in January 2019. Deployment of the communications network began in 2018. In October 2017 the APSC issued an order finding that Entergy Arkansas’s AMI deployment is in the public interest and approving the settlement agreement subject to a minor modification. Entergy Arkansas is recovering the AMI deployment costs and the quantified benefits through its formula rate plan. Entergy Arkansas will recover the undepreciated balance of its existing meters through a regulatory asset to be taken to effectuateamortized over 15 years, as approved by the restructuring.APSC.
Production Cost Allocation Rider
The APSC approved a production cost allocation rider for recovery from customers of the retail portion of the costs allocated to Entergy Arkansas as a result of the System Agreement proceedings, which are discussed in the “System Agreement Cost Equalization Proceedings” section below. These costs cause an increase in Entergy Arkansas’s deferred fuel cost balance because Entergy Arkansas pays the costs over seven months but collects the costs from customers over twelve months.
In May 2014, Entergy Arkansas filed its annual redetermination of the production cost allocation rider to recover the $3 million unrecovered retail balance as of December 31, 2013 and the $67.8 million System Agreement bandwidth remedy payment made in May 2014 as a result of the compliance filing pursuantNote 2 to the FERC’s February 2014 orders related to the bandwidth payments/receipts for the June - December 2005 period. In January 2015 the APSC issued an order approving Entergy Arkansas’s request for recovery of the $3 million under-recovered amount based on the true-up of the production cost allocation rider and the $67.8 million May 2014 System Agreement bandwidth remedy payment subject to refund with interest, with recovery of these payments concluding with the last billing cycle in December 2015. The APSC also found that Entergy Arkansas is entitled to carrying charges pursuant to the current terms of the production cost allocation rider. Entergy Arkansas made its compliance filing pursuant to the order in January 2015 and the APSC issued its approval order, also in January 2015. The redetermined rate went into effect with the first billing cycle of February 2015.financial statements.
In May 2015, Entergy Arkansas filed its annual redetermination of the production cost allocation rider, which included a $38 million payment made by Entergy Arkansas as a result of the FERC’s February 2014 order related to the comprehensive bandwidth recalculation for calendar year 2006, 2007, and 2008 production costs. The redetermined rate for the 2015 production cost allocation rider update was added to the redetermined rate from the 2014 production
Entergy Arkansas, Inc. and Subsidiaries
Management’s Financial Discussion and Analysis
cost allocation rider update and the combined rate was effective with the first billing cycle of July 2015. This combined rate was effective through December 2015. The collection of the remainder of the redetermined rate for the 2015 production cost allocation rider update continued through June 2016.
In May 2016, Entergy Arkansas filed its annual redetermination pursuant to the production cost allocation rider, which reflected recovery of the production cost allocation rider true-up adjustment of the 2014 and 2015 unrecovered retail balance in the amount of $1.9 million. Additionally, the redetermined rates reflected the recovery of a $1.9 million System Agreement bandwidth remedy payment resulting from a compliance filing pursuant to the FERC’s December 2015 order related to test year 2009 production costs. The rates for the 2016 production cost allocation rider update became effective with the first billing cycle of July 2016, and the rates were effective through June 2017.
In May 2017, Entergy Arkansas filed its annual redetermination pursuant to the production cost allocation rider, which reflected a credit amount of $0.3 million resulting from a compliance filing pursuant to the FERC’s September 2016 order. Additionally, the redetermined rate reflected recovery of the production cost allocation rider true-up adjustment of the 2016 unrecovered retail balance in the amount of $0.3 million. Because of the small effect of the 2017 production cost allocation rider update, Entergy Arkansas proposed to reduce the effective period of the update to one month, July 2017. After the one month collection period, rates were set to zero for all rate classes for the period August 2017 through June 2018.
Energy Cost Recovery Rider
Entergy Arkansas’s retail rates include an energy cost recovery rider to recover fuel and purchased energy costs in monthly customer bills. The rider utilizes the prior calendar-year energy costs and projected energy sales for the twelve-month period commencing on April 1 of each year to develop an energy cost rate, which is redetermined annually and includes a true-up adjustment reflecting the over- or under-recovery, including carrying charges, of the energy costs for the prior calendar year. The energy cost recovery rider tariff also allows an interim rate request depending upon the level of over- or under-recovery of fuel and purchased energy costs.
In January 2014, Entergy Arkansas filed a motion with the APSC relating to its redetermination of itsupcoming energy cost rate redetermination filing that was subsequently filedmade in March 2014. In that motion, Entergy Arkansas requested that the APSC authorize Entergy Arkansas to exclude $65.9 million of deferred fuel and purchased energy costs incurred in 2013 from the redetermination of its 2014 energy cost rate. Therate $65.9 million is an estimate of the incremental fuel and replacement energy costs that Entergy Arkansas incurred in 2013 as a result of the ANO stator incident. Entergy Arkansas requested that the APSC authorize Entergy Arkansas to retain that amount in its deferred fuel balance, with recovery to be reviewed in a later period after more information iswas available regarding various claims associated with the ANO stator incident. TheIn February 2014 the APSC approved Entergy Arkansas’s request to retain that amount in February 2014.its deferred fuel balance. In July 2017, Entergy Arkansas filed for a change in rates pursuant to its formula rate plan rider. In that proceeding, the APSC approved a settlement agreement agreed upon by the parties, including a provision that requires Entergy Arkansas to initiate a regulatory proceeding for the purpose of recovering funds currently withheld from rates and related to the stator incident, including the $65.9 million of deferred fuel and purchased energy costs previously noted, subject to
Entergy Arkansas, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
certain timelines and conditions set forth in the settlement agreement. See the “ANO Damage, Outage, and NRC Reviews” section in Note 8 to the financial statements for further discussion of the ANO stator incident.
In March 2017, Entergy Arkansas filed its annual redetermination of its energy cost rate pursuant to the energy cost recovery rider, which reflected an increase in the rate from $0.01164 per kWh to $0.01547 per kWh. The APSC staff filed testimony in March 2017 recommending that the redetermined rate be implemented with the first billing cycle of April 2017 under the normal operation of the tariff. Accordingly, the redetermined rate went into effect on March 31, 2017 pursuant to the tariff. In July 2017 the Arkansas Attorney General requested additional information to support certain of the costs included in Entergy Arkansas’s 2017 energy cost rate redetermination.
In March 2018, Entergy Arkansas filed its annual redetermination of its energy cost rate pursuant to the energy cost recovery rider, which reflected an increase in the rate from $0.01547 per kWh to $0.01882 per kWh. The Arkansas Attorney General filed a response to Entergy Arkansas’s annual redetermination filing requesting that the APSC suspend the proposed tariff to investigate the amount of the redetermination or, alternatively, to allow recovery subject to refund. Among the reasons the Attorney General cited for suspension were questions pertaining to how Entergy Arkansas forecasted sales and potential implications of the Tax Act. Entergy Arkansas replied to the Attorney General’s filing and stated that, to the extent there are questions pertaining to its load forecasting or the operation of the energy cost recovery rider, those issues exceed the scope of the instant rate redetermination. Entergy Arkansas also stated that potential effects of the Tax Act are appropriately considered in the APSC’s separate proceeding regarding potential implications of the tax law. The APSC general staff filed a reply to the Attorney General’s filing and agreed that Entergy Arkansas’s filing complied with the terms of the energy cost recovery rider. The redetermined rate became effective with the first billing cycle of April 2018. Subsequently in April 2018 the APSC issued an order declining to suspend Entergy Arkansas’s energy cost recovery rider rate and declining to require further investigation at that time of the issues suggested by the Attorney General in the proceeding. Following a period of discovery, the Attorney General filed a supplemental response in October 2018 raising new issues with Entergy Arkansas’s March 2018 rate redetermination and asserting that $45.7 million of the increase should be collected subject to refund pending further investigation. Entergy Arkansas filed to dismiss the Attorney General’s supplemental response, the APSC general staff filed a motion to strike the Attorney General’s filing, and the Attorney General filed a supplemental response disputing Entergy Arkansas and the APSC staff’s filing. Applicable APSC rules and processes authorize its general staff to initiate periodic audits of Entergy Arkansas’s energy cost recovery rider. In late-2018, the APSC general staff notified Entergy Arkansas it has initiated an audit of the 2017 fuel costs. The time in which the audit will be complete is uncertain at this time.
In March 2019, Entergy Arkansas filed its annual redetermination of its energy cost rate pursuant to the energy cost recovery rider, which reflected a decrease from $0.01882 per kWh to $0.01462 per kWh and became effective with the first billing cycle in April 2019. In March 2019 the Arkansas Attorney General filed a response to Entergy Arkansas’s annual adjustment and included with its filing a motion for investigation of alleged overcharges to customers in connection with the FERC’s October 2018 order in the opportunity sales proceeding. Entergy Arkansas filed its response to the Attorney General’s motion in April 2019 in which Entergy Arkansas stated its intent to initiate a proceeding to address recovery issues related to the October 2018 FERC order. In May 2019, Entergy Arkansas initiated the opportunity sales recovery proceeding, discussed below, and requested that the APSC establish that proceeding as the single designated proceeding in which interested parties may assert claims related to the appropriate retail rate treatment of the FERC October 2018 order and related FERC orders in the opportunity sales proceeding. In June 2019 the APSC granted Entergy Arkansas’s request and also denied the Attorney General’s motion in the energy cost recovery proceeding seeking an investigation into Entergy Arkansas’s annual energy cost recovery rider adjustment and referred the evaluation of such matters to the opportunity sales recovery proceeding.
Entergy Arkansas, Inc.LLC and Subsidiaries
Management’s Financial Discussion and Analysis
Opportunity Sales Proceeding
In June 2009 the LPSC filed a complaint requesting that the FERC determine that certain of Entergy Arkansas’s sales of electric energy to third parties: (a) violated the provisions of the System Agreement that allocated the energy generated by Entergy System resources,resources; (b) imprudently denied the Entergy System and its ultimate consumers the benefits of low-cost Entergy System generating capacity,capacity; and (c) violated the provision of the System Agreement that prohibited sales to third parties by individual companies absent an offer of a right-of-first-refusal to other Utility operating companies. The LPSC’s complaint challenged sales made beginning in 2002 and requestsrequested refunds. In July 2009 the Utility operating companies filed a response to the complaint requesting that the FERC dismiss the complaint on the merits without hearing because the LPSC has failed to meet its burden of showing any violation of the System Agreement and failed to produce any evidence of imprudent action by the Entergy System. In their response, the Utility operating companies explainedarguing among other things that the System Agreement clearly contemplates that the Utility operating companies may make sales to third parties for their own account, subject to the requirement that those sales be included in the load (or load shape) for the applicable Utility operating company. The FERC subsequently ordered a hearing in the proceeding.
The LPSC filed direct testimony in the proceeding alleging, among other things, (1) that Entergy violated the System Agreement by permitting Entergy Arkansas to make non-requirements sales to non-affiliated third parties rather than making such energy available to the other Utility operating companies’ customers; and (2) that over the period 2000 - 2009, these non-requirements sales caused harm to the Utility operating companies’ customers and these customers should be compensated for this harm by Entergy. In subsequent testimony, the LPSC modified its original damages claim in favor of quantifying damages by re-running intra-system bills. The Utility operating companies believe the LPSC’s allegations are without merit. AAfter a hearing, in the matter was held in August 2010.
In December 2010 the ALJ issued an initial decision.decision in December 2010. The ALJ found that the System Agreement allowed for Entergy Arkansas to make the sales to third parties but concluded that the sales should be accounted for in the same manner as joint account sales. The ALJ concluded that “shareholders” should make refunds of the damages to the Utility operating companies, along with interest. Entergy disagreed with several aspects of the ALJ’s initial decision and in January 2011 filed with the FERC exceptions to the decision.
The FERC issued a decision in June 2012 and held that, while the System Agreement is ambiguous, it does provide authority for individual Utility operating companies to make opportunity sales for their own account and Entergy Arkansas made and priced these sales in good faith. The FERC found, however, that the System Agreement does not provide authority for an individual Utility operating company to allocate the energy associated with such opportunity sales as part of its load but provides a different allocation authority. The FERC further found that the after-the-fact accounting methodology used to allocate the energy used to supply the sales was inconsistent with the System Agreement. Quantifying the effect of the FERC’s decision requires re-running intra-system bills for a ten-year period, and theThe FERC in its decision established further hearing procedures to determine the calculation of the effects. In July 2012, Entergy and the LPSC filed requests for rehearing of the FERC’s June 2012 decision. A hearing was held in May 2013 to quantify the effect of repricing the opportunity sales in accordance with the FERC’s June 2012 decision.
In August The hearing was held in May 2013 and the presiding judgeALJ issued an initial decision in the calculation proceeding. The initial decision concluded that the methodology proposed by the LPSC, rather than the methodologies proposed by Entergy or the FERC Staff, should be used to calculate the payments that Entergy Arkansas is to make to the other Utility operating companies. The initial decision also concluded that the other System Agreement service schedules should not be adjusted and that payments by Entergy Arkansas should not be reflected in the rough production cost equalization bandwidth calculations for the applicable years. The initial decision recognized that the LPSC’s methodology would result in an inequitable windfall to the other Utility operating companies and, therefore, concluded that any payments by Entergy Arkansas should be reduced by 20%.August 2013. The LPSC, the APSC, the City Council, and FERC staff filed briefs on exceptions and/or briefs opposing exceptions. Entergy filed a brief on exceptions requesting that the FERC reverse the initial decision and a brief opposing certain exceptions taken by the LPSC and FERC staff.
Entergy Arkansas, Inc. and Subsidiaries
Management’s Financial Discussion and Analysis
In April 2016 the FERC issued orders addressing requests for rehearing filed in July 2012 and the ALJ’s August 2013 initial decision. The first order denied Entergy’s request for rehearing and affirmed the FERC’s earlier rulings that Entergy’s original methodology for allocating energy costs to the opportunity sales was incorrect and, as a result, Entergy Arkansas must make payments to the other Utility operating companies to put them in the same position that they would have been in absent the incorrect allocation. The FERC clarified that interest should be included with the payments. The second order affirmed in part, and reversed in part, the rulings in the ALJ’s August 2013 initial decision regarding the methodology that should be used to calculate the payments Entergy Arkansas is to make to the other Utility operating companies. The FERC affirmed the ALJ’s ruling that a full re-run of intra-system bills should be performed but required that methodology be modified so that the sales have the same priority for purposes of energy allocation as joint account sales. The FERC reversed the ALJ’s decision that any payments by Entergy Arkansas should be reduced by 20%. The FERC also reversed the ALJ’s decision that adjustments to other System Agreement service schedules and excess bandwidth payments should not be taken into account when calculating the payments to be made by Entergy Arkansas. The FERC held that such adjustments and excess bandwidth payments should be taken into account but ordered further proceedings before an ALJ to address whether a cap on any reduction due to bandwidth payments was necessary and to implement the other adjustments to the calculation methodology.
In May 2016, Entergy Services filed a request for rehearing of the FERC’s April 2016 order arguing that payments made by Entergy Arkansas should be reduced as a result of the timing of the LPSC’s approval of certain contracts. Entergy Services also filed a request for clarification and/or rehearing of the FERC’s April 2016 order addressing the ALJ’s August 2013 initial decision. The APSC and the LPSC also filed requests for rehearing of the FERC’s April 2016 order. In September 2017 the FERC issued an order denying the request for rehearing on the issue
Entergy Arkansas, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
of whether any payments by Entergy Arkansas to the other Utility operating companies should be reduced due to the timing of the LPSC’s approval of Entergy Arkansas’s wholesale baseload contract with Entergy Louisiana. In November 2017 the FERC issued an order denying all of the remaining requests for rehearing of the April 2016 order. In November 2017, Entergy Services filed a petition for review in the D.C. Circuit of the FERC’s orders in the first two phases of the opportunity sales case. In December 2017 the D.C. Circuit granted Entergy Services’sServices’ request to hold the appeal in abeyance pending final resolution of the related proceeding still pending withbefore the FERC. In January 2018 the APSC and the LPSC filed separate petitions for review in the D.C. Circuit, and the D.C. Circuit consolidated the appeals with Entergy Services’sServices’ appeal and held all of the appeals in abeyance.
Pursuant to the procedural schedule established in the case, Entergy Services re-ran intra-system bills for the ten-year period 2000-2009 to quantify the effectsabeyance pending final resolution of the FERC's ruling. In Novemberrelated proceeding before the FERC.
The hearing required by the FERC’s April 2016 the LPSC submitted testimony disputing certain aspects of the calculations. A hearingorder was held in May 2017. In July 2017 the ALJ issued an initial decision concluding that Entergy Arkansas should pay $86 million plus interestaddressing whether a cap on any reduction due to bandwidth payments was necessary and whether to implement the other adjustments to the other Utility operating companies.calculation methodology. In August 2017 the Utility operating companies, the LPSC, the APSC, and FERC staff filed individual briefs on exceptions challenging various aspects of the initial decision. In September 2017 the Utility operating companies, the LPSC, the APSC, the MPSC, the City Council, and FERC staff filed separate briefs opposing exceptions taken by various parties. The case is pending before the FERC. No payments will be made or received by the Utility operating companies until the FERC issues an order reviewing the initial decision and Entergy submits a subsequent filing to comply with that order.
The effect of the FERC’s decisions thus far in the case would be that Entergy Arkansas will make payments to some or all of the other Utility operating companies. Because further proceedings will still occur in the case, the amount and recipients of payments by Entergy Arkansas are unknown at this time. Based on testimony previously submitted in the case and its assessment of the April 2016 FERC orders, in the first quarter 2016, Entergy Arkansas recorded a liability of $87 million, which includesincluded interest, for its estimated increased costs and payment to the other Utility operating companies. This estimate is subject to change depending on how the FERC resolves the issues that are still outstanding in the case, including its review of the July 2017 initial decision. Entergy Arkansas’s increased costs will be attributed to Entergy Arkansas’s retailcompanies, and wholesale businesses, and it is not probable that Entergy Arkansas will recover the wholesale portion. Entergy Arkansas, therefore, recorded a deferred fuel regulatory asset in the first quarter 2016 of approximately $75 million, which represents its estimate of the retail portion of the costs.million. Following its assessment of the course of the proceedings, including the FERC’s denial of rehearing in November 2017
Entergy Arkansas, Inc. and Subsidiaries
Management’s Financial Discussion and Analysis
described above, in the fourth quarter 2017, Entergy Arkansas recorded an additional liability of $35 million and a regulatory asset of $31 million. Because management currently expects
In October 2018 the FERC issued an order addressing the ALJ’s July 2017 initial decision. The FERC reversed the ALJ’s decision to recovercap the retail portionreduction in Entergy Arkansas’s payment to account for the increased bandwidth payments that Entergy Arkansas made to the other operating companies. The FERC also reversed the ALJ’s decision that Grand Gulf sales from January through September 2000 should be included in the calculation of Entergy Arkansas’s payment. The FERC affirmed on other grounds the ALJ’s rejection of the costs throughLPSC’s claim that certain joint account sales should be accounted for as part of the calculation of Entergy Arkansas’s payment. In November 2018 the LPSC requested rehearing of the FERC’s October 2018 decision. In December 2019 the FERC denied the LPSC’s request for rehearing.
In December 2018, Entergy made a base rate proceeding or newly proposed rider,compliance filing in response to the FERC’s October 2018 order. The compliance filing provided a final calculation of Entergy Arkansas’s payments to the other Utility operating companies, including interest. No protests were filed in response to the December 2018 compliance filing. The December 2018 compliance filing is pending FERC action. Refunds and interest in the following amounts were paid by Entergy Arkansas to the other operating companies in December 2018:
|
| | | |
| Total refunds including interest |
| Payment/(Receipt) |
| (In Millions) |
| Principal | Interest | Total |
Entergy Arkansas | $68 | $67 | $135 |
Entergy Louisiana | ($30) | ($29) | ($59) |
Entergy Mississippi | ($18) | ($18) | ($36) |
Entergy New Orleans | ($3) | ($4) | ($7) |
Entergy Texas | ($17) | ($16) | ($33) |
Entergy Arkansas previously recognized a regulatory asset is reflected as Other regulatory assetswith a balance of $116 million as of December 31, 2017.2018 for a portion of the payments due as a result of this proceeding.
Entergy Arkansas, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
In February 2019 the LPSC filed a new complaint relating to two issues that were raised in the opportunity sales proceeding, but that, in its October 2018 order, the FERC held were outside the scope of the proceeding. In March 2019, Entergy Services filed an answer and motion to dismiss the new complaint. In November 2019 the FERC issued an order denying the LPSC’s complaint. The order concluded that the settlement agreement approved by FERC in December 2015 terminating the System Agreement barred the LPSC’s new complaint.
In May 2019, Entergy Arkansas filed an application and supporting testimony with the APSC requesting approval of a special rider tariff to recover the costs of these payments from its retail customers over a 24-month period. The application requested that the APSC approve the rider to take effect within 30 days or, if suspended by the APSC as allowed by commission rule, approve the rider to take effect in the first billing cycle of the first month occurring 30 days after issuance of the APSC’s order approving the rider. In June 2019 the APSC suspended Entergy Arkansas’s tariff and granted Entergy Arkansas’s motion asking the APSC to establish the proceeding as the single designated proceeding in which interested parties may assert claims related to the appropriate retail rate treatment of the FERC’s October 2018 order and related FERC orders in the opportunity sales proceeding. In January 2020 the APSC adopted a procedural schedule with a hearing in April 2020. In January 2020 the Attorney General and Arkansas Electric Energy Consumers, Inc. filed a joint motion seeking to dismiss Entergy Arkansas’s application alleging that the APSC, in a prior proceeding, ruled on the issues addressed in the application and determined that Entergy Arkansas’s requested relief violates the filed rate doctrine and the prohibition against retroactive ratemaking. Entergy Arkansas responded to the joint motion in February 2020 rebutting these arguments, including demonstrating that the claims in this proceeding differ substantially from those the APSC addressed previously and that the payment resulting from a FERC tariff violation for which Entergy Arkansas seeks retail cost recovery in this proceeding differs materially from the refunds resulting from a FERC tariff amendment that the APSC previously rejected on filed rate doctrine and the retroactive ratemaking grounds. In addition, in January 2020 the Attorney General and Arkansas Electric Energy Consumers, Inc. filed testimony opposing the recovery by Entergy Arkansas of the opportunity sales payment but also claiming that certain components of the payment should be segregated and refunded to customers.
Net Metering Legislation
An Arkansas law was enacted effective July 2019 that, among other things, expands the definition of a “net metering customer” to include two additional types of customers: (1) customers that lease net metering facilities, subject to certain leasing arrangements, and (2) government entities or other entities exempt from state and federal income taxes that enter into a service contract for a net metering facility. The latter provision would allow eligible entities, many of whom are small and large general service customers, to purchase renewable energy directly from third party providers and receive bill credits for these purchases. The APSC was given authority under this law to address certain matters, such as cost shifting and the appropriate compensation for net metered energy, and has initiated proceedings for this purpose. Because of the size and number of customers eligible under this new law, there is a risk of loss of load and the shifting of costs to customers. A hearing was held in December 2019, with utilities, cooperatives, the Arkansas Attorney General, industrial customers, and Entergy Arkansas advocating the need for establishment of a reasonable rate structure that takes into account impacts to non-net metering customers. Separately, as directed by the APSC general staff, the APSC opened a proceeding to compel utilities to amend their net metering tariffs to incorporate the provisions of the legislation that the APSC general staff considered “black letter law.” Entergy Arkansas, the Arkansas Attorney General, and other intervenors opposed this directive pending the development of the rules for implementation that are being considered in the separate net metering rulemaking docket. Nevertheless, reserving its rights, Entergy Arkansas has complied with the directive to amend its tariffs. Asserting procedural and due process violations, in January 2020, Entergy Arkansas and the Arkansas Attorney General separately appealed certain APSC orders in this proceeding.
Federal Regulation
See the “Rate, Cost-recovery, and Other Regulation– Federal Regulation” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis and Note 2 to the financial statements for a discussion of federal regulation.
Entergy Arkansas, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
Nuclear Matters
Entergy Arkansas owns and, through an affiliate, operates the ANO 1 and ANO 2 nuclear power plants. Entergy Arkansas is, therefore, subject to the risks related to owning and operating nuclear plants. These include risks related to: the use, storage, and handling and disposal of high-level and low-level radioactive materials; the substantial financial requirements, both for capital investments and operational needs, to position Entergy’s nuclear fleet to meet its operational goals, including the financial requirements to address emerging issues like stress corrosion cracking of certain materials within the plant systems and the Fukushima event; regulatory requirements and potential future regulatory changes, including changes affecting the regulations governing nuclear plant ownership, operations, license renewal and amendments, and decommissioning; the performance and capacity factors of these nuclear plants; the availability of interim or permanent sites for the disposal of spent nuclear fuel and nuclear waste, including the fees charged for such disposal; the sufficiency of nuclear decommissioning trust fund assets and earnings to complete decommissioning of each site when required; and limitations on the amounts and types of insurance commercially available for losses in connection with nuclear plant operations and catastrophic events such as a nuclear accident. In the event of an unanticipated early shutdown of either ANO 1 or ANO 2, Entergy Arkansas may be required to file with the APSC a rate mechanism to provide additional funds or credit support to satisfy regulatory requirements for decommissioning. ANO 1’s operating license expires in 2034 and ANO 2’s operating license expires in 2038.
See Note 8 to the financial statements for discussion of the NRC’s decision in March 2015 to move ANO into the “multiple/repetitive degraded cornerstone column,” or Column 4, of the NRC’s Reactor Oversight Process Action Matrix, and the resulting significant additional NRC inspection activities at the ANO site.
Environmental Risks
Entergy Arkansas’s facilities and operations are subject to regulation by various governmental authorities having jurisdiction over air quality, water quality, control of toxic substances and hazardous and solid wastes, and other environmental matters. Management believes that Entergy Arkansas is in substantial compliance with environmental regulations currently applicable to its facilities and operations, with reference to possible exceptions noted in “Regulation of Entergy’s Business - Environmental Regulation” in Part I, Item 1. Because environmental regulations are subject to change, future compliance costs cannot be precisely estimated.
Critical Accounting Estimates
The preparation of Entergy Arkansas’s financial statements in conformity with generally accepted accounting principles requires management to apply appropriate accounting policies and to make estimates and judgments that can have a significant effect on reported financial position, results of operations, and cash flows. Management has identified the following accounting policies and estimates as critical because they are based on assumptions and measurements that involve a high degree of uncertainty, and the potential for future changes in the assumptions and measurements that could produce estimates that would have a material effect on the presentation of Entergy Arkansas’s financial position or results of operations.
In the first quarter 2019, Entergy Arkansas Inc.recorded a revision to its estimated decommissioning cost liabilities for ANO 1 and SubsidiariesANO 2 as a result of a revised decommissioning cost study. The revised estimates resulted in a $126.2 million increase in its decommissioning cost liabilities, along with corresponding increases in the related asset retirement cost assets that will be depreciated over the remaining lives of the units.
Management’s Financial Discussion and Analysis
Nuclear Decommissioning Costs
See “Nuclear Decommissioning Costs” in the “Critical Accounting Estimates” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for discussion of the estimates inherent in accounting for nuclear decommissioning costs.
Utility Regulatory Accounting
See “Utility Regulatory Accounting” in the “Critical Accounting Estimates” section of Entergy Corporation
Entergy Arkansas, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
and Subsidiaries Management’s Financial Discussion and Analysis for discussion of accounting for the effects of rate regulation.
Unbilled Revenue
See “Unbilled Revenue” in the “Critical Accounting Estimates” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for discussion of the estimates associated with the unbilled revenue amounts.
Impairment of Long-lived Assets and Trust Fund Investments
See “Impairment of Long-lived Assets and Trust Fund Investments” in the “Critical Accounting Estimates” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for discussion of the estimates associated with the impairment of long-lived assets and trust fund investments.
Taxation and Uncertain Tax Positions
See “Taxation and Uncertain Tax Positions” in the “Critical Accounting Estimates” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for further discussion.
Qualified Pension and Other Postretirement Benefits
Entergy Arkansas’s qualified pension and other postretirement reported costs, as described in Note 11 to the financial statements, are impacted by numerous factors including the provisions of the plans, changing employee demographics, and various actuarial calculations, assumptions, and accounting mechanisms. See the “Qualified Pension and Other Postretirement Benefits” in the “Critical Accounting Estimates” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for further discussion. Because of the complexity of these calculations, the long-term nature of these obligations, and the importance of the assumptions utilized, Entergy’s estimate of these costs is a critical accounting estimate.
Costs and Sensitivities
The following chart reflects the sensitivity of qualified pension cost and qualified projected benefit obligation to changes in certain actuarial assumptions (dollars in thousands).
| | Actuarial Assumption | | Change in Assumption | | Impact on 2018 Qualified Pension Cost | | Impact on 2017 Qualified Projected Benefit Obligation | | Change in Assumption | | Impact on 2020 Qualified Pension Cost | | Impact on 2019 Qualified Projected Benefit Obligation |
| | | | Increase/(Decrease) | | | | | | Increase/(Decrease) | | |
Discount rate | | (0.25%) | | $3,107 | | $47,040 | | (0.25%) | | $2,633 | | $43,030 |
Rate of return on plan assets | | (0.25%) | | $2,914 | | $- | | (0.25%) | | $2,803 | | $— |
Rate of increase in compensation | | 0.25% | | $1,353 | | $6,446 | | 0.25% | | $1,650 | | $7,967 |
Entergy Arkansas, Inc. and Subsidiaries
Management’s Financial Discussion and Analysis
The following chart reflects the sensitivity of postretirement benefit cost and accumulated postretirement benefit obligation to changes in certain actuarial assumptions (dollars in thousands).
| | Actuarial Assumption | | Change in Assumption | | Impact on 2018 Postretirement Benefit Cost | | Impact on 2017 Accumulated Postretirement Benefit Obligation | | Change in Assumption | | Impact on 2020 Postretirement Benefit Cost | | Impact on 2019 Accumulated Postretirement Benefit Obligation |
| | | | Increase/(Decrease) | | | | | | Increase/(Decrease) | | |
Discount rate | | (0.25%) | | $506 | |
| $7,552 |
| | (0.25%) | | $343 | | $5,316 |
Health care cost trend | | 0.25% | | $782 | |
| $5,513 |
| | 0.25% | | $430 | | $3,474 |
Each fluctuation above assumes that the other components of the calculation are held constant.
Entergy Arkansas, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
Costs and FundingEmployer Contributions
Total qualified pension cost for Entergy Arkansas in 20172019 was $37$44.4 million. Entergy Arkansas anticipates 20182020 qualified pension cost to be $43 million. In 2016, Entergy Arkansas refined its approach to estimating the service cost and interest cost components of qualified pension costs, which had the effect of lowering qualified pension costs by $13.3$61.1 million. Entergy Arkansas contributed $79.6$75.9 million to its qualified pension planplans in 20172019 and estimates pension contributions will be approximately $64.1$32.5 million in 2018,2020, although the 20182020 required pension contributions will be known with more certainty when the January 1, 20182020 valuations are completed, which is expected by April 1, 2018.2020.
Total other postretirement health care and life insurance benefit income for Entergy Arkansas in 20172019 was $4$10.7 million. Entergy Arkansas expects 20182020 postretirement health care and life insurance benefit income of approximately $10.2 million. In 2016, Entergy Arkansas refined its approach to estimating the service cost and interest cost components of other postretirement costs, which had the effect of lowering qualified other postretirement costs by $2.5$12.5 million. Entergy Arkansas contributed $695 thousand$1.3 million to its other postretirement plans in 20172019 and estimates 20182020 contributions will be approximately $472$509 thousand.
Federal Healthcare LegislationOther Contingencies
See “Qualified Pension and Other Postretirement Benefits -Federal Healthcare LegislationContingencies” in the “Critical Accounting Estimates” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for a discussion of Federal Healthcare Legislation.
Other Contingencies
See “Other Contingencies” in the “Critical Accounting Estimates” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for a discussion of the estimates associated with environmental, litigation, and other risks.
New Accounting Pronouncements
See “New Accounting Pronouncements” section of Note 1 to the financial statements for a discussion of new accounting pronouncements.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholdersmember and Board of Directors of
Entergy Arkansas, Inc.LLC and Subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Entergy Arkansas, Inc.LLC and Subsidiaries (the “Company”) as of December 31, 20172019 and 2016,2018, the related consolidated statements of income, cash flows and changes in commonmember’s equity (pages 319317 through 324322 and applicable items in pages 5549 through 230)236), for each of the three years in the period ended December 31, 2017,2019, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20172019 and 2016,2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017,2019, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ DELOITTE & TOUCHE LLP
New Orleans, Louisiana
February 26, 201821, 2020
We have served as the Company’s auditor since 2001.
| | ENTERGY ARKANSAS, INC. AND SUBSIDIARIES | |
ENTERGY ARKANSAS, LLC AND SUBSIDIARIES | | ENTERGY ARKANSAS, LLC AND SUBSIDIARIES |
CONSOLIDATED INCOME STATEMENTS | | | | | |
| | For the Years Ended December 31, | | For the Years Ended December 31, |
| | 2017 | | 2016 | | 2015 | | 2019 | | 2018 | | 2017 |
| | (In Thousands) | | (In Thousands) |
| | | | | | | | | | | | |
OPERATING REVENUES | | | | | | | | | | | | |
Electric | |
| $2,139,919 |
| |
| $2,086,608 |
| |
| $2,253,564 |
| |
| $2,259,594 |
| |
| $2,060,643 |
| |
| $2,139,919 |
|
| | | | | | | | | | | | |
OPERATING EXPENSES | | |
| | |
| | |
| | |
| | |
| | |
|
Operation and Maintenance: | | |
| | |
| | |
| | |
| | |
| | |
|
Fuel, fuel-related expenses, and gas purchased for resale | | 402,777 |
| | 325,036 |
| | 535,919 |
| | 458,907 |
| | 517,245 |
| | 402,777 |
|
Purchased power | | 230,652 |
| | 233,350 |
| | 380,081 |
| | 204,640 |
| | 252,390 |
| | 230,652 |
|
Nuclear refueling outage expenses | | 83,968 |
| | 56,650 |
| | 51,411 |
| | 68,769 |
| | 77,915 |
| | 83,968 |
|
Other operation and maintenance | | 707,825 |
| | 706,573 |
| | 734,118 |
| | 720,217 |
| | 724,831 |
| | 694,157 |
|
Decommissioning | | 56,860 |
| | 53,610 |
| | 50,414 |
| | 68,030 |
| | 60,420 |
| | 56,860 |
|
Taxes other than income taxes | | 103,662 |
| | 93,109 |
| | 99,926 |
| | 115,869 |
| | 104,771 |
| | 103,662 |
|
Depreciation and amortization | | 277,146 |
| | 264,215 |
| | 246,897 |
| | 307,351 |
| | 292,649 |
| | 277,146 |
|
Other regulatory charges (credits) - net | | (16,074 | ) | | 7,737 |
| | (24,608 | ) | |
Other regulatory credits - net | | | (11,186 | ) | | (14,807 | ) | | (16,074 | ) |
TOTAL | | 1,846,816 |
| | 1,740,280 |
| | 2,074,158 |
| | 1,932,597 |
| | 2,015,414 |
| | 1,833,148 |
|
| | | | | | | | | | | | |
OPERATING INCOME | | 293,103 |
| | 346,328 |
| | 179,406 |
| | 326,997 |
| | 45,229 |
| | 306,771 |
|
| | | | | | | | | | | | |
OTHER INCOME | | |
| | |
| | |
| | |
| | |
| | |
|
Allowance for equity funds used during construction | | 18,452 |
| | 17,099 |
| | 14,227 |
| | 15,499 |
| | 16,557 |
| | 18,452 |
|
Interest and investment income | | 35,882 |
| | 19,087 |
| | 22,382 |
| | 26,020 |
| | 25,406 |
| | 35,882 |
|
Miscellaneous - net | | (299 | ) | | (1,446 | ) | | (3,385 | ) | | (18,566 | ) | | (14,874 | ) | | (13,967 | ) |
TOTAL | | 54,035 |
| | 34,740 |
| | 33,224 |
| | 22,953 |
| | 27,089 |
| | 40,367 |
|
| | | | | | | | | | | | |
INTEREST EXPENSE | | |
| | |
| | |
| | |
| | |
| | |
|
Interest expense | | 122,075 |
| | 115,311 |
| | 105,622 |
| | 140,087 |
| | 124,459 |
| | 122,075 |
|
Allowance for borrowed funds used during construction | | (8,585 | ) | | (9,228 | ) | | (7,805 | ) | | (6,332 | ) | | (7,781 | ) | | (8,585 | ) |
TOTAL | | 113,490 |
| | 106,083 |
| | 97,817 |
| | 133,755 |
| | 116,678 |
| | 113,490 |
|
| | | | | | | | | | | | |
INCOME BEFORE INCOME TAXES | | 233,648 |
| | 274,985 |
| | 114,813 |
| |
INCOME (LOSS) BEFORE INCOME TAXES | | | 216,195 |
| | (44,360 | ) | | 233,648 |
|
| | | | | | | | | | | | |
Income taxes | | 93,804 |
| | 107,773 |
| | 40,541 |
| | (46,769 | ) | | (297,067 | ) | | 93,804 |
|
| | | | | | | | | | | | |
NET INCOME | | 139,844 |
| | 167,212 |
| | 74,272 |
| | 262,964 |
| | 252,707 |
| | 139,844 |
|
| | | | | | | | | | | | |
Preferred dividend requirements | | 1,428 |
| | 5,270 |
| | 6,873 |
| | — |
| | 1,249 |
| | 1,428 |
|
| | | | | | | | | | | | |
EARNINGS APPLICABLE TO COMMON STOCK | |
| $138,416 |
| |
| $161,942 |
| |
| $67,399 |
| |
EARNINGS APPLICABLE TO COMMON EQUITY | | |
| $262,964 |
| |
| $251,458 |
| |
| $138,416 |
|
| | | | | | | | | | | | |
See Notes to Financial Statements. | | |
| | |
| | |
| | |
| | |
| | |
|
(Page left blank intentionally)
|
| | | | | | | | | | | | |
ENTERGY ARKANSAS, INC. AND SUBSIDIARIES |
CONSOLIDATED STATEMENTS OF CASH FLOWS |
|
|
|
|
| For the Years Ended December 31, |
|
| 2017 |
| 2016 |
| 2015 |
|
| (In Thousands) |
OPERATING ACTIVITIES | | | | | | |
Net income | |
| $139,844 |
| |
| $167,212 |
| |
| $74,272 |
|
Adjustments to reconcile net income to net cash flow provided by operating activities: | | | | | | |
Depreciation, amortization, and decommissioning, including nuclear fuel amortization | | 427,394 |
| | 414,933 |
| | 400,156 |
|
Deferred income taxes, investment tax credits, and non-current taxes accrued | | 67,711 |
| | 201,219 |
| | (4,330 | ) |
Changes in assets and liabilities: | | |
| | |
| | |
|
Receivables | | (23,397 | ) | | (39,118 | ) | | 20,813 |
|
Fuel inventory | | 3,402 |
| | 29,929 |
| | (11,791 | ) |
Accounts payable | | 16,011 |
| | 143,645 |
| | (2,528 | ) |
Prepaid taxes and taxes accrued | | 40,127 |
| | 37,485 |
| | (54,531 | ) |
Interest accrued | | 1,635 |
| | (3,303 | ) | | (367 | ) |
Deferred fuel costs | | 33,190 |
| | (105,741 | ) | | 151,332 |
|
Other working capital accounts | | 15,087 |
| | (46,490 | ) | | (44,784 | ) |
Provisions for estimated losses | | 16,047 |
| | 13,130 |
| | (137 | ) |
Other regulatory assets | | (76,762 | ) | | (95,464 | ) | | 60,279 |
|
Other regulatory liabilities | | 1,043,507 |
| | 62,994 |
| | (11,123 | ) |
Deferred tax rate change recognized as regulatory liability/asset | | (1,047,837 | ) | | — |
| | — |
|
Pension and other postretirement liabilities | | (70,826 | ) | | (36,805 | ) | | (110,936 | ) |
Other assets and liabilities | | (29,577 | ) | | (67,115 | ) | | 8,565 |
|
Net cash flow provided by operating activities | | 555,556 |
| | 676,511 |
| | 474,890 |
|
INVESTING ACTIVITIES | | |
| | |
| | |
|
Construction expenditures | | (735,816 | ) | | (666,289 | ) | | (624,546 | ) |
Allowance for equity funds used during construction | | 19,211 |
| | 17,754 |
| | 15,882 |
|
Nuclear fuel purchases | | (151,424 | ) | | (102,050 | ) | | (132,252 | ) |
Proceeds from sale of nuclear fuel | | 51,029 |
| | 39,313 |
| | 52,281 |
|
Proceeds from nuclear decommissioning trust fund sales | | 339,434 |
| | 197,390 |
| | 212,954 |
|
Investment in nuclear decommissioning trust funds | | (352,138 | ) | | (213,093 | ) | | (223,357 | ) |
Payment for purchase of plant | | — |
| | (237,323 | ) | | — |
|
Changes in money pool receivable - net | | — |
| | — |
| | 2,218 |
|
Insurance proceeds | | — |
| | 10,404 |
| | 11,654 |
|
Other | | 392 |
| | 5,899 |
| | (108 | ) |
Net cash flow used in investing activities | | (829,312 | ) |
| (947,995 | ) |
| (685,274 | ) |
FINANCING ACTIVITIES | | |
| | |
| | |
|
Proceeds from the issuance of long-term debt | | 294,656 |
| | 817,563 |
| | — |
|
Retirement of long-term debt | | (175,560 | ) | | (628,433 | ) | | (13,234 | ) |
Capital contribution from parent | | — |
| | 200,000 |
| | — |
|
Redemption of preferred stock | | — |
| | (85,283 | ) | | — |
|
Change in money pool payable - net | | 114,905 |
| | (1,510 | ) | | 52,742 |
|
Changes in short-term borrowings - net | | 49,974 |
| | (11,690 | ) | | (36,278 | ) |
Dividends paid: | | |
| | |
| | |
|
Common stock | | (15,000 | ) | | — |
| | — |
|
Preferred stock | | (1,428 | ) | | (6,631 | ) | | (6,873 | ) |
Other | | (8,084 | ) | | (1,158 | ) | | 4,657 |
|
Net cash flow provided by financing activities | | 259,463 |
| | 282,858 |
| | 1,014 |
|
Net increase (decrease) in cash and cash equivalents | | (14,293 | ) | | 11,374 |
| | (209,370 | ) |
Cash and cash equivalents at beginning of period | | 20,509 |
| | 9,135 |
| | 218,505 |
|
Cash and cash equivalents at end of period | |
| $6,216 |
| |
| $20,509 |
| |
| $9,135 |
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | | | | |
| | |
|
Cash paid (received) during the period for: | | |
| | |
| | |
|
Interest - net of amount capitalized | |
| $115,162 |
| |
| $112,912 |
| |
| $100,435 |
|
Income taxes | |
| ($8,141 | ) | |
| ($135,709 | ) | |
| $103,296 |
|
See Notes to Financial Statements. |
| |
|
| |
|
| |
|
|
| | | | | | | | |
ENTERGY ARKANSAS, INC. AND SUBSIDIARIES |
CONSOLIDATED BALANCE SHEETS |
ASSETS |
| | |
| | December 31, |
| | 2017 | | 2016 |
| | (In Thousands) |
| | | | |
CURRENT ASSETS | | | | |
Cash and cash equivalents: | | | | |
Cash | |
| $6,184 |
| |
| $20,174 |
|
Temporary cash investments | | 32 |
| | 335 |
|
Total cash and cash equivalents | | 6,216 |
| | 20,509 |
|
Securitization recovery trust account | | 3,748 |
| | 4,140 |
|
Accounts receivable: | | |
| | |
|
Customer | | 110,016 |
| | 102,229 |
|
Allowance for doubtful accounts | | (1,063 | ) | | (1,211 | ) |
Associated companies | | 38,765 |
| | 35,286 |
|
Other | | 65,209 |
| | 58,153 |
|
Accrued unbilled revenues | | 105,120 |
| | 100,193 |
|
Total accounts receivable | | 318,047 |
| | 294,650 |
|
Deferred fuel costs | | 63,302 |
| | 96,690 |
|
Fuel inventory - at average cost | | 29,358 |
| | 32,760 |
|
Materials and supplies - at average cost | | 192,853 |
| | 182,600 |
|
Deferred nuclear refueling outage costs | | 56,485 |
| | 81,313 |
|
Prepayments and other | | 12,108 |
| | 14,293 |
|
TOTAL | | 682,117 |
| | 726,955 |
|
| | | | |
OTHER PROPERTY AND INVESTMENTS | | |
| | |
|
Decommissioning trust funds | | 944,890 |
| | 834,735 |
|
Other | | 3,160 |
| | 7,912 |
|
TOTAL | | 948,050 |
| | 842,647 |
|
| | | | |
UTILITY PLANT | | |
| | |
|
Electric | | 11,059,538 |
| | 10,488,060 |
|
Property under capital lease | | — |
| | 716 |
|
Construction work in progress | | 280,888 |
| | 304,073 |
|
Nuclear fuel | | 277,345 |
| | 307,352 |
|
TOTAL UTILITY PLANT | | 11,617,771 |
| | 11,100,201 |
|
Less - accumulated depreciation and amortization | | 4,762,352 |
| | 4,635,885 |
|
UTILITY PLANT - NET | | 6,855,419 |
| | 6,464,316 |
|
| | | | |
DEFERRED DEBITS AND OTHER ASSETS | | |
| | |
|
Regulatory assets: | | |
| | |
|
Regulatory asset for income taxes - net | | — |
| | 62,646 |
|
Other regulatory assets (includes securitization property of $28,583 as of December 31, 2017 and $41,164 as of December 31, 2016) | | 1,567,437 |
| | 1,428,029 |
|
Deferred fuel costs | | 67,096 |
| | 66,898 |
|
Other | | 13,910 |
| | 14,626 |
|
TOTAL | | 1,648,443 |
| | 1,572,199 |
|
| | | | |
TOTAL ASSETS | |
| $10,134,029 |
| |
| $9,606,117 |
|
| | | | |
See Notes to Financial Statements. | | |
| | |
|
|
| | | | | | | | | | | | |
ENTERGY ARKANSAS, LLC AND SUBSIDIARIES |
CONSOLIDATED STATEMENTS OF CASH FLOWS |
|
|
|
|
| For the Years Ended December 31, |
|
| 2019 |
| 2018 |
| 2017 |
|
| (In Thousands) |
OPERATING ACTIVITIES | | | | | | |
Net income | |
| $262,964 |
| |
| $252,707 |
| |
| $139,844 |
|
Adjustments to reconcile net income to net cash flow provided by operating activities: | | | | | | |
Depreciation, amortization, and decommissioning, including nuclear fuel amortization | | 465,299 |
| | 443,698 |
| | 427,394 |
|
Deferred income taxes, investment tax credits, and non-current taxes accrued | | 94,368 |
| | 129,524 |
| | 67,711 |
|
Changes in assets and liabilities: | | |
| | |
| | |
|
Receivables | | (58,077 | ) | | 4,294 |
| | (23,397 | ) |
Fuel inventory | | (10,597 | ) | | 6,210 |
| | 3,402 |
|
Accounts payable | | 3,059 |
| | (126,405 | ) | | 16,011 |
|
Prepaid taxes and taxes accrued | | 24,942 |
| | 9,568 |
| | 40,127 |
|
Interest accrued | | 3,895 |
| | 678 |
| | 1,635 |
|
Deferred fuel costs | | 72,560 |
| | 43,869 |
| | 33,190 |
|
Other working capital accounts | | 18,783 |
| | (30,118 | ) | | 15,087 |
|
Provisions for estimated losses | | 14,901 |
| | 14,250 |
| | 16,047 |
|
Other regulatory assets | | (131,873 | ) | | 32,460 |
| | (76,762 | ) |
Other regulatory liabilities | | 39,293 |
| | (341,682 | ) | | 1,043,507 |
|
Deferred tax rate change recognized as regulatory liability/asset | | — |
| | — |
| | (1,047,837 | ) |
Pension and other postretirement liabilities | | 5,831 |
| | (40,157 | ) | | (70,826 | ) |
Other assets and liabilities | | (127,582 | ) | | (187,071 | ) | | (29,577 | ) |
Net cash flow provided by operating activities | | 677,766 |
| | 211,825 |
| | 555,556 |
|
INVESTING ACTIVITIES | | |
| | |
| | |
|
Construction expenditures | | (641,525 | ) | | (660,044 | ) | | (735,816 | ) |
Allowance for equity funds used during construction | | 15,306 |
| | 17,013 |
| | 19,211 |
|
Nuclear fuel purchases | | (54,344 | ) | | (99,417 | ) | | (151,424 | ) |
Proceeds from sale of nuclear fuel | | 22,782 |
| | 54,810 |
| | 51,029 |
|
Proceeds from nuclear decommissioning trust fund sales | | 317,377 |
| | 300,801 |
| | 339,434 |
|
Investment in nuclear decommissioning trust funds | | (336,519 | ) | | (315,163 | ) | | (352,138 | ) |
Insurance proceeds | | — |
| | 14,790 |
| | — |
|
Other | | 630 |
| | (1,517 | ) | | 392 |
|
Net cash flow used in investing activities | | (676,293 | ) |
| (688,727 | ) |
| (829,312 | ) |
FINANCING ACTIVITIES | | |
| | |
| | |
|
Proceeds from the issuance of long-term debt | | 834,038 |
| | 958,434 |
| | 294,656 |
|
Retirement of long-term debt | | (548,952 | ) | | (690,488 | ) | | (175,560 | ) |
Capital contribution from parent | | — |
| | 350,000 |
| | — |
|
Redemption of preferred stock | | — |
| | (32,660 | ) | | — |
|
Change in money pool payable - net | | (161,104 | ) | | 16,601 |
| | 114,905 |
|
Changes in short-term borrowings - net | | — |
| | (49,974 | ) | | 49,974 |
|
Distributions/dividends paid: | | |
| | |
| | |
|
Common equity | | (115,000 | ) | | (91,751 | ) | | (15,000 | ) |
Preferred stock | | — |
| | (1,606 | ) | | (1,428 | ) |
Other | | (7,055 | ) | | 12,249 |
| | (8,084 | ) |
Net cash flow provided by financing activities | | 1,927 |
| | 470,805 |
| | 259,463 |
|
Net increase (decrease) in cash and cash equivalents | | 3,400 |
| | (6,097 | ) | | (14,293 | ) |
Cash and cash equivalents at beginning of period | | 119 |
| | 6,216 |
| | 20,509 |
|
Cash and cash equivalents at end of period | |
| $3,519 |
| |
| $119 |
| |
| $6,216 |
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | | | | |
| | |
|
Cash paid (received) during the period for: | | |
| | |
| | |
|
Interest - net of amount capitalized | |
| $131,134 |
| |
| $118,731 |
| |
| $115,162 |
|
Income taxes | |
| ($33,989 | ) | |
| $44,393 |
| |
| ($8,141 | ) |
See Notes to Financial Statements. |
| |
|
| |
|
| |
|
|
| | | | | | | | |
ENTERGY ARKANSAS, INC. AND SUBSIDIARIES |
CONSOLIDATED BALANCE SHEETS |
LIABILITIES AND EQUITY |
| | |
| | December 31, |
| | 2017 | | 2016 |
| | (In Thousands) |
| | | | |
CURRENT LIABILITIES | | | | |
Currently maturing long-term debt | |
| $— |
| |
| $114,700 |
|
Short-term borrowings | | 49,974 |
| | — |
|
Accounts payable: | | |
| | |
|
Associated companies | | 365,915 |
| | 239,711 |
|
Other | | 215,942 |
| | 185,153 |
|
Customer deposits | | 97,687 |
| | 97,512 |
|
Taxes accrued | | 47,321 |
| | 7,194 |
|
Interest accrued | | 18,215 |
| | 16,580 |
|
Other | | 29,922 |
| | 36,557 |
|
TOTAL | | 824,976 |
| | 697,407 |
|
| | | | |
NON-CURRENT LIABILITIES | | |
| | |
|
Accumulated deferred income taxes and taxes accrued | | 1,190,669 |
| | 2,186,623 |
|
Accumulated deferred investment tax credits | | 34,104 |
| | 35,305 |
|
Regulatory liability for income taxes - net | | 985,823 |
| | — |
|
Other regulatory liabilities | | 363,591 |
| | 305,907 |
|
Decommissioning | | 981,213 |
| | 924,353 |
|
Accumulated provisions | | 34,729 |
| | 18,682 |
|
Pension and other postretirement liabilities | | 353,274 |
| | 424,234 |
|
Long-term debt (includes securitization bonds of $34,662 as of December 31, 2017 and $48,139 as of December 31, 2016) | | 2,952,399 |
| | 2,715,085 |
|
Other | | 5,147 |
| | 13,854 |
|
TOTAL | | 6,900,949 |
| | 6,624,043 |
|
| | | | |
Commitments and Contingencies | |
|
| |
|
|
| | | | |
Preferred stock without sinking fund | | 31,350 |
| | 31,350 |
|
| | | | |
COMMON EQUITY | | |
| | |
|
Common stock, $0.01 par value, authorized 325,000,000 shares; issued and outstanding 46,980,196 shares in 2017 and 2016 | | 470 |
| | 470 |
|
Paid-in capital | | 790,264 |
| | 790,243 |
|
Retained earnings | | 1,586,020 |
| | 1,462,604 |
|
TOTAL | | 2,376,754 |
| | 2,253,317 |
|
| | | | |
TOTAL LIABILITIES AND EQUITY | |
| $10,134,029 |
| |
| $9,606,117 |
|
| | | | |
See Notes to Financial Statements. | | |
| | |
|
|
| | | | | | | | |
ENTERGY ARKANSAS, LLC AND SUBSIDIARIES |
CONSOLIDATED BALANCE SHEETS |
ASSETS |
| | |
| | December 31, |
| | 2019 | | 2018 |
| | (In Thousands) |
| | | | |
CURRENT ASSETS | | | | |
Cash and cash equivalents: | | | | |
Cash | |
| $3,519 |
| |
| $118 |
|
Temporary cash investments | | — |
| | 1 |
|
Total cash and cash equivalents | | 3,519 |
| | 119 |
|
Securitization recovery trust account | | 4,036 |
| | 4,666 |
|
Accounts receivable: | | |
| | |
|
Customer | | 117,679 |
| | 94,348 |
|
Allowance for doubtful accounts | | (1,169 | ) | | (1,264 | ) |
Associated companies | | 29,178 |
| | 48,184 |
|
Other | | 117,653 |
| | 64,393 |
|
Accrued unbilled revenues | | 108,489 |
| | 108,092 |
|
Total accounts receivable | | 371,830 |
| | 313,753 |
|
Deferred fuel costs | | — |
| | 19,235 |
|
Fuel inventory - at average cost | | 33,745 |
| | 23,148 |
|
Materials and supplies - at average cost | | 211,320 |
| | 196,314 |
|
Deferred nuclear refueling outage costs | | 48,875 |
| | 78,966 |
|
Prepayments and other | | 14,096 |
| | 14,553 |
|
TOTAL | | 687,421 |
| | 650,754 |
|
| | | | |
OTHER PROPERTY AND INVESTMENTS | | |
| | |
|
Decommissioning trust funds | | 1,101,283 |
| | 912,049 |
|
Other | | 345 |
| | 5,480 |
|
TOTAL | | 1,101,628 |
| | 917,529 |
|
| | | | |
UTILITY PLANT | | |
| | |
|
Electric | | 12,293,483 |
| | 11,611,041 |
|
Construction work in progress | | 197,775 |
| | 243,731 |
|
Nuclear fuel | | 195,547 |
| | 220,602 |
|
TOTAL UTILITY PLANT | | 12,686,805 |
| | 12,075,374 |
|
Less - accumulated depreciation and amortization | | 5,019,826 |
| | 4,864,818 |
|
UTILITY PLANT - NET | | 7,666,979 |
| | 7,210,556 |
|
| | | | |
DEFERRED DEBITS AND OTHER ASSETS | | |
| | |
|
Regulatory assets: | | |
| | |
|
Other regulatory assets (includes securitization property of $1,706 as of December 31, 2019 and $14,329 as of December 31, 2018) | | 1,666,850 |
| | 1,534,977 |
|
Deferred fuel costs | | 67,690 |
| | 67,294 |
|
Other | | 15,065 |
| | 20,486 |
|
TOTAL | | 1,749,605 |
| | 1,622,757 |
|
| | | | |
TOTAL ASSETS | |
| $11,205,633 |
| |
| $10,401,596 |
|
| | | | |
See Notes to Financial Statements. | | |
| | |
|
|
| | | | | | | | | | | | | | | | |
ENTERGY ARKANSAS, INC. AND SUBSIDIARIES |
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON EQUITY |
For the Years Ended December 31, 2017, 2016, and 2015 |
| | | | |
| | Common Equity | | |
| | Common Stock | | Paid-in Capital | | Retained Earnings | | Total |
| | (In Thousands) | | |
| | | | | | | | |
Balance at December 31, 2014 | |
| $470 |
| |
| $588,471 |
| |
| $1,235,296 |
| |
| $1,824,237 |
|
Net income | | — |
| | — |
| | 74,272 |
| | 74,272 |
|
Preferred stock dividends | | — |
| | — |
| | (6,873 | ) | | (6,873 | ) |
Other | | — |
| | 22 |
| | — |
| | 22 |
|
Balance at December 31, 2015 | |
| $470 |
| |
| $588,493 |
| |
| $1,302,695 |
| |
| $1,891,658 |
|
Net income | | — |
| | — |
| | 167,212 |
| | 167,212 |
|
Capital contributions from parent | | — |
| | 200,000 |
| | — |
| | 200,000 |
|
Capital stock redemption | | — |
| | 1,750 |
| | (2,033 | ) | | (283 | ) |
Preferred stock dividends | | — |
| | — |
| | (5,270 | ) | | (5,270 | ) |
Balance at December 31, 2016 | |
| $470 |
| |
| $790,243 |
| |
| $1,462,604 |
| |
| $2,253,317 |
|
Net income | | — |
| | — |
| | 139,844 |
| | 139,844 |
|
Common stock dividends | | — |
| | — |
| | (15,000 | ) | | (15,000 | ) |
Preferred stock dividends | | — |
| | — |
| | (1,428 | ) | | (1,428 | ) |
Other | | — |
| | 21 |
| | — |
| | 21 |
|
Balance at December 31, 2017 | |
| $470 |
| |
| $790,264 |
| |
| $1,586,020 |
| |
| $2,376,754 |
|
| | | | | | | | |
See Notes to Financial Statements. | | |
| | |
| | |
| | |
|
|
| | | | | | | | |
ENTERGY ARKANSAS, LLC AND SUBSIDIARIES |
CONSOLIDATED BALANCE SHEETS |
LIABILITIES AND EQUITY |
| | |
| | December 31, |
| | 2019 | | 2018 |
| | (In Thousands) |
| | | | |
CURRENT LIABILITIES | | | | |
Accounts payable: | | |
| | |
|
Associated companies | |
| $111,785 |
| |
| $251,768 |
|
Other | | 202,201 |
| | 187,387 |
|
Customer deposits | | 101,411 |
| | 99,053 |
|
Taxes accrued | | 81,831 |
| | 56,889 |
|
Interest accrued | | 22,788 |
| | 18,893 |
|
Deferred fuel costs | | 53,721 |
| | — |
|
Current portion of unprotected excess accumulated deferred income taxes | | 9,296 |
| | 99,316 |
|
Other | | 38,760 |
| | 23,943 |
|
TOTAL | | 621,793 |
| | 737,249 |
|
| | | | |
NON-CURRENT LIABILITIES | | |
| | |
|
Accumulated deferred income taxes and taxes accrued | | 1,183,126 |
| | 1,085,545 |
|
Accumulated deferred investment tax credits | | 31,701 |
| | 32,903 |
|
Regulatory liability for income taxes - net | | 478,174 |
| | 505,748 |
|
Other regulatory liabilities | | 559,555 |
| | 402,668 |
|
Decommissioning | | 1,242,616 |
| | 1,048,428 |
|
Accumulated provisions | | 63,880 |
| | 48,979 |
|
Pension and other postretirement liabilities | | 319,075 |
| | 313,295 |
|
Long-term debt (includes securitization bonds of $6,772 as of December 31, 2019 and $20,898 as of December 31, 2018) | | 3,517,208 |
| | 3,225,759 |
|
Other | | 62,568 |
| | 17,919 |
|
TOTAL | | 7,457,903 |
| | 6,681,244 |
|
| | | | |
Commitments and Contingencies | |
|
| |
|
|
| | | | |
EQUITY | | |
| | |
|
Member's equity | | 3,125,937 |
| | 2,983,103 |
|
TOTAL | | 3,125,937 |
| | 2,983,103 |
|
| | | | |
TOTAL LIABILITIES AND EQUITY | |
| $11,205,633 |
| |
| $10,401,596 |
|
| | | | |
See Notes to Financial Statements. | | |
| | |
|
|
| | | | | | | | | | | | | | | | | | | | |
ENTERGY ARKANSAS, INC. AND SUBSIDIARIES |
SELECTED FINANCIAL DATA - FIVE-YEAR COMPARISON |
| | | | | | | | | | |
| | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
| | (In Thousands) |
| | | | | | | | | | |
Operating revenues | |
| $2,139,919 |
| |
| $2,086,608 |
| |
| $2,253,564 |
| |
| $2,172,391 |
| |
| $2,190,159 |
|
Net income | |
| $139,844 |
| |
| $167,212 |
| |
| $74,272 |
| |
| $121,392 |
| |
| $161,948 |
|
Total assets | |
| $10,134,029 |
| |
| $9,606,117 |
| |
| $8,747,774 |
| |
| $8,777,655 |
| |
| $8,007,707 |
|
Long-term obligations (a) | |
| $2,983,749 |
| |
| $2,746,435 |
| |
| $2,691,189 |
| |
| $2,757,423 |
| |
| $2,424,969 |
|
| | | | | | | | | | |
(a) Includes long-term debt (excluding currently maturing debt) and preferred stock without sinking fund. |
| | | | | | | | | | |
| | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
| | (Dollars In Millions) |
| | | | | | | | | | |
Electric Operating Revenues: | | |
| | |
| | |
| | |
| | |
|
Residential | |
| $768 |
| |
| $789 |
| |
| $824 |
| |
| $755 |
| |
| $772 |
|
Commercial | | 495 |
| | 495 |
| | 515 |
| | 461 |
| | 469 |
|
Industrial | | 472 |
| | 446 |
| | 477 |
| | 424 |
| | 433 |
|
Governmental | | 19 |
| | 18 |
| | 20 |
| | 18 |
| | 19 |
|
Total retail | | 1,754 |
| | 1,748 |
| | 1,836 |
| | 1,658 |
| | 1,693 |
|
Sales for resale: | | |
| | |
| | |
| | |
| | |
|
Associated companies | | 128 |
| | 49 |
| | 128 |
| | 131 |
| | 346 |
|
Non-associated companies | | 121 |
| | 118 |
| | 195 |
| | 282 |
| | 83 |
|
Other | | 137 |
| | 172 |
| | 95 |
| | 101 |
| | 68 |
|
Total | |
| $2,140 |
| |
| $2,087 |
| |
| $2,254 |
| |
| $2,172 |
| |
| $2,190 |
|
| | | | | | | | | | |
Billed Electric Energy Sales (GWh): | | | | |
| | |
| | |
| | |
|
Residential | | 7,298 |
| | 7,618 |
| | 8,016 |
| | 8,070 |
| | 7,921 |
|
Commercial | | 5,825 |
| | 5,988 |
| | 6,020 |
| | 5,934 |
| | 5,929 |
|
Industrial | | 7,528 |
| | 6,795 |
| | 6,889 |
| | 6,808 |
| | 6,769 |
|
Governmental | | 237 |
| | 237 |
| | 235 |
| | 238 |
| | 241 |
|
Total retail | | 20,888 |
| | 20,638 |
| | 21,160 |
| | 21,050 |
| | 20,860 |
|
Sales for resale: | | |
| | |
| | |
| | |
| | |
|
Associated companies | | 1,782 |
| | 1,609 |
| | 2,239 |
| | 2,299 |
| | 7,918 |
|
Non-associated companies | | 6,549 |
| | 7,115 |
| | 7,980 |
| | 8,003 |
| | 1,011 |
|
Total | | 29,219 |
| | 29,362 |
| | 31,379 |
| | 31,352 |
| | 29,789 |
|
|
| | | |
ENTERGY ARKANSAS, LLC AND SUBSIDIARIES |
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBER'S EQUITY |
For the Years Ended December 31, 2019, 2018, and 2017 |
| |
| |
| Member's Equity |
| (In Thousands) |
| |
Balance at December 31, 2016 |
| $2,253,317 |
|
Net income | 139,844 |
|
Common equity distributions | (15,000 | ) |
Preferred stock dividends | (1,428 | ) |
Other | 21 |
|
Balance at December 31, 2017 |
| $2,376,754 |
|
Net income | 252,707 |
|
Capital contributions from parent | 350,000 |
|
Common equity distributions | (91,751 | ) |
Non-cash contribution from parent | 94,335 |
|
Preferred stock dividends | (1,249 | ) |
Other | 2,307 |
|
Balance at December 31, 2018 |
| $2,983,103 |
|
Net income | 262,964 |
|
Common equity distributions | (115,000 | ) |
Other | (5,130 | ) |
Balance at December 31, 2019 |
| $3,125,937 |
|
| |
See Notes to Financial Statements. | |
|
|
| | | | | | | | | | | | | | | | | | | | |
ENTERGY ARKANSAS, LLC AND SUBSIDIARIES |
SELECTED FINANCIAL DATA - FIVE-YEAR COMPARISON |
| | | | | | | | | | |
| | 2019 | | 2018 | | 2017 | | 2016 | | 2015 |
| | (In Thousands) |
| | | | | | | | | | |
Operating revenues | |
| $2,259,594 |
| |
| $2,060,643 |
| |
| $2,139,919 |
| |
| $2,086,608 |
| |
| $2,253,564 |
|
Net income | |
| $262,964 |
| |
| $252,707 |
| |
| $139,844 |
| |
| $167,212 |
| |
| $74,272 |
|
Total assets | |
| $11,205,633 |
| |
| $10,401,596 |
| |
| $10,134,029 |
| |
| $9,606,117 |
| |
| $8,747,774 |
|
Long-term obligations (a) | |
| $3,517,208 |
| |
| $3,225,759 |
| |
| $2,983,749 |
| |
| $2,746,435 |
| |
| $2,691,189 |
|
| | | | | | | | | | |
(a) Includes long-term debt (excluding currently maturing debt) and preferred stock without sinking fund. |
| | | | | | | | | | |
| | 2019 | | 2018 | | 2017 | | 2016 | | 2015 |
| | (Dollars In Millions) |
| | | | | | | | | | |
Electric Operating Revenues: | | |
| | |
| | |
| | |
| | |
|
Residential | |
| $795 |
| |
| $807 |
| |
| $768 |
| |
| $789 |
| |
| $824 |
|
Commercial | | 539 |
| | 426 |
| | 495 |
| | 495 |
| | 515 |
|
Industrial | | 521 |
| | 434 |
| | 472 |
| | 446 |
| | 477 |
|
Governmental | | 21 |
| | 17 |
| | 19 |
| | 18 |
| | 20 |
|
Total billed retail | | 1,876 |
| | 1,684 |
| | 1,754 |
| | 1,748 |
| | 1,836 |
|
Sales for resale: | | |
| | |
| | |
| | |
| | |
|
Associated companies | | 118 |
| | 104 |
| | 128 |
| | 49 |
| | 128 |
|
Non-associated companies | | 140 |
| | 145 |
| | 121 |
| | 118 |
| | 195 |
|
Other | | 126 |
| | 128 |
| | 137 |
| | 172 |
| | 95 |
|
Total | |
| $2,260 |
| |
| $2,061 |
| |
| $2,140 |
| |
| $2,087 |
| |
| $2,254 |
|
| | | | | | | | | | |
Billed Electric Energy Sales (GWh): | | | | |
| | |
| | |
| | |
|
Residential | | 7,996 |
| | 8,248 |
| | 7,298 |
| | 7,618 |
| | 8,016 |
|
Commercial | | 5,822 |
| | 5,967 |
| | 5,825 |
| | 5,988 |
| | 6,020 |
|
Industrial | | 7,759 |
| | 8,071 |
| | 7,528 |
| | 6,795 |
| | 6,889 |
|
Governmental | | 241 |
| | 239 |
| | 237 |
| | 237 |
| | 235 |
|
Total retail | | 21,818 |
| | 22,525 |
| | 20,888 |
| | 20,638 |
| | 21,160 |
|
Sales for resale: | | |
| | |
| | |
| | |
| | |
|
Associated companies | | 2,180 |
| | 1,773 |
| | 1,782 |
| | 1,609 |
| | 2,239 |
|
Non-associated companies | | 7,206 |
| | 6,447 |
| | 6,549 |
| | 7,115 |
| | 7,980 |
|
Total | | 31,204 |
| | 30,745 |
| | 29,219 |
| | 29,362 |
| | 31,379 |
|
ENTERGY LOUISIANA, LLC AND SUBSIDIARIES
MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS
Results of Operations
2019 Compared to 2018
Net Income
2017 Compared to 2016
Net income decreased $305.7increased $15.9 million primarily due to the effect of the enactment of the Tax Cuts and Jobs Act, in December 2017, which resulted in a decrease of $182.6 million in net income in 2017, and the effect of a settlement with the IRS related to the 2010-2011 IRS audit, which resulted in a $136.1 million reduction of income tax expense in 2016. Also contributing to the decrease in net income were higher other operation and maintenance expenses. The decrease was partially offset by higher net revenue and higher other income. See Note 3 to the financial statements for discussion of the effects of the Tax Cuts and Jobs Act and the IRS audit.
2016 Compared to 2015
Net income increased $175.4 million primarily due to the effect of a settlement with the IRS related to the 2010-2011 IRS audit, which resulted in a $136.1 million reduction of income tax expense in 2016. Also contributing to the increase were lower other operation and maintenance expenses, higher net revenue, and higher other income.retail electric price. The increase was partially offset by an income tax benefit recognized in 2018 as a result of the settlement of the 2012-2013 IRS audit, higher depreciation and amortization expenses, higher interest expense,other operation and maintenance expenses, lower volume/weather, and higher nuclear refueling outage expenses. See Note 3 to the financial statements for discussion of the IRS audit.interest expense.
Net RevenueOperating Revenues
2017 Compared to 2016
Net revenue consists of operating revenues net of: 1) fuel, fuel-related expenses, and gas purchased for resale, 2) purchased power expenses, and 3) other regulatory charges (credits). Following is an analysis of the change in net revenueoperating revenues comparing 20172019 to 2016.2018:
|
| | | |
| Amount |
| (In Millions) |
2018 operating revenues |
| $4,296.3 |
|
2016Fuel, rider, and other revenues that do not significantly affect net revenueincome | (218.1 | $2,438.4 |
|
Regulatory credit resulting from reduction of the
federal corporate income tax rate
| 55.5 | ) |
Retail electric price | 42.8132.9 |
|
Louisiana Act 55 financing savings obligationReturn of unprotected excess accumulated deferred income taxes to customers | 17.2102.5 |
|
Volume/weather | (12.428.4 | ) |
Other2019 operating revenues | 19.0 |
|
2017 net revenue |
| $2,560.54,285.2 |
|
The regulatory credit resultingEntergy Louisiana’s results include revenues from reduction of the federal corporate income tax rate variance is duemechanisms designed to the reduction of the Vidaliarecover fuel, purchased power, agreement regulatory liability by $30.5 million and other costs such that the reduction ofrevenues and expenses associated with these items generally offset and do not affect net income. “Fuel, rider, and other revenues that do not significantly affect net income” includes the Louisiana Act 55 financing savings obligation regulatory liabilities by $25 million as a result of the enactment of the Tax Cuts and Jobs Act, in December 2017, which lowered the federal corporate income tax rate from 35% to 21%. The effects of the Tax Cuts and Jobs Act are discussed further in Note 3 to the financial statements.revenue variance associated with these items.
Entergy Louisiana, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
The retail electric price variance is primarily due to an increase in formula rate plan revenues implemented witheffective September 2018 and an interim increase in formula rate plan revenues effective June 2019 due to the first billing cycleinclusion of March 2016, to collect the estimated first-year revenue requirement related tofor the purchase of Power Blocks 3 and 4 of the UnionSt. Charles Power Station, in March 2016 and a provision recorded in 2016 related toeach as approved by the settlement of the Waterford 3 replacement steam generator prudence review proceeding.LPSC. See Note 2 to the financial statements for further discussion of the formula rate plan revenues and the Waterford 3 replacement steam generator prudence review proceeding.proceedings.
The Louisiana Act 55 financing savings obligation variance results from a regulatory charge recorded in 2016 for tax savingsreturn of unprotected excess accumulated deferred income taxes to be shared with customers per an agreement approved by the LPSC. The tax savings resulted from the 2010-2011 IRS audit settlementreturn of unprotected excess accumulated deferred income taxes through changes in the formula rate plan effective May 2018. In 2019, $38.6 million was returned to customers as compared to $141.1 million in 2018. There was no effect on net income as the treatment of the Louisiana Act 55 financing of storm costs for Hurricane Gustav and Hurricane Ike.reduction in operating revenues was offset by a reduction in income tax expense. See Note 32 to the financial statements for additionalfurther discussion of regulatory activity regarding the settlementTax Cuts and benefit sharing.Jobs Act.
The volume/weather variance is primarily due to a decrease of 673 GWh, or 3%, in billed electricity usage for residential and commercial customers, including the effect of less favorable weather on residential and commercial sales and decreased usage during the unbilled sales period.weather. The decrease was partially offset by an increase of 1,237 GWh, or 4%, in industrial usage primarily due to an increase in demand from existing customers and expansion projects in the chemicals industry.
2016 Compared to 2015
Net revenue consists of operating revenues net of: 1) fuel, fuel-related expenses, and gas purchased for resale, 2) purchased power expenses, and 3) other regulatory charges. Following is an analysis of the change in net revenue comparing 2016 to 2015.
|
| | | |
| Amount |
| (In Millions) |
| |
2015 net revenue |
| $2,408.8 |
|
Retail electric price | 62.5 |
|
Volume/weather | (6.7 | ) |
Louisiana Act 55 financing savings obligation | (17.2 | ) |
Other | (9.0 | ) |
2016 net revenue |
| $2,438.4 |
|
The retail electric price variance is primarily due to an increase in formula rate plan revenues, implemented with the first billing cycle of March 2016, to collect the estimated first-year revenue requirement related to the purchase of Power Blocks 3 and 4 of the Union Power Station. See Note 2 to the financial statements for further discussion.
The volume/weather variance is primarily due to the effect of less favorable weather on residential sales, partially offset by an increase in industrial usage and an increase in volume during the unbilled period. The increase in industrial usage is primarily due to increased demand from new customers and expansion projects, primarily in the chemicals industry.and transportation industries.
The Louisiana Act 55 financing savings obligation variance results from a regulatory charge for tax savings to be shared with customers per an agreement approved by the LPSC. The tax savings resulted from the 2010-2011 IRS audit settlement on the treatment of the Louisiana Act 55 financing of storm costs for Hurricane Gustav and Hurricane Ike. See Note 3 to the financial statements for additional discussion of the settlement and benefit sharing.
Included in Other is a provision of $23 million recorded in 2016 related to the settlement of the Waterford 3 replacement steam generator prudence review proceeding, offset by a provision of $32 million recorded in 2015 related to the uncertainty at that time associated with the resolution of the Waterford 3 replacement steam generator prudence
Entergy Louisiana, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
review proceeding. See Note 2 to the financial statements for a discussion of the Waterford 3 replacement steam generator prudence review proceeding.
Other Income Statement Variances
2017 Compared to 2016
Other operation and maintenance expenses increased primarily due to:
a $14.8 million gain in 2018 from the sale of Willow Glen Power Station;
an increase of $17.8$12.7 million in nuclear generation expensesinformation technology costs primarily due to higher nuclear labor costs including contract labor,related to position the nuclear fleet to meet its operational goals, partially offset by a lower scope of work performed during plant outages in 2017;applications and infrastructure support, enhanced cyber security, and upgrades and maintenance;
an increase of $9.5$12.4 million in spending on initiatives to explore new customer products and services; and
an increase of $9.6 million in compensation and benefits costs primarily due to higher incentive-based compensation accruals in 20172019 as compared to the prior year;
year.
anThe increase was partially offset by:
a decrease of $4.1 million as a result of the amount of transmission costs allocated by MISO. See Note 2 to the financial statements for further information on the recovery of these costs;
an increase of $3.6$8.5 million in transmission and distributionnuclear generation expenses due to higher vegetation maintenance costs; and
an increase of $3.2 million in write-offs of customer accounts.
Taxes other than income taxes increased primarily due to increases in ad valorem taxes, state franchise taxes, and payroll taxes. Ad valorem taxes increased primarily due to higher assessments, including the assessment of Arkansas ad valorem taxes on the Union Power Station beginning in 2017. State franchise taxes increased primarily due to a changelower scope of work performed during plant outages in the Louisiana franchise tax law which became effective for 2017.2019 as compared to 2018; and
Depreciation and amortization expenses increased primarily due to additions to plant in service, including Power Blocks 3 and 4 of the Union Power Station purchased in March 2016, and the effects of recording in third quarter 20162019 the final court decisionsjudgment to resolve claims in the River Bend and Waterford 3 lawsuitsdamages case against the DOE related to spent nuclear fuel storage costs. The damages awarded include the reimbursement of approximately $6$5.2 million of spent nuclear fuel storage costs previously recorded as depreciationother operation and maintenance expense. See Note 14 to the financial statements for discussion of the Union Power Station purchase. See Note 8 to the financial statements for a discussion of the spent nuclear fuel litigation.
OtherTaxes other than income taxes increased primarily due to an increaseincreases in the allowance for equity funds used during construction due to higher construction work in progress in 2017, which includes the St. Charles Power Station project, and higher realized gains in 2017 on the River Bend decommissioning trust fund investments, including portfolio rebalancing to the 30% interest in River Bend formerly owned by Cajun.
Interest expense decreased primarily due to an increase in the allowance for borrowed funds used during construction due to higher construction work in progress in 2017, which includes the St. Charles Power Station project.
2016 Compared to 2015
Nuclear refueling outage expensesad valorem taxes. Ad valorem taxes increased primarily due to the amortization of higher expenses associated with the refueling outages at Waterford 3.assessments.
Other operation and maintenance expenses decreased primarily due to:
the $45 million write-off recorded in 2015 to recognize the portion of the assets associated with the Waterford 3 replacement steam generator project no longer probable of recovery. See Note 2 to the financial statements for further discussion of the prudence review proceeding; and
Entergy Louisiana, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
a decrease of $35 million in compensation and benefits costs primarily due to a decrease in net periodic pension and other postretirement costs as a result of higher discount rates used to value the benefit liabilities and a refinement in the approach used to estimate the service cost and interest cost components of pension and other postretirement costs. See “Critical Accounting Estimates - Qualified Pension and Other Postretirement Benefits” below and Note 11 to the financial statements for further discussion of pension and other postretirement benefit costs.
The decrease was partially offset by an increase of $19.9 million in nuclear generation expenses primarily due to higher nuclear labor costs, including contract labor.
Depreciation and amortization expenses increased primarily due to additions to plant in service, including Power Blocks 3 and 4 of the Union Power Station purchased in March 2016.
Other income increased primarily due to an increase in the allowance for equity funds used during construction due to higher construction work in progress in 2016, which included the St. Charles Power Station, project, and increased distribution and transmission spending. The increasewhich was also dueplaced into service in May 2019.
Other regulatory charges (credits) include regulatory charges of $73.1 million recorded in 2018 to higherreflect the effects of a provision in the settlement reached in the formula rate plan extension proceeding to return the benefits of the lower federal income tax rate in 2016 on2018 to customers. See Note 2 to the River Bend and Waterford 3 decommissioning trust fund investments.financial statements for discussion of the formula rate plan extension proceeding.
Interest expense increased primarily due to:
to the issuance of $525 million of 4.20% Series mortgage bonds in March 2016 of $425 million of 3.25% Series collateral trust mortgage bonds;2019.
the issuance in March 2016 of $200 million of 4.95% Series first mortgage bonds; and
the issuance in October 2016 of $400 million of 2.40% Series collateral trust mortgage bonds.
The increase was partially offset by the refinancing at lower interest rates of certain first mortgage bonds. See Note 5 to the financial statements for details of long-term debt.
Income Taxes
The effective income tax rates were 15% for 2017, 2016,2019 and 2015 were 60.5%, 12.6%, and 28.6%, respectively.(8.8%) for 2018. The difference in the effective income tax rate of 60.5% for 201715% versus the federal statutory rate of 35%21% for 20172019 was primarily due to the enactmentamortization of the Tax Cuts and Jobs Act, signed by President Trump in December 2017, which changed the federal corporateexcess accumulated deferred income tax rate from 35% to 21% effective in 2018. See Note 3 to the financial statements for further discussion of the effects of the Tax Cuts and Jobs Act. The difference in the effective income tax rate of 12.6% for 2016 versus the statutory rate of 35% for 2016 was primarily due to the reversal of a portion of the provision for uncertain tax positions as a result of the settlement of the 2010-2011 IRS audit in the second quarter 2016taxes and book and tax differences related to the non-taxable income distributions earned on preferred membership interests, partially offset by stateinterests. The difference in the effective income taxes.tax rate of (8.8%) versus the federal statutory rate of 21% for 2018 was primarily due to the amortization of excess accumulated deferred income taxes and an IRS audit settlement for the 2012-2013 tax returns. See Note 3 to the financial statements for a reconciliation of the federal statutory raterates of 35%21% to the effective income tax rates.
2018 Compared to 2017
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Results of Operations” in Entergy Louisiana’s Annual Report on Form 10-K for the year ended December 31, 2018 for discussion of results of operations for 2018 compared to 2017.
Entergy Louisiana, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
Income Tax Legislation
See the “Income Tax Legislation” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for discussion of the Tax Cuts and Jobs Act, the federal income tax legislation enacted in December 2017. Note 3 to the financial statements contains additional discussion of the effect of the Act on 2017, 2018, and 2019 results of operations and financial position, the provisions of the Act, and the uncertainties associated with accounting for the Act, and Note 2 to the financial statements discusses the regulatory proceedings commenced or other responsesthat have considered the effects of the Act.
Liquidity and Capital Resources
Cash Flow
Cash flows for the years ended December 31, 2019, 2018, and 2017 were as follows:
|
| | | | | | | | | | | |
| 2019 | | 2018 | | 2017 |
| (In Thousands) |
Cash and cash equivalents at beginning of period |
| $43,364 |
| |
| $35,907 |
| |
| $213,850 |
|
| | | | | |
Net cash provided by (used in): | | | |
| | |
|
Operating activities | 1,236,002 |
| | 1,395,204 |
| | 1,337,545 |
|
Investing activities | (1,653,634 | ) | | (1,878,208 | ) | | (1,787,409 | ) |
Financing activities | 376,274 |
| | 490,461 |
| | 271,921 |
|
Net increase (decrease) in cash and cash equivalents | (41,358 | ) | | 7,457 |
| | (177,943 | ) |
�� | | | | | |
Cash and cash equivalents at end of period |
| $2,006 |
| |
| $43,364 |
| |
| $35,907 |
|
2019 Compared to 2018
Operating Activities
Net cash flow provided by Entergy’s regulatorsoperating activities decreased $159.2 million in 2019 primarily due to:
income tax payments of $15.3 million in 2019 compared to $105.2 million in income tax refunds in 2018. Entergy Louisiana had income tax payments in 2019 and income tax refunds in 2018 in accordance with an intercompany tax allocation agreement. The income tax refunds in 2018 resulted from the utilization of Entergy Louisiana’s net operating losses;
an increase of $65.2 million in spending on nuclear refueling outages;
the receipt of $58.6 million in 2018 from Entergy Arkansas as a result of a compliance filing made in response to the Act.FERC’s October 2018 order in the Entergy Arkansas opportunity sales proceeding. The $58.6 million was credited to Entergy Louisiana customers in 2019. See Note 2 to the financial statements for further discussion of the opportunity sales proceeding;
the timing of payments to vendors;
an increase of $25.7 million in storm expenses in 2019;
an increase of $24.5 million in interest paid; and
the timing of collection of receivables from customers.
The decrease was partially offset by a decrease in return of unprotected excess accumulated deferred income taxes to customers and the timing of recovery of fuel and purchased power costs. See Note 2 to the financial statements for a discussion of the effects and the regulatory activity regarding the Tax Cuts and Jobs Act.
Entergy Louisiana, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
Liquidity and Capital Resources
Cash Flow
Cash flows for the years ended December 31, 2017, 2016, and 2015 were as follows:
|
| | | | | | | | | | | |
| 2017 | | 2016 | | 2015 |
| (In Thousands) |
Cash and cash equivalents at beginning of period |
| $213,850 |
| |
| $35,102 |
| |
| $320,516 |
|
| | | | | |
Net cash provided by (used in): | | | |
| | |
|
Operating activities | 1,337,545 |
| | 1,037,912 |
| | 1,155,516 |
|
Investing activities | (1,787,409 | ) | | (1,474,065 | ) | | (994,208 | ) |
Financing activities | 271,921 |
| | 614,901 |
| | (446,722 | ) |
Net increase (decrease) in cash and cash equivalents | (177,943 | ) | | 178,748 |
| | (285,414 | ) |
| | | | | |
Cash and cash equivalents at end of period |
| $35,907 |
| |
| $213,850 |
| |
| $35,102 |
|
Operating Activities
Net cash flow provided by operating activities increased $299.6 million in 2017 primarily due to:
income tax refunds of $234.2 million in 2017 compared to income tax payments of $156.6 million in 2016. Entergy Louisiana received income tax refunds in 2017 and made income tax payments in 2016 in accordance with an intercompany income tax allocation agreement. The income tax refunds in 2017 resulted from the utilization of Entergy Louisiana’s net operating losses. The income tax payments in 2016 resulted primarily from adjustments associated with the settlement of the 2010-2011 IRS audit, payments for state taxes resulting from the effect of the final settlement of the 2006-2007 IRS audit, and the effect of net operating loss limitations. See Note 3 to the financial statements for a discussion of the audits;
an increase due to the timing of recovery of fuel and purchased power costs; and
an interest payment of $60 million made in March 2016 related to the purchase of a beneficial interest in the Waterford 3 leased assets.
The increase was partially offset by:
a refund to customers in January 2017 of approximately $71 million as a result of the settlement approved by the LPSC related to the Waterford 3 replacement steam generator project. See Note 2 to the financial statements for discussion of the settlement and refund;
an increase of $62.8 million in spending on nuclear refueling outages; and
proceeds of $37.8 million received in August 2016 from the DOE resulting from litigation regarding spent nuclear fuel storage costs that were previously expensed. See Note 8 to the financial statements for a discussion of the spent nuclear fuel litigation.
Net cash flow provided by operating activities decreased $117.6 million in 2016 primarily due to:
an increase of $67.5 million in income tax payments in 2016. Entergy Louisiana had income tax payments in 2016 and 2015 in accordance with intercompany income tax allocation agreements. The income tax payments in 2016 resulted primarily from adjustments associated with the settlement of the 2010-2011 IRS audit, payments for state taxes resulting from the effect of the final settlement of the 2006-2007 IRS audit, and the effect of net operating loss limitations. The 2015 income tax payments resulted primarily from adjustments
Entergy Louisiana, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
associated with the settlement of the 2008-2009 IRS audit. See Note 3 to the financial statements for a discussion of the income tax audits;
an increase of $80.7 million in interest paid resulting from an increase in interest expense, including a payment of $60 million made in March 2016 related to the purchase of a beneficial interest in the Waterford 3 leased assets. See Note 10 to the financial statements for a discussion of the purchase of a beneficial interest in the Waterford 3 leased assets;
the timing of collections from customers and payments to vendors; and
a decrease due to the timing of recovery of fuel and purchased power costs in 2016.
The decrease was partially offset by proceeds of $37.8 million received in 2016 from the DOE resulting from litigation regarding spent nuclear fuel storage costs that were previously expensed and a decrease of $30.5 million in spending on nuclear refueling outages in 2016. See Note 8 to the financial statements for a discussion of the spent nuclear fuel litigation.
Investing Activities
Net cash flow used in investing activities increased $313.3decreased $224.6 million in 20172019 primarily due to:
an increaseto a decrease of $364.3$320 million in fossil-fueled generation construction expenditures, primarily due to higherlower spending on the St. Charles Power Station and Lake Charles Power Station projects in 2017;2019 and money pool activity. The decrease was partially offset by:
an increase of $148.9$63.6 million in transmission construction expenditures primarily due to a higher scope of work performed in 2017;2019 as compared to the same period in 2018;
an increase of $144.9 million as a result of fluctuations in nuclear fuel activity because of variations from year to year in the timing and pricing of fuel reload requirements in the Utility business, material and service deliveries, and the timing of cash payments during the nuclear fuel cycle;
proceeds of $57.9 million received in 2016 from the DOE resulting from litigation regarding spent nuclear fuel storage costs that were previously capitalized. See Note 8 to the financial statements for discussion of the spent nuclear fuel litigation;
an increase of $53.6$63.1 million in nucleardistribution construction expenditures primarily due to increased spending on various nuclear projectsinvestment in 2017;
an increasethe reliability and infrastructure of $30.4 million inEntergy Louisiana’s distribution construction expenditures due to increased spending on digital technology improvements within the customer contact centers;
an increase of $19.9 million due tosystem, including increased spending on advanced metering infrastructure; and
an increase of $12.3 million due to various information technology projects and upgrades in 2017.
The increase was partially offset by:
the purchase of Power Blocks 3 and 4 of the Union Power Station for an aggregate purchase price of approximately $475$46.5 million in March 2016. See Note 14 to the financial statements for discussion of the Union Power Station purchase;storm spending in 2019.
money pool activity; and
an increase in the allowance for equity funds used during construction due to higher construction work in progress in 2017.
Decreases in Entergy Louisiana’s receivable from the money pool are a source of cash flow, and Entergy Louisiana’s receivable from the money pool decreased by $11.3$46.8 million in 20172019 compared to increasing by $16.3$35.7 million in 2016.2018. The money pool is an inter-company borrowing arrangement designed to reduce the Utility subsidiaries’ need for external short-term borrowings.
Entergy Louisiana, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
Net cash flow used in investing activities increased $479.9 million in 2016 primarily due to:
the purchase of Power Blocks 3 and 4 of the Union Power Station for an aggregate purchase price of approximately $475 million in March 2016. See Note 14 to the financial statements for discussion of the Union Power Station purchase;
an increase of $130.7 million in fossil-fueled generation construction expenditures primarily due to spending on the St. Charles Power Station project in 2016;
cash proceeds of $59.6 million received in 2015 from the transfer of Algiers assets to Entergy New Orleans in September 2015. See “State and Local Rate Regulation and Fuel-Cost Recovery- Retail Rates - Electric - Filings with the City Council” below for further discussion of the transfer;
an increase of $52 million in transmission construction expenditures due to a higher scope of work performed in 2016; and
an increase of $20.5 million due to various information technology projects and upgrades in 2016.
The increase was partially offset by:
fluctuations in nuclear fuel activity because of variations from year to year in the timing and pricing of fuel reload requirements in the Utility business, material and service deliveries, and the timing of cash payments during the nuclear fuel cycle;
proceeds of $57.9 million received in 2016 from the DOE resulting from litigation regarding spent nuclear fuel storage costs that were previously capitalized. See Note 8 to the financial statements for discussion of the spent nuclear fuel litigation; and
a decrease of $16.9 million in nuclear construction expenditures primarily due to decreased spending on compliance with NRC post-Fukushima requirements.
Financing Activities
Net cash flow provided by financing activities decreased $343$114.2 million in 20172019 primarily due to to:
the net issuance of $325.6$750 million of long-term debt4.00% Series mortgage bonds in 2017 comparedMarch 2018. A portion of the proceeds was used to repay $375 million of 6.0% Series mortgage bonds in May 2018;
the net issuance of $961.2$600 million of 4.20% Series mortgage bonds in August 2018. A portion of the proceeds was used to repay $300 million of 6.5% Series mortgage bonds in September 2018; and
an increase of $80 million in 2016. common equity distributions in 2019 primarily to maintain Entergy Louisiana’s capital structure.
The decrease was partially offset by:
a decreasethe issuance of $194.3$525 million of common equity distributions primarily as a result of higher construction expenditures and higher nuclear fuel purchases4.20% Series mortgage bonds in 2017;March 2019;
money pool activity; and
net repayments of short-term borrowings of $39.7$43.5 million in 2018 on the nuclear fuel company variable interest entities’ credit facilitiesfacilities.
Increases in 2017 comparedEntergy Louisiana’s payable to net repaymentsthe money pool are a source of $56.6cash flow, and Entergy Louisiana’s payable to the money pool increased by $82.8 million in 2016.2019.
Entergy Louisiana’s financing activities provided $614.9 million of cash in 2016 compared to using $446.7 million in 2015 primarily due to the following activity:
the net issuance of $961.2 million of long-term debt in 2016 compared to the net retirement of $103.4 million of long-term debt in 2015;
the redemption in September 2015 of $100 million of 6.95% Series and $10 million of 8.25% Series preferred membership interests in connection with the Entergy Louisiana and Entergy Gulf States Louisiana business combination;
net repayments of borrowings of $56.6 million on the nuclear fuel company variable interest entity’s credit facility in 2016 compared to net borrowings of $14.3 million in 2015; and
an increase of $59.5 million in common equity distributions in 2016. Equity distributions were lower in 2015 in anticipation of the purchase of Power Blocks 3 and 4 of the Union Power Station.
See Note 5 to the financial statements for details of long-term debt.
2018 Compared to 2017
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Liquidity and Capital Resources - Cash Flow” in Entergy Louisiana’s Annual Report on Form 10-K for the year ended December 31, 2018 for discussion of operating, investing, and financing cash flow activities for 2018 compared to 2017.
Capital Structure
Entergy Louisiana’s debt to capital ratio is shown in the following table.
Entergy Louisiana, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
Capital Structure
Entergy Louisiana’s capitalization is balanced between equity and debt, as shown in the following table.
| | | December 31, 2017 | | December 31, 2016 | December 31, 2019 | | December 31, 2018 |
Debt to capital | 53.8 | % | | 53.4 | % | 53.4 | % | | 53.6 | % |
Effect of excluding securitization bonds | (0.3 | %) | | (0.5 | %) | (0.1 | %) | | (0.3 | %) |
Debt to capital, excluding securitization bonds (a) | 53.5 | % | | 52.9 | % | 53.3 | % | | 53.3 | % |
Effect of subtracting cash | (0.1 | %) | | (0.9 | %) | (0.1 | %) | | (0.1 | %) |
Net debt to net capital, excluding securitization bonds (a) | 53.4 | % | | 52.0 | % | 53.2 | % | | 53.2 | % |
| |
(a) | Calculation excludes the securitization bonds, which are non-recourse to Entergy Louisiana. |
Net debt consists of debt less cash and cash equivalents. Debt consists of short-term borrowings, finance lease obligations, and long-term debt, including the currently maturing portion. Capital consists of debt and common equity. Net capital consists of capital less cash and cash equivalents. Entergy Louisiana uses the debt to capital ratios excluding securitization bonds in analyzing its financial condition and believes they provide useful information to its investors and creditors in evaluating Entergy Louisiana’s financial condition because the securitization bonds are non-recourse to Entergy Louisiana, as more fully described in Note 5 to the financial statements. Entergy Louisiana also uses the net debt to net capital ratio excluding securitization bonds in analyzing its financial condition and believes it provides useful information to its investors and creditors in evaluating Entergy Louisiana’s financial condition because net debt indicates Entergy Louisiana’s outstanding debt position that could not be readily satisfied by cash and cash equivalents on hand.
Entergy Louisiana seeks to optimize its capital structure in accordance with its regulatory requirements and to control its cost of capital while also maintaining equity capitalization at a level consistent with investment-grade debt ratings. To the extent that operating cash flows are in excess of planned investments, cash may be used to reduce outstanding debt or may be paid as a dividend,distribution, or both, in appropriate amounts to maintain the targeted capital structure. To the extent that operating cash flows are insufficient to support planned investments, Entergy Louisiana may issue incremental debt or reduce dividends,distributions, or both, to maintain its targeted capital structure. In addition, in certain infrequent circumstances, such as large transactions that would materially alter the capital structure if financed entirely with debt and reducing dividends,distributions, Entergy Louisiana may receive equity contributions to maintain the targetedits capital structure.
Uses of Capital
Entergy Louisiana requires capital resources for:
construction and other capital investments;
debt maturities or retirements;
working capital purposes, including the financing of fuel and purchased power costs; and
distribution and interest payments.
Entergy Louisiana, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
Following are the amounts of Entergy Louisiana’s planned construction and other capital investments.
| | | 2018 | | 2019 | | 2020 | 2020 | | 2021 | | 2022 |
| (In Millions) | (In Millions) |
Planned construction and capital investment: | | | | | | | | | | |
Generation |
| $875 |
| |
| $530 |
| |
| $330 |
|
| $580 |
| |
| $485 |
| |
| $320 |
|
Transmission | 465 |
| | 350 |
| | 285 |
| 440 |
| | 445 |
| | 230 |
|
Distribution | 325 |
| | 395 |
| | 365 |
| 300 |
| | 245 |
| | 190 |
|
Utility Support | 165 |
| | 110 |
| | 135 |
| 300 |
| | 385 |
| | 390 |
|
Total |
| $1,830 |
| |
| $1,385 |
| |
| $1,115 |
|
| $1,620 |
| |
| $1,560 |
| |
| $1,130 |
|
Entergy Louisiana, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
Following are the amounts of Entergy Louisiana’s existing debt and lease obligations (includes estimated interest payments) and other purchase obligations.
| | | 2018 | | 2019-2020 | | 2021-2022 | | After 2022 | | Total | 2020 | | 2021-2022 | | 2023-2024 | | After 2024 | | Total |
| (In Millions) | (In Millions) |
Long-term debt (a) |
| $940 |
| |
| $903 |
| |
| $843 |
| |
| $6,785 |
| |
| $9,471 |
|
| $640 |
| |
| $1,120 |
| |
| $1,550 |
| |
| $8,662 |
| |
| $11,972 |
|
Operating leases(b) |
| $22 |
| |
| $41 |
| |
| $24 |
| |
| $19 |
| |
| $106 |
|
| $11 |
| |
| $17 |
| |
| $8 |
| |
| $3 |
| |
| $39 |
|
Purchase obligations (b) |
| $633 |
| |
| $1,420 |
| |
| $1,366 |
| |
| $7,125 |
| |
| $10,544 |
| |
Finance leases (b) | |
| $4 |
| |
| $7 |
| |
| $5 |
| |
| $3 |
| |
| $19 |
|
Purchase obligations (c) | |
| $731 |
| |
| $1,423 |
| |
| $1,521 |
| |
| $5,905 |
| |
| $9,580 |
|
| |
(a) | Includes estimated interest payments. Long-term debt is discussed in Note 5 to the financial statements. |
| |
(b) | Lease obligations are discussed in Note 10 to the financial statements. |
| |
(c) | Purchase obligations represent the minimum purchase obligation or cancellation charge for contractual obligations to purchase goods or services. For Entergy Louisiana, almost all of the total consists of unconditional fuel and purchased power obligations, including its obligations under the Vidalia purchased power agreement and the Unit Power Sales Agreement, both of which are discussed in Note 8 to the financial statements. |
In addition to the contractual obligations given above, Entergy Louisiana currently expects to contribute approximately $71.9$38.8 million to its qualified pension plans and approximately $19$18.5 million to its other postretirement health care and life insurance plans in 2018,2020, although the 20182020 required pension contributions will be known with more certainty when the January 1, 20182020 valuations are completed, which is expected by April 1, 2018.2020. See “Critical Accounting Estimates- Qualified Pension and Other Postretirement Benefits” below for a discussion of qualified pension and other postretirement benefits funding.
Also, in addition to the contractual obligations, Entergy Louisiana has $926.6$808.4 million of unrecognized tax benefits and interest net of unused tax attributes for which the timing of payments beyond 12 months cannot be reasonably estimated due to uncertainties in the timing of effective settlement of tax positions. See Note 3 to the financial statements for additional information regarding unrecognized tax benefits.
In addition to routine capital spending to maintain operations, the planned capital investment estimate for Entergy Louisiana includes specific investments, such as the St. Charles Power StationWashington Parish Energy Center and Lake Charles Power Station, each discussed below; transmission projects to enhance reliability, reduce congestion, and enable economic growth; distribution spending to enhance reliability and improve service to customers, including investment to support advanced metering; resource planning, including potential generation projects; system improvements; investments in River Bend and Waterford 3; software and security; and other investments. Entergy’s Utility supply plan initiative will continue to seek to transform its generation portfolio with new or repowered generation resources. Opportunities resulting from the supply plan initiative, including new projects or the exploration of alternative financing sources, could result in increases or decreases in the capital expenditure estimates given above. The estimated capital expenditures are subject to periodic review and modification and may vary based on the ongoing effects of regulatory constraints and requirements,
Entergy Louisiana, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
environmental compliance, business opportunities, market volatility, economic trends, business restructuring, changes in project plans, and the ability to access capital.
As a wholly-owned subsidiary of Entergy Utility Holding Company, LLC, Entergy Louisiana pays distributions from its earnings at a percentage determined monthly.
St. Charles Power Station
In August 2015, Entergy Louisiana, filed with the LPSC an application seeking certification that the public necessityLLC and convenience would be served by the construction of the St. Charles Power Station, a nominal 980 megawatt combined-cycle generating unit, on land adjacent to the existing Little Gypsy plant in St. Charles Parish, Louisiana. It is currently estimated to cost $869 million to construct, including transmission interconnectionSubsidiaries
Management’s Financial Discussion and other related costs. The LPSC issued an order approving certification of St. Charles Power Station in December 2016. Construction is in progress and commercial operation is estimated to occur by mid-2019. Analysis
Lake Charles Power Station
In November 2016, Entergy Louisiana filed an application with the LPSC seeking certification that the public convenience and necessity would be served by the construction of the Lake Charles Power Station, a nominal 994 megawatt combined-cycle generating unit in Westlake, Louisiana, on land adjacent to the existing Nelson plant in Calcasieu Parish. The current estimated cost of the Lake Charles Power Station is $872 million, including estimated costs of transmission interconnection and other related costs. In May 2017 the parties to the proceeding agreed to an uncontested stipulation finding that construction of the Lake Charles Power Station is in the public interest and authorizing an in-service rate recovery plan. In July 2017 the LPSC issued an order unanimously approving the stipulation and approved certification of the unit. Construction is in progress and commercial operation is expected to occur by mid-2020.
Washington Parish Energy Center
In April 2017, Entergy Louisiana signed a purchase and salean agreement with a subsidiary of Calpine Corporation for the acquisitionconstruction and purchase of a peaking plant. Calpine will construct the plant, which will consist of two natural gas-fired combustion turbine units with a total nominal capacity of approximately 361 MW. The plant, named the Washington Parish Energy Center, will be located in Bogalusa, Louisiana and, subject to permits and approvals, is expected to be completed in 2021.Louisiana. Subject to regulatory approvals, Entergy Louisiana will purchase the plant once it is complete for an estimated total investment of approximately $261 million, including transmission and other related costs. In May 2017, Entergy Louisiana filed an application with the LPSC seeking certification of the plant. A procedural schedule has been established, with the deadlines recently extended and the hearing continued from MarchIn April 2018 until June 2018 in order to allow the parties reached a settlement recommending certification and cost recovery through the additional capacity mechanism of the formula rate plan, consistent with prior LPSC precedent with respect to the certification and recovery of plants previously acquired by Entergy Louisiana. The LPSC issued an opportunity to reach settlement.
Advanced Metering Infrastructure (AMI)
In November 2016, Entergy Louisiana filed an application seeking a finding fromorder approving the LPSC that Entergy Louisiana’s deployment of advanced electric and gas metering infrastructuresettlement in May 2018. Construction is in the public interest. Entergy Louisiana proposed to deploy advanced meters that enable two-way data communication; designprogress and build a secure and reliable network to support such communications; and implement support systems. AMI is intended to serve as the foundation of Entergy Louisiana’s modernized power grid. The filing included an estimate of implementation costs for AMI of $330 million. The filing identified a number of quantified and unquantified benefits, and Entergy Louisiana provided a cost/benefit analysis showing that its combined electric and gas AMI deploymentcommercial operation is expected to produce a nominal net benefit to customersoccur by the end of $607 million. Entergy Louisiana also sought to continue to include in rate base the remaining book value, approximately $92 million at December 31, 2015, of the existing electric meters and also to depreciate those assets using current depreciation rates. Entergy Louisiana proposed a 15-year useful life for the new advanced meters, the three-year deployment of which is expected to begin in 2019. The communications network deployment2020.
Entergy Louisiana, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
is expected to begin by late-2018, after the necessary information technology infrastructure is in place. Entergy Louisiana proposed to recover the cost of AMI through the implementation of a customer charge, net of certain benefits, phased in over the period 2019 through 2022. The parties reached an uncontested stipulation permitting implementation of Entergy Louisiana’s proposed AMI system, with modifications to the proposed customer charge. In July 2017 the LPSC approved the stipulation. Entergy Louisiana expects to recover the undepreciated balance of its existing meters through a regulatory asset at current depreciation rates.
Sources of Capital
Entergy Louisiana’s sources to meet its capital requirements include:
internally generated funds;
cash on hand;
debt or preferred membership interest issuances;
capital contributions; and
bank financing under new or existing facilities.
Entergy Louisiana may refinance, redeem, or otherwise retire debt prior to maturity, to the extent market conditions and interest rates are favorable.
All debt and common and preferred membership interest issuances by Entergy Louisiana require prior regulatory approval. Preferred membership interest and debtDebt issuances are also subject to issuance tests set forth in its bond indentures and other agreements. Entergy Louisiana has sufficient capacity under these tests to meet its foreseeable capital needs.
Entergy Louisiana’s receivables from or (payables to) the money pool were as follows as of December 31 for each of the following years.
|
| | | | | | |
2017 | | 2016 | | 2015 | | 2014 |
(In Thousands) |
$11,173 | | $22,503 | | $6,154 | | $2,815 |
|
| | | | | | |
2019 | | 2018 | | 2017 | | 2016 |
(In Thousands) |
($82,826) | | $46,843 | | $11,173 | | $22,503 |
See Note 4 to the financial statements for a description of the money pool.
Entergy Louisiana, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
Entergy Louisiana has a credit facility in the amount of $350 million scheduled to expire in August 2022.September 2024. The credit facility allows Entergy Louisiana to issueincludes fronting commitments for the issuance of letters of credit against $15 million of the borrowing capacity of the facility. As of December 31, 2017,2019, there were no cash borrowings and a $9.1 million letterno letters of credit outstanding under the credit facility. In addition, Entergy Louisiana is a party to an uncommitted letter of credit facility as a means to post collateral to support its obligations to MISO. As of December 31, 2017,2019, a $29.7$12.3 million letter of credit was outstanding under Entergy Louisiana’s uncommitted letter of credit facility. See Note 4 to the financial statements for additional discussion of the credit facilities.
The Entergy Louisiana nuclear fuel company variable interest entities have two separate credit facilities, oneeach in the amount of $105 million and one in the amount of $85 million, both scheduled to expire in May 2019.September 2021. As of December 31, 2017, $65.72019, $70.3 million of loans were outstanding under the credit facility for the Entergy Louisiana River Bend nuclear fuel company variable interest entity. As of December 31, 2017, $43.5 million in letters of credit to support a like amount of commercial paper issued and $36.42019, $49.9 million in loans were outstanding under the Entergy Louisiana Waterford nuclear fuel company variable interest entity credit facility. See Note 4 to the financial statements for additional discussion of the nuclear fuel company variable interest entity credit facilities.
Entergy Louisiana, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
Entergy Louisiana obtained authorizations from the FERC through October 2019November 2020 for the following:
short-term borrowings not to exceed an aggregate amount of $450 million at any time outstanding;
long-term borrowings and security issuances; and
long-term borrowings by its nuclear fuel company variable interest entities.
See Note 4 to the financial statements for further discussion of Entergy Louisiana’s short-term borrowing limits.
Hurricane Isaac
In June 2014 the LPSC voted to approve a series of orders which (i) quantified $290.8 million of Hurricane Isaac system restoration costs as prudently incurred; (ii) determined $290 million as the level of storm reserves to be re-established; (iii) authorized Entergy Louisiana to utilize Louisiana Act 55 financing for Hurricane Isaac system restoration costs; and (iv) granted other requested relief associated with storm reserves and Act 55 financing of Hurricane Isaac system restoration costs. Entergy Louisiana committed to pass on to customers a minimum of $30.8 million of customer benefits through annual customer credits of approximately $6.2 million for five years. Approvals for the Act 55 financings were obtained from the Louisiana Utilities Restoration Corporation and the Louisiana State Bond Commission. See Note 2 to the financial statements for a discussion of the August 2014 issuance of bonds under Act 55 of the Louisiana Legislature.
Little Gypsy Repowering ProjectRetail Rates - Gas
In accordance with the settlement of Entergy Gulf States Louisiana’s gas rate stabilization plan for the test year ended September 30, 2012, in August 2014, Entergy Gulf States Louisiana submitted for consideration a proposal for implementation of an infrastructure rider to recover expenditures associated with strategic plant investment and relocation projects mandated by local governments. After review by the LPSC staff and inclusion of certain customer safeguards required by the LPSC staff, in December 2014, Entergy Gulf States Louisiana and the LPSC staff submitted a joint settlement for implementation of an accelerated gas pipe replacement program providing for the replacement of approximately 100 miles of pipe over the next ten years, as well as relocation of certain existing pipe resulting from local government-related infrastructure projects, and for a rider to recover the investment associated with these projects. The rider allows for recovery of approximately $65 million over ten years. The rider recovery will be adjusted on a quarterly basis to include actual investment incurred for the prior quarter and is subject to the following conditions,
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Entergy Corporation, Utility operating companies, and System Energy
among others: a ten-year term; application of any earnings in excess of the upper end of the earnings band as an offset to the revenue requirement of the infrastructure rider; adherence to a specified spending plan, within plus or minus 20% annually; annual filings comparing actual versus planned rider spending with actual spending and explanation of variances exceeding 10%; and an annual true-up. The joint settlement was approved by the LPSC in January 2015. Implementation of the infrastructure rider commenced with bills rendered on and after the first billing cycle of April 2007, 2015.
Storm Cost Recovery
See Note 2 to the financial statements for a discussion of Entergy Louisiana’s filings to recover storm-related costs.
Other
In March 2016 the LPSC opened two dockets to examine, on a generic basis, issues that it identified in connection with its review of Cleco Corporation’s acquisition by third party investors. The first docket is captioned “In re: Investigation of double leveraging issues for all LPSC-jurisdictional utilities,” and the second is captioned “In re: Investigation of tax structure issues for all LPSC-jurisdictional utilities.” In April 2016 the LPSC clarified that the concerns giving rise to the two dockets arose as a result of its review of the structure of the Cleco-Macquarie transaction and that the specific intent of the directives is to seek more information regarding intra-corporate debt financing of a utility’s capital structure as well as the use of investment tax credits to mitigate the tax obligation at the parent level of a consolidated entity. No schedule has been set for either docket, and limited discovery has occurred.
In December 2019 an LPSC commissioner issued an unopposed directive to staff to research customer-centered options for all customer classes, as well as other regulatory environments, and recommend a plan for how to ensure customers are the focus. There was no opposition to the directive from other commissioners but several remarked that the intent of the directive was not initiated to pursue retail open access. In furtherance of the directive, the LPSC issued a notice of the opening of a docket to conduct a rulemaking to research and evaluate customer-centered options for all electric customer classes as well as other regulatory environments in January 2020.
Entergy Mississippi
Fuel Recovery
Entergy Mississippi’s rate schedules include energy cost recovery riders to recover fuel and purchased power costs. The energy cost rate for each calendar year is redetermined annually and includes a true-up adjustment reflecting the over-recovery or under-recovery of the energy costs as of the 12-month period ended September 30. Entergy Mississippi’s fuel cost recoveries are subject to annual audits conducted pursuant to the authority of the MPSC.
To help stabilize electricity costs, Entergy Mississippi received approval from the MPSC to hedge its exposure to natural gas price volatility through the use of financial instruments. Entergy Mississippi hedges approximately one-third of the projected exposure to natural gas price changes for the gas used to serve its native electric load for all months of the year. The hedge quantity is reviewed on an annual basis.
Storm Cost Recovery
See Note 2 to the financial statements for a discussion of proceedings regarding recovery of Entergy Mississippi’s storm-related costs.
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Entergy Corporation, Utility operating companies, and System Energy
Formula Rate Plan
In August 2012 the MPSC opened inquiries to review whether the current formulaic methodology used to calculate the return on common equity in both Entergy Mississippi’s formula rate plan and Mississippi Power Company’s annual formula rate plan was still appropriate or could be improved to better serve the public interest. The intent of this inquiry and review was for informational purposes only; the evaluation of any recommendations for changes to the existing methodology would take place in a general rate case or in the existing formula rate plan proceeding. In March 2013 the Mississippi Public Utilities Staff filed its consultant’s report which noted the return on common equity estimation methods used by Entergy Mississippi and Mississippi Power Company are commonly used throughout the electric utility industry. The report suggested ways in which the methods used by Entergy Mississippi and Mississippi Power Company might be improved, but did not recommend specific changes in the return on common equity formulas or calculations at that time. In June 2014 the MPSC expanded the scope of the August 2012 inquiry to study the merits of adopting a uniform formula rate plan that could be applied, where possible in whole or in part, to both Entergy Mississippi and Mississippi Power Company in order to achieve greater consistency in the plans. The MPSC directed the Mississippi Public Utilities Staff to investigate and review Entergy Mississippi’s formula rate plan rider schedule and Mississippi Power Company’s Performance Evaluation Plan by considering the merits and deficiencies and possibilities for improvement of each and then to propose a uniform formula rate plan that, where possible, could be applicable to both companies. No procedural schedule has been set. In October 2014 the Mississippi Public Utilities Staff conducted a public technical conference to discuss performance benchmarking and its potential application to the electric utilities’ formula rate plans. The docket remains open.
Entergy New Orleans
Fuel Recovery
Entergy New Orleans’s electric rate schedules include a fuel adjustment tariff designed to reflect no more than targeted fuel and purchased power costs, adjusted by a surcharge or credit for deferred fuel expense arising from the monthly reconciliation of actual fuel and purchased power costs incurred with fuel cost revenues billed to customers, including carrying charges.
Entergy New Orleans’s gas rate schedules include a purchased gas adjustment to reflect estimated gas costs for the billing month, adjusted by a surcharge or credit similar to that included in the electric fuel adjustment clause, including carrying charges.
To help stabilize gas costs, Entergy New Orleans seeks approval annually from the City Council to continue implementation of its natural gas hedging program consistent with the City Council’s stated policy objectives. The program uses financial instruments to hedge exposure to volatility in the wholesale price of natural gas purchased to serve Entergy New Orleans gas customers. Entergy New Orleans hedges up to 25% of actual gas sales made during the winter months.
Storm Cost Recovery
See Note 2 to the financial statements for a discussion of Entergy New Orleans’s efforts to recover storm-related costs.
Entergy Texas
Fuel Recovery
Entergy Texas’s rate schedules include a fixed fuel factor to recover fuel and purchased power costs, including interest, that are not included in base rates. Semi-annual revisions of the fixed fuel factor are made in March and September based on the market price of natural gas and changes in fuel mix. The amounts collected under Entergy
Part I Item 1
Entergy Corporation, Utility operating companies, and System Energy
Texas’s fixed fuel factor and any interim surcharge or refund are subject to fuel reconciliation proceedings before the PUCT. The PUCT fuel cost proceedings are discussed in Note 2 to the financial statements.
At the PUCT’s April 2013 open meeting, the PUCT Commissioners discussed their view that a purchased power capacity rider was good public policy. The PUCT issued an order in May 2013 adopting the rule allowing for a purchased power capacity rider, subject to an offsetting adjustment for load growth. The rule, as adopted, also includes a process for obtaining pre-approval by the PUCT of purchased power agreements. Entergy Texas has not exercised the option to recover its capacity costs under the new rider mechanism, but will continue to evaluate the benefits of utilizing the new rider to recover future capacity costs.
Electric Industry Restructuring
In June 2009, a law was enacted in Texas that required Entergy Texas to cease all activities relating to Entergy Texas’s transition to competition. The law allows Entergy Texas to remain a part of the SERC Reliability Corporation (SERC) Region, although it does not prevent Entergy Texas from joining another power region. The law provides that proceedings to certify a power region that Entergy Texas belongs to as a qualified power region can be initiated by the PUCT, or on motion by another party, when the conditions supporting such a proceeding exist. Under the law, the PUCT may not approve a transition to competition plan for Entergy Texas until the expiration of four years from the PUCT’s certification of Entergy Texas’s power region.
The law also contains provisions that allow Entergy Texas to take advantage of a cost recovery mechanism that permits annual filings for the recovery of reasonable and necessary expenditures for transmission infrastructure improvement and changes in wholesale transmission charges. This mechanism was previously available to other non-ERCOT Texas utility companies, but not to Entergy Texas.
The law further amended already existing law that had required Entergy Texas to propose for PUCT approval a tariff to allow eligible customers the ability to contract for competitive generation. The amending language in the law provides, among other things, that: 1) the tariff shall not be implemented in a manner that harms the sustainability or competitiveness of manufacturers who choose not to participate in the tariff; 2) Entergy Texas shall “purchase competitive generation service, selected by the customer, and provide the generation at retail to the customer;” and 3) Entergy Texas shall provide and price transmission service and ancillary services under that tariff at a rate that is unbundled from its cost of service. The law directs that the PUCT may not issue an order on the tariff that is contrary to an applicable decision, rule, or policy statement of a federal regulatory agency having jurisdiction.
The PUCT determined that unrecovered costs that may be recovered through the rider consist only of those costs necessary to implement and administer the competitive generation program and do not include lost revenues or embedded generation costs. The amount of customer load that may be included in the competitive generation service program is limited to 115 MW.
In September 2011 the PUCT adopted a proposed rule implementing a distribution cost recovery factor to recover capital and capital-related costs related to distribution infrastructure. The distribution cost recovery factor permits utilities once per year to implement an increase or decrease in rates above or below amounts reflected in base rates to reflect depreciation expense, federal income tax and other taxes, and return on investment. The distribution cost recovery factor rider may be changed a maximum of four times between base rate cases.
In September 2019 the PUCT initiated a rulemaking to promulgate a generation cost recovery factor rule, implementing legislation passed in the 2019 Texas legislative session intended to allow electric utilities to recover generation investments between base rate proceedings. The draft rule was approved for publication at the PUCT’s February 2020 open meeting, and two rounds of public comment will be taken in March and April 2020. The PUCT is expected to approve a final rule within six months of publication.
Part I Item 1
Entergy Corporation, Utility operating companies, and System Energy
Franchises
Entergy Arkansas holds exclusive franchises to provide electric service in approximately 308 incorporated cities and towns in Arkansas. These franchises are unlimited in duration and continue unless the municipalities purchase the utility property. In Arkansas franchises are considered to be contracts and, therefore, are terminable pursuant to the terms of the franchise agreement and applicable statutes.
Entergy Louisiana announced that it intendedholds non-exclusive franchises to pursueprovide electric service in approximately 175 incorporated municipalities and in the solid fuel repoweringunincorporated areas of a 538 MW unit at its Little Gypsy plant. In March 2009 the LPSC voted in favorapproximately 59 parishes of a motion directingLouisiana. Entergy Louisiana holds non-exclusive franchises to temporarily suspendprovide natural gas service to customers in the repowering projectCity of Baton Rouge and based upon an analysisin East Baton Rouge Parish. Municipal franchise agreement terms range from 25 to 60 years while parish franchise terms range from 25 to 99 years.
Entergy Mississippi has received from the MPSC certificates of the project’s economic viability,public convenience and necessity to make a recommendation regarding whetherprovide electric service to proceed with the project. This action was based uponareas within 45 counties, including a number of factors includingmunicipalities, in western Mississippi. Under Mississippi statutory law, such certificates are exclusive. Entergy Mississippi may continue to serve in such municipalities upon payment of a statutory franchise fee, regardless of whether an original municipal franchise is still in existence.
Entergy New Orleans provides electric and gas service in the recent declineCity of New Orleans pursuant to indeterminate permits set forth in naturalcity ordinances. These ordinances contain a continuing option for the City of New Orleans to purchase Entergy New Orleans’s electric and gas prices,utility properties.
Entergy Texas holds a certificate of convenience and necessity from the PUCT to provide electric service to areas within approximately 27 counties in eastern Texas, and holds non-exclusive franchises to provide electric service in approximately 68 incorporated municipalities. Entergy Texas typically obtains 25-year franchise agreements as existing agreements expire. Entergy Texas’s electric franchises expire over the period 2020-2058.
The business of System Energy is limited to wholesale power sales. It has no distribution franchises.
Property and Other Generation Resources
Owned Generating Stations
The total capability of the generating stations owned and leased by the Utility operating companies and System Energy as of December 31, 2019, is indicated below:
|
| | | | | | | | | | | | | | | | | | |
| | Owned and Leased Capability MW(a) |
Company | | Total | | Gas/Oil | | Nuclear | | Coal | | Hydro | | Solar |
Entergy Arkansas | | 5,183 |
| | 2,106 |
| | 1,810 |
| | 1,194 |
| | 73 |
| | — |
|
Entergy Louisiana | | 10,050 |
| | 7,556 |
| | 2,144 |
| | 350 |
| | — |
| | — |
|
Entergy Mississippi | | 3,342 |
| | 2,923 |
| | — |
| | 417 |
| | — |
| | 2 |
|
Entergy New Orleans | | 508 |
| | 507 |
| | — |
| | — |
| | — |
| | 1 |
|
Entergy Texas | | 2,293 |
| | 2,034 |
| | — |
| | 259 |
| | — |
| | — |
|
System Energy | | 1,393 |
| | — |
| | 1,393 |
| | — |
| | — |
| | — |
|
Total | | 22,769 |
| | 15,126 |
| | 5,347 |
| | 2,220 |
| | 73 |
| | 3 |
|
| |
(a) | “Owned and Leased Capability” is the dependable load carrying capability as demonstrated under actual operating conditions based on the primary fuel (assuming no curtailments) that each station was designed to utilize. |
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Entergy Corporation, Utility operating companies, and System Energy
Summer peak load for the Utility has averaged 21,636 MW over the previous decade.
The Utility operating companies’ load and capacity projections are reviewed periodically to assess the need and timing for additional generating capacity and interconnections. These reviews consider existing and projected demand, the availability and price of power, the location of new load, the economy, environmental regulations, public policy goals, and the age and condition of Entergy’s existing infrastructure.
The Utility operating companies’ long-term resource strategy (Portfolio Transformation Strategy) calls for the bulk of capacity needs to be met through long-term resources, whether owned or contracted. Over the past decade, the Portfolio Transformation Strategy has resulted in the addition of about 7,314 MW of new long-term resources and the deactivation of over 4,465 MW of legacy generation. As MISO market participants, the Utility operating companies also participate in MISO’s Day Ahead and Real Time Energy and Ancillary Services markets to economically dispatch generation and purchase energy to serve customers reliably and at the lowest reasonable cost.
Other Generation Resources
RFP Procurements
The Utility operating companies from time to time issue requests for proposals (RFP) to procure supply-side resources from sources other than the spot market to meet the unique regional needs of the Utility operating companies. The RFPs issued by the Utility operating companies have sought resources needed to meet near-term MISO reliability requirements as well as environmental concerns,longer-term requirements through a broad range of wholesale power products, including limited-term (1 to 3 years) and long-term contractual products and asset acquisitions. The RFP process has resulted in selections or acquisitions, including, among other things:
Entergy Louisiana’s June 2005 purchase of the unknown costs718 MW, gas-fired Perryville plant, of carbon legislation and changes inwhich 35% of the capital/financial markets. In April 2009,output is sold to Entergy Texas;
Entergy Arkansas’s September 2008 purchase of the 789 MW, combined-cycle, gas-fired Ouachita Generating Facility. Entergy Louisiana, compliedas successor in interest to Entergy Gulf States Louisiana, owns one-third of the facility;
Entergy Arkansas’s November 2012 purchase of the 620 MW, combined-cycle, gas-fired Hot Spring Energy facility;
Entergy Mississippi’s November 2012 purchase of the 450 MW, combined-cycle, gas-fired Hinds Energy facility;
Entergy Louisiana’s construction of the 560 MW, combined-cycle, gas turbine Ninemile 6 generating facility at its existing Ninemile Point electric generating station. The facility began commercial operation in December 2014;
Entergy Louisiana’s construction of the 980 MW, combined-cycle, gas turbine St. Charles generating facility at its existing Little Gypsy electric generating station. The facility began commercial operation in May 2019;
Entergy Texas’s construction of the 993 MW, combined-cycle, gas turbine Montgomery County generating facility at its existing Lewis Creek electric generating station. Entergy Texas received regulatory approval from the PUCT in July 2017 and the facility is scheduled to be in service by mid-2021;
Entergy Louisiana’s construction of the 994 MW, combined-cycle, gas turbine Lake Charles generating facility at its existing Nelson electric generating station. Entergy Louisiana received regulatory approval from the LPSC in July 2017 and the facility is scheduled to be in service by mid-2020;
In October 2018, Entergy Mississippi signed an asset acquisition agreement for the purchase of an approximately 100 MW to-be-constructed solar photovoltaic facility located in Sunflower County, Mississippi. In December 2018, Entergy Mississippi filed for regulatory approval. A hearing before the MPSC is targeted to occur by the second quarter 2020, and closing is expected to occur by the end of 2021;
In March 2019, Entergy Arkansas signed an agreement for the purchase of an approximately 100 MW to-be- constructed solar energy facility that will be sited on approximately 800 acres in White County near Searcy, Arkansas. In May 2019, Entergy Arkansas filed a petition with the LPSC’s directive and recommendedAPSC seeking a finding that the project be suspended for an extended periodtransaction
Part I Item 1
Entergy Louisiana’s decision to place the Little Gypsy project into a longer-term suspension of three years or more Corporation, Utility operating companies, and System Energy
is in the public interest and prudent.requesting all necessary approvals. Closing is expected to occur by the end of 2021; and
Entergy New Orleans’s construction of the 20 MW, self-build solar project New Orleans Solar Station located at the NASA Michoud Facility. In August 2019, Entergy New Orleans received regulatory approval and the facility is scheduled to be in service as early as late-2020.
The RFP process has also resulted in the selection, or confirmation of the economic merits of, long-term purchased power agreements (PPAs), including, among others:
River Bend 30% life-of-unit PPA between Entergy Louisiana and Entergy New Orleans for 100 MW related to Entergy Louisiana’s unregulated portion of the River Bend nuclear station, which portion was formerly owned by Cajun;
Entergy Arkansas wholesale base load capacity life-of-unit PPAs executed in 2003 totaling approximately 220 MW between Entergy Arkansas and Entergy Louisiana (110 MW) and between Entergy Arkansas and Entergy New Orleans (110 MW) related to the sale of a portion of Entergy Arkansas’s coal and nuclear base load resources (which had not been included in Entergy Arkansas’s retail rates);
In December 2009, Entergy Texas and Exelon Generation Company, LLC executed a 10-year agreement for 150-300 MW from the Frontier Generating Station located in Grimes County, Texas;
In May 2011, Entergy Texas and Calpine Energy Services, L.P. executed a 10-year agreement for 485 MW from the Carville Energy Center located in St. Gabriel, Louisiana. Entergy Louisiana purchases 50% of the facility’s capacity and energy from Entergy Texas. In July 2014, LS Power purchased the Carville Energy Center and replaced Calpine Energy Services as the counterparty to the agreement;
In September 2012, Entergy Gulf States Louisiana executed a 20-year agreement for 28 MW, with the potential to purchase an additional 9 MW when available, from Rain CII Carbon LLC’s petroleum coke calcining facility in Sulphur, Louisiana. The facility began commercial operation in May 2013. Entergy Louisiana, as successor in interest to Entergy Gulf States Louisiana, now holds the agreement with the facility;
In March 2013, Entergy Gulf States Louisiana executed a 20-year agreement for 8.5 MW from Agrilectric Power Partners, LP’s refurbished rice hull-fueled electric generation facility located in Lake Charles, Louisiana. Entergy Louisiana, as successor in interest to Entergy Gulf States Louisiana, now holds the agreement with Agrilectric;
In September 2013, Entergy Louisiana executed a 10-year agreement with TX LFG Energy, LP, a wholly-owned subsidiary of Montauk Energy Holdings, LLC, to purchase approximately 3 MW from its landfill gas-fueled power generation facility located in Cleveland, Texas;
Entergy Mississippi’s cost-based purchase, beginning in January 2013, of 90 MW from Entergy Arkansas’s share of Grand Gulf (only 60 MW of this PPA came through the RFP process). Cost recovery for the 90 MW was approved by the MPSC in January 2013;
In April 2015, Entergy Arkansas and Stuttgart Solar, LLC executed a 20-year agreement for 81 MW from a solar photovoltaic electric generation facility located near Stuttgart, Arkansas. The APSC approved the project and deliveries pursuant to that agreement commenced in June 2018;
In November 2016, Entergy Louisiana and LS Power executed a 10-year agreement for 485 MW from the Carville Energy Center located in St. Gabriel, Louisiana. The transaction received regulatory approval and will begin in June 2022;
In November 2016, Entergy Louisiana and Occidental Chemical Corporation executed a 10-year agreement for 500 MW from the Taft Cogeneration facility located in Hahnville, Louisiana. The transaction received regulatory approval and began in June 2018;
In June 2017, Entergy Arkansas and Chicot Solar, LLC executed a 20-year agreement for 100 MW from a solar photovoltaic electric generating facility located in Chicot County, Arkansas. The transaction received regulatory approval and will begin in August 2020;
In February 2018, Entergy Louisiana and LA3 West Baton Rouge, LLC (Capital Region Solar project) executed a 20-year agreement for 50 MW from a solar photovoltaic electric generating facility located in West Baton Rouge Parish, Louisiana. The transaction received regulatory approval in February 2019 and the agreement is expected to begin in second quarter 2020;
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Entergy Corporation, Utility operating companies, and System Energy
In July 2018, Entergy New Orleans and St. James Solar, LLC executed a 20-year agreement for 20 MW from a solar photovoltaic electric generating facility located in St. James Parish, Louisiana. The transaction received regulatory approval in July 2019; and
In February 2019, Entergy New Orleans and Iris Solar, LLC executed a 20-year agreement for 50 MW from a solar photovoltaic electric generating facility located in Washington Parish, Louisiana. The transaction received regulatory approval in July 2019.
Other Procurements From Third Parties
The Utility operating companies have also made resource acquisitions outside of the RFP process, including Entergy Mississippi’s January 2006 acquisition of the 480 MW, combined-cycle, gas-fired Attala power plant; Entergy Gulf States Louisiana’s March 2008 acquisition of the 322 MW, simple-cycle, gas-fired Calcasieu Generating Facility; Entergy Louisiana’s April 2011 acquisition of the 580 MW, combined-cycle, gas-fired Acadia Energy Center Unit 2; Entergy Arkansas’s (Power Block 2), Entergy Louisiana’s (Power Blocks 3 and 4), and Entergy New Orleans’s (Power Block 1) March 2016 acquisitions of the 1,980 MW (summer rating), natural gas-fired, combined-cycle gas turbine Union Power Station power blocks, each rated at 495 MW (summer rating); and Entergy Mississippi’s October 2019 acquisition of the 810 MW, combined-cycle, natural gas-fired Choctaw Generating Station. The Utility operating companies have also entered into various limited- and long-term contracts in recent years as a result of bilateral negotiations.
The Washington Parish Energy Center is a 361 MW natural gas-fired peaking power plant under construction approximately 60 miles north of New Orleans on a site Entergy Louisiana purchased from Calpine in 2019. In May 2018, Entergy Louisiana received LPSC approval of its certification application for this simple-cycle power plant to be developed pursuant to an agreement between Calpine and Entergy Louisiana. Calpine began construction on the plant in early 2019 and Entergy Louisiana will purchase the plant upon completion, anticipated to be later in 2020, for a fixed payment to reimburse construction costs plus an associated premium.
Interconnections
The Utility operating companies’ generating units are interconnected by a transmission system operating at various voltages up to 500 kV. These generating units consist primarily of steam-electric production facilities and are provided dispatch instructions by MISO. Entergy’s Utility operating companies are MISO market participants and are interconnected with many neighboring utilities. MISO is an essential link in the safe, cost-effective delivery of electric power across all or parts of 15 U.S. states and the Canadian province of Manitoba. As a Regional Transmission Organization, MISO assures consumers of unbiased regional grid management and open access to the transmission facilities under MISO’s functional supervision. In addition, the Utility operating companies are members of SERC. SERC is a nonprofit corporation responsible for promoting and improving the reliability, adequacy, and critical infrastructure of the bulk power supply systems in all or portions of 16 central and southeastern states.SERC serves as a regional entity with delegated authority from the North American Electric Reliability Corporation (NERC) for the purpose of proposing and enforcing reliability standards within the SERC Region.
Gas Property
As of December 31, 2019, Entergy New Orleans distributed and transported natural gas for distribution within New Orleans, Louisiana, through approximately 2,600 miles of gas pipeline. As of December 31, 2019, the gas properties of Entergy Louisiana, which are located in and around Baton Rouge, Louisiana, were not material to Entergy Louisiana’s financial position.
Title
The Utility operating companies’ generating stations are generally located on properties owned in fee simple. Most of the substations and transmission and distribution lines are constructed on private property or public
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rights-of-way pursuant to easements, servitudes, or appropriate franchises. Some substation properties are owned in fee simple. The Utility operating companies generally have the right of eminent domain, whereby they may perfect title to, or secure easements or servitudes on, private property for their utility operations.
Substantially all of the physical properties and assets owned by Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy are subject to the liens of mortgages securing bonds issued by those companies. The Lewis Creek generating station of Entergy Texas was acquired by merger with a subsidiary of Entergy Texas and is currently not subject to the lien of the Entergy Texas indenture.
Fuel Supply
The sources of generation and average fuel cost per kWh for the Utility operating companies and System Energy for the years 2017-2019 were:
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| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Natural Gas | | Nuclear | | Coal | | Purchased Power | | MISO Purchases |
Year | | % of Gen | | Cents Per kWh | | % of Gen | | Cents Per kWh | | % of Gen | | Cents Per kWh | | % of Gen | | Cents Per kWh | | % of Gen | | Cents Per kWh |
2019 | | 40 | | 2.33 |
| | 28 | | 0.73 |
| | 6 | | 2.31 |
| | 8 | | 4.86 |
| | 18 | | 2.71 |
|
2018 | | 39 | | 2.84 |
| | 27 | | 0.84 |
| | 9 | | 2.24 |
| | 8 | | 5.23 |
| | 17 | | 3.71 |
|
2017 | | 38 | | 2.60 |
| | 26 | | 0.86 |
| | 8 | | 2.35 |
| | 8 | | 4.02 |
| | 20 | | 3.09 |
|
Actual 2019 and projected 2020 sources of generation for the Utility operating companies and System Energy, including certain power purchases from affiliates under life of unit power purchase agreements, including the Unit Power Sales Agreement, are:
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Natural Gas | | Nuclear | | Coal | | Purchased Power (d) | | MISO Purchases (e) |
| 2019 | | 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 | | 2020 |
Entergy Arkansas (a) | 28 | % | | 33 | % | | 53 | % | | 53 | % | | 15 | % | | 13 | % | | 1 |
| | 1 | % | | 3 | % | | — |
Entergy Louisiana | 43 | % | | 56 | % | | 25 | % | | 28 | % | | 2 | % | | 4 | % | | 10 | % | | 12 | % | | 20 | % | | — |
Entergy Mississippi (b) | 49 | % | | 72 | % | | 25 | % | | 19 | % | | 9 | % | | 9 | % | | — |
| | — |
| | 17 | % | | — |
Entergy New Orleans (b) | 51 | % | | 58 | % | | 39 | % | | 39 | % | | 2 | % | | 2 | % | | 1 | % | | 1 | % | | 7 | % | | — |
Entergy Texas | 29 | % | | 32 | % | | 9 | % | | 18 | % | | 4 | % | | 11 | % | | 30 | % | | 39 | % | | 28 | % | | — |
System Energy (c) | — |
| | — |
| | 100 | % | | 100 | % | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
Utility (a) (b) | 40 | % | | 51 | % | | 28 | % | | 32 | % | | 6 | % | | 7 | % | | 8 | % | | 10 | % | | 18 | % | | — |
| |
(a) | Hydroelectric power provided less than 1% of Entergy Arkansas’s generation in 2019 and is expected to provide less than 1% of its generation in 2020. |
| |
(b) | Solar power provided less than 1% of Entergy Mississippi’s and Entergy New Orleans's generation in 2019 and is expected to provide less than 1% of each of Entergy Mississippi’s and Entergy New Orleans's generation in 2020. |
| |
(c) | Capacity and energy from System Energy’s interest in Grand Gulf is allocated as follows under the Unit Power Sales Agreement: Entergy Arkansas - 36%; Entergy Louisiana - 14%; Entergy Mississippi - 33%; and Entergy New Orleans - 17%. Pursuant to purchased power agreements, Entergy Arkansas is selling a portion of its owned capacity and energy from Grand Gulf to Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans. |
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(d) | Excludes MISO purchases. |
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(e) | In December 2013, Entergy integrated its transmission system into the MISO RTO. Entergy offers all of its generation into the MISO energy market on a day-ahead and real-time basis and bids for power in the MISO energy market to serve the demand of its customers, with MISO making dispatch decisions. The MISO purchases metric provided for 2019 is not projected for 2020. |
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Some of the Utility’s gas-fired plants are also capable of using fuel oil, if necessary. Although based on current economics the Utility does not expect fuel oil use in 2020, it is possible that various operational events including weather or pipeline maintenance may require the use of fuel oil.
Natural Gas
The Utility operating companies have long-term firm and short-term interruptible gas contracts for both supply and transportation. Over 50% of the Utility operating companies’ power plants maintain some level of long-term firm transportation. Short-term contracts and spot-market purchases satisfy additional gas requirements. Entergy Texas owns a gas storage facility that provides reliable and flexible natural gas service to certain generating stations.
Many factors, including wellhead deliverability, storage, pipeline capacity, and demand requirements of end users, influence the availability and price of natural gas supplies for power plants. Demand is primarily tied to weather conditions as well as to the prices and availability of other energy sources. Pursuant to federal and state regulations, gas supplies to power plants may be interrupted during periods of shortage. To the extent natural gas supplies are disrupted or natural gas prices significantly increase, the Utility operating companies may in some instances use alternate fuels, such as oil when available, or rely to a larger extent on coal, nuclear generation, and purchased power.
Coal
Entergy Arkansas has committed to seven one- to three-year and two spot contracts that will supply approximately 85% of the total coal supply needs in 2020. These contracts are staggered in term so that not all contracts have to be renewed the same year. The remaining 15% of total coal requirements will be satisfied by contracts with a term of less than one year. Based on continued improved Powder River Basin (PRB) coal deliveries by rail and the high cost of alternate sources and modes of transportation, no alternative coal consumption is expected at Entergy Arkansas during 2020. Coal will be transported to Arkansas via an existing transportation agreement that is expected to provide all of Entergy Arkansas’s rail transportation requirements for 2020.
Entergy Louisiana has committed to four one- to three-year contracts that will supply approximately 90% of Nelson Unit 6 coal needs in 2020. If needed, additional PRB coal will be purchased through contracts with a term of less than one year to provide the remaining supply needs. For the same reasons as for Entergy Arkansas’s plants, no alternative coal consumption is expected at Nelson Unit 6 during 2020. Coal will be transported to Nelson primarily via an existing transportation agreement that is expected to provide all of Entergy Louisiana’s rail transportation requirements for 2020.
For the year 2019, coal transportation delivery rates to Entergy Arkansas-and Entergy Louisiana-operated coal-fired units were satisfactory to meet supply needs and obligations. Delivery rates improved in the second half of the year as track restoration efforts were completed by the railroads following spring flooding events, although flooding impacts were overall inconsequential to the companies’ coal operations. Both Entergy Arkansas and Entergy Louisiana control a sufficient number of railcars to satisfy the rail transportation requirement.
The operator of Big Cajun 2 - Unit 3, Louisiana Generating, LLC, has advised Entergy Louisiana and Entergy Texas that it has adequate rail car and barge capacity to meet the volumes of PRB coal requested for 2020. Entergy Louisiana’s and Entergy Texas’s coal nomination requests to Big Cajun 2 - Unit 3 are made on an annual basis.
Nuclear Fuel
The nuclear fuel cycle consists of the following:
mining and milling of uranium ore to produce a concentrate;
conversion of the concentrate to uranium hexafluoride gas;
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enrichment of the uranium hexafluoride gas;
fabrication of nuclear fuel assemblies for use in fueling nuclear reactors; and
disposal of spent fuel.
The Registrant Subsidiaries that own nuclear plants, Entergy Arkansas, Entergy Louisiana, and System Energy, are responsible through a shared regulated uranium pool for contracts to acquire nuclear material to be used in fueling Entergy’s Utility nuclear units. These companies own the materials and services in this shared regulated uranium pool on a pro rata fractional basis determined by the nuclear generation capability of each company. Any liabilities for obligations of the pooled contracts are on a several but not joint basis. The shared regulated uranium pool maintains inventories of nuclear materials during the various stages of processing. The Registrant Subsidiaries purchase enriched uranium hexafluoride for their nuclear plant reload requirements at the average inventory cost from the shared regulated uranium pool. Entergy Operations, Inc. contracts separately for the fabrication of nuclear fuel as agent on behalf of each of the Registrant Subsidiaries that owns a nuclear plant. All contracts for the disposal of spent nuclear fuel are between the DOE and the owner of a nuclear power plant.
Based upon currently planned fuel cycles, the Utility nuclear units have a diversified portfolio of contracts and inventory that provides substantially adequate nuclear fuel materials and conversion and enrichment services at what Entergy believes are reasonably predictable or fixed prices through most of 2023. Entergy’s ability to purchase nuclear fuel at reasonably predictable prices, however, depends upon the performance reliability of uranium miners. There are a number of possible supply alternatives that may be accessed to mitigate any supplier performance failure, including potentially drawing upon Entergy’s inventory intended for later generation periods depending upon its risk management strategy at that time, although the pricing of any alternate uranium supply from the market will be dependent upon the market for uranium supply at that time. In addition, some nuclear fuel contracts are on a non-fixed price basis subject to prevailing prices at the time of delivery.
The effects of market price changes may be reduced and deferred by risk management strategies, such as negotiation of floor and ceiling amounts for long-term contracts, buying for inventory or entering into forward physical contracts at fixed prices when Entergy believes it is appropriate and useful. Entergy buys uranium from a diversified mix of sellers located in a diversified mix of countries, and from time to time purchases from nearly all qualified reliable major market participants worldwide that sell into the U.S.
Entergy’s ability to assure nuclear fuel supply also depends upon the performance reliability of conversion, enrichment, and fabrication services providers. There are fewer of these providers than for uranium. For conversion and enrichment services, like uranium, Entergy diversifies its supply by supplier and country and may take special measures as needed to ensure supply of enriched uranium for the reliable fabrication of nuclear fuel. For fabrication services, each plant is dependent upon the effective performance of the fabricator of that plant’s nuclear fuel, therefore, Entergy provides additional monitoring, inspection, and oversight for the fabrication process to assure reliability and quality.
Entergy Arkansas, Entergy Louisiana, and System Energy each have made arrangements to lease nuclear fuel and related equipment and services. The lessors, which are consolidated in the financial statements of Entergy and the applicable Registrant Subsidiary, finance the acquisition and ownership of nuclear fuel through credit agreements and the issuance of notes. These credit facilities are subject to periodic renewal, and the notes are issued periodically, typically for terms between three and seven years.
Natural Gas Purchased for Resale
Entergy New Orleans has several suppliers of natural gas. Its system is interconnected with one interstate and three intrastate pipelines. Entergy New Orleans has a “no-notice” service gas purchase contract with CenterPoint Energy Services which guarantees Entergy New Orleans gas delivery at specific delivery points and at any volume within the minimum and maximum set forth in the contract amounts. The CenterPoint Energy Service gas supply is
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transported to Entergy New Orleans pursuant to a transportation service agreement with Gulf South Pipeline Co. This service is subject to FERC-approved rates. Entergy New Orleans also makes interruptible spot market purchases.
Entergy Louisiana purchased natural gas for resale in 2019 under a firm contract from Sequent Energy Management L.P. The gas is delivered through a combination of intrastate and interstate pipelines.
As a result of the implementation of FERC-mandated interstate pipeline restructuring in 1993, curtailments of interstate gas supply could occur if Entergy Louisiana’s or Entergy New Orleans’s suppliers failed to perform their obligations to deliver gas under their supply agreements. Gulf South Pipeline Co. could curtail transportation capacity only in the event of pipeline system constraints.
Federal Regulation of the Utility
State or local regulatory authorities, as described above, regulate the retail rates of the Utility operating companies. The FERC regulates wholesale sales of electricity rates and interstate transmission of electricity, including System Energy’s sales of capacity and energy from Grand Gulf to Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans pursuant to the Unit Power Sales Agreement. See Note 2 to the financial statements for further discussion of federal regulation proceedings.
System Agreement (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and Entergy Texas)
Prior to each operating company’s termination of participation in the System Agreement (Entergy Arkansas in December 2013, Entergy Mississippi in November 2015, and Entergy Louisiana, Entergy New Orleans, and Entergy Texas each in August 2016), the Utility operating companies engaged in the coordinated planning, construction, and operation of generating and bulk transmission facilities under the terms of the System Agreement, which was a rate schedule approved by the FERC. Under the terms of the System Agreement, generating capacity and other power resources were jointly operated by the Utility operating companies that were participating in the System Agreement. The System Agreement provided, among other things, that parties having generating reserves greater than their allocated share of reserves (long companies) would receive payments from those parties having generating reserves that were less than their allocated share of reserves (short companies). Such payments were at amounts sufficient to cover certain of the long companies’ costs for intermediate and peaking oil/gas-fired generation, including operating expenses, fixed charges on debt, dividend requirements on preferred equity, and a fair rate of return on common equity investment. Under the System Agreement, the rates used to compensate long companies were based on costs associated with the long companies’ steam electric generating units fueled by oil or gas and having an annual average heat rate above 10,000 Btu/kWh. In addition, for all energy exchanged among the Utility operating companies under the System Agreement, the companies purchasing exchange energy were required to pay the cost of fuel consumed in generating such energy plus a charge to cover other associated costs.
Although the System Agreement has terminated, certain of the Utility operating companies’ and their retail regulators are pursuing litigation involving the System Agreement at the FERC and in federal courts. The proceedings include challenges to the allocation of costs as defined by the System Agreement and other matters. See Note 2 to the financial statements for discussion of legal proceedings at the FERC and in federal courts involving the System Agreement.
Transmission and MISO Markets
In December 2013 the Utility operating companies integrated into the MISO RTO. Although becoming a member of MISO did not affect the ownership by the Utility operating companies of their transmission facilities or the responsibility for maintaining those facilities, MISO maintains functional control over the combined transmission systems of its members and administers wholesale energy and ancillary services markets for market participants in the MISO region, including the Utility operating companies. MISO also exercises functional control of transmission
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planning and congestion management and provides schedules and pricing for the commitment and dispatch of generation that is offered into MISO’s markets, as well as pricing for load that bids into the markets. The Utility operating companies sell capacity, energy, and ancillary services on a bilateral basis to certain wholesale customers and offer available electricity production of their generating facilities into the MISO day-ahead and real-time energy markets pursuant to the MISO tariff and market rules. Each Utility operating company has its own transmission pricing zone and a formula rate template (included as Attachment O to the MISO tariff) used to establish transmission rates within MISO. The terms and conditions of the MISO tariff, including provisions related to the design and implementation of wholesale markets and the allocation of transmission upgrade costs, are subject to regulation by the FERC.
System Energy and Related Agreements
System Energy recovers costs related to its interest in Grand Gulf through rates charged to Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans for capacity and energy under the Unit Power Sales Agreement (described below). In July 2001 a rate proceeding commenced by System Energy at the FERC in 1995 became final, with the FERC approving a prospective 10.94% return on equity. In 1998 the FERC approved requests by Entergy Arkansas and Entergy Mississippi to accelerate a portion of their Grand Gulf purchased power obligations. Entergy Arkansas’s and Entergy Mississippi’s acceleration of Grand Gulf purchased power obligations ceased effective July 2001 and July 2003, respectively, as approved by the FERC. See Note 2 to the financial statements for discussion of complaints filed with the FERC regarding System Energy’s return on equity.
Unit Power Sales Agreement
The Unit Power Sales Agreement allocates capacity, energy, and the related costs from System Energy’s ownership and leasehold interests in Grand Gulf to Entergy Arkansas (36%), Entergy Louisiana (14%), Entergy Mississippi (33%), and Entergy New Orleans (17%). Each of these companies is obligated to make payments to System Energy for its entitlement of capacity and energy on a full cost-of-service basis regardless of the quantity of energy delivered. Payments under the Unit Power Sales Agreement are System Energy’s only source of operating revenue. The financial condition of System Energy depends upon the continued commercial operation of Grand Gulf and the receipt of such payments. Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans generally recover payments made under the Unit Power Sales Agreement through rates charged to their customers.
In the case of Entergy Arkansas and Entergy Louisiana, payments are also recovered through sales of electricity from their respective retained shares of Grand Gulf. Under a settlement agreement entered into with the APSC in 1985 and amended in 1988, Entergy Arkansas retains 22% of its 36% share of Grand Gulf-related costs and recovers the remaining 78% of its share in rates. In the event that Entergy Arkansas is not able to sell its retained share to third parties, it may sell such energy to its retail customers at a price equal to its avoided cost, which is currently less than Entergy Arkansas’s cost from its retained share. Entergy Arkansas has life-of-resources purchased power agreements with Entergy Louisiana and Entergy New Orleans that sell a portion of the output of Entergy Arkansas’s retained share of Grand Gulf to those companies, with the remainder of the retained share being sold to Entergy Mississippi through a separate life-of-resources purchased power agreement. In a series of LPSC orders, court decisions, and agreements from late 1985 to mid-1988, Entergy Louisiana was granted rate relief with respect to costs associated with Entergy Louisiana’s share of capacity and energy from Grand Gulf, subject to certain terms and conditions. Entergy Louisiana retains and does not recover from retail ratepayers 18% of its 14% share of the costs of Grand Gulf capacity and energy and recovers the remaining 82% of its share in rates. Entergy Louisiana is allowed to recover through the fuel adjustment clause at 4.6 cents per kWh for the energy related to its retained portion of these costs. Alternatively, Entergy Louisiana may sell such energy to non-affiliated parties at prices above the fuel adjustment clause recovery amount, subject to the LPSC’s approval. Entergy Arkansas also has a life-of-resources purchased power agreement with Entergy Mississippi to sell a portion of the output of Entergy Arkansas’s non-retained share of Grand Gulf. Entergy Mississippi was granted rate relief for those purchases by the MPSC through its annual unit power cost rate mechanism.
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Availability Agreement
The Availability Agreement among System Energy and Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans was entered into in 1974 in connection with the financing by System Energy of Grand Gulf. The Availability Agreement provides that System Energy make available to Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans all capacity and energy available from System Energy’s share of Grand Gulf.
Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans also agreed severally to pay System Energy monthly for the right to receive capacity and energy from Grand Gulf in amounts that (when added to any amounts received by System Energy under the Unit Power Sales Agreement) would at least equal System Energy’s total operating expenses for Grand Gulf (including depreciation at a specified rate and expenses incurred in a permanent shutdown of Grand Gulf) and interest charges.
The allocation percentages under the Availability Agreement are fixed as follows: Entergy Arkansas - 17.1%; Entergy Louisiana - 26.9%; Entergy Mississippi - 31.3%; and Entergy New Orleans - 24.7%. The allocation percentages under the Availability Agreement would remain in effect and would govern payments made under such agreement in the event of a shortfall of funds available to System Energy from other sources, including payments under the Unit Power Sales Agreement.
System Energy has assigned its rights to payments and advances from Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans under the Availability Agreement as security for its one outstanding series of first mortgage bonds. In these assignments, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans further agreed that, in the event they were prohibited by governmental action from making payments under the Availability Agreement (for example, if the FERC reduced or disallowed such payments as constituting excessive rates), they would then make subordinated advances to System Energy in the same amounts and at the same times as the prohibited payments. System Energy would not be allowed to repay these subordinated advances so long as it remained in default under the related indebtedness or in other similar circumstances.
Each of the assignment agreements relating to the Availability Agreement provides that Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans will make payments directly to System Energy. However, if there is an event of default, those payments must be made directly to the holders of indebtedness that are the beneficiaries of such assignment agreements. The payments must be made pro rata according to the amount of the respective obligations secured.
The obligations of Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans to make payments under the Availability Agreement are subject to the receipt and continued effectiveness of all necessary regulatory approvals. Sales of capacity and energy under the Availability Agreement would require that the Availability Agreement be submitted to the FERC for approval with respect to the terms of such sale. No such filing with the FERC has been made because sales of capacity and energy from Grand Gulf are being made pursuant to the Unit Power Sales Agreement. If, for any reason, sales of capacity and energy are made in the future pursuant to the Availability Agreement, the jurisdictional portions of the Availability Agreement would be submitted to the FERC for approval.
Since commercial operation of Grand Gulf began, payments under the Unit Power Sales Agreement to System Energy have exceeded the amounts payable under the Availability Agreement and, therefore, no payments under the Availability Agreement have ever been required. If Entergy Arkansas or Entergy Mississippi fails to make its Unit Power Sales Agreement payments, and System Energy is unable to obtain funds from other sources, Entergy Louisiana and Entergy New Orleans could become subject to claims or demands by System Energy or its creditors for payments or advances under the Availability Agreement (or the assignments thereof) equal to the difference between their required Unit Power Sales Agreement payments and their required Availability Agreement payments because their Availability Agreement obligations exceed their Unit Power Sales Agreement obligations.
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The Availability Agreement may be terminated, amended, or modified by mutual agreement of the parties thereto, without further consent of any assignees or other creditors.
Service Companies
Entergy Services, a limited liability company wholly-owned by Entergy Corporation, provides management, administrative, accounting, legal, engineering, and other services primarily to the Utility operating companies, but also provides services to Entergy Wholesale Commodities. Entergy Operations is also wholly-owned by Entergy Corporation and provides nuclear management, operations and maintenance services under contract for ANO, River Bend, Waterford 3, and Grand Gulf, subject to the owner oversight of Entergy Arkansas, Entergy Louisiana, and System Energy, respectively. Entergy Services and Entergy Operations provide their services to the Utility operating companies and System Energy on an “at cost” basis, pursuant to cost allocation methodologies for these service agreements that were approved by the FERC.
Jurisdictional Separation of Entergy Gulf States, Inc. into Entergy Gulf States Louisiana and Entergy Texas
Effective December 31, 2007, Entergy Gulf States, Inc. completed a jurisdictional separation into two vertically integrated utility companies, one operating under the sole retail jurisdiction of the PUCT, Entergy Texas, and the other operating under the sole retail jurisdiction of the LPSC, Entergy Gulf States Louisiana. Entergy Texas owns all Entergy Gulf States, Inc. distribution and transmission assets located in Texas, the gas-fired generating plants located in Texas, undivided 42.5% ownership shares of Entergy Gulf States, Inc.’s 70% ownership interest in Nelson Unit 6 and 42% ownership interest in Big Cajun 2, Unit 3, which are coal-fired generating plants located in Louisiana, and other assets and contract rights to the extent related to utility operations in Texas. Entergy Louisiana, as successor in interest to Entergy Gulf States Louisiana, owns all of the remaining assets that were owned by Entergy Gulf States, Inc. On a book value basis, approximately 58.1% of the Entergy Gulf States, Inc. assets were allocated to Entergy Gulf States Louisiana and approximately 41.9% were allocated to Entergy Texas.
Entergy Texas purchases from Entergy Louisiana pursuant to a life-of-unit purchased power agreement a 42.5% share of capacity and energy from the 70% of River Bend subject to retail regulation. Entergy Texas was allocated a share of River Bend’s nuclear and environmental liabilities that is identical to the share of the plant’s output purchased by Entergy Texas under the purchased power agreement. In connection with the termination of the System Agreement effective August 31, 2016, the purchased power agreements that were put in place for certain legacy units at the time of the jurisdictional separation were also terminated at that time. See Note 2 to the financial statements for additional discussion of the purchased power agreements.
Entergy Louisiana and Entergy Gulf States Louisiana Business Combination
On October 1, 2015, the businesses formerly conducted by Entergy Louisiana (Old Entergy Louisiana) and Entergy Gulf States Louisiana (Old Entergy Gulf States Louisiana) were combined into a single public utility. In order to effect the business combination, under the Texas Business Organizations Code (TXBOC), Old Entergy Louisiana allocated substantially all of its assets to a new subsidiary, Entergy Louisiana Power, LLC, a Texas limited liability company (New Entergy Louisiana), and New Entergy Louisiana assumed the liabilities of Old Entergy Louisiana, in a transaction regarded as a merger under the TXBOC. Under the TXBOC, Old Entergy Gulf States Louisiana allocated substantially all of its assets to a new subsidiary (New Entergy Gulf States Louisiana) and New Entergy Gulf States Louisiana assumed the liabilities of Old Entergy Gulf States Louisiana, in a transaction regarded as a merger under the TXBOC. New Entergy Gulf States Louisiana then merged into New Entergy Louisiana with New Entergy Louisiana surviving the merger. Thereupon, Old Entergy Louisiana changed its name from “Entergy Louisiana, LLC” to “EL Investment Company, LLC” and New Entergy Louisiana changed its name from “Entergy Louisiana Power, LLC” to “Entergy Louisiana, LLC” (Entergy Louisiana). With the completion of the business combination, Entergy Louisiana holds substantially all of the assets, and has assumed the liabilities, of Old Entergy Louisiana and Old Entergy Gulf States Louisiana.
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Entergy New Orleans Internal Restructuring
In November 2017, pursuant to the agreement in principle, Entergy New Orleans, Inc. undertook a multi-step restructuring, including the following:
Entergy New Orleans, Inc. redeemed its outstanding preferred stock at a price of approximately $21 million, which included a call premium of approximately $819,000, plus any accumulated and unpaid dividends.
Entergy New Orleans, Inc. converted from a Louisiana corporation to a Texas corporation.
Under the Texas Business Organizations Code (TXBOC), Entergy New Orleans, Inc. allocated substantially all of its assets to a new subsidiary, Entergy New Orleans Power, LLC, a Texas limited liability company (Entergy New Orleans Power), and Entergy New Orleans Power assumed substantially all of the liabilities of Entergy New Orleans, Inc. in a transaction regarded as a merger under the TXBOC. Entergy New Orleans, Inc. remained in existence and held the membership interests in Entergy New Orleans Power.
Entergy New Orleans, Inc. contributed the membership interests in Entergy New Orleans Power to an affiliate (Entergy Utility Holding Company, LLC, a Texas limited liability company and subsidiary of Entergy Corporation). As a result of the contribution, Entergy New Orleans Power is a wholly-owned subsidiary of Entergy Utility Holding Company, LLC.
In December 2017, Entergy New Orleans, Inc. changed its name to Entergy Utility Group, Inc., and Entergy New Orleans Power then changed its name to Entergy New Orleans, LLC. Entergy New Orleans, LLC holds substantially all of the assets, and has assumed substantially all of the liabilities, of Entergy New Orleans, Inc. The restructuring was accounted for as a transaction between entities under common control.
Entergy Arkansas Internal Restructuring
In November 2018, Entergy Arkansas undertook a multi-step restructuring, including the following:
Entergy Arkansas, Inc. redeemed its outstanding preferred stock at the aggregate redemption price of approximately $32.7 million.
Entergy Arkansas, Inc. converted from an Arkansas corporation to a Texas corporation.
Under the Texas Business Organizations Code (TXBOC), Entergy Arkansas, Inc. allocated substantially all of its assets to a new subsidiary, Entergy Arkansas Power, LLC, a Texas limited liability company (Entergy Arkansas Power), and Entergy Arkansas Power assumed substantially all of the liabilities of Entergy Arkansas, Inc., in a transaction regarded as a merger under the TXBOC. Entergy Arkansas, Inc. remained in existence and held the membership interests in Entergy Arkansas Power.
Entergy Arkansas, Inc. contributed the membership interests in Entergy Arkansas Power to an affiliate (Entergy Utility Holding Company, LLC, a Texas limited liability company and subsidiary of Entergy Corporation). As a result of the contribution, Entergy Arkansas Power is a wholly-owned subsidiary of Entergy Utility Holding Company, LLC.
In October 2009,December 2018, Entergy Arkansas, Inc. changed its name to Entergy Utility Property, Inc., and Entergy Arkansas Power then changed its name to Entergy Arkansas, LLC. Entergy Arkansas, LLC holds substantially all of the assets, and assumed substantially all of the liabilities, of Entergy Arkansas, Inc. The transaction was accounted for as a transaction between entities under common control.
Entergy Mississippi Internal Restructuring
In November 2018, Entergy Mississippi undertook a multi-step restructuring, including the following:
Entergy Mississippi, Inc. redeemed its outstanding preferred stock, at the aggregate redemption price of approximately $21.2 million.
Entergy Mississippi, Inc. converted from a Mississippi corporation to a Texas corporation.
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Under the Texas Business Organizations Code (TXBOC), Entergy Mississippi, Inc. allocated substantially all of its assets to a new subsidiary, Entergy Mississippi Power and Light, LLC, a Texas limited liability company (Entergy Mississippi Power and Light), and Entergy Mississippi Power and Light assumed substantially all of the liabilities of Entergy Mississippi, Inc., in a transaction regarded as a merger under the TXBOC. Entergy Mississippi, Inc. remained in existence and held the membership interests in Entergy Mississippi Power and Light.
Entergy Mississippi, Inc. contributed the membership interests in Entergy Mississippi Power and Light to an affiliate (Entergy Utility Holding Company, LLC, a Texas limited liability company and subsidiary of Entergy Corporation). As a result of the contribution, Entergy Mississippi Power and Light is a wholly-owned subsidiary of Entergy Utility Holding Company, LLC.
In December 2018, Entergy Mississippi, Inc. changed its name to Entergy Utility Enterprises, Inc., and Entergy Mississippi Power and Light then changed its name to Entergy Mississippi, LLC. Entergy Mississippi, LLC holds substantially all of the assets, and assumed substantially all of the liabilities, of Entergy Mississippi, Inc. The restructuring was accounted for as a transaction between entities under common control.
Entergy Wholesale Commodities
Entergy Wholesale Commodities includes the ownership, operation, and decommissioning of nuclear power plants, located in the northern United States and the sale of the electric power produced by its operating plants to wholesale customers. Entergy Wholesale Commodities revenues are primarily derived from sales of energy and generation capacity from these plants. Entergy Wholesale Commodities also provides operations and management services, including decommissioning-related services, to nuclear power plants owned by non-affiliated entities in the United States. Entergy Wholesale Commodities also includes the ownership of interests in non-nuclear power plants that sell the electric power produced by those plants to wholesale customers.
See “Entergy Wholesale Commodities Exit from the Merchant Power Business” in Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for further discussion of the operation and planned shutdown and sale of each of the remaining Entergy Wholesale Commodities nuclear power plants.
Property
Nuclear Generating Stations
Entergy Wholesale Commodities includes the ownership of the following nuclear power plants:
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Power Plant | | Market | | In Service Year | | Acquired | | Location | | Capacity - Reactor Type | | License Expiration Date |
Indian Point 3 (a) | | NYISO | | 1976 | | Nov. 2000 | | Buchanan, NY | | 1,041 MW - Pressurized Water | | 2025 (a) |
Indian Point 2 (a) | | NYISO | | 1974 | | Sept. 2001 | | Buchanan, NY | | 1,028 MW - Pressurized Water | | 2024 (a) |
Palisades (b) | | MISO | | 1971 | | Apr. 2007 | | Covert, MI | | 811 MW - Pressurized Water | | 2031 (b) |
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(a) | The Indian Point 2 and Indian Point 3 plants are expected to cease operation by April 30, 2020 and April 30, 2021, respectively. |
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(b) | The Palisades plant is expected to cease operations no later than May 31, 2022. |
See “Entergy Wholesale Commodities Exit from the Merchant Power Business” in Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for further discussion of the operation and planned shutdown and sale of each of the remaining Entergy Wholesale Commodities nuclear power plants.
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Entergy Wholesale Commodities also includes the ownership of two non-operating nuclear facilities, Big Rock Point in Michigan and Indian Point 1 in New York that were acquired when Entergy purchased the Palisades and Indian Point 2 nuclear plants, respectively. These facilities are in various stages of the decommissioning process. Both Big Rock Point and Indian Point 1 are under contract to be sold with their respective plants.
Non-nuclear Generating Stations
Entergy Wholesale Commodities includes the ownership, or interests in joint ventures that own, the following non-nuclear power plants:
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| | | | | | | | |
Plant | | Location | | Ownership | | Net Owned Capacity (a) | | Type |
Independence Unit 2; 842 MW | | Newark, AR | | 14% | | 121 MW(b) | | Coal |
RS Cogen; 425 MW (c) | | Lake Charles, LA | | 50% | | 213 MW | | Gas/Steam |
Nelson Unit 6; 550 MW | | Westlake, LA | | 11% | | 60 MW(b) | | Coal |
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(a) | “Net Owned Capacity” refers to the nameplate rating on the generating unit. |
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(b) | The owned MW capacity is the portion of the plant capacity owned by Entergy Wholesale Commodities. For a complete listing of Entergy’s jointly-owned generating stations, refer to “Jointly-Owned Generating Stations” in Note 1 to the financial statements. |
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(c) | Indirectly owned through interests in unconsolidated joint ventures. |
Independent System Operators
The Indian Point plants fall under the authority of the New York Independent System Operator (NYISO). The Palisades plant falls under the authority of the MISO. The primary purpose of NYISO and MISO is to direct the operations of the major generation and transmission facilities in their respective regions; ensure grid reliability; administer and monitor wholesale electricity markets; and plan for their respective region’s energy needs.
Energy and Capacity Sales
As a wholesale generator, Entergy Wholesale Commodities’ core business is selling energy, measured in MWh, to its customers. Entergy Wholesale Commodities enters into forward contracts with its customers and also sells energy in the day ahead or spot markets. Entergy Wholesale Commodities also sells unforced capacity, which allows load-serving entities to meet specified reserve and related requirements placed on them by the ISOs in their respective areas. Entergy Wholesale Commodities’ forward physical power contracts consist of contracts to sell energy only, contracts to sell capacity only, and bundled contracts in which it sells both capacity and energy. While the terminology and payment mechanics vary in these contracts, each of these types of contracts requires Entergy Wholesale Commodities to deliver MWh of energy, make capacity available, or both. See “Market and Credit Risk Sensitive Instruments” in Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for additional information regarding these contracts.
As part of the purchase of the Palisades plant in 2007, Entergy executed a 15-year PPA with the seller, Consumers Energy, for 100% of the plant’s output, excluding any future uprates. Under the purchased power agreement, Consumers Energy receives the value of any new environmental credits for the first ten years of the agreement. Palisades and Consumers Energy will share on a 50/50 basis the value of any new environmental credits for years 11 through 15 of the agreement. The environmental credits are defined as benefits from a change in law that causes capability of the plant as of the purchase date to become a tradable attribute (e.g., emission credit, renewable energy credit, environmental credit, “green” credit, etc.) or otherwise to have a market value. Entergy intends to shut down the Palisades nuclear power plant permanently on May 31, 2022 and transfer to Holtec thereafter.
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Customers
Entergy Wholesale Commodities’ customers for the sale of both energy and capacity from its nuclear plants include retail power providers, utilities, electric power co-operatives, power trading organizations, and other power generation companies. These customers include Consumers Energy, the company from which Entergy purchased the Palisades plant, and NYISO and MISO. Substantially all of the credit exposure associated with the planned energy output under contract for Entergy Wholesale Commodities nuclear plants is with counterparties or their guarantors that have public investment grade credit ratings.
Competition
The NYISO market is highly competitive. Entergy Wholesale Commodities has numerous competitors in New York including generation companies affiliated with regulated utilities, other independent power producers, municipal and co-operative generators, owners of co-generation plants and wholesale power marketers. Entergy Wholesale Commodities is an independent power producer, which means it generates power for sale to third parties at day ahead or spot market prices to the extent that the power is not sold under a fixed price contract. Municipal and co-operative generators also generate power but use most of it to deliver power to their municipal or co-operative power customers. Owners of co-generation plants produce power primarily for their own consumption. Wholesale power marketers do not own generation; rather they buy power from generators or other market participants and resell it to retail providers or other market participants. Competition in the New York power market is affected by, among other factors, the amount of generation and transmission capacity in these markets. MISO does not have a centralized clearing capacity market, but load serving entities do meet the majority of their capacity needs through bilateral contracts and self-supply with a smaller portion coming through voluntary MISO auctions. The majority of Palisades’ current output is contracted to Consumers Energy through 2022. Entergy Wholesale Commodities does not expect to be materially affected by competition in the MISO market in the near term.
Seasonality
Entergy Wholesale Commodities’ revenues and operating income are subject to fluctuations during the year due to seasonal factors, weather conditions, and contract pricing. Refueling outages are generally in the spring and fall, and cause volumetric decreases during those seasons. When outdoor and cooling water temperatures are low, generally during colder months, Entergy Wholesale Commodities nuclear power plants operate more efficiently, and consequently, generate more electricity. Many of Entergy Wholesale Commodities’ contracts provide for shaped pricing over the course of the year. As a result of these factors, Entergy Wholesale Commodities’ revenues are typically higher in the first and third quarters than in the second and fourth quarters.
Fuel Supply
Nuclear Fuel
See “Fuel Supply - Nuclear Fuel” in the Utility portion of Part I, Item 1 for a discussion of the nuclear fuel cycle and markets. Entergy Nuclear Fuels Company, a wholly-owned subsidiary, is responsible for contracts to acquire nuclear materials, except for fuel fabrication, for Entergy Wholesale Commodities nuclear power plants, while Entergy Nuclear Operations, Inc. acts as the agent for the purchase of nuclear fuel assembly fabrication services. All contracts for the disposal of spent nuclear fuel are between the DOE and each of the nuclear power plant owners. The nuclear fuel supply portfolio for the Entergy Wholesale Commodities segment has been adjusted to reflect reduced overall requirements related to the planned permanent shutdowns of the Indian Point 2, Indian Point 3, and Palisades plants. Fuel procurement for the Entergy Wholesale Commodities segment is limited to the requirements of the Palisades plant’s final refueling in 2020.
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Other Business Activities
Entergy Nuclear Power Marketing, LLC (ENPM) was formed in 2005 to centralize the power marketing function for Entergy Wholesale Commodities nuclear plants. Upon its formation, ENPM entered into long-term power purchase agreements with the Entergy Wholesale Commodities subsidiaries that own nuclear power plants (generating subsidiaries). As part of a series of agreements, ENPM agreed to assume and/or otherwise service the existing power purchase agreements that were in effect between the generating subsidiaries and their customers. ENPM’s functions include origination of new energy and capacity transactions and generation scheduling.
Entergy Nuclear, Inc. can pursue service agreements with other nuclear power plant owners who seek the advantages of Entergy’s scale and expertise but do not necessarily want to sell their assets. Services provided by either Entergy Nuclear, Inc. or other Entergy Wholesale Commodities subsidiaries include engineering, operations and maintenance, fuel procurement, management and supervision, technical support and training, administrative support, and other managerial or technical services required to operate, maintain, and decommission nuclear electric power facilities.
TLG Services, a subsidiary of Entergy Nuclear, Inc., offers decommissioning, engineering, and related services to nuclear power plant owners.
Entergy provides plant operation support services for the 800 MW Cooper Nuclear Station located near Brownville, Nebraska. In 2010 an Entergy subsidiary signed an agreement to extend the management support services to Cooper Nuclear Station by 15 years, through January 2029.
Regulation of Entergy’s Business
Federal Power Act
The Federal Power Act provides the FERC the authority to regulate:
the transmission and wholesale sale of electric energy in interstate commerce;
the reliability of the high voltage interstate transmission system through reliability standards;
sale or acquisition of certain assets;
securities issuances;
the licensing of certain hydroelectric projects;
certain other activities, including accounting policies and practices of electric and gas utilities; and
changes in control of FERC jurisdictional entities or rate schedules.
The Federal Power Act gives the FERC jurisdiction over the rates charged by System Energy for Grand Gulf capacity and energy provided to Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans and over the rates charged by Entergy Arkansas and Entergy Louisiana to unaffiliated wholesale customers. The FERC also regulates wholesale power sales between the Utility operating companies. In addition, the FERC regulates the MISO RTO, an independent entity that maintains functional control over the combined transmission systems of its members and administers wholesale energy, capacity, and ancillary services markets for market participants in the MISO region, including the Utility operating companies. FERC regulation of the MISO RTO includes regulation of the design and implementation of the wholesale markets administered by the MISO RTO, as well as the rates, terms, and conditions of open access transmission service over the member systems and the allocation of costs associated with transmission upgrades.
Entergy Arkansas holds a FERC license that expires in 2053 for two hydroelectric projects totaling 70 MW of capacity.
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State Regulation
Utility
Entergy Arkansas is subject to regulation by the APSC as to the following:
utility service;
utility service areas;
retail rates and charges, including depreciation rates;
fuel cost recovery, including audits of the energy cost recovery rider;
terms and conditions of service;
service standards;
the acquisition, sale, or lease of any public utility plant or property constituting an operating unit or system;
certificates of convenience and necessity and certificates of environmental compatibility and public need, as applicable, for generating and transmission facilities;
avoided cost payments to Qualifying Facilities;
net energy metering;
integrated resource planning;
utility mergers and acquisitions and other changes of control; and
the issuance and sale of certain securities.
Additionally, Entergy Arkansas serves a limited number of retail customers in Tennessee. Pursuant to legislation enacted in Tennessee, Entergy Arkansas is subject to complaints before the Tennessee Regulatory Authority only if it fails to treat its retail customers in Tennessee in the same manner as its retail customers in Arkansas. Additionally, Entergy Arkansas maintains limited facilities in Missouri but does not provide retail electric service to customers in Missouri. Although Entergy Arkansas obtained a certificate with respect to its Missouri facilities, Entergy Arkansas is not subject to the retail rate or regulatory scheme in Missouri.
Entergy Louisiana’s electric and gas business is subject to regulation by the LPSC as to the following:
utility service;
retail rates and charges, including depreciation rates;
fuel cost recovery, including audits of the fuel adjustment clause and purchased gas adjustment charge;
terms and conditions of service;
service standards;
certification of certain transmission projects;
certification of capacity acquisitions, both for owned capacity and purchase power contracts;
procurement process to acquire over 50 MW;
audits of the environmental adjustment charge, avoided cost payment to Qualifying Facilities, and energy efficiency rider;
integrated resource planning;
net energy metering; and
utility mergers and acquisitions and other changes of control.
Entergy Mississippi is subject to regulation by the MPSC as to the following:
utility service;
utility service areas;
retail rates and charges, including depreciation rates;
fuel cost recovery, including audits of the energy cost recovery mechanism;
terms and conditions of service;
service standards;
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certification of generating facilities and certain transmission projects;
avoided cost payments to Qualifying Facilities;
integrated resource planning;
net energy metering; and
utility mergers, acquisitions, and other changes of control.
Entergy Mississippi is also subject to regulation by the APSC as to the certificate of environmental compatibility and public need for the Independence Station, which is located in Arkansas.
Entergy New Orleans is subject to regulation by the City Council as to the following:
utility service;
retail rates and charges, including depreciation rates;
fuel cost recovery, including audits of the fuel adjustment charge and purchased gas adjustment charge;
terms and conditions of service;
service standards;
audit of the environmental adjustment charge;
certification of the construction or extension of any new plant, equipment, property, or facility that comprises more than 2% of the utility’s rate base;
integrated resource planning;
net energy metering;
issuance and sale of certain securities; and
utility mergers and acquisitions and other changes of control.
To the extent authorized by governing legislation, Entergy Texas is subject to the original jurisdiction of the municipal authorities of a number of incorporated cities in Texas with appellate jurisdiction over such matters residing in the PUCT. Entergy Texas is also subject to regulation by the PUCT as to the following:
retail rates and charges, including depreciation rates, and terms and conditions of service in unincorporated areas of its service territory, and in municipalities that have ceded jurisdiction to the PUCT;
fuel recovery, including reconciliations (audits) of the fuel adjustment charges;
service standards;
certification of certain transmission and generation projects;
utility service areas, including extensions into new areas;
avoided cost payments to Qualifying Facilities; and
utility mergers, sales/acquisitions/leases of plants over $10 million, sales of greater than 50% voting stock of utilities, and transfers of controlling interest in or operation of utilities.
Regulation of the Nuclear Power Industry
Atomic Energy Act of 1954 and Energy Reorganization Act of 1974
Under the Atomic Energy Act of 1954 and the Energy Reorganization Act of 1974, the operation of nuclear plants is heavily regulated by the NRC, which has broad power to impose licensing and safety-related requirements. The NRC has broad authority to impose civil penalties or shut down a unit, or both, depending upon its assessment of the severity of the situation, until compliance is achieved. Entergy Arkansas, Entergy Louisiana, and System Energy, as owners of all or portions of ANO, River Bend and Waterford 3, and Grand Gulf, respectively, and Entergy Operations, as the licensee and operator of these units, are subject to the jurisdiction of the NRC. Entergy subsidiaries in the Entergy Wholesale Commodities segment are subject to the NRC’s jurisdiction as the owners and operators of Indian Point Energy Center, Palisades, and Big Rock Point.
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Nuclear Waste Policy Act of 1982
Spent Nuclear Fuel
Under the Nuclear Waste Policy Act of 1982, the DOE is required, for a specified fee, to construct storage facilities for, and to dispose of, all spent nuclear fuel and other high-level radioactive waste generated by domestic nuclear power reactors. Entergy’s nuclear owner/licensee subsidiaries have been charged fees for the estimated future disposal costs of spent nuclear fuel in accordance with the Nuclear Waste Policy Act of 1982. The affected Entergy companies entered into contracts with the DOE, whereby the DOE is to furnish disposal services at a cost of one mill per net kWh generated and sold after April 7, 1983, plus a one-time fee for generation prior to that date. Entergy Arkansas is the only one of the Utility operating companies that generated electric power with nuclear fuel prior to that date and has a recorded liability as of December 31, 2019 of $191.1 million for the one-time fee. Entergy accepted assignment of the Pilgrim, FitzPatrick and Indian Point 3, Indian Point 1 and Indian Point 2, Vermont Yankee, Palisades, and Big Rock Point spent fuel disposal contracts with the DOE held by their previous owners. The FitzPatrick spent fuel disposal contract was assigned to Exelon as part of the sale of the plant, completed in March 2017. The Vermont Yankee spent fuel disposal contract was assigned to NorthStar as part of the sale of the plant which was completed in January 2019. The Pilgrim spent fuel disposal contract was transferred to Holtec as part of the sale of Entergy Nuclear Generation Company in August 2019. The owners of these plants previous to Entergy have paid or retained liability for the fees for all generation prior to the purchase dates of those plants. The fees payable to the DOE may be adjusted in the future to assure full recovery. Entergy considers all costs incurred for the disposal of spent nuclear fuel, except accrued interest, to be proper components of nuclear fuel expense. Provisions to recover such costs have been or will be made in applications to regulatory authorities for the Utility plants. Entergy’s total spent fuel fees to date, including the one-time fee liability of Entergy Arkansas, have surpassed $1.6 billion (exclusive of amounts relating to Entergy plants that were paid or are owed by prior owners of those plants).
The permanent spent fuel repository in the U.S. has been legislated to be Yucca Mountain, Nevada. The DOE is required by law to proceed with the licensing (the DOE filed the license application in June 2008) and, after the license is granted by the NRC, proceed with the repository construction and commencement of receipt of spent fuel. Because the DOE has not begun accepting spent fuel, it is in non-compliance with the Nuclear Waste Policy Act of 1982 and has breached its spent fuel disposal contracts. The DOE continues to delay meeting its obligation. Specific steps were taken to discontinue the Yucca Mountain project, including a motion to the NRC to withdraw the license application with prejudice and the establishment of a commission to develop recommendations for alternative spent fuel storage solutions. In August 2013 the U.S. Court of Appeals for the D.C. Circuit ordered the NRC to continue with the Yucca Mountain license review, but only to the extent of funds previously appropriated by Congress for that purpose and not yet used. Although the NRC completed the safety evaluation report for the license review in 2015, the previously appropriated funds are not sufficient to complete the review, including required hearings. The government has taken no effective action to date related to the recommendations of the appointed spent fuel study commission. Accordingly, large uncertainty remains regarding the time frame under which the DOE will begin to accept spent fuel from Entergy’s facilities for storage or disposal. As a result, continuing future expenditures will be required to increase spent fuel storage capacity at Entergy’s nuclear sites.
Following the defunding of the Yucca Mountain spent fuel repository program, the National Association of Regulatory Utility Commissioners and others sued the government seeking cessation of collection of the one mill per net kWh generated and sold after April 7, 1983 fee. In November 2013 the D.C. Circuit Court of Appeals ordered the DOE to submit a proposal to Congress to reset the fee to zero until the DOE complies with the Nuclear Waste Policy Act or Congress enacts an alternative waste disposal plan. In January 2014 the DOE submitted the proposal to Congress under protest, and also filed a petition for rehearing with the D.C. Circuit. The petition for rehearing was denied. The zero spent fuel fee went into effect prospectively in May 2014.
As a result of the DOE’s failure to begin disposal of spent nuclear fuel in 1998 pursuant to the Nuclear Waste Policy Act of 1982 and the spent fuel disposal contracts, Entergy’s nuclear owner/licensee subsidiaries have incurred and will continue to incur damages. These subsidiaries have been, and continue to be, involved in litigation to recover
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the damages caused by the DOE’s delay in performance. See Note 8 to the financial statements for discussion of final judgments recorded by Entergy in 2017, 2018, and 2019 related to Entergy’s nuclear owner licensee subsidiaries’ litigation with the DOE. Through 2019, Entergy’s subsidiaries won and collected on judgments against the government totaling over $600 million.
Pending DOE acceptance and disposal of spent nuclear fuel, the owners of nuclear plants are providing their own spent fuel storage. Storage capability additions using dry casks began operations at Palisades in 1993, at ANO in 1996, at River Bend in 2005, at Grand Gulf in 2006, at Indian Point in 2008, and at Waterford 3 in 2011. These facilities will be expanded as needed.
Nuclear Plant Decommissioning
Entergy Arkansas, Entergy Louisiana, and System Energy are entitled to recover from customers through electric rates the estimated decommissioning costs for ANO, Waterford 3, and Grand Gulf, respectively. In addition, Entergy Louisiana and Entergy Texas are entitled to recover from customers through electric rates the estimated decommissioning costs for the portion of River Bend subject to retail rate regulation. The collections are deposited in trust funds that can only be used in accordance with NRC and other applicable regulatory requirements. Entergy periodically reviews and updates the estimated decommissioning costs to reflect inflation and changes in regulatory requirements and technology, and then makes applications to the regulatory authorities to reflect, in rates, the changes in projected decommissioning costs.
In July 2010 the LPSC approved increased decommissioning collections for Waterford 3 and the Louisiana regulated share of River Bend and in December 2010 the PUCT approved increased decommissioning collections for the Texas share of River Bend to address previously identified funding shortfalls. This LPSC decision contemplated that the level of decommissioning collections could be revisited should the NRC grant license extensions for both Waterford 3 and River Bend. In July 2019, following the NRC approval of license extensions for Waterford 3 and River Bend, Entergy made a filing with the LPSC seeking permission to canceladjust decommissioning and depreciation rates for those plants, including one proposed scenario that would adjust Louisiana-jurisdictional decommissioning collections to zero for both plants (including an offsetting increase in depreciation rates). An evidentiary hearing on the Little Gypsy repowering projectfiling has been scheduled for July 2020, and seeking projectmanagement cannot predict the outcome of the case. In December 2018 the APSC ordered collections in rates for decommissioning ANO 2 and found that ANO 1’s decommissioning was adequately funded without additional collections. In November 2019, Entergy Arkansas filed a revised decommissioning cost recovery tariff for ANO indicating that both ANO 1 and ANO 2 decommissioning trusts were adequately funded without further collections, and in December 2019, the APSC ordered zero collections for ANO 1 and ANO 2 decommissioning. In December 2018 the PUCT approved a settlement that eliminated River Bend decommissioning collections for the Texas jurisdictional share of the plant based on a determination by Entergy Texas that the existing decommissioning fund was adequate following license renewal. In September 2016 the NRC issued a 20-year operating license renewal for Grand Gulf. In a 2017 filing at the FERC, System Energy stated that with the renewed operating license, Grand Gulf’s decommissioning trust was sufficiently funded, and proposed (among other things) to cease decommissioning collections for Grand Gulf effective October 1, 2017. The FERC accepted a settlement including the proposed decommissioning revenue requirement by letter order in August 2018. Entergy currently believes its decommissioning funding will be sufficient for its nuclear plants subject to retail rate regulation, although decommissioning cost inflation and trust fund performance will ultimately determine the adequacy of the funding amounts.
In January 2019, Entergy sold 100% of the membership interest in Entergy Nuclear Vermont Yankee to a subsidiary of NorthStar. As a result of the sale, NorthStar assumed ownership of Vermont Yankee and its decommissioning and site restoration trusts, together with complete responsibility for the facility’s decommissioning and site restoration. See Note 9 to the financial statements for further discussion of Vermont Yankee decommissioning costs and see “Entergy Wholesale Commodities Exit from the Merchant Power Business” in Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for further discussion of the NorthStar transaction.
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In August 2019, Entergy sold 100% of the equity interests in Entergy Nuclear Generation Company, LLC to a subsidiary of Holtec International. As a result of the sale, Holtec assumed ownership of Pilgrim and its decommissioning trust, together with complete responsibility for the facility’s decommissioning and site restoration. See Note 14 to the financial statements for further discussion of the sale.
For the Indian Point 3 and FitzPatrick plants purchased in 2000 from NYPA, NYPA retained the decommissioning trust funds and the decommissioning liabilities with the right to require the Entergy subsidiaries to assume each of the decommissioning liabilities provided that it assigns the corresponding decommissioning trust, up to a specified level, to the Entergy subsidiaries. In August 2016, Entergy entered into a trust transfer agreement with NYPA to transfer the decommissioning trust funds and decommissioning liabilities for the Indian Point 3 and FitzPatrick plants to Entergy, which was completed in January 2017. In March 2017, Entergy sold the FitzPatrick plant to Exelon, and as part of the transaction, the FitzPatrick decommissioning trust fund, along with the decommissioning obligation for that plant, was transferred to Exelon. The FitzPatrick spent fuel disposal contract was assigned to Exelon as part of the transaction. See Note 14 to the financial statements for discussion of the FitzPatrick sale.
In March 2019 filings with the NRC were made for Entergy subsidiaries’ nuclear plants reporting on decommissioning funding. Those reports showed that decommissioning funding for each of those nuclear plants met the NRC’s financial assurance and planning requirements.
Additional information with respect to Entergy’s decommissioning costs and decommissioning trust funds is found in Note 9 and Note 16 to the financial statements.
Price-Anderson Act
The Price-Anderson Act requires that reactor licensees purchase and maintain the maximum amount of nuclear liability insurance available and participate in an industry assessment program called Secondary Financial Protection in order to protect the public in the event of a nuclear power plant accident. The costs of this insurance are borne by the nuclear power industry. Congress amended and renewed the Price-Anderson Act in 2005 for a term through 2025. The Price-Anderson Act limits the contingent liability for a single nuclear incident to a maximum assessment of approximately $137.6 million per reactor (with 98 nuclear industry reactors currently participating). In the case of a nuclear event in which Entergy Arkansas, Entergy Louisiana, System Energy, or an Entergy Wholesale Commodities company is liable, protection is afforded through a combination of private insurance and the Secondary Financial Protection program. In addition to this, insurance for property damage, costs of replacement power, and other risks relating to nuclear generating units is also purchased. The Price-Anderson Act and insurance applicable to the nuclear programs of Entergy are discussed in more detail in Note 8 to the financial statements.
NRC Reactor Oversight Process
The NRC’s Reactor Oversight Process is a program to collect information about plant performance, assess the information for its safety significance, and provide for appropriate licensee and NRC response. The NRC evaluates plant performance by analyzing two distinct inputs: inspection findings resulting from the NRC’s inspection program and performance indicators reported by the licensee. The evaluations result in the placement of each plant in one of the NRC’s Reactor Oversight Process Action Matrix columns: “licensee response column,” or Column 1, “regulatory response column,” or Column 2, “degraded cornerstone column,” or Column 3, and “multiple/repetitive degraded cornerstone column,” or Column 4. Plants in Column 1 are subject to normal NRC inspection activities. Plants in Column 2, Column 3, or Column 4 are subject to progressively increasing levels of inspection by the NRC with, in general, progressively increasing levels of associated costs. The nuclear generating plants owned and operated by Entergy’s Utility and Entergy Wholesale Commodities businesses are currently in Column 1.
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Environmental Regulation
Entergy’s facilities and operations are subject to regulation by various governmental authorities having jurisdiction over air quality, water quality, control of toxic substances and hazardous and solid wastes, and other environmental matters. Management believes that Entergy’s businesses are in substantial compliance with environmental regulations currently applicable to its facilities and operations, with reference to possible exceptions noted below. Because environmental regulations are subject to change, future compliance requirements and costs cannot be precisely estimated. Except to the extent discussed below, at this time compliance with federal, state, and local provisions regulating the discharge of materials into the environment, or otherwise protecting the environment, is incorporated into the routine cost structure of Entergy’s businesses and is not expected to have a five-year period. material effect on their competitive position, results of operations, cash flows, or financial position.
Clean Air Act and Subsequent Amendments
The Clean Air Act and its amendments establish several programs that currently or in the future may affect Entergy’s fossil-fueled generation facilities and, to a lesser extent, certain operations at nuclear and other facilities. Individual states also operate similar independent state programs or delegated federal programs that may include requirements more stringent than federal regulatory requirements. These programs include:
New source review and preconstruction permits for new sources of criteria air pollutants, greenhouse gases, and significant modifications to existing facilities;
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• | Acid rain program for control of sulfur dioxide (SO2) and nitrogen oxides (NOx); |
Nonattainment area programs for control of criteria air pollutants, which could include fee assessments for air pollutant emission sources under Section 185 of the Clean Air Act if attainment is not reached in a timely manner;
Hazardous air pollutant emissions reduction programs;
Interstate Air Transport;
Operating permit programs and enforcement of these and other Clean Air Act programs;
Regional Haze programs; and
New and existing source standards for greenhouse gas and other air emissions.
New Source Review (NSR)
Preconstruction permits are required for new facilities and for existing facilities that undergo a modification that results in a significant net emissions increase and is not classified as routine repair, maintenance, or replacement. Units that undergo certain non-routine modifications must obtain a permit modification and may be required to install additional air pollution control technologies. In August 2019 the EPA proposed to amend the NSR regulations to clarify when a physical change or change in the method of operation will constitute such a modification. Entergy has an established process for identifying modifications requiring additional permitting approval and is monitoring the regulations and associated guidance provided by the states and the federal government with regard to the determination of routine repair, maintenance, and replacement. Several years ago, however, the EPA implemented an enforcement initiative, aimed primarily at coal plants, to identify modifications that it does not consider routine for which the unit did not obtain a modified permit. Various courts and the EPA have been inconsistent in their judgments regarding modifications that are considered routine and on other legal issues that affect this program.
In February 2011, Entergy received a request from the EPA for several categories of information concerning capital and maintenance projects at the White Bluff and Independence facilities, both located in Arkansas, in order to determine compliance with the Clean Air Act, including NSR requirements and air permits issued by the Arkansas Department of Environmental Quality. In August 2011, Entergy’s Nelson facility, located in Louisiana, received a similar request for information from the EPA. In September 2015 an additional request for similar information was received for the White Bluff facility. Entergy responded to all requests. None of these EPA requests for information alleged that the facilities were in violation of law.
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In January and February 2018, Entergy Arkansas, Entergy Mississippi, Entergy Power, and other co-owners received 60-day notice of intent to sue letters from the Sierra Club and the National Parks Conservation Association concerning allegations of violations of new source review and permitting provisions of the Clean Air Act at the Independence and White Bluff coal-burning units, respectively. In November 2018, following extensive negotiations, Entergy Arkansas, Entergy Mississippi, and Entergy Power entered a proposed settlement resolving those claims as well as other issues facing Entergy Arkansas’s fossil generation plants. The settlement, which formally resolves a complaint filed by the Sierra Club and the National Parks Conservation Association, is subject to approval by the U.S. District Court for the District of Arkansas. In October 2019 the District Court requested supplemental briefing on several issues to be resolved prior to addressing the motion to approve the settlement. For further information about the settlement, see “Regional Haze” discussed below.
National Ambient Air Quality Standards
The Clean Air Act requires the EPA to set National Ambient Air Quality Standards (NAAQS) for ozone, carbon monoxide, lead, nitrogen dioxide, particulate matter, and sulfur dioxide, and requires periodic review of those standards. When an area fails to meet an ambient standard, it is considered to be in nonattainment and is classified as “marginal,” “moderate,” “serious,” or “severe.” When an area fails to meet the ambient air standard, the EPA requires state regulatory authorities to prepare state implementation plans meant to cause progress toward bringing the area into attainment with applicable standards.
Ozone Nonattainment
Entergy Texas operates one fossil-fueled generating facility (Lewis Creek) and is in the process of constructing another fossil-fueled generating facility (Montgomery County Power Station) in a geographic area that is not in attainment with the applicable NAAQS for ozone. The ozone nonattainment area that affects Entergy Texas is the Houston-Galveston-Brazoria area. Both Lewis Creek and the Montgomery County Power Station hold all necessary permits for construction and operation and comply with applicable air quality program regulations. Measures enacted to return the area to ozone attainment could make these program regulations more stringent. Entergy will continue to work with state environmental agencies on appropriate methods for assessing attainment and nonattainment with the ozone NAAQS.
Potential SO2Nonattainment
The EPA issued a final rule in June 2010 adopting an SO2 1-hour national ambient air quality standard of 75 parts per billion. In Entergy’s utility service territory, only St. Bernard Parish and Evangeline Parish in Louisiana are designated as nonattainment. In August 2017 the EPA issued a letter indicating that East Baton Rouge and St. Charles parishes would be designated by December 31, 2020, as monitors were installed to determine compliance. Entergy continues to monitor this situation.
Hazardous Air Pollutants
The EPA released the final Mercury and Air Toxics Standard (MATS) rule in December 2011, which had a compliance date, with a widely granted one-year extension, of April 2016. The required controls have been installed and are operational at all affected Entergy units. In February 2019 the EPA published its proposed rule that finds that it is not “appropriate and necessary” to regulate hazardous air pollutants from electric steam generating units under the provisions of section 112(n) of the Clean Air Act. This is a reversal of the EPA’s previous finding requiring such regulation. However, the proposal does not seek to revise the MATS rule at this time. Entergy will continue to monitor this situation.
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Regional Haze
In June 2005 the EPA issued its final Clean Air Visibility Rule (CAVR) regulations that potentially could result in a requirement to install SO2 and NOx pollution control technology as Best Available Retrofit Control Technology (BART) to continue operating certain of Entergy’s fossil generation units. The rule leaves certain CAVR determinations to the states.
In Arkansas, the Arkansas Department of Environmental Quality prepared a state implementation plan (SIP) for Arkansas facilities to implement its obligations under the CAVR. In April 2012 the EPA finalized a decision addressing the Arkansas Regional Haze SIP, in which it disapproved a large portion of the Arkansas plan, including the emission limits for NOx and SO2 at White Bluff. In April 2015 the EPA published a proposed federal implementation plan (FIP) for Arkansas, taking comment on requiring installation of scrubbers and low NOx burners to continue operating both units at the White Bluff plant and both units at the Independence plant and NOx controls to continue operating the Lake Catherine plant. Entergy filed comments by the deadline in August 2015. Among other comments, including opposition to the EPA’s proposed controls on the Independence units, Entergy proposed to meet more stringent SO2 and NOx limits at both White Bluff and Independence within three years of the effective date of the final FIP and to cease the use of coal at the White Bluff units at a later date.
In September 2016 the EPA published the final Arkansas Regional Haze FIP. In most respects, the EPA finalized its original proposal but shortened the time for compliance for installation of the NOx controls. The FIP required an emission limitation consistent with SO2 scrubbers at both White Bluff and Independence by October 2021 and NOx controls by April 2018. The EPA declined to adopt Entergy’s proposals related to ceasing coal use as an alternative to SO2 scrubbers for White Bluff SO2 BART. In November 2016, Entergy and other interested parties, including the State of Arkansas, filed petitions for administrative reconsideration and stay at the EPA as well as petitions for judicial review in the U.S. Court of Appeals for the Eighth Circuit. The Eighth Circuit granted the stay pending settlement discussions and pending the State’s development of a SIP that, if approved by the EPA, would replace the FIP. The state has proposed its replacement SIP in two parts: Part I considers NOx requirements, and Part II considers SO2 requirements. The EPA approved the Part I NOx SIP in January 2018. The Part I SIP requires that Entergy address NOx impacts on visibility via compliance with the Cross State Air Pollution Rule ozone-season emission trading program. Arkansas has finalized a Part II SIP which has been approved by the EPA but is currently pending a state court appeal. That appeal has been stayed pending the outcome of a federal court case, which may resolve many of the issues on appeal. The final Part II SIP requires that Entergy achieve SO2 emission reductions via the use of low-sulfur coal at both White Bluff and Independence within three years. The Part II SIP also requires that Entergy cease to use coal at White Bluff by December 31, 2028 and notes the current planning assumption that Entergy’s Independence units will cease to burn coal by December 31, 2030.
In January and February 2018, Entergy Arkansas, Entergy Mississippi, Entergy Power, and other co-owners received 60-day notice of intent to sue letters from the Sierra Club and the National Parks Conservation Association concerning allegations of violations of new source review and permitting provisions of the Clean Air Act at the Independence and White Bluff coal-burning units, respectively. In November 2018, following extensive negotiations, Entergy Arkansas, Entergy Mississippi, and Entergy Power entered a proposed settlement resolving those claims and reducing the risk that Entergy Arkansas, as operator of Independence and White Bluff, might be compelled under the Clean Air Act’s regional haze program to install costly emissions control technologies. Consistent with the terms of the settlement and in many cases also the Part II SIP, Entergy Arkansas, along with co-owners, will begin using only low-sulfur coal at Independence and White Bluff by mid-2021; cease to use coal at White Bluff and Independence by the end of 2028 and 2030, respectively; cease operation of the remaining gas unit at Lake Catherine by the end of 2027; reserve the option to develop new generating sources at each plant site; and commit to install or propose to regulators at least 800 MWs of renewable generation by the end of 2027, with at least half installed or proposed by the end of 2022 (which includes two existing Entergy Arkansas projects) and with all qualifying co-owner projects counting toward satisfaction of the obligation. Under the settlement, the Sierra Club and the National Parks Conservation Association also waive certain potential existing claims under federal and state environmental law with respect to specified generating plants. The settlement, which formally resolves a complaint filed by the Sierra Club and the
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National Parks Conservation Association, is subject to approval by the U.S. District Court for the Eastern District of Arkansas. The EPA, which is allowed to comment on such a settlement agreement, has stated that it has no objections to the settlement. Pending before the court are a motion by the plaintiffs to approve the settlement, in support of which Entergy made a filing, and motions by the Arkansas Attorney General and the Arkansas Affordable Energy Coalition to intervene and to stay the proceedings. The Arkansas Attorney General also filed an application before the APSC in December 2018 seeking an investigation into the effects of the settlement. The Arkansas Affordable Energy Coalition filed to support the application, and Entergy Arkansas filed a motion to dismiss. The application remains pending before the APSC. In October 2019 the District Court requested supplemental briefing on several issues to be resolved prior to addressing the motion to approve the settlement.
In Louisiana, Entergy has worked with the Louisiana Department of Environmental Quality (LDEQ) and the EPA to revise the Louisiana SIP for regional haze, which had been disapproved in part in 2012. The LDEQ submitted a revised SIP in February 2017. In May 2017 the EPA proposed to approve a majority of the revisions. In September 2017 the EPA issued a proposed SIP approval for the Nelson plant, requiring an emission limitation consistent with the use of low-sulfur coal, with a compliance date of January 22, 2021. The EPA issued final approval in December 2017. The EPA approval was appealed to the U.S. Court of Appeals for the Fifth Circuit. In October 2019 the Fifth Circuit affirmed EPA’s SIP approval.
New and Existing Source Performance Standards for Greenhouse Gas Emissions
In July 2019 the EPA released the Affordable Clean Energy Rule (ACE), which applies only to existing coal-fired electric generating units. The ACE determines that heat rate improvements are the best system of emission reductions and lists six candidate technologies for consideration by states at each coal unit. The rule and associated rulemakings by the EPA replace the Obama administration’s Clean Power Plan rule. The ACE rule provides states discretion in determining how the best system for emission reductions applies to individual units, including through the consideration of technical feasibility and the remaining useful life of the facility. Entergy is evaluating the final Affordable Clean Energy Rule’s impacts on its coal units and will monitor litigation challenging the rule. The EPA also has proposed a revision to the new source performance standard on greenhouse gas emissions that primarily impacts new coal units and, therefore, should not impact Entergy.
Potential Legislative, Regulatory, and Judicial Developments
In addition to the specific instances described above, there are a number of legislative and regulatory initiatives concerning air emissions, as well as other media, that are under consideration at the federal, state, and local level. Because of the nature of Entergy’s business, the imposition of any of these initiatives could affect Entergy’s operations. Entergy continues to monitor these initiatives and activities in order to analyze their potential operational and cost implications. These initiatives include:
designation by the EPA and state environmental agencies of areas that are not in attainment with national ambient air quality standards;
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• | introduction of bills in Congress and development of regulations by the EPA proposing further limits on NOx, SO2, mercury, and carbon dioxide and other air emissions. New legislation or regulations applicable to stationary sources could take the form of market-based cap-and-trade programs, direct requirements for the installation of air emission controls onto air emission sources, or other or combined regulatory programs; |
efforts in Congress or at the EPA to establish a federal carbon dioxide emission tax, control structure or unit performance standards;
revisions to the estimates of the Social Cost of Carbon and its use for regulatory impact analysis of Federal laws and regulations;
implementation of the Regional Greenhouse Gas Initiative by several states in the northeastern United States and similar actions in other regions of the United States;
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efforts on the state and federal level to codify renewable portfolio standards, clean energy standards, or a similar mechanism requiring utilities to produce or purchase a certain percentage of their power from defined renewable energy sources or energy sources with lower emissions;
efforts to develop more stringent state water quality standards, effluent limitations for Entergy’s industry sector, stormwater runoff control regulations, and cooling water intake structure requirements;
efforts to restrict the previously-approved continued use of oil-filled equipment containing certain levels of PCBs;
efforts by certain external groups to encourage reporting and disclosure of carbon dioxide emissions and risk;
the listing of additional species as threatened or endangered, the protection of critical habitat for these species, and developments in the legal protection of eagles and migratory birds; and
the regulation of the management, disposal, and beneficial reuse of coal combustion residuals.
Entergy continues to support national legislation that would increase planning certainty for electric utilities while addressing carbon dioxide emissions in a responsible and flexible manner. By virtue of its proportionally large investment in low-emitting gas-fired and nuclear generation technologies, Entergy has a low overall carbon dioxide emission “intensity,” or rate of carbon dioxide emitted per megawatt-hour of electricity generated. In anticipation of the imposition of carbon dioxide emission limits on the electric industry, Entergy initiated actions designed to reduce its exposure to potential new governmental requirements related to carbon dioxide emissions. These voluntary actions included a formal program to stabilize owned power plant carbon dioxide emissions at 2000 levels through 2005, and Entergy succeeded in reducing emissions below 2000 levels. In 2006, Entergy started including emissions from controllable power purchases in addition to its ownership share of generation and established a second formal voluntary program to stabilize power plant carbon dioxide emissions and emissions from controllable power purchases, cumulatively over the period, at 20% below 2000 levels through 2010. In 2011, Entergy extended this commitment through 2020. Total carbon dioxide emissions representing Entergy’s ownership share of power plants and controllable power purchases in the United States were approximately 40.7 million tons in 2019 and 43.7 tons in 2018.
Entergy voluntarily conducted a climate scenario analysis and published a comprehensive report in March 2019. The report follows the framework and recommendations of the Task Force on Climate-related Disclosures, describing climate-related governance, strategy, risk management, and metrics and targets. Scenario analysis resulted in Entergy developing and publishing a new goal of reducing the Utility’s emission rate by 50 percent from 2000 levels by 2030.
Entergy participates in the M.J. Bradley & Associates’ Annual Benchmarking Air Emissions Report, an annual analysis of the 100 largest U.S. electric power producers. The report is available on the M.J. Bradley website. Entergy’s annual greenhouse gas emissions inventory is also third-party verified, and that certification is made available on the American Carbon Registry website. Entergy participates annually in the Dow Jones Sustainability Index and in 2019 was listed on the North American Index. Entergy has been listed on the World or North American Index, or both, for eighteen consecutive years.
Clean Water Act
The 1972 amendments to the Federal Water Pollution Control Act (known as the Clean Water Act) provide the statutory basis for the National Pollutant Discharge Elimination System (NPDES) permit program, section 402, and the basic structure for regulating the discharge of pollutants from point sources to waters of the United States. The Clean Water Act requires virtually all discharges of pollutants to waters of the United States to be permitted. Section 316(b) of the Clean Water Act regulates cooling water intake structures, section 401 of the Clean Water Act requires a water quality certification from the state in support of certain federal actions and approvals, and section 404 regulates the dredge and fill of waters of the United States, including jurisdictional wetlands.
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Steam Electric Effluent Guidelines
The 2015 Steam Electric Effluent Limitations Guidelines (ELG) rule requires, among other things, that there be no discharge of bottom ash transport water. The no-discharge requirement contains no exceptions and could cause compliance problems for Entergy’s coal facilities during heavy storm events and under certain non-routine operational conditions. The ELG rule’s compliance dates currently are delayed while the EPA reconsiders the rule. Additionally, the Fifth Circuit Court of Appeals recently vacated and remanded the provisions of the rule related to legacy wastewater and leachate. In November 2019 the EPA released a proposed rule revision on bottom ash transport water that will allow some flexibility for storm events and non-routine operations. A separate rulemaking is expected to address the legacy wastewater and leachate issues. Despite the impending rulemaking, Entergy is implementing projects at its White Bluff and Independence plants to convert to zero-discharge systems to comply with the ELG rule and the coal combustion residuals restrictions on impoundments. Additionally, the Nelson Unit 6 facility is implementing operational and maintenance measures to ensure its original zero-discharge design is maintained for compliance with the ELG rule.
Federal Jurisdiction of Waters of the United States
In February 2019 the EPA published its proposed revised definition of Waters of the United States, which proposes to narrow the scope of Clean Water Act jurisdiction, as compared to a 2015 definition which had been stayed by several federal courts. The final rule was released in January 2020. In October 2019 the EPA repealed the 2015 rule and re-codified the pre-existing regulations. That rule was effective late December 2019. Numerous challenges are expected for both rules.
Groundwater at Certain Nuclear Sites
The NRC requires nuclear power plants to monitor and report regularly the presence of radioactive material in the environment. Entergy joined other nuclear utilities and the Nuclear Energy Institute in 2006 to develop a voluntary groundwater monitoring and protection program. This initiative began after detection of very low levels of radioactive material, primarily tritium, in groundwater at several plants in the United States. Tritium is a radioactive form of hydrogen that occurs naturally and is also a byproduct of nuclear plant operations. In addition to tritium, other radionuclides have been found in site groundwater at nuclear plants.
As part of the groundwater monitoring and protection program, Entergy has: (1) performed reviews of plant groundwater characteristics (hydrology) and historical records of past events on site that may have potentially impacted groundwater; (2) implemented fleet procedures on how to handle events that could impact groundwater; and (3) installed groundwater monitoring wells and began periodic sampling. The program also includes protocols for notifying local officials if contamination is found. To date, radionuclides such as tritium have been detected at Arkansas Nuclear One, Indian Point, Palisades, Grand Gulf, and River Bend. Each of these sites has installed groundwater monitoring wells and implemented a program for testing groundwater at the sites for the presence of tritium and other radionuclides. Based on current information, the concentrations and locations of radionuclides detected at these plants pose no threat to public health or safety, but each site continues to evaluate the results from its groundwater monitoring program.
Comprehensive Environmental Response, Compensation, and Liability Act of 1980
The Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended (CERCLA), authorizes the EPA to mandate clean-up by, or to collect reimbursement of clean-up costs from, owners or operators of sites at which hazardous substances may be or have been released. Certain private parties also may use CERCLA to recover response costs. Parties that transported hazardous substances to these sites or arranged for the disposal of the substances are also deemed liable by CERCLA. CERCLA has been interpreted to impose strict, joint and several liability on responsible parties. Many states have adopted programs similar to CERCLA. Entergy subsidiaries in the Utility and Entergy Wholesale Commodities businesses have sent waste materials to various disposal
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sites over the years, and releases have occurred at Entergy facilities including nuclear facilities that have been or will be sold to decommissioning companies. In addition, environmental laws now regulate certain of Entergy’s operating procedures and maintenance practices that historically were not subject to regulation. Some disposal sites used by Entergy subsidiaries have been the subject of governmental action under CERCLA or similar state programs, resulting in site clean-up activities. Entergy subsidiaries have participated to various degrees in accordance with their respective potential liabilities in such site clean-ups and have developed experience with clean-up costs. The affected Entergy subsidiaries have established provisions for the liabilities for such environmental clean-up and restoration activities. Details of potentially material CERCLA and similar state program liabilities are discussed in the “Other Environmental Matters” section below.
Coal Combustion Residuals
In June 2010 the EPA issued a proposed rule on coal combustion residuals (CCRs) that contained two primary regulatory options: (1) regulating CCRs destined for disposal in landfills or received (including stored) in surface impoundments as so-called “special wastes” under the hazardous waste program of RCRA Subtitle C; or (2) regulating CCRs destined for disposal in landfills or surface impoundments as non-hazardous wastes under Subtitle D of RCRA. Under both options, CCRs that are beneficially reused in certain processes would remain excluded from hazardous waste regulation. In April 2015 the EPA published the final CCR rule with the material being regulated under the second scenario presented above - as non-hazardous wastes regulated under RCRA Subtitle D.
The final regulations create new compliance requirements including modified storage, new notification and reporting practices, product disposal considerations, and CCR unit closure criteria. Entergy believes that on-site disposal options will be available at its facilities, to the extent needed for CCR that cannot be transferred for beneficial reuse. As of December 31, 2019, Entergy has recorded asset retirement obligations related to CCR management of $19.2 million.
In December 2016 the Water Infrastructure Improvements for the Nation Act (WIIN Act) was signed into law, which authorizes states to regulate coal ash rather than leaving primary enforcement to citizen suit actions. States may submit to the EPA proposals for a permit program. In September 2017 the EPA agreed to reconsider certain provisions of the CCR rule in light of the WIIN Act. In July 2018 the EPA released its initial revisions extending certain deadlines and incorporating some risk-based standards. In August 2010,2018 the D.C. Circuit vacated several provisions of the CCR rule on the basis that they were inconsistent with the Resource Conservation and Recovery Act and remanded the matter to the EPA to conduct further rulemaking. In August 2019 the EPA released its second set of proposed revisions to the CCR rule and plans at least three additional rulemakings.
Pursuant to the EPA Rule, Entergy operates groundwater monitoring systems surrounding its coal combustion residual landfills located at White Bluff, Independence, and Nelson. Monitoring to date has detected concentrations of certain listed constituents in the area, but has not indicated that these constituents originated at the active landfill cells. Reporting has occurred as required, and detection monitoring will continue as the rule requires. In late-2017, Entergy determined that certain in-ground wastewater treatment system recycle ponds at its White Bluff and Independence facilities require management under the new EPA regulations. In order to meet these regulations, one of two recycle ponds at White Bluff commenced closure in October 2018. Additionally, the second recycle pond at White Bluff plans to initiate closure on or before October 31, 2020. Any potential requirements for corrective action or operational changes under the new EPA rule continue to be assessed. Notably, ongoing litigation has resulted in the EPA’s continuing review of the rule. Consequently, the nature and cost of additional corrective action requirements may depend, in part, on the outcome of the EPA’s review.
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Other Environmental Matters
Entergy Louisiana and Entergy Texas
Entergy Louisiana, as successor in interest to Entergy Gulf States Louisiana, currently is involved in the second phase of the remedial investigation of the Lake Charles Service Center site, located in Lake Charles, Louisiana. A manufactured gas plant (MGP) is believed to have operated at this site from approximately 1916 to 1931. Coal tar, a by-product of the distillation process employed at MGPs, apparently was routed to a portion of the property for disposal. The same area also has been used as a landfill. In 1999, Entergy Gulf States, Inc. signed a second administrative consent order with the EPA to perform a removal action at the site. Removal actions addressed contaminated source material, soil, and sediment and included capping certain soil on and off-site. In 2002 approximately 7,400 tons of contaminated soil and debris were excavated and disposed of from an area within the service center. In 2003 a cap was constructed over the remedial area to prevent the migration of contamination to the surface. In August 2005 an administrative order was issued by the EPA requiring that a 10-year groundwater study be conducted at this site. The groundwater monitoring study commenced in January 2006. The EPA released the second Five Year Review in 2015. In that review, the EPA indicated that the remediation technique was insufficient and that Entergy would need to utilize other remediation technologies on the site. In July 2015, Entergy submitted a Focused Feasibility Study to the EPA outlining the potential remedies and suggesting installation of the new remedial method, a waterloo barrier. The estimated cost for this remedy is approximately $2 million, to be allocated between Entergy Louisiana and Entergy Texas. In early 2017 the EPA indicated that the waterloo barrier may not be necessary and requested revisions to the Focused Feasibility Study. The EPA released the third Five Year Review in late-2019 confirming that a new remedial method is not necessary but requiring continuation of the current groundwater monitoring. The site’s remedy includes monitored natural attenuation of groundwater, and institutional controls to restrict groundwater and land use. The EPA has determined that no additional actions are needed for the remedy to be protective over the long-term, and the remedy is protective of human health and the environment.
Entergy Arkansas, Entergy Louisiana, Entergy New Orleans, and Entergy Texas
The Texas Commission on Environmental Quality (TCEQ) notified Entergy Arkansas, Entergy Louisiana, Entergy New Orleans, and Entergy Texas that the TCEQ believes those entities are potentially responsible parties (PRPs) concerning contamination existing at the San Angelo Electric Service Company (SESCO) facility in San Angelo, Texas. The facility operated as a transformer repair and scrapping facility from the 1930s until 2003. Both soil and groundwater contamination existed at the site. Entergy subsidiaries sent transformers to this facility. Entergy Arkansas, Entergy Louisiana, and Entergy Texas responded to an information request from the TCEQ. Entergy Louisiana and Entergy Texas joined a group of PRPs responding to site conditions in cooperation with the State of Texas, creating cost allocation models based on review of SESCO documents and employee interviews, and investigating contribution actions against other PRPs. Entergy Louisiana and Entergy Texas have agreed to contribute to the remediation of contaminated soil and groundwater at the site in a measure proportionate to those companies’ involvement at the site. Current estimates, although variable depending on ultimate remediation design and performance, indicate that Entergy’s total share of remediation costs likely will be approximately $1.5 million to $2 million. Groundwater monitoring wells at the site were plugged and abandoned in December 2019 following receipt of a certificate of completion issued by the TCEQ. Site decommissioning activities will occur, and final disposition of the property will be determined at a later time.
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Entergy Texas
In December 2016 a transformer inside the Hartburg, Texas Substation had an internal fault resulting in a release of approximately 15,000 gallons of non-PCB mineral oil. Cleanup ensued immediately; however, rain caused much of the oil to spread across the substation yard and into a nearby wetland. The Texas Commission on Environmental Quality (TCEQ) and the National Response Center were immediately notified, and the TCEQ responded to the site approximately two hours after the cleanup was initiated. The remediation liability is estimated at $2.2 million; however, this number could fluctuate depending on the remediation extent and wetland mitigation requirements. In July 2017, Entergy entered into the Voluntary Cleanup Program with the TCEQ. In November 2017, additional soil sampling was completed in the wetland area and, in February 2018, a site summary report of findings was submitted to the TCEQ. The TCEQ responded in June 2018 and requested an ecological exclusion criteria checklist/Tier II screening-level ecological risk assessment, and additional site assessment, additional soil samples, groundwater samples, and some additional diagrams and maps. In October 2018, Entergy submitted the requested information to the TCEQ. In January 2019 the TCEQ responded with another request for information. In March 2019, Entergy submitted the requested information to the TCEQ. In August 2019 the TCEQ responded with a request for additional information including an Affected Property Assessment Report (APAR) and water well survey. The TCEQ has agreed that the necessity of the water well survey is dependent on the results of the groundwater resampling that will occur. Groundwater sampling was completed in December 2019 and results were submitted to the TCEQ for review. Based on the groundwater sampling results, the TCEQ has indicated that a water well survey is not necessary. The deadline for submittal of the APAR will be 180 days following the receipt of the TCEQ’s letter confirming approval of the groundwater sampling results.
Litigation
Entergy uses legal and appropriate means to contest litigation threatened or filed against it, but certain states in which Entergy operates have proven to be unusually litigious environments. Judges and juries in Louisiana, Mississippi, and Texas have demonstrated a willingness to grant large verdicts, including punitive damages, to plaintiffs in personal injury, property damage, and business tort cases. The litigation environment in these states poses a significant business risk to Entergy.
Ratepayer and Fuel Cost Recovery Lawsuits (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and Entergy Texas)
Mississippi Attorney General Complaint
See Note 2 to the financial statements for a discussion of this proceeding.
Asbestos Litigation(Entergy Arkansas, Entergy Louisiana, Entergy New Orleans, and Entergy Texas)
See Note 8 to the financial statements for a discussion of this litigation.
Employment and Labor-related Proceedings (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)
See Note 8 to the financial statements for a discussion of these proceedings.
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Employees
Employees are an integral part of Entergy’s commitment to serving customers. As of December 31, 2019, Entergy subsidiaries employed 13,635 people.
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Utility: | |
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Entergy Arkansas | 1,251 |
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Entergy Louisiana | 1,670 |
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Entergy Mississippi | 745 |
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Entergy New Orleans | 308 |
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Entergy Texas | 643 |
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System Energy | — |
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Entergy Operations | 3,564 |
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Entergy Services | 3,899 |
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Entergy Nuclear Operations | 1,505 |
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Other subsidiaries | 50 |
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Total Entergy | 13,635 |
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Approximately 4,100 employees are represented by the International Brotherhood of Electrical Workers, the Utility Workers Union of America, the International Brotherhood of Teamsters, the United Government Security Officers of America, and the International Union, Security, Police, and Fire Professionals of America.
Availability of SEC filings and other information on Entergy’s website
Entergy electronically files reports with the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxies, and amendments to such reports. The SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding registrants that file electronically with the SEC at http://www.sec.gov. Copies of the reports that Entergy files with the SEC can be obtained at the SEC’s website.
Entergy uses its website, http://www.entergy.com, as a routine channel for distribution of important information, including news releases, analyst presentations and financial information. Filings made with the SEC are posted and available without charge on Entergy’s website as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC. These filings include annual and quarterly reports on Forms 10-K and 10-Q (including related filings in Inline XBRL format) and current reports on Form 8-K; proxy statements; and any amendments to those reports or statements. All such postings and filings are available on Entergy’s Investor Relations website free of charge. Entergy is providing the address to its internet site solely for the information of investors and does not intend the address to be an active link. The contents of the website are not incorporated into this report.
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RISK FACTORS
Investors should review carefully the following risk factors and the other information in this Form 10-K. The risks that Entergy faces are not limited to those in this section. There may be additional risks and uncertainties (either currently unknown or not currently believed to be material) that could adversely affect Entergy’s financial condition, results of operations, and liquidity. See “FORWARD-LOOKING INFORMATION.”
Utility Regulatory Risks
(Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)
The terms and conditions of service, including electric and gas rates, of the Utility operating companies and System Energy are determined through regulatory approval proceedings that can be lengthy and subject to appeal that could result in delays in effecting rate changes and uncertainty as to ultimate results.
The Utility operating companies are regulated on a cost-of-service and rate of return basis and are subject to statutes and regulatory commission rules and procedures. The rates that the Utility operating companies and System Energy charge reflect their capital expenditures, operations and maintenance costs, allowed rates of return, financing costs, and related costs of service. These rates significantly influence the financial condition, results of operations, and liquidity of Entergy and each of the Utility operating companies and System Energy. These rates are determined in regulatory proceedings and are subject to periodic regulatory review and adjustment, including adjustment upon the initiative of a regulator or affected stakeholders.
In addition, regulators may initiate proceedings to investigate the prudence of costs in the Utility operating companies’ base rates and examine, among other things, the reasonableness or prudence of the companies’ operation and maintenance practices, level of expenditures (including storm costs and costs associated with capital projects), allowed rates of return and rate base, proposed resource acquisitions, and previously incurred capital expenditures that the operating companies seek to place in rates. The regulators may disallow costs subject to their jurisdiction found not to have been prudently incurred or found not to have been incurred in compliance with applicable tariffs, creating some risk to the ultimate recovery of those costs. Regulatory proceedings relating to rates and other matters typically involve multiple parties seeking to limit or reduce rates. Traditional base rate proceedings, as opposed to formula rate plans, generally have long timelines, are primarily based on historical costs, and may or may not be limited in scope or duration by statute. The length of these base rate proceedings can cause the Utility operating companies and System Energy to experience regulatory lag in recovering costs through rates, such that the Utility operating companies may not fully recover all costs during the rate effective period and the Utility operating companies may, therefore, earn less than their allowed returns. Decisions are typically subject to appeal, potentially leading to additional uncertainty associated with rate case proceedings.
The Utility operating companies have large customer and stakeholder bases and, as a result, could be the subject of public criticism or adverse publicity focused on issues including the operation of their assets and infrastructure or the quality of their service. Criticism or adverse publicity of this nature could render legislatures and other governing bodies, public service commissions and other regulatory authorities, and government officials less likely to view the applicable operating company in a favorable light and could potentially negatively affect legislative or regulatory processes or outcomes, as well as lead to increased regulatory oversight or more stringent legislative or regulatory requirements.
The base rates of Entergy Texas are established largely in traditional base rate case proceedings. Between base rate proceedings, Entergy Texas has available rate riders to recover the revenue requirements associated with certain incremental costs. For example, Entergy Texas has recovered distribution-related capital investments through the distribution cost recovery factor rider mechanism, transmission-related capital investments and certain non-fuel MISO charges through the transmission cost recovery factor rider mechanism, and MISO fuel and energy-related costs
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through the fixed fuel factor mechanism. Entergy Texas is also required to make a filing every three years, at a minimum, reconciling its fuel and purchased power costs and fuel factor revenues. In the course of this reconciliation, the PUCT determines whether eligible fuel and fuel-related expenses and revenues are necessary and reasonable, and makes a prudence finding for each of the fuel-related contracts for the reconciliation period.
Between base rate cases, Entergy Arkansas and Entergy Mississippi are able to adjust base rates annually through formula rate plans that utilize a forward test year (Entergy Arkansas) or forward-looking features (Entergy Mississippi). In response to Entergy Arkansas’s application for a general change in rates in 2015, the APSC approved the formula rate plan tariff proposed by Entergy Arkansas including its use of a projected year test period and an initial five-year term. The initial five-year term expires in 2021 unless Entergy Arkansas requests, and the APSC approves, the extension of the formula rate plan tariff for an additional five years through 2026. If Entergy Arkansas’s formula rate plan were terminated or not extended beyond the initial term, Entergy Arkansas could file an application for a general change in rates that may include a request for continued regulation under a formula rate review mechanism. If Entergy Mississippi’s formula rate plan is terminated, it would revert to the more traditional rate case environment or seek approval of a new formula rate plan. Entergy Arkansas and Entergy Mississippi recover fuel and purchased energy and certain non-fuel costs through other APSC-approved and MPSC-approved tariffs, respectively.
Entergy Louisiana historically sets electric base rates annually through a formula rate plan using an historic test year. The form of the formula rate plan, on a combined basis, was approved in connection with the business combination of Entergy Louisiana and Entergy Gulf States Louisiana and largely followed the formula rate plans that were approved by the LPSC staffin connection with the full electric base rate cases filed by those companies in February 2013. The formula rate plan was most recently extended through the test year 2019; certain modifications were made in that extension, including a decrease to the allowed return on equity and intervenorsthe addition of a transmission cost recovery mechanism. The formula rate plan continues to include exceptions from the rate cap and sharing requirements for certain large capital investment projects, including acquisition or construction of generating facilities and purchase power agreements approved by the LPSC and as noted, for certain transmission investment, among other items. MISO fuel and energy-related costs are recoverable in Entergy Louisiana’s fuel adjustment clause. In the event that the electric formula rate plan is not renewed or extended, Entergy Louisiana would revert to the more traditional rate case environment.
Entergy New Orleans previously operated under a formula rate plan that ended with the 2011 test year. Based on a settlement agreement approved by the City Council, with limited exceptions, the base rates of Entergy New Orleans were frozen until rates were implemented in connection with the base rate case filed testimony.by Entergy New Orleans in 2018. In November 2019 the City Council issued a resolution resolving the rate case, with rates to become effective retroactive to August 2019. The LPSC staff (1)resolution allows Entergy New Orleans to implement a three-year formula rate plan, beginning with the 2019 test year as adjusted for forward-looking known and measurable changes. Entergy New Orleans has appealed the resolution. See Note 2 to the financial statements for further discussion.
The rates of System Energy are established by the FERC, and the costs allowed to be charged pursuant to these rates are, in turn, passed through to the participating Utility operating companies through the Unit Power Sales Agreement, which allows monthly adjustments to reflect the current operating costs of, and investment in, Grand Gulf. The Unit Power Sales Agreement is currently the subject of several litigation proceedings at the FERC, including a challenge with respect to System Energy’s authorized return on equity and capital structure and a request in a separate proceeding for FERC to initiate a broader investigation of rates under the Unit Power Sales Agreement. See Note 2 to the financial statements for further discussion of the proceedings. The Utility operating companies have agreed to implement certain protocols for providing retail regulators with information regarding rates billed under the Unit Power Sales Agreement.
The Utility operating companies and System Energy, and the energy industry as a whole, have experienced a period of rising costs and investments, and an upward trend in spending, especially with respect to infrastructure investments, which is likely to continue in the foreseeable future and could result in more frequent rate cases and
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requests for, and the continuation of, cost recovery mechanisms. For information regarding rate case proceedings and formula rate plans applicable to the Utility operating companies, see Note 2 to the financial statements.
Changes to state or federal legislation or regulation affecting electric generation, electric and natural gas transmission, distribution and related activities could adversely affect Entergy and the Utility operating companies’ financial position, results of operations or cash flows and their utility businesses.
If legislative and regulatory structures evolve in a manner that erodes the Utility operating companies’ exclusive rights to serve their regulated customers, they could lose customers and sales and their results of operations, financial position or cash flows could be materially affected. Additionally, technological advances in energy efficiency and distributed energy resources are reducing the costs of these technologies and together with ongoing state and federal subsidies, the increasing penetration of these technologies could result in reduced sales by the Utility operating companies. Such loss of sales could put upward pressure on rates, resulting in adverse regulatory actions to mitigate such effects on rates. Entergy and the Utility operating companies cannot predict if or when they may be subject to changes in legislation or regulation, or the extent and timing of reductions of the cost of distributed energy resources, nor can they predict the impact of these changes on their results of operations, financial position or cash flows.
The Utility operating companies recover fuel, purchased power, and associated costs through rate mechanisms that are subject to risks of delay or disallowance in regulatory proceedings.
The Utility operating companies recover their fuel, purchased power, and associated costs from their customers through rate mechanisms subject to periodic regulatory review and adjustment. Because regulatory review can result in the disallowance of incurred costs found not to have been prudently incurred, including the cost of replacement power purchased when generators experience outages, with the possibility of refunds to ratepayers, there exists some risk to the ultimate recovery of those costs. Regulators may also initiate proceedings to investigate the continued usage or the adequacy and operation of the fuel and purchased power recovery clauses of the Utility operating companies and, therefore, there can be no assurance that existing recovery mechanisms will remain unchanged or in effect at all.
The Utility operating companies’ cash flows can be negatively affected by the time delays between when gas, power, or other commodities are purchased and the ultimate recovery from customers of the costs in rates. On occasion, when the level of incurred costs for fuel and purchased power rises very dramatically, some of the Utility operating companies may agree to defer recovery of a portion of that period’s fuel and purchased power costs for recovery at a later date, which could increase the near-term working capital and borrowing requirements of those companies. For a description of fuel and purchased power recovery mechanisms and information regarding the regulatory proceedings for fuel and purchased power costs recovery, see Note 2 to the financial statements.
There remains uncertainty regarding the effect of the termination of the System Agreement on the Utility operating companies.
The Utility operating companies historically engaged in the coordinated planning, construction, and operation of generating resources and bulk transmission facilities under the terms of the System Agreement, which is a rate schedule that had been approved by the FERC. The System Agreement terminated in its entirety on August 31, 2016.
There remains uncertainty regarding the long-term effect of the termination of the System Agreement on the Utility operating companies because of the significant effect of the agreement on the generation and transmission functions of the Utility operating companies and the significant period of time (over 30 years) that it was prudenthad been in existence. In the absence of the System Agreement, there remains uncertainty around the effectiveness of governance processes and the potential absence of federal authority to moveresolve certain issues among the Utility operating companies and their retail regulators.
In addition, although the System Agreement terminated in its entirety in August 2016, there are a number of outstanding System Agreement proceedings at the FERC that may require future adjustments, including challenges to
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the level and timing of payments made by Entergy Arkansas under the System Agreement. The outcome and timing of these FERC proceedings and resulting recovery and impact on rates cannot be predicted at this time.
For further information regarding the regulatory proceedings relating to the System Agreement, see Note 2 to the financial statements.
The Utility operating companies are subject to economic risks associated with participation in the MISO markets and the allocation of transmission upgrade costs. The operation of the Utility operating companies’ transmission system pursuant to the MISO RTO tariff and their participation in the MISO RTO’s wholesale markets may be adversely affected by regulatory or market design changes, as well as liability under, or any future inability to comply with, existing or future regulations or requirements.
On December 19, 2013, the Utility operating companies integrated into the MISO RTO. MISO maintains functional control over the combined transmission systems of its members and administers wholesale energy and ancillary services markets for market participants in the MISO region, including the Utility operating companies. The Utility operating companies sell capacity, energy, and ancillary services on a bilateral basis to certain wholesale customers and offer available electricity production of their generating facilities into the MISO day-ahead and real-time energy markets pursuant to the MISO tariff and market rules. The Utility operating companies are subject to economic risks associated with participation in the MISO markets. MISO tariff rules and system conditions, including transmission congestion, could affect the Utility operating companies’ ability to sell power in certain regions and/or the economic value of such sales, and MISO market rules may change in ways that cause additional risk.
The Utility operating companies participate in the MISO regional transmission planning process and are subject to risks associated with planning decisions that MISO makes in the exercise of control over the planning of the Utility operating companies’ transmission assets that are under MISO’s functional control. The Utility operating companies pay transmission rates that reflect the cost of transmission projects that the Utility operating companies do not own, which could increase cash or financing needs. MISO has made filings with FERC proposing changes in the transmission project criteria in MISO. These changes, if adopted, could potentially result in a larger volume of competitively bid and regionally cost allocated transmission projects. In addition to the cash and financing-related risks arising from long-term suspensionthe potential additional cost allocation to cancellationthe Utility operating companies from these projects, there is a risk that the Utility operating companies’ business and financial position could be harmed as a result of lost investment opportunities and other effects that flow from an increased number of competitive projects being approved and constructed that are interconnected with their transmission systems. Further, the terms and conditions of the MISO tariff, including provisions related to the design and implementation of wholesale markets, the allocation of transmission upgrade costs, the MISO-wide allowed base rate of return on equity, and any required MISO-related charges and credits are subject to regulation by the FERC. The operation of the Utility operating companies’ transmission system pursuant to the MISO tariff and their participation in the MISO wholesale markets may be adversely affected by regulatory or market design changes, as well as liability under, or any future inability to comply with, existing or future regulations or requirements. In addition, orders from each of the Utility operating companies’ respective retail regulators generally require that the Utility operating companies make periodic filings, or generally allow the retail regulator to direct the making of such filings, setting forth the results of analysis of the costs and benefits realized from MISO membership as well as the projected costs and benefits of continued membership in MISO and/or requesting approval of their continued membership in MISO. These filings have been submitted periodically by each of the Utility operating companies as required by their respective retail regulators, and the outcome of the resulting proceedings may affect the Utility operating companies’ continued membership in MISO.
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(Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and Entergy Texas)
A delay or failure in recovering amounts for storm restoration costs incurred as a result of severe weather could have material effects on Entergy and those Utility operating companies affected by severe weather.
Entergy’s and its Utility operating companies’ results of operations, liquidity, and financial condition can be materially affected by the destructive effects of severe weather. Severe weather can also result in significant outages for the customers of the Utility operating companies and, therefore, reduced revenues for the Utility operating companies during the period of the outages. A delay or failure in recovering amounts for storm restoration costs incurred or revenues lost as a result of severe weather could have a material effect on Entergy and those Utility operating companies affected by severe weather.
Nuclear Operating, Shutdown and Regulatory Risks
(Entergy Corporation, Entergy Arkansas, Entergy Louisiana, and System Energy)
Certain of the Utility operating companies, System Energy, and Entergy Wholesale Commodities must consistently operate their nuclear power plants at high capacity factors in order to be successful, and lower capacity factors could materially affect Entergy’s and their results of operations, financial condition, and liquidity.
Nuclear capacity factors significantly affect the results of operations of certain Utility operating companies, System Energy, and Entergy Wholesale Commodities. Nuclear plant operations involve substantial fixed operating costs. Consequently, to be successful, a plant owner must consistently operate its nuclear power plants at high capacity factors, consistent with safety requirements. For the Utility operating companies that own nuclear plants, lower capacity factors can increase production costs by requiring the affected companies to generate additional energy, sometimes at higher costs, from their owned or contractually controlled facilities or purchase additional energy in the spot or forward markets in order to satisfy their supply needs. For the Entergy Wholesale Commodities nuclear plants, lower capacity factors directly affect revenues and cash flow from operations. Entergy Wholesale Commodities’ forward sales are comprised of various hedge products, many of which have some degree of operational-contingent price risk. Certain unit-contingent contracts guarantee specified minimum capacity factors. In the event plants with these contracts were operating below the guaranteed capacity factors, Entergy would be subject to price risk for the undelivered power. Further, Entergy Wholesale Commodities’ nuclear forward sales contracts can also be on a firm LD basis, which subjects Entergy to increasing price risk as capacity factors decrease. Many of these firm hedge products have damages risk.
Certain of the Utility operating companies, System Energy, and the Entergy Wholesale Commodities nuclear plant owners periodically shut down their nuclear power plants to replenish fuel. Plant maintenance and upgrades are often scheduled during such refueling outages. If refueling outages last longer than anticipated or if unplanned outages arise, Entergy’s and their results of operations, financial condition, and liquidity could be materially affected.
Outages at nuclear power plants to replenish fuel require the plant to be “turned off.” Refueling outages generally are planned to occur once every 18 to 24 months. Plant maintenance and upgrades are often scheduled during such planned outages, which typically extends the planned outage duration. When refueling outages last longer than anticipated or a plant experiences unplanned outages, capacity factors decrease, and maintenance costs may increase. Lower than forecasted capacity factors may cause Entergy Wholesale Commodities to experience reduced revenues and may also create damages risk with certain hedge products as previously discussed.
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Certain of the Utility operating companies, System Energy, and Entergy Wholesale Commodities face risks related to the purchase of uranium fuel (and its conversion, enrichment, and fabrication). These risks could materially affect Entergy’s and their results of operations, financial condition and liquidity.
Based upon currently planned fuel cycles, Entergy’s nuclear units have a diversified portfolio of contracts and inventory that provides substantially adequate nuclear fuel materials and conversion and enrichment services at what Entergy believes are reasonably predictable prices through 2020 and beyond. The nuclear fuel supply portfolio for the Entergy Wholesale Commodities segment has been adjusted to reflect reduced overall requirements related to the planned permanent shutdown and sale of the Palisades, Indian Point 2 and Indian Point 3 plants over the next three years and fuel procurement is limited to the final refueling of the Palisades plant in 2020. Entergy’s ability to purchase nuclear fuel at reasonably predictable prices, however, depends upon the performance reliability of uranium miners. While there are a number of possible alternate suppliers that may be accessed to mitigate any supplier performance failure, the pricing of any such alternate uranium supply from the market will be dependent upon the market for uranium supply at that time. Entergy buys uranium from a diversified mix of sellers located in a diversified mix of countries, and from time to time purchases from nearly all qualified reliable major market participants worldwide that sell into the U.S. Market prices for nuclear fuel have been extremely volatile from time to time in the past and may be subject to increased volatility due to the imposition of tariffs, domestic purchase requirements or shifting trade arrangements between countries. Although Entergy’s nuclear fuel contract portfolio provides a degree of hedging against market risks for several years, costs for nuclear fuel in the future cannot be predicted with certainty due to normal inherent market uncertainties, and price changes could materially affect the liquidity, financial condition, and results of operations of certain of the Utility operating companies, System Energy, and Entergy Wholesale Commodities.
Entergy’s ability to assure nuclear fuel supply also depends upon the performance and reliability of conversion, enrichment, and fabrication services providers. These service providers are fewer in number than uranium suppliers. For conversion and enrichment services, Entergy diversifies its supply by supplier and country and may take special measures to ensure a reliable supply of enriched uranium for fabrication into nuclear fuel. For fabrication services, each plant is dependent upon the performance of the fabricator of that plant’s nuclear fuel; therefore, Entergy relies upon additional monitoring, inspection, and oversight of the fabrication process to assure reliability and quality of its nuclear fuel. Certain of the suppliers and service providers are located in or dependent upon countries, such as Russia, in which international sanctions or tariffs could restrict the ability of such suppliers to continue to supply fuel or provide such services at acceptable prices or at all. The inability of such suppliers or service providers to perform such obligations could materially affect the liquidity, financial condition, and results of operations of certain of the Utility operating companies, System Energy, and Entergy Wholesale Commodities.
Entergy Arkansas, Entergy Louisiana, System Energy, and the Entergy Wholesale Commodities business face the risk that the NRC will change or modify its regulations, suspend or revoke their licenses, or increase oversight of their nuclear plants, which could materially affect Entergy’s and their results of operations, financial condition, and liquidity.
Under the Atomic Energy Act and Energy Reorganization Act, the NRC regulates the operation of nuclear power plants. The NRC may modify, suspend, or revoke licenses, shut down a nuclear facility and impose civil penalties for failure to comply with the Atomic Energy Act, related regulations, or the terms of the licenses for nuclear facilities. Interested parties may also intervene which could result in prolonged proceedings. A change in the Atomic Energy Act, other applicable statutes, or the applicable regulations or licenses, or the NRC’s interpretation thereof, may require a substantial increase in capital expenditures or may result in increased operating or decommissioning costs and could materially affect the results of operations, liquidity, or financial condition of Entergy (through Entergy Wholesale Commodities), its Utility operating companies, or System Energy. A change in the classification of a plant owned by one of these companies under the NRC’s Reactor Oversight Process, which is the NRC’s program to collect information about plant performance, assess the information for its safety significance, and provide for appropriate licensee and NRC response, also could cause the owner of the plant to incur material additional costs as a result of the increased oversight activity and potential response costs associated with the change in classification.For additional information concerning the current classification of the plants owned by Entergy Arkansas, Entergy Louisiana, System Energy, and
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the Entergy Wholesale Commodities business, see “Regulation of Entergy’s Business- Regulation of the Nuclear Power Industry - NRC Reactor Oversight Process” in Part I, Item 1 and Note 8 to the financial statements.
Events at nuclear plants owned by one of these companies, as well as those owned by others, may lead to a change in laws or regulations or the terms of the applicable licenses, or the NRC’s interpretation thereof, or may cause the NRC to increase oversight activity or initiate actions to modify, suspend, or revoke licenses, shut down a nuclear facility, or impose civil penalties. As a result, if an incident were to occur at any nuclear generating unit, whether an Entergy nuclear generating unit or not, it could materially affect the financial condition, results of operations, and liquidity of Entergy, certain of the Utility operating companies, System Energy, or Entergy Wholesale Commodities.
Certain of the Utility operating companies, System Energy, and Entergy Wholesale Commodities are exposed to risks and costs related to operating and maintaining their nuclear power plants, and their failure to maintain operational efficiency at their nuclear power plants could materially affect Entergy’s and their results of operations, financial condition, and liquidity.
The nuclear generating units owned by certain of the Utility operating companies, System Energy,and the Entergy Wholesale Commodities business began commercial operations in the 1970s-1980s. Older equipment may require more capital expenditures to keep each of these nuclear power plants operating safely and efficiently. This equipment is also likely to require periodic upgrading and improvement. Any unexpected failure, including failure associated with breakdowns, forced outages, or any unanticipated capital expenditures, could result in increased costs, some of which costs may not be fully recoverable by the Utility operating companies and System Energy in regulatory proceedings should there be a determination of imprudence. Operations at any of the nuclear generating units owned and operated by Entergy’s subsidiaries could degrade to the point where the affected unit needs to be shut down or operated at less than full capacity. If this were to happen, identifying and correcting the causes may require significant time and expense. A decision may be made to close a unit rather than incur the expense of restarting it or returning the unit to full capacity. For the Utility operating companies and System Energy, this could result in certain costs being stranded and potentially not fully recoverable in regulatory proceedings. For Entergy Wholesale Commodities, this could result in lost revenue and increased fuel and purchased power expense to meet supply commitments and penalties for failure to perform under their contracts with customers. In addition, the operation and maintenance of Entergy’s nuclear facilities require the commitment of substantial human resources that can result in increased costs.
The nuclear industry continues to address susceptibility to the effects of stress corrosion cracking and other corrosion mechanisms on certain materials within plant systems. The issue is applicable at all nuclear units to varying degrees and is managed in accordance with industry standard practices and guidelines that include in-service examinations, replacements, and mitigation strategies. Developments in the industry or identification of issues at the nuclear units could require unanticipated remediation efforts that cannot be quantified in advance.
Moreover, Entergy is becoming more dependent on fewer suppliers for key parts of Entergy’s nuclear power plants that may need to be replaced or refurbished, and in some cases, parts are no longer available and have to be reverse-engineered for replacement. In addition, certain major parts have long lead-times to manufacture if an unplanned replacement is needed. This dependence on a reduced number of suppliers and long lead-times on certain major parts for unplanned replacements could result in delays in obtaining qualified replacement parts and, therefore, greater expense for Entergy.
The costs associated with the storage of the spent nuclear fuel of certain of the Utility operating companies, System Energy, and the owners of the Entergy Wholesale Commodities nuclear power plants, as well as the costs of and their ability to fully decommission their nuclear power plants, could be significantly affected by the timing of the opening of a spent nuclear fuel disposal facility, as well as interim storage and transportation requirements.
Certain of the Utility operating companies, System Energy and the owners of the Entergy Wholesale Commodities nuclear plants incur costs for the on-site storage of spent nuclear fuel. The approval of a license for a national repository for the disposal of spent nuclear fuel, such as the one proposed for Yucca Mountain, Nevada, or
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any interim storage facility, and the timing of such facility opening, will significantly affect the costs associated with on-site storage of spent nuclear fuel. For example, while the DOE is required by law to proceed with the licensing of Yucca Mountain and, after the license is granted by the NRC, to construct the repository and commence the receipt of spent fuel, the NRC licensing of the Yucca Mountain repository is effectively at a standstill. These actions are prolonging the time before spent fuel is removed from Entergy’s plant sites. Because the DOE has not accomplished its objectives, it is in non-compliance with the Nuclear Waste Policy Act of 1982 and has breached its spent fuel disposal contracts, and Entergy has sued the DOE for such breach. Furthermore, Entergy is uncertain as to when the DOE will commence acceptance of spent fuel from its facilities for storage or disposal. As a result, continuing future expenditures will be required to increase spent fuel storage capacity at the companies’ nuclear sites and maintenance costs on existing storage facilities, including aging management of fuel storage casks, may increase. The costs of on-site storage are also affected by regulatory requirements for such storage. In addition, the availability of a repository or other off-site storage facility for spent nuclear fuel may affect the ability to fully decommission the nuclear units and the costs relating to decommissioning. For further information regarding spent fuel storage, see the “Critical Accounting Estimates – Nuclear Decommissioning Costs – Spent Fuel Disposal” section of Management’s Financial Discussion and Analysis for Entergy, Entergy Arkansas, Entergy Louisiana, and System Energy and Note 8 to the financial statements.
Certain of the Utility operating companies, System Energy, and the Entergy Wholesale Commodities nuclear plant owners may be required to pay substantial retrospective premiums imposed under the Price-Anderson Act in the event of a nuclear incident, and losses not covered by insurance could have a material effect on Entergy’s and their results of operations, financial condition, or liquidity.
Accidents and other unforeseen problems at nuclear power plants have occurred both in the United States and elsewhere. The Price-Anderson Act limits each reactor owner’s public liability (off-site) for a single nuclear incident to the payment of retrospective premiums into a secondary insurance pool, which is referred to as Secondary Financial Protection, up to approximately $137.6 million per reactor. With 98 reactors currently participating, this translates to a total public liability cap of approximately $14 billion per incident. The limit is subject to change to account for the effects of inflation, a change in the primary limit of insurance coverage, and changes in the number of licensed reactors. As required by the Price-Anderson Act, the Utility operating companies, System Energy, and Entergy Wholesale Commodities carry the maximum available amount of primary nuclear off-site liability insurance with American Nuclear Insurers, which is $450 million for each operating site. Claims for any nuclear incident exceeding that amount are covered under Secondary Financial Protection. As a result, in the event of a nuclear incident that causes damages (off-site) in excess of the primary insurance coverage, each owner of a nuclear plant reactor, including Entergy’s Utility operating companies, System Energy, and the Entergy Wholesale Commodities plant owners, regardless of fault or proximity to the incident, will be required to pay a retrospective premium, equal to its proportionate share of the loss in excess of the primary insurance level, up to a maximum of approximately $137.6 million per reactor per incident (Entergy’s maximum total contingent obligation per incident is $1.101 billion). The retrospective premium payment is currently limited to approximately $21 million per year per incident per reactor until the aggregate public liability for each licensee is paid up to the $137.6 million cap.
NEIL is a utility industry mutual insurance company, owned by its members, including the Utility operating companies, System Energy, and the owners of the Entergy Wholesale Commodities plants. All member plants could be subject to an annual assessment (retrospective premium of up to 10 times current annual premium for all policies) should the NEIL surplus (reserve) be significantly depleted due toinsured losses. As of December 31, 2019, the maximum annual assessment amounts total $112 million for the Utility plants. Retrospective premium insurance available through NEIL’s reinsurance treaty can cover the potential assessments and the Entergy Wholesale Commodities plants currently maintain the retrospective premium insurance to cover those potential assessments.
As an owner of nuclear power plants, Entergy participates in industry self-insurance programs and could be liable to fund claims should a plant owned by a different company experience a major event. Any resulting liability from a nuclear accident may exceed the applicable primary insurance coverage and require contribution of additional funds through the industry-wide program that could significantly affect the results of operations, financial condition,
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or liquidity of Entergy, certain of the Utility operating companies, System Energy, or the Entergy Wholesale Commodities subsidiaries.
The decommissioning trust fund assets for the nuclear power plants owned by the Utility operating companies, System Energy and the Entergy Wholesale Commodities nuclear plant owners may not be adequate to meet decommissioning obligations if market performance and other changes decrease the value of assets in the decommissioning trusts, if one or more of Entergy’s nuclear power plants is retired earlier than the anticipated shutdown date, if the plants cost more to decommission than estimated, or if current regulatory requirements change, which then could require significant additional funding.
Owners of nuclear generating plants have an obligation to decommission those plants. Certain of the Utility operating companies, System Energy, and owners of the Entergy Wholesale Commodities nuclear power plants maintain decommissioning trust funds for this purpose. Certain of the Utility operating companies collect funds from their customers, which are deposited into the trusts covering the units operated for or on behalf of those companies. Those rate collections, as adjusted from time to time by rate regulators, are generally based upon operating license lives and trust fund balances as well as estimated trust fund earnings and decommissioning costs. Assets in these trust funds are subject to market fluctuations, will yield uncertain returns that may fall below projected return rates, and may result in losses resulting from the recognition of impairments of the value of certain securities held in these trust funds.
Under NRC regulations, nuclear plant owners are permitted to project the NRC-required decommissioning amount, based on an NRC formula or a site-specific estimate, and the amount that will be available in each nuclear power plant’s decommissioning trusts combined with any other decommissioning financial assurances in place. The projections are made based on the operating license expiration date and the mid-point of the subsequent decommissioning process, or the anticipated actual completion of decommissioning if a site-specific estimate is used. If the projected amount of each individual plant’s decommissioning trusts exceeds the NRC-required decommissioning amount, then its decommissioning obligations are considered to be funded in accordance with NRC regulations. If the projected costs do not sufficiently reflect the actual costs required to decommission these nuclear power plants, or funding is otherwise inadequate, or if the formula, formula inputs, or site-specific estimate is changed to require increased funding, additional resources or commitments would be required. Furthermore, depending upon the level of funding available in the trust funds, the NRC may not permit the trust funds to be used to pay for related costs such as the management of spent nuclear fuel that are not included in the NRC’s formula. The NRC may also require a plan for the provision of separate funding for spent fuel management costs. In addition to NRC requirements, there are other decommissioning-related obligations for certain of the Entergy Wholesale Commodities nuclear power plants, which management believes it will be able to satisfy.
Further, federal or state regulatory changes, including mandated increases in decommissioning funding or changes in the methods or standards for decommissioning operations, may also increase the funding requirements of, or accelerate the timing for funding of, the obligations related to the decommissioning of the Utility operating companies, System Energy, or Entergy Wholesale Commodities nuclear power plants or may restrict the decommissioning-related costs that can be paid from the decommissioning trusts. Such changes also could result in the need for additional contributions to decommissioning trusts, or the posting of parent guarantees, letters of credit, or other surety mechanisms. As a result, under any of these circumstances, Entergy’s results of operations, liquidity, and financial condition could be materially affected.
An early plant shutdown (either generally or relative to current expectations), poor investment results or higher than anticipated decommissioning costs (including as a result of changing regulatory requirements) could cause trust fund assets to be insufficient to meet the decommissioning obligations, with the result that the Utility operating companies, System Energy or the Entergy Wholesale Commodities nuclear plant owners may be required to provide significant additional funds or credit support to satisfy regulatory requirements for decommissioning, which, with respect to the Utility operating companies, may not be recoverable from customers in a timely fashion or at all.
For further information regarding nuclear decommissioning costs, management’s decision to suspendexit the merchant
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power business, the impairment charges that resulted from such decision, and the planned sale of Palisades (which will include the transfer of the decommissioning trust), see the “Critical Accounting Estimates- Nuclear Decommissioning Costs” section of Management’s Financial Discussion and Analysis for Entergy, Entergy Arkansas, Entergy Louisiana, and System Energy, the “Entergy Wholesale Commodities Exit from the Merchant Power Business” section of Management’s Financial Discussion and Analysis for Entergy Corporation and Subsidiaries, and Notes 9 and 14 to the financial statements.
New or existing safety concerns regarding operating nuclear power plants and nuclear fuel could lead to restrictions upon the operation and decommissioning of Entergy’s nuclear power plants.
New and existing concerns are being expressed in public forums about the safety of nuclear generating units and nuclear fuel. These concerns have led to, and may continue to lead to, various proposals to Federal regulators and governing bodies in some localities where Entergy’s subsidiaries own nuclear generating units for legislative and regulatory changes that might lead to the shutdown of nuclear units, additional requirements or restrictions related to spent nuclear fuel on-site storage and eventual disposal, or other adverse effects on owning, operating and decommissioning nuclear generating units. Entergy vigorously responds to these concerns and proposals. If any of the existing proposals, or any proposals that may arise in the future with respect to legislative and regulatory changes, become effective, they could have a material effect on Entergy’s results of operations and financial condition.
(Entergy Corporation)
Entergy Wholesale Commodities nuclear power plants are exposed to price risk.
Entergy and its subsidiaries do not have a regulator-authorized rate of return on their capital investments in non-utility businesses. As a result, the sale of capacity and energy from the Entergy Wholesale Commodities nuclear power plants, unless otherwise contracted, is subject to the fluctuation of market power prices. In order to reduce future price risk to desired levels, Entergy Wholesale Commodities utilizes contracts that are unit-contingent and Firm LD and various products such as forward sales, options, and collars. As of December 31, 2019, Entergy Wholesale Commodities’ nuclear power generation plants had sold forward 97% in 2020, 92% in 2021, and 66% in 2022 of its generation portfolio’s planned energy output, reflecting the planned shutdown and sale of the remaining Entergy Wholesale Commodities nuclear power plants by mid-2022.
Market conditions such as product cost, market liquidity, and other portfolio considerations influence the product and contractual mix. The obligations under unit-contingent agreements depend on a longer-termgenerating asset that is operating; if the generation asset is not operating, the seller generally is not liable for damages. For some unit-contingent obligations, however, there is also a guarantee of availability that provides for the payment to the power purchaser of contract damages, if incurred, in the event the unit owner fails to deliver power as a result of the failure of the specified generation unit to generate power at or above a specified availability threshold. Firm LD sales transactions may be exposed to substantial operational price risk, a portion of which may be capped through the use of risk management products, to the extent that the plants do not run as expected and market prices exceed contract prices.
Market prices may fluctuate substantially, sometimes over relatively short periods of time, and at other times experience sustained increases or decreases. Demand for electricity and its fuel stock can fluctuate dramatically, creating periods of substantial under- or over-supply. During periods of over-supply, prices might be depressed. Also, from time to time there may be political pressure, or pressure from regulatory authorities with jurisdiction over wholesale and retail energy commodity and transportation rates, to impose price limitations, credit requirements, bidding rules and other mechanisms to address volatility and other issues in these markets.
The effects of sustained low natural gas prices and power market structure challenges have resulted in lower market prices for electricity in the power regions where the Entergy Wholesale Commodities nuclear power plants are located. In addition, currently the market design under which the plants operate does not adequately compensate merchant nuclear plants for their environmental and fuel diversity benefits in the region. These conditions were primary
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factors leading to Entergy’s decision to shut down (or sell) Entergy Wholesale Commodities’ nuclear power plants before the end of their operating licenses (or requested operating licenses for Indian Point 2 and Indian Point 3).
The price that different counterparties offer for various products including forward sales is influenced both by market conditions as well as the contract terms such as damage provisions, credit support requirements, and the number of available counterparties interested in contracting for the desired forward period. Depending on differences between market factors at the time of contracting versus current conditions, Entergy Wholesale Commodities’ contract portfolio may have average contract prices above or below current market prices, including at the expiration of the contracts, which may significantly affect Entergy Wholesale Commodities’ results of operations, financial condition, or liquidity. New hedges are generally layered into on a rolling forward basis, waswhich tends to drive hedge over-performance to market in a falling price environment, and hedge underperformance to market in a rising price environment; however, hedge timing, product choice, and hedging costs will also affect these results. See the “Market and Credit Risk Sensitive Instruments” section of Management’s Financial Discussion and Analysis for Entergy Corporation and Subsidiaries. Since Entergy Wholesale Commodities has announced the closure (or sale) of its nuclear plants, Entergy Wholesale Commodities may enter into fewer forward sales contracts for output from such plants.
The Entergy Wholesale Commodities business is subject to substantial governmental regulation and may be adversely affected by legislative, regulatory or market design changes, as well as liability under, or any future inability to comply with, existing or future regulations or requirements.
The Entergy Wholesale Commodities business is subject to extensive regulation under federal, state, and local laws. Compliance with the requirements under these various regulatory regimes may cause the Entergy Wholesale Commodities business to incur significant additional costs, and failure to comply with such requirements could result in the shutdown of the non-complying facility, the imposition of liens, fines and/or civil or criminal liability.
Public utilities under the Federal Power Act are required to obtain FERC acceptance of their rate schedules for wholesale sales of electricity. Each of the owners of the Entergy Wholesale Commodities nuclear power plants that generates electricity, as well as Entergy Nuclear Power Marketing, LLC, is a “public utility” under the Federal Power Act by virtue of making wholesale sales of electric energy and/or owning wholesale electric transmission facilities. The FERC has granted these generating and power marketing companies the authority to sell electricity at market-based rates. The FERC’s orders that grant the Entergy Wholesale Commodities’ generating and power marketing companies market-based rate authority reserve the right to revoke or revise that authority if the FERC subsequently determines that the Entergy Wholesale Commodities business can exercise market power in transmission or generation, create barriers to entry, or engage in abusive affiliate transactions. In addition, the Entergy Wholesale Commodities’ market-based sales are subject to certain market behavior rules, and if any of its generating and power marketing companies were deemed to have violated one of those rules, they would be subject to potential disgorgement of profits associated with the violation and/or suspension or revocation of their market-based rate authority and potential penalties of up to $1 million per day per violation. If the Entergy Wholesale Commodities’ generating or power marketing companies were to lose their market-based rate authority, such companies would be required to obtain the FERC’s acceptance of a cost-of-service rate schedule and could become subject to the accounting, record-keeping, and reporting requirements that are imposed on utilities with cost-based rate schedules. This could have an adverse effect on the rates the Entergy Wholesale Commodities business charges for power from its facilities.
The Entergy Wholesale Commodities business is also affected by legislative and regulatory changes, as well as changes to market design, market rules, tariffs, cost allocations, and bidding rules imposed by the existing Independent System Operators. The Independent System Operators that oversee most of the wholesale power markets may impose, and in the future may continue to impose, mitigation, including price limitations, offer caps and other mechanisms, to address some of the volatility and the potential exercise of market power in these markets. These types of price limitations and other regulatory mechanisms may have an adverse effect on the profitability of the Entergy Wholesale Commodities business’ generation facilities that sell energy and capacity into the wholesale power markets. For further information regarding federal, state and local laws and regulation applicable to the Entergy Wholesale Commodities business, see the “Regulation of Entergy’s Business” section in Part I, Item 1.
Part I Item 1A & 1B
Entergy Corporation, Utility operating companies, and System Energy
The regulatory environment applicable to the electric power industry is subject to changes as a result of restructuring initiatives at both the state and federal levels. Entergy cannot predict the future design of the wholesale power markets or the ultimate effect that the changing regulatory environment will have on the Entergy Wholesale Commodities business. In addition, in some of these markets, interested parties have proposed material market design changes, including the elimination of a single clearing price mechanism, have raised claims that the competitive marketplace is not imprudent; (2) indicatedworking because energy prices in wholesale markets exceed the marginal cost of operating nuclear power plants, and have made proposals to re-regulate the markets, impose a generation tax, or require divestitures by generating companies to reduce their market share. Other proposals to re-regulate may be made and legislative or other attention to the electric power market restructuring process may delay or reverse the deregulation process, which could require material changes to business planning models. If competitive restructuring of the electric power markets is reversed, modified, discontinued, or delayed, the Entergy Wholesale Commodities business’ results of operations, financial condition, and liquidity could be materially affected.
The power plants owned by the Entergy Wholesale Commodities business are subject to impairment charges in certain circumstances, which could have a material effect on Entergy’s results of operations, financial condition or liquidity.
Entergy reviews long-lived assets held in all of its business segments whenever events or changes in circumstances indicate that exceptrecoverability of these assets is uncertain. Generally, the determination of recoverability is based on the undiscounted net cash flows expected to result from the operations of such assets. Projected net cash flows depend on the expected operating life of the assets, the future operating costs associated with the assets, the efficiency and availability of the assets and generating units, and the future market and price for $0.8energy and capacity over the remaining life of the assets. In particular, the remaining assets of the Entergy Wholesale Commodities business are subject to further impairment in connection with the closure and sale of its nuclear power plants. Moreover, prior to the closure and sale of these plants, the failure of the Entergy Wholesale Commodities business to achieve forecasted operating results and cash flows, an unfavorable change in forecasted operating results or cash flows, a reduction in the expected remaining useful life of a unit, or a decline in observable industry market multiples could all result in potential additional impairment charges for the affected assets.
If Entergy concludes that any of its nuclear power plants is unlikely to operate through its planned shutdown date, which conclusion would be based on a variety of factors, such a conclusion could result in a further impairment of part or all of the carrying value of the plant. Any impairment charge taken by Entergy with respect to its long-lived assets, including the remaining power plants owned by the Entergy Wholesale Commodities business, would likely be material in the quarter that the charge is taken and could otherwise have a material effect on Entergy’s results of operations, financial condition, or liquidity. For further information regarding evaluating long-lived assets for impairment, see the “Critical Accounting Estimates - Impairment of Long-lived Assets and Trust Fund Investments” section of Management’s Financial Discussion and Analysis for Entergy Corporation and Subsidiaries and for further discussion of the impairment charges, see Note 14 to the financial statements.
General Business
(Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and Entergy Texas)
Entergy and the Utility operating companies depend on access to the capital markets and, at times, may face potential liquidity constraints, which could make it more difficult to handle future contingencies such as natural disasters or substantial increases in gas and fuel prices. Disruptions in the capital and credit markets may adversely affect Entergy’s and its subsidiaries’ ability to meet liquidity needs, access capital and operate and grow their businesses, and the cost of capital.
Entergy’s business is capital intensive and dependent upon its ability to access capital at reasonable rates and
Part I Item 1A & 1B
Entergy Corporation, Utility operating companies, and System Energy
other terms. At times there are also spikes in the price for natural gas and other commodities that increase the liquidity requirements of the Utility operating companies and Entergy Wholesale Commodities. In addition, Entergy’s and the Utility operating companies’ liquidity needs could significantly increase in the event of a hurricane or other weather-related or unforeseen disaster similar to that experienced in Entergy’s service territory with Hurricane Katrina and Hurricane Rita in 2005, Hurricane Gustav and Hurricane Ike in 2008, and Hurricane Isaac in 2012. The occurrence of one or more contingencies, including a delay in regulatory recovery of fuel or purchased power costs or storm restoration costs, an acceleration of payments or decreased credit lines, less cash flow from operations than expected, changes in regulation or governmental policy (including tax and trade policy), or other unknown events, could cause the financing needs of Entergy and its subsidiaries to increase. In addition, accessing the debt capital markets more frequently in these situations may result in an increase in leverage. Material leverage increases could negatively affect the credit ratings of Entergy and the Utility operating companies, which in turn could negatively affect access to the capital markets.
The inability to raise capital on favorable terms, particularly during times of high interest rates, and uncertainty or reduced liquidity in the capital markets, could negatively affect Entergy and its subsidiaries’ ability to maintain and to expand their businesses. Access to capital markets could be restricted and/or borrowing costs could be increased due to certain sources of debt and equity capital being unwilling to invest in companies that experience extreme weather events, that rely on fossil fuels or offerings to fund fossil fuel projects, or due to risks related to climate change. Events beyond Entergy’s control may create uncertainty that could increase its cost of capital or impair its ability to access the capital markets, including the ability to draw on its bank credit facilities. Entergy and its subsidiaries are unable to predict the degree of success they will have in renewing or replacing their credit facilities as they come up for renewal. Moreover, the size, terms, and covenants of any new credit facilities may not be comparable to, and may be more restrictive than, existing facilities. If Entergy and its subsidiaries are unable to access the credit and capital markets on terms that are reasonable, they may have to delay raising capital, issue shorter-term securities and/or bear an unfavorable cost of capital, which, in turn, could impact their ability to grow their businesses, decrease earnings, significantly reduce financial flexibility and/or limit Entergy Corporation’s ability to sustain its current common stock dividend level.
(Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)
A downgrade in Entergy Corporation’s or its subsidiaries’ credit ratings could negatively affect Entergy Corporation’s and its subsidiaries’ ability to access capital and/or could require Entergy Corporation or its subsidiaries to post collateral, accelerate certain payments, or repay certain indebtedness.
There are a number of factors that rating agencies evaluate to arrive at credit ratings for each of Entergy Corporation and the Registrant Subsidiaries, including each Registrant’s regulatory framework, ability to recover costs and earn returns, diversification and financial strength and liquidity. If one or more rating agencies downgrade Entergy Corporation’s, any of the Utility operating companies’, or System Energy’s ratings, particularly below investment grade, borrowing costs would increase, the potential pool of investors and funding sources would likely decrease, and cash or letter of credit collateral demands may be triggered by the terms of a number of commodity contracts, leases, and other agreements.
Most of Entergy Corporation’s and its subsidiaries’ suppliers and counterparties require sufficient creditworthiness to enter into transactions. If Entergy Corporation’s or its subsidiaries’ ratings decline, particularly below investment grade, or if certain counterparties believe Entergy Corporation or the Utility operating companies are losing creditworthiness and demand adequate assurance under fuel, gas, and purchased power contracts, the counterparties may require posting of collateral in cash or letters of credit, prepayment for fuel, gas or purchased power or accelerated payment, or counterparties may decline business with Entergy Corporation or its subsidiaries. At December 31, 2019, based on power prices at that time, Entergy had liquidity exposure of $78 million under the guarantees in compensation-relatedplace supporting Entergy Wholesale Commodities transactions and $19 million of posted cash collateral. In the event of a decrease in Entergy Corporation’s credit rating to below investment grade, based on power prices as
Part I Item 1A & 1B
Entergy Corporation, Utility operating companies, and System Energy
of December 31, 2019, Entergy would have been required to provide approximately $30 million of additional cash or letters of credit under some of the agreements. As of December 31, 2019, the liquidity exposure associated with Entergy Wholesale Commodities assurance requirements, including return of previously posted collateral from counterparties, would increase by $90 million for a $1 per MMBtu increase in gas prices in both the short- and long-term markets.
Recent U.S. tax legislation may materially adversely affect Entergy’s financial condition, results of operations, and cash flows.
The Tax Cuts and Jobs Act of 2017 significantly changed the U.S. Internal Revenue Code, including taxation of U.S. corporations, by, among other things, reducing the federal corporate income tax rate, limiting interest deductions, and altering the expensing of capital expenditures. The legislation and interpretive guidance from the IRS are unclear in certain respects and will require further interpretations and implementing regulations by the IRS, as well as state tax authorities, and the legislation could be subject to potential amendments and technical corrections, any of which could lessen or increase certain impacts of the legislation.
As further described in Note 3 to the financial statements, as a result of amortization of accumulated deferred income taxes and payment of such amounts to customers in 2019, Entergy’s net regulatory liability for income taxes balance is $1.7 billion as of December 31, 2019. Depending on the outcome of IRS examinations or tax positions and elections that Entergy may make, Entergy and the Registrant Subsidiaries may be required to record additional charges or credits to income tax expense. Further, there may be other material effects resulting from the legislation that have not been identified.
For further information regarding the effects of the Act, see the “Income Tax Legislation” section of Management’s Financial Discussion and Analysis for Entergy. Also, Note 3 to the financial statements contains additional discussion of the effect of the Act on 2017, 2018 and 2019 results of operations and financial position, the provisions of the Act, and the uncertainties associated with accounting for the Act, and Note 2 to the financial statements discusses the regulatory proceedings that have considered the effects of the Act.
Changes in taxation as well as the inherent difficulty in quantifying potential tax effects of business decisions could negatively impact Entergy’s, the Utility operating companies’, and System Energy’s results of operations, financial condition and liquidity.
Entergy and its subsidiaries make judgments regarding the potential tax effects of various transactions and results of operations to estimate their obligations to taxing authorities. These tax obligations include income, franchise, real estate, sales and use, and employment-related taxes. These judgments include provisions for potential adverse outcomes regarding tax positions that have been taken. Entergy and its subsidiaries also estimate their ability to utilize tax benefits, including those in the form of carryforwards for which the benefits have already been reflected in the financial statements. Changes in federal, state, or local tax laws, adverse tax audit results or adverse tax rulings on positions taken by Entergy and its subsidiaries could negatively affect Entergy’s, the Utility operating companies’, and System Energy’s results of operations, financial condition, and liquidity. For further information regarding Entergy’s income taxes, see Note 3 to the financial statements.
Entergy and its subsidiaries’ ability to successfully execute on their business strategies, including their ability to complete strategic transactions, is subject to significant risks, and, as a result, they may be unable to achieve some or all of the anticipated results of such strategies, which could materially affect their future prospects, results of operations and benefits that they anticipate from such transactions.
Entergy and its subsidiaries’ future prospects and results of operations significantly depend on their ability to successfully implement their business strategies, which are subject to business, regulatory, economic and other risks and uncertainties, many of which are beyond their control. As a result, Entergy and its subsidiaries may be unable to fully achieve the anticipated results of such strategies.
Part I Item 1A & 1B
Entergy Corporation, Utility operating companies, and System Energy
Additionally, Entergy and its subsidiaries have pursued and may continue to pursue strategic transactions including merger, acquisition, divestiture, joint venture, restructuring or other strategic transactions. For example, Entergy has entered into an agreement to sell its equity interests in the subsidiary that owns the Palisades Nuclear Plant and the decommissioned Big Rock Point Nuclear Power Plant and an agreement to sell the equity interests of Indian Point 1, Indian Point 2, and Indian Point 3, in each case after each of the plants has been shut down and defueled. Also, a significant portion of Entergy’s utility business over the next several years includes the construction and /or purchase of a variety of generating units. These transactions and plans are or may become subject to regulatory approval and other material conditions or contingencies. The failure to complete these transactions or plans or any future strategic transaction successfully or on a timely basis could have an adverse effect on Entergy’s or its subsidiaries’ financial condition or results of operations and the market’s perception of Entergy’s ability to execute its strategy. Further, these transactions, and any completed or future strategic transactions, involve substantial risks, including the following:
acquired businesses or assets may not produce revenues, earnings or cash flow at anticipated levels;
acquired businesses or assets could have environmental, permitting or other problems for which contractual protections prove inadequate;
Entergy and/or its subsidiaries may assume liabilities that were not disclosed to them, that exceed their estimates, or for which their rights to indemnification from the seller are limited;
Entergy may experience issues integrating businesses into its internal controls over financial reporting;
the disposition of a business, including Entergy’s planned exit from the merchant power business, could divert management’s attention from other business concerns;
Entergy and/or its subsidiaries may be unable to obtain the necessary regulatory or governmental approvals to close a transaction, such approvals may be granted subject to terms that are unacceptable to them, or Entergy or its subsidiaries otherwise may be unable to achieve anticipated regulatory treatment of any such transaction or acquired business or assets; and
Entergy or its subsidiaries otherwise may be unable to achieve the full strategic and financial benefits that they anticipate from the transaction, or such benefits may be delayed or may not occur at all.
Entergy and its subsidiaries may not be successful in managing these or any other significant risks that they may encounter in acquiring or divesting a business, or engaging in other strategic transactions, which could have a material effect on their business, financial condition or results of operations.
The completion of capital projects, including the construction of power generation facilities, and other capital improvements involve substantial risks. Should such efforts be unsuccessful, the financial condition, results of operations, or liquidity of Entergy and the Utility operating companies could be materially affected.
Entergy’s and the Utility operating companies’ ability to complete capital projects, including the construction of power generation facilities, or make other capital improvements, in a timely manner and within budget is contingent upon many variables and subject to substantial risks. These variables include, but are not limited to, project management expertise, escalating costs for materials, labor, and environmental compliance, and reliance on suppliers for timely and satisfactory performance. Delays in obtaining permits, shortages in materials and qualified labor, levels of public support or opposition, suppliers and contractors not performing as expected or required under their contracts and/or experiencing financial problems that inhibit their ability to fulfill their obligations under contracts, changes in the scope and timing of projects, poor quality initial cost estimates from contractors, the inability to raise capital on favorable terms, changes in commodity prices affecting revenue, fuel costs, or materials costs, downward changes in the economy, changes in law or regulation, including environmental compliance requirements, and other events beyond the control of the Utility operating companies or the Entergy Wholesale Commodities business may occur that may materially affect the schedule, cost, and performance of these projects. If these projects or other capital improvements are significantly delayed or become subject to cost overruns or cancellation, Entergy and the Utility operating companies could incur additional costs and termination payments, or face increased risk of potential write-off of the investment in the project. In addition, the Utility operating companies could be exposed to higher costs and market volatility, which could affect cash flow and cost recovery, should their respective regulators decline to approve the construction of the project or new generation needed to meet the reliability needs of customers at the lowest reasonable cost.
Part I Item 1A & 1B
Entergy Corporation, Utility operating companies, and System Energy
For further information regarding capital expenditure plans and other uses of capital in connection with capital projects, including the potential construction and/or purchase of additional generation supply sources within the Utility operating companies’ service territory, and as to the Entergy Wholesale Commodities business, see the “Capital Expenditure Plans and Other Uses of Capital” section of Management’s Financial Discussion and Analysis for Entergy and each of the Registrant Subsidiaries.
Failure to attract, retain and manage an appropriately qualified workforce could negatively affect Entergy or its subsidiaries’ results of operations.
We rely on a large and changing workforce of team members, including employees, contractors and temporary staffing. Certain events, such as an aging workforce, mismatching of skill sets, failing to appropriately anticipate future workforce needs, or the unavailability of contract resources may lead to operating challenges and increased costs. The challenges include lack of resources, loss of knowledge base and the time required for skill development. In this case, costs, including costs for contractors to replace employees, productivity costs and safety costs, may increase. Failure to hire and adequately train replacement employees, or the future availability and cost of contract labor may adversely affect the ability to manage and operate the business, especially considering the workforce needs associated with nuclear generation facilities and new skills required to operate a modernized, technology-enabled power grid. If Entergy and its subsidiaries are unable to successfully attract, retain and manage an appropriately qualified workforce, their results of operations, financial position and cash flows could be negatively affected.
The Utility operating companies, System Energy, and the Entergy Wholesale Commodities business may incur substantial costs to fulfill their obligations related to environmental and other matters.
The businesses in which the Utility operating companies, System Energy, and the Entergy Wholesale Commodities business operate are subject to extensive environmental regulation by local, state, and federal authorities. These laws and regulations affect the manner in which the Utility operating companies, System Energy, and the Entergy Wholesale Commodities business conduct their operations and make capital expenditures. These laws and regulations also affect how the Utility operating companies, System Energy, and the Entergy Wholesale Commodities business manage air emissions, discharges to water, wetlands impacts, solid and hazardous waste storage and disposal, cooling and service water intake, the protection of threatened and endangered species, certain migratory birds and eagles, hazardous materials transportation, and similar matters. Federal, state, and local authorities continually revise these laws and regulations, and the laws and regulations are subject to judicial interpretation and to the permitting and enforcement discretion vested in the implementing agencies. Developing and implementing plans for facility compliance with these requirements can lead to capital, personnel, and operation and maintenance expenditures. Violations of these requirements can subject the Utility operating companies, System Energy, and the Entergy Wholesale Commodities business to enforcement actions, capital expenditures to bring existing facilities into compliance, additional operating costs or operating restrictions to achieve compliance, remediation and clean-up costs, civil penalties, and exposure to third parties’ claims for alleged health or property damages or for violations of applicable permits or standards. In addition, the Utility operating companies, System Energy, and the Entergy Wholesale Commodities business potentially are subject to liability under these laws for the costs of remediation of environmental contamination of property now or formerly owned or operated by the Utility operating companies, System Energy, and Entergy Wholesale Commodities and of property contaminated by hazardous substances they generate. The Utility operating companies are currently involved in proceedings relating to sites where hazardous substances have been released and may be subject to additional proceedings in the future. The Utility operating companies, System Energy, and the Entergy Wholesale Commodities business have incurred shouldand expect to incur significant costs related to environmental compliance.
Emissions of nitrogen and sulfur oxides, mercury, particulates, greenhouse gases, and other regulated air emissions from generating plants are potentially subject to increased regulation, controls and mitigation expenses. In addition, existing air regulations and programs promulgated by the EPA often are challenged legally, or are revised or withdrawn by the EPA, sometimes resulting in large-scale changes to anticipated regulatory regimes and the resulting need to shift course, both operationally and economically, depending on the nature of the changes. Risks relating to
Part I Item 1A & 1B
Entergy Corporation, Utility operating companies, and System Energy
global climate change, initiatives to compel greenhouse gas emission reductions, and water availability issues are discussed below.
Entergy and its subsidiaries may not be deemed prudent; (3) recommendedable to obtain or maintain all required environmental regulatory approvals. If there is a delay in obtaining any required environmental regulatory approvals, or if Entergy and its subsidiaries fail to obtain, maintain, or comply with any such approval, the operation of its facilities could be stopped or become subject to additional costs. For further information regarding environmental regulation and environmental matters, see the “Regulation of Entergy’s Business– Environmental Regulation” section of Part I, Item 1.
The Utility operating companies, System Energy, and the Entergy Wholesale Commodities business may incur substantial costs related to reliability standards.
Entergy’s business is subject to extensive and mandatory reliability standards. Such standards, which are established by the NERC, the SERC, and other regional enforcement entities, are approved by the FERC and frequently are reviewed, amended, and supplemented. Failure to comply with such standards could result in the imposition of fines or civil penalties, and potential exposure to third party claims for alleged violations of such standards. The standards, as well as the laws and regulations that govern them, are subject to judicial interpretation and to the enforcement discretion vested in the implementing agencies. In addition to exposure to civil penalties and fines, the Utility operating companies have incurred and expect to incur significant costs related to compliance with new and existing reliability standards, including costs associated with the Utility operating companies’ transmission system and generation assets. In addition, the retail regulators of the Utility operating companies possess the jurisdiction, and in some cases have exercised such jurisdiction, to impose standards governing the reliable operation of the Utility operating companies’ distribution systems, including penalties if these standards are not met. The changes to the reliability standards applicable to the electric power industry are ongoing, and Entergy cannot predict the ultimate effect that the reliability standards will have on its Utility and Entergy Wholesale Commodities businesses.
(Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and Entergy Texas)
Weather, economic conditions, technological developments, and other factors may have a material impact on electricity and gas usage and otherwise materially affect the Utility operating companies’ results of operations.
Temperatures above normal levels in the summer tend to increase electric cooling demand and revenues, and temperatures below normal levels in the winter tend to increase electric and gas heating demand and revenues. As a corollary, mild temperatures in either season tend to decrease energy usage and resulting revenues. Higher consumption levels coupled with seasonal pricing differentials typically cause the Utility operating companies to report higher revenues in the third quarter of the fiscal year than in the other quarters. Extreme weather conditions including hurricanes or tropical storms, flooding events, or ice storms may stress the Utility operating companies’ generation facilities and transmission and distribution systems, resulting in increased maintenance and capital costs (and potential increased financing needs), limits on their ability to meet peak customer demand, increased regulatory oversight, and reduced customer satisfaction. These extreme conditions could have a material effect on the Utility operating companies’ financial condition, results of operations, and liquidity.
Entergy’s electricity sales volumes are affected by a number of factors including weather and economic conditions, trends in energy efficiency, new technologies and self-generation alternatives, including the willingness and ability of large industrial customers to develop co-generation facilities that greatly reduce their grid demand. Some of these factors are inherently cyclical or temporary in nature, such as the weather or economic conditions, and rarely have a long-lasting effect on Entergy’s operating results. Others, such as the organic turnover of appliances and their replacement with more efficient ones, adoption of newer technologies including smart thermostats, new building codes, distributed energy resources, energy storage, demand side management, and rooftop solar are having a more permanent effect by reducing sales growth rates from historical norms. As a result of these emerging efficiencies and technologies, the Utility operating companies may lose customers or experience lower average use per customer in the residential and commercial classes, and continuing advances have the potential to further limit sales growth in the future. The
Part I Item 1A & 1B
Entergy Corporation, Utility operating companies, and System Energy
Utility operating companies also may face competition from other companies offering products and services to Entergy’s customers. Electricity sales to industrial customers, in particular, benefit from steady economic growth and favorable commodity markets; however, industrial sales are sensitive to changes in conditions in the markets in which its customers operate. Negative changes in any of these or other factors, particularly sustained economic downturns or sluggishness, have the potential to result in slower sales growth or sales declines and increased bad debt expense, which could materially affect Entergy’s and the Utility operating companies’ results of operations, financial condition, and liquidity.
The effects of climate change and environmental and regulatory obligations intended to compel greenhouse gas emission reductions or increase clean or renewable energy requirements or to place a price on greenhouse gas emissions could materially affect the financial condition, results of operations, and liquidity of Entergy, the Utility operating companies, System Energy, and the Entergy Wholesale Commodities business.
In an effort to address climate change concerns, some federal, state, and local authorities are calling for additional laws and regulations aimed at known or suspected causes of climate change. For example, in response to the United States Supreme Court’s 2007 decision holding that the EPA has authority to regulate emissions of CO2 and other “greenhouse gases” under the Clean Air Act, the EPA, various environmental interest groups, and other organizations focused considerable attention on CO2 emissions from power generation facilities and their potential role in climate change. In 2010, the EPA promulgated its first regulations controlling greenhouse gas emissions from certain vehicles and from new and significantly modified stationary sources of emissions, including electric generating units. During 2012 and 2014, the EPA proposed CO2 emission standards for new and existing sources. The EPA finalized these standards in 2015; however, in June 2019, the EPA repealed and replaced certain aspects of those regulations. As examples of state action, in the Northeast, the Regional Greenhouse Gas Initiative establishes a cap on CO2 emissions from electric power plants and requires generators to purchase emission permits to cover their CO2 emissions, and a similar program has been developed in California. The impact that continued changes in the governmental response to climate change risk will have on existing and pending environmental laws and regulations related to greenhouse gas emissions is currently unclear.
Developing and implementing plans for compliance with greenhouse gas emissions reduction or clean/renewable energy requirements can lead to additional capital, personnel, and operation and maintenance expenditures and could significantly affect the economic position of existing facilities and proposed projects. The operations of low or non-emitting generating units (such as nuclear units) at lower than expected capacity factors could require increased generation from higher emitting units, thus increasing the company’s greenhouse gas emission rate. Moreover, long-term planning to meet environmental requirements can be negatively impacted and costs may increase to the extent laws and regulations change prior to full implementation. These requirements could, in turn, lead to changes in the planning or operations of balancing authorities or organized markets in areas where the Utility operating companies, System Energy, or Entergy Wholesale Commodities do business. Violations of such requirements may subject Entergy Wholesale Commodities and the Utility operating companies to enforcement actions, capital expenditures to bring existing facilities into compliance, additional operating costs or operating restrictions to achieve compliance, civil penalties, and exposure to third parties’ claims for alleged health or property damages or for violations of applicable permits or standards. To the extent Entergy believes any of these costs are recoverable in rates, however, additional material rate increases for customers could be resisted by Entergy’s regulators and, in extreme cases, Entergy’s regulators might deny or defer timely recovery of these costs. Future changes in environmental regulation governing the emission of CO2 and other greenhouse gases or mix of generation sources could (i) result in significant additional costs to Entergy’s utility operating companies, their suppliers or customers, (ii) make some of Entergy’s electric generating units uneconomical to maintain or operate, (iii) result in the early retirement of generation facilities and stranded costs if Entergy’s utility operating companies are unable to fully recover the costs and investment in generation and (iv) could increase the difficulty that Entergy and its utility operating companies have with obtaining or maintaining required environmental regulatory approvals, each of which could materially affect the financial condition, results of operations and liquidity of Entergy and its subsidiaries. In addition, lawsuits have occurred or are reasonably expected against emitters of greenhouse gases alleging that these companies are liable for personal injuries and property damage caused by climate change. These lawsuits may seek injunctive relief, monetary compensation, and punitive damages.
Part I Item 1A & 1B
Entergy Corporation, Utility operating companies, and System Energy
In addition to the regulatory and financial risks associated with climate change discussed above, potential physical risks from climate change include an increase in sea level, wind and storm surge damages, wildfires, wetland and barrier island erosion, risks of flooding and changes in weather conditions, (such as increases in precipitation, drought, or changes in average temperatures), and potential increased impacts of extreme weather conditions or storms. Entergy subsidiaries own assets in, and serve, communities that are at risk from sea level rise, changes in weather conditions, storms, and loss of the protection offered by coastal wetlands. A significant portion of the nation’s oil and gas infrastructure is located in these areas and susceptible to storm damage that could be aggravated by the physical impacts of climate change, which could give rise to fuel supply interruptions and price spikes. Entergy and its subsidiaries also face the risk that climate change could impact the availability and quality of water supply necessary for operations.
These and other physical changes could result in changes in customer demand, increased costs associated with repairing and maintaining generation facilities and transmission and distribution systems resulting in increased maintenance and capital costs (and potential increased financing needs), limits on the Entergy System’s ability to meet peak customer demand, more frequent and longer lasting outages, increased regulatory oversight, and lower customer satisfaction. Also, to the extent that climate change adversely impacts the economic health of a region or results in energy conservation or demand side management programs, it may adversely impact customer demand and revenues. Such physical or operational risks could have a material effect on Entergy’s, Entergy Wholesale Commodities’, System Energy’s, and the Utility operating companies’ financial condition, results of operations, and liquidity.
Continued and future availability and quality of water for cooling, process, and sanitary uses could materially affect the financial condition, results of operations, and liquidity of the Utility operating companies, System Energy, and the Entergy Wholesale Commodities business.
Water is a vital natural resource that is also critical to the Utility operating companies’, System Energy’s, and Entergy Wholesale Commodities’ business operations. Entergy’s facilities use water for cooling, boiler make-up, sanitary uses, potable supply, and many other uses. Entergy’s Utility operating companies also own and/or operate hydroelectric facilities. Accordingly, water availability and quality are critical to Entergy’s business operations. Impacts to water availability or quality could negatively impact both operations and revenues.
Entergy secures water through various mechanisms (ground water wells, surface waters intakes, municipal supply, etc.) and operates under the provisions and conditions set forth by the provider and/or regulatory authorities. Entergy also obtains and operates in substantial compliance with water discharge permits issued under various provisions of the Clean Water Act and/or state water pollution control provisions. Regulations and authorizations for both water intake and use and for waste discharge can become more stringent in times of water shortages, low flows in rivers, low lake levels, low groundwater aquifer volumes, and similar conditions. The increased use of water by industry, agriculture, and the population at large, population growth, and the potential impacts of climate change on water resources may cause water use restrictions that affect Entergy and its subsidiaries.
Entergy and its subsidiaries may not be adequately hedged against changes in commodity prices, which could materially affect Entergy’s and its subsidiaries’ results of operations, financial condition, and liquidity.
To manage near-term financial exposure related to commodity price fluctuations, Entergy and its subsidiaries, including the Utility operating companies and the Entergy Wholesale Commodities business, may enter into contracts to hedge portions of their purchase and sale commitments, fuel requirements, and inventories of natural gas, uranium and its conversion and enrichment, coal, refined products, and other commodities, within established risk management guidelines. As part of this strategy, Entergy and its subsidiaries may utilize fixed- and variable-price forward physical purchase and sales contracts, futures, financial swaps, and option contracts traded in the over-the-counter markets or on exchanges. However, Entergy and its subsidiaries normally cover only a portion of the exposure of their assets and positions to market price volatility, and the coverage will vary over time. In addition, Entergy also elects to leave certain volumes during certain years unhedged. To the extent Entergy and its subsidiaries have unhedged positions,
Part I Item 1A & 1B
Entergy Corporation, Utility operating companies, and System Energy
fluctuating commodity prices can materially affect Entergy’s and its subsidiaries’ results of operations and financial position.
Although Entergy and its subsidiaries devote a considerable effort to these risk management strategies, they cannot eliminate all the risks associated with these activities. As a result of these and other factors, Entergy and its subsidiaries cannot predict with precision the impact that risk management decisions may have on their business, results of operations, or financial position.
Entergy’s over-the-counter financial derivatives are subject to rules implementing the Dodd-Frank Wall Street Reform and Consumer Protection Act that are designed to promote transparency, mitigate systemic risk and protect against market abuse. Entergy cannot predict the impact any proposed or not fully-implemented final rules will have on its ability to hedge its commodity price risk or on over-the-counter derivatives markets as a whole, but such rules and regulations could have a material effect on Entergy's risk exposure, as well as reduce market liquidity and further increase the cost of hedging activities.
Entergy has guaranteed or indemnified the performance of a portion of the obligations relating to hedging and risk management activities. Reductions in Entergy’s or its subsidiaries’ credit quality or changes in the market prices of energy commodities could increase the cash or letter of credit collateral required to be posted in connection with hedging and risk management activities, which could materially affect Entergy’s or its subsidiaries’ liquidity and financial position.
The Utility operating companies and the Entergy Wholesale Commodities business are exposed to the risk that counterparties may not meet their obligations, which may materially affect the Utility operating companies and Entergy Wholesale Commodities.
The hedging and risk management practices of the Utility operating companies and the Entergy Wholesale Commodities business are exposed to the risk that counterparties that owe Entergy and its subsidiaries money, energy, or other commodities will not perform their obligations. Currently, some hedging agreements contain provisions that require the counterparties to provide credit support to secure all or part of their obligations to Entergy or its subsidiaries. If the counterparties to these arrangements fail to perform, Entergy or its subsidiaries may enforce and recover the proceeds from the credit support provided and acquire alternative hedging arrangements, which credit support may not always be adequate to cover the related obligations. In such event, Entergy and its subsidiaries might incur losses in addition to amounts, if any, already paid to the counterparties. In addition, the credit commitments of Entergy’s lenders under its bank facilities may not be honored for a variety of reasons, including unexpected periods of financial distress affecting such lenders, which could materially affect the adequacy of its liquidity sources.
Market performance and other changes may decrease the value of benefit plan assets, which then could require additional funding and result in increased benefit plan costs.
The performance of the capital markets affects the values of the assets held in trust under Entergy’s pension and postretirement benefit plans. A decline in the market value of the assets may increase the funding requirements relating to Entergy’s benefit plan liabilities and also result in higher benefit costs. As the value of the assets decreases, the “expected return on assets” component of benefit costs decreases, resulting in higher benefits costs. Additionally, asset losses are incorporated into benefit costs over time, thus increasing benefits costs. Volatility in the capital markets has affected the market value of these assets, which may affect Entergy’s planned levels of contributions in the future. Additionally, changes in interest rates affect the liabilities under Entergy’s pension and postretirement benefit plans; as interest rates decrease, the liabilities increase, potentially requiring additional funding and recognition of higher liability carrying costs. The funding requirements of the obligations related to the pension benefit plans can also increase as a result of changes in, among other factors, retirement rates, life expectancy assumptions, or Federal regulations. For further information regarding Entergy’s pension and other postretirement benefit plans, refer to the “Critical Accounting Estimates– Qualified Pension and Other Postretirement Benefits” section of Management’s Financial Discussion and Analysis for Entergy and each of its Registrant Subsidiaries and Note 11 to the financial statements.
Part I Item 1A & 1B
Entergy Corporation, Utility operating companies, and System Energy
The litigation environment in the states in which certain Entergy subsidiaries operate poses a significant risk to those businesses.
Entergy and its subsidiaries are involved in the ordinary course of business in a number of lawsuits involving employment, commercial, asbestos, hazardous material and ratepayer matters, and injuries and damages issues, among other matters. The states in which the Utility operating companies operate, in particular Louisiana, Mississippi, and Texas, have proven to be unusually litigious environments. Judges and juries in these states have demonstrated a willingness to grant large verdicts, including punitive damages, to plaintiffs in personal injury, property damage, and business tort cases. Entergy and its subsidiaries use legal and appropriate means to contest litigation threatened or filed against them, but the litigation environment in these states poses a significant business risk.
Terrorist attacks, cyber attacks, system failures or data breaches of Entergy’s and its subsidiaries’ or our suppliers’ technology systems may adversely affect Entergy’s results of operations.
Entergy and its subsidiaries operate in a business that requires evolving information technology systems that include sophisticated data collection, processing systems, software, network infrastructure and other technologies that are becoming more complex and may be subject to mandatory and prescriptive reliability and security standards. The functionality of Entergy’s technology systems depends on its own and its suppliers’ and their contractors’ technology. Suppliers’ and their contractors’ technology systems to which Entergy is connected directly or indirectly support a variety of business processes and activities to store sensitive data, including (i) intellectual property, (ii) proprietary business information, (iii) personally identifiable information of customers and employees, and (iv) data with respect to invoicing and the collection of payments, accounting, procurement, and supply chain activities. Any significant failure or malfunction of such information technology systems could result in loss of data or disruptions of operations.
There have been attacks and threats of attacks on energy infrastructure by cyber actors, including those associated with foreign governments. As an operator of critical infrastructure, Entergy and its subsidiaries face heightened risk of an act or threat of terrorism, cyber attacks, and data breaches, whether as a direct or indirect act against one of Entergy’s generation, transmission or distribution facilities, operations centers, infrastructure, or information technology systems used to manage, monitor, and transport power to customers and perform day-to-day business functions. An actual act could affect Entergy’s ability to operate, including its ability to operate the information technology systems and network infrastructure on which it relies to conduct business.
Given the rapid technological advancements of existing and emerging threats, Entergy’s technology systems remain inherently vulnerable despite implementations and enhancements of the multiple layers of security and controls. If Entergy’s or its subsidiaries’ technology systems were compromised and unable to detect or recover in a timely fashion to a normal state of operations, Entergy or its subsidiaries could be unable to perform critical business functions that are essential to the company’s well-being and could result in a loss of its confidential, sensitive, and proprietary information, including personal information of its customers, employees, suppliers, and others in Entergy’s care. Although malware was discovered on Entergy’s business network in 2018, it was remediated on a timely basis and did not affect Entergy’s operational systems, generation plants (including nuclear), or transmission and distribution networks, nor did it have a material effect on Entergy’s business operations.
Any such attacks, failures or data breaches could have a material effect on Entergy’s and the Utility operating companies’ business, financial condition, results of operations or reputation. Insurance may not be adequate to cover losses that might arise in connection with these events. Such events may also expose Entergy to an increased risk of litigation (and associated damages and fines).
Part I Item 1A & 1B
Entergy Corporation, Utility operating companies, and System Energy
(Entergy New Orleans)
The effect of higher purchased gas cost charges to customers taking gas service may adversely affect Entergy New Orleans’s results of operations and liquidity.
Gas rates charged to retail gas customers are comprised primarily of purchased gas cost charges, which provide no return or profit to Entergy New Orleans, and distribution charges, which provide a return or profit to the utility. Distribution charges recover fixed costs on a volumetric basis and, thus, are affected by the amount of gas sold to customers. When purchased gas cost charges increase due to higher gas procurement costs, customer usage may decrease, especially in weaker economic times, resulting in lower distribution charges for Entergy New Orleans, which could adversely affect results of operations. Purchased gas cost charges, which comprise most of a customer’s bill and may be adjusted monthly, represent gas commodity costs that Entergy New Orleans recovers from its customers. Entergy New Orleans’s cash flows can be affected by differences between the time period when gas is purchased and the time when ultimate recovery from customers over ten years but statedoccurs.
(System Energy)
System Energy owns and, through an affiliate, operates a single nuclear generating facility, and it is dependent on affiliated companies for all of its revenues.
System Energy’s operating revenues are derived from the allocation of the capacity, energy, and related costs associated with its 90% ownership/leasehold interest in Grand Gulf. Charges under the Unit Power Sales Agreement are paid by the Utility operating companies as consideration for their respective entitlements to receive capacity and energy. The useful economic life of Grand Gulf is finite and is limited by the terms of its operating license, which expires in November 2044. System Energy’s financial condition depends both on the receipt of payments from the Utility operating companies under the Unit Power Sales Agreement and on the continued commercial operation of Grand Gulf. The Unit Power Sales Agreement is currently the subject of several litigation proceedings at the FERC, including a challenge with respect to System Energy’s authorized return on equity and capital structure and a request in separate proceeding for FERC to initiate a broader investigation of rates under the Unit Power Sales Agreement. See Note 2 to the financial statements for further discussion of the proceedings. The Utility operating companies have agreed to implement certain protocols for providing retail regulators with information regarding rates billed under the Unit Power Sales Agreement.
For information regarding the Unit Power Sales Agreement, the sale and leaseback transactions and certain other agreements relating to the Entergy System companies’ support of System Energy, see Notes 8 and 10 to the financial statements and the “Utility - System Energy and Related Agreements” section of Part I, Item 1.
(Entergy Corporation)
As a holding company, Entergy Corporation depends on cash distributions from its subsidiaries to meet its debt service and other financial obligations and to pay dividends on its common stock.
Entergy Corporation is a holding company with no material revenue generating operations of its own or material assets other than the stock of its subsidiaries. Accordingly, all of its operations are conducted by its subsidiaries. Entergy Corporation’s ability to satisfy its financial obligations, including the payment of interest and principal on its outstanding debt, and to pay dividends on its common stock depends on the payment to it of dividends or distributions by its subsidiaries. The subsidiaries of Entergy Corporation are separate and distinct legal entities and have no obligation, contingent or otherwise, to pay any dividends or make distributions to Entergy Corporation. The ability of such subsidiaries to make payments of dividends or distributions to Entergy Corporation depends on their results of operations and cash flows and other items affecting retained earnings, and on any applicable legal, regulatory, or contractual limitations on subsidiaries’ ability to pay such dividends or distributions. Prior to providing funds to Entergy Corporation, such subsidiaries have financial and regulatory obligations that must be satisfied, including among others, debt service and, in the case of Entergy Utility Holding Company and Entergy Texas, dividends and distributions on preferred securities. Any distributions from the Registrant Subsidiaries other than Entergy Texas and System Energy
Part I Item 1A & 1B
Entergy Corporation, Utility operating companies, and System Energy
are paid directly to Entergy Utility Holding Company and are therefore subject to prior payment of distributions on its preferred securities.
ENTERGY ARKANSAS, LLC AND SUBSIDIARIES
MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS
Results of Operations
2019 Compared to 2018
Net Income
Net income increased $10.3 million primarily due to higher retail electric price and lower nuclear refueling outage expenses, partially offset by lower volume/weather, higher interest expense, and higher depreciation and amortization expenses.
Operating Revenues
Following is an analysis of the change in operating revenues comparing 2019 to 2018:
|
| | | |
| Amount |
| (In Millions) |
2018 operating revenues |
| $2,060.6 |
|
Fuel, rider, and other revenues that do not significantly affect net income | (74.9 | ) |
Return of unprotected excess accumulated deferred income taxes to customers | 241.4 |
|
Retail electric price | 66.7 |
|
Volume/weather | (34.2 | ) |
2019 operating revenues |
| $2,259.6 |
|
Entergy Arkansas’s results include revenues from rate mechanisms designed to recover fuel, purchased power, and other costs such that the LPSCrevenues and expenses associated with these items generally offset and do not affect net income. “Fuel, rider, and other revenues that do not significantly affect net income” includes the revenue variance associated with these items.
The return of unprotected excess accumulated deferred income taxes to customers resulted from the return of unprotected excess accumulated deferred income taxes through a tax adjustment rider beginning in April 2018. In 2019, $126.3 million was returned to customers as compared to $367.7 million in 2018. There was no effect on net income as the reduction in operating revenues in each period was offset by a reduction in income tax expense. See Note 2 to the financial statements for further discussion of regulatory activity regarding the Tax Cuts and Jobs Act.
The retail electric price variance is primarily due to an increase in formula rate plan rates effective with the first billing cycle of January 2019, as approved by the APSC. See Note 2 to the financial statements for further discussion of the formula rate plan filing.
The volume/weather variance is primarily due to a decrease of 707 GWh, or 3%, in billed electricity usage, including the effect of less favorable weather on residential and commercial sales and a decrease in industrial usage. The decrease in industrial usage is primarily due to a decrease in small industrial sales.
Other Income Statement Variances
Nuclear refueling outage expenses decreased primarily due to the amortization of lower costs associated with the most recent outages as compared to previous outages.
Entergy Arkansas, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
Other operation and maintenance expenses decreased primarily due to:
a decrease of $20.2 million in nuclear generation expenses primarily due to a lower scope of work performed in 2019 as compared to 2018;
the effects of recording in 2019 a final judgment to resolve claims in the ANO damages case against the DOE related to spent nuclear fuel storage costs. The damages awarded include the reimbursement of approximately $11.9 million of spent nuclear fuel storage costs previously recorded as other operation and maintenance expense. See Note 8 to the financial statements for discussion of the spent nuclear fuel litigation; and
| |
• | a decrease of $5.5 million in vegetation maintenance costs. |
The decrease was partially offset by:
an $11.2 million write-off in 2019 of specific costs related to the potential construction of scrubbers at the White Bluff plant;
an increase of $8.5 million in information technology expenses primarily due to higher costs related to applications and infrastructure support, enhanced cyber security, and upgrades and maintenance;
an increase of $7.4 million due to spending on initiatives to explore new customer products and services; and
an increase of $5.5 million in compensation and benefits costs primarily due to higher incentive-based compensation accruals in 2019 as compared to prior year.
Taxes other than income taxes increased primarily due to increases in local franchise taxes and ad valorem taxes. The increase in local franchise taxes is primarily due to higher electric retail revenues. The increase in ad valorem taxes is primarily due to higher assessments and millage rates.
Depreciation and amortization expenses increased primarily due to additions to plant in service and an increase in the ANO 1 and ANO 2 asset retirement cost assets. See Note 9 to the financial statements for discussion of the increase in the asset retirement cost assets.
Interest expense increased primarily due to the issuance of $350 million of 4.20% Series mortgage bonds in March 2019 and the issuance of $250 million of 4.00% Series mortgage bonds in May 2018.
The effective income tax rates were (21.6%) for 2019 and 669.7% for 2018. The differences in the effective income tax rates versus the federal statutory rate of 21% for 2019 and 2018 were primarily due to the amortization of excess accumulated deferred income taxes. See Note 3 to the financial statements for a reconciliation of the federal statutory rate of 21% to the effective income tax rates.
2018 Compared to 2017
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Results of Operations” in Entergy Arkansas’s Annual Report on Form 10-K for the year ended December 31, 2018 for discussion of results of operations for 2018 compared to 2017.
Income Tax Legislation
See the “Income Tax Legislation” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for discussion of the Tax Cuts and Jobs Act, the federal income tax legislation enacted in December 2017. Note 3 to the financial statements contains additional discussion of the effect of the Act on 2017, 2018, and 2019 results of operations and financial position, the provisions of the Act, and the uncertainties associated with accounting for the Act, and Note 2 to the financial statements discusses the regulatory proceedings that have considered the effects of the Act.
Entergy Arkansas, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
Liquidity and Capital Resources
Cash Flow
Cash flows for the years ended December 31, 2019, 2018, and 2017 were as follows:
|
| | | | | | | | | | | |
| 2019 | | 2018 | | 2017 |
| (In Thousands) |
Cash and cash equivalents at beginning of period |
| $119 |
| |
| $6,216 |
| |
| $20,509 |
|
| | | | | |
Net cash provided by (used in): | | | | | |
|
Operating activities | 677,766 |
| | 211,825 |
| | 555,556 |
|
Investing activities | (676,293 | ) | | (688,727 | ) | | (829,312 | ) |
Financing activities | 1,927 |
| | 470,805 |
| | 259,463 |
|
Net increase (decrease) in cash and cash equivalents | 3,400 |
| | (6,097 | ) | | (14,293 | ) |
| | | | | |
Cash and cash equivalents at end of period |
| $3,519 |
| |
| $119 |
| |
| $6,216 |
|
2019 Compared to 2018
Operating Activities
Net cash flow provided by operating activities increased $465.9 million in 2019 primarily due to:
a decrease in the return of unprotected excess accumulated deferred income taxes to customers in 2019 as compared to 2018. See Note 2 to the financial statements for further discussion of regulatory activity regarding the Tax Cuts and Jobs Act;
payments in 2018 of $135 million to the other Utility operating companies as a result of a compliance filing made in response to the FERC’s October 2018 order in the opportunity sales proceeding. See Note 2 to the financial statements for further discussion of the opportunity sales proceeding;
income tax refunds of $34 million in 2019 compared to income tax payments of $44.4 million in 2018. Entergy Arkansas had income tax refunds in 2019 and income tax payments in 2018 in accordance with an intercompany income tax allocation agreement. The income tax refunds in 2019 resulted from the utilization of Entergy Arkansas’s net operating losses. The income tax payments in 2018 primarily resulted from the settlement of the 2012-2013 audit;
a decrease of $44.1 million in spending on nuclear refueling outages in 2019; and
the timing of recovery of fuel and purchased power costs.
The increase was partially offset by the timing of collection of receivables from customers and an increase of $11.8 million in pension contributions in 2019. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Critical Accounting Estimates” below and Note 11 to the financial statements for a discussion of qualified pension and other postretirement benefits funding.
Entergy Arkansas, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
Investing Activities
Net cash flow used in investing activities decreased $12.4 million in 2019 primarily due to:
a decrease of $32.1 million in nuclear construction expenditures primarily due to a lower scope of work performed on various nuclear projects in 2019 as compared to 2018;
a decrease of $25.8 million in transmission construction expenditures primarily due to a lower scope of work performed on various projects in 2019 as compared to 2018; and
a decrease of $13 million as a result of fluctuations in nuclear fuel activity because of variations from year to year in the timing and pricing of fuel reload requirements in the Utility business, material and service deliveries, and the timing of cash payments during the nuclear fuel cycle.
The decrease was partially offset by an increase of $35.6 million in distribution construction expenditures primarily due to investment in the reliability and infrastructure of Entergy Arkansas’s distribution system, including increased spending on advanced metering infrastructure, and an increase of $15.6 million in storm spending.
Financing Activities
Entergy Arkansas’s cash provided by financing activities decreased $468.9 million in 2019 primarily due to:
a $350 million capital contribution from Entergy Corporation in May 2018 in anticipation of the return of unprotected excess accumulated deferred income taxes to customers and upcoming planned capital investments;
the issuance of $250 million of 4.0% Series first mortgage bonds in May 2018;
money pool activity;
net repayments of long-term borrowings of $44.5 million in 2019 compared to net long-term borrowings of $34.7 million in 2018 on the Entergy Arkansas nuclear fuel company variable interest entity credit facility; and
an increase of $23.2 million in common equity distributions paid in 2019 primarily to maintain Entergy Arkansas’s capital structure.
The decrease was partially offset by:
the issuance of $350 million of 4.20% Series mortgage bonds in March 2019;
net repayments of short-term borrowings of $50 million on the Entergy Arkansas nuclear fuel company variable interest entity credit facility in 2018; and
the redemption of $31.4 million of preferred stock in 2018 in connection with the internal restructuring. See Note 2 to the financial statements for further discussion of the internal restructuring and Note 6 to the financial statements for details of preferred stock activity.
Decreases in Entergy Arkansas’s payable to the money pool are a use of cash flow, and Entergy Arkansas’s payable to the money pool decreased by $161.1 million in 2019 compared to increasing by $16.6 million in 2018. The money pool is an inter-company borrowing arrangement designed to reduce the Utility subsidiaries’ need for external short-term borrowings.
See Note 5 to the financial statements for further details of long-term debt.
Entergy Arkansas, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
2018 Compared to 2017
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Liquidity and Capital Resources - Cash Flow” in Entergy Arkansas’s Annual Report on Form 10-K for the year ended December 31, 2018 for discussion of operating, investing, and financing cash flow activities for 2018 compared to 2017.
Capital Structure
Entergy Arkansas’s debt to capital ratio is shown in the following table. The increase in the debt to capital ratio is primarily due to the issuance of long-term debt in 2019.
|
| | | |
| December 31, 2019 | | December 31, 2018 |
Debt to capital | 53.0% | | 52.0% |
Effect of excluding the securitization bonds | —% | | (0.2%) |
Debt to capital, excluding securitization bonds (a) | 53.0% | | 51.8% |
Effect of subtracting cash | —% | | —% |
Net debt to net capital, excluding securitization bonds (a) | 53.0% | | 51.8% |
| |
(a) | Calculation excludes the securitization bonds, which are non-recourse to Entergy Arkansas. |
Net debt consists of debt less cash and cash equivalents. Debt consists of short-term borrowings, finance lease obligations, and long-term debt, including the currently maturing portion. Capital consists of debt and equity. Net capital consists of capital less cash and cash equivalents. Entergy Arkansas uses the debt to capital ratios excluding securitization bonds in analyzing its financial condition and believes they provide useful information to its investors and creditors in evaluating Entergy Arkansas’s financial condition because the securitization bonds are non-recourse to Entergy Arkansas, as more fully described in Note 5 to the financial statements. Entergy Arkansas also uses the net debt to net capital ratio excluding securitization bonds in analyzing its financial condition and believes it provides useful information to its investors and creditors in evaluating Entergy Arkansas’s financial condition because net debt indicates Entergy Arkansas’s outstanding debt position that could not be readily satisfied by cash and cash equivalents on hand.
Entergy Arkansas seeks to optimize its capital structure in accordance with its regulatory requirements and to control its cost of capital while also maintaining equity capitalization at a level consistent with investment-grade debt ratings. To the extent that operating cash flows are in excess of planned investments, cash may wantbe used to consider 15 years; (4) allowedreduce outstanding debt or may be paid as a distribution, or both, in appropriate amounts to maintain the capital structure. To the extent that operating cash flows are insufficient to support planned investments, Entergy Arkansas may issue incremental debt or reduce distributions, or both, to maintain its capital structure. In addition, in certain infrequent circumstances, such as large transactions that would materially alter the capital structure if financed entirely with debt and reducing distributions, Entergy Arkansas may receive equity contributions to maintain its capital structure.
Uses of Capital
Entergy Arkansas requires capital resources for:
construction and other capital investments;
debt maturities or retirements;
working capital purposes, including the financing of fuel and purchased power costs; and
distribution and interest payments.
Entergy Arkansas, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
Following are the amounts of Entergy Arkansas’s planned construction and other capital investments.
|
| | | | | | | | | | | |
| 2020 | | 2021 | | 2022 |
| (In Millions) |
Planned construction and capital investment: | | | |
| | |
|
Generation |
| $250 |
| |
| $445 |
| |
| $595 |
|
Transmission | 110 |
| | 50 |
| | 65 |
|
Distribution | 190 |
| | 125 |
| | 125 |
|
Utility Support | 185 |
| | 165 |
| | 240 |
|
Total |
| $735 |
| |
| $785 |
| |
| $1,025 |
|
Following are the amounts of Entergy Arkansas’s existing debt and lease obligations (includes estimated interest payments) and other purchase obligations.
|
| | | | | | | | | | | | | | | | | | | |
| 2020 | | 2021-2022 | | 2023-2024 | | After 2024 | | Total |
| (In Millions) |
Long-term debt (a) |
| $142 |
| |
| $737 |
| |
| $877 |
| |
| $4,377 |
| |
| $6,133 |
|
Operating leases (b) |
| $13 |
| |
| $20 |
| |
| $13 |
| |
| $12 |
| |
| $58 |
|
Finance leases (b) |
| $3 |
| |
| $4 |
| |
| $3 |
| |
| $2 |
| |
| $12 |
|
Purchase obligations (c) |
| $553 |
| |
| $939 |
| |
| $561 |
| |
| $4,485 |
| |
| $6,538 |
|
| |
(a) | Includes estimated interest payments. Long-term debt is discussed in Note 5 to the financial statements. |
| |
(b) | Lease obligations are discussed in Note 10 to the financial statements. |
| |
(c) | Purchase obligations represent the minimum purchase obligation or cancellation charge for contractual obligations to purchase goods or services. For Entergy Arkansas, almost all of the total consists of unconditional fuel and purchased power obligations, including its obligations under the Unit Power Sales Agreement, which are discussed in Note 8 to the financial statements. |
In addition to the contractual obligations given above, Entergy Arkansas currently expects to contribute approximately $32.5 million to its qualified pension plans and approximately $509 thousand to its other postretirement health care and life insurance plans in 2020, although the 2020 required pension contributions will be known with more certainty when the January 1, 2020 valuations are completed, which is expected by April 1, 2020. See “Critical Accounting Estimates– Qualified Pension and Other Postretirement Benefits” below for a discussion of qualified pension and other postretirement benefits funding.
Also in addition to the contractual obligations, Entergy Arkansas has $207.1 million of unrecognized tax benefits and interest net of unused tax attributes for which the timing of payments beyond 12 months cannot be reasonably estimated due to uncertainties in the timing of effective settlement of tax positions. See Note 3 to the financial statements for additional information regarding unrecognized tax benefits.
In addition to routine capital spending to maintain operations, the planned capital investment estimate for Entergy Arkansas includes specific investments, such as transmission projects to enhance reliability, reduce congestion, and enable economic growth; distribution spending to enhance reliability and improve service to customers, including advanced meters and related investments; resource planning, including potential generation projects; system improvements; investments in ANO 1 and 2; software and security; and other investments. Estimated capital expenditures are subject to periodic review and modification and may vary based on the ongoing effects of regulatory constraints and requirements, environmental compliance, business opportunities, market volatility, economic trends, business restructuring, changes in project plans, and the ability to access capital. Management provides more information on long-term debt maturities in Note 5 to the financial statements.
Entergy Arkansas, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
As a wholly-owned subsidiary of Entergy Utility Holding Company, LLC, Entergy Arkansas pays distributions from its earnings at a percentage determined monthly.
Searcy Solar Facility
In March 2019, Entergy Arkansas announced that it signed an agreement for the purchase of an approximately 100 MW to-be-constructed solar energy facility that will be sited on approximately 800 acres in White County near Searcy, Arkansas. The purchase is contingent upon, among other things, obtaining necessary approvals from applicable federal and state regulatory and permitting agencies. The project will be constructed by a subsidiary of NextEra Energy Resources. Entergy Arkansas will purchase the facility upon mechanical completion and after the other purchase contingencies have been met. Closing is expected to occur by the end of 2021. In May 2019, Entergy Arkansas filed a petition with the APSC seeking a finding that the transaction is in the public interest and requesting all necessary approvals. In September 2019 other parties filed testimony largely supporting the resource acquisition but disputing Entergy Arkansas’s proposed method of cost recovery. Entergy Arkansas filed its rebuttal testimony in October 2019. In February 2020, Entergy Arkansas, the Attorney General, and the APSC general staff filed a partial settlement agreement asking the APSC to approve, based on the record in the proceeding, all issues except certain issues that are submitted to the APSC for determination.
Sources of Capital
Entergy Arkansas’s sources to meet its capital requirements include:
internally generated funds;
cash on hand;
debt or preferred membership interest issuances;
capital contributions; and
bank financing under new or existing facilities.
Entergy Arkansas may refinance, redeem, or otherwise retire debt prior to maturity, to the extent market conditions and interest rates are favorable.
All debt and common and preferred membership interest issuances by Entergy Arkansas require prior regulatory approval. Debt issuances are also subject to issuance tests set forth in Entergy Arkansas’s bond indentures and other agreements. Entergy Arkansas has sufficient capacity under these tests to meet its foreseeable capital needs.
Entergy Arkansas’s payables to the money pool were as follows as of December 31 for each of the following years.
|
| | | | | | |
2019 | | 2018 | | 2017 | | 2016 |
(In Thousands) |
$21,634 | | $182,738 | | $166,137 | | $51,232 |
See Note 4 to the financial statements for a description of the money pool.
Entergy Arkansas has a credit facility in the amount of $150 million scheduled to expire in September 2024. Entergy Arkansas also has a $20 million credit facility scheduled to expire in April 2020. The $150 million credit facility includes fronting commitments for the issuance of letters of credit against $5 million of the borrowing capacity of the facility. As of December 31, 2019, there were no cash borrowings and no letters of credit outstanding under the credit facilities. In addition, Entergy Arkansas is a party to an uncommitted letter of credit facility as a means to post collateral to support its obligations to MISO. As of December 31, 2019, a $1 million letter of credit was outstanding under Entergy Arkansas’s uncommitted letter of credit facility. See Note 4 to the financial statements for further discussion of the credit facilities.
Entergy Arkansas, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
The Entergy Arkansas nuclear fuel company variable interest entity has a credit facility in the amount of $80 million scheduled to expire in September 2021. As of December 31, 2019, $15.1 million in loans were outstanding under the Entergy Arkansas nuclear fuel company variable interest entity credit facility. See Note 4 to the financial statements for further discussion of the nuclear fuel company variable interest entity credit facility.
Entergy Arkansas obtained authorization from the FERC through November 2020 for short-term borrowings not to exceed an aggregate amount of $250 million at any time outstanding and borrowings by its nuclear fuel company variable interest entity. See Note 4 to the financial statements for further discussion of Entergy Arkansas’s short-term borrowing limits. The long-term securities issuances of Entergy Arkansas are limited to amounts authorized by the FERC. The APSC has concurrent jurisdiction over Entergy Arkansas’s first mortgage bond/secured issuances. Entergy Arkansas has obtained long-term financing authorization from the FERC that extends through November 2020. Entergy Arkansas has obtained first mortgage bond/secured financing authorization from the APSC that extends through December 2020.
State and Local Rate Regulation and Fuel-Cost Recovery
Retail Rates
2017 Formula Rate Plan Filing
In July 2017, Entergy Arkansas filed with the APSC its 2017 formula rate plan filing showing Entergy Arkansas’s projected earned return on common equity for the twelve months ended December 31, 2018 test period to be below the formula rate plan bandwidth. The filing projected a $129.7 million revenue requirement increase to achieve Entergy Arkansas’s target earned return on common equity of 9.75%. Entergy Arkansas’s formula rate plan is subject to a four percent annual revenue constraint and the projected annual revenue requirement increase exceeded the four percent, resulting in a proposed increase for the 2017 formula rate plan of $70.9 million. In October 2017, Entergy Arkansas filed with the APSC revised formula rate plan attachments that projected a $126.2 million revenue requirement increase based on acceptance of certain adjustments and recommendations made by the APSC staff and other intervenors. The revised formula rate plan filing included a proposed $71.1 million revenue requirement increase based on a revision to the four percent constraint calculation. In October 2017, Entergy Arkansas and the parties to the proceeding filed a joint motion to approve a unanimous settlement agreement resolving all issues in the proceeding and providing for recovery of carrying costscertain 2017 and earning a2018 nuclear costs. In December 2017 the APSC approved the settlement agreement and the $71.1 million revenue requirement increase, as well as Entergy Arkansas’s formula rate plan compliance tariff, and the rates became effective with the first billing cycle of January 2018.
2018 Formula Rate Plan Filing
In July 2018, Entergy Arkansas filed with the APSC its 2018 formula rate plan filing to set its formula rate for the 2019 calendar year. The filing showed Entergy Arkansas’s projected earned return on projectcommon equity for the twelve months ended December 31, 2019 test period to be below the formula rate plan bandwidth. Additionally, the filing includes the first netting adjustment under the current formula rate plan for the historical test year 2017, reflecting the change in formula rate plan revenues associated with actual 2017 results when compared to the allowed rate of return on equity. The filing includes a projected $73.4 millionrevenue deficiency for 2019 and a $95.6 million revenue deficiency for the 2017 historical test year, for a total revenue requirement of $169 million for this filing. By operation of the formula rate plan, Entergy Arkansas’s recovery of the revenue requirement is subject to a four percent annual revenue constraint. Because Entergy Arkansas’s revenue requirement in this filing exceeds the constraint, the resulting increase is limited to four percent of total revenue, which originally was $65.4 million but was increased to $66.7 million based upon the APSC staff’s updated calculation of 2018 revenue. In October 2018, Entergy Arkansas and the parties to the proceeding filed joint motions to approve a partial settlement agreement as to certain factual issues and agreed to brief contested legal issues. In November 2018 the APSC held a hearing and was briefed on a certain contested legal issue. In December 2018 the APSC issued a decision related to the initial legal brief, approved the
Entergy Arkansas, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
partial settlement agreement and $66.7 million revenue requirement increase, as well as Entergy Arkansas’s formula rate plan, with updated rates going into effect for the first billing cycle of January 2019.
2019 Formula Rate Plan Filing
In July 2019, Entergy Arkansas filed with the APSC its 2019 formula rate plan filing to set its formula rate for the 2020 calendar year. The filing contained an evaluation of Entergy Arkansas’s earnings for the projected year 2020 and a netting adjustment for the historical year 2018. The total proposed formula rate plan rider revenue change designed to produce a target rate of return on common equity of 9.75% is $15.3 million, which is based upon a deficiency of approximately $61.9 million for the 2020 projected year, netted with a credit of approximately $46.6 million in the 2018 historical year netting adjustment. During 2018 Entergy Arkansas experienced higher-than expected sales volume, and actual costs but atwere lower than forecasted. These changes, coupled with a reduced income tax rate approximatingresulting from the costTax Cuts and Jobs Act, resulted in the credit for the historical year netting adjustment. In the fourth quarter 2018 Entergy Arkansas recorded a provision of debt, while also acknowledging$35.1 million that reflected the estimate of the historical year netting adjustment that was expected to be included in the 2019 filing. In 2019, Entergy Arkansas recorded additional provisions totaling $11.5 million to reflect the updated estimate of the historical year netting adjustment included in the 2019 filing. In October 2019 other parties in the proceeding filed their errors and objections requesting certain adjustments to Entergy Arkansas’s filing that would reduce or eliminate Entergy Arkansas’s proposed revenue change. Entergy Arkansas filed its response addressing the requested adjustments in October 2019. In its response, Entergy Arkansas accepted certain of the adjustments recommended by the General Staff of the APSC that would reduce the proposed formula rate plan rider revenue change to $14 million. Entergy Arkansas disputed the remaining adjustments proposed by the parties. In October 2019, Entergy Arkansas filed a unanimous settlement agreement with the other parties in the proceeding seeking APSC approval of a revised total formula rate plan rider revenue change of $10.1 million. In its July 2019 formula rate plan filing, Entergy Arkansas proposed to recover an $11.2 million regulatory asset, amortized over five years, associated with specific costs related to the potential construction of scrubbers at the White Bluff plant. Although Entergy Arkansas does not concede that the LPSC may consider ordering no return; and (5) indicated thatregulatory asset lacks merit, for purposes of reaching a settlement on the total formula rate plan rider amount, Entergy Louisiana should be directedArkansas agreed not to securitize project costs, if legally feasible andinclude the White Bluff scrubber regulatory asset cost in the 2019 formula rate plan filing or future filings. Entergy Arkansas recorded a write-off in 2019 of the $11.2 million White Bluff scrubber regulatory asset. In December 2019, the APSC approved the settlement as being in the public interest. interest and approved Entergy Arkansas’s compliance tariff effective with the first billing cycle of January 2020.
Internal Restructuring
In the third quarter 2010, in accordance with accounting standards,November 2017, Entergy Louisiana determined that it was probable that the Little Gypsy repowering project would be abandoned and accordingly reclassified $199.8 million of project costs from construction work in progress to a regulatory asset. A hearing on the issues, except for cost allocation among customer classes, was held before the ALJ in November 2010. In January 2011 all parties participated in a mediation on the disputed issues, resulting in a settlement of all disputed issues, including cost recovery and cost allocation. The settlement provides for Entergy Louisiana to recover $200 million as of March 31, 2011, and carrying costs on that amount on specified terms thereafter. The settlement also provides for Entergy Louisiana to recover the approved project costs by securitization. In April 2011, Entergy LouisianaArkansas filed an application with the LPSCAPSC seeking authorization to authorizeundertake a restructuring that would result in the securitizationtransfer of substantially all of the investmentassets and operations of Entergy Arkansas to a new entity, which would ultimately be owned by an existing Entergy subsidiary holding company. In July 2018, Entergy Arkansas filed a settlement, reached by all parties in the APSC proceeding, resolving all issues. The APSC approved the settlement agreement and restructuring in August 2018. Pursuant to the settlement agreement, Entergy Arkansas will credit retail customers $39.6 million over six years, beginning in 2019. Entergy Arkansas also received the required FERC and NRC approvals.
In November 2018, Entergy Arkansas undertook a multi-step restructuring, including the following:
Entergy Arkansas, Inc. redeemed its outstanding preferred stock at the aggregate redemption price of approximately $32.7 million.
Entergy Arkansas, Inc. converted from an Arkansas corporation to a Texas corporation.
Under the Texas Business Organizations Code (TXBOC), Entergy Arkansas, Inc. allocated substantially all of its assets to a new subsidiary, Entergy Arkansas Power, LLC, a Texas limited liability company (Entergy Arkansas Power), and Entergy Arkansas Power assumed substantially all of the liabilities of Entergy Arkansas, Inc., in a transaction regarded as a merger under the TXBOC. Entergy Arkansas, Inc. remained in existence and held the membership interests in Entergy Arkansas Power.
Entergy Arkansas, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
Entergy Arkansas, Inc. contributed the membership interests in Entergy Arkansas Power to an affiliate (Entergy Utility Holding Company, LLC, a Texas limited liability company and subsidiary of Entergy Corporation). As a result of the contribution, Entergy Arkansas Power is a wholly-owned subsidiary of Entergy Utility Holding Company, LLC.
In December 2018, Entergy Arkansas, Inc. changed its name to Entergy Utility Property, Inc., and Entergy Arkansas Power then changed its name to Entergy Arkansas, LLC. Entergy Arkansas, LLC holds substantially all of the assets, and assumed substantially all of the liabilities, of Entergy Arkansas, Inc. The transaction was accounted for as a transaction between entities under common control.
Advanced Metering Infrastructure (AMI)
In September 2016, Entergy Arkansas filed an application seeking a finding from the APSC that Entergy Arkansas’s deployment of AMI is in the public interest. Entergy Arkansas proposed to replace existing meters with advanced meters that enable two-way data communication; design and build a secure and reliable network to support such communications; and implement support systems. AMI is intended to serve as the foundation of Entergy Arkansas’s modernized power grid. The filing included an estimate of implementation costs for AMI of $208 million and identified a number of quantified and unquantified benefits. Entergy Arkansas proposed a 15-year depreciable life for the new advanced meters, the three-year deployment of which began in January 2019. Deployment of the communications network began in 2018. In October 2017 the APSC issued an order finding that Entergy Arkansas’s AMI deployment is in the public interest and approving the settlement agreement subject to a minor modification. Entergy Arkansas is recovering the AMI deployment costs and the quantified benefits through its formula rate plan. Entergy Arkansas will recover the undepreciated balance of its existing meters through a regulatory asset to be amortized over 15 years, as approved by the APSC.
Production Cost Allocation Rider
The APSC approved a production cost allocation rider for recovery from customers of the retail portion of the costs allocated to Entergy Arkansas as a result of the System Agreement proceedings, which are discussed in the “System Agreement Cost Equalization Proceedings” section in Note 2 to the financial statements.
Energy Cost Recovery Rider
Entergy Arkansas’s retail rates include an energy cost recovery rider to recover fuel and purchased energy costs in monthly customer bills. The rider utilizes the prior calendar-year energy costs and projected energy sales for the twelve-month period commencing on April 1 of each year to develop an energy cost rate, which is redetermined annually and includes a true-up adjustment reflecting the over- or under-recovery, including carrying charges, of the energy costs for the prior calendar year. The energy cost recovery rider tariff also allows an interim rate request depending upon the level of over- or under-recovery of fuel and purchased energy costs.
In January 2014, Entergy Arkansas filed a motion with the APSC relating to its upcoming energy cost rate redetermination filing that was made in March 2014. In that motion, Entergy Arkansas requested that the APSC authorize Entergy Arkansas to exclude from the redetermination of its 2014 energy cost rate $65.9 million of incremental fuel and replacement energy costs incurred in 2013 as a result of the ANO stator incident. Entergy Arkansas requested that the APSC authorize Entergy Arkansas to retain that amount in its deferred fuel balance, with recovery to be reviewed in a later period after more information was available regarding various claims associated with the projectANO stator incident. In February 2014 the APSC approved Entergy Arkansas’s request to retain that amount in its deferred fuel balance. In July 2017, Entergy Arkansas filed for a change in rates pursuant to its formula rate plan rider. In that proceeding, the APSC approved a settlement agreement agreed upon by the parties, including a provision that requires Entergy Arkansas to initiate a regulatory proceeding for the purpose of recovering funds currently withheld from rates and related to issuethe stator incident, including the $65.9 million of deferred fuel and purchased energy costs previously noted, subject to
Entergy Arkansas, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
certain timelines and conditions set forth in the settlement agreement. See the “ANO Damage, Outage, and NRC Reviews” section in Note 8 to the financial statements for further discussion of the ANO stator incident.
In March 2017, Entergy Arkansas filed its annual redetermination of its energy cost rate pursuant to the energy cost recovery rider, which reflected an increase in the rate from $0.01164 per kWh to $0.01547 per kWh. The APSC staff filed testimony in March 2017 recommending that the redetermined rate be implemented with the first billing cycle of April 2017 under the normal operation of the tariff. Accordingly, the redetermined rate went into effect on March 31, 2017 pursuant to the tariff. In July 2017 the Arkansas Attorney General requested additional information to support certain of the costs included in Entergy Arkansas’s 2017 energy cost rate redetermination.
In March 2018, Entergy Arkansas filed its annual redetermination of its energy cost rate pursuant to the energy cost recovery rider, which reflected an increase in the rate from $0.01547 per kWh to $0.01882 per kWh. The Arkansas Attorney General filed a financing order by whichresponse to Entergy Louisiana could accomplish such securitization. In August 2011Arkansas’s annual redetermination filing requesting that the LPSCAPSC suspend the proposed tariff to investigate the amount of the redetermination or, alternatively, to allow recovery subject to refund. Among the reasons the Attorney General cited for suspension were questions pertaining to how Entergy Arkansas forecasted sales and potential implications of the Tax Act. Entergy Arkansas replied to the Attorney General’s filing and stated that, to the extent there are questions pertaining to its load forecasting or the operation of the energy cost recovery rider, those issues exceed the scope of the instant rate redetermination. Entergy Arkansas also stated that potential effects of the Tax Act are appropriately considered in the APSC’s separate proceeding regarding potential implications of the tax law. The APSC general staff filed a reply to the Attorney General’s filing and agreed that Entergy Arkansas’s filing complied with the terms of the energy cost recovery rider. The redetermined rate became effective with the first billing cycle of April 2018. Subsequently in April 2018 the APSC issued an order declining to suspend Entergy Arkansas’s energy cost recovery rider rate and declining to require further investigation at that time of the issues suggested by the Attorney General in the proceeding. Following a period of discovery, the Attorney General filed a supplemental response in October 2018 raising new issues with Entergy Arkansas’s March 2018 rate redetermination and asserting that $45.7 million of the increase should be collected subject to refund pending further investigation. Entergy Arkansas filed to dismiss the Attorney General’s supplemental response, the APSC general staff filed a motion to strike the Attorney General’s filing, and the Attorney General filed a supplemental response disputing Entergy Arkansas and the APSC staff’s filing. Applicable APSC rules and processes authorize its general staff to initiate periodic audits of Entergy Arkansas’s energy cost recovery rider. In late-2018, the APSC general staff notified Entergy Arkansas it has initiated an audit of the 2017 fuel costs. The time in which the audit will be complete is uncertain at this time.
In March 2019, Entergy Arkansas filed its annual redetermination of its energy cost rate pursuant to the energy cost recovery rider, which reflected a decrease from $0.01882 per kWh to $0.01462 per kWh and became effective with the first billing cycle in April 2019. In March 2019 the Arkansas Attorney General filed a response to Entergy Arkansas’s annual adjustment and included with its filing a motion for investigation of alleged overcharges to customers in connection with the FERC’s October 2018 order in the opportunity sales proceeding. Entergy Arkansas filed its response to the Attorney General’s motion in April 2019 in which Entergy Arkansas stated its intent to initiate a proceeding to address recovery issues related to the October 2018 FERC order. In May 2019, Entergy Arkansas initiated the opportunity sales recovery proceeding, discussed below, and requested that the APSC establish that proceeding as the single designated proceeding in which interested parties may assert claims related to the appropriate retail rate treatment of the FERC October 2018 order and related FERC orders in the opportunity sales proceeding. In June 2019 the APSC granted Entergy Arkansas’s request and also denied the Attorney General’s motion in the energy cost recovery proceeding seeking an investigation into Entergy Arkansas’s annual energy cost recovery rider adjustment and referred the evaluation of such matters to the opportunity sales recovery proceeding.
Entergy Arkansas, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
Opportunity Sales Proceeding
In June 2009 the LPSC filed a complaint requesting that the FERC determine that certain of Entergy Arkansas’s sales of electric energy to third parties: (a) violated the provisions of the System Agreement that allocated the energy generated by Entergy System resources; (b) imprudently denied the Entergy System and its ultimate consumers the benefits of low-cost Entergy System generating capacity; and (c) violated the provision of the System Agreement that prohibited sales to third parties by individual companies absent an offer of a right-of-first-refusal to other Utility operating companies. The LPSC’s complaint challenged sales made beginning in 2002 and requested refunds. In July 2009 the Utility operating companies filed a response to the complaint arguing among other things that the System Agreement contemplates that the Utility operating companies may make sales to third parties for their own account, subject to the requirement that those sales be included in the load (or load shape) for the applicable Utility operating company. The FERC subsequently ordered a hearing in the proceeding.
After a hearing, the ALJ issued an initial decision in December 2010. The ALJ found that the System Agreement allowed for Entergy Arkansas to make the sales to third parties but concluded that the sales should be accounted for in the same manner as joint account sales. The ALJ concluded that “shareholders” should make refunds of the damages to the Utility operating companies, along with interest. Entergy disagreed with several aspects of the ALJ’s initial decision and in January 2011 filed with the FERC exceptions to the decision.
The FERC issued a decision in June 2012 and held that, while the System Agreement is ambiguous, it does provide authority for individual Utility operating companies to make opportunity sales for their own account and Entergy Arkansas made and priced these sales in good faith. The FERC found, however, that the System Agreement does not provide authority for an individual Utility operating company to allocate the energy associated with such opportunity sales as part of its load but provides a different allocation authority. The FERC further found that the after-the-fact accounting methodology used to allocate the energy used to supply the sales was inconsistent with the System Agreement. The FERC in its decision established further hearing procedures to quantify the effect of repricing the opportunity sales in accordance with the FERC’s June 2012 decision. The hearing was held in May 2013 and the ALJ issued an initial decision in August 2013. The LPSC, the APSC, the City Council, and FERC staff filed briefs on exceptions and/or briefs opposing exceptions. Entergy filed a brief on exceptions requesting that the FERC reverse the initial decision and a brief opposing certain exceptions taken by the LPSC and FERC staff.
In April 2016 the FERC issued orders addressing requests for rehearing filed in July 2012 and the ALJ’s August 2013 initial decision. The first order denied Entergy’s request for rehearing and affirmed the FERC’s earlier rulings that Entergy’s original methodology for allocating energy costs to the opportunity sales was incorrect and, as a result, Entergy Arkansas must make payments to the other Utility operating companies to put them in the same position that they would have been in absent the incorrect allocation. The FERC clarified that interest should be included with the payments. The second order affirmed in part, and reversed in part, the rulings in the ALJ’s August 2013 initial decision regarding the methodology that should be used to calculate the payments Entergy Arkansas is to make to the other Utility operating companies. The FERC affirmed the ALJ’s ruling that a full re-run of intra-system bills should be performed but required that methodology be modified so that the sales have the same priority for purposes of energy allocation as joint account sales. The FERC reversed the ALJ’s decision that any payments by Entergy Arkansas should be reduced by 20%. The FERC also reversed the ALJ’s decision that adjustments to other System Agreement service schedules and excess bandwidth payments should not be taken into account when calculating the payments to be made by Entergy Arkansas. The FERC held that such adjustments and excess bandwidth payments should be taken into account but ordered further proceedings before an ALJ to address whether a cap on any reduction due to bandwidth payments was necessary and to implement the other adjustments to the calculation methodology.
In May 2016, Entergy Services filed a request for rehearing of the FERC’s April 2016 order arguing that payments made by Entergy Arkansas should be reduced as a result of the timing of the LPSC’s approval of certain contracts. Entergy Services also filed a request for clarification and/or rehearing of the FERC’s April 2016 order addressing the ALJ’s August 2013 initial decision. The APSC and the LPSC also filed requests for rehearing of the FERC’s April 2016 order. In September 2017 the FERC issued an order denying the request for rehearing on the issue
Entergy Arkansas, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
of whether any payments by Entergy Arkansas to the other Utility operating companies should be reduced due to the timing of the LPSC’s approval of Entergy Arkansas’s wholesale baseload contract with Entergy Louisiana. In November 2017 the FERC issued an order denying all of the remaining requests for rehearing of the April 2016 order. In November 2017, Entergy Services filed a petition for review in the D.C. Circuit of the FERC’s orders in the first two phases of the opportunity sales case. In December 2017 the D.C. Circuit granted Entergy Services’ request to hold the appeal in abeyance pending final resolution of the related proceeding before the FERC. In January 2018 the APSC and the LPSC filed separate petitions for review in the D.C. Circuit, and the D.C. Circuit consolidated the appeals with Entergy Services’ appeal and held all of the appeals in abeyance pending final resolution of the related proceeding before the FERC.
The hearing required by the FERC’s April 2016 order was held in May 2017. In July 2017 the ALJ issued an initial decision addressing whether a cap on any reduction due to bandwidth payments was necessary and whether to implement the other adjustments to the calculation methodology. In August 2017 the Utility operating companies, the LPSC, the APSC, and FERC staff filed individual briefs on exceptions challenging various aspects of the initial decision. In September 2017 the Utility operating companies, the LPSC, the APSC, the MPSC, the City Council, and FERC staff filed separate briefs opposing exceptions taken by various parties.
Based on testimony previously submitted in the case and its assessment of the April 2016 FERC orders, in the first quarter 2016, Entergy Arkansas recorded a liability of $87 million, which included interest, for its estimated increased costs and payment to the other Utility operating companies, and a deferred fuel regulatory asset of $75 million. Following its assessment of the course of the proceedings, including the FERC’s denial of rehearing in November 2017 described above, in the fourth quarter 2017, Entergy Arkansas recorded an additional liability of $35 million and a regulatory asset of $31 million.
In October 2018 the FERC issued an order addressing the ALJ’s July 2017 initial decision. The FERC reversed the ALJ’s decision to cap the reduction in Entergy Arkansas’s payment to account for the increased bandwidth payments that Entergy Arkansas made to the other operating companies. The FERC also reversed the ALJ’s decision that Grand Gulf sales from January through September 2000 should be included in the calculation of Entergy Arkansas’s payment. The FERC affirmed on other grounds the ALJ’s rejection of the LPSC’s claim that certain joint account sales should be accounted for as part of the calculation of Entergy Arkansas’s payment. In November 2018 the LPSC requested rehearing of the FERC’s October 2018 decision. In December 2019 the FERC denied the LPSC’s request for rehearing.
In December 2018, Entergy made a compliance filing in response to the FERC’s October 2018 order. The compliance filing provided a final calculation of Entergy Arkansas’s payments to the other Utility operating companies, including interest. No protests were filed in response to the December 2018 compliance filing. The December 2018 compliance filing is pending FERC action. Refunds and interest in the following amounts were paid by Entergy Arkansas to the other operating companies in December 2018:
|
| | | |
| Total refunds including interest |
| Payment/(Receipt) |
| (In Millions) |
| Principal | Interest | Total |
Entergy Arkansas | $68 | $67 | $135 |
Entergy Louisiana | ($30) | ($29) | ($59) |
Entergy Mississippi | ($18) | ($18) | ($36) |
Entergy New Orleans | ($3) | ($4) | ($7) |
Entergy Texas | ($17) | ($16) | ($33) |
Entergy Arkansas previously recognized a regulatory asset with a balance of $116 million as of December 31, 2018 for a portion of the payments due as a result of this proceeding.
Entergy Arkansas, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
In February 2019 the LPSC filed a new complaint relating to two issues that were raised in the opportunity sales proceeding, but that, in its October 2018 order, the FERC held were outside the scope of the proceeding. In March 2019, Entergy Services filed an answer and motion to dismiss the new complaint. In November 2019 the FERC issued an order denying the LPSC’s complaint. The order concluded that the settlement agreement approved by FERC in December 2015 terminating the System Agreement barred the LPSC’s new complaint.
In May 2019, Entergy Arkansas filed an application and supporting testimony with the APSC requesting approval of a special rider tariff to recover the costs of these payments from its retail customers over a 24-month period. The application requested that the APSC approve the rider to take effect within 30 days or, if suspended by the APSC as allowed by commission rule, approve the rider to take effect in the first billing cycle of the first month occurring 30 days after issuance of the APSC’s order approving the settlementrider. In June 2019 the APSC suspended Entergy Arkansas’s tariff and granted Entergy Arkansas’s motion asking the APSC to establish the proceeding as the single designated proceeding in which interested parties may assert claims related to the appropriate retail rate treatment of the FERC’s October 2018 order and related FERC orders in the opportunity sales proceeding. In January 2020 the APSC adopted a procedural schedule with a hearing in April 2020. In January 2020 the Attorney General and Arkansas Electric Energy Consumers, Inc. filed a joint motion seeking to dismiss Entergy Arkansas’s application alleging that the APSC, in a prior proceeding, ruled on the issues addressed in the application and determined that Entergy Arkansas’s requested relief violates the filed rate doctrine and the prohibition against retroactive ratemaking. Entergy Arkansas responded to the joint motion in February 2020 rebutting these arguments, including demonstrating that the claims in this proceeding differ substantially from those the APSC addressed previously and that the payment resulting from a FERC tariff violation for which Entergy Arkansas seeks retail cost recovery in this proceeding differs materially from the refunds resulting from a FERC tariff amendment that the APSC previously rejected on filed rate doctrine and the retroactive ratemaking grounds. In addition, in January 2020 the Attorney General and Arkansas Electric Energy Consumers, Inc. filed testimony opposing the recovery by Entergy Arkansas of the opportunity sales payment but also claiming that certain components of the payment should be segregated and refunded to customers.
Net Metering Legislation
An Arkansas law was enacted effective July 2019 that, among other things, expands the definition of a “net metering customer” to include two additional types of customers: (1) customers that lease net metering facilities, subject to certain leasing arrangements, and (2) government entities or other entities exempt from state and federal income taxes that enter into a service contract for a net metering facility. The latter provision would allow eligible entities, many of whom are small and large general service customers, to purchase renewable energy directly from third party providers and receive bill credits for these purchases. The APSC was given authority under this law to address certain matters, such as cost shifting and the appropriate compensation for net metered energy, and has initiated proceedings for this purpose. Because of the size and number of customers eligible under this new law, there is a risk of loss of load and the shifting of costs to customers. A hearing was held in December 2019, with utilities, cooperatives, the Arkansas Attorney General, industrial customers, and Entergy Arkansas advocating the need for establishment of a reasonable rate structure that takes into account impacts to non-net metering customers. Separately, as directed by the APSC general staff, the APSC opened a proceeding to compel utilities to amend their net metering tariffs to incorporate the provisions of the legislation that the APSC general staff considered “black letter law.” Entergy Arkansas, the Arkansas Attorney General, and other intervenors opposed this directive pending the development of the rules for implementation that are being considered in the separate net metering rulemaking docket. Nevertheless, reserving its rights, Entergy Arkansas has complied with the directive to amend its tariffs. Asserting procedural and due process violations, in January 2020, Entergy Arkansas and the Arkansas Attorney General separately appealed certain APSC orders in this proceeding.
Federal Regulation
See the “Rate, Cost-recovery, and Other Regulation– Federal Regulation” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis and Note 2 to the financial statements for a discussion of federal regulation.
Entergy Arkansas, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
Nuclear Matters
Entergy Arkansas owns and, through an affiliate, operates the ANO 1 and ANO 2 nuclear power plants. Entergy Arkansas is, therefore, subject to the risks related to owning and operating nuclear plants. These include risks related to: the use, storage, and handling and disposal of high-level and low-level radioactive materials; the substantial financial requirements, both for capital investments and operational needs, to position Entergy’s nuclear fleet to meet its operational goals, including the financial requirements to address emerging issues like stress corrosion cracking of certain materials within the plant systems and the Fukushima event; regulatory requirements and potential future regulatory changes, including changes affecting the regulations governing nuclear plant ownership, operations, license renewal and amendments, and decommissioning; the performance and capacity factors of these nuclear plants; the availability of interim or permanent sites for the disposal of spent nuclear fuel and nuclear waste, including the fees charged for such disposal; the sufficiency of nuclear decommissioning trust fund assets and earnings to complete decommissioning of each site when required; and limitations on the amounts and types of insurance commercially available for losses in connection with nuclear plant operations and catastrophic events such as a nuclear accident. In the event of an unanticipated early shutdown of either ANO 1 or ANO 2, Entergy Arkansas may be required to file with the APSC a rate mechanism to provide additional funds or credit support to satisfy regulatory requirements for decommissioning. ANO 1’s operating license expires in 2034 and ANO 2’s operating license expires in 2038.
Environmental Risks
Entergy Arkansas’s facilities and operations are subject to regulation by various governmental authorities having jurisdiction over air quality, water quality, control of toxic substances and hazardous and solid wastes, and other environmental matters. Management believes that Entergy Arkansas is in substantial compliance with environmental regulations currently applicable to its facilities and operations, with reference to possible exceptions noted in “Regulation of Entergy’s Business - Environmental Regulation” in Part I, Item 1. Because environmental regulations are subject to change, future compliance costs cannot be precisely estimated.
Critical Accounting Estimates
The preparation of Entergy Arkansas’s financial statements in conformity with generally accepted accounting principles requires management to apply appropriate accounting policies and to make estimates and judgments that can have a significant effect on reported financial position, results of operations, and cash flows. Management has identified the following accounting policies and estimates as critical because they are based on assumptions and measurements that involve a high degree of uncertainty, and the potential for future changes in the assumptions and measurements that could produce estimates that would have a material effect on the presentation of Entergy Arkansas’s financial position or results of operations.
In the first quarter 2019, Entergy Arkansas recorded a revision to its estimated decommissioning cost liabilities for ANO 1 and ANO 2 as a result of a revised decommissioning cost study. The revised estimates resulted in a $126.2 million increase in its decommissioning cost liabilities, along with corresponding increases in the related asset retirement cost assets that will be depreciated over the remaining lives of the units.
Nuclear Decommissioning Costs
See “Nuclear Decommissioning Costs” in the “Critical Accounting Estimates” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for discussion of the estimates inherent in accounting for nuclear decommissioning costs.
Utility Regulatory Accounting
See “Utility Regulatory Accounting” in the “Critical Accounting Estimates” section of Entergy Corporation
Entergy Arkansas, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
and Subsidiaries Management’s Financial Discussion and Analysis for discussion of accounting for the effects of rate regulation.
Impairment of Long-lived Assets and Trust Fund Investments
See “Impairment of Long-lived Assets and Trust Fund Investments” in the “Critical Accounting Estimates” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for discussion of the estimates associated with the impairment of long-lived assets and trust fund investments.
Taxation and Uncertain Tax Positions
See “Taxation and Uncertain Tax Positions” in the “Critical Accounting Estimates” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for further discussion.
Qualified Pension and Other Postretirement Benefits
Entergy Arkansas’s qualified pension and other postretirement reported costs, as described in Note 11 to the financial statements, are impacted by numerous factors including the provisions of the plans, changing employee demographics, and various actuarial calculations, assumptions, and accounting mechanisms. See the “Qualified Pension and Other Postretirement Benefits” in the “Critical Accounting Estimates” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for further discussion. Because of the complexity of these calculations, the long-term nature of these obligations, and the importance of the assumptions utilized, Entergy’s estimate of these costs is a critical accounting estimate.
Costs and Sensitivities
The following chart reflects the sensitivity of qualified pension cost and qualified projected benefit obligation to changes in certain actuarial assumptions (dollars in thousands).
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| | | | | | |
Actuarial Assumption | | Change in Assumption | | Impact on 2020 Qualified Pension Cost | | Impact on 2019 Qualified Projected Benefit Obligation |
| | | | Increase/(Decrease) | | |
Discount rate | | (0.25%) | | $2,633 | | $43,030 |
Rate of return on plan assets | | (0.25%) | | $2,803 | | $— |
Rate of increase in compensation | | 0.25% | | $1,650 | | $7,967 |
The following chart reflects the sensitivity of postretirement benefit cost and accumulated postretirement benefit obligation to changes in certain actuarial assumptions (dollars in thousands).
|
| | | | | | |
Actuarial Assumption | | Change in Assumption | | Impact on 2020 Postretirement Benefit Cost | | Impact on 2019 Accumulated Postretirement Benefit Obligation |
| | | | Increase/(Decrease) | | |
Discount rate | | (0.25%) | | $343 | | $5,316 |
Health care cost trend | | 0.25% | | $430 | | $3,474 |
Each fluctuation above assumes that the other components of the calculation are held constant.
Entergy Arkansas, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
Costs and Employer Contributions
Total qualified pension cost for Entergy Arkansas in 2019 was $44.4 million. Entergy Arkansas anticipates 2020 qualified pension cost to be $61.1 million. Entergy Arkansas contributed $75.9 million to its qualified pension plans in 2019 and estimates pension contributions will be approximately $32.5 million in 2020, although the 2020 required pension contributions will be known with more certainty when the January 1, 2020 valuations are completed, which is expected by April 1, 2020.
Total other postretirement health care and life insurance benefit income for Entergy Arkansas in 2019 was $10.7 million. Entergy Arkansas expects 2020 postretirement health care and life insurance benefit income of approximately $12.5 million. Entergy Arkansas contributed $1.3 million to its other postretirement plans in 2019 and estimates 2020 contributions will be approximately $509 thousand.
Other Contingencies
See “Other Contingencies” in the “Critical Accounting Estimates” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for a discussion of the estimates associated with environmental, litigation, and other risks.
New Accounting Pronouncements
See “New Accounting Pronouncements” section of Note 1 to the financial statements for a discussion of new accounting pronouncements.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the member and Board of Directors of
Entergy Arkansas, LLC and Subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Entergy Arkansas, LLC and Subsidiaries (the “Company”) as of December 31, 2019 and 2018, the related consolidated statements of income, cash flows and changes in member’s equity (pages 317 through 322 and applicable items in pages 49 through 236), for each of the three years in the period ended December 31, 2019, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ DELOITTE & TOUCHE LLP
New Orleans, Louisiana
February 21, 2020
We have served as the Company’s auditor since 2001.
|
| | | | | | | | | | | | |
ENTERGY ARKANSAS, LLC AND SUBSIDIARIES |
CONSOLIDATED INCOME STATEMENTS |
| | |
| | For the Years Ended December 31, |
| | 2019 | | 2018 | | 2017 |
| | (In Thousands) |
| | | | | | |
OPERATING REVENUES | | | | | | |
Electric | |
| $2,259,594 |
| |
| $2,060,643 |
| |
| $2,139,919 |
|
| | | | | | |
OPERATING EXPENSES | | |
| | |
| | |
|
Operation and Maintenance: | | |
| | |
| | |
|
Fuel, fuel-related expenses, and gas purchased for resale | | 458,907 |
| | 517,245 |
| | 402,777 |
|
Purchased power | | 204,640 |
| | 252,390 |
| | 230,652 |
|
Nuclear refueling outage expenses | | 68,769 |
| | 77,915 |
| | 83,968 |
|
Other operation and maintenance | | 720,217 |
| | 724,831 |
| | 694,157 |
|
Decommissioning | | 68,030 |
| | 60,420 |
| | 56,860 |
|
Taxes other than income taxes | | 115,869 |
| | 104,771 |
| | 103,662 |
|
Depreciation and amortization | | 307,351 |
| | 292,649 |
| | 277,146 |
|
Other regulatory credits - net | | (11,186 | ) | | (14,807 | ) | | (16,074 | ) |
TOTAL | | 1,932,597 |
| | 2,015,414 |
| | 1,833,148 |
|
| | | | | | |
OPERATING INCOME | | 326,997 |
| | 45,229 |
| | 306,771 |
|
| | | | | | |
OTHER INCOME | | |
| | |
| | |
|
Allowance for equity funds used during construction | | 15,499 |
| | 16,557 |
| | 18,452 |
|
Interest and investment income | | 26,020 |
| | 25,406 |
| | 35,882 |
|
Miscellaneous - net | | (18,566 | ) | | (14,874 | ) | | (13,967 | ) |
TOTAL | | 22,953 |
| | 27,089 |
| | 40,367 |
|
| | | | | | |
INTEREST EXPENSE | | |
| | |
| | |
|
Interest expense | | 140,087 |
| | 124,459 |
| | 122,075 |
|
Allowance for borrowed funds used during construction | | (6,332 | ) | | (7,781 | ) | | (8,585 | ) |
TOTAL | | 133,755 |
| | 116,678 |
| | 113,490 |
|
| | | | | | |
INCOME (LOSS) BEFORE INCOME TAXES | | 216,195 |
| | (44,360 | ) | | 233,648 |
|
| | | | | | |
Income taxes | | (46,769 | ) | | (297,067 | ) | | 93,804 |
|
| | | | | | |
NET INCOME | | 262,964 |
| | 252,707 |
| | 139,844 |
|
| | | | | | |
Preferred dividend requirements | | — |
| | 1,249 |
| | 1,428 |
|
| | | | | | |
EARNINGS APPLICABLE TO COMMON EQUITY | |
| $262,964 |
| |
| $251,458 |
| |
| $138,416 |
|
| | | | | | |
See Notes to Financial Statements. | | |
| | |
| | |
|
(Page left blank intentionally)
|
| | | | | | | | | | | | |
ENTERGY ARKANSAS, LLC AND SUBSIDIARIES |
CONSOLIDATED STATEMENTS OF CASH FLOWS |
|
|
|
|
| For the Years Ended December 31, |
|
| 2019 |
| 2018 |
| 2017 |
|
| (In Thousands) |
OPERATING ACTIVITIES | | | | | | |
Net income | |
| $262,964 |
| |
| $252,707 |
| |
| $139,844 |
|
Adjustments to reconcile net income to net cash flow provided by operating activities: | | | | | | |
Depreciation, amortization, and decommissioning, including nuclear fuel amortization | | 465,299 |
| | 443,698 |
| | 427,394 |
|
Deferred income taxes, investment tax credits, and non-current taxes accrued | | 94,368 |
| | 129,524 |
| | 67,711 |
|
Changes in assets and liabilities: | | |
| | |
| | |
|
Receivables | | (58,077 | ) | | 4,294 |
| | (23,397 | ) |
Fuel inventory | | (10,597 | ) | | 6,210 |
| | 3,402 |
|
Accounts payable | | 3,059 |
| | (126,405 | ) | | 16,011 |
|
Prepaid taxes and taxes accrued | | 24,942 |
| | 9,568 |
| | 40,127 |
|
Interest accrued | | 3,895 |
| | 678 |
| | 1,635 |
|
Deferred fuel costs | | 72,560 |
| | 43,869 |
| | 33,190 |
|
Other working capital accounts | | 18,783 |
| | (30,118 | ) | | 15,087 |
|
Provisions for estimated losses | | 14,901 |
| | 14,250 |
| | 16,047 |
|
Other regulatory assets | | (131,873 | ) | | 32,460 |
| | (76,762 | ) |
Other regulatory liabilities | | 39,293 |
| | (341,682 | ) | | 1,043,507 |
|
Deferred tax rate change recognized as regulatory liability/asset | | — |
| | — |
| | (1,047,837 | ) |
Pension and other postretirement liabilities | | 5,831 |
| | (40,157 | ) | | (70,826 | ) |
Other assets and liabilities | | (127,582 | ) | | (187,071 | ) | | (29,577 | ) |
Net cash flow provided by operating activities | | 677,766 |
| | 211,825 |
| | 555,556 |
|
INVESTING ACTIVITIES | | |
| | |
| | |
|
Construction expenditures | | (641,525 | ) | | (660,044 | ) | | (735,816 | ) |
Allowance for equity funds used during construction | | 15,306 |
| | 17,013 |
| | 19,211 |
|
Nuclear fuel purchases | | (54,344 | ) | | (99,417 | ) | | (151,424 | ) |
Proceeds from sale of nuclear fuel | | 22,782 |
| | 54,810 |
| | 51,029 |
|
Proceeds from nuclear decommissioning trust fund sales | | 317,377 |
| | 300,801 |
| | 339,434 |
|
Investment in nuclear decommissioning trust funds | | (336,519 | ) | | (315,163 | ) | | (352,138 | ) |
Insurance proceeds | | — |
| | 14,790 |
| | — |
|
Other | | 630 |
| | (1,517 | ) | | 392 |
|
Net cash flow used in investing activities | | (676,293 | ) |
| (688,727 | ) |
| (829,312 | ) |
FINANCING ACTIVITIES | | |
| | |
| | |
|
Proceeds from the issuance of long-term debt | | 834,038 |
| | 958,434 |
| | 294,656 |
|
Retirement of long-term debt | | (548,952 | ) | | (690,488 | ) | | (175,560 | ) |
Capital contribution from parent | | — |
| | 350,000 |
| | — |
|
Redemption of preferred stock | | — |
| | (32,660 | ) | | — |
|
Change in money pool payable - net | | (161,104 | ) | | 16,601 |
| | 114,905 |
|
Changes in short-term borrowings - net | | — |
| | (49,974 | ) | | 49,974 |
|
Distributions/dividends paid: | | |
| | |
| | |
|
Common equity | | (115,000 | ) | | (91,751 | ) | | (15,000 | ) |
Preferred stock | | — |
| | (1,606 | ) | | (1,428 | ) |
Other | | (7,055 | ) | | 12,249 |
| | (8,084 | ) |
Net cash flow provided by financing activities | | 1,927 |
| | 470,805 |
| | 259,463 |
|
Net increase (decrease) in cash and cash equivalents | | 3,400 |
| | (6,097 | ) | | (14,293 | ) |
Cash and cash equivalents at beginning of period | | 119 |
| | 6,216 |
| | 20,509 |
|
Cash and cash equivalents at end of period | |
| $3,519 |
| |
| $119 |
| |
| $6,216 |
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | | | | |
| | |
|
Cash paid (received) during the period for: | | |
| | |
| | |
|
Interest - net of amount capitalized | |
| $131,134 |
| |
| $118,731 |
| |
| $115,162 |
|
Income taxes | |
| ($33,989 | ) | |
| $44,393 |
| |
| ($8,141 | ) |
See Notes to Financial Statements. |
| |
|
| |
|
| |
|
|
| | | | | | | | |
ENTERGY ARKANSAS, LLC AND SUBSIDIARIES |
CONSOLIDATED BALANCE SHEETS |
ASSETS |
| | |
| | December 31, |
| | 2019 | | 2018 |
| | (In Thousands) |
| | | | |
CURRENT ASSETS | | | | |
Cash and cash equivalents: | | | | |
Cash | |
| $3,519 |
| |
| $118 |
|
Temporary cash investments | | — |
| | 1 |
|
Total cash and cash equivalents | | 3,519 |
| | 119 |
|
Securitization recovery trust account | | 4,036 |
| | 4,666 |
|
Accounts receivable: | | |
| | |
|
Customer | | 117,679 |
| | 94,348 |
|
Allowance for doubtful accounts | | (1,169 | ) | | (1,264 | ) |
Associated companies | | 29,178 |
| | 48,184 |
|
Other | | 117,653 |
| | 64,393 |
|
Accrued unbilled revenues | | 108,489 |
| | 108,092 |
|
Total accounts receivable | | 371,830 |
| | 313,753 |
|
Deferred fuel costs | | — |
| | 19,235 |
|
Fuel inventory - at average cost | | 33,745 |
| | 23,148 |
|
Materials and supplies - at average cost | | 211,320 |
| | 196,314 |
|
Deferred nuclear refueling outage costs | | 48,875 |
| | 78,966 |
|
Prepayments and other | | 14,096 |
| | 14,553 |
|
TOTAL | | 687,421 |
| | 650,754 |
|
| | | | |
OTHER PROPERTY AND INVESTMENTS | | |
| | |
|
Decommissioning trust funds | | 1,101,283 |
| | 912,049 |
|
Other | | 345 |
| | 5,480 |
|
TOTAL | | 1,101,628 |
| | 917,529 |
|
| | | | |
UTILITY PLANT | | |
| | |
|
Electric | | 12,293,483 |
| | 11,611,041 |
|
Construction work in progress | | 197,775 |
| | 243,731 |
|
Nuclear fuel | | 195,547 |
| | 220,602 |
|
TOTAL UTILITY PLANT | | 12,686,805 |
| | 12,075,374 |
|
Less - accumulated depreciation and amortization | | 5,019,826 |
| | 4,864,818 |
|
UTILITY PLANT - NET | | 7,666,979 |
| | 7,210,556 |
|
| | | | |
DEFERRED DEBITS AND OTHER ASSETS | | |
| | |
|
Regulatory assets: | | |
| | |
|
Other regulatory assets (includes securitization property of $1,706 as of December 31, 2019 and $14,329 as of December 31, 2018) | | 1,666,850 |
| | 1,534,977 |
|
Deferred fuel costs | | 67,690 |
| | 67,294 |
|
Other | | 15,065 |
| | 20,486 |
|
TOTAL | | 1,749,605 |
| | 1,622,757 |
|
| | | | |
TOTAL ASSETS | |
| $11,205,633 |
| |
| $10,401,596 |
|
| | | | |
See Notes to Financial Statements. | | |
| | |
|
|
| | | | | | | | |
ENTERGY ARKANSAS, LLC AND SUBSIDIARIES |
CONSOLIDATED BALANCE SHEETS |
LIABILITIES AND EQUITY |
| | |
| | December 31, |
| | 2019 | | 2018 |
| | (In Thousands) |
| | | | |
CURRENT LIABILITIES | | | | |
Accounts payable: | | |
| | |
|
Associated companies | |
| $111,785 |
| |
| $251,768 |
|
Other | | 202,201 |
| | 187,387 |
|
Customer deposits | | 101,411 |
| | 99,053 |
|
Taxes accrued | | 81,831 |
| | 56,889 |
|
Interest accrued | | 22,788 |
| | 18,893 |
|
Deferred fuel costs | | 53,721 |
| | — |
|
Current portion of unprotected excess accumulated deferred income taxes | | 9,296 |
| | 99,316 |
|
Other | | 38,760 |
| | 23,943 |
|
TOTAL | | 621,793 |
| | 737,249 |
|
| | | | |
NON-CURRENT LIABILITIES | | |
| | |
|
Accumulated deferred income taxes and taxes accrued | | 1,183,126 |
| | 1,085,545 |
|
Accumulated deferred investment tax credits | | 31,701 |
| | 32,903 |
|
Regulatory liability for income taxes - net | | 478,174 |
| | 505,748 |
|
Other regulatory liabilities | | 559,555 |
| | 402,668 |
|
Decommissioning | | 1,242,616 |
| | 1,048,428 |
|
Accumulated provisions | | 63,880 |
| | 48,979 |
|
Pension and other postretirement liabilities | | 319,075 |
| | 313,295 |
|
Long-term debt (includes securitization bonds of $6,772 as of December 31, 2019 and $20,898 as of December 31, 2018) | | 3,517,208 |
| | 3,225,759 |
|
Other | | 62,568 |
| | 17,919 |
|
TOTAL | | 7,457,903 |
| | 6,681,244 |
|
| | | | |
Commitments and Contingencies | |
|
| |
|
|
| | | | |
EQUITY | | |
| | |
|
Member's equity | | 3,125,937 |
| | 2,983,103 |
|
TOTAL | | 3,125,937 |
| | 2,983,103 |
|
| | | | |
TOTAL LIABILITIES AND EQUITY | |
| $11,205,633 |
| |
| $10,401,596 |
|
| | | | |
See Notes to Financial Statements. | | |
| | |
|
|
| | | |
ENTERGY ARKANSAS, LLC AND SUBSIDIARIES |
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBER'S EQUITY |
For the Years Ended December 31, 2019, 2018, and 2017 |
| |
| |
| Member's Equity |
| (In Thousands) |
| |
Balance at December 31, 2016 |
| $2,253,317 |
|
Net income | 139,844 |
|
Common equity distributions | (15,000 | ) |
Preferred stock dividends | (1,428 | ) |
Other | 21 |
|
Balance at December 31, 2017 |
| $2,376,754 |
|
Net income | 252,707 |
|
Capital contributions from parent | 350,000 |
|
Common equity distributions | (91,751 | ) |
Non-cash contribution from parent | 94,335 |
|
Preferred stock dividends | (1,249 | ) |
Other | 2,307 |
|
Balance at December 31, 2018 |
| $2,983,103 |
|
Net income | 262,964 |
|
Common equity distributions | (115,000 | ) |
Other | (5,130 | ) |
Balance at December 31, 2019 |
| $3,125,937 |
|
| |
See Notes to Financial Statements. | |
|
|
| | | | | | | | | | | | | | | | | | | | |
ENTERGY ARKANSAS, LLC AND SUBSIDIARIES |
SELECTED FINANCIAL DATA - FIVE-YEAR COMPARISON |
| | | | | | | | | | |
| | 2019 | | 2018 | | 2017 | | 2016 | | 2015 |
| | (In Thousands) |
| | | | | | | | | | |
Operating revenues | |
| $2,259,594 |
| |
| $2,060,643 |
| |
| $2,139,919 |
| |
| $2,086,608 |
| |
| $2,253,564 |
|
Net income | |
| $262,964 |
| |
| $252,707 |
| |
| $139,844 |
| |
| $167,212 |
| |
| $74,272 |
|
Total assets | |
| $11,205,633 |
| |
| $10,401,596 |
| |
| $10,134,029 |
| |
| $9,606,117 |
| |
| $8,747,774 |
|
Long-term obligations (a) | |
| $3,517,208 |
| |
| $3,225,759 |
| |
| $2,983,749 |
| |
| $2,746,435 |
| |
| $2,691,189 |
|
| | | | | | | | | | |
(a) Includes long-term debt (excluding currently maturing debt) and preferred stock without sinking fund. |
| | | | | | | | | | |
| | 2019 | | 2018 | | 2017 | | 2016 | | 2015 |
| | (Dollars In Millions) |
| | | | | | | | | | |
Electric Operating Revenues: | | |
| | |
| | |
| | |
| | |
|
Residential | |
| $795 |
| |
| $807 |
| |
| $768 |
| |
| $789 |
| |
| $824 |
|
Commercial | | 539 |
| | 426 |
| | 495 |
| | 495 |
| | 515 |
|
Industrial | | 521 |
| | 434 |
| | 472 |
| | 446 |
| | 477 |
|
Governmental | | 21 |
| | 17 |
| | 19 |
| | 18 |
| | 20 |
|
Total billed retail | | 1,876 |
| | 1,684 |
| | 1,754 |
| | 1,748 |
| | 1,836 |
|
Sales for resale: | | |
| | |
| | |
| | |
| | |
|
Associated companies | | 118 |
| | 104 |
| | 128 |
| | 49 |
| | 128 |
|
Non-associated companies | | 140 |
| | 145 |
| | 121 |
| | 118 |
| | 195 |
|
Other | | 126 |
| | 128 |
| | 137 |
| | 172 |
| | 95 |
|
Total | |
| $2,260 |
| |
| $2,061 |
| |
| $2,140 |
| |
| $2,087 |
| |
| $2,254 |
|
| | | | | | | | | | |
Billed Electric Energy Sales (GWh): | | | | |
| | |
| | |
| | |
|
Residential | | 7,996 |
| | 8,248 |
| | 7,298 |
| | 7,618 |
| | 8,016 |
|
Commercial | | 5,822 |
| | 5,967 |
| | 5,825 |
| | 5,988 |
| | 6,020 |
|
Industrial | | 7,759 |
| | 8,071 |
| | 7,528 |
| | 6,795 |
| | 6,889 |
|
Governmental | | 241 |
| | 239 |
| | 237 |
| | 237 |
| | 235 |
|
Total retail | | 21,818 |
| | 22,525 |
| | 20,888 |
| | 20,638 |
| | 21,160 |
|
Sales for resale: | | |
| | |
| | |
| | |
| | |
|
Associated companies | | 2,180 |
| | 1,773 |
| | 1,782 |
| | 1,609 |
| | 2,239 |
|
Non-associated companies | | 7,206 |
| | 6,447 |
| | 6,549 |
| | 7,115 |
| | 7,980 |
|
Total | | 31,204 |
| | 30,745 |
| | 29,219 |
| | 29,362 |
| | 31,379 |
|
ENTERGY LOUISIANA, LLC AND SUBSIDIARIES
MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS
Results of Operations
2019 Compared to 2018
Net Income
Net income increased $15.9 million primarily due to higher retail electric price. The increase was partially offset by an income tax benefit recognized in 2018 as a result of the settlement of the 2012-2013 IRS audit, higher depreciation and amortization expenses, higher other operation and maintenance expenses, lower volume/weather, and higher interest expense.
Operating Revenues
Following is an analysis of the change in operating revenues comparing 2019 to 2018:
|
| | | |
| Amount |
| (In Millions) |
2018 operating revenues |
| $4,296.3 |
|
Fuel, rider, and other revenues that do not significantly affect net income | (218.1 | ) |
Retail electric price | 132.9 |
|
Return of unprotected excess accumulated deferred income taxes to customers | 102.5 |
|
Volume/weather | (28.4 | ) |
2019 operating revenues |
| $4,285.2 |
|
Entergy Louisiana’s results include revenues from rate mechanisms designed to recover fuel, purchased power, and other costs such that the revenues and expenses associated with these items generally offset and do not affect net income. “Fuel, rider, and other revenues that do not significantly affect net income” includes the revenue variance associated with these items.
The retail electric price variance is primarily due to an increase in formula rate plan revenues effective September 2018 and an interim increase in formula rate plan revenues effective June 2019 due to the inclusion of the first-year revenue requirement for the St. Charles Power Station, each as approved by the LPSC. See Note 2 to the financial statements for further discussion of the formula rate plan proceedings.
The return of unprotected excess accumulated deferred income taxes to customers resulted from the return of unprotected excess accumulated deferred income taxes through changes in the formula rate plan effective May 2018. In 2019, $38.6 million was returned to customers as compared to $141.1 million in 2018. There was no effect on net income as the reduction in operating revenues was offset by a reduction in income tax expense. See Note 2 to the financial statements for further discussion of regulatory activity regarding the Tax Cuts and Jobs Act.
The volume/weather variance is primarily due to a decrease of 673 GWh, or 3%, in billed electricity usage for residential and commercial customers, including the effect of less favorable weather. The decrease was partially offset by an increase in industrial usage primarily due to an increase in demand from expansion projects, primarily in the chemicals and transportation industries.
Entergy Louisiana, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
issued Other Income Statement Variances
Other operation and maintenance expenses increased primarily due to:
a financing order for$14.8 million gain in 2018 from the securitization.sale of Willow Glen Power Station;
an increase of $12.7 million in information technology costs primarily due to higher costs related to applications and infrastructure support, enhanced cyber security, and upgrades and maintenance;
an increase of $12.4 million in spending on initiatives to explore new customer products and services; and
an increase of $9.6 million in compensation and benefits costs primarily due to higher incentive-based compensation accruals in 2019 as compared to prior year.
The increase was partially offset by:
a decrease of $8.5 million in nuclear generation expenses primarily due to a lower scope of work performed during plant outages in 2019 as compared to 2018; and
the effects of recording in 2019 the final judgment to resolve claims in the River Bend damages case against the DOE related to spent nuclear fuel storage costs. The damages awarded include the reimbursement of $5.2 million of spent nuclear fuel storage costs previously recorded as other operation and maintenance expense. See Note 58 to the financial statements for a discussion of the September 2011 issuance ofspent nuclear fuel litigation.
Taxes other than income taxes increased primarily due to increases in ad valorem taxes. Ad valorem taxes increased primarily due to higher assessments.
Depreciation and amortization expenses increased primarily due to additions to plant in service, including the securitization bonds.
State and Local Rate Regulation and Fuel-Cost Recovery
The rates that Entergy Louisiana charges for its services significantly influence its financial position, results of operations, and liquidity. Entergy Louisiana is regulated and the rates charged to its customers are determined in regulatory proceedings. A governmental agency, the LPSC, is primarily responsible for approval of the rates charged to customers.
Retail Rates - Electric
Filings with the LPSC
2014 Formula Rate Plan Filing
In connection with the approval of the business combination of Entergy Gulf States Louisiana and Entergy Louisiana, the LPSC authorized the filing of a single, joint, formula rate plan evaluation report for Entergy Gulf States Louisiana’s and Entergy Louisiana’s 2014 calendar year operations. The joint evaluation report was filed in September 2015 and reflected an earned return on common equity of 9.09%. As such, no adjustment to base formula rate plan revenue was required. The following adjustments were required under the formula rate plan, however: a decrease in the additional capacity mechanism for Entergy Louisiana of $17.8 million; an increase in the additional capacity mechanism for Entergy Gulf States Louisiana of $4.3 million; and a reduction of $5.5 million to the MISO cost recovery mechanism to collect approximately $35.7 million on a combined-company basis. Under the order approving the business combination, following completion of the prescribed review period, rates were implemented with the first billing cycle of December 2015, subject to refund. In June 2017 the LPSC staff and Entergy Louisiana filed an unopposed joint report of proceedings,St. Charles Power Station, which was accepted by the LPSCplaced into service in June 2017, finalizing the resultsMay 2019.
Other regulatory charges (credits) include regulatory charges of this proceeding with no changes to rates already implemented.
2015 Formula Rate Plan Filing
In May 2016, Entergy Louisiana filed its formula rate plan evaluation report for its 2015 calendar year operations. The evaluation report reflected an earned return on common equity of 9.07%. As such, no adjustment to base formula rate plan revenue was required. The following other adjustments, however, were required under the formula rate plan: an increase$73.1 million recorded in the legacy Entergy Louisiana additional capacity mechanism of $14.2 million; a separate increase in legacy Entergy Louisiana revenue of $10 million primarily2018 to reflect the effects of the termination of the System Agreement; an increasea provision in the legacy Entergy Gulf States Louisiana additional capacity mechanism of $0.5 million; a decreasesettlement reached in legacy Entergy Gulf States Louisiana revenue of $58.7 million primarily to reflect the effects of the termination of the System Agreement; and an increase of $11 million to the MISO cost recovery mechanism. Rates were implemented with the first billing cycle of September 2016, subject to refund. Following implementation of the as-filed rates in September 2016, there were several interim updates to Entergy Louisiana’s formula rate plan includingextension proceeding to return the one submitted in December 2016, reflecting implementationbenefits of the settlementlower federal income tax rate in 2018 to customers. See Note 2 to the financial statements for discussion of the Waterfordformula rate plan extension proceeding.
Interest expense increased primarily due to the issuance of $525 million of 4.20% Series mortgage bonds in March 2019.
The effective income tax rates were 15% for 2019 and (8.8%) for 2018. The difference in the effective income tax rate of 15% versus the federal statutory rate of 21% for 2019 was primarily due to the amortization of excess accumulated deferred income taxes and book and tax differences related to the non-taxable income distributions earned on preferred membership interests. The difference in the effective income tax rate of (8.8%) versus the federal statutory rate of 21% for 2018 was primarily due to the amortization of excess accumulated deferred income taxes and an IRS audit settlement for the 2012-2013 tax returns. See Note 3 replacement steam generator project prudence review described below. In Juneto the financial statements for a reconciliation of the federal statutory rates of 21% to the effective income tax rates.
2018 Compared to 2017
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Results of Operations” in Entergy Louisiana’s Annual Report on Form 10-K for the LPSC staff and Entergy Louisiana filed a joint reportyear ended December 31, 2018 for discussion of proceedings, which was accepted by the LPSC in June 2017, finalizing the results of the May 2016 evaluation report, interim updates, and corresponding proceedings with no changesoperations for 2018 compared to rates already implemented.2017.
Extension of MISO Cost Recovery Mechanism Rider
In November 2016, Entergy Louisiana filed with the LPSC a request to extend the MISO cost recovery mechanism rider provision of its formula rate plan. In March 2017 the LPSC staff submitted direct testimony generally supportive of a one-year extension of the MISO cost recovery mechanism and the intervenor in the proceeding did not
Entergy Louisiana, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
oppose an extensionIncome Tax Legislation
See the “Income Tax Legislation” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for this period of time. In July 2017 an uncontested joint stipulation authorizing a one-year extensiondiscussion of the MISO cost recovery mechanism rider was approved.Tax Cuts and Jobs Act, the federal income tax legislation enacted in December 2017. Note 3 to the financial statements contains additional discussion of the effect of the Act on 2017, 2018, and 2019 results of operations and financial position, the provisions of the Act, and the uncertainties associated with accounting for the Act, and Note 2 to the financial statements discusses the regulatory proceedings that have considered the effects of the Act.
2016 Formula Rate Plan Filing
Liquidity and Capital Resources
In May
Cash Flow
Cash flows for the years ended December 31, 2019, 2018, and 2017 were as follows:
|
| | | | | | | | | | | |
| 2019 | | 2018 | | 2017 |
| (In Thousands) |
Cash and cash equivalents at beginning of period |
| $43,364 |
| |
| $35,907 |
| |
| $213,850 |
|
| | | | | |
Net cash provided by (used in): | | | |
| | |
|
Operating activities | 1,236,002 |
| | 1,395,204 |
| | 1,337,545 |
|
Investing activities | (1,653,634 | ) | | (1,878,208 | ) | | (1,787,409 | ) |
Financing activities | 376,274 |
| | 490,461 |
| | 271,921 |
|
Net increase (decrease) in cash and cash equivalents | (41,358 | ) | | 7,457 |
| | (177,943 | ) |
�� | | | | | |
Cash and cash equivalents at end of period |
| $2,006 |
| |
| $43,364 |
| |
| $35,907 |
|
2019 Compared to 2018
Operating Activities
Net cash flow provided by operating activities decreased $159.2 million in 2019 primarily due to:
income tax payments of $15.3 million in 2019 compared to $105.2 million in income tax refunds in 2018. Entergy Louisiana filed its formula rate plan evaluation reporthad income tax payments in 2019 and income tax refunds in 2018 in accordance with an intercompany tax allocation agreement. The income tax refunds in 2018 resulted from the utilization of Entergy Louisiana’s net operating losses;
an increase of $65.2 million in spending on nuclear refueling outages;
the receipt of $58.6 million in 2018 from Entergy Arkansas as a result of a compliance filing made in response to the FERC’s October 2018 order in the Entergy Arkansas opportunity sales proceeding. The $58.6 million was credited to Entergy Louisiana customers in 2019. See Note 2 to the financial statements for its 2016 calendar year operations. further discussion of the opportunity sales proceeding;
the timing of payments to vendors;
an increase of $25.7 million in storm expenses in 2019;
an increase of $24.5 million in interest paid; and
the timing of collection of receivables from customers.
The evaluation report reflected an earned return on common equity of 9.84%. As such, no adjustment to base formula rate plan revenuedecrease was required. Adjustments, however, were required under the formula rate plan; the 2016 formula rate plan evaluation report showedpartially offset by a decrease in formula rate plan revenuereturn of approximately $16.9 million, comprisedunprotected excess accumulated deferred income taxes to customers and the timing of a decrease in legacy Entergy Louisiana formula rate plan revenuerecovery of $3.5 million, a decrease in legacy Entergy Gulf States Louisiana formula rate plan revenue of $9.7 million,fuel and a decrease in incremental formula rate plan revenue of $3.7 million. Additionally,purchased power costs. See Note 2 to the formula rate plan evaluation report calledfinancial statements for a decrease of $40.5 million in the MISO cost recovery revenue requirement from the present level of $46.8 million to $6.3 million. Rates reflecting these adjustments were implemented with the first billing cycle of September 2017, subject to refund. In September 2017 the LPSC issued its report indicating that no changes to Entergy Louisiana’s original formula rate plan evaluation report were required but reserved for several issues, including Entergy Louisiana’s September 2017 update to its formula rate plan evaluation report.
Formula Rate Plan Extension Request
In August 2017, Entergy Louisiana filed a request with the LPSC seeking to extend its formula rate plan for three years (2017-2019) with limited modifications to its terms. Those modifications include: a one-time resetting of base rates to the midpointdiscussion of the band at Entergy Louisiana’s authorized return on equity of 9.95% foreffects and the 2017 test year; narrowing ofregulatory activity regarding the formula rate plan bandwidth from a total of 160 basis points to 80 basis points;Tax Cuts and a forward-looking mechanism that would allow Entergy Louisiana to recover certain transmission-related costs contemporaneously with when those projects begin delivering benefits to customers. Entergy Louisiana requested that the LPSC consider its request on an expedited basis, in an effort to maintain Entergy Louisiana’s current cycle for implementing rate adjustments, i.e., September 2018, without the need for filing a full base rate case proceeding. Several parties have intervened in the proceeding and all parties have been participating in settlement discussions.Jobs Act.
Waterford 3 Replacement Steam Generator Project
Following the completion of the Waterford 3 replacement steam generator project, the LPSC undertook a prudence review in connection with a filing made by Entergy Louisiana in April 2013 with regard to the following aspects of the replacement project: 1) project management; 2) cost controls; 3) success in achieving stated objectives; 4) the costs of the replacement project; and 5) the outage length and replacement power costs. In July 2014 the LPSC staff filed testimony recommending potential project and replacement power cost disallowances of up to $71 million, citing a need for further explanation or documentation from Entergy Louisiana. An intervenor filed testimony recommending disallowance of $141 million of incremental project costs, claiming the steam generator fabricator was imprudent. Entergy Louisiana provided further documentation and explanation requested by the LPSC staff. An evidentiary hearing was held in December 2014. At the hearing the parties maintained the positions reflected in pre-filed testimony. Entergy Louisiana believed that the replacement steam generator costs were prudently incurred and applicable legal principles supported their recovery in rates. Nevertheless, Entergy Louisiana recorded a write-off of $16 million of Waterford 3’s plant balance in December 2014 because of the uncertainty at the time associated with the resolution of the prudence review. In December 2015 the ALJ issued a proposed recommendation, which was subsequently finalized, concluding that Entergy Louisiana prudently managed the Waterford 3 replacement steam generator project, including the selection, use, and oversight of contractors, and could not reasonably have anticipated the damage to the steam generators. Nevertheless, the ALJ concluded that Entergy Louisiana was liable for the conduct of its contractor and subcontractor and, therefore, recommended a disallowance of $67 million in capital costs. Additionally, the ALJ concluded that Entergy Louisiana did not sufficiently justify the incurrence of $2 million in replacement power costs during the replacement outage. Although the ALJ’s recommendation had not yet been considered by the LPSC, after considering the progress of the proceeding in light of the ALJ recommendation, Entergy
Entergy Louisiana, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
Louisiana recordedInvesting Activities
Net cash flow used in investing activities decreased $224.6 million in 2019 primarily due to a decrease of $320 million in fossil-fueled generation expenditures, primarily due to lower spending on the St. Charles Power Station and Lake Charles Power Station projects in 2019 and money pool activity. The decrease was partially offset by:
an increase of $63.6 million in transmission expenditures primarily due to a higher scope of work performed in 2019 as compared to the same period in 2018;
an increase of $63.1 million in distribution construction expenditures primarily due to investment in the fourth quarter 2015 approximately $77reliability and infrastructure of Entergy Louisiana’s distribution system, including increased spending on advanced metering infrastructure; and
an increase of $46.5 million in charges, includingstorm spending in 2019.
Decreases in Entergy Louisiana’s receivable from the money pool are a $45source of cash flow, and Entergy Louisiana’s receivable from the money pool decreased by $46.8 million asset write-off and a $32in 2019 compared to increasing by $35.7 million regulatory charge,in 2018. The money pool is an inter-company borrowing arrangement designed to reflect that areduce the Utility subsidiaries’ need for external short-term borrowings.
Financing Activities
Net cash flow provided by financing activities decreased $114.2 million in 2019 primarily due to:
the issuance of $750 million of 4.00% Series mortgage bonds in March 2018. A portion of the assets associated with the Waterford 3 replacement steam generator projectproceeds was no longer probable of recovery. Entergy Louisiana maintained that the ALJ’s recommendation contained significant factual and legal errors.
In October 2016 the parties reached a settlement in this matter. The settlement was approved by the LPSC in December 2016. The settlement effectively provided for an agreed-upon disallowance of $67used to repay $375 million of plant, which had been previously written off by Entergy Louisiana, as discussed above. The refund to customers6.0% Series mortgage bonds in May 2018;
the issuance of approximately $71$600 million as a resultof 4.20% Series mortgage bonds in August 2018. A portion of the settlement approved by the LPSCproceeds was madeused to customers in January 2017. Of the $71repay $300 million of refunds, $686.5% Series mortgage bonds in September 2018; and
an increase of $80 million was creditedin common equity distributions in 2019 primarily to customers throughmaintain Entergy Louisiana’s formula rate plan, outsidecapital structure.
The decrease was partially offset by:
the issuance of sharing,$525 million of 4.20% Series mortgage bonds in March 2019;
money pool activity; and $3
net repayments of short-term borrowings of $43.5 million through itsin 2018 on the nuclear fuel adjustment clause.company variable interest entities’ credit facilities.
Increases in Entergy Louisiana had previously recorded a provision of $48 million for this refund. The previously-recorded provision included the cumulative revenues recorded through December 2016 relatedLouisiana’s payable to the $67 millionmoney pool are a source of disallowed plant. An additional regulatory charge of $23 million was recorded in fourth quarter 2016 to reflect the effects of the settlement. The settlement also provided thatcash flow, and Entergy Louisiana could retain the value associated with potential service credits agreed to by the project contractor,Louisiana’s payable to the extent they are realizedmoney pool increased by $82.8 million in 2019.
See Note 5 to the financial statements for details of long-term debt.
2018 Compared to 2017
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Liquidity and Capital Resources - Cash Flow” in Entergy Louisiana’s Annual Report on Form 10-K for the year ended December 31, 2018 for discussion of operating, investing, and financing cash flow activities for 2018 compared to 2017.
Capital Structure
Entergy Louisiana’s debt to capital ratio is shown in the future. Following a review by the parties, an unopposed joint report of proceedings was filed by the LPSC staff and Entergy Louisiana in May 2017 and the LPSC accepted the joint report of proceedings resolving the matter.following table.
Ninemile 6
In July 2014, Entergy Gulf States Louisiana and Entergy Louisiana filed an unopposed stipulation with the LPSC, which was subsequently approved, that estimated a first year revenue requirement associated with Ninemile 6 and provided a mechanism to update the revenue requirement as the in-service date approached. In late-December 2014, roughly contemporaneous with the unit's placement in service, a final updated estimated revenue requirement of $26.8 million for Entergy Gulf States Louisiana and $51.1 million for Entergy Louisiana was filed. The December 2014 estimate formed the basis of rates implemented effective with the first billing cycle of January 2015. In July 2015, Entergy Louisiana submitted to the LPSC a compliance filing including an estimate at completion, inclusive of interconnection costs and transmission upgrades, of approximately $648 million, or $76 million less than originally estimated, along with other project details and supporting evidence, to enable the LPSC to review the prudence of Entergy Louisiana’s management of the project. Testimony filed by the LPSC staff generally supported the prudence of the management of the project and recovery of the costs incurred to complete the project. The LPSC staff had questioned the warranty coverage for one element of the project. In October 2016 all parties agreed to a stipulation providing that 100% of Ninemile 6 construction costs was prudently incurred and is eligible for recovery from customers, but reserving the LPSC’s rights to review the prudence of Entergy Louisiana’s actions regarding one element of the project. This stipulation was approved by the LPSC in January 2017.
Union Power Station and Deactivation or Retirement Decisions for Entergy Louisiana Plants
In January 2015, Entergy Gulf States Louisiana filed its application with the LPSC for approval of the acquisition and cost recovery of two power blocks of the Union Power Station for an expected base purchase price of approximately $237 million per power block, subject to adjustments. In September 2015, Entergy Gulf States Louisiana agreed to settlement terms with all parties for Entergy Gulf States Louisiana’s purchase of the two power blocks. In October 2015 the LPSC voted unanimously to approve the uncontested settlement which finds, among other things, that acquisition of Power Blocks 3 and 4 is in the public interest and, therefore, prudent. The business combination of Entergy Gulf States Louisiana and Entergy Louisiana received regulatory approval and closed in October 2015 making Entergy Louisiana the named purchaser of Power Blocks 3 and 4 of the Union Power Station. In March 2016, Entergy Louisiana acquired Power Blocks 3 and 4 of Union Power Station for an aggregate purchase price of approximately $474 million and implemented rates to collect the estimated first-year revenue requirement with the first billing cycle of March 2016.
Entergy Louisiana, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
|
| | | | | |
| December 31, 2019 | | December 31, 2018 |
Debt to capital | 53.4 | % | | 53.6 | % |
Effect of excluding securitization bonds | (0.1 | %) | | (0.3 | %) |
Debt to capital, excluding securitization bonds (a) | 53.3 | % | | 53.3 | % |
Effect of subtracting cash | (0.1 | %) | | (0.1 | %) |
Net debt to net capital, excluding securitization bonds (a) | 53.2 | % | | 53.2 | % |
| |
(a) | Calculation excludes the securitization bonds, which are non-recourse to Entergy Louisiana. |
Net debt consists of debt less cash and cash equivalents. Debt consists of short-term borrowings, finance lease obligations, and long-term debt, including the currently maturing portion. Capital consists of debt and common equity. Net capital consists of capital less cash and cash equivalents. Entergy Louisiana uses the debt to capital ratios excluding securitization bonds in analyzing its financial condition and believes they provide useful information to its investors and creditors in evaluating Entergy Louisiana’s financial condition because the securitization bonds are non-recourse to Entergy Louisiana, as more fully described in Note 5 to the financial statements. Entergy Louisiana also uses the net debt to net capital ratio excluding securitization bonds in analyzing its financial condition and believes it provides useful information to its investors and creditors in evaluating Entergy Louisiana’s financial condition because net debt indicates Entergy Louisiana’s outstanding debt position that could not be readily satisfied by cash and cash equivalents on hand.
Entergy Louisiana seeks to optimize its capital structure in accordance with its regulatory requirements and to control its cost of capital while also maintaining equity capitalization at a level consistent with investment-grade debt ratings. To the extent that operating cash flows are in excess of planned investments, cash may be used to reduce outstanding debt or may be paid as a distribution, or both, in appropriate amounts to maintain the capital structure. To the extent that operating cash flows are insufficient to support planned investments, Entergy Louisiana may issue incremental debt or reduce distributions, or both, to maintain its capital structure. In addition, in certain infrequent circumstances, such as large transactions that would materially alter the capital structure if financed entirely with debt and reducing distributions, Entergy Louisiana may receive equity contributions to maintain its capital structure.
Uses of Capital
Entergy Louisiana requires capital resources for:
construction and other capital investments;
debt maturities or retirements;
working capital purposes, including the financing of fuel and purchased power costs; and
distribution and interest payments.
Following are the amounts of Entergy Louisiana’s planned construction and other capital investments.
|
| | | | | | | | | | | |
| 2020 | | 2021 | | 2022 |
| (In Millions) |
Planned construction and capital investment: | | | | | |
Generation |
| $580 |
| |
| $485 |
| |
| $320 |
|
Transmission | 440 |
| | 445 |
| | 230 |
|
Distribution | 300 |
| | 245 |
| | 190 |
|
Utility Support | 300 |
| | 385 |
| | 390 |
|
Total |
| $1,620 |
| |
| $1,560 |
| |
| $1,130 |
|
Entergy Louisiana, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
Following are the amounts of Entergy Louisiana’s existing debt and lease obligations (includes estimated interest payments) and other purchase obligations.
|
| | | | | | | | | | | | | | | | | | | |
| 2020 | | 2021-2022 | | 2023-2024 | | After 2024 | | Total |
| (In Millions) |
Long-term debt (a) |
| $640 |
| |
| $1,120 |
| |
| $1,550 |
| |
| $8,662 |
| |
| $11,972 |
|
Operating leases (b) |
| $11 |
| |
| $17 |
| |
| $8 |
| |
| $3 |
| |
| $39 |
|
Finance leases (b) |
| $4 |
| |
| $7 |
| |
| $5 |
| |
| $3 |
| |
| $19 |
|
Purchase obligations (c) |
| $731 |
| |
| $1,423 |
| |
| $1,521 |
| |
| $5,905 |
| |
| $9,580 |
|
| |
(a) | Includes estimated interest payments. Long-term debt is discussed in Note 5 to the financial statements. |
| |
(b) | Lease obligations are discussed in Note 10 to the financial statements. |
| |
(c) | Purchase obligations represent the minimum purchase obligation or cancellation charge for contractual obligations to purchase goods or services. For Entergy Louisiana, almost all of the total consists of unconditional fuel and purchased power obligations, including its obligations under the Vidalia purchased power agreement and the Unit Power Sales Agreement, both of which are discussed in Note 8 to the financial statements. |
In addition to the contractual obligations given above, Entergy Louisiana currently expects to contribute approximately $38.8 million to its qualified pension plans and approximately $18.5 million to its other postretirement health care and life insurance plans in 2020, although the 2020 required pension contributions will be known with more certainty when the January 1, 2020 valuations are completed, which is expected by April 1, 2020. See “Critical Accounting Estimates- Qualified Pension and Other Postretirement Benefits” below for a discussion of qualified pension and other postretirement benefits funding.
Also, in addition to the contractual obligations, Entergy Louisiana has $808.4 million of unrecognized tax benefits and interest net of unused tax attributes for which the timing of payments beyond 12 months cannot be reasonably estimated due to uncertainties in the timing of effective settlement of tax positions. See Note 3 to the financial statements for additional information regarding unrecognized tax benefits.
In addition to routine capital spending to maintain operations, the planned capital investment estimate for Entergy Louisiana includes specific investments, such as the Washington Parish Energy Center and Lake Charles Power Station, each discussed below; transmission projects to enhance reliability, reduce congestion, and enable economic growth; distribution spending to enhance reliability and improve service to customers, including investment to support advanced metering; resource planning, including potential generation projects; system improvements; investments in River Bend and Waterford 3; software and security; and other investments. Entergy’s Utility supply plan initiative will continue to seek to transform its generation portfolio with new or repowered generation resources. Opportunities resulting from the supply plan initiative, including new projects or the exploration of alternative financing sources, could result in increases or decreases in the capital expenditure estimates given above. The estimated capital expenditures are subject to periodic review and modification and may vary based on the ongoing effects of regulatory constraints and requirements, environmental compliance, business opportunities, market volatility, economic trends, business restructuring, changes in project plans, and the ability to access capital.
As a termwholly-owned subsidiary of the LPSC-approved settlement authorizing the purchase of Power Blocks 3 and 4 of the Union Power Station,Entergy Utility Holding Company, LLC, Entergy Louisiana agreed to makepays distributions from its earnings at a filingpercentage determined monthly.
Entergy Louisiana, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
Lake Charles Power Station
In November 2016, Entergy Louisiana filed an application with the LPSC seeking certification that the public convenience and necessity would be served by the construction of the Lake Charles Power Station, a nominal 994 megawatt combined-cycle generating unit in Westlake, Louisiana, on land adjacent to review its decisionsthe existing Nelson plant in Calcasieu Parish. The current estimated cost of the Lake Charles Power Station is $872 million, including estimated costs of transmission interconnection and other related costs. In May 2017 the parties to deactivate Ninemile 3the proceeding agreed to an uncontested stipulation finding that construction of the Lake Charles Power Station is in the public interest and Willow Glen 2authorizing an in-service rate recovery plan. In July 2017 the LPSC issued an order unanimously approving the stipulation and 4approved certification of the unit. Construction is in progress and its decisioncommercial operation is expected to retire Little Gypsy 1. occur by mid-2020.
Washington Parish Energy Center
In January 2016,April 2017, Entergy Louisiana made its compliance filingsigned an agreement with a subsidiary of Calpine Corporation for the construction and purchase of a peaking plant. Calpine will construct the plant, which will consist of two natural gas-fired combustion turbine units with a total nominal capacity of approximately 361 MW. The plant, named the Washington Parish Energy Center, will be located in Bogalusa, Louisiana. Subject to regulatory approvals, Entergy Louisiana will purchase the plant once it is complete for an estimated total investment of approximately $261 million, including transmission and other related costs. In May 2017, Entergy Louisiana filed an application with the LPSC. LPSC seeking certification of the plant. In April 2018 the parties reached a settlement recommending certification and cost recovery through the additional capacity mechanism of the formula rate plan, consistent with prior LPSC precedent with respect to the certification and recovery of plants previously acquired by Entergy Louisiana. The LPSC issued an order approving the settlement in May 2018. Construction is in progress and commercial operation is expected to occur by the end of 2020.
Sources of Capital
Entergy Louisiana’s sources to meet its capital requirements include:
internally generated funds;
cash on hand;
debt or preferred membership interest issuances;
capital contributions; and
bank financing under new or existing facilities.
Entergy Louisiana LPSC staff,may refinance, redeem, or otherwise retire debt prior to maturity, to the extent market conditions and intervenors participated in a technical conference in March 2016 whereinterest rates are favorable.
All debt and common and preferred membership interest issuances by Entergy Louisiana presented information onrequire prior regulatory approval. Debt issuances are also subject to issuance tests set forth in its deactivation/retirement decisionsbond indentures and other agreements. Entergy Louisiana has sufficient capacity under these tests to meet its foreseeable capital needs.
Entergy Louisiana’s receivables from or (payables to) the money pool were as follows as of December 31 for these four unitseach of the following years.
|
| | | | | | |
2019 | | 2018 | | 2017 | | 2016 |
(In Thousands) |
($82,826) | | $46,843 | | $11,173 | | $22,503 |
See Note 4 to the financial statements for a description of the money pool.
Entergy Louisiana, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
Entergy Louisiana has a credit facility in additionthe amount of $350 million scheduled to information on the current deactivation decisionsexpire in September 2024. The credit facility includes fronting commitments for the ten-year planning horizon. Parties have requested further proceedings on the prudenceissuance of letters of credit against $15 million of the decision to deactivate Willow Glen 2 and 4. No party contests the prudenceborrowing capacity of the decisionfacility. As of December 31, 2019, there were no cash borrowings and no letters of credit outstanding under the credit facility. In addition, Entergy Louisiana is a party to deactivate Willow Glen 2 and 4 or suggests reactivationan uncommitted letter of these units; however, issues have been raised relatedcredit facility as a means to post collateral to support its obligations to MISO. As of December 31, 2019, a $12.3 million letter of credit was outstanding under Entergy Louisiana’s decisionuncommitted letter of credit facility. See Note 4 to give up its transmission service rightsthe financial statements for additional discussion of the credit facilities.
The Entergy Louisiana nuclear fuel company variable interest entities have two separate credit facilities, each in MISO for Willow Glen 2the amount of $105 million and 4 rather than placingscheduled to expire in September 2021. As of December 31, 2019, $70.3 million of loans were outstanding under the units into suspended statuscredit facility for the three-year term permittedEntergy Louisiana River Bend nuclear fuel company variable interest entity. As of December 31, 2019, $49.9 million in loans were outstanding under the Entergy Louisiana Waterford nuclear fuel company variable interest entity credit facility. See Note 4 to the financial statements for additional discussion of the nuclear fuel company variable interest entity credit facilities.
Entergy Louisiana obtained authorizations from the FERC through November 2020 for the following:
short-term borrowings not to exceed an aggregate amount of $450 million at any time outstanding;
long-term borrowings and security issuances; and
borrowings by MISO. An evidentiary hearing was held inits nuclear fuel company variable interest entities.
See Note 4 to the financial statements for further discussion of Entergy Louisiana’s short-term borrowing limits.
Hurricane Isaac
In June 2014 the LPSC voted to approve a series of orders which (i) quantified $290.8 million of Hurricane Isaac system restoration costs as prudently incurred; (ii) determined $290 million as the level of storm reserves to be re-established; (iii) authorized Entergy Louisiana to utilize Louisiana Act 55 financing for Hurricane Isaac system restoration costs; and (iv) granted other requested relief associated with storm reserves and Act 55 financing of Hurricane Isaac system restoration costs. Entergy Louisiana committed to pass on to customers a minimum of $30.8 million of customer benefits through annual customer credits of approximately $6.2 million for five years. Approvals for the Act 55 financings were obtained from the Louisiana Utilities Restoration Corporation and the Louisiana State Bond Commission. See Note 2 to the financial statements for a discussion of the August 2017 and post-hearing briefs were submitted in October 2017. A decision is expected in 2018.2014 issuance of bonds under Act 55 of the Louisiana Legislature.
Retail Rates - Gas
In accordance with the settlement of Entergy Gulf States Louisiana’s gas rate stabilization plan for the test year ended September 30, 2012, in August 2014, Entergy Gulf States Louisiana submitted for consideration a proposal for implementation of an infrastructure rider to recover expenditures associated with strategic plant investment and relocation projects mandated by local governments. After review by the LPSC staff and inclusion of certain customer safeguards required by the LPSC staff, in December 2014, Entergy Gulf States Louisiana and the LPSC staff submitted a joint settlement for implementation of an accelerated gas pipe replacement program providing for the replacement of approximately 100 miles of pipe over the next ten years, as well as relocation of certain existing pipe resulting from local government-related infrastructure projects, and for a rider to recover the investment associated with these projects. The rider allows for recovery of approximately $65 million over ten years. The rider recovery will be adjusted on a quarterly basis to include actual investment incurred for the prior quarter and is subject to the following conditions,
Part I Item 1
Entergy Corporation, Utility operating companies, and System Energy
among others: a ten-year term; application of any earnings in excess of 10.45%the upper end of the earnings band as an offset to the revenue requirement of the infrastructure rider; adherence to a specified spending plan, within plus or minus 20% annually; annual filings comparing actual versus planned rider spending with actual spending and explanation of variances exceeding 10%; and an annual true-up. The joint settlement was approved by the LPSC in January 2015. Implementation of the infrastructure rider commenced with bills rendered on and after the first billing cycle of April 2015.
2014 Rate Stabilization Plan FilingStorm Cost Recovery
In January 2015, Entergy Gulf States Louisiana filed with the LPSC its gas rate stabilization plan for the test year ended September 30, 2014. The filing showed an earned return on common equity of 7.20%, which resulted in a $706 thousand rate increase. In April 2015 the LPSC issued findings recommending two adjustments to Entergy Gulf States Louisiana’s as-filed results, and an additional recommendation that did not affect the results. The LPSC staff’s recommended adjustments increase the earned return on equity for the test year to 7.24%. Entergy Gulf States Louisiana accepted the LPSC staff’s recommendations and a revenue increase of $688 thousand was implemented with the first billing cycle of May 2015.
2015 Rate Stabilization Plan Filing
In January 2016, Entergy Louisiana filed with the LPSC its gas rate stabilization plan for the test year ended September 30, 2015. The filing showed an earned return on common equity of 10.22%, which is within the authorized bandwidth, therefore requiring no change in rates. In March 2016 the LPSC staff issued its report stating that the 2015 gas rate stabilization plan filing was in compliance with the exception of several issues that required additional information, explanation, or clarification for which the LPSC staff had reserved the right to further review. In July 2016 the parties to the proceeding filed an unopposed joint report and motion for entry of order accepting the report that indicated no outstanding issues remained in the filing.
Entergy Louisiana, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
In February 2016, Entergy Louisiana filed a motion requesting to extend the term of the gas rate stabilization plan in substantially similar form for an additional three-year term and included a request for sharing of non-jurisdictional compressed natural gas revenues. Following discovery and the filing of testimony by the LPSC staff, Entergy Louisiana and the LPSC submitted a joint motion for hearing an uncontested stipulated settlement resolving the proceeding. A hearing on the stipulation was held in November 2016. The ALJ issued a report of proceedings that was presented with the parties’ stipulation to the LPSC for consideration. The stipulation approving Entergy Louisiana’s requested extension of the rate stabilization plan was approved by the LPSC in December 2016.
2016 Rate Stabilization Plan Filing
In January 2017, Entergy Louisiana filed with the LPSC its gas rate stabilization plan for the test year ended September 30, 2016. The filing of the evaluation report for test year 2016 reflected an earned return on common equity of 6.37%. As part of the original filing, pursuant to the extraordinary cost provision of the rate stabilization plan, Entergy Louisiana sought to recover approximately $1.5 million in deferred operation and maintenance expenses incurred to restore service and repair damage resulting from flooding and widespread rainfall in southeast Louisiana that occurred in August 2016. Entergy Louisiana requested to recover the prudently incurred August 2016 storm restoration costs over ten years, outside of the rate stabilization plan sharing provisions. As a result, Entergy Louisiana’s filing sought an annual increase in revenue of $1.4 million. Following review of the filing, except for the proposed extraordinary cost recovery, the LPSC staff confirmed Entergy Louisiana’s filing was consistent with the principles and requirements of the rate stabilization plan. The extraordinary cost recovery request associated with the 2016 flood-related deferred operation and maintenance expenses incurred for gas operations was removed from the rate stabilization plan pending LPSC consideration in a separate docket. In April 2017 the LPSC approved a joint report of proceedings and Entergy Louisiana submitted a revised evaluation report reflecting a $1.2 million annual increase in revenue with rates implemented with the first billing cycle of May 2017.
In connection with the joint report of proceedings accepted by the LPSC, in May 2017, Entergy Louisiana filed an application to initiate a separate proceeding to recover through the extraordinary cost provision of the gas rate stabilization plan the deferred operation and maintenance expenses of $1.4 million incurred to restore service and repair damage resulting from flooding and widespread rainfall in southeast Louisiana that occurred in August 2016. The LPSC staff submitted its direct testimony in the proceeding recommending recovery of $0.9 million. Entergy Louisiana filed rebuttal testimony responding to the LPSC staff’s recommendation. The procedural schedule was suspended to allow the parties to engage in settlement negotiations, and in February 2018 the LPSC staff and Entergy Louisiana filed an unopposed settlement. If approved by the LPSC, the settlement would provide for Entergy Louisiana to recover, over ten years, the approximately $1.4 million in deferred operation and maintenance expense and related carrying charges. The settlement further provides for recovery to commence in May 2018.
2017 Rate Stabilization Plan Filing
In January 2018, Entergy Louisiana filed with the LPSC its gas rate stabilization plan for test year ended September 30, 2017. The filing of the evaluation report for the test year 2017 reflected an earned return on common equity of 9.06%. This earned return is below the earnings sharing band of the rate stabilization plan and results in a rate increase of $0.1 million. Due to the enactment in late-December 2017 of the Tax Cuts and Jobs Act, Entergy Louisiana did not have adequate time to reflect the effects of this tax legislation in the rate stabilization plan. As a result, Entergy Louisiana will file a supplement to the January 2018 evaluation report to reflect, among other things, a 21% federal corporate income tax rate. Any rate change resulting from the revised rate stabilization plan will become effective in rates in May 2018.
Fuel and purchased power recovery
Entergy Louisiana recovers electric fuel and purchased power costs for the billing month based upon the level of such costs incurred two months prior to the billing month. Entergy Louisiana’s purchased gas adjustments include
Entergy Louisiana, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
estimates for the billing month adjusted by a surcharge or credit that arises from an annual reconciliation of fuel costs incurred with fuel cost revenues billed to customers, including carrying charges.
In April 2010 the LPSC authorized its staff to initiate an audit of Entergy Louisiana’s fuel adjustment clause filings. The audit included a review of the reasonableness of charges flowed through the fuel adjustment clause by Entergy Louisiana for the period from 2005 through 2009. The LPSC staff issued its audit report in January 2013. The LPSC staff recommended that Entergy Louisiana refund approximately $1.9 million, plus interest, to customers and realign the recovery of approximately $1 million from Entergy Louisiana’s fuel adjustment clause to base rates. The recommended refund was made by Entergy Louisiana in May 2013 in the form of a credit to customers through its fuel adjustment clause filing. In October 2016 the LPSC staff filed testimony affirming the recommendation in its audit report on the lone remaining issue that nuclear dry fuel storage costs should be realigned to base rates. The parties agreed to remove that remaining issue to a separate docket because the same issue was outstanding in the Entergy Gulf States Louisiana audit for the same time period. In November 2016 the LPSC approved the resolution of this audit and the creation of a new docket for the resolution of the proper method of recovery for nuclear dry fuel storage costs. In December 2016 the LPSC opened a new docket in order to resolve the issue regarding the proper methodology for the recovery of nuclear dry fuel storage costs. In October 2017 the LPSC approved the continued recovery of the nuclear dry fuel storage costs through the fuel adjustment clause, resolving the open issue in the audit.
In December 2011 the LPSC authorized its staff to initiate a proceeding to audit the fuel adjustment clause filings of Entergy Gulf States Louisiana and its affiliates. The audit included a review of the reasonableness of charges flowed by Entergy Gulf States Louisiana through its fuel adjustment clause for the period 2005 through 2009. In March 2016 the LPSC staff consultant issued its audit report. In its report, the LPSC staff consultant recommended that Entergy Louisiana refund approximately $8.6 million, plus interest, to customers and realign the recovery of approximately $12.7 million from Entergy Gulf States Louisiana’s fuel adjustment clause to base rates. In September 2016 the LPSC staff filed testimony stating that it was no longer recommending a disallowance of $3.4 million of the $8.6 million discussed above, but otherwise maintained positions from its report. Subsequently, the parties entered into a settlement, which was approved by the LPSC in November 2016. The settlement recognized the dry cask storage recovery method issue, which was addressed in the separate proceeding approved by the LPSC in October 2017, provided for a refund of $5 million, which was made to legacy Entergy Gulf States Louisiana customers in December 2016, and resolved all other issues raised in the audit.
In July 2014 the LPSC authorized its staff to initiate an audit of Entergy Gulf States Louisiana’s fuel adjustment clause filings. The audit includes a review of the reasonableness of charges flowed by Entergy Gulf States Louisiana through its fuel adjustment clause for the period from 2010 through 2013. Discovery commenced in July 2015. No report of audit has been issued.
In July 2014 the LPSC authorized its staff to initiate an audit of Entergy Louisiana’s fuel adjustment clause filings. The audit includes a review of the reasonableness of charges flowed by Entergy Louisiana through its fuel adjustment clause for the period from 2010 through 2013. Discovery commenced in July 2015. No report of audit has been issued.
In June 2016 the LPSC staff provided notice of audits of Entergy Louisiana’s fuel adjustment clause filings and purchased gas adjustment clause filings. In recognition of the business combination that occurred in 2015, the audit notice was issued to Entergy Louisiana and will also include a review of charges to legacy Entergy Gulf States Louisiana customers prior to the business combination. The audit includes a review of the reasonableness of charges flowed through Entergy Louisiana’s fuel adjustment clause for the period from 2014 through 2015 and charges flowed through Entergy Louisiana’s purchased gas adjustment clause for the period from 2012 through 2015. Discovery commenced in March 2017. No report of audit has been issued.
Due to higher fuel costs for the operating month of January 2018 resulting in part from recent cold weather, higher Henry Hub prices, and an increase in total fuel and purchased power costs, Entergy Louisiana plans to cap the
Entergy Louisiana, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
average fuel adjustment charge to be billed in March 2018 at $0.03060 per kWh and to defer billing of all fuel costs in excess of the capped amounts by including such costs in the over- or under-recovery account.
Industrial and Commercial Customers
Entergy Louisiana’s large industrial and commercial customers continually explore ways to reduce their energy costs. In particular, cogeneration is an option available to a portion of Entergy Louisiana’s industrial customer base. Entergy Louisiana responds by working with industrial and commercial customers and negotiating electric service contracts to provide competitive rates that match specific customer needs and load profiles. Entergy Louisiana actively participates in economic development, customer retention, and reclamation activities to increase industrial and commercial demand, from both new and existing customers.
Federal Regulation
See the “Rate, Cost-recovery, and Other Regulation– Federal Regulation” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis and Note 2 to the financial statements for a discussion of federal regulation.
Nuclear Matters
Entergy Louisiana owns and, through an affiliate, operates the River Bend and Waterford 3 nuclear power plants. Entergy Louisiana is, therefore, subject to the risks related to owning and operating nuclear plants. These include risks related to: the use, storage, and handling and disposal of high-level and low-level radioactive materials; the substantial financial requirements, both for capital investments and operational needs, to position Entergy’s nuclear fleet to meet its operational goals, including the financial requirements to address emerging issues like stress corrosion cracking of certain materials within the plant systems and the Fukushima event; regulatory requirements and potential future regulatory changes, including changes affecting the regulations governing nuclear plant ownership, operations, license renewal and amendments, and decommissioning; the performance and capacity factors of these nuclear plants; the availability of interim or permanent sites for the disposal of spent nuclear fuel and nuclear waste, including the fees charged for such disposal; the sufficiency of nuclear decommissioning trust fund assets and earnings to complete decommissioning of each site when required; and limitations on the amounts and types of insurance commercially available for losses in connection with nuclear plant operations and catastrophic events such as a nuclear accident. In the event of an unanticipated early shutdown of River Bend or Waterford 3, Entergy Louisiana may be required to provide additional funds or credit support to satisfy regulatory requirements for decommissioning.
Waterford 3’s operating license is currently due to expire in December 2024. In March 2016, Entergy Louisiana filed an application with the NRC for an extension of Waterford 3’s operating license to 2044. River Bend’s operating license is currently due to expire in August 2025. In May 2017, Entergy Louisiana filed an application with the NRC for an extension of River Bend’s operating license to 2045. In October 2017 an intervenor filed with the NRC a petition to intervene and request for a hearing on the River Bend license renewal application. As provided by NRC procedure, a panel of the Atomic Safety and Licensing Board has been designated to determine whether the intervenor’s three proposed contentions, or allegations of errors or omissions in the license renewal application, are admissible and, if so, to rule on any admitted contentions. In January 2018 the Atomic Safety and Licensing Board denied the petition to intervene and the request for hearing.
Environmental Risks
Entergy Louisiana’s facilities and operations are subject to regulation by various governmental authorities having jurisdiction over air quality, water quality, control of toxic substances and hazardous and solid wastes, and other environmental matters. Management believes that Entergy Louisiana is in substantial compliance with environmental regulations currently applicable to its facilities and operations, with reference to possible exceptions noted in
Entergy Louisiana, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
“Regulation of Entergy’s Business - Environmental Regulation” in Part I, Item 1. Because environmental regulations are subject to change, future compliance costs cannot be precisely estimated.
Critical Accounting Estimates
The preparation of Entergy Louisiana’s financial statements in conformity with generally accepted accounting principles requires management to apply appropriate accounting policies and to make estimates and judgments that can have a significant effect on reported financial position, results of operations, and cash flows. Management has identified the following accounting policies and estimates as critical because they are based on assumptions and measurements that involve a high degree of uncertainty, and the potential for future changes in the assumptions and measurements that could produce estimates that would have a material effect on the presentation of Entergy Louisiana’s financial position or results of operations.
Nuclear Decommissioning Costs
See “Nuclear Decommissioning Costs” in the “Critical Accounting Estimates” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for discussion of the estimates inherent in accounting for nuclear decommissioning costs.
Utility Regulatory Accounting
See “Utility Regulatory Accounting” in the “Critical Accounting Estimates” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for discussion of accounting for the effects of rate regulation.
Unbilled Revenue
See “Unbilled Revenue” in the “Critical Accounting Estimates” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for discussion of the estimates associated with the unbilled revenue amounts.
Impairment of Long-lived Assets and Trust Fund Investments
See “Impairment of Long-lived Assets and Trust Fund Investments” in the “Critical Accounting Estimates” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for discussion of the estimates associated with the impairment of long-lived assets and trust fund investments.
Taxation and Uncertain Tax Positions
See “Taxation and Uncertain Tax Positions” in the “Critical Accounting Estimates” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for further discussion.
Qualified Pension and Other Postretirement Benefits
Entergy Louisiana’s qualified pension and other postretirement reported costs, as described in Note 11 to the financial statements, are impacted by numerous factors including the provisions of the plans, changing employee demographics, and various actuarial calculations, assumptions, and accounting mechanisms. See the “Qualified Pension and Other Postretirement Benefits” in the “Critical Accounting Estimates” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for further discussion. Because of the complexity of these calculations, the long-term nature of these obligations, and the importance of the assumptions utilized, Entergy’s estimate of these costs is a critical accounting estimate.
Entergy Louisiana, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
Cost Sensitivity
The following chart reflects the sensitivity of qualified pension cost and qualified projected benefit obligation to changes in certain actuarial assumptions (dollars in thousands).
|
| | | | | | |
Actuarial Assumption | | Change in Assumption | | Impact on 2018 Qualified Pension Cost | | Impact on 2017 Projected Qualified Benefit Obligation |
| | | | Increase/(Decrease) | | |
Discount rate | | (0.25%) | | $3,737 | | $54,506 |
Rate of return on plan assets | | (0.25%) | | $3,309 | | $— |
Rate of increase in compensation | | 0.25% | | $1,726 | | $8,824 |
The following chart reflects the sensitivity of postretirement benefit cost and accumulated postretirement benefit obligation to changes in certain actuarial assumptions (dollars in thousands).
|
| | | | | | |
Actuarial Assumption | | Change in Assumption | | Impact on 2018 Postretirement Benefit Cost | | Impact on 2017 Accumulated postretirement Benefit Obligation |
| | | | Increase/(Decrease) | | |
Discount rate | | (0.25%) | | $753 | | $10,727 |
Health care cost trend | | 0.25% | | $1,219 | | $8,675 |
Each fluctuation above assumes that the other components of the calculation are held constant.
Costs and Funding
Total qualified pension cost for Entergy Louisiana in 2017 was $44.3 million. Entergy Louisiana anticipates 2018 qualified pension cost to be $52.1 million. In 2016, Entergy Louisiana refined its approach to estimating the service cost and interest cost components of qualified pension costs, which had the effect of lowering qualified pension costs by $14.2 million. Entergy Louisiana contributed $87.5 million to its pension plans in 2017 and estimates pension contributions will be approximately $71.9 million in 2018, although the 2018 required pension contributions will be known with more certainty when the January 1, 2018 valuations are completed, which is expected by April 1, 2018.
Total postretirement health care and life insurance benefit costs for Entergy Louisiana in 2017 were $12.6 million. Entergy Louisiana expects 2018 postretirement health care and life insurance benefit costs of approximately $11.2 million. In 2016, Entergy Louisiana refined its approach to estimating the service cost and interest cost components of other postretirement costs, which had the effect of lowering qualified other postretirement costs by $3.5 million. Entergy Louisiana contributed $14.4 million to its other postretirement plans in 2017 and estimates that 2018 contributions will be approximately $19 million.
Federal Healthcare Legislation
See “Qualified Pension and Other Postretirement Benefits -Federal Healthcare Legislation” in the “Critical Accounting Estimates” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for a discussion of Federal Healthcare Legislation.
Entergy Louisiana, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
Other Contingencies
See “Other Contingencies” in the “Critical Accounting Estimates” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for a discussion of the estimates associated with environmental, litigation, and other risks.
New Accounting Pronouncements
See “New Accounting Pronouncements” section of Note 1 to the financial statements for a discussion of new accounting pronouncements.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the members and Board of Directors of
Entergy Louisiana, LLC and Subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Entergy Louisiana, LLC and Subsidiaries (the “Company”) as of December 31, 2017 and 2016, the related consolidated statements of income, comprehensive income, cash flows, and changes in equity (pages 349 through 354 and applicable items in pages 55 through 230), for each of the three years in the period ended December 31, 2017, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ DELOITTE & TOUCHE LLP
New Orleans, Louisiana
February 26, 2018
We have served as the Company’s auditor since 2001.
|
| | | | | | | | | | | | |
ENTERGY LOUISIANA, LLC AND SUBSIDIARIES |
CONSOLIDATED INCOME STATEMENTS |
| | |
| | For the Years Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| | (In Thousands) |
| | | | | | |
OPERATING REVENUES | | | | | | |
Electric | |
| $4,246,020 |
| |
| $4,126,343 |
| |
| $4,361,524 |
|
Natural gas | | 54,530 |
| | 50,705 |
| | 55,622 |
|
TOTAL | | 4,300,550 |
| | 4,177,048 |
| | 4,417,146 |
|
| | | | | | |
OPERATING EXPENSES | | |
| | |
| | |
|
Operation and Maintenance: | | |
| | |
| | |
|
Fuel, fuel-related expenses, and gas purchased for resale | | 912,060 |
| | 804,433 |
| | 850,869 |
|
Purchased power | | 980,070 |
| | 890,058 |
| | 1,129,910 |
|
Nuclear refueling outage expenses | | 52,074 |
| | 51,361 |
| | 44,480 |
|
Other operation and maintenance | | 969,400 |
| | 923,779 |
| | 997,546 |
|
Decommissioning | | 49,457 |
| | 46,944 |
| | 43,445 |
|
Taxes other than income taxes | | 175,359 |
| | 165,665 |
| | 167,966 |
|
Depreciation and amortization | | 467,369 |
| | 451,290 |
| | 437,036 |
|
Other regulatory charges (credits) - net | | (152,080 | ) | | 44,131 |
| | 27,562 |
|
TOTAL | | 3,453,709 |
| | 3,377,661 |
| | 3,698,814 |
|
| | | | | | |
OPERATING INCOME | | 846,841 |
| | 799,387 |
| | 718,332 |
|
| | | | | | |
OTHER INCOME | | |
| | |
| | |
|
Allowance for equity funds used during construction | | 51,485 |
| | 27,925 |
| | 19,192 |
|
Interest and investment income | | 164,550 |
| | 154,778 |
| | 150,168 |
|
Miscellaneous - net | | (11,960 | ) | | (11,597 | ) | | (13,190 | ) |
TOTAL | | 204,075 |
| | 171,106 |
| | 156,170 |
|
| | | | | | |
INTEREST EXPENSE | | |
| | |
| | |
|
Interest expense | | 275,185 |
| | 273,283 |
| | 259,894 |
|
Allowance for borrowed funds used during construction | | (25,914 | ) | | (14,571 | ) | | (10,702 | ) |
TOTAL | | 249,271 |
| | 258,712 |
| | 249,192 |
|
| | | | | | |
INCOME BEFORE INCOME TAXES | | 801,645 |
| | 711,781 |
| | 625,310 |
|
| | | | | | |
Income taxes | | 485,298 |
| | 89,734 |
| | 178,671 |
|
| | | | | | |
NET INCOME | | 316,347 |
| | 622,047 |
| | 446,639 |
|
| | | | | | |
Preferred distribution requirements and other | | — |
| | — |
| | 5,737 |
|
| | | | | | |
EARNINGS APPLICABLE TO COMMON EQUITY | |
| $316,347 |
| |
| $622,047 |
| |
| $440,902 |
|
| | | | | | |
See Notes to Financial Statements. | | |
| | |
| | |
|
|
| | | | | | | | | | | | |
ENTERGY LOUISIANA, LLC AND SUBSIDIARIES |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME |
| | |
| | For the Years Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| | (In Thousands) |
| | | | | | |
Net Income | |
| $316,347 |
| |
| $622,047 |
| |
| $446,639 |
|
| | | | | | |
Other comprehensive income | | |
| | |
| | |
|
Pension and other postretirement liabilities | | |
| | |
| | |
|
(net of tax expense of $234, $5,034, and $14,316) | | 2,042 |
| | 7,970 |
| | 22,811 |
|
Other comprehensive income | | 2,042 |
| | 7,970 |
| | 22,811 |
|
| | | | | | |
Comprehensive Income | |
| $318,389 |
| |
| $630,017 |
| |
| $469,450 |
|
| | | | | | |
See Notes to Financial Statements. | | |
| | |
| | |
|
|
| | | | | | | | | | | | |
ENTERGY LOUISIANA, LLC AND SUBSIDIARIES |
CONSOLIDATED STATEMENTS OF CASH FLOWS |
| | |
| | For the Years Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| | (In Thousands) |
OPERATING ACTIVITIES | | | | | | |
Net income | |
| $316,347 |
| |
| $622,047 |
| |
| $446,639 |
|
Adjustments to reconcile net income to net cash flow provided by operating activities: | | | | | | |
Depreciation, amortization, and decommissioning, including nuclear fuel amortization | | 621,018 |
| | 620,211 |
| | 593,635 |
|
Deferred income taxes, investment tax credits, and non-current taxes accrued | | 575,804 |
| | 178,549 |
| | 97,461 |
|
Changes in working capital: | | |
| | |
| | |
|
Receivables | | (53,829 | ) | | (102,200 | ) | | (12,795 | ) |
Fuel inventory | | 11,010 |
| | (2,693 | ) | | (887 | ) |
Accounts payable | | 58,880 |
| | (36,720 | ) | | 23,641 |
|
Prepaid taxes and taxes accrued | | 128,261 |
| | (235,246 | ) | | 105,687 |
|
Interest accrued | | (70 | ) | | 1,218 |
| | 2,933 |
|
Deferred fuel costs | | 23,236 |
| | (17,023 | ) | | 4,222 |
|
Other working capital accounts | | (30,911 | ) | | 6,462 |
| | (41,890 | ) |
Changes in provisions for estimated losses | | (8,324 | ) | | 490 |
| | (8,946 | ) |
Changes in other regulatory assets | | 492,696 |
| | 57,579 |
| | 130,762 |
|
Changes in other regulatory liabilities | | 605,453 |
| | 62,351 |
| | 96,234 |
|
Deferred tax rate change recognized as regulatory liability/asset | | (1,207,808 | ) | | — |
| | — |
|
Changes in pension and other postretirement liabilities | | (32,309 | ) | | (52,559 | ) | | (98,695 | ) |
Other | | (161,909 | ) | | (64,554 | ) | | (182,485 | ) |
Net cash flow provided by operating activities | | 1,337,545 |
| | 1,037,912 |
| | 1,155,516 |
|
INVESTING ACTIVITIES | | |
| | |
| | |
|
Construction expenditures | | (1,662,835 | ) | | (1,030,416 | ) | | (845,227 | ) |
Allowance for equity funds used during construction | | 51,485 |
| | 27,925 |
| | 19,192 |
|
Insurance proceeds | | 5,305 |
| | 10,564 |
| | — |
|
Nuclear fuel purchases | | (197,829 | ) | | (73,618 | ) | | (244,040 | ) |
Proceeds from the sale of nuclear fuel | | 42,634 |
| | 63,304 |
| | 54,595 |
|
Payment for purchase of plant | | — |
| | (474,670 | ) | | — |
|
Payments to storm reserve escrow account | | (2,110 | ) | | (1,063 | ) | | (308 | ) |
Receipts from storm reserve escrow account | | 8,835 |
| | — |
| | — |
|
Changes in securitization account | | 880 |
| | 351 |
| | (137 | ) |
Proceeds from nuclear decommissioning trust fund sales | | 231,293 |
| | 219,182 |
| | 123,474 |
|
Investment in nuclear decommissioning trust funds | | (266,592 | ) | | (257,209 | ) | | (158,028 | ) |
Changes in money pool receivable - net | | 11,330 |
| | (16,349 | ) | | (3,339 | ) |
Proceeds from sale of assets | | — |
| | — |
| | 59,610 |
|
Payment for purchase of assets | | (9,805 | ) | | — |
| | — |
|
Litigation proceeds for reimbursement of spent nuclear fuel storage costs | | — |
| | 57,934 |
| | — |
|
Net cash flow used in investing activities | | (1,787,409 | ) | | (1,474,065 | ) | | (994,208 | ) |
FINANCING ACTIVITIES | | |
| | |
| | |
|
Proceeds from the issuance of long-term debt | | 733,344 |
| | 2,450,063 |
| | 77,172 |
|
Retirement of long-term debt | | (407,736 | ) | | (1,488,870 | ) | | (180,595 | ) |
Redemption of preferred membership interests | | — |
| | — |
| | (110,286 | ) |
Changes in credit borrowings - net | | 39,746 |
| | (56,562 | ) | | 14,322 |
|
Distributions paid: | | |
| | |
| | |
|
Common equity | | (91,250 | ) | | (285,500 | ) | | (226,000 | ) |
Preferred membership interests | | — |
| | — |
| | (6,082 | ) |
Other | | (2,183 | ) | | (4,230 | ) | | (15,253 | ) |
Net cash flow provided by (used in) financing activities | | 271,921 |
| | 614,901 |
| | (446,722 | ) |
Net increase (decrease) in cash and cash equivalents | | (177,943 | ) | | 178,748 |
| | (285,414 | ) |
Cash and cash equivalents at beginning of period | | 213,850 |
| | 35,102 |
| | 320,516 |
|
Cash and cash equivalents at end of period | |
| $35,907 |
| |
| $213,850 |
| |
| $35,102 |
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | | |
| | |
| | |
|
Cash paid (received) during the period for: | | |
| | |
| | |
|
Interest - net of amount capitalized | |
| $266,871 |
| |
| $324,456 |
| |
| $243,745 |
|
Income taxes | |
| ($234,199 | ) | |
| $156,605 |
| |
| $89,124 |
|
Non-cash financing activities: | | | | | | |
Capital contribution from parent | |
| $— |
| |
| $— |
| |
| ($267,826 | ) |
See Notes to Financial Statements. | | |
| | |
| | |
|
|
| | | | | | | | |
ENTERGY LOUISIANA, LLC AND SUBSIDIARIES |
CONSOLIDATED BALANCE SHEETS |
ASSETS |
| | |
| | December 31, |
| | 2017 | | 2016 |
| | (In Thousands) |
| | | | |
CURRENT ASSETS | | | | |
Cash and cash equivalents: | | | | |
Cash | |
| $5,836 |
| |
| $49,972 |
|
Temporary cash investments | | 30,071 |
| | 163,878 |
|
Total cash and cash equivalents | | 35,907 |
| | 213,850 |
|
Accounts receivable: | | |
| | |
|
Customer | | 254,308 |
| | 213,517 |
|
Allowance for doubtful accounts | | (8,430 | ) | | (6,277 | ) |
Associated companies | | 143,524 |
| | 155,794 |
|
Other | | 60,893 |
| | 54,186 |
|
Accrued unbilled revenues | | 153,118 |
| | 159,176 |
|
Total accounts receivable | | 603,413 |
| | 576,396 |
|
Fuel inventory | | 39,728 |
| | 50,738 |
|
Materials and supplies - at average cost | | 299,881 |
| | 294,421 |
|
Deferred nuclear refueling outage costs | | 65,711 |
| | 22,535 |
|
Prepaid taxes | | — |
| | 110,104 |
|
Prepayments and other | | 34,035 |
| | 41,687 |
|
TOTAL | | 1,078,675 |
| | 1,309,731 |
|
| | | | |
OTHER PROPERTY AND INVESTMENTS | | |
| | |
|
Investment in affiliate preferred membership interests | | 1,390,587 |
| | 1,390,587 |
|
Decommissioning trust funds | | 1,312,073 |
| | 1,140,707 |
|
Storm reserve escrow account | | 284,759 |
| | 291,485 |
|
Non-utility property - at cost (less accumulated depreciation) | | 245,255 |
| | 217,494 |
|
Other | | 18,999 |
| | 28,844 |
|
TOTAL | | 3,251,673 |
| | 3,069,117 |
|
| | | | |
UTILITY PLANT | | |
| | |
|
Electric | | 19,678,536 |
| | 18,827,532 |
|
Natural gas | | 191,899 |
| | 172,816 |
|
Construction work in progress | | 1,281,452 |
| | 670,201 |
|
Nuclear fuel | | 337,402 |
| | 249,807 |
|
TOTAL UTILITY PLANT | | 21,489,289 |
| | 19,920,356 |
|
Less - accumulated depreciation and amortization | | 8,703,047 |
| | 8,420,596 |
|
UTILITY PLANT - NET | | 12,786,242 |
| | 11,499,760 |
|
| | | | |
DEFERRED DEBITS AND OTHER ASSETS | | |
| | |
|
Regulatory assets: | | |
| | |
|
Regulatory asset for income taxes - net | | — |
| | 470,480 |
|
Other regulatory assets (includes securitization property of $71,367 as of December 31, 2017 and $92,951 as of December 31, 2016) | | 1,145,842 |
| | 1,168,058 |
|
Deferred fuel costs | | 168,122 |
| | 168,122 |
|
Other | | 18,310 |
| | 16,003 |
|
TOTAL | | 1,332,274 |
| | 1,822,663 |
|
| | | | |
TOTAL ASSETS | |
| $18,448,864 |
| |
| $17,701,271 |
|
| | | | |
See Notes to Financial Statements. | | |
| | |
|
|
| | | | | | | | |
ENTERGY LOUISIANA, LLC AND SUBSIDIARIES |
CONSOLIDATED BALANCE SHEETS |
LIABILITIES AND EQUITY |
| | |
| | December 31, |
| | 2017 | | 2016 |
| | (In Thousands) |
| | | | |
CURRENT LIABILITIES | | | | |
Currently maturing long-term debt | |
| $675,002 |
| |
| $200,198 |
|
Short-term borrowings | | 43,540 |
| | 3,794 |
|
Accounts payable: | | |
| | |
|
Associated companies | | 126,685 |
| | 82,106 |
|
Other | | 404,374 |
| | 358,741 |
|
Customer deposits | | 150,623 |
| | 148,601 |
|
Taxes accrued | | 18,157 |
| | — |
|
Interest accrued | | 75,528 |
| | 75,598 |
|
Deferred fuel costs | | 71,447 |
| | 48,211 |
|
Other | | 79,037 |
| | 80,013 |
|
TOTAL | | 1,644,393 |
| | 997,262 |
|
| | | | |
NON-CURRENT LIABILITIES | | |
| | |
|
Accumulated deferred income taxes and taxes accrued | | 2,050,371 |
| | 2,691,118 |
|
Accumulated deferred investment tax credits | | 121,870 |
| | 126,741 |
|
Regulatory liability for income taxes - net | | 725,368 |
| | — |
|
Other regulatory liabilities | | 761,059 |
| | 880,974 |
|
Decommissioning | | 1,140,461 |
| | 1,082,685 |
|
Accumulated provisions | | 302,448 |
| | 310,772 |
|
Pension and other postretirement liabilities | | 748,384 |
| | 780,278 |
|
Long-term debt (includes securitization bonds of $77,736 as of December 31, 2017 and $99,217 as of December 31, 2016) | | 5,469,069 |
| | 5,612,593 |
|
Other | | 176,637 |
| | 137,039 |
|
TOTAL | | 11,495,667 |
| | 11,622,200 |
|
| | | | |
Commitments and Contingencies | |
|
| |
|
|
| | | | |
EQUITY | | |
| | |
|
Member’s equity | | 5,355,204 |
| | 5,130,251 |
|
Accumulated other comprehensive loss | | (46,400 | ) | | (48,442 | ) |
TOTAL | | 5,308,804 |
| | 5,081,809 |
|
| | | | |
TOTAL LIABILITIES AND EQUITY | |
| $18,448,864 |
| |
| $17,701,271 |
|
| | | | |
See Notes to Financial Statements. | | |
| | |
|
|
| | | | | | | | | | | | | | | |
ENTERGY LOUISIANA, LLC AND SUBSIDIARIES |
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY |
For the Years Ended December 31, 2017, 2016, and 2015 |
| | | | | |
| | | Common Equity | | |
| Preferred Membership Interests | | Member’s Equity | | Accumulated Other Comprehensive Income (Loss) | | Total |
| (In Thousands) |
| | | | | | | |
Balance at December 31, 2014 |
| $110,000 |
| |
| $4,316,210 |
| |
| ($79,223 | ) | |
| $4,346,987 |
|
Net income | — |
| | 446,639 |
| | — |
| | 446,639 |
|
Other comprehensive income | — |
| | — |
| | 22,811 |
| | 22,811 |
|
Preferred stock redemption | (110,000 | ) | | — |
| | — |
| | (110,000 | ) |
Non-cash contribution from parent | — |
| | 267,826 |
| | — |
| | 267,826 |
|
Distributions to parent | — |
| | (226,000 | ) | | — |
| | (226,000 | ) |
Distributions declared on preferred membership interests | — |
| | (5,737 | ) | | — |
| | (5,737 | ) |
Other | — |
| | (5,214 | ) | | — |
| | (5,214 | ) |
Balance at December 31, 2015 |
| $— |
| |
| $4,793,724 |
| |
| ($56,412 | ) | |
| $4,737,312 |
|
Net income | — |
| | 622,047 |
| | — |
| | 622,047 |
|
Other comprehensive income | — |
| | — |
| | 7,970 |
| | 7,970 |
|
Distributions to parent | — |
| | (285,500 | ) | | — |
| | (285,500 | ) |
Other | — |
| | (20 | ) | | — |
| | (20 | ) |
Balance at December 31, 2016 |
| $— |
| |
| $5,130,251 |
| |
| ($48,442 | ) | |
| $5,081,809 |
|
Net income | — |
| | 316,347 |
| | — |
| | 316,347 |
|
Other comprehensive income | — |
| | — |
| | 2,042 |
| | 2,042 |
|
Distributions declared on common equity | — |
| | (91,250 | ) | | — |
| | (91,250 | ) |
Other | — |
| | (144 | ) | | — |
| | (144 | ) |
Balance at December 31, 2017 |
| $— |
| |
| $5,355,204 |
| |
| ($46,400 | ) | |
| $5,308,804 |
|
| | | | | | | |
See Notes to Financial Statements. | |
| | |
| | |
| | |
|
|
| | | | | | | | | | | | | | | | | | | |
ENTERGY LOUISIANA, LLC AND SUBSIDIARIES |
SELECTED FINANCIAL DATA - FIVE-YEAR COMPARISON |
| | | | | | | | | |
| 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
| (In Thousands) |
| | | | | | | | | |
Operating revenues |
| $4,300,550 |
| |
| $4,177,048 |
| |
| $4,417,146 |
| |
| $4,740,504 |
| |
| $4,399,511 |
|
Net income |
| $316,347 |
| |
| $622,047 |
| |
| $446,639 |
| |
| $446,022 |
| |
| $414,126 |
|
Total assets |
| $18,448,864 |
| |
| $17,701,271 |
| |
| $16,387,447 |
| |
| $16,423,825 |
| |
| $15,275,863 |
|
Long-term obligations (a) |
| $5,469,069 |
| |
| $5,612,593 |
| |
| $4,806,790 |
| |
| $4,882,813 |
| |
| $4,383,273 |
|
| | | | | | | | | |
(a) Includes long-term debt (excluding currently maturing debt).
| | | | |
| | | | | | | | | |
| 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
| (Dollars In Millions) |
| | | | | | | | | |
Electric Operating Revenues: | |
| | |
| | |
| | |
| | |
|
Residential |
| $1,198 |
| |
| $1,196 |
| |
| $1,292 |
| |
| $1,358 |
| |
| $1,304 |
|
Commercial | 956 |
| | 930 |
| | 989 |
| | 1,044 |
| | 1,003 |
|
Industrial | 1,534 |
| | 1,350 |
| | 1,420 |
| | 1,569 |
| | 1,457 |
|
Governmental | 69 |
| | 67 |
| | 67 |
| | 70 |
| | 68 |
|
Total retail | 3,757 |
| | 3,543 |
| | 3,768 |
| | 4,041 |
| | 3,832 |
|
Sales for resale: | |
| | |
| | |
| | |
| | |
|
Associated companies | 278 |
| | 368 |
| | 406 |
| | 427 |
| | 320 |
|
Non-associated companies | 64 |
| | 50 |
| | 36 |
| | 80 |
| | 48 |
|
Other | 147 |
| | 165 |
| | 152 |
| | 121 |
| | 140 |
|
Total |
| $4,246 |
| |
| $4,126 |
| |
| $4,362 |
| |
| $4,669 |
| |
| $4,340 |
|
| | | | | | | | | |
Billed Electric Energy Sales (GWh): | |
| | |
| | |
| | |
| | |
|
Residential | 13,357 |
| | 13,810 |
| | 14,399 |
| | 14,415 |
| | 14,026 |
|
Commercial | 11,342 |
| | 11,478 |
| | 11,700 |
| | 11,555 |
| | 11,402 |
|
Industrial | 29,754 |
| | 28,517 |
| | 27,713 |
| | 27,025 |
| | 25,734 |
|
Governmental | 790 |
| | 794 |
| | 756 |
| | 732 |
| | 723 |
|
Total retail | 55,243 |
| | 54,599 |
| | 54,568 |
| | 53,727 |
| | 51,885 |
|
Sales for resale: | |
| | |
| | |
| | |
| | |
|
Associated companies | 4,793 |
| | 7,345 |
| | 7,500 |
| | 6,240 |
| | 5,168 |
|
Non-associated companies | 1,711 |
| | 1,690 |
| | 770 |
| | 1,051 |
| | 979 |
|
Total | 61,747 |
| | 63,634 |
| | 62,838 |
| | 61,018 |
| | 58,032 |
|
| | | | | | | | | |
ENTERGY MISSISSIPPI, INC.
MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS
Results of Operations
Net Income
2017 Compared to 2016
Net income increased $0.8 million primarily due to higher other income, lower other operation and maintenance expenses, and lower interest expense, substantially offset by higher depreciation and amortization expenses and a higher effective income tax rate.
2016 Compared to 2015
Net income increased $16.5 million primarily due to lower other operation and maintenance expenses, higher net revenues, and a lower effective income tax rate, partially offset by higher depreciation and amortization expenses.
Net Revenue
2017 Compared to 2016
Net revenue consists of operating revenues net of: 1) fuel, fuel-related expenses, and gas purchased for resale, 2) purchased power expenses, and 3) other regulatory credits. Following is an analysis of the change in net revenue comparing 2017 to 2016.
|
| | | |
| Amount |
| (In Millions) |
| |
2016 net revenue |
| $705.4 |
|
Volume/weather | (18.2 | ) |
Retail electric price | 13.5 |
|
Other | 2.4 |
|
2017 net revenue |
| $703.1 |
|
The volume/weather variance is primarily due to the effect of less favorable weather on residential and commercial sales.
The retail electric price variance is primarily due to a $19.4 million net annual increase in rates, effective with the first billing cycle of July 2016, and an increase in the energy efficiency rider, effective with the first billing cycle of February 2017, each as approved by the MPSC. The increase was partially offset by decreased storm damage rider revenues due to resetting the storm damage provision to zero beginning with the November 2016 billing cycle. Entergy Mississippi resumed billing the storm damage rider effective with the September 2017 billing cycle. See Note 2 to the financial statements for more discussion of the formula rate plan and the storm damage rider.
Entergy Mississippi, Inc.
Management’s Financial Discussion and Analysis
2016 Compared to 2015
Net revenue consists of operating revenues net of: 1) fuel, fuel-related expenses, and gas purchased for resale, 2) purchased power expenses, and 3) other regulatory charges (credits). Following is an analysis of the change in net revenue comparing 2016 to 2015.
|
| | | |
| Amount |
| (In Millions) |
| |
2015 net revenue |
| $696.3 |
|
Retail electric price | 12.9 |
|
Volume/weather | 4.7 |
|
Net wholesale revenue | (2.4 | ) |
Reserve equalization | (2.8 | ) |
Other | (3.3 | ) |
2016 net revenue |
| $705.4 |
|
The retail electric price variance is primarily due to a $19.4 million net annual increase in revenues, as approved by the MPSC, effective with the first billing cycle of July 2016, and an increase in revenues collected through the storm damage rider. See Note 2 to the financial statements for more discussion of the formula rate plan and the storm damage rider.
The volume/weather variance is primarily due to an increase of 153 GWh, or 1%, in billed electricity usage, including an increase in industrial usage, partially offset by the effect of less favorable weather on residential and commercial sales. The increase in industrial usage is primarily due to expansion projects in the pulp and paper industry, increased demand for existing customers, primarily in the metals industry, and new customers in the wood products industry.
The net wholesale revenue variance is primarily due to Entergy Mississippi’s exit from the System Agreement in November 2015.
The reserve equalization revenue variance is primarily due to the absence of reserve equalization revenue as compared to the same period in 2015 resulting from Entergy Mississippi’s exit from the System Agreement in November 2015.
Other Income Statement Variances
2017 Compared to 2016
Other operation and maintenance expenses decreased primarily due to:
a decrease of $12 million in fossil-fueled generation expenses primarily due to lower long-term service agreement costs and a lower scope of work done during plant outages in 2017 as compared to the same period in 2016; and
a decrease of $3.6 million in storm damage provisions. See Note 2 to the financial statements for a discussion on storm cost recovery.
The decrease was partially offset by an increase of $4.8 million in energy efficiency costs and an increase of $2.7 million in compensation and benefits costs primarily due to higher incentive-based compensation accruals in 2017 as compared to the prior year.
Entergy Mississippi, Inc.
Management’s Financial Discussion and Analysis
Depreciation and amortization expenses increased primarily due to additions to plant in service.
Other income increased primarily due to interest income recorded in connection with the opportunity sales proceeding, interest income recorded on the deferred fuel balance, and an increase in the allowance for equity funds used during construction due to higher construction work in progress in 2017 as compared to 2016. See Note 2 to the financial statements for further discussion of the opportunity sales proceeding.
Interest expense decreased primarily due to the refinancing at lower interest rates of certain first mortgage bonds in 2016 and the retirement, at maturity, of $125 million of 3.25% Series first mortgage bonds in June 2016. See Note 5 to the financial statements for details of long-term debt.
2016 Compared to 2015
Other operation and maintenance expenses decreased primarily due to:
a decrease of $9.4 million in fossil-fueled generation expenses primarily due to a lower scope of work done during plant outages in 2016 as compared to the same period in 2015;
a decrease of $6.1 million in compensation and benefits costs primarily due to a decrease in net periodic pension and other postretirement benefits costs as a result of an increase in the discount rate used to value the benefit liabilities and a refinement in the approach used to estimate the service cost and interest cost components of pension and other postretirement costs. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Critical Accounting Estimates - Qualified Pension and Other Postretirement Benefits” below and Note 11 to the financial statements for further discussion of pension and other postretirement benefit costs;
a decrease of $2 million due to lower write-offs of uncollectible customer accounts in 2016;
a decrease of $2 million in energy efficiency costs; and
several individually insignificant items.
The decrease was partially offset by an increase of $7.1 million in storm damage provisions and an increase of $6 million in distribution expenses primarily due to higher vegetation maintenance. See Note 2 to the financial statements for a discussion of storm cost recovery.Entergy Louisiana’s filings to recover storm-related costs.
DepreciationOther
In March 2016 the LPSC opened two dockets to examine, on a generic basis, issues that it identified in connection with its review of Cleco Corporation’s acquisition by third party investors. The first docket is captioned “In re: Investigation of double leveraging issues for all LPSC-jurisdictional utilities,” and amortization expenses increased primarily due to additions to plant in service.
Income Taxes
The effective incomethe second is captioned “In re: Investigation of tax ratesstructure issues for 2017,all LPSC-jurisdictional utilities.” In April 2016 and 2015 were 40.2%, 36.9%, and 40.0%, respectively. See Note 3the LPSC clarified that the concerns giving rise to the financial statements fortwo dockets arose as a reconciliationresult of its review of the federal statutory ratestructure of 35%the Cleco-Macquarie transaction and that the specific intent of the directives is to seek more information regarding intra-corporate debt financing of a utility’s capital structure as well as the use of investment tax credits to mitigate the tax obligation at the parent level of a consolidated entity. No schedule has been set for either docket, and limited discovery has occurred.
In December 2019 an LPSC commissioner issued an unopposed directive to staff to research customer-centered options for all customer classes, as well as other regulatory environments, and recommend a plan for how to ensure customers are the focus. There was no opposition to the effective income tax rates.
Income Tax Legislation
Seedirective from other commissioners but several remarked that the “Income Tax Legislation” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for discussionintent of the Tax Cuts and Jobs Act, the federal income tax legislation enacted in December 2017. Note 3directive was not initiated to the financial statements contains additional discussionpursue retail open access. In furtherance of the effectdirective, the LPSC issued a notice of the Act on 2017 resultsopening of operationsa docket to conduct a rulemaking to research and financial position, the provisions of the Act, and the uncertainties associated with accountingevaluate customer-centered options for the Act, and Note 2 to the financial statements discusses proceedings commenced orall electric customer classes as well as other responses by Entergy’s regulators to the Act.regulatory environments in January 2020.
Entergy Mississippi Inc.
Management’s Financial Discussion and Analysis
Fuel Recovery
Liquidity and Capital Resources
Cash Flow
Cash flows for the years ended December 31, 2017, 2016, and 2015 were as follows:
|
| | | | | | | | | | | |
| 2017 | | 2016 | | 2015 |
| (In Thousands) |
Cash and cash equivalents at beginning of period |
| $76,834 |
| |
| $145,605 |
| |
| $61,633 |
|
| | | | | |
Net cash provided by (used in): | |
| | |
| | |
|
Operating activities | 226,585 |
| | 212,280 |
| | 372,279 |
|
Investing activities | (417,226 | ) | | (289,444 | ) | | (245,127 | ) |
Financing activities | 119,903 |
| | 8,393 |
| | (43,180 | ) |
Net increase (decrease) in cash and cash equivalents | (70,738 | ) | | (68,771 | ) | | 83,972 |
|
| | | | | |
Cash and cash equivalents at end of period |
| $6,096 |
| |
| $76,834 |
| |
| $145,605 |
|
Operating Activities
Net cash flow provided by operating activities increased $14.3 million in 2017 primarily dueEntergy Mississippi’s rate schedules include energy cost recovery riders to the timing of recovery ofrecover fuel and purchased power costs. The energy cost rate for each calendar year is redetermined annually and includes a true-up adjustment reflecting the over-recovery or under-recovery of the energy costs in 2017 as comparedof the 12-month period ended September 30. Entergy Mississippi’s fuel cost recoveries are subject to 2016 and an increaseannual audits conducted pursuant to the authority of $12.6 million in income tax refunds in 2017 as compared to 2016.the MPSC.
To help stabilize electricity costs, Entergy Mississippi had income tax refunds in 2017 and 2016 in accordance with an intercompany income tax allocation agreement. The 2017 income tax refunds were primarily due to the utilization of Entergy Mississippi’s federal net operating losses and state income tax refunds resultingreceived approval from the carrybackMPSC to hedge its exposure to natural gas price volatility through the use of net operating losses. The increase was partially offset by the timing of payments to vendors.
Net cash flow provided by operating activities decreased $160 million in 2016 primarily due to the timing of recovery of fuel and purchased power costs in 2016 as compared to the same period in 2015 and $15.3 million in insurance proceeds received in 2015 related to the unplanned outage event that occurred at the Baxter Wilson (Unit 1) power plant in September 2013. The decrease was partially offset by income tax refunds of $12.5 million in 2016 compared to income tax payments of $61.3 million in 2015.financial instruments. Entergy Mississippi had income tax refunds in 2016 and income tax payments in 2015 in accordance with an intercompany income tax allocation agreement. The 2016 income tax refunds resulted primarily from adjustments associated with the settlementhedges approximately one-third of the 2010-2011 IRS audit whereasprojected exposure to natural gas price changes for the income tax payments in 2015 were primarily duegas used to serve its native electric load for all months of the results of operations and the reversal of taxable temporary differences as well as final settlement of amounts outstanding associated with the 2006-2007 IRS audit. year. The hedge quantity is reviewed on an annual basis.
Storm Cost Recovery
See Note 32 to the financial statements for a discussion of the income tax audits.proceedings regarding recovery of Entergy Mississippi’s storm-related costs.
Investing Activities
Net cash flow used in investing activities increased $127.8 million in 2017 primarily due to:
an increase of $48.4 million in transmission construction expenditures primarily due to a higher scope of work performed in 2017 as compared to 2016;
an increase of $39.2 million in fossil-fueled generation construction expenditures primarily due to a higher scope of work performed in 2017 as compared to 2016; and
an increase of $30.2 million in distribution construction expenditures primarily due to an increase in storm spending in 2017 as compared to 2016 and increased spending on digital technology improvements within the customer contact centers.
Part I Item 1
Entergy Mississippi, Inc.Corporation, Utility operating companies, and System Energy
Management’s Financial Discussion and Analysis
Net cash flow used in investing activities increased $44.3 million in 2016 primarily due to:
an increase of $72.4 million in transmission construction expenditures primarily due to a higher scope of work performed in 2016 as compared to 2015;
insurance proceeds of $12.9 million received in 2015 related to the unplanned outage event that occurred at the Baxter Wilson (Unit 1) power plant in September 2013;
an increase of $11.4 million in distribution construction expenditures primarily due to a higher scope of non-storm related work performed in 2016 as compared to 2015; and
an increase of $10.1 million due to various information technology projects and upgrades.
The increase was partially offset by a decrease of $20.1 million in fossil-fueled generation construction expenditures primarily due to a decreased scope of work performed during plant outages in 2016 as compared to 2015 and money pool activity.
Decreases in Entergy Mississippi’s receivable from the money pool are a source of cash flow, and Entergy Mississippi’s receivable from the money pool decreased by $15.3 million in 2016 compared to increasing by $25.3 million in 2015. The money pool is an inter-company borrowing arrangement designed to reduce the Utility subsidiaries’ need for external short-term borrowings.
Financing Activities
Net cash flow provided by financing activities increased $111.5 million in 2017 primarily due to the issuance of $150 million of 3.25% Series first mortgage bonds in November 2017 and the redemption of $30 million of 6.25% Series preferred stock in 2016, partially offset by the net issuance of $61.4 million of long-term debt in 2016.
Entergy Mississippi’s financing activities provided $8.4 million of cash in 2016 compared to using $43.2 million in 2015 primarily due to the net issuance of $61.4 million of long-term debt in 2016 and a decrease of $16 million in common stock dividends paid in 2016, partially offset by the redemption of $30 million of 6.25% Series preferred stock. The decrease in dividends paid was primarily because of lower operating cash flows and higher capital expenditures, each discussed above.
See Note 5 to the financial statements for details on long-term debt.
Capital Structure
Entergy Mississippi’s capitalization is balanced between equity and debt, as shown in the following table. The increase in the debt to capital ratio for Entergy Mississippi is primarily due to the issuance of long-term debt in 2017.
|
| | | | | |
| December 31, 2017 | | December 31, 2016 |
Debt to capital | 51.5 | % | | 50.2 | % |
Effect of subtracting cash | (0.2 | %) | | (1.8 | %) |
Net debt to net capital | 51.3 | % | | 48.4 | % |
Net debt consists of debt less cash and cash equivalents. Debt consists of short-term borrowings, capital lease obligations, and long-term debt, including the currently maturing portion. Capital consists of debt, preferred stock without sinking fund, and common equity. Net capital consists of capital less cash and cash equivalents. Entergy Mississippi uses the debt to capital ratio in analyzing its financial condition and believes it provides useful information to its investors and creditors in evaluating Entergy Mississippi’s financial condition. Entergy Mississippi uses the net debt to net capital ratio in analyzing its financial condition and believes it provides useful information to its investors
Entergy Mississippi, Inc.
Management’s Financial Discussion and Analysis
and creditors in evaluating Entergy Mississippi’s financial condition because net debt indicates Entergy Mississippi’s outstanding debt position that could not be readily satisfied by cash and cash equivalents on hand.
Entergy Mississippi seeks to optimize its capital structure in accordance with its regulatory requirements and to control its cost of capital while also maintaining equity capitalization at a level consistent with investment-grade debt ratings. To the extent that operating cash flows are in excess of planned investments, cash may be used to reduce outstanding debt or may be paid as a dividend, or both, in appropriate amounts to maintain the targeted capital structure. To the extent that operating cash flows are insufficient to support planned investments, Entergy Mississippi may issue incremental debt or reduce dividends, or both, to maintain its targeted capital structure. In addition, in certain infrequent circumstances, such as large transactions that would materially alter the capital structure if financed entirely with debt and reducing dividends, Entergy Mississippi may receive equity contributions to maintain the targeted capital structure.
Uses of Capital
Entergy Mississippi requires capital resources for:
construction and other capital investments;
debt and preferred stock maturities or retirements;
working capital purposes, including the financing of fuel and purchased power costs; and
dividend and interest payments.
Following are the amounts of Entergy Mississippi’s planned construction and other capital investments.
|
| | | | | | | | | | | |
| 2018 | | 2019 | | 2020 |
| (In Millions) |
Planned construction and capital investment: | | | | | |
Generation |
| $55 |
| |
| $45 |
| |
| $260 |
|
Transmission | 145 |
| | 100 |
| | 105 |
|
Distribution | 125 |
| | 140 |
| | 130 |
|
Utility Support | 70 |
| | 50 |
| | 35 |
|
Total |
| $395 |
| |
| $335 |
| |
| $530 |
|
Following are the amounts of Entergy Mississippi’s existing debt obligations and lease obligations (includes estimated interest payments) and other purchase obligations.
|
| | | | | | | | | | | | | | | | | | | |
| 2018 | | 2019-2020 | | 2021-2022 | | After 2022 | | Total |
| (In Millions) |
Long-term debt (a) |
| $50 |
| |
| $234 |
| |
| $80 |
| |
| $1,784 |
| |
| $2,148 |
|
Operating leases |
| $12 |
| |
| $19 |
| |
| $12 |
| |
| $6 |
| |
| $49 |
|
Purchase obligations (b) |
| $280 |
| |
| $519 |
| |
| $490 |
| |
| $5,304 |
| |
| $6,593 |
|
| |
(a) | Includes estimated interest payments. Long-term debt is discussed in Note 5 to the financial statements. |
| |
(b) | Purchase obligations represent the minimum purchase obligation or cancellation charge for contractual obligations to purchase goods or services. For Entergy Mississippi, almost all of the total consists of unconditional fuel and purchased power obligations, including its obligations under the Unit Power Sales Agreement, which is discussed in Note 8 to the financial statements. |
In addition to the contractual obligations given above, Entergy Mississippi currently expects to contribute approximately $14.9 million to its qualified pension plans and approximately $110 thousand to other postretirement health care and life insurance plans in 2018, although the 2018 required pension contributions will be known with more certainty when the January 1, 2018 valuations are completed, which is expected by April 1, 2018 See “Critical Accounting Estimates
Entergy Mississippi, Inc.
Management’s Financial Discussion and Analysis
– Qualified Pension and Other Postretirement Benefits” below for a discussion of qualified pension and other postretirement benefits funding.
In addition to routine capital spending to maintain operations, the planned capital investment estimate for Entergy Mississippi includes amounts associated with specific investments such as transmission projects to enhance reliability, reduce congestion, and enable economic growth; distribution spending to enhance reliability and improve service to customers, including investment to support advanced metering; resource planning, including potential generation projects; system improvements; and other investments. Estimated capital expenditures are subject to periodic review and modification and may vary based on the ongoing effects of regulatory constraints and requirements, environmental compliance, business opportunities, market volatility, economic trends, business restructuring, changes in project plans, and the ability to access capital. Management provides more information on long-term debt and preferred stock maturities in Notes 5 and 6 to the financial statements.
As a wholly-owned subsidiary, Entergy Mississippi dividends its earnings to Entergy Corporation at a percentage determined monthly. Provisions in Entergy Mississippi’s articles of incorporation relating to preferred stock restrict the amount of retained earnings available for the payment of cash dividends or other distributions on its common and preferred stock.
Advanced Metering Infrastructure (AMI)
In November 2016, Entergy Mississippi filed an application seeking an order from the MPSC granting a certificate of public convenience and necessity and finding that Entergy Mississippi’s deployment of AMI is in the public interest. Entergy Mississippi proposed to replace existing meters with advanced meters that enable two-way data communication; to design and build a secure and reliable network to support such communications; and to implement support systems. AMI is intended to serve as the foundation of Entergy Mississippi’s modernized power grid. The filing included an estimate of implementation costs for AMI of $132 million. The filing identified a number of quantified and unquantified benefits, and Entergy Mississippi provided a cost benefit analysis showing that its AMI deployment is expected to produce a nominal benefit to customers of $496 million over a 15-year period, which when netted against the costs of AMI results in $183 million of net customer benefits. Entergy Mississippi also sought to continue to include in rate base the remaining book value, approximately $56 million at December 31, 2015, of existing meters that will be retired as part of the AMI deployment and also to depreciate those assets using current depreciation rates. Entergy Mississippi proposed a 15-year depreciable life for the new advanced meters, the three-year deployment of which is expected to begin in 2019, subject to approval by the MPSC, with deployment of the communications network expected to begin in 2018. Entergy Mississippi proposed to include the AMI deployment costs and the quantified benefits in existing rate mechanisms, primarily through future formula rate plan filings and/or future energy cost recovery rider schedule re-determinations, as applicable. In May 2017 the Mississippi Public Utilities Staff and Entergy Mississippi entered into and filed a joint stipulation supporting Entergy Mississippi’s filing, and the MPSC issued an order approving the filing without material changes, finding that Entergy Mississippi’s deployment of AMI is in the public interest and granting a certificate of public convenience and necessity. The MPSC order also confirmed that Entergy Mississippi shall continue to include in rate base the remaining book value of existing meters that will be retired as part of the AMI deployment and also to depreciate those assets using current depreciation rates.
Sources of Capital
Entergy Mississippi’s sources to meet its capital requirements include:
internally generated funds;
cash on hand;
debt or preferred stock issuances; and
bank financing under new or existing facilities.
Entergy Mississippi, Inc.
Management’s Financial Discussion and Analysis
Entergy Mississippi may refinance, redeem, or otherwise retire debt and preferred stock prior to maturity, to the extent market conditions and interest and dividend rates are favorable.
All debt and common and preferred stock issuances by Entergy Mississippi require prior regulatory approval. Preferred stock and debt issuances are also subject to issuance tests set forth in its corporate charter, bond indenture, and other agreements. Entergy Mississippi has sufficient capacity under these tests to meet its foreseeable capital needs.
Entergy Mississippi’s receivables from the money pool were as follows as of December 31 for each of the following years.
|
| | | | | | |
2017 | | 2016 | | 2015 | | 2014 |
(In Thousands) |
$1,633 | | $10,595 | | $25,930 | | $644 |
See Note 4 to the financial statements for a description of the money pool.
Entergy Mississippi has four separate credit facilities in the aggregate amount of $102.5 million scheduled to expire May 2018. No borrowings were outstanding under the credit facilities as of December 31, 2017. In addition, Entergy Mississippi is a party to an uncommitted letter of credit facility as a means to post collateral to support its obligations to MISO. As of December 31, 2017, a $15.3 million letter of credit was outstanding under Entergy Mississippi’s uncommitted letter of credit facility. See Note 4 to the financial statements for additional discussion of the credit facilities.
Entergy Mississippi obtained authorizations from the FERC through October 2019 for short-term borrowings not to exceed an aggregate amount of $175 million at any time outstanding and long-term borrowings and security issuances. See Note 4 to the financial statements for further discussion of Entergy Mississippi’s short-term borrowing limits.
State and Local Rate Regulation and Fuel-Cost Recovery
The rates that Entergy Mississippi charges for electricity significantly influence its financial position, results of operations, and liquidity. Entergy Mississippi is regulated and the rates charged to its customers are determined in regulatory proceedings. A governmental agency, the MPSC, is primarily responsible for approval of the rates charged to customers.
Formula Rate Plan
In March 2016, Entergy Mississippi submitted its formula rate plan 2016 test year filing showing Entergy Mississippi’s projected earned return forAugust 2012 the 2016 calendar yearMPSC opened inquiries to be belowreview whether the formula rate plan bandwidth. The filing showed a $32.6 million rate increase was necessarycurrent formulaic methodology used to reset Entergy Mississippi’s earnedcalculate the return on common equity to the specified point of adjustment of 9.96%, within thein both Entergy Mississippi’s formula rate plan bandwidth. In June 2016 the MPSC approved Entergy Mississippi’s joint stipulation with theand Mississippi Public Utilities Staff. The joint stipulation provided for a total revenue increase of $23.7 million. The revenue increase includes a $19.4 million increase through thePower Company’s annual formula rate plan resultingwas still appropriate or could be improved to better serve the public interest. The intent of this inquiry and review was for informational purposes only; the evaluation of any recommendations for changes to the existing methodology would take place in a return on common equity point of adjustment of 10.07%. The revenue increase also includes $4.3 milliongeneral rate case or in incremental ad valorem tax expenses to be collected through an updated ad valorem tax adjustment rider. The revenue increase and ad valorem tax adjustment rider were effective with the July 2016 bills.
In March 2017, Entergy Mississippi submitted itsexisting formula rate plan 2017 test year filing and 2016 look-back filing showing Entergy Mississippi’s earned return for the historical 2016 calendar year and projected earned return for the 2017 calendar year to be within the formula rate plan bandwidth, resulting in no change in rates.proceeding. In June 2017, Entergy Mississippi andMarch 2013 the Mississippi Public Utilities Staff entered into a stipulation that confirmed that Entergy
Entergy Mississippi, Inc.
Management’s Financial Discussion and Analysis
Mississippi’s earned returns for both the 2016 look-back filing and 2017 test year were within the respective formula rate plan bandwidths. In June 2017 the MPSC approved the stipulation, which resulted in no change in rates.
Fuel and Purchased Power Cost Recovery
Entergy Mississippi’s rate schedules include an energy cost recovery rider that is adjusted annually to reflect accumulated over- or under-recoveries. Entergy Mississippi’s fuel cost recoveries are subject to annual audits conducted pursuant to the authority of the MPSC.
Entergy Mississippi had a deferred fuel over-recovery balance of $58.3 million as of May 31, 2015, along with an under-recovery balance of $12.3 million under the power management rider. Pursuant to those tariffs, in July 2015, Entergy Mississippi filed for interim adjustments under both the energy cost recovery rider and the power management rider to flow through to customers the approximately $46 million net over-recovery over a six-month period. In August 2015, the MPSC approved the interim adjustments effective with September 2015 bills. In November 2015, Entergy Mississippi filed its annual redetermination ofconsultant’s report which noted the annual factor to be applied under the energy cost recovery rider. The calculation of the annual factor included a projected over-recovery balance of $48 million projected through January 31, 2016. In January 2016 the MPSC approved the redetermined annual factor effective February 1, 2016. The MPSC further ordered, however, that due to the significant change in natural gas price forecasts since Entergy Mississippi’s filing in November 2015 Entergy Mississippi should file a revised fuel factor with the MPSC no later than February 1, 2016. Pursuant to that order, Entergy Mississippi submitted a revised fuel factor. Additionally, because Entergy Mississippi’s projected over-recovery balance for the period ending January 31, 2016 was $68 million, in February 2016, Entergy Mississippi filed for another interim adjustment to the energy cost factor effective April 2016 to flow through to customers the projected over-recovery balance over a six-month period. That interim adjustment was approved by the MPSC in February 2016 effective for April 2016 bills.
In November 2016, Entergy Mississippi filed its annual redetermination of the annual factor to be applied under the energy cost recovery rider. The calculation of the annual factor included an over-recovery of less than $2 million as of September 30, 2016. In January 2017 the MPSC approved the annual factor effective with February 2017 bills. Also in January 2017 the MPSC certified to the Mississippi Legislature the audit reports of its independent auditors for the fuel year ending September 30, 2016. In its order, the MPSC expressly reserved the right to review and determine the recoverability of any and all purchased power expenditures made during fiscal year 2016. The MPSC hired independent auditors to conduct an annual operations audit and a financial audit. The independent auditors issued their audit reports in December 2017. The audit reports included several recommendations for actionreturn on common equity estimation methods used by Entergy Mississippi and Mississippi Power Company are commonly used throughout the electric utility industry. The report suggested ways in which the methods used by Entergy Mississippi and Mississippi Power Company might be improved, but did not recommend any cost disallowances.specific changes in the return on common equity formulas or calculations at that time. In January 2018June 2014 the MPSC certifiedexpanded the audit reportsscope of the August 2012 inquiry to study the Mississippi Legislature. In November 2017 the Public Utilities Staff separately engagedmerits of adopting a consultantuniform formula rate plan that could be applied, where possible in whole or in part, to review the outage at the Grand Gulf Nuclear Station that began in 2016. The review is currently in progress.
In November 2017,both Entergy Mississippi filed its annual redetermination ofand Mississippi Power Company in order to achieve greater consistency in the annual factor to be applied under the energy cost recovery rider.plans. The calculation of the annual factor included an under-recovery of approximately $61.5 million as of September 30, 2017. Entergy Mississippi proposed a two-tiered energy cost factor designed to promote overall rate stability throughout 2018 particularly during the summer months. In January 2018 the MPSC approved the proposed energy cost factors effective for February 2018 bills.
Mississippi Attorney General Complaint
The Mississippi attorney general filed a complaint in state court in December 2008 against Entergy Corporation, Entergy Mississippi, Entergy Services, and Entergy Power alleging, among other things, violations of Mississippi statutes, fraud, and breach of good faith and fair dealing, and requesting an accounting and restitution. The complaint is wide ranging and relates to tariffs and procedures under which Entergy Mississippi purchases power not generated in Mississippi to meet electricity demand. Entergy believes the complaint is unfounded. In December 2008 the defendant Entergy companies removed the Attorney General’s lawsuit to U.S. District Court in Jackson, Mississippi. The Mississippi attorney general moved to remand the matter to state court. In August 2012 the District
Entergy Mississippi, Inc.
Management’s Financial Discussion and Analysis
Court issued an opinion denying the Attorney General’s motion for remand, finding that the District Court has subject matter jurisdiction under the Class Action Fairness Act.
The defendant Entergy companies answered the complaint and filed a counterclaim for relief based upondirected the Mississippi Public Utilities ActStaff to investigate and review Entergy Mississippi’s formula rate plan rider schedule and Mississippi Power Company’s Performance Evaluation Plan by considering the Federal Power Act.merits and deficiencies and possibilities for improvement of each and then to propose a uniform formula rate plan that, where possible, could be applicable to both companies. No procedural schedule has been set. In May 2009October 2014 the defendant Mississippi Public Utilities Staff conducted a public technical conference to discuss performance benchmarking and its potential application to the electric utilities’ formula rate plans. The docket remains open.
Entergy companies filedNew Orleans
Fuel Recovery
Entergy New Orleans’s electric rate schedules include a motionfuel adjustment tariff designed to reflect no more than targeted fuel and purchased power costs, adjusted by a surcharge or credit for judgment ondeferred fuel expense arising from the pleadings asserting groundsmonthly reconciliation of federal preemption,actual fuel and purchased power costs incurred with fuel cost revenues billed to customers, including carrying charges.
Entergy New Orleans’s gas rate schedules include a purchased gas adjustment to reflect estimated gas costs for the exclusive jurisdiction of the MPSC, and factual errorsbilling month, adjusted by a surcharge or credit similar to that included in the Attorney General’s complaint. In September 2012electric fuel adjustment clause, including carrying charges.
To help stabilize gas costs, Entergy New Orleans seeks approval annually from the District Court heard oral argument on Entergy’s motion for judgment on the pleadings.
In January 2014 the U.S. Supreme Court issued a decision in which it held that cases brought by attorneys general as the sole plaintiffCity Council to enforce state laws were not considered “mass actions” under the Class Action Fairness Act, so as to establish federal subject matter jurisdiction. One day later the Attorney General renewed his motion to remand the Entergy case back to state court, citing the U.S. Supreme Court’s decision. The defendant Entergy companies responded to that motion reiterating the additional grounds asserted for federal question jurisdiction, and the District Court held oral argument on the renewed motion to remand in February 2014. In April 2015 the District Court entered an order denying the renewed motion to remand, holding that the District Court has federal question subject matter jurisdiction. The Attorney General appealed to the U.S. Fifth Circuit Courtcontinue implementation of Appeals the denial of the motion to remand. In July 2015 the Fifth Circuit issued an order denying the appeal, and the Attorney General subsequently filed a petition for rehearing of the request for interlocutory appeal, which was also denied. In December 2015 the District Court ordered that the parties submit to the court undisputed and disputed facts that are material to the Entergy defendants’ motion for judgment on the pleadings, as well as supplemental briefs regarding the same. Those filings were made in January 2016.
In September 2016 the Attorney General filed a mandamus petitionits natural gas hedging program consistent with the U.S. Fifth Circuit CourtCity Council’s stated policy objectives. The program uses financial instruments to hedge exposure to volatility in the wholesale price of Appeals in whichnatural gas purchased to serve Entergy New Orleans gas customers. Entergy New Orleans hedges up to 25% of actual gas sales made during the Attorney General asked the Fifth Circuit to order the chief judge to reassign this case to another judge. In September 2016 the District Court denied the Entergy companies’ motion for judgment on the pleadings. The Entergy companies filed a motion seeking to amend the District Court’s order denying the Entergy companies’ motion for judgment on the pleadings and allowing an interlocutory appeal. In October 2016 the Fifth Circuit granted the Attorney General’s motion for writ of mandamus and directed the chief judge to assign the case to a new judge. The case was reassigned in October 2016. In January 2017 the District Court denied the Entergy companies’ motion to amend the order denying the motion for judgment on the pleadings. In June 2017 the District Court issued a case management order setting a trial date in November 2018. Discovery is currently in progress.winter months.
Storm Damage ProvisionCost Recovery
Entergy Mississippi has approval from the MPSC to collect a storm damage provision of $1.75 million per month. If Entergy Mississippi’s accumulated storm damage provision balance exceeds $15 million, the collection of the storm damage provision ceases until such time that the accumulated storm damage provision becomes less than $10 million. As of April 30, 2016, Entergy Mississippi’s storm damage provision balance was less than $10 million, therefore Entergy Mississippi resumed billing the monthly storm damage provision effective with June 2016 bills. As of September 30, 2016, however, Entergy Mississippi’s storm damage provision balance again exceeded $15 million. Accordingly the storm damage provision was reset to zero beginning with November 2016 bills. As of July 31, 2017, the balance in Entergy Mississippi’s accumulated storm damage provision was again less than $10 million, therefore Entergy Mississippi resumed billing the monthly storm damage provision effective with September 2017 bills.
Federal Regulation
See the “Rate, Cost-recovery, and Other Regulation– Federal Regulation” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis and Note 2 to the financial statements for a discussion of federal regulation.Entergy New Orleans’s efforts to recover storm-related costs.
Fuel Recovery
Entergy Texas’s rate schedules include a fixed fuel factor to recover fuel and purchased power costs, including interest, that are not included in base rates. Semi-annual revisions of the fixed fuel factor are made in March and September based on the market price of natural gas and changes in fuel mix. The amounts collected under Entergy
Part I Item 1
Entergy Corporation, Utility operating companies, and System Energy
Texas’s fixed fuel factor and any interim surcharge or refund are subject to fuel reconciliation proceedings before the PUCT. The PUCT fuel cost proceedings are discussed in Note 2 to the financial statements.
At the PUCT’s April 2013 open meeting, the PUCT Commissioners discussed their view that a purchased power capacity rider was good public policy. The PUCT issued an order in May 2013 adopting the rule allowing for a purchased power capacity rider, subject to an offsetting adjustment for load growth. The rule, as adopted, also includes a process for obtaining pre-approval by the PUCT of purchased power agreements. Entergy Texas has not exercised the option to recover its capacity costs under the new rider mechanism, but will continue to evaluate the benefits of utilizing the new rider to recover future capacity costs.
Electric Industry Restructuring
In June 2009, a law was enacted in Texas that required Entergy Texas to cease all activities relating to Entergy Texas’s transition to competition. The law allows Entergy Texas to remain a part of the SERC Reliability Corporation (SERC) Region, although it does not prevent Entergy Texas from joining another power region. The law provides that proceedings to certify a power region that Entergy Texas belongs to as a qualified power region can be initiated by the PUCT, or on motion by another party, when the conditions supporting such a proceeding exist. Under the law, the PUCT may not approve a transition to competition plan for Entergy Texas until the expiration of four years from the PUCT’s certification of Entergy Texas’s power region.
The law also contains provisions that allow Entergy Texas to take advantage of a cost recovery mechanism that permits annual filings for the recovery of reasonable and necessary expenditures for transmission infrastructure improvement and changes in wholesale transmission charges. This mechanism was previously available to other non-ERCOT Texas utility companies, but not to Entergy Texas.
The law further amended already existing law that had required Entergy Texas to propose for PUCT approval a tariff to allow eligible customers the ability to contract for competitive generation. The amending language in the law provides, among other things, that: 1) the tariff shall not be implemented in a manner that harms the sustainability or competitiveness of manufacturers who choose not to participate in the tariff; 2) Entergy Texas shall “purchase competitive generation service, selected by the customer, and provide the generation at retail to the customer;” and 3) Entergy Texas shall provide and price transmission service and ancillary services under that tariff at a rate that is unbundled from its cost of service. The law directs that the PUCT may not issue an order on the tariff that is contrary to an applicable decision, rule, or policy statement of a federal regulatory agency having jurisdiction.
The PUCT determined that unrecovered costs that may be recovered through the rider consist only of those costs necessary to implement and administer the competitive generation program and do not include lost revenues or embedded generation costs. The amount of customer load that may be included in the competitive generation service program is limited to 115 MW.
In September 2011 the PUCT adopted a proposed rule implementing a distribution cost recovery factor to recover capital and capital-related costs related to distribution infrastructure. The distribution cost recovery factor permits utilities once per year to implement an increase or decrease in rates above or below amounts reflected in base rates to reflect depreciation expense, federal income tax and other taxes, and return on investment. The distribution cost recovery factor rider may be changed a maximum of four times between base rate cases.
In September 2019 the PUCT initiated a rulemaking to promulgate a generation cost recovery factor rule, implementing legislation passed in the 2019 Texas legislative session intended to allow electric utilities to recover generation investments between base rate proceedings. The draft rule was approved for publication at the PUCT’s February 2020 open meeting, and two rounds of public comment will be taken in March and April 2020. The PUCT is expected to approve a final rule within six months of publication.
Part I Item 1
Entergy Corporation, Utility operating companies, and System Energy
Franchises
Entergy Arkansas holds exclusive franchises to provide electric service in approximately 308 incorporated cities and towns in Arkansas. These franchises are unlimited in duration and continue unless the municipalities purchase the utility property. In Arkansas franchises are considered to be contracts and, therefore, are terminable pursuant to the terms of the franchise agreement and applicable statutes.
Entergy Louisiana holds non-exclusive franchises to provide electric service in approximately 175 incorporated municipalities and in the unincorporated areas of approximately 59 parishes of Louisiana. Entergy Louisiana holds non-exclusive franchises to provide natural gas service to customers in the City of Baton Rouge and in East Baton Rouge Parish. Municipal franchise agreement terms range from 25 to 60 years while parish franchise terms range from 25 to 99 years.
Entergy Mississippi Inc.has received from the MPSC certificates of public convenience and necessity to provide electric service to areas within 45 counties, including a number of municipalities, in western Mississippi. Under Mississippi statutory law, such certificates are exclusive. Entergy Mississippi may continue to serve in such municipalities upon payment of a statutory franchise fee, regardless of whether an original municipal franchise is still in existence.
Management’s Financial Discussion
Entergy New Orleans provides electric and Analysisgas service in the City of New Orleans pursuant to indeterminate permits set forth in city ordinances. These ordinances contain a continuing option for the City of New Orleans to purchase Entergy New Orleans’s electric and gas utility properties.
Entergy Texas holds a certificate of convenience and necessity from the PUCT to provide electric service to areas within approximately 27 counties in eastern Texas, and holds non-exclusive franchises to provide electric service in approximately 68 incorporated municipalities. Entergy Texas typically obtains 25-year franchise agreements as existing agreements expire. Entergy Texas’s electric franchises expire over the period 2020-2058.
The business of System Energy is limited to wholesale power sales. It has no distribution franchises.
Property and Other Generation Resources
Owned Generating Stations
The total capability of the generating stations owned and leased by the Utility operating companies and System Energy as of December 31, 2019, is indicated below:
|
| | | | | | | | | | | | | | | | | | |
| | Owned and Leased Capability MW(a) |
Company | | Total | | Gas/Oil | | Nuclear | | Coal | | Hydro | | Solar |
Entergy Arkansas | | 5,183 |
| | 2,106 |
| | 1,810 |
| | 1,194 |
| | 73 |
| | — |
|
Entergy Louisiana | | 10,050 |
| | 7,556 |
| | 2,144 |
| | 350 |
| | — |
| | — |
|
Entergy Mississippi | | 3,342 |
| | 2,923 |
| | — |
| | 417 |
| | — |
| | 2 |
|
Entergy New Orleans | | 508 |
| | 507 |
| | — |
| | — |
| | — |
| | 1 |
|
Entergy Texas | | 2,293 |
| | 2,034 |
| | — |
| | 259 |
| | — |
| | — |
|
System Energy | | 1,393 |
| | — |
| | 1,393 |
| | — |
| | — |
| | — |
|
Total | | 22,769 |
| | 15,126 |
| | 5,347 |
| | 2,220 |
| | 73 |
| | 3 |
|
| |
(a) | “Owned and Leased Capability” is the dependable load carrying capability as demonstrated under actual operating conditions based on the primary fuel (assuming no curtailments) that each station was designed to utilize. |
Part I Item 1
Entergy Corporation, Utility operating companies, and System Energy
Summer peak load for the Utility has averaged 21,636 MW over the previous decade.
The Utility operating companies’ load and capacity projections are reviewed periodically to assess the need and timing for additional generating capacity and interconnections. These reviews consider existing and projected demand, the availability and price of power, the location of new load, the economy, environmental regulations, public policy goals, and the age and condition of Entergy’s existing infrastructure.
The Utility operating companies’ long-term resource strategy (Portfolio Transformation Strategy) calls for the bulk of capacity needs to be met through long-term resources, whether owned or contracted. Over the past decade, the Portfolio Transformation Strategy has resulted in the addition of about 7,314 MW of new long-term resources and the deactivation of over 4,465 MW of legacy generation. As MISO market participants, the Utility operating companies also participate in MISO’s Day Ahead and Real Time Energy and Ancillary Services markets to economically dispatch generation and purchase energy to serve customers reliably and at the lowest reasonable cost.
Other Generation Resources
RFP Procurements
The Utility operating companies from time to time issue requests for proposals (RFP) to procure supply-side resources from sources other than the spot market to meet the unique regional needs of the Utility operating companies. The RFPs issued by the Utility operating companies have sought resources needed to meet near-term MISO reliability requirements as well as longer-term requirements through a broad range of wholesale power products, including limited-term (1 to 3 years) and long-term contractual products and asset acquisitions. The RFP process has resulted in selections or acquisitions, including, among other things:
Entergy Louisiana’s June 2005 purchase of the 718 MW, gas-fired Perryville plant, of which 35% of the output is sold to Entergy Texas;
Entergy Arkansas’s September 2008 purchase of the 789 MW, combined-cycle, gas-fired Ouachita Generating Facility. Entergy Louisiana, as successor in interest to Entergy Gulf States Louisiana, owns one-third of the facility;
Entergy Arkansas’s November 2012 purchase of the 620 MW, combined-cycle, gas-fired Hot Spring Energy facility;
Entergy Mississippi’s November 2012 purchase of the 450 MW, combined-cycle, gas-fired Hinds Energy facility;
Entergy Louisiana’s construction of the 560 MW, combined-cycle, gas turbine Ninemile 6 generating facility at its existing Ninemile Point electric generating station. The facility began commercial operation in December 2014;
Entergy Louisiana’s construction of the 980 MW, combined-cycle, gas turbine St. Charles generating facility at its existing Little Gypsy electric generating station. The facility began commercial operation in May 2019;
Entergy Texas’s construction of the 993 MW, combined-cycle, gas turbine Montgomery County generating facility at its existing Lewis Creek electric generating station. Entergy Texas received regulatory approval from the PUCT in July 2017 and the facility is scheduled to be in service by mid-2021;
Entergy Louisiana’s construction of the 994 MW, combined-cycle, gas turbine Lake Charles generating facility at its existing Nelson electric generating station. Entergy Louisiana received regulatory approval from the LPSC in July 2017 and the facility is scheduled to be in service by mid-2020;
In October 2018, Entergy Mississippi signed an asset acquisition agreement for the purchase of an approximately 100 MW to-be-constructed solar photovoltaic facility located in Sunflower County, Mississippi. In December 2018, Entergy Mississippi filed for regulatory approval. A hearing before the MPSC is targeted to occur by the second quarter 2020, and closing is expected to occur by the end of 2021;
In March 2019, Entergy Arkansas signed an agreement for the purchase of an approximately 100 MW to-be- constructed solar energy facility that will be sited on approximately 800 acres in White County near Searcy, Arkansas. In May 2019, Entergy Arkansas filed a petition with the APSC seeking a finding that the transaction
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Entergy Corporation, Utility operating companies, and System Energy
is in the public interest and requesting all necessary approvals. Closing is expected to occur by the end of 2021; and
Entergy New Orleans’s construction of the 20 MW, self-build solar project New Orleans Solar Station located at the NASA Michoud Facility. In August 2019, Entergy New Orleans received regulatory approval and the facility is scheduled to be in service as early as late-2020.
The RFP process has also resulted in the selection, or confirmation of the economic merits of, long-term purchased power agreements (PPAs), including, among others:
River Bend 30% life-of-unit PPA between Entergy Louisiana and Entergy New Orleans for 100 MW related to Entergy Louisiana’s unregulated portion of the River Bend nuclear station, which portion was formerly owned by Cajun;
Entergy Arkansas wholesale base load capacity life-of-unit PPAs executed in 2003 totaling approximately 220 MW between Entergy Arkansas and Entergy Louisiana (110 MW) and between Entergy Arkansas and Entergy New Orleans (110 MW) related to the sale of a portion of Entergy Arkansas’s coal and nuclear base load resources (which had not been included in Entergy Arkansas’s retail rates);
In December 2009, Entergy Texas and Exelon Generation Company, LLC executed a 10-year agreement for 150-300 MW from the Frontier Generating Station located in Grimes County, Texas;
In May 2011, Entergy Texas and Calpine Energy Services, L.P. executed a 10-year agreement for 485 MW from the Carville Energy Center located in St. Gabriel, Louisiana. Entergy Louisiana purchases 50% of the facility’s capacity and energy from Entergy Texas. In July 2014, LS Power purchased the Carville Energy Center and replaced Calpine Energy Services as the counterparty to the agreement;
In September 2012, Entergy Gulf States Louisiana executed a 20-year agreement for 28 MW, with the potential to purchase an additional 9 MW when available, from Rain CII Carbon LLC’s petroleum coke calcining facility in Sulphur, Louisiana. The facility began commercial operation in May 2013. Entergy Louisiana, as successor in interest to Entergy Gulf States Louisiana, now holds the agreement with the facility;
In March 2013, Entergy Gulf States Louisiana executed a 20-year agreement for 8.5 MW from Agrilectric Power Partners, LP’s refurbished rice hull-fueled electric generation facility located in Lake Charles, Louisiana. Entergy Louisiana, as successor in interest to Entergy Gulf States Louisiana, now holds the agreement with Agrilectric;
In September 2013, Entergy Louisiana executed a 10-year agreement with TX LFG Energy, LP, a wholly-owned subsidiary of Montauk Energy Holdings, LLC, to purchase approximately 3 MW from its landfill gas-fueled power generation facility located in Cleveland, Texas;
Entergy Mississippi’s cost-based purchase, beginning in January 2013, of 90 MW from Entergy Arkansas’s share of Grand Gulf (only 60 MW of this PPA came through the RFP process). Cost recovery for the 90 MW was approved by the MPSC in January 2013;
In April 2015, Entergy Arkansas and Stuttgart Solar, LLC executed a 20-year agreement for 81 MW from a solar photovoltaic electric generation facility located near Stuttgart, Arkansas. The APSC approved the project and deliveries pursuant to that agreement commenced in June 2018;
In November 2016, Entergy Louisiana and LS Power executed a 10-year agreement for 485 MW from the Carville Energy Center located in St. Gabriel, Louisiana. The transaction received regulatory approval and will begin in June 2022;
In November 2016, Entergy Louisiana and Occidental Chemical Corporation executed a 10-year agreement for 500 MW from the Taft Cogeneration facility located in Hahnville, Louisiana. The transaction received regulatory approval and began in June 2018;
In June 2017, Entergy Arkansas and Chicot Solar, LLC executed a 20-year agreement for 100 MW from a solar photovoltaic electric generating facility located in Chicot County, Arkansas. The transaction received regulatory approval and will begin in August 2020;
In February 2018, Entergy Louisiana and LA3 West Baton Rouge, LLC (Capital Region Solar project) executed a 20-year agreement for 50 MW from a solar photovoltaic electric generating facility located in West Baton Rouge Parish, Louisiana. The transaction received regulatory approval in February 2019 and the agreement is expected to begin in second quarter 2020;
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In July 2018, Entergy New Orleans and St. James Solar, LLC executed a 20-year agreement for 20 MW from a solar photovoltaic electric generating facility located in St. James Parish, Louisiana. The transaction received regulatory approval in July 2019; and
In February 2019, Entergy New Orleans and Iris Solar, LLC executed a 20-year agreement for 50 MW from a solar photovoltaic electric generating facility located in Washington Parish, Louisiana. The transaction received regulatory approval in July 2019.
Other Procurements From Third Parties
The Utility operating companies have also made resource acquisitions outside of the RFP process, including Entergy Mississippi’s January 2006 acquisition of the 480 MW, combined-cycle, gas-fired Attala power plant; Entergy Gulf States Louisiana’s March 2008 acquisition of the 322 MW, simple-cycle, gas-fired Calcasieu Generating Facility; Entergy Louisiana’s April 2011 acquisition of the 580 MW, combined-cycle, gas-fired Acadia Energy Center Unit 2; Entergy Arkansas’s (Power Block 2), Entergy Louisiana’s (Power Blocks 3 and 4), and Entergy New Orleans’s (Power Block 1) March 2016 acquisitions of the 1,980 MW (summer rating), natural gas-fired, combined-cycle gas turbine Union Power Station power blocks, each rated at 495 MW (summer rating); and Entergy Mississippi’s October 2019 acquisition of the 810 MW, combined-cycle, natural gas-fired Choctaw Generating Station. The Utility operating companies have also entered into various limited- and long-term contracts in recent years as a result of bilateral negotiations.
The Washington Parish Energy Center is a 361 MW natural gas-fired peaking power plant under construction approximately 60 miles north of New Orleans on a site Entergy Louisiana purchased from Calpine in 2019. In May 2018, Entergy Louisiana received LPSC approval of its certification application for this simple-cycle power plant to be developed pursuant to an agreement between Calpine and Entergy Louisiana. Calpine began construction on the plant in early 2019 and Entergy Louisiana will purchase the plant upon completion, anticipated to be later in 2020, for a fixed payment to reimburse construction costs plus an associated premium.
Interconnections
The Utility operating companies’ generating units are interconnected by a transmission system operating at various voltages up to 500 kV. These generating units consist primarily of steam-electric production facilities and are provided dispatch instructions by MISO. Entergy’s Utility operating companies are MISO market participants and are interconnected with many neighboring utilities. MISO is an essential link in the safe, cost-effective delivery of electric power across all or parts of 15 U.S. states and the Canadian province of Manitoba. As a Regional Transmission Organization, MISO assures consumers of unbiased regional grid management and open access to the transmission facilities under MISO’s functional supervision. In addition, the Utility operating companies are members of SERC. SERC is a nonprofit corporation responsible for promoting and improving the reliability, adequacy, and critical infrastructure of the bulk power supply systems in all or portions of 16 central and southeastern states.SERC serves as a regional entity with delegated authority from the North American Electric Reliability Corporation (NERC) for the purpose of proposing and enforcing reliability standards within the SERC Region.
Gas Property
As of December 31, 2019, Entergy New Orleans distributed and transported natural gas for distribution within New Orleans, Louisiana, through approximately 2,600 miles of gas pipeline. As of December 31, 2019, the gas properties of Entergy Louisiana, which are located in and around Baton Rouge, Louisiana, were not material to Entergy Louisiana’s financial position.
Title
The Utility operating companies’ generating stations are generally located on properties owned in fee simple. Most of the substations and transmission and distribution lines are constructed on private property or public
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Entergy Corporation, Utility operating companies, and System Energy
rights-of-way pursuant to easements, servitudes, or appropriate franchises. Some substation properties are owned in fee simple. The Utility operating companies generally have the right of eminent domain, whereby they may perfect title to, or secure easements or servitudes on, private property for their utility operations.
Substantially all of the physical properties and assets owned by Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy are subject to the liens of mortgages securing bonds issued by those companies. The Lewis Creek generating station of Entergy Texas was acquired by merger with a subsidiary of Entergy Texas and is currently not subject to the lien of the Entergy Texas indenture.
Fuel Supply
The sources of generation and average fuel cost per kWh for the Utility operating companies and System Energy for the years 2017-2019 were:
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Natural Gas | | Nuclear | | Coal | | Purchased Power | | MISO Purchases |
Year | | % of Gen | | Cents Per kWh | | % of Gen | | Cents Per kWh | | % of Gen | | Cents Per kWh | | % of Gen | | Cents Per kWh | | % of Gen | | Cents Per kWh |
2019 | | 40 | | 2.33 |
| | 28 | | 0.73 |
| | 6 | | 2.31 |
| | 8 | | 4.86 |
| | 18 | | 2.71 |
|
2018 | | 39 | | 2.84 |
| | 27 | | 0.84 |
| | 9 | | 2.24 |
| | 8 | | 5.23 |
| | 17 | | 3.71 |
|
2017 | | 38 | | 2.60 |
| | 26 | | 0.86 |
| | 8 | | 2.35 |
| | 8 | | 4.02 |
| | 20 | | 3.09 |
|
Actual 2019 and projected 2020 sources of generation for the Utility operating companies and System Energy, including certain power purchases from affiliates under life of unit power purchase agreements, including the Unit Power Sales Agreement, are:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Natural Gas | | Nuclear | | Coal | | Purchased Power (d) | | MISO Purchases (e) |
| 2019 | | 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 | | 2020 |
Entergy Arkansas (a) | 28 | % | | 33 | % | | 53 | % | | 53 | % | | 15 | % | | 13 | % | | 1 |
| | 1 | % | | 3 | % | | — |
Entergy Louisiana | 43 | % | | 56 | % | | 25 | % | | 28 | % | | 2 | % | | 4 | % | | 10 | % | | 12 | % | | 20 | % | | — |
Entergy Mississippi (b) | 49 | % | | 72 | % | | 25 | % | | 19 | % | | 9 | % | | 9 | % | | — |
| | — |
| | 17 | % | | — |
Entergy New Orleans (b) | 51 | % | | 58 | % | | 39 | % | | 39 | % | | 2 | % | | 2 | % | | 1 | % | | 1 | % | | 7 | % | | — |
Entergy Texas | 29 | % | | 32 | % | | 9 | % | | 18 | % | | 4 | % | | 11 | % | | 30 | % | | 39 | % | | 28 | % | | — |
System Energy (c) | — |
| | — |
| | 100 | % | | 100 | % | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
Utility (a) (b) | 40 | % | | 51 | % | | 28 | % | | 32 | % | | 6 | % | | 7 | % | | 8 | % | | 10 | % | | 18 | % | | — |
| |
(a) | Hydroelectric power provided less than 1% of Entergy Arkansas’s generation in 2019 and is expected to provide less than 1% of its generation in 2020. |
| |
(b) | Solar power provided less than 1% of Entergy Mississippi’s and Entergy New Orleans's generation in 2019 and is expected to provide less than 1% of each of Entergy Mississippi’s and Entergy New Orleans's generation in 2020. |
| |
(c) | Capacity and energy from System Energy’s interest in Grand Gulf is allocated as follows under the Unit Power Sales Agreement: Entergy Arkansas - 36%; Entergy Louisiana - 14%; Entergy Mississippi - 33%; and Entergy New Orleans - 17%. Pursuant to purchased power agreements, Entergy Arkansas is selling a portion of its owned capacity and energy from Grand Gulf to Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans. |
| |
(d) | Excludes MISO purchases. |
| |
(e) | In December 2013, Entergy integrated its transmission system into the MISO RTO. Entergy offers all of its generation into the MISO energy market on a day-ahead and real-time basis and bids for power in the MISO energy market to serve the demand of its customers, with MISO making dispatch decisions. The MISO purchases metric provided for 2019 is not projected for 2020. |
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Entergy Corporation, Utility operating companies, and System Energy
Some of the Utility’s gas-fired plants are also capable of using fuel oil, if necessary. Although based on current economics the Utility does not expect fuel oil use in 2020, it is possible that various operational events including weather or pipeline maintenance may require the use of fuel oil.
Natural Gas
The Utility operating companies have long-term firm and short-term interruptible gas contracts for both supply and transportation. Over 50% of the Utility operating companies’ power plants maintain some level of long-term firm transportation. Short-term contracts and spot-market purchases satisfy additional gas requirements. Entergy Texas owns a gas storage facility that provides reliable and flexible natural gas service to certain generating stations.
Many factors, including wellhead deliverability, storage, pipeline capacity, and demand requirements of end users, influence the availability and price of natural gas supplies for power plants. Demand is primarily tied to weather conditions as well as to the prices and availability of other energy sources. Pursuant to federal and state regulations, gas supplies to power plants may be interrupted during periods of shortage. To the extent natural gas supplies are disrupted or natural gas prices significantly increase, the Utility operating companies may in some instances use alternate fuels, such as oil when available, or rely to a larger extent on coal, nuclear generation, and purchased power.
Coal
Entergy Arkansas has committed to seven one- to three-year and two spot contracts that will supply approximately 85% of the total coal supply needs in 2020. These contracts are staggered in term so that not all contracts have to be renewed the same year. The remaining 15% of total coal requirements will be satisfied by contracts with a term of less than one year. Based on continued improved Powder River Basin (PRB) coal deliveries by rail and the high cost of alternate sources and modes of transportation, no alternative coal consumption is expected at Entergy Arkansas during 2020. Coal will be transported to Arkansas via an existing transportation agreement that is expected to provide all of Entergy Arkansas’s rail transportation requirements for 2020.
Entergy Louisiana has committed to four one- to three-year contracts that will supply approximately 90% of Nelson Unit 6 coal needs in 2020. If needed, additional PRB coal will be purchased through contracts with a term of less than one year to provide the remaining supply needs. For the same reasons as for Entergy Arkansas’s plants, no alternative coal consumption is expected at Nelson Unit 6 during 2020. Coal will be transported to Nelson primarily via an existing transportation agreement that is expected to provide all of Entergy Louisiana’s rail transportation requirements for 2020.
For the year 2019, coal transportation delivery rates to Entergy Arkansas-and Entergy Louisiana-operated coal-fired units were satisfactory to meet supply needs and obligations. Delivery rates improved in the second half of the year as track restoration efforts were completed by the railroads following spring flooding events, although flooding impacts were overall inconsequential to the companies’ coal operations. Both Entergy Arkansas and Entergy Louisiana control a sufficient number of railcars to satisfy the rail transportation requirement.
The operator of Big Cajun 2 - Unit 3, Louisiana Generating, LLC, has advised Entergy Louisiana and Entergy Texas that it has adequate rail car and barge capacity to meet the volumes of PRB coal requested for 2020. Entergy Louisiana’s and Entergy Texas’s coal nomination requests to Big Cajun 2 - Unit 3 are made on an annual basis.
Nuclear MattersFuel
SeeThe nuclear fuel cycle consists of the “Nuclear Matters” sectionfollowing:
mining and milling of uranium ore to produce a concentrate;
conversion of the concentrate to uranium hexafluoride gas;
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Entergy Corporation, Utility operating companies, and System Energy
enrichment of the uranium hexafluoride gas;
fabrication of nuclear fuel assemblies for use in fueling nuclear reactors; and
disposal of spent fuel.
The Registrant Subsidiaries that own nuclear plants, Entergy Arkansas, Entergy Louisiana, and System Energy, are responsible through a shared regulated uranium pool for contracts to acquire nuclear material to be used in fueling Entergy’s Utility nuclear units. These companies own the materials and services in this shared regulated uranium pool on a pro rata fractional basis determined by the nuclear generation capability of each company. Any liabilities for obligations of the pooled contracts are on a several but not joint basis. The shared regulated uranium pool maintains inventories of nuclear materials during the various stages of processing. The Registrant Subsidiaries purchase enriched uranium hexafluoride for their nuclear plant reload requirements at the average inventory cost from the shared regulated uranium pool. Entergy Operations, Inc. contracts separately for the fabrication of nuclear fuel as agent on behalf of each of the Registrant Subsidiaries that owns a nuclear plant. All contracts for the disposal of spent nuclear fuel are between the DOE and the owner of a nuclear power plant.
Based upon currently planned fuel cycles, the Utility nuclear units have a diversified portfolio of contracts and inventory that provides substantially adequate nuclear fuel materials and conversion and enrichment services at what Entergy believes are reasonably predictable or fixed prices through most of 2023. Entergy’s ability to purchase nuclear fuel at reasonably predictable prices, however, depends upon the performance reliability of uranium miners. There are a number of possible supply alternatives that may be accessed to mitigate any supplier performance failure, including potentially drawing upon Entergy’s inventory intended for later generation periods depending upon its risk management strategy at that time, although the pricing of any alternate uranium supply from the market will be dependent upon the market for uranium supply at that time. In addition, some nuclear fuel contracts are on a non-fixed price basis subject to prevailing prices at the time of delivery.
The effects of market price changes may be reduced and deferred by risk management strategies, such as negotiation of floor and ceiling amounts for long-term contracts, buying for inventory or entering into forward physical contracts at fixed prices when Entergy believes it is appropriate and useful. Entergy buys uranium from a diversified mix of sellers located in a diversified mix of countries, and from time to time purchases from nearly all qualified reliable major market participants worldwide that sell into the U.S.
Entergy’s ability to assure nuclear fuel supply also depends upon the performance reliability of conversion, enrichment, and fabrication services providers. There are fewer of these providers than for uranium. For conversion and enrichment services, like uranium, Entergy diversifies its supply by supplier and country and may take special measures as needed to ensure supply of enriched uranium for the reliable fabrication of nuclear fuel. For fabrication services, each plant is dependent upon the effective performance of the fabricator of that plant’s nuclear fuel, therefore, Entergy provides additional monitoring, inspection, and oversight for the fabrication process to assure reliability and quality.
Entergy Arkansas, Entergy Louisiana, and System Energy each have made arrangements to lease nuclear fuel and related equipment and services. The lessors, which are consolidated in the financial statements of Entergy and the applicable Registrant Subsidiary, finance the acquisition and ownership of nuclear fuel through credit agreements and the issuance of notes. These credit facilities are subject to periodic renewal, and the notes are issued periodically, typically for terms between three and seven years.
Natural Gas Purchased for Resale
Entergy New Orleans has several suppliers of natural gas. Its system is interconnected with one interstate and three intrastate pipelines. Entergy New Orleans has a “no-notice” service gas purchase contract with CenterPoint Energy Services which guarantees Entergy New Orleans gas delivery at specific delivery points and at any volume within the minimum and maximum set forth in the contract amounts. The CenterPoint Energy Service gas supply is
Part I Item 1
Entergy Corporation, Utility operating companies, and Subsidiaries Management’s Financial DiscussionSystem Energy
transported to Entergy New Orleans pursuant to a transportation service agreement with Gulf South Pipeline Co. This service is subject to FERC-approved rates. Entergy New Orleans also makes interruptible spot market purchases.
Entergy Louisiana purchased natural gas for resale in 2019 under a firm contract from Sequent Energy Management L.P. The gas is delivered through a combination of intrastate and Analysisinterstate pipelines.
As a result of the implementation of FERC-mandated interstate pipeline restructuring in 1993, curtailments of interstate gas supply could occur if Entergy Louisiana’s or Entergy New Orleans’s suppliers failed to perform their obligations to deliver gas under their supply agreements. Gulf South Pipeline Co. could curtail transportation capacity only in the event of pipeline system constraints.
Federal Regulation of the Utility
State or local regulatory authorities, as described above, regulate the retail rates of the Utility operating companies. The FERC regulates wholesale sales of electricity rates and interstate transmission of electricity, including System Energy’s sales of capacity and energy from Grand Gulf to Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans pursuant to the Unit Power Sales Agreement. See Note 2 to the financial statements for afurther discussion of nuclearfederal regulation proceedings.
System Agreement (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and Entergy Texas)
Prior to each operating company’s termination of participation in the System Agreement (Entergy Arkansas in December 2013, Entergy Mississippi in November 2015, and Entergy Louisiana, Entergy New Orleans, and Entergy Texas each in August 2016), the Utility operating companies engaged in the coordinated planning, construction, and operation of generating and bulk transmission facilities under the terms of the System Agreement, which was a rate schedule approved by the FERC. Under the terms of the System Agreement, generating capacity and other power resources were jointly operated by the Utility operating companies that were participating in the System Agreement. The System Agreement provided, among other things, that parties having generating reserves greater than their allocated share of reserves (long companies) would receive payments from those parties having generating reserves that were less than their allocated share of reserves (short companies). Such payments were at amounts sufficient to cover certain of the long companies’ costs for intermediate and peaking oil/gas-fired generation, including operating expenses, fixed charges on debt, dividend requirements on preferred equity, and a fair rate of return on common equity investment. Under the System Agreement, the rates used to compensate long companies were based on costs associated with the long companies’ steam electric generating units fueled by oil or gas and having an annual average heat rate above 10,000 Btu/kWh. In addition, for all energy exchanged among the Utility operating companies under the System Agreement, the companies purchasing exchange energy were required to pay the cost of fuel consumed in generating such energy plus a charge to cover other associated costs.
Although the System Agreement has terminated, certain of the Utility operating companies’ and their retail regulators are pursuing litigation involving the System Agreement at the FERC and in federal courts. The proceedings include challenges to the allocation of costs as defined by the System Agreement and other matters. See Note 2 to the financial statements for discussion of legal proceedings at the FERC and in federal courts involving the System Agreement.
Transmission and MISO Markets
In December 2013 the Utility operating companies integrated into the MISO RTO. Although becoming a member of MISO did not affect the ownership by the Utility operating companies of their transmission facilities or the responsibility for maintaining those facilities, MISO maintains functional control over the combined transmission systems of its members and administers wholesale energy and ancillary services markets for market participants in the MISO region, including the Utility operating companies. MISO also exercises functional control of transmission
Environmental RisksPart I Item 1
Entergy Corporation, Utility operating companies, and System Energy
Entergy Mississippi’s
planning and congestion management and provides schedules and pricing for the commitment and dispatch of generation that is offered into MISO’s markets, as well as pricing for load that bids into the markets. The Utility operating companies sell capacity, energy, and ancillary services on a bilateral basis to certain wholesale customers and offer available electricity production of their generating facilities into the MISO day-ahead and operationsreal-time energy markets pursuant to the MISO tariff and market rules. Each Utility operating company has its own transmission pricing zone and a formula rate template (included as Attachment O to the MISO tariff) used to establish transmission rates within MISO. The terms and conditions of the MISO tariff, including provisions related to the design and implementation of wholesale markets and the allocation of transmission upgrade costs, are subject to regulation by various governmental authorities having jurisdiction over air quality, water quality, control of toxic substancesthe FERC.
System Energy and hazardous and solid wastes, and other environmental matters. Management believes thatRelated Agreements
System Energy recovers costs related to its interest in Grand Gulf through rates charged to Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, isand Entergy New Orleans for capacity and energy under the Unit Power Sales Agreement (described below). In July 2001 a rate proceeding commenced by System Energy at the FERC in substantial compliance1995 became final, with environmental regulations currently applicablethe FERC approving a prospective 10.94% return on equity. In 1998 the FERC approved requests by Entergy Arkansas and Entergy Mississippi to its facilitiesaccelerate a portion of their Grand Gulf purchased power obligations. Entergy Arkansas’s and operations, with reference to possible exceptions noted in “Regulation of Entergy’s Business - Environmental Regulation” in Part I, Item 1. Because environmental regulations are subject to change, future compliance costs cannot be precisely estimated.
Critical Accounting Estimates
The preparation of Entergy Mississippi’s financial statements in conformity with generally accepted accounting principles requires management to apply appropriate accounting policiesacceleration of Grand Gulf purchased power obligations ceased effective July 2001 and to make estimates and judgments that can have a significant effect on reported financial position, results of operations, and cash flows. Management has identifiedJuly 2003, respectively, as approved by the following accounting policies and estimates as critical because they are based on assumptions and measurements that involve a high degree of uncertainty, and there is the potential for future changes in the assumptions and measurements that could produce estimates that would have a material impact on the presentation of Entergy Mississippi’s financial position or results of operations.
Utility Regulatory Accounting
FERC. See “Utility Regulatory Accounting” in the “Critical Accounting Estimates” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for discussion of accounting for the effects of rate regulation.
Unbilled Revenue
See “Unbilled Revenue” in the “Critical Accounting Estimates” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for discussion of the estimates associated with the unbilled revenue amounts.
Impairment of Long-lived Assets and Trust Fund Investments
See “Impairment of Long-lived Assets and Trust Fund Investments” in the “Critical Accounting Estimates” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for discussion of the estimates associated with the impairment of long-lived assets.
Taxation and Uncertain Tax Positions
See “Taxation and Uncertain Tax Positions” in the “Critical Accounting Estimates” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for further discussion.
Qualified Pension and Other Postretirement Benefits
Entergy Mississippi’s qualified pension and other postretirement reported costs, as described in Note 11 to the financial statements, are impacted by numerous factors including the provisions of the plans, changing employee demographics, and various actuarial calculations, assumptions, and accounting mechanisms. See the “Qualified
Entergy Mississippi, Inc.
Management’s Financial Discussion and Analysis
Pension and Other Postretirement Benefits” in the “Critical Accounting Estimates” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for further discussion. Because of the complexity of these calculations, the long-term nature of these obligations, and the importance of the assumptions utilized, Entergy’s estimate of these costs is a critical accounting estimate.
Cost Sensitivity
The following chart reflects the sensitivity of qualified pension cost and qualified projected benefit obligation to changes in certain actuarial assumptions (dollars in thousands).
|
| | | | | | | | |
Actuarial Assumption | | Change in Assumption | | Impact on 2018 Qualified Pension Cost | | Impact on 2017 Projected Qualified Benefit Obligation |
| | | | Increase/(Decrease) | | |
Discount rate | | (0.25%) | | $874 | |
| $13,479 |
|
Rate of return on plan assets | | (0.25%) | | $867 | |
| $— |
|
Rate of increase in compensation | | 0.25% | | $381 | |
| $1,848 |
|
The following chart reflects the sensitivity of postretirement benefit cost and accumulated postretirement benefit obligation to changes in certain actuarial assumptions (dollars in thousands).
|
| | | | | | |
Actuarial Assumption | | Change in Assumption | | Impact on 2018 Postretirement Benefit Cost | | Impact on 2017 Accumulated Postretirement Benefit Obligation |
| | | | Increase/(Decrease) | | |
Discount rate | | (0.25%) | | $184 | | $2,561 |
Health care cost trend | | 0.25% | | $296 | | $2,024 |
Each fluctuation above assumes that the other components of the calculation are held constant.
Costs and Funding
Total qualified pension cost for Entergy Mississippi in 2017 was $8.5 million. Entergy Mississippi anticipates 2018 qualified pension cost to be $10.8 million. In 2016, Entergy Mississippi refined its approach to estimating the service cost and interest cost components of qualified pension costs, which had the effect of lowering qualified pension costs by $3.8 million. Entergy Mississippi contributed $19.1 million to its qualified pension plans in 2017 and estimates 2018 pension contributions will be approximately $14.9 million, although the 2018 required pension contributions will be known with more certainty when the January 1, 2018 valuations are completed, which is expected by April 1, 2018.
Total postretirement health care and life insurance benefit income for Entergy Mississippi in 2017 was $1 million. Entergy Mississippi expects 2018 postretirement health care and life insurance benefit income of approximately $1.5 million. In 2016, Entergy Mississippi refined its approach to estimating the service cost and interest cost components of other postretirement costs, which had the effect of lowering qualified other postretirement costs by $770 thousand. In 2017, Entergy Mississippi’s contributions (that is, contributions to the external trusts plus claims payments) were offset by trust claims reimbursements, resulting in a net reimbursement of $2 thousand. Entergy Mississippi estimates that 2018 contributions will be approximately $110 thousand.
Entergy Mississippi, Inc.
Management’s Financial Discussion and Analysis
Federal Healthcare Legislation
See “Qualified Pension and Other Postretirement Benefits -Federal Healthcare Legislation” in the “Critical Accounting Estimates” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for a discussion of Federal Healthcare Legislation.
Other Contingencies
See “Other Contingencies” in the “Critical Accounting Estimates” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for a discussion of the estimates associated with environmental, litigation, and other risks.
New Accounting Pronouncements
See “New Accounting Pronouncements” section of Note 12 to the financial statements for a discussion of new accounting pronouncements.complaints filed with the FERC regarding System Energy’s return on equity.
Unit Power Sales Agreement
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and Board of Directors of
Entergy Mississippi, Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Entergy Mississippi, Inc. (the “Company”) as of December 31, 2017 and 2016, the related statements of income, cash flows and changes in common equity (pages 370 through 374 and applicable items in pages 55 through 230), for each of the three years in the period ended December 31, 2017,The Unit Power Sales Agreement allocates capacity, energy, and the related notes (collectively referredcosts from System Energy’s ownership and leasehold interests in Grand Gulf to Entergy Arkansas (36%), Entergy Louisiana (14%), Entergy Mississippi (33%), and Entergy New Orleans (17%). Each of these companies is obligated to make payments to System Energy for its entitlement of capacity and energy on a full cost-of-service basis regardless of the quantity of energy delivered. Payments under the Unit Power Sales Agreement are System Energy’s only source of operating revenue. The financial condition of System Energy depends upon the continued commercial operation of Grand Gulf and the receipt of such payments. Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans generally recover payments made under the Unit Power Sales Agreement through rates charged to their customers.
In the case of Entergy Arkansas and Entergy Louisiana, payments are also recovered through sales of electricity from their respective retained shares of Grand Gulf. Under a settlement agreement entered into with the APSC in 1985 and amended in 1988, Entergy Arkansas retains 22% of its 36% share of Grand Gulf-related costs and recovers the remaining 78% of its share in rates. In the event that Entergy Arkansas is not able to sell its retained share to third parties, it may sell such energy to its retail customers at a price equal to its avoided cost, which is currently less than Entergy Arkansas’s cost from its retained share. Entergy Arkansas has life-of-resources purchased power agreements with Entergy Louisiana and Entergy New Orleans that sell a portion of the output of Entergy Arkansas’s retained share of Grand Gulf to those companies, with the remainder of the retained share being sold to Entergy Mississippi through a separate life-of-resources purchased power agreement. In a series of LPSC orders, court decisions, and agreements from late 1985 to mid-1988, Entergy Louisiana was granted rate relief with respect to costs associated with Entergy Louisiana’s share of capacity and energy from Grand Gulf, subject to certain terms and conditions. Entergy Louisiana retains and does not recover from retail ratepayers 18% of its 14% share of the costs of Grand Gulf capacity and energy and recovers the remaining 82% of its share in rates. Entergy Louisiana is allowed to recover through the fuel adjustment clause at 4.6 cents per kWh for the energy related to its retained portion of these costs. Alternatively, Entergy Louisiana may sell such energy to non-affiliated parties at prices above the fuel adjustment clause recovery amount, subject to the LPSC’s approval. Entergy Arkansas also has a life-of-resources purchased power agreement with Entergy Mississippi to sell a portion of the output of Entergy Arkansas’s non-retained share of Grand Gulf. Entergy Mississippi was granted rate relief for those purchases by the MPSC through its annual unit power cost rate mechanism.
Part I Item 1
Entergy Corporation, Utility operating companies, and System Energy
Availability Agreement
The Availability Agreement among System Energy and Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans was entered into in 1974 in connection with the financing by System Energy of Grand Gulf. The Availability Agreement provides that System Energy make available to Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans all capacity and energy available from System Energy’s share of Grand Gulf.
Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans also agreed severally to pay System Energy monthly for the right to receive capacity and energy from Grand Gulf in amounts that (when added to any amounts received by System Energy under the Unit Power Sales Agreement) would at least equal System Energy’s total operating expenses for Grand Gulf (including depreciation at a specified rate and expenses incurred in a permanent shutdown of Grand Gulf) and interest charges.
The allocation percentages under the Availability Agreement are fixed as follows: Entergy Arkansas - 17.1%; Entergy Louisiana - 26.9%; Entergy Mississippi - 31.3%; and Entergy New Orleans - 24.7%. The allocation percentages under the Availability Agreement would remain in effect and would govern payments made under such agreement in the event of a shortfall of funds available to System Energy from other sources, including payments under the Unit Power Sales Agreement.
System Energy has assigned its rights to payments and advances from Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans under the Availability Agreement as security for its one outstanding series of first mortgage bonds. In these assignments, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans further agreed that, in the event they were prohibited by governmental action from making payments under the Availability Agreement (for example, if the FERC reduced or disallowed such payments as constituting excessive rates), they would then make subordinated advances to System Energy in the same amounts and at the same times as the “financial statements”). In our opinion,prohibited payments. System Energy would not be allowed to repay these subordinated advances so long as it remained in default under the financial statements present fairly,related indebtedness or in all material respects, the financial positionother similar circumstances.
Each of the Company asassignment agreements relating to the Availability Agreement provides that Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans will make payments directly to System Energy. However, if there is an event of December 31, 2017 and 2016, anddefault, those payments must be made directly to the resultsholders of its operations and its cash flows for eachindebtedness that are the beneficiaries of such assignment agreements. The payments must be made pro rata according to the amount of the three years inrespective obligations secured.
The obligations of Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans to make payments under the period ended December 31, 2017, in conformity with accounting principles generally accepted inAvailability Agreement are subject to the United Statesreceipt and continued effectiveness of America.
Basisall necessary regulatory approvals. Sales of capacity and energy under the Availability Agreement would require that the Availability Agreement be submitted to the FERC for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independentapproval with respect to the Company in accordanceterms of such sale. No such filing with the U.S. federal securities lawsFERC has been made because sales of capacity and energy from Grand Gulf are being made pursuant to the Unit Power Sales Agreement. If, for any reason, sales of capacity and energy are made in the future pursuant to the Availability Agreement, the jurisdictional portions of the Availability Agreement would be submitted to the FERC for approval.
Since commercial operation of Grand Gulf began, payments under the Unit Power Sales Agreement to System Energy have exceeded the amounts payable under the Availability Agreement and, therefore, no payments under the Availability Agreement have ever been required. If Entergy Arkansas or Entergy Mississippi fails to make its Unit Power Sales Agreement payments, and System Energy is unable to obtain funds from other sources, Entergy Louisiana and Entergy New Orleans could become subject to claims or demands by System Energy or its creditors for payments or advances under the Availability Agreement (or the assignments thereof) equal to the difference between their required Unit Power Sales Agreement payments and their required Availability Agreement payments because their Availability Agreement obligations exceed their Unit Power Sales Agreement obligations.
Part I Item 1
Entergy Corporation, Utility operating companies, and System Energy
The Availability Agreement may be terminated, amended, or modified by mutual agreement of the parties thereto, without further consent of any assignees or other creditors.
Service Companies
Entergy Services, a limited liability company wholly-owned by Entergy Corporation, provides management, administrative, accounting, legal, engineering, and other services primarily to the Utility operating companies, but also provides services to Entergy Wholesale Commodities. Entergy Operations is also wholly-owned by Entergy Corporation and provides nuclear management, operations and maintenance services under contract for ANO, River Bend, Waterford 3, and Grand Gulf, subject to the owner oversight of Entergy Arkansas, Entergy Louisiana, and System Energy, respectively. Entergy Services and Entergy Operations provide their services to the Utility operating companies and System Energy on an “at cost” basis, pursuant to cost allocation methodologies for these service agreements that were approved by the FERC.
Jurisdictional Separation of Entergy Gulf States, Inc. into Entergy Gulf States Louisiana and Entergy Texas
Effective December 31, 2007, Entergy Gulf States, Inc. completed a jurisdictional separation into two vertically integrated utility companies, one operating under the sole retail jurisdiction of the PUCT, Entergy Texas, and the applicable rules and regulationsother operating under the sole retail jurisdiction of the SecuritiesLPSC, Entergy Gulf States Louisiana. Entergy Texas owns all Entergy Gulf States, Inc. distribution and Exchange Commissiontransmission assets located in Texas, the gas-fired generating plants located in Texas, undivided 42.5% ownership shares of Entergy Gulf States, Inc.’s 70% ownership interest in Nelson Unit 6 and 42% ownership interest in Big Cajun 2, Unit 3, which are coal-fired generating plants located in Louisiana, and other assets and contract rights to the PCAOB.extent related to utility operations in Texas. Entergy Louisiana, as successor in interest to Entergy Gulf States Louisiana, owns all of the remaining assets that were owned by Entergy Gulf States, Inc. On a book value basis, approximately 58.1% of the Entergy Gulf States, Inc. assets were allocated to Entergy Gulf States Louisiana and approximately 41.9% were allocated to Entergy Texas.
We conducted our audits in accordanceEntergy Texas purchases from Entergy Louisiana pursuant to a life-of-unit purchased power agreement a 42.5% share of capacity and energy from the 70% of River Bend subject to retail regulation. Entergy Texas was allocated a share of River Bend’s nuclear and environmental liabilities that is identical to the share of the plant’s output purchased by Entergy Texas under the purchased power agreement. In connection with the standardstermination of the PCAOB. Those standards requireSystem Agreement effective August 31, 2016, the purchased power agreements that we plan and performwere put in place for certain legacy units at the audittime of the jurisdictional separation were also terminated at that time. See Note 2 to obtain reasonable assurance about whether the financial statements are freefor additional discussion of material misstatement, whether duethe purchased power agreements.
Entergy Louisiana and Entergy Gulf States Louisiana Business Combination
On October 1, 2015, the businesses formerly conducted by Entergy Louisiana (Old Entergy Louisiana) and Entergy Gulf States Louisiana (Old Entergy Gulf States Louisiana) were combined into a single public utility. In order to error or fraud. The Company is not required to have, nor were we engaged to perform, an auditeffect the business combination, under the Texas Business Organizations Code (TXBOC), Old Entergy Louisiana allocated substantially all of its internal control over financial reporting. As partassets to a new subsidiary, Entergy Louisiana Power, LLC, a Texas limited liability company (New Entergy Louisiana), and New Entergy Louisiana assumed the liabilities of our audits, we are requiredOld Entergy Louisiana, in a transaction regarded as a merger under the TXBOC. Under the TXBOC, Old Entergy Gulf States Louisiana allocated substantially all of its assets to obtain an understandinga new subsidiary (New Entergy Gulf States Louisiana) and New Entergy Gulf States Louisiana assumed the liabilities of internal control over financial reporting but not forOld Entergy Gulf States Louisiana, in a transaction regarded as a merger under the purpose of expressing an opinion onTXBOC. New Entergy Gulf States Louisiana then merged into New Entergy Louisiana with New Entergy Louisiana surviving the effectivenessmerger. Thereupon, Old Entergy Louisiana changed its name from “Entergy Louisiana, LLC” to “EL Investment Company, LLC” and New Entergy Louisiana changed its name from “Entergy Louisiana Power, LLC” to “Entergy Louisiana, LLC” (Entergy Louisiana). With the completion of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ DELOITTE & TOUCHE LLP
New Orleans,business combination, Entergy Louisiana
February 26, 2018
We have served as the Company’s auditor since 2001.
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| | | | | | | | | | | | |
ENTERGY MISSISSIPPI, INC. |
INCOME STATEMENTS |
| | |
| | For the Years Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| | (In Thousands) |
| | | | | | |
OPERATING REVENUES | | | | | | |
Electric | |
| $1,198,229 |
| |
| $1,094,649 |
| |
| $1,396,985 |
|
| | | | | | |
OPERATING EXPENSES | | |
| | |
| | |
|
Operation and Maintenance: | | |
| | |
| | |
|
Fuel, fuel-related expenses, and gas purchased for resale | | 185,816 |
| | 95,090 |
| | 291,666 |
|
Purchased power | | 328,463 |
| | 297,902 |
| | 389,950 |
|
Other operation and maintenance | | 243,480 |
| | 250,443 |
| | 261,255 |
|
Taxes other than income taxes | | 95,051 |
| | 94,482 |
| | 94,152 |
|
Depreciation and amortization | | 143,479 |
| | 136,214 |
| | 129,029 |
|
Other regulatory charges (credits) - net | | (19,134 | ) | | (3,721 | ) | | 19,027 |
|
TOTAL | | 977,155 |
| | 870,410 |
| | 1,185,079 |
|
| | | | | | |
OPERATING INCOME | | 221,074 |
| | 224,239 |
| | 211,906 |
|
| | | | | | |
OTHER INCOME | | |
| | |
| | |
|
Allowance for equity funds used during construction | | 9,667 |
| | 5,801 |
| | 3,095 |
|
Interest and investment income | | 85 |
| | 656 |
| | 195 |
|
Miscellaneous - net | | 510 |
| | (3,531 | ) | | (4,418 | ) |
TOTAL | | 10,262 |
| | 2,926 |
| | (1,128 | ) |
| | | | | | |
INTEREST EXPENSE | | |
| | |
| | |
|
Interest expense | | 51,260 |
| | 57,114 |
| | 57,842 |
|
Allowance for borrowed funds used during construction | | (3,875 | ) | | (2,987 | ) | | (1,644 | ) |
TOTAL | | 47,385 |
| | 54,127 |
| | 56,198 |
|
| | | | | | |
INCOME BEFORE INCOME TAXES | | 183,951 |
| | 173,038 |
| | 154,580 |
|
| | | | | | |
Income taxes | | 73,919 |
| | 63,854 |
| | 61,872 |
|
| | | | | | |
NET INCOME | | 110,032 |
| | 109,184 |
| | 92,708 |
|
| | | |
|
| | |
Preferred dividend requirements and other | | 953 |
| | 2,443 |
| | 2,828 |
|
| | | | | | |
EARNINGS APPLICABLE TO COMMON STOCK | |
| $109,079 |
| |
| $106,741 |
| |
| $89,880 |
|
| | | | | | |
See Notes to Financial Statements. | | |
| | |
| | |
|
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ENTERGY MISSISSIPPI, INC. |
STATEMENTS OF CASH FLOWS |
| | |
| | For the Years Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| | (In Thousands) |
| | | | | | |
OPERATING ACTIVITIES | | | | | | |
Net income | |
| $110,032 |
| |
| $109,184 |
| |
| $92,708 |
|
Adjustments to reconcile net income to net cash flow provided by operating activities: | | | | | | |
Depreciation and amortization | | 143,479 |
| | 136,214 |
| | 129,029 |
|
Deferred income taxes, investment tax credits, and non-current taxes accrued | | 84,816 |
| | 60,986 |
| | 18,673 |
|
Changes in assets and liabilities: | | |
| | |
| | |
|
Receivables | | (29,528 | ) | | (28,819 | ) | | 50,199 |
|
Fuel inventory | | 5,266 |
| | 401 |
| | (8,537 | ) |
Accounts payable | | 3,595 |
| | 33,733 |
| | (26,682 | ) |
Taxes accrued | | 18,803 |
| | 20,579 |
| | (10,104 | ) |
Interest accrued | | 1,248 |
| | 822 |
| | (2,341 | ) |
Deferred fuel costs | | (25,487 | ) | | (114,711 | ) | | 105,560 |
|
Other working capital accounts | | 5,115 |
| | (5,222 | ) | | (663 | ) |
Provisions for estimated losses | | (9,676 | ) | | 6,378 |
| | (2,080 | ) |
Other regulatory assets | | (17,412 | ) | | (3,626 | ) | | 39,582 |
|
Other regulatory liabilities | | 405,395 |
| | (2,986 | ) | | 9,172 |
|
Deferred tax rate change recognized as regulatory liability/asset | | (452,429 | ) | | — |
| | — |
|
Pension and other postretirement liabilities | | (8,055 | ) | | (10,648 | ) | | (14,939 | ) |
Other assets and liabilities | | (8,577 | ) | | 9,995 |
| | (7,298 | ) |
Net cash flow provided by operating activities | | 226,585 |
| | 212,280 |
| | 372,279 |
|
INVESTING ACTIVITIES | | |
| | |
| | |
|
Construction expenditures | | (427,616 | ) | | (310,356 | ) | | (235,894 | ) |
Allowance for equity funds used during construction | | 9,667 |
| | 5,801 |
| | 3,095 |
|
Insurance proceeds | | — |
| | — |
| | 12,932 |
|
Changes in money pool receivable - net | | 8,962 |
| | 15,335 |
| | (25,286 | ) |
Payment for purchase of assets | | (6,958 | ) | | — |
| | — |
|
Other | | (1,281 | ) | | (224 | ) | | 26 |
|
Net cash flow used in investing activities | | (417,226 | ) | | (289,444 | ) | | (245,127 | ) |
FINANCING ACTIVITIES | | |
| | |
| | |
|
Proceeds from the issuance of long-term debt | | 148,185 |
| | 623,812 |
| | — |
|
Retirement of long-term debt | | — |
| | (562,400 | ) | | — |
|
Redemption of preferred stock | | — |
| | (30,000 | ) | | — |
|
Dividends paid: | | |
| | |
| | |
|
Common stock | | (26,000 | ) | | (24,000 | ) | | (40,000 | ) |
Preferred stock | | (953 | ) | | (2,755 | ) | | (2,828 | ) |
Other | | (1,329 | ) | | 3,736 |
| | (352 | ) |
Net cash flow provided by (used in) financing activities | | 119,903 |
| | 8,393 |
| | (43,180 | ) |
Net increase (decrease) in cash and cash equivalents | | (70,738 | ) | | (68,771 | ) | | 83,972 |
|
Cash and cash equivalents at beginning of period | | 76,834 |
| | 145,605 |
| | 61,633 |
|
Cash and cash equivalents at end of period | |
| $6,096 |
| |
| $76,834 |
| |
| $145,605 |
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | | | | |
| | |
|
Cash paid (received) during the period for: | | |
| | |
| | |
|
Interest - net of amount capitalized | |
| $47,631 |
| |
| $53,693 |
| |
| $57,576 |
|
Income taxes | |
| ($25,043 | ) | |
| ($12,487 | ) | |
| $61,333 |
|
See Notes to Financial Statements. | | |
| | |
| | |
|
|
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ENTERGY MISSISSIPPI, INC. |
BALANCE SHEETS |
ASSETS |
| | |
| | December 31, |
| | 2017 | | 2016 |
| | (In Thousands) |
| | | | |
CURRENT ASSETS | | | | |
Cash and cash equivalents: | | | | |
Cash | |
| $1,607 |
| |
| $16 |
|
Temporary cash investments | | 4,489 |
| | 76,818 |
|
Total cash and cash equivalents | | 6,096 |
| | 76,834 |
|
Accounts receivable: | | |
| | |
|
Customer | | 72,039 |
| | 51,218 |
|
Allowance for doubtful accounts | | (574 | ) | | (549 | ) |
Associated companies | | 45,081 |
| | 45,973 |
|
Other | | 9,738 |
| | 12,006 |
|
Accrued unbilled revenues | | 54,256 |
| | 51,327 |
|
Total accounts receivable | | 180,540 |
| | 159,975 |
|
Deferred fuel costs | | 32,444 |
| | 6,957 |
|
Fuel inventory - at average cost | | 45,606 |
| | 50,872 |
|
Materials and supplies - at average cost | | 42,571 |
| | 41,146 |
|
Prepayments and other | | 7,041 |
| | 8,873 |
|
TOTAL | | 314,298 |
| | 344,657 |
|
| | | | |
OTHER PROPERTY AND INVESTMENTS | | |
| | |
|
Non-utility property - at cost (less accumulated depreciation) | | 4,592 |
| | 4,608 |
|
Escrow accounts | | 31,969 |
| | 31,783 |
|
TOTAL | | 36,561 |
| | 36,391 |
|
| | | | |
UTILITY PLANT | | |
| | |
|
Electric | | 4,660,297 |
| | 4,321,214 |
|
Property under capital lease | | 125 |
| | 1,590 |
|
Construction work in progress | | 149,367 |
| | 118,182 |
|
TOTAL UTILITY PLANT | | 4,809,789 |
| | 4,440,986 |
|
Less - accumulated depreciation and amortization | | 1,681,306 |
| | 1,602,711 |
|
UTILITY PLANT - NET | | 3,128,483 |
| | 2,838,275 |
|
| | | | |
DEFERRED DEBITS AND OTHER ASSETS | | |
| | |
|
Regulatory assets: | | |
| | |
|
Regulatory asset for income taxes - net | | — |
| | 38,284 |
|
Other regulatory assets | | 397,909 |
| | 342,213 |
|
Other | | 2,124 |
| | 2,320 |
|
TOTAL | | 400,033 |
| | 382,817 |
|
| | | | |
TOTAL ASSETS | |
| $3,879,375 |
| |
| $3,602,140 |
|
| | | | |
See Notes to Financial Statements. | | |
| | |
|
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| | | | | | | | |
ENTERGY MISSISSIPPI, INC. |
BALANCE SHEETS |
LIABILITIES AND EQUITY |
| | |
| | December 31, |
| | 2017 | | 2016 |
| | (In Thousands) |
| | | | |
CURRENT LIABILITIES | | | | |
Accounts payable: | | |
| | |
|
Associated companies | |
| $55,689 |
| |
| $43,647 |
|
Other | | 77,326 |
| | 80,227 |
|
Customer deposits | | 83,654 |
| | 84,112 |
|
Taxes accrued | | 82,843 |
| | 64,040 |
|
Interest accrued | | 22,901 |
| | 21,653 |
|
Other | | 12,785 |
| | 9,554 |
|
TOTAL | | 335,198 |
| | 303,233 |
|
| | | | |
NON-CURRENT LIABILITIES | | |
| | |
|
Accumulated deferred income taxes and taxes accrued | | 488,806 |
| | 861,331 |
|
Accumulated deferred investment tax credits | | 8,867 |
| | 8,667 |
|
Regulatory liability for income taxes - net | | 411,011 |
| | — |
|
Asset retirement cost liabilities | | 9,219 |
| | 8,722 |
|
Accumulated provisions | | 44,764 |
| | 54,440 |
|
Pension and other postretirement liabilities | | 101,498 |
| | 109,551 |
|
Long-term debt | | 1,270,122 |
| | 1,120,916 |
|
Other | | 11,639 |
| | 20,108 |
|
TOTAL | | 2,345,926 |
| | 2,183,735 |
|
| | | | |
Commitments and Contingencies | |
|
| |
|
|
| | | | |
Preferred stock without sinking fund | | 20,381 |
| | 20,381 |
|
| | | | |
COMMON EQUITY | | |
| | |
|
Common stock, no par value, authorized 12,000,000 shares; issued and outstanding 8,666,357 shares in 2017 and 2016 | | 199,326 |
| | 199,326 |
|
Capital stock expense and other | | 167 |
| | 167 |
|
Retained earnings | | 978,377 |
| | 895,298 |
|
TOTAL | | 1,177,870 |
| | 1,094,791 |
|
| | | | |
TOTAL LIABILITIES AND EQUITY | |
| $3,879,375 |
| |
| $3,602,140 |
|
| | | | |
See Notes to Financial Statements. | | |
| | |
|
|
| | | | | | | | | | | | | | | |
ENTERGY MISSISSIPPI, INC. |
STATEMENTS OF CHANGES IN COMMON EQUITY |
For the Years Ended December 31, 2017, 2016, and 2015 |
| | | |
| Common Equity | | |
| Common Stock | | Capital Stock Expense and Other | | Retained Earnings | | Total |
| (In Thousands) |
| | | | | | | |
Balance at December 31, 2014 |
| $199,326 |
| |
| ($690 | ) | |
| $763,534 |
| |
| $962,170 |
|
Net income | — |
| | — |
| | 92,708 |
| | 92,708 |
|
Common stock dividends | — |
| | — |
| | (40,000 | ) | | (40,000 | ) |
Preferred stock dividends | — |
| | — |
| | (2,828 | ) | | (2,828 | ) |
Balance at December 31, 2015 |
| $199,326 |
| |
| ($690 | ) | |
| $813,414 |
| |
| $1,012,050 |
|
Net income | — |
| | — |
| | 109,184 |
| | 109,184 |
|
Common stock dividends | — |
| | — |
| | (24,000 | ) | | (24,000 | ) |
Preferred stock dividends | — |
| | — |
| | (2,443 | ) | | (2,443 | ) |
Preferred stock redemption | — |
| | 857 |
| | (857 | ) | | — |
|
Balance at December 31, 2016 |
| $199,326 |
| |
| $167 |
| |
| $895,298 |
| |
| $1,094,791 |
|
Net income | — |
| | — |
| | 110,032 |
| | 110,032 |
|
Common stock dividends | — |
| | — |
| | (26,000 | ) | | (26,000 | ) |
Preferred stock dividends | — |
| | — |
| | (953 | ) | | (953 | ) |
Balance at December 31, 2017 |
| $199,326 |
| |
| $167 |
| |
| $978,377 |
| |
| $1,177,870 |
|
| | | | | | | |
See Notes to Financial Statements. | |
| | |
| | |
| | |
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ENTERGY MISSISSIPPI, INC. |
SELECTED FINANCIAL DATA - FIVE-YEAR COMPARISON |
| | | | | | | | | |
| 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
| (In Thousands) |
| | | | | | | | | |
Operating revenues |
| $1,198,229 |
| |
| $1,094,649 |
| |
| $1,396,985 |
| |
| $1,524,193 |
| |
| $1,334,540 |
|
Net income |
| $110,032 |
| |
| $109,184 |
| |
| $92,708 |
| |
| $74,821 |
| |
| $82,159 |
|
Total assets |
| $3,879,375 |
| |
| $3,602,140 |
| |
| $3,477,407 |
| |
| $3,358,625 |
| |
| $3,234,875 |
|
Long-term obligations (a) |
| $1,290,503 |
| |
| $1,141,924 |
| |
| $972,058 |
| |
| $1,097,182 |
| |
| $1,092,786 |
|
| | | | | | | | | |
(a) Includes long-term debt (excluding currently maturing debt), non-current capital lease obligations, and preferred stock without sinking fund. |
| | | | | | | | | |
| 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
| (Dollars In Millions) |
| | | | | | | | | |
Electric Operating Revenues: | |
| | |
| | |
| | |
| | |
|
Residential |
| $502 |
| |
| $459 |
| |
| $565 |
| |
| $585 |
| |
| $527 |
|
Commercial | 423 |
| | 374 |
| | 465 |
| | 481 |
| | 432 |
|
Industrial | 159 |
| | 134 |
| | 164 |
| | 175 |
| | 156 |
|
Governmental | 41 |
| | 38 |
| | 47 |
| | 47 |
| | 42 |
|
Total retail | 1,125 |
| | 1,005 |
| | 1,241 |
| | 1,288 |
| | 1,157 |
|
Sales for resale: | |
| | |
| | |
| | |
| | |
|
Associated companies | — |
| | 1 |
| | 75 |
| | 153 |
| | 92 |
|
Non-associated companies | 18 |
| | 30 |
| | 10 |
| | 14 |
| | 24 |
|
Other | 55 |
| | 59 |
| | 71 |
| | 69 |
| | 62 |
|
Total |
| $1,198 |
| |
| $1,095 |
| |
| $1,397 |
| |
| $1,524 |
| |
| $1,335 |
|
| | | | | | | | | |
Billed Electric Energy Sales (GWh): | | | |
| | |
| | |
| | |
|
Residential | 5,308 |
| | 5,617 |
| | 5,661 |
| | 5,672 |
| | 5,629 |
|
Commercial | 4,783 |
| | 4,894 |
| | 4,913 |
| | 4,821 |
| | 4,815 |
|
Industrial | 2,536 |
| | 2,493 |
| | 2,283 |
| | 2,297 |
| | 2,265 |
|
Governmental | 421 |
| | 439 |
| | 433 |
| | 414 |
| | 409 |
|
Total retail | 13,048 |
| | 13,443 |
| | 13,290 |
| | 13,204 |
| | 13,118 |
|
Sales for resale: | |
| | |
| | |
| | |
| | |
|
Associated companies | — |
| | — |
| | 1,419 |
| | 2,657 |
| | 1,543 |
|
Non-associated companies | 857 |
| | 1,021 |
| | 261 |
| | 193 |
| | 304 |
|
Total | 13,905 |
| | 14,464 |
| | 14,970 |
| | 16,054 |
| | 14,965 |
|
ENTERGY NEW ORLEANS, LLC AND SUBSIDIARIES
MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS
Internal Restructuring
In July 2016, Entergy New Orleans filed an application with the City Council seeking authorization to undertake a restructuring that would result in the transfer of holds substantially all of the assets, and operationshas assumed the liabilities, of Old Entergy Louisiana and Old Entergy Gulf States Louisiana.
Part I Item 1
Entergy Corporation, Utility operating companies, and System Energy
Entergy New Orleans Inc. to a new entity, which would ultimately be owned by an existing Entergy subsidiary holding company. The restructuring was subject to regulatory review and approval by the City Council and the FERC. In May 2017 the City Council adopted a resolution approving the proposed internal restructuring pursuant to an agreement in principle with the City Council advisors and certain intervenors. Pursuant to the agreement in principle, Entergy New Orleans would credit retail customers $10 million in 2017, $1.4 million in the first quarter of the year after the transaction closes, and $117,500 each month in the second year after the transaction closes until such time as new base rates go into effect as a result of the anticipated 2018 base rate case. Entergy New Orleans began crediting retail customers in June 2017. In June 2017 the FERC approved the transaction and, pursuant to the agreement in principle, Entergy New Orleans will provide additional credits to retail customers of $5 million in each of the years 2018, 2019, and 2020.Internal Restructuring
In November 2017, pursuant to the agreement in principle, Entergy New Orleans, Inc. undertook a multi-step restructuring, including the following:
Entergy New Orleans, Inc. redeemed its outstanding preferred stock at a price of approximately $21 million, which included a call premium of approximately $819,000, plus any accumulated and unpaid dividends.
Entergy New Orleans, Inc. converted from a Louisiana corporation to a Texas corporation.
Under the Texas Business Organizations Code (TXBOC), Entergy New Orleans, Inc. allocated substantially all of its assets to a new subsidiary, Entergy New Orleans Power, LLC, a Texas limited liability company (Entergy New Orleans Power), and Entergy New Orleans Power assumed substantially all of the liabilities of Entergy New Orleans, Inc. in a transaction regarded as a merger under the TXBOC. Entergy New Orleans, Inc. remained in existence and held the membership interests in Entergy New Orleans Power.
Entergy New Orleans, Inc. contributed the membership interests in Entergy New Orleans Power to an affiliate (Entergy Utility Holding Company, LLC, a Texas limited liability company and subsidiary of Entergy Corporation). As a result of the contribution, Entergy New Orleans Power is a wholly-owned subsidiary of Entergy Utility Holding Company, LLC.
In December 2017, Entergy New Orleans, Inc. changed its name to Entergy Utility Group, Inc., and Entergy New Orleans Power then changed its name to Entergy New Orleans, LLC. Entergy New Orleans, LLC holds substantially all of the assets, and has assumed substantially all of the liabilities, of Entergy New Orleans, Inc. The restructuring was accounted for as a transaction between entities under common control.
Entergy Arkansas Internal Restructuring
In November 2018, Entergy Arkansas undertook a multi-step restructuring, including the following:
Entergy Arkansas, Inc. redeemed its outstanding preferred stock at the aggregate redemption price of approximately $32.7 million.
Entergy Arkansas, Inc. converted from an Arkansas corporation to a Texas corporation.
Under the Texas Business Organizations Code (TXBOC), Entergy Arkansas, Inc. allocated substantially all of its assets to a new subsidiary, Entergy Arkansas Power, LLC, a Texas limited liability company (Entergy Arkansas Power), and Entergy Arkansas Power assumed substantially all of the liabilities of Entergy Arkansas, Inc., in a transaction regarded as a merger under the TXBOC. Entergy Arkansas, Inc. remained in existence and held the membership interests in Entergy Arkansas Power.
Entergy Arkansas, Inc. contributed the membership interests in Entergy Arkansas Power to an affiliate (Entergy Utility Holding Company, LLC, a Texas limited liability company and subsidiary of Entergy Corporation). As a result of the contribution, Entergy Arkansas Power is a wholly-owned subsidiary of Entergy Utility Holding Company, LLC.
In December 2018, Entergy Arkansas, Inc. changed its name to Entergy Utility Property, Inc., and Entergy Arkansas Power then changed its name to Entergy Arkansas, LLC. Entergy Arkansas, LLC holds substantially all of the assets, and assumed substantially all of the liabilities, of Entergy Arkansas, Inc. The transaction was accounted for as a transaction between entities under common control.
Entergy Mississippi Internal Restructuring
In November 2018, Entergy Mississippi undertook a multi-step restructuring, including the following:
Entergy Mississippi, Inc. redeemed its outstanding preferred stock, at the aggregate redemption price of approximately $21.2 million.
Entergy Mississippi, Inc. converted from a Mississippi corporation to a Texas corporation.
Part I Item 1
Entergy Corporation, Utility operating companies, and System Energy
Under the Texas Business Organizations Code (TXBOC), Entergy Mississippi, Inc. allocated substantially all of its assets to a new subsidiary, Entergy Mississippi Power and Light, LLC, a Texas limited liability company (Entergy Mississippi Power and Light), and Entergy Mississippi Power and Light assumed substantially all of the liabilities of Entergy Mississippi, Inc., in a transaction regarded as a merger under the TXBOC. Entergy Mississippi, Inc. remained in existence and held the membership interests in Entergy Mississippi Power and Light.
Entergy Mississippi, Inc. contributed the membership interests in Entergy Mississippi Power and Light to an affiliate (Entergy Utility Holding Company, LLC, a Texas limited liability company and subsidiary of Entergy Corporation). As a result of the contribution, Entergy Mississippi Power and Light is a wholly-owned subsidiary of Entergy Utility Holding Company, LLC.
In December 2018, Entergy Mississippi, Inc. changed its name to Entergy Utility Enterprises, Inc., and Entergy Mississippi Power and Light then changed its name to Entergy Mississippi, LLC. Entergy Mississippi, LLC holds substantially all of the assets, and assumed substantially all of the liabilities, of Entergy Mississippi, Inc. The restructuring was accounted for as a transaction between entities under common control.
Entergy Wholesale Commodities
Entergy Wholesale Commodities includes the ownership, operation, and decommissioning of nuclear power plants, located in the northern United States and the sale of the electric power produced by its operating plants to wholesale customers. Entergy Wholesale Commodities revenues are primarily derived from sales of energy and generation capacity from these plants. Entergy Wholesale Commodities also provides operations and management services, including decommissioning-related services, to nuclear power plants owned by non-affiliated entities in the United States. Entergy Wholesale Commodities also includes the ownership of interests in non-nuclear power plants that sell the electric power produced by those plants to wholesale customers.
See “Entergy Wholesale Commodities Exit from the Merchant Power Business” in Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for further discussion of the operation and planned shutdown and sale of each of the remaining Entergy Wholesale Commodities nuclear power plants.
Property
Nuclear Generating Stations
Entergy Wholesale Commodities includes the ownership of the following nuclear power plants:
|
| | | | | | | | | | | | |
Power Plant | | Market | | In Service Year | | Acquired | | Location | | Capacity - Reactor Type | | License Expiration Date |
Indian Point 3 (a) | | NYISO | | 1976 | | Nov. 2000 | | Buchanan, NY | | 1,041 MW - Pressurized Water | | 2025 (a) |
Indian Point 2 (a) | | NYISO | | 1974 | | Sept. 2001 | | Buchanan, NY | | 1,028 MW - Pressurized Water | | 2024 (a) |
Palisades (b) | | MISO | | 1971 | | Apr. 2007 | | Covert, MI | | 811 MW - Pressurized Water | | 2031 (b) |
| |
(a) | The Indian Point 2 and Indian Point 3 plants are expected to cease operation by April 30, 2020 and April 30, 2021, respectively. |
| |
(b) | The Palisades plant is expected to cease operations no later than May 31, 2022. |
See “Entergy Wholesale Commodities Exit from the Merchant Power Business” in Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for further discussion of the operation and planned shutdown and sale of each of the remaining Entergy Wholesale Commodities nuclear power plants.
Part I Item 1
Entergy Corporation, Utility operating companies, and System Energy
Entergy Wholesale Commodities also includes the ownership of two non-operating nuclear facilities, Big Rock Point in Michigan and Indian Point 1 in New York that were acquired when Entergy purchased the Palisades and Indian Point 2 nuclear plants, respectively. These facilities are in various stages of the decommissioning process. Both Big Rock Point and Indian Point 1 are under contract to be sold with their respective plants.
Non-nuclear Generating Stations
Entergy Wholesale Commodities includes the ownership, or interests in joint ventures that own, the following non-nuclear power plants:
|
| | | | | | | | |
Plant | | Location | | Ownership | | Net Owned Capacity (a) | | Type |
Independence Unit 2; 842 MW | | Newark, AR | | 14% | | 121 MW(b) | | Coal |
RS Cogen; 425 MW (c) | | Lake Charles, LA | | 50% | | 213 MW | | Gas/Steam |
Nelson Unit 6; 550 MW | | Westlake, LA | | 11% | | 60 MW(b) | | Coal |
| |
(a) | “Net Owned Capacity” refers to the nameplate rating on the generating unit. |
| |
(b) | The owned MW capacity is the portion of the plant capacity owned by Entergy Wholesale Commodities. For a complete listing of Entergy’s jointly-owned generating stations, refer to “Jointly-Owned Generating Stations” in Note 1 to the financial statements. |
| |
(c) | Indirectly owned through interests in unconsolidated joint ventures. |
Independent System Operators
The Indian Point plants fall under the authority of the New York Independent System Operator (NYISO). The Palisades plant falls under the authority of the MISO. The primary purpose of NYISO and MISO is to direct the operations of the major generation and transmission facilities in their respective regions; ensure grid reliability; administer and monitor wholesale electricity markets; and plan for their respective region’s energy needs.
Energy and Capacity Sales
As a wholesale generator, Entergy Wholesale Commodities’ core business is selling energy, measured in MWh, to its customers. Entergy Wholesale Commodities enters into forward contracts with its customers and also sells energy in the day ahead or spot markets. Entergy Wholesale Commodities also sells unforced capacity, which allows load-serving entities to meet specified reserve and related requirements placed on them by the ISOs in their respective areas. Entergy Wholesale Commodities’ forward physical power contracts consist of contracts to sell energy only, contracts to sell capacity only, and bundled contracts in which it sells both capacity and energy. While the terminology and payment mechanics vary in these contracts, each of these types of contracts requires Entergy Wholesale Commodities to deliver MWh of energy, make capacity available, or both. See “Market and Credit Risk Sensitive Instruments” in Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for additional information regarding these contracts.
As part of the purchase of the Palisades plant in 2007, Entergy executed a 15-year PPA with the seller, Consumers Energy, for 100% of the plant’s output, excluding any future uprates. Under the purchased power agreement, Consumers Energy receives the value of any new environmental credits for the first ten years of the agreement. Palisades and Consumers Energy will share on a 50/50 basis the value of any new environmental credits for years 11 through 15 of the agreement. The environmental credits are defined as benefits from a change in law that causes capability of the plant as of the purchase date to become a tradable attribute (e.g., emission credit, renewable energy credit, environmental credit, “green” credit, etc.) or otherwise to have a market value. Entergy intends to shut down the Palisades nuclear power plant permanently on May 31, 2022 and transfer to Holtec thereafter.
Part I Item 1
Entergy Corporation, Utility operating companies, and System Energy
Customers
Entergy Wholesale Commodities’ customers for the sale of both energy and capacity from its nuclear plants include retail power providers, utilities, electric power co-operatives, power trading organizations, and other power generation companies. These customers include Consumers Energy, the company from which Entergy purchased the Palisades plant, and NYISO and MISO. Substantially all of the credit exposure associated with the planned energy output under contract for Entergy Wholesale Commodities nuclear plants is with counterparties or their guarantors that have public investment grade credit ratings.
Competition
The NYISO market is highly competitive. Entergy Wholesale Commodities has numerous competitors in New York including generation companies affiliated with regulated utilities, other independent power producers, municipal and co-operative generators, owners of co-generation plants and wholesale power marketers. Entergy Wholesale Commodities is an independent power producer, which means it generates power for sale to third parties at day ahead or spot market prices to the extent that the power is not sold under a fixed price contract. Municipal and co-operative generators also generate power but use most of it to deliver power to their municipal or co-operative power customers. Owners of co-generation plants produce power primarily for their own consumption. Wholesale power marketers do not own generation; rather they buy power from generators or other market participants and resell it to retail providers or other market participants. Competition in the New York power market is affected by, among other factors, the amount of generation and transmission capacity in these markets. MISO does not have a centralized clearing capacity market, but load serving entities do meet the majority of their capacity needs through bilateral contracts and self-supply with a smaller portion coming through voluntary MISO auctions. The majority of Palisades’ current output is contracted to Consumers Energy through 2022. Entergy Wholesale Commodities does not expect to be materially affected by competition in the MISO market in the near term.
Seasonality
Entergy Wholesale Commodities’ revenues and operating income are subject to fluctuations during the year due to seasonal factors, weather conditions, and contract pricing. Refueling outages are generally in the spring and fall, and cause volumetric decreases during those seasons. When outdoor and cooling water temperatures are low, generally during colder months, Entergy Wholesale Commodities nuclear power plants operate more efficiently, and consequently, generate more electricity. Many of Entergy Wholesale Commodities’ contracts provide for shaped pricing over the course of the year. As a result of these factors, Entergy Wholesale Commodities’ revenues are typically higher in the first and third quarters than in the second and fourth quarters.
Fuel Supply
Nuclear Fuel
See “Fuel Supply - Nuclear Fuel” in the Utility portion of Part I, Item 1 for a discussion of the nuclear fuel cycle and markets. Entergy Nuclear Fuels Company, a wholly-owned subsidiary, is responsible for contracts to acquire nuclear materials, except for fuel fabrication, for Entergy Wholesale Commodities nuclear power plants, while Entergy Nuclear Operations, Inc. acts as the agent for the purchase of nuclear fuel assembly fabrication services. All contracts for the disposal of spent nuclear fuel are between the DOE and each of the nuclear power plant owners. The nuclear fuel supply portfolio for the Entergy Wholesale Commodities segment has been adjusted to reflect reduced overall requirements related to the planned permanent shutdowns of the Indian Point 2, Indian Point 3, and Palisades plants. Fuel procurement for the Entergy Wholesale Commodities segment is limited to the requirements of the Palisades plant’s final refueling in 2020.
Part I Item 1
Entergy Corporation, Utility operating companies, and System Energy
Other Business Activities
Entergy Nuclear Power Marketing, LLC (ENPM) was formed in 2005 to centralize the power marketing function for Entergy Wholesale Commodities nuclear plants. Upon its formation, ENPM entered into long-term power purchase agreements with the Entergy Wholesale Commodities subsidiaries that own nuclear power plants (generating subsidiaries). As part of a series of agreements, ENPM agreed to assume and/or otherwise service the existing power purchase agreements that were in effect between the generating subsidiaries and their customers. ENPM’s functions include origination of new energy and capacity transactions and generation scheduling.
Entergy Nuclear, Inc. can pursue service agreements with other nuclear power plant owners who seek the advantages of Entergy’s scale and expertise but do not necessarily want to sell their assets. Services provided by either Entergy Nuclear, Inc. or other Entergy Wholesale Commodities subsidiaries include engineering, operations and maintenance, fuel procurement, management and supervision, technical support and training, administrative support, and other managerial or technical services required to operate, maintain, and decommission nuclear electric power facilities.
TLG Services, a subsidiary of Entergy Nuclear, Inc., offers decommissioning, engineering, and related services to nuclear power plant owners.
Entergy provides plant operation support services for the 800 MW Cooper Nuclear Station located near Brownville, Nebraska. In 2010 an Entergy subsidiary signed an agreement to extend the management support services to Cooper Nuclear Station by 15 years, through January 2029.
Regulation of Entergy’s Business
Federal Power Act
The Federal Power Act provides the FERC the authority to regulate:
the transmission and wholesale sale of electric energy in interstate commerce;
the reliability of the high voltage interstate transmission system through reliability standards;
sale or acquisition of certain assets;
securities issuances;
the licensing of certain hydroelectric projects;
certain other activities, including accounting policies and practices of electric and gas utilities; and
changes in control of FERC jurisdictional entities or rate schedules.
The Federal Power Act gives the FERC jurisdiction over the rates charged by System Energy for Grand Gulf capacity and energy provided to Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans and over the rates charged by Entergy Arkansas and Entergy Louisiana to unaffiliated wholesale customers. The FERC also regulates wholesale power sales between the Utility operating companies. In addition, the FERC regulates the MISO RTO, an independent entity that maintains functional control over the combined transmission systems of its members and administers wholesale energy, capacity, and ancillary services markets for market participants in the MISO region, including the Utility operating companies. FERC regulation of the MISO RTO includes regulation of the design and implementation of the wholesale markets administered by the MISO RTO, as well as the rates, terms, and conditions of open access transmission service over the member systems and the allocation of costs associated with transmission upgrades.
Entergy Arkansas holds a FERC license that expires in 2053 for two hydroelectric projects totaling 70 MW of capacity.
Part I Item 1
Entergy Corporation, Utility operating companies, and System Energy
State Regulation
Utility
Entergy Arkansas is subject to regulation by the APSC as to the following:
utility service;
utility service areas;
retail rates and charges, including depreciation rates;
fuel cost recovery, including audits of the energy cost recovery rider;
terms and conditions of service;
service standards;
the acquisition, sale, or lease of any public utility plant or property constituting an operating unit or system;
certificates of convenience and necessity and certificates of environmental compatibility and public need, as applicable, for generating and transmission facilities;
avoided cost payments to Qualifying Facilities;
net energy metering;
integrated resource planning;
utility mergers and acquisitions and other changes of control; and
the issuance and sale of certain securities.
Additionally, Entergy Arkansas serves a limited number of retail customers in Tennessee. Pursuant to legislation enacted in Tennessee, Entergy Arkansas is subject to complaints before the Tennessee Regulatory Authority only if it fails to treat its retail customers in Tennessee in the same manner as its retail customers in Arkansas. Additionally, Entergy Arkansas maintains limited facilities in Missouri but does not provide retail electric service to customers in Missouri. Although Entergy Arkansas obtained a certificate with respect to its Missouri facilities, Entergy Arkansas is not subject to the retail rate or regulatory scheme in Missouri.
Entergy Louisiana’s electric and gas business is subject to regulation by the LPSC as to the following:
utility service;
retail rates and charges, including depreciation rates;
fuel cost recovery, including audits of the fuel adjustment clause and purchased gas adjustment charge;
terms and conditions of service;
service standards;
certification of certain transmission projects;
certification of capacity acquisitions, both for owned capacity and purchase power contracts;
procurement process to acquire over 50 MW;
audits of the environmental adjustment charge, avoided cost payment to Qualifying Facilities, and energy efficiency rider;
integrated resource planning;
net energy metering; and
utility mergers and acquisitions and other changes of control.
Entergy Mississippi is subject to regulation by the MPSC as to the following:
utility service;
utility service areas;
retail rates and charges, including depreciation rates;
fuel cost recovery, including audits of the energy cost recovery mechanism;
terms and conditions of service;
service standards;
Part I Item 1
Entergy Corporation, Utility operating companies, and System Energy
certification of generating facilities and certain transmission projects;
avoided cost payments to Qualifying Facilities;
integrated resource planning;
net energy metering; and
utility mergers, acquisitions, and other changes of control.
Entergy Mississippi is also subject to regulation by the APSC as to the certificate of environmental compatibility and public need for the Independence Station, which is located in Arkansas.
Entergy New Orleans is subject to regulation by the City Council as to the following:
utility service;
retail rates and charges, including depreciation rates;
fuel cost recovery, including audits of the fuel adjustment charge and purchased gas adjustment charge;
terms and conditions of service;
service standards;
audit of the environmental adjustment charge;
certification of the construction or extension of any new plant, equipment, property, or facility that comprises more than 2% of the utility’s rate base;
integrated resource planning;
net energy metering;
issuance and sale of certain securities; and
utility mergers and acquisitions and other changes of control.
To the extent authorized by governing legislation, Entergy Texas is subject to the original jurisdiction of the municipal authorities of a number of incorporated cities in Texas with appellate jurisdiction over such matters residing in the PUCT. Entergy Texas is also subject to regulation by the PUCT as to the following:
retail rates and charges, including depreciation rates, and terms and conditions of service in unincorporated areas of its service territory, and in municipalities that have ceded jurisdiction to the PUCT;
fuel recovery, including reconciliations (audits) of the fuel adjustment charges;
service standards;
certification of certain transmission and generation projects;
utility service areas, including extensions into new areas;
avoided cost payments to Qualifying Facilities; and
utility mergers, sales/acquisitions/leases of plants over $10 million, sales of greater than 50% voting stock of utilities, and transfers of controlling interest in or operation of utilities.
Regulation of the Nuclear Power Industry
Atomic Energy Act of 1954 and Energy Reorganization Act of 1974
Under the Atomic Energy Act of 1954 and the Energy Reorganization Act of 1974, the operation of nuclear plants is heavily regulated by the NRC, which has broad power to impose licensing and safety-related requirements. The NRC has broad authority to impose civil penalties or shut down a unit, or both, depending upon its assessment of the severity of the situation, until compliance is achieved. Entergy Arkansas, Entergy Louisiana, and System Energy, as owners of all or portions of ANO, River Bend and Waterford 3, and Grand Gulf, respectively, and Entergy Operations, as the licensee and operator of these units, are subject to the jurisdiction of the NRC. Entergy subsidiaries in the Entergy Wholesale Commodities segment are subject to the NRC’s jurisdiction as the owners and operators of Indian Point Energy Center, Palisades, and Big Rock Point.
Part I Item 1
Entergy Corporation, Utility operating companies, and System Energy
Nuclear Waste Policy Act of 1982
Spent Nuclear Fuel
Under the Nuclear Waste Policy Act of 1982, the DOE is required, for a specified fee, to construct storage facilities for, and to dispose of, all spent nuclear fuel and other high-level radioactive waste generated by domestic nuclear power reactors. Entergy’s nuclear owner/licensee subsidiaries have been charged fees for the estimated future disposal costs of spent nuclear fuel in accordance with the Nuclear Waste Policy Act of 1982. The affected Entergy companies entered into contracts with the DOE, whereby the DOE is to furnish disposal services at a cost of one mill per net kWh generated and sold after April 7, 1983, plus a one-time fee for generation prior to that date. Entergy Arkansas is the only one of the Utility operating companies that generated electric power with nuclear fuel prior to that date and has a recorded liability as of December 31, 2019 of $191.1 million for the one-time fee. Entergy accepted assignment of the Pilgrim, FitzPatrick and Indian Point 3, Indian Point 1 and Indian Point 2, Vermont Yankee, Palisades, and Big Rock Point spent fuel disposal contracts with the DOE held by their previous owners. The FitzPatrick spent fuel disposal contract was assigned to Exelon as part of the sale of the plant, completed in March 2017. The Vermont Yankee spent fuel disposal contract was assigned to NorthStar as part of the sale of the plant which was completed in January 2019. The Pilgrim spent fuel disposal contract was transferred to Holtec as part of the sale of Entergy Nuclear Generation Company in August 2019. The owners of these plants previous to Entergy have paid or retained liability for the fees for all generation prior to the purchase dates of those plants. The fees payable to the DOE may be adjusted in the future to assure full recovery. Entergy considers all costs incurred for the disposal of spent nuclear fuel, except accrued interest, to be proper components of nuclear fuel expense. Provisions to recover such costs have been or will be made in applications to regulatory authorities for the Utility plants. Entergy’s total spent fuel fees to date, including the one-time fee liability of Entergy Arkansas, have surpassed $1.6 billion (exclusive of amounts relating to Entergy plants that were paid or are owed by prior owners of those plants).
The permanent spent fuel repository in the U.S. has been legislated to be Yucca Mountain, Nevada. The DOE is required by law to proceed with the licensing (the DOE filed the license application in June 2008) and, after the license is granted by the NRC, proceed with the repository construction and commencement of receipt of spent fuel. Because the DOE has not begun accepting spent fuel, it is in non-compliance with the Nuclear Waste Policy Act of 1982 and has breached its spent fuel disposal contracts. The DOE continues to delay meeting its obligation. Specific steps were taken to discontinue the Yucca Mountain project, including a motion to the NRC to withdraw the license application with prejudice and the establishment of a commission to develop recommendations for alternative spent fuel storage solutions. In August 2013 the U.S. Court of Appeals for the D.C. Circuit ordered the NRC to continue with the Yucca Mountain license review, but only to the extent of funds previously appropriated by Congress for that purpose and not yet used. Although the NRC completed the safety evaluation report for the license review in 2015, the previously appropriated funds are not sufficient to complete the review, including required hearings. The government has taken no effective action to date related to the recommendations of the appointed spent fuel study commission. Accordingly, large uncertainty remains regarding the time frame under which the DOE will begin to accept spent fuel from Entergy’s facilities for storage or disposal. As a result, continuing future expenditures will be required to increase spent fuel storage capacity at Entergy’s nuclear sites.
Following the defunding of the Yucca Mountain spent fuel repository program, the National Association of Regulatory Utility Commissioners and others sued the government seeking cessation of collection of the one mill per net kWh generated and sold after April 7, 1983 fee. In November 2013 the D.C. Circuit Court of Appeals ordered the DOE to submit a proposal to Congress to reset the fee to zero until the DOE complies with the Nuclear Waste Policy Act or Congress enacts an alternative waste disposal plan. In January 2014 the DOE submitted the proposal to Congress under protest, and also filed a petition for rehearing with the D.C. Circuit. The petition for rehearing was denied. The zero spent fuel fee went into effect prospectively in May 2014.
As a result of the DOE’s failure to begin disposal of spent nuclear fuel in 1998 pursuant to the Nuclear Waste Policy Act of 1982 and the spent fuel disposal contracts, Entergy’s nuclear owner/licensee subsidiaries have incurred and will continue to incur damages. These subsidiaries have been, and continue to be, involved in litigation to recover
Part I Item 1
Entergy Corporation, Utility operating companies, and System Energy
the damages caused by the DOE’s delay in performance. See Note 8 to the financial statements for discussion of final judgments recorded by Entergy in 2017, 2018, and 2019 related to Entergy’s nuclear owner licensee subsidiaries’ litigation with the DOE. Through 2019, Entergy’s subsidiaries won and collected on judgments against the government totaling over $600 million.
Pending DOE acceptance and disposal of spent nuclear fuel, the owners of nuclear plants are providing their own spent fuel storage. Storage capability additions using dry casks began operations at Palisades in 1993, at ANO in 1996, at River Bend in 2005, at Grand Gulf in 2006, at Indian Point in 2008, and at Waterford 3 in 2011. These facilities will be expanded as needed.
Nuclear Plant Decommissioning
Entergy Arkansas, Entergy Louisiana, and System Energy are entitled to recover from customers through electric rates the estimated decommissioning costs for ANO, Waterford 3, and Grand Gulf, respectively. In addition, Entergy Louisiana and Entergy Texas are entitled to recover from customers through electric rates the estimated decommissioning costs for the portion of River Bend subject to retail rate regulation. The collections are deposited in trust funds that can only be used in accordance with NRC and other applicable regulatory requirements. Entergy periodically reviews and updates the estimated decommissioning costs to reflect inflation and changes in regulatory requirements and technology, and then makes applications to the regulatory authorities to reflect, in rates, the changes in projected decommissioning costs.
In July 2010 the LPSC approved increased decommissioning collections for Waterford 3 and the Louisiana regulated share of River Bend and in December 2010 the PUCT approved increased decommissioning collections for the Texas share of River Bend to address previously identified funding shortfalls. This LPSC decision contemplated that the level of decommissioning collections could be revisited should the NRC grant license extensions for both Waterford 3 and River Bend. In July 2019, following the NRC approval of license extensions for Waterford 3 and River Bend, Entergy made a filing with the LPSC seeking to adjust decommissioning and depreciation rates for those plants, including one proposed scenario that would adjust Louisiana-jurisdictional decommissioning collections to zero for both plants (including an offsetting increase in depreciation rates). An evidentiary hearing on the filing has been scheduled for July 2020, and management cannot predict the outcome of the case. In December 2018 the APSC ordered collections in rates for decommissioning ANO 2 and found that ANO 1’s decommissioning was adequately funded without additional collections. In November 2019, Entergy Arkansas filed a revised decommissioning cost recovery tariff for ANO indicating that both ANO 1 and ANO 2 decommissioning trusts were adequately funded without further collections, and in December 2019, the APSC ordered zero collections for ANO 1 and ANO 2 decommissioning. In December 2018 the PUCT approved a settlement that eliminated River Bend decommissioning collections for the Texas jurisdictional share of the plant based on a determination by Entergy Texas that the existing decommissioning fund was adequate following license renewal. In September 2016 the NRC issued a 20-year operating license renewal for Grand Gulf. In a 2017 filing at the FERC, System Energy stated that with the renewed operating license, Grand Gulf’s decommissioning trust was sufficiently funded, and proposed (among other things) to cease decommissioning collections for Grand Gulf effective October 1, 2017. The FERC accepted a settlement including the proposed decommissioning revenue requirement by letter order in August 2018. Entergy currently believes its decommissioning funding will be sufficient for its nuclear plants subject to retail rate regulation, although decommissioning cost inflation and trust fund performance will ultimately determine the adequacy of the funding amounts.
In January 2019, Entergy sold 100% of the membership interest in Entergy Nuclear Vermont Yankee to a subsidiary of NorthStar. As a result of the sale, NorthStar assumed ownership of Vermont Yankee and its decommissioning and site restoration trusts, together with complete responsibility for the facility’s decommissioning and site restoration. See Note 9 to the financial statements for further discussion of Vermont Yankee decommissioning costs and see “Entergy Wholesale Commodities Exit from the Merchant Power Business” in Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for further discussion of the NorthStar transaction.
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In August 2019, Entergy sold 100% of the equity interests in Entergy Nuclear Generation Company, LLC to a subsidiary of Holtec International. As a result of the sale, Holtec assumed ownership of Pilgrim and its decommissioning trust, together with complete responsibility for the facility’s decommissioning and site restoration. See Note 14 to the financial statements for further discussion of the sale.
For the Indian Point 3 and FitzPatrick plants purchased in 2000 from NYPA, NYPA retained the decommissioning trust funds and the decommissioning liabilities with the right to require the Entergy subsidiaries to assume each of the decommissioning liabilities provided that it assigns the corresponding decommissioning trust, up to a specified level, to the Entergy subsidiaries. In August 2016, Entergy entered into a trust transfer agreement with NYPA to transfer the decommissioning trust funds and decommissioning liabilities for the Indian Point 3 and FitzPatrick plants to Entergy, which was completed in January 2017. In March 2017, Entergy sold the FitzPatrick plant to Exelon, and as part of the transaction, the FitzPatrick decommissioning trust fund, along with the decommissioning obligation for that plant, was transferred to Exelon. The FitzPatrick spent fuel disposal contract was assigned to Exelon as part of the transaction. See Note 14 to the financial statements for discussion of the FitzPatrick sale.
In March 2019 filings with the NRC were made for Entergy subsidiaries’ nuclear plants reporting on decommissioning funding. Those reports showed that decommissioning funding for each of those nuclear plants met the NRC’s financial assurance and planning requirements.
Additional information with respect to Entergy’s decommissioning costs and decommissioning trust funds is found in Note 9 and Note 16 to the financial statements.
Price-Anderson Act
The Price-Anderson Act requires that reactor licensees purchase and maintain the maximum amount of nuclear liability insurance available and participate in an industry assessment program called Secondary Financial Protection in order to protect the public in the event of a nuclear power plant accident. The costs of this insurance are borne by the nuclear power industry. Congress amended and renewed the Price-Anderson Act in 2005 for a term through 2025. The Price-Anderson Act limits the contingent liability for a single nuclear incident to a maximum assessment of approximately $137.6 million per reactor (with 98 nuclear industry reactors currently participating). In the case of a nuclear event in which Entergy Arkansas, Entergy Louisiana, System Energy, or an Entergy Wholesale Commodities company is liable, protection is afforded through a combination of private insurance and the Secondary Financial Protection program. In addition to this, insurance for property damage, costs of replacement power, and other risks relating to nuclear generating units is also purchased. The Price-Anderson Act and insurance applicable to the nuclear programs of Entergy are discussed in more detail in Note 8 to the financial statements.
NRC Reactor Oversight Process
The NRC’s Reactor Oversight Process is a program to collect information about plant performance, assess the information for its safety significance, and provide for appropriate licensee and NRC response. The NRC evaluates plant performance by analyzing two distinct inputs: inspection findings resulting from the NRC’s inspection program and performance indicators reported by the licensee. The evaluations result in the placement of each plant in one of the NRC’s Reactor Oversight Process Action Matrix columns: “licensee response column,” or Column 1, “regulatory response column,” or Column 2, “degraded cornerstone column,” or Column 3, and “multiple/repetitive degraded cornerstone column,” or Column 4. Plants in Column 1 are subject to normal NRC inspection activities. Plants in Column 2, Column 3, or Column 4 are subject to progressively increasing levels of inspection by the NRC with, in general, progressively increasing levels of associated costs. The nuclear generating plants owned and operated by Entergy’s Utility and Entergy Wholesale Commodities businesses are currently in Column 1.
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Environmental Regulation
Entergy’s facilities and operations are subject to regulation by various governmental authorities having jurisdiction over air quality, water quality, control of toxic substances and hazardous and solid wastes, and other environmental matters. Management believes that Entergy’s businesses are in substantial compliance with environmental regulations currently applicable to its facilities and operations, with reference to possible exceptions noted below. Because environmental regulations are subject to change, future compliance requirements and costs cannot be precisely estimated. Except to the extent discussed below, at this time compliance with federal, state, and local provisions regulating the discharge of materials into the environment, or otherwise protecting the environment, is incorporated into the routine cost structure of Entergy’s businesses and is not expected to have a material effect on their competitive position, results of operations, cash flows, or financial position.
Clean Air Act and Subsequent Amendments
The Clean Air Act and its amendments establish several programs that currently or in the future may affect Entergy’s fossil-fueled generation facilities and, to a lesser extent, certain operations at nuclear and other facilities. Individual states also operate similar independent state programs or delegated federal programs that may include requirements more stringent than federal regulatory requirements. These programs include:
New source review and preconstruction permits for new sources of criteria air pollutants, greenhouse gases, and significant modifications to existing facilities;
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Nonattainment area programs for control of criteria air pollutants, which could include fee assessments for air pollutant emission sources under Section 185 of the Clean Air Act if attainment is not reached in a timely manner;
Hazardous air pollutant emissions reduction programs;
Interstate Air Transport;
Operating permit programs and enforcement of these and other Clean Air Act programs;
Regional Haze programs; and
New and existing source standards for greenhouse gas and other air emissions.
New Source Review (NSR)
Preconstruction permits are required for new facilities and for existing facilities that undergo a modification that results in a significant net emissions increase and is not classified as routine repair, maintenance, or replacement. Units that undergo certain non-routine modifications must obtain a permit modification and may be required to install additional air pollution control technologies. In August 2019 the EPA proposed to amend the NSR regulations to clarify when a physical change or change in the method of operation will constitute such a modification. Entergy has an established process for identifying modifications requiring additional permitting approval and is monitoring the regulations and associated guidance provided by the states and the federal government with regard to the determination of routine repair, maintenance, and replacement. Several years ago, however, the EPA implemented an enforcement initiative, aimed primarily at coal plants, to identify modifications that it does not consider routine for which the unit did not obtain a modified permit. Various courts and the EPA have been inconsistent in their judgments regarding modifications that are considered routine and on other legal issues that affect this program.
In February 2011, Entergy received a request from the EPA for several categories of information concerning capital and maintenance projects at the White Bluff and Independence facilities, both located in Arkansas, in order to determine compliance with the Clean Air Act, including NSR requirements and air permits issued by the Arkansas Department of Environmental Quality. In August 2011, Entergy’s Nelson facility, located in Louisiana, received a similar request for information from the EPA. In September 2015 an additional request for similar information was received for the White Bluff facility. Entergy responded to all requests. None of these EPA requests for information alleged that the facilities were in violation of law.
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In January and February 2018, Entergy Arkansas, Entergy Mississippi, Entergy Power, and other co-owners received 60-day notice of intent to sue letters from the Sierra Club and the National Parks Conservation Association concerning allegations of violations of new source review and permitting provisions of the Clean Air Act at the Independence and White Bluff coal-burning units, respectively. In November 2018, following extensive negotiations, Entergy Arkansas, Entergy Mississippi, and Entergy Power entered a proposed settlement resolving those claims as well as other issues facing Entergy Arkansas’s fossil generation plants. The settlement, which formally resolves a complaint filed by the Sierra Club and the National Parks Conservation Association, is subject to approval by the U.S. District Court for the District of Arkansas. In October 2019 the District Court requested supplemental briefing on several issues to be resolved prior to addressing the motion to approve the settlement. For further information about the settlement, see “Regional Haze” discussed below.
National Ambient Air Quality Standards
The Clean Air Act requires the EPA to set National Ambient Air Quality Standards (NAAQS) for ozone, carbon monoxide, lead, nitrogen dioxide, particulate matter, and sulfur dioxide, and requires periodic review of those standards. When an area fails to meet an ambient standard, it is considered to be in nonattainment and is classified as “marginal,” “moderate,” “serious,” or “severe.” When an area fails to meet the ambient air standard, the EPA requires state regulatory authorities to prepare state implementation plans meant to cause progress toward bringing the area into attainment with applicable standards.
Ozone Nonattainment
Entergy Texas operates one fossil-fueled generating facility (Lewis Creek) and is in the process of constructing another fossil-fueled generating facility (Montgomery County Power Station) in a geographic area that is not in attainment with the applicable NAAQS for ozone. The ozone nonattainment area that affects Entergy Texas is the Houston-Galveston-Brazoria area. Both Lewis Creek and the Montgomery County Power Station hold all necessary permits for construction and operation and comply with applicable air quality program regulations. Measures enacted to return the area to ozone attainment could make these program regulations more stringent. Entergy will continue to work with state environmental agencies on appropriate methods for assessing attainment and nonattainment with the ozone NAAQS.
Potential SO2Nonattainment
The EPA issued a final rule in June 2010 adopting an SO2 1-hour national ambient air quality standard of 75 parts per billion. In Entergy’s utility service territory, only St. Bernard Parish and Evangeline Parish in Louisiana are designated as nonattainment. In August 2017 the EPA issued a letter indicating that East Baton Rouge and St. Charles parishes would be designated by December 31, 2020, as monitors were installed to determine compliance. Entergy continues to monitor this situation.
Hazardous Air Pollutants
The EPA released the final Mercury and Air Toxics Standard (MATS) rule in December 2011, which had a compliance date, with a widely granted one-year extension, of April 2016. The required controls have been installed and are operational at all affected Entergy units. In February 2019 the EPA published its proposed rule that finds that it is not “appropriate and necessary” to regulate hazardous air pollutants from electric steam generating units under the provisions of section 112(n) of the Clean Air Act. This is a reversal of the EPA’s previous finding requiring such regulation. However, the proposal does not seek to revise the MATS rule at this time. Entergy will continue to monitor this situation.
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Regional Haze
In June 2005 the EPA issued its final Clean Air Visibility Rule (CAVR) regulations that potentially could result in a requirement to install SO2 and NOx pollution control technology as Best Available Retrofit Control Technology (BART) to continue operating certain of Entergy’s fossil generation units. The rule leaves certain CAVR determinations to the states.
In Arkansas, the Arkansas Department of Environmental Quality prepared a state implementation plan (SIP) for Arkansas facilities to implement its obligations under the CAVR. In April 2012 the EPA finalized a decision addressing the Arkansas Regional Haze SIP, in which it disapproved a large portion of the Arkansas plan, including the emission limits for NOx and SO2 at White Bluff. In April 2015 the EPA published a proposed federal implementation plan (FIP) for Arkansas, taking comment on requiring installation of scrubbers and low NOx burners to continue operating both units at the White Bluff plant and both units at the Independence plant and NOx controls to continue operating the Lake Catherine plant. Entergy filed comments by the deadline in August 2015. Among other comments, including opposition to the EPA’s proposed controls on the Independence units, Entergy proposed to meet more stringent SO2 and NOx limits at both White Bluff and Independence within three years of the effective date of the final FIP and to cease the use of coal at the White Bluff units at a later date.
In September 2016 the EPA published the final Arkansas Regional Haze FIP. In most respects, the EPA finalized its original proposal but shortened the time for compliance for installation of the NOx controls. The FIP required an emission limitation consistent with SO2 scrubbers at both White Bluff and Independence by October 2021 and NOx controls by April 2018. The EPA declined to adopt Entergy’s proposals related to ceasing coal use as an alternative to SO2 scrubbers for White Bluff SO2 BART. In November 2016, Entergy and other interested parties, including the State of Arkansas, filed petitions for administrative reconsideration and stay at the EPA as well as petitions for judicial review in the U.S. Court of Appeals for the Eighth Circuit. The Eighth Circuit granted the stay pending settlement discussions and pending the State’s development of a SIP that, if approved by the EPA, would replace the FIP. The state has proposed its replacement SIP in two parts: Part I considers NOx requirements, and Part II considers SO2 requirements. The EPA approved the Part I NOx SIP in January 2018. The Part I SIP requires that Entergy address NOx impacts on visibility via compliance with the Cross State Air Pollution Rule ozone-season emission trading program. Arkansas has finalized a Part II SIP which has been approved by the EPA but is currently pending a state court appeal. That appeal has been stayed pending the outcome of a federal court case, which may resolve many of the issues on appeal. The final Part II SIP requires that Entergy achieve SO2 emission reductions via the use of low-sulfur coal at both White Bluff and Independence within three years. The Part II SIP also requires that Entergy cease to use coal at White Bluff by December 31, 2028 and notes the current planning assumption that Entergy’s Independence units will cease to burn coal by December 31, 2030.
In January and February 2018, Entergy Arkansas, Entergy Mississippi, Entergy Power, and other co-owners received 60-day notice of intent to sue letters from the Sierra Club and the National Parks Conservation Association concerning allegations of violations of new source review and permitting provisions of the Clean Air Act at the Independence and White Bluff coal-burning units, respectively. In November 2018, following extensive negotiations, Entergy Arkansas, Entergy Mississippi, and Entergy Power entered a proposed settlement resolving those claims and reducing the risk that Entergy Arkansas, as operator of Independence and White Bluff, might be compelled under the Clean Air Act’s regional haze program to install costly emissions control technologies. Consistent with the terms of the settlement and in many cases also the Part II SIP, Entergy Arkansas, along with co-owners, will begin using only low-sulfur coal at Independence and White Bluff by mid-2021; cease to use coal at White Bluff and Independence by the end of 2028 and 2030, respectively; cease operation of the remaining gas unit at Lake Catherine by the end of 2027; reserve the option to develop new generating sources at each plant site; and commit to install or propose to regulators at least 800 MWs of renewable generation by the end of 2027, with at least half installed or proposed by the end of 2022 (which includes two existing Entergy Arkansas projects) and with all qualifying co-owner projects counting toward satisfaction of the obligation. Under the settlement, the Sierra Club and the National Parks Conservation Association also waive certain potential existing claims under federal and state environmental law with respect to specified generating plants. The settlement, which formally resolves a complaint filed by the Sierra Club and the
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National Parks Conservation Association, is subject to approval by the U.S. District Court for the Eastern District of Arkansas. The EPA, which is allowed to comment on such a settlement agreement, has stated that it has no objections to the settlement. Pending before the court are a motion by the plaintiffs to approve the settlement, in support of which Entergy made a filing, and motions by the Arkansas Attorney General and the Arkansas Affordable Energy Coalition to intervene and to stay the proceedings. The Arkansas Attorney General also filed an application before the APSC in December 2018 seeking an investigation into the effects of the settlement. The Arkansas Affordable Energy Coalition filed to support the application, and Entergy Arkansas filed a motion to dismiss. The application remains pending before the APSC. In October 2019 the District Court requested supplemental briefing on several issues to be resolved prior to addressing the motion to approve the settlement.
In Louisiana, Entergy has worked with the Louisiana Department of Environmental Quality (LDEQ) and the EPA to revise the Louisiana SIP for regional haze, which had been disapproved in part in 2012. The LDEQ submitted a revised SIP in February 2017. In May 2017 the EPA proposed to approve a majority of the revisions. In September 2017 the EPA issued a proposed SIP approval for the Nelson plant, requiring an emission limitation consistent with the use of low-sulfur coal, with a compliance date of January 22, 2021. The EPA issued final approval in December 2017. The EPA approval was appealed to the U.S. Court of Appeals for the Fifth Circuit. In October 2019 the Fifth Circuit affirmed EPA’s SIP approval.
New and Existing Source Performance Standards for Greenhouse Gas Emissions
In July 2019 the EPA released the Affordable Clean Energy Rule (ACE), which applies only to existing coal-fired electric generating units. The ACE determines that heat rate improvements are the best system of emission reductions and lists six candidate technologies for consideration by states at each coal unit. The rule and associated rulemakings by the EPA replace the Obama administration’s Clean Power Plan rule. The ACE rule provides states discretion in determining how the best system for emission reductions applies to individual units, including through the consideration of technical feasibility and the remaining useful life of the facility. Entergy is evaluating the final Affordable Clean Energy Rule’s impacts on its coal units and will monitor litigation challenging the rule. The EPA also has proposed a revision to the new source performance standard on greenhouse gas emissions that primarily impacts new coal units and, therefore, should not impact Entergy.
Potential Legislative, Regulatory, and Judicial Developments
In addition to the specific instances described above, there are a number of legislative and regulatory initiatives concerning air emissions, as well as other media, that are under consideration at the federal, state, and local level. Because of the nature of Entergy’s business, the imposition of any of these initiatives could affect Entergy’s operations. Entergy continues to monitor these initiatives and activities in order to analyze their potential operational and cost implications. These initiatives include:
designation by the EPA and state environmental agencies of areas that are not in attainment with national ambient air quality standards;
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• | introduction of bills in Congress and development of regulations by the EPA proposing further limits on NOx, SO2, mercury, and carbon dioxide and other air emissions. New legislation or regulations applicable to stationary sources could take the form of market-based cap-and-trade programs, direct requirements for the installation of air emission controls onto air emission sources, or other or combined regulatory programs; |
efforts in Congress or at the EPA to establish a federal carbon dioxide emission tax, control structure or unit performance standards;
revisions to the estimates of the Social Cost of Carbon and its use for regulatory impact analysis of Federal laws and regulations;
implementation of the Regional Greenhouse Gas Initiative by several states in the northeastern United States and similar actions in other regions of the United States;
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efforts on the state and federal level to codify renewable portfolio standards, clean energy standards, or a similar mechanism requiring utilities to produce or purchase a certain percentage of their power from defined renewable energy sources or energy sources with lower emissions;
efforts to develop more stringent state water quality standards, effluent limitations for Entergy’s industry sector, stormwater runoff control regulations, and cooling water intake structure requirements;
efforts to restrict the previously-approved continued use of oil-filled equipment containing certain levels of PCBs;
efforts by certain external groups to encourage reporting and disclosure of carbon dioxide emissions and risk;
the listing of additional species as threatened or endangered, the protection of critical habitat for these species, and developments in the legal protection of eagles and migratory birds; and
the regulation of the management, disposal, and beneficial reuse of coal combustion residuals.
Entergy continues to support national legislation that would increase planning certainty for electric utilities while addressing carbon dioxide emissions in a responsible and flexible manner. By virtue of its proportionally large investment in low-emitting gas-fired and nuclear generation technologies, Entergy has a low overall carbon dioxide emission “intensity,” or rate of carbon dioxide emitted per megawatt-hour of electricity generated. In anticipation of the imposition of carbon dioxide emission limits on the electric industry, Entergy initiated actions designed to reduce its exposure to potential new governmental requirements related to carbon dioxide emissions. These voluntary actions included a formal program to stabilize owned power plant carbon dioxide emissions at 2000 levels through 2005, and Entergy succeeded in reducing emissions below 2000 levels. In 2006, Entergy started including emissions from controllable power purchases in addition to its ownership share of generation and established a second formal voluntary program to stabilize power plant carbon dioxide emissions and emissions from controllable power purchases, cumulatively over the period, at 20% below 2000 levels through 2010. In 2011, Entergy extended this commitment through 2020. Total carbon dioxide emissions representing Entergy’s ownership share of power plants and controllable power purchases in the United States were approximately 40.7 million tons in 2019 and 43.7 tons in 2018.
Entergy voluntarily conducted a climate scenario analysis and published a comprehensive report in March 2019. The report follows the framework and recommendations of the Task Force on Climate-related Disclosures, describing climate-related governance, strategy, risk management, and metrics and targets. Scenario analysis resulted in Entergy developing and publishing a new goal of reducing the Utility’s emission rate by 50 percent from 2000 levels by 2030.
Entergy participates in the M.J. Bradley & Associates’ Annual Benchmarking Air Emissions Report, an annual analysis of the 100 largest U.S. electric power producers. The report is available on the M.J. Bradley website. Entergy’s annual greenhouse gas emissions inventory is also third-party verified, and that certification is made available on the American Carbon Registry website. Entergy participates annually in the Dow Jones Sustainability Index and in 2019 was listed on the North American Index. Entergy has been listed on the World or North American Index, or both, for eighteen consecutive years.
Clean Water Act
The 1972 amendments to the Federal Water Pollution Control Act (known as the Clean Water Act) provide the statutory basis for the National Pollutant Discharge Elimination System (NPDES) permit program, section 402, and the basic structure for regulating the discharge of pollutants from point sources to waters of the United States. The Clean Water Act requires virtually all discharges of pollutants to waters of the United States to be permitted. Section 316(b) of the Clean Water Act regulates cooling water intake structures, section 401 of the Clean Water Act requires a water quality certification from the state in support of certain federal actions and approvals, and section 404 regulates the dredge and fill of waters of the United States, including jurisdictional wetlands.
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Steam Electric Effluent Guidelines
The 2015 Steam Electric Effluent Limitations Guidelines (ELG) rule requires, among other things, that there be no discharge of bottom ash transport water. The no-discharge requirement contains no exceptions and could cause compliance problems for Entergy’s coal facilities during heavy storm events and under certain non-routine operational conditions. The ELG rule’s compliance dates currently are delayed while the EPA reconsiders the rule. Additionally, the Fifth Circuit Court of Appeals recently vacated and remanded the provisions of the rule related to legacy wastewater and leachate. In November 2019 the EPA released a proposed rule revision on bottom ash transport water that will allow some flexibility for storm events and non-routine operations. A separate rulemaking is expected to address the legacy wastewater and leachate issues. Despite the impending rulemaking, Entergy is implementing projects at its White Bluff and Independence plants to convert to zero-discharge systems to comply with the ELG rule and the coal combustion residuals restrictions on impoundments. Additionally, the Nelson Unit 6 facility is implementing operational and maintenance measures to ensure its original zero-discharge design is maintained for compliance with the ELG rule.
Federal Jurisdiction of Waters of the United States
In February 2019 the EPA published its proposed revised definition of Waters of the United States, which proposes to narrow the scope of Clean Water Act jurisdiction, as compared to a 2015 definition which had been stayed by several federal courts. The final rule was released in January 2020. In October 2019 the EPA repealed the 2015 rule and re-codified the pre-existing regulations. That rule was effective late December 2019. Numerous challenges are expected for both rules.
Groundwater at Certain Nuclear Sites
The NRC requires nuclear power plants to monitor and report regularly the presence of radioactive material in the environment. Entergy joined other nuclear utilities and the Nuclear Energy Institute in 2006 to develop a voluntary groundwater monitoring and protection program. This initiative began after detection of very low levels of radioactive material, primarily tritium, in groundwater at several plants in the United States. Tritium is a radioactive form of hydrogen that occurs naturally and is also a byproduct of nuclear plant operations. In addition to tritium, other radionuclides have been found in site groundwater at nuclear plants.
As part of the groundwater monitoring and protection program, Entergy has: (1) performed reviews of plant groundwater characteristics (hydrology) and historical records of past events on site that may have potentially impacted groundwater; (2) implemented fleet procedures on how to handle events that could impact groundwater; and (3) installed groundwater monitoring wells and began periodic sampling. The program also includes protocols for notifying local officials if contamination is found. To date, radionuclides such as tritium have been detected at Arkansas Nuclear One, Indian Point, Palisades, Grand Gulf, and River Bend. Each of these sites has installed groundwater monitoring wells and implemented a program for testing groundwater at the sites for the presence of tritium and other radionuclides. Based on current information, the concentrations and locations of radionuclides detected at these plants pose no threat to public health or safety, but each site continues to evaluate the results from its groundwater monitoring program.
Comprehensive Environmental Response, Compensation, and Liability Act of 1980
The Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended (CERCLA), authorizes the EPA to mandate clean-up by, or to collect reimbursement of clean-up costs from, owners or operators of sites at which hazardous substances may be or have been released. Certain private parties also may use CERCLA to recover response costs. Parties that transported hazardous substances to these sites or arranged for the disposal of the substances are also deemed liable by CERCLA. CERCLA has been interpreted to impose strict, joint and several liability on responsible parties. Many states have adopted programs similar to CERCLA. Entergy subsidiaries in the Utility and Entergy Wholesale Commodities businesses have sent waste materials to various disposal
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sites over the years, and releases have occurred at Entergy facilities including nuclear facilities that have been or will be sold to decommissioning companies. In addition, environmental laws now regulate certain of Entergy’s operating procedures and maintenance practices that historically were not subject to regulation. Some disposal sites used by Entergy subsidiaries have been the subject of governmental action under CERCLA or similar state programs, resulting in site clean-up activities. Entergy subsidiaries have participated to various degrees in accordance with their respective potential liabilities in such site clean-ups and have developed experience with clean-up costs. The affected Entergy subsidiaries have established provisions for the liabilities for such environmental clean-up and restoration activities. Details of potentially material CERCLA and similar state program liabilities are discussed in the “Other Environmental Matters” section below.
Coal Combustion Residuals
In June 2010 the EPA issued a proposed rule on coal combustion residuals (CCRs) that contained two primary regulatory options: (1) regulating CCRs destined for disposal in landfills or received (including stored) in surface impoundments as so-called “special wastes” under the hazardous waste program of RCRA Subtitle C; or (2) regulating CCRs destined for disposal in landfills or surface impoundments as non-hazardous wastes under Subtitle D of RCRA. Under both options, CCRs that are beneficially reused in certain processes would remain excluded from hazardous waste regulation. In April 2015 the EPA published the final CCR rule with the material being regulated under the second scenario presented above - as non-hazardous wastes regulated under RCRA Subtitle D.
The final regulations create new compliance requirements including modified storage, new notification and reporting practices, product disposal considerations, and CCR unit closure criteria. Entergy believes that on-site disposal options will be available at its facilities, to the extent needed for CCR that cannot be transferred for beneficial reuse. As of December 31, 2019, Entergy has recorded asset retirement obligations related to CCR management of $19.2 million.
In December 2016 the Water Infrastructure Improvements for the Nation Act (WIIN Act) was signed into law, which authorizes states to regulate coal ash rather than leaving primary enforcement to citizen suit actions. States may submit to the EPA proposals for a permit program. In September 2017 the EPA agreed to reconsider certain provisions of the CCR rule in light of the WIIN Act. In July 2018 the EPA released its initial revisions extending certain deadlines and incorporating some risk-based standards. In August 2018 the D.C. Circuit vacated several provisions of the CCR rule on the basis that they were inconsistent with the Resource Conservation and Recovery Act and remanded the matter to the EPA to conduct further rulemaking. In August 2019 the EPA released its second set of proposed revisions to the CCR rule and plans at least three additional rulemakings.
Pursuant to the EPA Rule, Entergy operates groundwater monitoring systems surrounding its coal combustion residual landfills located at White Bluff, Independence, and Nelson. Monitoring to date has detected concentrations of certain listed constituents in the area, but has not indicated that these constituents originated at the active landfill cells. Reporting has occurred as required, and detection monitoring will continue as the rule requires. In late-2017, Entergy determined that certain in-ground wastewater treatment system recycle ponds at its White Bluff and Independence facilities require management under the new EPA regulations. In order to meet these regulations, one of two recycle ponds at White Bluff commenced closure in October 2018. Additionally, the second recycle pond at White Bluff plans to initiate closure on or before October 31, 2020. Any potential requirements for corrective action or operational changes under the new EPA rule continue to be assessed. Notably, ongoing litigation has resulted in the EPA’s continuing review of the rule. Consequently, the nature and cost of additional corrective action requirements may depend, in part, on the outcome of the EPA’s review.
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Other Environmental Matters
Entergy Louisiana and Entergy Texas
Entergy Louisiana, as successor in interest to Entergy Gulf States Louisiana, currently is involved in the second phase of the remedial investigation of the Lake Charles Service Center site, located in Lake Charles, Louisiana. A manufactured gas plant (MGP) is believed to have operated at this site from approximately 1916 to 1931. Coal tar, a by-product of the distillation process employed at MGPs, apparently was routed to a portion of the property for disposal. The same area also has been used as a landfill. In 1999, Entergy Gulf States, Inc. signed a second administrative consent order with the EPA to perform a removal action at the site. Removal actions addressed contaminated source material, soil, and sediment and included capping certain soil on and off-site. In 2002 approximately 7,400 tons of contaminated soil and debris were excavated and disposed of from an area within the service center. In 2003 a cap was constructed over the remedial area to prevent the migration of contamination to the surface. In August 2005 an administrative order was issued by the EPA requiring that a 10-year groundwater study be conducted at this site. The groundwater monitoring study commenced in January 2006. The EPA released the second Five Year Review in 2015. In that review, the EPA indicated that the remediation technique was insufficient and that Entergy would need to utilize other remediation technologies on the site. In July 2015, Entergy submitted a Focused Feasibility Study to the EPA outlining the potential remedies and suggesting installation of the new remedial method, a waterloo barrier. The estimated cost for this remedy is approximately $2 million, to be allocated between Entergy Louisiana and Entergy Texas. In early 2017 the EPA indicated that the waterloo barrier may not be necessary and requested revisions to the Focused Feasibility Study. The EPA released the third Five Year Review in late-2019 confirming that a new remedial method is not necessary but requiring continuation of the current groundwater monitoring. The site’s remedy includes monitored natural attenuation of groundwater, and institutional controls to restrict groundwater and land use. The EPA has determined that no additional actions are needed for the remedy to be protective over the long-term, and the remedy is protective of human health and the environment.
Entergy Arkansas, Entergy Louisiana, Entergy New Orleans, and Entergy Texas
The Texas Commission on Environmental Quality (TCEQ) notified Entergy Arkansas, Entergy Louisiana, Entergy New Orleans, and Entergy Texas that the TCEQ believes those entities are potentially responsible parties (PRPs) concerning contamination existing at the San Angelo Electric Service Company (SESCO) facility in San Angelo, Texas. The facility operated as a transformer repair and scrapping facility from the 1930s until 2003. Both soil and groundwater contamination existed at the site. Entergy subsidiaries sent transformers to this facility. Entergy Arkansas, Entergy Louisiana, and Entergy Texas responded to an information request from the TCEQ. Entergy Louisiana and Entergy Texas joined a group of PRPs responding to site conditions in cooperation with the State of Texas, creating cost allocation models based on review of SESCO documents and employee interviews, and investigating contribution actions against other PRPs. Entergy Louisiana and Entergy Texas have agreed to contribute to the remediation of contaminated soil and groundwater at the site in a measure proportionate to those companies’ involvement at the site. Current estimates, although variable depending on ultimate remediation design and performance, indicate that Entergy’s total share of remediation costs likely will be approximately $1.5 million to $2 million. Groundwater monitoring wells at the site were plugged and abandoned in December 2019 following receipt of a certificate of completion issued by the TCEQ. Site decommissioning activities will occur, and final disposition of the property will be determined at a later time.
Part I Item 1
Entergy Corporation, Utility operating companies, and System Energy
Entergy Texas
In December 2016 a transformer inside the Hartburg, Texas Substation had an internal fault resulting in a release of approximately 15,000 gallons of non-PCB mineral oil. Cleanup ensued immediately; however, rain caused much of the oil to spread across the substation yard and into a nearby wetland. The Texas Commission on Environmental Quality (TCEQ) and the National Response Center were immediately notified, and the TCEQ responded to the site approximately two hours after the cleanup was initiated. The remediation liability is estimated at $2.2 million; however, this number could fluctuate depending on the remediation extent and wetland mitigation requirements. In July 2017, Entergy entered into the Voluntary Cleanup Program with the TCEQ. In November 2017, additional soil sampling was completed in the wetland area and, in February 2018, a site summary report of findings was submitted to the TCEQ. The TCEQ responded in June 2018 and requested an ecological exclusion criteria checklist/Tier II screening-level ecological risk assessment, and additional site assessment, additional soil samples, groundwater samples, and some additional diagrams and maps. In October 2018, Entergy submitted the requested information to the TCEQ. In January 2019 the TCEQ responded with another request for information. In March 2019, Entergy submitted the requested information to the TCEQ. In August 2019 the TCEQ responded with a request for additional information including an Affected Property Assessment Report (APAR) and water well survey. The TCEQ has agreed that the necessity of the water well survey is dependent on the results of the groundwater resampling that will occur. Groundwater sampling was completed in December 2019 and results were submitted to the TCEQ for review. Based on the groundwater sampling results, the TCEQ has indicated that a water well survey is not necessary. The deadline for submittal of the APAR will be 180 days following the receipt of the TCEQ’s letter confirming approval of the groundwater sampling results.
Litigation
Entergy uses legal and appropriate means to contest litigation threatened or filed against it, but certain states in which Entergy operates have proven to be unusually litigious environments. Judges and juries in Louisiana, Mississippi, and Texas have demonstrated a willingness to grant large verdicts, including punitive damages, to plaintiffs in personal injury, property damage, and business tort cases. The litigation environment in these states poses a significant business risk to Entergy.
Ratepayer and Fuel Cost Recovery Lawsuits (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and Entergy Texas)
Mississippi Attorney General Complaint
See Note 2 to the financial statements for a discussion of this proceeding.
Asbestos Litigation(Entergy Arkansas, Entergy Louisiana, Entergy New Orleans, and Entergy Texas)
See Note 8 to the financial statements for a discussion of this litigation.
Employment and Labor-related Proceedings (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)
See Note 8 to the financial statements for a discussion of these proceedings.
Part I Item 1
Entergy Corporation, Utility operating companies, and System Energy
Employees
Employees are an integral part of Entergy’s commitment to serving customers. As of December 31, 2019, Entergy subsidiaries employed 13,635 people.
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| | |
Utility: | |
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Entergy Arkansas | 1,251 |
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Entergy Louisiana | 1,670 |
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Entergy Mississippi | 745 |
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Entergy New Orleans | 308 |
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Entergy Texas | 643 |
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System Energy | — |
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Entergy Operations | 3,564 |
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Entergy Services | 3,899 |
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Entergy Nuclear Operations | 1,505 |
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Other subsidiaries | 50 |
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Total Entergy | 13,635 |
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Approximately 4,100 employees are represented by the International Brotherhood of Electrical Workers, the Utility Workers Union of America, the International Brotherhood of Teamsters, the United Government Security Officers of America, and the International Union, Security, Police, and Fire Professionals of America.
Availability of SEC filings and other information on Entergy’s website
Entergy electronically files reports with the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxies, and amendments to such reports. The SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding registrants that file electronically with the SEC at http://www.sec.gov. Copies of the reports that Entergy files with the SEC can be obtained at the SEC’s website.
Entergy uses its website, http://www.entergy.com, as a routine channel for distribution of important information, including news releases, analyst presentations and financial information. Filings made with the SEC are posted and available without charge on Entergy’s website as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC. These filings include annual and quarterly reports on Forms 10-K and 10-Q (including related filings in Inline XBRL format) and current reports on Form 8-K; proxy statements; and any amendments to those reports or statements. All such postings and filings are available on Entergy’s Investor Relations website free of charge. Entergy is providing the address to its internet site solely for the information of investors and does not intend the address to be an active link. The contents of the website are not incorporated into this report.
Part I Item 1A & 1B
Entergy Corporation, Utility operating companies, and System Energy
RISK FACTORS
Investors should review carefully the following risk factors and the other information in this Form 10-K. The risks that Entergy faces are not limited to those in this section. There may be additional risks and uncertainties (either currently unknown or not currently believed to be material) that could adversely affect Entergy’s financial condition, results of operations, and liquidity. See “FORWARD-LOOKING INFORMATION.”
Utility Regulatory Risks
(Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)
The terms and conditions of service, including electric and gas rates, of the Utility operating companies and System Energy are determined through regulatory approval proceedings that can be lengthy and subject to appeal that could result in delays in effecting rate changes and uncertainty as to ultimate results.
The Utility operating companies are regulated on a cost-of-service and rate of return basis and are subject to statutes and regulatory commission rules and procedures. The rates that the Utility operating companies and System Energy charge reflect their capital expenditures, operations and maintenance costs, allowed rates of return, financing costs, and related costs of service. These rates significantly influence the financial condition, results of operations, and liquidity of Entergy and each of the Utility operating companies and System Energy. These rates are determined in regulatory proceedings and are subject to periodic regulatory review and adjustment, including adjustment upon the initiative of a regulator or affected stakeholders.
In addition, regulators may initiate proceedings to investigate the prudence of costs in the Utility operating companies’ base rates and examine, among other things, the reasonableness or prudence of the companies’ operation and maintenance practices, level of expenditures (including storm costs and costs associated with capital projects), allowed rates of return and rate base, proposed resource acquisitions, and previously incurred capital expenditures that the operating companies seek to place in rates. The regulators may disallow costs subject to their jurisdiction found not to have been prudently incurred or found not to have been incurred in compliance with applicable tariffs, creating some risk to the ultimate recovery of those costs. Regulatory proceedings relating to rates and other matters typically involve multiple parties seeking to limit or reduce rates. Traditional base rate proceedings, as opposed to formula rate plans, generally have long timelines, are primarily based on historical costs, and may or may not be limited in scope or duration by statute. The length of these base rate proceedings can cause the Utility operating companies and System Energy to experience regulatory lag in recovering costs through rates, such that the Utility operating companies may not fully recover all costs during the rate effective period and the Utility operating companies may, therefore, earn less than their allowed returns. Decisions are typically subject to appeal, potentially leading to additional uncertainty associated with rate case proceedings.
The Utility operating companies have large customer and stakeholder bases and, as a result, could be the subject of public criticism or adverse publicity focused on issues including the operation of their assets and infrastructure or the quality of their service. Criticism or adverse publicity of this nature could render legislatures and other governing bodies, public service commissions and other regulatory authorities, and government officials less likely to view the applicable operating company in a favorable light and could potentially negatively affect legislative or regulatory processes or outcomes, as well as lead to increased regulatory oversight or more stringent legislative or regulatory requirements.
The base rates of Entergy Texas are established largely in traditional base rate case proceedings. Between base rate proceedings, Entergy Texas has available rate riders to recover the revenue requirements associated with certain incremental costs. For example, Entergy Texas has recovered distribution-related capital investments through the distribution cost recovery factor rider mechanism, transmission-related capital investments and certain non-fuel MISO charges through the transmission cost recovery factor rider mechanism, and MISO fuel and energy-related costs
Part I Item 1A & 1B
Entergy Corporation, Utility operating companies, and System Energy
through the fixed fuel factor mechanism. Entergy Texas is also required to make a filing every three years, at a minimum, reconciling its fuel and purchased power costs and fuel factor revenues. In the course of this reconciliation, the PUCT determines whether eligible fuel and fuel-related expenses and revenues are necessary and reasonable, and makes a prudence finding for each of the fuel-related contracts for the reconciliation period.
Between base rate cases, Entergy Arkansas and Entergy Mississippi are able to adjust base rates annually through formula rate plans that utilize a forward test year (Entergy Arkansas) or forward-looking features (Entergy Mississippi). In response to Entergy Arkansas’s application for a general change in rates in 2015, the APSC approved the formula rate plan tariff proposed by Entergy Arkansas including its use of a projected year test period and an initial five-year term. The initial five-year term expires in 2021 unless Entergy Arkansas requests, and the APSC approves, the extension of the formula rate plan tariff for an additional five years through 2026. If Entergy Arkansas’s formula rate plan were terminated or not extended beyond the initial term, Entergy Arkansas could file an application for a general change in rates that may include a request for continued regulation under a formula rate review mechanism. If Entergy Mississippi’s formula rate plan is terminated, it would revert to the more traditional rate case environment or seek approval of a new formula rate plan. Entergy Arkansas and Entergy Mississippi recover fuel and purchased energy and certain non-fuel costs through other APSC-approved and MPSC-approved tariffs, respectively.
Entergy Louisiana historically sets electric base rates annually through a formula rate plan using an historic test year. The form of the formula rate plan, on a combined basis, was approved in connection with the business combination of Entergy Louisiana and Entergy Gulf States Louisiana and largely followed the formula rate plans that were approved by the LPSC in connection with the full electric base rate cases filed by those companies in February 2013. The formula rate plan was most recently extended through the test year 2019; certain modifications were made in that extension, including a decrease to the allowed return on equity and the addition of a transmission cost recovery mechanism. The formula rate plan continues to include exceptions from the rate cap and sharing requirements for certain large capital investment projects, including acquisition or construction of generating facilities and purchase power agreements approved by the LPSC and as noted, for certain transmission investment, among other items. MISO fuel and energy-related costs are recoverable in Entergy Louisiana’s fuel adjustment clause. In the event that the electric formula rate plan is not renewed or extended, Entergy Louisiana would revert to the more traditional rate case environment.
Entergy New Orleans previously operated under a formula rate plan that ended with the 2011 test year. Based on a settlement agreement approved by the City Council, with limited exceptions, the base rates of Entergy New Orleans were frozen until rates were implemented in connection with the base rate case filed by Entergy New Orleans in 2018. In November 2019 the City Council issued a resolution resolving the rate case, with rates to become effective retroactive to August 2019. The resolution allows Entergy New Orleans to implement a three-year formula rate plan, beginning with the 2019 test year as adjusted for forward-looking known and measurable changes. Entergy New Orleans has appealed the resolution. See Note 2 to the financial statements for further discussion.
The rates of System Energy are established by the FERC, and the costs allowed to be charged pursuant to these rates are, in turn, passed through to the participating Utility operating companies through the Unit Power Sales Agreement, which allows monthly adjustments to reflect the current operating costs of, and investment in, Grand Gulf. The Unit Power Sales Agreement is currently the subject of several litigation proceedings at the FERC, including a challenge with respect to System Energy’s authorized return on equity and capital structure and a request in a separate proceeding for FERC to initiate a broader investigation of rates under the Unit Power Sales Agreement. See Note 2 to the financial statements for further discussion of the proceedings. The Utility operating companies have agreed to implement certain protocols for providing retail regulators with information regarding rates billed under the Unit Power Sales Agreement.
The Utility operating companies and System Energy, and the energy industry as a whole, have experienced a period of rising costs and investments, and an upward trend in spending, especially with respect to infrastructure investments, which is likely to continue in the foreseeable future and could result in more frequent rate cases and
Part I Item 1A & 1B
Entergy Corporation, Utility operating companies, and System Energy
requests for, and the continuation of, cost recovery mechanisms. For information regarding rate case proceedings and formula rate plans applicable to the Utility operating companies, see Note 2 to the financial statements.
Changes to state or federal legislation or regulation affecting electric generation, electric and natural gas transmission, distribution and related activities could adversely affect Entergy and the Utility operating companies’ financial position, results of operations or cash flows and their utility businesses.
If legislative and regulatory structures evolve in a manner that erodes the Utility operating companies’ exclusive rights to serve their regulated customers, they could lose customers and sales and their results of operations, financial position or cash flows could be materially affected. Additionally, technological advances in energy efficiency and distributed energy resources are reducing the costs of these technologies and together with ongoing state and federal subsidies, the increasing penetration of these technologies could result in reduced sales by the Utility operating companies. Such loss of sales could put upward pressure on rates, resulting in adverse regulatory actions to mitigate such effects on rates. Entergy and the Utility operating companies cannot predict if or when they may be subject to changes in legislation or regulation, or the extent and timing of reductions of the cost of distributed energy resources, nor can they predict the impact of these changes on their results of operations, financial position or cash flows.
The Utility operating companies recover fuel, purchased power, and associated costs through rate mechanisms that are subject to risks of delay or disallowance in regulatory proceedings.
The Utility operating companies recover their fuel, purchased power, and associated costs from their customers through rate mechanisms subject to periodic regulatory review and adjustment. Because regulatory review can result in the disallowance of incurred costs found not to have been prudently incurred, including the cost of replacement power purchased when generators experience outages, with the possibility of refunds to ratepayers, there exists some risk to the ultimate recovery of those costs. Regulators may also initiate proceedings to investigate the continued usage or the adequacy and operation of the fuel and purchased power recovery clauses of the Utility operating companies and, therefore, there can be no assurance that existing recovery mechanisms will remain unchanged or in effect at all.
The Utility operating companies’ cash flows can be negatively affected by the time delays between when gas, power, or other commodities are purchased and the ultimate recovery from customers of the costs in rates. On occasion, when the level of incurred costs for fuel and purchased power rises very dramatically, some of the Utility operating companies may agree to defer recovery of a portion of that period’s fuel and purchased power costs for recovery at a later date, which could increase the near-term working capital and borrowing requirements of those companies. For a description of fuel and purchased power recovery mechanisms and information regarding the regulatory proceedings for fuel and purchased power costs recovery, see Note 2 to the financial statements.
There remains uncertainty regarding the effect of the termination of the System Agreement on the Utility operating companies.
The Utility operating companies historically engaged in the coordinated planning, construction, and operation of generating resources and bulk transmission facilities under the terms of the System Agreement, which is a rate schedule that had been approved by the FERC. The System Agreement terminated in its entirety on August 31, 2016.
There remains uncertainty regarding the long-term effect of the termination of the System Agreement on the Utility operating companies because of the significant effect of the agreement on the generation and transmission functions of the Utility operating companies and the significant period of time (over 30 years) that it had been in existence. In the absence of the System Agreement, there remains uncertainty around the effectiveness of governance processes and the potential absence of federal authority to resolve certain issues among the Utility operating companies and their retail regulators.
In addition, although the System Agreement terminated in its entirety in August 2016, there are a number of outstanding System Agreement proceedings at the FERC that may require future adjustments, including challenges to
Part I Item 1A & 1B
Entergy Corporation, Utility operating companies, and System Energy
the level and timing of payments made by Entergy Arkansas under the System Agreement. The outcome and timing of these FERC proceedings and resulting recovery and impact on rates cannot be predicted at this time.
For further information regarding the regulatory proceedings relating to the System Agreement, see Note 2 to the financial statements.
The Utility operating companies are subject to economic risks associated with participation in the MISO markets and the allocation of transmission upgrade costs. The operation of the Utility operating companies’ transmission system pursuant to the MISO RTO tariff and their participation in the MISO RTO’s wholesale markets may be adversely affected by regulatory or market design changes, as well as liability under, or any future inability to comply with, existing or future regulations or requirements.
On December 19, 2013, the Utility operating companies integrated into the MISO RTO. MISO maintains functional control over the combined transmission systems of its members and administers wholesale energy and ancillary services markets for market participants in the MISO region, including the Utility operating companies. The Utility operating companies sell capacity, energy, and ancillary services on a bilateral basis to certain wholesale customers and offer available electricity production of their generating facilities into the MISO day-ahead and real-time energy markets pursuant to the MISO tariff and market rules. The Utility operating companies are subject to economic risks associated with participation in the MISO markets. MISO tariff rules and system conditions, including transmission congestion, could affect the Utility operating companies’ ability to sell power in certain regions and/or the economic value of such sales, and MISO market rules may change in ways that cause additional risk.
The Utility operating companies participate in the MISO regional transmission planning process and are subject to risks associated with planning decisions that MISO makes in the exercise of control over the planning of the Utility operating companies’ transmission assets that are under MISO’s functional control. The Utility operating companies pay transmission rates that reflect the cost of transmission projects that the Utility operating companies do not own, which could increase cash or financing needs. MISO has made filings with FERC proposing changes in the transmission project criteria in MISO. These changes, if adopted, could potentially result in a larger volume of competitively bid and regionally cost allocated transmission projects. In addition to the cash and financing-related risks arising from the potential additional cost allocation to the Utility operating companies from these projects, there is a risk that the Utility operating companies’ business and financial position could be harmed as a result of lost investment opportunities and other effects that flow from an increased number of competitive projects being approved and constructed that are interconnected with their transmission systems. Further, the terms and conditions of the MISO tariff, including provisions related to the design and implementation of wholesale markets, the allocation of transmission upgrade costs, the MISO-wide allowed base rate of return on equity, and any required MISO-related charges and credits are subject to regulation by the FERC. The operation of the Utility operating companies’ transmission system pursuant to the MISO tariff and their participation in the MISO wholesale markets may be adversely affected by regulatory or market design changes, as well as liability under, or any future inability to comply with, existing or future regulations or requirements. In addition, orders from each of the Utility operating companies’ respective retail regulators generally require that the Utility operating companies make periodic filings, or generally allow the retail regulator to direct the making of such filings, setting forth the results of analysis of the costs and benefits realized from MISO membership as well as the projected costs and benefits of continued membership in MISO and/or requesting approval of their continued membership in MISO. These filings have been submitted periodically by each of the Utility operating companies as required by their respective retail regulators, and the outcome of the resulting proceedings may affect the Utility operating companies’ continued membership in MISO.
Part I Item 1A & 1B
Entergy Corporation, Utility operating companies, and System Energy
(Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and Entergy Texas)
A delay or failure in recovering amounts for storm restoration costs incurred as a result of severe weather could have material effects on Entergy and those Utility operating companies affected by severe weather.
Entergy’s and its Utility operating companies’ results of operations, liquidity, and financial condition can be materially affected by the destructive effects of severe weather. Severe weather can also result in significant outages for the customers of the Utility operating companies and, therefore, reduced revenues for the Utility operating companies during the period of the outages. A delay or failure in recovering amounts for storm restoration costs incurred or revenues lost as a result of severe weather could have a material effect on Entergy and those Utility operating companies affected by severe weather.
Nuclear Operating, Shutdown and Regulatory Risks
(Entergy Corporation, Entergy Arkansas, Entergy Louisiana, and System Energy)
Certain of the Utility operating companies, System Energy, and Entergy Wholesale Commodities must consistently operate their nuclear power plants at high capacity factors in order to be successful, and lower capacity factors could materially affect Entergy’s and their results of operations, financial condition, and liquidity.
Nuclear capacity factors significantly affect the results of operations of certain Utility operating companies, System Energy, and Entergy Wholesale Commodities. Nuclear plant operations involve substantial fixed operating costs. Consequently, to be successful, a plant owner must consistently operate its nuclear power plants at high capacity factors, consistent with safety requirements. For the Utility operating companies that own nuclear plants, lower capacity factors can increase production costs by requiring the affected companies to generate additional energy, sometimes at higher costs, from their owned or contractually controlled facilities or purchase additional energy in the spot or forward markets in order to satisfy their supply needs. For the Entergy Wholesale Commodities nuclear plants, lower capacity factors directly affect revenues and cash flow from operations. Entergy Wholesale Commodities’ forward sales are comprised of various hedge products, many of which have some degree of operational-contingent price risk. Certain unit-contingent contracts guarantee specified minimum capacity factors. In the event plants with these contracts were operating below the guaranteed capacity factors, Entergy would be subject to price risk for the undelivered power. Further, Entergy Wholesale Commodities’ nuclear forward sales contracts can also be on a firm LD basis, which subjects Entergy to increasing price risk as capacity factors decrease. Many of these firm hedge products have damages risk.
Certain of the Utility operating companies, System Energy, and the Entergy Wholesale Commodities nuclear plant owners periodically shut down their nuclear power plants to replenish fuel. Plant maintenance and upgrades are often scheduled during such refueling outages. If refueling outages last longer than anticipated or if unplanned outages arise, Entergy’s and their results of operations, financial condition, and liquidity could be materially affected.
Outages at nuclear power plants to replenish fuel require the plant to be “turned off.” Refueling outages generally are planned to occur once every 18 to 24 months. Plant maintenance and upgrades are often scheduled during such planned outages, which typically extends the planned outage duration. When refueling outages last longer than anticipated or a plant experiences unplanned outages, capacity factors decrease, and maintenance costs may increase. Lower than forecasted capacity factors may cause Entergy Wholesale Commodities to experience reduced revenues and may also create damages risk with certain hedge products as previously discussed.
Part I Item 1A & 1B
Entergy Corporation, Utility operating companies, and System Energy
Certain of the Utility operating companies, System Energy, and Entergy Wholesale Commodities face risks related to the purchase of uranium fuel (and its conversion, enrichment, and fabrication). These risks could materially affect Entergy’s and their results of operations, financial condition and liquidity.
Based upon currently planned fuel cycles, Entergy’s nuclear units have a diversified portfolio of contracts and inventory that provides substantially adequate nuclear fuel materials and conversion and enrichment services at what Entergy believes are reasonably predictable prices through 2020 and beyond. The nuclear fuel supply portfolio for the Entergy Wholesale Commodities segment has been adjusted to reflect reduced overall requirements related to the planned permanent shutdown and sale of the Palisades, Indian Point 2 and Indian Point 3 plants over the next three years and fuel procurement is limited to the final refueling of the Palisades plant in 2020. Entergy’s ability to purchase nuclear fuel at reasonably predictable prices, however, depends upon the performance reliability of uranium miners. While there are a number of possible alternate suppliers that may be accessed to mitigate any supplier performance failure, the pricing of any such alternate uranium supply from the market will be dependent upon the market for uranium supply at that time. Entergy buys uranium from a diversified mix of sellers located in a diversified mix of countries, and from time to time purchases from nearly all qualified reliable major market participants worldwide that sell into the U.S. Market prices for nuclear fuel have been extremely volatile from time to time in the past and may be subject to increased volatility due to the imposition of tariffs, domestic purchase requirements or shifting trade arrangements between countries. Although Entergy’s nuclear fuel contract portfolio provides a degree of hedging against market risks for several years, costs for nuclear fuel in the future cannot be predicted with certainty due to normal inherent market uncertainties, and price changes could materially affect the liquidity, financial condition, and results of operations of certain of the Utility operating companies, System Energy, and Entergy Wholesale Commodities.
Entergy’s ability to assure nuclear fuel supply also depends upon the performance and reliability of conversion, enrichment, and fabrication services providers. These service providers are fewer in number than uranium suppliers. For conversion and enrichment services, Entergy diversifies its supply by supplier and country and may take special measures to ensure a reliable supply of enriched uranium for fabrication into nuclear fuel. For fabrication services, each plant is dependent upon the performance of the fabricator of that plant’s nuclear fuel; therefore, Entergy relies upon additional monitoring, inspection, and oversight of the fabrication process to assure reliability and quality of its nuclear fuel. Certain of the suppliers and service providers are located in or dependent upon countries, such as Russia, in which international sanctions or tariffs could restrict the ability of such suppliers to continue to supply fuel or provide such services at acceptable prices or at all. The inability of such suppliers or service providers to perform such obligations could materially affect the liquidity, financial condition, and results of operations of certain of the Utility operating companies, System Energy, and Entergy Wholesale Commodities.
Entergy Arkansas, Entergy Louisiana, System Energy, and the Entergy Wholesale Commodities business face the risk that the NRC will change or modify its regulations, suspend or revoke their licenses, or increase oversight of their nuclear plants, which could materially affect Entergy’s and their results of operations, financial condition, and liquidity.
Under the Atomic Energy Act and Energy Reorganization Act, the NRC regulates the operation of nuclear power plants. The NRC may modify, suspend, or revoke licenses, shut down a nuclear facility and impose civil penalties for failure to comply with the Atomic Energy Act, related regulations, or the terms of the licenses for nuclear facilities. Interested parties may also intervene which could result in prolonged proceedings. A change in the Atomic Energy Act, other applicable statutes, or the applicable regulations or licenses, or the NRC’s interpretation thereof, may require a substantial increase in capital expenditures or may result in increased operating or decommissioning costs and could materially affect the results of operations, liquidity, or financial condition of Entergy (through Entergy Wholesale Commodities), its Utility operating companies, or System Energy. A change in the classification of a plant owned by one of these companies under the NRC’s Reactor Oversight Process, which is the NRC’s program to collect information about plant performance, assess the information for its safety significance, and provide for appropriate licensee and NRC response, also could cause the owner of the plant to incur material additional costs as a result of the increased oversight activity and potential response costs associated with the change in classification.For additional information concerning the current classification of the plants owned by Entergy Arkansas, Entergy Louisiana, System Energy, and
Part I Item 1A & 1B
Entergy Corporation, Utility operating companies, and System Energy
the Entergy Wholesale Commodities business, see “Regulation of Entergy’s Business- Regulation of the Nuclear Power Industry - NRC Reactor Oversight Process” in Part I, Item 1 and Note 8 to the financial statements.
Events at nuclear plants owned by one of these companies, as well as those owned by others, may lead to a change in laws or regulations or the terms of the applicable licenses, or the NRC’s interpretation thereof, or may cause the NRC to increase oversight activity or initiate actions to modify, suspend, or revoke licenses, shut down a nuclear facility, or impose civil penalties. As a result, if an incident were to occur at any nuclear generating unit, whether an Entergy nuclear generating unit or not, it could materially affect the financial condition, results of operations, and liquidity of Entergy, certain of the Utility operating companies, System Energy, or Entergy Wholesale Commodities.
Certain of the Utility operating companies, System Energy, and Entergy Wholesale Commodities are exposed to risks and costs related to operating and maintaining their nuclear power plants, and their failure to maintain operational efficiency at their nuclear power plants could materially affect Entergy’s and their results of operations, financial condition, and liquidity.
The nuclear generating units owned by certain of the Utility operating companies, System Energy,and the Entergy Wholesale Commodities business began commercial operations in the 1970s-1980s. Older equipment may require more capital expenditures to keep each of these nuclear power plants operating safely and efficiently. This equipment is also likely to require periodic upgrading and improvement. Any unexpected failure, including failure associated with breakdowns, forced outages, or any unanticipated capital expenditures, could result in increased costs, some of which costs may not be fully recoverable by the Utility operating companies and System Energy in regulatory proceedings should there be a determination of imprudence. Operations at any of the nuclear generating units owned and operated by Entergy’s subsidiaries could degrade to the point where the affected unit needs to be shut down or operated at less than full capacity. If this were to happen, identifying and correcting the causes may require significant time and expense. A decision may be made to close a unit rather than incur the expense of restarting it or returning the unit to full capacity. For the Utility operating companies and System Energy, this could result in certain costs being stranded and potentially not fully recoverable in regulatory proceedings. For Entergy Wholesale Commodities, this could result in lost revenue and increased fuel and purchased power expense to meet supply commitments and penalties for failure to perform under their contracts with customers. In addition, the operation and maintenance of Entergy’s nuclear facilities require the commitment of substantial human resources that can result in increased costs.
The nuclear industry continues to address susceptibility to the effects of stress corrosion cracking and other corrosion mechanisms on certain materials within plant systems. The issue is applicable at all nuclear units to varying degrees and is managed in accordance with industry standard practices and guidelines that include in-service examinations, replacements, and mitigation strategies. Developments in the industry or identification of issues at the nuclear units could require unanticipated remediation efforts that cannot be quantified in advance.
Moreover, Entergy is becoming more dependent on fewer suppliers for key parts of Entergy’s nuclear power plants that may need to be replaced or refurbished, and in some cases, parts are no longer available and have to be reverse-engineered for replacement. In addition, certain major parts have long lead-times to manufacture if an unplanned replacement is needed. This dependence on a reduced number of suppliers and long lead-times on certain major parts for unplanned replacements could result in delays in obtaining qualified replacement parts and, therefore, greater expense for Entergy.
The costs associated with the storage of the spent nuclear fuel of certain of the Utility operating companies, System Energy, and the owners of the Entergy Wholesale Commodities nuclear power plants, as well as the costs of and their ability to fully decommission their nuclear power plants, could be significantly affected by the timing of the opening of a spent nuclear fuel disposal facility, as well as interim storage and transportation requirements.
Certain of the Utility operating companies, System Energy and the owners of the Entergy Wholesale Commodities nuclear plants incur costs for the on-site storage of spent nuclear fuel. The approval of a license for a national repository for the disposal of spent nuclear fuel, such as the one proposed for Yucca Mountain, Nevada, or
Part I Item 1A & 1B
Entergy Corporation, Utility operating companies, and System Energy
any interim storage facility, and the timing of such facility opening, will significantly affect the costs associated with on-site storage of spent nuclear fuel. For example, while the DOE is required by law to proceed with the licensing of Yucca Mountain and, after the license is granted by the NRC, to construct the repository and commence the receipt of spent fuel, the NRC licensing of the Yucca Mountain repository is effectively at a standstill. These actions are prolonging the time before spent fuel is removed from Entergy’s plant sites. Because the DOE has not accomplished its objectives, it is in non-compliance with the Nuclear Waste Policy Act of 1982 and has breached its spent fuel disposal contracts, and Entergy has sued the DOE for such breach. Furthermore, Entergy is uncertain as to when the DOE will commence acceptance of spent fuel from its facilities for storage or disposal. As a result, continuing future expenditures will be required to increase spent fuel storage capacity at the companies’ nuclear sites and maintenance costs on existing storage facilities, including aging management of fuel storage casks, may increase. The costs of on-site storage are also affected by regulatory requirements for such storage. In addition, the availability of a repository or other off-site storage facility for spent nuclear fuel may affect the ability to fully decommission the nuclear units and the costs relating to decommissioning. For further information regarding spent fuel storage, see the “Critical Accounting Estimates – Nuclear Decommissioning Costs – Spent Fuel Disposal” section of Management’s Financial Discussion and Analysis for Entergy, Entergy Arkansas, Entergy Louisiana, and System Energy and Note 8 to the financial statements.
Certain of the Utility operating companies, System Energy, and the Entergy Wholesale Commodities nuclear plant owners may be required to pay substantial retrospective premiums imposed under the Price-Anderson Act in the event of a nuclear incident, and losses not covered by insurance could have a material effect on Entergy’s and their results of operations, financial condition, or liquidity.
Accidents and other unforeseen problems at nuclear power plants have occurred both in the United States and elsewhere. The Price-Anderson Act limits each reactor owner’s public liability (off-site) for a single nuclear incident to the payment of retrospective premiums into a secondary insurance pool, which is referred to as Secondary Financial Protection, up to approximately $137.6 million per reactor. With 98 reactors currently participating, this translates to a total public liability cap of approximately $14 billion per incident. The limit is subject to change to account for the effects of inflation, a change in the primary limit of insurance coverage, and changes in the number of licensed reactors. As required by the Price-Anderson Act, the Utility operating companies, System Energy, and Entergy Wholesale Commodities carry the maximum available amount of primary nuclear off-site liability insurance with American Nuclear Insurers, which is $450 million for each operating site. Claims for any nuclear incident exceeding that amount are covered under Secondary Financial Protection. As a result, in the event of a nuclear incident that causes damages (off-site) in excess of the primary insurance coverage, each owner of a nuclear plant reactor, including Entergy’s Utility operating companies, System Energy, and the Entergy Wholesale Commodities plant owners, regardless of fault or proximity to the incident, will be required to pay a retrospective premium, equal to its proportionate share of the loss in excess of the primary insurance level, up to a maximum of approximately $137.6 million per reactor per incident (Entergy’s maximum total contingent obligation per incident is $1.101 billion). The retrospective premium payment is currently limited to approximately $21 million per year per incident per reactor until the aggregate public liability for each licensee is paid up to the $137.6 million cap.
NEIL is a utility industry mutual insurance company, owned by its members, including the Utility operating companies, System Energy, and the owners of the Entergy Wholesale Commodities plants. All member plants could be subject to an annual assessment (retrospective premium of up to 10 times current annual premium for all policies) should the NEIL surplus (reserve) be significantly depleted due toinsured losses. As of December 31, 2019, the maximum annual assessment amounts total $112 million for the Utility plants. Retrospective premium insurance available through NEIL’s reinsurance treaty can cover the potential assessments and the Entergy Wholesale Commodities plants currently maintain the retrospective premium insurance to cover those potential assessments.
As an owner of nuclear power plants, Entergy participates in industry self-insurance programs and could be liable to fund claims should a plant owned by a different company experience a major event. Any resulting liability from a nuclear accident may exceed the applicable primary insurance coverage and require contribution of additional funds through the industry-wide program that could significantly affect the results of operations, financial condition,
Part I Item 1A & 1B
Entergy Corporation, Utility operating companies, and System Energy
or liquidity of Entergy, certain of the Utility operating companies, System Energy, or the Entergy Wholesale Commodities subsidiaries.
The decommissioning trust fund assets for the nuclear power plants owned by the Utility operating companies, System Energy and the Entergy Wholesale Commodities nuclear plant owners may not be adequate to meet decommissioning obligations if market performance and other changes decrease the value of assets in the decommissioning trusts, if one or more of Entergy’s nuclear power plants is retired earlier than the anticipated shutdown date, if the plants cost more to decommission than estimated, or if current regulatory requirements change, which then could require significant additional funding.
Owners of nuclear generating plants have an obligation to decommission those plants. Certain of the Utility operating companies, System Energy, and owners of the Entergy Wholesale Commodities nuclear power plants maintain decommissioning trust funds for this purpose. Certain of the Utility operating companies collect funds from their customers, which are deposited into the trusts covering the units operated for or on behalf of those companies. Those rate collections, as adjusted from time to time by rate regulators, are generally based upon operating license lives and trust fund balances as well as estimated trust fund earnings and decommissioning costs. Assets in these trust funds are subject to market fluctuations, will yield uncertain returns that may fall below projected return rates, and may result in losses resulting from the recognition of impairments of the value of certain securities held in these trust funds.
Under NRC regulations, nuclear plant owners are permitted to project the NRC-required decommissioning amount, based on an NRC formula or a site-specific estimate, and the amount that will be available in each nuclear power plant’s decommissioning trusts combined with any other decommissioning financial assurances in place. The projections are made based on the operating license expiration date and the mid-point of the subsequent decommissioning process, or the anticipated actual completion of decommissioning if a site-specific estimate is used. If the projected amount of each individual plant’s decommissioning trusts exceeds the NRC-required decommissioning amount, then its decommissioning obligations are considered to be funded in accordance with NRC regulations. If the projected costs do not sufficiently reflect the actual costs required to decommission these nuclear power plants, or funding is otherwise inadequate, or if the formula, formula inputs, or site-specific estimate is changed to require increased funding, additional resources or commitments would be required. Furthermore, depending upon the level of funding available in the trust funds, the NRC may not permit the trust funds to be used to pay for related costs such as the management of spent nuclear fuel that are not included in the NRC’s formula. The NRC may also require a plan for the provision of separate funding for spent fuel management costs. In addition to NRC requirements, there are other decommissioning-related obligations for certain of the Entergy Wholesale Commodities nuclear power plants, which management believes it will be able to satisfy.
Further, federal or state regulatory changes, including mandated increases in decommissioning funding or changes in the methods or standards for decommissioning operations, may also increase the funding requirements of, or accelerate the timing for funding of, the obligations related to the decommissioning of the Utility operating companies, System Energy, or Entergy Wholesale Commodities nuclear power plants or may restrict the decommissioning-related costs that can be paid from the decommissioning trusts. Such changes also could result in the need for additional contributions to decommissioning trusts, or the posting of parent guarantees, letters of credit, or other surety mechanisms. As a result, under any of these circumstances, Entergy’s results of operations, liquidity, and financial condition could be materially affected.
An early plant shutdown (either generally or relative to current expectations), poor investment results or higher than anticipated decommissioning costs (including as a result of changing regulatory requirements) could cause trust fund assets to be insufficient to meet the decommissioning obligations, with the result that the Utility operating companies, System Energy or the Entergy Wholesale Commodities nuclear plant owners may be required to provide significant additional funds or credit support to satisfy regulatory requirements for decommissioning, which, with respect to the Utility operating companies, may not be recoverable from customers in a timely fashion or at all.
For further information regarding nuclear decommissioning costs, management’s decision to exit the merchant
Part I Item 1A & 1B
Entergy Corporation, Utility operating companies, and System Energy
power business, the impairment charges that resulted from such decision, and the planned sale of Palisades (which will include the transfer of the decommissioning trust), see the “Critical Accounting Estimates- Nuclear Decommissioning Costs” section of Management’s Financial Discussion and Analysis for Entergy, Entergy Arkansas, Entergy Louisiana, and System Energy, the “Entergy Wholesale Commodities Exit from the Merchant Power Business” section of Management’s Financial Discussion and Analysis for Entergy Corporation and Subsidiaries, and Notes 9 and 14 to the financial statements.
New or existing safety concerns regarding operating nuclear power plants and nuclear fuel could lead to restrictions upon the operation and decommissioning of Entergy’s nuclear power plants.
New and existing concerns are being expressed in public forums about the safety of nuclear generating units and nuclear fuel. These concerns have led to, and may continue to lead to, various proposals to Federal regulators and governing bodies in some localities where Entergy’s subsidiaries own nuclear generating units for legislative and regulatory changes that might lead to the shutdown of nuclear units, additional requirements or restrictions related to spent nuclear fuel on-site storage and eventual disposal, or other adverse effects on owning, operating and decommissioning nuclear generating units. Entergy vigorously responds to these concerns and proposals. If any of the existing proposals, or any proposals that may arise in the future with respect to legislative and regulatory changes, become effective, they could have a material effect on Entergy’s results of operations and financial condition.
(Entergy Corporation)
Entergy Wholesale Commodities nuclear power plants are exposed to price risk.
Entergy and its subsidiaries do not have a regulator-authorized rate of return on their capital investments in non-utility businesses. As a result, the sale of capacity and energy from the Entergy Wholesale Commodities nuclear power plants, unless otherwise contracted, is subject to the fluctuation of market power prices. In order to reduce future price risk to desired levels, Entergy Wholesale Commodities utilizes contracts that are unit-contingent and Firm LD and various products such as forward sales, options, and collars. As of December 31, 2019, Entergy Wholesale Commodities’ nuclear power generation plants had sold forward 97% in 2020, 92% in 2021, and 66% in 2022 of its generation portfolio’s planned energy output, reflecting the planned shutdown and sale of the remaining Entergy Wholesale Commodities nuclear power plants by mid-2022.
Market conditions such as product cost, market liquidity, and other portfolio considerations influence the product and contractual mix. The obligations under unit-contingent agreements depend on a generating asset that is operating; if the generation asset is not operating, the seller generally is not liable for damages. For some unit-contingent obligations, however, there is also a guarantee of availability that provides for the payment to the power purchaser of contract damages, if incurred, in the event the unit owner fails to deliver power as a result of the failure of the specified generation unit to generate power at or above a specified availability threshold. Firm LD sales transactions may be exposed to substantial operational price risk, a portion of which may be capped through the use of risk management products, to the extent that the plants do not run as expected and market prices exceed contract prices.
Market prices may fluctuate substantially, sometimes over relatively short periods of time, and at other times experience sustained increases or decreases. Demand for electricity and its fuel stock can fluctuate dramatically, creating periods of substantial under- or over-supply. During periods of over-supply, prices might be depressed. Also, from time to time there may be political pressure, or pressure from regulatory authorities with jurisdiction over wholesale and retail energy commodity and transportation rates, to impose price limitations, credit requirements, bidding rules and other mechanisms to address volatility and other issues in these markets.
The effects of sustained low natural gas prices and power market structure challenges have resulted in lower market prices for electricity in the power regions where the Entergy Wholesale Commodities nuclear power plants are located. In addition, currently the market design under which the plants operate does not adequately compensate merchant nuclear plants for their environmental and fuel diversity benefits in the region. These conditions were primary
Part I Item 1A & 1B
Entergy Corporation, Utility operating companies, and System Energy
factors leading to Entergy’s decision to shut down (or sell) Entergy Wholesale Commodities’ nuclear power plants before the end of their operating licenses (or requested operating licenses for Indian Point 2 and Indian Point 3).
The price that different counterparties offer for various products including forward sales is influenced both by market conditions as well as the contract terms such as damage provisions, credit support requirements, and the number of available counterparties interested in contracting for the desired forward period. Depending on differences between market factors at the time of contracting versus current conditions, Entergy Wholesale Commodities’ contract portfolio may have average contract prices above or below current market prices, including at the expiration of the contracts, which may significantly affect Entergy Wholesale Commodities’ results of operations, financial condition, or liquidity. New hedges are generally layered into on a rolling forward basis, which tends to drive hedge over-performance to market in a falling price environment, and hedge underperformance to market in a rising price environment; however, hedge timing, product choice, and hedging costs will also affect these results. See the “Market and Credit Risk Sensitive Instruments” section of Management’s Financial Discussion and Analysis for Entergy Corporation and Subsidiaries. Since Entergy Wholesale Commodities has announced the closure (or sale) of its nuclear plants, Entergy Wholesale Commodities may enter into fewer forward sales contracts for output from such plants.
The Entergy Wholesale Commodities business is subject to substantial governmental regulation and may be adversely affected by legislative, regulatory or market design changes, as well as liability under, or any future inability to comply with, existing or future regulations or requirements.
The Entergy Wholesale Commodities business is subject to extensive regulation under federal, state, and local laws. Compliance with the requirements under these various regulatory regimes may cause the Entergy Wholesale Commodities business to incur significant additional costs, and failure to comply with such requirements could result in the shutdown of the non-complying facility, the imposition of liens, fines and/or civil or criminal liability.
Public utilities under the Federal Power Act are required to obtain FERC acceptance of their rate schedules for wholesale sales of electricity. Each of the owners of the Entergy Wholesale Commodities nuclear power plants that generates electricity, as well as Entergy Nuclear Power Marketing, LLC, is a “public utility” under the Federal Power Act by virtue of making wholesale sales of electric energy and/or owning wholesale electric transmission facilities. The FERC has granted these generating and power marketing companies the authority to sell electricity at market-based rates. The FERC’s orders that grant the Entergy Wholesale Commodities’ generating and power marketing companies market-based rate authority reserve the right to revoke or revise that authority if the FERC subsequently determines that the Entergy Wholesale Commodities business can exercise market power in transmission or generation, create barriers to entry, or engage in abusive affiliate transactions. In addition, the Entergy Wholesale Commodities’ market-based sales are subject to certain market behavior rules, and if any of its generating and power marketing companies were deemed to have violated one of those rules, they would be subject to potential disgorgement of profits associated with the violation and/or suspension or revocation of their market-based rate authority and potential penalties of up to $1 million per day per violation. If the Entergy Wholesale Commodities’ generating or power marketing companies were to lose their market-based rate authority, such companies would be required to obtain the FERC’s acceptance of a cost-of-service rate schedule and could become subject to the accounting, record-keeping, and reporting requirements that are imposed on utilities with cost-based rate schedules. This could have an adverse effect on the rates the Entergy Wholesale Commodities business charges for power from its facilities.
The Entergy Wholesale Commodities business is also affected by legislative and regulatory changes, as well as changes to market design, market rules, tariffs, cost allocations, and bidding rules imposed by the existing Independent System Operators. The Independent System Operators that oversee most of the wholesale power markets may impose, and in the future may continue to impose, mitigation, including price limitations, offer caps and other mechanisms, to address some of the volatility and the potential exercise of market power in these markets. These types of price limitations and other regulatory mechanisms may have an adverse effect on the profitability of the Entergy Wholesale Commodities business’ generation facilities that sell energy and capacity into the wholesale power markets. For further information regarding federal, state and local laws and regulation applicable to the Entergy Wholesale Commodities business, see the “Regulation of Entergy’s Business” section in Part I, Item 1.
Part I Item 1A & 1B
Entergy Corporation, Utility operating companies, and System Energy
The regulatory environment applicable to the electric power industry is subject to changes as a result of restructuring initiatives at both the state and federal levels. Entergy cannot predict the future design of the wholesale power markets or the ultimate effect that the changing regulatory environment will have on the Entergy Wholesale Commodities business. In addition, in some of these markets, interested parties have proposed material market design changes, including the elimination of a single clearing price mechanism, have raised claims that the competitive marketplace is not working because energy prices in wholesale markets exceed the marginal cost of operating nuclear power plants, and have made proposals to re-regulate the markets, impose a generation tax, or require divestitures by generating companies to reduce their market share. Other proposals to re-regulate may be made and legislative or other attention to the electric power market restructuring process may delay or reverse the deregulation process, which could require material changes to business planning models. If competitive restructuring of the electric power markets is reversed, modified, discontinued, or delayed, the Entergy Wholesale Commodities business’ results of operations, financial condition, and liquidity could be materially affected.
The power plants owned by the Entergy Wholesale Commodities business are subject to impairment charges in certain circumstances, which could have a material effect on Entergy’s results of operations, financial condition or liquidity.
Entergy reviews long-lived assets held in all of its business segments whenever events or changes in circumstances indicate that recoverability of these assets is uncertain. Generally, the determination of recoverability is based on the undiscounted net cash flows expected to result from the operations of such assets. Projected net cash flows depend on the expected operating life of the assets, the future operating costs associated with the assets, the efficiency and availability of the assets and generating units, and the future market and price for energy and capacity over the remaining life of the assets. In particular, the remaining assets of the Entergy Wholesale Commodities business are subject to further impairment in connection with the closure and sale of its nuclear power plants. Moreover, prior to the closure and sale of these plants, the failure of the Entergy Wholesale Commodities business to achieve forecasted operating results and cash flows, an unfavorable change in forecasted operating results or cash flows, a reduction in the expected remaining useful life of a unit, or a decline in observable industry market multiples could all result in potential additional impairment charges for the affected assets.
If Entergy concludes that any of its nuclear power plants is unlikely to operate through its planned shutdown date, which conclusion would be based on a variety of factors, such a conclusion could result in a further impairment of part or all of the carrying value of the plant. Any impairment charge taken by Entergy with respect to its long-lived assets, including the remaining power plants owned by the Entergy Wholesale Commodities business, would likely be material in the quarter that the charge is taken and could otherwise have a material effect on Entergy’s results of operations, financial condition, or liquidity. For further information regarding evaluating long-lived assets for impairment, see the “Critical Accounting Estimates - Impairment of Long-lived Assets and Trust Fund Investments” section of Management’s Financial Discussion and Analysis for Entergy Corporation and Subsidiaries and for further discussion of the impairment charges, see Note 14 to the financial statements.
General Business
(Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and Entergy Texas)
Entergy and the Utility operating companies depend on access to the capital markets and, at times, may face potential liquidity constraints, which could make it more difficult to handle future contingencies such as natural disasters or substantial increases in gas and fuel prices. Disruptions in the capital and credit markets may adversely affect Entergy’s and its subsidiaries’ ability to meet liquidity needs, access capital and operate and grow their businesses, and the cost of capital.
Entergy’s business is capital intensive and dependent upon its ability to access capital at reasonable rates and
Part I Item 1A & 1B
Entergy Corporation, Utility operating companies, and System Energy
other terms. At times there are also spikes in the price for natural gas and other commodities that increase the liquidity requirements of the Utility operating companies and Entergy Wholesale Commodities. In addition, Entergy’s and the Utility operating companies’ liquidity needs could significantly increase in the event of a hurricane or other weather-related or unforeseen disaster similar to that experienced in Entergy’s service territory with Hurricane Katrina and Hurricane Rita in 2005, Hurricane Gustav and Hurricane Ike in 2008, and Hurricane Isaac in 2012. The occurrence of one or more contingencies, including a delay in regulatory recovery of fuel or purchased power costs or storm restoration costs, an acceleration of payments or decreased credit lines, less cash flow from operations than expected, changes in regulation or governmental policy (including tax and trade policy), or other unknown events, could cause the financing needs of Entergy and its subsidiaries to increase. In addition, accessing the debt capital markets more frequently in these situations may result in an increase in leverage. Material leverage increases could negatively affect the credit ratings of Entergy and the Utility operating companies, which in turn could negatively affect access to the capital markets.
The inability to raise capital on favorable terms, particularly during times of high interest rates, and uncertainty or reduced liquidity in the capital markets, could negatively affect Entergy and its subsidiaries’ ability to maintain and to expand their businesses. Access to capital markets could be restricted and/or borrowing costs could be increased due to certain sources of debt and equity capital being unwilling to invest in companies that experience extreme weather events, that rely on fossil fuels or offerings to fund fossil fuel projects, or due to risks related to climate change. Events beyond Entergy’s control may create uncertainty that could increase its cost of capital or impair its ability to access the capital markets, including the ability to draw on its bank credit facilities. Entergy and its subsidiaries are unable to predict the degree of success they will have in renewing or replacing their credit facilities as they come up for renewal. Moreover, the size, terms, and covenants of any new credit facilities may not be comparable to, and may be more restrictive than, existing facilities. If Entergy and its subsidiaries are unable to access the credit and capital markets on terms that are reasonable, they may have to delay raising capital, issue shorter-term securities and/or bear an unfavorable cost of capital, which, in turn, could impact their ability to grow their businesses, decrease earnings, significantly reduce financial flexibility and/or limit Entergy Corporation’s ability to sustain its current common stock dividend level.
(Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)
A downgrade in Entergy Corporation’s or its subsidiaries’ credit ratings could negatively affect Entergy Corporation’s and its subsidiaries’ ability to access capital and/or could require Entergy Corporation or its subsidiaries to post collateral, accelerate certain payments, or repay certain indebtedness.
There are a number of factors that rating agencies evaluate to arrive at credit ratings for each of Entergy Corporation and the Registrant Subsidiaries, including each Registrant’s regulatory framework, ability to recover costs and earn returns, diversification and financial strength and liquidity. If one or more rating agencies downgrade Entergy Corporation’s, any of the Utility operating companies’, or System Energy’s ratings, particularly below investment grade, borrowing costs would increase, the potential pool of investors and funding sources would likely decrease, and cash or letter of credit collateral demands may be triggered by the terms of a number of commodity contracts, leases, and other agreements.
Most of Entergy Corporation’s and its subsidiaries’ suppliers and counterparties require sufficient creditworthiness to enter into transactions. If Entergy Corporation’s or its subsidiaries’ ratings decline, particularly below investment grade, or if certain counterparties believe Entergy Corporation or the Utility operating companies are losing creditworthiness and demand adequate assurance under fuel, gas, and purchased power contracts, the counterparties may require posting of collateral in cash or letters of credit, prepayment for fuel, gas or purchased power or accelerated payment, or counterparties may decline business with Entergy Corporation or its subsidiaries. At December 31, 2019, based on power prices at that time, Entergy had liquidity exposure of $78 million under the guarantees in place supporting Entergy Wholesale Commodities transactions and $19 million of posted cash collateral. In the event of a decrease in Entergy Corporation’s credit rating to below investment grade, based on power prices as
Part I Item 1A & 1B
Entergy Corporation, Utility operating companies, and System Energy
of December 31, 2019, Entergy would have been required to provide approximately $30 million of additional cash or letters of credit under some of the agreements. As of December 31, 2019, the liquidity exposure associated with Entergy Wholesale Commodities assurance requirements, including return of previously posted collateral from counterparties, would increase by $90 million for a $1 per MMBtu increase in gas prices in both the short- and long-term markets.
Recent U.S. tax legislation may materially adversely affect Entergy’s financial condition, results of operations, and cash flows.
The Tax Cuts and Jobs Act of 2017 significantly changed the U.S. Internal Revenue Code, including taxation of U.S. corporations, by, among other things, reducing the federal corporate income tax rate, limiting interest deductions, and altering the expensing of capital expenditures. The legislation and interpretive guidance from the IRS are unclear in certain respects and will require further interpretations and implementing regulations by the IRS, as well as state tax authorities, and the legislation could be subject to potential amendments and technical corrections, any of which could lessen or increase certain impacts of the legislation.
As further described in Note 3 to the financial statements, as a result of amortization of accumulated deferred income taxes and payment of such amounts to customers in 2019, Entergy’s net regulatory liability for income taxes balance is $1.7 billion as of December 31, 2019. Depending on the outcome of IRS examinations or tax positions and elections that Entergy may make, Entergy and the Registrant Subsidiaries may be required to record additional charges or credits to income tax expense. Further, there may be other material effects resulting from the legislation that have not been identified.
For further information regarding the effects of the Act, see the “Income Tax Legislation” section of Management’s Financial Discussion and Analysis for Entergy. Also, Note 3 to the financial statements contains additional discussion of the effect of the Act on 2017, 2018 and 2019 results of operations and financial position, the provisions of the Act, and the uncertainties associated with accounting for the Act, and Note 2 to the financial statements discusses the regulatory proceedings that have considered the effects of the Act.
Changes in taxation as well as the inherent difficulty in quantifying potential tax effects of business decisions could negatively impact Entergy’s, the Utility operating companies’, and System Energy’s results of operations, financial condition and liquidity.
Entergy and its subsidiaries make judgments regarding the potential tax effects of various transactions and results of operations to estimate their obligations to taxing authorities. These tax obligations include income, franchise, real estate, sales and use, and employment-related taxes. These judgments include provisions for potential adverse outcomes regarding tax positions that have been taken. Entergy and its subsidiaries also estimate their ability to utilize tax benefits, including those in the form of carryforwards for which the benefits have already been reflected in the financial statements. Changes in federal, state, or local tax laws, adverse tax audit results or adverse tax rulings on positions taken by Entergy and its subsidiaries could negatively affect Entergy’s, the Utility operating companies’, and System Energy’s results of operations, financial condition, and liquidity. For further information regarding Entergy’s income taxes, see Note 3 to the financial statements.
Entergy and its subsidiaries’ ability to successfully execute on their business strategies, including their ability to complete strategic transactions, is subject to significant risks, and, as a result, they may be unable to achieve some or all of the anticipated results of such strategies, which could materially affect their future prospects, results of operations and benefits that they anticipate from such transactions.
Entergy and its subsidiaries’ future prospects and results of operations significantly depend on their ability to successfully implement their business strategies, which are subject to business, regulatory, economic and other risks and uncertainties, many of which are beyond their control. As a result, Entergy and its subsidiaries may be unable to fully achieve the anticipated results of such strategies.
Part I Item 1A & 1B
Entergy Corporation, Utility operating companies, and System Energy
Additionally, Entergy and its subsidiaries have pursued and may continue to pursue strategic transactions including merger, acquisition, divestiture, joint venture, restructuring or other strategic transactions. For example, Entergy has entered into an agreement to sell its equity interests in the subsidiary that owns the Palisades Nuclear Plant and the decommissioned Big Rock Point Nuclear Power Plant and an agreement to sell the equity interests of Indian Point 1, Indian Point 2, and Indian Point 3, in each case after each of the plants has been shut down and defueled. Also, a significant portion of Entergy’s utility business over the next several years includes the construction and /or purchase of a variety of generating units. These transactions and plans are or may become subject to regulatory approval and other material conditions or contingencies. The failure to complete these transactions or plans or any future strategic transaction successfully or on a timely basis could have an adverse effect on Entergy’s or its subsidiaries’ financial condition or results of operations and the market’s perception of Entergy’s ability to execute its strategy. Further, these transactions, and any completed or future strategic transactions, involve substantial risks, including the following:
acquired businesses or assets may not produce revenues, earnings or cash flow at anticipated levels;
acquired businesses or assets could have environmental, permitting or other problems for which contractual protections prove inadequate;
Entergy and/or its subsidiaries may assume liabilities that were not disclosed to them, that exceed their estimates, or for which their rights to indemnification from the seller are limited;
Entergy may experience issues integrating businesses into its internal controls over financial reporting;
the disposition of a business, including Entergy’s planned exit from the merchant power business, could divert management’s attention from other business concerns;
Entergy and/or its subsidiaries may be unable to obtain the necessary regulatory or governmental approvals to close a transaction, such approvals may be granted subject to terms that are unacceptable to them, or Entergy or its subsidiaries otherwise may be unable to achieve anticipated regulatory treatment of any such transaction or acquired business or assets; and
Entergy or its subsidiaries otherwise may be unable to achieve the full strategic and financial benefits that they anticipate from the transaction, or such benefits may be delayed or may not occur at all.
Entergy and its subsidiaries may not be successful in managing these or any other significant risks that they may encounter in acquiring or divesting a business, or engaging in other strategic transactions, which could have a material effect on their business, financial condition or results of operations.
The completion of capital projects, including the construction of power generation facilities, and other capital improvements involve substantial risks. Should such efforts be unsuccessful, the financial condition, results of operations, or liquidity of Entergy and the Utility operating companies could be materially affected.
Entergy’s and the Utility operating companies’ ability to complete capital projects, including the construction of power generation facilities, or make other capital improvements, in a timely manner and within budget is contingent upon many variables and subject to substantial risks. These variables include, but are not limited to, project management expertise, escalating costs for materials, labor, and environmental compliance, and reliance on suppliers for timely and satisfactory performance. Delays in obtaining permits, shortages in materials and qualified labor, levels of public support or opposition, suppliers and contractors not performing as expected or required under their contracts and/or experiencing financial problems that inhibit their ability to fulfill their obligations under contracts, changes in the scope and timing of projects, poor quality initial cost estimates from contractors, the inability to raise capital on favorable terms, changes in commodity prices affecting revenue, fuel costs, or materials costs, downward changes in the economy, changes in law or regulation, including environmental compliance requirements, and other events beyond the control of the Utility operating companies or the Entergy Wholesale Commodities business may occur that may materially affect the schedule, cost, and performance of these projects. If these projects or other capital improvements are significantly delayed or become subject to cost overruns or cancellation, Entergy and the Utility operating companies could incur additional costs and termination payments, or face increased risk of potential write-off of the investment in the project. In addition, the Utility operating companies could be exposed to higher costs and market volatility, which could affect cash flow and cost recovery, should their respective regulators decline to approve the construction of the project or new generation needed to meet the reliability needs of customers at the lowest reasonable cost.
Part I Item 1A & 1B
Entergy Corporation, Utility operating companies, and System Energy
For further information regarding capital expenditure plans and other uses of capital in connection with capital projects, including the potential construction and/or purchase of additional generation supply sources within the Utility operating companies’ service territory, and as to the Entergy Wholesale Commodities business, see the “Capital Expenditure Plans and Other Uses of Capital” section of Management’s Financial Discussion and Analysis for Entergy and each of the Registrant Subsidiaries.
Failure to attract, retain and manage an appropriately qualified workforce could negatively affect Entergy or its subsidiaries’ results of operations.
We rely on a large and changing workforce of team members, including employees, contractors and temporary staffing. Certain events, such as an aging workforce, mismatching of skill sets, failing to appropriately anticipate future workforce needs, or the unavailability of contract resources may lead to operating challenges and increased costs. The challenges include lack of resources, loss of knowledge base and the time required for skill development. In this case, costs, including costs for contractors to replace employees, productivity costs and safety costs, may increase. Failure to hire and adequately train replacement employees, or the future availability and cost of contract labor may adversely affect the ability to manage and operate the business, especially considering the workforce needs associated with nuclear generation facilities and new skills required to operate a modernized, technology-enabled power grid. If Entergy and its subsidiaries are unable to successfully attract, retain and manage an appropriately qualified workforce, their results of operations, financial position and cash flows could be negatively affected.
The Utility operating companies, System Energy, and the Entergy Wholesale Commodities business may incur substantial costs to fulfill their obligations related to environmental and other matters.
The businesses in which the Utility operating companies, System Energy, and the Entergy Wholesale Commodities business operate are subject to extensive environmental regulation by local, state, and federal authorities. These laws and regulations affect the manner in which the Utility operating companies, System Energy, and the Entergy Wholesale Commodities business conduct their operations and make capital expenditures. These laws and regulations also affect how the Utility operating companies, System Energy, and the Entergy Wholesale Commodities business manage air emissions, discharges to water, wetlands impacts, solid and hazardous waste storage and disposal, cooling and service water intake, the protection of threatened and endangered species, certain migratory birds and eagles, hazardous materials transportation, and similar matters. Federal, state, and local authorities continually revise these laws and regulations, and the laws and regulations are subject to judicial interpretation and to the permitting and enforcement discretion vested in the implementing agencies. Developing and implementing plans for facility compliance with these requirements can lead to capital, personnel, and operation and maintenance expenditures. Violations of these requirements can subject the Utility operating companies, System Energy, and the Entergy Wholesale Commodities business to enforcement actions, capital expenditures to bring existing facilities into compliance, additional operating costs or operating restrictions to achieve compliance, remediation and clean-up costs, civil penalties, and exposure to third parties’ claims for alleged health or property damages or for violations of applicable permits or standards. In addition, the Utility operating companies, System Energy, and the Entergy Wholesale Commodities business potentially are subject to liability under these laws for the costs of remediation of environmental contamination of property now or formerly owned or operated by the Utility operating companies, System Energy, and Entergy Wholesale Commodities and of property contaminated by hazardous substances they generate. The Utility operating companies are currently involved in proceedings relating to sites where hazardous substances have been released and may be subject to additional proceedings in the future. The Utility operating companies, System Energy, and the Entergy Wholesale Commodities business have incurred and expect to incur significant costs related to environmental compliance.
Emissions of nitrogen and sulfur oxides, mercury, particulates, greenhouse gases, and other regulated air emissions from generating plants are potentially subject to increased regulation, controls and mitigation expenses. In addition, existing air regulations and programs promulgated by the EPA often are challenged legally, or are revised or withdrawn by the EPA, sometimes resulting in large-scale changes to anticipated regulatory regimes and the resulting need to shift course, both operationally and economically, depending on the nature of the changes. Risks relating to
Part I Item 1A & 1B
Entergy Corporation, Utility operating companies, and System Energy
global climate change, initiatives to compel greenhouse gas emission reductions, and water availability issues are discussed below.
Entergy and its subsidiaries may not be able to obtain or maintain all required environmental regulatory approvals. If there is a delay in obtaining any required environmental regulatory approvals, or if Entergy and its subsidiaries fail to obtain, maintain, or comply with any such approval, the operation of its facilities could be stopped or become subject to additional costs. For further information regarding environmental regulation and environmental matters, see the “Regulation of Entergy’s Business– Environmental Regulation” section of Part I, Item 1.
The Utility operating companies, System Energy, and the Entergy Wholesale Commodities business may incur substantial costs related to reliability standards.
Entergy’s business is subject to extensive and mandatory reliability standards. Such standards, which are established by the NERC, the SERC, and other regional enforcement entities, are approved by the FERC and frequently are reviewed, amended, and supplemented. Failure to comply with such standards could result in the imposition of fines or civil penalties, and potential exposure to third party claims for alleged violations of such standards. The standards, as well as the laws and regulations that govern them, are subject to judicial interpretation and to the enforcement discretion vested in the implementing agencies. In addition to exposure to civil penalties and fines, the Utility operating companies have incurred and expect to incur significant costs related to compliance with new and existing reliability standards, including costs associated with the Utility operating companies’ transmission system and generation assets. In addition, the retail regulators of the Utility operating companies possess the jurisdiction, and in some cases have exercised such jurisdiction, to impose standards governing the reliable operation of the Utility operating companies’ distribution systems, including penalties if these standards are not met. The changes to the reliability standards applicable to the electric power industry are ongoing, and Entergy cannot predict the ultimate effect that the reliability standards will have on its Utility and Entergy Wholesale Commodities businesses.
(Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and Entergy Texas)
Weather, economic conditions, technological developments, and other factors may have a material impact on electricity and gas usage and otherwise materially affect the Utility operating companies’ results of operations.
Temperatures above normal levels in the summer tend to increase electric cooling demand and revenues, and temperatures below normal levels in the winter tend to increase electric and gas heating demand and revenues. As a corollary, mild temperatures in either season tend to decrease energy usage and resulting revenues. Higher consumption levels coupled with seasonal pricing differentials typically cause the Utility operating companies to report higher revenues in the third quarter of the fiscal year than in the other quarters. Extreme weather conditions including hurricanes or tropical storms, flooding events, or ice storms may stress the Utility operating companies’ generation facilities and transmission and distribution systems, resulting in increased maintenance and capital costs (and potential increased financing needs), limits on their ability to meet peak customer demand, increased regulatory oversight, and reduced customer satisfaction. These extreme conditions could have a material effect on the Utility operating companies’ financial condition, results of operations, and liquidity.
Entergy’s electricity sales volumes are affected by a number of factors including weather and economic conditions, trends in energy efficiency, new technologies and self-generation alternatives, including the willingness and ability of large industrial customers to develop co-generation facilities that greatly reduce their grid demand. Some of these factors are inherently cyclical or temporary in nature, such as the weather or economic conditions, and rarely have a long-lasting effect on Entergy’s operating results. Others, such as the organic turnover of appliances and their replacement with more efficient ones, adoption of newer technologies including smart thermostats, new building codes, distributed energy resources, energy storage, demand side management, and rooftop solar are having a more permanent effect by reducing sales growth rates from historical norms. As a result of these emerging efficiencies and technologies, the Utility operating companies may lose customers or experience lower average use per customer in the residential and commercial classes, and continuing advances have the potential to further limit sales growth in the future. The
Part I Item 1A & 1B
Entergy Corporation, Utility operating companies, and System Energy
Utility operating companies also may face competition from other companies offering products and services to Entergy’s customers. Electricity sales to industrial customers, in particular, benefit from steady economic growth and favorable commodity markets; however, industrial sales are sensitive to changes in conditions in the markets in which its customers operate. Negative changes in any of these or other factors, particularly sustained economic downturns or sluggishness, have the potential to result in slower sales growth or sales declines and increased bad debt expense, which could materially affect Entergy’s and the Utility operating companies’ results of operations, financial condition, and liquidity.
The effects of climate change and environmental and regulatory obligations intended to compel greenhouse gas emission reductions or increase clean or renewable energy requirements or to place a price on greenhouse gas emissions could materially affect the financial condition, results of operations, and liquidity of Entergy, the Utility operating companies, System Energy, and the Entergy Wholesale Commodities business.
In an effort to address climate change concerns, some federal, state, and local authorities are calling for additional laws and regulations aimed at known or suspected causes of climate change. For example, in response to the United States Supreme Court’s 2007 decision holding that the EPA has authority to regulate emissions of CO2 and other “greenhouse gases” under the Clean Air Act, the EPA, various environmental interest groups, and other organizations focused considerable attention on CO2 emissions from power generation facilities and their potential role in climate change. In 2010, the EPA promulgated its first regulations controlling greenhouse gas emissions from certain vehicles and from new and significantly modified stationary sources of emissions, including electric generating units. During 2012 and 2014, the EPA proposed CO2 emission standards for new and existing sources. The EPA finalized these standards in 2015; however, in June 2019, the EPA repealed and replaced certain aspects of those regulations. As examples of state action, in the Northeast, the Regional Greenhouse Gas Initiative establishes a cap on CO2 emissions from electric power plants and requires generators to purchase emission permits to cover their CO2 emissions, and a similar program has been developed in California. The impact that continued changes in the governmental response to climate change risk will have on existing and pending environmental laws and regulations related to greenhouse gas emissions is currently unclear.
Developing and implementing plans for compliance with greenhouse gas emissions reduction or clean/renewable energy requirements can lead to additional capital, personnel, and operation and maintenance expenditures and could significantly affect the economic position of existing facilities and proposed projects. The operations of low or non-emitting generating units (such as nuclear units) at lower than expected capacity factors could require increased generation from higher emitting units, thus increasing the company’s greenhouse gas emission rate. Moreover, long-term planning to meet environmental requirements can be negatively impacted and costs may increase to the extent laws and regulations change prior to full implementation. These requirements could, in turn, lead to changes in the planning or operations of balancing authorities or organized markets in areas where the Utility operating companies, System Energy, or Entergy Wholesale Commodities do business. Violations of such requirements may subject Entergy Wholesale Commodities and the Utility operating companies to enforcement actions, capital expenditures to bring existing facilities into compliance, additional operating costs or operating restrictions to achieve compliance, civil penalties, and exposure to third parties’ claims for alleged health or property damages or for violations of applicable permits or standards. To the extent Entergy believes any of these costs are recoverable in rates, however, additional material rate increases for customers could be resisted by Entergy’s regulators and, in extreme cases, Entergy’s regulators might deny or defer timely recovery of these costs. Future changes in environmental regulation governing the emission of CO2 and other greenhouse gases or mix of generation sources could (i) result in significant additional costs to Entergy’s utility operating companies, their suppliers or customers, (ii) make some of Entergy’s electric generating units uneconomical to maintain or operate, (iii) result in the early retirement of generation facilities and stranded costs if Entergy’s utility operating companies are unable to fully recover the costs and investment in generation and (iv) could increase the difficulty that Entergy and its utility operating companies have with obtaining or maintaining required environmental regulatory approvals, each of which could materially affect the financial condition, results of operations and liquidity of Entergy and its subsidiaries. In addition, lawsuits have occurred or are reasonably expected against emitters of greenhouse gases alleging that these companies are liable for personal injuries and property damage caused by climate change. These lawsuits may seek injunctive relief, monetary compensation, and punitive damages.
Part I Item 1A & 1B
Entergy Corporation, Utility operating companies, and System Energy
In addition to the regulatory and financial risks associated with climate change discussed above, potential physical risks from climate change include an increase in sea level, wind and storm surge damages, wildfires, wetland and barrier island erosion, risks of flooding and changes in weather conditions, (such as increases in precipitation, drought, or changes in average temperatures), and potential increased impacts of extreme weather conditions or storms. Entergy subsidiaries own assets in, and serve, communities that are at risk from sea level rise, changes in weather conditions, storms, and loss of the protection offered by coastal wetlands. A significant portion of the nation’s oil and gas infrastructure is located in these areas and susceptible to storm damage that could be aggravated by the physical impacts of climate change, which could give rise to fuel supply interruptions and price spikes. Entergy and its subsidiaries also face the risk that climate change could impact the availability and quality of water supply necessary for operations.
These and other physical changes could result in changes in customer demand, increased costs associated with repairing and maintaining generation facilities and transmission and distribution systems resulting in increased maintenance and capital costs (and potential increased financing needs), limits on the Entergy System’s ability to meet peak customer demand, more frequent and longer lasting outages, increased regulatory oversight, and lower customer satisfaction. Also, to the extent that climate change adversely impacts the economic health of a region or results in energy conservation or demand side management programs, it may adversely impact customer demand and revenues. Such physical or operational risks could have a material effect on Entergy’s, Entergy Wholesale Commodities’, System Energy’s, and the Utility operating companies’ financial condition, results of operations, and liquidity.
Continued and future availability and quality of water for cooling, process, and sanitary uses could materially affect the financial condition, results of operations, and liquidity of the Utility operating companies, System Energy, and the Entergy Wholesale Commodities business.
Water is a vital natural resource that is also critical to the Utility operating companies’, System Energy’s, and Entergy Wholesale Commodities’ business operations. Entergy’s facilities use water for cooling, boiler make-up, sanitary uses, potable supply, and many other uses. Entergy’s Utility operating companies also own and/or operate hydroelectric facilities. Accordingly, water availability and quality are critical to Entergy’s business operations. Impacts to water availability or quality could negatively impact both operations and revenues.
Entergy secures water through various mechanisms (ground water wells, surface waters intakes, municipal supply, etc.) and operates under the provisions and conditions set forth by the provider and/or regulatory authorities. Entergy also obtains and operates in substantial compliance with water discharge permits issued under various provisions of the Clean Water Act and/or state water pollution control provisions. Regulations and authorizations for both water intake and use and for waste discharge can become more stringent in times of water shortages, low flows in rivers, low lake levels, low groundwater aquifer volumes, and similar conditions. The increased use of water by industry, agriculture, and the population at large, population growth, and the potential impacts of climate change on water resources may cause water use restrictions that affect Entergy and its subsidiaries.
Entergy and its subsidiaries may not be adequately hedged against changes in commodity prices, which could materially affect Entergy’s and its subsidiaries’ results of operations, financial condition, and liquidity.
To manage near-term financial exposure related to commodity price fluctuations, Entergy and its subsidiaries, including the Utility operating companies and the Entergy Wholesale Commodities business, may enter into contracts to hedge portions of their purchase and sale commitments, fuel requirements, and inventories of natural gas, uranium and its conversion and enrichment, coal, refined products, and other commodities, within established risk management guidelines. As part of this strategy, Entergy and its subsidiaries may utilize fixed- and variable-price forward physical purchase and sales contracts, futures, financial swaps, and option contracts traded in the over-the-counter markets or on exchanges. However, Entergy and its subsidiaries normally cover only a portion of the exposure of their assets and positions to market price volatility, and the coverage will vary over time. In addition, Entergy also elects to leave certain volumes during certain years unhedged. To the extent Entergy and its subsidiaries have unhedged positions,
Part I Item 1A & 1B
Entergy Corporation, Utility operating companies, and System Energy
fluctuating commodity prices can materially affect Entergy’s and its subsidiaries’ results of operations and financial position.
Although Entergy and its subsidiaries devote a considerable effort to these risk management strategies, they cannot eliminate all the risks associated with these activities. As a result of these and other factors, Entergy and its subsidiaries cannot predict with precision the impact that risk management decisions may have on their business, results of operations, or financial position.
Entergy’s over-the-counter financial derivatives are subject to rules implementing the Dodd-Frank Wall Street Reform and Consumer Protection Act that are designed to promote transparency, mitigate systemic risk and protect against market abuse. Entergy cannot predict the impact any proposed or not fully-implemented final rules will have on its ability to hedge its commodity price risk or on over-the-counter derivatives markets as a whole, but such rules and regulations could have a material effect on Entergy's risk exposure, as well as reduce market liquidity and further increase the cost of hedging activities.
Entergy has guaranteed or indemnified the performance of a portion of the obligations relating to hedging and risk management activities. Reductions in Entergy’s or its subsidiaries’ credit quality or changes in the market prices of energy commodities could increase the cash or letter of credit collateral required to be posted in connection with hedging and risk management activities, which could materially affect Entergy’s or its subsidiaries’ liquidity and financial position.
The Utility operating companies and the Entergy Wholesale Commodities business are exposed to the risk that counterparties may not meet their obligations, which may materially affect the Utility operating companies and Entergy Wholesale Commodities.
The hedging and risk management practices of the Utility operating companies and the Entergy Wholesale Commodities business are exposed to the risk that counterparties that owe Entergy and its subsidiaries money, energy, or other commodities will not perform their obligations. Currently, some hedging agreements contain provisions that require the counterparties to provide credit support to secure all or part of their obligations to Entergy or its subsidiaries. If the counterparties to these arrangements fail to perform, Entergy or its subsidiaries may enforce and recover the proceeds from the credit support provided and acquire alternative hedging arrangements, which credit support may not always be adequate to cover the related obligations. In such event, Entergy and its subsidiaries might incur losses in addition to amounts, if any, already paid to the counterparties. In addition, the credit commitments of Entergy’s lenders under its bank facilities may not be honored for a variety of reasons, including unexpected periods of financial distress affecting such lenders, which could materially affect the adequacy of its liquidity sources.
Market performance and other changes may decrease the value of benefit plan assets, which then could require additional funding and result in increased benefit plan costs.
The performance of the capital markets affects the values of the assets held in trust under Entergy’s pension and postretirement benefit plans. A decline in the market value of the assets may increase the funding requirements relating to Entergy’s benefit plan liabilities and also result in higher benefit costs. As the value of the assets decreases, the “expected return on assets” component of benefit costs decreases, resulting in higher benefits costs. Additionally, asset losses are incorporated into benefit costs over time, thus increasing benefits costs. Volatility in the capital markets has affected the market value of these assets, which may affect Entergy’s planned levels of contributions in the future. Additionally, changes in interest rates affect the liabilities under Entergy’s pension and postretirement benefit plans; as interest rates decrease, the liabilities increase, potentially requiring additional funding and recognition of higher liability carrying costs. The funding requirements of the obligations related to the pension benefit plans can also increase as a result of changes in, among other factors, retirement rates, life expectancy assumptions, or Federal regulations. For further information regarding Entergy’s pension and other postretirement benefit plans, refer to the “Critical Accounting Estimates– Qualified Pension and Other Postretirement Benefits” section of Management’s Financial Discussion and Analysis for Entergy and each of its Registrant Subsidiaries and Note 11 to the financial statements.
Part I Item 1A & 1B
Entergy Corporation, Utility operating companies, and System Energy
The litigation environment in the states in which certain Entergy subsidiaries operate poses a significant risk to those businesses.
Entergy and its subsidiaries are involved in the ordinary course of business in a number of lawsuits involving employment, commercial, asbestos, hazardous material and ratepayer matters, and injuries and damages issues, among other matters. The states in which the Utility operating companies operate, in particular Louisiana, Mississippi, and Texas, have proven to be unusually litigious environments. Judges and juries in these states have demonstrated a willingness to grant large verdicts, including punitive damages, to plaintiffs in personal injury, property damage, and business tort cases. Entergy and its subsidiaries use legal and appropriate means to contest litigation threatened or filed against them, but the litigation environment in these states poses a significant business risk.
Terrorist attacks, cyber attacks, system failures or data breaches of Entergy’s and its subsidiaries’ or our suppliers’ technology systems may adversely affect Entergy’s results of operations.
Entergy and its subsidiaries operate in a business that requires evolving information technology systems that include sophisticated data collection, processing systems, software, network infrastructure and other technologies that are becoming more complex and may be subject to mandatory and prescriptive reliability and security standards. The functionality of Entergy’s technology systems depends on its own and its suppliers’ and their contractors’ technology. Suppliers’ and their contractors’ technology systems to which Entergy is connected directly or indirectly support a variety of business processes and activities to store sensitive data, including (i) intellectual property, (ii) proprietary business information, (iii) personally identifiable information of customers and employees, and (iv) data with respect to invoicing and the collection of payments, accounting, procurement, and supply chain activities. Any significant failure or malfunction of such information technology systems could result in loss of data or disruptions of operations.
There have been attacks and threats of attacks on energy infrastructure by cyber actors, including those associated with foreign governments. As an operator of critical infrastructure, Entergy and its subsidiaries face heightened risk of an act or threat of terrorism, cyber attacks, and data breaches, whether as a direct or indirect act against one of Entergy’s generation, transmission or distribution facilities, operations centers, infrastructure, or information technology systems used to manage, monitor, and transport power to customers and perform day-to-day business functions. An actual act could affect Entergy’s ability to operate, including its ability to operate the information technology systems and network infrastructure on which it relies to conduct business.
Given the rapid technological advancements of existing and emerging threats, Entergy’s technology systems remain inherently vulnerable despite implementations and enhancements of the multiple layers of security and controls. If Entergy’s or its subsidiaries’ technology systems were compromised and unable to detect or recover in a timely fashion to a normal state of operations, Entergy or its subsidiaries could be unable to perform critical business functions that are essential to the company’s well-being and could result in a loss of its confidential, sensitive, and proprietary information, including personal information of its customers, employees, suppliers, and others in Entergy’s care. Although malware was discovered on Entergy’s business network in 2018, it was remediated on a timely basis and did not affect Entergy’s operational systems, generation plants (including nuclear), or transmission and distribution networks, nor did it have a material effect on Entergy’s business operations.
Any such attacks, failures or data breaches could have a material effect on Entergy’s and the Utility operating companies’ business, financial condition, results of operations or reputation. Insurance may not be adequate to cover losses that might arise in connection with these events. Such events may also expose Entergy to an increased risk of litigation (and associated damages and fines).
Part I Item 1A & 1B
Entergy Corporation, Utility operating companies, and System Energy
(Entergy New Orleans)
The effect of higher purchased gas cost charges to customers taking gas service may adversely affect Entergy New Orleans’s results of operations and liquidity.
Gas rates charged to retail gas customers are comprised primarily of purchased gas cost charges, which provide no return or profit to Entergy New Orleans, and distribution charges, which provide a return or profit to the utility. Distribution charges recover fixed costs on a volumetric basis and, thus, are affected by the amount of gas sold to customers. When purchased gas cost charges increase due to higher gas procurement costs, customer usage may decrease, especially in weaker economic times, resulting in lower distribution charges for Entergy New Orleans, which could adversely affect results of operations. Purchased gas cost charges, which comprise most of a customer’s bill and may be adjusted monthly, represent gas commodity costs that Entergy New Orleans recovers from its customers. Entergy New Orleans’s cash flows can be affected by differences between the time period when gas is purchased and the time when ultimate recovery from customers occurs.
(System Energy)
System Energy owns and, through an affiliate, operates a single nuclear generating facility, and it is dependent on affiliated companies for all of its revenues.
System Energy’s operating revenues are derived from the allocation of the capacity, energy, and related costs associated with its 90% ownership/leasehold interest in Grand Gulf. Charges under the Unit Power Sales Agreement are paid by the Utility operating companies as consideration for their respective entitlements to receive capacity and energy. The useful economic life of Grand Gulf is finite and is limited by the terms of its operating license, which expires in November 2044. System Energy’s financial condition depends both on the receipt of payments from the Utility operating companies under the Unit Power Sales Agreement and on the continued commercial operation of Grand Gulf. The Unit Power Sales Agreement is currently the subject of several litigation proceedings at the FERC, including a challenge with respect to System Energy’s authorized return on equity and capital structure and a request in separate proceeding for FERC to initiate a broader investigation of rates under the Unit Power Sales Agreement. See Note 2 to the financial statements for further discussion of the proceedings. The Utility operating companies have agreed to implement certain protocols for providing retail regulators with information regarding rates billed under the Unit Power Sales Agreement.
For information regarding the Unit Power Sales Agreement, the sale and leaseback transactions and certain other agreements relating to the Entergy System companies’ support of System Energy, see Notes 8 and 10 to the financial statements and the “Utility - System Energy and Related Agreements” section of Part I, Item 1.
(Entergy Corporation)
As a holding company, Entergy Corporation depends on cash distributions from its subsidiaries to meet its debt service and other financial obligations and to pay dividends on its common stock.
Entergy Corporation is a holding company with no material revenue generating operations of its own or material assets other than the stock of its subsidiaries. Accordingly, all of its operations are conducted by its subsidiaries. Entergy Corporation’s ability to satisfy its financial obligations, including the payment of interest and principal on its outstanding debt, and to pay dividends on its common stock depends on the payment to it of dividends or distributions by its subsidiaries. The subsidiaries of Entergy Corporation are separate and distinct legal entities and have no obligation, contingent or otherwise, to pay any dividends or make distributions to Entergy Corporation. The ability of such subsidiaries to make payments of dividends or distributions to Entergy Corporation depends on their results of operations and cash flows and other items affecting retained earnings, and on any applicable legal, regulatory, or contractual limitations on subsidiaries’ ability to pay such dividends or distributions. Prior to providing funds to Entergy Corporation, such subsidiaries have financial and regulatory obligations that must be satisfied, including among others, debt service and, in the case of Entergy Utility Holding Company and Entergy Texas, dividends and distributions on preferred securities. Any distributions from the Registrant Subsidiaries other than Entergy Texas and System Energy
Part I Item 1A & 1B
Entergy Corporation, Utility operating companies, and System Energy
are paid directly to Entergy Utility Holding Company and are therefore subject to prior payment of distributions on its preferred securities.
ENTERGY ARKANSAS, LLC AND SUBSIDIARIES
MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS
Results of Operations
2019 Compared to 2018
Net Income
2017 Compared to 2016
Net income decreased $4.3increased $10.3 million primarily due to higher taxes other than income taxes,retail electric price and lower net revenue, and a higher effective income tax rate,nuclear refueling outage expenses, partially offset by lower other operationvolume/weather, higher interest expense, and maintenance expenses and higher other income.
Entergy New Orleans, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
2016 Compared to 2015
Net income increased $3.9 million primarily due to higher net revenue, partially offset by higher depreciation and amortization expenses, higher interest expense, and lower other income.expenses.
Net RevenueOperating Revenues
2017 Compared to 2016
Net revenue consists of operating revenues net of: 1) fuel, fuel-related expenses, and gas purchased for resale, 2) purchased power expenses, and 3) other regulatory charges. Following is an analysis of the change in net revenueoperating revenues comparing 20172019 to 2016.2018:
|
| | | |
| Amount |
| (In Millions) |
2018 operating revenues |
| $2,060.6 |
|
2016Fuel, rider, and other revenues that do not significantly affect net revenueincome | (74.9 | $317.2) |
Return of unprotected excess accumulated deferred income taxes to customers | 241.4 |
|
Retail electric price | (6.466.7 | )
|
Volume/weather | (4.334.2 | ) |
Other2019 operating revenues | 5.4 |
|
2017 net revenue |
| $311.92,259.6 |
|
The retail electric price variance is primarily dueEntergy Arkansas’s results include revenues from rate mechanisms designed to a net decrease in therecover fuel, purchased power, and capacity acquisition cost recovery rider. Thereother costs such that the revenues and expenses associated with these items generally offset and do not affect net income. “Fuel, rider, and other revenues that do not significantly affect net income” includes the revenue variance associated with these items.
The return of unprotected excess accumulated deferred income taxes to customers resulted from the return of unprotected excess accumulated deferred income taxes through a tax adjustment rider beginning in April 2018. In 2019, $126.3 million was an increase in the rider primarily due to creditsreturned to customers as part ofcompared to $367.7 million in 2018. There was no effect on net income as the Entergy New Orleans internal restructuring agreementreduction in principle, effective with the first billing cycle of June 2017, partiallyoperating revenues in each period was offset by lower credits to customersa reduction in 2017 related to the retirement of Michoud Units 2 and 3.income tax expense. See Note 2 to the financial statements for further discussion of regulatory activity regarding the credits associated with Entergy New Orleans’s internal restructuringTax Cuts and the Michoud retirement.Jobs Act.
The volume/weather variance is primarily due to the effect of less favorable weather on residential and commercial sales, partially offset by an increase in residential and commercial usage resulting from a 1% increase in the average number of residential and commercial electric customers.
2016 Compared to 2015
Net revenue consists of operating revenues net of: 1) fuel, fuel-related expenses, and gas purchased for resale, 2) purchased power expenses, and 3) other regulatory charges. Following is an analysis of the change in net revenue comparing 2016 to 2015.
|
| | | |
| Amount |
| (In Millions) |
| |
2015 net revenue |
| $293.9 |
|
Retail electric price | 39.0 |
|
Net gas revenue | (2.5 | ) |
Volume/weather | (5.1 | ) |
Other | (8.1 | ) |
2016 net revenue |
| $317.2 |
|
The retail electric price variance is primarily due to an increase in the purchased power and capacity acquisition cost recovery rider, as approved by the City Council,formula rate plan rates effective with the first billing cycle of March 2016, primarily
Entergy New Orleans, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
related toJanuary 2019, as approved by the purchase of Power Block 1 of the Union Power Station.APSC. See Note 142 to the financial statements for further discussion of the Union Power Station purchase.formula rate plan filing.
The net gas revenue variance is primarily due to the effect of less favorable weather on residential and commercial sales.
The volume/weather variance is primarily due to a decrease of 112707 GWh, or 2%3%, in billed electricity usage, partially offset byincluding the effect of less favorable weather on residential and commercial sales and a 2% increasedecrease in the average number of electric customers.industrial usage. The decrease in industrial usage is primarily due to a decrease in small industrial sales.
Other Income Statement Variances
2017 ComparedNuclear refueling outage expenses decreased primarily due to 2016the amortization of lower costs associated with the most recent outages as compared to previous outages.
Entergy Arkansas, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
Other operation and maintenance expenses decreased primarily due to:
a decrease of $7.9$20.2 million in fossil-fuelednuclear generation expenses primarily due to a lower outage costs at Power Block 1scope of the Union Power Stationwork performed in 20172019 as compared to 2016, 2018;
the deactivationeffects of Michoud Units 2recording in 2019 a final judgment to resolve claims in the ANO damages case against the DOE related to spent nuclear fuel storage costs. The damages awarded include the reimbursement of approximately $11.9 million of spent nuclear fuel storage costs previously recorded as other operation and 3 effective May 2016,maintenance expense. See Note 8 to the financial statements for discussion of the spent nuclear fuel litigation; and asbestos loss provisions in 2016;
| |
• | a decrease of $5.5 million in vegetation maintenance costs. |
a decrease of $4.5 million in other loss provisions; and
a decrease of $2.8 million due to lower write-offs of uncollectible customer accounts.
The decrease was partially offset by:
an $11.2 million write-off in 2019 of specific costs related to the potential construction of scrubbers at the White Bluff plant;
an increase of $4$8.5 million in distributioninformation technology expenses primarily due to higher labor costs including contract labor,related to applications and higher vegetation maintenance costs;infrastructure support, enhanced cyber security, and upgrades and maintenance;
an increase of $7.4 million due to spending on initiatives to explore new customer products and services; and
an increase of $1.3$5.5 million in energy efficiency costs.compensation and benefits costs primarily due to higher incentive-based compensation accruals in 2019 as compared to prior year.
Taxes other than income taxes increased primarily due to anincreases in local franchise taxes and ad valorem taxes. The increase in ad valorem taxes and higher local franchise taxes. Ad valorem taxes increased primarily due to higher assessments, including the assessment of Arkansas ad valorem taxes on the Union Power Station beginning in 2017. Local franchise taxes increasedis primarily due to higher electric retail revenuesrevenues. The increase in 2017 as compared to 2016.
Other income increasedad valorem taxes is primarily due to a decrease in charitable contributions made in 2017 as compared to 2016.higher assessments and millage rates.
2016 Compared to 2015
Other operation and maintenance expenses decreased primarily due to:
a decrease of $6.1 million due to lower transmission equalization expenses, as allocated under the System Agreement as compared to the same period in 2015 primarily due to the termination of the System Agreement. See Note 2 to the financial statements for further discussion on the System Agreement termination;
a decrease of $4.4 million due to the cessation of storm damage provisions in August 2015. See Note 2 to the financial statements for further discussion of storm cost recovery; and
a decrease of $3.1 million in compensation and benefits costs primarily due to a decrease in net periodic pension and other postretirement benefits costs as a result of an increase in the discount rate used to value the benefit liabilities and a refinement in the approach used to estimate the service cost and interest cost components of pension and other postretirement costs. See “Critical Accounting Estimates” below and Note 11 to the financial statements for further discussion of pension and other postretirement benefit costs.
Entergy New Orleans, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
The decrease was partially offset by:
an increase of $5.7 million in fossil-fueled generation expenses primarily due to an increase as a result of the purchase of Power Block 1 of the Union Power Station in March 2016, partially offset by a decrease as a result of the deactivation of Michoud Units 2 and 3 effective May 2016. See Note 14 to the financial statements for discussion of the Union Power Station purchase;
an increase of $3.1 million in loss provisions; and
an increase of $2.8 million due to higher write-offs of uncollectible customer accounts in 2016 as compared to 2015.
Depreciation and amortization expenses increased primarily due to additions to plant in service includingand an increase in the purchase of Power BlockANO 1 and ANO 2 asset retirement cost assets. See Note 9 to the financial statements for discussion of the Union Power Stationincrease in March 2016, partially offset by the asset retirement of Michoud Units 2 and 3 effective May 2016.cost assets.
Interest expense increased primarily due to the issuance of $110$350 million of 5.50%4.20% Series first mortgage bonds in March 20162019 and the issuance of $98.7$250 million of storm cost recovery4.00% Series mortgage bonds in July 2015. See Note 5 to the financial statements for details on long-term debt.May 2018.
Other income decreased primarily due to an increase in charitable contributions made in 2016 as compared to 2015.
Income Taxes
The effective income tax rates were (21.6%) for 2017, 2016,2019 and 2015669.7% for 2018. The differences in the effective income tax rates versus the federal statutory rate of 21% for 2019 and 2018 were 42.8%, 37.0% and 35.9%, respectively.primarily due to the amortization of excess accumulated deferred income taxes. See Note 3 to the financial statements for a reconciliation of the federal statutory rate of 35%21% to the effective income tax rates.
2018 Compared to 2017
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Results of Operations” in Entergy Arkansas’s Annual Report on Form 10-K for the year ended December 31, 2018 for discussion of results of operations for 2018 compared to 2017.
Income Tax Legislation
See the “Income Tax Legislation” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for discussion of the Tax Cuts and Jobs Act, the federal income tax legislation enacted in December 2017. Note 3 to the financial statements contains additional discussion of the effect of the Act on 2017, 2018, and 2019 results of operations and financial position, the provisions of the Act, and the uncertainties associated with accounting for the Act, and Note 2 to the financial statements discusses the regulatory proceedings commenced or other responses by Entergy’s regulators tothat have considered the effects of the Act.
Entergy Arkansas, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
Liquidity and Capital Resources
Cash Flow
Cash flows for the years ended December 31, 2019, 2018, and 2017 were as follows:
|
| | | | | | | | | | | |
| 2019 | | 2018 | | 2017 |
| (In Thousands) |
Cash and cash equivalents at beginning of period |
| $119 |
| |
| $6,216 |
| |
| $20,509 |
|
| | | | | |
Net cash provided by (used in): | | | | | |
|
Operating activities | 677,766 |
| | 211,825 |
| | 555,556 |
|
Investing activities | (676,293 | ) | | (688,727 | ) | | (829,312 | ) |
Financing activities | 1,927 |
| | 470,805 |
| | 259,463 |
|
Net increase (decrease) in cash and cash equivalents | 3,400 |
| | (6,097 | ) | | (14,293 | ) |
| | | | | |
Cash and cash equivalents at end of period |
| $3,519 |
| |
| $119 |
| |
| $6,216 |
|
2019 Compared to 2018
Operating Activities
Net cash flow provided by operating activities increased $465.9 million in 2019 primarily due to:
a decrease in the return of unprotected excess accumulated deferred income taxes to customers in 2019 as compared to 2018. See Note 2 to the financial statements for further discussion of regulatory activity regarding the Tax Cuts and Jobs Act;
payments in 2018 of $135 million to the other Utility operating companies as a result of a compliance filing made in response to the FERC’s October 2018 order in the opportunity sales proceeding. See Note 2 to the financial statements for further discussion of the opportunity sales proceeding;
income tax refunds of $34 million in 2019 compared to income tax payments of $44.4 million in 2018. Entergy Arkansas had income tax refunds in 2019 and income tax payments in 2018 in accordance with an intercompany income tax allocation agreement. The income tax refunds in 2019 resulted from the utilization of Entergy Arkansas’s net operating losses. The income tax payments in 2018 primarily resulted from the settlement of the 2012-2013 audit;
a decrease of $44.1 million in spending on nuclear refueling outages in 2019; and
the timing of recovery of fuel and purchased power costs.
The increase was partially offset by the timing of collection of receivables from customers and an increase of $11.8 million in pension contributions in 2019. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Critical Accounting Estimates” below and Note 11 to the financial statements for a discussion of qualified pension and other postretirement benefits funding.
Entergy Arkansas, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
Investing Activities
Net cash flow used in investing activities decreased $12.4 million in 2019 primarily due to:
a decrease of $32.1 million in nuclear construction expenditures primarily due to a lower scope of work performed on various nuclear projects in 2019 as compared to 2018;
a decrease of $25.8 million in transmission construction expenditures primarily due to a lower scope of work performed on various projects in 2019 as compared to 2018; and
a decrease of $13 million as a result of fluctuations in nuclear fuel activity because of variations from year to year in the timing and pricing of fuel reload requirements in the Utility business, material and service deliveries, and the timing of cash payments during the nuclear fuel cycle.
The decrease was partially offset by an increase of $35.6 million in distribution construction expenditures primarily due to investment in the reliability and infrastructure of Entergy Arkansas’s distribution system, including increased spending on advanced metering infrastructure, and an increase of $15.6 million in storm spending.
Financing Activities
Entergy Arkansas’s cash provided by financing activities decreased $468.9 million in 2019 primarily due to:
a $350 million capital contribution from Entergy Corporation in May 2018 in anticipation of the return of unprotected excess accumulated deferred income taxes to customers and upcoming planned capital investments;
the issuance of $250 million of 4.0% Series first mortgage bonds in May 2018;
money pool activity;
net repayments of long-term borrowings of $44.5 million in 2019 compared to net long-term borrowings of $34.7 million in 2018 on the Entergy Arkansas nuclear fuel company variable interest entity credit facility; and
an increase of $23.2 million in common equity distributions paid in 2019 primarily to maintain Entergy Arkansas’s capital structure.
The decrease was partially offset by:
the issuance of $350 million of 4.20% Series mortgage bonds in March 2019;
net repayments of short-term borrowings of $50 million on the Entergy Arkansas nuclear fuel company variable interest entity credit facility in 2018; and
the redemption of $31.4 million of preferred stock in 2018 in connection with the internal restructuring. See Note 2 to the financial statements for further discussion of the internal restructuring and Note 6 to the financial statements for details of preferred stock activity.
Decreases in Entergy Arkansas’s payable to the money pool are a use of cash flow, and Entergy Arkansas’s payable to the money pool decreased by $161.1 million in 2019 compared to increasing by $16.6 million in 2018. The money pool is an inter-company borrowing arrangement designed to reduce the Utility subsidiaries’ need for external short-term borrowings.
See Note 5 to the financial statements for further details of long-term debt.
Entergy Arkansas, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
2018 Compared to 2017
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Liquidity and Capital Resources - Cash Flow” in Entergy Arkansas’s Annual Report on Form 10-K for the year ended December 31, 2018 for discussion of operating, investing, and financing cash flow activities for 2018 compared to 2017.
Capital Structure
Entergy Arkansas’s debt to capital ratio is shown in the following table. The increase in the debt to capital ratio is primarily due to the issuance of long-term debt in 2019.
|
| | | |
| December 31, 2019 | | December 31, 2018 |
Debt to capital | 53.0% | | 52.0% |
Effect of excluding the securitization bonds | —% | | (0.2%) |
Debt to capital, excluding securitization bonds (a) | 53.0% | | 51.8% |
Effect of subtracting cash | —% | | —% |
Net debt to net capital, excluding securitization bonds (a) | 53.0% | | 51.8% |
| |
(a) | Calculation excludes the securitization bonds, which are non-recourse to Entergy Arkansas. |
Net debt consists of debt less cash and cash equivalents. Debt consists of short-term borrowings, finance lease obligations, and long-term debt, including the currently maturing portion. Capital consists of debt and equity. Net capital consists of capital less cash and cash equivalents. Entergy Arkansas uses the debt to capital ratios excluding securitization bonds in analyzing its financial condition and believes they provide useful information to its investors and creditors in evaluating Entergy Arkansas’s financial condition because the securitization bonds are non-recourse to Entergy Arkansas, as more fully described in Note 5 to the financial statements. Entergy Arkansas also uses the net debt to net capital ratio excluding securitization bonds in analyzing its financial condition and believes it provides useful information to its investors and creditors in evaluating Entergy Arkansas’s financial condition because net debt indicates Entergy Arkansas’s outstanding debt position that could not be readily satisfied by cash and cash equivalents on hand.
Entergy Arkansas seeks to optimize its capital structure in accordance with its regulatory requirements and to control its cost of capital while also maintaining equity capitalization at a level consistent with investment-grade debt ratings. To the extent that operating cash flows are in excess of planned investments, cash may be used to reduce outstanding debt or may be paid as a distribution, or both, in appropriate amounts to maintain the capital structure. To the extent that operating cash flows are insufficient to support planned investments, Entergy Arkansas may issue incremental debt or reduce distributions, or both, to maintain its capital structure. In addition, in certain infrequent circumstances, such as large transactions that would materially alter the capital structure if financed entirely with debt and reducing distributions, Entergy Arkansas may receive equity contributions to maintain its capital structure.
Uses of Capital
Entergy Arkansas requires capital resources for:
construction and other capital investments;
debt maturities or retirements;
working capital purposes, including the financing of fuel and purchased power costs; and
distribution and interest payments.
Entergy Arkansas, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
Following are the amounts of Entergy Arkansas’s planned construction and other capital investments.
|
| | | | | | | | | | | |
| 2020 | | 2021 | | 2022 |
| (In Millions) |
Planned construction and capital investment: | | | |
| | |
|
Generation |
| $250 |
| |
| $445 |
| |
| $595 |
|
Transmission | 110 |
| | 50 |
| | 65 |
|
Distribution | 190 |
| | 125 |
| | 125 |
|
Utility Support | 185 |
| | 165 |
| | 240 |
|
Total |
| $735 |
| |
| $785 |
| |
| $1,025 |
|
Following are the amounts of Entergy Arkansas’s existing debt and lease obligations (includes estimated interest payments) and other purchase obligations.
|
| | | | | | | | | | | | | | | | | | | |
| 2020 | | 2021-2022 | | 2023-2024 | | After 2024 | | Total |
| (In Millions) |
Long-term debt (a) |
| $142 |
| |
| $737 |
| |
| $877 |
| |
| $4,377 |
| |
| $6,133 |
|
Operating leases (b) |
| $13 |
| |
| $20 |
| |
| $13 |
| |
| $12 |
| |
| $58 |
|
Finance leases (b) |
| $3 |
| |
| $4 |
| |
| $3 |
| |
| $2 |
| |
| $12 |
|
Purchase obligations (c) |
| $553 |
| |
| $939 |
| |
| $561 |
| |
| $4,485 |
| |
| $6,538 |
|
| |
(a) | Includes estimated interest payments. Long-term debt is discussed in Note 5 to the financial statements. |
| |
(b) | Lease obligations are discussed in Note 10 to the financial statements. |
| |
(c) | Purchase obligations represent the minimum purchase obligation or cancellation charge for contractual obligations to purchase goods or services. For Entergy Arkansas, almost all of the total consists of unconditional fuel and purchased power obligations, including its obligations under the Unit Power Sales Agreement, which are discussed in Note 8 to the financial statements. |
In addition to the contractual obligations given above, Entergy Arkansas currently expects to contribute approximately $32.5 million to its qualified pension plans and approximately $509 thousand to its other postretirement health care and life insurance plans in 2020, although the 2020 required pension contributions will be known with more certainty when the January 1, 2020 valuations are completed, which is expected by April 1, 2020. See “Critical Accounting Estimates– Qualified Pension and Other Postretirement Benefits” below for a discussion of qualified pension and other postretirement benefits funding.
Also in addition to the contractual obligations, Entergy Arkansas has $207.1 million of unrecognized tax benefits and interest net of unused tax attributes for which the timing of payments beyond 12 months cannot be reasonably estimated due to uncertainties in the timing of effective settlement of tax positions. See Note 3 to the financial statements for additional information regarding unrecognized tax benefits.
In addition to routine capital spending to maintain operations, the planned capital investment estimate for Entergy Arkansas includes specific investments, such as transmission projects to enhance reliability, reduce congestion, and enable economic growth; distribution spending to enhance reliability and improve service to customers, including advanced meters and related investments; resource planning, including potential generation projects; system improvements; investments in ANO 1 and 2; software and security; and other investments. Estimated capital expenditures are subject to periodic review and modification and may vary based on the ongoing effects of regulatory constraints and requirements, environmental compliance, business opportunities, market volatility, economic trends, business restructuring, changes in project plans, and the ability to access capital. Management provides more information on long-term debt maturities in Note 5 to the financial statements.
Entergy Arkansas, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
As a wholly-owned subsidiary of Entergy Utility Holding Company, LLC, Entergy Arkansas pays distributions from its earnings at a percentage determined monthly.
Searcy Solar Facility
In March 2019, Entergy Arkansas announced that it signed an agreement for the purchase of an approximately 100 MW to-be-constructed solar energy facility that will be sited on approximately 800 acres in White County near Searcy, Arkansas. The purchase is contingent upon, among other things, obtaining necessary approvals from applicable federal and state regulatory and permitting agencies. The project will be constructed by a subsidiary of NextEra Energy Resources. Entergy Arkansas will purchase the facility upon mechanical completion and after the other purchase contingencies have been met. Closing is expected to occur by the end of 2021. In May 2019, Entergy Arkansas filed a petition with the APSC seeking a finding that the transaction is in the public interest and requesting all necessary approvals. In September 2019 other parties filed testimony largely supporting the resource acquisition but disputing Entergy Arkansas’s proposed method of cost recovery. Entergy Arkansas filed its rebuttal testimony in October 2019. In February 2020, Entergy Arkansas, the Attorney General, and the APSC general staff filed a partial settlement agreement asking the APSC to approve, based on the record in the proceeding, all issues except certain issues that are submitted to the APSC for determination.
Sources of Capital
Entergy Arkansas’s sources to meet its capital requirements include:
internally generated funds;
cash on hand;
debt or preferred membership interest issuances;
capital contributions; and
bank financing under new or existing facilities.
Entergy Arkansas may refinance, redeem, or otherwise retire debt prior to maturity, to the extent market conditions and interest rates are favorable.
All debt and common and preferred membership interest issuances by Entergy Arkansas require prior regulatory approval. Debt issuances are also subject to issuance tests set forth in Entergy Arkansas’s bond indentures and other agreements. Entergy Arkansas has sufficient capacity under these tests to meet its foreseeable capital needs.
Entergy Arkansas’s payables to the money pool were as follows as of December 31 for each of the following years.
|
| | | | | | |
2019 | | 2018 | | 2017 | | 2016 |
(In Thousands) |
$21,634 | | $182,738 | | $166,137 | | $51,232 |
See Note 4 to the financial statements for a description of the money pool.
Entergy Arkansas has a credit facility in the amount of $150 million scheduled to expire in September 2024. Entergy Arkansas also has a $20 million credit facility scheduled to expire in April 2020. The $150 million credit facility includes fronting commitments for the issuance of letters of credit against $5 million of the borrowing capacity of the facility. As of December 31, 2019, there were no cash borrowings and no letters of credit outstanding under the credit facilities. In addition, Entergy Arkansas is a party to an uncommitted letter of credit facility as a means to post collateral to support its obligations to MISO. As of December 31, 2019, a $1 million letter of credit was outstanding under Entergy Arkansas’s uncommitted letter of credit facility. See Note 4 to the financial statements for further discussion of the credit facilities.
Entergy Arkansas, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
The Entergy Arkansas nuclear fuel company variable interest entity has a credit facility in the amount of $80 million scheduled to expire in September 2021. As of December 31, 2019, $15.1 million in loans were outstanding under the Entergy Arkansas nuclear fuel company variable interest entity credit facility. See Note 4 to the financial statements for further discussion of the nuclear fuel company variable interest entity credit facility.
Entergy Arkansas obtained authorization from the FERC through November 2020 for short-term borrowings not to exceed an aggregate amount of $250 million at any time outstanding and borrowings by its nuclear fuel company variable interest entity. See Note 4 to the financial statements for further discussion of Entergy Arkansas’s short-term borrowing limits. The long-term securities issuances of Entergy Arkansas are limited to amounts authorized by the FERC. The APSC has concurrent jurisdiction over Entergy Arkansas’s first mortgage bond/secured issuances. Entergy Arkansas has obtained long-term financing authorization from the FERC that extends through November 2020. Entergy Arkansas has obtained first mortgage bond/secured financing authorization from the APSC that extends through December 2020.
State and Local Rate Regulation and Fuel-Cost Recovery
Retail Rates
2017 Formula Rate Plan Filing
In July 2017, Entergy Arkansas filed with the APSC its 2017 formula rate plan filing showing Entergy Arkansas’s projected earned return on common equity for the twelve months ended December 31, 2018 test period to be below the formula rate plan bandwidth. The filing projected a $129.7 million revenue requirement increase to achieve Entergy Arkansas’s target earned return on common equity of 9.75%. Entergy Arkansas’s formula rate plan is subject to a four percent annual revenue constraint and the projected annual revenue requirement increase exceeded the four percent, resulting in a proposed increase for the 2017 formula rate plan of $70.9 million. In October 2017, Entergy Arkansas filed with the APSC revised formula rate plan attachments that projected a $126.2 million revenue requirement increase based on acceptance of certain adjustments and recommendations made by the APSC staff and other intervenors. The revised formula rate plan filing included a proposed $71.1 million revenue requirement increase based on a revision to the four percent constraint calculation. In October 2017, Entergy Arkansas and the parties to the proceeding filed a joint motion to approve a unanimous settlement agreement resolving all issues in the proceeding and providing for recovery of certain 2017 and 2018 nuclear costs. In December 2017 the APSC approved the settlement agreement and the $71.1 million revenue requirement increase, as well as Entergy Arkansas’s formula rate plan compliance tariff, and the rates became effective with the first billing cycle of January 2018.
2018 Formula Rate Plan Filing
In July 2018, Entergy Arkansas filed with the APSC its 2018 formula rate plan filing to set its formula rate for the 2019 calendar year. The filing showed Entergy Arkansas’s projected earned return on common equity for the twelve months ended December 31, 2019 test period to be below the formula rate plan bandwidth. Additionally, the filing includes the first netting adjustment under the current formula rate plan for the historical test year 2017, reflecting the change in formula rate plan revenues associated with actual 2017 results when compared to the allowed rate of return on equity. The filing includes a projected $73.4 millionrevenue deficiency for 2019 and a $95.6 million revenue deficiency for the 2017 historical test year, for a total revenue requirement of $169 million for this filing. By operation of the formula rate plan, Entergy Arkansas’s recovery of the revenue requirement is subject to a four percent annual revenue constraint. Because Entergy Arkansas’s revenue requirement in this filing exceeds the constraint, the resulting increase is limited to four percent of total revenue, which originally was $65.4 million but was increased to $66.7 million based upon the APSC staff’s updated calculation of 2018 revenue. In October 2018, Entergy Arkansas and the parties to the proceeding filed joint motions to approve a partial settlement agreement as to certain factual issues and agreed to brief contested legal issues. In November 2018 the APSC held a hearing and was briefed on a certain contested legal issue. In December 2018 the APSC issued a decision related to the initial legal brief, approved the
Entergy Arkansas, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
partial settlement agreement and $66.7 million revenue requirement increase, as well as Entergy Arkansas’s formula rate plan, with updated rates going into effect for the first billing cycle of January 2019.
2019 Formula Rate Plan Filing
In July 2019, Entergy Arkansas filed with the APSC its 2019 formula rate plan filing to set its formula rate for the 2020 calendar year. The filing contained an evaluation of Entergy Arkansas’s earnings for the projected year 2020 and a netting adjustment for the historical year 2018. The total proposed formula rate plan rider revenue change designed to produce a target rate of return on common equity of 9.75% is $15.3 million, which is based upon a deficiency of approximately $61.9 million for the 2020 projected year, netted with a credit of approximately $46.6 million in the 2018 historical year netting adjustment. During 2018 Entergy Arkansas experienced higher-than expected sales volume, and actual costs were lower than forecasted. These changes, coupled with a reduced income tax rate resulting from the Tax Cuts and Jobs Act, resulted in the credit for the historical year netting adjustment. In the fourth quarter 2018 Entergy Arkansas recorded a provision of $35.1 million that reflected the estimate of the historical year netting adjustment that was expected to be included in the 2019 filing. In 2019, Entergy Arkansas recorded additional provisions totaling $11.5 million to reflect the updated estimate of the historical year netting adjustment included in the 2019 filing. In October 2019 other parties in the proceeding filed their errors and objections requesting certain adjustments to Entergy Arkansas’s filing that would reduce or eliminate Entergy Arkansas’s proposed revenue change. Entergy Arkansas filed its response addressing the requested adjustments in October 2019. In its response, Entergy Arkansas accepted certain of the adjustments recommended by the General Staff of the APSC that would reduce the proposed formula rate plan rider revenue change to $14 million. Entergy Arkansas disputed the remaining adjustments proposed by the parties. In October 2019, Entergy Arkansas filed a unanimous settlement agreement with the other parties in the proceeding seeking APSC approval of a revised total formula rate plan rider revenue change of $10.1 million. In its July 2019 formula rate plan filing, Entergy Arkansas proposed to recover an $11.2 million regulatory asset, amortized over five years, associated with specific costs related to the potential construction of scrubbers at the White Bluff plant. Although Entergy Arkansas does not concede that the regulatory asset lacks merit, for purposes of reaching a settlement on the total formula rate plan rider amount, Entergy Arkansas agreed not to include the White Bluff scrubber regulatory asset cost in the 2019 formula rate plan filing or future filings. Entergy Arkansas recorded a write-off in 2019 of the $11.2 million White Bluff scrubber regulatory asset. In December 2019, the APSC approved the settlement as being in the public interest and approved Entergy Arkansas’s compliance tariff effective with the first billing cycle of January 2020.
Internal Restructuring
In November 2017, Entergy Arkansas filed an application with the APSC seeking authorization to undertake a restructuring that would result in the transfer of substantially all of the assets and operations of Entergy Arkansas to a new entity, which would ultimately be owned by an existing Entergy subsidiary holding company. In July 2018, Entergy Arkansas filed a settlement, reached by all parties in the APSC proceeding, resolving all issues. The APSC approved the settlement agreement and restructuring in August 2018. Pursuant to the settlement agreement, Entergy Arkansas will credit retail customers $39.6 million over six years, beginning in 2019. Entergy Arkansas also received the required FERC and NRC approvals.
In November 2018, Entergy Arkansas undertook a multi-step restructuring, including the following:
Entergy Arkansas, Inc. redeemed its outstanding preferred stock at the aggregate redemption price of approximately $32.7 million.
Entergy Arkansas, Inc. converted from an Arkansas corporation to a Texas corporation.
Under the Texas Business Organizations Code (TXBOC), Entergy Arkansas, Inc. allocated substantially all of its assets to a new subsidiary, Entergy Arkansas Power, LLC, a Texas limited liability company (Entergy Arkansas Power), and Entergy Arkansas Power assumed substantially all of the liabilities of Entergy Arkansas, Inc., in a transaction regarded as a merger under the TXBOC. Entergy Arkansas, Inc. remained in existence and held the membership interests in Entergy Arkansas Power.
Entergy Arkansas, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
Entergy Arkansas, Inc. contributed the membership interests in Entergy Arkansas Power to an affiliate (Entergy Utility Holding Company, LLC, a Texas limited liability company and subsidiary of Entergy Corporation). As a result of the contribution, Entergy Arkansas Power is a wholly-owned subsidiary of Entergy Utility Holding Company, LLC.
In December 2018, Entergy Arkansas, Inc. changed its name to Entergy Utility Property, Inc., and Entergy Arkansas Power then changed its name to Entergy Arkansas, LLC. Entergy Arkansas, LLC holds substantially all of the assets, and assumed substantially all of the liabilities, of Entergy Arkansas, Inc. The transaction was accounted for as a transaction between entities under common control.
Advanced Metering Infrastructure (AMI)
In September 2016, Entergy Arkansas filed an application seeking a finding from the APSC that Entergy Arkansas’s deployment of AMI is in the public interest. Entergy Arkansas proposed to replace existing meters with advanced meters that enable two-way data communication; design and build a secure and reliable network to support such communications; and implement support systems. AMI is intended to serve as the foundation of Entergy Arkansas’s modernized power grid. The filing included an estimate of implementation costs for AMI of $208 million and identified a number of quantified and unquantified benefits. Entergy Arkansas proposed a 15-year depreciable life for the new advanced meters, the three-year deployment of which began in January 2019. Deployment of the communications network began in 2018. In October 2017 the APSC issued an order finding that Entergy Arkansas’s AMI deployment is in the public interest and approving the settlement agreement subject to a minor modification. Entergy Arkansas is recovering the AMI deployment costs and the quantified benefits through its formula rate plan. Entergy Arkansas will recover the undepreciated balance of its existing meters through a regulatory asset to be amortized over 15 years, as approved by the APSC.
Production Cost Allocation Rider
The APSC approved a production cost allocation rider for recovery from customers of the retail portion of the costs allocated to Entergy Arkansas as a result of the System Agreement proceedings, which are discussed in the “System Agreement Cost Equalization Proceedings” section in Note 2 to the financial statements.
Energy Cost Recovery Rider
Entergy Arkansas’s retail rates include an energy cost recovery rider to recover fuel and purchased energy costs in monthly customer bills. The rider utilizes the prior calendar-year energy costs and projected energy sales for the twelve-month period commencing on April 1 of each year to develop an energy cost rate, which is redetermined annually and includes a true-up adjustment reflecting the over- or under-recovery, including carrying charges, of the energy costs for the prior calendar year. The energy cost recovery rider tariff also allows an interim rate request depending upon the level of over- or under-recovery of fuel and purchased energy costs.
In January 2014, Entergy Arkansas filed a motion with the APSC relating to its upcoming energy cost rate redetermination filing that was made in March 2014. In that motion, Entergy Arkansas requested that the APSC authorize Entergy Arkansas to exclude from the redetermination of its 2014 energy cost rate $65.9 million of incremental fuel and replacement energy costs incurred in 2013 as a result of the ANO stator incident. Entergy Arkansas requested that the APSC authorize Entergy Arkansas to retain that amount in its deferred fuel balance, with recovery to be reviewed in a later period after more information was available regarding various claims associated with the ANO stator incident. In February 2014 the APSC approved Entergy Arkansas’s request to retain that amount in its deferred fuel balance. In July 2017, Entergy Arkansas filed for a change in rates pursuant to its formula rate plan rider. In that proceeding, the APSC approved a settlement agreement agreed upon by the parties, including a provision that requires Entergy Arkansas to initiate a regulatory proceeding for the purpose of recovering funds currently withheld from rates and related to the stator incident, including the $65.9 million of deferred fuel and purchased energy costs previously noted, subject to
Entergy Arkansas, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
certain timelines and conditions set forth in the settlement agreement. See the “ANO Damage, Outage, and NRC Reviews” section in Note 8 to the financial statements for further discussion of the ANO stator incident.
In March 2017, Entergy Arkansas filed its annual redetermination of its energy cost rate pursuant to the energy cost recovery rider, which reflected an increase in the rate from $0.01164 per kWh to $0.01547 per kWh. The APSC staff filed testimony in March 2017 recommending that the redetermined rate be implemented with the first billing cycle of April 2017 under the normal operation of the tariff. Accordingly, the redetermined rate went into effect on March 31, 2017 pursuant to the tariff. In July 2017 the Arkansas Attorney General requested additional information to support certain of the costs included in Entergy Arkansas’s 2017 energy cost rate redetermination.
In March 2018, Entergy Arkansas filed its annual redetermination of its energy cost rate pursuant to the energy cost recovery rider, which reflected an increase in the rate from $0.01547 per kWh to $0.01882 per kWh. The Arkansas Attorney General filed a response to Entergy Arkansas’s annual redetermination filing requesting that the APSC suspend the proposed tariff to investigate the amount of the redetermination or, alternatively, to allow recovery subject to refund. Among the reasons the Attorney General cited for suspension were questions pertaining to how Entergy Arkansas forecasted sales and potential implications of the Tax Act. Entergy Arkansas replied to the Attorney General’s filing and stated that, to the extent there are questions pertaining to its load forecasting or the operation of the energy cost recovery rider, those issues exceed the scope of the instant rate redetermination. Entergy Arkansas also stated that potential effects of the Tax Act are appropriately considered in the APSC’s separate proceeding regarding potential implications of the tax law. The APSC general staff filed a reply to the Attorney General’s filing and agreed that Entergy Arkansas’s filing complied with the terms of the energy cost recovery rider. The redetermined rate became effective with the first billing cycle of April 2018. Subsequently in April 2018 the APSC issued an order declining to suspend Entergy Arkansas’s energy cost recovery rider rate and declining to require further investigation at that time of the issues suggested by the Attorney General in the proceeding. Following a period of discovery, the Attorney General filed a supplemental response in October 2018 raising new issues with Entergy Arkansas’s March 2018 rate redetermination and asserting that $45.7 million of the increase should be collected subject to refund pending further investigation. Entergy Arkansas filed to dismiss the Attorney General’s supplemental response, the APSC general staff filed a motion to strike the Attorney General’s filing, and the Attorney General filed a supplemental response disputing Entergy Arkansas and the APSC staff’s filing. Applicable APSC rules and processes authorize its general staff to initiate periodic audits of Entergy Arkansas’s energy cost recovery rider. In late-2018, the APSC general staff notified Entergy Arkansas it has initiated an audit of the 2017 fuel costs. The time in which the audit will be complete is uncertain at this time.
In March 2019, Entergy Arkansas filed its annual redetermination of its energy cost rate pursuant to the energy cost recovery rider, which reflected a decrease from $0.01882 per kWh to $0.01462 per kWh and became effective with the first billing cycle in April 2019. In March 2019 the Arkansas Attorney General filed a response to Entergy Arkansas’s annual adjustment and included with its filing a motion for investigation of alleged overcharges to customers in connection with the FERC’s October 2018 order in the opportunity sales proceeding. Entergy Arkansas filed its response to the Attorney General’s motion in April 2019 in which Entergy Arkansas stated its intent to initiate a proceeding to address recovery issues related to the October 2018 FERC order. In May 2019, Entergy Arkansas initiated the opportunity sales recovery proceeding, discussed below, and requested that the APSC establish that proceeding as the single designated proceeding in which interested parties may assert claims related to the appropriate retail rate treatment of the FERC October 2018 order and related FERC orders in the opportunity sales proceeding. In June 2019 the APSC granted Entergy Arkansas’s request and also denied the Attorney General’s motion in the energy cost recovery proceeding seeking an investigation into Entergy Arkansas’s annual energy cost recovery rider adjustment and referred the evaluation of such matters to the opportunity sales recovery proceeding.
Entergy Arkansas, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
Opportunity Sales Proceeding
In June 2009 the LPSC filed a complaint requesting that the FERC determine that certain of Entergy Arkansas’s sales of electric energy to third parties: (a) violated the provisions of the System Agreement that allocated the energy generated by Entergy System resources; (b) imprudently denied the Entergy System and its ultimate consumers the benefits of low-cost Entergy System generating capacity; and (c) violated the provision of the System Agreement that prohibited sales to third parties by individual companies absent an offer of a right-of-first-refusal to other Utility operating companies. The LPSC’s complaint challenged sales made beginning in 2002 and requested refunds. In July 2009 the Utility operating companies filed a response to the complaint arguing among other things that the System Agreement contemplates that the Utility operating companies may make sales to third parties for their own account, subject to the requirement that those sales be included in the load (or load shape) for the applicable Utility operating company. The FERC subsequently ordered a hearing in the proceeding.
After a hearing, the ALJ issued an initial decision in December 2010. The ALJ found that the System Agreement allowed for Entergy Arkansas to make the sales to third parties but concluded that the sales should be accounted for in the same manner as joint account sales. The ALJ concluded that “shareholders” should make refunds of the damages to the Utility operating companies, along with interest. Entergy disagreed with several aspects of the ALJ’s initial decision and in January 2011 filed with the FERC exceptions to the decision.
The FERC issued a decision in June 2012 and held that, while the System Agreement is ambiguous, it does provide authority for individual Utility operating companies to make opportunity sales for their own account and Entergy Arkansas made and priced these sales in good faith. The FERC found, however, that the System Agreement does not provide authority for an individual Utility operating company to allocate the energy associated with such opportunity sales as part of its load but provides a different allocation authority. The FERC further found that the after-the-fact accounting methodology used to allocate the energy used to supply the sales was inconsistent with the System Agreement. The FERC in its decision established further hearing procedures to quantify the effect of repricing the opportunity sales in accordance with the FERC’s June 2012 decision. The hearing was held in May 2013 and the ALJ issued an initial decision in August 2013. The LPSC, the APSC, the City Council, and FERC staff filed briefs on exceptions and/or briefs opposing exceptions. Entergy filed a brief on exceptions requesting that the FERC reverse the initial decision and a brief opposing certain exceptions taken by the LPSC and FERC staff.
In April 2016 the FERC issued orders addressing requests for rehearing filed in July 2012 and the ALJ’s August 2013 initial decision. The first order denied Entergy’s request for rehearing and affirmed the FERC’s earlier rulings that Entergy’s original methodology for allocating energy costs to the opportunity sales was incorrect and, as a result, Entergy Arkansas must make payments to the other Utility operating companies to put them in the same position that they would have been in absent the incorrect allocation. The FERC clarified that interest should be included with the payments. The second order affirmed in part, and reversed in part, the rulings in the ALJ’s August 2013 initial decision regarding the methodology that should be used to calculate the payments Entergy Arkansas is to make to the other Utility operating companies. The FERC affirmed the ALJ’s ruling that a full re-run of intra-system bills should be performed but required that methodology be modified so that the sales have the same priority for purposes of energy allocation as joint account sales. The FERC reversed the ALJ’s decision that any payments by Entergy Arkansas should be reduced by 20%. The FERC also reversed the ALJ’s decision that adjustments to other System Agreement service schedules and excess bandwidth payments should not be taken into account when calculating the payments to be made by Entergy Arkansas. The FERC held that such adjustments and excess bandwidth payments should be taken into account but ordered further proceedings before an ALJ to address whether a cap on any reduction due to bandwidth payments was necessary and to implement the other adjustments to the calculation methodology.
In May 2016, Entergy Services filed a request for rehearing of the FERC’s April 2016 order arguing that payments made by Entergy Arkansas should be reduced as a result of the timing of the LPSC’s approval of certain contracts. Entergy Services also filed a request for clarification and/or rehearing of the FERC’s April 2016 order addressing the ALJ’s August 2013 initial decision. The APSC and the LPSC also filed requests for rehearing of the FERC’s April 2016 order. In September 2017 the FERC issued an order denying the request for rehearing on the issue
Entergy Arkansas, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
of whether any payments by Entergy Arkansas to the other Utility operating companies should be reduced due to the timing of the LPSC’s approval of Entergy Arkansas’s wholesale baseload contract with Entergy Louisiana. In November 2017 the FERC issued an order denying all of the remaining requests for rehearing of the April 2016 order. In November 2017, Entergy Services filed a petition for review in the D.C. Circuit of the FERC’s orders in the first two phases of the opportunity sales case. In December 2017 the D.C. Circuit granted Entergy Services’ request to hold the appeal in abeyance pending final resolution of the related proceeding before the FERC. In January 2018 the APSC and the LPSC filed separate petitions for review in the D.C. Circuit, and the D.C. Circuit consolidated the appeals with Entergy Services’ appeal and held all of the appeals in abeyance pending final resolution of the related proceeding before the FERC.
The hearing required by the FERC’s April 2016 order was held in May 2017. In July 2017 the ALJ issued an initial decision addressing whether a cap on any reduction due to bandwidth payments was necessary and whether to implement the other adjustments to the calculation methodology. In August 2017 the Utility operating companies, the LPSC, the APSC, and FERC staff filed individual briefs on exceptions challenging various aspects of the initial decision. In September 2017 the Utility operating companies, the LPSC, the APSC, the MPSC, the City Council, and FERC staff filed separate briefs opposing exceptions taken by various parties.
Based on testimony previously submitted in the case and its assessment of the April 2016 FERC orders, in the first quarter 2016, Entergy Arkansas recorded a liability of $87 million, which included interest, for its estimated increased costs and payment to the other Utility operating companies, and a deferred fuel regulatory asset of $75 million. Following its assessment of the course of the proceedings, including the FERC’s denial of rehearing in November 2017 described above, in the fourth quarter 2017, Entergy Arkansas recorded an additional liability of $35 million and a regulatory asset of $31 million.
In October 2018 the FERC issued an order addressing the ALJ’s July 2017 initial decision. The FERC reversed the ALJ’s decision to cap the reduction in Entergy Arkansas’s payment to account for the increased bandwidth payments that Entergy Arkansas made to the other operating companies. The FERC also reversed the ALJ’s decision that Grand Gulf sales from January through September 2000 should be included in the calculation of Entergy Arkansas’s payment. The FERC affirmed on other grounds the ALJ’s rejection of the LPSC’s claim that certain joint account sales should be accounted for as part of the calculation of Entergy Arkansas’s payment. In November 2018 the LPSC requested rehearing of the FERC’s October 2018 decision. In December 2019 the FERC denied the LPSC’s request for rehearing.
In December 2018, Entergy made a compliance filing in response to the FERC’s October 2018 order. The compliance filing provided a final calculation of Entergy Arkansas’s payments to the other Utility operating companies, including interest. No protests were filed in response to the December 2018 compliance filing. The December 2018 compliance filing is pending FERC action. Refunds and interest in the following amounts were paid by Entergy Arkansas to the other operating companies in December 2018:
|
| | | |
| Total refunds including interest |
| Payment/(Receipt) |
| (In Millions) |
| Principal | Interest | Total |
Entergy Arkansas | $68 | $67 | $135 |
Entergy Louisiana | ($30) | ($29) | ($59) |
Entergy Mississippi | ($18) | ($18) | ($36) |
Entergy New Orleans | ($3) | ($4) | ($7) |
Entergy Texas | ($17) | ($16) | ($33) |
Entergy Arkansas previously recognized a regulatory asset with a balance of $116 million as of December 31, 2018 for a portion of the payments due as a result of this proceeding.
Entergy Arkansas, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
In February 2019 the LPSC filed a new complaint relating to two issues that were raised in the opportunity sales proceeding, but that, in its October 2018 order, the FERC held were outside the scope of the proceeding. In March 2019, Entergy Services filed an answer and motion to dismiss the new complaint. In November 2019 the FERC issued an order denying the LPSC’s complaint. The order concluded that the settlement agreement approved by FERC in December 2015 terminating the System Agreement barred the LPSC’s new complaint.
In May 2019, Entergy Arkansas filed an application and supporting testimony with the APSC requesting approval of a special rider tariff to recover the costs of these payments from its retail customers over a 24-month period. The application requested that the APSC approve the rider to take effect within 30 days or, if suspended by the APSC as allowed by commission rule, approve the rider to take effect in the first billing cycle of the first month occurring 30 days after issuance of the APSC’s order approving the rider. In June 2019 the APSC suspended Entergy Arkansas’s tariff and granted Entergy Arkansas’s motion asking the APSC to establish the proceeding as the single designated proceeding in which interested parties may assert claims related to the appropriate retail rate treatment of the FERC’s October 2018 order and related FERC orders in the opportunity sales proceeding. In January 2020 the APSC adopted a procedural schedule with a hearing in April 2020. In January 2020 the Attorney General and Arkansas Electric Energy Consumers, Inc. filed a joint motion seeking to dismiss Entergy Arkansas’s application alleging that the APSC, in a prior proceeding, ruled on the issues addressed in the application and determined that Entergy Arkansas’s requested relief violates the filed rate doctrine and the prohibition against retroactive ratemaking. Entergy Arkansas responded to the joint motion in February 2020 rebutting these arguments, including demonstrating that the claims in this proceeding differ substantially from those the APSC addressed previously and that the payment resulting from a FERC tariff violation for which Entergy Arkansas seeks retail cost recovery in this proceeding differs materially from the refunds resulting from a FERC tariff amendment that the APSC previously rejected on filed rate doctrine and the retroactive ratemaking grounds. In addition, in January 2020 the Attorney General and Arkansas Electric Energy Consumers, Inc. filed testimony opposing the recovery by Entergy Arkansas of the opportunity sales payment but also claiming that certain components of the payment should be segregated and refunded to customers.
Net Metering Legislation
An Arkansas law was enacted effective July 2019 that, among other things, expands the definition of a “net metering customer” to include two additional types of customers: (1) customers that lease net metering facilities, subject to certain leasing arrangements, and (2) government entities or other entities exempt from state and federal income taxes that enter into a service contract for a net metering facility. The latter provision would allow eligible entities, many of whom are small and large general service customers, to purchase renewable energy directly from third party providers and receive bill credits for these purchases. The APSC was given authority under this law to address certain matters, such as cost shifting and the appropriate compensation for net metered energy, and has initiated proceedings for this purpose. Because of the size and number of customers eligible under this new law, there is a risk of loss of load and the shifting of costs to customers. A hearing was held in December 2019, with utilities, cooperatives, the Arkansas Attorney General, industrial customers, and Entergy Arkansas advocating the need for establishment of a reasonable rate structure that takes into account impacts to non-net metering customers. Separately, as directed by the APSC general staff, the APSC opened a proceeding to compel utilities to amend their net metering tariffs to incorporate the provisions of the legislation that the APSC general staff considered “black letter law.” Entergy Arkansas, the Arkansas Attorney General, and other intervenors opposed this directive pending the development of the rules for implementation that are being considered in the separate net metering rulemaking docket. Nevertheless, reserving its rights, Entergy Arkansas has complied with the directive to amend its tariffs. Asserting procedural and due process violations, in January 2020, Entergy Arkansas and the Arkansas Attorney General separately appealed certain APSC orders in this proceeding.
Federal Regulation
See the “Rate, Cost-recovery, and Other Regulation– Federal Regulation” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis and Note 2 to the financial statements for a discussion of federal regulation.
Entergy Arkansas, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
Nuclear Matters
Entergy Arkansas owns and, through an affiliate, operates the ANO 1 and ANO 2 nuclear power plants. Entergy Arkansas is, therefore, subject to the risks related to owning and operating nuclear plants. These include risks related to: the use, storage, and handling and disposal of high-level and low-level radioactive materials; the substantial financial requirements, both for capital investments and operational needs, to position Entergy’s nuclear fleet to meet its operational goals, including the financial requirements to address emerging issues like stress corrosion cracking of certain materials within the plant systems and the Fukushima event; regulatory requirements and potential future regulatory changes, including changes affecting the regulations governing nuclear plant ownership, operations, license renewal and amendments, and decommissioning; the performance and capacity factors of these nuclear plants; the availability of interim or permanent sites for the disposal of spent nuclear fuel and nuclear waste, including the fees charged for such disposal; the sufficiency of nuclear decommissioning trust fund assets and earnings to complete decommissioning of each site when required; and limitations on the amounts and types of insurance commercially available for losses in connection with nuclear plant operations and catastrophic events such as a nuclear accident. In the event of an unanticipated early shutdown of either ANO 1 or ANO 2, Entergy Arkansas may be required to file with the APSC a rate mechanism to provide additional funds or credit support to satisfy regulatory requirements for decommissioning. ANO 1’s operating license expires in 2034 and ANO 2’s operating license expires in 2038.
Environmental Risks
Entergy Arkansas’s facilities and operations are subject to regulation by various governmental authorities having jurisdiction over air quality, water quality, control of toxic substances and hazardous and solid wastes, and other environmental matters. Management believes that Entergy Arkansas is in substantial compliance with environmental regulations currently applicable to its facilities and operations, with reference to possible exceptions noted in “Regulation of Entergy’s Business - Environmental Regulation” in Part I, Item 1. Because environmental regulations are subject to change, future compliance costs cannot be precisely estimated.
Critical Accounting Estimates
The preparation of Entergy Arkansas’s financial statements in conformity with generally accepted accounting principles requires management to apply appropriate accounting policies and to make estimates and judgments that can have a significant effect on reported financial position, results of operations, and cash flows. Management has identified the following accounting policies and estimates as critical because they are based on assumptions and measurements that involve a high degree of uncertainty, and the potential for future changes in the assumptions and measurements that could produce estimates that would have a material effect on the presentation of Entergy Arkansas’s financial position or results of operations.
In the first quarter 2019, Entergy Arkansas recorded a revision to its estimated decommissioning cost liabilities for ANO 1 and ANO 2 as a result of a revised decommissioning cost study. The revised estimates resulted in a $126.2 million increase in its decommissioning cost liabilities, along with corresponding increases in the related asset retirement cost assets that will be depreciated over the remaining lives of the units.
Nuclear Decommissioning Costs
See “Nuclear Decommissioning Costs” in the “Critical Accounting Estimates” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for discussion of the estimates inherent in accounting for nuclear decommissioning costs.
Utility Regulatory Accounting
See “Utility Regulatory Accounting” in the “Critical Accounting Estimates” section of Entergy Corporation
Entergy Arkansas, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
and Subsidiaries Management’s Financial Discussion and Analysis for discussion of accounting for the effects of rate regulation.
Impairment of Long-lived Assets and Trust Fund Investments
See “Impairment of Long-lived Assets and Trust Fund Investments” in the “Critical Accounting Estimates” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for discussion of the estimates associated with the impairment of long-lived assets and trust fund investments.
Taxation and Uncertain Tax Positions
See “Taxation and Uncertain Tax Positions” in the “Critical Accounting Estimates” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for further discussion.
Qualified Pension and Other Postretirement Benefits
Entergy Arkansas’s qualified pension and other postretirement reported costs, as described in Note 11 to the financial statements, are impacted by numerous factors including the provisions of the plans, changing employee demographics, and various actuarial calculations, assumptions, and accounting mechanisms. See the “Qualified Pension and Other Postretirement Benefits” in the “Critical Accounting Estimates” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for further discussion. Because of the complexity of these calculations, the long-term nature of these obligations, and the importance of the assumptions utilized, Entergy’s estimate of these costs is a critical accounting estimate.
Costs and Sensitivities
The following chart reflects the sensitivity of qualified pension cost and qualified projected benefit obligation to changes in certain actuarial assumptions (dollars in thousands).
|
| | | | | | |
Actuarial Assumption | | Change in Assumption | | Impact on 2020 Qualified Pension Cost | | Impact on 2019 Qualified Projected Benefit Obligation |
| | | | Increase/(Decrease) | | |
Discount rate | | (0.25%) | | $2,633 | | $43,030 |
Rate of return on plan assets | | (0.25%) | | $2,803 | | $— |
Rate of increase in compensation | | 0.25% | | $1,650 | | $7,967 |
The following chart reflects the sensitivity of postretirement benefit cost and accumulated postretirement benefit obligation to changes in certain actuarial assumptions (dollars in thousands).
|
| | | | | | |
Actuarial Assumption | | Change in Assumption | | Impact on 2020 Postretirement Benefit Cost | | Impact on 2019 Accumulated Postretirement Benefit Obligation |
| | | | Increase/(Decrease) | | |
Discount rate | | (0.25%) | | $343 | | $5,316 |
Health care cost trend | | 0.25% | | $430 | | $3,474 |
Each fluctuation above assumes that the other components of the calculation are held constant.
Entergy Arkansas, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
Costs and Employer Contributions
Total qualified pension cost for Entergy Arkansas in 2019 was $44.4 million. Entergy Arkansas anticipates 2020 qualified pension cost to be $61.1 million. Entergy Arkansas contributed $75.9 million to its qualified pension plans in 2019 and estimates pension contributions will be approximately $32.5 million in 2020, although the 2020 required pension contributions will be known with more certainty when the January 1, 2020 valuations are completed, which is expected by April 1, 2020.
Total other postretirement health care and life insurance benefit income for Entergy Arkansas in 2019 was $10.7 million. Entergy Arkansas expects 2020 postretirement health care and life insurance benefit income of approximately $12.5 million. Entergy Arkansas contributed $1.3 million to its other postretirement plans in 2019 and estimates 2020 contributions will be approximately $509 thousand.
Other Contingencies
See “Other Contingencies” in the “Critical Accounting Estimates” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for a discussion of the estimates associated with environmental, litigation, and other risks.
New Accounting Pronouncements
See “New Accounting Pronouncements” section of Note 1 to the financial statements for a discussion of new accounting pronouncements.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the member and Board of Directors of
Entergy Arkansas, LLC and Subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Entergy Arkansas, LLC and Subsidiaries (the “Company”) as of December 31, 2019 and 2018, the related consolidated statements of income, cash flows and changes in member’s equity (pages 317 through 322 and applicable items in pages 49 through 236), for each of the three years in the period ended December 31, 2019, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ DELOITTE & TOUCHE LLP
New Orleans, Louisiana
February 21, 2020
We have served as the Company’s auditor since 2001.
|
| | | | | | | | | | | | |
ENTERGY ARKANSAS, LLC AND SUBSIDIARIES |
CONSOLIDATED INCOME STATEMENTS |
| | |
| | For the Years Ended December 31, |
| | 2019 | | 2018 | | 2017 |
| | (In Thousands) |
| | | | | | |
OPERATING REVENUES | | | | | | |
Electric | |
| $2,259,594 |
| |
| $2,060,643 |
| |
| $2,139,919 |
|
| | | | | | |
OPERATING EXPENSES | | |
| | |
| | |
|
Operation and Maintenance: | | |
| | |
| | |
|
Fuel, fuel-related expenses, and gas purchased for resale | | 458,907 |
| | 517,245 |
| | 402,777 |
|
Purchased power | | 204,640 |
| | 252,390 |
| | 230,652 |
|
Nuclear refueling outage expenses | | 68,769 |
| | 77,915 |
| | 83,968 |
|
Other operation and maintenance | | 720,217 |
| | 724,831 |
| | 694,157 |
|
Decommissioning | | 68,030 |
| | 60,420 |
| | 56,860 |
|
Taxes other than income taxes | | 115,869 |
| | 104,771 |
| | 103,662 |
|
Depreciation and amortization | | 307,351 |
| | 292,649 |
| | 277,146 |
|
Other regulatory credits - net | | (11,186 | ) | | (14,807 | ) | | (16,074 | ) |
TOTAL | | 1,932,597 |
| | 2,015,414 |
| | 1,833,148 |
|
| | | | | | |
OPERATING INCOME | | 326,997 |
| | 45,229 |
| | 306,771 |
|
| | | | | | |
OTHER INCOME | | |
| | |
| | |
|
Allowance for equity funds used during construction | | 15,499 |
| | 16,557 |
| | 18,452 |
|
Interest and investment income | | 26,020 |
| | 25,406 |
| | 35,882 |
|
Miscellaneous - net | | (18,566 | ) | | (14,874 | ) | | (13,967 | ) |
TOTAL | | 22,953 |
| | 27,089 |
| | 40,367 |
|
| | | | | | |
INTEREST EXPENSE | | |
| | |
| | |
|
Interest expense | | 140,087 |
| | 124,459 |
| | 122,075 |
|
Allowance for borrowed funds used during construction | | (6,332 | ) | | (7,781 | ) | | (8,585 | ) |
TOTAL | | 133,755 |
| | 116,678 |
| | 113,490 |
|
| | | | | | |
INCOME (LOSS) BEFORE INCOME TAXES | | 216,195 |
| | (44,360 | ) | | 233,648 |
|
| | | | | | |
Income taxes | | (46,769 | ) | | (297,067 | ) | | 93,804 |
|
| | | | | | |
NET INCOME | | 262,964 |
| | 252,707 |
| | 139,844 |
|
| | | | | | |
Preferred dividend requirements | | — |
| | 1,249 |
| | 1,428 |
|
| | | | | | |
EARNINGS APPLICABLE TO COMMON EQUITY | |
| $262,964 |
| |
| $251,458 |
| |
| $138,416 |
|
| | | | | | |
See Notes to Financial Statements. | | |
| | |
| | |
|
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|
| | | | | | | | | | | | |
ENTERGY ARKANSAS, LLC AND SUBSIDIARIES |
CONSOLIDATED STATEMENTS OF CASH FLOWS |
|
|
|
|
| For the Years Ended December 31, |
|
| 2019 |
| 2018 |
| 2017 |
|
| (In Thousands) |
OPERATING ACTIVITIES | | | | | | |
Net income | |
| $262,964 |
| |
| $252,707 |
| |
| $139,844 |
|
Adjustments to reconcile net income to net cash flow provided by operating activities: | | | | | | |
Depreciation, amortization, and decommissioning, including nuclear fuel amortization | | 465,299 |
| | 443,698 |
| | 427,394 |
|
Deferred income taxes, investment tax credits, and non-current taxes accrued | | 94,368 |
| | 129,524 |
| | 67,711 |
|
Changes in assets and liabilities: | | |
| | |
| | |
|
Receivables | | (58,077 | ) | | 4,294 |
| | (23,397 | ) |
Fuel inventory | | (10,597 | ) | | 6,210 |
| | 3,402 |
|
Accounts payable | | 3,059 |
| | (126,405 | ) | | 16,011 |
|
Prepaid taxes and taxes accrued | | 24,942 |
| | 9,568 |
| | 40,127 |
|
Interest accrued | | 3,895 |
| | 678 |
| | 1,635 |
|
Deferred fuel costs | | 72,560 |
| | 43,869 |
| | 33,190 |
|
Other working capital accounts | | 18,783 |
| | (30,118 | ) | | 15,087 |
|
Provisions for estimated losses | | 14,901 |
| | 14,250 |
| | 16,047 |
|
Other regulatory assets | | (131,873 | ) | | 32,460 |
| | (76,762 | ) |
Other regulatory liabilities | | 39,293 |
| | (341,682 | ) | | 1,043,507 |
|
Deferred tax rate change recognized as regulatory liability/asset | | — |
| | — |
| | (1,047,837 | ) |
Pension and other postretirement liabilities | | 5,831 |
| | (40,157 | ) | | (70,826 | ) |
Other assets and liabilities | | (127,582 | ) | | (187,071 | ) | | (29,577 | ) |
Net cash flow provided by operating activities | | 677,766 |
| | 211,825 |
| | 555,556 |
|
INVESTING ACTIVITIES | | |
| | |
| | |
|
Construction expenditures | | (641,525 | ) | | (660,044 | ) | | (735,816 | ) |
Allowance for equity funds used during construction | | 15,306 |
| | 17,013 |
| | 19,211 |
|
Nuclear fuel purchases | | (54,344 | ) | | (99,417 | ) | | (151,424 | ) |
Proceeds from sale of nuclear fuel | | 22,782 |
| | 54,810 |
| | 51,029 |
|
Proceeds from nuclear decommissioning trust fund sales | | 317,377 |
| | 300,801 |
| | 339,434 |
|
Investment in nuclear decommissioning trust funds | | (336,519 | ) | | (315,163 | ) | | (352,138 | ) |
Insurance proceeds | | — |
| | 14,790 |
| | — |
|
Other | | 630 |
| | (1,517 | ) | | 392 |
|
Net cash flow used in investing activities | | (676,293 | ) |
| (688,727 | ) |
| (829,312 | ) |
FINANCING ACTIVITIES | | |
| | |
| | |
|
Proceeds from the issuance of long-term debt | | 834,038 |
| | 958,434 |
| | 294,656 |
|
Retirement of long-term debt | | (548,952 | ) | | (690,488 | ) | | (175,560 | ) |
Capital contribution from parent | | — |
| | 350,000 |
| | — |
|
Redemption of preferred stock | | — |
| | (32,660 | ) | | — |
|
Change in money pool payable - net | | (161,104 | ) | | 16,601 |
| | 114,905 |
|
Changes in short-term borrowings - net | | — |
| | (49,974 | ) | | 49,974 |
|
Distributions/dividends paid: | | |
| | |
| | |
|
Common equity | | (115,000 | ) | | (91,751 | ) | | (15,000 | ) |
Preferred stock | | — |
| | (1,606 | ) | | (1,428 | ) |
Other | | (7,055 | ) | | 12,249 |
| | (8,084 | ) |
Net cash flow provided by financing activities | | 1,927 |
| | 470,805 |
| | 259,463 |
|
Net increase (decrease) in cash and cash equivalents | | 3,400 |
| | (6,097 | ) | | (14,293 | ) |
Cash and cash equivalents at beginning of period | | 119 |
| | 6,216 |
| | 20,509 |
|
Cash and cash equivalents at end of period | |
| $3,519 |
| |
| $119 |
| |
| $6,216 |
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | | | | |
| | |
|
Cash paid (received) during the period for: | | |
| | |
| | |
|
Interest - net of amount capitalized | |
| $131,134 |
| |
| $118,731 |
| |
| $115,162 |
|
Income taxes | |
| ($33,989 | ) | |
| $44,393 |
| |
| ($8,141 | ) |
See Notes to Financial Statements. |
| |
|
| |
|
| |
|
|
| | | | | | | | |
ENTERGY ARKANSAS, LLC AND SUBSIDIARIES |
CONSOLIDATED BALANCE SHEETS |
ASSETS |
| | |
| | December 31, |
| | 2019 | | 2018 |
| | (In Thousands) |
| | | | |
CURRENT ASSETS | | | | |
Cash and cash equivalents: | | | | |
Cash | |
| $3,519 |
| |
| $118 |
|
Temporary cash investments | | — |
| | 1 |
|
Total cash and cash equivalents | | 3,519 |
| | 119 |
|
Securitization recovery trust account | | 4,036 |
| | 4,666 |
|
Accounts receivable: | | |
| | |
|
Customer | | 117,679 |
| | 94,348 |
|
Allowance for doubtful accounts | | (1,169 | ) | | (1,264 | ) |
Associated companies | | 29,178 |
| | 48,184 |
|
Other | | 117,653 |
| | 64,393 |
|
Accrued unbilled revenues | | 108,489 |
| | 108,092 |
|
Total accounts receivable | | 371,830 |
| | 313,753 |
|
Deferred fuel costs | | — |
| | 19,235 |
|
Fuel inventory - at average cost | | 33,745 |
| | 23,148 |
|
Materials and supplies - at average cost | | 211,320 |
| | 196,314 |
|
Deferred nuclear refueling outage costs | | 48,875 |
| | 78,966 |
|
Prepayments and other | | 14,096 |
| | 14,553 |
|
TOTAL | | 687,421 |
| | 650,754 |
|
| | | | |
OTHER PROPERTY AND INVESTMENTS | | |
| | |
|
Decommissioning trust funds | | 1,101,283 |
| | 912,049 |
|
Other | | 345 |
| | 5,480 |
|
TOTAL | | 1,101,628 |
| | 917,529 |
|
| | | | |
UTILITY PLANT | | |
| | |
|
Electric | | 12,293,483 |
| | 11,611,041 |
|
Construction work in progress | | 197,775 |
| | 243,731 |
|
Nuclear fuel | | 195,547 |
| | 220,602 |
|
TOTAL UTILITY PLANT | | 12,686,805 |
| | 12,075,374 |
|
Less - accumulated depreciation and amortization | | 5,019,826 |
| | 4,864,818 |
|
UTILITY PLANT - NET | | 7,666,979 |
| | 7,210,556 |
|
| | | | |
DEFERRED DEBITS AND OTHER ASSETS | | |
| | |
|
Regulatory assets: | | |
| | |
|
Other regulatory assets (includes securitization property of $1,706 as of December 31, 2019 and $14,329 as of December 31, 2018) | | 1,666,850 |
| | 1,534,977 |
|
Deferred fuel costs | | 67,690 |
| | 67,294 |
|
Other | | 15,065 |
| | 20,486 |
|
TOTAL | | 1,749,605 |
| | 1,622,757 |
|
| | | | |
TOTAL ASSETS | |
| $11,205,633 |
| |
| $10,401,596 |
|
| | | | |
See Notes to Financial Statements. | | |
| | |
|
|
| | | | | | | | |
ENTERGY ARKANSAS, LLC AND SUBSIDIARIES |
CONSOLIDATED BALANCE SHEETS |
LIABILITIES AND EQUITY |
| | |
| | December 31, |
| | 2019 | | 2018 |
| | (In Thousands) |
| | | | |
CURRENT LIABILITIES | | | | |
Accounts payable: | | |
| | |
|
Associated companies | |
| $111,785 |
| |
| $251,768 |
|
Other | | 202,201 |
| | 187,387 |
|
Customer deposits | | 101,411 |
| | 99,053 |
|
Taxes accrued | | 81,831 |
| | 56,889 |
|
Interest accrued | | 22,788 |
| | 18,893 |
|
Deferred fuel costs | | 53,721 |
| | — |
|
Current portion of unprotected excess accumulated deferred income taxes | | 9,296 |
| | 99,316 |
|
Other | | 38,760 |
| | 23,943 |
|
TOTAL | | 621,793 |
| | 737,249 |
|
| | | | |
NON-CURRENT LIABILITIES | | |
| | |
|
Accumulated deferred income taxes and taxes accrued | | 1,183,126 |
| | 1,085,545 |
|
Accumulated deferred investment tax credits | | 31,701 |
| | 32,903 |
|
Regulatory liability for income taxes - net | | 478,174 |
| | 505,748 |
|
Other regulatory liabilities | | 559,555 |
| | 402,668 |
|
Decommissioning | | 1,242,616 |
| | 1,048,428 |
|
Accumulated provisions | | 63,880 |
| | 48,979 |
|
Pension and other postretirement liabilities | | 319,075 |
| | 313,295 |
|
Long-term debt (includes securitization bonds of $6,772 as of December 31, 2019 and $20,898 as of December 31, 2018) | | 3,517,208 |
| | 3,225,759 |
|
Other | | 62,568 |
| | 17,919 |
|
TOTAL | | 7,457,903 |
| | 6,681,244 |
|
| | | | |
Commitments and Contingencies | |
|
| |
|
|
| | | | |
EQUITY | | |
| | |
|
Member's equity | | 3,125,937 |
| | 2,983,103 |
|
TOTAL | | 3,125,937 |
| | 2,983,103 |
|
| | | | |
TOTAL LIABILITIES AND EQUITY | |
| $11,205,633 |
| |
| $10,401,596 |
|
| | | | |
See Notes to Financial Statements. | | |
| | |
|
|
| | | |
ENTERGY ARKANSAS, LLC AND SUBSIDIARIES |
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBER'S EQUITY |
For the Years Ended December 31, 2019, 2018, and 2017 |
| |
| |
| Member's Equity |
| (In Thousands) |
| |
Balance at December 31, 2016 |
| $2,253,317 |
|
Net income | 139,844 |
|
Common equity distributions | (15,000 | ) |
Preferred stock dividends | (1,428 | ) |
Other | 21 |
|
Balance at December 31, 2017 |
| $2,376,754 |
|
Net income | 252,707 |
|
Capital contributions from parent | 350,000 |
|
Common equity distributions | (91,751 | ) |
Non-cash contribution from parent | 94,335 |
|
Preferred stock dividends | (1,249 | ) |
Other | 2,307 |
|
Balance at December 31, 2018 |
| $2,983,103 |
|
Net income | 262,964 |
|
Common equity distributions | (115,000 | ) |
Other | (5,130 | ) |
Balance at December 31, 2019 |
| $3,125,937 |
|
| |
See Notes to Financial Statements. | |
|
|
| | | | | | | | | | | | | | | | | | | | |
ENTERGY ARKANSAS, LLC AND SUBSIDIARIES |
SELECTED FINANCIAL DATA - FIVE-YEAR COMPARISON |
| | | | | | | | | | |
| | 2019 | | 2018 | | 2017 | | 2016 | | 2015 |
| | (In Thousands) |
| | | | | | | | | | |
Operating revenues | |
| $2,259,594 |
| |
| $2,060,643 |
| |
| $2,139,919 |
| |
| $2,086,608 |
| |
| $2,253,564 |
|
Net income | |
| $262,964 |
| |
| $252,707 |
| |
| $139,844 |
| |
| $167,212 |
| |
| $74,272 |
|
Total assets | |
| $11,205,633 |
| |
| $10,401,596 |
| |
| $10,134,029 |
| |
| $9,606,117 |
| |
| $8,747,774 |
|
Long-term obligations (a) | |
| $3,517,208 |
| |
| $3,225,759 |
| |
| $2,983,749 |
| |
| $2,746,435 |
| |
| $2,691,189 |
|
| | | | | | | | | | |
(a) Includes long-term debt (excluding currently maturing debt) and preferred stock without sinking fund. |
| | | | | | | | | | |
| | 2019 | | 2018 | | 2017 | | 2016 | | 2015 |
| | (Dollars In Millions) |
| | | | | | | | | | |
Electric Operating Revenues: | | |
| | |
| | |
| | |
| | |
|
Residential | |
| $795 |
| |
| $807 |
| |
| $768 |
| |
| $789 |
| |
| $824 |
|
Commercial | | 539 |
| | 426 |
| | 495 |
| | 495 |
| | 515 |
|
Industrial | | 521 |
| | 434 |
| | 472 |
| | 446 |
| | 477 |
|
Governmental | | 21 |
| | 17 |
| | 19 |
| | 18 |
| | 20 |
|
Total billed retail | | 1,876 |
| | 1,684 |
| | 1,754 |
| | 1,748 |
| | 1,836 |
|
Sales for resale: | | |
| | |
| | |
| | |
| | |
|
Associated companies | | 118 |
| | 104 |
| | 128 |
| | 49 |
| | 128 |
|
Non-associated companies | | 140 |
| | 145 |
| | 121 |
| | 118 |
| | 195 |
|
Other | | 126 |
| | 128 |
| | 137 |
| | 172 |
| | 95 |
|
Total | |
| $2,260 |
| |
| $2,061 |
| |
| $2,140 |
| |
| $2,087 |
| |
| $2,254 |
|
| | | | | | | | | | |
Billed Electric Energy Sales (GWh): | | | | |
| | |
| | |
| | |
|
Residential | | 7,996 |
| | 8,248 |
| | 7,298 |
| | 7,618 |
| | 8,016 |
|
Commercial | | 5,822 |
| | 5,967 |
| | 5,825 |
| | 5,988 |
| | 6,020 |
|
Industrial | | 7,759 |
| | 8,071 |
| | 7,528 |
| | 6,795 |
| | 6,889 |
|
Governmental | | 241 |
| | 239 |
| | 237 |
| | 237 |
| | 235 |
|
Total retail | | 21,818 |
| | 22,525 |
| | 20,888 |
| | 20,638 |
| | 21,160 |
|
Sales for resale: | | |
| | |
| | |
| | |
| | |
|
Associated companies | | 2,180 |
| | 1,773 |
| | 1,782 |
| | 1,609 |
| | 2,239 |
|
Non-associated companies | | 7,206 |
| | 6,447 |
| | 6,549 |
| | 7,115 |
| | 7,980 |
|
Total | | 31,204 |
| | 30,745 |
| | 29,219 |
| | 29,362 |
| | 31,379 |
|
ENTERGY LOUISIANA, LLC AND SUBSIDIARIES
MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS
Results of Operations
2019 Compared to 2018
Net Income
Net income increased $15.9 million primarily due to higher retail electric price. The increase was partially offset by an income tax benefit recognized in 2018 as a result of the settlement of the 2012-2013 IRS audit, higher depreciation and amortization expenses, higher other operation and maintenance expenses, lower volume/weather, and higher interest expense.
Operating Revenues
Following is an analysis of the change in operating revenues comparing 2019 to 2018:
|
| | | |
| Amount |
| (In Millions) |
2018 operating revenues |
| $4,296.3 |
|
Fuel, rider, and other revenues that do not significantly affect net income | (218.1 | ) |
Retail electric price | 132.9 |
|
Return of unprotected excess accumulated deferred income taxes to customers | 102.5 |
|
Volume/weather | (28.4 | ) |
2019 operating revenues |
| $4,285.2 |
|
Entergy Louisiana’s results include revenues from rate mechanisms designed to recover fuel, purchased power, and other costs such that the revenues and expenses associated with these items generally offset and do not affect net income. “Fuel, rider, and other revenues that do not significantly affect net income” includes the revenue variance associated with these items.
The retail electric price variance is primarily due to an increase in formula rate plan revenues effective September 2018 and an interim increase in formula rate plan revenues effective June 2019 due to the inclusion of the first-year revenue requirement for the St. Charles Power Station, each as approved by the LPSC. See Note 2 to the financial statements for further discussion of the formula rate plan proceedings.
The return of unprotected excess accumulated deferred income taxes to customers resulted from the return of unprotected excess accumulated deferred income taxes through changes in the formula rate plan effective May 2018. In 2019, $38.6 million was returned to customers as compared to $141.1 million in 2018. There was no effect on net income as the reduction in operating revenues was offset by a reduction in income tax expense. See Note 2 to the financial statements for further discussion of regulatory activity regarding the Tax Cuts and Jobs Act.
The volume/weather variance is primarily due to a decrease of 673 GWh, or 3%, in billed electricity usage for residential and commercial customers, including the effect of less favorable weather. The decrease was partially offset by an increase in industrial usage primarily due to an increase in demand from expansion projects, primarily in the chemicals and transportation industries.
Entergy Louisiana, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
Other Income Statement Variances
Other operation and maintenance expenses increased primarily due to:
a $14.8 million gain in 2018 from the sale of Willow Glen Power Station;
an increase of $12.7 million in information technology costs primarily due to higher costs related to applications and infrastructure support, enhanced cyber security, and upgrades and maintenance;
an increase of $12.4 million in spending on initiatives to explore new customer products and services; and
an increase of $9.6 million in compensation and benefits costs primarily due to higher incentive-based compensation accruals in 2019 as compared to prior year.
The increase was partially offset by:
a decrease of $8.5 million in nuclear generation expenses primarily due to a lower scope of work performed during plant outages in 2019 as compared to 2018; and
the effects of recording in 2019 the final judgment to resolve claims in the River Bend damages case against the DOE related to spent nuclear fuel storage costs. The damages awarded include the reimbursement of $5.2 million of spent nuclear fuel storage costs previously recorded as other operation and maintenance expense. See Note 8 to the financial statements for a discussion of the spent nuclear fuel litigation.
Taxes other than income taxes increased primarily due to increases in ad valorem taxes. Ad valorem taxes increased primarily due to higher assessments.
Depreciation and amortization expenses increased primarily due to additions to plant in service, including the St. Charles Power Station, which was placed into service in May 2019.
Other regulatory charges (credits) include regulatory charges of $73.1 million recorded in 2018 to reflect the effects of a provision in the settlement reached in the formula rate plan extension proceeding to return the benefits of the lower federal income tax rate in 2018 to customers. See Note 2 to the financial statements for discussion of the formula rate plan extension proceeding.
Interest expense increased primarily due to the issuance of $525 million of 4.20% Series mortgage bonds in March 2019.
The effective income tax rates were 15% for 2019 and (8.8%) for 2018. The difference in the effective income tax rate of 15% versus the federal statutory rate of 21% for 2019 was primarily due to the amortization of excess accumulated deferred income taxes and book and tax differences related to the non-taxable income distributions earned on preferred membership interests. The difference in the effective income tax rate of (8.8%) versus the federal statutory rate of 21% for 2018 was primarily due to the amortization of excess accumulated deferred income taxes and an IRS audit settlement for the 2012-2013 tax returns. See Note 3 to the financial statements for a reconciliation of the federal statutory rates of 21% to the effective income tax rates.
2018 Compared to 2017
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Results of Operations” in Entergy Louisiana’s Annual Report on Form 10-K for the year ended December 31, 2018 for discussion of results of operations for 2018 compared to 2017.
Entergy Louisiana, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
Income Tax Legislation
See the “Income Tax Legislation” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for discussion of the Tax Cuts and Jobs Act, the federal income tax legislation enacted in December 2017. Note 3 to the financial statements contains additional discussion of the effect of the Act on 2017, 2018, and 2019 results of operations and financial position, the provisions of the Act, and the uncertainties associated with accounting for the Act, and Note 2 to the financial statements discusses the regulatory proceedings that have considered the effects of the Act.
Liquidity and Capital Resources
Cash Flow
Cash flows for the years ended December 31, 2019, 2018, and 2017 were as follows:
|
| | | | | | | | | | | |
| 2019 | | 2018 | | 2017 |
| (In Thousands) |
Cash and cash equivalents at beginning of period |
| $43,364 |
| |
| $35,907 |
| |
| $213,850 |
|
| | | | | |
Net cash provided by (used in): | | | |
| | |
|
Operating activities | 1,236,002 |
| | 1,395,204 |
| | 1,337,545 |
|
Investing activities | (1,653,634 | ) | | (1,878,208 | ) | | (1,787,409 | ) |
Financing activities | 376,274 |
| | 490,461 |
| | 271,921 |
|
Net increase (decrease) in cash and cash equivalents | (41,358 | ) | | 7,457 |
| | (177,943 | ) |
�� | | | | | |
Cash and cash equivalents at end of period |
| $2,006 |
| |
| $43,364 |
| |
| $35,907 |
|
2019 Compared to 2018
Operating Activities
Net cash flow provided by operating activities decreased $159.2 million in 2019 primarily due to:
income tax payments of $15.3 million in 2019 compared to $105.2 million in income tax refunds in 2018. Entergy Louisiana had income tax payments in 2019 and income tax refunds in 2018 in accordance with an intercompany tax allocation agreement. The income tax refunds in 2018 resulted from the utilization of Entergy Louisiana’s net operating losses;
an increase of $65.2 million in spending on nuclear refueling outages;
the receipt of $58.6 million in 2018 from Entergy Arkansas as a result of a compliance filing made in response to the FERC’s October 2018 order in the Entergy Arkansas opportunity sales proceeding. The $58.6 million was credited to Entergy Louisiana customers in 2019. See Note 2 to the financial statements for further discussion of the opportunity sales proceeding;
the timing of payments to vendors;
an increase of $25.7 million in storm expenses in 2019;
an increase of $24.5 million in interest paid; and
the timing of collection of receivables from customers.
The decrease was partially offset by a decrease in return of unprotected excess accumulated deferred income taxes to customers and the timing of recovery of fuel and purchased power costs. See Note 2 to the financial statements for a discussion of the effects and the regulatory activity regarding the Tax Cuts and Jobs Act.
Entergy Louisiana, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
Investing Activities
Net cash flow used in investing activities decreased $224.6 million in 2019 primarily due to a decrease of $320 million in fossil-fueled generation expenditures, primarily due to lower spending on the St. Charles Power Station and Lake Charles Power Station projects in 2019 and money pool activity. The decrease was partially offset by:
an increase of $63.6 million in transmission expenditures primarily due to a higher scope of work performed in 2019 as compared to the same period in 2018;
an increase of $63.1 million in distribution construction expenditures primarily due to investment in the reliability and infrastructure of Entergy Louisiana’s distribution system, including increased spending on advanced metering infrastructure; and
an increase of $46.5 million in storm spending in 2019.
Decreases in Entergy Louisiana’s receivable from the money pool are a source of cash flow, and Entergy Louisiana’s receivable from the money pool decreased by $46.8 million in 2019 compared to increasing by $35.7 million in 2018. The money pool is an inter-company borrowing arrangement designed to reduce the Utility subsidiaries’ need for external short-term borrowings.
Financing Activities
Net cash flow provided by financing activities decreased $114.2 million in 2019 primarily due to:
the issuance of $750 million of 4.00% Series mortgage bonds in March 2018. A portion of the proceeds was used to repay $375 million of 6.0% Series mortgage bonds in May 2018;
the issuance of $600 million of 4.20% Series mortgage bonds in August 2018. A portion of the proceeds was used to repay $300 million of 6.5% Series mortgage bonds in September 2018; and
an increase of $80 million in common equity distributions in 2019 primarily to maintain Entergy Louisiana’s capital structure.
The decrease was partially offset by:
the issuance of $525 million of 4.20% Series mortgage bonds in March 2019;
money pool activity; and
net repayments of short-term borrowings of $43.5 million in 2018 on the nuclear fuel company variable interest entities’ credit facilities.
Increases in Entergy Louisiana’s payable to the money pool are a source of cash flow, and Entergy Louisiana’s payable to the money pool increased by $82.8 million in 2019.
See Note 5 to the financial statements for details of long-term debt.
2018 Compared to 2017
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Liquidity and Capital Resources - Cash Flow” in Entergy Louisiana’s Annual Report on Form 10-K for the year ended December 31, 2018 for discussion of operating, investing, and financing cash flow activities for 2018 compared to 2017.
Capital Structure
Entergy Louisiana’s debt to capital ratio is shown in the following table.
Entergy Louisiana, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
|
| | | | | |
| December 31, 2019 | | December 31, 2018 |
Debt to capital | 53.4 | % | | 53.6 | % |
Effect of excluding securitization bonds | (0.1 | %) | | (0.3 | %) |
Debt to capital, excluding securitization bonds (a) | 53.3 | % | | 53.3 | % |
Effect of subtracting cash | (0.1 | %) | | (0.1 | %) |
Net debt to net capital, excluding securitization bonds (a) | 53.2 | % | | 53.2 | % |
| |
(a) | Calculation excludes the securitization bonds, which are non-recourse to Entergy Louisiana. |
Net debt consists of debt less cash and cash equivalents. Debt consists of short-term borrowings, finance lease obligations, and long-term debt, including the currently maturing portion. Capital consists of debt and common equity. Net capital consists of capital less cash and cash equivalents. Entergy Louisiana uses the debt to capital ratios excluding securitization bonds in analyzing its financial condition and believes they provide useful information to its investors and creditors in evaluating Entergy Louisiana’s financial condition because the securitization bonds are non-recourse to Entergy Louisiana, as more fully described in Note 5 to the financial statements. Entergy Louisiana also uses the net debt to net capital ratio excluding securitization bonds in analyzing its financial condition and believes it provides useful information to its investors and creditors in evaluating Entergy Louisiana’s financial condition because net debt indicates Entergy Louisiana’s outstanding debt position that could not be readily satisfied by cash and cash equivalents on hand.
Entergy Louisiana seeks to optimize its capital structure in accordance with its regulatory requirements and to control its cost of capital while also maintaining equity capitalization at a level consistent with investment-grade debt ratings. To the extent that operating cash flows are in excess of planned investments, cash may be used to reduce outstanding debt or may be paid as a distribution, or both, in appropriate amounts to maintain the capital structure. To the extent that operating cash flows are insufficient to support planned investments, Entergy Louisiana may issue incremental debt or reduce distributions, or both, to maintain its capital structure. In addition, in certain infrequent circumstances, such as large transactions that would materially alter the capital structure if financed entirely with debt and reducing distributions, Entergy Louisiana may receive equity contributions to maintain its capital structure.
Uses of Capital
Entergy Louisiana requires capital resources for:
construction and other capital investments;
debt maturities or retirements;
working capital purposes, including the financing of fuel and purchased power costs; and
distribution and interest payments.
Following are the amounts of Entergy Louisiana’s planned construction and other capital investments.
|
| | | | | | | | | | | |
| 2020 | | 2021 | | 2022 |
| (In Millions) |
Planned construction and capital investment: | | | | | |
Generation |
| $580 |
| |
| $485 |
| |
| $320 |
|
Transmission | 440 |
| | 445 |
| | 230 |
|
Distribution | 300 |
| | 245 |
| | 190 |
|
Utility Support | 300 |
| | 385 |
| | 390 |
|
Total |
| $1,620 |
| |
| $1,560 |
| |
| $1,130 |
|
Entergy Louisiana, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
Following are the amounts of Entergy Louisiana’s existing debt and lease obligations (includes estimated interest payments) and other purchase obligations.
|
| | | | | | | | | | | | | | | | | | | |
| 2020 | | 2021-2022 | | 2023-2024 | | After 2024 | | Total |
| (In Millions) |
Long-term debt (a) |
| $640 |
| |
| $1,120 |
| |
| $1,550 |
| |
| $8,662 |
| |
| $11,972 |
|
Operating leases (b) |
| $11 |
| |
| $17 |
| |
| $8 |
| |
| $3 |
| |
| $39 |
|
Finance leases (b) |
| $4 |
| |
| $7 |
| |
| $5 |
| |
| $3 |
| |
| $19 |
|
Purchase obligations (c) |
| $731 |
| |
| $1,423 |
| |
| $1,521 |
| |
| $5,905 |
| |
| $9,580 |
|
| |
(a) | Includes estimated interest payments. Long-term debt is discussed in Note 5 to the financial statements. |
| |
(b) | Lease obligations are discussed in Note 10 to the financial statements. |
| |
(c) | Purchase obligations represent the minimum purchase obligation or cancellation charge for contractual obligations to purchase goods or services. For Entergy Louisiana, almost all of the total consists of unconditional fuel and purchased power obligations, including its obligations under the Vidalia purchased power agreement and the Unit Power Sales Agreement, both of which are discussed in Note 8 to the financial statements. |
In addition to the contractual obligations given above, Entergy Louisiana currently expects to contribute approximately $38.8 million to its qualified pension plans and approximately $18.5 million to its other postretirement health care and life insurance plans in 2020, although the 2020 required pension contributions will be known with more certainty when the January 1, 2020 valuations are completed, which is expected by April 1, 2020. See “Critical Accounting Estimates- Qualified Pension and Other Postretirement Benefits” below for a discussion of qualified pension and other postretirement benefits funding.
Also, in addition to the contractual obligations, Entergy Louisiana has $808.4 million of unrecognized tax benefits and interest net of unused tax attributes for which the timing of payments beyond 12 months cannot be reasonably estimated due to uncertainties in the timing of effective settlement of tax positions. See Note 3 to the financial statements for additional information regarding unrecognized tax benefits.
In addition to routine capital spending to maintain operations, the planned capital investment estimate for Entergy Louisiana includes specific investments, such as the Washington Parish Energy Center and Lake Charles Power Station, each discussed below; transmission projects to enhance reliability, reduce congestion, and enable economic growth; distribution spending to enhance reliability and improve service to customers, including investment to support advanced metering; resource planning, including potential generation projects; system improvements; investments in River Bend and Waterford 3; software and security; and other investments. Entergy’s Utility supply plan initiative will continue to seek to transform its generation portfolio with new or repowered generation resources. Opportunities resulting from the supply plan initiative, including new projects or the exploration of alternative financing sources, could result in increases or decreases in the capital expenditure estimates given above. The estimated capital expenditures are subject to periodic review and modification and may vary based on the ongoing effects of regulatory constraints and requirements, environmental compliance, business opportunities, market volatility, economic trends, business restructuring, changes in project plans, and the ability to access capital.
As a wholly-owned subsidiary of Entergy Utility Holding Company, LLC, Entergy Louisiana pays distributions from its earnings at a percentage determined monthly.
Entergy Louisiana, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
Lake Charles Power Station
In November 2016, Entergy Louisiana filed an application with the LPSC seeking certification that the public convenience and necessity would be served by the construction of the Lake Charles Power Station, a nominal 994 megawatt combined-cycle generating unit in Westlake, Louisiana, on land adjacent to the existing Nelson plant in Calcasieu Parish. The current estimated cost of the Lake Charles Power Station is $872 million, including estimated costs of transmission interconnection and other related costs. In May 2017 the parties to the proceeding agreed to an uncontested stipulation finding that construction of the Lake Charles Power Station is in the public interest and authorizing an in-service rate recovery plan. In July 2017 the LPSC issued an order unanimously approving the stipulation and approved certification of the unit. Construction is in progress and commercial operation is expected to occur by mid-2020.
Washington Parish Energy Center
In April 2017, Entergy Louisiana signed an agreement with a subsidiary of Calpine Corporation for the construction and purchase of a peaking plant. Calpine will construct the plant, which will consist of two natural gas-fired combustion turbine units with a total nominal capacity of approximately 361 MW. The plant, named the Washington Parish Energy Center, will be located in Bogalusa, Louisiana. Subject to regulatory approvals, Entergy Louisiana will purchase the plant once it is complete for an estimated total investment of approximately $261 million, including transmission and other related costs. In May 2017, Entergy Louisiana filed an application with the LPSC seeking certification of the plant. In April 2018 the parties reached a settlement recommending certification and cost recovery through the additional capacity mechanism of the formula rate plan, consistent with prior LPSC precedent with respect to the certification and recovery of plants previously acquired by Entergy Louisiana. The LPSC issued an order approving the settlement in May 2018. Construction is in progress and commercial operation is expected to occur by the end of 2020.
Sources of Capital
Entergy Louisiana’s sources to meet its capital requirements include:
internally generated funds;
cash on hand;
debt or preferred membership interest issuances;
capital contributions; and
bank financing under new or existing facilities.
Entergy Louisiana may refinance, redeem, or otherwise retire debt prior to maturity, to the extent market conditions and interest rates are favorable.
All debt and common and preferred membership interest issuances by Entergy Louisiana require prior regulatory approval. Debt issuances are also subject to issuance tests set forth in its bond indentures and other agreements. Entergy Louisiana has sufficient capacity under these tests to meet its foreseeable capital needs.
Entergy Louisiana’s receivables from or (payables to) the money pool were as follows as of December 31 for each of the following years.
|
| | | | | | |
2019 | | 2018 | | 2017 | | 2016 |
(In Thousands) |
($82,826) | | $46,843 | | $11,173 | | $22,503 |
See Note 4 to the financial statements for a description of the money pool.
Entergy Louisiana, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
Entergy Louisiana has a credit facility in the amount of $350 million scheduled to expire in September 2024. The credit facility includes fronting commitments for the issuance of letters of credit against $15 million of the borrowing capacity of the facility. As of December 31, 2019, there were no cash borrowings and no letters of credit outstanding under the credit facility. In addition, Entergy Louisiana is a party to an uncommitted letter of credit facility as a means to post collateral to support its obligations to MISO. As of December 31, 2019, a $12.3 million letter of credit was outstanding under Entergy Louisiana’s uncommitted letter of credit facility. See Note 4 to the financial statements for additional discussion of the credit facilities.
The Entergy Louisiana nuclear fuel company variable interest entities have two separate credit facilities, each in the amount of $105 million and scheduled to expire in September 2021. As of December 31, 2019, $70.3 million of loans were outstanding under the credit facility for the Entergy Louisiana River Bend nuclear fuel company variable interest entity. As of December 31, 2019, $49.9 million in loans were outstanding under the Entergy Louisiana Waterford nuclear fuel company variable interest entity credit facility. See Note 4 to the financial statements for additional discussion of the nuclear fuel company variable interest entity credit facilities.
Entergy Louisiana obtained authorizations from the FERC through November 2020 for the following:
short-term borrowings not to exceed an aggregate amount of $450 million at any time outstanding;
long-term borrowings and security issuances; and
borrowings by its nuclear fuel company variable interest entities.
See Note 4 to the financial statements for further discussion of Entergy Louisiana’s short-term borrowing limits.
Hurricane Isaac
In June 2014 the LPSC voted to approve a series of orders which (i) quantified $290.8 million of Hurricane Isaac system restoration costs as prudently incurred; (ii) determined $290 million as the level of storm reserves to be re-established; (iii) authorized Entergy Louisiana to utilize Louisiana Act 55 financing for Hurricane Isaac system restoration costs; and (iv) granted other requested relief associated with storm reserves and Act 55 financing of Hurricane Isaac system restoration costs. Entergy Louisiana committed to pass on to customers a minimum of $30.8 million of customer benefits through annual customer credits of approximately $6.2 million for five years. Approvals for the Act 55 financings were obtained from the Louisiana Utilities Restoration Corporation and the Louisiana State Bond Commission. See Note 2 to the financial statements for a discussion of the August 2014 issuance of bonds under Act 55 of the Louisiana Legislature.
Little Gypsy Repowering Project
In April 2007, Entergy Louisiana announced that it intended to pursue the solid fuel repowering of a 538 MW unit at its Little Gypsy plant. In March 2009 the LPSC voted in favor of a motion directing Entergy Louisiana to temporarily suspend the repowering project and, based upon an analysis of the project’s economic viability, to make a recommendation regarding whether to proceed with the project. This action was based upon a number of factors including the recent decline in natural gas prices, as well as environmental concerns, the unknown costs of carbon legislation and changes in the capital/financial markets. In April 2009, Entergy Louisiana complied with the LPSC’s directive and recommended that the project be suspended for an extended period of time of three years or more. In May 2009 the LPSC issued an order declaring that Entergy Louisiana’s decision to place the Little Gypsy project into a longer-term suspension of three years or more is in the public interest and prudent.
In October 2009, Entergy Louisiana made a filing with the LPSC seeking permission to cancel the Little Gypsy repowering project and seeking project cost recovery over a five-year period. In June 2010 and August 2010, the LPSC staff and intervenors filed testimony. The LPSC staff (1) agreed that it was prudent to move the project from long-term suspension to cancellation and that the timing of the decision to suspend on a longer-term basis was not imprudent; (2) indicated that, except for $0.8 million in compensation-related costs, the costs incurred should be deemed prudent;
Entergy Louisiana, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
(3) recommended recovery from customers over ten years but stated that the LPSC may want to consider 15 years; (4) allowed for recovery of carrying costs and earning a return on project costs, but at a reduced rate approximating the cost of debt, while also acknowledging that the LPSC may consider ordering no return; and (5) indicated that Entergy Louisiana should be directed to securitize project costs, if legally feasible and in the public interest. In the third quarter 2010, in accordance with accounting standards, Entergy Louisiana determined that it was probable that the Little Gypsy repowering project would be abandoned and accordingly reclassified $199.8 million of project costs from construction work in progress to a regulatory asset. A hearing on the issues, except for cost allocation among customer classes, was held before the ALJ in November 2010. In January 2011 all parties participated in a mediation on the disputed issues, resulting in a settlement of all disputed issues, including cost recovery and cost allocation. The settlement provides for Entergy Louisiana to recover $200 million as of March 31, 2011, and carrying costs on that amount on specified terms thereafter. The settlement also provides for Entergy Louisiana to recover the approved project costs by securitization. In April 2011, Entergy Louisiana filed an application with the LPSC to authorize the securitization of the investment recovery costs associated with the project and to issue a financing order by which Entergy Louisiana could accomplish such securitization. In August 2011 the LPSC issued an order approving the settlement and also issued a financing order for the securitization. See Note 5 to the financial statements for a discussion of the September 2011 issuance of the securitization bonds.
State and Local Rate Regulation and Fuel-Cost Recovery
The rates that Entergy Louisiana charges for its services significantly influence its financial position, results of operations, and liquidity. Entergy Louisiana is regulated and the rates charged to its customers are determined in regulatory proceedings. A governmental agency, the LPSC, is primarily responsible for approval of the rates charged to customers.
Retail Rates - Electric
Filings with the LPSC
2016 Formula Rate Plan Filing
In May 2017, Entergy Louisiana filed its formula rate plan evaluation report for its 2016 calendar year operations. The evaluation report reflected an earned return on common equity of 9.84%. As such, no adjustment to base formula rate plan revenue was required. Adjustments, however, were required under the formula rate plan; the 2016 formula rate plan evaluation report showed a decrease in formula rate plan revenue of approximately $16.9 million, comprised of a decrease in legacy Entergy Louisiana formula rate plan revenue of $3.5 million, a decrease in legacy Entergy Gulf States Louisiana formula rate plan revenue of $9.7 million, and a decrease in incremental formula rate plan revenue of $3.7 million. Additionally, the formula rate plan evaluation report called for a decrease of $40.5 million in the MISO cost recovery revenue requirement from $46.8 million to $6.3 million. Rates reflecting these adjustments were implemented with the first billing cycle of September 2017, subject to refund. In September 2017 the LPSC staff issued its report indicating that no changes to Entergy Louisiana’s original formula rate plan evaluation report were required but reserved for several issues, including Entergy Louisiana’s September 2017 update to its formula rate plan evaluation report. In July 2018, Entergy Louisiana and the LPSC staff filed an unopposed joint report setting forth a correction to the annualization calculation, the effect of which was a net $3.5 million revenue requirement reduction and indicating that there are no outstanding issues with the 2016 formula rate plan report, the supplemental report, or the interim updates. In September 2018 the LPSC approved the unopposed joint report.
Entergy Louisiana, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
Formula Rate Plan Extension Through 2019 Test Year
In August 2017, Entergy Louisiana filed a request with the LPSC seeking to extend its formula rate plan for three years (2017-2019) with limited modifications to its terms. In April 2018, the LPSC approved an unopposed joint motion filed by Entergy Louisiana and the LPSC staff that settles the matter and extends the formula rate plan for three years, providing for rates through at least August 2021. In addition to retaining the major features of the traditional formula rate plan, some of the more substantive features of the extended formula rate plan include:
a mid-point reset of formula rate plan revenues to a 9.95% earned return on common equity for the 2017 test year and for the St. Charles Power Station when it enters commercial operation;
a 9.8% target earned return on common equity for the 2018 and 2019 test years;
narrowing of the common equity bandwidth to plus or minus 60 basis points around the earned return on common equity;
a cap on potential revenue increase of $35 million for the 2018 evaluation period, and $70 million for the cumulative 2018 and 2019 evaluation periods, on formula rate plan cost of service rate increases (the cap excludes rate changes associated with the transmission recovery mechanism described below and rate changes associated with additional capacity);
a framework for the flow back of certain tax benefits created by the Tax Act to customers; and
a transmission recovery mechanism providing for the opportunity to recover certain transmission related expenditures in excess of $100 million for projects placed in service up to one month prior to rate change outside of sharing that is designed to operate in a fashion similar to the additional capacity mechanism.
Entergy Louisiana has indicated its intent to seek an extension of its formula rate plan on terms similar to the existing terms.
2017 Formula Rate Plan Filing
In June 2018, Entergy Louisiana filed its formula rate plan evaluation report for its 2017 calendar year operations. The 2017 test year evaluation report produced an earned return on equity of 8.16%, due in large part to revenue-neutral realignments to other recovery mechanisms. Without these realignments, the evaluation report produces an earned return on equity of 9.88% and a resulting base rider formula rate plan revenue increase of $4.8 million. Excluding the Tax Act credits provided for by the tax reform adjustment mechanisms, total formula rate plan revenues were further increased by a total of $98 million as a result of the evaluation report due to adjustments to the additional capacity and MISO cost recovery mechanisms of the formula rate plan, and implementation of the transmission recovery mechanism. In August 2018, Entergy Louisiana filed a supplemental formula rate plan evaluation report to reflect changes from the 2016 test year formula rate plan proceedings, a decrease to the transmission recovery mechanism to reflect lower actual capital additions, and a decrease to evaluation period expenses to reflect the terms of a new power sales agreement. Based on the August 2018 update, Entergy Louisiana recognized a total decrease in formula rate plan revenue of approximately $17.6 million. Results of the updated 2017 evaluation report filing were implemented with the September 2018 billing month subject to refund and review by the LPSC staff and intervenors. In accordance with the terms of the formula rate plan, in September 2018 the LPSC staff and intervenors submitted their responses to Entergy Louisiana’s original formula rate plan evaluation report and supplemental compliance updates. The LPSC staff asserted objections/reservations regarding 1) Entergy Louisiana’s proposed rate adjustments associated with the return of excess accumulated deferred income taxes pursuant to the Tax Act and the treatment of accumulated deferred income taxes related to reductions of rate base; 2) Entergy Louisiana’s reservation regarding treatment of a regulatory asset related to certain special orders by the LPSC; and 3) test year expenses billed from Entergy Services to Entergy Louisiana. Intervenors also objected to Entergy Louisiana’s treatment of the regulatory asset related to certain special orders by the LPSC. A procedural schedule has not yet been established to resolve these issues.
Entergy Louisiana, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
Entergy Louisiana also included in its filing a presentation of an initial proposal to combine the legacy Entergy Louisiana and legacy Entergy Gulf States Louisiana residential rates, which combination, if approved, would be accomplished on a revenue-neutral basis intended not to affect the rates of other customer classes.
Commercial operation at St. Charles Power Station commenced in May 2019. In May 2019, Entergy Louisiana filed an update to its 2017 formula rate plan evaluation report to include the estimated first-year revenue requirement of $109.5 million associated with the St. Charles Power Station. The resulting interim adjustment to rates became effective with the first billing cycle of June 2019.
2018 Formula Rate Plan Filing
In May 2019, Entergy Louisiana filed its formula rate plan evaluation report for its 2018 calendar year operations. The 2018 test year evaluation report produced an earned return on common equity of 10.61% leading to a base rider formula rate plan revenue decrease of $8.9 million. While base rider formula rate plan revenue will decrease as a result of this filing, overall formula rate plan revenues will increase by approximately $118.7 million. This outcome is primarily driven by a reduction to the credits previously flowed through the tax reform adjustment mechanism and an increase in the transmission recovery mechanism, partially offset by reductions in the additional capacity mechanism revenue requirements and extraordinary cost items. The filing is subject to review by the LPSC. Resulting rates were implemented in September 2019, subject to refund.
Entergy Louisiana also included in its filing a presentation of an initial proposal to combine the legacy Entergy Louisiana and legacy Entergy Gulf States Louisiana residential rates, which combination, if approved, would be accomplished on a revenue-neutral basis intended not to affect the rates of other customer classes. Entergy Louisiana contemplates that any combination of residential rates resulting from this request would be implemented with the results of the 2019 test year formula rate plan filing.
Several parties intervened in the proceeding and the LPSC staff filed its report of objections/reservations in accordance with the applicable provisions of the formula rate plan. In its report the LPSC staff re-urged reservations with respect to the outstanding issues from the 2017 test year formula rate plan filing and disputed the inclusion of certain affiliate costs for test years 2017 and 2018. The LPSC staff objected to Entergy Louisiana’s proposal to combine residential rates but proposed the setting of a status conference to establish a procedural schedule to more fully address the issue. The LPSC staff also reserved its right to object to the treatment of the sale of Willow Glen reflected in the evaluation report and to the August 2019 compliance update, which was made primarily to update the capital additions reflected in the formula rate plan’s transmission recovery mechanism, based on limited time to review it. Additionally, since the completion of certain transmission projects, the LPSC staff has issued supplemental data requests addressing the prudence of Entergy Louisiana’s expenditures in connection with those projects. Entergy Louisiana is in the process of responding to those requests.
Investigation of Costs Billed by Entergy Services
In November 2018 the LPSC issued a notice of proceeding initiating an investigation into costs incurred by Entergy Services that are included in the retail rates of Entergy Louisiana. As stated in the notice of proceeding, the LPSC observed an increase in capital construction-related costs incurred by Entergy Services. Discovery was issued and included efforts to seek highly detailed information on a broad range of matters unrelated to the scope of the audit. There has been no further activity in the investigation since May 2019.
Waterford 3 Replacement Steam Generator Project
Following the completion of the Waterford 3 replacement steam generator project, the LPSC undertook a prudence review in connection with a filing made by Entergy Louisiana in April 2013 with regard to the following aspects of the replacement project: 1) project management; 2) cost controls; 3) success in achieving stated objectives; 4) the costs of the replacement project; and 5) the outage length and replacement power costs. In July 2014 the LPSC
Entergy Louisiana, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
staff filed testimony recommending potential project and replacement power cost disallowances of up to $71 million, citing a need for further explanation or documentation from Entergy Louisiana. An intervenor filed testimony recommending disallowance of $141 million of incremental project costs, claiming the steam generator fabricator was imprudent. Entergy Louisiana provided further documentation and explanation requested by the LPSC staff. An evidentiary hearing was held in December 2014. Entergy Louisiana believed that the replacement steam generator costs were prudently incurred and applicable legal principles supported their recovery in rates. Nevertheless, Entergy Louisiana recorded a write-off of $16 million of Waterford 3’s plant balance in December 2014 because of the uncertainty at the time associated with the resolution of the prudence review. In December 2015 the ALJ issued a proposed recommendation, which was subsequently finalized, concluding that Entergy Louisiana prudently managed the Waterford 3 replacement steam generator project, including the selection, use, and oversight of contractors, and could not reasonably have anticipated the damage to the steam generators. Nevertheless, the ALJ concluded that Entergy Louisiana was liable for the conduct of its contractor and subcontractor and, therefore, recommended a disallowance of $67 million in capital costs. Additionally, the ALJ concluded that Entergy Louisiana did not sufficiently justify the incurrence of $2 million in replacement power costs during the replacement outage. Although the ALJ’s recommendation had not yet been considered by the LPSC, after considering the progress of the proceeding in light of the ALJ recommendation, Entergy Louisiana recorded in the fourth quarter 2015 approximately $77 million in charges, including a $45 million asset write-off and a $32 million regulatory charge, to reflect that a portion of the assets associated with the Waterford 3 replacement steam generator project was no longer probable of recovery. Entergy Louisiana maintained that the ALJ’s recommendation contained significant factual and legal errors.
In October 2016 the parties reached a settlement in this matter. The settlement was approved by the LPSC in December 2016. The settlement effectively provided for an agreed-upon disallowance of $67 million of plant, which had been previously written off by Entergy Louisiana, as discussed above. The refund to customers of approximately $71 million as a result of the settlement approved by the LPSC was made to customers in January 2017. Of the $71 million of refunds, $68 million was credited to customers through Entergy Louisiana’s formula rate plan, outside of sharing, and $3 million through its fuel adjustment clause. Entergy Louisiana had previously recorded a provision of $48 million for this refund. The previously-recorded provision included the cumulative revenues recorded through December 2016 related to the $67 million of disallowed plant. An additional regulatory charge of $23 million was recorded in fourth quarter 2016 to reflect the effects of the settlement. The settlement also provided that Entergy Louisiana could retain the value associated with potential service credits agreed to by the project contractor, to the extent they are realized in the future. Following a review by the parties, an unopposed joint report of proceedings was filed by the LPSC staff and Entergy Louisiana in May 2017 and the LPSC accepted the joint report of proceedings resolving the matter.
Advanced Metering Infrastructure (AMI)
In November 2016, Entergy Louisiana filed an application seeking a finding from the LPSC that Entergy Louisiana’s deployment of advanced electric and gas metering infrastructure is in the public interest. Entergy Louisiana proposed to deploy advanced meters that enable two-way data communication; design and build a secure and reliable network to support such communications; and implement support systems. AMI is intended to serve as the foundation of Entergy Louisiana’s modernized power grid. The filing included an estimate of implementation costs for AMI of $330 million and identified a number of quantified and unquantified benefits. Entergy Louisiana proposed a 15-year useful life for the new advanced meters, the three-year deployment of which began in 2019. Deployment of the communications network began in 2018. Entergy Louisiana proposed to recover the cost of AMI through the implementation of a customer charge, net of certain benefits, phased in over the period 2019 through 2022. The parties reached an uncontested stipulation permitting implementation of Entergy Louisiana’s proposed AMI system, with modifications to the proposed customer charge. In July 2017 the LPSC approved the stipulation. Entergy Louisiana will recover the undepreciated balance of its existing meters through a regulatory asset to be amortized at current depreciation rates, as approved by the LPSC.
Entergy Louisiana, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
Retail Rates - Gas
2016 Rate Stabilization Plan Filing
In January 2017, Entergy Louisiana filed with the LPSC its gas rate stabilization plan for the test year ended September 30, 2016. The filing of the evaluation report for test year 2016 reflected an earned return on common equity of 6.37%. In April 2017 the LPSC approved a joint report of proceedings and Entergy Louisiana submitted a revised evaluation report reflecting a $1.2 million annual increase in revenue with rates implemented with the first billing cycle of May 2017.
2017 Rate Stabilization Plan Filing
In January 2018, Entergy Louisiana filed with the LPSC its gas rate stabilization plan for the test year ended September 30, 2017. The filing of the evaluation report for the test year 2017 reflected an earned return on common equity of 9.06%. This earned return is below the earnings sharing band of the rate stabilization plan and results in a rate increase of $0.1 million. Due to the enactment in late-December 2017 of the Tax Cuts and Jobs Act, Entergy Louisiana did not have adequate time to reflect the effects of this tax legislation in the rate stabilization plan. In April 2018, Entergy Louisiana filed a supplemental evaluation report for the test year ended September 2017, reflecting the effects of the Tax Act, including a proposal to use the unprotected excess accumulated deferred income taxes to offset approximately $1.4 million of storm restoration deferred operation and maintenance costs incurred by Entergy Louisiana in connection with the August 2016 flooding disaster in its gas service area. The supplemental filing reflects an earned return on common equity of 10.79%. As-filed rates from the supplemental filing were implemented, subject to refund, with customers receiving a cost reduction of approximately $0.7 million effective with bills rendered on and after the first billing cycle of May 2018, as well as a $0.2 million reduction in the gas infrastructure rider effective with bills rendered on and after the first billing cycle of July 2018. In October 2019 the LPSC staff issued its report finding that Entergy Louisiana’s filing complied with the terms of the rate stabilization plan but recommending an additional refund of $0.7 million related to the Tax Act. A procedural schedule has not been established.
2018 Rate Stabilization Plan Filing
In January 2019, Entergy Louisiana filed with the LPSC its gas rate stabilization plan for the test year ended September 30, 2018. The filing of the evaluation report for the test year 2018 reflected an earned return on common equity of 2.69%. This earned return is below the earning sharing band of the gas rate stabilization plan and results in a rate increase of $2.8 million. Entergy Louisiana made a compliance filing in April 2019 and rates were implemented during the first billing cycle of May 2019, subject to refund and final LPSC review. The proceeding is currently in its discovery phase.
Gas Rate Stabilization Plan Extension Request
In August 2019, Entergy Louisiana submitted an application to the LPSC seeking extension of the gas rate stabilization plan for the 2019-2021 test years on the same terms as those approved for the 2018 test year. The LPSC established a procedural schedule to address this request with a hearing scheduled in May 2020. Entergy Louisiana and the LPSC staff recently submitted a joint stipulation that recommends approval of the requested extension with certain modifications to the current terms, including a 9.8% evaluation period cost rate for common equity and provisions for the return of the excess accumulated deferred income tax to customers on a dollar for dollar basis in a manner consistent with IRS normalization rules. The LPSC approved the joint stipulation in January 2020.
Entergy Louisiana, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
2019 Rate Stabilization Plan Filing
In January 2020, Entergy Louisiana filed with the LPSC its gas rate stabilization plan for the test year ended September 30, 2019. The filing of the evaluation report for the test year 2019 reflected an earned return on common equity of 10.78%. This earned return exceeds the earning sharing band of the gas rate stabilization plan leading to a rate reduction of approximately $256 thousand.
Fuel and purchased power recovery
Entergy Louisiana recovers electric fuel and purchased power costs for the billing month based upon the level of such costs incurred two months prior to the billing month. Entergy Louisiana’s purchased gas adjustments include estimates for the billing month adjusted by a surcharge or credit that arises from an annual reconciliation of fuel costs incurred with fuel cost revenues billed to customers, including carrying charges.
In July 2014 the LPSC authorized its staff to initiate an audit of the fuel adjustment clause filings by Entergy Gulf States Louisiana, whose business was combined with Entergy Louisiana in 2015. The audit includes a review of the reasonableness of charges flowed through Entergy Gulf States Louisiana’s fuel adjustment clause for the period from 2010 through 2013. In January 2019, the LPSC staff consultant issued its audit report. In its report, the LPSC staff consultant recommended that Entergy Louisiana refund approximately $900,000, plus interest, to customers based upon the imputation of a claim of vendor fault in servicing its nuclear plant. Entergy Louisiana recorded a provision in first quarter 2019 for the potential outcome of the audit. In August 2019, Entergy Louisiana filed direct testimony challenging the basis for the LPSC staff’s recommended disallowance and providing an alternative calculation of replacement power costs should it be determined that a disallowance is appropriate. Entergy Louisiana’s calculation would require no refund to customers.
In July 2014 the LPSC authorized its staff to initiate an audit of Entergy Louisiana’s fuel adjustment clause filings. The audit includes a review of the reasonableness of charges flowed by Entergy Louisiana through its fuel adjustment clause for the period from 2010 through 2013. In January 2019, the LPSC staff consultant issued its audit report. In its report, the LPSC staff consultant recommended that Entergy Louisiana refund approximately $7.3 million, plus interest, to customers based upon the imputation of a claim of vendor fault in servicing its nuclear plant. Entergy Louisiana recorded a provision in the first quarter 2019 for the potential outcome of the audit. In August 2019, Entergy Louisiana filed direct testimony challenging the basis for the LPSC staff’s recommended disallowance and providing an alternative calculation of replacement power costs should it be determined that a disallowance is appropriate. Entergy Louisiana’s calculation would require a refund to customers of approximately $4.3 million, plus interest, as compared to the LPSC staff’s recommendation of $7.3 million, plus interest. Responsive testimony was filed by the LPSC staff and intervenors in September 2019; all parties either agreed with or did not oppose Entergy Louisiana’s alternative calculation of replacement power costs.
In November 2019 the pending LPSC proceedings for the 2010-2013 Entergy Louisiana and Entergy Gulf States Louisiana audits were consolidated to facilitate a settlement of both fuel audits. In December 2019 an unopposed settlement was reached that requires a refund to legacy Entergy Louisiana customers of approximately $2.3 million, including interest, and no refund to legacy Entergy Gulf States Louisiana customers. The LPSC approved the settlement in January 2020.
In June 2016 the LPSC issued notice of audits of Entergy Louisiana’s fuel adjustment clause filings and purchased gas adjustment clause filings for the period 2014 through 2015. In recognition of the business combination that occurred in 2015, the audit notice was issued to Entergy Louisiana and will also include a review of charges to legacy Entergy Gulf States Louisiana customers prior to the business combination. The audit includes a review of the reasonableness of charges flowed through Entergy Louisiana’s fuel adjustment clause for the period from 2014 through 2015 and charges flowed through Entergy Louisiana’s purchased gas adjustment clause for the period from 2012 through 2015. Discovery commenced in March 2017. No report of audit has been issued.
Entergy Louisiana, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
In May 2018 the LPSC staff provided notice of audits of Entergy Louisiana’s purchased gas adjustment clause filings. The audit includes a review of the reasonableness of charges flowed through Entergy Louisiana’s purchased gas adjustment clause for the period from 2016 through 2017. Discovery commenced in September 2018. No report of audit has been issued.
Net Metering Rulemaking
In September 2019 the LPSC issued an order modifying its rules regarding net metering installations. Among other things, the rule provides for 2-channel billing for net metering with excess energy put to the grid being compensated at the utility’s avoided cost. However, the rule does provide that net meter installations in place as of December 31, 2019 will be subject to 1:1 net metering with excess energy put to the grid being compensated at the full retail rate for a period of 15 years (through December 31, 2034), after which those installations will be subject to 2-channel billing. The rule also eliminates the existing limit on the cumulative number of net meter installations.
Industrial and Commercial Customers
Entergy Louisiana’s large industrial and commercial customers continually explore ways to reduce their energy costs. In particular, cogeneration is an option available to a portion of Entergy Louisiana’s industrial customer base. Entergy Louisiana responds by working with industrial and commercial customers and negotiating electric service contracts to provide competitive rates that match specific customer needs and load profiles. Entergy Louisiana actively participates in economic development, customer retention, and reclamation activities to increase industrial and commercial demand, from both new and existing customers.
Federal Regulation
See the “Rate, Cost-recovery, and Other Regulation– Federal Regulation” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis and Note 2 to the financial statements for a discussion of federal regulation.
Nuclear Matters
Entergy Louisiana owns and, through an affiliate, operates the River Bend and Waterford 3 nuclear power plants. Entergy Louisiana is, therefore, subject to the risks related to owning and operating nuclear plants. These include risks related to: the use, storage, and handling and disposal of high-level and low-level radioactive materials; the substantial financial requirements, both for capital investments and operational needs, to position Entergy’s nuclear fleet to meet its operational goals, including the financial requirements to address emerging issues like stress corrosion cracking of certain materials within the plant systems and the Fukushima event; regulatory requirements and potential future regulatory changes, including changes affecting the regulations governing nuclear plant ownership, operations, license renewal and amendments, and decommissioning; the performance and capacity factors of these nuclear plants; the availability of interim or permanent sites for the disposal of spent nuclear fuel and nuclear waste, including the fees charged for such disposal; the sufficiency of nuclear decommissioning trust fund assets and earnings to complete decommissioning of each site when required; and limitations on the amounts and types of insurance commercially available for losses in connection with nuclear plant operations and catastrophic events such as a nuclear accident. In the event of an unanticipated early shutdown of River Bend or Waterford 3, Entergy Louisiana may be required to provide additional funds or credit support to satisfy regulatory requirements for decommissioning. Waterford 3’s operating license expires in 2044 and River Bend’s operating license expires in 2045.
Environmental Risks
Entergy Louisiana’s facilities and operations are subject to regulation by various governmental authorities having jurisdiction over air quality, water quality, control of toxic substances and hazardous and solid wastes, and other environmental matters. Management believes that Entergy Louisiana is in substantial compliance with environmental
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Management’s Financial Discussion and Analysis
regulations currently applicable to its facilities and operations, with reference to possible exceptions noted in “Regulation of Entergy’s Business - Environmental Regulation” in Part I, Item 1. Because environmental regulations are subject to change, future compliance costs cannot be precisely estimated.
Critical Accounting Estimates
The preparation of Entergy Louisiana’s financial statements in conformity with generally accepted accounting principles requires management to apply appropriate accounting policies and to make estimates and judgments that can have a significant effect on reported financial position, results of operations, and cash flows. Management has identified the following accounting policies and estimates as critical because they are based on assumptions and measurements that involve a high degree of uncertainty, and the potential for future changes in the assumptions and measurements that could produce estimates that would have a material effect on the presentation of Entergy Louisiana’s financial position or results of operations.
Nuclear Decommissioning Costs
See “Nuclear Decommissioning Costs” in the “Critical Accounting Estimates” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for discussion of the estimates inherent in accounting for nuclear decommissioning costs.
In the first quarter 2018, Entergy Louisiana recorded a revision to its estimated decommissioning cost liability for River Bend as a result of a revised decommissioning cost study. The revised estimate resulted in an $85.4 million increase in its decommissioning cost liability, along with a corresponding increase in the related asset retirement cost asset that will be depreciated over the remaining life of the unit.
In the second quarter 2019, Entergy Louisiana recorded a revision to its estimated decommissioning cost liability for Waterford 3 as a result of a revised decommissioning cost study. The revised estimate resulted in a $147.5 million increase in its decommissioning cost liability, along with a corresponding increase in the related asset retirement cost asset that will be depreciated over the remaining useful life of the unit.
Utility Regulatory Accounting
See “Utility Regulatory Accounting” in the “Critical Accounting Estimates” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for discussion of accounting for the effects of rate regulation.
Impairment of Long-lived Assets and Trust Fund Investments
See “Impairment of Long-lived Assets and Trust Fund Investments” in the “Critical Accounting Estimates” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for discussion of the estimates associated with the impairment of long-lived assets and trust fund investments.
Taxation and Uncertain Tax Positions
See “Taxation and Uncertain Tax Positions” in the “Critical Accounting Estimates” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for further discussion.
Qualified Pension and Other Postretirement Benefits
Entergy Louisiana’s qualified pension and other postretirement reported costs, as described in Note 11 to the financial statements, are impacted by numerous factors including the provisions of the plans, changing employee demographics, and various actuarial calculations, assumptions, and accounting mechanisms. See the “Qualified
Entergy Louisiana, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
Pension and Other Postretirement Benefits” in the “Critical Accounting Estimates” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for further discussion. Because of the complexity of these calculations, the long-term nature of these obligations, and the importance of the assumptions utilized, Entergy’s estimate of these costs is a critical accounting estimate.
Cost Sensitivity
The following chart reflects the sensitivity of qualified pension cost and qualified projected benefit obligation to changes in certain actuarial assumptions (dollars in thousands).
|
| | | | | | |
Actuarial Assumption | | Change in Assumption | | Impact on 2020 Qualified Pension Cost | | Impact on 2019 Projected Qualified Benefit Obligation |
| | | | Increase/(Decrease) | | |
Discount rate | | (0.25%) | | $3,308 | | $47,877 |
Rate of return on plan assets | | (0.25%) | | $3,201 | | $— |
Rate of increase in compensation | | 0.25% | | $2,095 | | $10,727 |
The following chart reflects the sensitivity of postretirement benefit cost and accumulated postretirement benefit obligation to changes in certain actuarial assumptions (dollars in thousands).
|
| | | | | | |
Actuarial Assumption | | Change in Assumption | | Impact on 2020 Postretirement Benefit Cost | | Impact on 2019 Accumulated postretirement Benefit Obligation |
| | | | Increase/(Decrease) | | |
Discount rate | | (0.25%) | | $715 | | $7,953 |
Health care cost trend | | 0.25% | | $989 | | $5,985 |
Each fluctuation above assumes that the other components of the calculation are held constant.
Costs and Employer Contributions
Total qualified pension cost for Entergy Louisiana in 2019 was $48.6 million. Entergy Louisiana anticipates 2020 qualified pension cost to be $63.4 million. Entergy Louisiana contributed $65 million to its qualified pension plans in 2019 and estimates pension contributions will be approximately $38.8 million in 2020, although the 2020 required pension contributions will be known with more certainty when the January 1, 2020 valuations are completed, which is expected by April 1, 2020.
Total postretirement health care and life insurance benefit costs for Entergy Louisiana in 2019 were $7.3 million. Entergy Louisiana expects 2020 postretirement health care and life insurance benefit costs of approximately $8.7 million. Entergy Louisiana contributed $14.3 million to its other postretirement plans in 2019 and estimates that 2020 contributions will be approximately $18.5 million.
Other Contingencies
See “Other Contingencies” in the “Critical Accounting Estimates” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for a discussion of the estimates associated with environmental, litigation, and other risks.
Entergy Louisiana, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
New Accounting Pronouncements
See “New Accounting Pronouncements” section of Note 1 to the financial statements for a discussion of new accounting pronouncements.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the member and Board of Directors of
Entergy Louisiana, LLC and Subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Entergy Louisiana, LLC and Subsidiaries (the “Company”) as of December 31, 2019 and 2018, the related consolidated statements of income, comprehensive income, cash flows, and changes in equity (pages 343 through 348 and applicable items in pages 49 through 236), for each of the three years in the period ended December 31, 2019, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ DELOITTE & TOUCHE LLP
New Orleans, Louisiana
February 21, 2020
We have served as the Company’s auditor since 2001.
|
| | | | | | | | | | | | |
ENTERGY LOUISIANA, LLC AND SUBSIDIARIES |
CONSOLIDATED INCOME STATEMENTS |
| | |
| | For the Years Ended December 31, |
| | 2019 | | 2018 | | 2017 |
| | (In Thousands) |
| | | | | | |
OPERATING REVENUES | | | | | | |
Electric | |
| $4,223,027 |
| |
| $4,232,541 |
| |
| $4,246,020 |
|
Natural gas | | 62,148 |
| | 63,779 |
| | 54,530 |
|
TOTAL | | 4,285,175 |
| | 4,296,320 |
| | 4,300,550 |
|
| | | | | | |
OPERATING EXPENSES | | |
| | |
| | |
|
Operation and Maintenance: | | |
| | |
| | |
|
Fuel, fuel-related expenses, and gas purchased for resale | | 845,108 |
| | 915,410 |
| | 912,060 |
|
Purchased power | | 810,462 |
| | 960,272 |
| | 980,070 |
|
Nuclear refueling outage expenses | | 54,170 |
| | 51,626 |
| | 52,074 |
|
Other operation and maintenance | | 994,637 |
| | 959,185 |
| | 941,604 |
|
Decommissioning | | 59,346 |
| | 53,736 |
| | 49,457 |
|
Taxes other than income taxes | | 194,222 |
| | 183,745 |
| | 175,359 |
|
Depreciation and amortization | | 535,791 |
| | 492,179 |
| | 467,369 |
|
Other regulatory charges (credits) - net | | (105,203 | ) | | 4,396 |
| | (152,080 | ) |
TOTAL | | 3,388,533 |
| | 3,620,549 |
| | 3,425,913 |
|
| | | | | | |
OPERATING INCOME | | 896,642 |
| | 675,771 |
| | 874,637 |
|
| | | | | | |
OTHER INCOME | | |
| | |
| | |
|
Allowance for equity funds used during construction | | 74,023 |
| | 79,922 |
| | 51,485 |
|
Interest and investment income | | 231,985 |
| | 141,882 |
| | 164,550 |
|
Miscellaneous - net | | (115,427 | ) | | (27,530 | ) | | (39,756 | ) |
TOTAL | | 190,581 |
| | 194,274 |
| | 176,279 |
|
| | | | | | |
INTEREST EXPENSE | | |
| | |
| | |
|
Interest expense | | 309,493 |
| | 288,658 |
| | 275,185 |
|
Allowance for borrowed funds used during construction | | (35,430 | ) | | (39,616 | ) | | (25,914 | ) |
TOTAL | | 274,063 |
| | 249,042 |
| | 249,271 |
|
| | | | | | |
INCOME BEFORE INCOME TAXES | | 813,160 |
| | 621,003 |
| | 801,645 |
|
| | | | | | |
Income taxes | | 121,623 |
| | (54,611 | ) | | 485,298 |
|
| | | | | | |
NET INCOME | |
| $691,537 |
| |
| $675,614 |
| |
| $316,347 |
|
| | | | | | |
See Notes to Financial Statements. | | |
| | |
| | |
|
|
| | | | | | | | | | | | |
ENTERGY LOUISIANA, LLC AND SUBSIDIARIES |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME |
| | |
| | For the Years Ended December 31, |
| | 2019 | | 2018 | | 2017 |
| | (In Thousands) |
| | | | | | |
Net Income | |
| $691,537 |
| |
| $675,614 |
| |
| $316,347 |
|
| | | | | | |
Other comprehensive income | | |
| | |
| | |
|
Pension and other postretirement liabilities | | |
| | |
| | |
|
(net of tax expense of $3,781, $17,743, and $234) | | 10,715 |
| | 50,296 |
| | 2,042 |
|
Other comprehensive income | | 10,715 |
| | 50,296 |
| | 2,042 |
|
| | | | | | |
Comprehensive Income | |
| $702,252 |
| |
| $725,910 |
| |
| $318,389 |
|
| | | | | | |
See Notes to Financial Statements. | | |
| | |
| | |
|
|
| | | | | | | | | | | | |
ENTERGY LOUISIANA, LLC AND SUBSIDIARIES |
CONSOLIDATED STATEMENTS OF CASH FLOWS |
| | |
| | For the Years Ended December 31, |
| | 2019 | | 2018 | | 2017 |
| | (In Thousands) |
OPERATING ACTIVITIES | | | | | | |
Net income | |
| $691,537 |
| |
| $675,614 |
| |
| $316,347 |
|
Adjustments to reconcile net income to net cash flow provided by operating activities: | | | | | | |
Depreciation, amortization, and decommissioning, including nuclear fuel amortization | | 685,062 |
| | 662,390 |
| | 621,018 |
|
Deferred income taxes, investment tax credits, and non-current taxes accrued | | 196,533 |
| | 174,063 |
| | 575,804 |
|
Changes in working capital: | | |
| | |
| | |
|
Receivables | | 13,942 |
| | 89,701 |
| | (53,829 | ) |
Fuel inventory | | (7,195 | ) | | 5,310 |
| | 11,010 |
|
Accounts payable | | (33,375 | ) | | 11,372 |
| | 58,880 |
|
Prepaid taxes and taxes accrued | | (38,827 | ) | | 12,711 |
| | 128,261 |
|
Interest accrued | | 4,294 |
| | 7,922 |
| | (70 | ) |
Deferred fuel costs | | 24,234 |
| | (40,036 | ) | | 23,236 |
|
Other working capital accounts | | (62,536 | ) | | (5,809 | ) | | (30,911 | ) |
Changes in provisions for estimated losses | | 9,664 |
| | 8,307 |
| | (8,324 | ) |
Changes in other regulatory assets | | (210,134 | ) | | 40,765 |
| | 492,696 |
|
Changes in other regulatory liabilities | | (35,881 | ) | | (125,185 | ) | | 605,453 |
|
Deferred tax rate change recognized as regulatory liability/asset | | — |
| | — |
| | (1,207,808 | ) |
Changes in pension and other postretirement liabilities | | 35,162 |
| | (106,269 | ) | | (32,309 | ) |
Other | | (36,478 | ) | | (15,652 | ) | | (161,909 | ) |
Net cash flow provided by operating activities | | 1,236,002 |
| | 1,395,204 |
| | 1,337,545 |
|
INVESTING ACTIVITIES | | |
| | |
| | |
|
Construction expenditures | | (1,673,194 | ) | | (1,805,641 | ) | | (1,662,835 | ) |
Allowance for equity funds used during construction | | 74,023 |
| | 79,922 |
| | 51,485 |
|
Insurance proceeds | | 7,040 |
| | 3,480 |
| | 5,305 |
|
Nuclear fuel purchases | | (85,984 | ) | | (111,329 | ) | | (197,829 | ) |
Proceeds from the sale of nuclear fuel | | 11,596 |
| | 53,603 |
| | 42,634 |
|
Payments to storm reserve escrow account | | (6,353 | ) | | (4,770 | ) | | (2,110 | ) |
Receipts from storm reserve escrow account | | — |
| | 4 |
| | 8,835 |
|
Changes in securitization account | | (32 | ) | | (1,655 | ) | | 880 |
|
Proceeds from nuclear decommissioning trust fund sales | | 412,559 |
| | 1,055,690 |
| | 231,293 |
|
Investment in nuclear decommissioning trust funds | | (442,501 | ) | | (1,097,204 | ) | | (266,592 | ) |
Changes in money pool receivable - net | | 46,843 |
| | (35,672 | ) | | 11,330 |
|
Proceeds from sale of assets | | — |
| | 11,987 |
| | — |
|
Payment for purchase of assets | | — |
| | (26,623 | ) | | (9,805 | ) |
Litigation proceeds for reimbursement of spent nuclear fuel storage costs | | 2,369 |
| | — |
| | — |
|
Net cash flow used in investing activities | | (1,653,634 | ) | | (1,878,208 | ) | | (1,787,409 | ) |
FINANCING ACTIVITIES | | |
| | |
| | |
|
Proceeds from the issuance of long-term debt | | 2,691,133 |
| | 2,319,799 |
| | 733,344 |
|
Retirement of long-term debt | | (2,199,053 | ) | | (1,664,354 | ) | | (407,736 | ) |
Change in money pool payable - net | | 82,826 |
| | — |
| | — |
|
Changes in short-term borrowings - net | | — |
| | (43,540 | ) | | 39,746 |
|
Distributions paid: | | |
| | |
| | |
|
Common equity | | (208,000 | ) | | (128,000 | ) | | (91,250 | ) |
Other | | 9,368 |
| | 6,556 |
| | (2,183 | ) |
Net cash flow provided by financing activities | | 376,274 |
| | 490,461 |
| | 271,921 |
|
Net increase (decrease) in cash and cash equivalents | | (41,358 | ) | | 7,457 |
| | (177,943 | ) |
Cash and cash equivalents at beginning of period | | 43,364 |
| | 35,907 |
| | 213,850 |
|
Cash and cash equivalents at end of period | |
| $2,006 |
| |
| $43,364 |
| |
| $35,907 |
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | | |
| | |
| | |
|
Cash paid (received) during the period for: | | |
| | |
| | |
|
Interest - net of amount capitalized | |
| $296,842 |
| |
| $272,335 |
| |
| $266,871 |
|
Income taxes | |
| $15,272 |
| |
| ($105,157 | ) | |
| ($234,199 | ) |
| | | | | | |
See Notes to Financial Statements. | | |
| | |
| | |
|
|
| | | | | | | | |
ENTERGY LOUISIANA, LLC AND SUBSIDIARIES |
CONSOLIDATED BALANCE SHEETS |
ASSETS |
| | |
| | December 31, |
| | 2019 | | 2018 |
| | (In Thousands) |
| | | | |
CURRENT ASSETS | | | | |
Cash and cash equivalents: | | | | |
Cash | |
| $488 |
| |
| $252 |
|
Temporary cash investments | | 1,518 |
| | 43,112 |
|
Total cash and cash equivalents | | 2,006 |
| | 43,364 |
|
Accounts receivable: | | |
| | |
|
Customer | | 194,869 |
| | 199,903 |
|
Allowance for doubtful accounts | | (1,902 | ) | | (1,813 | ) |
Associated companies | | 77,212 |
| | 123,363 |
|
Other | | 42,179 |
| | 60,879 |
|
Accrued unbilled revenues | | 169,201 |
| | 167,052 |
|
Total accounts receivable | | 481,559 |
| | 549,384 |
|
Fuel inventory | | 41,613 |
| | 34,418 |
|
Materials and supplies - at average cost | | 354,020 |
| | 324,627 |
|
Deferred nuclear refueling outage costs | | 56,743 |
| | 24,406 |
|
Prepaid taxes | | 7,959 |
| | — |
|
Prepayments and other | | 37,837 |
| | 38,715 |
|
TOTAL | | 981,737 |
| | 1,014,914 |
|
| | | | |
OTHER PROPERTY AND INVESTMENTS | | |
| | |
|
Investment in affiliate preferred membership interests | | 1,390,587 |
| | 1,390,587 |
|
Decommissioning trust funds | | 1,563,812 |
| | 1,284,996 |
|
Storm reserve escrow account | | 295,875 |
| | 289,525 |
|
Non-utility property - at cost (less accumulated depreciation) | | 312,896 |
| | 286,555 |
|
Other | | 13,476 |
| | 14,927 |
|
TOTAL | | 3,576,646 |
| | 3,266,590 |
|
| | | | |
UTILITY PLANT | | |
| | |
|
Electric | | 22,620,365 |
| | 20,532,312 |
|
Natural gas | | 235,678 |
| | 211,421 |
|
Construction work in progress | | 1,383,603 |
| | 1,864,582 |
|
Nuclear fuel | | 267,779 |
| | 298,022 |
|
TOTAL UTILITY PLANT | | 24,507,425 |
| | 22,906,337 |
|
Less - accumulated depreciation and amortization | | 9,118,524 |
| | 8,837,596 |
|
UTILITY PLANT - NET | | 15,388,901 |
| | 14,068,741 |
|
| | | | |
DEFERRED DEBITS AND OTHER ASSETS | | |
| | |
|
Regulatory assets: | | |
| | |
|
Other regulatory assets (includes securitization property of $27,596 as of December 31, 2019 and $49,753 as of December 31, 2018) | | 1,315,211 |
| | 1,105,077 |
|
Deferred fuel costs | | 168,122 |
| | 168,122 |
|
Other | | 33,491 |
| | 28,371 |
|
TOTAL | | 1,516,824 |
| | 1,301,570 |
|
| | | | |
TOTAL ASSETS | |
| $21,464,108 |
| |
| $19,651,815 |
|
| | | | |
See Notes to Financial Statements. | | |
| | |
|
|
| | | | | | | | |
ENTERGY LOUISIANA, LLC AND SUBSIDIARIES |
CONSOLIDATED BALANCE SHEETS |
LIABILITIES AND EQUITY |
| | |
| | December 31, |
| | 2019 | | 2018 |
| | (In Thousands) |
| | | | |
CURRENT LIABILITIES | | | | |
Currently maturing long-term debt | |
| $320,002 |
| |
| $2 |
|
Accounts payable: | | |
| | |
|
Associated companies | | 187,615 |
| | 102,749 |
|
Other | | 357,206 |
| | 390,367 |
|
Customer deposits | | 153,097 |
| | 155,314 |
|
Taxes accrued | | — |
| | 30,868 |
|
Interest accrued | | 87,744 |
| | 83,450 |
|
Deferred fuel costs | | 55,645 |
| | 31,411 |
|
Current portion of unprotected excess accumulated deferred income taxes | | 31,138 |
| | 31,457 |
|
Other | | 64,668 |
| | 49,202 |
|
TOTAL | | 1,257,115 |
| | 874,820 |
|
| | | | |
NON-CURRENT LIABILITIES | | |
| | |
|
Accumulated deferred income taxes and taxes accrued | | 2,464,513 |
| | 2,226,721 |
|
Accumulated deferred investment tax credits | | 112,128 |
| | 116,999 |
|
Regulatory liability for income taxes - net | | 500,083 |
| | 581,001 |
|
Other regulatory liabilities | | 794,140 |
| | 748,784 |
|
Decommissioning | | 1,497,349 |
| | 1,280,272 |
|
Accumulated provisions | | 320,419 |
| | 310,755 |
|
Pension and other postretirement liabilities | | 677,619 |
| | 643,171 |
|
Long-term debt (includes securitization bonds of $33,220 as of December 31, 2019 and $55,682 as of December 31, 2018) | | 6,983,667 |
| | 6,805,766 |
|
Other | | 459,957 |
| | 160,608 |
|
TOTAL | | 13,809,875 |
| | 12,874,077 |
|
| | | | |
Commitments and Contingencies | |
|
| |
|
|
| | | | |
EQUITY | | |
| | |
|
Member’s equity | | 6,392,556 |
| | 5,909,071 |
|
Accumulated other comprehensive income (loss) | | 4,562 |
| | (6,153 | ) |
TOTAL | | 6,397,118 |
| | 5,902,918 |
|
| | | | |
TOTAL LIABILITIES AND EQUITY | |
| $21,464,108 |
| |
| $19,651,815 |
|
| | | | |
See Notes to Financial Statements. | | |
| | |
|
|
| | | | | | | | | | | | |
ENTERGY LOUISIANA, LLC AND SUBSIDIARIES |
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY |
For the Years Ended December 31, 2019, 2018, and 2017 |
| | | | |
| | Common Equity | | |
| | Member’s Equity | | Accumulated Other Comprehensive Income (Loss) | | Total |
| (In Thousands) |
| | | | | | |
Balance at December 31, 2016 | |
| $5,130,251 |
| |
| ($48,442 | ) | |
| $5,081,809 |
|
Net income | | 316,347 |
| | — |
| | 316,347 |
|
Other comprehensive income | | — |
| | 2,042 |
| | 2,042 |
|
Distributions declared on common equity | | (91,250 | ) | | — |
| | (91,250 | ) |
Other | | (144 | ) | | — |
| | (144 | ) |
Balance at December 31, 2017 | |
| $5,355,204 |
| |
| ($46,400 | ) | |
| $5,308,804 |
|
Net income | | 675,614 |
| | — |
| | 675,614 |
|
Other comprehensive income | | — |
| | 50,296 |
| | 50,296 |
|
Distributions declared on common equity | | (128,000 | ) | | — |
| | (128,000 | ) |
Reclassification pursuant to ASU 2018-02 | | 6,262 |
| | (10,049 | ) | | (3,787 | ) |
Other | | (9 | ) | | — |
| | (9 | ) |
Balance at December 31, 2018 | |
| $5,909,071 |
| |
| ($6,153 | ) | |
| $5,902,918 |
|
Net income | | 691,537 |
| | — |
| | 691,537 |
|
Other comprehensive income | | — |
| | 10,715 |
| | 10,715 |
|
Distributions declared on common equity | | (208,000 | ) | | — |
| | (208,000 | ) |
Other | | (52 | ) | | — |
| | (52 | ) |
Balance at December 31, 2019 | |
| $6,392,556 |
| |
| $4,562 |
| |
| $6,397,118 |
|
| | | | | | |
See Notes to Financial Statements. | | |
| | |
| | |
|
|
| | | | | | | | | | | | | | | | | | | |
ENTERGY LOUISIANA, LLC AND SUBSIDIARIES |
SELECTED FINANCIAL DATA - FIVE-YEAR COMPARISON |
| | | | | | | | | |
| 2019 | | 2018 | | 2017 | | 2016 | | 2015 |
| (In Thousands) |
| | | | | | | | | |
Operating revenues |
| $4,285,175 |
| |
| $4,296,320 |
| |
| $4,300,550 |
| |
| $4,177,048 |
| |
| $4,417,146 |
|
Net income |
| $691,537 |
| |
| $675,614 |
| |
| $316,347 |
| |
| $622,047 |
| |
| $446,639 |
|
Total assets |
| $21,464,108 |
| |
| $19,651,815 |
| |
| $18,448,864 |
| |
| $17,701,271 |
| |
| $16,387,447 |
|
Long-term obligations (a) |
| $6,983,667 |
| |
| $6,805,766 |
| |
| $5,469,069 |
| |
| $5,612,593 |
| |
| $4,806,790 |
|
| | | | | | | | | |
(a) Includes long-term debt (excluding currently maturing debt). | | | | |
| | | | | | | | | |
| 2019 | | 2018 | | 2017 | | 2016 | | 2015 |
| (Dollars In Millions) |
| | | | | | | | | |
Electric Operating Revenues: | |
| | |
| | |
| | |
| | |
|
Residential |
| $1,271 |
| |
| $1,244 |
| |
| $1,198 |
| |
| $1,196 |
| |
| $1,292 |
|
Commercial | 947 |
| | 941 |
| | 956 |
| | 930 |
| | 989 |
|
Industrial | 1,451 |
| | 1,462 |
| | 1,534 |
| | 1,350 |
| | 1,420 |
|
Governmental | 71 |
| | 69 |
| | 69 |
| | 67 |
| | 67 |
|
Total billed retail | 3,740 |
| | 3,716 |
| | 3,757 |
| | 3,543 |
| | 3,768 |
|
Sales for resale: | |
| | |
| | |
| | |
| | |
|
Associated companies | 273 |
| | 295 |
| | 278 |
| | 368 |
| | 406 |
|
Non-associated companies | 60 |
| | 62 |
| | 64 |
| | 50 |
| | 36 |
|
Other | 150 |
| | 160 |
| | 147 |
| | 165 |
| | 152 |
|
Total |
| $4,223 |
| |
| $4,233 |
| |
| $4,246 |
| |
| $4,126 |
| |
| $4,362 |
|
| | | | | | | | | |
Billed Electric Energy Sales (GWh): | |
| | |
| | |
| | |
| | |
|
Residential | 14,046 |
| | 14,494 |
| | 13,357 |
| | 13,810 |
| | 14,399 |
|
Commercial | 11,353 |
| | 11,578 |
| | 11,342 |
| | 11,478 |
| | 11,700 |
|
Industrial | 29,801 |
| | 29,255 |
| | 29,754 |
| | 28,517 |
| | 27,713 |
|
Governmental | 827 |
| | 823 |
| | 790 |
| | 794 |
| | 756 |
|
Total retail | 56,027 |
| | 56,150 |
| | 55,243 |
| | 54,599 |
| | 54,568 |
|
Sales for resale: | |
| | |
| | |
| | |
| | |
|
Associated companies | 4,813 |
| | 5,498 |
| | 4,793 |
| | 7,345 |
| | 7,500 |
|
Non-associated companies | 1,924 |
| | 1,762 |
| | 1,711 |
| | 1,690 |
| | 770 |
|
Total | 62,764 |
| | 63,410 |
| | 61,747 |
| | 63,634 |
| | 62,838 |
|
| | | | | | | | | |
ENTERGY MISSISSIPPI, LLC
MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS
Results of Operations
2019 Compared to 2018
Net Income
Net income decreased $6.2 million primarily due to higher depreciation and amortization expenses, lower volume/weather, and a higher effective income tax rate, partially offset by higher retail electric price.
Operating Revenues
Following is an analysis of the change in operating revenues comparing 2019 to 2018.
|
| | | |
| Amount |
| (In Millions) |
2018 operating revenues |
| $1,335.1 |
|
Fuel, rider, and other revenues that do not significantly affect net income | (51.6 | ) |
Volume/weather | (15.9 | ) |
Return of unprotected excess accumulated deferred income taxes to customers | 25.8 |
|
Retail electric price | 29.6 |
|
2019 operating revenues |
| $1,323.0 |
|
Entergy Mississippi’s results include revenues from rate mechanisms designed to recover fuel, purchased power, and other costs such that the revenues and expenses associated with these items generally offset and do not affect net income. “Fuel, rider, and other revenues that do not significantly affect net income” includes the revenue variance associated with these items.
The volume/weather variance is primarily due to a decrease of 455 GWh, or 3%, in billed electricity usage, including the effect of less favorable weather on residential sales and a decrease in industrial usage. The decrease in industrial usage is primarily due to decreased small industrial sales.
The return of unprotected excess accumulated deferred income taxes to customers is due to the return of unprotected excess accumulated deferred income taxes through customer bill credits over a three-month period from July 2018 through September 2018 per an agreement approved by the MPSC in June 2018 resulting from the stipulation related to the effects of the Tax Cuts and Jobs Act. There was no effect on net income as the reduction in operating revenues was offset by a reduction in income tax expense. See Note 2 to the financial statements for further discussion of regulatory activity regarding the Tax Cuts and Jobs Act.
The retail electric price variance is primarily due to an increase in formula rate plan rates effective with the first billing cycle of July 2019 and an accrual in the fourth quarter 2019 for the interim capacity rate adjustment to the formula rate plan to recover non-fuel related costs associated with the acquisition of the Choctaw Generating Station, each as approved by the MPSC. Entergy Mississippi began billing the interim capacity rate adjustment in January 2020. See Note 2 to the financial statements for further discussion of the formula rate plan filing and the interim capacity rate adjustment.
Entergy Mississippi, LLC
Management’s Financial Discussion and Analysis
Other Income Statement Variances
Other operation and maintenance expenses increased primarily due to:
| |
• | an increase of $4.7 million in spending on initiatives to explore new customer products and services; and |
an increase of $4.6 million in information technology costs primarily due to higher costs related to applications and infrastructure support, enhanced cyber security, and upgrades and maintenance.
The increase was partially offset by a $5.8 million loss in 2018 on the sale of fuel oil inventory per an agreement approved by the MPSC in June 2018 resulting from the stipulation related to the effects of the Tax Act. There is no effect on net income as the loss on the sale of fuel oil inventory is offset by a reduction in income tax expense.
Depreciation and amortization expenses increased primarily as a result of higher depreciation rates, as approved by the MPSC, and additions to plant in service.
Other regulatory charges include a regulatory charge recorded in second quarter 2018 to reflect the return of unprotected excess accumulated deferred income taxes per an agreement approved by the MPSC in June 2018 that resulted in a reduction in net utility plant of $127.2 million. There was no effect on net income as the regulatory charge was offset by a reduction in income tax expense. See Note 2 to the financial statements for further discussion of regulatory activity related to the Tax Cuts and Jobs Act.
Interest expense increased primarily due to issuances of $300 million in June 2019 and $135 million in November 2019, of 3.85% Series mortgage bonds and the issuance of $55 million of 4.52% Series mortgage bonds in December 2018, partially offset by the repayment, at maturity, of $150 million of 6.64% Series mortgage bonds in July 2019. See Note 5 to the financial statements for details on long-term debt.
The effective income tax rates were 20.5% for 2019 and (41,237%) for 2018. The difference in the effective income tax rate of (41,237%) versus the federal statutory rate of 21% for 2018 was primarily due to the flow through of excess accumulated deferred income taxes. See Note 3 to the financial statements for a reconciliation of the federal statutory rate of 21% to the effective income tax rates.
2018 Compared to 2017
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Results of Operations” in Entergy Mississippi’s Annual Report on Form 10-K for the year ended December 31, 2018 for discussion of results of operations for 2018 compared to 2017.
Income Tax Legislation
See the “Income Tax Legislation” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for discussion of the Tax Cuts and Jobs Act, the federal income tax legislation enacted in December 2017. Note 3 to the financial statements contains additional discussion of the effect of the Act on 2017, 2018, and 2019 results of operations and financial position, the provisions of the Act, and the uncertainties associated with accounting for the Act, and Note 2 to the financial statements discusses the regulatory proceedings that have considered the effects of the Act.
Entergy Mississippi, LLC
Management’s Financial Discussion and Analysis
Liquidity and Capital Resources
Cash Flow
Cash flows for the years ended December 31, 2019, 2018, and 2017 were as follows:
|
| | | | | | | | | | | |
| 2019 | | 2018 | | 2017 |
| (In Thousands) |
Cash and cash equivalents at beginning of period |
| $36,954 |
| |
| $6,096 |
| |
| $76,834 |
|
| | | | | |
Net cash provided by (used in): | |
| | |
| | |
|
Operating activities | 339,952 |
| | 418,382 |
| | 226,585 |
|
Investing activities | (733,684 | ) | | (419,453 | ) | | (417,226 | ) |
Financing activities | 408,379 |
| | 31,929 |
| | 119,903 |
|
Net increase (decrease) in cash and cash equivalents | 14,647 |
| | 30,858 |
| | (70,738 | ) |
| | | | | |
Cash and cash equivalents at end of period |
| $51,601 |
| |
| $36,954 |
| |
| $6,096 |
|
2019 Compared to 2018
Operating Activities
Net cash flow provided by operating activities decreased $78.4 million in 2019 primarily due to:
the timing of collection of receivables from customers;
the receipt of $36.2 million from Entergy Arkansas as a result of a compliance filing made in response to the FERC’s October 2018 order in the Entergy Arkansas opportunity sales proceeding. See Note 2 to the financial statements for further discussion of the opportunity sales proceeding; and
$26.2 million in proceeds from the sale of fuel oil inventory in 2018.
The decrease was partially offset by the timing of recovery of fuel and purchased power costs and the return of unprotected excess accumulated deferred income taxes to customers in 2018. See Note 2 to the financial statements for further discussion of regulatory activity regarding the Tax Cuts and Jobs Act.
Investing Activities
Net cash flow used in investing activities increased $314.2 million in 2019 primarily due to:
the purchase of the Choctaw Generating Station in October 2019 for approximately $305 million. See Note 14 to the financial statements for further discussion of the Choctaw Generating Station purchase;
an increase of $34.9 million primarily due to investment in the infrastructure of Entergy Mississippi’s distribution system, including increased spending on advanced metering infrastructure; and
an increase of $15.6 million in storm spending in 2019.
The increase was partially offset by money pool activity.
Increases in Entergy Mississippi’s receivable from the money pool are a use of cash flow, and Entergy Mississippi’s receivable from the money pool increased by $3.3 million in 2019 compared to increasing by $39.7 million in 2018. The money pool is an inter-company borrowing arrangement designed to reduce the Utility subsidiaries’ need for external short-term borrowings.
Entergy Mississippi, LLC
Management’s Financial Discussion and Analysis
Financing Activities
Net cash flow provided by financing activities increased $376.5 million in 2019 primarily due to:
the issuance of $435 million of 3.85% Series mortgage bonds in 2019 compared to the issuance of $55 million of 4.52% Series mortgage bonds 2018;
a capital contribution of $130 million in October 2019 in anticipation of the purchase of the Choctaw Generating Station in October 2019; and
the redemption of $20 million of preferred stock in 2018 in connection with the internal restructuring. See Note 2 to the financial statements for further discussion of the internal restructuring and Note 6 to the financial statements for details of preferred stock activity.
The increase was partially offset by the repayment, at maturity, of $150 million of 6.64% Series mortgage bonds in July 2019.
See Note 5 to the financial statements for details on long-term debt.
2018 Compared to 2017
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Liquidity and Capital Resources - Cash Flow” in Entergy Mississippi’s Annual Report on Form 10-K for the year ended December 31, 2018 for discussion of operating, investing, and financing cash flow activities for 2018 compared to 2017.
Capital Structure
Entergy Mississippi’s debt to capital ratio is shown in the following table.
|
| | | | | |
| December 31, 2019 | | December 31, 2018 |
Debt to capital | 51.2 | % | | 50.6 | % |
Effect of subtracting cash | (0.8 | %) | | (0.7 | %) |
Net debt to net capital | 50.4 | % | | 49.9 | % |
Net debt consists of debt less cash and cash equivalents. Debt consists of short-term borrowings, finance lease obligations, and long-term debt, including the currently maturing portion. Capital consists of debt and equity. Net capital consists of capital less cash and cash equivalents. Entergy Mississippi uses the debt to capital ratio in analyzing its financial condition and believes it provides useful information to its investors and creditors in evaluating Entergy Mississippi’s financial condition. Entergy Mississippi uses the net debt to net capital ratio in analyzing its financial condition and believes it provides useful information to its investors and creditors in evaluating Entergy Mississippi’s financial condition because net debt indicates Entergy Mississippi’s outstanding debt position that could not be readily satisfied by cash and cash equivalents on hand.
Entergy Mississippi seeks to optimize its capital structure in accordance with its regulatory requirements and to control its cost of capital while also maintaining equity capitalization at a level consistent with investment-grade debt ratings. To the extent that operating cash flows are in excess of planned investments, cash may be used to reduce outstanding debt or may be paid as a distribution, or both, in appropriate amounts to maintain the capital structure. To the extent that operating cash flows are insufficient to support planned investments, Entergy Mississippi may issue incremental debt or reduce distributions, or both, to maintain its capital structure. In addition, in certain infrequent circumstances, such as large transactions that would materially alter the capital structure if financed entirely with debt and reducing distributions, Entergy Mississippi may receive equity contributions to maintain its capital structure.
Entergy Mississippi, LLC
Management’s Financial Discussion and Analysis
Uses of Capital
Entergy Mississippi requires capital resources for:
construction and other capital investments;
debt maturities or retirements;
working capital purposes, including the financing of fuel and purchased power costs; and
distributions and interest payments.
Following are the amounts of Entergy Mississippi’s planned construction and other capital investments.
|
| | | | | | | | | | | |
| 2020 | | 2021 | | 2022 |
| (In Millions) |
Planned construction and capital investment: | | | | | |
Generation |
| $110 |
| |
| $285 |
| |
| $85 |
|
Transmission | 130 |
| | 125 |
| | 90 |
|
Distribution | 150 |
| | 115 |
| | 95 |
|
Utility Support | 145 |
| | 130 |
| | 135 |
|
Total |
| $535 |
| |
| $655 |
| |
| $405 |
|
Following are the amounts of Entergy Mississippi’s existing debt obligations and lease obligations (includes estimated interest payments) and other purchase obligations.
|
| | | | | | | | | | | | | | | | | | | |
| 2020 | | 2021-2022 | | 2023-2024 | | After 2024 | | Total |
| (In Millions) |
Long-term debt (a) |
| $59 |
| |
| $118 |
| |
| $455 |
| |
| $2,301 |
| |
| $2,933 |
|
Operating leases (b) |
| $6 |
| |
| $9 |
| |
| $2 |
| |
| $2 |
| |
| $19 |
|
Finance leases (b) |
| $2 |
| |
| $3 |
| |
| $2 |
| |
| $1 |
| |
| $8 |
|
Purchase obligations (c) |
| $266 |
| |
| $502 |
| |
| $477 |
| |
| $4,444 |
| |
| $5,689 |
|
| |
(a) | Includes estimated interest payments. Long-term debt is discussed in Note 5 to the financial statements. |
| |
(b) | Lease obligations are discussed in Note 10 to the financial statements. |
| |
(c) | Purchase obligations represent the minimum purchase obligation or cancellation charge for contractual obligations to purchase goods or services. For Entergy Mississippi, almost all of the total consists of unconditional fuel and purchased power obligations, including its obligations under the Unit Power Sales Agreement, which is discussed in Note 8 to the financial statements. |
In addition to the contractual obligations given above, Entergy Mississippi currently expects to contribute approximately $7.8 million to its qualified pension plans and approximately $130 thousand to other postretirement health care and life insurance plans in 2020, although the 2020 required pension contributions will be known with more certainty when the January 1, 2020 valuations are completed, which is expected by April 1, 2020. See “Critical Accounting Estimates– Qualified Pension and Other Postretirement Benefits” below for a discussion of qualified pension and other postretirement benefits funding.
Also, in addition to the contractual obligations, Entergy Mississippi has $59.3 million of unrecognized tax benefits and interest net of unused tax attributes for which the timing of payments beyond 12 months cannot be reasonably estimated due to uncertainties in the timing of effective settlement of tax positions. See Note 3 to the financial statements for additional information regarding unrecognized tax benefits.
In addition to routine capital spending to maintain operations, the planned capital investment estimate for Entergy Mississippi includes amounts associated with specific investments such as the Sunflower Solar Facility;
Entergy Mississippi, LLC
Management’s Financial Discussion and Analysis
transmission projects to enhance reliability, reduce congestion, and enable economic growth; distribution spending to enhance reliability and improve service to customers, including advanced meters and related investments; resource planning, including potential generation projects; system improvements; software and security; and other investments. Estimated capital expenditures are subject to periodic review and modification and may vary based on the ongoing effects of regulatory constraints and requirements, environmental compliance, business opportunities, market volatility, economic trends, business restructuring, changes in project plans, and the ability to access capital.
As a wholly-owned subsidiary of Entergy Utility Holding Company, LLC, Entergy Mississippi pays distributions from its earnings at a percentage determined monthly.
Sunflower Solar Facility
In November 2018, Entergy Mississippi announced that it signed an agreement for the purchase of an approximately 100 MW to-be-constructed solar photovoltaic facility that will be sited on approximately 1,000 acres in Sunflower County, Mississippi. The estimated base purchase price is approximately $138.4 million. The estimated total investment, including the base purchase price and other related costs, for Entergy Mississippi to acquire the Sunflower Solar Facility is approximately $153.2 million. The purchase is contingent upon, among other things, obtaining necessary approvals, including full cost recovery, from applicable federal and state regulatory and permitting agencies. The project will be built by Sunflower County Solar Project, LLC, a sub-subsidiary of Recurrent Energy, LLC. Entergy Mississippi will purchase the facility upon mechanical completion and after the other purchase contingencies have been met. In December 2018, Entergy Mississippi filed a joint petition with Sunflower Solar Project at the MPSC for Sunflower Solar Project to construct and for Entergy Mississippi to acquire and thereafter own, operate, improve, and maintain the solar facility. Entergy Mississippi proposed revisions to its formula rate plan that would provide for a mechanism, the interim capacity rate adjustment mechanism, in the formula rate plan to recover the non-fuel related costs of additional owned capacity acquired by Entergy Mississippi, including the annual ownership costs of the Sunflower Solar Facility. In December 2019 the MPSC approved Entergy Mississippi’s proposed revisions to its formula rate plan to provide for an interim capacity rate adjustment mechanism. The MPSC must approve recovery through the interim capacity rate adjustment for each new resource. In August 2019 consultants retained by the Mississippi Public Utilities Staff filed a report expressing concerns regarding the project economics and recommended that, should the MPSC wish to approve the project, Entergy Mississippi should be required to guarantee the energy output of the unit. Entergy Mississippi and the Staff are engaged in settlement discussions to address these concerns. A hearing before the MPSC is targeted to occur by the second quarter of 2020. Closing is expected to occur by the end of 2021.
Sources of Capital
Entergy Mississippi’s sources to meet its capital requirements include:
internally generated funds;
cash on hand;
debt or preferred membership interest issuances;
capital contributions; and
bank financing under new or existing facilities.
Entergy Mississippi may refinance, redeem, or otherwise retire debt prior to maturity, to the extent market conditions and interest rates are favorable.
All debt and preferred membership interest issuances by Entergy Mississippi require prior regulatory approval. Debt issuances are also subject to issuance tests set forth in its bond indenture and other agreements. Entergy Mississippi has sufficient capacity under these tests to meet its foreseeable capital needs.
Entergy Mississippi, LLC
Management’s Financial Discussion and Analysis
Entergy Mississippi’s receivables from the money pool were as follows as of December 31 for each of the following years.
|
| | | | | | |
2019 | | 2018 | | 2017 | | 2016 |
(In Thousands) |
$44,693 | | $41,380 | | $1,633 | | $10,595 |
See Note 4 to the financial statements for a description of the money pool.
Entergy Mississippi has three separate credit facilities in the aggregate amount of $82.5 million scheduled to expire in May 2020. No borrowings were outstanding under the credit facilities as of December 31, 2019. In addition, Entergy Mississippi is a party to an uncommitted letter of credit facility as a means to post collateral to support its obligations to MISO. As of December 31, 2019, $1.8 million of letters of credit were outstanding under Entergy Mississippi’s uncommitted letter of credit facility. See Note 4 to the financial statements for additional discussion of the credit facilities.
Entergy Mississippi obtained authorization from the FERC through November 2020 for short-term borrowings not to exceed an aggregate amount of $175 million at any time outstanding and long-term borrowings and security issuances. See Note 4 to the financial statements for further discussion of Entergy Mississippi’s short-term borrowing limits.
State and Local Rate Regulation and Fuel-Cost Recovery
The rates that Entergy Mississippi charges for electricity significantly influence its financial position, results of operations, and liquidity. Entergy Mississippi is regulated and the rates charged to its customers are determined in regulatory proceedings. A governmental agency, the MPSC, is primarily responsible for approval of the rates charged to customers.
Formula Rate Plan Filings
In March 2017, Entergy Mississippi submitted its formula rate plan 2017 test year filing and 2016 look-back filing showing Entergy Mississippi’s earned return for the historical 2016 calendar year and projected earned return for the 2017 calendar year to be within the formula rate plan bandwidth, resulting in no change in rates. In June 2017, Entergy Mississippi and the Mississippi Public Utilities Staff entered into a stipulation that confirmed that Entergy Mississippi’s earned returns for both the 2016 look-back filing and 2017 test year were within the respective formula rate plan bandwidths. In June 2017 the MPSC approved the stipulation, which resulted in no change in rates.
In March 2018, Entergy Mississippi submitted its formula rate plan 2018 test year filing and 2017 look-back filing showing Entergy Mississippi’s earned return for the historical 2017 calendar year and projected earned return for the 2018 calendar year, in large part as a result of the lower federal corporate income tax rate effective in 2018, to be within the formula rate plan bandwidth, resulting in no change in rates. In June 2018, Entergy Mississippi and the Mississippi Public Utilities Staff entered into a stipulation that confirmed that Entergy Mississippi’s earned returns for both the 2017 look-back filing and 2018 test year were within the respective formula rate plan bandwidths. In June 2018 the MPSC approved the stipulation, which resulted in no change in rates.
In October 2018, Entergy Mississippi proposed revisions to its formula rate plan that would provide for a mechanism in the formula rate plan, the interim capacity rate adjustment mechanism, to recover the non-fuel related costs of additional owned capacity acquired by Entergy Mississippi, including the non-fuel annual ownership costs of the Choctaw Generating Station, as well as to allow similar cost recovery treatment for other future capacity acquisitions, such as the Sunflower Solar Facility, that are approved by the MPSC. In December 2019 the MPSC approved Entergy Mississippi’s proposed revisions to its formula rate plan to provide for an interim capacity rate adjustment mechanism, which Entergy Mississippi began billing in January 2020. The MPSC must approve recovery through the interim
Entergy Mississippi, LLC
Management’s Financial Discussion and Analysis
capacity rate adjustment for each new resource. In addition, the MPSC approved revisions to the formula rate plan which allows Entergy Mississippi to begin billing rate adjustments effective April 1 of the filing year on a temporary basis subject to refund or credit to customers, subject to final MPSC order. The MPSC also authorized Entergy Mississippi to remove vegetation management costs from the formula rate plan and recover these costs through the establishment of a vegetation management rider.
In March 2019, Entergy Mississippi submitted its formula rate plan 2019 test year filing and 2018 look-back filing showing Entergy Mississippi’s earned return for the historical 2018 calendar year to be above the formula rate plan bandwidth and projected earned return for the 2019 calendar year to be below the formula rate plan bandwidth. The 2019 test year filing shows a $36.8 million rate increase is necessary to reset Entergy Mississippi’s earned return on common equity to the specified point of adjustment of 6.94% return on rate base, within the formula rate plan bandwidth. The 2018 look-back filing compares actual 2018 results to the approved benchmark return on rate base and shows a $10.1 million interim decrease in formula rate plan revenues is necessary. In the fourth quarter 2018, Entergy Mississippi recorded a provision of $9.3 million that reflected the estimate of the difference between the 2018 expected earned rate of return on rate base and an established performance-adjusted benchmark rate of return under the formula rate plan performance-adjusted bandwidth mechanism. In the first quarter 2019, Entergy Mississippi recorded a $0.8 million increase in the provision to reflect the amount shown in the look-back filing. In June 2019, Entergy Mississippi and the Mississippi Public Utilities Staff entered into a joint stipulation that confirmed that the 2019 test year filing showed that a $32.8 million rate increase is necessary to reset Entergy Mississippi’s earned return on common equity to the specified point of adjustment of 6.93% return on rate base, within the formula rate plan bandwidth. Additionally, pursuant to the joint stipulation, Entergy Mississippi’s 2018 look-back filing reflected an earned return on rate base of 7.81% in calendar year 2018 which is above the look-back benchmark return on rate base of 7.13%, resulting in an $11 million decrease in formula rate plan revenues on an interim basis through May 2020. In the second quarter 2019, Entergy Mississippi recorded an additional $0.9 million increase in the provision to reflect the $11 million shown in the look-back filing. In June 2019 the MPSC approved the joint stipulation with rates effective for the first billing cycle of July 2019.
Internal Restructuring
In March 2018, Entergy Mississippi filed an application with the MPSC seeking authorization to undertake a restructuring that would result in the transfer of substantially all of the assets and operations of Entergy Mississippi to a new entity, which would ultimately be held by an existing Entergy subsidiary holding company. In September 2018, Entergy Mississippi and the Mississippi Public Utilities Staff entered into and filed a joint stipulation regarding the restructuring filing. In September 2018 the MPSC issued an order accepting the stipulation in its entirety and approving the restructuring and credits of $27 million to retail customers over six years, consisting of annual payments of $4.5 million for the years 2019-2024. Entergy Mississippi also received the required FERC approval.
In November 2018, Entergy Mississippi undertook a multi-step restructuring, including the following:
Entergy Mississippi, Inc. redeemed its outstanding preferred stock, at the aggregate redemption price of approximately $21.2 million.
Entergy Mississippi, Inc. converted from a Mississippi corporation to a Texas corporation.
Under the Texas Business Organizations Code (TXBOC), Entergy Mississippi, Inc. allocated substantially all of its assets to a new subsidiary, Entergy Mississippi Power and Light, LLC, a Texas limited liability company (Entergy Mississippi Power and Light), and Entergy Mississippi Power and Light assumed substantially all of the liabilities of Entergy Mississippi, Inc., in a transaction regarded as a merger under the TXBOC. Entergy Mississippi, Inc. remained in existence and held the membership interests in Entergy Mississippi Power and Light.
Entergy Mississippi, Inc. contributed the membership interests in Entergy Mississippi Power and Light to an affiliate (Entergy Utility Holding Company, LLC, a Texas limited liability company and subsidiary of Entergy Corporation). As a result of the contribution, Entergy Mississippi Power and Light is a wholly-owned subsidiary of Entergy Utility Holding Company, LLC.
Entergy Mississippi, LLC
Management’s Financial Discussion and Analysis
In December 2018, Entergy Mississippi, Inc. changed its name to Entergy Utility Enterprises, Inc., and Entergy Mississippi Power and Light then changed its name to Entergy Mississippi, LLC. Entergy Mississippi, LLC holds substantially all of the assets, and assumed substantially all of the liabilities, of Entergy Mississippi, Inc. The restructuring was accounted for as a transaction between entities under common control.
In December 2018, Entergy Mississippi filed its notice of intent to implement the restructuring credit rider to allow Entergy Mississippi to return credits of $27 million to retail customers over six years. In January 2019 the MPSC approved the proposed restructuring credit adjustment factor, which is effective for bills rendered beginning February 2019.
Advanced Metering Infrastructure (AMI)
In November 2016, Entergy Mississippi filed an application seeking an order from the MPSC granting a certificate of public convenience and necessity and finding that Entergy Mississippi’s deployment of AMI is in the public interest. Entergy Mississippi proposed to replace existing meters with advanced meters that enable two-way data communication; to design and build a secure and reliable network to support such communications; and to implement support systems. AMI is intended to serve as the foundation of Entergy Mississippi’s modernized power grid. The filing included an estimate of implementation costs for AMI of $132 million and identified a number of quantified and unquantified benefits. Entergy Mississippi proposed a 15-year depreciable life for the new advanced meters, the three-year deployment of which began in 2019. Deployment of the communications network began in 2018. Entergy Mississippi proposed to include the AMI deployment costs and the quantified benefits in existing rate mechanisms, primarily through future formula rate plan filings and/or future energy cost recovery rider schedule re-determinations, as applicable. In May 2017 the Mississippi Public Utilities Staff and Entergy Mississippi entered into and filed a joint stipulation supporting Entergy Mississippi’s filing, and the MPSC issued an order approving the filing without material changes, finding that Entergy Mississippi’s deployment of AMI is in the public interest and granting a certificate of public convenience and necessity. The MPSC order also confirmed that Entergy Mississippi shall continue to include in rate base the remaining book value of existing meters that will be retired as part of the AMI deployment and also to depreciate those assets using current depreciation rates. In June 2018, as part of the order approving the joint stipulation between the Mississippi Public Utilities Staff and Entergy Mississippi addressing Entergy Mississippi’s 2018 formula rate plan evaluation report and the ratemaking effects of the Tax Act, the MPSC approved the acceleration of the recovery of substantially all of Entergy Mississippi’s existing customer meters in anticipation of AMI deployment.
Fuel and Purchased Power Cost Recovery
Entergy Mississippi’s rate schedules include an energy cost recovery rider that is adjusted annually to reflect accumulated over- or under-recoveries. Entergy Mississippi’s fuel cost recoveries are subject to annual audits conducted pursuant to the authority of the MPSC.
In January 2017 the MPSC certified to the Mississippi Legislature the audit reports of its independent auditors for the fuel year ending September 30, 2016. In November 2017 the Mississippi Public Utilities Staff separately engaged a consultant to review the September 2016 outage at the Grand Gulf Nuclear Station and to review ongoing operations at Grand Gulf. This engagement continues, and subsequently, was expanded to include all outages at Grand Gulf that occurred through 2019.
In November 2017, Entergy Mississippi filed its annual redetermination of the annual factor to be applied under the energy cost recovery rider. The calculation of the annual factor included an under-recovery of approximately $61.5 million as of September 30, 2017. In January 2018 the MPSC approved the proposed energy cost factors effective for February 2018 bills.
Entergy Mississippi, LLC
Management’s Financial Discussion and Analysis
In November 2018, Entergy Mississippi filed its annual redetermination of the annual factor to be applied under the energy cost recovery rider. The calculation of the annual factor included an under-recovery of approximately $57 million as of September 30, 2018. In January 2019 the MPSC approved the proposed energy cost factor effective for February 2019 bills.
In November 2019, Entergy Mississippi filed its annual redetermination of the annual factor to be applied under the energy cost recovery rider. The calculation of the annual factor included an over-recovery of approximately $39.6 million as of September 30, 2019. In January 2020 the MPSC approved the proposed energy cost factor effective for February 2020 bills.
Mississippi Attorney General Complaint
The Mississippi Attorney General filed a complaint in state court in December 2008 against Entergy Corporation, Entergy Mississippi, Entergy Services, and Entergy Power alleging, among other things, violations of Mississippi statutes, fraud, and breach of good faith and fair dealing, and requesting an accounting and restitution. The complaint is wide ranging and relates to tariffs and procedures under which Entergy Mississippi purchases power not generated in Mississippi to meet electricity demand. Entergy believes the complaint is unfounded. In December 2008 the defendant Entergy companies removed the Attorney General’s lawsuit to U.S. District Court in Jackson, Mississippi. In June 2010 the MPSC authorized the deferral of certain legal expenses associated with this litigation until it is resolved. As of December 31, 2019, Entergy Mississippi has a regulatory asset of $29.5 million for these deferred legal expenses. In April 2019 the District Court remanded the Attorney General’s lawsuit to the Hinds County Chancery Court. A hearing on procedural and dispositive motions was held in August 2019. In December 2019 the Hinds County Chancery Court issued its ruling granting the motion for summary judgment filed by the Entergy defendants. The Chancery Court found it lacked subject matter jurisdiction and that the claims fall under the purview of the FERC. In February 2020 the Chancery Court entered a final order dismissing all claims. The order was approved by counsel for the Attorney General, and dismisses with prejudice all claims and matters in dispute and states that the plaintiff will not seek an appeal or further relief and that all matters in dispute have been resolved.
Storm Cost Recovery Filings with Retail Regulators
Entergy Mississippi has approval from the MPSC to collect a storm damage provision of $1.75 million per month. If Entergy Mississippi’s accumulated storm damage provision balance exceeds $15 million, the collection of the storm damage provision ceases until such time that the accumulated storm damage provision becomes less than $10 million. As of July 31, 2017, the balance in Entergy Mississippi’s accumulated storm damage provision was less than $10 million, therefore Entergy Mississippi resumed billing the monthly storm damage provision effective with September 2017 bills. As of June 30, 2018, Entergy Mississippi’s storm damage provision balance exceeded $15 million. Accordingly, the storm damage provision was reset to zero beginning with August 2018 bills. As of May 31, 2019, Entergy Mississippi’s storm damage provision balance was less than $10 million. Accordingly, Entergy Mississippi resumed billing the monthly storm damage provision effective with July 2019 bills.
Federal Regulation
See the “Rate, Cost-recovery, and Other Regulation– Federal Regulation” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis and Note 2 to the financial statements for a discussion of federal regulation.
Nuclear Matters
See the “Nuclear Matters” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for a discussion of nuclear matters.
Entergy Mississippi, LLC
Management’s Financial Discussion and Analysis
Environmental Risks
Entergy Mississippi’s facilities and operations are subject to regulation by various governmental authorities having jurisdiction over air quality, water quality, control of toxic substances and hazardous and solid wastes, and other environmental matters. Management believes that Entergy Mississippi is in substantial compliance with environmental regulations currently applicable to its facilities and operations, with reference to possible exceptions noted in “Regulation of Entergy’s Business - Environmental Regulation” in Part I, Item 1. Because environmental regulations are subject to change, future compliance costs cannot be precisely estimated.
Critical Accounting Estimates
The preparation of Entergy Mississippi’s financial statements in conformity with generally accepted accounting principles requires management to apply appropriate accounting policies and to make estimates and judgments that can have a significant effect on reported financial position, results of operations, and cash flows. Management has identified the following accounting policies and estimates as critical because they are based on assumptions and measurements that involve a high degree of uncertainty, and there is the potential for future changes in the assumptions and measurements that could produce estimates that would have a material impact on the presentation of Entergy Mississippi’s financial position or results of operations.
Utility Regulatory Accounting
See “Utility Regulatory Accounting” in the “Critical Accounting Estimates” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for discussion of accounting for the effects of rate regulation.
Impairment of Long-lived Assets and Trust Fund Investments
See “Impairment of Long-lived Assets and Trust Fund Investments” in the “Critical Accounting Estimates” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for discussion of the estimates associated with the impairment of long-lived assets.
Taxation and Uncertain Tax Positions
See “Taxation and Uncertain Tax Positions” in the “Critical Accounting Estimates” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for further discussion.
Qualified Pension and Other Postretirement Benefits
Entergy Mississippi’s qualified pension and other postretirement reported costs, as described in Note 11 to the financial statements, are impacted by numerous factors including the provisions of the plans, changing employee demographics, and various actuarial calculations, assumptions, and accounting mechanisms. See the “Qualified Pension and Other Postretirement Benefits” in the “Critical Accounting Estimates” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for further discussion. Because of the complexity of these calculations, the long-term nature of these obligations, and the importance of the assumptions utilized, Entergy’s estimate of these costs is a critical accounting estimate.
Entergy Mississippi, LLC
Management’s Financial Discussion and Analysis
Cost Sensitivity
The following chart reflects the sensitivity of qualified pension cost and qualified projected benefit obligation to changes in certain actuarial assumptions (dollars in thousands).
|
| | | | | | |
Actuarial Assumption | | Change in Assumption | | Impact on 2020 Qualified Pension Cost | | Impact on 2019 Projected Qualified Benefit Obligation |
| | | | Increase/(Decrease) | | |
Discount rate | | (0.25%) | | $719 | | $11,678 |
Rate of return on plan assets | | (0.25%) | | $823 | | $— |
Rate of increase in compensation | | 0.25% | | $483 | | $2,529 |
The following chart reflects the sensitivity of postretirement benefit cost and accumulated postretirement benefit obligation to changes in certain actuarial assumptions (dollars in thousands).
|
| | | | | | |
Actuarial Assumption | | Change in Assumption | | Impact on 2020 Postretirement Benefit Cost | | Impact on 2019 Accumulated Postretirement Benefit Obligation |
| | | | Increase/(Decrease) | | |
Discount rate | | (0.25%) | | $29 | | $1,939 |
Health care cost trend | | 0.25% | | $81 | | $1,456 |
Each fluctuation above assumes that the other components of the calculation are held constant.
Costs and Employer Contributions
Total qualified pension cost for Entergy Mississippi in 2019 was $11.3 million. Entergy Mississippi anticipates 2020 qualified pension cost to be $17.4 million. Entergy Mississippi contributed $20.8 million to its qualified pension plans in 2019 and estimates 2020 pension contributions will be approximately $7.8 million, although the 2020 required pension contributions will be known with more certainty when the January 1, 2020 valuations are completed, which is expected by April 1, 2020.
Total postretirement health care and life insurance benefit income for Entergy Mississippi in 2019 was $2.1 million. Entergy Mississippi expects 2020 postretirement health care and life insurance benefit income of approximately $3.1 thousand. Entergy Mississippi contributed $228 thousand to its other postretirement plans in 2019 and estimates that 2020 contributions will be approximately $130 thousand.
Other Contingencies
See “Other Contingencies” in the “Critical Accounting Estimates” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for a discussion of the estimates associated with environmental, litigation, and other risks.
New Accounting Pronouncements
See “New Accounting Pronouncements” section of Note 1 to the financial statements for a discussion of new accounting pronouncements.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the member and Board of Directors of
Entergy Mississippi, LLC
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Entergy Mississippi, LLC (the “Company”) as of December 31, 2019 and 2018, the related statements of income, cash flows and changes in member’s equity (pages 363 through 368 and applicable items in pages 49 through 236), for each of the three years in the period ended December 31, 2019, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ DELOITTE & TOUCHE LLP
New Orleans, Louisiana
February 21, 2020
We have served as the Company’s auditor since 2001.
|
| | | | | | | | | | | | |
ENTERGY MISSISSIPPI, LLC |
INCOME STATEMENTS |
| | |
| | For the Years Ended December 31, |
| | 2019 | | 2018 | | 2017 |
| | (In Thousands) |
| | | | | | |
OPERATING REVENUES | | | | | | |
Electric | |
| $1,323,043 |
| |
| $1,335,112 |
| |
| $1,198,229 |
|
| | | | | | |
OPERATING EXPENSES | | |
| | |
| | |
|
Operation and Maintenance: | | |
| | |
| | |
|
Fuel, fuel-related expenses, and gas purchased for resale | | 277,425 |
| | 260,198 |
| | 185,816 |
|
Purchased power | | 284,492 |
| | 364,575 |
| | 328,463 |
|
Other operation and maintenance | | 266,175 |
| | 261,613 |
| | 240,738 |
|
Taxes other than income taxes | | 105,318 |
| | 101,999 |
| | 95,051 |
|
Depreciation and amortization | | 170,886 |
| | 152,577 |
| | 143,479 |
|
Other regulatory charges (credits) - net | | 14,993 |
| | 147,704 |
| | (19,134 | ) |
TOTAL | | 1,119,289 |
| | 1,288,666 |
| | 974,413 |
|
| | | | | | |
OPERATING INCOME | | 203,754 |
| | 46,446 |
| | 223,816 |
|
| | | | | | |
OTHER INCOME | | |
| | |
| | |
|
Allowance for equity funds used during construction | | 8,356 |
| | 8,710 |
| | 9,667 |
|
Interest and investment income | | 1,412 |
| | 135 |
| | 85 |
|
Miscellaneous - net | | (4,478 | ) | | (2,732 | ) | | (2,232 | ) |
TOTAL | | 5,290 |
| | 6,113 |
| | 7,520 |
|
| | | | | | |
INTEREST EXPENSE | | |
| | |
| | |
|
Interest expense | | 61,785 |
| | 55,905 |
| | 51,260 |
|
Allowance for borrowed funds used during construction | | (3,532 | ) | | (3,651 | ) | | (3,875 | ) |
TOTAL | | 58,253 |
| | 52,254 |
| | 47,385 |
|
| | | | | | |
INCOME BEFORE INCOME TAXES | | 150,791 |
| | 305 |
| | 183,951 |
|
| | | | | | |
Income taxes | | 30,866 |
| | (125,773 | ) | | 73,919 |
|
| | | | | | |
NET INCOME | | 119,925 |
| | 126,078 |
| | 110,032 |
|
| | | |
|
| | |
Preferred dividend requirements and other | | — |
| | 834 |
| | 953 |
|
| | | | | | |
EARNINGS APPLICABLE TO COMMON EQUITY | |
| $119,925 |
| |
| $125,244 |
| |
| $109,079 |
|
| | | | | | |
See Notes to Financial Statements. | | |
| | |
| | |
|
(Page left blank intentionally)
|
| | | | | | | | | | | | |
ENTERGY MISSISSIPPI, LLC |
STATEMENTS OF CASH FLOWS |
| | |
| | For the Years Ended December 31, |
| | 2019 | | 2018 | | 2017 |
| | (In Thousands) |
| | | | | | |
OPERATING ACTIVITIES | | | | | | |
Net income | |
| $119,925 |
| |
| $126,078 |
| |
| $110,032 |
|
Adjustments to reconcile net income to net cash flow provided by operating activities: | | | | | | |
Depreciation and amortization | | 170,886 |
| | 152,577 |
| | 143,479 |
|
Deferred income taxes, investment tax credits, and non-current taxes accrued | | 32,547 |
| | 56,502 |
| | 84,816 |
|
Changes in assets and liabilities: | | |
| | |
| | |
|
Receivables | | (17,245 | ) | | 37,762 |
| | (29,528 | ) |
Fuel inventory | | (3,208 | ) | | 33,675 |
| | 5,266 |
|
Accounts payable | | (226 | ) | | (7,472 | ) | | 3,595 |
|
Taxes accrued | | 13,109 |
| | (5,291 | ) | | 18,803 |
|
Interest accrued | | (1,331 | ) | | (2,670 | ) | | 1,248 |
|
Deferred fuel costs | | 78,418 |
| | 24,428 |
| | (25,487 | ) |
Other working capital accounts | | (5,557 | ) | | (9,902 | ) | | 5,115 |
|
Provisions for estimated losses | | (1,121 | ) | | 6,378 |
| | (9,676 | ) |
Other regulatory assets | | (34,923 | ) | | 54,860 |
| | (17,412 | ) |
Other regulatory liabilities | | (21,524 | ) | | (131,856 | ) | | 405,395 |
|
Deferred tax rate change recognized as regulatory liability/asset | | — |
| | — |
| | (452,429 | ) |
Pension and other postretirement liabilities | | 6,534 |
| | (8,405 | ) | | (8,055 | ) |
Other assets and liabilities | | 3,668 |
| | 91,718 |
| | (8,577 | ) |
Net cash flow provided by operating activities | | 339,952 |
| | 418,382 |
| | 226,585 |
|
INVESTING ACTIVITIES | | |
| | |
| | |
|
Construction expenditures | | (432,600 | ) | | (387,293 | ) | | (427,616 | ) |
Allowance for equity funds used during construction | | 8,356 |
| | 8,710 |
| | 9,667 |
|
Changes in money pool receivable - net | | (3,313 | ) | | (39,747 | ) | | 8,962 |
|
Payment for purchase of plant or assets | | (305,472 | ) | | — |
| | (6,958 | ) |
Other | | (655 | ) | | (1,123 | ) | | (1,281 | ) |
Net cash flow used in investing activities | | (733,684 | ) | | (419,453 | ) | | (417,226 | ) |
FINANCING ACTIVITIES | | |
| | |
| | |
|
Proceeds from the issuance of long-term debt | | 437,153 |
| | 54,449 |
| | 148,185 |
|
Retirement of long-term debt | | (150,000 | ) | | — |
| | — |
|
Redemption of preferred stock | | — |
| | (21,208 | ) | | — |
|
Capital contributions from parent | | 130,000 |
| | — |
| | — |
|
Distributions/dividends paid: | | |
| | |
| | |
|
Common equity | | — |
| | (10,000 | ) | | (26,000 | ) |
Preferred stock | | — |
| | (993 | ) | | (953 | ) |
Other | | (8,774 | ) | | 9,681 |
| | (1,329 | ) |
Net cash flow provided by financing activities | | 408,379 |
| | 31,929 |
| | 119,903 |
|
Net increase (decrease) in cash and cash equivalents | | 14,647 |
| | 30,858 |
| | (70,738 | ) |
Cash and cash equivalents at beginning of period | | 36,954 |
| | 6,096 |
| | 76,834 |
|
Cash and cash equivalents at end of period | |
| $51,601 |
| |
| $36,954 |
| |
| $6,096 |
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | | | | |
| | |
|
Cash paid (received) during the period for: | | |
| | |
| | |
|
Interest - net of amount capitalized | |
| $60,533 |
| |
| $56,037 |
| |
| $47,631 |
|
Income taxes | |
| ($12,204 | ) | |
| ($19,118 | ) | |
| ($25,043 | ) |
See Notes to Financial Statements. | | |
| | |
| | |
|
|
| | | | | | | | |
ENTERGY MISSISSIPPI, LLC |
BALANCE SHEETS |
ASSETS |
| | |
| | December 31, |
| | 2019 | | 2018 |
| | (In Thousands) |
| | | | |
CURRENT ASSETS | | | | |
Cash and cash equivalents: | | | | |
Cash | |
| $11 |
| |
| $11 |
|
Temporary cash investments | | 51,590 |
| | 36,943 |
|
Total cash and cash equivalents | | 51,601 |
| | 36,954 |
|
Accounts receivable: | | |
| | |
|
Customer | | 92,050 |
| | 73,205 |
|
Allowance for doubtful accounts | | (636 | ) | | (563 | ) |
Associated companies | | 49,257 |
| | 51,065 |
|
Other | | 14,986 |
| | 8,647 |
|
Accrued unbilled revenues | | 47,426 |
| | 50,171 |
|
Total accounts receivable | | 203,083 |
| | 182,525 |
|
Deferred fuel costs | | — |
| | 8,016 |
|
Fuel inventory - at average cost | | 15,139 |
| | 11,931 |
|
Materials and supplies - at average cost | | 57,972 |
| | 47,255 |
|
Prepayments and other | | 7,149 |
| | 9,365 |
|
TOTAL | | 334,944 |
| | 296,046 |
|
| | | | |
OTHER PROPERTY AND INVESTMENTS | | |
| | |
|
Non-utility property - at cost (less accumulated depreciation) | | 4,560 |
| | 4,576 |
|
Escrow accounts | | 80,201 |
| | 32,447 |
|
TOTAL | | 84,761 |
| | 37,023 |
|
| | | | |
UTILITY PLANT | | |
| | |
|
Electric | | 5,672,589 |
| | 4,780,720 |
|
Construction work in progress | | 88,373 |
| | 128,149 |
|
TOTAL UTILITY PLANT | | 5,760,962 |
| | 4,908,869 |
|
Less - accumulated depreciation and amortization | | 1,894,000 |
| | 1,641,821 |
|
UTILITY PLANT - NET | | 3,866,962 |
| | 3,267,048 |
|
| | | | |
DEFERRED DEBITS AND OTHER ASSETS | | |
| | |
|
Regulatory assets: | | |
| | |
|
Other regulatory assets | | 377,972 |
| | 343,049 |
|
Other | | 10,105 |
| | 3,638 |
|
TOTAL | | 388,077 |
| | 346,687 |
|
| | | | |
TOTAL ASSETS | |
| $4,674,744 |
| |
| $3,946,804 |
|
| | | | |
See Notes to Financial Statements. | | |
| | |
|
|
| | | | | | | | |
ENTERGY MISSISSIPPI, LLC |
BALANCE SHEETS |
LIABILITIES AND EQUITY |
| | |
| | December 31, |
| | 2019 | | 2018 |
| | (In Thousands) |
| | | | |
CURRENT LIABILITIES | | | | |
Currently maturing long-term debt | |
| $— |
| |
| $150,000 |
|
Accounts payable: | | |
| | |
|
Associated companies | | 48,090 |
| | 42,928 |
|
Other | | 94,729 |
| | 79,117 |
|
Customer deposits | | 85,938 |
| | 85,085 |
|
Taxes accrued | | 90,661 |
| | 77,552 |
|
Interest accrued | | 18,900 |
| | 20,231 |
|
Deferred fuel costs | | 70,402 |
| | — |
|
Other | | 32,667 |
| | 7,526 |
|
TOTAL | | 441,387 |
| | 462,439 |
|
| | | | |
NON-CURRENT LIABILITIES | | |
| | |
|
Accumulated deferred income taxes and taxes accrued | | 594,832 |
| | 551,869 |
|
Accumulated deferred investment tax credits | | 9,602 |
| | 10,186 |
|
Regulatory liability for income taxes - net | | 236,988 |
| | 246,402 |
|
Other regulatory liabilities | | 21,512 |
| | 33,622 |
|
Asset retirement cost liabilities | | 9,727 |
| | 9,206 |
|
Accumulated provisions | | 50,021 |
| | 51,142 |
|
Pension and other postretirement liabilities | | 99,406 |
| | 93,100 |
|
Long-term debt | | 1,614,129 |
| | 1,175,750 |
|
Other | | 54,989 |
| | 20,862 |
|
TOTAL | | 2,691,206 |
| | 2,192,139 |
|
| | | | |
Commitments and Contingencies | |
|
| |
|
|
| | | | |
EQUITY | | |
| | |
|
Member's equity | | 1,542,151 |
| | 1,292,226 |
|
TOTAL | | 1,542,151 |
| | 1,292,226 |
|
| | | | |
TOTAL LIABILITIES AND EQUITY | |
| $4,674,744 |
| |
| $3,946,804 |
|
| | | | |
See Notes to Financial Statements. | | |
| | |
|
|
| | | |
ENTERGY MISSISSIPPI, LLC |
STATEMENTS OF CHANGES IN MEMBER'S EQUITY |
For the Years Ended December 31, 2019, 2018, and 2017 |
| |
| |
| Member's Equity |
| (In Thousands) |
| |
Balance at December 31, 2016 |
| $1,094,791 |
|
Net income | 110,032 |
|
Common equity distributions | (26,000 | ) |
Preferred stock dividends | (953 | ) |
Balance at December 31, 2017 |
| $1,177,870 |
|
Net income | 126,078 |
|
Common equity distributions | (10,000 | ) |
Preferred stock dividends | (834 | ) |
Other | (888 | ) |
Balance at December 31, 2018 |
| $1,292,226 |
|
Net income | 119,925 |
|
Capital contribution from parent | 130,000 |
|
Balance at December 31, 2019 |
| $1,542,151 |
|
| |
See Notes to Financial Statements. | |
|
|
| | | | | | | | | | | | | | | | | | | |
ENTERGY MISSISSIPPI, LLC |
SELECTED FINANCIAL DATA - FIVE-YEAR COMPARISON |
| | | | | | | | | |
| 2019 | | 2018 | | 2017 | | 2016 | | 2015 |
| (In Thousands) |
| | | | | | | | | |
Operating revenues |
| $1,323,043 |
| |
| $1,335,112 |
| |
| $1,198,229 |
| |
| $1,094,649 |
| |
| $1,396,985 |
|
Net income |
| $119,925 |
| |
| $126,078 |
| |
| $110,032 |
| |
| $109,184 |
| |
| $92,708 |
|
Total assets |
| $4,674,744 |
| |
| $3,946,804 |
| |
| $3,879,375 |
| |
| $3,602,140 |
| |
| $3,477,407 |
|
Long-term obligations (a) |
| $1,614,129 |
| |
| $1,175,750 |
| |
| $1,290,503 |
| |
| $1,141,924 |
| |
| $972,058 |
|
| | | | | | | | | |
(a) Includes long-term debt (excluding currently maturing debt), non-current capital lease obligations, and preferred stock without sinking fund. |
| | | | | | | | | |
| 2019 | | 2018 | | 2017 | | 2016 | | 2015 |
| (Dollars In Millions) |
| | | | | | | | | |
Electric Operating Revenues: | |
| | |
| | |
| | |
| | |
|
Residential |
| $562 |
| |
| $579 |
| |
| $502 |
| |
| $459 |
| |
| $565 |
|
Commercial | 444 |
| | 462 |
| | 423 |
| | 374 |
| | 465 |
|
Industrial | 165 |
| | 175 |
| | 159 |
| | 134 |
| | 164 |
|
Governmental | 44 |
| | 44 |
| | 41 |
| | 38 |
| | 47 |
|
Total billed retail | 1,215 |
| | 1,260 |
| | 1,125 |
| | 1,005 |
| | 1,241 |
|
Sales for resale: | |
| | |
| | |
| | |
| | |
|
Associated companies | — |
| | 1 |
| | — |
| | 1 |
| | 75 |
|
Non-associated companies | 39 |
| | 25 |
| | 18 |
| | 30 |
| | 10 |
|
Other | 69 |
| | 49 |
| | 55 |
| | 59 |
| | 71 |
|
Total |
| $1,323 |
| |
| $1,335 |
| |
| $1,198 |
| |
| $1,095 |
| |
| $1,397 |
|
| | | | | | | | | |
Billed Electric Energy Sales (GWh): | | | |
| | |
| | |
| | |
|
Residential | 5,659 |
| | 5,829 |
| | 5,308 |
| | 5,617 |
| | 5,661 |
|
Commercial | 4,698 |
| | 4,865 |
| | 4,783 |
| | 4,894 |
| | 4,913 |
|
Industrial | 2,443 |
| | 2,559 |
| | 2,536 |
| | 2,493 |
| | 2,283 |
|
Governmental | 436 |
| | 438 |
| | 421 |
| | 439 |
| | 433 |
|
Total retail | 13,236 |
| | 13,691 |
| | 13,048 |
| | 13,443 |
| | 13,290 |
|
Sales for resale: | |
| | |
| | |
| | |
| | |
|
Associated companies | — |
| | — |
| | — |
| | — |
| | 1,419 |
|
Non-associated companies | 1,776 |
| | 1,060 |
| | 857 |
| | 1,021 |
| | 261 |
|
Total | 15,012 |
| | 14,751 |
| | 13,905 |
| | 14,464 |
| | 14,970 |
|
ENTERGY NEW ORLEANS, LLC AND SUBSIDIARIES
MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS
Results of Operations
2019 Compared to 2018
Net Income
Net income decreased $0.5 million primarily due to lower retail electric price and a higher effective income tax rate, substantially offset by higher other income and lower other operation and maintenance expenses.
Operating Revenues
Following is an analysis of the change in operating revenues comparing 2019 to 2018.
|
| | | |
| Amount |
| (In Millions) |
| |
2018 operating revenues |
| $717.4 |
|
Fuel, rider, and other revenues that do not significantly affect net income | (37.4 | ) |
Retail electric price | (5.5 | ) |
Volume/weather | 1.8 |
|
Return of unprotected excess accumulated deferred income taxes to customers | 9.9 |
|
2019 operating revenues |
| $686.2 |
|
Entergy New Orleans’s results include revenues from rate mechanisms designed to recover fuel, purchased power, and other costs such that the revenues and expenses associated with these items generally offset and do not affect net income. “Fuel, rider, and other revenues that do not significantly affect net income” includes the revenue variance associated with these items.
The retail electric price variance is primarily due to a provision for rate refund recorded in fourth quarter 2019 as a result of the 2018 combined rate case resolution approved by the City Council. See Note 2 to the financial statements for further discussion of the rate case resolution.
The volume/weather variance is primarily due to an increase in usage during the unbilled sales period.
The return of unprotected excess accumulated deferred income taxes to customers variance is due to a decrease in the return of unprotected excess accumulated deferred income taxes through the fuel adjustment clause. In 2019, $2.1 million was returned to customers as compared to $12 million in 2018. There is no effect on net income as the reduction in operating revenues in each period is offset by a reduction in income tax expense. See Note 2 to the financial statements for discussion of regulatory activity regarding the Tax Cuts and Jobs Act.
Other Income Statement Variances
Other operation and maintenance expenses decreased primarily due to:
a decrease of $9.2 million as a result of the deferral in 2019 of 2018 costs related to the rate case and a system conversion for Algiers customers as a result of the 2018 combined rate case resolution approved by the City
Entergy New Orleans, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
Council. See Note 2 to the financial statements for further discussion of the rate case resolution; and
a decrease of $2.9 million in distribution expenses primarily due to lower contract labor costs.
The decrease was partially offset by:
an increase of $2.9 million in spending on initiatives to explore new customer products and services;
an increase of $2.8 million in information technology costs primarily due to higher software maintenance costs and higher contract costs;
an increase of $2 million in customer service costs primarily due to higher labor costs, including contract labor; and
an increase of $1.8 million in energy efficiency costs.
Other income increased primarily due to:
an increase in allowance for equity funds used during construction resulting from higher construction work in progress in 2019, including the New Orleans Power Station project; and
| |
• | the accrual in fourth quarter 2018 of a $5 million settlement offer in the New Orleans Power Station show cause proceeding. See “Liquidity and Capital Resources - Uses of Capital - New Orleans Power Station” below for discussion of the New Orleans Power Station proceedings. |
The effective income tax rates were 0.4% for 2019 and (4.8%) for 2018. The differences in the effective income tax rates versus the federal statutory rate of 21% for 2019 and 2018 were primarily due to the amortization of excess accumulated deferred income taxes. See Note 3 to the financial statements for a reconciliation of the federal statutory rate of 21% to the effective income tax rates.
2018 Compared to 2017
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Results of Operations” in Entergy New Orleans’s Annual Report on Form 10-K for the year ended December 31, 2018 for discussion of results of operations for 2018 compared to 2017.
Income Tax Legislation
See the “Income Tax Legislation” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for discussion of the Tax Cuts and Jobs Act, the federal income tax legislation enacted in December 2017. Note 3 to the financial statements contains additional discussion of the effect of the Act on 2017, 2018, and 2019 results of operations and financial position, the provisions of the Act, and the uncertainties associated with accounting for the Act, and Note 2 to the financial statements discusses the regulatory proceedings that have considered the effects of the Act.
Entergy New Orleans, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
Liquidity and Capital Resources
Cash Flow
Cash flows for the years ended December 31, 2017, 2016,2019, 2018, and 20152017 were as follows:
| | | 2017 | | 2016 | | 2015 | 2019 | | 2018 | | 2017 |
| (In Thousands) | (In Thousands) |
Cash and cash equivalents at beginning of period |
| $103,068 |
| |
| $88,876 |
| |
| $42,389 |
|
| $19,677 |
| |
| $32,741 |
| |
| $103,068 |
|
| | | | | | | | | | |
Net cash provided by (used in): | |
| | |
| | |
| |
| | |
| | |
|
Operating activities | 127,797 |
| | 205,211 |
| | 105,068 |
| 115,604 |
| | 171,778 |
| | 127,797 |
|
Investing activities | (109,500 | ) | | (322,681 | ) | | (173,460 | ) | (204,310 | ) | | (207,616 | ) | | (109,500 | ) |
Financing activities | (88,624 | ) | | 131,662 |
| | 114,879 |
| 75,046 |
| | 22,774 |
| | (88,624 | ) |
Net increase (decrease) in cash and cash equivalents | (70,327 | ) |
| 14,192 |
|
| 46,487 |
| |
Net decrease in cash and cash equivalents | | (13,660 | ) |
| (13,064 | ) |
| (70,327 | ) |
| | | | | | | | | | |
Cash and cash equivalents at end of period |
| $32,741 |
|
|
| $103,068 |
|
|
| $88,876 |
|
| $6,017 |
|
|
| $19,677 |
|
|
| $32,741 |
|
2019 Compared to 2018
Operating Activities
Net cash flow provided by operating activities decreased $77.4$56.2 million in 20172019 primarily due to a decrease of $77.3$34.5 million in 2019 of income tax refunds in 2017 compared to 2016 and the timing of collectionscollection of receivables from customers and payments to vendors.customers. Entergy New Orleans had income tax refunds in 20172019 and 20162018 in accordance with an intercompany income tax allocation agreement. The 2016 income tax refunds resulted primarily from deductible temporary differences. The decrease was partially offset by an increase due to the timingutilization of recovery of fuel and purchased power costs.
Net cash flow provided by operating activities increased $100.1 million in 2016 primarily due to income tax refunds of $86 million in 2016 as compared to income tax payments of $8.1 million in 2015. Entergy New Orleans had income tax refunds in 2016 and income tax payments in 2015 in accordance with an intercompany income tax allocation agreement. The 2016 income tax refunds resulted primarily from deductible temporary differences.Orleans’s net operating loss.
Investing Activities
Net cash flow used in investing activities decreased $213.2$3.3 million in 20172019 primarily due to the purchase of Power Block 1 of the Union Power Station for approximately $237 million in March 2016. See Note 14 to the financial statements for discussion of the Union Power Station purchase.money pool activity. The decrease was partiallysubstantially offset by by:
an increase of $16.7$15.6 million in distributiontransmission construction expenditures primarily due to a higher scope of work performed in 20172019 as compared to 2016.2018, including investment in Entergy New Orleans’s system reliability and infrastructure; and
Net cash flow used in investing activities increased $149.2an increase of $10.7 million in 2016distribution construction expenditures primarily due to investment in the purchasereliability and infrastructure of Power Block 1 of the Union Power Station for approximately $237 million in March 2016. The increase was partially offset by a deposit of $63.9 million into the storm reserve escrow account in July 2015 and money pool activity. See Note 14 to the financial statements for discussion of the Union Power Station purchase. See Note 5 to the financial statements for a discussion of the issuance in July 2015 of securitization bonds to recover storm costs.Entergy New Orleans’s distribution system, including increased spending on advanced metering infrastructure.
Decreases in Entergy New Orleans’s receivable from the money pool are a source of cash flow, and Entergy New Orleans’s receivable from the money pool decreased $1.6by $16.8 million in 20162019 compared to increasing $15.4by $9.3 million in 2015.2018. The money pool is an inter-company borrowing arrangement designed to reduce the Utility subsidiaries’ need for external short-term borrowingsborrowings.
Financing Activities
Net cash flow provided by financing activities increased $52.3 million primarily due to:
proceeds from a $70 million 3.0% unsecured term loan due May 2022 in December 2019;
$23.8 million in common equity distributions in 2018. There were no common equity distributions made in 2019 in anticipation of planned capital investments; and
Entergy New Orleans, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
Financing Activities
net borrowings of $20 million in 2019 on Entergy New Orleans’s financing activities used $88.6 million of cash in 2017 compared to providing $131.7 million in 2016 primarily due to the following activity:credit facility.
the issuance of $110 million of 5.50% Series first mortgage bonds in March 2016;
an increase of $55.5 million in common equity distributions in 2017 as compared to 2016. Common equity distributions in 2017 increased primarily as a result of Entergy New Orleans’s cash position in excess of its working capital requirements. There were no common equity distributions in first quarter 2016 in anticipation of the purchase of Power Block 1 of the Union Power Station in March 2016;
a decrease of $27.8 million in capital contributions received from Entergy Corporation in 2017 compared to 2016. The 2017 contribution was made in consideration of Entergy New Orleans’s upcoming capital requirements. The 2016 contribution was made in anticipation of Entergy New Orleans’s purchase of Power Block 1 of the Union Power Station; and
the redemptions of $7.8 million of 4.75% Series preferred stock, $6 million of 5.56% Series preferred stock, and $6 million of 4.36% Series preferred stock in 2017 in connection with the internal restructuring, as discussed above.
See Note 14 to the financial statements for discussion of the Union Power Station purchase.
Net cash flow provided by financing activities increased $16.8 million in 2016 primarily due to:
the purchase of Entergy Louisiana’s Algiers assets in September 2015. The cash portion of the purchase is reflected as a repayment of a long-term payable due to Entergy Louisiana in the cash flow statement. See Note 2 to the financial statements and “Algiers Asset Transfer” below for further discussion of the Algiers asset transfer and accounting for the transaction;
the issuance of $110 million of 5.50% Series first mortgage bonds in March 2016; and
the issuance of $85 million of 4% Series first mortgage bonds in May 2016. Entergy New Orleans used the proceeds to pay, prior to maturity, its $33.271 million of 5.6% Series first mortgage bonds due September 2024 and to pay, prior to maturity, its $37.772 million of 5.65% Series first mortgage bonds due September 2029.
The increase was partially offset by:
by the issuance of $98.7$60 million of storm costs recovery4.51% Series mortgage bonds in July 2015;September 2018.
a $47.8 million capital contribution received from Entergy Corporation in 2016 as compared to an $87.5 million capital contribution received from Entergy Corporation in 2015, both in anticipation of Entergy New Orleans’s purchase of Power Block 1 of the Union Power Station; and
an increase of $11.5 million in common equity distributions in 2016. Common equity distributions were lower in 2015 in anticipation of the purchase of Power Block 1 of the Union Power Station.
See Note 5 to the financial statements for more details on long-term debt.
2018 Compared to 2017
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Liquidity and Capital Resources - Cash Flow” in Entergy New Orleans, LLCOrleans’s Annual Report on Form 10-K for the year ended December 31, 2018 for discussion of operating, investing, and Subsidiariesfinancing cash flow activities for 2018 compared to 2017.
Management’s Financial Discussion and Analysis
Capital Structure
Entergy New Orleans’s capitalizationdebt to capital ratio is balanced between equity and debt as shown in the following table. The increase in the debt to capital ratio is primarily due to the redemptionsissuance of preferred stocklong-term debt in 2017.2019.
| | | December 31, 2017 | | December 31, 2016 | December 31, 2019 | | December 31, 2018 |
Debt to capital | 51.3 | % | | 50.1 | % | 53.1 | % | | 52.1 | % |
Effect of excluding securitization bonds | (4.7 | %) | | (5.2 | %) | (2.4 | %) | | (3.5 | %) |
Debt to capital, excluding securitization bonds (a) | 46.6 | % | | 44.9 | % | 50.7 | % | | 48.6 | % |
Effect of subtracting cash | (2.4 | %) | | (8.0 | %) | (0.3 | %) | | (1.2 | %) |
Net debt to net capital, excluding securitization bonds (a) | 44.2 | % | | 36.9 | % | 50.4 | % | | 47.4 | % |
(a) Calculation excludes the securitization bonds, which are non-recourse to Entergy New Orleans.
Net debt consists of debt less cash and cash equivalents. Debt consists of short-term borrowings, finance lease obligations, long-term debt, including the currently maturing portion, and the long-term payable due to Entergy Louisiana.an associated company. Capital consists of debt preferred stock without sinking fund, and common equity. Net capital consists of capital less cash and cash equivalents. Entergy New Orleans uses the debt to capital ratios excluding securitization bonds in analyzing its financial condition and believes they provide useful information to its investors and creditors in evaluating Entergy New Orleans’s financial condition because the securitization bonds are non-recourse to Entergy New Orleans, as more fully described in Note 5 to the financial statements. Entergy New Orleans also uses the net debt to net capital ratio excluding securitization bonds in analyzing its financial condition and believes it provides useful information to its investors and creditors in evaluating Entergy New Orleans’s financial condition because net debt indicates Entergy New Orleans’s outstanding debt position that could not be readily satisfied by cash and cash equivalents on hand.
Entergy New Orleans seeks to optimize its capital structure in accordance with its regulatory requirements and to control its cost of capital while also maintaining equity capitalization at a level consistent with investment-grade debt ratings. To the extent that operating cash flows are in excess of planned investments, cash may be used to reduce outstanding debt or may be paid as a dividend,distribution, or both, in appropriate amounts to maintain the targeted capital structure. To the extent that operating cash flows are insufficient to support planned investments, Entergy New Orleans may issue incremental debt or reduce dividends,distributions, or both, to maintain its targeted capital structure. In addition, in certain infrequent circumstances, such as large transactions that would materially alter the capital structure if financed entirely with debt and reducing dividends,distributions, Entergy New Orleans may receive equity contributions to maintain the targetedits capital structure.
Entergy New Orleans, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
Uses of Capital
Entergy New Orleans requires capital resources for:
construction and other capital investments;
working capital purposes, including the financing of fuel and purchased power costs;
debt maturities or retirements; and
distribution and interest payments.
Entergy New Orleans, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
Following are the amounts of Entergy New Orleans’s planned construction and other capital investments.
| | | 2018 | | 2019 | | 2020 | 2020 | | 2021 | | 2022 |
| (In Millions) | (In Millions) |
Planned construction and capital investment: | | | | | | | | | | |
Generation |
| $115 |
| |
| $80 |
| |
| $15 |
|
| $70 |
| |
| $15 |
| |
| $15 |
|
Transmission | 15 |
| | 10 |
| | 5 |
| 10 |
| | 20 |
| | 25 |
|
Distribution | 80 |
| | 85 |
| | 80 |
| 90 |
| | 80 |
| | 40 |
|
Utility Support | 20 |
| | 15 |
| | 15 |
| 65 |
| | 40 |
| | 70 |
|
Total |
| $230 |
| |
| $190 |
| |
| $115 |
|
| $235 |
| |
| $155 |
| |
| $150 |
|
Following are the amounts of Entergy New Orleans’s existing debt and lease obligations (includes estimated interest payments) and other purchase obligations.
| | | 2018 | | 2019-2020 | | 2021-2022 | | After 2022 | | Total | 2020 | | 2021-2022 | | 2023-2024 | | After 2024 | | Total |
| (In Millions) | (In Millions) |
Long-term debt (a) |
| $31 |
| |
| $87 |
| |
| $59 |
| |
| $674 |
| |
| $851 |
|
| $62 |
| |
| $159 |
| |
| $153 |
| |
| $612 |
| |
| $986 |
|
Operating leases(b) |
| $2 |
| |
| $3 |
| |
| $1 |
| |
| $2 |
| |
| $8 |
|
| $1 |
| |
| $2 |
| |
| $1 |
| |
| $— |
| |
| $4 |
|
Purchase obligations (b) |
| $245 |
| |
| $480 |
| |
| $463 |
| |
| $3,669 |
| |
| $4,857 |
| |
Finance leases (b) | |
| $1 |
| |
| $1 |
| |
| $1 |
| |
| $1 |
| |
| $4 |
|
Purchase obligations (c) | |
| $224 |
| |
| $459 |
| |
| $448 |
| |
| $3,602 |
| |
| $4,733 |
|
| |
(a) | Includes estimated interest payments. Long-term debt is discussed in Note 5 to the financial statements. |
| |
(b) | Lease obligations are discussed in Note 10 to the financial statements. |
| |
(c) | Purchase obligations represent the minimum purchase obligation or cancellation charge for contractual obligations to purchase goods or services. For Entergy New Orleans, almost all of the total consists of unconditional fuel and purchased power obligations, including its obligations under the Unit Power Sales Agreement, which is discussed in Note 8 to the financial statements. |
In addition to the contractual obligations given above, Entergy New Orleans currently expects to contribute approximately $7.3$3.2 million to its qualified pension plan and approximately $3.7 million$162 thousand to other postretirement health care and life insurance plans in 2018,2020, although the 20182020 required pension contributions will be known with more certainty when the January 1, 20182020 valuations are completed, which is expected by April 1, 2018.2020. See “Critical Accounting Estimates - Qualified Pension and Other Postretirement Benefits” below for a discussion of qualified pension and other postretirement benefits funding.
Also in addition to the contractual obligations, Entergy New Orleans has $238.2$271.3 million of unrecognized tax benefits and interest net of unused tax attributes and payments for which the timing of payments beyond 12 months cannot be reasonably estimated due to uncertainties in the timing of effective settlement of tax positions. See Note 3 to the financial statements for additional information regarding unrecognized tax benefits.
In addition to routine capital spending to maintain operations, the planned capital investment estimate for Entergy New Orleans includes specific investments such as the New Orleans Power Station discussed below;and New Orleans Solar
Entergy New Orleans, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
Station; transmission projects to enhance reliability, reduce congestion, and enable economic growth; distribution spending to enhance reliability and improve service to customers, including investment to support advanced metering;meters and related investments; system improvements; software and security; and other investments. Estimated capital expenditures are subject to periodic review and modification and may vary based on the ongoing effects of regulatory constraints and requirements, environmental compliance, business opportunities, market volatility, economic trends, business restructuring, changes in project plans, and the ability to access capital. Management provides more information on long-term debt and preferred stock maturities in Notes 5 and 6 to the financial statements.
As a wholly-owned subsidiary of Entergy Utility Holding Company, LLC, Entergy New Orleans pays distributions from its earnings at a percentage determined monthly.
Entergy New Orleans, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
New Orleans Power Station
In JuneMarch 2018 the City Council adopted a resolution approving construction of the New Orleans Power Station, a 128 MW unit composed of natural gas-fired reciprocating engines, and a related cost recovery plan. The cost estimate for the plant, which will be located at the site of the Michoud generating facility that was retired in May 2016, is $210 million. Entergy New Orleans had previously filed an application with the City Council seeking a public interest determination and authorization to construct the New Orleans Power Station, a 226 MW advanced combustion turbine in New Orleans, Louisiana, at the site of the existing Michoud generating facility, which was retired effective May 31, 2016.power station. In January 2017 several intervenors filed testimony opposing the construction of the New Orleans Power Station on various grounds. In July 2017, Entergy New Orleans submitted a supplemental and amending application to the City Council seeking approval to construct either the originally proposed 226 MW advanced combustion turbine power station, or alternatively, athe 128 MW unit composed of natural gas-fired reciprocating engines and a related cost recovery plan. The application included an updated cost estimate of $232 million for the 226 MW advanced combustion turbine. The cost estimate for the alternative 128 MW unit is $210 million.power station. In addition, the application renewed the commitment to pursue up to 100 MW of renewable resources to serve New Orleans.
In testimonyApril 2018 intervenors opposing the construction of the New Orleans Power Station filed subsequent to Entergy New Orleans’s supplemental and amending application, several intervenors oppose City Council approval of either alternative, whilewith the City Council advisorsa request for rehearing, which was subsequently denied, and one intervenor supporta petition for judicial review of the smaller alternative. A contested hearing was held in December 2017City Council’s decision, and post-hearing briefs werealso filed in January 2018.a lawsuit challenging the City Council’s approval based on Louisiana’s open meeting law. In FebruaryMay 2018 the City Council Utility Committee adoptedannounced that it would initiate an investigation into allegations that Entergy New Orleans, Entergy, or some other entity paid or participated in paying certain attendees and speakers in support of the New Orleans Power Station to attend or speak at certain meetings organized by the City Council. In October 2018 investigators for the City Council released their report, concluding that individuals were paid to attend or speak in support of the New Orleans Power Station and that Entergy New Orleans “knew or should have known that such conduct occurred or reasonably might occur.” The City Council issued a resolution requiring Entergy New Orleans to show cause why it should not be fined $5 million as a result of the findings in the report. In November 2018, Entergy New Orleans submitted its response to the show cause resolution, disagreeing with certain characterizations and omissions of fact in the report and asserting that the City Council could not legally impose the proposed fine. Simultaneous with the filing of its response to the show cause resolution, Entergy New Orleans sent a letter to the City Council re-asserting that the City Council’s imposition of the proposed fine would be unlawful, but acknowledging that the actions of a subcontractor, which was retained by an Entergy New Orleans contractor without the knowledge or contractually-required consent of Entergy New Orleans, were contrary to Entergy’s values. In that letter, Entergy New Orleans offered to donate $5 million to the City Council to resolve the show cause proceeding. In January 2019, Entergy New Orleans submitted a new settlement proposal to the City Council. The proposal retains the components of the first offer but adds to it a commitment to make reasonable efforts to limit the costs of the project to the $210 million cost estimate with advanced notification of anticipated cost overruns, additional reporting requirements for cost and environmental items, and a commitment regarding reliability investment and to work with the New Orleans Sewerage and Water Board to provide a reliable source of power. In February 2019 the City Council approved a resolution approving the settlement proposal and allowing the construction of the 128 MW unit.New Orleans Power Station to commence.
Also in February 2019 certain intervenors in the City Council proceeding on the New Orleans Power Station filed suit in Louisiana state court challenging the Louisiana Department of Environmental Quality’s issuance of the New Orleans Power Station’s air permit. Entergy New Orleans intervened in that lawsuit and, along with the Louisiana
Entergy New Orleans, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
Department of Environmental Quality, filed exceptions seeking dismissal of the lawsuit. In June 2019 the state court judge sustained the exceptions and dismissed the plaintiffs’ petition with prejudice.
Also in June 2019, a state court judge in New Orleans affirmed the City Council’s approval of the New Orleans Power Station and dismissed the petition for judicial review that had been filed in April 2018. The petitioners have filed an appeal of that ruling. Also in June 2019, with regard to the lawsuit challenging the City Council’s decision on the basis of a violation of the open meetings law, the same state court judge in New Orleans ruled that there was a violation of the open meetings law at the February 2018 meeting of the City Council’s Utility Committee at which that Committee considered the New Orleans Power Station approval, and further ruled that, although there was no violation of the open meetings law at the March 2018 full City Council meeting at which the New Orleans Power Station was approved, both the approval of the Utility Committee and the approval of the full City Council were void. The City Council and Entergy New Orleans each filed a suspensive appeal of the open meetings law ruling. A suspensive appeal suspends the effect of the judgment in the open meetings law proceeding while the appeal is expectedbeing taken. The petitioners sought in the state appellate court, and then at the Louisiana Supreme Court, to voteterminate the suspension of the effect of the judgment, but both courts declined to do so. Appellate briefing on the resolutionmerits both in the open meetings law appeal and in the judicial review appeal occurred in November and December 2019 and oral argument in both cases was heard in January 2020. In February 2020 the state appellate court reversed the lower court’s ruling that the City Council’s approval of the New Orleans Power Station was void due to a violation of the open meetings law at the City Council’s Utility Committee meeting in February 2018. The state appellate court ruled that there was no violation of the open meetings law at the full City Council meeting in March 2018. The commercial operation date is dependent on2018 and that the alternative selected bylower court erred in voiding the City Council andresolution approving the receiptNew Orleans Power Station. The appellate court’s decision on the appeal of other permits and approvals.the judicial review decision that affirmed the City Council’s approval of the New Orleans Power Station as in the public interest is still pending. Construction of the plant is on schedule, with commercial operation expected in mid-2020.
Gas Infrastructure Rebuild Plan
In September 2016, Entergy New Orleans submitted to the City Council a request for authorization for Entergy New Orleans to proceed with annual incremental capital funding of $12.5 million for its gas infrastructure rebuild plan, which would replace of all of Entergy New Orleans’s low pressure cast iron, steel, and vintage plastic pipe over a ten-year period commencing in 2017. Entergy New Orleans also proposed that recovery of the investment to fund its gas infrastructure replacement plan be determined in connection with its next base rate case, which is anticipated to be filed in 2018.case. The City Council has authorized Entergy New Orleans to proceed with its replacement plans at the requested pace until such time that rates resulting from the anticipated 2018 rate case are implemented (approximately 13 months after filing). As a result of the anticipated 2018 rate case, the City Council may establish new overall gas base rates to allow Entergy New Orleans to continue to recover these replacement costs. The City Council hasand established a schedule for proceedings in advance of the rate case intended to provide an opportunity for evaluation of the gas infrastructure replacement plan that would best serve the public interest and the effect on customers of the approval of any such plan. In the course of that proceeding, the City Council’s advisors submitted pre-filed testimony recommending that Entergy New Orleans be allowed to continue with its condition-based approach to gas pipeline replacement to replace approximately 238 miles of low pressure pipe at a rate of approximately 25 miles per year. The City Council’s advisors also recommended that Entergy New Orleans be required to adhere to certain reporting requirements and recognized the need to address the sustained level of investment in gas infrastructure on customer bills. In September 2017, Entergy New Orleans filed rebuttal testimony suggesting that its recovery of future investment and customer effects would be addressed in the rate case that Entergy New Orleans was required to file in July 2018. The procedural schedule was suspended in order to allow for resolution in the rate case proceeding. As a result of the rate case, the City Council approved the planned gas rebuild expenditures through 2019, but rejected Entergy New Orleans’s proposed gas infrastructure rider. Entergy New Orleans is required to submit a gas infrastructure rebuild plan to the City Council in March 2020 and to convene a working group to explore appropriate cost mitigation measures.
Advanced Metering Infrastructure (AMI)Renewables
In October 2016,July 2018, Entergy New Orleans filed an application seeking a finding fromwith the City Council that Entergy New Orleans’s deploymentrequesting approval of advanced electric and gas metering infrastructure is inthree utility-scale solar projects totaling 90 MW. If approved, the public interest.resource additions will allow Entergy New Orleans proposed to deploy advanced meters that enable two-way data communication; design and buildmake significant progress towards meeting its voluntary commitment to the City Council to add up to 100 MW of renewable energy resources. The three projects include constructing a secure and reliable network to support such communications; and implement support systems. AMI is intended to serve as the foundation of Entergy New Orleans’s modernized power grid. The filing includedself-build solar plant in Orleans Parish with an estimate of implementation costs for AMI of $75 million. The filing identified a number of quantified and unquantified benefits, and Entergy New Orleans provided a cost/benefit analysis showing that its combined electric and gas AMI deployment is expected to produce a nominal net benefit to customers of $101 million. Entergy New Orleans also sought to continue to include in rate base the remaining book value, approximately $21 million at December 31, 2015, of the existing electric meters and also to depreciate those assets using current depreciation rates. Entergy New Orleans proposed a 15-year depreciable life for the new advanced meters, the three-year deployment of which is expected to begin in 2019. Deployment of the information technology infrastructure began in 2017 and deployment of the communications network is expected to begin in 2018. Entergy New Orleans proposed to recover the cost of AMI through the implementation of a customer charge, net of certain benefits, phased in over the period 2019 through 2022. The City Council’s advisors filed testimony in May 2017 recommending the adoption of AMI subject to certain modifications, including the denial of Entergy New Orleans’s proposed customer charge as a cost recovery mechanism. In January 2018 a settlement was reached between
Entergy New Orleans, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
output of 20 MW, acquiring a 50 MW solar facility in Washington Parish through a build-own-transfer acquisition, and procuring 20 MW of solar power from a project to be built in St. James Parish through a power purchase agreement. In December 2018 the City Council’sCouncil advisors andrequested that Entergy New Orleans.Orleans pursue alternative deal structures for the Washington Parish project and attempt to reduce costs for the 20 MW New Orleans Solar Station. As a result of settlement discussions, in March 2019, Entergy New Orleans revised its application to convert the build-own transfer acquisition of the 50 MW facility in Washington Parish to a power purchase agreement. In February 2018June 2019 the parties to the proceeding executed a stipulated settlement term sheet, which recommends that the City Council approve Entergy New Orleans’s revised application as to all three projects. In July 2019 the City Council approved the settlement, which deferred cost recovery to the 2018 Entergy New Orleans rate case, but also stated that an adjustment for 2018-2019 AMI costs can be filed in the rate case and that, for all subsequent AMI costs, the mechanism to be approved in the 2018 rate case will allow for the timely recovery of such costs.stipulated settlement.
Sources of Capital
Entergy New Orleans’s sources to meet its capital requirements include:
internally generated funds;
cash on hand;
debt and preferred membership interest issuances;
capital contributions; and
bank financing under new or existing facilities.
Entergy New Orleans may refinance, redeem, or otherwise retire debt prior to maturity, to the extent market conditions and interest rates are favorable.
All debt and common and preferred membership interest issuances by Entergy New Orleans require prior regulatory approval. Debt issuances are also subject to issuance tests set forth in its bond indentures and other agreements. Entergy New Orleans has sufficient capacity under these tests to meet its foreseeable capital needs.
Entergy New Orleans’s receivables from the money pool were as follows as of December 31 for each of the following years.
|
| | | | | | |
2017 | | 2016 | | 2015 | | 2014 |
(In Thousands) |
$12,723 | | $14,215 | | $15,794 | | $442 |
|
| | | | | | |
2019 | | 2018 | | 2017 | | 2016 |
(In Thousands) |
$5,191 | | $22,016 | | $12,723 | | $14,215 |
See Note 4 to the financial statements for a description of the money pool.
Entergy New Orleans has a credit facility in the amount of $25 million scheduled to expire in November 2018.2021. The credit facility allows Entergy New Orleans to issueincludes fronting commitments for the issuance of letters of credit against $10 million of the borrowing capacity of the facility. As of December 31, 2017,2019, there were no$20 million of cash borrowings and a $0.8 million letter of credit was outstanding under the facility. In addition, Entergy New Orleans is a party to an uncommitted letter of credit facility as a means to post collateral to support its obligations to MISO. As of December 31, 2017,2019, a $1.4$5.6 million letter of credit was outstanding under Entergy New Orleans’s letter of credit facility. See Note 4 to the financial statements for additional discussion of the credit facilities.
Entergy New Orleans obtained authorization from the FERC through October 20192021 for short-term borrowings not to exceed an aggregate amount of $150 million at any time outstanding and long-term borrowings and securities issuances. See Note 4 to the financial statements for further discussion of Entergy New Orleans’s short-term borrowing limits. The long-term securities issuances of Entergy New Orleans are limited to amounts authorized not only by the FERC, but also by the City Council, and the current City Council authorization extends through June 2018.October 2021.
Entergy New Orleans, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
State and Local Rate Regulation
The rates that Entergy New Orleans charges for electricity and natural gas significantly influence its financial position, results of operations, and liquidity. Entergy New Orleans is regulated and the rates charged to its customers are determined in regulatory proceedings. A governmental agency, the City Council, is primarily responsible for approval of the rates charged to customers.
Retail Rates
See “Algiers Asset Transfer” below for discussion of the Algiers asset transfer. As a provision of the settlement agreement approved by the City Council in May 2015 providing for the transfer from Entergy Louisiana to Entergy New Orleans of certain assets that supported the provision of service to Entergy Louisiana’s customers in Algiers, asset transfer, it was agreed that, with limited exceptions, no action may be taken with respect to Entergy New Orleans’s base rates until rates are implemented
Entergy New Orleans, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
from a base rate case that must be filed for its electric and gas operations in 2018. This provision eliminated the formula rate plan applicable to Algiers operations. The limited exceptions included continued implementation of the then-remaining two years of the four-year phased-in rate increase for the Algiers area and certain exceptional cost increases or decreases in the base revenue requirement. An additional provision of the settlement agreement allowed for continued recovery of the revenue requirement associated with the capacity and energy from Ninemile 6 received by Entergy New Orleans under a power purchase agreement with Entergy Louisiana (Algiers PPA). The settlement authorized Entergy New Orleans to recover the remaining revenue requirement related to the Algiers PPA through base rates charged to Algiers customers. The settlement also provided for continued implementation of the Algiers MISO recovery rider.
In addition to the Algiers PPA, Entergy New Orleans has a separate power purchase agreement with Entergy Louisiana for 20% of the capacity and energy from Ninemile 6 (Ninemile PPA), which commenced operation in December 2014. Initially, recovery of the non-fuel costs associated with the Ninemile PPA was authorized through a special Ninemile 6 rider billed only to Entergy New Orleans customers outside of Algiers.
In August 2015, Entergy New Orleans filed an application with the City Council seeking authorization to proceed with the purchase of Union Power Block 1, with an expected base purchase price of approximately $237 million, subject to adjustments, and seeking approval of the recovery of the associated costs. In November 2015 the City Council issued written resolutions and an order approving an agreement in principle between Entergy New Orleans and City Council advisors providing that the purchase of Union Power Block 1 and related assets by Entergy New Orleans is prudent and in the public interest. The City Council authorized expansion of the terms of the purchased power and capacity acquisition cost recovery rider to recover the non-fuel purchased power expense from Ninemile 6, the revenue requirement associated with the purchase of Power Block 1 of the Union Power Station, and a credit to customers of $400 thousand monthly beginning June 2016 in recognition of the decrease in other operation and maintenance expenses that would result with the deactivation of Michoud Units 2 and 3. In March 2016, Entergy New Orleans purchased Power Block 1 of the Union Power Station for approximately $237 million and initiated recovery of these costs with March 2016 bills. In July 2016, Entergy New Orleans and the City Council Utility Committee agreed to a temporary increase in the Michoud credit to customers to a total of $1.4 million monthly for August 2016 through December 2016.
A 2008 rate case settlement included $3.1 million per year in electric rates to fund the Energy Smart energy efficiency programs. The rate settlement provided an incentive for Entergy New Orleans to meet or exceed energy savings targets set by the City Council and provided a mechanism for Entergy New Orleans to recover lost contribution to fixed costs associated with the energy savings generated from the energy efficiency programs. In January 2015 the City Council approved funding for the Energy Smart program from April 2015 through March 2017 using the remainder of the approximately $12.8 million of 2014 rough production cost equalization funds, with any remaining costs being recovered through the fuel adjustment clause. This funding methodology was modified in November 2015 when the City Council directed Entergy New Orleans to use a combination of guaranteed customer savings related to a prior agreement with the City Council and rough production cost equalization funds to cover program costs prior to recovering any costs through the fuel adjustment clause. In April 2017 the City Council approved an implementation plan for the Energy Smart program from April 2017 through December 2019. The City Council directed that the $11.8 million balance reported for Energy Smart funds be used to continue funding the program for Entergy New Orleans’s legacy customers and that the Energy Smart Algiers program continue to be funded through the Algiers fuel adjustment clause, until additional customer funding is required for the legacy customers. In September 2017, Entergy New Orleans filed a supplemental plan and proposed several options for an interim cost recovery mechanism necessary to recover program costs during the period between when existing funds directed to Energy Smart programs are depleted (estimated to be June 2018) and when new rates from the anticipated 2018 combined rate case, which will includeincludes a cost recovery mechanism for Energy Smart funding, take effect (estimated to be August 2019). Entergy New Orleans requested that the City Council approve a cost recovery mechanism prior to June 2018.effect. In December 2017 the City Council approved an energy efficiency cost recovery rider as an interim funding mechanism for Energy Smart, subject to verification that no additional funding sources exist. In June 2018 the City Council also approved a resolution recommending that Entergy New Orleans allocate approximately $13.5 million of benefits resulting from the Tax Act to Energy Smart. In December 2019, Entergy New Orleans filed an application with the City Council seeking approval of an implementation plan for the Energy Smart program from April 2020 through December 2022. Entergy New Orleans proposed to recover the costs of the program through mechanisms previously approved by the City Council or through the energy efficiency cost recovery rider, which was approved in the 2018 combined rate case resolution. In January 2020 the City Council’s advisors recommended that the City Council allow Entergy New Orleans to earn a utility performance incentive of 7% of Energy Smart costs for each year in which Entergy New Orleans achieves 100% of the City Council’s savings targets for Energy Smart. The City Council is expected to decide on the matter in February 2020.
Entergy New Orleans, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
In September 2018, Entergy New Orleans filed an electric and gas base rate case with the City Council. The filing requested a 10.5% return on equity for electric operations with opportunity to earn a 10.75% return on equity through a performance adder provision of the electric formula rate plan in subsequent years under a formula rate plan and requested a 10.75% return on equity for gas operations. The proposed electric rates in the revised filing reflect a net reduction of $20.3 million. The reduction in electric rates includes a base rate increase of $135.2 million, of which $131.5 million is associated with moving costs currently collected through fuel and other riders into base rates, plus a request for an advanced metering surcharge to recover $7.1 million associated with advanced metering infrastructure, offset by a net decrease of $31.1 million related to fuel and other riders. The filing also included a proposed gas rate decrease of $142 thousand. Entergy New Orleans’s rates reflected the inclusion of federal income tax reductions due to the Tax Act and the provisions of a previously-approved agreement in principle determining how the benefits of the Tax Act would flow. Entergy New Orleans included cost of service studies for electric and gas operations for the twelve months ended December 31, 2017 and the projected twelve months ending December 31, 2018. In addition, Entergy New Orleans included capital additions expected to be placed into service for the period through December 31, 2019. Entergy New Orleans based its request for a change in rates on the projected twelve months ending December 31, 2018.
The filing’s major provisions included: (1) a new electric rate structure, which realigns the revenue requirement associated with capacity and long-term service agreement expense from certain existing riders to base revenue, provides for the recovery of the cost of advanced metering infrastructure, and partially blends rates for Entergy New Orleans’s customers residing in Algiers with customers residing in the remainder of Orleans Parish through a three-year phase-in; (2) contemporaneous cost recovery riders for investments in energy efficiency/demand response, incremental changes in capacity/long-term service agreement costs, grid modernization investment, and gas infrastructure replacement investment; and (3) formula rate plans for both electric and gas operations. In February 2019 the City Council’s advisors and several intervenors filed testimony in response to Entergy New Orleans’s application. The City Council’s advisors recommended, among other things, overall rate reductions of approximately $33 million in electric rates and $3.8 million in gas rates. Certain intervenors recommended overall rate reductions of up to approximately $49 million in electric rates and $5 million in gas rates. An evidentiary hearing was held in June 2019, and the record and post-hearing briefs were submitted in July 2019.
In October 2019 the City Council’s Utility Committee approved a resolution for a change in electric and gas rates for consideration by the full City Council that included a 9.35% return on common equity, an equity ratio of the lesser of 50% or Entergy New Orleans’s actual equity ratio, and a total reduction in revenues that Entergy New Orleans initially estimated to be approximately $39 million ($36 million electric; $3 million gas). At its November 7, 2019 meeting, the full City Council approved the resolution that had previously been approved by the City Council’s Utility Committee. Based on the approved resolution, in the fourth quarter 2019 Entergy New Orleans recorded an accrual of $10 million that reflects the estimate of the revenue billed in 2019 to be refunded to customers in 2020 based on an August 2019 effective date for the rate decrease. Entergy New Orleans also recorded a total of $12 million in regulatory assets for rate case costs and information technology costs associated with integrating Algiers customers with Entergy New Orleans’s legacy system and records. Entergy New Orleans also transferred $10 million of retired general plant costs to a regulatory asset to be recovered over a 20-year period.
The resolution directed Entergy New Orleans to submit a compliance filing within 30 days of the date of the resolution to facilitate the eventual implementation of rates, including all necessary calculations and conforming rate schedules and riders. The electric formula rate plan rider includes, among other things, 1) a provision for forward-looking adjustments to include known and measurable changes realized up to 12 months after the evaluation period; 2) a decoupling mechanism; and 3) recognition that Entergy New Orleans is authorized to make an in-service adjustment to the formula rate plan to include the non-fuel cost of the New Orleans Power Station in rates, unless the two pending appeals in the New Orleans Power Station proceeding have not concluded. Under this circumstance, Entergy New Orleans shall be permitted to defer the New Orleans Power Station non-fuel costs, including the cost of capital, until Entergy New Orleans commences non-fuel cost recovery. After taking into account the requirements for submission of the compliance filing, the total annual revenue requirement reduction required by the resolution was refined to approximately $45 million ($42 million electric, including $29 million in rider reductions; $3 million gas). In January
Entergy New Orleans, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
2020 the City Council’s advisors found that the rates calculated by Entergy New Orleans and reflected in the December 2019 compliance filing should be implemented, except with respect to the City Council-approved energy efficiency cost recovery rider, which rider calculation should take into account events to be determined by the City Council in the future. Also in response to the resolution, Entergy New Orleans filed timely a petition for appeal and judicial review and for stay of or injunctive relief alleging that the resolution is unlawful in failing to produce just and reasonable rates. Based on the general acceptance of Entergy New Orleans’s compliance filing, however, during the pendency of its appeal Entergy New Orleans expects to implement the compliance filing rates in April 2020. A hearing on the requested injunction was scheduled in Civil District Court for February 2020, but by joint motion of the City Council and Entergy New Orleans, the Civil District Court issued an order for a limited remand to the City Council to consider a potential agreement in principle/stipulation at its February 20, 2020 meeting. On February 17, 2020, Entergy New Orleans filed with the City Council an agreement in principle between Entergy New Orleans and the City Council’s advisors. On February 20, 2020, the full City Council voted to approve the proposed agreement in principle and issued a resolution modifying the required treatment of certain accumulated deferred income taxes. As a result of the agreement in principle, the total annual revenue requirement reduction will be approximately $45 million ($42 million electric, including $29 million in rider reductions; and $3 million gas). As a result, Entergy New Orleans will fully implement new rates by April 2020. The merits of the appeal will be subject to a separate procedural schedule issued by the Civil District Court.
Advanced Metering Infrastructure (AMI)
In October 2016, Entergy New Orleans filed an application seeking a finding from the City Council that Entergy New Orleans’s deployment of advanced electric and gas metering infrastructure is in the public interest. Entergy New Orleans proposed to deploy advanced meters that enable two-way data communication; design and build a secure and reliable network to support such communications; and implement support systems. AMI is intended to serve as the foundation of Entergy New Orleans’s modernized power grid. The filing included an estimate of implementation costs for AMI of $75 million and identified a number of quantified and unquantified benefits. Entergy New Orleans proposed a 15-year depreciable life for the new advanced meters. Deployment of the information technology infrastructure began in 2017 and deployment of the communications network began in 2018. Entergy New Orleans proposed to recover the cost of AMI through the implementation of a customer charge, net of certain benefits, phased in over the period 2019 through 2022. The City Council’s advisors filed testimony in May 2017 recommending the adoption of AMI subject to certain modifications, including the denial of Entergy New Orleans’s proposed customer charge as a cost recovery mechanism. In January 2018 a settlement was reached between the City Council’s advisors and Entergy New Orleans. In February 2018 the City Council approved the settlement, which deferred cost recovery to the 2018 Entergy New Orleans rate case, but also stated that an adjustment for 2018-2019 AMI costs can be filed in the rate case and that, for all subsequent AMI costs, the mechanism to be approved in the 2018 rate case will allow for the timely recovery of such costs. In April 2018 the City Council adopted a resolution directing Entergy New Orleans to explore the options for accelerating the deployment of AMI. In June 2018 the City Council approved a one-year acceleration of AMI in its service area for an incremental $4.4 million. Entergy New Orleans began deployment of AMI during the first quarter of 2019 and expects to complete deployment by the end of 2020. Entergy New Orleans will recover the undepreciated balance of its existing meters through a regulatory asset to be amortized on a straight-line basis over 12 years, as approved by the City Council.
Internal Restructuring
In July 2016, Entergy New Orleans filed an application with the City Council seeking authorization to undertake a restructuring that would result in the transfer of substantially all of the assets and operations of Entergy New Orleans, Inc. to a new entity, which would ultimately be owned by an existing Entergy subsidiary holding company. In May 2017 the City Council adopted a resolution approving the proposed internal restructuring pursuant to an agreement in principle with the City Council advisors and certain intervenors. Pursuant to the agreement in principle, Entergy New Orleans would credit retail customers $10 million in 2017, $1.4 million in the first quarter of the year after the transaction closes, and $117,500 each month in the second year after the transaction closes until such time as new base rates go into effect as a result of the then-anticipated 2018 base rate case. Entergy New Orleans began crediting retail customers
Entergy New Orleans, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
in June 2017. In June 2017 the FERC approved the transaction and, pursuant to the agreement in principle, Entergy New Orleans will provide additional credits to retail customers of $5 million in each of the years 2018, 2019, and 2020.
In November 2017, Entergy New Orleans undertook a multi-step restructuring, including the following:
Entergy New Orleans, Inc. redeemed its outstanding preferred stock at a price of approximately $21 million, which included a call premium of approximately $819,000, plus any accumulated and unpaid dividends.
Entergy New Orleans, Inc. converted from a Louisiana corporation to a Texas corporation.
Under the Texas Business Organizations Code (TXBOC), Entergy New Orleans, Inc. allocated substantially all of its assets to a new subsidiary, Entergy New Orleans Power, LLC, a Texas limited liability company (Entergy New Orleans Power), and Entergy New Orleans Power assumed substantially all of the liabilities of Entergy New Orleans, Inc. in a transaction regarded as a merger under the TXBOC. Entergy New Orleans, Inc. remained in existence and held the membership interests in Entergy New Orleans Power.
Entergy New Orleans, Inc. contributed the membership interests in Entergy New Orleans Power to an affiliate (Entergy Utility Holding Company, LLC, a Texas limited liability company and subsidiary of Entergy Corporation). As a result of the contribution, Entergy New Orleans Power is a wholly-owned subsidiary of Entergy Utility Holding Company, LLC.
In December 2017, Entergy New Orleans, Inc. changed its name to Entergy Utility Group, Inc., and Entergy New Orleans Power then changed its name to Entergy New Orleans, LLC. Entergy New Orleans, LLC holds substantially all of the assets, and has assumed substantially all of the liabilities, of Entergy New Orleans, Inc. The restructuring was accounted for as a transaction between entities under common control.
Fuel and Purchased Power Cost Recovery
Entergy New Orleans’s electric rate schedules include a fuel adjustment tariff designed to reflect no more than targeted fuel and purchased power costs, adjusted by a surcharge or credit for deferred fuel expense arising from the monthly reconciliation of actual fuel and purchased power costs incurred with fuel cost revenues billed to customers, including carrying charges.
Entergy New Orleans’s gas rate schedules include a purchased gas adjustment to reflect estimated gas costs for the billing month, adjusted by a surcharge or credit similar to that included in the electric fuel adjustment clause, including carrying charges.
Due to higher fuel costs associated in part with the extended Grand Gulf outage and the partially simultaneous Union Power Block 1 planned outage, for the December 2016, January 2017, and February 2017 billing months, the City Council authorized Entergy New Orleans to cap the fuel adjustment charge billed to customers at $0.035 per kWh and to defer billing of all fuel costs in excess of the capped amount by including such costs in the over- or under-recovery account.
Due to higher fuel costs for the operating month of January 2018 resulting in part from recent cold weather, higher Henry Hub prices, and an increase in total fuel and purchased power costs associated in part with certain plant outages, Entergy New Orleans has proposed to cap the fuel adjustment charge to be billed in March 2018 to non-transmission Entergy New Orleans legacy customers and Entergy New Orleans Algiers customers at $0.035323 per kWh and $0.025446 per kWh, respectively. Entergy New Orleans has also proposed to cap the fuel adjustment charge to be billed in March 2018 for Entergy New Orleans legacy transmission customers at $0.034609 per kWh and to defer billing of all fuel costs in excess of the capped amount by including such costs in the over- or under-recovery account.
Algiers Asset Transfer
In October 2014, Entergy Louisiana and Entergy New Orleans filed an application with the City Council seeking authorization to undertake a transaction that would result in the transfer from Entergy Louisiana to Entergy New Orleans of certain assets that supported the provision of service to Entergy Louisiana’s customers in Algiers. In April 2015 the FERC issued an order approving the Algiers assets transfer. In May 2015 the parties filed a settlement agreement authorizing the Algiers assets transfer and the settlement agreement was approved by a City Council resolution in May 2015. On September 1, 2015, Entergy Louisiana transferred its Algiers assets to Entergy New Orleans for a purchase price of approximately $85 million. Entergy New Orleans paid Entergy Louisiana $59.6 million, including final true-ups, from available cash and issued a note payable to Entergy Louisiana in the amount of $25.5 million.
Show Cause Order
In July 2016 the City Council approved the issuance of a show cause order, which directed Entergy New Orleans to make a filing on or before September 29, 2016 to demonstrate the reasonableness of its actions or positions with regard to certain issues in four existing dockets that relate to Entergy New Orleans’s: (i) storm hardening proposal; (ii) 2015 integrated resource plan; (iii) gas infrastructure rebuild proposal; and (iv) proposed sizing of the New Orleans Power Station and its community outreach prior to the filing. In September 2016, Entergy New Orleans filed its response to the City Council’s show cause order. The City Council has not established any further procedural schedule with regard to this proceeding.
Entergy New Orleans, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
Reliability Investigation
In August 2017 the City Council established a docket to investigate the reliability of the Entergy New Orleans distribution system and to consider implementing certain reliability standards and possible financial penalties for not meeting any such standards. In April 2018 the City Council adopted a resolution directing Entergy New Orleans to demonstrate that it has been prudent in the management and maintenance of the reliability of its distribution system. The resolution also called for Entergy New Orleans to file a revised reliability plan addressing the current state of its distribution system and proposing remedial measures for increasing reliability. In June 2018, Entergy New Orleans filed its response to the City Council’s resolution regarding the prudence of its management and maintenance of the reliability of its distribution system. In July 2018, Entergy New Orleans filed its revised reliability plan discussing the various reliability programs that it uses to improve distribution system reliability and discussing generally the positive effect that advanced meter deployment and grid modernization can have on future reliability. Entergy New Orleans has retained a national consulting firm with expertise in distribution system reliability to conduct a review of Entergy New Orleans’s distribution system reliability-related practices and procedures and to provide recommendations for improving distribution system reliability. The report was filed with the City Council in October 2018. The City Council also approved a resolution that opens a prudence investigation into whether Entergy New Orleans was imprudent for not acting sooner to address outages in New Orleans and whether fines should be imposed. In January 2019, Entergy New Orleans filed testimony in response to the prudence investigation and asserting that it had been prudent in managing system reliability. In April 2019 the City Council advisors filed comments and testimony asserting that Entergy New Orleans did not act prudently in maintaining and improving its distribution system reliability in recent years and recommending that a financial penalty in the range of $1.5 million to $2 million should be assessed. Entergy New Orleans disagrees with the recommendation and submitted rebuttal testimony and rebuttal comments in June 2019. In November 2019 the City Council passed a resolution that penalized Entergy New Orleans $1 million for alleged imprudence in the maintenance of its distribution system. In December 2019, Entergy New Orleans filed suit in Louisiana state court seeking judicial review of the City Council’s resolution.
Renewable Portfolio Standard Rulemaking
In March 2019 the City Council initiated a rulemaking proceeding to consider whether to establish a renewable portfolio standard. The rulemaking will consider, among other issues, whether to adopt a renewable portfolio standard, whether such standard should be voluntary or mandatory, what kinds of technologies should qualify for inclusion in the rules, what level, if any, of renewable generation should be required, and whether penalties are an appropriate component of the proposed rules. Parties to the proceeding submitted initial comments in June 2019 and reply comments in July 2019. Entergy New Orleans recommends that the City Council adopt a voluntary clean energy standard of 70% of generation being clean energy by 2030, as so defined, which, in addition to renewable generation, would include nuclear, beneficial electrification, and demand-side management as compliant technologies. Several other industry leaders, academic researchers, and environmental advocates filed comments also supporting a clean energy standard. Other parties, including many representatives of the solar and wind industry, are recommending mandatory, renewables-only requirements of up to 100% renewable resources by 2040. In September 2019 the City Council advisors issued a report and recommendations, which also put forth three alternative rules for comment from the parties. Comments were submitted in October 2019 and replies were filed in November 2019. Further City Council action, including the establishment of additional procedural steps for the rulemaking, is expected in the first quarter of 2020.
Federal Regulation
See the “Rate, Cost-recovery, and Other Regulation– Federal Regulation” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis and Note 2 to the financial statements for a discussion of federal regulation.
Entergy New Orleans, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
Nuclear Matters
See the “Nuclear Matters” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for a discussion of nuclear matters.
Environmental Risks
Entergy New Orleans’s facilities and operations are subject to regulation by various governmental authorities having jurisdiction over air quality, water quality, control of toxic substances and hazardous solid wastes, and other environmental matters. Management believes that Entergy New Orleans is in substantial compliance with environmental regulations currently applicable to its facilities and operations, with reference to possible exceptions noted in “Regulation of Entergy’s Business - Environmental Regulation” in Part I, Item 1. Because environmental regulations are subject to change, future compliance costs cannot be precisely estimated.
Critical Accounting Estimates
The preparation of Entergy New Orleans’s financial statements in conformity with generally accepted accounting principles requires management to apply appropriate accounting policies and to make estimates and judgments that can have a significant effect on reported financial position, results of operations, and cash flows. Management has identified the following accounting policies and estimates as critical because they are based on assumptions and measurements that involve a high degree of uncertainty, and there is the potential for future changes in the assumptions and measurements that could produce estimates that would have a material impact on the presentation of Entergy New Orleans’s financial position or results of operations.
Utility Regulatory Accounting
See “Utility Regulatory Accounting” in the “Critical Accounting Estimates” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for discussion of accounting for the effects of rate regulation.
Unbilled Revenue
See “Unbilled Revenue” in the “Critical Accounting Estimates” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for discussion of the estimates associated with the unbilled revenue amounts.
Impairment of Long-lived Assets and Trust Fund Investments
See “Impairment of Long-lived Assets and Trust Fund Investments” in the “Critical Accounting Estimates” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for discussion of the estimates associated with the impairment of long-lived assets.
Taxation and Uncertain Tax Positions
See “Taxation and Uncertain Tax Positions” in the “Critical Accounting Estimates” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for further discussion.
Qualified Pension and Other Postretirement Benefits
Entergy New Orleans’s qualified pension and other postretirement reported costs, as described in Note 11 to the financial statements, are impacted by numerous factors including the provisions of the plans, changing employee demographics, and various actuarial calculations, assumptions, and accounting mechanisms. See the “Qualified
Entergy New Orleans, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
Pension and Other Postretirement Benefits” in the “Critical Accounting Estimates” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for further discussion. Because of the complexity of these calculations, the long-term nature of these obligations, and the importance of the assumptions utilized, Entergy’s estimate of these costs is a critical accounting estimate.
Entergy New Orleans, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
Cost Sensitivity
The following chart reflects the sensitivity of qualified pension cost and qualified projected benefit obligation to changes in certain actuarial assumptions (dollars in thousands).
| | Actuarial Assumption | | Change in Assumption | | Impact on 2018 Qualified Pension Cost | | Impact on 2017 Projected Qualified Benefit Obligation | | Change in Assumption | | Impact on 2020 Qualified Pension Cost | | Impact on 2019 Projected Qualified Benefit Obligation |
| | | | Increase/(Decrease) | | | | | | Increase/(Decrease) | | |
Discount rate | | (0.25%) | | $348 | |
| $6,153 |
| | (0.25%) | | $334 | | $5,567 |
Rate of return on plan assets | | (0.25%) | | $399 | |
| $— |
| | (0.25%) | | $376 | | $— |
Rate of increase in compensation | | 0.25% | | $159 | |
| $729 |
| | 0.25% | | $209 | | $1,118 |
The following chart reflects the sensitivity of postretirement benefit cost and accumulated postretirement benefit obligation to changes in certain actuarial assumptions (dollars in thousands).
| | Actuarial Assumption | | Change in Assumption | | Impact on 2018 Postretirement Benefit Cost | | Impact on 2017 Accumulated Postretirement Benefit Obligation | | Change in Assumption | | Impact on 2020 Postretirement Benefit Cost | | Impact on 2019 Accumulated Postretirement Benefit Obligation |
| | | | Increase/(Decrease) | | | | | | Increase/(Decrease) | | |
Discount rate | | (0.25%) | |
| ($12 | ) | | $1,406 | | (0.25%) | | $61 | | $950 |
Health care cost trend | | 0.25% | |
| $54 |
| | $1,074 | | 0.25% | | $97 | | $665 |
Each fluctuation above assumes that the other components of the calculation are held constant.
Costs and FundingEmployer Contributions
Total qualified pension cost for Entergy New Orleans in 20172019 was $5.1 million. Entergy New Orleans anticipates 20182020 qualified pension cost to be $5.8 million. In 2016, Entergy New Orleans refined its approach to estimating the service cost and interest cost components of qualified pension costs, which had the effect of lowering qualified pension costs by $1.7$6 million. Entergy New Orleans contributed $9.9$4.6 million to its qualified pension plans in 20172019 and estimates 20182020 pension contributions will be approximately $7.3$3.2 million, although the 20182020 required pension contributions will be known with more certainty when the January 1, 20182020 valuations are completed, which is expected by April 1, 2018.2020.
Total postretirement health care and life insurance benefit income for Entergy New Orleans in 20172019 was $2.5$3.5 million. Entergy New Orleans expects 20182020 postretirement health care and life insurance benefit income of approximately $3.7$4.3 million. In 2016, Entergy New Orleans refined its approach to estimating the service cost and interest cost components of other postretirement costs, which had the effect of lowering qualified other postretirement costs by $548 thousand. Entergy New Orleans contributed $3.7$1.7 million to its other postretirement plans in 20172019 and estimates 20182020 contributions will be approximately $3.7 million.$162 thousand.
Other Contingencies
Entergy New Orleans, LLC and Subsidiaries
Management’s Financial Discussion and Analysis
Federal Healthcare Legislation
See “Qualified Pension and Other Postretirement Benefits -Federal Healthcare LegislationContingencies” in the “Critical Accounting Estimates” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for a discussion of Federal Healthcare Legislation.
Other Contingencies
See “Other Contingencies” in the “Critical Accounting Estimates” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for a discussion of the estimates associated with environmental, litigation, and other risks.
New Accounting Pronouncements
See “New Accounting Pronouncements” section of Note 1 to the financial statements for a discussion of new accounting pronouncements.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the membersmember and Board of Directors of
Entergy New Orleans, LLC and Subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Entergy New Orleans, LLC and Subsidiaries (the “Company”) as of December 31, 20172019 and 2016,2018, the related consolidated statements of income, cash flows, and changes in commonmember’s equity (pages 392386 through 396390 and applicable items in pages 5549 through 230)236), for each of the three years in the period ended December 31, 2017,2019, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20172019 and 2016,2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017,2019, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ DELOITTE & TOUCHE LLP
New Orleans, Louisiana
February 26, 201821, 2020
We have served as the Company’s auditor since 2001.
| | ENTERGY NEW ORLEANS, LLC AND SUBSIDIARIES | CONSOLIDATED INCOME STATEMENTS | | | | | |
| | For the Years Ended December 31, | | For the Years Ended December 31, |
| | 2017 | | 2016 | | 2015 | | 2019 | | 2018 | | 2017 |
| | (In Thousands) | | (In Thousands) |
| | | | | | | | | | | | |
OPERATING REVENUES | | | | | | | | | | | | |
Electric | |
| $631,744 |
| |
| $586,820 |
| |
| $584,322 |
| |
| $594,417 |
| |
| $624,733 |
| |
| $631,744 |
|
Natural gas | | 84,326 |
| | 78,643 |
| | 87,124 |
| | 91,806 |
| | 92,657 |
| | 84,326 |
|
TOTAL | | 716,070 |
| | 665,463 |
| | 671,446 |
| | 686,223 |
| | 717,390 |
| | 716,070 |
|
| | | | | | | | | | | | |
OPERATING EXPENSES | | |
| | |
| | |
| | |
| | |
| | |
|
Operation and Maintenance: | | |
| | |
| | |
| | |
| | |
| | |
|
Fuel, fuel-related expenses, and gas purchased for resale | | 111,082 |
| | 40,489 |
| | 96,307 |
| | 105,217 |
| | 114,787 |
| | 111,082 |
|
Purchased power | | 282,178 |
| | 299,551 |
| | 277,851 |
| | 258,306 |
| | 270,634 |
| | 282,178 |
|
Other operation and maintenance | | 109,270 |
| | 117,471 |
| | 119,087 |
| | 121,057 |
| | 124,293 |
| | 107,977 |
|
Taxes other than income taxes | | 54,590 |
| | 48,078 |
| | 46,660 |
| | 55,270 |
| | 56,141 |
| | 54,590 |
|
Depreciation and amortization | | 52,945 |
| | 51,737 |
| | 43,205 |
| | 56,072 |
| | 55,930 |
| | 52,945 |
|
Other regulatory charges - net | | 10,889 |
| | 8,258 |
| | 3,366 |
| | 21,616 |
| | 21,413 |
| | 10,889 |
|
TOTAL | | 620,954 |
| | 565,584 |
| | 586,476 |
| | 617,538 |
| | 643,198 |
| | 619,661 |
|
| | | | | | | | | | | | |
OPERATING INCOME | | 95,116 |
| | 99,879 |
| | 84,970 |
| | 68,685 |
| | 74,192 |
| | 96,409 |
|
| | | | | | | | | | | | |
OTHER INCOME | | |
| | |
| | |
| | |
| | |
| | |
|
Allowance for equity funds used during construction | | 2,418 |
| | 1,178 |
| | 1,404 |
| | 9,941 |
| | 5,941 |
| | 2,418 |
|
Interest and investment income | | 707 |
| | 256 |
| | 73 |
| | 428 |
| | 604 |
| | 707 |
|
Miscellaneous - net | | 24 |
| | (3,144 | ) | | 339 |
| | (6,038 | ) | | (10,444 | ) | | (1,269 | ) |
TOTAL | | 3,149 |
| | (1,710 | ) | | 1,816 |
| | 4,331 |
| | (3,899 | ) | | 1,856 |
|
| | | | | | | | | | | | |
INTEREST EXPENSE | | |
| | |
| | |
| | |
| | |
| | |
|
Interest expense | | 21,281 |
| | 21,061 |
| | 17,312 |
| | 24,463 |
| | 21,772 |
| | 21,281 |
|
Allowance for borrowed funds used during construction | | (847 | ) | | (446 | ) | | (641 | ) | | (4,262 | ) | | (2,195 | ) | | (847 | ) |
TOTAL | | 20,434 |
| | 20,615 |
| | 16,671 |
| | 20,201 |
| | 19,577 |
| | 20,434 |
|
| | | | | | | | | | | | |
INCOME BEFORE INCOME TAXES | | 77,831 |
| | 77,554 |
| | 70,115 |
| | 52,815 |
| | 50,716 |
| | 77,831 |
|
| | | | | | | | | | | | |
Income taxes | | 33,278 |
| | 28,705 |
| | 25,190 |
| | 186 |
| | (2,436 | ) | | 33,278 |
|
| | | | | | | | | | | | |
NET INCOME | | 44,553 |
| | 48,849 |
| | 44,925 |
| | 52,629 |
| | 53,152 |
| | 44,553 |
|
| | | | | | | | | | | | |
Preferred dividend requirements and other | | 841 |
| | 965 |
| | 965 |
| | — |
| | — |
| | 841 |
|
| | | | | | | | | | | | |
EARNINGS APPLICABLE TO COMMON EQUITY | |
| $43,712 |
| |
| $47,884 |
| |
| $43,960 |
| |
| $52,629 |
| |
| $53,152 |
| |
| $43,712 |
|
| | | | | | | | | | | | |
See Notes to Financial Statements. | | |
| | |
| | |
| | |
| | |
| | |
|
| | ENTERGY NEW ORLEANS, LLC AND SUBSIDIARIES | CONSOLIDATED STATEMENTS OF CASH FLOWS | | | | | |
| | For the Years Ended December 31, | | For the Years Ended December 31, |
| | 2017 | | 2016 | | 2015 | | 2019 | | 2018 | | 2017 |
| | (In Thousands) | | (In Thousands) |
OPERATING ACTIVITIES | | | | | | | | | | | | |
Net income | |
| $44,553 |
| |
| $48,849 |
| |
| $44,925 |
| |
| $52,629 |
| |
| $53,152 |
| |
| $44,553 |
|
Adjustments to reconcile net income to net cash flow provided by operating activities: | | | | | | | | | | | | |
Depreciation and amortization | | 52,945 |
| | 51,737 |
| | 43,205 |
| | 56,072 |
| | 55,930 |
| | 52,945 |
|
Deferred income taxes, investment tax credits, and non-current taxes accrued | | 64,036 |
| | 140,283 |
| | 22,180 |
| | 21,350 |
| | 24,548 |
| | 64,036 |
|
Changes in assets and liabilities: | | |
| | |
| | |
| | |
| | |
| | |
|
Receivables | | (18,058 | ) | | (3,888 | ) | | 7,878 |
| | (9,372 | ) | | 15,724 |
| | (18,058 | ) |
Fuel inventory | | (49 | ) | | 71 |
| | 1,104 |
| | (387 | ) | | 357 |
| | (49 | ) |
Accounts payable | | 1,874 |
| | 15,434 |
| | 2,738 |
| | (5,571 | ) | | (385 | ) | | 1,874 |
|
Prepaid taxes and taxes accrued | | (22,100 | ) | | (1,685 | ) | | (1,050 | ) | | 234 |
| | 30,547 |
| | (22,100 | ) |
Interest accrued | | 44 |
| | 534 |
| | 1,270 |
| | 550 |
| | 879 |
| | 44 |
|
Deferred fuel costs | | 12,592 |
| | (33,839 | ) | | (182 | ) | | 3,630 |
| | (6,486 | ) | | 12,592 |
|
Other working capital accounts | | (2,711 | ) | | 4,165 |
| | (1,945 | ) | | 5,021 |
| | 4,146 |
| | (2,711 | ) |
Provisions for estimated losses | | (3,430 | ) | | 4,326 |
| | 58,310 |
| | 1,948 |
| | 1,511 |
| | (3,430 | ) |
Other regulatory assets | | 16,673 |
| | (2,784 | ) | | (70,471 | ) | | (29,567 | ) | | 21,637 |
| | 16,673 |
|
Other regulatory liabilities | | 110,147 |
| | (3,997 | ) | | (7,359 | ) | | (22,105 | ) | | (28,459 | ) | | 110,147 |
|
Deferred tax rate change recognized as regulatory liability/asset
| | (111,170 | ) | | — |
| | — |
| | — |
| | — |
| | (111,170 | ) |
Pension and other postretirement liabilities | | (15,994 | ) | | (6,859 | ) | | (18,831 | ) | | (14,624 | ) | | (15,134 | ) | | (15,994 | ) |
Other assets and liabilities | | (1,555 | ) | | (7,136 | ) | | 23,296 |
| | 55,796 |
| | 13,811 |
| | (1,555 | ) |
Net cash flow provided by operating activities | | 127,797 |
| | 205,211 |
| | 105,068 |
| | 115,604 |
| | 171,778 |
| | 127,797 |
|
INVESTING ACTIVITIES | | |
| | |
| | |
| | |
| | |
| | |
|
Construction expenditures | | (115,584 | ) | | (90,512 | ) | | (91,928 | ) | | (229,560 | ) | | (202,186 | ) | | (115,584 | ) |
Allowance for equity funds used during construction | | 2,418 |
| | 1,178 |
| | 1,404 |
| | 9,941 |
| | 5,941 |
| | 2,418 |
|
Payment for purchase of plant | | — |
| | (237,335 | ) | | — |
| |
Investments in affiliates | | — |
| | (38 | ) | | — |
| |
Changes in money pool receivable - net | | 1,492 |
| | 1,579 |
| | (15,352 | ) | | 16,825 |
| | (9,293 | ) | | 1,492 |
|
Payments to storm reserve escrow account | | (597 | ) | | (438 | ) | | (68,886 | ) | | (1,752 | ) | | (1,311 | ) | | (597 | ) |
Receipts from storm reserve escrow account | | 2,488 |
| | 3 |
| | 5,922 |
| | — |
| | 3 |
| | 2,488 |
|
Changes in securitization account | | 283 |
| | 2,882 |
| | (4,620 | ) | | 236 |
| | (770 | ) | | 283 |
|
Net cash flow used in investing activities | | (109,500 | ) | | (322,681 | ) | | (173,460 | ) | | (204,310 | ) | | (207,616 | ) | | (109,500 | ) |
FINANCING ACTIVITIES | | |
| | |
| | |
| | |
| | |
| | |
|
Proceeds from the issuance of long-term debt | | — |
| | 240,604 |
| | 95,367 |
| | 113,876 |
| | 59,234 |
| | — |
|
Retirement of long-term debt | | (10,600 | ) | | (132,526 | ) | | — |
| | (35,376 | ) | | (11,042 | ) | | (10,600 | ) |
Repayment of long-term payable due to Entergy Louisiana | | (2,104 | ) | | (4,973 | ) | | (59,610 | ) | |
Repayment of long-term payable due to associated company | | | (1,979 | ) | | (2,077 | ) | | (2,104 | ) |
Redemption of preferred stock
| | (20,599 | ) | | — |
| | — |
| | — |
| | — |
| | (20,599 | ) |
Capital contributions from parent | | 20,000 |
| | 47,750 |
| | 87,500 |
| | — |
| | — |
| | 20,000 |
|
Distributions/dividends paid: | | |
| | |
| | |
| | |
| | |
| | |
|
Common equity | | (74,250 | ) | | (18,720 | ) | | (7,250 | ) | | — |
| | (23,750 | ) | | (74,250 | ) |
Preferred stock | | (1,083 | ) | | (965 | ) | | (965 | ) | | — |
| | — |
| | (1,083 | ) |
Other | | 12 |
| | 492 |
| | (163 | ) | | (1,475 | ) | | 409 |
| | 12 |
|
Net cash flow provided by (used in) financing activities | | (88,624 | ) | | 131,662 |
| | 114,879 |
| | 75,046 |
| | 22,774 |
| | (88,624 | ) |
Net increase (decrease) in cash and cash equivalents | | (70,327 | ) | | 14,192 |
| | 46,487 |
| |
Net decrease in cash and cash equivalents | | | (13,660 | ) | | (13,064 | ) | | (70,327 | ) |
Cash and cash equivalents at beginning of period | | 103,068 |
| | 88,876 |
| | 42,389 |
| | 19,677 |
| | 32,741 |
| | 103,068 |
|
Cash and cash equivalents at end of period | |
| $32,741 |
| |
| $103,068 |
| |
| $88,876 |
| |
| $6,017 |
| |
| $19,677 |
| |
| $32,741 |
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | | |
| | |
| | |
| | |
| | |
| | |
|
Cash paid (received) during the period for: | | |
| | |
| | |
| | |
| | |
| | |
|
Interest - net of amount capitalized | |
| $20,180 |
| |
| $19,317 |
| |
| $14,951 |
| |
| $22,873 |
| |
| $19,840 |
| |
| $20,180 |
|
Income taxes | |
| ($8,660 | ) | |
| ($85,962 | ) | |
| $8,110 |
| |
| ($5,310 | ) | |
| ($39,781 | ) | |
| ($8,660 | ) |
See Notes to Financial Statements. | | |
| | |
| | |
| | |
| | |
| | |
|
| | ENTERGY NEW ORLEANS, LLC AND SUBSIDIARIES | CONSOLIDATED BALANCE SHEETS | ASSETS | | | | | |
| | December 31, | | December 31, |
| | 2017 | | 2016 | | 2019 | | 2018 |
| | (In Thousands) | | (In Thousands) |
| | | | | | | | |
CURRENT ASSETS | | | | | | | | |
Cash and cash equivalents | | | | | | | | |
Cash | |
| $30 |
| |
| $28 |
| |
| $26 |
| |
| $26 |
|
Temporary cash investments | | 32,711 |
| | 103,040 |
| | 5,991 |
| | 19,651 |
|
Total cash and cash equivalents | | 32,741 |
| | 103,068 |
| | 6,017 |
| | 19,677 |
|
Securitization recovery trust account | | 1,455 |
| | 1,738 |
| | 1,989 |
| | 2,224 |
|
Accounts receivable: | | |
| | |
| | |
| | |
|
Customer | | 51,006 |
| | 43,536 |
| | 48,265 |
| | 43,890 |
|
Allowance for doubtful accounts | | (3,057 | ) | | (3,059 | ) | | (3,226 | ) | | (3,222 | ) |
Associated companies | | 22,976 |
| | 16,811 |
| | 6,280 |
| | 27,938 |
|
Other | | 6,471 |
| | 5,926 |
| | 7,378 |
| | 4,090 |
|
Accrued unbilled revenues | | 20,638 |
| | 18,254 |
| | 25,453 |
| | 18,907 |
|
Total accounts receivable | | 98,034 |
| | 81,468 |
| | 84,150 |
| | 91,603 |
|
Deferred fuel costs | | — |
| | 4,818 |
| |
Fuel inventory - at average cost | | 1,890 |
| | 1,841 |
| | 1,920 |
| | 1,533 |
|
Materials and supplies - at average cost | | 10,381 |
| | 8,416 |
| | 13,522 |
| | 12,133 |
|
Prepaid taxes | | 26,479 |
| | 4,379 |
| |
Prepayments and other | | 8,030 |
| | 6,587 |
| | 4,846 |
| | 6,905 |
|
TOTAL | | 179,010 |
|
| 212,315 |
| | 112,444 |
|
| 134,075 |
|
| | | | | | | | |
OTHER PROPERTY AND INVESTMENTS | | |
| | |
| | |
| | |
|
Non-utility property at cost (less accumulated depreciation) | | 1,016 |
| | 1,016 |
| | 1,016 |
| | 1,016 |
|
Storm reserve escrow account | | 79,546 |
| | 81,437 |
| | 82,605 |
| | 80,853 |
|
Other | | 2,373 |
| | 7,160 |
| |
TOTAL | | 82,935 |
| | 89,613 |
| | 83,621 |
| | 81,869 |
|
| | | | | | | | |
UTILITY PLANT | | |
| | |
| | |
| | |
|
Electric | | 1,302,235 |
| | 1,258,934 |
| | 1,467,215 |
| | 1,364,091 |
|
Natural gas | | 261,263 |
| | 240,408 |
| | 311,432 |
| | 284,728 |
|
Construction work in progress | | 46,993 |
| | 24,975 |
| | 201,829 |
| | 146,668 |
|
TOTAL UTILITY PLANT | | 1,610,491 |
| | 1,524,317 |
| | 1,980,476 |
| | 1,795,487 |
|
Less - accumulated depreciation and amortization | | 631,178 |
| | 604,825 |
| | 715,406 |
| | 670,135 |
|
UTILITY PLANT - NET | | 979,313 |
| | 919,492 |
| | 1,265,070 |
| | 1,125,352 |
|
| | | | | | | | |
DEFERRED DEBITS AND OTHER ASSETS | | |
| | |
| | |
| | |
|
Regulatory assets: | | |
| | |
| | |
| | |
|
Deferred fuel costs | | 4,080 |
| | 4,080 |
| | 4,080 |
| | 4,080 |
|
Other regulatory assets (includes securitization property of $72,095 as of December 31, 2017 and $82,272 as of December 31, 2016) | | 251,433 |
| | 268,106 |
| |
Other regulatory assets (includes securitization property of $49,542 as of December 31, 2019 and $60,453 as of December 31, 2018) | | | 259,363 |
| | 229,796 |
|
Other | | 1,065 |
| | 963 |
| | 10,720 |
| | 1,416 |
|
TOTAL | | 256,578 |
| | 273,149 |
| | 274,163 |
| | 235,292 |
|
| | | | | | | | |
TOTAL ASSETS | |
| $1,497,836 |
| |
| $1,494,569 |
| |
| $1,735,298 |
| |
| $1,576,588 |
|
| | | | | | | | |
See Notes to Financial Statements. | | |
| | |
| | |
| | |
|
| | ENTERGY NEW ORLEANS, LLC AND SUBSIDIARIES | CONSOLIDATED BALANCE SHEETS | LIABILITIES AND EQUITY | | | December 31, | | December 31, |
| | 2017 | | 2016 | | 2019 | | 2018 |
| | (In Thousands) | | (In Thousands) |
| | | | | | | | |
CURRENT LIABILITIES | | | | | | | | |
Payable due to Entergy Louisiana
| |
| $2,077 |
| |
| $2,104 |
| |
Currently maturing long-term debt | | |
| $25,000 |
| |
| $— |
|
Payable due to associated company | | | 1,838 |
| | 1,979 |
|
Accounts payable: | | |
| | |
| | |
| | |
|
Associated companies | | 47,472 |
| | 39,260 |
| | 43,222 |
| | 43,416 |
|
Other | | 29,777 |
| | 35,920 |
| | 43,963 |
| | 36,686 |
|
Customer deposits | | 28,442 |
| | 28,667 |
| | 28,493 |
| | 28,667 |
|
Taxes accrued | | | 4,302 |
| | 4,068 |
|
Interest accrued | | 5,487 |
| | 5,443 |
| | 6,916 |
| | 6,366 |
|
Deferred fuel costs | | 7,774 |
| | — |
| | 4,918 |
| | 1,288 |
|
Current portion of unprotected excess accumulated deferred income taxes | | | 9,470 |
| | 25,301 |
|
Other | | 7,351 |
| | 11,415 |
| | 15,827 |
| | 9,521 |
|
TOTAL CURRENT LIABILITIES | | 128,380 |
| | 122,809 |
| | 183,949 |
| | 157,292 |
|
| | | | | | | | |
NON-CURRENT LIABILITIES | | |
| | |
| | |
| | |
|
Accumulated deferred income taxes and taxes accrued | | 283,302 |
| | 334,953 |
| | 354,536 |
| | 323,595 |
|
Accumulated deferred investment tax credits | | 2,323 |
| | 622 |
| | 2,131 |
| | 2,219 |
|
Regulatory liability for income taxes - net | | 119,259 |
| | 9,074 |
| | 49,090 |
| | 60,249 |
|
Asset retirement cost liabilities | | 3,076 |
| | 2,875 |
| | 3,522 |
| | 3,291 |
|
Accumulated provisions | | 85,083 |
| | 88,513 |
| | 88,542 |
| | 86,594 |
|
Pension and other postretirement liabilities | | 20,755 |
| | 36,750 |
| |
Long-term debt (includes securitization bonds of $74,419 as of December 31, 2017 and $84,776 as of December 31, 2016) | | 418,447 |
| | 428,467 |
| |
Long-term payable due to Entergy Louisiana
| | 16,346 |
| | 18,423 |
| |
Long-term debt (includes securitization bonds of $52,641 as of December 31, 2019 and $63,620 as of December 31, 2018) | | | 521,539 |
| | 467,358 |
|
Long-term payable due to associated company | | | 12,529 |
| | 14,367 |
|
Other | | 5,317 |
| | 5,357 |
| | 21,881 |
| | 16,673 |
|
TOTAL NON-CURRENT LIABILITIES | | 953,908 |
| | 925,034 |
| | 1,053,770 |
| | 974,346 |
|
| | | | | | | | |
Commitments and Contingencies | |
|
| |
|
| |
|
| |
|
|
| | | | | |
Preferred stock without sinking fund | | — |
| | 19,780 |
| |
| | | | | | | | |
EQUITY | | |
| | |
| | |
| | |
|
Member's equity | | 415,548 |
| | 426,946 |
| | 497,579 |
| | 444,950 |
|
TOTAL | | 415,548 |
| | 426,946 |
| | 497,579 |
| | 444,950 |
|
| | | | | | | | |
TOTAL LIABILITIES AND EQUITY | |
| $1,497,836 |
| |
| $1,494,569 |
| |
| $1,735,298 |
| |
| $1,576,588 |
|
| | | | | | | | |
See Notes to Financial Statements. | | |
| | |
| | |
| | |
|
|
| | | | |
ENTERGY NEW ORLEANS, LLC AND SUBSIDIARIES |
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBER'S EQUITY |
For the Years Ended December 31, 2017, 2016,2019, 2018, and 20152017 |
| | |
| | |
| | Member’s Equity
|
| | (In Thousands) |
| | |
Balance at December 31, 2014 | |
| $228,025 |
|
Net income | | 44,925 |
|
Net income attributable to Entergy Louisiana
| | (2,203 | ) |
Capital contributions from parent | | 87,500 |
|
Common equity distributions | | (7,250 | ) |
Preferred stock dividends | | (965 | ) |
Balance at December 31, 2015 | |
| $350,032 |
|
Net income | | 48,849 |
|
Capital contributions from parent | | 47,750 |
|
Common equity distributions | | (18,720 | ) |
Preferred stock dividends | | (965 | ) |
Balance at December 31, 2016 | |
| $426,946 |
|
Net income | | 44,553 |
|
Capital contributions from parent | | 20,000 |
|
Common equity distributions | | (74,250 | ) |
Preferred stock dividends | | (841 | ) |
Other | | (860 | ) |
Balance at December 31, 2017 | |
| $415,548 |
|
Net income | 53,152 |
|
Common equity distributions | (23,750 | ) |
Balance at December 31, 2018 |
| $444,950 |
|
Net income | 52,629 |
|
Balance at December 31, 2019 |
| $497,579 |
|
| |
See Notes to Financial Statements. | | |
|
| | ENTERGY NEW ORLEANS, LLC AND SUBSIDIARIES | SELECTED FINANCIAL DATA - FIVE-YEAR COMPARISON | | | | | | | | | | | | | | | | | | | |
| 2017 | | 2016 | | 2015 | | 2014 | | 2013 | 2019 | | 2018 | | 2017 | | 2016 | | 2015 |
| (In Thousands) | (In Thousands) |
| | | | | | | | | | | | | | | | | | |
Operating revenues |
| $716,070 |
| |
| $665,463 |
| |
| $671,446 |
| |
| $735,192 |
| |
| $659,746 |
|
| $686,223 |
| |
| $717,390 |
| |
| $716,070 |
| |
| $665,463 |
| |
| $671,446 |
|
Net income |
| $44,553 |
| |
| $48,849 |
| |
| $44,925 |
| |
| $31,030 |
| |
| $12,608 |
|
| $52,629 |
| |
| $53,152 |
| |
| $44,553 |
| |
| $48,849 |
| |
| $44,925 |
|
Total assets |
| $1,497,836 |
| |
| $1,494,569 |
| |
| $1,215,144 |
| |
| $1,014,916 |
| |
| $964,482 |
|
| $1,735,298 |
| |
| $1,576,588 |
| |
| $1,497,836 |
| |
| $1,494,569 |
| |
| $1,215,144 |
|
Long-term obligations (a) |
| $434,793 |
| |
| $466,670 |
| |
| $357,687 |
| |
| $323,280 |
| |
| $318,034 |
|
| $534,068 |
| |
| $481,725 |
| |
| $434,793 |
| |
| $466,670 |
| |
| $357,687 |
|
| | | | | | | | | | | | | | | | | | |
(a) Includes long-term debt (including the long-term payable to Entergy Louisiana and excluding currently maturing debt) and preferred stock without sinking fund.
| |
(a) Includes long-term debt (including the long-term payable to associated company and excluding currently maturing debt) and preferred stock without sinking fund. | | (a) Includes long-term debt (including the long-term payable to associated company and excluding currently maturing debt) and preferred stock without sinking fund. |
| | | | | | | | | | | | | | | | | | |
| 2017 | | 2016 | | 2015 | | 2014 | | 2013 | 2019 | | 2018 | | 2017 | | 2016 | | 2015 |
| (Dollars In Millions) | (Dollars In Millions) |
| | | | | | | | | | | | | | | | | | |
Electric Operating Revenues: | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
|
Residential |
| $250 |
| |
| $231 |
| |
| $220 |
| |
| $230 |
| |
| $221 |
|
| $245 |
| |
| $262 |
| |
| $250 |
| |
| $231 |
| |
| $220 |
|
Commercial | 228 |
| | 206 |
| | 186 |
| | 196 |
| | 194 |
| 202 |
| | 217 |
| | 228 |
| | 206 |
| | 186 |
|
Industrial | 36 |
| | 33 |
| | 30 |
| | 33 |
| | 35 |
| 32 |
| | 33 |
| | 36 |
| | 33 |
| | 30 |
|
Governmental | 77 |
| | 69 |
| | 64 |
| | 67 |
| | 69 |
| 71 |
| | 72 |
| | 77 |
| | 69 |
| | 64 |
|
Total retail | 591 |
| | 539 |
| | 500 |
| | 526 |
| | 519 |
| |
Total billed retail | | 550 |
| | 584 |
| | 591 |
| | 539 |
| | 500 |
|
Sales for resale: | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
|
Associated companies | — |
| | 30 |
| | 66 |
| | 78 |
| | 27 |
| — |
| | — |
| | — |
| | 30 |
| | 66 |
|
Non-associated companies | 29 |
| | 3 |
| | — |
| | 4 |
| | — |
| 38 |
| | 30 |
| | 29 |
| | 3 |
| | — |
|
Other | 12 |
| | 15 |
| | 18 |
| | 17 |
| | 19 |
| 6 |
| | 11 |
| | 12 |
| | 15 |
| | 18 |
|
Total |
| $632 |
| |
| $587 |
| |
| $584 |
| |
| $625 |
| |
| $565 |
|
| $594 |
| |
| $625 |
| |
| $632 |
| |
| $587 |
| |
| $584 |
|
| | | | | | | | | | | | | | | | | | |
Billed Electric Energy Sales (GWh): | | | |
| | |
| | |
| | |
| | | |
| | |
| | |
| | |
|
Residential | 2,155 |
| | 2,231 |
| | 2,301 |
| | 2,262 |
| | 2,152 |
| 2,353 |
| | 2,401 |
| | 2,155 |
| | 2,231 |
| | 2,301 |
|
Commercial | 2,248 |
| | 2,268 |
| | 2,257 |
| | 2,181 |
| | 2,130 |
| 2,215 |
| | 2,270 |
| | 2,248 |
| | 2,268 |
| | 2,257 |
|
Industrial | 429 |
| | 441 |
| | 463 |
| | 455 |
| | 484 |
| 438 |
| | 448 |
| | 429 |
| | 441 |
| | 463 |
|
Governmental | 790 |
| | 794 |
| | 825 |
| | 783 |
| | 778 |
| 815 |
| | 795 |
| | 790 |
| | 794 |
| | 825 |
|
Total retail | 5,622 |
| | 5,734 |
| | 5,846 |
| | 5,681 |
| | 5,544 |
| 5,821 |
| | 5,914 |
| | 5,622 |
| | 5,734 |
| | 5,846 |
|
Sales for resale: | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
|
Associated companies | — |
| | 1,071 |
| | 1,644 |
| | 1,379 |
| | 517 |
| — |
| | — |
| | — |
| | 1,071 |
| | 1,644 |
|
Non-associated companies | 1,703 |
| | 141 |
| | 11 |
| | 18 |
| | 14 |
| 1,961 |
| | 1,484 |
| | 1,703 |
| | 141 |
| | 11 |
|
Total | 7,325 |
| | 6,946 |
| | 7,501 |
| | 7,078 |
| | 6,075 |
| 7,782 |
| | 7,398 |
| | 7,325 |
| | 6,946 |
| | 7,501 |
|
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| |
ENTERGY TEXAS, INC. AND SUBSIDIARIES
MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS
Results of Operations
2019 Compared to 2018
Net Income
2017 Compared to 2016
Net income decreased $31.4$2.8 million primarily due to lower net revenue,a higher effective income tax rate, after excluding the effect of the return of unprotected excess accumulated deferred income taxes which is offset in operating revenues, higher depreciation and amortization expenses and higher other operation and maintenance expenses, partially offset by higher retail electric price and higher taxes other than income taxes.income.
2016 Compared to 2015Operating Revenues
Net income increased $37.9 million primarily due to lower other operation and maintenance expenses, the asset write-off of its receivable associated with the Spindletop gas storage facility in 2015, and higher net revenue.
Net Revenue
2017 Compared to 2016
Net revenue consists of operating revenues net of: 1) fuel, fuel-related expenses, and gas purchased for resale, 2) purchased power expenses, and 3) other regulatory charges. Following is an analysis of the change in netoperating revenue comparing 20172019 to 2016.2018.
|
| | | |
| Amount |
| (In Millions) |
| |
|
2016 net revenue2018 operating revenues |
| $644.21,605.9 |
|
Net wholesale revenueFuel, rider, and other revenues that do not significantly affect net income | (35.188.4 | ) |
Purchased power capacityReturn of unprotected excess accumulated deferred income taxes to customers | (5.972.8 | ) |
Transmission revenue | (5.4 | ) |
Reserve equalization | 5.6 |
|
Retail electric price | 19.041.0 |
|
OtherVolume/weather | 4.43.3 |
|
2017 net revenue2019 operating revenues |
| $626.81,489.0 |
|
Entergy Texas’s results include revenues from rate mechanisms designed to recover fuel, purchased power, and other costs such that the revenues and expenses associated with these items generally offset and do not affect net income. “Fuel, rider, and other revenues that do not significantly affect net income” includes the revenue variance associated with these items.
The net wholesale revenue variance is primarily duereturn of unprotected excess accumulated deferred income taxes to lower net capacity revenues resultingcustomers resulted from the terminationreturn of unprotected excess accumulated deferred income taxes through a rider effective October 2018. In 2019, $87.4 million was returned to customers as compared to $14.6 million in 2018. There is no effect on net income as the purchased power agreements between Entergy Louisiana and Entergy Texasreduction in August 2016.
The purchased power capacity varianceoperating revenues is primarily due to increased expenses due to capacity cost changes
for ongoing purchased power capacity contracts.
The transmission revenue variance is primarily due tooffset by a decreasereduction in the amount of transmission revenues allocated by MISO.
The reserve equalization variance is due to the absence of reserve equalization expenses in 2017 as a result of Entergy Texas’s exit from the System Agreement in August 2016.income tax expense. See Note 2 to the financial statements for afurther discussion of regulatory activity regarding the System Agreement.Tax Cuts and Jobs Act.
Entergy Texas, Inc. and Subsidiaries
Management’s Financial Discussion and Analysis
The retail electric price variance is primarily due to the implementation of the transmission cost recovery factor rider in September 2016 and ana base rate increase in the transmission cost recovery factor rider rate in March 2017, eacheffective October 2018 as approved
by the PUCT. See Note 2 to the financial statements for further discussion of the transmission cost recovery factor rider filing.rate case.
2016 Compared to 2015
Net revenue consists of operating revenues net of: 1) fuel, fuel-related expenses, and gas purchased for resale, 2) purchased power expenses, and 3) other regulatory charges. Following is an analysis of the change in net revenue comparing 2016 to 2015.
|
| | | |
| Amount |
| (In Millions) |
| |
|
2015 net revenue |
| $637.2 |
|
Reserve equalization | 14.3 |
|
Purchased power capacity | 12.4 |
|
Transmission revenue | 7.0 |
|
Retail electric price | 5.4 |
|
Net wholesale revenue | (27.8 | ) |
Other | (4.3 | ) |
2016 net revenue |
| $644.2 |
|
The reserve equalization variance is primarily due to a reduction in reserve equalization expense primarily due to changes in the Entergy System generation mix compared to the same period in 2015 as a result of the execution of a new purchased power agreement and Entergy Mississippi’s exit from the System Agreement, each in November 2015, and Entergy Texas’s exit from the System Agreement in August 2016. See Note 2 to the financial statements for a discussion of the System Agreement.
The purchased power capacity variance is primarily due to decreased expenses due to the termination of the purchased power agreements between Entergy Louisiana and Entergy Texas in August 2016, as well as capacity cost changes for ongoing purchased power capacity contracts.
The transmission revenuevolume/weather variance is primarily due to an increase in Attachment O rates charged by MISO to transmission customersusage during the unbilled sales period.
Other Income Statement Variances
Other operation and a settlementmaintenance expenses increased primarily due to:
an increase of Attachment O rates previously billed to transmission customers by MISO.
The retail electric price variance is$5.1 million in information technology costs primarily due to the implementation of the transmission cost recovery factor rider, as approved by the PUCT and implemented in September 2016, and the increase in the distribution cost recovery rider, as approved by the PUCT and implemented in January 2016. This increase was partially offset by a decrease in energy efficiency revenues. See Note 2higher costs related to the financial statements for further discussion of the transmission cost recovery factor rider and distribution cost recovery factor rider filings.applications
The net wholesale revenue variance is primarily due to lower capacity revenues resulting from the termination of the purchased power agreements between Entergy Louisiana and Entergy Texas in August 2016.
Entergy Texas, Inc. and Subsidiaries
Management’s Financial Discussion and Analysis
Other Income Statement Variances
2017 Compared to 2016
Other operation and maintenance expenses increased primarily due to:
infrastructure support, enhanced cyber security, and upgrades and maintenance;
an increase of $5.1$4.7 million in transmissionspending on initiatives to explore new customer products and distribution expenses primarily due to higher vegetation maintenance costs;services;
an increase of $4.3$3.9 million in fossil-fueled generation expenses primarily due to a higher scope of work performed during plant outages in 20172019 as compared to 2016;2018; and
an increase of $2.8$3.4 million in compensationdistribution operations and benefitsasset management costs primarily due to higher incentive-based compensation accruals in 2017 as compared to 2016.contract costs for meter reading services and higher advanced metering customer education costs.
The increase was partially offset by a decrease of $4.5 million due to the absence of transmission equalization expenses, as allocated under the System Agreement, as a result of Entergy Texas’s exit from the System Agreement in August 2016.
Taxes other than income taxes increased primarily due to an increase in ad valorem taxes resulting from higher assessments and a true-up to the sales and use tax accruals recorded in 2016 resulting from an audit settlement.
Depreciation and amortization expenses increased primarily due toas a result of new depreciation rates established in the settlement of the 2018 base rate case and additions to plant in service.
2016 ComparedOther regulatory charges (credits) include regulatory charges of $25.4 million recorded in 2018 to 2015
Other operation and maintenance expenses decreased primarily due to:
reflect the effects of a decrease of $11.2 million in fossil-fueled generation expenses primarily due to an overall lower scope of work performed in 2016 as compared to 2015;
a decrease of $7 million in transmission expenses primarily due to lower transmission equalization expenses, as allocated under the System Agreement, as compared to the same period in 2015 as a result of Entergy Mississippi’s exit from the System Agreement in November 2015 and Entergy Texas’s exit from the System Agreement in August 2016;
a decrease of $5.7 million in compensation and benefits costs primarily due to a decrease in net periodic pension and other postretirement benefits costs as a result of an increaseprovision in the discount rate used to value the benefit liabilities and a refinementsettlement reached in the approach used to estimate the service cost and interest cost components of pension and other postretirement costs. See “Critical Accounting Estimates - Qualified Pension and Other Postretirement Benefits” below and Note 11 to the financial statements for further discussion of pension and other postretirement benefit costs;
the write-off in the third quarter 2015 of $4.3 million of2018 rate case expenses and acquisition costs relatedproceeding to return the proposed Union Power Station acquisition upon Entergy Texas’s withdrawal of its 2015 rate case and dismissal of its certificate of convenience and necessity filing; and
a decrease of $4.2 million in energy efficiency costs.
The asset write-off variance is due to the $23.5 million ($15.3 million net-of-tax) write-off recorded in 2015benefits of the receivable associated with the Spindletop gas storage facility.lower federal income tax rate in 2018 to customers. See Note 2 to the financial statements for discussion of the write-off.rate case proceeding.
Income TaxesOther income increased primarily due to an increase in the allowance for equity funds used during construction due to higher construction work in progress in 2019, including the Montgomery County Power Station project.
Interest expense decreased primarily due to an increase in the allowance for borrowed funds used during construction due to higher construction work in progress in 2019, including the Montgomery County Power Station project.
The effective income tax rates were (51.1%) for 2017, 2016,2019 and 2015 were 38.9%, 37.0%,(19.3%) for 2018. The difference in the effective income tax rate of (51.1%) versus the federal statutory rate of 21% for 2019 was primarily due to the amortization of excess accumulated deferred income taxes and 34.9%, respectively.book and tax differences related to the allowance for equity funds used during construction. The difference in the effective income tax rate of (19.3%) versus the federal statutory rate of 21% for 2018 was primarily due to the flow through and amortization of excess accumulated deferred income taxes, along with the effect on income tax expense of the resolution of Entergy Texas’s 2018 base rate proceeding. See Note 3 to the financial statements for a reconciliation of the federal statutory rate of 35%21% to the effective income tax rates.
2018 Compared to 2017
400
Entergy Texas, Inc. and Subsidiaries
Management’s Financial Discussion and Analysis
Income Tax Legislation
See the “Income Tax Legislation” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for discussion of the Tax Cuts and Jobs Act, the federal income tax legislation enacted in December 2017. Note 3 to the financial statements contains additional discussion of the effect of the Act on 2017, 2018, and 2019 results of operations and financial position, the provisions of the Act, and the uncertainties associated with accounting for the Act, and Note 2 to the financial statements discusses the regulatory proceedings commenced or other responses by Entergy’s regulators tothat have considered the effects of the Act.
Liquidity and Capital Resources
Cash Flow
Cash flows for the years ended December 31, 2017, 2016, and 2015 were as follows:
|
| | | | | | | | | | | |
| 2017 | | 2016 | | 2015 |
| (In Thousands) |
Cash and cash equivalents at beginning of period |
| $6,181 |
| |
| $2,182 |
| |
| $30,441 |
|
| | | | | |
Net cash provided by (used in): | |
| | |
| | |
|
Operating activities | 301,396 |
| | 306,601 |
| | 284,268 |
|
Investing activities | (383,176 | ) | | (330,191 | ) | | (315,293 | ) |
Financing activities | 191,112 |
| | 27,589 |
| | 2,766 |
|
Net increase (decrease) in cash and cash equivalents | 109,332 |
| | 3,999 |
| | (28,259 | ) |
| | | | | |
Cash and cash equivalents at end of period |
| $115,513 |
| |
| $6,181 |
| |
| $2,182 |
|
Operating Activities
Net cash flow provided by operating activities decreased $5.2 million in 2017 primarily due to lower net income, the timing of recovery of fuel and purchased power costs, and an increase of $13.7 million in storm spending primarily as a result of Hurricane Harvey. The decrease was partially offset by income tax refunds of $21.1 million in 2017 compared to income tax payments of $28.5 million in 2016. Entergy Texas had income tax refunds in 2017 and income tax payments in 2016 in accordance with an intercompany income tax allocation agreement. The income tax refunds in 2017 primarily resulted from deductible temporary differences. The income tax payments in 2016 resulted primarily from adjustments associated with the settlement of the 2010-2011 IRS audit. See Note 3 to the financial statements for a discussion of the income tax audit.
Net cash flow provided by operating activities increased $22.3 million in 2016 primarily due to increased net income and a decrease of $31.8 million in income tax payments in 2016. Entergy Texas had income tax payments in 2016 and 2015 in accordance with an intercompany income tax allocation agreement. The income tax payments in 2016 resulted primarily from adjustments associated with the settlement of the 2010-2011 IRS audit. The income tax payments in 2015 resulted primarily from the results of operations and the reversal of taxable temporary differences. See Note 3 to the financial statements for a discussion of the income tax audit. The increase was partially offset by an increase of $5.2 million in interest paid in 2016 due to the issuance of $125 million of 2.55% Series first mortgage bonds in March 2016 and the timing of collections from customers.
Entergy Texas, Inc. and Subsidiaries
Management’s Financial Discussion and Analysis
Liquidity and Capital Resources
Cash Flow
Cash flows for the years ended December 31, 2019, 2018, and 2017 were as follows:
|
| | | | | | | | | | | |
| 2019 | | 2018 | | 2017 |
| (In Thousands) |
Cash and cash equivalents at beginning of period |
| $56 |
| |
| $115,513 |
| |
| $6,181 |
|
| | | | | |
Net cash provided by (used in): | |
| | |
| | |
|
Operating activities | 286,739 |
| | 331,753 |
| | 301,396 |
|
Investing activities | (878,280 | ) | | (395,973 | ) | | (383,176 | ) |
Financing activities | 604,414 |
| | (51,237 | ) | | 191,112 |
|
Net increase (decrease) in cash and cash equivalents | 12,873 |
| | (115,457 | ) | | 109,332 |
|
| | | | | |
Cash and cash equivalents at end of period |
| $12,929 |
| |
| $56 |
| |
| $115,513 |
|
2019 Compared to 2018
Operating Activities
Net cash flow provided by operating activities decreased $45 million in 2019 primarily due to the return of unprotected excess accumulated deferred income taxes to customers and the receipt of $33.2 million in 2018 from Entergy Arkansas as a result of a compliance filing made in response to the FERC’s October 2018 order in the Entergy Arkansas opportunity sales proceeding. The decrease was partially offset by the timing of recovery of fuel and purchased power costs and the timing of collection of receivables from customers. See Note 2 to the financial statements for further discussion of the opportunity sales proceeding and regulatory activity regarding the Tax Cuts and Jobs Act.
Investing Activities
Net cash flow used in investing activities increased $53$482.3 million in 20172019 primarily due to:
money pool activity;
an increase of $34.9$243.3 million in distributionfossil-fueled generation construction expenditures primarily due to increased storm spending primarily as a result of Hurricane Harvey and spending on digital technology improvements within the customer contact centers;Montgomery County Power Station;
an increase of $24.4$153.4 million in fossil-fueled generationtransmission construction expenditures primarily due to a higher scope of work performed in 20172019 as compared to 2016; and2018;
an increase of $8.5$47.1 million in spending on advanced metering infrastructure.
The increase was partially offset by a decrease of $51.7 million in transmissiondistribution construction expenditures primarily due to a lower scopeinvestment in the reliability and infrastructure of work performed in 2017 as compared to 2016.Entergy Texas’s distribution system, including increased spending on advanced metering infrastructure, and increased storm spending; and
money pool activity.
Increases in Entergy Texas’s receivable from the money pool are a use of cash flow, and Entergy Texas’s receivable from the money pool increased by $44.2$11.2 million in 20172019 compared to increasing by $0.7decreasing $44.9 million in 2016.2018. The money pool is an inter-company borrowing arrangement designed to reduce the Utility subsidiaries’ need for external short-term borrowings.
NetFinancing Activities
Entergy Texas’s financing activities provided $604.4 million of cash flow used in investing activities increased $14.92019 compared to using $51.2 million of cash in 2018 primarily due to:
Entergy Texas, Inc. and Subsidiaries
Management’s Financial Discussion and Analysis
the issuance of $300 million of 4.0% Series mortgage bonds and $400 million of 4.5% Series mortgage bonds in January 2019;
the issuance of $300 million of 3.55% Series mortgage bonds in September 2019;
capital contributions of $185 million in 2016 primarily due to increases2019 received from Entergy Corporation in anticipation of $27.7 million in transmissionupcoming construction expenditures, including Montgomery County Power Station; and $11.7
the issuance of $35 million aggregate liquidation value 5.375% Series A preferred stock in distribution construction expenditures primarily due to a greater scope of projects in 2016 as compared to the same period in 2015. September 2019.
The increase was partially offset by a $21.4the repayment, at maturity, of $500 million decreaseof 7.125% Series mortgage bonds in fossil-fueled generation construction expenditures primarily due to a decreased scope of work performed during plant outages in 2016 as compared
February 2019 and money pool activity. See Note 5 to the same period in 2015.
Financing Activities
Net cash flow provided by financing activities increased $163.5 million in 2017 primarily due to:
a $115 million capital contribution received from Entergy Corporation in December 2017 in anticipation of upcoming construction expenditures;
financial statements for more details on long-term debt. See Note 6 to the financial statements for more details on the issuance of $150 million of 2.55% Series first mortgage bonds in December 2017 compared to the issuance of $125 million of 2.55% Series first mortgage bonds in March 2016; andpreferred stock.
money pool activity.
Decreases in Entergy Texas’s payable to the money pool are a use of cash flow, and Entergy Texas’s payable
to the money pool decreased by $22.1$22.4 million in 2016.
Net cash flow provided by financing activities increased $24.8 million in 2016 primarily due to the retirement of $200 million of 3.6% Series first mortgage bonds in June 2015 and the issuance of $125 million of 2.55% Series first mortgage bonds in March 2016, partially offset by the issuance of $250 million of 5.15% Series first mortgage bonds in May 2015 and money pool activity.
Decreases in Entergy Texas’s payable to the money pool are a use of cash flow, and Entergy Texas’s payable to the money pool decreased by $22.1 million in 20162019 compared to increasing by $22.1$22.4 million in 2015.2018.
2018 Compared to 2017
402
Entergy Texas, Inc. and Subsidiaries
Management’s Financial Discussion and Analysis
Capital Structure
Entergy Texas’s capitalizationdebt to capital ratio is balanced between equity and debt, as shown in the following table. The decreaseincrease in the debt to capital ratio
for Entergy Texas is primarily due to the capital contribution received from Entergy Corporation and net issuance of $500 million of mortgage bonds in 2019, partially offset by
an increase in retained earnings.
equity.
| | | December 31, 2017 | | December 31, 2016 | December 31, 2019 | | December 31, 2018 |
Debt to capital | 55.7 | % | | 58.5 | % | 51.7 | % | | 51.6 | % |
Effect of excluding the securitization bonds | (6.3 | %) | | (8.3 | %) | (2.8 | %) | | (5.2 | %) |
Debt to capital, excluding securitization bonds (a) | 49.4 | % | | 50.2 | % | 48.9 | % | | 46.4 | % |
Effect of subtracting cash | (2.5 | %) | | (0.1 | %) | (0.2 | %) | | — | % |
Net debt to net capital, excluding securitization bonds (a) | 46.9 | % | | 50.1 | % | 48.7 | % | | 46.4 | % |
|
| |
(a) | Calculation excludes the securitization bonds, which are non-recourse to Entergy Texas. |
Net debt consists of debt less cash and cash equivalents. Debt consists of long-term debt, including the currently maturing portion. Capital consists of debt and common equity. Net capital consists of capital less cash and cash equivalents. Entergy Texas uses the debt to capital ratios excluding securitization bonds in analyzing its financial condition and believes they provide useful information to its investors and creditors in evaluating Entergy Texas’s financial condition because the securitization bonds are non-recourse to Entergy Texas, as more fully described in Note 5 to the financial statements. Entergy Texas also uses the net debt to net capital ratio excluding securitization bonds in analyzing its financial condition and believes it provides useful information to its investors and creditors in evaluating Entergy Texas’s financial condition because net debt indicates Entergy Texas’s outstanding debt position that could not be readily satisfied by cash and cash equivalents on hand.
Entergy Texas seeks to optimize its capital structure in accordance with its regulatory requirements and to control its cost of capital while also maintaining equity capitalization at a level consistent with investment-grade debt ratings. To the extent that operating cash flows are in excess of planned investments, cash may be used to reduce outstanding debt or may be paid as a dividend, or both, in appropriate amounts to maintain the targeted capital structure. To the extent that operating cash flows are insufficient to support planned investments, Entergy Texas may issue incremental debt or reduce dividends, or both, to maintain its targeted capital structure. In addition, Entergy Texas may receive equity
Entergy Texas, Inc. and Subsidiaries
Management’s Financial Discussion and Analysis
contributions to maintain the targetedits capital structure for certain circumstances such as large transactions that would materially alter the capital structure if financed entirely with debt and reduced dividends.
Uses of Capital
Entergy Texas requires capital resources for:
construction and other capital investments;
debt maturities or retirements;
working capital purposes, including the financing of fuel and purchased power costs; and
dividend and interest payments.
Entergy Texas, Inc. and Subsidiaries
Management’s Financial Discussion and Analysis
Following are the amounts of Entergy Texas’s planned construction and other capital investments.
| | | 2018 | | 2019 | | 2020 | 2020 | | 2021 | | 2022 |
| (In Millions) | (In Millions) |
Planned construction and capital investment: | | | | | | | | | | |
Generation |
| $175 |
| |
| $385 |
| |
| $265 |
|
| $235 |
| |
| $165 |
| |
| $195 |
|
Transmission | 195 |
| | 240 |
| | 165 |
| 265 |
| | 180 |
| | 220 |
|
Distribution | 105 |
| | 165 |
| | 145 |
| 150 |
| | 125 |
| | 170 |
|
Utility Support | 55 |
| | 30 |
| | 30 |
| 115 |
| | 135 |
| | 130 |
|
Total |
| $530 |
| |
| $820 |
| |
| $605 |
|
| $765 |
| |
| $605 |
| |
| $715 |
|
Following are the amounts of Entergy Texas’s existing debt and lease obligations (includes estimated interest payments) and other purchase obligations.
| | | 2018 | | 2019-2020 | | 2021-2022 | | After 2022 | | Total | 2020 | | 2021-2022 | | 2023-2024 | | After 2024 | | Total |
| (In Millions) | (In Millions) |
Long-term debt (a) |
| $159 |
| |
| $749 |
| |
| $385 |
| |
| $1,168 |
| |
| $2,461 |
|
| $164 |
| |
| $466 |
| |
| $133 |
| |
| $2,683 |
| |
| $3,446 |
|
Operating leases (b) |
| $4 |
| |
| $5 |
| |
| $2 |
| |
| $2 |
| |
| $13 |
|
| $4 |
| |
| $7 |
| |
| $4 |
| |
| $1 |
| |
| $16 |
|
Finance leases (b) | |
| $1 |
| |
| $2 |
| |
| $2 |
| |
| $1 |
| |
| $6 |
|
Purchase obligations (c) |
| $279 |
| |
| $555 |
| |
| $527 |
| |
| $1,188 |
| |
| $2,549 |
|
| $280 |
| |
| $434 |
| |
| $514 |
| |
| $1,039 |
| |
| $2,267 |
|
| |
(a) | Includes estimated interest payments. Long-term debt is discussed in Note 5 to the financial statements. |
| |
(b) | Does not include power purchase agreements thatLease obligations are accounted for as leases that are includeddiscussed in purchase obligations.Note 10 to the financial statements. |
| |
(c) | Purchase obligations represent the minimum purchase obligation or cancellation charge for contractual obligations to purchase goods or services. For Entergy Texas, it primarily includes unconditional fuel and purchased power obligations. |
In addition to the contractual obligations given above, Entergy Texas expects to contribute approximately $10.9$3.5 million to its qualified pension plans and approximately $3.2 million$61 thousand to other postretirement health care and life insurance plans in 2018,2020, although the 20182020 required pension contributions will be known with more certainty when the January 1, 20182020 valuations are completed, which is expected by April 1, 2018.2020. See “Critical Accounting Estimates - Qualified Pension and Other Postretirement Benefits” below for a discussion of qualified pension and other postretirement benefits funding.
Also in addition to the contractual obligations, Entergy Texas has $15.8$17.5 million of unrecognized tax benefits and interest net of unused tax attributes and payments for which the timing of payments beyond 12 months cannot be reasonably estimated due to uncertainties in the timing of effective settlement of tax positions. See Note 3 to the financial statements for additional information regarding unrecognized tax benefits.
Entergy Texas, Inc. and Subsidiaries
Management’s Financial Discussion and Analysis
In addition to routine capital spending to maintain operations, the planned capital investment estimate for Entergy Texas includes specific investments such as the Montgomery County Power Station, discussed below;Station; transmission projects to enhance reliability, reduce congestion, and enable economic growth; distribution spending to enhance reliability and improve service to customers, including investment to support advanced metering;meters and related investments; system improvements; software and security; and other investments. Estimated capital expenditures are subject to periodic review and modification and may vary based on the ongoing effects of regulatory constraints and requirements, environmental compliance, business opportunities, market volatility, economic trends, business restructuring, changes in project plans, and the ability to access capital. Management provides more information on long-term debt in Note 5 to the financial statements.
As discussed above in “Capital Structure,”a subsidiary, Entergy Texas routinely evaluatesdividends its ability to pay dividendsearnings to Entergy Corporation from its earnings.at a percentage determined monthly.
Entergy Texas, Inc. and Subsidiaries
Management’s Financial Discussion and Analysis
Montgomery County Power Station
In October 2016, Entergy Texas filed an application with the PUCT seeking certification that the public convenience and necessity would be served by the construction of the Montgomery County Power Station, a nominal 993 MW combined-cycle generating unit in Montgomery County,Willis, Texas, on land adjacent to the existing Lewis Creek plant. The current estimated cost of the Montgomery County Power Station is $937 million, including approximately $111 million of transmission interconnection and network upgrades and other related costs. The independent monitor, who oversaw the request for proposal process, filed testimony and a report affirming that the Montgomery County Power Station was selected through an objective and fair request for proposal process that showed no undue preference to any proposal. In June 2017 parties to the proceeding filed an unopposed stipulation and settlement agreement. The stipulation contemplates that Entergy Texas’s level of cost-recovery for generation construction costs for Montgomery County Power Station is capped at $831 million, subject to certain exclusions such as force majeure events. Transmission interconnection and network upgrades and other related costs are not subject to the $831 million cap. In July 2017 the PUCT approved the stipulation. Subject to the timely receipt of other permits and approvals, commercial operation is estimated to occur by mid-2021.
Advanced Metering Infrastructure (AMI)
In April 2017 the Texas legislature enacted legislation that extends statutory support for AMI deployment to Entergy Texas and directs that if Entergy Texas elects to deploy AMI, it shall do so as rapidly as practicable. In July 2017, Entergy Texas filed an application seeking an order from the PUCT approving Entergy Texas’s deployment of AMI. Entergy Texas proposed to replace existing meters with advanced meters that enable two-way data communication; design and build a secure and reliable network to support such communications; and implement support systems. AMI is intended to serve as the foundation of Entergy Texas’s modernized power grid. The filing included an estimate of implementation costs for AMI of $132 million. The filing identified a number of quantified and unquantified benefits, with Entergy Texas showing that its AMI deployment is expected to produce nominal net operational cost savings to customers of $33 million. Entergy Texas also sought to continue to include in rate base the remaining book value, approximately $41 million at December 31, 2016, of existing meters that will be retired as part of the AMI deployment and also to depreciate those assets using current depreciation rates. Entergy Texas proposed a seven-year depreciable life for the new advanced meters, the three-year deployment of which is expected to begin in 2019. Entergy Texas also proposed a surcharge tariff to recover the reasonable and necessary costs it has and will incur under the deployment plan for the full deployment of advanced meters. Further, Entergy Texas sought approval of fees that would be charged to customers who choose to opt out of receiving service through an advanced meter and instead receive electric service with a non-standard meter. In October 2017, Entergy Texas and other parties entered into and filed an unopposed stipulation and settlement agreement, permitting deployment of AMI with limited modifications. The PUCT approved the stipulation and settlement agreement in December 2017. Consistent with the approval, deployment of the communications network is expected to begin in 2018. Entergy Texas expects to recover the remaining net book value of its existing meters through a regulatory asset to be amortized at current depreciation rates.
Sources of Capital
Entergy Texas’s sources to meet its capital requirements include:
internally generated funds;
cash on hand;
debt or preferred stock issuances;
capital contributions; and
bank financing under new or existing facilities.
Entergy Texas may refinance, redeem, or otherwise retire debt prior to maturity, to the extent market conditions and interest and dividend rates are favorable.
Entergy Texas, Inc. and Subsidiaries
Management’s Financial Discussion and Analysis
All debt and common and preferred stock issuances by Entergy Texas require prior regulatory approval. Debt issuances are also subject to issuance tests set forth in its bond indenture and other agreements. Entergy Texas has sufficient capacity under these tests to meet its foreseeable capital needs.
Entergy Texas’s receivables from or (payables to) the money pool were as follows as of December 31 for each of the following years.
|
| | | | | | |
2017 | | 2016 | | 2015 | | 2014 |
(In Thousands) |
$44,903 | | $681 | | ($22,068) | | $306 |
|
| | | | | | |
2019 | | 2018 | | 2017 | | 2016 |
(In Thousands) |
$11,181 | | ($22,389) | | $44,903 | | $681 |
See Note 4 to the financial statements for a description of the money pool.
Entergy Texas, Inc. and Subsidiaries
Management’s Financial Discussion and Analysis
Entergy Texas has a credit facility in the amount of $150 million scheduled to expire in August 2022.September 2024. The credit facility allows Entergy Texas to issueincludes fronting commitments for the issuance of letters of credit against $30 million of the borrowing capacity of the facility. As of December 31, 2017,2019, there were no cash borrowings and $25.6$1.3 million of letters of credit outstanding under the credit facility. In addition, Entergy Texas is a party to an uncommitted letter of credit facility as a means to post collateral to support its obligations to MISO. As of December 31, 2017,2019, a $22.8$12.1 million letter of credit was outstanding under Entergy Texas’s letter of credit facility. See Note 4 to the financial statements for additional discussion of the credit facilities.
Entergy Texas obtained authorizations from the FERC through October 2019November 2020 for short-term borrowings, not to exceed an aggregate amount of $200 million at any time outstanding, and long-term borrowings and security issuances. See Note 4 to the financial statements for further discussion of Entergy Texas’s short-term borrowing limits.
State and Local Rate Regulation and Fuel-Cost Recovery
The rates that Entergy Texas charges for its services significantly influence its financial position, results of operations, and liquidity. Entergy Texas is regulated and the rates charged to its customers are determined in regulatory proceedings. The PUCT, a governmental agency, is primarily responsible for approval of the rates charged to customers.
Filings with the PUCT
20112018 Rate Case
In November 2011,In May 2018, Entergy Texas filed a base rate case requesting a $112with the PUCT seeking an increase in base rates and rider rates of approximately $166 million, of which $48 million is associated with moving costs currently being collected through riders into base rates such that the total incremental revenue requirement increase is approximately $118 million. The base rate increase reflecting a 10.6% return on common equitycase was based on a 12-month test year ending December 31, 2017. In addition, Entergy Texas included capital additions placed into service for the period of April 1, 2013 through December 31, 2017, as well as a post-test year adjustment to include capital additions placed in service by June 30, 2018.
In October 2018 the parties filed an adjusted June 2011 test year. The rate case also proposed a purchased power recovery rider. On January 12, 2012, the PUCT voted not to address the purchased power recovery riderunopposed settlement resolving all issues in the rate case, butproceeding and a motion for interim rates effective for usage on and after October 17, 2018. The unopposed settlement reflects the PUCT voted to set a baseline in the rate case proceeding that would be applicable if a purchased power capacity rider is approved in a separate proceeding. In April 2012 the PUCT Staff filed direct testimony recommendingfollowing terms: a base rate increase of $66$53.2 million (net of costs realigned from riders and including updated depreciation rates), a 9.6% return on common equity.$25 million refund to reflect the lower federal income tax rate applicable to Entergy Texas from January 25, 2018 through the date new rates are implemented, $6 million of capitalized skylining tree hazard costs will not be recovered from customers, $242.5 million of protected excess accumulated deferred income taxes, which includes a tax gross-up, will be returned to customers through base rates under the average rate assumption method over the lives of the associated assets, and $185.2 million of unprotected excess accumulated deferred income taxes, which includes a tax gross-up, will be returned to customers through a rider. The PUCT Staff, however, subsequently filedunprotected excess accumulated deferred income taxes rider will include carrying charges and will be in effect over a statementperiod of position12 months for large customers and over a period of four years for other customers. The settlement also provides for the deferral of $24.5 million of costs associated with the remaining book value of the Neches and Sabine 2 plants, previously taken out of service, to be recovered over a ten-year period and the deferral of $20.5 million of costs associated with Hurricane Harvey to be recovered over a 12-year period, each beginning in October 2018. The settlement provides final resolution of all issues in the proceeding indicating that it was still evaluatingmatter, including those related to the position it would ultimately take inTax Act. In October 2018 the case regarding Entergy Texas’s recovery of purchased power capacity costs and Entergy Texas’s proposalALJ granted the unopposed motion for interim rates to defer its MISO transition expenses.be effective for service rendered on or after October 17, 2018. In April 2012, Entergy Texas filed rebuttal testimony indicating a revised request for a $105 million base rate increase. A hearing was held in late-April through early-May 2012.
In September 2012December 2018 the PUCT issued an order approving the unopposed settlement.
In January 2019, Entergy Texas filed for recovery of rate case expenses totaling $7.2 million. The amounts requested primarily include internal and external expenses related to litigating the 2018 base rate case. Parties filed testimony in April 2019 recommending a $28disallowance ranging from $3.2 million rate increase, effective July 2012. The order included a finding that “a return on common equity (ROE) of 9.80 percent will allow [Entergy Texas] a reasonable opportunity to earn a reasonable return on invested capital.” The order also provided for increases in depreciation rates and the annual storm reserve accrual. The order also reduced Entergy Texas’s proposed purchased power capacity costs, stating that they are not known and measurable; reduced Entergy Texas’s regulatory assets associated with Hurricane Rita; excluded from rate recovery capitalized financially-based incentive compensation; included $1.6$4.2 million of MISO transition expense in base rates;the $7.2 million requested. In May 2019, Entergy Texas filed rebuttal testimony responding to the parties’ positions. In September 2019 an order was issued abating the procedural schedule and reduced Entergy’s Texas’s fuel reconciliation recovery by $4scheduled hearing to allow the finalization of a settlement
Entergy Texas, Inc. and Subsidiaries
Management’s Financial Discussion and Analysis
million becausein principle reached among the PUCT disagreed withparties. The settlement provides for a black box disallowance of $1.4 million. In the line-loss factor used in the calculation. After considering the progress of the proceeding in light of the PUCT order,third quarter 2019, Entergy Texas recorded a provision for the 2018 base rate case expenses based on the settlement in the third quarter 2012 an approximate $24 million charge to recognize that assets associated with Hurricane Rita, financially-based incentive compensation, and fuel recovery are no longer probable of recovery. Entergy Texas believed that it was entitled to recover these prudently incurred costs, however, and it filed a motion for rehearing regarding these and several other issues in the PUCT’s order on October 4, 2012. Several other parties also filed motions for rehearing of the PUCT’s order. The PUCT subsequently denied rehearing of substantive issues. Several parties, including Entergy Texas, appealed various aspects of the PUCT’s order to the Travis County District Court. A hearing was held in July 2014.principle. In October 20142019 the Travis County District Court issued an order upholdingsettlement was filed for review by the PUCT’s decision except as toPUCT. In February 2020 the line-loss factor issue referenced above, which was found in favor of Entergy Texas. In November 2014, Entergy Texas and other parties, including the PUCT, appealed the Travis County District Court decision to the Third Court of Appeals. Oral argument before the court panel was held in September 2015. In April 2016 the Third Court of Appeals issued its opinion affirming the District Court’s decision on all points. Entergy Texas petitioned the Texas Supreme Court to hear its appeal of the Third Court’s ruling. In September 2017 the Texas Supreme Court denied the petitions for review. Entergy Texas filed a motion for rehearing of the Texas Supreme Court’s denial of the petition for review. In January 2018 the Texas Supreme Court denied Entergy Texas’s motion for rehearing.
Distribution cost recovery factor (DCRF) rider
In September 2015, Entergy Texas filed to amend its DCRF rider. Entergy Texas requested an increase in recovery under the rider of $6.5 million, for a total collection of $10.1 million annually from retail customers. In October 2015 intervenors and PUCT staff filed testimony opposing, in part, Entergy Texas’s request. In November 2015, Entergy Texas and the parties filed an unopposed settlement agreement and supporting documents. The settlement established an annual revenue requirement of $8.65 million for the amended DCRF rider, with the resulting rates effective for usage on and after January 1, 2016. The PUCT approved the settlement agreement in February 2016.settlement.
Distribution Cost Recovery Factor (DCRF) Rider
In June 2017, Entergy Texas filed an application to amend its DCRF rider by increasing the total collection from $8.65 million to approximately $19 million. In July 2017, Entergy Texas, the PUCT staff, and the two other parties in the proceeding entered into an unopposed stipulation and settlement agreement resulting in an amended DCRF annual revenue requirement of $18.3 million, with the resulting rates effective for usage no later than October 1, 2017.million. In September 2017 the PUCT issued its final order approving the unopposed stipulation and settlement agreement. The amended DCRF rider rates became effective for usage on and after September 1, 2017. DCRF rates were set to zero upon implementation of new base rates on October 17, 2018, as described above in the 2018 base rate case discussion.
Transmission cost recovery factor (TCRF) rider
In September 2015,March 2019, Entergy Texas filed for a TCRF rider requesting a $13 million increase, incremental to base rates. Testimony was filed in November 2015, with the PUCT staff and other parties proposing various disallowances involving, among other things, MISO charges, vegetation management costs, and bad debt expenses that would reduce the requested increase bya request to set a new DCRF rider. The proposed new DCRF rider is designed to collect approximately $2 million. In addition to those recommended disallowances, a number of parties recommended that Entergy Texas’s request be reduced by an additional $3.4$3.2 million to account for load growth since base rates were last set. A hearing on the merits was held in December 2015. In February 2016 a State Office of Administrative Hearings ALJ issued a proposal for decision recommending that the PUCT disallow approximately $2 millionannually from Entergy Texas’s $13 million request, but recommending that the PUCT not accept the load growth offset.retail customers based on its capital invested in distribution between January 1, 2018 and December 31, 2018. In June 2016 the PUCT indicated that it would take up in a future rulemaking project the issue of whether a load growth adjustment should apply to a TCRF. In July 2016September 2019 the PUCT issued an order generally acceptingapproving rates, which had been effective on an interim basis since June 2019, at the proposal for decision but declining to adjust the TCRF baseline in two instances as recommended by the ALJ, which resulted in a total annual allowance of approximately $10.5 million. The PUCT also ordered its staff and Entergy Texas to track all spare autotransformer transfers going forward so that it could address the appropriate accounting treatment and prudence of such transferslevel proposed in Entergy Texas’s next base rate case. Entergy Texas implemented the TCRF rider beginning with September 2016 bills.application.
Transmission Cost Recovery Factor (TCRF) Rider
Entergy Texas, Inc. and Subsidiaries
Management’s Financial Discussion and Analysis
In September 2016, Entergy Texas filed with the PUCT a request to amend its TCRF rider. The proposed amended TCRF rider iswas designed to collect approximately $29.5 million annually from Entergy Texas’s retail customers. This amount includes the approximately $10.5 million annually that Entergy Texas is currently authorized to collect through the TCRF rider, as discussed above. In December 2016, concurrent with the 2016 fuel reconciliation stipulation and settlement agreement discussed above,below, Entergy Texas and the PUCT staff reached a settlement agreeing to the amended TCRF annual revenue requirement of $29.5 million. As discussed below, the terms of the two settlements are interdependent. The PUCT approved the settlement and issued a final order in March 2017. Entergy Texas implemented the amended TCRF rider beginning with bills covering usage on and after March 20, 2017. TCRF rates were set to zero upon implementation of new base rates on October 17, 2018, as discussed above in the 2018 base rate case discussion.
In December 2018, Entergy Texas filed with the PUCT a request to set a new TCRF rider. The proposed new TCRF rider is designed to collect approximately $2.7 million annually from Entergy Texas’s retail customers based on its capital invested in transmission between January 1, 2018 and September 30, 2018. In April 2019 parties filed testimony proposing a load growth adjustment, which would fully offset Entergy Texas’s proposed TCRF revenue requirement. In July 2019 the PUCT granted Entergy Texas’s application as filed to begin recovery of the requested $2.7 million annual revenue requirement, rejecting opposing parties’ proposed adjustment; however, the PUCT found that the question of prudence of the actual investment costs should be determined in Entergy Texas’s next rate case similar to the procedure used for the costs recovered through the DCRF rider. In October 2019 the PUCT issued an order on a motion for rehearing, clarifying and affirming its prior order granting Entergy Texas’s application as filed. Also, in October 2019 a second motion for rehearing was filed, and Entergy Texas filed a response in opposition to the motion. The second motion for rehearing was overruled by operation of law. In December 2019, Texas Industrial Energy Consumers filed an appeal to the PUCT order in district court alleging that the PUCT erred in declining to apply a load growth adjustment.
In August 2019, Entergy Texas filed with the PUCT a request to amend its TCRF rider. The proposed new TCRF rider is designed to collect approximately $19.4 million annually from Entergy Texas’s retail customers based on its capital invested in transmission between January 1, 2018 and June 30, 2019, which is $16.7 million in incremental annual revenue above the $2.7 million approved in the prior pending TCRF proceeding. In November 2019, Entergy Texas filed an unopposed stipulation and settlement agreement providing for recovery of the requested revenue requirement. In January 2020 the PUCT issued an order approving the unopposed settlement.
Entergy Texas, Inc. and Subsidiaries
Management’s Financial Discussion and Analysis
Advanced Metering Infrastructure (AMI)
In April 2017 the Texas legislature enacted legislation that extends statutory support for AMI deployment to Entergy Texas and directs that if Entergy Texas elects to deploy AMI, it shall do so as rapidly as practicable. In July 2017, Entergy Texas filed an application seeking an order from the PUCT approving Entergy Texas’s deployment of AMI. Entergy Texas proposed to replace existing meters with advanced meters that enable two-way data communication; design and build a secure and reliable network to support such communications; and implement support systems. AMI is intended to serve as the foundation of Entergy Texas’s modernized power grid. The filing included an estimate of implementation costs for AMI of $132 million and identified a number of quantified and unquantified benefits. Entergy Texas proposed a seven-year depreciable life for the new advanced meters. Entergy Texas also proposed a surcharge tariff to recover the reasonable and necessary costs it has and will incur under the deployment plan for the full deployment of advanced meters. Further, Entergy Texas sought approval of fees that would be charged to customers who choose to opt out of receiving service through an advanced meter and instead receive electric service with a non-standard meter. In October 2017, Entergy Texas and other parties entered into and filed an unopposed stipulation and settlement agreement permitting deployment of AMI with limited modifications. The PUCT approved the stipulation and settlement agreement in December 2017. Entergy Texas implemented the AMI surcharge tariff beginning with January 2018 bills. As of December 31, 2019, Entergy Texas has a regulatory liability related to the collection of the surcharge from customers. Consistent with the approval, deployment of the communications network began in 2018 and the three-year deployment of the advanced meters began in 2019. Entergy Texas will recover the undepreciated balance of its existing meters through a regulatory asset to be amortized at current depreciation rates, as approved by the PUCT.
Fuel and Purchased Power Cost Recovery
Entergy Texas’s rate schedules include a fixed fuel factor to recover fuel and purchased power costs, including interest, not recovered in base rates. Semi-annual revisions of the fixed fuel factor are made in March and September based on the market price of natural gas and changes in fuel mix. The amounts collected under Entergy Texas’s fixed fuel factor and any interim surcharge or refund are subject to fuel reconciliation proceedings before the PUCT.
In August 2014, Entergy Texas filed an application seeking PUCT approval to implement an interim fuel refund of approximately $24.6 million for over-collected fuel costs incurred during the months of November 2012 through April 2014. This refund resulted from (i) applying $48.6 million in bandwidth remedy payments that Entergy Texas received in May 2014 related to the June - December 2005 period to Entergy Texas’s $8.7 million under-recovered fuel balance as of April 30, 2014 and (ii) netting that fuel balance against the $15.3 million bandwidth remedy payment that Entergy Texas made related to calendar year 2013 production costs. Also in August 2014, Entergy Texas filed an unopposed motion for interim rates to implement these refunds for most customers over a two-month period commencing with September 2014. The PUCT issued its order approving the interim relief in August 2014 and Entergy Texas completed the refunds in October 2014. Parties intervened in this matter, and all parties agreed that the proceeding should be bifurcated such that the proposed interim refund would become final in a separate proceeding, which refund was approved by the PUCT in March 2015. In July 2015 certain parties filed briefs in the open proceeding asserting that Entergy Texas should refund to retail customers an additional $10.9 million in bandwidth remedy payments Entergy Texas received related to calendar year 2006 production costs. In October 2015 an ALJ issued a proposal for decision recommending that the additional $10.9 million in bandwidth remedy payments be refunded to retail customers. In January 2016 the PUCT issued its order affirming the ALJ’s recommendation, and Entergy Texas filed a motion for rehearing of the PUCT’s decision, which the PUCT denied. In March 2016, Entergy Texas filed a complaint in Federal District Court for the Western District of Texas and a petition in the Travis County (State) District Court appealing the PUCT’s decision. The pending appeals did not stay the PUCT’s decision. In April 2016, Entergy Texas filed with the PUCT an application to refund to customers approximately $56.2 million. The refund resulted from (i) $41.8 million of fuel cost recovery over-collections through February 2016, (ii) the $10.9 million in bandwidth remedy payments, discussed above, that Entergy Texas received related to calendar year 2006 production costs, and (iii) $3.5 million in bandwidth remedy payments that Entergy Texas received related to 2006-2008 production costs. In June 2016, Entergy Texas filed an unopposed settlement agreement that added additional over-recovered fuel costs for the months of March and April 2016. The settlement resulted in a $68 million refund. The ALJ approved the refund on an interim basis to beand it was made to most customers over a four-month period beginning with the first billing cycle of July 2016. In July 2016 the PUCT issued an order approving the interim refund. The federal appeal of the PUCT’s January 2016 decision was heard in December 2016, and the Federal District Court granted Entergy Texas’s requested relief. In January 2017 the PUCT and an intervenor filed petitions for appeal to the U.S. Court of Appeals for the Fifth Circuit of the Federal District Court ruling. Oral argument was held before the U.S. Court of Appeals for the Fifth Circuit in February 2018. In April 2018 and athe Fifth Circuit reversed the decision is pending. The Stateof the Federal District Court, reinstating the original PUCT decision. In October 2018, Entergy Texas filed a notice of nonsuit in its appeal ofto the Travis County District Court regarding the PUCT’s January 2016 decision also remains pending.decision.
Entergy Texas, Inc. and Subsidiaries
Management’s Financial Discussion and Analysis
In July 2016, Entergy Texas filed an application to reconcile its fuel and purchased power costs for the period April 1, 2013 through March 31, 2016. Under a recent PUCT rule change, a fuel reconciliation is required to be filed at least once every three years and outside of a base rate case filing. During the reconciliation period, Entergy Texas incurred approximately $1.77 billion in Texas jurisdictional eligible fuel and purchased power expenses, net of certain revenues credited to such expenses and other adjustments. Entergy Texas estimated an over-recovery balance of
Entergy Texas, Inc. and Subsidiaries
Management’s Financial Discussion and Analysis
approximately $19.3 million, including interest, which Entergy Texas requested authority to carry over as the beginning balance for the subsequent reconciliation period beginning Apri1April 2016. Entergy Texas also noted, however, that the estimated $19.3 million over collection was being refunded to customers as a portion of the interim fuel refund beginning with the first billing cycle of July 2016, discussed above. Entergy Texas also requested a prudence finding for each of the fuel-related contracts and arrangements entered into or modified during the reconciliation period that have not been reviewed by the PUCT in a prior proceeding. In December 2016, Entergy Texas entered into a stipulation and settlement agreement resulting in a $6 million disallowance not associated with any particular issue raised and a refund of the over-recovery balance of $21 million as of November 30, 2016, to most customers beginning April 2017 through June 2017. This settlement was developed concurrently with the stipulation and settlement agreement in the 2016 transmission cost recovery factor rider amendment discussed above, and the terms and conditions in both settlements are interdependent. The fuel reconciliation settlement was approved by the PUCT in March 2017 and the refunds were made.
In June 2017, Entergy Texas filed an application for a fuel refund of approximately $30.7 million for the months of December 2016 through April 2017. For most customers, the refunds flowed through bills for the months of July 2017 through September 2017. The fuel refund was approved by the PUCT in August 2017.
In December 2017, Entergy Texas filed an application for a fuel refund of approximately $30.5 million for the months of May 2017 through October 2017. Also in December 2017, the PUCT’s ALJ approved the refund on an interim basis. For most customers, the refunds flowed through bills beginning January 2018 and will continue through March 2018. A final decisionThe fuel refund was approved by the PUCT in this matter remainsMarch 2018.
In September 2019, Entergy Texas filed an application to reconcile its fuel and purchased power costs for the period from April 2016 through March 2019. During the reconciliation period, Entergy Texas incurred approximately $1.6 billion in Texas jurisdictional eligible fuel and purchased power expenses, net of certain revenues credited to such expenses and other adjustments. Entergy Texas estimated an under-recovery balance of approximately $25.8 million, including interest, which Entergy Texas requested authority to carry over as the beginning balance for the subsequent reconciliation period beginning April 2019. The proceeding is currently pending.
Federal Regulation
See the “Rate, Cost-recovery, and Other Regulation– Federal Regulation” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis and Note 2 to the financial statements for a discussion of federal regulation.
Nuclear Matters
See the “Nuclear Matters” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for a discussion of nuclear matters.
Industrial and Commercial Customers
Entergy Texas’s large industrial and commercial customers continually explore ways to reduce their energy costs. In particular, cogeneration is an option available to a portion of Entergy Texas’s industrial customer base. Entergy Texas responds by working with industrial and commercial customers and negotiating electric service contracts to provide, under existing rate schedules, competitive rates that match specific customer needs and load profiles. Entergy Texas actively participates in economic development, customer retention, and reclamation activities to increase industrial and commercial demand, from both new and existing customers.
Entergy Texas, Inc. and Subsidiaries
Management’s Financial Discussion and Analysis
Environmental Risks
Entergy Texas’s facilities and operations are subject to regulation by various governmental authorities having jurisdiction over air quality, water quality, control of toxic substances and hazardous and solid wastes, and other environmental matters. Management believes that Entergy Texas is in substantial compliance with environmental regulations currently applicable to its facilities and operations, with reference to possible exceptions noted in “Regulation of Entergy’s Business - Environmental Regulation” in Part I, Item 1. Because environmental regulations are subject to change, future compliance costs cannot be precisely estimated.
Entergy Texas, Inc. and Subsidiaries
Management’s Financial Discussion and Analysis
Critical Accounting Estimates
The preparation of Entergy Texas’s financial statements in conformity with generally accepted accounting principles requires management to apply appropriate accounting policies and to make estimates and judgments that can have a significant effect on reported financial position, results of operations, and cash flows. Management has identified the following accounting policies and estimates as critical because they are based on assumptions and measurements that involve a high degree of uncertainty, and the potential for future changes in the assumptions and measurements that could produce estimates that would have a material effect on the presentation of Entergy Texas’s financial position or results of operations.
Utility Regulatory Accounting
See “Utility Regulatory Accounting” in the “Critical Accounting Estimates” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for discussion of accounting for the effects of rate regulation.
Unbilled Revenue
See “Unbilled Revenue” in the “Critical Accounting Estimates” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for discussion of the estimates associated with the unbilled revenue amounts.
Impairment of Long-lived Assets and Trust Fund Investments
See “Impairment of Long-lived Assets and Trust Fund Investments” in the “Critical Accounting Estimates” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for discussion of the estimates associated with the impairment of long-lived assets.
Taxation and Uncertain Tax Positions
See “Taxation and Uncertain Tax Positions” in the “Critical Accounting Estimates” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for further discussion.
Qualified Pension and Other Postretirement Benefits
Entergy Texas’s qualified pension and other postretirement reported costs, as described in Note 11 to the financial statements, are impacted by numerous factors including the provisions of the plans, changing employee demographics, and various actuarial calculations, assumptions, and accounting mechanisms. See the “Qualified Pension and Other Postretirement Benefits” in the “Critical Accounting Estimates” section of Entergy Corporation and Subsidiaries’ Management’s Financial Discussion and Analysis for further discussion. Because of the complexity of these calculations, the long-term nature of these obligations, and the importance of the assumptions utilized, Entergy’s estimate of these costs is a critical accounting estimate.
Entergy Texas, Inc. and Subsidiaries
Management’s Financial Discussion and Analysis
Cost Sensitivity
The following chart reflects the sensitivity of qualified pension and qualified projected benefit obligation cost to changes in certain actuarial assumptions (dollars in thousands).
| | Actuarial Assumption | | Change in Assumption | | Impact on 2018 Qualified Pension Cost | | Impact on 2017 Qualified Projected Benefit Obligation | | Change in Assumption | | Impact on 2020 Qualified Pension Cost | | Impact on 2019 Qualified Projected Benefit Obligation |
| | | | Increase/(Decrease) | | | | | | Increase/(Decrease) | | |
Discount rate | | (0.25%) | | $701 | |
| $11,425 |
| | (0.25%) | | $535 | | $9,465 |
Rate of return on plan assets | | (0.25%) | | $868 | |
| $— |
| | (0.25%) | | $783 | | $— |
Rate of increase in compensation | | 0.25% | | $301 | |
| $1,488 |
| | 0.25% | | $347 | | $1,676 |
The following chart reflects the sensitivity of postretirement benefit cost and accumulated postretirement benefit obligation changes in certain actuarial assumptions (dollars in thousands).
| | Actuarial Assumption | | Change in Assumption | | Impact on 2018 Postretirement Benefit Cost | | Impact on 2017 Accumulated Postretirement Benefit Obligation | | Change in Assumption | | Impact on 2020 Postretirement Benefit Cost | | Impact on 2019 Accumulated Postretirement Benefit Obligation |
| | | | Increase/(Decrease) | | | | | | Increase/(Decrease) | | |
Discount rate | | (0.25%) | | $231 | | $3,481 | | (0.25%) | | $— | | $2,673 |
Health care cost trend | | 0.25% | | $413 | | $2,907 | | 0.25% | | $97 | | $2,050 |
Each fluctuation above assumes that the other components of the calculation are held constant.
Costs and FundingEmployer Contributions
Total qualified pension cost for Entergy Texas in 20172019 was $3.5$5.7 million. Entergy Texas anticipates 20182020 qualified pension incomecost to be $4.2 million. In 2016, Entergy Texas refined its approach to estimating the service cost and interest cost components of qualified pension costs, which had the effect of lowering qualified pension costs by $3.6$8.4 million. Entergy Texas contributed $17$3.7 million to its qualified pension plans in 20172019 and estimates 20182020 pension contributions will be approximately $10.9$3.5 million, although the 20182020 required pension contributions will be known with more certainty when the January 1, 20182020 valuations are completed, which is expected by April 1, 2018.2020.
Total postretirement health care and life insurance benefit income for Entergy Texas in 20172019 was $1.8$6.5 million. Entergy Texas expects 20182020 postretirement health care and life insurance benefit income to approximate $6.2$6.7 million. In 2016,2019, Entergy Texas’ postretirement contributions (that is, contributions to the external trusts plus claims payments) were offset by trust claims reimbursements, resulting in a net reimbursement of $596 thousand. Entergy Texas refined its approach to estimating the service cost and interest cost components of other postretirement costs, which had the effect of lowering qualified other postretirement costs by $1.1 million. Entergy Texas contributed $3.1 million to its other postretirement plans in 2017 and estimates 20182020 contributions will be approximately $3.2 million.$61 thousand.
Federal Healthcare LegislationOther Contingencies
See “Qualified Pension and Other Postretirement Benefits - Federal Healthcare LegislationContingencies” in the “Critical Accounting Estimates” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for a discussion of Federal Healthcare Legislation.
Other Contingencies
See “Other Contingencies” in the “Critical Accounting Estimates” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for a discussion of the estimates associated with environmental, litigation, and other risks.
Entergy Texas, Inc. and Subsidiaries
Management’s Financial Discussion and Analysis
New Accounting Pronouncements
See “New Accounting Pronouncements” section of Note 1 to the financial statements for a discussion of new accounting pronouncements.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholdershareholders and Board of Directors of
Entergy Texas, Inc. and Subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Entergy Texas, Inc. and Subsidiaries (the “Company”) as of December 31, 20172019 and 2016,2018, the related consolidated statements of income, cash flows, and changes in common equity (pages 414405 through 418410 and applicable items in pages 5549 through 230)236), for each of the three years in the period ended December 31, 2017,2019, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20172019 and 2016,2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017,2019, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ DELOITTE & TOUCHE LLP
New Orleans, Louisiana
February 26, 201821, 2020
We have served as the Company’s auditor since 2001.
| | ENTERGY TEXAS, INC. AND SUBSIDIARIES | CONSOLIDATED INCOME STATEMENTS | | | | | |
| | For the Years Ended December 31, | | For the Years Ended December 31, |
| | 2017 | | 2016 | | 2015 | | 2019 | | 2018 | | 2017 |
| | (In Thousands) | | (In Thousands) |
| | | | | | | | | | | | |
OPERATING REVENUES | | | | | | | | | | | | |
Electric | |
| $1,544,893 |
| |
| $1,615,619 |
| |
| $1,707,203 |
| |
| $1,488,955 |
| |
| $1,605,902 |
| |
| $1,544,893 |
|
| | | | | | | | | | | | |
OPERATING EXPENSES | | |
| | |
| | |
| | |
| | |
| | |
|
Operation and Maintenance: | | |
| | |
| | |
| | |
| | |
| | |
|
Fuel, fuel-related expenses, and gas purchased for resale | | 225,517 |
| | 271,968 |
| | 277,810 |
| | 162,544 |
| | 204,830 |
| | 225,517 |
|
Purchased power | | 610,279 |
| | 616,597 |
| | 709,947 |
| | 602,563 |
| | 614,012 |
| | 610,279 |
|
Other operation and maintenance | | 230,616 |
| | 220,566 |
| | 254,731 |
| | 258,924 |
| | 238,400 |
| | 230,437 |
|
Asset write-off | | — |
| | — |
| | 23,472 |
| |
Taxes other than income taxes | | 79,254 |
| | 70,973 |
| | 72,945 |
| | 76,366 |
| | 82,033 |
| | 79,254 |
|
Depreciation and amortization | | 117,520 |
| | 107,026 |
| | 102,410 |
| | 153,286 |
| | 128,534 |
| | 117,520 |
|
Other regulatory charges - net | | 82,328 |
| | 82,879 |
| | 82,243 |
| | 88,770 |
| | 131,667 |
| | 82,328 |
|
TOTAL | | 1,345,514 |
| | 1,370,009 |
| | 1,523,558 |
| | 1,342,453 |
| | 1,399,476 |
| | 1,345,335 |
|
| | | | | | | | | | | | |
OPERATING INCOME | | 199,379 |
| | 245,610 |
| | 183,645 |
| | 146,502 |
| | 206,426 |
| | 199,558 |
|
| | | | | | | | | | | | |
OTHER INCOME | | |
| | |
| | |
| | |
| | |
| | |
|
Allowance for equity funds used during construction | | 6,722 |
| | 7,617 |
| | 5,678 |
| | 28,445 |
| | 9,723 |
| | 6,722 |
|
Interest and investment income | | 981 |
| | 987 |
| | 684 |
| | 3,072 |
| | 2,188 |
| | 981 |
|
Miscellaneous - net | | 193 |
| | (746 | ) | | (798 | ) | | 546 |
| | (655 | ) | | 14 |
|
TOTAL | | 7,896 |
| | 7,858 |
| | 5,564 |
| | 32,063 |
| | 11,256 |
| | 7,717 |
|
| | | | | | | | | | | | |
INTEREST EXPENSE | | |
| | |
| | |
| | |
| | |
| | |
|
Interest expense | | 86,719 |
| | 87,776 |
| | 86,024 |
| | 86,333 |
| | 87,203 |
| | 86,719 |
|
Allowance for borrowed funds used during construction | | (4,098 | ) | | (4,943 | ) | | (3,690 | ) | | (13,269 | ) | | (5,513 | ) | | (4,098 | ) |
TOTAL | | 82,621 |
| | 82,833 |
| | 82,334 |
| | 73,064 |
| | 81,690 |
| | 82,621 |
|
| | | | | | | | | | | | |
INCOME BEFORE INCOME TAXES | | 124,654 |
| | 170,635 |
| | 106,875 |
| | 105,501 |
| | 135,992 |
| | 124,654 |
|
| | | | | | | | | | | | |
Income taxes | | 48,481 |
| | 63,097 |
| | 37,250 |
| | (53,896 | ) | | (26,243 | ) | | 48,481 |
|
| | | | | | | | | | | | |
NET INCOME | |
| $76,173 |
| |
| $107,538 |
| |
| $69,625 |
| | 159,397 |
| | 162,235 |
| | 76,173 |
|
| | | | | | | | | | | | |
Preferred dividend requirements | | | 580 |
| | — |
| | — |
|
| | | | | | | |
EARNINGS APPLICABLE TO COMMON STOCK | | |
| $158,817 |
| |
| $162,235 |
| |
| $76,173 |
|
| | | | | | | |
See Notes to Financial Statements. | | |
| | |
| | |
| | |
| | |
| | |
|
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| | ENTERGY TEXAS, INC. AND SUBSIDIARIES | CONSOLIDATED STATEMENTS OF CASH FLOWS | | | | | |
| | For the Years Ended December 31, | | For the Years Ended December 31, |
| | 2017 | | 2016 | | 2015 | | 2019 | | 2018 | | 2017 |
| | (In Thousands) | | (In Thousands) |
OPERATING ACTIVITIES | | | | | | | | | | | | |
Net income | |
| $76,173 |
| |
| $107,538 |
| |
| $69,625 |
| |
| $159,397 |
| |
| $162,235 |
| |
| $76,173 |
|
Adjustments to reconcile net income to net cash flow provided by operating activities: | | | | | | | | | | | | |
Depreciation and amortization | | 117,520 |
| | 107,026 |
| | 102,410 |
| | 153,286 |
| | 128,534 |
| | 117,520 |
|
Deferred income taxes, investment tax credits, and non-current taxes accrued | | 42,119 |
| | 20,794 |
| | (23,292 | ) | | 20,143 |
| | (39,545 | ) | | 42,119 |
|
Changes in assets and liabilities: | | |
| | |
| | |
| | |
| | |
| | |
|
Receivables | | (15,934 | ) | | (9,300 | ) | | 21,443 |
| | 58,445 |
| | (17,099 | ) | | (15,934 | ) |
Fuel inventory | | (25,054 | ) | | 9,765 |
| | 2,960 |
| | (4,926 | ) | | 64 |
| | (25,054 | ) |
Accounts payable | | 32,842 |
| | (22,462 | ) | | (16,913 | ) | | (33,646 | ) | | 43,319 |
| | 32,842 |
|
Prepaid taxes and taxes accrued | | 30,308 |
| | 10,018 |
| | 3,484 |
| | (3,805 | ) | | 7,854 |
| | 30,308 |
|
Interest accrued | | (421 | ) | | (3,229 | ) | | (551 | ) | | (5,363 | ) | | (1,201 | ) | | (421 | ) |
Deferred fuel costs | | 12,758 |
| | 29,419 |
| | 36,985 |
| | (6,696 | ) | | (47,604 | ) | | 12,758 |
|
Other working capital accounts | | (7,852 | ) | | (3,354 | ) | | 2,468 |
| | (13,822 | ) | | 1,328 |
| | (7,852 | ) |
Provisions for estimated losses | | 2,531 |
| | (1,735 | ) | | (2,899 | ) | | (5,748 | ) | | 3,741 |
| | 2,531 |
|
Other regulatory assets | | 184,574 |
| | 74,389 |
| | 125,133 |
| | 85,400 |
| | 63,350 |
| | 184,574 |
|
Other regulatory liabilities | | 410,968 |
| | 2,106 |
| | 1,271 |
| | (105,517 | ) | | (19,336 | ) | | 410,968 |
|
Deferred tax rate change recognized as regulatory liability/asset | | (520,547 | ) | | — |
| | — |
| | — |
| | — |
| | (520,547 | ) |
Pension and other postretirement liabilities | | (49,445 | ) | | (10,204 | ) | | (33,474 | ) | | (7,152 | ) | | (13,135 | ) | | (49,445 | ) |
Other assets and liabilities | | 10,856 |
| | (4,170 | ) | | (4,382 | ) | | (3,257 | ) | | 59,248 |
| | 10,856 |
|
Net cash flow provided by operating activities | | 301,396 |
| | 306,601 |
| | 284,268 |
| | 286,739 |
| | 331,753 |
| | 301,396 |
|
INVESTING ACTIVITIES | | |
| | |
| | |
| | |
| | |
| | |
|
Construction expenditures | | (348,027 | ) | | (337,963 | ) | | (320,408 | ) | | (898,090 | ) | | (451,988 | ) | | (348,027 | ) |
Allowance for equity funds used during construction | | 6,874 |
| | 7,743 |
| | 5,751 |
| | 28,526 |
| | 9,861 |
| | 6,874 |
|
Proceeds from sale of assets | | | — |
| | 3,753 |
| | — |
|
Insurance proceeds | | 2,431 |
| | — |
| | — |
| | — |
| | — |
| | 2,431 |
|
Changes in money pool receivable - net | | (44,222 | ) | | (681 | ) | | 306 |
| | (11,181 | ) | | 44,903 |
| | (44,222 | ) |
Changes in securitization account | | (232 | ) | | 710 |
| | (942 | ) | | 2,465 |
| | (2,502 | ) | | (232 | ) |
Net cash flow used in investing activities | | (383,176 | ) | | (330,191 | ) | | (315,293 | ) | | (878,280 | ) | | (395,973 | ) | | (383,176 | ) |
FINANCING ACTIVITIES | | |
| | |
| | |
| | |
| | |
| | |
|
Proceeds from the issuance of long-term debt | | 148,277 |
| | 123,502 |
| | 246,607 |
| | 986,019 |
| | — |
| | 148,277 |
|
Retirement of long-term debt | | (71,683 | ) |
| (68,593 | ) |
| (265,734 | ) | | (578,593 | ) |
| (74,950 | ) |
| (71,683 | ) |
Capital contributions from parent | | 115,000 |
| | — |
| | — |
| | 185,000 |
| | — |
| | 115,000 |
|
Proceeds from the issuance of preferred stock | | | 33,188 |
| | — |
| | — |
|
Change in money pool payable - net | | — |
| | (22,068 | ) | | 22,068 |
| | (22,389 | ) | | 22,389 |
| | — |
|
Other | | (482 | ) | | (5,252 | ) | | (175 | ) | | 1,189 |
| | 1,324 |
| | (482 | ) |
Net cash flow provided by financing activities | | 191,112 |
| | 27,589 |
| | 2,766 |
| |
Net cash flow provided by (used in) financing activities | | | 604,414 |
| | (51,237 | ) | | 191,112 |
|
Net increase (decrease) in cash and cash equivalents | | 109,332 |
| | 3,999 |
| | (28,259 | ) | | 12,873 |
| | (115,457 | ) | | 109,332 |
|
Cash and cash equivalents at beginning of period | | 6,181 |
| | 2,182 |
| | 30,441 |
| | 56 |
| | 115,513 |
| | 6,181 |
|
Cash and cash equivalents at end of period | |
| $115,513 |
| |
| $6,181 |
| |
| $2,182 |
| |
| $12,929 |
| |
| $56 |
| |
| $115,513 |
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | | |
| | |
| | |
| | |
| | |
| | |
|
Cash paid (received) during the period for: | | |
| | |
| | |
| | |
| | |
| | |
|
Interest - net of amount capitalized | |
| $84,556 |
| |
| $88,489 |
| |
| $83,290 |
| |
| $89,402 |
| |
| $85,719 |
| |
| $84,556 |
|
Income taxes | |
| ($21,107 | ) | |
| $28,523 |
| |
| $60,359 |
| |
| $17,010 |
| |
| $20,787 |
| |
| ($21,107 | ) |
See Notes to Financial Statements. | | |
| | |
| | |
| | |
| | |
| | |
|
| | ENTERGY TEXAS, INC. AND SUBSIDIARIES | CONSOLIDATED BALANCE SHEETS | ASSETS | | | | | |
| | December 31, | | December 31, |
| | 2017 | | 2016 | | 2019 | | 2018 |
| | (In Thousands) | | (In Thousands) |
| | | | | | | | |
CURRENT ASSETS | | | | | | | | |
Cash and cash equivalents: | | | | | | | | |
Cash | |
| $32 |
| |
| $1,216 |
| |
| $25 |
| |
| $26 |
|
Temporary cash investments | | 115,481 |
| | 4,965 |
| | 12,904 |
| | 30 |
|
Total cash and cash equivalents | | 115,513 |
| | 6,181 |
| | 12,929 |
| | 56 |
|
Securitization recovery trust account | | 37,683 |
| | 37,451 |
| | 37,720 |
| | 40,185 |
|
Accounts receivable: | | |
| | |
| | |
| | |
|
Customer | | 74,382 |
| | 71,803 |
| | 59,365 |
| | 69,714 |
|
Allowance for doubtful accounts | | (463 | ) | | (828 | ) | | (471 | ) | | (461 | ) |
Associated companies | | 90,629 |
| | 39,447 |
| | 24,001 |
| | 64,441 |
|
Other | | 9,831 |
| | 14,756 |
| | 17,050 |
| | 12,275 |
|
Accrued unbilled revenues | | 50,682 |
| | 39,727 |
| | 50,048 |
| | 51,288 |
|
Total accounts receivable | | 225,061 |
| | 164,905 |
| | 149,993 |
| | 197,257 |
|
Fuel inventory - at average cost | | 42,731 |
| | 37,177 |
| | 47,593 |
| | 42,667 |
|
Materials and supplies - at average cost | | 38,605 |
| | 36,631 |
| | 46,056 |
| | 41,883 |
|
Prepayments and other | | 19,710 |
| | 18,599 |
| | 21,012 |
| | 15,903 |
|
TOTAL | | 479,303 |
| | 300,944 |
| | 315,303 |
| | 337,951 |
|
| | | | | | | | |
OTHER PROPERTY AND INVESTMENTS | | |
| | |
| | |
| | |
|
Investments in affiliates - at equity | | 457 |
| | 600 |
| | 396 |
| | 448 |
|
Non-utility property - at cost (less accumulated depreciation) | | 376 |
| | 376 |
| | 376 |
| | 376 |
|
Other | | 19,235 |
| | 18,801 |
| | 20,077 |
| | 19,218 |
|
TOTAL | | 20,068 |
| | 19,777 |
| | 20,849 |
| | 20,042 |
|
| | | | | | | | |
UTILITY PLANT | | |
| | |
| | |
| | |
|
Electric | | 4,569,295 |
| | 4,274,069 |
| | 5,199,027 |
| | 4,773,984 |
|
Construction work in progress | | 102,088 |
| | 111,227 |
| | 760,354 |
| | 325,193 |
|
TOTAL UTILITY PLANT | | 4,671,383 |
| | 4,385,296 |
| | 5,959,381 |
| | 5,099,177 |
|
Less - accumulated depreciation and amortization | | 1,579,387 |
| | 1,526,057 |
| | 1,770,852 |
| | 1,684,569 |
|
UTILITY PLANT - NET | | 3,091,996 |
| | 2,859,239 |
| | 4,188,529 |
| | 3,414,608 |
|
| | | | | | | | |
DEFERRED DEBITS AND OTHER ASSETS | | |
| | |
| | |
| | |
|
Regulatory assets: | | |
| | |
| | |
| | |
|
Regulatory asset for income taxes - net | | — |
| | 105,816 |
| |
Other regulatory assets (includes securitization property of $313,123 as of December 31, 2017 and $384,609 as of December 31, 2016) | | 661,398 |
| | 740,156 |
| |
Other regulatory assets (includes securitization property of $160,375 as of December 31, 2019 and $236,336 as of December 31, 2018) | | | 512,648 |
| | 598,048 |
|
Other | | 26,973 |
| | 7,149 |
| | 33,393 |
| | 29,371 |
|
TOTAL | | 688,371 |
| | 853,121 |
| | 546,041 |
| | 627,419 |
|
| | | | | | | | |
TOTAL ASSETS | |
| $4,279,738 |
| |
| $4,033,081 |
| |
| $5,070,722 |
| |
| $4,400,020 |
|
| | | | | | | | |
See Notes to Financial Statements. | | |
| | |
| | |
| | |
|
| | ENTERGY TEXAS, INC. AND SUBSIDIARIES | CONSOLIDATED BALANCE SHEETS | LIABILITIES AND EQUITY | | | | | |
| | December 31, | | December 31, |
| | 2017 | | 2016 | | 2019 | | 2018 |
| | (In Thousands) | | (In Thousands) |
CURRENT LIABILITIES | | | | | | | | |
Currently maturing long-term debt | | |
| $— |
| |
| $500,000 |
|
Accounts payable: | | | | | | | | |
Associated companies | |
| $59,347 |
| |
| $47,867 |
| | 58,055 |
| | 119,371 |
|
Other | | 126,095 |
| | 77,342 |
| | 188,460 |
| | 150,679 |
|
Customer deposits | | 40,925 |
| | 44,419 |
| | 40,232 |
| | 43,387 |
|
Taxes accrued | | 45,659 |
| | 15,351 |
| | 49,708 |
| | 53,513 |
|
Interest accrued | | 25,556 |
| | 25,977 |
| | 18,992 |
| | 24,355 |
|
Current portion of unprotected excess accumulated deferred income taxes | | | 26,552 |
| | 87,627 |
|
Deferred fuel costs | | 67,301 |
| | 54,543 |
| | 13,001 |
| | 19,697 |
|
Other | | 8,132 |
| | 9,388 |
| | 10,521 |
| | 6,353 |
|
TOTAL | | 373,015 |
| | 274,887 |
| | 405,521 |
| | 1,004,982 |
|
| | | | | | | | |
NON-CURRENT LIABILITIES | | |
| | |
| | |
| | |
|
Accumulated deferred income taxes and taxes accrued | | 544,642 |
| | 1,027,647 |
| | 585,413 |
| | 552,535 |
|
Accumulated deferred investment tax credits | | 11,983 |
| | 12,934 |
| | 10,559 |
| | 11,176 |
|
Regulatory liability for income taxes - net | | 412,620 |
| | — |
| | 225,980 |
| | 264,623 |
|
Other regulatory liabilities | | 6,850 |
| | 8,502 |
| | 42,085 |
| | 47,884 |
|
Asset retirement cost liabilities | | 6,835 |
| | 6,470 |
| | 7,631 |
| | 7,222 |
|
Accumulated provisions | | 10,115 |
| | 7,584 |
| | 8,108 |
| | 13,856 |
|
Pension and other postretirement liabilities | | 17,853 |
| | 67,313 |
| |
Long-term debt (includes securitization bonds of $358,104 as of December 31, 2017 and $429,043 as of December 31, 2016) | | 1,587,150 |
| | 1,508,407 |
| |
Long-term debt (includes securitization bonds of $205,349 as of December 31, 2019 and $283,659 as of December 31, 2018) | | | 1,922,956 |
| | 1,013,735 |
|
Other | | 48,508 |
| | 50,343 |
| | 63,062 |
| | 61,605 |
|
TOTAL | | 2,646,556 |
| | 2,689,200 |
| | 2,865,794 |
| | 1,972,636 |
|
| | | | | | | | |
Commitments and Contingencies | |
|
| |
|
| |
|
| |
|
|
| | | | | | | | |
COMMON EQUITY | | |
| | |
| |
Common stock, no par value, authorized 200,000,000 shares; issued and outstanding 46,525,000 shares in 2017 and 2016 | | 49,452 |
| | 49,452 |
| |
EQUITY | | | |
| | |
|
Common stock, no par value, authorized 200,000,000 shares; issued and outstanding 46,525,000 shares in 2019 and 2018 | | | 49,452 |
| | 49,452 |
|
Paid-in capital | | 596,994 |
| | 481,994 |
| | 780,182 |
| | 596,994 |
|
Retained earnings | | 613,721 |
| | 537,548 |
| | 934,773 |
| | 775,956 |
|
Total common shareholder's equity | | | 1,764,407 |
| | 1,422,402 |
|
Preferred stock without sinking fund | | | 35,000 |
| | — |
|
TOTAL | | 1,260,167 |
| | 1,068,994 |
| | 1,799,407 |
| | 1,422,402 |
|
| | | | | | | | |
TOTAL LIABILITIES AND EQUITY | |
| $4,279,738 |
| |
| $4,033,081 |
| |
| $5,070,722 |
| |
| $4,400,020 |
|
| | | | | | | | |
See Notes to Financial Statements. | | |
| | |
| | |
| | |
|
| | ENTERGY TEXAS, INC. AND SUBSIDIARIES | CONSOLIDATED STATEMENTS OF CHANGES IN COMMON EQUITY | |
For the Years Ended December 31, 2017, 2016, and 2015 | |
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY | | CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY |
For the Years Ended December 31, 2019, 2018, and 2017 | | For the Years Ended December 31, 2019, 2018, and 2017 |
| | | | | | | | |
| Common Equity | | | | | Common Equity | | |
| Common Stock | | Paid-in Capital | | Retained Earnings | | Total | Preferred Stock | | Common Stock | | Paid-in Capital | | Retained Earnings | | Total |
| (In Thousands) | | | (In Thousands) |
| | | | | | | | | | | | | | | | |
Balance at December 31, 2014 |
| $49,452 |
| |
| $481,994 |
| |
| $360,385 |
| |
| $891,831 |
| |
Net income | — |
| | — |
| | 69,625 |
| | 69,625 |
| |
Balance at December 31, 2015 |
| $49,452 |
| |
| $481,994 |
| |
| $430,010 |
| |
| $961,456 |
| |
Net income | — |
| | — |
| | 107,538 |
| | 107,538 |
| |
Balance at December 31, 2016 |
| $49,452 |
| |
| $481,994 |
| |
| $537,548 |
| |
| $1,068,994 |
|
| $— |
| |
| $49,452 |
| |
| $481,994 |
| |
| $537,548 |
| |
| $1,068,994 |
|
Net income | — |
| | — |
| | 76,173 |
| | 76,173 |
| — |
| | — |
| | — |
| | 76,173 |
| | 76,173 |
|
Capital contributions from parent | — |
| | 115,000 |
| | — |
| | 115,000 |
| — |
| | — |
| | 115,000 |
| | — |
| | 115,000 |
|
Balance at December 31, 2017 |
| $49,452 |
| |
| $596,994 |
| |
| $613,721 |
| |
| $1,260,167 |
|
| $— |
| |
| $49,452 |
| |
| $596,994 |
| |
| $613,721 |
| |
| $1,260,167 |
|
Net income | | — |
| | — |
| | — |
| | 162,235 |
| | 162,235 |
|
Balance at December 31, 2018 | |
| $— |
| |
| $49,452 |
| |
| $596,994 |
| |
| $775,956 |
| |
| $1,422,402 |
|
Net income | | — |
| | — |
| | — |
| | 159,397 |
| | 159,397 |
|
Capital contributions from parent | | — |
| | — |
| | 185,000 |
| | — |
| | 185,000 |
|
Preferred stock issuance | | 35,000 |
| | — |
| | (1,812 | ) | | — |
| | 33,188 |
|
Preferred stock dividends | | — |
| | — |
| | — |
| | (580 | ) | | (580 | ) |
Balance at December 31, 2019 | |
| $35,000 |
| |
| $49,452 |
| |
| $780,182 |
| |
| $934,773 |
| |
| $1,799,407 |
|
| | | | | | | | | | | | | | | | |
See Notes to Financial Statements. | See Notes to Financial Statements. | | |
| | |
| | |
| See Notes to Financial Statements. | | |
| | |
| | |
|
| | ENTERGY TEXAS, INC. AND SUBSIDIARIES | SELECTED FINANCIAL DATA - FIVE-YEAR COMPARISON | | | | | | | | | | | | | | | | | | | |
| 2017 | | 2016 | | 2015 | | 2014 | | 2013 | 2019 | | 2018 | | 2017 | | 2016 | | 2015 |
| (In Thousands) | (In Thousands) |
| | | | | | | | | | | | | | | | | | |
Operating revenues |
| $1,544,893 |
| |
| $1,615,619 |
| |
| $1,707,203 |
| |
| $1,851,982 |
| |
| $1,728,799 |
|
| $1,488,955 |
| |
| $1,605,902 |
| |
| $1,544,893 |
| |
| $1,615,619 |
| |
| $1,707,203 |
|
Net income |
| $76,173 |
| |
| $107,538 |
| |
| $69,625 |
| |
| $74,804 |
| |
| $57,881 |
|
| $159,397 |
| |
| $162,235 |
| |
| $76,173 |
| |
| $107,538 |
| |
| $69,625 |
|
Total assets |
| $4,279,738 |
| |
| $4,033,081 |
| |
| $3,898,582 |
| |
| $3,897,989 |
| |
| $3,909,470 |
|
| $5,070,722 |
| |
| $4,400,020 |
| |
| $4,279,738 |
| |
| $4,033,081 |
| |
| $3,898,582 |
|
Long-term obligations (a) |
| $1,587,150 |
| |
| $1,508,407 |
| |
| $1,451,967 |
| |
| $1,268,835 |
| |
| $1,544,549 |
|
| $1,922,956 |
| |
| $1,013,735 |
| |
| $1,587,150 |
| |
| $1,508,407 |
| |
| $1,451,967 |
|
| | | | | | | | | | | | | | | | | | |
(a) Includes long-term debt (excluding currently maturing debt). | | | | | | | | | | | | | | | | | | | |
| 2017 | | 2016 | | 2015 | | 2014 | | 2013 | 2019 | | 2018 | | 2017 | | 2016 | | 2015 |
| (Dollars In Millions) | (Dollars In Millions) |
| | | | | | | | | | | | | | | | | | |
Electric Operating Revenues: | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
|
Residential |
| $636 |
| |
| $613 |
| |
| $633 |
| |
| $654 |
| |
| $596 |
|
| $658 |
| |
| $674 |
| |
| $636 |
| |
| $613 |
| |
| $633 |
|
Commercial | 378 |
| | 356 |
| | 369 |
| | 384 |
| | 327 |
| 343 |
| | 381 |
| | 378 |
| | 356 |
| | 369 |
|
Industrial | 384 |
| | 365 |
| | 372 |
| | 422 |
| | 325 |
| 373 |
| | 394 |
| | 384 |
| | 365 |
| | 372 |
|
Governmental | 25 |
| | 24 |
| | 25 |
| | 26 |
| | 24 |
| 22 |
| | 25 |
| | 25 |
| | 24 |
| | 25 |
|
Total retail | 1,423 |
| | 1,358 |
| | 1,399 |
| | 1,486 |
| | 1,272 |
| |
Total billed retail | | 1,396 |
| | 1,474 |
| | 1,423 |
| | 1,358 |
| | 1,399 |
|
Sales for resale: | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
|
Associated companies | 58 |
| | 178 |
| | 259 |
| | 316 |
| | 369 |
| 52 |
| | 59 |
| | 58 |
| | 178 |
| | 259 |
|
Non-associated companies | 22 |
| | 40 |
| | 14 |
| | 23 |
| | 47 |
| 7 |
| | 39 |
| | 22 |
| | 40 |
| | 14 |
|
Other | 42 |
| | 40 |
| | 35 |
| | 27 |
| | 41 |
| 34 |
| | 34 |
| | 42 |
| | 40 |
| | 35 |
|
Total |
| $1,545 |
| |
| $1,616 |
| |
| $1,707 |
| |
| $1,852 |
| |
| $1,729 |
|
| $1,489 |
| |
| $1,606 |
| |
| $1,545 |
| |
| $1,616 |
| |
| $1,707 |
|
| | | | | | | | | | | | | | | | | | |
Billed Electric Energy Sales (GWh): | | | |
| | |
| | |
| | |
| | | |
| | |
| | |
| | |
|
Residential | 5,716 |
| | 5,836 |
| | 5,889 |
| | 5,810 |
| | 5,726 |
| 6,039 |
| | 6,135 |
| | 5,716 |
| | 5,836 |
| | 5,889 |
|
Commercial | 4,548 |
| | 4,570 |
| | 4,548 |
| | 4,471 |
| | 4,402 |
| 4,667 |
| | 4,747 |
| | 4,548 |
| | 4,570 |
| | 4,548 |
|
Industrial | 7,521 |
| | 7,493 |
| | 7,036 |
| | 7,140 |
| | 6,404 |
| 8,043 |
| | 8,052 |
| | 7,521 |
| | 7,493 |
| | 7,036 |
|
Governmental | 273 |
| | 283 |
| | 276 |
| | 277 |
| | 282 |
| 259 |
| | 286 |
| | 273 |
| | 283 |
| | 276 |
|
Total retail | 18,058 |
| | 18,182 |
| | 17,749 |
| | 17,698 |
| | 16,814 |
| 19,008 |
| | 19,220 |
| | 18,058 |
| | 18,182 |
| | 17,749 |
|
Sales for resale: | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
|
Associated companies | 1,534 |
| | 4,625 |
| | 5,853 |
| | 4,763 |
| | 6,287 |
| 1,472 |
| | 1,516 |
| | 1,534 |
| | 4,625 |
| | 5,853 |
|
Non-associated companies | 729 |
| | 1,086 |
| | 254 |
| | 200 |
| | 712 |
| 343 |
| | 962 |
| | 729 |
| | 1,086 |
| | 254 |
|
Total | 20,321 |
| | 23,893 |
| | 23,856 |
| | 22,661 |
| | 23,813 |
| 20,823 |
| | 21,698 |
| | 20,321 |
| | 23,893 |
| | 23,856 |
|
SYSTEM ENERGY RESOURCES, INC.
MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS
System Energy’s principal asset currently consists of an ownership interest and a leasehold interest in Grand Gulf. The capacity and energy from its 90% interest is sold under the Unit Power Sales Agreement to its only four customers, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans. System Energy’s operating revenues are derived from the allocation of the capacity, energy, and related costs associated with its 90% interest in Grand Gulf pursuant to the Unit Power Sales Agreement. Payments under the Unit Power Sales Agreement are System Energy’s only source of operating revenues.
Results of Operations
2019 Compared to 2018
Net Income
2017 Compared to 2016
Net income decreased $18.1increased $5 million primarily due to provisions against revenue recordedthe increase in 2017operating revenues resulting from changes in connection with the complaint against System Energy’s return on equityrate base, as compared to prior year, and a higherlower effective income tax rate, in 2017. See “Federal Regulation - Complaint Against System Energy” below for further discussionafter excluding the effect of the complaint against System Energy.return of unprotected excess accumulated deferred income taxes to customers which is offset in income taxes.
2016 Compared to 2015
Net income decreased $14.6 million primarily due to a higher effective income tax rate in 2016.
Income Taxes
The effective income tax rates were 13.4% for 2017, 2016,2019 and 2015 were 47.1%, 42.3%, and 32.3%, respectively.(102.7%) for 2018. The difference in the effective income tax rate of 47.1% for 201713.4% versus the federal statutory rate of 35%21% for 20172019 was primarily due to the amortization of excess accumulated deferred income taxes and certain book and tax differences related to utility plant items, andpartially offset by state income taxes. The difference in the effective income tax rate of (102.7%) versus the federal statutory rate of 21% for 2018 was primarily due to the amortization of excess accumulated deferred income taxes. See Note 3 to the financial statements for a reconciliation of the federal statutory rate of 35%21% to the effective income tax rates.
2018 Compared to 2017
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Results of Operations” in System Energy’s Annual Report on Form 10-K for the year ended December 31, 2018 for discussion of results of operations for 2018 compared to 2017.
Income Tax Legislation
See the “Income Tax Legislation” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for discussion of the Tax Cuts and Jobs Act, the federal income tax legislation enacted in December 2017. Note 3 to the financial statements contains additional discussion of the effect of the Tax Act on 2017, 2018, and 2019 results of operations and financial position, the provisions of the Tax Act, and the uncertainties associated with accounting for the Tax Act, and Note 2 to the financial statements discusses the regulatory proceedings commenced or other responses by Entergy’s regulators tothat have considered the effects of the Tax Act.
System Energy Resources, Inc.
Management’s Financial Discussion and Analysis
Liquidity and Capital Resources
Cash Flow
Cash flows for the years ended December 31, 2017, 2016,2019, 2018, and 20152017 were as follows:
| | | 2017 | | 2016 | | 2015 | 2019 | | 2018 | | 2017 |
| (In Thousands) | (In Thousands) |
Cash and cash equivalents at beginning of period |
| $245,863 |
| |
| $230,661 |
| |
| $223,179 |
|
| $95,685 |
| |
| $287,187 |
| |
| $245,863 |
|
| | | | | | | | | | |
Net cash provided by (used in): | | | |
| | |
| | | | | |
Operating activities | 371,278 |
| | 341,939 |
| | 502,536 |
| 300,141 |
| | 101,328 |
| | 371,278 |
|
Investing activities | (174,250 | ) | | (232,602 | ) | | (137,562 | ) | (119,553 | ) | | (286,161 | ) | | (174,250 | ) |
Financing activities | (155,704 | ) | | (94,135 | ) | | (357,492 | ) | (207,739 | ) | | (6,669 | ) | | (155,704 | ) |
Net increase in cash and cash equivalents | 41,324 |
| | 15,202 |
| | 7,482 |
| |
Net increase (decrease) in cash and cash equivalents | | (27,151 | ) | | (191,502 | ) | | 41,324 |
|
| | | | | | | | | | |
Cash and cash equivalents at end of period |
| $287,187 |
| |
| $245,863 |
| |
| $230,661 |
|
| $68,534 |
| |
| $95,685 |
| |
| $287,187 |
|
2019 Compared to 2018
Operating Activities
Net cash flow provided by operating activities increased $29.3$198.8 million in 20172019 primarily due to:
the decrease in the return of the unprotected excess accumulated deferred income taxes in 2018;
a decrease in spending of $35.7$48.5 million on nuclear refueling outages in 20172019 as compared to the prior year;
the timing of collection of receivables; and
a decrease of $9.9 million in interest paid in 2017.
The increase was partially offset by:
proceeds of $28.4 million received in August 2016 from the DOE resulting from litigation regarding spent nuclear fuel storage costs that were previously expensed. See Note 8 to the financial statements for a discussion of the spent nuclear fuel litigation; and
a decrease of $21.3$51.7 million in income tax refundstaxes paid in 2017.2019. System Energy receivedmade income tax refundspayments of $54 million in 2017 and 20162018 in accordance with an intercompany income tax allocation agreement. The income tax refunds in 2017 and 2016 resulted primarily from the adoption of a new accounting method for income tax purposes in which System Energy will treat its nuclear decommissioning costs as production costs of electricity includable in cost of goods sold. See Note 3 to the financial statements for further discussion of the adoption of the new accounting method.
Net cash flow provided by operating activities decreased $160.6 million in 2016 primarily due to:
a decrease of $90.5 million in income tax refunds in 2016. System Energy received income tax refunds in 2016 and 2015 in accordance with an intercompany income tax allocation agreement. The income tax refunds in 2016 and 2015 resulted primarily from the adoption of a new accounting method for income tax purposes in which System Energy will treat its nuclear decommissioning costs as production costs of electricity includable in cost of goods sold. See Note 3 to the financial statements for further discussion of the adoption of the new accounting method; and
an increase in spending of $35.1 million on nuclear refueling outages in 2016 as compared to 2015.
The decrease was partially offset by proceeds of $28.4 million received in August 2016 from the DOE resulting from litigation regarding spent nuclear fuel storage costs that were previously expensed. See Note 8 to the financial statements for a discussion of the spent nuclear fuel litigation.
System Energy Resources, Inc.
Management’s Financial Discussion and Analysis
Investing Activities
Net cash flow used in investing activities decreased $58.4by $166.6 million in 20172019 primarily due to to:
a decrease of $159.4$102.7 million as a result of fluctuations in nuclear fuel activity because of variations from year to year in the timing and pricing of fuel reload requirements in the Utility business, material and services deliveries, and the timing of cash payments during the nuclear fuel cycle. The decrease was partially offset by cycle;
money pool activity and proceeds of $15.8 million received in August 2016 from the DOE resulting from litigation regarding spent nuclear fuel storage costs that were previously capitalized. See Note 8 to the financial statements for discussion of the spent nuclear fuel litigation.
Increases in System Energy’s receivable from the money pool are a use of cash flow and System Energy’s receivable from the money pool increased by $77.9 million in 2017 compared to decreasing by $6.1 million in 2016. The money pool is an inter-company borrowing arrangement designed to reduce the Utility subsidiaries’ need for external short-term borrowings.
Net cash flow used in investing activities increased $95 million in 2016 primarily due to:
fluctuations in nuclear fuel activity because of variations from year to year in the timing and pricing of fuel reload requirements in the Utility business, material and services deliveries, and the timing of cash payments during the nuclear fuel cycle;activity; and
an increasea decrease of $28.4 million in nuclear construction expenditures primarily as a result of a higher scope of work performedspending in 20162018 on Grand Gulf outage projects, partially offset by decreased spending in 2016 on compliance with NRC post-Fukushima requirements.projects.
The increase was partially offset by money pool activity and proceeds of $15.8 million received in August 2016 from the DOE resulting from litigation regarding spent nuclear fuel storage costs that were previously capitalized. See Note 8 to the financial statements for discussion of the spent nuclear fuel litigation.
Decreases in System Energy’s receivable from the money pool are a source of cash flow and System Energy’s receivable from the money pool decreased by $6.1$47.8 million in 20162019 compared to increasingdecreasing by $37.6$4.5 million in 2015.2018. The money pool is an inter-company borrowing arrangement designed to reduce the Utility subsidiaries’ need for external short-term borrowings.
Financing Activities
Net cash flow used in financing activities increased $61.6$201.1 million in 20172019 primarily due to:
the issuance in March 2018 of $100 million of 3.42% Series J notes by the System Energy nuclear fuel company variable interest entity;
System Energy Resources, Inc.
Management’s Financial Discussion and Analysis
an increase of $56.5 million in common stock dividends and distributions in 2019. Common stock dividends and distributions were lower in 2018 in anticipation of the excess accumulated deferred income taxes being returned to customers as a result of the Tax Cuts and Jobs Act; and
net repayments of short-term$82.3 million of long-term borrowings in 2019 compared to net borrowings of $49.1$63.9 million of long-term borrowings in 2018 on the nuclear fuel company variable interest entity’s credit facility in 2017 as compared to net short-term borrowings of $66.9 million on the nuclear fuel variable interest entity’s credit facility in 2016; andfacility.
The increase was partially offset by:
the payment in February 2017,October 2018, at maturity, of $50$85 million of the System Energy nuclear fuel company variable interest entity’s 4.02%3.78% Series H notes.
The increase was partially offset by:
I notes; and
net long-termrepayments of short-term borrowings of $50$17.8 million in 20172018 on the nuclear fuel company variable interest entity’s credit facility;facility.
a decrease
In March 2019, System Energy issued $134 million of $32.4 million in common stock dividends and distributions in 2017 in order2.50% Series 2019 revenue refunding bonds due April 2022. The proceeds were used to maintain System Energy’s targeted capital structure; and
the repayment in May 2016 of $22redeem, prior to maturity, $134 million of 5.875% Series 1998 pollution control revenue refunding bonds due 2022 issued on behalf of System Energy.
System Energy Resources, Inc.
Management’s Financial Discussion and Analysis
Net cash flow used in financing activities decreased $263.4 million in 2016 primarily due to:
net borrowings of $66.9 million on the nuclear fuel company variable interest entity’s credit facility in 2016 compared to net repayments of $20.4 million on the nuclear fuel company variable interest entity’s credit facility in 2015;
a decrease of $61.8 million in common stock dividends and distributions as a result of lower operating cash flows and higher nuclear fuel purchases in 2016 as compared to the prior year;
the redemption in April 2015, at maturity, of $60 million of System Energy nuclear fuel company variable interest entity’s 5.33% Series G notes; and
redemption in May 2015 of $35 million and in November 2015 of $25 million of System Energy’s 5.875% Series governmental bonds due 2022.
The decrease was partially offset by the repayment in May 2016 of $22 million of 5.875% pollution control revenue bonds due 2022 issued on behalf of System Energy.
See Note 5 to the financial statements for additional details of long-term debt.
2018 Compared to 2017
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Liquidity and Capital Resources - Cash Flow” in System Energy’s Annual Report on Form 10-K for the year ended December 31, 2018 for discussion of operating, investing, and financing cash flow activities for 2018 compared to 2017.
Capital Structure
System Energy’s capitalizationdebt to capital ratio is balanced between equity and debt, as shown in the following table. The decrease in the debt to capital ratio for System Energy is primarily due to the paymenta decrease in February 2017, at maturity, of $50 million of the System Energy nuclear fuel company variable interest entity’s 4.02% Series H notes.long-term debt outstanding, partially offset by a decrease in retained earnings.
| | | December 31, 2017 | | December 31, 2016 | December 31, 2019 | | December 31, 2018 |
Debt to capital | 44.5 | % | | 45.5 | % | 43.5 | % | | 46.1 | % |
Effect of subtracting cash | (16.0 | %) | | (12.0 | %) | (3.3 | %) | | (4.0 | %) |
Net debt to net capital | 28.5 | % | | 33.5 | % | 40.2 | % | | 42.1 | % |
Net debt consists of debt less cash and cash equivalents. Debt consists of short-term borrowings and long-term debt, including the currently maturing portion. Capital consists of debt and common equity. Net capital consists of capital less cash and cash equivalents. System Energy uses the debt to capital ratio in analyzing its financial condition and believes it provides useful information to its investors and creditors in evaluating System Energy’s financial condition. System Energy uses the net debt to net capital ratio in analyzing its financial condition and believes it provides useful information to its investors and creditors in evaluating System Energy’s financial condition because net debt indicates System Energy’s outstanding debt position that could not be readily satisfied by cash and cash equivalents on hand.
System Energy seeks to optimize its capital structure in accordance with its regulatory requirements and to control its cost of capital while also maintaining equity capitalization at a level consistent with investment-grade debt ratings. To the extent that operating cash flows are in excess of planned investments, cash may be used to reduce outstanding debt or may be paid as a dividend, or both, in appropriate amounts to maintain the targeted capital structure. To the extent that operating cash flows are insufficient to support planned investments, System Energy may issue incremental debt or reduce dividends, or both, to maintain its targeted capital structure.
Uses of Capital
System Energy requires capital resources for:
construction and other capital investments;
debt maturities or retirements;
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Management’s Financial Discussion and Analysis
Uses of Capital
System Energy requires capital resources for:
construction and other capital investments;
debt maturities or retirements;
working capital purposes, including the financing of fuel costs; and
dividend, distribution, and interest payments.
Following are the amounts of System Energy’s planned construction and other capital investments.
| | | 2018 | | 2019 | | 2020 | 2020 | | 2021 | | 2022 |
| (In Millions) | (In Millions) |
Planned construction and capital investment: | | | | | | | | | | |
Generation |
| $180 |
| |
| $130 |
| |
| $150 |
|
| $165 |
| |
| $80 |
| |
| $145 |
|
Utility Support | 15 |
| | 15 |
| | 10 |
| 5 |
| | 15 |
| | 15 |
|
Total |
| $195 |
| |
| $145 |
| |
| $160 |
|
| $170 |
| |
| $95 |
| |
| $160 |
|
Following are the amounts of System Energy’s existing debt and lease obligations (includes estimated interest payments) and other purchase obligations.
| | | 2018 | | 2019-2020 | | 2021-2022 | | After 2022 | | Total | 2020 | | 2021-2022 | | 2023-2024 | | After 2024 | | Total |
| (In Millions) | (In Millions) |
Long-term debt (a) |
| $124 |
| |
| $121 |
| |
| $199 |
| |
| $493 |
| |
| $937 |
|
| $35 |
| |
| $326 |
| |
| $287 |
| |
| $206 |
| |
| $854 |
|
Purchase obligations (b) |
| $38 |
| |
| $39 |
| |
| $34 |
| |
| $— |
| |
| $111 |
|
| $32 |
| |
| $54 |
| |
| $47 |
| |
| $— |
| |
| $133 |
|
| |
(a) | Includes estimated interest payments. Long-term debt is discussed in Note 5 to the financial statements. |
| |
(b) | Purchase obligations represent the minimum purchase obligation or cancellation charge for contractual obligations to purchase goods or services. For System Energy, it includes nuclear fuel purchase obligations. |
In addition to the contractual obligations given above, System Energy expects to contribute approximately $13.8$10.5 million to its qualified pension plans and approximately $16$21 thousand to other postretirement health care and life insurance plans in 2018,2020, although the 20182020 required pension contributions will be known with more certainty when the January 1, 20182020 valuations are completed, which is expected by April 1, 2018.2020. See “Critical Accounting Estimates– Qualified Pension and Other Postretirement Benefits” below for a discussion of qualified pension and other postretirement benefits funding.
Also in addition to the contractual obligations, System Energy has $433$464.9 million of unrecognized tax benefits and interest net of unused tax attributes and payments for which the timing of payments beyond 12 months cannot be reasonably estimated due to uncertainties in the timing of effective settlement of tax positions. See Note 3 to the financial statements for additional information regarding unrecognized tax benefits.
In addition to routine spending to maintain operations, the planned capital investment estimate includes specific Grand Gulf investments and initiatives.
As a wholly-owned subsidiary, System Energy dividends its earnings to Entergy Corporation at a percentage determined monthly.
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Management’s Financial Discussion and Analysis
Sources of Capital
System Energy’s sources to meet its capital requirements include:
internally generated funds;
cash on hand;
debt issuances; and
bank financing under new or existing facilities.
System Energy Resources, Inc.
Management’s Financial Discussion and Analysis
System Energy may refinance, redeem, or otherwise retire debt prior to maturity, to the extent market conditions and interest and dividend rates are favorable.
All debt and common stock issuances by System Energy require prior regulatory approval. Debt issuances are also subject to issuance tests set forth in its bond indenturesindenture and other agreements. System Energy has sufficient capacity under these tests to meet its foreseeable capital needs.
System Energy’s receivables from the money pool were as follows as of December 31 for each of the following years.
|
| | | | | | |
2017 | | 2016 | | 2015 | | 2014 |
(In Thousands) |
$111,667 | | $33,809 | | $39,926 | | $2,373 |
|
| | | | | | |
2019 | | 2018 | | 2017 | | 2016 |
(In Thousands) |
$59,298 | | $107,122 | | $111,667 | | $33,809 |
See Note 4 to the financial statements for a description of the money pool.
The System Energy nuclear fuel company variable interest entity has a credit facility in the amount of $120 million scheduled to expire in May 2019.September 2021. As of December 31, 2017, $17.8 million in letters of credit to support a like amount of commercial paper issued and $502019, $31.6 million in loans were outstanding under the System Energy nuclear fuel company variable interest entity credit facility. See Note 4 to the financial statements for additional discussion of the variable interest entity credit facility.
System Energy obtained authorizations from the FERC through October 2019November 2020 for the following:
short-term borrowings not to exceed an aggregate amount of $200 million at any time outstanding;
long-term borrowings and security issuances; and
long-term borrowings by its nuclear fuel company variable interest entity.
See Note 4 to the financial statements for further discussion of System Energy’s short-term borrowing limits.
Federal Regulation
See the “Rate, Cost-recovery, and Other Regulation– Federal Regulation” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis and Note 2 to the financial statements for a discussion of federal regulation.
ComplaintComplaints Against System Energy
Return on Equity and Capital Structure Complaints
In January 2017 the APSC and MPSC filed a complaint with the FERC against System Energy. The complaint seeks a reduction in the return on equity component of the Unit Power Sales Agreement pursuant to which System Energy sells its Grand Gulf capacity and energy to Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans. Entergy Arkansas also sells some of its Grand Gulf capacity and energy to Entergy Louisiana,
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Management’s Financial Discussion and Analysis
Entergy Mississippi, and Entergy New Orleans under separate agreements. The current return on equity under the Unit Power Sales Agreement is 10.94%. , which was established in a rate proceeding that became final in July 2001.
The APSC and MPSC complaint alleges that the return on equity is unjust and unreasonable because current capital market and other considerations indicate that it is excessive. The complaint requests the FERC to institute proceedings to investigate the return on equity and establish a lower return on equity, and also requests that the FERC establish January 23, 2017 as a refund effective date. The complaint includes return on equity analysis that purports to establish that the range of reasonable return on equity for System Energy is between 8.37% and 8.67%. System Energy answered the complaint in February 2017 and disputes that a return on equity of 8.37% to 8.67% is just and reasonable. The LPSC and the City Council intervened in the proceeding expressing support for the complaint. System Energy is recording a provision against revenue for the potential outcome of this proceeding. In September 2017 the FERC established a refund effective date of January 23, 2017 consolidated the return on equity complaint with the proceeding described in Unit Power Sales Agreement below, and directed the parties to engage in settlement proceedings before an ALJ. The parties have been unable to settle the return on equity issue and a FERC hearing judge was assigned in July 2018. The 15-month refund period in connection with the APSC/MPSC complaint expired on April 23, 2018.
In April 2018 the LPSC filed a complaint with the FERC against System Energy seeking an additional 15-month refund period. The LPSC complaint requests similar relief from the FERC with respect to System Energy’s return on equity and also requests the FERC to investigate System Energy’s capital structure. The APSC, MPSC, and City Council intervened in the proceeding, filed an answer expressing support for the complaint, and asked the FERC to consolidate this proceeding with the proceeding initiated by the complaint of the APSC and MPSC in January 2017. System Energy answered the LPSC complaint in May 2018 and also filed a motion to dismiss the complaint. The 15-month refund period in connection with the LPSC return on equity complaint expired on July 26, 2019.
In August 2018 the FERC issued an order dismissing the LPSC’s request to investigate System Energy’s capital structure and setting for hearing the return on equity complaint, with a refund effective date of April 27, 2018. The portion of the LPSC’s complaint dealing with return on equity was subsequently consolidated with the APSC and MPSC complaint for hearing. The parties are required to address an order (issued in a separate proceeding involving New England transmission owners) that proposed modifying the FERC’s standard methodology for determining return on equity. In September 2018, System Energy filed a request for rehearing and the LPSC filed a request for rehearing or reconsideration of the FERC’s August 2018 order. The LPSC’s request referenced an amended complaint that it filed on the same day raising the same capital structure claim the FERC had earlier dismissed. The FERC initiated a new proceeding for the amended capital structure complaint, and System Energy submitted a response in October 2018. In January 2019 the FERC set the amended complaint for settlement and hearing proceedings. Settlement proceedings in the capital structure proceeding commenced in February 2019. As noted below, in June 2019 settlement discussions were terminated and the amended capital structure complaint was consolidated with the ongoing return on equity proceeding. The 15-month refund period in connection with the capital structure complaint is from September 24, 2018 to December 23, 2019.
In January 2019 the LPSC and the APSC and MPSC filed direct testimony in the return on equity proceeding. For the refund period January 23, 2017 through April 23, 2018, the LPSC argues for an authorized return on equity for System Energy of 7.81% and the APSC and MPSC argue for an authorized return on equity for System Energy of 8.24%. For the refund period April 27, 2018 through July 27, 2019, and for application on a prospective basis, the LPSC argues for an authorized return on equity for System Energy of 7.97% and the APSC and MPSC argue for an authorized return on equity for System Energy of 8.41%. In March 2019, System Energy submitted answering testimony in the return on equity proceeding. For the first refund period, System Energy’s testimony argues for a return on equity of 10.10% (median) or 10.70% (midpoint). For the second refund period, System Energy’s testimony shows that the calculated returns on equity for the first period fall within the range of presumptively just and reasonable returns on equity, and thus the second complaint should be dismissed (and the first period return on equity used going forward). If the FERC nonetheless were to set a new return on equity for the second period (and going forward), System Energy argues the return on equity should be either 10.32% (median) or 10.69% (midpoint).
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Management’s Financial Discussion and Analysis
proceedings beforeIn May 2019 the FERC trial staff filed its direct and answering testimony in the return on equity proceeding. For the first refund period, the FERC trial staff calculates an ALJ. Ifauthorized return on equity for System Energy of 9.89% based on the parties failapplication of FERC’s proposed methodology. The FERC trial staff’s direct and answering testimony noted that an authorized return on equity of 9.89% for the first refund period was within the range of presumptively just and reasonable returns on equity for the second refund period, as calculated using a study period ending January 31, 2019 for the second refund period.
In June 2019, System Entergy filed testimony responding to comethe testimony filed by the FERC trial staff. Among other things, System Energy’s testimony rebutted arguments raised by the FERC trial staff and provided updated calculations for the second refund period based on the study period ending May 31, 2019. For that refund period, System Energy’s testimony shows that strict application of the return on equity methodology proposed by the FERC staff indicates that the second complaint would not be dismissed, and the new return on equity would be set at 9.65% (median) or 9.74% (midpoint). System Energy’s testimony argues that these results are insufficient in light of benchmarks such as state returns on equity and treasury bond yields, and instead proposes that the calculated returns on equity for the second period should be either 9.91% (median) or 10.3% (midpoint). System Energy’s testimony also argues that, under application of its proposed modified methodology, the 10.10% return on equity calculated for the first refund period would fall within the range of presumptively just and reasonable returns on equity for the second refund period. System Energy is recording a provision against revenue for the potential outcome of this proceeding.
Also in June 2019, the FERC’s Chief ALJ issued an order terminating settlement discussions in the amended complaint addressing System Energy’s capital structure. The ALJ consolidated the amended capital structure complaint with the ongoing return on equity proceeding and set new procedural deadlines for the consolidated hearing.
In August 2019 the LPSC and the APSC and MPSC filed rebuttal testimony in the return on equity proceeding and direct and answering testimony relating to System Energy’s capital structure. The LPSC reargues for an agreement during settlement proceedings,authorized return on equity for System Energy of 7.81% for the first refund period and 7.97% for the second refund period. The APSC and MPSC argue for an authorized return on equity for System Energy of 8.26% for the first refund period and 8.32% for the second refund period. With respect to capital structure, the LPSC proposes that the FERC establish a prehearing conferencehypothetical capital structure for System Energy for ratemaking purposes. Specifically, the LPSC proposes that System Energy’s common equity ratio be set to Entergy Corporation’s equity ratio of 37% equity and 63% debt. In the alternative, the LPSC argues that the equity ratio should be no higher than 49%, the composite equity ratio of System Energy and the other Entergy operating companies who purchase under the Unit Power Sales Agreement. The APSC and MPSC recommend that 35.98% be set as the common equity ratio for System Energy. As an alternative, the APSC and MPSC propose that System Energy’s common equity be set at 46.75% based on the median equity ratio of the proxy group for setting the return on equity.
In September 2019 the FERC trial staff filed its rebuttal testimony in the return on equity proceeding. For the first refund period, the FERC trial staff calculates an authorized return on equity for System Energy of 9.40% based on the application of the FERC’s proposed methodology and an updated proxy group. For the second refund period, based on the study period ending May 31, 2019, the FERC trial staff rebuttal testimony argues for a return on equity of 9.63%. In September 2019 the FERC trial staff also filed direct and answering testimony relating to System Energy’s capital structure. The FERC trial staff argues that the average capital structure of the proxy group used to develop System Energy’s return on equity should be used to establish the capital structure. Using this approach, the FERC trial staff calculates the average capital structure for its proposed proxy group of 46.74% common equity, and 53.26% debt.
In October 2019, System Energy filed answering testimony disputing the FERC trial staff’s, the LPSC’s, and the APSC’s and MPSC’s arguments for the use of a hypothetical capital structure and arguing that the use of System Energy’s actual capital structure is just and reasonable.
In November 2019, in a proceeding that did not involve Entergy, the FERC issued an order addressing the methodology for determining the return on equity applicable to transmission owners in MISO. Thereafter, the participants the System Energy proceeding agreed to amend the procedural schedule to allow the participants to file testimony addressing the order in the MISO transmission owner proceeding. Under the new schedule, the hearing in the System Energy proceeding will commence in June 2020 and the initial decision will be helddue in October 2020.
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Grand Gulf Sale-leaseback Renewal Complaint
In May 2018 the LPSC filed a complaint against System Energy and Entergy Services related to establishSystem Energy’s renewal of a sale-leaseback transaction originally entered into in December 1988 for an 11.5% undivided interest in Grand Gulf Unit 1. The complaint alleges that System Energy violated the filed rate and the FERC’s ratemaking and accounting requirements when it included in Unit Power Sales Agreement billings the cost of capital additions associated with the sale-leaseback interest, and that System Energy is double-recovering costs by including both the lease payments and the capital additions in Unit Power Sales Agreement billings. The complaint also claims that System Energy was imprudent in entering into the sale-leaseback renewal because the Utility operating companies that purchase Grand Gulf’s output from System Energy could have obtained cheaper capacity and energy in the MISO markets. The complaint further alleges that System Energy violated various other reporting and accounting requirements and should have sought prior FERC approval of the lease renewal. The complaint seeks various forms of relief from the FERC. The complaint seeks refunds for capital addition costs for all years in which they were recorded in allegedly non-formula accounts or, alternatively, the disallowance of the return on equity for the capital additions in those years plus interest. The complaint also asks that the FERC disallow and refund the lease costs of the sale-leaseback renewal on grounds of imprudence, investigate System Energy’s treatment of a DOE litigation payment, and impose certain forward-looking procedural scheduleprotections, including audit rights for retail regulators of the Unit Power Sales Agreement formula rates. The APSC, MPSC, and City Council intervened in the proceeding.
In June 2018, System Energy and Entergy Services filed a motion to dismiss and an answer to the LPSC complaint denying that System Energy’s treatment of the sale-leaseback renewal and capital additions violated the terms of the filed rate or any other FERC ratemaking, accounting, or legal requirements or otherwise constituted double recovery. The response also argued that the complaint is inconsistent with a FERC-approved settlement to which the LPSC is a party and that explicitly authorizes System Energy to recover its lease payments. Finally, the response argued that both the capital additions and the sale-leaseback renewal were prudent investments and the LPSC complaint fails to justify any disallowance or refunds. The response also offered to submit formula rate protocols for the Unit Power Sales Agreement similar to the procedures used for reviewing transmission rates under the MISO tariff. In September 2018 the FERC issued an order setting the complaint for hearing and settlement proceedings. The FERC established a refund effective date of May 18, 2018.
In February 2019 the presiding ALJ ruled that the hearing ordered by the FERC includes the issue of whether specific subcategories of accumulated deferred income tax should be included in, or excluded from, System Energy’s formula rate. In March 2019 the LPSC, MPSC, APSC and City Council filed direct testimony. The LPSC testimony seeks refunds that include the renewal lease payments (approximately $17.2 million per year since July 2015), rate base reductions for accumulated deferred income tax associated with uncertain tax positions (claimed to be approximately $334.5 million as of December 2018), and the cost of capital additions associated with the sale-leaseback interest (claimed to be approximately $274.8 million), as well as interest on those amounts. The direct testimony of the City Council and the APSC and MPSC address various issues raised by the LPSC. System Energy disputes that any refunds are owed for billings under the Unit Power Sales Agreement.
In June 2019 System Energy filed answering testimony in the sale-leaseback complaint proceeding arguing that the FERC should reject all claims for refunds. Among other things, System Energy argued that claims for refunds of the costs of lease renewal payments and capital additions should be rejected because those costs were recovered consistent with the Unit Power Sales Agreement formula rate, System Energy was not over or double recovering any costs, and ratepayers will save approximately $850 million over initial and renewal terms of the leases. System Energy argued that claims for refunds associated with liabilities arising from uncertain tax positions should be rejected because the liabilities do not provide cost-free capital, the repayment timing of the liabilities is uncertain, and the outcome of the underlying tax positions is uncertain. System Energy’s testimony also challenged the refund calculations supplied by the other parties.
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Management’s Financial Discussion and Analysis
In August 2019 the FERC trial staff filed direct and answering testimony seeking refunds for rate base reductions for liabilities associated with uncertain tax positions (claimed to be up to approximately $602 million plus interest). The FERC trial staff also argued that System Energy recovered $32 million more than it should have in depreciation expense for capital additions. In September 2019, System Energy filed cross-answering testimony disputing the FERC trial staff’s arguments for refunds, stating that the FERC trial staff’s position regarding depreciation rates for capital additions is not unreasonable and explaining that any change in depreciation expense is only one element of a Unit Power Sales Agreement rebilling calculation. Adjustments to depreciation expense in any rebilling under the Unit Power Sales Agreement formula rate will also involve changes to accumulated depreciation, accumulated deferred income taxes, and other formula elements as needed. In October 2019 the LPSC filed rebuttal testimony increasing the amount of refunds sought for liabilities associated with uncertain tax positions. The LPSC now seeks approximately $512 million plus interest. At the same time, the FERC trial staff filed rebuttal testimony conceding that it was no longer seeking up to $602 million related to the uncertain tax positions; instead, it is seeking approximately $511 million plus interest. The LPSC also argued that adjustments to depreciation rates should affect rate base on a prospective basis only.
A hearing was held before a FERC ALJ in November 2019 and the initial decision is due in April 2020.
Unit Power Sales Agreement
In August 2017, System Energy submitted to the FERC proposed amendments to the Unit Power Sales Agreement pursuant to which System Energy sells its Grand Gulf capacity and energy to Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans. The filing proposes limited amendments to the Unit Power Sales Agreement to adopt (1) updated rates for use in calculating Grand Gulf plant depreciation and amortization expenses and (2) updated nuclear decommissioning cost annual revenue requirements, both of which are recovered through the Unit Power Sales Agreement rate formula. The proposed amendments would result in lower charges to the Utility operating companies that buy capacity and energy from System Energy under the Unit Power Sales Agreement. The proposed changes arewere based on updated depreciation and nuclear decommissioning studies that take into account the renewal of Grand Gulf’s operating license for a term through November 1, 2044. System Energy requested that the FERC accept the amendments effective October 1, 2017.
In September 2017 the FERC accepted System Energy’s proposed Unit Power Sales Agreement amendments, subject to further proceedings to consider the justness and reasonableness of the amendments. Because the amendments propose a rate decrease, the FERC also initiated an investigation under Section 206 of the Federal Power Act to determine if the rate decrease should be lower than proposed. The FERC accepted the proposed amendments effective October 1, 2017, subject to refund pending the outcome of the further settlement and/or hearing proceedings, and established a refund effective date of October 11, 2017 with respect to the rate decrease. The FERC also consolidated the Unit Power Sales Agreement amendment proceedingIn June 2018, System Energy filed with the proceeding describedFERC an uncontested settlement relating to the updated depreciation rates and nuclear decommissioning cost annual revenue requirements. In August 2018 the FERC issued an order accepting the settlement. In the third quarter 2018, System Energy recorded a reduction in Complaint Against System Energy above,depreciation expense of approximately $26 million, representing the cumulative difference in depreciation expense resulting from the depreciation rates used from October 11, 2017 through September 30, 2018 and directed the parties to engagedepreciation rates included in the settlement proceedings before an ALJ. Iffiling accepted by the parties fail to come to an agreement during settlement proceedings, a prehearing conference will be held to establish a procedural schedule for hearing proceedings.FERC.
Nuclear Matters
System Energy owns and, through an affiliate, operates Grand Gulf. System Energy is, therefore, subject to the risks related to owning and operating a nuclear plant. These include risks related to: the use, storage, and handling and disposal of high-level and low-level radioactive materials; the substantial financial requirements, both for capital investments and operational needs, to position Entergy’s nuclear fleet to meet its operational goals, including the financial requirements to address emerging issues like stress corrosion cracking of certain materials within the plant systems and the Fukushima event; regulatory requirements and potential future regulatory changes, including changes affecting the regulations governing nuclear plant ownership, operations, license renewal and amendments, and decommissioning; the performance and capacity factors of these nuclear plants; the availability of interim or permanent sites for the disposal of spent nuclear fuel and nuclear waste, including the fees charged for such disposal; the sufficiency
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of nuclear decommissioning trust fund assets and earnings to complete decommissioning of each site when required; and limitations on the amounts and types of insurance commercially available for losses in connection with nuclear plant operations and catastrophic events such as a nuclear accident. In the event of an unanticipated early shutdown of Grand Gulf, System Energy may be required to provide additional funds or credit support to satisfy regulatory requirements for decommissioning. In December 2016, the NRC granted the extension of Grand Gulf’s operating license toexpires in 2044.
Grand Gulf Outage and NRC review
Grand Gulf began a maintenance outage on September 8, 2016 to replace a residual heat removal pump. Although the pump had been replaced, on September 27, 2016 management decided to keep the plant in an outage for additional training and other steps to support management’s operational goals. Grand Gulf returned to service on January 31, 2017.
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Management’s Financial Discussion and Analysis
Based on the plant’s performance indicators, in November 2016 the NRC placed Grand Gulf in the “regulatory response column,” or Column 2, of its Reactor Oversight Process Action Matrix. Entergy is implementing a plan to restore Grand Gulf to Column 1, including addressing the issues related to the three very low safety significance non-cited violations identified in the NRC’s report on the results of its October 2016 special inspection. Depending on the success of implementing that plan and the plant’s performance indicators, there is risk that the NRC could move Grand Gulf into the “degraded cornerstone column,” or Column 3, of the NRC’s Reactor Oversight Process Action Matrix.
Environmental Risks
System Energy’s facilities and operations are subject to regulation by various governmental authorities having jurisdiction over air quality, water quality, control of toxic substances and hazardous and solid wastes, and other environmental matters. Management believes that System Energy is in substantial compliance with environmental regulations currently applicable to its facilities and operations, with reference to possible exceptions noted in “Regulation of Entergy’s Business - Environmental Regulation” in Part I, Item 1. Because environmental regulations are subject to change, future compliance costs cannot be precisely estimated.
Critical Accounting Estimates
The preparation of System Energy’s financial statements in conformity with generally accepted accounting principles requires management to apply appropriate accounting policies and to make estimates and judgments that can have a significant effect on reported financial position, results of operations, and cash flows. Management has identified the following accounting policies and estimates as critical because they are based on assumptions and measurements that involve a high degree of uncertainty, and there is the potential for future changes in the assumptions and measurements that could produce estimates that would have a material impact on the presentation of System Energy’s financial position or results of operations.
Nuclear Decommissioning Costs
See “Nuclear Decommissioning Costs” in the “Critical Accounting Estimates” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for discussion of the estimates inherent in accounting for nuclear decommissioning costs.
In the second quarter 2017, System Energy recorded a revision to its estimated decommissioning cost liability for Grand Gulf as a result of a revised decommissioning cost study. The revised estimate resulted in a $35.9 million reduction in its decommissioning cost liability, along with a corresponding reduction in the related asset retirement cost asset that will be depreciated over the remaining life of the unit.
Utility Regulatory Accounting
See “Utility Regulatory Accounting” in the “Critical Accounting Estimates” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for discussion of accounting for the effects of rate regulation.
Impairment of Long-lived Assets and Trust Fund Investments
See “Impairment of Long-lived Assets and Trust Fund Investments” in the “Critical Accounting Estimates” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for discussion of the estimates associated with the impairment of long-lived assets and trust fund investments.
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Management’s Financial Discussion and Analysis
Taxation and Uncertain Tax Positions
See “Taxation and Uncertain Tax Positions” in the “Critical Accounting Estimates” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for further discussion.
Qualified Pension and Other Postretirement Benefits
System Energy’s qualified pension and other postretirement reported costs, as described in Note 11 to the financial statements, are impacted by numerous factors including the provisions of the plans, changing employee
System Energy Resources, Inc.
Management’s Financial Discussion and Analysis
demographics, and various actuarial calculations, assumptions, and accounting mechanisms. See the “Qualified Pension and Other Postretirement Benefits” in the “Critical Accounting Estimates” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for further discussion. Because of the complexity of these calculations, the long-term nature of these obligations, and the importance of the assumptions utilized, Entergy’s estimate of these costs is a critical accounting estimate.
Cost Sensitivity
The following chart reflects the sensitivity of qualified pension cost and qualified projected benefit obligation to changes in certain actuarial assumptions (dollars in thousands).
| | Actuarial Assumption | | Change in Assumption | | Impact on 2018 Qualified Pension Cost | | Impact on 2017 Projected Qualified Benefit Obligation | | Change in Assumption | | Impact on 2020 Qualified Pension Cost | | Impact on 2019 Projected Qualified Benefit Obligation |
| | | | Increase/(Decrease) | | | | | | Increase/(Decrease) | | |
Discount rate | | (0.25%) | | $820 | |
| $11,922 |
| | (0.25%) | | $737 | | $10,902 |
Rate of return on plan assets | | (0.25%) | | $664 | |
| $— |
| | (0.25%) | | $666 | | $— |
Rate of increase in compensation | | 0.25% | | $329 | |
| $1,473 |
| | 0.25% | | $422 | | $2,072 |
The following chart reflects the sensitivity of postretirement benefit cost and accumulated postretirement benefit obligation to changes in certain actuarial assumptions (dollars in thousands).
| | Actuarial Assumption | | Change in Assumption | | Impact on 2018 Postretirement Benefit Cost | | Impact on 2017 Accumulated Postretirement Benefit Obligation | | Change in Assumption | | Impact on 2020 Postretirement Benefit Cost | | Impact on 2019 Accumulated Postretirement Benefit Obligation |
| | | | Increase/(Decrease) | | | | | | Increase/(Decrease) | | |
Discount rate | | (0.25%) | | $154 | | $2,042 | | (0.25%) | | $31 | | $1,507 |
Health care cost trend | | 0.25% | | $239 | | $1,704 | | 0.25% | | $64 | | $1,164 |
Each fluctuation above assumes that the other components of the calculation are held constant.
Costs and FundingEmployer Contributions
Total qualified pension cost for System Energy in 20172019 was $11.7$12.3 million. System Energy anticipates 20182020 qualified pension cost to be $14.9 million. In 2016, System Energy refined its approach to estimating the service cost and interest cost components of qualified pension costs, which had the effect of lowering qualified pension costs by $2.8$17.6 million. System Energy contributed $18.2$20.2 million to its qualified pension plans in 20172019 and estimates 20182020 pension contributions will approximate $13.8$10.5 million, although the 20182020 required pension contributions will be known with more certainty when the January 1, 20182020 valuations are completed, which is expected by April 1, 2018.2020.
Total postretirement health care and life insurance benefit costincome for System Energy in 20172019 was $692 thousand.$1 million. System Energy expects 20182020 postretirement health care and life insurance benefit income to approximate $490 thousand.
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Management’s Financial Discussion and Analysis
In 2016, System Energy refined its approach to estimating the service cost and interest cost components of other postretirement costs, which had the effect of lowering qualified other postretirement costs by $555 thousand.$1.3 million. System Energy contributed $570$829 thousand to its other postretirement plans in 20172019 and expects 20182020 contributions to approximate $16$21 thousand.
Federal Healthcare LegislationOther Contingencies
See “Qualified Pension and Other Postretirement Benefits -Federal Healthcare LegislationContingencies” in the “Critical Accounting Estimates” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for a discussion of Federal Healthcare Legislation.
Other Contingencies
See “Other Contingencies” in the “Critical Accounting Estimates” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for a discussion of the estimates associated with environmental, litigation, and other risks.
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Management’s Financial Discussion and Analysis
New Accounting Pronouncements
See “New Accounting Pronouncements” section of Note 1 to the financial statements for a discussion of new accounting pronouncements.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholder and Board of Directors of
System Energy Resources, Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheets of System Energy Resources, Inc. (the “Company”) as of December 31, 20172019 and 2016,2018, the related statements of income, cash flows, and changes in common equity (pages 431425 through 436430 and applicable items in pages 5549 through 230)236), for each of the three years in the period ended December 31, 2017,2019, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20172019 and 2016,2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017,2019, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ DELOITTE & TOUCHE LLP
New Orleans, Louisiana
February 26, 201821, 2020
We have served as the Company’s auditor since 2001.
| | SYSTEM ENERGY RESOURCES, INC. | INCOME STATEMENTS | | | | | |
| | For the Years Ended December 31, | | For the Years Ended December 31, |
| | 2017 | | 2016 | | 2015 | | 2019 | | 2018 | | 2017 |
| | (In Thousands) | | (In Thousands) |
| | | | | | | | | | | | |
OPERATING REVENUES | | | | | | | | | | | | |
Electric | |
| $633,458 |
| |
| $548,291 |
| |
| $632,405 |
| |
| $573,410 |
| |
| $456,707 |
| |
| $633,458 |
|
| | | | | | | | | | | | |
OPERATING EXPENSES | | |
| | |
| | |
| | |
| | |
| | |
|
Operation and Maintenance: | | |
| | |
| | |
| | |
| | |
| | |
|
Fuel, fuel-related expenses, and gas purchased for resale | | 71,700 |
| | 27,416 |
| | 89,598 |
| | 82,438 |
| | 64,778 |
| | 71,700 |
|
Nuclear refueling outage expenses | | 17,968 |
| | 19,512 |
| | 21,654 |
| | 33,376 |
| | 20,715 |
| | 17,968 |
|
Other operation and maintenance | | 213,534 |
| | 153,064 |
| | 156,552 |
| | 206,444 |
| | 196,505 |
| | 207,344 |
|
Decommissioning | | 43,347 |
| | 50,797 |
| | 47,993 |
| | 35,729 |
| | 34,336 |
| | 43,347 |
|
Taxes other than income taxes | | 26,180 |
| | 25,195 |
| | 27,281 |
| | 29,018 |
| | 28,090 |
| | 26,180 |
|
Depreciation and amortization | | 137,767 |
| | 136,195 |
| | 143,133 |
| | 106,630 |
| | 97,527 |
| | 137,767 |
|
Other regulatory credits - net | | (37,831 | ) | | (45,041 | ) | | (39,434 | ) | | (35,210 | ) | | (28,924 | ) | | (37,831 | ) |
TOTAL | | 472,665 |
| | 367,138 |
| | 446,777 |
| | 458,425 |
| | 413,027 |
| | 466,475 |
|
| | | | | | | | | | | | |
OPERATING INCOME | | 160,793 |
| | 181,153 |
| | 185,628 |
| | 114,985 |
| | 43,680 |
| | 166,983 |
|
| | | | | | | | | | | | |
OTHER INCOME | | |
| | |
| | |
| | |
| | |
| | |
|
Allowance for equity funds used during construction | | 6,345 |
| | 7,944 |
| | 8,494 |
| | 8,709 |
| | 8,750 |
| | 6,345 |
|
Interest and investment income | | 17,538 |
| | 14,793 |
| | 14,437 |
| | 29,488 |
| | 35,985 |
| | 17,538 |
|
Miscellaneous - net | | (521 | ) | | (556 | ) | | (876 | ) | | (5,516 | ) | | (5,775 | ) | | (6,711 | ) |
TOTAL | | 23,362 |
| | 22,181 |
| | 22,055 |
| | 32,681 |
| | 38,960 |
| | 17,172 |
|
| | | | | | | | | | | | |
INTEREST EXPENSE | | |
| | |
| | |
| | |
| | |
| | |
|
Interest expense | | 37,141 |
| | 37,529 |
| | 45,532 |
| | 35,328 |
| | 38,424 |
| | 37,141 |
|
Allowance for borrowed funds used during construction | | (1,551 | ) | | (2,000 | ) | | (2,244 | ) | | (2,131 | ) | | (2,218 | ) | | (1,551 | ) |
TOTAL | | 35,590 |
| | 35,529 |
| | 43,288 |
| | 33,197 |
| | 36,206 |
| | 35,590 |
|
| | | | | | | | | | | | |
INCOME BEFORE INCOME TAXES | | 148,565 |
| | 167,805 |
| | 164,395 |
| | 114,469 |
| | 46,434 |
| | 148,565 |
|
| | | | | | | | | | | | |
Income taxes | | 69,969 |
| | 71,061 |
| | 53,077 |
| | 15,349 |
| | (47,675 | ) | | 69,969 |
|
| | | | | | | | | | | | |
NET INCOME | |
| $78,596 |
| |
| $96,744 |
| |
| $111,318 |
| |
| $99,120 |
| |
| $94,109 |
| |
| $78,596 |
|
| | | | | | | | | | | | |
See Notes to Financial Statements. | | |
| | |
| | |
| | |
| | |
| | |
|
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|
| | | | | | | | | | | | |
SYSTEM ENERGY RESOURCES, INC. |
STATEMENTS OF CASH FLOWS |
| | |
| | For the Years Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| | (In Thousands) |
OPERATING ACTIVITIES | | | | | | |
Net income | |
| $78,596 |
| |
| $96,744 |
| |
| $111,318 |
|
Adjustments to reconcile net income to net cash flow provided by operating activities: | | | | | | |
Depreciation, amortization, and decommissioning, including nuclear fuel amortization | | 240,962 |
| | 224,879 |
| | 270,514 |
|
Deferred income taxes, investment tax credits, and non-current taxes accrued | | 7,827 |
| | 99,531 |
| | 200,797 |
|
Changes in assets and liabilities: | | |
| | |
| | |
|
Receivables | | 9,210 |
| | (15,846 | ) | | 5,879 |
|
Accounts payable | | 15,969 |
| | 2,720 |
| | (352 | ) |
Prepaid taxes and taxes accrued | | 62,466 |
| | (6,555 | ) | | (32,594 | ) |
Interest accrued | | (660 | ) | | (134 | ) | | (19,013 | ) |
Other working capital accounts | | 12,083 |
| | (15,470 | ) | | 13,576 |
|
Other regulatory assets | | 60,012 |
| | (58,279 | ) | | (4,565 | ) |
Other regulatory liabilities | | 331,251 |
| | 33,438 |
| | (33,686 | ) |
Deferred tax rate change recognized as regulatory liability/asset | | (325,707 | ) | | — |
| | — |
|
Pension and other postretirement liabilities | | 4,024 |
| | 5,586 |
| | (16,888 | ) |
Other assets and liabilities | | (124,755 | ) | | (24,675 | ) | | 7,550 |
|
Net cash flow provided by operating activities | | 371,278 |
| | 341,939 |
| | 502,536 |
|
INVESTING ACTIVITIES | | |
| | |
| | |
|
Construction expenditures | | (91,705 | ) | | (88,037 | ) | | (70,358 | ) |
Allowance for equity funds used during construction | | 6,345 |
| | 7,944 |
| | 8,494 |
|
Nuclear fuel purchases | | (49,728 | ) | | (151,068 | ) | | (64,977 | ) |
Proceeds from the sale of nuclear fuel | | 69,516 |
| | 11,467 |
| | 57,681 |
|
Proceeds from nuclear decommissioning trust fund sales | | 565,416 |
| | 499,252 |
| | 390,371 |
|
Investment in nuclear decommissioning trust funds | | (596,236 | ) | | (534,083 | ) | | (421,220 | ) |
Changes in money pool receivable - net | | (77,858 | ) | | 6,117 |
| | (37,553 | ) |
Litigation proceeds for reimbursement of spent nuclear fuel storage costs | | — |
| | 15,806 |
| | — |
|
Net cash flow used in investing activities | | (174,250 | ) | | (232,602 | ) | | (137,562 | ) |
FINANCING ACTIVITIES | | |
| | |
| | |
|
Proceeds from the issuance of long-term debt | | 150,100 |
| | — |
| | — |
|
Retirement of long-term debt | | (150,103 | ) | | (22,002 | ) | | (136,310 | ) |
Changes in credit borrowings - net | | (49,063 | ) | | 66,893 |
| | (20,404 | ) |
Common stock dividends and distributions | | (106,610 | ) | | (139,000 | ) | | (200,750 | ) |
Other | | (28 | ) | | (26 | ) | | (28 | ) |
Net cash flow used in financing activities | | (155,704 | ) | | (94,135 | ) | | (357,492 | ) |
Net increase in cash and cash equivalents | | 41,324 |
| | 15,202 |
| | 7,482 |
|
Cash and cash equivalents at beginning of period | | 245,863 |
| | 230,661 |
| | 223,179 |
|
Cash and cash equivalents at end of period | |
| $287,187 |
| |
| $245,863 |
| |
| $230,661 |
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | | |
| | |
| | |
|
Cash paid (received) during the period for: | | |
| | |
| | |
|
Interest - net of amount capitalized | |
| $26,251 |
| |
| $36,152 |
| |
| $47,864 |
|
Income taxes | |
| ($2,227 | ) | |
| ($23,565 | ) | |
| ($114,092 | ) |
See Notes to Financial Statements. | | |
| | |
| | |
|
|
| | | | | | | | |
SYSTEM ENERGY RESOURCES, INC. |
BALANCE SHEETS |
ASSETS |
| | |
| | December 31, |
| | 2017 | | 2016 |
| | (In Thousands) |
| | | | |
CURRENT ASSETS | | | | |
Cash and cash equivalents: | | | | |
Cash | |
| $78 |
| |
| $786 |
|
Temporary cash investments | | 287,109 |
| | 245,077 |
|
Total cash and cash equivalents | | 287,187 |
| | 245,863 |
|
Accounts receivable: | | |
| | |
|
Associated companies | | 170,149 |
| | 104,390 |
|
Other | | 6,526 |
| | 3,637 |
|
Total accounts receivable | | 176,675 |
| | 108,027 |
|
Materials and supplies - at average cost | | 88,424 |
| | 82,469 |
|
Deferred nuclear refueling outage costs | | 7,908 |
| | 24,729 |
|
Prepayments and other | | 2,489 |
| | 20,111 |
|
TOTAL | | 562,683 |
| | 481,199 |
|
| | | | |
OTHER PROPERTY AND INVESTMENTS | | |
| | |
|
Decommissioning trust funds | | 905,686 |
| | 780,496 |
|
TOTAL | | 905,686 |
| | 780,496 |
|
| | | | |
UTILITY PLANT | | |
| | |
|
Electric | | 4,327,849 |
| | 4,331,668 |
|
Property under capital lease | | 588,281 |
| | 585,084 |
|
Construction work in progress | | 69,937 |
| | 43,888 |
|
Nuclear fuel | | 207,513 |
| | 259,635 |
|
TOTAL UTILITY PLANT | | 5,193,580 |
| | 5,220,275 |
|
Less - accumulated depreciation and amortization | | 3,175,018 |
| | 3,063,249 |
|
UTILITY PLANT - NET | | 2,018,562 |
| | 2,157,026 |
|
| | | | |
DEFERRED DEBITS AND OTHER ASSETS | | |
| | |
|
Regulatory assets: | | |
| | |
|
Regulatory asset for income taxes - net | | — |
| | 93,127 |
|
Other regulatory assets | | 444,327 |
| | 411,212 |
|
Other | | 7,629 |
| | 4,652 |
|
TOTAL | | 451,956 |
| | 508,991 |
|
| | | | |
TOTAL ASSETS | |
| $3,938,887 |
| |
| $3,927,712 |
|
| | | | |
See Notes to Financial Statements. | | |
| | |
|
|
| | | | | | | | | | | | |
SYSTEM ENERGY RESOURCES, INC. |
STATEMENTS OF CASH FLOWS |
| | |
| | For the Years Ended December 31, |
| | 2019 | | 2018 | | 2017 |
| | (In Thousands) |
OPERATING ACTIVITIES | | | | | | |
Net income | |
| $99,120 |
| |
| $94,109 |
| |
| $78,596 |
|
Adjustments to reconcile net income to net cash flow provided by operating activities: | | | | | | |
Depreciation, amortization, and decommissioning, including nuclear fuel amortization | | 212,170 |
| | 186,719 |
| | 240,962 |
|
Deferred income taxes, investment tax credits, and non-current taxes accrued | | 95 |
| | 24,040 |
| | 7,827 |
|
Changes in assets and liabilities: | | |
| | |
| | |
|
Receivables | | (23,382 | ) | | 18,169 |
| | 9,210 |
|
Accounts payable | | 18,204 |
| | (7,067 | ) | | 15,969 |
|
Prepaid taxes and taxes accrued | | 19,247 |
| | (51,999 | ) | | 62,466 |
|
Interest accrued | | (1,302 | ) | | (94 | ) | | (660 | ) |
Other working capital accounts | | 15,879 |
| | (45,415 | ) | | 12,083 |
|
Other regulatory assets | | (43,712 | ) | | (2,044 | ) | | 60,012 |
|
Other regulatory liabilities | | 130,949 |
| | (156,802 | ) | | 331,251 |
|
Deferred tax rate change recognized as regulatory liability/asset | | — |
| | — |
| | (325,707 | ) |
Pension and other postretirement liabilities | | 11,177 |
| | (23,235 | ) | | 4,024 |
|
Other assets and liabilities | �� | (138,304 | ) | | 64,947 |
| | (124,755 | ) |
Net cash flow provided by operating activities | | 300,141 |
| | 101,328 |
| | 371,278 |
|
INVESTING ACTIVITIES | | |
| | |
| | |
|
Construction expenditures | | (166,695 | ) | | (194,696 | ) | | (91,705 | ) |
Allowance for equity funds used during construction | | 8,709 |
| | 8,750 |
| | 6,345 |
|
Nuclear fuel purchases | | (18,170 | ) | | (125,272 | ) | | (49,728 | ) |
Proceeds from the sale of nuclear fuel | | 26,223 |
| | 30,634 |
| | 69,516 |
|
Proceeds from nuclear decommissioning trust fund sales | | 500,384 |
| | 573,561 |
| | 565,416 |
|
Investment in nuclear decommissioning trust funds | | (517,828 | ) | | (583,683 | ) | | (596,236 | ) |
Changes in money pool receivable - net | | 47,824 |
| | 4,545 |
| | (77,858 | ) |
Net cash flow used in investing activities | | (119,553 | ) | | (286,161 | ) | | (174,250 | ) |
FINANCING ACTIVITIES | | |
| | |
| | |
|
Proceeds from the issuance of long-term debt | | 1,103,917 |
| | 741,785 |
| | 150,100 |
|
Retirement of long-term debt | | (1,187,406 | ) | | (662,904 | ) | | (150,103 | ) |
Changes in short-term credit borrowings - net | | — |
| | (17,830 | ) | | (49,063 | ) |
Common stock dividends and distributions | | (124,250 | ) | | (67,720 | ) | | (106,610 | ) |
Other | | — |
| | — |
| | (28 | ) |
Net cash flow used in financing activities | | (207,739 | ) | | (6,669 | ) | | (155,704 | ) |
Net increase (decrease) in cash and cash equivalents | | (27,151 | ) | | (191,502 | ) | | 41,324 |
|
Cash and cash equivalents at beginning of period | | 95,685 |
| | 287,187 |
| | 245,863 |
|
Cash and cash equivalents at end of period | |
| $68,534 |
| |
| $95,685 |
| |
| $287,187 |
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | | |
| | |
| | |
|
Cash paid (received) during the period for: | | |
| | |
| | |
|
Interest - net of amount capitalized | |
| $21,052 |
| |
| $17,183 |
| |
| $26,251 |
|
Income taxes | |
| $2,284 |
| |
| $53,956 |
| |
| ($2,227 | ) |
See Notes to Financial Statements. | | |
| | |
| | |
|
|
| | | | | | | | |
SYSTEM ENERGY RESOURCES, INC. |
BALANCE SHEETS |
LIABILITIES AND EQUITY |
| | |
| | December 31, |
| | 2017 | | 2016 |
| | (In Thousands) |
| | | | |
CURRENT LIABILITIES | | | | |
Currently maturing long-term debt | |
| $85,004 |
| |
| $50,003 |
|
Short-term borrowings | | 17,830 |
| | 66,893 |
|
Accounts payable: | | |
| | |
|
Associated companies | | 16,878 |
| | 5,843 |
|
Other | | 62,868 |
| | 50,558 |
|
Taxes accrued | | 46,584 |
| | — |
|
Interest accrued | | 13,389 |
| | 14,049 |
|
Other | | 2,434 |
| | 2,957 |
|
TOTAL | | 244,987 |
| | 190,303 |
|
| | | | |
NON-CURRENT LIABILITIES | | |
| | |
|
Accumulated deferred income taxes and taxes accrued | | 776,420 |
| | 1,112,865 |
|
Accumulated deferred investment tax credits | | 39,406 |
| | 41,663 |
|
Regulatory liability for income taxes - net | | 246,122 |
| | — |
|
Other regulatory liabilities | | 455,991 |
| | 370,862 |
|
Decommissioning | | 861,664 |
| | 854,202 |
|
Pension and other postretirement liabilities | | 121,874 |
| | 117,850 |
|
Long-term debt | | 466,484 |
| | 501,129 |
|
Other | | 15,130 |
| | 15 |
|
TOTAL | | 2,983,091 |
| | 2,998,586 |
|
| | | | |
Commitments and Contingencies | |
|
| |
|
|
| | | | |
COMMON EQUITY | | |
| | |
|
Common stock, no par value, authorized 1,000,000 shares; issued and outstanding 789,350 shares in 2017 and 2016 | | 658,350 |
| | 679,350 |
|
Retained earnings | | 52,459 |
| | 59,473 |
|
TOTAL | | 710,809 |
| | 738,823 |
|
| | | | |
TOTAL LIABILITIES AND EQUITY | |
| $3,938,887 |
| |
| $3,927,712 |
|
| | | | |
See Notes to Financial Statements. | | |
| | |
|
|
| | | | | | | | |
SYSTEM ENERGY RESOURCES, INC. |
BALANCE SHEETS |
ASSETS |
| | |
| | December 31, |
| | 2019 | | 2018 |
| | (In Thousands) |
| | | | |
CURRENT ASSETS | | | | |
Cash and cash equivalents: | | | | |
Cash | |
| $93 |
| |
| $68 |
|
Temporary cash investments | | 68,441 |
| | 95,617 |
|
Total cash and cash equivalents | | 68,534 |
| | 95,685 |
|
Accounts receivable: | | |
| | |
|
Associated companies | | 121,972 |
| | 148,571 |
|
Other | | 7,547 |
| | 5,390 |
|
Total accounts receivable | | 129,519 |
| | 153,961 |
|
Materials and supplies - at average cost | | 108,766 |
| | 97,225 |
|
Deferred nuclear refueling outage costs | | 14,493 |
| | 44,424 |
|
Prepaid taxes | | — |
| | 5,415 |
|
Prepayments and other | | 6,045 |
| | 2,985 |
|
TOTAL | | 327,357 |
| | 399,695 |
|
| | | | |
OTHER PROPERTY AND INVESTMENTS | | |
| | |
|
Decommissioning trust funds | | 1,054,098 |
| | 869,543 |
|
TOTAL | | 1,054,098 |
| | 869,543 |
|
| | | | |
UTILITY PLANT | | |
| | |
|
Electric | | 5,070,859 |
| | 5,036,116 |
|
Construction work in progress | | 164,996 |
| | 70,156 |
|
Nuclear fuel | | 149,574 |
| | 234,889 |
|
TOTAL UTILITY PLANT | | 5,385,429 |
| | 5,341,161 |
|
Less - accumulated depreciation and amortization | | 3,285,487 |
| | 3,212,080 |
|
UTILITY PLANT - NET | | 2,099,942 |
| | 2,129,081 |
|
| | | | |
DEFERRED DEBITS AND OTHER ASSETS | | |
| | |
|
Regulatory assets: | | |
| | |
|
Other regulatory assets | | 490,083 |
| | 446,371 |
|
Accumulated deferred income tax | | 8,023 |
| | — |
|
Other | | 3,192 |
| | 4,124 |
|
TOTAL | | 501,298 |
| | 450,495 |
|
| | | | |
TOTAL ASSETS | |
| $3,982,695 |
| |
| $3,848,814 |
|
| | | | |
See Notes to Financial Statements. | | |
| | |
|
|
| | | | | | | | | | | |
SYSTEM ENERGY RESOURCES, INC. |
STATEMENTS OF CHANGES IN COMMON EQUITY |
For the Years Ended December 31, 2017, 2016, and 2015 |
| | | |
| Common Equity | | |
| Common Stock | | Retained Earnings | | Total |
| (In Thousands) |
| | | | | |
Balance at December 31, 2014 |
| $789,350 |
| |
| $81,161 |
| |
| $870,511 |
|
Net income | — |
| | 111,318 |
| | 111,318 |
|
Common stock dividends and distributions | (70,000 | ) | | (130,750 | ) | | (200,750 | ) |
Balance at December 31, 2015 |
| $719,350 |
| |
| $61,729 |
| |
| $781,079 |
|
Net income | — |
| | 96,744 |
| | 96,744 |
|
Common stock dividends and distributions | (40,000 | ) | | (99,000 | ) | | (139,000 | ) |
Balance at December 31, 2016 |
| $679,350 |
| |
| $59,473 |
| |
| $738,823 |
|
Net income | — |
| | 78,596 |
| | 78,596 |
|
Common stock dividends and distributions | (21,000 | ) | | (85,610 | ) | | (106,610 | ) |
Balance at December 31, 2017 |
| $658,350 |
| |
| $52,459 |
| |
| $710,809 |
|
| | | | | |
See Notes to Financial Statements. | |
| | |
| | |
|
|
| | | | | | | | |
SYSTEM ENERGY RESOURCES, INC. |
BALANCE SHEETS |
LIABILITIES AND EQUITY |
| | |
| | December 31, |
| | 2019 | | 2018 |
| | (In Thousands) |
| | | | |
CURRENT LIABILITIES | | | | |
Currently maturing long-term debt | |
| $10 |
| |
| $6 |
|
Accounts payable: | | |
| | |
|
Associated companies | | 14,619 |
| | 11,031 |
|
Other | | 64,144 |
| | 47,565 |
|
Taxes accrued | | 13,832 |
| | — |
|
Interest accrued | | 11,993 |
| | 13,295 |
|
Current portion of unprotected excess accumulated deferred income taxes | | — |
| | 4,426 |
|
Other | | 3,381 |
| | 2,832 |
|
TOTAL | | 107,979 |
| | 79,155 |
|
| | | | |
NON-CURRENT LIABILITIES | | |
| | |
|
Accumulated deferred income taxes and taxes accrued | | 821,963 |
| | 805,296 |
|
Accumulated deferred investment tax credits | | 40,181 |
| | 38,673 |
|
Regulatory liability for income taxes - net | | 142,845 |
| | 158,998 |
|
Other regulatory liabilities | | 533,415 |
| | 381,887 |
|
Decommissioning | | 931,729 |
| | 896,000 |
|
Pension and other postretirement liabilities | | 109,816 |
| | 98,639 |
|
Long-term debt | | 548,097 |
| | 630,744 |
|
Other | | 34,602 |
| | 22,224 |
|
TOTAL | | 3,162,648 |
| | 3,032,461 |
|
| | | | |
Commitments and Contingencies | |
|
| |
|
|
| | | | |
COMMON EQUITY | | |
| | |
|
Common stock, no par value, authorized 1,000,000 shares; issued and outstanding 789,350 shares in 2019 and 2018 | | 601,850 |
| | 601,850 |
|
Retained earnings | | 110,218 |
| | 135,348 |
|
TOTAL | | 712,068 |
| | 737,198 |
|
| | | | |
TOTAL LIABILITIES AND EQUITY | |
| $3,982,695 |
| |
| $3,848,814 |
|
| | | | |
See Notes to Financial Statements. | | |
| | |
|
|
| | | | | | | | | | | | | | | | | | | |
SYSTEM ENERGY RESOURCES, INC. |
SELECTED FINANCIAL DATA - FIVE-YEAR COMPARISON |
| | | | | | | | | |
| 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
| (Dollars In Thousands) |
| | | | | | | | | |
Operating revenues |
| $633,458 |
| |
| $548,291 |
| |
| $632,405 |
| |
| $664,364 |
| |
| $735,089 |
|
Net income |
| $78,596 |
| |
| $96,744 |
| |
| $111,318 |
| |
| $96,334 |
| |
| $113,664 |
|
Total assets |
| $3,938,887 |
| |
| $3,927,712 |
| |
| $3,728,875 |
| |
| $3,826,193 |
| |
| $3,537,414 |
|
Long-term obligations (a) |
| $466,484 |
| |
| $501,129 |
| |
| $572,665 |
| |
| $630,603 |
| |
| $702,273 |
|
Electric energy sales (GWh) | 6,675 |
| | 5,384 |
| | 10,547 |
| | 9,219 |
| | 9,794 |
|
| | | | | | | | | |
(a) Includes long-term debt (excluding currently maturing debt). |
|
| | | | | | | | | | | |
SYSTEM ENERGY RESOURCES, INC. |
STATEMENTS OF CHANGES IN COMMON EQUITY |
For the Years Ended December 31, 2019, 2018, and 2017 |
| | | |
| Common Equity | | |
| Common Stock | | Retained Earnings | | Total |
| (In Thousands) |
| | | | | |
Balance at December 31, 2016 |
| $679,350 |
| |
| $59,473 |
| |
| $738,823 |
|
Net income | — |
| | 78,596 |
| | 78,596 |
|
Common stock dividends and distributions | (21,000 | ) | | (85,610 | ) | | (106,610 | ) |
Balance at December 31, 2017 |
| $658,350 |
| |
| $52,459 |
| |
| $710,809 |
|
Net income | — |
| | 94,109 |
| | 94,109 |
|
Common stock dividends and distributions | (56,500 | ) | | (11,220 | ) | | (67,720 | ) |
Balance at December 31, 2018 |
| $601,850 |
| |
| $135,348 |
| |
| $737,198 |
|
Net income | — |
| | 99,120 |
| | 99,120 |
|
Common stock dividends and distributions | — |
| | (124,250 | ) | | (124,250 | ) |
Balance at December 31, 2019 |
| $601,850 |
| |
| $110,218 |
| |
| $712,068 |
|
| | | | | |
See Notes to Financial Statements. | |
| | |
| | |
|
Item 2. Properties |
| | | | | | | | | | | | | | | | | | | |
SYSTEM ENERGY RESOURCES, INC. |
SELECTED FINANCIAL DATA - FIVE-YEAR COMPARISON |
| | | | | | | | | |
| 2019 | | 2018 | | 2017 | | 2016 | | 2015 |
| (Dollars In Thousands) |
| | | | | | | | | |
Operating revenues |
| $573,410 |
| |
| $456,707 |
| |
| $633,458 |
| |
| $548,291 |
| |
| $632,405 |
|
Net income |
| $99,120 |
| |
| $94,109 |
| |
| $78,596 |
| |
| $96,744 |
| |
| $111,318 |
|
Total assets |
| $3,982,695 |
| |
| $3,848,814 |
| |
| $3,938,887 |
| |
| $3,927,712 |
| |
| $3,728,875 |
|
Long-term obligations (a) |
| $548,097 |
| |
| $630,744 |
| |
| $466,484 |
| |
| $501,129 |
| |
| $572,665 |
|
Electric energy sales (GWh) | 9,940 |
| | 6,264 |
| | 6,675 |
| | 5,384 |
| | 10,547 |
|
| | | | | | | | | |
(a) Includes long-term debt (excluding currently maturing debt). |
Item 2. Properties
Information regarding the registrant’s properties is included in Part I. Item 1. - Entergy’s Business under the sections titled “Utility- Property and Other Generation Resources” and “Entergy Wholesale Commodities- Property” in this report.
Item 3. Legal Proceedings
Details of the registrant’s material environmental regulation and proceedings and other regulatory proceedings and litigation that are pending or those terminated in the fourth quarter of 20172019 are discussed in Part I. Item 1. - Entergy’s Business under the sections titled “Retail Rate Regulation,” “Environmental Regulation,” and “Litigation” and “Impairment of Long-lived Assets” in Note 14to the financial statements.
Item 4. Mine Safety Disclosures
Not applicable.
INFORMATION ABOUT EXECUTIVE OFFICERS OF ENTERGY CORPORATION
Executive Officers
|
| | | | | | |
Name | | Age | | Position | | Period |
Leo P. Denault (a) | | 5860 | | Chairman of the Board and Chief Executive Officer of Entergy Corporation | | 2013-Present |
| | | | Executive Vice President and Chief Financial Officer of Entergy Corporation | | 2004-2013 |
| | | | Director of Entergy Arkansas, Entergy Gulf States Louisiana, Entergy Louisiana, Entergy Mississippi, and System Energy | | 2004-2013 |
| | | | Director of Entergy Texas | | 2007-2013 |
| | | | Director of Entergy New Orleans | | 2011-2013 |
| | | | | | |
A. Christopher Bakken, III (a) | | 5658 | | Executive Vice President and Chief Nuclear Officer of Entergy Corporation, Entergy Arkansas, Entergy Louisiana, and System Energy | | 2016-Present |
| | | | Project Director, Hinkley Point C of EDF Energy | | 2009-2016 |
| | | | | | |
Marcus V. Brown (a) | | 5658 | | Executive Vice President and General Counsel of Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy | | 2013-Present |
| | | | Senior Vice President and General Counsel of Entergy Corporation, Entergy Arkansas, Entergy Gulf States Louisiana, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy | | 2012-2013 |
| | | | Vice President and Deputy General Counsel of Entergy Services, Inc. | | 2009-2012 |
| | | | Associate General Counsel of Entergy Services, Inc. | | 2007-2009 |
|
| | | | | | |
Name | | Age | | Position | | Period |
Andrew S. Marsh (a) | | 4648 | | Executive Vice President and Chief Financial Officer of Entergy Corporation | | 2013-Present |
| | | | Director of Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy | | 2013-Present |
| | | | Chief Financial Officer of Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy | | 2014-Present |
|
| | | | | | |
Name | | Age | | Vice President, System Planning of Entergy Services, Inc.Position | | 2010-2013 |
| | | | Vice President, Planning and Financial Communications of Entergy Services, Inc. | | 2007-2010 |
| | | | | | Period |
Roderick K. West (a) | | 4951 | | Group President Utility Operations of Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and Entergy Texas | | 2017-Present |
| | | | President, Chief Executive Officer, and Director of System Energy | | 2017-Present |
| | | | Director of Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy | | 2017-Present |
| | | | President and Chief Executive Officer of Entergy New Orleans | | 2018 |
| | | | Executive Vice President of Entergy Corporation | | 2010-2017 |
| | | | Chief Administrative Officer of Entergy Corporation | | 2010-2016 |
| | | | President and Chief Executive Officer of Entergy New Orleans | | 2007-2010 |
| | | | Director of Entergy New Orleans | | 2005-2011 |
| | | | | | |
Paul D. Hinnenkamp (a) | | 5658 | | Executive Vice President and Chief Operating Officer of Entergy Corporation | | 2017-Present |
| | | | Director of Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and Entergy Texas | | 2015-Present |
| | | | Senior Vice President and Chief Operating Officer of Entergy Corporation | | 2015-2017 |
| | | | Senior Vice President, Capital Project Management and Technology of Entergy Services, Inc. | | 2015 |
| | | | Vice President, Capital Project Management and Technology of Entergy Services, Inc. | | 2013-2015 |
| | | | Vice President of Fossil Generation Development and Support of Entergy Services, Inc. | | 2010-2013 |
| | | | | | |
Alyson M. MountKimberly A. Fontan (a) | | 4746 | | Senior Vice President and Chief Accounting Officer of Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy | | 2012-Present2019-Present |
| | | | Vice President, Corporate ControllerSystem Planning of Entergy Services, Inc. | | 2010-20122017-2019 |
| | | | Director, Corporate Reporting and Accounting PolicyVice President, Regulatory Services of Entergy Services, Inc. | | 2002-20102015-2017 |
| | | | Vice President, Regulatory Affairs of Entergy Louisiana | | 2014-2015 |
| | | | | | |
Andrea Coughlin RowleyPeter S. Norgeot, Jr. (a) | | 5254 | | Senior Vice President, Human ResourcesTransformation of Entergy Corporation | | 2016-Present |
| | | | President and Chief Executive Officer of Advance/Evolve LLC | | 2013-2016 |
| | | | Vice President, Human Resources of Dover Corporation | | 2012-2013 |
|
| | | | | | |
Name | | Age | | Position | | Period |
Donald W. Vinci (a) | | 59 | | Executive Vice President and Chief Administrative Officer of Entergy Corporation | | 2016-Present2018-Present |
| | | | Senior Vice President, Human Resources and Chief Diversity OfficerPower Generation of Entergy CorporationServices | | 2013-20162017-2018 |
| | | | Vice President, Human Capital ManagementFossil Generation of Entergy Services Inc. | | 20132015-2017 |
| | | | Vice President, Gas Distribution BusinessPower Plant Operations, Steam of Entergy Services Inc. | | 2010-20132014-2015 |
| | | | | | |
Julie E. Harbert (a) | | 46 | | Senior Vice President, Corporate Business Services of Entergy Corporation | | 2019-Present |
| | | | Vice President, Business DevelopmentShared Services of Entergy Services, Inc. | | 2008-20102017-2019 |
| | | | Senior Vice President, Global Business Services of Philips Health Tech | | 2015-2017 |
| | | | Vice President and Group Head of Operations, Global Shared Services of IBM | | 2014 |
| |
(a) | In addition, this officer is an executive officer and/or director of various other wholly owned subsidiaries of Entergy Corporation and its operating companies. |
Each officer of Entergy Corporation is elected yearly by the Board of Directors. Each officer’s age and title isare provided as of December 31, 2017.2019.
PART II
Item 5. Market for Registrants’ Common Equity and Related Stockholder Matters
Entergy Corporation
The shares of Entergy Corporation’s common stock are listed on the New York Stock and Chicago Stock Exchanges under the ticker symbol ETR.
The high and low prices of Entergy Corporation’s common stock for each quarterly period in 2017 and 2016 were as follows:
|
| | | | | | | |
| 2017 | | 2016 |
| High | | Low | | High | | Low |
| (In Dollars) |
First | 77.51 | | 69.63 | | 79.72 | | 65.38 |
Second | 80.61 | | 74.88 | | 81.36 | | 72.67 |
Third | 80.49 | | 74.83 | | 82.09 | | 75.99 |
Fourth | 87.95 | | 75.01 | | 76.56 | | 66.71 |
Consecutive quarterly cash dividends on common stock were paid to stockholders of Entergy Corporation in 2017 and 2016. Quarterly dividends of $0.85 per share were paid through third quarter 2016. In fourth quarter 2016 and through third quarter 2017, dividends of $0.87 per share were paid. In fourth quarter 2017, dividends of $0.89 per share were paid.
As of January 31, 2018,2020, there were 26,21323,696 stockholders of record of Entergy Corporation.
Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities (1)
|
| | | | | | | | | | | | | | | |
Period | | Total Number of Shares Purchased | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of a Publicly Announced Plan | | Maximum $ Amount of Shares that May Yet be Purchased Under a Plan (2) |
| | | | | | | | | |
10/01/2017 | -10/2019 - 10/31/20172019 | | — |
| |
| $— |
| | — |
| |
| $350,052,918 |
|
11/01/2017 | -11/2019 - 11/30/20172019 | | — |
| |
| $— |
| | — |
| |
| $350,052,918 |
|
12/01/2017 | -12/2019 - 12/31/20172019 | | — |
| |
| $— |
| | — |
| |
| $350,052,918 |
|
Total | | | — |
| |
| $— |
| | — |
| | |
In accordance with Entergy’s stock-based compensation plans, Entergy periodically grants stock options to key employees, which may be exercised to obtain shares of Entergy’s common stock. According to the plans, these shares can be newly issued shares, treasury stock, or shares purchased on the open market. Entergy’s management has been authorized by the Board to repurchase on the open market shares up to an amount sufficient to fund the exercise of grants under the plans. In addition to this authority, the Board has authorized share repurchase programs to enable opportunistic purchases in response to market conditions. In October 2010 the Board granted authority for a $500 million share repurchase program. The amount of share repurchases under these programs may vary as a result of material changes in business results or capital spending or new investment opportunities. In addition, in the first quarter 2017,2019, Entergy withheld 1,05476,735 shares of its common stock at $70.58$86.03 per share, 122,14882,550 shares of its common stock at $70.61$86.51 per share, and 31,24338,326 shares of its common stock at $71.89$87.10 per share, 932 shares of its common stock at $89.19 per share, and 2,280 shares of its common stock at $93.25 per share to pay income taxes due upon vesting of restricted stock granted and payout of performance units as part of its long-term incentive program.
| |
(1) | See Note 12 to the financial statements for additional discussion of the stock-based compensation plans. |
| |
(2) | Maximum amount of shares that may yet be repurchased relates only to the $500 million plan does not include an estimate of the amount of shares that may be purchased to fund the exercise of grants under the stock-based compensation plans. |
Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy
There is no market for the common equity of the Registrant Subsidiaries. Cash dividends and distributions on common equity paid by the Registrant Subsidiaries during 2017 and 2016, were as follows:
|
| | | | | | | |
| 2017 | | 2016 |
| (In Millions) |
Entergy Arkansas |
| $15.0 |
| |
| $— |
|
Entergy Louisiana |
| $91.3 |
| |
| $285.5 |
|
Entergy Mississippi |
| $26.0 |
| |
| $24.0 |
|
Entergy New Orleans |
| $74.3 |
| |
| $18.7 |
|
Entergy Texas |
| $— |
| |
| $— |
|
System Energy |
| $106.6 |
| |
| $139.0 |
|
Information with respect to restrictions that limit the ability of the Registrant Subsidiaries to pay dividends or distributions is presented in Note 7 to the financial statements.
Item 6. Selected Financial Data
Refer to “SELECTED FINANCIAL DATA - FIVE-YEAR COMPARISON OF ENTERGY CORPORATION AND SUBSIDIARIES, ENTERGY ARKANSAS, INC.LLC AND SUBSIDIARIES, ENTERGY LOUISIANA, LLC AND SUBSIDIARIES, ENTERGY MISSISSIPPI, INC.,LLC, ENTERGY NEW ORLEANS, LLC AND SUBSIDIARIES, ENTERGY TEXAS, INC. AND SUBSIDIARIES, and SYSTEM ENERGY RESOURCES, INC.” which follow each company’s financial statements in this report, for information with respect to selected financial data and certain operating statistics.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Refer to “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS OF ENTERGY CORPORATION AND SUBSIDIARIES, ENTERGY ARKANSAS, INC.LLC AND SUBSIDIARIES, ENTERGY LOUISIANA, LLC AND SUBSIDIARIES, ENTERGY MISSISSIPPI, INC.,LLC, ENTERGY NEW ORLEANS, LLC AND SUBSIDIARIES, ENTERGY TEXAS, INC. AND SUBSIDIARIES, and SYSTEM ENERGY RESOURCES, INC.”
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Refer to “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS OF ENTERGY CORPORATION AND SUBSIDIARIES-Market and Credit Risk Sensitive Instruments.”
Item 8. Financial Statements and Supplementary Data
Refer to “TABLE OF CONTENTS - Entergy Corporation and Subsidiaries, Entergy Arkansas, Inc.,LLC and Subsidiaries, Entergy Louisiana, LLC and Subsidiaries, Entergy Mississippi, Inc.,LLC, Entergy New Orleans, LLC and Subsidiaries, Entergy Texas, Inc., and Subsidiaries, and System Energy Resources, Inc.”
Item 9. Changes In and Disagreements With Accountants On Accounting and Financial Disclosure
No event that would be described in response to this item has occurred with respect to Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, or System Energy.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
As of December 31, 2017,2019, evaluations were performed under the supervision and with the participation of Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy (individually “Registrant” and collectively the “Registrants”) management, including their respective Principal Executive Officers (PEO) and Principal Financial Officers (PFO). The evaluations assessed the effectiveness of the Registrants’ disclosure controls and procedures. Based on the evaluations, each PEO and PFO has concluded that, as to the Registrant or Registrants for which they serve as PEO or PFO, the Registrant’s or Registrants’ disclosure controls and procedures are effective to ensure that information required to be disclosed by each Registrant in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms; and that the Registrant’s or Registrants’ disclosure controls and procedures are also effective in reasonably assuring that such information is accumulated and communicated to the Registrant’s or Registrants’ management, including their respective PEOs and PFOs, as appropriate to allow timely decisions regarding required disclosure.
Internal Control over Financial Reporting
(Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)
The managements of Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy (individually “Registrant” and collectively the “Registrants”) are responsible for establishing and maintaining adequate internal control over financial reporting for the Registrants. Each Registrant’s internal control system is designed to provide reasonable assurance regarding the preparation and fair presentation of each Registrant’s financial statements presented in accordance with generally accepted accounting principles.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
Each Registrant’s management assessed the effectiveness of each Registrant’s internal control over financial reporting as of December 31, 2017.2019. In making this assessment, each Registrant’s management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework. The 2013 COSO Framework was utilized for management’s assessment.
Based on each management’s assessment and the criteria set forth by the 2013 COSO Framework, each Registrant’s management believes that each Registrant maintained effective internal control over financial reporting as of December 31, 2017.2019.
The report of Deloitte & Touche LLP, Entergy Corporation’s independent registered public accounting firm, regarding Entergy Corporation’s internal control over financial reporting is included herein. The report of Deloitte & Touche LLP is not applicable to Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy because these Registrants are non-accelerated filers.
Changes in Internal Controls over Financial Reporting
Under the supervision and with the participation of each Registrant’s management, including its respective PEO and PFO, each Registrant evaluated changes in internal control over financial reporting that occurred during the quarter ended December 31, 20172019 and found no change that has materially affected, or is reasonably likely to materially affect, internal control over financial reporting.
Attestation Report of Registered Public Accounting Firm
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and Board of Directors of
Entergy Corporation and Subsidiaries
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Entergy Corporation and Subsidiaries (the “Corporation”) as of December 31, 2017,2019, based on criteria established in Internal Control -Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 20172019 of the Corporation and our report dated February 26, 201821, 2020 expressed an unqualified opinion ofon those consolidated financial statements.
Basis for Opinion
The Corporation’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Item 9A, Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Corporation’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Corporation in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ DELOITTE & TOUCHE LLP
New Orleans, Louisiana
February 26, 201821, 2020
PART III
Item 10. Directors, and Executive Officers, and Corporate Governance of the Registrants (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and Entergy Texas)
Information required by this item concerning directors of Entergy Corporation is set forth under the heading “Item“Proposal 1 – Election of Directors” contained in the Proxy Statement of Entergy Corporation, to be filed in connection with its Annual Meeting of Stockholders to be held May 4, 2018,8, 2020, and is incorporated herein by reference.
All officers and directors listed below held the specified positions with their respective companies as of the date of filing this report, unless otherwise noted.
|
| | | | | | |
Name | | Age | | Position | | Period |
ENTERGY ARKANSAS, INC.Entergy Arkansas, LLC |
| | | | | | |
Directors | | | | | | |
Richard C. RileyLaura R. Landreaux | | 5546 | | President and Chief Executive Officer of Entergy Arkansas | | 2016-Present2018-Present |
| | | | Director of Entergy Arkansas | | 2016-Present2018-Present |
| | | | Group Vice President, Customer Service and OperationsOperational Finance Director of Entergy Arkansas | | 2015-20162017-2018 |
| | | | Vice President, TransmissionRegulatory Affairs of Entergy Services, Inc.Arkansas | | 2010-20152014-2017 |
| | | | | | |
Paul D. Hinnenkamp | | | | See information under the Information about Executive Officers of Entergy Corporation Officers Section in Part I. | | |
Andrew S. Marsh | | | | See information under the Information about Executive Officers of Entergy Corporation Officers Section in Part I. | | |
Roderick K. West | | | | See information under the Information about Executive Officers of Entergy Corporation Officers Section in Part I. | | |
| | | | | | |
Officers | | | | | | |
A. Christopher Bakken, III | | | | See information under the Information about Executive Officers of Entergy Corporation Officers Section in Part I. | | |
Marcus V. Brown | | | | See information under the Information about Executive Officers of Entergy Corporation Officers Section in Part I. | | |
Leo P. Denault | | | | See information under the Information about Executive Officers of Entergy Corporation Officers Section in Part I. | | |
Paul D. Hinnenkamp | | | | See information under the Information about Executive Officers of Entergy Corporation Officers Section in Part I. | | |
Andrew S. Marsh | | | | See information under the Entergy Corporation Officers Section in Part I. | | |
Alyson M. Mount | | | | See information under the Entergy Corporation Officers Section in Part I. | | |
Richard C. RileyLaura R. Landreaux | | | | See information under the Entergy Arkansas Directors Section above. | | |
Andrea Coughlin RowleyAndrew S. Marsh | | | | See information under the Information about Executive Officers of Entergy Corporation Officers Section in Part I. | | |
Donald W. VinciKimberly A. Fontan | | | | See information under the Information about Executive Officers of Entergy Corporation Officers Section in Part I. | | |
Roderick K. West | | | | See information under the Information about Executive Officers of Entergy Corporation Officers Section in Part I. | | |
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ENTERGY LOUISIANA, LLC |
Directors | | | | | | |
Phillip R. May, Jr. | | 5557 | | President and Chief Executive Officer of Entergy Louisiana | | 2013-Present |
| | | | Director of Entergy Louisiana | | 2013-Present |
| | | | Vice President, Regulatory Services of Entergy Services, Inc. | | 2002-2013 |
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Paul D. Hinnenkamp | | | | See information under the Information about Executive Officers of Entergy Corporation Officers Section in Part I. | | |
Andrew S. Marsh | | | | See information under the Information about Executive Officers of Entergy Corporation Officers Section in Part I. | | |
Roderick K. West | | | | See information under the Information about Executive Officers of Entergy Corporation Officers Section in Part I. | | |
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Officers | | | | | | |
A. Christopher Bakken, III | | | | See information under the Information about Executive Officers of Entergy Corporation Officers Section in Part I. | | |
Marcus V. Brown | | | | See information under the Information about Executive Officers of Entergy Corporation Officers Section in Part I. | | |
Leo P. Denault | | | | See information under the Information about Executive Officers of Entergy Corporation Officers Section in Part I. | | |
Paul D. Hinnenkamp | | | | See information under the Information about Executive Officers of Entergy Corporation Officers Section in Part I. | | |
Andrew S. Marsh | | | | See information under the Information about Executive Officers of Entergy Corporation Officers Section in Part I. | | |
Phillip R. May, Jr. | | | | See information under the Entergy Louisiana Directors Section above. | | |
Alyson M. MountKimberly A. Fontan | | | | See information under the Information about Executive Officers of Entergy Corporation Officers Section in Part I. | | |
Andrea Coughlin Rowley | | | | See information under the Entergy Corporation Officers Section in Part I. | | |
Donald W. Vinci | | | | See information under the Entergy Corporation Officers Section in Part I. | | |
Roderick K. West | | | | See information under the Information about Executive Officers of Entergy Corporation Officers Section in Part I. | | |
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ENTERGY MISSISSIPPI, INC.LLC |
Directors | | | | | | |
Haley R. Fisackerly | | 5254 | | President and Chief Executive Officer of Entergy Mississippi | | 2008-Present |
| | | | Director of Entergy Mississippi | | 2008-Present |
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Paul D. Hinnenkamp | | | | See information under the Information about Executive Officers of Entergy Corporation Officers Section in Part I. | | |
Andrew S. Marsh | | | | See information under the Information about Executive Officers of Entergy Corporation Officers Section in Part I. | | |
Roderick K. West | | | | See information under the Information about Executive Officers of Entergy Corporation Officers Section in Part I. | | |
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Officers | | | | | | |
Marcus V. Brown | | | | See information under the Information about Executive Officers of Entergy Corporation Officers Section in Part I. | | |
Leo P. Denault | | | | See information under the Information about Executive Officers of Entergy Corporation Officers Section in Part I. | | |
Haley R. Fisackerly | | | | See information under the Entergy Mississippi Directors Section above. | | |
Paul D. Hinnenkamp | | | | See information under the Information about Executive Officers of Entergy Corporation Officers Section in Part I. | | |
Andrew S. Marsh | | | | See information under the Information about Executive Officers of Entergy Corporation Officers Section in Part I. | | |
Alyson M. MountKimberly A. Fontan | | | | See information under the Information about Executive Officers of Entergy Corporation Officers Section in Part I. | | |
Andrea Coughlin Rowley | | | | See information under the Entergy Corporation Officers Section in Part I. | | |
Donald W. Vinci | | | | See information under the Entergy Corporation Officers Section in Part I. | | |
Roderick K. West | | | | See information under the Information about Executive Officers of Entergy Corporation Officers Section in Part I. | | |
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ENTERGY NEW ORLEANS, LLC |
Directors | | | | | | |
Charles L. Rice, Jr.David D. Ellis | | 5351 | | President and Chief Executive Officer of Entergy New Orleans | | 2010-Present2018-Present |
| | | | Director of Entergy New Orleans | | 2010-Present2018-Present |
| | | | Director, Utility Strategy of Entergy Services, Inc.President and Chief Executive Officer, Global Power Technologies | | 2009-20102018 |
| | | | Partner, Barrasso, Usdin, Kupperman, Freeman & Sarver, LLCManaging Director and Chairman of Comverge International, Inc. | | 2005-20092010-2017 |
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Paul D. Hinnenkamp | | | | See information under the Information about Executive Officers of Entergy Corporation Officers Section in Part I. | | |
Andrew S. Marsh | | | | See information under the Information about Executive Officers of Entergy Corporation Officers Section in Part I. | | |
Roderick K. West | | | | See information under the Information about Executive Officers of Entergy Corporation Officers Section in Part I. | | |
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Officers | | | | | | |
Marcus V. Brown | | | | See information under the Information about Executive Officers of Entergy Corporation in Part I. | | |
Leo P. Denault | | | | See information under the Information about Executive Officers of Entergy Corporation in Part I. | | |
David D. Ellis | | | | See information under the Entergy New Orleans Directors Section above. | | |
Paul D. Hinnenkamp | | | | See information under the Information about Executive Officers of Entergy Corporation in Part I. | | |
Andrew S. Marsh | | | | See information under the Information about Executive Officers of Entergy Corporation in Part I. | | |
Kimberly A. Fontan | | | | See information under the Information about Executive Officers of Entergy Corporation in Part I. | | |
Roderick K. West | | | | See information under the Information about Executive Officers of Entergy Corporation in Part I. | | |
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ENTERGY TEXAS, INC. |
Directors | | | | | | |
Sallie T. Rainer | | 57 | | President and Chief Executive Officer of Entergy Texas | | 2012-Present |
| | | | Director of Entergy Texas | | 2012-Present |
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Paul D. Hinnenkamp | | | | See information under the Information about Executive Officers of Entergy Corporation in Part I. | | |
Andrew S. Marsh | | | | See information under the Information about Executive Officers of Entergy Corporation in Part I. | | |
Roderick K. West | | | | See information under the Information about Executive Officers of Entergy Corporation in Part I. | | |
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Officers | | | | | | |
Marcus V. Brown | | | | See information under the Information about Executive Officers of Entergy Corporation Officers Section in Part I. | | |
Leo P. Denault | | | | See information under the Information about Executive Officers of Entergy Corporation Officers Section in Part I. | | |
Paul D. Hinnenkamp | | | | See information under the Information about Executive Officers of Entergy Corporation Officers Section in Part I. | | |
Andrew S. Marsh | | | | See information under the Information about Executive Officers of Entergy Corporation Officers Section in Part I. | | |
Alyson M. MountKimberly A. Fontan | | | | See information under the Entergy CorporationInformation about Executive Officers Section in Part I. | | |
Charles L. Rice, Jr. | | | | See information under the Entergy New Orleans Directors Section above. | | |
Andrea Coughlin Rowley | | | | See information under the Entergy Corporation Officers Section in Part I. | | |
Donald W. Vinci | | | | See information under the Entergy Corporation Officers Section in Part I. | | |
Roderick K. West | | | | See information under the Entergy Corporation Officers Section in Part I. | | |
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ENTERGY TEXAS, INC. |
Directors | | | | | | |
Sallie T. Rainer | | 56 | | President and Chief Executive Officer of Entergy Texas | | 2012-Present |
| | | | Director of Entergy Texas | | 2012-Present |
| | | | Vice President, Federal Policy of Entergy Services, Inc. | | 2011-2012 |
| | | | Director, Regulatory Affairs and Energy Settlements of Entergy Services, Inc. | | 2006-2011 |
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Paul D. Hinnenkamp | | | | See information under the Entergy Corporation Officers Section in Part I. | | |
Andrew S. Marsh | | | | See information under the Entergy Corporation Officers Section in Part I. | | |
Roderick K. West | | | | See information under the Entergy Corporation Officers Section in Part I. | | |
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Officers | | | | | | |
Marcus V. Brown | | | | See information under the Entergy Corporation Officers Section in Part I. | | |
Leo P. Denault | | | | See information under the Entergy Corporation Officers Section in Part I. | | |
Paul D. Hinnenkamp | | | | See information under the Entergy Corporation Officers Section in Part I. | | |
Andrew S. Marsh | | | | See information under the Entergy Corporation Officers Section in Part I. | | |
Alyson M. Mount | | | | See information under the Entergy Corporation Officers Section in Part I. | | |
Sallie T. Rainer | | | | See information under the Entergy Texas Directors Section above. | | |
Andrea Coughlin Rowley | | | | See information under the Entergy Corporation Officers Section in Part I. | | |
Donald W. Vinci | | | | See information under the Entergy Corporation Officers Section in Part I. | | |
Roderick K. West | | | | See information under the Information about Executive Officers of Entergy Corporation Officers Section in Part I. | | |
Each directorThe directors and officerofficers of the applicable Entergy company isTexas are elected yearlyannually to serve by the unanimous consent of theits sole common stockholder with the exception of thestockholder. The directors and officers of Entergy Arkansas, LLC, Entergy Louisiana, LLC, Entergy Mississippi, LLC and Entergy New Orleans, LLC who are elected yearlyannually to serve by the unanimous consent of the sole common membership owner, Entergy Utility Holding Company, LLC. Entergy Corporation’s directors are elected annually at the annual meeting of shareholders. Entergy Corporation’s officers are elected at the annual organizational meeting of the Board of Directors.Directors, which immediately follows the annual meeting of shareholders. The age of each officer and director for whom information is presented above is as of December 31, 2019.
Corporate Governance Guidelines and Committee Charters
Each of the Audit, Corporate Governance, and Personnel Committees of Entergy Corporation’s Board of Directors operates under a written charter. In addition, the full Board has adopted Corporate Governance Guidelines. Each charter and the guidelines are available through Entergy’s website (www.entergy.com) or upon written request.
Audit Committee of the Entergy Corporation Board
The following directors are members of the Audit Committee of Entergy Corporation’s Board of Directors:
Patrick J. Condon (Chairman)
Maureen S. Bateman
Philip L. Frederickson
Blanche L. LincolnM. Elise Hyland
Karen A. Puckett
All Audit Committee members are independent. In addition to the general independence requirements of the NYSE, all Audit Committee members must meet the heightened independence standards imposed by the SEC and NYSE. All Audit Committee members possess the level of financial literacy and accounting or related financial management expertise required by the NYSE rules. Therules and the Board has determined that each of Patrick J.Messrs. Condon and Philip L. Frederickson issatisfy the financial expertise requirements of the NYSE and have the requisite experience to be designated an “auditaudit committee financial expert”expert as suchthat term is defined by the rules of the SEC.
Code of Ethics
TheEffective October 2018, the Entergy Corporation Board of Directors has adopted a Code of Business Conduct and Ethics for Membersthat applies to members of the Entergy Corporation Board of Directors.Directors and all Entergy officers and employees. The code is available through Entergy’s website (www.entergy.com) or upon written request. The Board has also adopted a Code of Business Conduct and Ethics for Employees that includes Special Provisions Relating to Principal Executive Officer and Senior Financial Officers. The Code of Business Conduct and Ethics for EmployeesIt is to be read in conjunction with Entergy’s omnibus code of integrity under which Entergy operates, called the Code of Entegrity, as well as system policies. All employees are expected to abide by the Codes. Non-bargaining employees are required to acknowledge annually that they understand and abide by the Code of Entegrity. The Code of Business Conduct and Ethics, for Employees, including any amendments or any waivers thereto, and the Code of Entegrity are available through Entergy’s website (www.entergy.com) or upon written request.
Source of Nominations to the Entergy Corporation Board of Directors; Nominating Procedure
The Corporate Governance Committee will consider candidates identified by current directors, management, third-party search firms engaged by the Corporate Governance Committee and Entergy Corporation’s shareholders. Shareholders wishing to recommend a candidate to the Corporate Governance Committee should do so by submitting the recommendation in writing to Entergy Corporation’s Secretary at 639 Loyola Avenue, P.O. Box 61000, New Orleans, LA 70161, and it will be forwarded to the Corporate Governance Committee members for their consideration. Any recommendation should include:
the number of shares of Entergy Corporation stock held by the shareholder;
the name and address of the candidate;
a brief biographical description of the candidate, including his or her occupation for at least the last five years, and a statement of the qualifications of the candidate, taking into account the qualification requirements discussed in the Proxy Statement under “Corporate Governance at Entergy - Our Board Structure“Board of Directors - Identifying Director Candidates”; and
the candidate’s signed consent to be named in the Proxy Statement and a representation of such candidates’ intent to serve as a director for the entire term if elected.
Once the Corporate Governance Committee receives the recommendation, it may request additional information from the candidate about the candidate’s independence, qualifications, and other information that would assist the Corporate Governance Committee in evaluating the candidate, as well as certain information that must be disclosed about the candidate in the Proxy Statement, if nominated. The Corporate Governance Committee will apply the same standards in considering director candidates recommended by shareholders as it applies to other candidates.
Section 16(a) Beneficial Ownership Reporting Compliance
Item 11. Executive Compensation
ENTERGY CORPORATION
Information called forconcerning compensation earned by this item concerning the directors and officers of Entergy Corporation is set forth in theits Proxy Statement, of Entergy Corporation to be filed in connection with itsthe Annual Meeting of StockholdersShareholders to be held on May 4, 2018, under the heading “Section 16(a) Beneficial Ownership Reporting Compliance,” which information is incorporated herein by reference.
Item 11. Executive Compensation
ENTERGY CORPORATION
Information concerning the directors and officers of Entergy Corporation is set forth in the Proxy Statement8, 2020, under the headings “Compensation Discussion and Analysis,” “Annual Compensation Risk Assessment,” “Executive Compensation Tables,” “Nominees for the Board of Directors,“Pay Ratio Disclosure,” “Our 2020 Director Nominees,” and “Non-Employee“2019 Non-Employee Director Compensation,” all of which information is incorporated herein by reference. References in this section to the “Company” refer to Entergy Corporation.
ENTERGY ARKANSAS, ENTERGY LOUISIANA, ENTERGY MISSISSIPPI, ENTERGY NEW ORLEANS, AND ENTERGY TEXAS
COMPENSATION DISCUSSION AND ANALYSIS
In this section, the compensation earned in 2019 by the following Namedexecutive officers (referred to herein as “Named Executive Officers in 2017Officers”) is discussed. Each officer’s title is provided as of December 31, 2017.
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Name(1) | Title |
A. Christopher Bakken, III | Executive Vice President, and Nuclear Operations/Chief Nuclear Officer |
Marcus V. Brown | Executive Vice President and General Counsel |
Leo P. Denault | Chairman of the Board and Chief Executive Officer |
David D. Ellis | President and Chief Executive Officer, Entergy New Orleans |
Haley R. Fisackerly | President and Chief Executive Officer, Entergy Mississippi |
Laura R. Landreaux | President and Chief Executive Officer, Entergy Arkansas |
Andrew S. Marsh | Executive Vice President and Chief Financial Officer Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and Entergy Texas |
Phillip R. May, Jr. | President and Chief Executive Officer, Entergy Louisiana |
Sallie T. Rainer | President and Chief Executive Officer, Entergy Texas |
Charles L. Rice, Jr. | President and Chief Executive Officer, Entergy New Orleans |
Richard C. Riley | President and Chief Executive Officer, Entergy Arkansas |
Roderick K. West | Group President Utility Operations |
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(1) | Messrs. Bakken, Brown, Denault, Marsh, and West hold the positions referenced above as executive officers of Entergy Corporation and are members of Entergy Corporation’s Office of the Chief Executive. No additional compensation was paid in 2019 to any of these officers for their service as Named Executive Officers of the Utility operating companies. |
of Entergy Corporation and are members of Entergy Corporation’s Office of the Chief Executive. No additional compensation was paid in 2017 to any of these officers for their service as Named Executive Officers of the Utility operating companies.
CD&A Highlights
Entergy Corporation’s Executive Compensation Programs and Practices
Entergy Corporation regularly reviews its executive compensation programs to align them with commonly viewed best practices in the market and to reflect feedback from discussions with investors on executive compensation.
Sound Program Design
Entergy Corporation’s executive compensation programs are designed to:
Pay for performance
Attract, retain,Compensation Principles and motivate key executive officers who drive Entergy Corporation’s success and industry leadership
Provide market compensation payout opportunities
Align with the interests of Entergy Corporation’s long-term shareholders
Reflect best practices in the market
Executive Compensation Best Practices:
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Changes Since 2017 Annual Meeting | * | To align with compensation best practices, and in response to investor feedback, beginning with the 2018-2020 performance period, added a cumulative utility earnings performance measure to the Long-Term Performance Incentive Program supplementing the relative total shareholder return measure historically used in this program |
What Entergy Corporation Does | * | Double trigger for severance payments or equity acceleration in the event of a change in control |
* | Clawback policy that goes beyond Sarbanes-Oxley requirements |
* | Maximum payout capped at 200% of target under the Long-Term Performance Unit Program and under the Annual Incentive Plan for members of the Office of the Chief Executive |
* | Minimum vesting periods for equity-based awards |
* | Long-term compensation mix weighted more toward performance units than service-based equity awards |
* | All long-term performance units settled in shares of Entergy Corporation common stock |
* | Rigorous stock ownership requirements |
* | Executives required to hold substantially all equity compensation received by Entergy Corporation until stock ownership guidelines are met |
* | Annual Say on Pay vote |
What Entergy Corporation Doesn’t Do | * | No 280G tax “gross up” payments in the event of a change in control
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* | No tax “gross up” payments on any executive perquisites, other than relocation benefits available to all eligible employees, and club dues for some of the Named Executive Officers. |
* | No option repricing or cash buy-outs for underwater options |
* | No agreements providing for severance payments to executive officers that exceed 2.99 times annual base salary and annual incentive awards without shareholder approval |
* | No hedging or pledging of Entergy Corporation common stock |
* | No unusual or excessive perquisites |
* | New officers are excluded from participation in the System Executive Retirement Plan |
* | No grants of supplemental service credit to newly-hired officers under any of Entergy Corporation’s non-qualified retirement plans |
Entergy Corporation’s Pay for Performance Philosophy
Entergy Corporation’s executive compensation programs are based on a philosophy of pay for performance that is embodied in the design of its annual and long-term incentive plans. It believes the executive pay programs described in this sectionprograms:
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• | Motivate its management team to drive strong financial and operational results. |
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• | Attract and retain a highly experienced and successful management team. |
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• | Incentivize and reward the achievement of financial and operational metrics that are deemed by the Personnel Committee to be consistent with the overall goals and strategic direction that the Board has approved for Entergy Corporation. |
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• | Align the interests of the executives and Entergy Corporation shareholders by directly tying the value of equity-based awards to Entergy Corporation’s stock price performance, relative total shareholder return and earnings growth. |
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• | Create sustainable value for the benefit of all of Entergy Corporation’s stakeholders, including its owners, customers, employees and communities. |
Executive Compensation Best Practices:
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What Entergy Corporation Does | * | Executive compensation programs are highly correlated to performance and focused on long-term value creation |
* | Double trigger for cash severance payments and equity acceleration in the event of a change in control |
* | Clawback policy |
* | Maximum payout capped at 200% of target under the Annual Incentive Plan and Long-Term Performance Unit Program for members of the Office of the Chief Executive |
* | Rigorous goal setting aligned with externally disclosed annual and multi-year financial targets |
* | Minimum vesting periods for equity-based awards |
* | Long-term compensation mix weighted more toward performance units than service-based equity awards |
* | All long-term incentive compensation is settled in Entergy Corporation common stock |
* | Rigorous stock ownership and share retention requirements |
* | Annual Say on Pay vote |
What Entergy Corporation Doesn’t Do | * | No 280G tax “gross up” payments in the event of a change in control |
* | No tax “gross up” payments on any executive perquisites for members of the Office of the Chief Executive, other than relocation benefits |
* | No option repricing or cash buy-outs for underwater options without shareholder approval |
* | No agreements providing for severance payments to executive officers that exceed 2.99 times annual base salary and annual incentive awards without shareholder approval |
* | No unusual or excessive perquisites |
* | No hedging or pledging of Entergy Corporation common stock |
* | No fixed term employment agreements |
* | No new officer participation in the System Executive Retirement Plan |
* | No grants of supplemental service credit to newly-hired officers under any of Entergy Corporation’s non-qualified retirement plans |
2019 Executive Compensation Program Changes
During 2019, the accompanying tables have played a significant role in its abilityfollowing changes were made to drive strong financial and operational results and to attract and retain a highly experienced and successful management team. The Entergy Corporation’s executive officer compensation programs:
Annual Incentive Plan incentivizes and rewards the achievement of financial metrics that are deemed by the Personnel Committee to be consistent with the overall goals and strategic direction that the Entergy Corporation Board has approved for Entergy Corporation. The long-term incentive programs further align the interests
In recognition of Entergy Corporation’s executives successful execution on its strategy to exit the Entergy Wholesale Commodities merchant power business, Entergy Corporation decided to establish a new, single earnings measure not calculated in accordance with generally accepted accounting principles in the United States (“GAAP”) for guidance
and investor reporting purposes that would better reflect its shareholders by directly tyingongoing business and respond to feedback received from investors on the valueearnings measures on which Entergy Corporation had previously reported and guided. This new measure, Entergy Adjusted Earnings Per Share (“ETR Adjusted EPS”), adjusts the Company’s as reported (GAAP) earnings per share results to eliminate the impact of its Entergy Wholesale Commodities merchant power business, significant tax items and other non-routine items. With this change in the external guidance measure, and given the Personnel Committee’s desire to maintain an appropriate degree of alignment between the Company’s externally communicated earnings targets and the targets under the annual incentive plan, the committee adopted new performance measures to determine the maximum funding level of the annual incentive plan with each performance measure weighted equally:
The earnings measure, ETR Tax Adjusted EPS, is based on the externally reported ETR Adjusted EPS, which is then adjusted to add back the effect of significant tax items, and to eliminate the effect of major storms, the resolution of certain unresolved regulatory litigation matters, changes in federal income tax law and unrealized gains or losses on equity awards granted to executives under these programs tosecurities (the “Pre-Determined Exclusions”).
The cash flow measure, ETR Adjusted Operating Cash Flow is calculated based on Entergy Corporation’s stock priceas-reported (GAAP) operating cash flow, adjusted to eliminate the effect of any Pre-Determined Exclusions.
Long-Term Incentives
In keeping with the change in Entergy Corporation’s external guidance measure, the committee also adopted a new earnings measure for use in measuring performance under the Long-Term Performance Unit Program. In particular, the committee decided that, for the 2019-2021 the Long-Term Performance Unit Program period, the performance measures will be (1) cumulative ETR Adjusted EPS, adjusted to eliminate the effect of any Pre-Determined Exclusions; and (2) relative total shareholder return. By incentivizing officers to achieve important financialreturn with relative total shareholder return weighted eighty percent and operational objectives and create long-term shareholder value, these programs play a key role in creating sustainable valuecumulative ETR Adjusted EPS accounting for the benefit of allremaining twenty percent.
Short-Term and Long-Term Incentive Targets Tailored to Role
Beginning in 2019, the short and long-term incentive targets for officers who are members of Entergy Corporation’s stakeholders, including owners, customers, employees, and communities.Office of the Chief Executive are being determined based on job-specific market data for the officer’s role. Previously, the targets were the average of the market data for the officers within a specific management level, without regard to the officer’s specific job functions. The targets for the Named Executive Officers who are Presidents of the Utility operating companies continue to be determined based on the average of the market data for the officers within a specific management level, without regard to their specific job function. Entergy Corporation believes that this change for the members of the Office of the Chief Executive will help assure that each officer’s incentive targets are market competitive with respect to the officer’s particular role.
Incentive Programs and 20172019 Incentive Pay Outcomes
Entergy Corporation believes that the 20172019 incentive pay outcomes for the Named Executive Officers demonstrated the application of itsEntergy Corporation’s pay for performance philosophy.
Annual Incentive Plan
Awards under the Executive Annual Incentive Plan, or Annual Incentive Plan, are tied to Entergy Corporation’s financial and operational performance through the Entergy Achievement Multiplier (EAM)(“EAM”), which is the performance metric used to determine the maximum funding available for awards under the plan. The 20172019 EAM was determined based on the two equally weighted performance metrics discussed in equal part on Entergy Corporation’s success in achieving its consolidated operational earnings per share and consolidated operational operating cash flow goals set at the beginning of the year. These goals were approved by“2019 Executive Compensation Program Changes” section above.
2019 Annual Incentive Plan Payout
For 2019, the Personnel Committee, based on Entergy Corporation’s financial plan and the Board’s overall goals for Entergy Corporation and were consistent with its published earnings guidance.
2017 Annual Incentive Plan Payout. For 2017, the Personnel Committee, based on a recommendation of the Finance Committee, determined that management exceeded its consolidated operational earnings per shareETR Tax Adjusted EPS goal of $5.05$5.30 per share by $2.17, but$1.23 per share and fell short of its consolidated operational operating cash flowETR Adjusted Operating Cash Flow goal of $3.000$3.1 billion by approximately $227$134 million. Based on the targets and ranges previously established by the Personnel Committee, these results resulted in a calculated EAM of 129%139%. This determined the maximum funding level for the plan and the maximum award, as a percentage of target, that could be received by any of the executive officers, subject to downward adjustment based on individual performance. After considering individual performance, including the role played by each of the Named Executive Officers, who are members of the Office of the Chief Executive, in advancing Entergy Corporation’s strategies and delivering the strong financial results in 2017, the Personnel Committee approved payouts of 129% of target for each of the Named Executive Officers, who are members of the Office of the Chief Executive.
After the EAM was established to determine overall funding for the Annual Incentive Plan, Entergy Corporation’s Chief Executive Officer allocated incentive award funding to individual business units based on business unit results. Individual awards were determined for the Named Executive Officers who are not members of the Office of the Chief Executive by their immediate supervisor based on the individual officer’s key accountabilities, accomplishments, and performance. This resulted in payouts that ranged from 79% of target to 204% of target for the Named Executive Officers who are not members of Entergy Corporation’s Office of the Chief Executive.Long-Term Performance Unit Program
Long-Term Incentives
Long term incentives consist of three components to incentivize long-term value creation - performance units, stock options, and restricted stock. Performance underUnder the Long-Term Performance Unit Program, isunits are granted with performance measured over
a three-year period by assessingbased on Entergy Corporation’s total shareholder return in relation to the total shareholder return of the companies included in the Philadelphia Utility Index. Payouts, if any, are based on Entergy Corporation’s total shareholder return performance in relation to its peers and are not subject to adjustment by the Personnel Committee. Beginning with the 2018-2020on these measures against pre-established performance period, Entergy Corporation will be using a cumulative utility earnings measure, as well as relative total shareholder return to assess performance under the Long-Term Performance Unit Program. Entergy Corporation also uses stock options, which reward increases in the market value of its common stock, and restricted stock, which is an effective retention mechanism.goals.
Long-Term Performance Unit Program Payout.Payout
For the three-year performance period ending in 2017,2019, Entergy Corporation’s total shareholder return was in the thirdtop quartile resultingof the companies in the Philadelphia Utility Index, yielding a payout of 31%200% of target for its executive officers.the Named Executive Officers. Payouts were made in shares of Entergy Corporation common stock which are required to be held by the executive officers until they satisfy the executive stock ownership guidelines.
What Entergy Corporation Pays and Why
How Entergy Corporation Sets Target PayCompetitive Positioning
To develop a competitive compensation program,Market Data for Compensation Comparison
Annually, the Personnel Committee annually reviews compensation data from two sources:reviews:
Use of Competitive Data
The Personnel Committee uses publishedPublished and private compensation survey data to develop marketplace compensation levels for Entergy Corporation’s executive officers. The data compiled by Pay Governance, LLC (“Pay Governance”), the Personnel Committee’s independent compensation consultant, Pay Governance LLC, compare the current compensation opportunities provided to each of the executive officers against the compensation opportunities provided to executives holding similar positions at companies with corporate revenues similar to Entergy Corporation’s. The Committee reviews:consultant;
For non-industry specific positions,Both utility and general industry data forto determine total cash compensation (base salary and annual incentive) since the market for talent is broader than thenon-industry specific roles;
Data from utility sector.
Forcompanies to determine total cash compensation for management positionsroles that are industry-specific,utility-specific, such as Group President, Utility Operations, data from utility companies for total cash compensation.Operations; and
For all positions, utilityUtility market data to determine long-term incentives for long-term incentives.all positions.
How the Personnel Committee Uses the Market Data
The survey data reviewed by the Committee cover hundreds of companies across a broad range of industries and approximately 60 investor-owned utility companies. In evaluating compensation levels against the survey data, the Committee considers only the aggregated survey data. The identities of the companies participating in the compensation survey data are not disclosed to, or considered by, the Committee in its decision-making process and, thus, are not considered material by the Committee.
ThePersonnel Committee uses this survey data to develop compensation opportunities that are designed to deliver total target compensation atwithin a targeted range of approximately the 50th50th percentile of the surveyed companies in the aggregate. The survey data are the primary data used for purposes of assessing target compensation. As a result, Mr. Denault, Entergy Corporation’s Chief Executive Officer, is compensated at a higher level than the other Named Executive Officers, reflecting market practices that compensate chief executive officers at greater potential compensation levels with more pay “at risk” than other Named Executive Officers, due to the greater responsibilities and accountability required of a Chief Executive Officer. In most cases, the Committeecommittee considers its objectives to have been met if Entergy Corporation’s Chief Executive Officer and the 7eight other executive officers (including the applicable Named Executive Officers) who constitute what is referred to as the Office of the Chief Executive each has a target compensation opportunity that falls within thea targeted range of 85% - 115% of the 50th50th percentile of the survey data. PromotedIn general, compensation levels for an executive officer who is new to a position tend to be at the lower end of the competitive range, while seasoned executive officers or officerswith strong performance who are newviewed as critical to retain would be positioned at the higher end of the competitive range. Generally, differences in the levels of total direct compensation among the Named Executive Officers are primarily driven by the scope of their roles may be transitioned intoresponsibilities, differences in the targetedcompetitive market pay range over time. Actual compensation received by an individual officer may be above or below the targeted range based on an individual officer’s skills, performance, experience,for similar positions and responsibilities, Entergy Corporation performance, andconsiderations of internal pay equity.
Proxy AnalysisPeer Group
Although the survey data described above are the primary data used in benchmarking compensation, the Committee reviews data derivedcommittee uses compensation information from the proxy statements of companies included in the Philadelphia Utility Index as an additional point of comparison. The Personnel Committee identified the Philadelphia Utility Index as the appropriate industry peer group because the companies included in this index, in the aggregate, are comparable to Entergy Corporation in terms of business and scale. The proxy data are used to compare the compensation levels of the Named Executive Officers with the compensation levels of the corresponding top five highest paid executive officers of the companies included in the Philadelphia Utility Index as reported in their proxy statements. The Personnel Committee uses this analysis to evaluate the overall reasonableness of Entergy Corporation’s compensation programs. The following companies wereprograms and to determine relative total shareholder return for the 2017-2019 Long-Term Performance Unit Program awards. Companies included in the Philadelphia Utility Index at the time the proxy data from the 2016 filingswas compiled were compiled:as follows:
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Ÿ | AES Corporation | Ÿ | El Paso Electric Co. |
Ÿ | Ameren Corporation | Ÿ | Eversource Energy |
Ÿ | American Electric Power Co. Inc. | Ÿ | Exelon Corporation |
Ÿ | American Water Works | Ÿ | FirstEnergy Corporation |
Ÿ | CenterPoint Energy Inc. | Ÿ | NextEra Energy, Inc. |
Ÿ | Consolidated Edison Inc. | Ÿ | PG&E Corporation |
Ÿ | Dominion Resources Inc.Energy | Ÿ | Public Service Enterprise Group, Inc. |
Ÿ | DTE Energy Company | Ÿ | Southern Company |
Ÿ | Duke Energy Corporation | Ÿ | Xcel Energy, Inc. |
Ÿ | Edison International | | |
Principal Executive Compensation Elements
The following table summarizes the elements of total direct compensation (TDC)(“TDC”) granted or paid to the executive officers under Entergy Corporation’s 2017the 2019 executive compensation program.programs. The program usesprograms use a mix of fixed and variable compensation elements and providesare designed to provide alignment with both short- and long-term business goals through annual and long-term incentives. The Personnel Committee establishes the performance measures and ranges of performance for the variable compensation elements. An individual’s awardexecutive officer’s TDC is based primarily on corporate performance, market-based compensation levels and individual performance. performance with each of these elements reviewed annually for each Named Executive Officer.
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ElementCompensation Component | Key CharacteristicsPrimary Purpose | Why This Element Is PaidPerformance Measured | How This Amount Is Determined | 2017 DecisionsPerformance Period |
Base Salary | Fixed compensation component payable in cash. Reviewed annually and adjusted when appropriate. (Cash) | Provides a base level of competitive cash compensation for executive talent. | Experience, job scope, market data, individual performance and internal pay equity.equity | All of the Named Executive Officers received increases in their base salaries ranging from 1.5% to 7.3%.Annual |
Annual Incentive Awards(Cash) | Variable compensation component payable in cash based on performance against goals established annually. | MotivateMotivates and rewardrewards executives for performance on key financial and operational measures during the year. | Target opportunity is determined based on job scope, market data, and internal pay equity.ETR Tax Adjusted EPS
For 2017, awards were determined based on success in meeting consolidated operational earnings per share and consolidated operational operating cash flow targets, subject to downward adjustment at the Personnel Committee’s discretion for members of the Office of the Chief Executive.ETR Adjusted Operating Cash Flow
| Mr. Denault's target annual incentive award for 2017 was 135% of base salary, and target awards were in the range of 40% to 70% of base salary for the other Named Executive Officers.
Strong operational and financial performance and a review of individual performance resulted in an award at 129% of target for Entergy Corporation’s Chief Executive Officer, and awards that ranged from 79% to 204% of target for the other Named Executive Officers. 1 year |
Long-Term
Performance
Unit
Program
| Each performance unit equals one share of Entergy Corporation’s common stock. Performance is measured at the end of a three-year performance period. Each unit also earns the equivalent of the dividends paid during the performance period. Performance units granted under the Long-Term Performance Unit Program along with accrued dividend equivalents are settled in shares of Entergy Corporation common stock.(Equity) | Focuses executive officersthe executives on growing earnings and building long-term shareholder value and increases executive officers’the executives’ ownership ofin Entergy Corporation common stock. | Formulaic. payout based on Entergy Corporation’sRelative total shareholder return relative to the total shareholder return of the companies in the Philadelphia Utility Index.
Beginning with the 2018-2020 performance period, payouts will be based on a cumulative utility earnings metric, as well as total shareholder return.Cumulative ETR Adjusted EPS
| Performance unit grants for the 2017-2019 performance period represented approximately 39% of target TDC for Entergy Corporation’s Chief Executive Officer and approximately 21% to 31% of target for the other Named Executive Officers.
Unfavorable relative total shareholder return in 2015 and 2016, partially offset by strong relative total shareholder return in 2017, resulted in performance in the third quartile with a 6.7% TSR for the 2015-2017 performance period, yielding a payout of 31% of target for the Named Executive Officers. 3 years |
Stock Options (Equity) | Non-qualified stock options are granted at fair market value, have a ten-year term, and vest over 3 years - 33 1/3% on each anniversary of the grant date. | Reward executives for absolute value creation and coupled with restricted stock provide competitive compensation, retain executive talent, and increase the executive officers’ ownership in Entergy Corporation’s common stock. | Job scope, market data, individual performance, and Entergy Corporation performance. | Stock options in 2017 represented approximately 13% of target TDC for Entergy Corporation’s Chief Executive Officer and approximately 7% to 10% for the other Named Executive Officers. |
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Restricted
Stock
Awards
| Restricted stock awards vest over 3 years - 33 1/3% on each anniversary of the grant date, have voting rights, and accrue dividends during the vesting period. | Coupled with stock options, alignAlign interests of executives with long-term shareholder value, provide competitive compensation, retainand increase the executives’ ownership in Entergy Corporation’s common stock. | Stock price, job scope, market data, and individual performance | 3 years |
Restricted Stock (Equity) | Aligns interests of executives with long-term shareholder value, provides competitive compensation, retains executive talent and increaseincreases the executive officers’executives’ ownership ofin Entergy CorporationCorporation’s common stock. | JobStock price, job scope, market data, and individual performance and Entergy Corporation performance.
| Restricted stock in 2017 represented approximately 13% of target TDC for Entergy Corporation’s Chief Executive Officer and approximately 7% - 10% for the other Named Executive Officers.3 years |
Fixed Compensation
Base Salary
The Personnel Committee determines the base salaries for all of the Named Executive Officers who are members of the Office of the Chief Executive based on competitive compensation data, performance considerations, and advice provided by the Committee’scommittee’s independent compensation consultant. For the other Named Executive Officers, their salaries are established by their immediate supervisors using the same criteria. The Committee also considers internal pay equity; however,base salaries of the Committee has not established any predetermined formula against which the base salary of one Named Executive Officer is measured against another officerOfficers are considered annually as part of the performance review process, and upon a Named Executive Officer’s promotion or employee.
other change in job responsibilities. In 2017,2019, all of the Named Executive Officers, other than Mr. Denault, received merit increases in their base salaries ranging from approximately 1.5%2.5% to 7.3%4.5%. In 2019, Mr. Denault did not receive a merit increase in his base salary. Instead, the Personnel Committee increased Mr. Denault’s TDC by increasing his annual and long-term incentive target opportunities; thus, increasing the share of his compensation that is “at risk.” The increases in base salary were based on the market data previously discussed in this CD&A under “What Entergy Corporation Pays and Why - How Entergy Corporation Sets Target Pay,Why.” as well as an internal pay equity comparison.
The following table sets forth the 20162018 and 20172019 base salaries for the Named Executive Officers. Changes in base salaries for 20172019 were effective in April 2017.April.
| | Named Executive Officer | | 2016 Base Salary | | 2017 Base Salary | | 2018 Base Salary | | 2019 Base Salary |
A. Christopher Bakken, III | | $605,000 | | $620,125 | | $638,125 | | $654,078 |
Marcus V. Brown | | $605,000 | | $630,000 | | $650,000 | | $666,250 |
Leo P. Denault | | $1,200,000 | | $1,230,000 | | $1,260,000 | | $1,260,000 |
David D. Ellis | | | $305,000 | | $313,388 |
Haley R. Fisackerly | | $350,000 | | $355,300 | | $365,959 | | $376,023 |
Laura R. Landreaux | | | $308,000 | | $316,470 |
Andrew S. Marsh | | $559,408 | | $600,000 | | $622,000 | | $650,000 |
Phillip R. May, Jr. | | $356,650 | | $366,150 | | $381,550 | | $392,043 |
Sallie T. Rainer | | $319,475 | | $328,275 | | $338,123 | | $347,422 |
Charles L. Rice, Jr. | | $280,424 | | $286,424 | |
Richard C. Riley | | $335,000 | | $344,200 | |
Roderick K. West | | $659,120 | | $675,598 | | $696,598 | | $714,013 |
Variable Compensation
Short-Term Incentive Compensation
Annual Incentive Plan
Awards under the Executive Annual Incentive Plan, or Annual Incentive Plan, are tied to Entergy Corporation includes performance-based incentives inCorporation’s financial and operational performance through the Named Executive Officers’ compensation packages because it believes performance-based incentives encourage the Named Executive Officers to pursue objectives consistent with the overall goals and strategic direction that the Board has approved for Entergy Corporation. The EAM, which is the performance metric used to determine the maximum percentage of target annual plan opportunities that will be paid each year to each Named Executive Officer who are members of the Office of the Chief Executivefunding available for awards under the Annual Incentive Plan. Onceplan. Entergy Corporation uses the EAM has been determined, individual awards for the Office of the Chieffollowing process to determine annual incentive awards:
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• | Establish Performance Measures to Determine EAM Pool.Annually, the Personnel Committee engages in a rigorous process to determine the performance measures used to determine the EAM. The Personnel Committee’s goal is to establish measures that are consistent with Entergy Corporation’s strategy and business objectives for the upcoming year, as reflected in its financial plan, and are designed to drive results that represent a high level of achievement. These measures are approved based on a comprehensive review by the full Board of Entergy Corporation’s financial plan, conducted in December of the preceding year and updated in January to reflect key drivers of anticipated changes in performance from the preceding year. |
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• | Establish Target Achievement Levels.In January, after Entergy Corporation’s financial plan is updated to reflect any changes from that reviewed in December, the Personnel Committee establishes the specific targets that must be achieved for each performance measure. The Personnel Committee also seeks to assure that the targets: |
Executive members may be adjusted downward, but not upward,
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◦ | Take into account changes in the business environment and specific challenges facing Entergy Corporation; |
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◦ | Reflect an appropriate balancing of the various risks and opportunities recognized at the time the targets are set; and |
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◦ | Are aligned with external expectations communicated to Entergy Corporation’s shareholders. |
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• | Establish Named Officer Target Opportunities. In January of each year, the Personnel Committee establishes the target opportunities for the members of the Office of the Chief Executive based on its review of the competitive analysis of job-specific market data prepared by Pay Governance as well as the officer’s role, individual performance and internal equity considerations. For the Named Executive Officers who are members of the Office of the Chief Executive (Messrs. Bakken, Brown, Denault, Marsh and West), target award opportunities are established based on these factors. For the other Named Executive Officers, target award opportunities are determined based on their management level within the Entergy organization. Executive management levels at Entergy Corporation range from ML level 1 through ML level 4 (the “ML 1-4 Officers”). At December 31, 2019, Mr. May held a Level 3 position, and Mr. Ellis, Mr. Fisackerly, Ms. Landreaux and Ms. Rainer held Level 4 positions. Accordingly, their respective incentive award opportunities differ from one another based on either their management level or the external market data developed by the Committee’s independent compensation consultant. The 2019 target opportunities were increased for Mr. Denault, Mr. Marsh and Mr. Brown to align more closely with market data. The target levels for the other Named Executive Officers are comparable to the levels set for 2018. |
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• | Determine the EAM.After the end of the fiscal year, the Finance and Personnel Committees jointly review Entergy Corporation’s financial results and the Personnel Committee determines the EAM, which represents the level of success in achieving the performance objectives established by the committee and determines the maximum funding level of the annual incentive plan, as a percentage of the total target opportunity. |
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• | Determine Annual Incentive Awards. To determine individual executive officer awards under the annual incentive plan, the Personnel Committee considers not only each executive’s role in executing on Entergy Corporation’s strategies and delivering the financial performance achieved, but also the individual’s accountability for any challenges the Company experienced during the year. |
2019 Targets
Using the EAM at the Personnel Committee’s discretion, based on individual performance and other factors deemed relevant by the Personnel Committee. For 2017, the target Annual Incentive Plan opportunities for each of the Named Executive Officers, expressed as a percentage of the officer’s base salary, were:
135% for Mr. Denault;
70% for Mr. Bakken, Mr. Brown, Mr. Marsh, and Mr. West;
60% for Mr. May; and
40% for Mr. Fisackerly, Ms. Rainer, Mr. Rice, and Mr. Riley.
The target opportunities established for these officers were comparable to the target opportunities historically set for these positions and levels of responsibility. Target opportunities for the Named Executive Officers who are members of the Office of the Chief Executive are established by the Personnel Committee, and these Named Executive Officers may earn a maximum payout ranging from 0% to 200% of their target opportunity, calculated asprocess described above, in the table below.
Target award opportunities are set based on an executive officer’s position and executive management level within the Entergy organization. Executive management levels at Entergy Corporation range from Level 1 through Level 4. At December 31, 2017, Mr. Denault held a Level 1 position, Messrs. Bakken, Brown, Marsh, and West held positions in Level 2, Mr. May held a Level 3 position, and the remaining Named Executive Officers held positions in Level 4. Accordingly, their respective incentive award opportunities differ from one another based on their management level and the external market data developed by the Committee’s independent compensation consultant.
Each year the Personnel Committee reviews the performance measures used to determine the EAM pool. In December 2016,2018, the Personnel Committee decided to retain consolidated operational earnings per shareuse ETR Tax Adjusted EPS and consolidated operational operating cash flow,ETR Adjusted Operating Cash Flow, with each measure weighted equally, as the performance measures for determining the 2019 EAM pool. The Committee considered a varietyETR Tax Adjusted EPS is based on ETR Adjusted EPS, which is the primary earnings measure used by the Company externally and the measure on which it provides annual earnings guidance, which is then adjusted to add back the effect of other potential measures, but determinedany significant tax items that consolidated operational earnings per sharewere excluded to arrive at ETR Adjusted EPS and consolidated operationalto eliminate the effects, if any, of the Pre-Determined Exclusions. ETR Adjusted Operating Cash Flow is calculated based on Entergy Corporation’s as-reported (GAAP) operating cash flow, continuedadjusted to beeliminate the besteffect of any Pre-Determined Exclusions. The Personnel Committee determined that ETR Tax Adjusted EPS and ETR Adjusted Operating Cash Flow were the appropriate metrics to use because, among other things, theyfor this purpose because:
They are based on objective financial measures that Entergy Corporation’sCorporation and its investors consider to be important in evaluating its financial performanceperformance;
They are based on the same metrics we use for internal and because Entergy Corporation’s goals in that regard are broadly communicated both internallyexternal financial reporting; and externally. This provides
They provide both discipline and transparency that the Committee believes are important objectives of any well designed incentive compensation plan.transparency.
The Personnel Committee considered it appropriate to use ETR Tax Adjusted EPS, which adds back the effect of significant tax items that may have been excluded from ETR Adjusted EPS, as the earnings measure because of the significant benefits to Entergy Corporation resulting from such tax items and the management effort required to achieve them. The Personnel Committee also engages in a rigorous process each year to establishconsidered the target achievement levels forappropriateness of excluding the effect of each of the EAM performance measures with a goal of establishing target achievement levels that are consistent with Entergy Corporation’s strategy and business objectives for the upcoming year, as reflected in its financial plan, and sufficient to drive results that represent a high level of achievement, taking into consideration the applicable business environment and specific challenges facing it. These targets are approved based on a comprehensive review by the full Board of Entergy Corporation’s financial plan, conducted in DecemberPre-Determined Exclusions from each of the preceding year and updated in January to reflectfinancial measures. It viewed the most current information concerning changes in commodity market conditions and other key driversexclusion of anticipated changes in performance from the preceding year. The Committee also reviews the effects on plan results of various risks and opportunities that are recognized at the time the plan is set, to assure that targets that are determined based on the plan reflect an appropriate balance of risks and opportunities. The Committee further confirms that the earnings target it approves is aligned with the earnings guidance that will be communicated to the financial markets, thus ensuring that the internal earnings target set for purposes of Entergy Corporation’s incentive compensation plans is aligned with the external expectations set and communicated to Entergy Corporation’s shareholders.
In January 2017, after full Board review of management’s 2017 financial plan for Entergy Corporation and engaging in the process discussed above, the Committee determined the Annual Incentive Plan targets to be used for purposes of determining Annual Incentive Plan awards for 2017. In keeping with its past practice, the Committee also determined that for purposes of measuring performance against such targets, the Committee would exclude the effect on reported results of any major storms that may occur during the year. This exclusion was viewed by the Committee
as appropriate because although Entergy Corporation includes estimates for storm costs in its financial plan, it does not include estimates for a major storm event, such as a hurricane. The Personnel Committee alsoconsidered the exclusion of any unanticipated effects of the tax reform legislation adopted at the end of 2017 to be appropriate because of the lingering uncertainty around those effects and the inability of management to impact those results. The Personnel Committee approved the other exclusions from reported results for purposes of calculating achievement levels,- for the impact of certain longstandinglegacy unresolved regulatory litigation relating to the System Agreement among the Utility operating companies, and for the potential effects of changes in tax laws, given the possibility that significant unanticipated changes in tax laws might be enacted during the year that could impact reported results. The Committee believed that each of these adjustments was appropriateunrealized gains and losses on securities held by Entergy Corporation’s nuclear decommissioning trusts - primarily because of the significant uncertainty around each such item and management’s inability to influence anyeither of the related outcomes.
In determining the targets to set for 2017,2019, the Personnel Committee reviewed anticipated drivers for consolidated operational earnings per share and consolidated operational operating cash flow for 20172019 as set forth in Entergy Corporation’s financial plan, as well as factors driving the strong financial performance achieved in 2018. The Personnel Committee confirmed that the proposed plan targets for ETR Tax Adjusted EPS and asETR Adjusted Operating Cash Flow reflected substantial growth in its publishedthe core weather-adjusted utility earnings guidance. Under the plan,and consolidated operational earnings per share were expected to decline from 2016 results due primarily to the significant impact on 2016 operational results of certain tax benefits and, to a lesser extent, favorable weather, which were not anticipated to recur in 2017. Together, these factors accounted for $2.06 of consolidated operational earnings per share for 2016. Under the plan, consolidated operational operating cash flow was expected to increase slightly in 2017 from 2016 results.
In evaluatingmeasures underlying the proposed targets, theannual incentive plan targets. The Personnel Committee also considered the potential impact on consolidated operational earnings per share and consolidated operational operating cash flow of certaina wide range of identified risks and opportunities including differences in wholesale energy prices and capacity factors at Entergy Wholesale Commodities, utility sales, operations and maintenance costs, interest expense, and certain tax and regulatory risks. This evaluation indicatedconfirmed that there was significantlyappeared to be more downside risk than upside opportunity embedded in the financial plan targets and, as a result, the Personnel Committee believed that there wasthe related annual incentive plan targets reflected a reasonable degree of challenge embedded in the targets.challenge.
After adjusting to eliminate the impact of weather and tax benefits, the 2017 plan targets required management to achieve (i) slight growth in utility operational earnings despite higher nuclear and pension costs and the absence of certain favorable items from 2016 and (ii) modest growth in Entergy Wholesale Commodities operational earnings, despite an expectation for further declines in wholesale energy and capacity revenues due in part to the sale of FitzPatrick in the first quarter of 2017. While the resulting earnings target represented a decline from 2016 operational results, the Committee recognized that in addition to the favorable weather and tax items that were not expected to recur in 2017, management would be challenged in 2017 by significantly higher nuclear costs as they executed on its nuclear strategic plan. Thus, the Committee concluded, based on a careful review of the overall plan, that the targets derived from the plan challenged management appropriately to deliver growth in Entergy Corporation’s core business while continuing to manage the significant risks at Entergy Wholesale Commodities and represented an appropriate balancing of Entergy Corporation’s business risks and opportunities for 2017.2019 Performance Assessment
The following table shows the resulting Annual2019 Incentive Plan targets established by the Personnel Committee in January 2017, and 20172019 results:
Annual Incentive Plan Targets and Results
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| Performance Goals(1) | |
| Minimum | Target | Maximum | 2017 Results |
Consolidated Operational Earnings Per Share | $4.55 | $5.05 | $5.55 | $7.22 |
Consolidated Operational Operating Cash Flow ($ billion) | $2.600 | $3.000 | $3.400 | $2.773 |
EAM as % of Target | 25% | 100% | 200% | 129% |
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| | Performance Goals(1) | |
| Weight | Minimum | Target | Maximum | 2019 Results |
ETR Tax Adjusted EPS ($)(2) | 50% | $4.77 | $5.30 | $5.83 | $6.53 |
ETR Adjusted Operating Cash Flow ($ billions)(2) | 50% | $2.650 | $3.100 | $3.550 | $2.966 |
EAM as % of Target | | 25% | 100% | 200% | 139% |
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(1) | Payouts for performance between minimum and target achievement levels and between target and maximum achievement levels are calculated using straight-line interpolation. There is no payout for performance below minimum.the minimum achievement level. |
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(2) | ETR Tax Adjusted Earnings Per Share is a different measure than the consolidated operational earnings per share, and ETR Adjusted Operating Cash Flow is a different measure than the consolidated operational operating cash flow used to determine the 2018 annual incentive awards. As a result, the goals and results are not comparable year over year. |
In January 2018,2020, the Finance and Personnel Committees jointly reviewed Entergy Corporation’s financial results against the performance objectives reflected in the table above. Management discussed with the Committees the consolidated operational earnings per sharecommittees Entergy Corporation’s ETR Tax Adjusted EPS and consolidated operational operating cash flowETR Adjusted Operating Cash Flow results for 2017,2019, including primary factors explaining how those results compared to the 20172019 business plan and Annual Incentive Plan targets. Consolidated operational earningstargets set in January 2019. ETR Tax Adjusted EPS exceeded Entergy Corporation’s ETR Tax Adjusted EPS target of $5.30 per share exceeded the operational earnings per share goal of $5.05 per share set at the beginning of the year by $2.17, due in large part to a non-cash restructuring tax benefit,$1.23, but management fell short of achieving its consolidated operational operating cash flow goalETR Adjusted Operating Cash Flow target of $3.000$3.1 billion by approximately $227$134 million, leading to a calculated EAM of 129%139%. Operational results excludedNone of the impact of certain special items that were excluded from as-reported (GAAP) earnings per sharePre-Determined Exclusions resulted in any adjustment to ETR Tax Adjusted EPS and operating cash flow to determine consolidated operational earnings per share and consolidated operational operating cash flow, including asset impairments and related write-offs at Entergy Wholesale Commodities related to Entergy Corporation’s 2016 decision to close two nuclear generating plants, and certain costs associated with nuclear plant closings, and charges recorded at the end of 2017 relatingETR Adjusted Operating Cash Flow.
In addition to the impact of recently enacted federal income tax law changes. Consistent with determinations made byforegoing results, the Personnel Committee when the targets wereconsidered management’s degree of success in achieving various operational and regulatory goals set adjustments were made to the reported results to exclude the impact of Hurricane Harvey and the resolution of certain longstanding System Agreement litigation, but these adjustments had only a negligible impact on the calculated EAM.
The Committee reviewed certain sensitivities as part of its review of the calculation of the EAM and noted that Entergy Corporation far exceeded its consolidated operational earnings per share goal in 2017, as noted, due in large part to a restructuring tax benefit, partially offset by unfavorable weather at the utility, and that unfavorable weather at the utility also accounted for approximately $128 million of the $227 million shortfall in consolidated operational operating cash flow. Had the EAM been calculated to exclude both the impact of the restructuring tax benefit and unfavorable weather, the calculated EAM would have been 140%. This indicated that the underlying performance of the core business, without regard to the impact of tax items and weather, was significantly stronger than implied by the calculated EAM. However, consistent with the plan design, the Personnel Committee did not make any adjustments for these factors to the consolidated operational earnings per share and consolidated operational operating cash flow results to determine the EAM for 2017. The Committee also noted that its utility, parent, and other adjusted earnings of $4.57 per share for 2017 were slightly above the high end of the guidance range Entergy Corporation had provided to investorsout at the beginning of the year and in overcoming certain challenges that arose in the business during the course of the year. The Personnel Committee also considered (i) the Entergy Corporation’s degree of success in achieving its published earnings guidance, which it exceeded by $0.10 per share at the midpoint of the original guidance range for ETR Adjusted EPS provided at the beginning of the year and by $0.05 per share at the midpoint of the adjusted guidance range published in July 2019, and (ii) total shareholder return for 2019 in relation to the Philadelphia Utility Index, which placed Entergy Corporation in the top quartile of companies in the index with a total shareholder return of 44.3% for the year. Finally, the committee reviewed the impact on ETR Tax Adjusted EPS and ETR Adjusted Operating Cash Flow of significant tax items that were included in the results and additional pension contributions made during the year beyond those that were required or included in the initial 2019 financial plan. Following this extremely important measure of its core utility earnings.review, the Personnel Committee decided to approve the EAM as calculated in accordance with the plan design.
In determining To determine individual executive officer awards under the Annual Incentive Plan for Entergy Corporation’s Chief Executive Officers and the Named Executive Officers who are members of the Office of the Chief Executive, the Personnel Committee considered individual performance and,not only each executive’s role in particular, whether there were additional factors beyond those captured by the EAM measures that should be taken into account in determining whether to exercise negative discretion to reduce awards below the levels determined by the EAM. In determining the extent of negative discretion, if any, that it would exercise with respect to each executive officer, the Committee considered the executive’s key accountabilities and accomplishments, and individual performance executing on Entergy Corporation’s strategies and delivering the strong financial performance achieved in 2017. Based on2018, but also the individual’s accountability for certain operational and regulatory challenges it experienced during the year. With these considerations in mind, the Committee decidedcommittee exercised negative discretion to award a payout equaldetermine individual awards that ranged from 135% to the EAM, or 129%137% of target for Entergy Corporation’s Chief Executive Officer andeach of the other Named Executive Officers who are members of the Office of the Chief Executive.Executive, with the extent of the negative discretion applied varying based on the executive’s specific accountabilities and accomplishments.
After the EAM was established to determine overall funding for the Annual Incentive Plan, Entergy Corporation’s Chief Executive Officer allocated incentive award funding to individual business units based on business unit results. Individual awards were determined for the remaining Named Executive Officers who are not members of the Office of the Chief Executive by their immediate supervisor based on the individual officer’s key accountabilities, accomplishments, and performance. This resulted in payouts that ranged from 79%127% of target to 204%208% of target for the Named Executive Officers who are not members of the Office of the Chief Executive.
Based on the foregoing evaluation of management performance, the Personnel Committee approvedNamed Executive Officers received the following Annual Incentive Plan payouts to each Named Executive Officer for 2017:2019:
| | Named Executive Officer | Base Salary | Target as Percentage of Base Salary | Payout as Percentage of Target | 2017 Annual Incentive Award | Base Salary | Target as Percentage of Base Salary | Payout as Percentage of Target | 2019 Annual Incentive Award |
A. Christopher Bakken, III | $620,125 | 70% | 129% | $559,973 | $654,078 | 70% | 135% | $618,104 |
Marcus V. Brown | $630,000 | 70% | 129% | $568,890 | $666,250 | 75% | 137% | $684,573 |
Leo P. Denault | $1,230,000 | 135% | 129% | $2,142,045 | $1,260,000 | 140% | 137% | $2,416,680 |
David D. Ellis | | $313,388 | 40% | 127% | $159,804 |
Haley R. Fisackerly | $355,300 | 40% | 119% | $169,123 | $376,023 | 40% | 183% | $274,570 |
Laura R. Landreaux | | $316,470 | 40% | 208% | $263,523 |
Andrew S. Marsh | $600,000 | 70% | 129% | $541,800 | $650,000 | 80% | 137% | $712,400 |
Phillip R. May, Jr. | $366,150 | 60% | 137% | $300,000 | $392,043 | 60% | 173% | $407,922 |
Sallie T. Rainer | $328,275 | 40% | 119% | $156,259 | $347,422 | 40% | 158% | $219,069 |
Charles L. Rice, Jr. | $286,424 | 40% | 79% | $91,000 | |
Richard C. Riley | $344,200 | 40% | 204% | $280,661 | |
Roderick K. West | $675,598 | 70% | 129% | $610,065 | $714,013 | 70% | 135% | $674,742 |
Nuclear Retention Plan
Mr. Bakken participates in the Nuclear Retention Plan, a retention plan for officers and other leaders with expertise in the nuclear industry. The Personnel Committee authorized this plan to attract and retain key management and employee talent in the nuclear power field, a field that requires unique technical and other expertise that is in great demand in the utility industry. The plan provides for bonuses to be paid annually over a three-year employment period with the bonus opportunity dependent on the participant’s management level and continued employment. Each annual payment is equal to an amount ranging from 15% to 30% of the employee’s base salary as of their date of enrollment in the plan. Mr. Bakken’s participation in the plan commenced in May 2016 and in accordance with the terms and conditions of the plan, in May 2017, 2018, and 2019, subject to his continued employment, Mr. Bakken will receive a cash bonus equal to 30% of his base salary as of May 1, 2016. This plan does not allow for accelerated or prorated payout upon termination of any kind. The three-year coverage period and percentage of base salary payable under the plan are consistent with the terms of participation of other senior nuclear officers who participate in this plan. In May 2017, Mr. Bakken received a cash bonus of $181,500 which equaled 30% of his May 1, 2016, base salary of $605,000.
Long-Term Incentive Compensation
Long-term incentive compensation, consisting solely of equity awards in 2019, represents the largest portion of the Named Executive Officers’ compensation. Entergy Corporation’s goal for itsbelieves the combination of long-term incentive compensation is to focusincentives we employ acts in retaining the senior management team, and aligns the interests of the executive officers on building shareholder value and to increase the executive officers’ ownership of Entergy Corporation’s common stock in order to more closely align their interest with those of Entergy Corporation’s shareholders. In its long-term incentive compensation programs, Entergy Corporation uses a mix of performance units, restricted stock, and stock options. Performance units are used to deliver more than a majority of the total target long-term incentive awards. For periods through the end of 2017, performance units reward the Named Executive Officers on the basis of total shareholder return, which is a measure of stock price appreciation and dividend payments, in relation to the companies in the Philadelphia Utility Index. Beginning
with the 2018-2020 performance period, a cumulative utility earnings metric has been added to the Long-Term Performance Unit Program to supplement the relative total shareholder return measure that historically has been used in this program with each measure equally weighted. Restricted stock ties the executive officers’ long-term financial interest to the long-term financial interests of Entergy Corporation’s shareholders. Stock options provide a direct incentive to increaseshareholders and customers by enhancing executives’ focus on the value of Entergy Corporation’s common stock.Company’s long-term goals. In general, Entergy Corporation seeks to allocate the total value of long-term incentive compensation 60% to performance units and 40% to a combination of stock options and restricted stock, equally divided in value, based on the value the compensation model seeks to deliver. Awards for individual Named Executive Officers may vary from this target as a result of individual performance, promotions, and internal pay equity.
2019 Long-Term Incentive Award Mix
Beginning in 2019, a dollar value was established for the target long-term incentive awards for each Named Executive Officer who is a member of the Office of the Chief Executive. The targeted award value for these officers was determined based on market median compensation data for the officer’s role, adjusted to reflect individual performance and internal equity. Previously, the targets for these Named Executive Officers were the average of the market data for the officers within a specific management level, without regard to the officer’s specific job functions. In January 2019, the Personnel Committee approved the 2019 long-term incentive award target values for the Named Executive Officers who are members of the Office of the Chief Executive. This value was then converted into the number of performance units, forstock options and shares of restricted stock granted using the 2015-2017 performance period were awarded underallocation described above based on the 2011 Equity Ownership Plan and Long-Term Cash Incentive Plan (the “2011 Equity Ownership Plan”) andtarget grant date value.
In consultation with Entergy Corporation’s Chief Executive Officer, the performance units for the
2016-2018 and 2017-2019 performance periods and allPersonnel Committee reviews each of the sharesother Named Executive Officer’s performance, role and responsibilities, strengths, developmental opportunities and internal equity and allocates awards of restricted stock and stock options granted to theeach of these officers based on these factors. Grants of long-term performance units for these Named Executive Officers in 2017 were granted pursuantwas determined based on the average of the market data for the officers within a specific management level, without regard to the 2015 Equity Ownership Plan (the “2015 Equity Ownership Plan,” and together with the 2011 Equity Ownership Plan (the “Equity Ownership Plans”). The Equity Ownership Plans require both a change in control and an involuntaryofficer’s specific job loss or substantial diminution of duties (a “double trigger”) for the acceleration of these awards upon a change in control.function.
Performance Unit Program
Entergy Corporation issuesThe Named Executive Officers are issued performance unit awards tounder the Named Executive Officers under its Long-Term Performance Unit Program.
Each performance unit represents the value of one share of Entergy CorporationCorporation’s common stock at the end of the three-year performance period, plus dividends accrued during the performance period. The Personnel Committee sets payout opportunities for the program at the outset of each performance period, and the program is structured to reward Named Executive Officers only if performance goals approved by the Personnel Committee are met. The Personnel Committee has no discretion to make awards if minimum performance goals are not achieved.
The performance units granted under the Long-Term Performance Unit Program and accrued dividends on any shares earned during the performance period are settled in shares of Entergy Corporation common stock rather than cash. No shares are issued, including shares attributable to accrued dividends, unlessstock.
The Personnel Committee sets payout opportunities for the program at the outset of each performance period, with payouts only occurring if the performance goals are achieved. met.
Payouts under this program will not be made for the 2019-2021 performance period if total shareholder return falls within the lowest quartile of the peer companies in the Philadelphia Utility Index and Cumulative Entergy Adjusted EPS is below the minimum performance goal.
All shares paid out under the Long-Term Performance Unit Program are required to be retained by theEntergy Corporation’s officers until applicable executive stock ownership requirements are met.
The Long-Term Performance Unit Program specifies a minimum, target and maximum achievement level, the achievement of which will determine the number of performance units that may be earned by each participant. Entergy Corporation measuresFor the 2019 - 2021 performance by assessing Entergy Corporation’s total shareholder return relative toperiod, the total shareholder return of the companies in the Philadelphia Utility Index, which Entergy Corporation refers to as it peer companies. The Personnel Committee identifiedchose the Philadelphia Utility Index asperformance measures and targets set forth below.
Given the appropriate industry peer groupeconomic and market conditions at the time the targets were set, the target payout level for this purpose because the companies included in this index, inCumulative ETR Adjusted EPS goal was designed to be challenging, but achievable while payout at the aggregate, are comparablemaximum levels was designed to Entergy Corporation in terms of businessrequire stretch performance.
2019-2021 Long-Term Performance Unit Performance Period Measures and scale. Goals(1)
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Performance Measures(1) | Long-Term Performance Measure Weight | Payout |
Relative Total Shareholder Return | 80% | Minimum (25%) - Bottom of 3rd Quartile Target (100%) - Median Percentile Maximum (200%) - Top Quartile |
Cumulative ETR Adjusted EPS($) | 20% | Minimum (25%) - Minus 10% of Target Target (100%) - 100% of Target Maximum (200%) - Plus 10% of Target |
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(1) | Payouts for performance between achievement levels are calculated using straight-line interpolation, with no payouts for performance below the minimum achievement level for both performance measures. |
Performance Measures
Total Shareholder Return
The Personnel Committee chose relative total shareholder return as a performance measure of performance because it reflects Entergy Corporation’s creation of shareholder value relative to other electric utilities included in the Philadelphia Utility Index over the performance period. It also takes into account dividends paidBy measuring performance in relation to an industry benchmark, this measure is intended to isolate and reward management for the creation of shareholder value that is not driven by the companies in this index and normalizes certain events that affect the industry as a whole.
Minimum, target and maximum performance levels are determined by reference to the ranking of Entergy Corporation’s total shareholder return againstin relation to the total shareholder returnTSR of the companies in the Philadelphia Utility Index. The Personnel Committee identified the Philadelphia Utility Index as the appropriate industry peer group for determining relative total shareholder return because the companies included in this index, in the aggregate, are deemed to be comparable to the Company in terms of business and scale.
Cumulative ETR Adjusted EPS
Cumulative ETR Adjusted EPS, which adjusts Entergy Corporation’s as reported (GAAP) results to eliminate the impact of earnings or loss from Entergy Wholesale Commodities and other non-routine items, was selected in 2019 as a performance measure because the Personnel Committee wished to incentivize management to achieve steady, predictable earnings growth for the Company over the 3 year performance period, and because it aligns with the earnings measure used to communicate the Company’s earnings expectations externally to investors.
In a manner similar to the way targets are established for the annual incentives, targets for the Cumulative ETR Adjusted EPS performance measure were established by the Personnel Committee after the Entergy Corporation Board’s review of Entergy’s financial plan for the three-year period beginning in 2019 and are consistent with the earnings expectations for the Company that are communicated to investors. These targets also incorporate the Pre-Determined Exclusions discussed previously with respect to the annual incentive measures.
Stock Options and Restricted Stock
Entergy Corporation grants stock options and shares of restricted stock because they align the interests of the executive officers with long-term shareholder value, provide competitive compensation, and increase the executives’ ownership in Entergy Corporation common stock. Generally, stock options are granted with a maximum term of ten years, and vest one-third on each of the first three anniversaries of the date of grant. The exercise price for each option granted in 2019 was $89.19, which was the closing price of Entergy’s common stock on the date of grant. Shares of restricted stock vest one-third on each of the first three anniversaries of the date of grant, are paid dividends which are
Performance Unit Program Grants. At any given time,reinvested in shares of Entergy stock and have the ability to vote. The dividend reinvestment shares are subject to forfeiture similar to the terms of the original grant.
2019 Long-Term Incentive Awards
In January 2019, the Personnel Committee granted the following long-term performance units, stock options and shares of restricted stock to each Named Executive Officer. The number of long-term performance units, stock options and shares of restricted stock were determined as discussed above under “Long-Term Incentive Compensation - 2019 Long-Term Incentive Award Mix.”
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Named Executive Officer | 2019-2021 Target Long-Term Performance Units | Stock Options | Shares of Restricted Stock |
A. Christopher Bakken, III | 9,568 | 36,421 | 3,604 |
Marcus V. Brown | 9,383 | 35,719 | 3,535 |
Leo P. Denault | 40,508 | 154,206 | 15,259 |
David D. Ellis | 1,450 | 4,700 | 500 |
Haley R. Fisackerly | 1,450 | 6,200 | 600 |
Laura R. Landreaux | 1,450 | 5,100 | 500 |
Andrew S. Marsh | 11,869 | 45,182 | 4,471 |
Phillip R. May, Jr. | 2,150 | 9,300 | 900 |
Sallie T. Rainer | 1,450 | 6,200 | 600 |
Roderick K. West | 10,073 | 38,346 | 3,795 |
All of the outstanding performance units and all of the shares of restricted stock and stock options granted to the Named Executive Officers in 2019 were granted pursuant to the 2015 Equity Ownership Plan or 2015 Equity Plan. The 2015 Equity Plan requires both a participantchange in control and an involuntary job loss or substantial diminution of duties (a “double trigger”) for the acceleration of these awards upon a change in control.
2019 Long-Term Performance Unit Program may be participating in up to threePayouts
Payout for the 2017-2019 Long-Term Performance Unit Program Period. For the 2017-2019 three-year performance periods. During 2017, eligible participants were participating inperiod, the 2015-2017, 2016-2018, and 2017-2019Personnel Committee chose relative total shareholder return as the performance periods. Subjectmeasure with the payout subject to achievement of the applicable performance levels as described below, the Personnel Committee established the following target performance unit payout opportunities for each of the 2015-2017, 2016-2018,following:
2017-2019 Long-Term Performance Unit Program Period Measures and 2017-2019 performance periods.
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Named Executive Officer | 2015-2017 Target | 2016-2018 Target | 2017-2019 Target |
A. Christopher Bakken, III (1) | 3,639 | 7,289 | 8,300 |
Marcus V. Brown | 6,550 | 8,200 | 8,300 |
Leo P. Denault | 33,100 | 41,700 | 48,700 |
Haley R. Fisackerly | 1,450 | 1,800 | 1,850 |
Andrew S. Marsh | 6,550 | 8,200 | 8,300 |
Phillip R. May, Jr. | 2,050 | 2,700 | 3,150 |
Sallie T. Rainer | 1,450 | 1,800 | 1,850 |
Charles L. Rice, Jr. | 1,450 | 1,800 | 1,850 |
Richard C. Riley | 1,450 | 1,800 | 1,850 |
Roderick K. West | 6,550 | 8,200 | 8,300 |
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(1) | As a new hire in 2016, Mr. Bakken received pro-rated target award opportunities for the 2015-2017 and 2016-2018 performance periods.
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The range of potential payouts for the 2015-2017, 2016-2018, and 2017-2019 performance periods under the program is shown below.Goals(1)
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Performance LevelMeasure(1) | Zero | Minimum | Target | Maximum |
Relative Total Shareholder Return | Fourth4th Quartile | Bottom of Third3rd Quartile | Median percentilePercentile | Top Quartile |
Payout | No Payout | Minimum Payout of 25% of targetTarget | 100% of targetTarget | 200% of Target |
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(1) | Payouts for performance between achievement levels are calculated using straight-line interpolation, with no payouts for performance below the minimum achievement level. |
For all performance periods, there is no payout for performance that falls within the lowest quartile of performance of the peer companies, and for top quartile performance a maximum payout of 200% of target is earned. Payouts between minimum and target and between target and maximum are calculated by interpolating between the performance of the company at the top of the fourth quartile of performance of the peer companies and the median or between the median and the performance of the company at the bottom position of the top quartile of performance of the peer companies, respectively.
Payout for the 2015-2017 Performance Period. In January 2018,2020, the Personnel Committee reviewed Entergy Corporation’sthe Company’s total shareholder return for the 2015-20172017 - 2019 performance period in order to determine the payout to participants. The Committeecommittee compared Entergy Corporation’s total shareholder return against the total shareholder return of the companies that comprise the Philadelphia Utility Index, with the performance measures and range of potential payouts for the 2015-20172017 - 2019 performance period similar to that discussedas provided above. As recommended by the Finance Committee, the Personnel Committee
concluded that Entergy Corporation’sthe Company’s relative total shareholder return for the 2015-20172017 - 2019 performance period fellwas in the bottom of the thirdtop quartile, yielding a payout of 31%200% of target for the Named Executive Officers.
| | Named Executive Officer | 2015-2017 Target | Number of Shares Issued | Value of Shares Actually Issued(1) | Grant Date Fair Value | 2017-2019 Target | Number of Shares Issued(1) | Value of Shares Actually Issued(2) | Grant Date Fair Value(3) |
A. Christopher Bakken, III(2) | 3,639 | 1,212 | $95,154 | $360,334 | 8,300 | 18,088 | $2,284,695 | $592,620 |
Marcus V. Brown | 6,550 | 2,287 | $179,552 | $648,581 | 8,300 | 18,088 | $2,284,695 | $592,620 |
Leo P. Denault | 33,100 | 11,554 | $907,105 | $3,277,562 | 48,700 | 106,131 | $13,405,407 | $3,477,180 |
David D. Ellis(4) | | 617 | 1,271 | $160,540 | $44,054 |
Haley R. Fisackerly | 1,450 | 506 | $39,726 | $143,579 | 1,850 | 4,031 | $509,156 | $132,090 |
Laura R. Landreaux(5) | | 925 | 1,934 | $244,284 | $66,045 |
Andrew S. Marsh | 6,550 | 2,287 | $179,552 | $648,581 | 8,300 | 18,088 | $2,284,695 | $592,620 |
Phillip R. May, Jr. | 2,050 | 716 | $56,213 | $202,991 | 3,150 | 6,864 | $866,992 | $224,910 |
Sallie T. Rainer | 1,450 | 506 | $39,726 | $143,579 | 1,850 | 4,031 | $509,156 | $132,090 |
Charles L. Rice, Jr. | 1,450 | 506 | $39,726 | $143,579 | |
Richard C. Riley | 1,450 | 506 | $39,726 | $143,579 | |
Roderick K. West | 6,550 | 2,287 | $179,552 | $648,581 | 8,300 | 18,088 | $2,284,695 | $592,620 |
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(1) | Includes accrued dividends. |
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(2) | Value determined based on the closing price of Entergy Corporation’sCorporation common stock on January 17, 20182020 ($78.51)126.31), the date the Personnel Committee certified the 2015-20172017-2019 performance period results. |
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(2)(3) | Represents the aggregate grant date fair value calculated in accordance with applicable accounting rules as reflected in the 2017 Summary Compensation Table. |
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(4) | As a new hire in 2016,2018, Mr. BakkenEllis received pro-rateda pro-rata target award opportunitiesopportunity for the 2015-20172017-2019 performance period. |
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(5) | As a new officer in 2018, Ms. Landreaux received a pro-rata target award opportunity for the 2017-2019 performance period. |
Stock Options and Restricted Stock
Entergy Corporation grants stock options and restricted stock as a long-term incentive to its executive officers. As previously discussed, the Personnel Committee considers several factors in determining the number of stock options and shares of restricted stock it will grant to the Named Executive Officers, including Entergy Corporation and individual performance, internal pay equity, prevailing market practice, targeted long-term value created by the use of stock options and restricted stock, and the potential dilutive effect of stock option and restricted stock grants. Of these factors, the Committee’s assessment of individual performance of each Named Executive Officer is the most important factor in determining the number of shares of restricted stock and stock options awarded, except with respect to the Chief Executive Officer for whom comparative market data is the most important factor. The Committee, in consultation with Entergy Corporation’s Chief Executive Officer, reviews each of the other Named Executive Officer’s performance, role and responsibilities, strengths, and developmental opportunities. Stock option and restricted stock awards for Entergy Corporation’s Chief Executive Officer are determined solely by the Personnel Committee on the basis of the same considerations.
The following table sets forth the number of stock options and shares of restricted stock granted to each Named Executive Officer in 2017. The exercise price for each option was $70.53, which was the closing price of Entergy Corporation’s common stock on the date of grant.
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Named Executive Officer | Stock Options | Shares of Restricted Stock |
A. Christopher Bakken, III | 37,600 | 5,200 |
Marcus V. Brown | 44,000 | 6,100 |
Leo P. Denault | 179,400 | 17,000 |
Haley R. Fisackerly | 7,600 | 850 |
Andrew S. Marsh | 44,000 | 6,100 |
Phillip R. May, Jr. | 10,500 | 1,100 |
Sallie T. Rainer | 7,800 | 900 |
Charles L. Rice, Jr. | 3,900 | 550 |
Richard C. Riley | 8,000 | 1,000 |
Roderick K. West | 29,200 | 3,200 |
Benefits and Perquisites
Entergy Corporation’s Named Executive Officers are eligible to participate in or receive the following benefits:
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Plan Type | Description |
Retirement Plans | Entergy Corporation-sponsored:
Entergy Retirement Plan - a tax-qualified final average pay defined benefit pension plan that covers a broad group of employees hired before July 1, 2014. Cash Balance Plan - a tax-qualified cash balance defined benefit pension plan that covers a broad group of employees hired on or after July 1, 2014. Pension Equalization Plan - a non-qualified pension restoration plan for a select group of management or highly compensated employees who participate in the Entergy Retirement Plan. Cash Balance Equalization Plan - a non-qualified restoration plan for a select group of management or highly compensated employees who participate in the Cash Balance Plan. System Executive Retirement Plan - a non-qualified supplemental retirement plan for individuals who became executive officers before July 1, 2014.
See the 2017“2019 Pension Benefits TableBenefits” for additional information regarding the operation of the plans described above. |
Savings Plan | Entergy Corporation-sponsored 401(k) Savings Plan that covers a broad group of employees. |
Health & Welfare Benefits | Medical, dental, and vision coverage, life and accidental death and dismemberment insurance, business travel accident insurance, and long-term disability insurance.
Eligibility, coverage levels, potential employee contributions, and other plan design features are the same for the Named Executive Officers as for the broad employee population. |
20172019 Perquisites | Corporate aircraft usage, annual mandatory physical exams, relocation assistance, and event tickets. The Named Executive Offices who are members of the Office of the Chief Executive members do not receive tax gross ups on any benefits, except for relocation assistance.
Named Executive Officers who are not members of the Office of the Chief Executive also were provided in 20172019 with club dues and tax gross up payments on some perquisites.
For additional information regarding perquisites, see the “All Other Compensation” column in the 20172019 Summary Compensation Table. |
Deferred Compensation | The Named Executive Officers are eligible to defer up to 100% of their base salary and Annual Incentive Plan awards into anthe Entergy Corporation-sponsoredCorporation sponsored Executive Deferred Compensation Plan. |
Executive Disability Plan | Eligible individuals who become disabled under the terms of the plan are eligible for 65% of the difference between their annual base salary and $276,923 (i.e. the annual base salary that produces the maximum $15,000 monthly disability payment under the general long-term disability plan). |
Entergy Corporation provides these benefits to itsthe Named Executive Officers as part of providingits effort to provide a competitive executive compensation program and because it believes that these benefits are important retention and recruitment tools since many of the companies with which it competes for executive talent provide similar arrangements to their senior executive officers.
Severance and Other Compensation Arrangements
The Personnel Committee believes that retention and transitional compensation arrangements are an important part of overall compensation. The Committee believes that these arrangementscompensation as they help to secure the continued employment and dedication of the Named Executive Officers, notwithstanding any concern that they might have at the time of a change in control regarding their own continued employment. In addition, the Personnel Committee believes that these arrangements are important as recruitment and retention devices, as many of the companies with which Entergy Corporation competes for executive talent have similar arrangements in place for their senior employees.
To achieve these objectives, Entergy Corporation has established a System Executive Continuity Plan under which each of the Named ExecutiveML 1-4 Officers isare entitled to receive “change in control” payments and benefits if such officer’s employment is involuntarily terminated in connection with a change in control of Entergy Corporation and its subsidiaries. Severance payments under the System Executive Continuity Plan generally are based on a multiple of the sum of an executive officer’s annual base salary plus his or her average Annual Incentive Plan award for the two calendar years immediately preceding the calendar year in which the termination of employment occurs. Under Entergy Corporation’s policy, under no circumstances can this multiple exceed 2.99 times the sum of the executive officer’s annual base salary and his or her annual incentive, calculated in accordance with this policy. Entergy Corporation strives to ensure that the benefits and payment levels under the System Executive Continuity Plan are consistent with market practices. Entergy Corporation’s executive officers, including the Named Executive Officers, willare not receiveentitled to any tax gross up payments on any severance benefits received under this plan. For more information regarding the System Executive Continuity Plan, see “2017“2019 Potential Payments Upon Termination or Change in Control-System Executive Continuity Plan.Control.”
In certain cases, the Personnel Committee may approve the execution of a retention agreement with an individual executive officer. These decisions are made on a case by case basis to reflect specific retention needs or other factors, including market practice. If a retention agreement is entered into with an individual officer, the Committeecommittee considers the economic value associated with that agreement in making overall compensation decisions for that officer.
Mr. Ellis
In connection with the commencement of his employment as President, Entergy Corporation has voluntarily adoptedNew Orleans, Mr. Ellis was eligible for certain relocation benefits pursuant to Entergy Corporation’s Relocation Assistance Policy, including assistance with moving expenses, transportation of household goods and assistance with the sale of his home. Mr. Ellis also received a policy that anysign-on bonus of $200,000 when he assumed this role. Mr. Ellis’s sign-on bonus and certain of his relocation benefits are subject to forfeiture under certain circumstances if Mr. Ellis’s employment or severance agreements providing severance benefits in excess of 2.99 times the sum of an officer’s annual base salary and annual incentive award (other than the valueis terminated within 24 months of the vesting or paymentcommencement of an outstanding equity-basedhis employment. Also, in accordance with the terms of the Long-Term Performance Unit Program in January 2019, Mr. Ellis received pro-rated target award oropportunities for the pro rata vesting or payment of an outstanding long-term incentive award) must be approved by Entergy Corporation’s shareholders.2017-2019 and 2018-2020 performance periods.
Entergy Corporation currently hasNuclear Retention Plan
Mr. Bakken participates in the Nuclear Retention Plan, a retention agreementplan for officers and other leaders with Mr. Denault. In general, Mr. Denault’s retention agreement provides for certain payments and benefitsexpertise in the event of his termination of employment by his Entergy employer other than for cause, by Mr. Denault for good reason or on account of his death or disability. See “2017 Potential Payments Upon Termination or Change in Control - Mr. Denault’s 2006 Retention Agreement.” Because Mr. Denault has reached age 55, certain severance payment provisions in his retention agreement no longer apply. Mr. Denault will not receive tax gross up payments on any payments or benefits he may receive under his agreement. Mr. Denault’s retention agreement was entered into in 2006 when he was Entergy Corporation’s Chief Financial Officernuclear industry. The Personnel Committee authorized this plan to attract and was designed to reflect the competition for chief financial officerretain key management and employee talent in the marketplace atnuclear power field, a field that timerequires unique technical and other expertise that is in great demand in the Committee’s assessmentutility industry. The plan provides for bonuses to be paid annually over a three-year service period with the bonus opportunity dependent on the participant’s management level and continued employment. Each annual payment is equal to an amount ranging from 15% to 30% of the critical role this position playedemployee’s base salary as of their date of enrollment in executing Entergy Corporation’s long-term financialthe plan. Mr. Bakken’s participation in the plan commenced in May 2016, and other strategic objectives. Based onin accordance with the market data provided by its former independent compensation consultant,terms and conditions of the Committee, at the time the agreement was entered into, believed the benefitsplan, in May 2017, 2018 and payment levels under2019, Mr. Denault’s retention agreement were consistent with market practices.Bakken received a cash bonus equal to $181,500 or 30% of his May 1, 2016 base salary. This plan does not provide for accelerated or prorated payout upon termination of any kind.
Compensation Policies and Practices
Entergy Corporation strives to ensure that its compensation philosophy and practices are in line with the best practices of companies in its industry as well as other companies in the S&P 500. Some of these practices include the following:
Clawback Provisions
Entergy Corporation has adopted a clawback policy that covers all individuals subject to Section 16 of the Securities Exchange Act, of 1934 (the Exchange Act), including the members of the Office of the Chief Executive. Under the policy, which goes beyond the requirements of Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley), the Personnel Committee will require reimbursement of incentives paid to these executive officers where:
(i) the payment was predicated upon the achievement of certain financial results with respect to the applicable performance period that were subsequently determined to be the subject of a material restatement other than a restatement due to changes in accounting policy; or (ii) a material miscalculation of a performance award occurs, whether or not the financial statements were restated and, in either such case, a lower payment would have been made to the executive officer based upon the restated financial results or correct calculation; or
in the Board of Directors’ view, the executive officer engaged in fraud that caused or partially caused the need for a restatement or caused a material miscalculation of a performance award, in each case, whether or not the financial statements were restated.
The amount the Personnel Committee requires to be reimbursed is equal to the excess of the gross incentive payment made over the gross payment that would have been made if the original payment had been determined based on the restated financial results or correct calculation. Further, following a material restatement of Entergy Corporation’s financial statements, itEntergy Corporation will seek to recover any compensation received by itsEntergy Corporation’s Chief Executive Officer and Chief Financial Officer that is required to be reimbursed under Sarbanes-Oxley.
Stock Ownership Guidelines and Share Retention Requirements
For many years, Entergy Corporation has had stock ownership guidelines for executives, including the Named Executive Officers. These guidelines are designed to align the executives’ long-term financial interests with thosethe interests of Entergy Corporation’s shareholders. Annually, the Personnel Committee monitors the executive officers’ compliance with these guidelines.
Entergy Corporation’sThe ownership guidelines are as follows:
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Role | Value of Common Stock to be Owned |
Chief Executive Officer | 6 times base salary |
Executive Vice Presidents | 3 times base salary |
Senior Vice Presidents | 2 times base salary |
Vice Presidents | 1 time base salary |
Further, to ensurefacilitate compliance with the guidelines, until an executive officer satisfies the stock ownership guidelines, the officer must retain:
all net after-tax shares paid out under the Long-Term Performance Unit Program;
all net after-tax shares of the restricted stock and restricted stock units received upon vesting; and
at least 75% of the after-tax net shares received upon the exercise of Entergy Corporation stock options, except for stock options granted before January 1, 2014, as to which the executive officer must retain at least 75% of the after-tax net shares until the earlier of achievement of the stock ownership guidelines or five years from the date of exercise.options.
Trading Controls and Anti-Pledging and Anti-Hedging Policies
Executive officers, including the Named Executive Officers, are required to receive the permission offrom Entergy Corporation’s General Counsel or his designee prior to entering into any transaction involving Entergy Corporation securities, including gifts, other than the exercise of employee stock options. Trading is generally permitted only during specified open trading windows beginning immediately followingshortly after the release of earnings. Employees, who are subject to trading restrictions, including the Named Executive Officers, may enter into trading plans under Rule 10b5-1 of the Exchange Act, but these trading plans may be entered into only during an open trading window and must be approved by Entergy Corporation. The Named Executive Officer bears full responsibility if he or she violates theEntergy Corporation’s policy by permittingbuying or selling shares to be bought or soldof Entergy Corporation stock without pre-approval or when trading is restricted.
Entergy Corporation also prohibits its directors and executive officers, including the Named Executive Officers, from pledging any Entergy Corporation securities or entering into margin accounts involving Entergy Corporation securities. TheseEntergy Corporation prohibits these transactions are prohibited because of the potential that sales of Entergy Corporation securities could occur outside trading periods and without the required approval of the General Counsel.
Entergy Corporation also has also adopted an anti-hedging policy that prohibits officers, directors, and employees from entering into hedging or monetization transactions involving Entergy CorporationCorporation’s common stock. Prohibited transactions include, without limitation, zero-cost collars, forward sale contracts, purchase or sale of options, puts, calls, straddles or equity swaps or other derivatives that are directly linked to Entergy Corporation’s common stock or transactions involving “short-sales” of Entergy Corporation’sits common stock. The Board adopted this policy to require officers, directors, and employees to continue to own Entergy Corporation’s commonCorporation stock with the full risks and rewards of ownership, thereby ensuring continued alignment of their objectives with those of Entergy Corporation’s other shareholders.
How Entergy Corporation Makes Compensation Decisions
Role of the Personnel Committee
The Personnel Committee has overall responsibility for approving the compensation program for the Named Executive Officers and makes all final compensation decisions regarding Entergy Corporation’s Named Executive Officers. The Committee works withoversees Entergy Corporation’s executive management to ensure that the compensation policiesprograms and practices are consistent with its values and support the successful recruitment, development, and retention of executive talent so that Entergy Corporation can achieve its business objectives and optimize its long-term financial returns. Annually, management presents the Personnel Committeepolicies with the proposed compensation model for the following year, including the compensation elements, mixadvice of elements, and measures for each element, and consults with Entergy Corporation’s Chief Executive Officer on recommended compensation for senior executives. The Committee evaluates executive pay each year to ensure that Entergy Corporation’s compensation policies and practices are consistent with its philosophy. The Personnel Committee is responsible for, among its other duties, the following actions related to the Named Executive Officers:
developing and implementing compensation policies and programs for hiring, evaluating, and setting compensation for executive officers, including any employment agreement with an executive officer;
evaluating the performance of Entergy Corporation’s Chairman and Chief Executive Officer; and
reporting, at least annually, to the Board on succession planning, including succession planning for the Chief Executive Officer.
Role of the Chief Executive Officer
The Personnel Committee solicits recommendations from Entergy Corporation’s Chief Executive Officer with respect to compensation decisions for the other Named Executive Officers who are members of Entergy Corporation’s Office of the Chief Executive. Entergy Corporation’s Chief Executive Officer provides the Personnel Committee with an assessment of the performance of each of these Named Executive Officers and recommends compensation levels to be awarded to each of them. In addition, the Committee may request that the Chief Executive
Officer provide management feedback and recommendations on changes in the design of compensation programs, such as special retention plans or changes in incentive program structure. However, the Chief Executive Officer does not play any role with respect to any matter affecting his own compensation, nor does he have any role determining or recommending the amount or form of director compensation. The Personnel Committee also relies on the recommendations of Entergy Corporation’s Senior Vice President, Human Resources with respect to compensation decisions, policies, and practices.
The Chief Executive Officer may attend meetings of the Personnel Committee only at the invitation of the chair of the Personnel Committee and cannot call a meeting of the Committee. Since he is not a member of the Committee, he has no vote on matters submitted to the Committee. During 2017, Mr. Denault attended 9 meetings of the Personnel Committee.
Role of the Compensation Consultant
Entergy Corporation’s Personnel Committee has the sole authority for the appointment, compensation, and oversight of its outside compensation consultant. The Committee conducts an annual review of the compensation consultant, and in 2017, it retained Pay Governance LLC as its independent compensation consultant to assist it in, among other things, evaluating different compensation programs and developing market data to assess Entergy Corporation’s compensation programs. Also in 2017, the Corporate Governance Committee retained Pay Governance to review and perform a competitive analysis of non-employee director compensation.support from its management team.
During 2017, Pay Governance assisted the Committee with its responsibilities related to Entergy Corporation’s compensation programs for its executives. The Committee directed Pay Governance to: (i) regularly attend meetings of the Committee; (ii) conduct studies of competitive compensation practices; (iii) identify Entergy Corporation’s market surveys and proxy peer group; (iv) review base salary, annual incentives, and long-term incentive compensation opportunities relative to competitive practices; and (v) develop conclusions and recommendations related to the executive compensation programs for consideration by the Committee. A senior consultant from Pay Governance attended all Personnel Committee meetings to which he was invited in 2017. |
| | | |
Personnel Committee | Ÿ | The Personnel Committee is responsible for the review and approval of all aspects of Entergy Corporation’s executive compensation programs. |
Ÿ | Among its duties, the Personnel Committee is responsible for approving the compensation for all members of the Office of Chief Executive, including: |
| Ÿ | Annual review of the compensation elements and mix of elements for the following year; |
| Ÿ | Annual review and approval of incentive program design, goals and objectives for alignment with Entergy Corporation’s compensation and business strategies; |
| Ÿ | Evaluation of Entergy Corporation and individual performance results in light of these goals and objectives; |
| Ÿ | Evaluation of the competitiveness of each executive officer’s total compensation package; |
| Ÿ | Approval of any changes to the officers’ compensation, including but not limited to, base salary, annual and long-term incentive award opportunities, and retention programs; |
| Ÿ | Evaluation of the performance of Entergy Corporation’s Chairman and Chief Executive Officer; and |
| Ÿ | Reporting, at least annually, to the Board on succession planning. |
Ÿ | The Personnel Committee has the sole authority to hire its compensation consultant, approve its compensation, determine the nature and scope of its services, evaluate its performance and terminate its engagement. |
Management | Ÿ | The CEO and Chief Human Resources Officer work closely with the Personnel Committee in managing the executive compensation programs and attend meetings of the Personnel Committee. During 2019, Mr. Denault attended 8 meetings of the Personnel Committee. |
Ÿ | The CEO makes recommendations to the Committee regarding compensation for executive officers other than himself. |
Independent Compensation Consultant | Ÿ | During 2019, Pay Governance assisted the Personnel Committee with its responsibilities related to Entergy Corporation’s executive compensation programs. |
Ÿ | Pay Governance: |
| Ÿ | Regularly attended meetings of the committee; |
| Ÿ | Conducted studies of competitive compensation practices; |
| Ÿ | Identified Entergy Corporation’s market surveys and proxy peer group; |
| Ÿ | Provided updates on executive compensation trends and regulatory developments; |
| Ÿ | Reviewed base salary, annual incentives and long-term incentive compensation opportunities relative to competitive practices; and |
| Ÿ | Developed conclusions and recommendations related to Entergy Corporation’s executive compensation programs for consideration by the committee. |
Compensation Consultant Independence
To maintain the independence of the Personnel Committee’s compensation consultant, the Board has adopted a policy that any consultant (including its affiliates) retained by the Board of Directors or any Committeecommittee of the Board of Directors to provide advice or recommendations on the amount or form of executive or director compensation should not be retained by Entergy Corporation or any of its affiliates to provide other services in an aggregate amount that exceeds $120,000 in any year. In 2017,Pay Governance, which serves as the Personnel Committee’s independent compensation consultant, Pay Governance, did not provide any services to Entergy Corporation other than its services tomanagement in 2019.
Annually, the Personnel Committee and the Corporate Governance Committee in connection with Entergy Corporation’s non-employee director compensation program. Annually, the Committee reviews the relationship with its compensation consultant, including services provided, quality of those services, and fees associated with services in its evaluation of the executive compensation consultant’s independence. The Committeecommittee also assesses Pay Governance’s independence under NYSE rules and has concluded that no conflictconflicts of interests existsinterest exist that would prevent Pay Governance from independently advising the Personnel Committee.
Tax and Accounting Considerations
Section 162(m) of the Internal Revenue Code (the Code) limits the tax deductibility by a publicly-held corporation of compensation in excess of $1 million paid to the Chief Executive Officer and any of its other Section 162(m) covered employees. Historically, an exception was provided for compensation that was “performance-based compensation” within the meaning of Section 162(m). Effective as of January 1, 2018, this exception no longer applies, other than with respect to certain grandfathered arrangements. In structuring the compensation packages that are provided to the Named Executive Officers, the Personnel Committee takes into account the tax effects of Section 162(m) and considers the financial accounting consequences. However, the Personnel Committee and the Board believe that it is in the best interest of Entergy Corporation that the Personnel Committee retains the discretion
to make compensation awards, whether or not deductible. This flexibility is necessary to foster achievement of performance goals established by the Personnel Committee, as well as other corporate goals that the Committee deems important to Entergy Corporation’s success, such as encouraging employee retention and rewarding achievement of key corporate goals.
PERSONNEL COMMITTEE REPORT
The Personnel Committee Report included in the Entergy Corporation Proxy Statement is incorporated by reference, but will not be deemed to be “filed” in this Annual Report on Form 10-K. None of the Registrant Subsidiaries has a compensation committee or other board committee performing equivalent functions. The board of directors of each of the Registrant Subsidiaries is comprised of individuals who are officers or employees of Entergy Corporation or one of the Registrant Subsidiaries. These boards do not make determinations regarding the compensation paid to executive officers of the Registrant Subsidiaries.
EXECUTIVE COMPENSATION TABLES
20172019 Summary Compensation Tables
The following table summarizes the total compensation paid or earned by each of the Named Executive Officers for the fiscal year ended December 31, 2017,2019, and to the extent required by SEC executive compensation disclosure rules, the fiscal years ended December 31, 20162018 and 2015.2017. For information on the principal positions held by each of the Named Executive Officers, see Item 10, “Directors, and Executive Officers, and Corporate Governance of the Registrants.”
The compensation set forth in the table represents the aggregate compensation paid by all Entergy System companies. For additional information regarding the material terms of the awards reported in the following tables, including a general description of the formula or criteria to be applied in determining the amounts payable, see “Compensation Discussion and Analysis.”
| | (a) | | (b) | | (c) | | (d) | | (e) | | (f) | | (g) | | (h) | | (i) | | (j) | | (b) | | (c) | | (d) | | (e) | | (f) | | (g) | | (h) | | (i) | | (j) |
Name and Principal Position (1) | | Year | | Salary (2) | | Bonus (3) | | Stock Awards (4) | | Option Awards (5) | | Non-Equity Incentive Plan Compen-sation (6) | | Change in Pension Value and Non-qualified Deferred Compen-sation Earnings (7) | | All Other Compens-ation (8) | | Total | | Year | | Salary (2) | | Bonus (3) | | Stock Awards (4) | | Option Awards (5) | | Non-Equity Incentive Plan Compen-sation (6) | | Change in Pension Value and Non-qualified Deferred Compen-sation Earnings (7) | | All Other Compens-ation (8) | | Total |
A. Christopher Bakken, III | | 2017 | |
| $615,791 |
| |
| $181,500 |
| |
| $959,376 |
| |
| $245,904 |
| |
| $559,973 |
| |
| $33,000 |
| |
| $114,494 |
| |
| $2,710,038 |
| | 2019 | |
| $649,507 |
| |
| $181,500 |
| |
| $1,273,399 |
| |
| $303,023 |
| |
| $618,104 |
| |
| $98,500 |
| |
| $62,407 |
| |
| $3,186,440 |
|
Executive Vice President and | | | 2018 | |
| $632,967 |
| |
| $181,500 |
| |
| $1,041,479 |
| |
| $283,095 |
| |
| $544,959 |
| |
| $108,700 |
| |
| $452,012 |
| |
| $3,244,712 |
|
Chief Nuclear Officer of Entergy Corp. | | 2016 | |
| $426,990 |
| |
| $650,000 |
| |
| $3,292,700 |
| |
| $— |
| |
| $529,375 |
| |
| $27,900 |
| |
| $140,601 |
| |
| $5,067,566 |
| | 2017 | |
| $615,791 |
| |
| $181,500 |
| |
| $959,376 |
| |
| $245,904 |
| |
| $559,973 |
| |
| $33,000 |
| |
| $114,494 |
| |
| $2,710,038 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Marcus V. Brown | | 2017 | |
| $622,788 |
| |
| $— |
| |
| $1,022,853 |
| |
| $287,760 |
| |
| $568,890 |
| |
| $1,217,200 |
| |
| $43,269 |
| |
| $3,762,760 |
| | 2019 | |
| $661,563 |
| |
| $— |
| |
| $1,248,839 |
| |
| $297,182 |
| |
| $684,573 |
| |
| $1,455,300 |
| |
| $69,955 |
| |
| $4,417,412 |
|
Executive Vice President and | | | 2018 | |
| $644,231 |
| |
| $— |
| |
| $1,041,479 |
| |
| $283,095 |
| |
| $546,000 |
| |
| $371,800 |
| |
| $61,885 |
| |
| $2,948,490 |
|
General Counsel of Entergy Corp. | | 2016 | |
| $563,208 |
| |
| $— |
| |
| $1,144,648 |
| |
| $333,000 |
| |
| $550,550 |
| |
| $934,600 |
| |
| $34,381 |
| |
| $3,560,387 |
| | 2017 | |
| $622,788 |
| |
| $— |
| |
| $1,022,853 |
| |
| $287,760 |
| |
| $568,890 |
| |
| $1,217,200 |
| |
| $43,269 |
| |
| $3,762,760 |
|
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Leo P. Denault | | 2017 | |
| $1,221,346 |
| |
| $— |
| |
| $4,676,190 |
| |
| $1,173,276 |
| |
| $2,142,045 |
| |
| $3,819,500 |
| |
| $125,863 |
| |
| $13,158,220 |
| | 2019 | |
| $1,260,000 |
| |
| $— |
| |
| $5,391,253 |
| |
| $1,282,994 |
| |
| $2,416,680 |
| |
| $3,704,500 |
| |
| $208,822 |
| |
| $14,264,249 |
|
Chairman of the | | 2016 | |
| $1,191,462 |
| |
| $— |
| |
| $4,632,276 |
| |
| $1,235,800 |
| |
| $2,154,600 |
| |
| $4,166,800 |
| |
| $97,786 |
| |
| $13,478,724 |
| | 2018 | |
| $1,251,346 |
| |
| $— |
| |
| $4,744,977 |
| |
| $1,168,029 |
| |
| $2,041,200 |
| |
| $982,800 |
| |
| $138,104 |
| |
| $10,326,456 |
|
Board and CEO - | | 2015 | |
| $1,153,385 |
| |
| $— |
| |
| $4,356,362 |
| |
| $1,004,080 |
| |
| $1,681,875 |
| |
| $4,802,400 |
| |
| $88,795 |
| |
| $13,086,897 |
| | 2017 | |
| $1,221,346 |
| |
| $— |
| |
| $4,676,190 |
| |
| $1,173,276 |
| |
| $2,142,045 |
| |
| $3,819,500 |
| |
| $125,863 |
| |
| $13,158,220 |
|
Entergy Corp. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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David D. Ellis | | | 2019 | |
| $311,004 |
| |
| $— |
| |
| $188,861 |
| |
| $39,104 |
| |
| $159,804 |
| |
| $18,000 |
| |
| $15,267 |
| |
| $732,040 |
|
CEO - Entergy | | | 2018 | |
| $7,258 |
| |
| $200,000 |
| |
| $— |
| |
| $— |
| |
| $— |
| |
| $600 |
| |
| $35,308 |
| |
| $243,166 |
|
New Orleans | | | | | | | | | | | | | | | | | |
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Haley R. Fisackerly | | 2017 | |
| $354,451 |
| |
| $— |
| |
| $192,041 |
| |
| $49,704 |
| |
| $169,123 |
| |
| $406,300 |
| |
| $35,724 |
| |
| $1,207,343 |
| | 2019 | |
| $373,313 |
| |
| $— |
| |
| $197,780 |
| |
| $51,584 |
| |
| $274,570 |
| |
| $644,700 |
| |
| $37,897 |
| |
| $1,579,844 |
|
CEO - Entergy | | 2016 | |
| $320,067 |
| |
| $— |
| |
| $229,752 |
| |
| $49,580 |
| |
| $168,000 |
| |
| $268,600 |
| |
| $34,243 |
| |
| $1,070,242 |
| | 2018 | |
| $363,089 |
| |
| $— |
| |
| $198,449 |
| |
| $46,134 |
| |
| $172,000 |
| |
| $— |
| |
| $35,982 |
| |
| $815,654 |
|
Mississippi | | 2015 | |
| $320,131 |
| |
| $— |
| |
| $219,994 |
| |
| $51,345 |
| |
| $190,000 |
| |
| $102,300 |
| |
| $43,987 |
| |
| $927,757 |
| | 2017 | |
| $354,451 |
| |
| $— |
| |
| $192,041 |
| |
| $49,704 |
| |
| $169,123 |
| |
| $406,300 |
| |
| $35,724 |
| |
| $1,207,343 |
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Andrew S. Marsh | | 2017 | |
| $588,291 |
| |
| $— |
| |
| $1,022,853 |
| |
| $287,760 |
| |
| $541,800 |
| |
| $801,900 |
| |
| $51,647 |
| |
| $3,294,251 |
| |
Executive Vice | | 2016 | |
| $553,284 |
| |
| $— |
| |
| $1,144,648 |
| |
| $333,000 |
| |
| $509,061 |
| |
| $593,700 |
| |
| $47,484 |
| |
| $3,181,177 |
| |
President and CFO - | | 2015 | |
| $532,245 |
| |
| $— |
| |
| $2,600,401 |
| |
| $273,840 |
| |
| $508,308 |
| |
| $670,200 |
| |
| $39,131 |
| |
| $4,624,125 |
| |
Entergy Corp., | | | | | | | | | | | | | | | | | |
Entergy Arkansas, | |
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Entergy Louisiana, | |
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Entergy Mississippi, | | | | | | | | | | | | | | | | | |
Entergy New | | | | | | | | | | | | | | | | | |
Orleans, Entergy | | | | | | | | | | | | | | | |
|
| |
Texas | | | | | | | | | | | | | | | |
|
| |
| | | | | | | | | | | | | | | | | |
Phillip R. May, Jr. | | 2017 | |
| $363,410 |
| |
| $— |
| |
| $302,493 |
| |
| $68,670 |
| |
| $300,000 |
| |
| $503,400 |
| |
| $26,981 |
| |
| $1,564,954 |
| |
Laura R. Landreaux | | | 2019 | |
| $314,407 |
| |
| $— |
| |
| $188,861 |
| |
| $42,432 |
| |
| $263,523 |
| |
| $228,700 |
| |
| $26,536 |
| |
| $1,064,459 |
|
CEO - Entergy | | 2016 | |
| $353,690 |
| |
| $— |
| |
| $326,988 |
| |
| $71,040 |
| |
| $224,690 |
| |
| $600,000 |
| |
| $26,018 |
| |
| $1,602,426 |
| | 2018 | |
| $246,136 |
| |
| $— |
| |
| $273,062 |
| |
| $— |
| |
| $124,000 |
| |
| $21,500 |
| |
| $10,741 |
| |
| $675,439 |
|
Louisiana | | 2015 | |
| $344,035 |
| |
| $— |
| |
| $279,406 |
| |
| $57,050 |
| |
| $315,000 |
| |
| $288,100 |
| |
| $25,970 |
| |
| $1,309,561 |
| |
Arkansas | | | | | | | | | | | | | | | | | |
| | (a) | | (b) | | (c) | | (d) | | (e) | | (f) | | (g) | | (h) | | (i) | | (j) | | (b) | | (c) | | (d) | | (e) | | (f) | | (g) | | (h) | | (i) | | (j) |
Name and Principal Position (1) | | Year | | Salary (2) | | Bonus (3) | | Stock Awards (4) | | Option Awards (5) | | Non-Equity Incentive Plan Compen-sation (6) | | Change in Pension Value and Non-qualified Deferred Compen-sation Earnings (7) | | All Other Compens-ation (8) | | Total | | Year | | Salary (2) | | Bonus (3) | | Stock Awards (4) | | Option Awards (5) | | Non-Equity Incentive Plan Compen-sation (6) | | Change in Pension Value and Non-qualified Deferred Compen-sation Earnings (7) | | All Other Compens-ation (8) | | Total |
Andrew S. Marsh | | | 2019 | |
| $641,923 |
| |
| $— |
| |
| $1,579,663 |
| |
| $375,914 |
| |
| $712,400 |
| |
| $1,554,300 |
| |
| $69,863 |
| |
| $4,934,063 |
|
Executive Vice | | | 2018 | |
| $615,654 |
| |
| $— |
| |
| $1,057,095 |
| |
| $342,510 |
| |
| $531,188 |
| |
| $— |
| |
| $57,638 |
| |
| $2,604,085 |
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President and CFO - | | | 2017 | |
| $588,291 |
| |
| $— |
| |
| $1,022,853 |
| |
| $287,760 |
| |
| $541,800 |
| |
| $801,900 |
| |
| $51,647 |
| |
| $3,294,251 |
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Entergy Corp., | | | | | | | | | | | | | | | | | |
Entergy Arkansas, | | | | | | | | | | | | | | | | | |
Entergy Louisiana, | | | | | | | | | | | | | | | | | |
Entergy Mississippi, | | | | | | | | | | | | | | | | | |
Entergy New | | | | | | | | | | | | | | | | | |
Orleans, | | | | | | | | | | | | | | | | | |
Entergy Texas | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Phillip R. May, Jr. | | | 2019 | |
| $389,016 |
| |
| $— |
| |
| $294,183 |
| |
| $77,376 |
| |
| $407,922 |
| |
| $877,100 |
| |
| $28,297 |
| |
| $2,073,894 |
|
CEO - Entergy | | | 2018 | |
| $377,108 |
| |
| $— |
| |
| $288,238 |
| |
| $69,201 |
| |
| $270,000 |
| |
| $— |
| |
| $26,874 |
| |
| $1,031,421 |
|
Louisiana | | | 2017 | |
| $363,410 |
| |
| $— |
| |
| $302,493 |
| |
| $68,670 |
| |
| $300,000 |
| |
| $503,400 |
| |
| $26,981 |
| |
| $1,564,954 |
|
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Sallie T. Rainer | | 2017 | |
| $325,737 |
| |
| $— |
| |
| $195,567 |
| |
| $51,012 |
| |
| $156,259 |
| |
| $435,900 |
| |
| $35,785 |
| |
| $1,200,260 |
| | 2019 | |
| $344,722 |
| |
| $— |
| |
| $197,780 |
| |
| $51,584 |
| |
| $219,069 |
| |
| $617,200 |
| |
| $37,361 |
| |
| $1,467,716 |
|
CEO - Entergy | | 2016 | |
| $316,003 |
| |
| $— |
| |
| $229,752 |
| |
| $49,580 |
| |
| $153,348 |
| |
| $346,300 |
| |
| $53,797 |
| |
| $1,148,780 |
| | 2018 | |
| $335,263 |
| |
| $— |
| |
| $198,449 |
| |
| $46,134 |
| |
| $159,000 |
| |
| $— |
| |
| $35,379 |
| |
| $774,225 |
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Texas | | 2015 | |
| $304,783 |
| |
| $— |
| |
| $211,004 |
| |
| $43,358 |
| |
| $190,000 |
| |
| $189,100 |
| |
| $41,565 |
| |
| $979,810 |
| | 2017 | |
| $325,737 |
| |
| $— |
| |
| $195,567 |
| |
| $51,012 |
| |
| $156,259 |
| |
| $435,900 |
| |
| $35,785 |
| |
| $1,200,260 |
|
| | | | | | | | | | | | | | | | | |
Charles L. Rice, Jr. | | 2017 | |
| $284,681 |
| |
| $— |
| |
| $170,882 |
| |
| $25,506 |
| |
| $91,000 |
| |
| $221,200 |
| |
| $30,842 |
| |
| $824,111 |
| |
CEO - Entergy New | | 2016 | |
| $276,998 |
| |
| $— |
| |
| $229,752 |
| |
| $49,580 |
| |
| $67,302 |
| |
| $177,600 |
| |
| $33,807 |
| |
| $835,039 |
| |
Orleans | | 2015 | |
| $266,752 |
| |
| $— |
| |
| $211,004 |
| |
| $51,345 |
| |
| $173,000 |
| |
| $104,500 |
| |
| $33,416 |
| |
| $840,017 |
| |
| | | | | | | | | | | | | | | | | |
Richard C. Riley | | 2017 | |
| $341,723 |
| |
| $— |
| |
| $202,620 |
| |
| $52,320 |
| |
| $280,661 |
| |
| $437,700 |
| |
| $38,695 |
| |
| $1,353,719 |
| |
CEO - Entergy | | 2016 | |
| $325,020 |
| |
| $— |
| |
| $226,224 |
| |
| $34,780 |
| |
| $167,500 |
| |
| $277,900 |
| |
| $102,112 |
| |
| $1,133,536 |
| |
Arkansas | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Roderick K. West | | 2017 | |
| $670,876 |
| |
| $— |
| |
| $818,316 |
| |
| $190,968 |
| |
| $610,065 |
| |
| $867,200 |
| |
| $52,220 |
| |
| $3,209,645 |
| | 2019 | |
| $709,023 |
| |
| $— |
| |
| $1,340,679 |
| |
| $319,039 |
| |
| $674,742 |
| |
| $1,604,100 |
| |
| $67,191 |
| |
| $4,714,774 |
|
Group President | | 2016 | |
| $654,514 |
| |
| $— |
| |
| $1,116,424 |
| |
| $303,400 |
| |
| $461,384 |
| |
| $601,000 |
| |
| $73,706 |
| |
| $3,210,428 |
| | 2018 | |
| $690,581 |
| |
| $— |
| |
| $1,057,095 |
| |
| $297,075 |
| |
| $560,762 |
| |
| $— |
| |
| $67,234 |
| |
| $2,672,747 |
|
Utility Operations of | | 2015 | |
| $638,876 |
| |
| $— |
| |
| $1,071,111 |
| |
| $262,430 |
| |
| $607,677 |
| |
| $543,900 |
| |
| $71,790 |
| |
| $3,195,784 |
| | 2017 | |
| $670,876 |
| |
| $— |
| |
| $818,316 |
| |
| $190,968 |
| |
| $610,065 |
| |
| $867,200 |
| |
| $52,220 |
| |
| $3,209,645 |
|
Entergy Corp. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| |
(1) | Mr. BakkenEllis was named Executive Vice President and Chief Nuclear Officer in April 2016. Mr. Brown was not a Named Executive Officer, Entergy New Orleans in 2015. Mr. RileyDecember 2018, and Ms. Landreaux was named Chief Executive Officer, Entergy Arkansas in May 2016.July 2018. |
| |
(2) | The amounts in column (c) represent the actual base salary paid to the Named Executive Officers.Officers in the applicable year. The 20172019 changes in base salaries noted in the Compensation Discussion and Analysis were effective in April 2017.2019. |
| |
(3) | The amount in column (d) in 2019, 2018 and 2017 for Mr. Bakken represents the cash bonus paid to him pursuant to the Nuclear Retention Plan. See “Nuclear Retention Plan” in Compensation Discussion and Analysis. The amount in column (d) in 20162018 for Mr. Ellis represents a cash sign-on bonus paid to Mr. Bakken in connection with his commencement of employment with Entergy Corporation.New Orleans. |
| |
(4) | The amounts in column (e) represent the aggregate grant date fair value of restricted stock performance units, and restricted stockperformance units granted under the 2015 Equity Ownership Plans,Plan, each calculated in accordance with FASB ASC Topic 718, without taking into account estimated forfeitures. The grant date fair value of the restricted stock and restricted stock units is based on the closing price of Entergy Corporation common stock on the date of grant. The grant date fair value of the portion of the performance units iswith vesting based on the probable outcome of the applicable performance conditions,total shareholder return was measured using a Monte Carlo simulation valuation model. The simulation model applies a risk-free interest rate and an expected volatility assumption. The risk-free interest rate is assumed to equal the yield on a three-year treasury bond on the grant date. Volatility is based on historical volatility for the 36-month period preceding the grant date. IfThe performance units in the table are also valued based on the probable outcome of the applicable performance condition at the time of grant. The maximum value of shares that will be received if the highest achievement level is attained the maximum amounts that will be received with respect to both the total shareholder return and Cumulative ETR Adjusted EPS, for performance units granted in 20172019 are as follows: Mr. Bakken, $1,170,798;$1,953,212; Mr. Brown, $1,170,798;$1,915,446; Mr. Denault, $6,869,622;$8,269,303; Mr. Fisackerly, $260,961;Ellis, $296,003; Mr. Marsh, $1,170,798; Mr. May, $444,339; Ms. Rainer, $260,961; Mr. Rice, $260,961; Mr. Riley, $260,961; and Mr. West, $1,170,798. The amount in 2016 for Mr. Bakken includes restricted stock units granted to him in connection with his commencement of employment as Chief Nuclear Officer. |
Fisackerly, $296,003; Ms. Landreaux $296,003; Mr. Marsh, $2,422,938; Mr. May, $438,901; Ms. Rainer, $296,003; and Mr. West, $2,056,302.
| |
(5) | The amounts in column (f) represent the aggregate grant date fair value of stock options granted under the 2015 Equity Ownership PlansPlan calculated in accordance with FASB ASC Topic 718. For a discussion of the relevant assumptions used in valuing these awards, see Note 12 to the financial statements. |
| |
(6) | The amounts in column (g) represent cash payments made under the Annual Incentive Plan. |
| |
(7) | For all Named Executive Officers, the amounts in column (h) include the annual actuarial increase in the present value of these Named Executive Officers’ benefits under all pension plans established by Entergy Corporation using interest rate and mortality rate assumptions consistent with those used in Entergy Corporation’s financial statements and include amounts which the Named Executive Officers may not currently be entitled to receive because such amounts are not vested (see “2017“2019 Pension Benefits”). The increase in pension benefits for all of the Named Executive Officers in 2019 was driven by a decline in the discount rate that was a result of the decrease in prevailing interest rates. None of the increases for any of the Named Executive Officers is attributable to above-market or preferential earnings on non-qualified deferred compensation (see “2017 Non-qualified Deferred Compensation”).compensation. For 2018, the aggregate change in the actuarial present value was a decrease of pension benefits of $52,000 for Mr. Fisackerly, $163,000 for Mr. Marsh, $700 for Mr. May, $110,700 for Ms. Rainer, and $149,300 for Mr. West. |
| |
(8) | The amounts in column (i) for 20172019 include (a) matching contributions by Entergy Corporation under the Savings Plan to each of the Named Executive Officers; (b) dividends paid on restricted stock when vested; (c) life insurance premiums; (d) tax gross up payments on club dues and relocation expenses; and (e) perquisites and other compensation.compensation as described further below. The amounts are listed in the following table: |
| | Named Executive Officer | Company Contribution – Savings Plan | Dividends Paid on Restricted Stock | Life Insurance Premium | Tax Gross Up Payments | Perquisites and Other Compensation | Total | Company Contribution – Savings Plan | Dividends Paid on Restricted Stock | Life Insurance Premium | Tax Gross Up Payments | Perquisites and Other Compensation | Total |
A. Christopher Bakken, III |
| $16,200 |
|
| $— |
|
| $11,887 |
|
| $1,299 |
|
| $85,108 |
|
| $114,494 |
|
| $16,800 |
|
| $20,114 |
|
| $12,277 |
|
| $— |
|
| $13,216 |
|
| $62,407 |
|
Marcus V. Brown |
| $— |
|
| $35,517 |
|
| $7,482 |
|
| $— |
|
| $270 |
|
| $43,269 |
|
| $11,760 |
|
| $48,749 |
|
| $7,482 |
|
| $— |
|
| $1,964 |
|
| $69,955 |
|
Leo P. Denault |
| $11,340 |
|
| $93,206 |
|
| $7,482 |
|
| $— |
|
| $13,835 |
|
| $125,863 |
|
| $11,760 |
|
| $129,470 |
|
| $11,484 |
|
| $— |
|
| $56,108 |
|
| $208,822 |
|
David D. Ellis | |
| $14,436 |
|
| $— |
|
| $722 |
|
| $— |
|
| $109 |
|
| $15,267 |
|
Haley R. Fisackerly |
| $11,340 |
|
| $7,907 |
|
| $2,306 |
|
| $4,082 |
|
| $10,089 |
|
| $35,724 |
|
| $11,760 |
|
| $7,793 |
|
| $2,959 |
|
| $4,729 |
|
| $10,656 |
|
| $37,897 |
|
Laura R. Landreaux | |
| $— |
|
| $11,257 |
|
| $477 |
|
| $4,510 |
|
| $10,292 |
|
| $26,536 |
|
Andrew S. Marsh |
| $11,139 |
|
| $35,517 |
|
| $4,991 |
|
| $— |
|
| $— |
|
| $51,647 |
|
| $11,760 |
|
| $49,010 |
|
| $6,275 |
|
| $— |
|
| $2,818 |
|
| $69,863 |
|
Phillip R. May, Jr. |
| $11,340 |
|
| $9,673 |
|
| $5,279 |
|
| $— |
|
| $689 |
|
| $26,981 |
|
| $11,760 |
|
| $9,958 |
|
| $5,779 |
|
| $— |
|
| $800 |
|
| $28,297 |
|
Sallie T. Rainer |
| $11,340 |
|
| $7,696 |
|
| $6,477 |
|
| $2,952 |
|
| $7,320 |
|
| $35,785 |
|
| $11,760 |
|
| $7,879 |
|
| $6,872 |
|
| $2,728 |
|
| $8,122 |
|
| $37,361 |
|
Charles L. Rice, Jr. |
| $11,340 |
|
| $6,849 |
|
| $4,874 |
|
| $2,637 |
|
| $5,142 |
|
| $30,842 |
| |
Richard C. Riley |
| $11,340 |
|
| $8,756 |
|
| $5,040 |
|
| $4,832 |
|
| $8,727 |
|
| $38,695 |
| |
Roderick K. West |
| $11,340 |
|
| $38,270 |
|
| $2,610 |
|
| $— |
|
| $— |
|
| $52,220 |
|
| $11,760 |
|
| $39,754 |
|
| $4,002 |
|
| $— |
|
| $11,675 |
|
| $67,191 |
|
Perquisites and Other Compensation
The amounts set forth in column (i) also include perquisites and other personal benefits that Entergy Corporation provides to its Named Executive Officers as part of providing a competitive executive compensation programprograms and for employee retention. The following perquisites were provided to the Named Executive Officers in 2017.2019.
|
| | | | | |
Named Executive Officer | Relocation | Personal Use of Corporate Aircraft | Club Dues | Executive Physical Exams | Event Tickets |
A. Christopher Bakken, III | X | X | | X | |
Marcus V. Brown | | | | X | X |
Leo P. Denault | | X | | X | |
David D. Ellis | X | | | | |
Haley R. Fisackerly | | | X | | |
Laura R. Landreaux | | | X | | X |
Andrew S. Marsh | | X | | X | |
Phillip R. May, Jr. | | | | | X |
Sallie T. Rainer | | | X | | |
Charles L. Rice, Jr. | | | X | | |
Richard C. Riley | | | X | | |
Roderick K. West | | X | | X | |
For security and business reasons, Entergy Corporation permits itsCorporation’s Chief Executive Officer is permitted to use its corporate aircraft for personal use at the expense of Entergy Corporation. The other Named Executive Officers may use the corporate aircraft for personal travel subject to the approval of Entergy Corporation’s Chief Executive Officer. The Personnel
Committee reviews the level of usage throughout the year. Entergy Corporation believes that its officers’ ability to use its plane for limited personal use saves time and provides additional security for them, thereby benefiting Entergy Corporation. The amounts included in column (i) for the personal use of corporate aircraft, reflect the incremental cost to Entergy Corporation for use of the corporate aircraft, determined on the basis of the variable operational costs of each flight, including fuel, maintenance, flight crew travel expense, catering, communications, and fees, including flight planning, ground handling, and landing permits. The aggregate incremental aircraft usage cost associated with Mr. Denault’s personal use of the corporate aircraft was $56,108 for fiscal year 2019. In addition, Entergy Corporation offers its executives comprehensive annual physical exams at Entergy Corporation’s expense. Tickets to cultural and sporting events are purchased for business purposes, and if not utilized for business purposes, the tickets are made available to the employees, including the Named Executive Officers, for personal use.
Entergy Corporation also provides relocation benefits to a broad base of employees which include assistance with moving expenses, purchase and sale of homes, and transportation of household goods. In connection with his employment, and in accordance with its relocation policies and pursuant to certain additional relocation benefits including the purchase of his home, Entergy Corporation paid $77,897 in relocation expenses for Mr. Bakken in 2017. The relocation assistance amounts reported above represent the amounts paid to Entergy Corporation’s relocation service provider or Mr. Bakken, as applicable.
None of the other perquisites referenced above exceeded $25,000 for any of the other Named Executive Officers.
2017
2019 Grants of Plan-Based Awards
The following table summarizes award grants during 20172019 to the Named Executive Officers.
| | | | | | Estimated Future Payouts Under Non-Equity Incentive Plan Awards (1) | | Estimated Future Payouts under Equity Incentive Plan Awards (2) | | | | | | | | | | | | Estimated Possible Payouts Under Non-Equity Incentive Plan Awards (1) | | Estimated Future Payouts under Equity Incentive Plan Awards (2) | | | | | | | | |
(a) | | (b) | | (c) | (d) | (e) | | (f) | (g) | (h) | | (i) | | (j) | | (k) | | (l) | | (b) | | (c) | (d) | (e) | | (f) | (g) | (h) | | (i) | | (j) | | (k) | | (l) |
Name | | Grant Date | | Thresh-old | Target | Maximum | | Thresh-old | Target | Maximum | | All Other Stock Awards: Number of Shares of Stock or Units | | All Other Option Awards: Number of Securities Under-lying Options | | Exercise or Base Price of Option Awards | | Grant Date Fair Value of Stock and Option Awards | | Grant Date | | Thresh-old | Target | Maximum | | Thresh-old | Target | Maximum | | All Other Stock Awards: Number of Shares of Stock or Units | | All Other Option Awards: Number of Securities Under-lying Options | | Exercise or Base Price of Option Awards | | Grant Date Fair Value of Stock and Option Awards |
| | ($) | | (#) | | (#) (3) | | (#) (4) | | ($/Sh) | | ($) (5) | | | | ($) | | (#) | | (#) (3) | | (#) (4) | | ($/Sh) | | ($) (5) |
A. Christopher | | 1/26/17 | | $- | $434,088 | $868,175 | | | | | | | | | | | | 1/31/19 | | $- | $457,855 | $915,710 | | | | | | | | | | |
Bakken, III | | 1/26/17 | | 2,075 |
| 8,300 |
| 16,600 |
| | | | | | $592,620 | | 1/31/19 | | 2,392 |
| 9,568 |
| 19,136 |
| | | | | | $951,959 |
| | 1/26/17 | |
|
| |
|
| | 5,200 |
| | | | $366,756 | | 1/31/19 | |
|
| |
|
| | 3,604 |
| | | | $321,441 |
| | 1/26/17 | | | | | | 37,600 |
| | $70.53 | | $245,904 | | 1/31/19 | | | | | | 36,421 |
| | $89.19 | | $303,023 |
| | | | | | | | | | | | | | |
Marcus V. | | 1/26/17 | | $- | $441,000 | $882,000 | | | | | | | | | 1/31/19 | | $- | $499,688 | $999,376 | | | | | | | |
Brown | | 1/26/17 | | 2,075 |
| 8,300 |
| 16,600 |
| | | | | | $592,620 | | 1/31/19 | | 2,346 |
| 9,383 |
| 18,766 |
| | | | | | $933,552 |
| | 1/26/17 | | | | 6,100 |
| | | | $430,233 | | 1/31/19 | | | | 3,535 |
| | | | $315,287 |
| | 1/26/17 | | | | | | 44,000 |
| | $70.53 | | $287,760 | | 1/31/19 | | | | | | 35,719 |
| | $89.19 | | $297,182 |
| | | | | | | | | | | | | | |
Leo P. | | 1/26/17 | | $- | $1,660,500 | $3,321,000 | | | | | | | | | 1/31/19 | | $- | $1,764,000 | $3,528,000 | | | | | | | |
Denault | | 1/26/17 | | | | | 12,175 |
| 48,700 |
| 97,400 |
| | | | | | | | $3,477,180 | | 1/31/19 | | | | | 10,127 |
| 40,508 |
| 81,016 |
| | | | | | | | $4,030,303 |
| | 1/26/17 | | | | 17,000 |
| | | | $1,199,010 | | 1/31/19 | | | | 15,259 |
| | | | $1,360,950 |
| | 1/26/17 | | | | | | 179,400 |
| | $70.53 | | $1,173,276 | | 1/31/19 | | | | | | 154,206 |
| | $89.19 | | $1,282,994 |
| | | | | | | | |
David D. | | | 1/31/19 | | $- | $125,355 | $250,710 | | | | | | | |
Ellis | | | 1/31/19 | | 363 |
| 1,450 |
| 2,900 |
| | | | | | $144,266 |
| | | | | 500 |
| | | | $44,595 |
| | | | | | | 4,700 |
| | $89.19 | | $39,104 |
| | | | | | | | |
Haley R. | | | 1/31/19 | | $- | $150,409 | $300,818 | | | | | | |
| | | | |
Fisackerly | | | 1/31/19 | | | | | 363 |
| 1,450 |
| 2,900 |
| | | | | | | | $144,266 |
| | | 1/31/19 | | | | | | | 600 |
| | | | | | $53,514 |
| | | 1/31/19 | | | | | | | | | 6,200 |
| | $89.19 | | $51,584 |
| | | | | | | | |
Laura R. | | | 1/31/19 | | $- | $126,588 | $253,176 | |
| | | | | | |
Landreaux | | | 1/31/19 | | 363 |
| 1,450 |
| 2,900 |
| | | | | | $144,266 |
| | | 1/31/19 | | | | 500 |
| | | |
| | $44,595 |
| | | | | | | 5,100 |
| | $89.19 | | $42,432 |
| | | | | | | | |
Andrew S. | | | 1/31/19 | | $- | $520,000 | $1,040,000 | | | | | | | |
Marsh | | | 1/31/19 | | 2,967 |
| 11,869 |
| 23,738 |
| | | | | | $1,180,894 |
| | | 1/31/19 | | | | 4,471 |
| | | | $398,768 |
| | | 1/31/19 | | | | | | 45,182 |
| | $89.19 | | $375,914 |
| | | | | | Estimated Future Payouts Under Non-Equity Incentive Plan Awards (1) | | Estimated Future Payouts under Equity Incentive Plan Awards (2) | | | | | | | | | | | | Estimated Possible Payouts Under Non-Equity Incentive Plan Awards (1) | | Estimated Future Payouts under Equity Incentive Plan Awards (2) | | | | | | | | |
(a) | | (b) | | (c) | (d) | (e) | | (f) | (g) | (h) | | (i) | | (j) | | (k) | | (l) | | (b) | | (c) | (d) | (e) | | (f) | (g) | (h) | | (i) | | (j) | | (k) | | (l) |
Name | | Grant Date | | Thresh-old | Target | Maximum | | Thresh-old | Target | Maximum | | All Other Stock Awards: Number of Shares of Stock or Units | | All Other Option Awards: Number of Securities Under-lying Options | | Exercise or Base Price of Option Awards | | Grant Date Fair Value of Stock and Option Awards | | Grant Date | | Thresh-old | Target | Maximum | | Thresh-old | Target | Maximum | | All Other Stock Awards: Number of Shares of Stock or Units | | All Other Option Awards: Number of Securities Under-lying Options | | Exercise or Base Price of Option Awards | | Grant Date Fair Value of Stock and Option Awards |
| | ($) | | (#) | | (#) (3) | | (#) (4) | | ($/Sh) | | ($) (5) | |
Haley R. | | 1/26/17 | | $- | $142,120 | $284,240 | | | | | | |
| | | | | |
Fisackerly | | 1/26/17 | | | | | 463 |
| 1,850 |
| 3,700 |
| | | | | | | | $132,090 | |
| | 1/26/17 | | | | | | | 850 |
| | | | | | $59,951 | |
| | 1/26/17 | | | | | | | | | 7,600 |
| | $70.53 | | $49,704 | |
| | | | | | | | |
Andrew S. | | 1/26/17 | | $- | $420,000 | $840,000 |
|
|
|
|
|
|
|
|
| | | | |
Marsh | | 1/26/17 | |
|
|
| 2,075 |
| 8,300 |
| 16,600 |
|
|
|
| | | | $592,620 | |
| | 1/26/17 | | | | 6,100 |
| | | | $430,233 | |
| | 1/26/17 | | | | | | 44,000 |
| | $70.53 | | $287,760 | |
| | | | | | | | | ($) | | (#) | | (#) (3) | | (#) (4) | | ($/Sh) | | ($) (5) |
Phillip R. | | 1/26/17 | | $- | $219,690 | $439,380 | | | | | | | | | | | | 1/31/19 | | $- | $235,226 | $470,452 | | | | | | | | | | |
May, Jr. | | 1/26/17 | | | | | 788 |
| 3,150 |
| 6,300 |
| | | | | | | | $224,910 | | 1/31/19 | | | | | 538 |
| 2,150 |
| 4,300 |
| | | | | | | | $213,912 |
| | 1/26/17 | | | | 1,100 |
| | | | $77,583 | | 1/31/19 | | | | 900 |
| | | | $80,271 |
| | 1/26/17 | | | | | | 10,500 |
| | $70.53 | | $68,670 | | 1/31/19 | | | | | | 9,300 |
| | $89.19 | | $77,376 |
| | | | | | | | | | | | | | |
Sallie T. | | 1/26/17 | | $- | $131,310 | $262,620 | | | | |
| | |
| | | | | | 1/31/19 | | $- | $138,969 | $277,938 | | | | |
| | |
| | | | |
Rainer | | 1/26/17 | | | | | 463 |
| 1,850 |
| 3,700 |
| | | | | | | | $132,090 | | 1/31/19 | | | | | | 363 |
| 1,450 |
| 2,900 |
| | | | | | | | $144,266 |
| | 1/26/17 | | | | | | | 900 |
| | | | | | $63,477 | | 1/31/19 | | | | | | | | 600 |
| | | | | | $53,514 |
| | 1/26/17 | | | | | | 7,800 |
| | $70.53 | | $51,012 | | 1/31/19 | | | | | | 6,200 |
| | $89.19 | | $51,584 |
| | | | | | | | | | | | | | | | |
Charles L. | | 1/26/17 | | $- | $114,570 | $229,140 | | | | | | | | |
Rice, Jr. | | 1/26/17 | | | | | 463 |
| 1,850 |
| 3,700 |
| | | | | | | | $132,090 | |
| | 1/26/17 | | | | | | | 550 |
| | | | | | $38,792 | |
| | 1/26/17 | | | | | | | | | 3,900 |
| | $70.53 | | $25,506 | |
| | | | | | | | |
Richard C. | | 1/26/17 | | $- | $137,680 | $275,360 | | | | | | | | | | | |
Riley | | 1/26/17 | | | | | 463 |
| 1,850 |
| 3,700 |
| | | | | | | | $132,090 | |
| | 1/26/17 | | | | | | | 1,000 |
| | | | | | $70,530 | |
| | 1/26/17 | | | | | | 8,000 |
| | $70.53 | | $52,320 | |
| | | | | | | | |
Roderick K. | | 1/26/17 | | $- | $472,919 | $945,837 | | | | | | | | | | | | 1/31/19 | | $- | $499,809 | $999,618 | | | | | | | | | | |
West | | 1/26/17 | | | | | 2,075 |
| 8,300 |
| 16,600 |
| | | | | | | | $592,620 | | 1/31/19 | | | | | 2,518 |
| 10,073 |
| 20,146 |
| | | | | | | | $1,002,203 |
| | 1/26/17 | | | | | | | 3,200 |
| | | | | | $225,696 | | 1/31/19 | | | | | | | 3,795 |
| | | | | | $338,476 |
| | 1/26/17 | | | | | | 29,200 |
| | $70.53 | | $190,968 | | 1/31/19 | | | | | | 38,346 |
| | $89.19 | | $319,039 |
| |
(1) | The amounts in columns (c), (d), and (e) represent minimum, target, and maximum payment levels under the Annual Incentive Plan. The actual amounts awarded are reported in column (g) of the Summary Compensation Table. |
| |
(2) | The amounts in columns (f), (g), and (h) represent the minimum, target, and maximum payment levels under the Long-Term Performance Unit Program. Performance under the program is measured by Entergy Corporation’s total shareholder return relative to the total shareholder returns of the companies included in the Philadelphia Utility Index.Index and Cumulative Entergy Adjusted EPS with total shareholder return weighted eighty percent and Cumulative Entergy Adjusted EPS weighted twenty percent. There is no payout under the program if Entergy Corporation’s total shareholder return falls within the lowest quartile of the peer companies in the Philadelphia Utility Index.Index and Cumulative Entergy Adjusted EPS is below the minimum performance goal. Subject to the achievement of performance targets, each unit will be converted into one share of Entergy Corporation’s common stock on the last day of the performance period (December 31, 2019.2021.) Accrued dividends on the shares earned will also be paid in Entergy Corporation common stock. |
| |
(3) | The amounts in column (i) represent shares of restricted stock granted under the 2015 Equity Ownership Plan. Shares of restricted stock vest one-third on each of the first through third anniversaries of the grant date, have voting rights, and accrue dividends during the vesting period. |
| |
(4) | The amounts in column (j) represent options to purchase shares of Entergy Corporation’s common stock. The options vest one-third on each of the first through third anniversaries of the grant date and have a ten-year term from the date of grant. The options were granted under the 2015 Equity Ownership Plan. |
| |
(5) | The amounts in column (l) are valued based on the aggregate grant date fair value of the award calculated in accordance with FASB ASC Topic 718 and, in the case of the performance units, are based on the probable outcome of the applicable performance conditions. See Notes 4 and 5 to the 20172019 Summary Compensation Table for a discussion of the relevant assumptions used in calculating the grant date fair value. |
20172019 Outstanding Equity Awards at Fiscal Year-End
The following table summarizes, for each Named Executive Officer, unexercised options, restricted stock that has not vested, and equity incentive plan awards outstanding as of December 31, 2017.2019.
| | | | Option Awards | | Stock Awards | | Option Awards | | Stock Awards |
(a) | | (b) | | (c) | | (d) | | (e) | | (f) | | (g) | | (h) | | (i) | | (j) | | (b) | | (c) | | (d) | | (e) | | (f) | | (g) | | (h) | | (i) | | (j) |
Name | | Number of Securities Underlying Unexercised Options Exercisable | | Number of Securities Underlying Unexercised Options Unexercisable | | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options | | Option Exercise Price | | Option Expiration Date | | Number of Shares or Units of Stock That Have Not Vested | | Market Value of Shares or Units of Stock That Have Not Vested | | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested | | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested | | Number of Securities Underlying Unexercised Options Exercisable | | Number of Securities Underlying Unexercised Options Unexercisable | | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options | | Option Exercise Price | | Option Expiration Date | | Number of Shares or Units of Stock That Have Not Vested | | Market Value of Shares or Units of Stock That Have Not Vested | | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested | | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested |
| | (#) | | (#) | | (#) | | ($) | | | | (#) | | ($) | | (#) | | ($) | | (#) | | (#) | | (#) | | ($) | | | | (#) | | ($) | | (#) | | ($) |
A. Christopher Bakken, III | | — |
| | 37,600(1) |
| | $70.53 | | 1/26/2027 | | | — |
| | 36,421(1) |
| | $89.19 | | 1/31/2029 | |
| | | | | | 8,300(4) | | $675,537 | | — |
| | 27,000(2) |
| | $78.08 | | 1/25/2028 | |
| | | | | | 7,289(5) | | $593,252 | | — |
| | 12,534(3) |
| | $70.53 | | 1/26/2027 | |
| | | | | | 5,200(6) | | $423,228 | | | | | | | 19,136(4) | | $2,292,493 |
| | | | | | 30,000(9) | | $2,441,700 | | | | | | | 15,800(5) | | $1,892,840 |
| | | | | | | | | | | 3,604(6) | | $431,759 | |
| | | | | | | 3,334(7) | | $399,413 | |
| | | | | | | 1,734(8) | | $207,733 | |
| | | | | | | 20,000(10) | | $2,396,000 | |
| | | | | | |
Marcus V. Brown | | — |
| | 44,000(1) |
| | $70.53 | | 1/26/2027 | | | — |
| | 35,719(1) |
| | $89.19 | | 1/31/2029 | |
| | 15,000 |
| | 30,000(2) |
| | $70.56 | | 1/28/2026 | | | — |
| | 27,000(2) |
| | $78.08 | | 1/25/2028 | |
| | 16,000 |
| | 8,000(3) |
| | $89.90 | | 1/29/2025 | | | 1 |
| | 14,667(3) |
| | $70.53 | | 1/26/2027 | |
| | 30,500 |
| | — |
| | $63.17 | | 1/30/2024 | | | 1 |
| | — |
| | $70.56 | | 1/28/2026 | |
| | 16,000 |
| | — |
| | $64.60 | | 1/31/2023 | | | | | | | 18,766(4) | | $2,248,167 |
| | 4,600 |
| | — |
| | $71.30 | | 1/26/2022 | | | | | | | 15,800(5) | | $1,892,840 |
| | | | | | | 3,535(6) | | $423,493 | |
| | | | | | | 3,334(7) | | $399,413 | |
| | | | | | | 2,034(8) | | $243,673 | |
| | | | Option Awards | | Stock Awards | | Option Awards | | Stock Awards |
(a) | | (b) | | (c) | | (d) | | (e) | | (f) | | (g) | | (h) | | (i) | | (j) | | (b) | | (c) | | (d) | | (e) | | (f) | | (g) | | (h) | | (i) | | (j) |
Name | | Number of Securities Underlying Unexercised Options Exercisable | | Number of Securities Underlying Unexercised Options Unexercisable | | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options | | Option Exercise Price | | Option Expiration Date | | Number of Shares or Units of Stock That Have Not Vested | | Market Value of Shares or Units of Stock That Have Not Vested | | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested | | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested | | Number of Securities Underlying Unexercised Options Exercisable | | Number of Securities Underlying Unexercised Options Unexercisable | | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options | | Option Exercise Price | | Option Expiration Date | | Number of Shares or Units of Stock That Have Not Vested | | Market Value of Shares or Units of Stock That Have Not Vested | | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested | | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested |
| | (#) | | (#) | | (#) | | ($) | | | | (#) | | ($) | | (#) | | ($) | |
| | 2,800 |
| | — |
| | $72.79 | | 1/27/2021 | | |
| | 7,500 |
| | — |
| | $77.10 | | 1/28/2020 | | |
| | 4,300 |
| | — |
| | $108.20 | | 1/24/2018 | | |
| | | | | | 8,300(4) | | $675,537 | |
| | | | | | 8,200(5) | | $667,398 | |
| | | | | | 6,100(6) | | $496,479 | | |
| | | | | | 4,267(7) | | $347,291 | | |
| | | | | | 1,667(8) | | $135,677 | | |
| | | | | | | (#) | | (#) | | (#) | | ($) | | | | (#) | | ($) | | (#) | | ($) |
Leo P. Denault | | — |
| | 179,400(1) |
| | | | $70.53 | | 1/26/2027 | | | | | | — |
| | 154,206(1) |
| | | | $89.19 | | 1/31/2029 | | | | |
| | 55,666 |
| | 111,334(2) |
| | | | $70.56 | | 1/28/2026 | | | | | | 55,700 |
| | 111,400(2) |
| | | | $78.08 | | 1/25/2028 | | | | |
| | 58,666 |
| | 29,334(3) |
| | | | $89.90 | | 1/29/2025 | | | | | | 119,600 |
| | 59,800(3) |
| | | | $70.53 | | 1/26/2027 | | | | |
| | 106,000 |
| | — |
| | | | $63.17 | | 1/30/2024 | | | 167,000 |
| | — |
| | | | $70.56 | | 1/28/2026 | |
| | 50,000 |
| | — |
| | | | $64.60 | | 1/31/2023 | | | 88,000 |
| | — |
| | | | $89.90 | | 1/29/2025 | |
| | 30,000 |
| | — |
| | | | $71.30 | | 1/26/2022 | | | 106,000 |
| | — |
| | | | $63.17 | | 1/30/2024 | |
| | 25,000 |
| | — |
| | | | $72.79 | | 1/27/2021 | | | 50,000 |
| | — |
| | | | $64.60 | | 1/31/2023 | |
| | 50,000 |
| | — |
| | | | $77.10 | | 1/28/2020 | | | | | | | 81,016(4) | | $9,705,717 |
| | 45,000 |
| | — |
| | | | $77.53 | | 1/29/2019 | | | | | | | 85,400(5) | | $10,230,920 |
| | 50,000 |
| | — |
| | | | $108.20 | | 1/24/2018 | | | | | | | 15,259(6) | | $1,828,028 | |
| | | | | | 48,700(4) | | $3,963,693 | | | | | | 10,467(7) | | $1,253,947 | |
| | | | | | 41,700(5) | | $3,393,963 | | | | | | 5,667(8) | | $678,907 | |
| | | | | | 17,000(6) | | $1,383,630 | | | | | | |
David D. Ellis | | | — |
| | 4,700(1) |
| | $89.19 | | 1/31/2029 | |
| | | | | | | 2,900(4) | | $347,420 |
| | | | | | 10,467(7) | | $851,909 | | | | | | | 2,200(5) | | $263,560 |
| | | | | | 4,000(8) | | $325,560 | | | | | | | 500(6) | | $59,900 | |
| | | | | | | | | | |
Haley R. Fisackerly | | — |
| | 7,600(1) |
| | | | $70.53 | | 1/26/2027 | | | | | | | | | | — |
| | 6,200(1) |
| | | | $89.19 | | 1/31/2029 | | | | | | | | |
| | 2,233 |
| | 4,467(2) |
| | | | $70.56 | | 1/28/2026 | | | | | | | | | | — |
| | 4,400(2) |
| | | | $78.08 | | 1/25/2028 | | | | | | | | |
| | 3,000 |
| | 1,500(3) |
| | | | $89.90 | | 1/29/2025 | | | | | | | | | | — |
| | 2,534(3) |
| | | | $70.53 | | 1/26/2027 | | | | | | | | |
| | 1,534 |
| | — |
| | | | $71.30 | | 1/26/2022 | | | | | | | | | | | | | | 2,900(4) | | $347,420 |
| | 2,900 |
| | — |
| | | | $72.79 | | 1/27/2021 | | | | | | | | | | | | | | | | | | 3,300(5) | | $395,340 |
| | 6,000 |
| | — |
| | | | $77.10 | | 1/28/2020 | | | | | | | | | | | 600(6) | | $71,880 | |
| | 5,000 |
| | — |
| | $108.20 | | 1/24/2018 | | | | | | | 534(7) | | $63,973 | |
| | | | | | 1,850(4) | | $150,572 | | | | | | 284(8) | | $34,023 | |
| | | | | | | | | | 1,800(5) | | $146,502 | | | | | |
Laura R. Landreaux | | | — |
| | 5,100(1) |
| | | | $89.19 | | 1/31/2029 | |
| | | | | | | 2,900(4) | | $347,420 |
| | | | | | | 2,750(5) | | $329,450 |
| | | | | | | 500(6) | | $59,900 | |
| | | | | | | | | | | | | 800(7) | | $95,840 | |
| | | | | | | 500(8) | | $59,900 | |
| | | | Option Awards | | Stock Awards | | Option Awards | | Stock Awards |
(a) | | (b) | | (c) | | (d) | | (e) | | (f) | | (g) | | (h) | | (i) | | (j) | | (b) | | (c) | | (d) | | (e) | | (f) | | (g) | | (h) | | (i) | | (j) |
Name | | Number of Securities Underlying Unexercised Options Exercisable | | Number of Securities Underlying Unexercised Options Unexercisable | | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options | | Option Exercise Price | | Option Expiration Date | | Number of Shares or Units of Stock That Have Not Vested | | Market Value of Shares or Units of Stock That Have Not Vested | | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested | | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested | | Number of Securities Underlying Unexercised Options Exercisable | | Number of Securities Underlying Unexercised Options Unexercisable | | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options | | Option Exercise Price | | Option Expiration Date | | Number of Shares or Units of Stock That Have Not Vested | | Market Value of Shares or Units of Stock That Have Not Vested | | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested | | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested |
| | (#) | | (#) | | (#) | | ($) | | | | (#) | | ($) | | (#) | | ($) | | (#) | | (#) | | (#) | | ($) | | | | (#) | | ($) | | (#) | | ($) |
| | | | | | | | | | | | 850(6) | | $69,182 | | |
| | | | | | | | | | | | 734(7) | | $59,740 | | | | | |
| | | | | | 284(8) | | $23,115 | | | | | |
| | | | | | |
Andrew S. Marsh | | — |
| | 44,000(1) |
| | $70.53 | | 1/26/2027 | | | — |
| | 45,182(1) |
| | $89.19 | | 1/31/2029 | |
| | 15,000 |
| | 30,000(2) |
| | $70.56 | | 1/28/2026 | | |
| | 16,000 |
| | 8,000(3) |
| | $89.90 | | 1/29/2025 | | | 16,333 |
| | 32,667(2) |
| | $78.08 | | 1/25/2028 | |
| | 35,000 |
| | — |
| | $63.17 | | 1/30/2024 | | | 29,333 |
| | 14,667(3) |
| | $70.53 | | 1/26/2027 | |
| | 32,000 |
| | — |
| | $64.60 | | 1/31/2023 | | | 45,000 |
| | — |
| | $70.56 | | 1/28/2026 | |
| | 10,000 |
| | — |
| | $71.30 | | 1/26/2022 | | | 24,000 |
| | — |
| | $89.90 | | 1/29/2025 | |
| | 4,000 |
| | — |
| | $72.79 | | 1/27/2021 | | | 35,000 |
| | — |
| | $63.17 | | 1/30/2024 | |
| | 9,100 |
| | — |
| | $77.10 | | 1/28/2020 | | | 32,000 |
| | — |
| | $64.60 | | 1/31/2023 | |
| | 8,000 |
| | — |
| | $77.53 | | 1/29/2019 | | | 10,000 |
| | — |
| | $71.30 | | 1/26/2022 | |
| | 10,000 |
| | — |
| | $108.20 | | 1/24/2018 | | | 4,000 |
| | — |
| | $72.79 | | 1/27/2021 | |
| | | | | | 8,300(4) | | $675,537 | | | | | | 23,738(4) | | $2,843,812 |
| | | | | | 8,200(5) | | $667,398 | | | | | | 15,800(5) | | $1,892,840 |
| | | | | | 6,100(6) | | $496,479 | | | | | | | 4,471(6) | | $535,626 | |
| | | | | | 4,267(7) | | $347,291 | | | | | | | 3,467(7) | | $415,347 | |
| | | | | | 1,667(8) | | $135,677 | | | | | | | 2,034(8) | | $243,673 | |
| | | | | | 21,100(10) | | $1,717,329 | | | | | | | 21,100(9) | | $2,527,780 | |
| | | | | | | | | | |
Phillip R. May, Jr. | | — |
| | 10,500(1) |
| | | | $70.53 | | 1/26/2027 | | | — |
| | 9,300(1) |
| | | | $89.19 | | 1/31/2029 | |
| | 3,200 |
| | 6,400(2) |
| | | | $70.56 | | 1/28/2026 | | | — |
| | 6,600(2) |
| | | | $78.08 | | 1/25/2028 | |
| | 3,333 |
| | 1,667(3) |
| | | | $89.90 | | 1/29/2025 | | | — |
| | 3,500(3) |
| | | | $70.53 | | 1/26/2027 | |
| | 8,000 |
| | — |
| | | | $63.17 | | 1/30/2024 | | | 2,000 |
| | — |
| | | | $63.17 | | 1/30/2024 | |
| | 6,000 |
| | — |
| | | | $64.60 | | 1/31/2023 | | | 2,000 |
| | — |
| | | | $64.60 | | 1/31/2023 | |
| | 4,600 |
| | — |
| | | | $71.30 | | 1/26/2022 | | | | | | | | | | | | | | | | | 4,300(4) | | $515,140 |
| | 2,900 |
| | — |
| | | | $72.79 | | 1/27/2021 | | | | | | | | | | | | | | | | | 5,100(5) | | $610,980 |
| | 6,000 |
| | — |
| | $77.10 | | 1/28/2020 | | | | | | | | | | | | | 900(6) | | $107,820 | | | | |
| | 4,700 |
| | — |
| | $77.53 | | 1/29/2019 | | | | | | | | | | | | | | | | | | | | 667(7) | | $79,907 | | | | |
| | 6,500 |
| | — |
| | $108.20 | | 1/24/2018 | | | | | | | 367(8) | | $43,967 | |
| | | | | | | | | | | | | | | | 3,150(4) | | $256,379 | | | | | |
Sallie T. Rainer | | | — |
| | 6,200(1) |
| | | | $89.19 | | 1/31/2029 | | | | | | | | |
| | | | | | | | | | | | | | | | 2,700(5) | | $219,753 | | — |
| | 4,400(2) |
| | | | $78.08 | | 1/25/2028 | |
| | | | | | | | | | | | 1,100(6) | | $89,529 | | | | | | — |
| | 2,600(3) |
| | | | $70.53 | | 1/26/2027 | | | | | | | | |
| | | | | | | | | | | | 934(7) | | $76,018 | | | | | | | | | | | | | | 2,900(4) | | $347,420 |
| | | | | | 284(8) | | $23,115 | | | | | | | | | | | | | 3,300(5) | | $395,340 |
| | | | | | | 600(6) | | $71,880 | |
| | | | | | | 534(7) | | $63,973 | |
| | | | | | | 300(8) | | $35,940 | |
|
| | | | | | | | | | | | | | | | | | | | |
| | Option Awards | | Stock Awards |
(a) | | (b) | | (c) | | (d) | | (e) | | (f) | | (g) | | (h) | | (i) | | (j) |
Name | | Number of Securities Underlying Unexercised Options Exercisable | | Number of Securities Underlying Unexercised Options Unexercisable | | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options | | Option Exercise Price | | Option Expiration Date | | Number of Shares or Units of Stock That Have Not Vested | | Market Value of Shares or Units of Stock That Have Not Vested | | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested | | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested |
| | (#) | | (#) | | (#) | | ($) | | | | (#) | | ($) | | (#) | | ($) |
Sallie T. Rainer | | — |
| | 7,800(1) |
| | | | $70.53 | | 1/26/2027 | | | | | | | | |
| | 2,233 |
| | 4,467(2) |
| | | | $70.56 | | 1/28/2026 | | | | | | | | |
| | 2,533 |
| | 1,267(3) |
| | | | $89.90 | | 1/29/2025 | | | | | | | | |
| | 2,000 |
| | — |
| | | | $63.17 | | 1/30/2024 | | | | | | | | |
| | 2,000 |
| | — |
| | | | $64.60 | | 1/31/2023 | | | | | | | | |
| | 2,300 |
| | — |
| | | | $108.20 | | 1/24/2018 | | | | | | | | |
| | |
| | |
| | | | | | | | | | | | 1,850(4) | | $150,572 |
| | | | | | | | | | | | | | | | 1,800(5) | | $146,502 |
| | | | | | | | | | | | 900(6) | | $73,251 | | | | |
| | | | | | | | | | | | 734(7) | | $59,740 | | | | |
| | | | | | | | | | | | 250(8) | | $20,348 | | | | |
| | | | | | | | | | | | | | | | | | |
Charles L. Rice, Jr. | | — |
| | 3,900(1) |
| | | | $70.53 | | 1/26/2027 | | | | | | | | |
| | 2,233 |
| | 4,467(2) |
| | | | $70.56 | | 1/28/2026 | | | | | | | | |
| | 3,000 |
| | 1,500(3) |
| | | | $89.90 | | 1/29/2025 | | | | | | | | |
| | |
| | |
| | | | | | | | | | | | 1,850(4) | | $150,572 |
| | |
| | |
| | | | | | | | | | | | 1,800(5) | | $146,502 |
| | |
| | |
| | | | | | | | 550(6) | | $44,765 | | | | |
| | |
| | |
| | | | | | | | 734(7) | | $59,740 | | | | |
| | | | | | | | | | | | 250(8) | | $20,348 | | | | |
| | | | | | | | | | | | | | | | | | |
Richard C. Riley | | — |
| | 8,000(1) |
| | | | $70.53 | | 1/26/2027 | | | | | | | | |
| | 1,566 |
| | 3,134(2) |
| | | | $70.56 | | 1/28/2026 | | | | | | | | |
| | 3,000 |
| | 1,500(3) |
| | | | $89.90 | | 1/29/2025 | | | | | | | | |
| | 5,334 |
| | — |
| | | | $63.17 | | 1/30/2024 | | | | | | | | |
| | 1,334 |
| | — |
| | | | $64.60 | | 1/31/2023 | | | | | | | | |
| | 4,000 |
| | — |
| | | | $108.20 | | 1/24/2018 | | | | | | | | |
| | |
| | |
| | | | | | | | | | | | 1,850(4) | | $150,572 |
| | |
| | |
| | | | | | | | | | | | 1,800(5) | | $146,502 |
| | |
| | |
| | | | | | | | 1,000(6) | | $81,390 | | | | |
| | |
| | |
| | | | | | | | 700(7) | | $56,973 | | | | |
| | |
| | |
| | | | | | | | 367(8) | | $29,870 | | | | |
|
| | | | | | | | | | | | | | | | | | | | |
| | Option Awards | | Stock Awards |
(a) | | (b) | | (c) | | (d) | | (e) | | (f) | | (g) | | (h) | | (i) | | (j) |
Name | | Number of Securities Underlying Unexercised Options Exercisable | | Number of Securities Underlying Unexercised Options Unexercisable | | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options | | Option Exercise Price | | Option Expiration Date | | Number of Shares or Units of Stock That Have Not Vested | | Market Value of Shares or Units of Stock That Have Not Vested | | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested | | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested |
| | (#) | | (#) | | (#) | | ($) | | | | (#) | | ($) | | (#) | | ($) |
Roderick K. West | | — |
| | 38,346(1) |
| | | | $89.19 | | 1/31/2029 | | | | | | | | |
| | 14,166 |
| | 28,334(2) |
| | | | $78.08 | | 1/25/2028 | | | | | | | | |
| | 9,733 |
| | 9,734(3) |
| | | | $70.53 | | 1/26/2027 | | | | | | | | |
| | 13,667 |
| | — |
| | | | $70.56 | | 1/28/2026 | | | | | | | | |
| | 23,000 |
| | — |
| | | | $89.90 | | 1/29/2025 | | | | | | | | |
| | | | |
| | | | | | | | | | | | 20,146(4) | | $2,413,491 |
| | |
| | |
| | | | | | | | | | | | 15,800(5) | | $1,892,840 |
| | |
| | |
| | | | | | | | 3,795(6) | | $454,641 | | | | |
| | |
| | |
| | | | | | | | 3,467(7) | | $415,347 | | | | |
| | |
| | |
| | | | | | | | 1,067(8) | | $127,827 | | | | |
|
| | | | | | | | | | | | | | | | | | | | |
| | Option Awards | | Stock Awards |
(a) | | (b) | | (c) | | (d) | | (e) | | (f) | | (g) | | (h) | | (i) | | (j) |
Name | | Number of Securities Underlying Unexercised Options Exercisable | | Number of Securities Underlying Unexercised Options Unexercisable | | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options | | Option Exercise Price | | Option Expiration Date | | Number of Shares or Units of Stock That Have Not Vested | | Market Value of Shares or Units of Stock That Have Not Vested | | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested | | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested |
| | (#) | | (#) | | (#) | | ($) | | | | (#) | | ($) | | (#) | | ($) |
Roderick K. West | | — |
| | 29,200(1) |
| | | | $70.53 | | 1/26/2027 | | | | | | | | |
| | 13,666 |
| | 27,334(2) |
| | | | $70.56 | | 1/28/2026 | | | | | | | | |
| | 15,333 |
| | 7,667(3) |
| | | | $89.90 | | 1/29/2025 | | | | | | | | |
| | 12,000 |
| | — |
| | | | $63.17 | | 1/30/2024 | | | | | | | | |
| | 30,000 |
| | — |
| | | | $71.30 | | 1/26/2022 | | | | | | | | |
| | 7,000 |
| | — |
| | | | $77.10 | | 1/28/2020 | | | | | | | | |
| | 5,000 |
| | — |
| | | | $77.53 | | 1/29/2019 | | | | | | | | |
| | 8,000 |
| | — |
| | | | $108.20 | | 1/24/2018 | | | | | | | | |
| | |
| | |
| | | | | | | | | | | | 8,300(4) | | $675,537 |
| | |
| | |
| | | | | | | | | | | | 8,200(5) | | $667,398 |
| | |
| | |
| | | | | | | | 3,200(6) | | $260,448 | | | | |
| | |
| | |
| | | | | | | | 4,000(7) | | $325,560 | | | | |
| | |
| | |
| | | | | | | | 1,567(8) | | $127,538 | | | | |
| | |
| | |
| | | | | | | | 21,000(11) | | $1,709,190 | | | | |
| |
(1) | Consists of options granted under the 2015 Equity Plan that vested or will vest as follows: 1/3 of the remaining unexercisable options granted vest on each of January 26, 2018,31, 2020, January 26, 2019,31, 2021 and January 26, 2020.31, 2022. |
| |
(2) | Consists of options granted under the 2015 Equity Plan that vested or will vest as follows: 1/2 of the remaining unexercisable options vest on each of January 28, 201825, 2020 and January 28, 2019.25, 2021. |
| |
(3) | The remaining unexercisableConsists of options granted under the 2015 Equity Plan that vested on January 29, 2018.26, 2020. |
| |
(4) | Consists of performance units granted under the 2015 Equity Plan that will vest on December 31, 20192021 based on two performance measures: 1) Entergy Corporation’s total shareholder return performance over the 2017-20192019-2021 performance period and 2) Cumulative Entergy Adjusted EPS with total shareholder return weighted eighty percent and Cumulative Entergy Adjusted EPS weighted twenty percent, as described under “What Entergy Corporation Pays and Why-Why - Principal Executive Compensation Elements - Variable Compensation - Long-Term Incentive Compensation - Performance Unit Program” in the Compensation Discussion and Analysis. |
| |
(5) | Consists of performance units granted under the 2015 Equity Plan that will vest on December 31, 20182020 based on two performance measures: 1) Entergy Corporation’s total shareholder return performance over the 2016-20182018-2020 performance period.period and 2) Cumulative Utility, Parent and Other Adjusted EPS with each performance measure weighted equally. |
| |
(6) | Consists of shares of restricted stock granted under the 2015 Equity Plan that vested or will vest as follows: 1/3 of the shares of restricted stock granted vest on each of January 26, 2018,31, 2020, January 26, 2019,31, 2021, and January 26, 2020.31, 2022. |
| |
(7) | Consists of shares of restricted stock granted under the 2015 Equity Plan that vested or will vest as follows: 1/2 of the shares of restricted stock granted vest on each of January 28, 201825, 2020 and January 28, 2019.25, 2021. |
| |
(8) | Consists of shares of restricted stock granted under the 2015 Equity Plan that vested on January 29, 2018.26, 2020. |
| |
(9) | Consists of restricted stock units granted under the 2015 Equity Ownership Plan which will vest one third on April 6, 2019, April 6, 2022, and April 6, 2025.August 3, 2020. |
| |
(10) | Consists of restricted stock units granted under the 2015 Equity Ownership Plan which will vest 1/2 on August 3, 2020. |
| |
(11) | Consistseach of restricted stock units granted under the 2011 Equity Ownership Plan which will vest on May 1, 2018.April 6, 2022 and April 6, 2025. |
20172019 Option Exercises and Stock Vested
The following table provides information concerning each exercise of stock options and each vesting of stock during 20172019 for the Named Executive Officers.
| | | | Options Awards | | Stock Awards | | Options Awards | | Stock Awards |
(a) | | (b) | | (c) | | (d) | | (e) | | (b) | | (c) | | (d) | | (e) |
Name | | Number of Shares Acquired on Exercise | | Value Realized on Exercise | | Number of Shares Acquired on Vesting | | Value Realized on Vesting (1) | | Number of Shares Acquired on Exercise | | Value Realized on Exercise | | Number of Shares Acquired on Vesting | | Value Realized on Vesting (1) |
| | (#) | | ($) | | (#) | | ($) | | (#) | | ($) | | (#) | | ($) |
A. Christopher Bakken, III | | — |
| |
| $— |
| | 1,212 |
| |
| $95,154 |
| | 38,566 |
| |
| $1,377,860 |
| | 31,719 |
| |
| $3,543,240 |
|
| | | | | | | | | | | | | | | | |
Marcus V. Brown | | 5,000 |
| |
| $35,850 |
| | 8,224 |
| |
| $598,764 |
| | 145,031 |
| |
| $4,056,865 |
| | 24,484 |
| |
| $2,839,040 |
|
| | | | | | | | | | | | | | | | |
Leo P. Denault | | — |
| |
| $— |
| | 26,741 |
| |
| $1,979,459 |
| | 105,000 |
| |
| $2,861,250 |
| | 123,760 |
| |
| $14,933,716 |
|
| | | | | | | | | | | | | | | | |
David D. Ellis | | | — |
| |
| $— |
| | 1,271 |
| |
| $160,540 |
|
| | | | | | | | | |
Haley R. Fisackerly | | 10,734 |
| |
| $134,837 |
| | 1,734 |
| |
| $126,435 |
| | 13,700 |
| |
| $280,882 |
| | 5,037 |
| |
| $596,349 |
|
| | | | | | | | | |
Laura R. Landreaux | | | — |
| |
| $— |
| | 3,431 |
| |
| $374,036 |
|
| | | | | | | | | | | | | | | | |
Andrew S. Marsh | | — |
| |
| $— |
| | 8,224 |
| |
| $598,764 |
| | 17,100 |
| |
| $468,315 |
| | 24,554 |
| |
| $2,845,137 |
|
| | | | | | | | | | | | | | | | |
Phillip R. May, Jr. | | — |
| |
| $— |
| | 2,202 |
| |
| $161,139 |
| | 18,900 |
| |
| $456,820 |
| | 8,146 |
| |
| $978,103 |
|
| | | | | | | | | | | | | | | | |
Sallie T. Rainer | | 11,300 |
| |
| $169,289 |
| | 1,698 |
| |
| $123,893 |
| | 15,667 |
| |
| $372,696 |
| | 5,055 |
| |
| $597,906 |
|
| | | | | | | | | | | | | | | | |
Charles L. Rice, Jr. | | 9,234 |
| |
| $147,762 |
| | 1,603 |
| |
| $117,185 |
| |
| | | | | | | | | |
Richard C. Riley | | 4,500 |
| |
| $67,559 |
| | 1,847 |
| |
| $134,414 |
| |
| | | | | | | | | |
Roderick K. West | | — |
| |
| $— |
| | 8,396 |
| |
| $610,908 |
| | — |
| |
| $— |
| | 23,347 |
| |
| $2,740,719 |
|
| |
(1) | Represents the value of performance units for the 2015-20172017-2019 performance period (payable solely in shares based on the closing stock price of Entergy Corporation on the date of vesting) under the Performance Unit Program and the vesting of shares of restricted stock in 2017.2019. |
20172019 Pension Benefits
The following table shows the present value as of December 31, 2017,2019, of accumulated benefits payable to each of the Named Executive Officers, including the number of years of service credited to each Named Executive Officer, under the retirement plans sponsored by Entergy Corporation, determined using interest rate and mortality rate assumptions set forth in Note 11 to the financial statements. Additional information regarding these retirement plans follows this table.
| | Name | | Plan Name | | Number of Years Credited Service | | Present Value of Accumulated Benefit | | Payments During 2017 | | Plan Name | | Number of Years Credited Service | | Present Value of Accumulated Benefit | | Payments During 2019 |
A. Christopher Bakken, III | | Cash Balance Equalization Plan | | 1.74 |
| |
| $30,600 |
| |
| $— |
| | Cash Balance Equalization Plan | | 3.74 |
| |
| $196,900 |
| |
| $— |
|
| | Cash Balance Plan | | 1.74 |
| |
| $30,300 |
| |
| $— |
| | Cash Balance Plan | | 3.74 |
| |
| $71,200 |
| |
| $— |
|
| | | | | | | | | | | | |
Marcus V. Brown(1) | | System Executive Retirement Plan | | 22.74 |
| |
| $4,793,900 |
| |
| $— |
| | System Executive Retirement Plan | | 24.74 |
| |
| $6,368,400 |
| |
| $— |
|
| | Entergy Retirement Plan | | 22.74 |
| |
| $907,400 |
| |
| $— |
| | Entergy Retirement Plan | | 24.74 |
| |
| $1,160,000 |
| |
| $— |
|
| | | | | | | | | | | | |
Leo P. Denault (1)(2) | | System Executive Retirement Plan | | 33.83 |
| |
| $22,072,300 |
| |
| $— |
| | System Executive Retirement Plan | | 35.83 |
| |
| $26,526,500 |
| |
| $— |
|
| | Entergy Retirement Plan | | 18.83 |
| |
| $802,000 |
| |
| $— |
| | Entergy Retirement Plan | | 20.83 |
| |
| $1,035,100 |
| |
| $— |
|
| | | | | | | | | | | | |
David D. Ellis | | | Cash Balance Equalization Plan | | 1.06 |
| |
| $1,900 |
| |
| $— |
|
| | | Cash Balance Plan | | 1.06 |
| |
| $16,700 |
| |
| $— |
|
| | | | | | | |
Haley R. Fisackerly | | System Executive Retirement Plan | | 22.08 |
| |
| $1,370,100 |
| |
| $— |
| | System Executive Retirement Plan | | 24.08 |
| |
| $1,728,000 |
| |
| $— |
|
| | | Entergy Retirement Plan | | 24.08 |
| |
| $1,023,900 |
| |
| $— |
|
| | | | | | | |
Laura R. Landreaux | | | Pension Equalization Plan | | 12.48 |
| |
| $86,300 |
| |
| $— |
|
| | Entergy Retirement Plan | | 22.08 |
| |
| $789,100 |
| |
| $— |
| | Entergy Retirement Plan | | 12.48 |
| |
| $418,700 |
| |
| $— |
|
| | | | | | | | | | | | |
Andrew S. Marsh | | System Executive Retirement Plan | | 19.37 |
| |
| $3,493,700 |
| |
| $— |
| | System Executive Retirement Plan | | 21.37 |
| |
| $4,694,700 |
| |
| $— |
|
| | Entergy Retirement Plan | | 19.37 |
| |
| $548,400 |
| |
| $— |
| | Entergy Retirement Plan | | 21.37 |
| |
| $738,700 |
| |
| $— |
|
| | | | | | | | | | | | |
Phillip R. May, Jr. (1) | | System Executive Retirement Plan | | 31.56 |
| |
| $2,398,400 |
| |
| $— |
| | System Executive Retirement Plan | | 33.56 |
| |
| $2,964,100 |
| |
| $— |
|
| | Entergy Retirement Plan | | 31.56 |
| |
| $1,227,800 |
| |
| $— |
| | Entergy Retirement Plan | | 33.56 |
| |
| $1,538,500 |
| |
| $— |
|
| | | | | | | | | | | | |
Sallie T. Rainer (1)(3) | | System Executive Retirement Plan | | 33.38 |
| |
| $1,356,000 |
| |
| $— |
| | System Executive Retirement Plan | | 35.38 |
| |
| $1,511,300 |
| |
| $— |
|
| | Entergy Retirement Plan | | 33.00 |
| |
| $1,415,200 |
| |
| $— |
| | Entergy Retirement Plan | | 35.00 |
| |
| $1,766,400 |
| |
| $— |
|
| | | | | | | | | | | | |
Charles L. Rice, Jr. | | System Executive Retirement Plan | | 8.47 |
| |
| $609,100 |
| |
| $— |
| |
| | Entergy Retirement Plan | | 8.47 |
| |
| $307,800 |
| |
| $— |
| |
| | | | | | | |
Richard C. Riley (1)(4) | | System Executive Retirement Plan | | 28.01 |
| |
| $1,688,200 |
| |
| $— |
| |
| | Entergy Retirement Plan | | 22.55 |
| |
| $866,000 |
| |
| $— |
| |
| | | | | | | |
Roderick K. West | | System Executive Retirement Plan | | 18.75 |
| |
| $4,636,200 |
| |
| $— |
| | System Executive Retirement Plan | | 20.75 |
| |
| $5,892,400 |
| |
| $— |
|
| | Entergy Retirement Plan | | 18.75 |
| |
| $594,100 |
| |
| $— |
| | Entergy Retirement Plan | | 20.75 |
| |
| $792,700 |
| |
| $— |
|
| |
(1) | As of December 31, 2017,2019, Mr. Brown, Mr. Denault, Mr. May, and Ms. Rainer and Mr. Riley were retirement eligible. |
| |
(2) | In 2006, Mr. Denault entered into a retention agreement granting him an additional 15 years of service and permission to retire under the non-qualified System Executive Retirement Plan in the event his employment is terminated by his Entergy employer other than for cause (as defined in the retention agreement), by Mr. Denault for good reason (as defined in the retention agreement), or on account of his death or disability. His retention agreement also provides that if he terminates employment for any other reason, he shall be entitled to the additional 15 years of service under the non-qualified System Executive Retirement Plan only if his Entergy employer grants him permission to retire. The additional 15 years of service increases the present value of his benefit by $3,967,700.$3,887,900. |
| |
(3) | Service under the non-qualified System Executive Retirement Plan is granted from the date of hire. Qualified plan benefit serviceService under the qualified Entergy Retirement Plan is granted from the later of the date of hire or the plan participation date. |
| |
(4) | Mr. Riley separated from Entergy Corporation and was subsequently rehired in June 1995. The Entergy Retirement Plan does not include any credit service prior to his rehire date, however, the System Executive Retirement Plan reflects a net credited service date of December 28, 1989. |
Retirement Benefits
The tables below contain summaries of the pension benefit plans sponsored by Entergy Corporation that the Named Executive Officers participated in during 2017.2019. Benefits for the Named Executive Officers who participate in these plans are determined using the same formulas as for other eligible employees.
Qualified Retirement Benefits
|
| | | |
| Entergy Retirement Plan | Cash Balance Plan |
Eligible Named Executive Officers | Marcus V. Brown Haley R. Fisackerly Leo P. Denault Andrew S. Marsh Laura R. Landreaux | Phillip R. May, Jr. | Sallie T. Rainer Charles L. Rice, Jr.
Richard C. Riley
Roderick K. West
| A. Christopher Bakken, III David D. Ellis |
Eligibility | Non-bargaining employees hired on or before July 1, 2014 | Non-bargaining employees hired on or after July 1, 2014 |
Vesting | A participant becomes vested in the Entergy Retirement Plan upon attainment of at least 5 years of vesting service or upon attainment of age 65 while actively employed by an Entergy system company. | A participant becomes vested in the Cash Balance Plan upon attainment of at least 3 years of vesting service or upon attainment of age 65 while actively employed by an Entergy system company. |
Form of Payment Upon Retirement | Benefits are payable as an annuity. For employees who separate from service on or after January 1, 2018, a single lump sum distribution may be elected by the participant if eligibility criteria are met. | Benefits are payable as an annuity or single lump sum distribution. |
Retirement Benefit Formula | Benefits are calculated as a single life annuity payable at age 65 and generally are equal to 1.5% of a participant’s Final Average Monthly Earnings (FAME) multiplied by years of service (not to exceed 40).
“Earnings” for the purpose of calculating FAME generally includes the employee’s base salary and eligible annual incentive awards subject to Internal Revenue Code limitations, and excludes all other bonuses. Executive Annual Incentive Awardsannual incentive awards are not eligible for inclusion in Earnings under this plan.
FAME is calculated using the employee’s average monthly Earnings for the 60 consecutive months in which the employee’s earnings were highest during the 120 month period immediately preceding the employee’s retirement and includes up to 5 eligible annual incentive awards paid during the 60 month period.
| The normal retirement benefit at age 65 is determined by converting the sum of an employee’s annual pay credits and his or her annual interest credits, into an actuarially equivalent annuity.
Pay credits ranging from 4-8% of an employee’s eligible Earnings are allocated annually to a notional account for the employee based on an employee’s age and years of service. Earnings for purposes of calculating an employee’s pay credit include the employee’s base salary and annual incentive awards subject to Internal Revenue Code limitations and exclude all other bonuses. Executive Annual Incentive Awardsannual incentive awards are eligible for inclusion in Earnings under this plan.
Interest credits are calculated based upon the annual rate of interest on 30-year U.S. Treasury securities, as specified by the Internal Revenue Service, for the month of August preceding the first day of the applicable calendar year subject to a minimum rate of 2.6% and a maximum rate of 9%.
|
|
| | | |
Benefit Timing | Normal retirement age under the plan is 65.
A reduced terminated vested benefit may be commenced as early as age 55. The amount of this benefit is determined by reducing the normal retirement benefit by 7% per year for the first 5 years commencement precedes age 65, and 6% per year for each additional year commencement precedes age 65.
A subsidized early retirement benefit may be commenced by employees who are at least age 55 with 10 years of service at the time they separate from service. The amount of this benefit is determined by reducing the normal retirement benefit by 2% per year for each year that early retirement precedes age 65. | Normal retirement age under the plan is 65.
A vested cash balance benefit can be commenced as early as the first day of the month following separation from service. The amount of the benefit is determined in the same manner as the normal retirement benefit described above in the “Retirement Benefit Formula” section. |
Non-qualified Retirement Benefits
The Named Executive Officers are eligible to participate in certain non-qualified retirement benefit plans that provide retirement income, including the Pension Equalization Plan, the Cash Balance Equalization Plan, and the System Executive Retirement Plan. Each of these plans is an unfunded non-qualified defined benefit pension plan that provides benefits to key management employees. In these plans, as described below, an executive is typically enrolledmay participate in one or more non-qualified plans, but is only paid the amount due under the plan that provides the highest benefit. In general, upon disability, participants in the Pension Equalization Plan and the System Executive Retirement Plan remain eligible for continued service credits until the earlier of recovery, separation from service due to disability, or retirement eligibility. Generally, spouses of participants who die before commencement of benefits may be eligible for a portion of the participant’s accrued benefit.
|
| | | | | |
| Pension Equalization Plan | Cash Balance Equalization Plan | System Executive Retirement Plan |
Eligible Named Executive Officers | Marcus V. Brown Haley R. Fisackerly Leo P. Denault Laura R. Landreaux Andrew S. Marsh
| Phillip R. May, Jr. | Sallie T. Rainer Charles L. Rice, Jr.
Richard C. Riley
Roderick K. West
| A. Christopher Bakken, III David D. Ellis | Marcus V. Brown Haley R. Fisackerly Leo P. Denault Andrew S. Marsh
| Phillip R. May, Jr. | Sallie T. Rainer Charles L. Rice, Jr.
Richard C. Riley
Roderick K. West
|
Eligibility | Management or highly compensated employees who participate in the Entergy Retirement Plan | Management or highly compensated employees who participate in the Cash Balance Plan | Certain individuals who became executive officers before July 1, 2014 |
Form of Payment Upon Retirement | Single lump sum distribution | Single lump sum distribution | Single lump sum distribution |
Retirement Benefit Formula | Benefits generally are equal to the actuarial present value of the difference between (1) the amount that would have been payable as an annuity under the Entergy Retirement Plan, including Executive Annual Incentive Awardsexecutive annual incentive awards as eligible earnings and without applying limitations of the Internal Revenue Code limitationsof 1986, as amended (the “Code”) on pension benefits and earnings that may be considered in calculating tax-qualified pension benefits, and (2) the amount actually payable as an annuity under the Entergy Retirement Plan. Executive annual incentive awards are taken into account as eligible earnings under this plan. | Benefits generally are equal to the difference between the amount that would have been payable as a lump sum under the Cash Balance Plan, but for Internal Revenuethe Code limitations on pension benefits and earnings that may be considered in calculating tax-qualified cash balance plan benefits, and the amount actually payable as a lump sum under the Cash Balance Plan. | Benefits generally are equal to the actuarial present value of a specified percentage, based on the participant’s years of service (including supplemental service granted under the plan) and management level of the participant’s “Final Average Monthly Compensation” (which is generally 1/36th of the sum of the participant’s base salary and Annual Incentive Planannual incentive plan award for the 3 highest years during the last 10 years preceding separation from service), after first being reduced by the |
|
| | | | | |
| Pension Equalization Plan | Cash Balance Equalization Plan | System Executive Retirement Plan |
| Executive Annual Incentive Awards are taken into account as eligible earnings under this plan. | payable as a lump sum under the Cash Balance Plan. | value of the participant’s Entergy Retirement Plan benefit. |
Benefit timing | Payable at age 65
Benefits payable prior to age 65 are subject to the same reduced terminated vested or early retirement reduction factors as benefits payable under the Entergy Retirement Plan as described above.
An employee with supplemental credited service who terminates employment prior to age 65 must receive prior written consent of the Entergy employer in order to receive the portion of their benefit attributable to their supplemental credited service agreement.
Benefits payable upon separation from service subject to the 6 month delay required under the Code Section 409A. | Payable upon separation from service subject to 6 month delay required under the Code Section 409A. | Payable at age 65
Prior to age 65, vesting is conditioned on the prior written consent of the officer’s Entergy employer.
Benefits payable prior to age 65 are subject to the same reduced terminated vested or subsidized early retirement reduction factors as benefits payable under the Entergy Retirement Plan as described above.
Benefits payable upon separation from service subject to the 6 month delay required under Internal Revenue Code Section 409A. |
Additional Information
| |
(1) | Effective July 1, 2014, (a) no new grants of supplemental service may be provided to participants in the Pension Equalization Plan; (b) supplemental credited service granted prior to July 1, 2014 was grandfathered; and (c) participants in Entergy Corporation’s Cash Balance Plan are not eligible to participate in the Pension Equalization Plan and instead may be eligible to participate in the Cash Balance Equalization Plan. |
| |
(2) | Benefits already accrued under the System Executive Retirement Plan, Pension Equalization Plan, and Cash Balance Equalization Plan, if any, will become fully vested if a participant is involuntarily terminated without cause or terminates his or her employment for good reason in connection with a change in control with payment generally made in a lump-sum payment as soon as reasonably practicable following the first day of the month after the termination of employment, unless delayed 6 months under Internal Revenue Code Section 409A. |
| |
(3) | The System Executive Retirement Plan was closed to new executive officers effective July 1, 2014. |
20172019 Non-qualified Deferred Compensation
As of December 31, 2017,2019, Mr. May had a deferred account balance under a frozen Defined Contribution Restoration Plan. The amount is deemed invested, as chosen by the participant,Mr. May, in certain T. Rowe Price investment funds that are also available to the participant under the Savings Plan. Mr. May has elected to receive the deferred account balance after he retires. The Defined Contribution Restoration Plan, until it was frozen in 2005, credited eligible employees’ deferral accounts with employer contributions to the extent contributions under the qualified savings plan in which the employee participated were subject to limitations imposed by the Internal Revenue Code.
Defined Contribution Restoration Plan
| | Name | | Executive Contributions in 2017 | | Registrant Contributions in 2017 | | Aggregate Earnings in 2017(1) | | Aggregate Withdrawals/Distributions | | Aggregate Balance at December 31, 2017 | | Executive Contributions in 2019 | | Registrant Contributions in 2019 | | Aggregate Earnings in 2019(1) | | Aggregate Withdrawals/Distributions | | Aggregate Balance at December 31, 2019 |
(a) | | (b) | | (c) | | (d) | | (e) | | (f) | | (b) | | (c) | | (d) | | (e) | | (f) |
| | | | | | | | | | | | | | | | | | | | |
Phillip R. May, Jr. | |
| $— |
| |
| $— |
| |
| $362 |
| |
| $— |
| |
| $2,113 |
| |
| $— |
| |
| $— |
| |
| $805 |
| |
| $— |
| |
| $2,987 |
|
| |
(1) | Amounts in this column are not included in the Summary Compensation Table. |
20172019 Potential Payments Upon Termination or Change in Control
Entergy Corporation has plans and other arrangements that provide compensation to a Named Executive Officer if his or her employment terminates under specified conditions, including following a change in control of Entergy Corporation or its subsidiaries. The tables
Change in Control
Under Entergy Corporation’s System Executive Continuity Plan (the “Continuity Plan”), ML 1-4 Officers are eligible to receive the severance benefits described below reflectif their employment is terminated by their Entergy System employer other than for cause or if they terminate their employment for good reason during a period beginning with a potential change in control and ending 24 months following the amounteffective date of compensation eacha change in control (a “Qualifying Termination”). A participant will not be eligible for benefits under the Continuity Plan if such participant: accepts employment with Entergy Corporation or any of its subsidiaries; elects to receive the benefits of another severance or separation program; removes, copies or fails to return any property belonging to Entergy Corporation or any of its subsidiaries or violates his or her non-compete provision (which generally runs for two years but extends to three years if permissible under applicable law). Entergy Corporation does not have any plans or agreements that provide for payments or benefits to any of the Named Executive Officers would have received if his or her employment with an Entergy employer had been terminated under various scenarios assolely upon a change in control.
In the event of December 31, 2017. For purposes of these tables, a stock price of $81.39 was used, which wasQualifying Termination, executive officers, including the closing market price on December 29, 2017,Named Executive Officers, generally will receive the last trading day of the year.
benefits set forth below:
|
| | | | | | | | | | | | | | | | | | | |
Benefits and Payments Upon Termination | Voluntary Resignation | For Cause | Termination for Good Reason or Not for Cause | Retirement | Disability | Death | Termination Related to a Change in Control |
A. Christopher Bakken, III(1) | | | | | | | |
Severance Payment(5) | — |
| — |
| — |
| — |
| — |
| — |
|
| $2,511,506 |
|
Performance Units(7) | — |
| — |
| — |
| — |
|
| $620,680 |
|
| $620,680 |
|
| $1,530,132 |
|
Stock Options(8) | — |
| — |
| — |
| — |
|
| $408,336 |
|
| $408,336 |
|
| $408,336 |
|
Restricted Stock(9) | — |
| — |
| — |
| — |
|
| $442,029 |
|
| $442,029 |
|
| $442,029 |
|
Welfare Benefits(10) | — |
| — |
| — |
| — |
| — |
| — |
|
| $20,358 |
|
Unvested Restricted Stock Units(12) | — |
| — |
|
| $813,900 |
| — |
|
| $813,900 |
|
| $813,900 |
|
| $2,441,700 |
|
| | | | | | | |
Marcus V. Brown(2) | | | | | | | |
Severance Payment(5) | — |
| — |
| — |
| — |
| — |
| — |
|
| $3,213,000 |
|
Performance Units(7) | — |
| — |
| — |
| $670,165 |
|
| $670,165 |
|
| $670,165 |
|
| $1,530,132 |
|
Stock Options(8) | — |
| — |
| — |
|
| $802,740 |
|
| $802,740 |
|
| $802,740 |
|
| $802,740 |
|
Restricted Stock(9) | — |
| — |
| — |
| — |
|
| $1,041,711 |
|
| $1,041,711 |
|
| $1,054,082 |
|
Welfare Benefits(11) | — |
| — |
| — |
| — |
| — |
| — |
| — |
|
| | | | | | | |
Leo P. Denault(3) | | | | | | | |
Severance Payment(5) | — |
| — |
| — |
| — |
| — |
| — |
|
| $10,119,954 |
|
Performance Units(6)(7) | — |
| — |
|
| $3,174,210 |
| $3,583,846 |
|
| $3,583,846 |
|
| $3,583,846 |
|
| $6,511,200 |
|
Stock Options(8) | — |
| — |
|
| $3,154,024 |
|
| $3,154,024 |
|
| $3,154,024 |
|
| $3,154,024 |
|
| $3,154,024 |
|
Restricted Stock(9) | — |
| — |
|
| $2,750,413 |
| — |
|
| $2,750,413 |
|
| $2,750,413 |
|
| $2,750,413 |
|
Welfare Benefits(11) | — |
| — |
| — |
| — |
| — |
| — |
| — |
|
| | | | | | | |
Haley R. Fisackerly(4) | | | | | | | |
Severance Payment(5) | — |
| — |
| — |
| — |
| — |
| — |
|
| $497,420 |
|
Performance Units(7) | — |
| — |
| — |
| — |
|
| $147,886 |
|
| $147,886 |
|
| $358,116 |
|
Stock Options(8) | — |
| — |
| — |
| — |
|
| $130,910 |
|
| $130,910 |
|
| $130,910 |
|
Restricted Stock(9) | — |
| — |
| — |
| — |
|
| $161,966 |
|
| $161,966 |
|
| $164,163 |
|
Welfare Benefits(10) | — |
| — |
| — |
| — |
| — |
| — |
|
| $18,252 |
|
| | | | | | | |
Andrew S. Marsh(4) | | | | | | | |
Severance Payment(5) | — |
| — |
| — |
| — |
| — |
| — |
|
| $3,060,000 |
|
Performance Units(7) | — |
| — |
| — |
| — |
|
| $670,165 |
|
| $670,165 |
|
| $1,530,132 |
|
Stock Options(8) | — |
| — |
| — |
| — |
|
| $802,740 |
|
| $802,740 |
|
| $802,740 |
|
Restricted Stock(9) | — |
| — |
| — |
| — |
|
| $1,041,711 |
|
| $1,041,711 |
|
| $1,054,082 |
|
Welfare Benefits(10) | — |
| — |
| — |
| — |
| — |
| — |
|
| $27,378 |
|
Unvested Restricted Stock Units(13) | — |
| — |
| — |
| — |
|
| $1,717,329 |
|
| $1,717,329 |
|
| $1,717,329 |
|
| | | | | | | |
|
| | | | | | | | | | | | | | | | | | | |
Benefits and Payments Upon Termination | Voluntary Resignation | For Cause | Termination for Good Reason or Not for Cause | Retirement | Disability | Death | Termination Related to a Change in Control |
Phillip R. May, Jr.(2) | | | | | | | |
Severance Payment(5) | — |
| — |
| — |
| — |
| — |
| — |
|
| $1,171,680 |
|
Performance Units(7) | — |
| — |
| — |
|
| $231,962 |
|
| $231,962 |
|
| $231,962 |
|
| $504,618 |
|
Stock Options(8) | — |
| — |
| — |
|
| $183,342 |
|
| $183,342 |
|
| $183,342 |
|
| $183,342 |
|
Restricted Stock(9) | — |
| — |
| — |
| — |
|
| $201,034 |
|
| $201,034 |
|
| $203,231 |
|
Welfare Benefits(11) | — |
| — |
| — |
| — |
| — |
| — |
| — |
|
| | | | | | | |
Sallie T. Rainer(2) | | | | | | | |
Severance Payment(5) | — |
| — |
| — |
| — |
| — |
| — |
|
| $459,585 |
|
Performance Units(7) | — |
| — |
| — |
|
| $147,886 |
|
| $147,886 |
|
| $147,886 |
|
| $358,116 |
|
Stock Options(8) | — |
| — |
| — |
|
| $133,082 |
|
| $133,082 |
|
| $133,082 |
|
| $133,082 |
|
Restricted Stock(9) | — |
| — |
| — |
| — |
|
| $163,269 |
|
| $163,269 |
|
| $165,222 |
|
Welfare Benefits(11) | — |
| — |
| — |
| — |
| — |
| — |
| — |
|
| | | | | | | |
Charles R. Rice, Jr(4) | | | | | | | |
Severance Payment(5) | — |
| — |
| — |
| — |
| — |
| — |
|
| $400,993 |
|
Performance Units(7) | — |
| — |
| — |
| — |
|
| $147,886 |
|
| $147,886 |
|
| $358,116 |
|
Stock Options(8) | — |
| — |
| — |
| — |
|
| $90,728 |
|
| $90,728 |
|
| $90,728 |
|
Restricted Stock(9) | — |
| — |
| — |
| — |
|
| $133,480 |
|
| $133,480 |
|
| $135,433 |
|
Welfare Benefits(10) | — |
| — |
| — |
| — |
| — |
| — |
|
| $18,252 |
|
| | | | | | | |
Richard C. Riley(2) | | | | | | | |
Severance Payment(5) | — |
| — |
| — |
| — |
| — |
| — |
|
| $481,880 |
|
Performance Units(7) | — |
| — |
| — |
|
| $147,886 |
|
| $147,886 |
|
| $147,886 |
|
| $358,116 |
|
Stock Options(8) | — |
| — |
| — |
|
| $120,814 |
|
| $120,814 |
|
| $120,814 |
|
| $120,814 |
|
Restricted Stock(9) | — |
| — |
| — |
| — |
|
| $178,896 |
|
| $178,896 |
|
| $181,663 |
|
Welfare Benefits(11) | — |
| — |
| — |
| — |
| — |
| — |
| — |
|
| | | | | | | |
Roderick K. West(4) | | | | | | | |
Severance Payment(5) | — |
| — |
| — |
| — |
| — |
| — |
|
| $3,434,065 |
|
Performance Units(7) | — |
| — |
| — |
| — |
|
| $670,165 |
|
| $670,165 |
|
| $1,530,132 |
|
Stock Options(8) | — |
| — |
| — |
| — |
|
| $613,132 |
|
| $613,132 |
|
| $613,132 |
|
Restricted Stock(9) | — |
| — |
| — |
| — |
|
| $762,624 |
|
| $762,624 |
|
| $774,344 |
|
Welfare Benefits(10) | — |
| — |
| — |
| — |
| — |
| — |
|
| $27,378 |
|
Unvested Restricted Stock Units(14) | — |
| — |
|
| $1,709,190 |
| — |
| — |
| — |
|
| $1,709,190 |
|
Pension Benefits
|
| |
1)Compensation Element | In addition to the payments and benefits in the table, if Mr. Bakken’s employment were terminated under certain conditions relating to a change in control, on the first day of the month following the Qualifying Event (as defined in the Cash Balance Equalization Plan) he would have become vested in and would have been entitled to receive his vested pension benefits accumulated in the Cash Balance Equalization Plan as of the date of the Qualifying Event so long as a forfeiture event does not occur as described in the plan. For a description of the pension benefits under the Cash Balance Equalization Plan, see “2017 Pension Benefits.” |
| Payment |
2)Severance* | As of December 31, 2017, Messrs. Brown, May, and Riley and Ms. Rainer are retirement eligible and would retire rather than voluntarily resign, and in addition to the payments and benefits in the table, each also would be entitled to receive his or her vested pension benefits under the Entergy Retirement Plan. For a description of the pension |
benefits available, see “2017 Pension Benefits.” In the event their termination by their Entergy employer without cause or by Mr. Brown, Mr. May, Ms. Rainer, or Mr. Riley for good reason in connection with a change in control, each would be eligible for subsidized early retirement benefits under the System Executive Retirement Plan even if they do not have company permission to separate from employment. If Mr. Brown’s, Mr. May’s, Ms. Rainer’s, or Mr. Riley’s employment were terminated for cause in connection with a change in control, they would not be entitled to receive a benefit under the System Executive Retirement Plan. If their employment were terminated for any reason not in connection with a change in control, or they were to retire from their Entergy employer before age 65 without the permission of their Entergy employer, they would not be entitled to receive a benefit under the System Executive Retirement Plan.
| |
3) | As of December 31, 2017, Mr. Denault is retirement eligible and would retire rather than voluntarily resign, and in addition to the payments and benefits in the table, Mr. Denault also would be entitled to receive his vested pension benefits under the Entergy Retirement Plan. For a description of the pension benefits available, see “2017 Pension Benefits.” If Mr. Denault’s employment was terminated by his Entergy employer other than for cause, by Mr. Denault for good reason or on account of his death or disability, he would also be eligible for certain additional retirement benefits. For a description of these benefits, see “2017 Pension Benefits.” Otherwise, if Mr. Denault’s employment was terminated for cause or he was to retire from his Entergy employer before age 65 without the permission of his Entergy employer, he would not receive a benefit under the System Executive Retirement Plan. |
| |
4) | In addition to the payments and benefits in the table, if Mr. Fisackerly’s, Mr. Marsh’s, Mr. Rice’s, or Mr. West’s employment were terminated under certain conditions relating to a change in control, each also would have been entitled to receive his vested pension benefits upon attainment of age 55 under the Entergy Retirement Plan and would have been eligible for early retirement benefits under the System Executive Retirement Plan calculated using early retirement reduction factors. For a description of the pension benefits, see “2017 Pension Benefits.” Mr. Fisackerly’s, Mr. Marsh’s, Mr. Rice’s, or Mr. West’s employment were terminated for cause in connection with a change in control, he would not be entitled to receive a benefit under the System Executive Retirement Plan. If his employment were terminated for any reason not in connection with a change in control, or each were to resign from his Entergy employer before age 65 without the permission of his Entergy employer, each would not be entitled to receive a benefit under the System Executive Retirement Plan. |
Severance Payments:
| |
5) | In the event of a termination by the executive for good reason or by his or her Entergy system employer not for cause during the period beginning upon the occurrence of a “potential change in control” (as defined in the System Executive Continuity Plan) and ending on the 2nd anniversary of a change in control, each Named Executive Officer would be entitled to receive pursuant to the System Executive Continuity Plan aA lump sum severance payment equal to a multiple of the sum of (1) his or herof: (a) the participant’s annual base salary as in effect at any time within one year prior to the commencement of a change of control period or, if higher, immediately prior to a circumstance constituting good reason, plus (2) his or her(b) the participant’s annual incentive, calculated using the average annual target opportunity derived under the Annual Incentive Plan for 2015 and 2016 (thethe two calendar years immediately preceding the calendar year in which termination occurs), butoccurs.
|
Performance Units | Participants will forfeit outstanding performance units, and in no event shalllieu of any payment for any outstanding performance period, will receive a single-lump sum payment calculated by multiplying the target performance units for the most recent performance period preceding (but not including) the calendar year in which termination occurs by the closing price of Entergy’s common stock as of the later of the date of such termination or the date of the Change in Control. |
Equity Awards | All unvested stock options, shares of restricted stock and restricted stock units will vest immediately upon a “double trigger” Qualifying Termination pursuant to the terms of the Equity Ownership Plan. |
Retirement Benefits | Benefits already accrued under the System Executive Retirement Plan, Pension Equalization Plan and Cash Balance Equalization Plan, if any, will become fully vested. |
Welfare Benefits | Participants who are not retirement-eligible would be eligible to receive Entergy-subsidized COBRA benefits for a period ranging from 12 to 18 months. |
| |
* | Cash severance payment exceed the product ofpayments are capped at 2.99 times the sum of (a) his or heran executive’s annual base salary as in effect at any time within one year prior to the commencement of a change in control period or, if higher, immediately prior to a circumstance constituting good reason plus (b) the higher of his or her actual annual incentive payment under the Annual Incentive Plan for the 2016 performance year or his or her annual incentive, calculated using the average annual target opportunity derived under the Annual Incentive Plan for 2015 and 2016 (thethe two calendar years immediately preceding the calendar year in which termination occurs). occurs. Any cash severance payments to be paid under the Continuity Plan in excess of this cap will be forfeited by the participant. |
To protect shareholders and Entergy Corporation’s business model, executives are required to comply with non-compete, non-solicitation, confidentiality and non-denigration provisions. If an executive discloses non-public data or information concerning Entergy Corporation or any of its subsidiaries or violates his or her non-compete provision, he or she will be required to repay any benefits previously received under the Continuity Plan.
For purposes of the Continuity Plan the following events are generally defined as:
| |
• | Change in Control: (a) the purchase of 30% or more of either Entergy Corporation’s common stock or the combined voting power of Entergy Corporation’s voting securities; (b) the merger or consolidation of Entergy Corporation (unless its Board members constitute at least a majority of the board members of the surviving entity); (c) the liquidation, dissolution or sale of all or substantially all of Entergy Corporation’s assets; or (d) a change in the composition of Entergy Corporation’s Board such that, during any two-year period, the individuals serving at the beginning of the period no longer constitute a majority of Entergy Corporation’s Board at the end of the period. |
| |
• | Potential Change in Control: (a) Entergy Corporation or an affiliate enters into an agreement the consummation of which would constitute a Change in Control; (b) the Entergy Corporation Board adopts resolutions determining that, for purposes of this table, the following target opportunity and base salary were assumed:Continuity Plan, a potential Change in Control has occurred; (c) a System Company or other person or entity publicly announces an intention to take actions that would constitute a Change in Control; or (d) any person or entity becomes the beneficial owner (directly or indirectly) of Entergy Corporation’s outstanding shares of common stock constituting 20% or more of the voting power or value of the Entergy Corporation’s outstanding common stock. |
|
| | |
Named Executive Officer | Target Opportunity | Base Salary |
A. Christopher Bakken III | 35% | $620,125 |
Marcus V. Brown | 70% | $630,000 |
Leo P. Denault | 130% | $1,230,000 |
Haley R. Fisackerly | 40% | $355,300 |
Andrew S. Marsh | 70% | $600,000 |
Phillip R. May Jr, | 60% | $366,150 |
Sallie T. Rainer | 40% | $328,275 |
Charles L. Rice, Jr. | 40% | $286,424 |
Richard C. Riley | 40% | $344,200 |
Roderick K. West | 70% | $675,598 |
Performance Units:
| |
6)• | WithCause: The participant’s (a) willful and continuous failure to perform substantially his or her duties after written demand for performance; (b) engagement in conduct that is materially injurious to Entergy Corporation or any of its subsidiaries; (c) conviction or guilty or nolo contendere plea to a felony or other crime that materially and adversely affects either his or her ability to perform his or her duties or Entergy Corporation’s reputation; (d) material violation of any agreement with Entergy Corporation or any of its subsidiaries; or (e) disclosure of any of Entergy Corporation’s confidential information without authorization. |
| |
• | Good Reason: The participant’s (a) nature or status of duties and responsibilities is substantially altered or reduced; (b) salary is reduced by 5% or more; (c) primary work location is relocated outside the continental United States; (d) compensation plans are discontinued without an equitable replacement; (e) benefits or number of vacation days are substantially reduced; or (f) employment is terminated by an Entergy employer for reasons other than in accordance with the Continuity Plan. |
Other Termination Events
For termination events, other than in connection with a Change in Control, the executive officers, including the Named Executive Officers, generally will receive the benefits set forth below:
|
| | | | | |
Termination Event | Compensation Element |
Severance | Annual Incentive | Stock Options | Restricted Stock | Performance Units |
Voluntary Resignation | None | Forfeited* | Unvested options are forfeited. Vested options expire on the earlier of (i) 90 days from the last day of active employment and (ii) the option’s normal expiration date. | Forfeited | Forfeited** |
Termination for Cause | None | Forfeited | Forfeited | Forfeited | Forfeited |
Retirement | None | Pro-rated based on number of days employed during the performance period
| Unvested stock options vest on the retirement date and expire on the earlier of (i) five years from the Retirement date and (ii) the option’s normal expiration date.
| Forfeited | Officers with a minimum of 12 months of participation are eligible for a pro-rated award based on actual performance and full months of service during the performance period |
Death/Disability | None | Pro-rated based on number of days employed during the performance period
| Unvested stock options vest on the termination date and expire on the earlier of (i) five years from the termination date and (ii) the option’s normal expiration date
| Fully Vest | Officers are eligible for pro-rated award based on actual performance and full months of service during the performance period |
| |
* | If an officer resigns after the completion of an annual incentive plan, he or she may receive, at the Company’s discretion, an annual incentive payment. |
| |
** | If an officer resigns after the completion of a Long-Term Performance Unit Program performance period, he or she may receive a payout under the Long-Term Performance Unit Program based on the outcome of the performance period. |
Mr. Denault’s 2006 Retention Agreement
In 2006, Entergy Corporation entered into a retention agreement with Mr. Denault that provides benefits to him in addition to, or in lieu of, the benefits described above. Specifically, in the event of a Termination Event (as defined in his agreement): 1) Mr. Denault is entitled to a Target LTIP Award calculated by using the average annual number of performance units with respect to the two most recent performance periods preceding the calendar year in which his employment termination occurs, assuming all performance goals were achieved at target; and 2) all of Mr. Denault’s unvested stock options and shares of restricted stock will immediately vest.
In the event of death or disability, Mr. Denault would receive the greater of the Target LTIP Award calculated as described above or the pro-rated number of performance units for all open performance periods, based on the number of months of his participation in each open performance period.
Under the terms of his 2006 retention agreement, Mr. Denault’s employment may be terminated for cause upon Mr. Denault’s: (a) continuing failure to substantially perform his duties (other than because of physical or mental illness or after he has given notice of termination for good reason) that remains uncured for 30 days after receiving a written notice from the Personnel Committee; (b) willfully engaging in conduct that is demonstrably and materially injurious to Entergy; (c) conviction of or entrance of a plea of guilty or nolo contendere to a felony or other crime that has or may have a material adverse effect on his ability to carry out his duties or upon Entergy’s reputation; (d) material violation of any agreement that he has entered into with Entergy; or (e) unauthorized disclosure of Entergy’s confidential information.
Mr. Denault may terminate his employment for good reason upon: (a) the substantial reduction in the nature or status of his duties or responsibilities from those in effect immediately prior to the date of the retention agreement, other than de minimis acts that are remedied after notice from Mr. Denault; (b) a reduction of 5% or more in his base salary as in effect on the date of the retention agreement; (c) the relocation of his principal place of employment to a location other than the corporate headquarters; (d) the failure to continue to allow him to participate in programs or plans providing opportunities for equity awards, incentive compensation and other plans on a basis not materially less favorable than enjoyed at the time of the retention agreement (other than changes similarly affecting all senior executives); (e) the failure to continue to allow him to participate in programs or plans with opportunities for benefits not materially less favorable than those enjoyed by him under any of the pension, savings, life insurance, medical, health and accident, disability or vacation plans or policies at the time of the retention agreement (other than changes similarly affecting all senior executives); or (f) any purported termination of his employment not taken in accordance with his retention agreement.
Aggregate Termination Payments
The tables below reflect the amount of compensation each of the Named Executive Officers would have received if his or her employment had been terminated as of December 31, 2019 under the various scenarios described above. For purposes of these tables, a stock price of $119.80 was used, which was the closing market price on December 31, 2019, the last trading day of the year.
|
| | | | | | | | | | | | | | | | | | | |
Benefits and Payments Upon Termination | Voluntary Resignation | For Cause | Termination for Good Reason or Not for Cause | Retirement | Disability | Death | Termination Related to a Change in Control |
A. Christopher Bakken, III(1) | | | | | | | |
Severance Payment | — |
| — |
| — |
| — |
| — |
| — |
|
| $3,335,798 |
|
Performance Units(3) | — |
| — |
| — |
| — |
|
| $1,013,149 |
|
| $1,013,149 |
|
| $1,964,720 |
|
Stock Options | — |
| — |
| — |
| — |
|
| $2,858,837 |
|
| $2,858,837 |
|
| $2,858,837 |
|
Restricted Stock | — |
| — |
| — |
| — |
|
| $1,113,669 |
|
| $1,113,669 |
|
| $1,113,669 |
|
Welfare Benefits(5) | — |
| — |
| — |
| — |
| — |
| — |
|
| $22,248 |
|
Unvested Restricted Stock Units(7) | — |
| — |
| — |
| — |
| — |
| — |
|
| $2,369,000 |
|
| | | | | | | |
Marcus V. Brown(2) | | | | | | | |
Severance Payment | — |
| — |
| — |
| — |
| — |
| — |
|
| $3,397,875 |
|
Performance Units(3) | — |
| — |
| — |
|
| $1,005,721 |
|
| $1,005,721 |
|
| $1,005,721 |
|
| $1,964,720 |
|
Stock Options | — |
| — |
| — |
|
| $2,942,442 |
|
| $2,942,442 |
|
| $2,942,442 |
|
| $2,942,442 |
|
Restricted Stock | — |
| — |
| — |
| — |
|
| $1,145,708 |
|
| $1,145,708 |
|
| $1,145,708 |
|
Welfare Benefits(6) | — |
| — |
| — |
| — |
| — |
| — |
| — |
|
| | | | | | | |
Leo P. Denault(2) | | | | | | | |
Severance Payment | — |
| — |
| — |
| — |
| — |
| — |
|
| $9,870,588 |
|
Performance Units(3)(4) | — |
| — |
|
| $4,480,520 |
|
| $5,028,006 |
|
| $5,028,006 |
|
| $5,028,006 |
|
| $9,991,320 |
|
Stock Options | — |
| — |
|
| $12,314,200 |
|
| $12,314,200 |
|
| $12,314,200 |
|
| $12,314,200 |
|
| $12,314,200 |
|
Restricted Stock | — |
| — |
|
| $4,015,803 |
| — |
|
| $4,015,803 |
|
| $4,015,803 |
|
| $4,015,803 |
|
Welfare Benefits(6) | — |
| — |
| — |
| — |
| — |
| — |
| — |
|
| | | | | | | |
David D. Ellis(1) | | | | | | | |
Severance Payment | — |
| — |
| — |
| — |
| — |
| — |
|
| $376,065 |
|
Performance Units(3) | — |
| — |
| — |
| — |
|
| $145,916 |
|
| $145,916 |
|
| $431,280 |
|
Stock Options | — |
| — |
| — |
| — |
|
| $143,867 |
|
| $143,867 |
|
| $143,867 |
|
Restricted Stock | — |
| — |
| — |
| — |
|
| $62,022 |
|
| $62,022 |
|
| $62,022 |
|
Welfare Benefits(5) | — |
| — |
| — |
| — |
| — |
| — |
|
| $19,908 |
|
| | | | | | | |
Haley R. Fisackerly(1) | | | | | | | |
Severance Payment | — |
| — |
| — |
| — |
| — |
| — |
|
| $526,432 |
|
Performance Units(3) | — |
| — |
| — |
| — |
|
| $189,763 |
|
| $189,763 |
|
| $431,280 |
|
Stock Options | — |
| — |
| — |
| — |
|
| $498,200 |
|
| $498,200 |
|
| $498,200 |
|
Restricted Stock | — |
| — |
| — |
| — |
|
| $182,045 |
|
| $182,045 |
|
| $182,045 |
|
Welfare Benefits(5) | — |
| — |
| — |
| — |
| — |
| — |
|
| $19,908 |
|
| | | | | | | |
Laura R. Landreaux(1) | | | | | | | |
Severance Payment | — |
| — |
| — |
| — |
| — |
| — |
|
| $419,322 |
|
Performance Units(3)(4) | — |
| — |
| — |
| — |
|
| $167,840 |
|
| $167,840 |
|
| $431,280 |
|
Stock Options | — |
| — |
| — |
| — |
|
| $156,111 |
|
| $156,111 |
|
| $156,111 |
|
Restricted Stock | — |
| — |
| — |
| — |
|
| $233,335 |
|
| $233,335 |
|
| $233,335 |
|
Welfare Benefits(5) | — |
| — |
| — |
| — |
| — |
| — |
|
| $19,908 |
|
|
| | | | | | | | | | | | | | | | | | |
Benefits and Payments Upon Termination | Voluntary Resignation | For Cause | Termination for Good Reason or Not for Cause | Retirement | Disability | Death | Termination Related to a Change in Control |
Andrew S. Marsh(1) | | | | | | | |
Severance Payment | — |
| — |
| — |
| — |
| — |
| — |
|
| $3,315,000 |
|
Performance Units(3) | — |
| — |
| — |
| — |
|
| $1,105,035 |
|
| $1,105,035 |
|
| $1,964,720 |
|
Stock Options | — |
| — |
| — |
| — |
|
| $3,468,531 |
|
| $3,468,531 |
|
| $3,468,531 |
|
Restricted Stock | — |
| — |
| — |
| — |
|
| $1,279,045 |
|
| $1,279,045 |
|
| $1,279,045 |
|
Welfare Benefits(5) | — |
| — |
| — |
| — |
| — |
| — |
|
| $29,862 |
|
Unvested Restricted Stock Units(8) | — |
| — |
| — |
| — |
|
| $2,527,780 |
|
| $2,527,780 |
|
| $2,527,780 |
|
| | | | | | | |
Phillip R. May, Jr.(2) | | | | | | | |
Severance Payment | — |
| — |
| — |
| — |
| — |
| — |
|
| $1,254,536 |
|
Performance Units(3) | — |
| — |
| — |
|
| $289,557 |
|
| $289,557 |
|
| $289,557 |
|
| $646,920 |
|
Stock Options | — |
| — |
| — |
|
| $732,470 |
|
| $732,470 |
|
| $732,470 |
|
| $732,470 |
|
Restricted Stock | — |
| — |
| — |
| — |
|
| $247,721 |
|
| $247,721 |
|
| $247,721 |
|
Welfare Benefits(6) | — |
| — |
| — |
| — |
| — |
| — |
| — |
|
| | | | | | | |
Sallie T. Rainer(2) | | | | | | | |
Severance Payment | — |
| — |
| — |
| — |
| — |
| — |
|
| $486,390 |
|
Performance Units(3) | — |
| — |
| — |
|
| $189,763 |
|
| $189,763 |
|
| $189,763 |
|
| $431,280 |
|
Stock Options | — |
| — |
| — |
|
| $501,452 |
|
| $501,452 |
|
| $501,452 |
|
| $501,452 |
|
Restricted Stock | — |
| — |
| — |
| — |
|
| $184,210 |
|
| $184,210 |
|
| $184,210 |
|
Welfare Benefits(6) | — |
| — |
| — |
| — |
| — |
| — |
| — |
|
| | | | | | | |
Roderick K. West(1) | | | | | | | |
Severance Payment | — |
| — |
| — |
| — |
| — |
| — |
|
| $3,641,466 |
|
Performance Units(3) | — |
| — |
| — |
| — |
|
| $1,033,275 |
|
| $1,033,275 |
|
| $1,964,720 |
|
Stock Options | — |
| — |
| — |
| — |
|
| $2,835,460 |
|
| $2,835,460 |
|
| $2,835,460 |
|
Restricted Stock | — |
| — |
| — |
| — |
|
| $1,064,329 |
|
| $1,064,329 |
|
| $1,064,329 |
|
Welfare Benefits(5) | — |
| — |
| — |
| — |
| — |
| — |
|
| $29,862 |
|
| |
1) | See “2019 Pension Benefits” for a description of the pension benefits Mr. Bakken, Mr. Ellis, Mr. Fisackerly, Ms. Landreaux, Mr. Marsh, and Mr. West may receive upon the occurrence of certain termination events. |
| |
2) | As of December 31, 2019, Mr. Brown, Mr. Denault, Mr. May, and Ms. Rainer are retirement eligible and would retire rather than voluntarily resign, and in addition to the payments and benefits in the eventtable, Mr. Brown, Mr. Denault, Mr. May, and Ms. Rainer also would be entitled to receive their vested pension benefits under the Entergy Retirement Plan. For a description of a Termination Event (as defined inthese benefits, see “2019 Pension Benefits.” |
| |
3) | For purposes of the table, the value of Mr. Denault’s 2006 retention agreement), he is entitled to a Target LTIP Award, as defined in his 2006 retention agreement,payments was calculated by usingmultiplying the average annual number oftarget performance units with respect tofor the two most recent2016-2018 Performance Unit Program (41,700) by the closing price of Entergy stock on December 31, 2019 ($119.80), which would equal a payment of $4,995,660 for the forfeited performance periods precedingunits for each performance period. The value of Mr. Bakken’s, Mr. Brown’s, Mr. Marsh’s, and Mr. West’s payments was calculated by multiplying the calendar year intarget performance units for the 2016-2018 Performance Unit Program (8,200) by the closing price of Entergy stock on December 31, 2019 ($119.80), which his employment termination occurs, assuming allwould equal a payment of $982,360 for the forfeited performance goals were achieved at target. units for each performance period. The value of Mr. May’s payment was calculated by multiplying the target performance units for the 2016-2018 Performance Unit Program (2,700) by the closing price of Entergy stock on December 31, 2019 ($119.80), which would equal a payment of $323,460 for the forfeited performance units for each performance period. The value of the payments for the other Named Executives Officers was calculated by multiplying the target performance units for the 2016-2018 Performance Unit Program (1,800) by |
the closing price of Entergy stock on December 31, 2019 ($119.80), which would equal a payment of $215,640 for the forfeited performance units for each performance period.
For purposes of the table, the values of the awards payable in the event of retirement in the case of Mr. Brown, Mr. Denault, Mr. May, or Ms. Rainer or upon death or disability, other than Mr. Denault, for each Named Executive Officer were calculated as follows:
Mr. Denault’s:
2018-2020 Performance Period: 28,467 (24/36 × 42,700) performance units at target, assuming a stock price of $119.80
2019-2021 Performance Period: 13,503 (12/36 × 40,508) performance units at target, assuming a stock price of $119.80
Mr. Bakken’s:
2018-2020 Performance Period: 5,267 (24/36 × 7,900) performance units at target, assuming a stock price of $119.80
2019-2021 Performance Period: 3,190 (12/36 × 9,568) performance units at target, assuming a stock price of $119.80
Mr. Brown’s:
2018-2020 Performance Period: 5,267 (24/36 × 7,900) performance units at target, assuming a stock price of $119.80
2019-2021 Performance Period: 3,128 (12/36 ×9,383) performance units at target, assuming a stock price of $119.80
Mr. Marsh’s:
2018-2020 Performance Period: 5,267 (24/36 × 7,900) performance units at target, assuming a stock price of $119.80
2019-2021 Performance Period: 3,957 (12/36 × 11,869) performance units at target, assuming a stock price of $119.80
Mr. West’s:
2018-2020 Performance Period: 5,267 (24/36 × 7,900) performance units at target, assuming a stock price of $119.80
2019-2021 Performance Period: 3,358 (12/36 × 10,073) performance units at target, assuming a stock price of $119.80
Mr. May’s:
2018-2020 Performance Period: 1,700 (24/36 × 2,550) performance units at target, assuming a stock price of $119.80
2019-2021 Performance Period: 717 (12/36 × 2,150) performance units at target, assuming a stock price of $119.80
Mr. Fisackerly’s and Ms. Rainer’s:
2018-2020 Performance Period: 1,100 (24/36 × 1,650) performance units at target, assuming a stock price of $119.80
2019-2021 Performance Period: 484 (12/36 × 1,450) performance units at target, assuming a stock price of $119.80
Ms. Landreaux’s:
2018-2020 Performance Period: 917 (24/36 × 1,375) performance units at target, assuming a stock price of $119.80
2019-2021 Performance Period: 484 (12/36 × 1,450) performance units at target, assuming a stock price of $119.80
Mr. Ellis’s:
2018-2020 Performance Period: 734 (24/36 × 1,100) performance units at target, assuming a stock price of $119.80
2019-2021 Performance Period: 484 (12/36 × 1,450) performance units at target, assuming a stock price of $119.80
| |
4) | For purposes of the table, the value of Mr. Denault’s retention payment was calculated by taking an average of the target performance units from the 2013-20152015-2017 Performance Unit Program (38,000)(33,100) and from the 2014-20162016-2018 Performance Unit Program (40,000)(41,700). This average number of units (39,000)(37,400) multiplied by the closing price of Entergy Corporation’s common stock on December 29, 201731, 2019 ($81.39)119.80) would equal a payment of $3,174,210. In the event of death or disability, Mr. Denault receives the greater of the Target LTIP Award calculated as described above or the sum of the amount that would be payable under the provisions of each open Performance Unit Program as described in Note 7 below.$4,480,520. |
| |
7) | In the event of a qualifying termination related to a change in control, each Named Executive Officer would have forfeited his or her performance units for the 2016-2018 and 2017-2019 performance periods and would have been entitled to receive, pursuant to the 2015 Equity Ownership Plan, a single-lump sum payment in lieu of any payment for each performance award that would not be based on any outstanding performance period. The payments for the 2016-2018 and the 2017-2019 performance periods would have been calculated using the most recent performance period preceding (but not including) the calendar year in which his or her termination occurs. For purposes of the table, the value of Mr. Denault’s payments was calculated by multiplying the target performance units for the 2014-2016 Performance Unit Program (40,000) by the closing price of Entergy Corporation’s common stock on December 29, 2017 ($81.39), which would equal a payment of $3,255,600 for the forfeited performance units for each performance period. The value of the payments for the other Named Executive Officers was calculated by multiplying the target performance units for the 2014-2016 Performance Unit Program (9,400) by the closing price of Entergy Corporation’s common stock on December 29, 2017 ($81.39), which would equal a payment of $765,066 for the forfeited performance units for each performance period. In the event his death or disability, Mr. Denault would receive the greater of the target Long-Term Performance Incentive award as described in note 6 above or a pro-rated number of performance units for all open performance periods, based on the number of months of his participation in each open performance period. |
In the event of retirement in the case of Mr. Brown, Mr. Denault, Mr. May, Ms. Rainer, or Mr. Riley, or upon death or disability, other than Mr. Denault, each Named Executive Officer would not have forfeited his or her performance units for all open performance periods, but rather such performance unit awards would have been pro-rated based on his or her number of months of participation in each open Performance Unit Program performance period, in accordance with his grant agreement under the Performance Unit Program. The amount of the award is based on actual performance achieved, with a stock price set as of the end of the performance period, and payable in the form of a lump sum after the completion of the performance period. For purposes of the table, the values of the awards were calculated as follows:
Mr. Denault’s:
2016 - 2018 Plan - 27,800 (24/36*41,700) performance units at target, assuming a stock price of $81.39
2017 - 2019 Plan - 16,233 (12/36*48,700) performance units at target, assuming a stock price of $81.39
Mr. Bakken’s:
2016 - 2018 Plan - 4,859 (24/36*7,289) performance units at target, assuming a stock price of $81.39
2017 - 2019 Plan - 2,767 (12/36*8,300) performance units at target, assuming a stock price of $81.39
Messrs. Brown’s, Marsh’s, and West’s:
2016 - 2018 Plan - 5,467 (24/36*8,200) performance units at target, assuming a stock price of $81.39
2017 - 2019 Plan - 2,767 (12/36*8,300) performance units at target, assuming a stock price of $81.39
Mr. May’s:
2016 - 2018 Plan - 1,800 (24/36*2,700) performance units at target, assuming a stock price of $81.39
2017 - 2019 Plan - 1,050 (12/36*3,150) performance units at target, assuming a stock price of $81.39
Messrs. Fisackerly’s, Rice’s, Riley’s, and Ms. Rainer’s:
2016 - 2018 Plan - 1,200 (24/36*1,800) performance units at target, assuming a stock price of $81.39
2017 - 2019 Plan - 617 (12/36*1,850) performance units at target, assuming a stock price of $81.39
Stock Options:
| |
8) | In the event of death or disability or qualifying termination related to a change in control, or retirement in the case of Mr. Brown, Mr. Denault, Mr. May, Ms. Rainer, or Mr. Riley, all of the unvested stock options of each Named Executive Officer would immediately vest pursuant to the Equity Ownership Plans. In addition, with respect to grants under the 2011 Equity Ownership Plan, each Named Executive Officer would be entitled to exercise his or her stock options for the remainder of the ten-year period extending from the grant date of the options, and with respect to grants under the 2015 Equity Ownership Plan, within the lesser of five years or the remaining term of the option grant. For purposes of this table, it is assumed that the Named Executive Officers exercised their options immediately upon vesting and received proceeds equal to the difference between the closing price of common stock on December 29, 2017, and the applicable exercise price of each option share. |
In the event of a Termination Event as defined in his 2006 retention agreement, Mr. Denault will immediately vest in all unvested stock options.
Restricted Stock:
| |
9) | In the event of death or disability pursuant to the 2011 Equity Ownership Plan, each Named Executive Officer would immediately vest in a pro-rated portion of his or her unvested restricted stock that was otherwise scheduled to become vested on the immediately following 12-month grant date anniversary date, as well as dividends declared on the pro-rated portion of such restricted stock pursuant to the 2011 Equity Ownership Plan. The pro-rated vested portion would be determined based on the number of days between the most recent preceding 12-month grant date anniversary date and the date of his or her death or disability. In the event of his or her qualifying termination related to a change in control, a Named Executive Officer would immediately vest in all of their unvested restricted stock, as well as dividends declared on such restricted stock granted pursuant the 2011 Equity Ownership Plan. In the event of death, disability, or qualifying termination related to a change in control, each Named Executive Officer would vest in all of their unvested restricted stock as well as dividends declared pursuant to the 2015 Equity Ownership Plan. |
In the event of a Termination Event as defined in his 2006 retention agreement, Mr. Denault will immediately vest in all unvested restricted stock.
Welfare Benefits:
| |
10)5) | Pursuant to the System Executive Continuity Plan, in the event of a termination related to a change in control, Mr. Bakken, Mr. Marsh, and Mr. West would be eligible to receive Entergy-sponsoredEntergy-subsidized COBRA benefits for 18 months and Mr. Ellis, Mr. Fisackerly, and Mr. RiceMs. Landreaux would be eligible to receive Entergy-sponsoredEntergy-subsidized COBRA benefits for 12 months. |
| |
11)6) | Upon retirement, Mr. Brown, Mr. Denault, Mr. May, and Ms. Rainer and Mr. Riley would be eligible for retiree medical and dental benefits, the same as all other retirees. |
Unvested Restricted Stock Units:
| |
12)7) | Mr.Bakken’s 30,000Mr. Bakken’s 20,000 restricted stock units vest 1/3rdin two equal installments on each of April 6, 2019, April 6, 2022 and April 6, 2025. Pursuant to his restricted stock unit agreement, if Mr. Bakken’s employment terminates due to total disability or death or, prior to April 6, 2019, Mr. Bakken’s employment is terminated by his Entergy employer other than for cause, then he will vest in and be paid the 10,000 restricted stock units that otherwise would have vested had he satisfied the vesting conditions of the restricted stock unit agreement through the next vesting date to occur following his date of total disability, death, or termination other than for cause prior to April 6, 2019 subject, in the case of a termination without cause, to Mr. Bakken timely executing and not revoking a release of claims against Entergy Corporation and its affiliates. In the event of a change in control, the unvested restricted stock units will fully vest upon Mr. Bakken’s termination of employment by his Entergy employer without cause or by Mr. Bakken with good reasonQualifying Termination during a change in control period (as defined in the 2015 Equity Ownership Plan). Otherwise, if Mr. Bakken voluntarily resigns or is terminated, he would forfeit these units.period. Pursuant to his restricted stock unit agreement, Mr. Bakken is subject to certain restrictions on his ability to compete with Entergy Corporation and its affiliates or solicit its employees or customers during and for 12 months after his employment with his Entergy employer. In addition, the restricted stock unit agreement limits Mr. Bakken’s ability to disparage Entergy Corporation and its affiliates. In the event of a breach of these restrictions, other than following certain constructive terminations of his employment, Mr. Bakken will forfeit any restricted stock units that are not yet vested and paid, and must repay to Entergy Corporation any shares of Entergy Corporation’s common stock paid to him in respect of the restricted stock units and any amounts he received upon the sale or transfer of any such shares.
|
| |
13)8) | Mr. Marsh’s 21,100 restricted stock units vest 100% in 2020. Pursuant to his restricted stock unit agreement, any unvested restricted stock units will vest immediately in the event of his termination of employment due to Mr. Marsh’s total disability or death. In the event ofdeath or a change in control, the units will vest upon termination of Mr. Marsh’s employment by his Entergy employer without cause or by Mr. Marsh with good reasonQualifying Termination during a change in control period (as defined in the 2015 Equity Ownership Plan). Otherwise, if Mr. Marsh voluntarily resigns or is terminated, he would forfeit these units.period. Pursuant to his restricted stock unit agreement, Mr. Marsh is subject to certain restrictions on his ability to compete with Entergy Corporation and its affiliates during and for 12 months after his employment with Entergy, Corporation, or to solicit its employees or customers during and for 24 months after his employment with it.Entergy. In addition, the restricted stock unit agreement limits Mr. Marsh’s ability to disparage Entergy Corporation and its affiliates. In the event of a breach of these restrictions, Mr. Marsh will forfeit any restricted stock units that are not yet vested and paid, and must repay to Entergy Corporation any shares of Entergy Corporation’s common stock paid to him in respect of the restricted stock units and any amounts he received upon the sale or transfer of any such shares. |
| |
14) | Mr. West’s 21,000 restricted stock units vest 100% in 2018. Pursuant to his restricted stock unit agreement, any unvested restricted stock units will vest immediately in the event of a termination other than for cause. In the event of a change in control, the units will vest upon termination of Mr. West’s employment by his Entergy employer without cause or by Mr. West with good reason during a change in control period (as defined in the 2011 Equity Ownership Plan). Otherwise, if Mr. West voluntarily resigns, is terminated for cause, dies, or becomes disabled, he would forfeit these units. |
Mr. Denault’s 2006 Retention Agreement
Under the terms of his 2006 retention agreement, Mr. Denault’s employment may be terminated for cause upon Mr. Denault’s:
continuing failure to substantially perform his duties (other than because of physical or mental illness or after he has given notice of termination for good reason) that remains uncured for 30 days after receiving a written notice from the Personnel Committee;
willfully engaging in conduct that is demonstrably and materially injurious to Entergy Corporation;
conviction of or entrance of a plea of guilty or nolo contendere to a felony or other crime that has or may have a material adverse effect on his ability to carry out his duties or upon Entergy Corporation’s reputation;
material violation of any agreement that he has entered into with Entergy Corporation; or
unauthorized disclosure of Entergy Corporation’s confidential information.
Mr. Denault may terminate his employment for good reason upon:
the substantial reduction in the nature or status of his duties or responsibilities from those in effect immediately prior to the date of the retention agreement, other than de minimis acts that are remedied after notice from Mr. Denault;
a reduction of 5% or more in his base salary as in effect on the date of the retention agreement;
the relocation of his principal place of employment to a location other than the corporate headquarters;
the failure to continue to allow him to participate in programs or plans providing opportunities for equity awards, stock options, restricted stock, stock appreciation rights, incentive compensation, bonus and other plans on a basis not materially less favorable than enjoyed at the time of the retention agreement (other than changes similarly affecting all senior executives);
the failure to continue to allow him to participate in programs or plans with opportunities for benefits not materially less favorable than those enjoyed by him under any of Entergy Corporation’s pension, savings, life insurance, medical, health and accident, disability, or vacation plans or policies at the time of the retention agreement (other than changes similarly affecting all senior executives); or
any purported termination of his employment not taken in accordance with his retention agreement.
System Executive Continuity Plan
Termination Related to a Change in Control
Entergy Corporation’s Named Executive Officers will be entitled to the benefits described in the tables above under the System Executive Continuity Plan in the event of a termination related to a change in control if a change in control occurs and their employment is terminated by their Entergy employer other than for cause or if they terminate their employment for good reason, in each case within a period beginning on the occurrence of a potential change in control and ending 24 months following the effective date of a change in control.
A change in control includes the following events:
the purchase of 30% or more of either Entergy Corporation’s common stock or the combined voting power of Entergy Corporation’s voting securities;
the merger or consolidation of Entergy Corporation (unless its Board members constitute at least a majority of the board members of the surviving entity);
the liquidation, dissolution, or sale of all or substantially all of Entergy Corporation’s assets; or
a change in the composition of Entergy Corporation’s Board such that, during any two-year period, the individuals serving at the beginning of the period no longer constitute a majority of Entergy Corporation’s Board at the end of the period.
A potential change in control includes the following events:
Entergy Corporation or an affiliate enters into an agreement the consummation of which would constitute a change in control;
the Entergy Corporation Board adopts resolutions determining that, for purposes of the System Executive Continuity Plan, a potential change in control has occurred;
a System Company or other person or entity publicly announces an intention to take actions that would constitute a change in control; or
any person or entity becomes the beneficial owner (directly or indirectly) of outstanding shares of Entergy Corporation’s common stock constituting 20% or more of the voting power or value of Entergy Corporation’s outstanding common stock.
A Named Executive Officer’s employment may be terminated for cause under the System Executive Continuity Plan if he or she:
willfully and continuously fails to substantially perform his or her duties after receiving a 30-day written demand for performance from Entergy Corporation’s Board;
engages in conduct that is materially injurious to Entergy Corporation or any of its subsidiaries;
is convicted or pleads guilty or nolo contendere to a felony or other crime that materially and adversely affects his or her ability to perform his or her duties or Entergy Corporation’s reputation;
materially violates any agreement with Entergy Corporation or any of its subsidiaries; or
discloses any of Entergy Corporation’s confidential information without authorization.
A Named Executive Officer may terminate his or her employment with his or her Entergy employer for good reason under the System Executive Continuity Plan if, without his or her consent:
the nature or status of his or her duties and responsibilities is substantially altered or reduced compared to the period prior to the change in control;
his or her salary is reduced by 5% or more;
he or she is required to be based outside of the continental United States at somewhere other than his or her primary work location prior to the change in control;
any of his or her compensation plans are discontinued without an equitable replacement;
his or her benefits or number of vacation days are substantially reduced; or
his or her Entergy employer purports to terminate his or her employment other than in accordance with the System Executive Continuity Plan.
In addition to participation in the System Executive Continuity Plan, benefits already accrued under the System Executive Retirement Plan, Pension Equalization Plan, and Cash Balance Equalization Plan, if any, will become fully vested if the executive is involuntarily terminated without cause or the executive terminates his or her employment for good reason within two years after the occurrence of a change in control. Any awards granted under the Equity Ownership Plans will become fully vested if the executive is involuntarily terminated without cause or terminates employment for good reason within two years after the occurrence of a change in control.
Under certain circumstances described below, the payments and benefits received by a Named Executive Officer pursuant to the System Executive Continuity Plan may be forfeited and, in certain cases, subject to repayment. Benefits are no longer payable under the System Executive Continuity Plan, and unvested performance units under the Performance Unit Program are subject to forfeiture, if the executive:
accepts employment with Entergy Corporation or any of its subsidiaries;
elects to receive the benefits of another severance or separation program;
removes, copies or fails to return any property belonging to Entergy Corporation or any of its subsidiaries;
discloses non-public data or information concerning Entergy Corporation or any of its subsidiaries; or
violates his or her non-compete provision, which generally runs for two years but extends to three years if permissible under applicable law.
Furthermore, if the executive discloses non-public data or information concerning Entergy Corporation or any of its subsidiaries or violates his or her non-compete provision, he or she will be required to repay any benefits previously received under the System Executive Continuity Plan.
Voluntary Resignation
If a Named Executive Officer voluntarily resigns from his or her Entergy employer:
all unvested stock options, shares of restricted stock and restricted stock units as well as any perquisites to which he or she is entitled as an officer are forfeited;
incentive payments under any outstanding performance periods under the Long-Term Performance Unit Program or the Annual Incentive Plan are forfeited; provided however, if an officer resigns after the completion of an Annual Incentive Plan or Long-Term Performance Unit Program performance period, he or she could receive a payout under the Long-Term Performance Unit Program based on the outcome of the performance period and could, at Entergy Corporation’s discretion, receive an annual incentive payment under the Annual Incentive Plan;
any vested stock options held by the officer as of the separation date will expire the earlier of ten years from date of grant or 90 days from the last day of active employment; and
he or she is entitled to all vested accrued benefits and compensation as of the separation date, including qualified pension benefits (if any) and other post-employment benefits on terms consistent with those generally available to other salaried employees.
Termination for Cause
If a Named Executive Officer’s employment is terminated for “cause” (as defined in the System Executive Continuity Plan and described above under “Termination Related to a Change in Control”), he or she is generally entitled to the same compensation and separation benefits described above under “Voluntary Resignation,” except that all options are no longer exercisable.
Retirement
Upon a Named Executive Officer’s retirement:
the annual incentive payment under the Annual Incentive Plan is generally pro-rated based on the actual number of days employed during the performance year in which the retirement date occurs, subject to negative discretion that may be applied to reduce or disallow the payment; payments are delivered at the conclusion of the annual period, consistent with the timing of payments to active participants in the Annual Incentive Plan;
payments under the Long-Term Performance Unit Program for those retiring with a minimum of 12 months of participation are pro-rated based on the actual full months of participation in each outstanding performance period in which the retirement date occurs, and payments are delivered at the conclusion of each performance period, consistent with the timing of payments to active participants in the Long-Term Performance Unit Program;
unvested stock options issued under the 2011 Equity Ownership Plan vest on the retirement date and expire ten years from the grant date of the options;
unvested stock options issued under the 2015 Equity Ownership Plan vest on the retirement date and expire the earlier of five years from the grant date of the options or the original term of ten years;
any unvested restricted stock and restricted stock units held by the executive upon his retirement are forfeited; and
he or she is generally entitled to all vested accrued benefits and compensation as of the separation date, including qualified pension benefits and other post-employment benefits consistent with those generally available to salaried employees.
Disability
If a Named Executive Officer’s employment is terminated due to disability, he or she generally is entitled to the same compensation and separation benefits described above under “Retirement,” except that unvested restricted stock and restricted stock units may be subject to specific disability benefits as noted, where applicable, in the tables above.
Death
If a Named Executive Officer dies while actively employed by an Entergy employer, he or she generally is entitled to the same compensation and separation benefits described above under “Retirement,” except that unvested restricted stock and restricted stock units may be subject to specific death benefits as noted, where applicable, in the tables above.
Pay Ratio
As required by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the following disclosure is being provided about the relationship of the annual total compensation of the employees of each of the Utility operating companies to the annual total compensation of their respective Presidents and Chief Executive Officers. The pay ratio estimate for each of the Utility operating companies has been calculated in a manner consistent with Item 402(u) of Regulation S-K.
Identification of Median Employee
For each of the Utility operating companies, October 6, 20174, 2019 was selected as the date on which to determine the median employee. This date is different from the date used in the prior year; however, the methodology used to determine
the date is consistent with that used in the prior year. Both dates correspond to the first day of the three month period prior to fiscal year-end for which information can be obtained about employees and all subsidiaries have the same number of pay cycles. To identify the median employee from each of the Utility operating companies’ employee population base, all compensation included in Box 5 of Form W-2 was considered with all before-tax deductions added back to this compensation (Box(“Box 5 Compensation)Compensation”). For purposes of determining the median employee of each Utility operating company, Box 5 Compensation was selected as it is believed it is representative of the compensation received by the employees of each respective Utility operating company and is readily available. The calculation of annual total compensation of the median employee for each Utility operating company is the same calculation used to determine total compensation for purposes of the 20172019 Summary Compensation Table with respect to each of the Named Executive Officers.
Entergy Arkansas Ratio
For 2017,2019,
| |
• | The median of the annual total compensation of all of EntergyArkansas’semployees, other than Ms. Landreaux, was $230,966. |
Mr. Riley’sMs. Landreaux’s annual total compensation, as reported in the Total column of the 20172019 Summary Compensation Table was $1,353,719.
The annual total compensation of the median employee was $127,560.$1,064,459.
Based on this information, the ratio of the annual total compensation of Mr. RileyMrs. Landreaux to the median employeeof the annual total compensation of all employees is estimated to be 11:5:1.
Entergy Louisiana Ratio
For 2017,2019,
The median of the annual total compensation of all of Entergy Louisiana’s employees, other than Mr. May, was $173,745.
Mr. May’s annual total compensation, as reported in the Total column of the 20172019 Summary Compensation Table, was $1,564,954.
The annual total compensation of the median employee was $144,954.$2,073,894.
Based on this information, the ratio of the annual total compensation of Mr. May to the median employeeof the annual total compensation of all employees is estimated to be 11:12:1.
Entergy Mississippi Ratio
For 2017,2019,
The median of the annual total compensation of all of Entergy Mississippi’s employees, other than Mr. Fisackerly, was $254,843.
Mr. Fisackerly’s annual total compensation, as reported in the Total column of the 20172019 Summary Compensation Table, was $1,207,343.
The annual total compensation of the median employee was $112,110.$1,579,844.
Based on this information, the ratio of the annual total compensation of Mr. Fisackerly to the median employeeof the annual total compensation of all employees is estimated to be 11:6:1.
Entergy New Orleans Ratio
For 2017,2019,
| |
• | The median of the annual total compensation of all of EntergyNew Orleans’semployees, other than Mr. Ellis, was $145,217. |
Mr. Rice’sEllis’s annual total compensation, as reported in the Total column of the 20172019 Summary Compensation Table was $824,111.
The annual total compensation of the median employee was $91,346.$732,040.
Based on this information, the ratio of the annual total compensation of Mr. RiceEllis to the median employeeof the annual total compensation of all employees is estimated to be 9:5:1.
Entergy Texas Ratio
For 2017,2019,
The median of the annual total compensation of all of Entergy Texas’s employees, other than Ms. Rainer, was $233,988.
Ms. Rainer’s annual total compensation, as reported in the Total column of the 20172019 Summary Compensation Table, was $1,200,260.
The annual total compensation of the median employee was $129,877.$1,467,716.
Based on this information, the ratio of the annual total compensation of Ms. Rainer to the median employeeof the annual total compensation of all employees is estimated to be 9:6:1.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Entergy Corporation owns 100% of the outstanding common stock of registrants Entergy Arkansas, Entergy Mississippi,registrant Entergy Texas and indirectly 100% of the outstanding common membership interests of registrantregistrants Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans. The information with respect to persons known by Entergy Corporation to be beneficial owners of more than 5% of Entergy Corporation’s outstanding common stock is included under the heading “Entergy Share Ownership - Beneficial Owners of More Than Five Percent”Percent of Entergy Common Stock” in the Entergy Corporation Proxy Statement, which information is incorporated herein by reference. The registrants know of no contractual arrangements that may, at a subsequent date, result in a change in control of any of the registrants.
The following table sets forth the beneficial ownership of common stock of Entergy Corporation and stock-based units as of January 31, 20182020 for all non-employee directors and Named Executive Officers. Unless otherwise noted, each person had sole voting and investment power over the number of shares of common stock and stock-based units of Entergy Corporation set forth across from his or her name.
| | Name | | Shares (1)(2) | | Options Exercisable Within 60 Days | | Stock Units (3) | | Shares (1)(2) | | Options Exercisable Within 60 Days | | Stock Units (3) |
Entergy Corporation | | | | | | | | | | | | |
A. Christopher Bakken, III** | | 10,710 |
| | 12,533 |
| | — |
| | 38,397 |
| | 38,174 |
| | — |
|
Maureen S. Bateman* | | 22,716 |
| | — |
| | — |
| |
Marcus V. Brown** | | 27,803 |
| | 130,066 |
| | — |
| | 44,758 |
| | 40,075 |
| | — |
|
John R. Burbank* | | | 2,417 |
| | — |
| | — |
|
Patrick J. Condon* | | 4,460 |
| | — |
| | — |
| | 7,834 |
| | — |
| | — |
|
Leo P. Denault*** | | 133,457 |
| | 565,133 |
| | — |
| | 265,416 |
| | 753,202 |
| | — |
|
Kirkland H. Donald* | | 5,736 |
| | — |
| | 1,389 |
| | 7,721 |
| | — |
| | 2,949 |
|
Philip L. Frederickson* | | 2,775 |
| | — |
| | 805 |
| | 6,284 |
| | — |
| | 805 |
|
Alexis M. Herman* | | 12,581 |
| | — |
| | — |
| | 14,506 |
| | — |
| | — |
|
Donald C. Hintz* | | 15,096 |
| | — |
| | 3,942 |
| |
M. Elise Hyland* | | | 727 |
| | | | |
Stuart L. Levenick* | | 18,047 |
| | — |
| | — |
| | 21,421 |
| | — |
| | — |
|
Blanche L. Lincoln* | | 11,004 |
| | — |
| | — |
| | 14,879 |
| | — |
| | — |
|
Andrew S. Marsh** | | 60,425 |
| | 166,766 |
| | — |
| | 86,740 |
| | 241,726 |
| | — |
|
Karen A. Puckett* | | 4,460 |
| | — |
| | — |
| | 7,834 |
| | — |
| | — |
|
W. J. Tauzin* | | 17,809 |
| | — |
| | — |
| |
Roderick K. West** | | 42,475 |
| | 114,066 |
| | — |
| | 64,999 |
| | 97,249 |
| | — |
|
All directors and executive officers as a group (19 persons) | | 444,591 |
| | 1,112,495 |
| | 6,136 |
| | 656,574 |
| | 1,273,794 |
| | 3,754 |
|
| | | | | | | | | | | | |
Entergy Arkansas | | |
| | |
| | |
| | |
| | |
| | |
|
A. Christopher Bakken, III** | | 10,710 |
| | 12,533 |
| | — |
| | 38,397 |
| | 38,174 |
| | — |
|
Marcus V. Brown** | | 27,803 |
| | 130,066 |
| | — |
| | 44,758 |
| | 40,075 |
| | — |
|
Leo P. Denault** | | 133,457 |
| | 565,133 |
| | — |
| | 265,416 |
| | 753,202 |
| | — |
|
Andrew S. Marsh*** | | 60,425 |
| | 166,766 |
| | — |
| | 86,740 |
| | 241,726 |
| | — |
|
Richard C. Riley*** | | 11,169 |
| | 16,967 |
| | — |
| |
Laura R. Landreaux*** | | | 5,866 |
| | 1,700 |
| | — |
|
Roderick K. West*** | | 42,475 |
| | 114,066 |
| | — |
| | 64,999 |
| | 97,249 |
| | — |
|
All directors and executive officers as a group (10 persons) | | 341,076 |
| | 1,129,462 |
| | — |
| |
All directors and executive officers as a group (8 persons) | | | 555,420 |
| | 1,242,596 |
| | — |
|
| | | | | | | | | | | | |
Entergy Louisiana | | | | | | | | | | | | |
A. Christopher Bakken, III** | | 10,710 |
| | 12,533 |
| | — |
| | 38,397 |
| | 38,174 |
| | — |
|
Marcus V. Brown** | | 27,803 |
| | 130,066 |
| | — |
| | 44,758 |
| | 40,075 |
| | — |
|
Leo P. Denault** | | 133,457 |
| | 565,133 |
| | — |
| | 265,416 |
| | 753,202 |
| | — |
|
Andrew S. Marsh*** | | 60,425 |
| | 166,766 |
| | — |
| | 86,740 |
| | 241,726 |
| | — |
|
Phillip R. May, Jr.*** | | 18,203 |
| | 47,100 |
| | 12 |
| | 25,880 |
| | 13,900 |
| | 13 |
|
Roderick K. West*** | | 42,475 |
| | 114,066 |
| | — |
| | 64,999 |
| | 97,249 |
| | — |
|
All directors and executive officers as a group (10 persons) | | 348,110 |
| | 1,159,595 |
| | 12 |
| |
All directors and executive officers as a group (8 persons) | | | 575,434 |
| | 1,254,796 |
| | 13 |
|
| | Name | | Shares (1)(2) | | Options Exercisable Within 60 Days | | Stock Units (3) | | Shares (1)(2) | | Options Exercisable Within 60 Days | | Stock Units (3) |
Entergy Mississippi | | | | | | | | | | | | |
Marcus V. Brown** | | 27,803 |
| | 130,066 |
| | — |
| | 44,758 |
| | 40,075 |
| | — |
|
Leo P. Denault** | | 133,457 |
| | 565,133 |
| | — |
| | 265,416 |
| | 753,202 |
| | — |
|
Haley R. Fisackerly*** | | 6,605 |
| | 21,933 |
| | — |
| | 9,847 |
| | 6,800 |
| | — |
|
Andrew S. Marsh*** | | 60,425 |
| | 166,766 |
| | — |
| | 86,740 |
| | 241,726 |
| | — |
|
Roderick K. West*** | | 42,475 |
| | 114,066 |
| | — |
| | 64,999 |
| | 97,249 |
| | — |
|
All directors and executive officers as a group (9 persons) | | 325,802 |
| | 1,121,895 |
| | — |
| |
All directors and executive officers as a group (7 persons) | | | 521,004 |
| | 1,209,522 |
| | — |
|
| | | | | | | | | | | | |
Entergy New Orleans | | | | | | | | | | | | |
Marcus V. Brown** | | 27,803 |
| | 130,066 |
| | — |
| | 44,758 |
| | 40,075 |
| | — |
|
Leo P. Denault** | | 133,457 |
| | 565,133 |
| | — |
| | 265,416 |
| | 753,202 |
| | — |
|
David D. Ellis*** | | | 1,812 |
| | 1,566 |
| | — |
|
Andrew S. Marsh*** | | 60,425 |
| | 166,766 |
| | — |
| | 86,740 |
| | 241,726 |
| | — |
|
Charles L. Rice, Jr.*** | | 5,855 |
| | 10,266 |
| | — |
| |
Roderick K. West*** | | 42,475 |
| | 114,066 |
| | — |
| | 64,999 |
| | 97,249 |
| | — |
|
All directors and executive officers as a group (9 persons) | | 325,052 |
| | 1,110,228 |
| | — |
| |
All directors and executive officers as a group (7 persons) | | | 512,969 |
| | 1,204,288 |
| | — |
|
| | | | | | | | | | | | |
Entergy Texas | | | | | | | | | | | | |
Marcus V. Brown** | | 27,803 |
| | 130,066 |
| | — |
| | 44,758 |
| | 40,075 |
| | — |
|
Leo P. Denault** | | 133,457 |
| | 565,133 |
| | — |
| | 265,416 |
| | 753,202 |
| | — |
|
Andrew S. Marsh*** | | 60,425 |
| | 166,766 |
| | — |
| | 86,740 |
| | 241,726 |
| | — |
|
Sallie T. Rainer*** | | 7,884 |
| | 14,866 |
| | — |
| | 10,799 |
| | 6,866 |
| | — |
|
Roderick K. West*** | | 42,475 |
| | 114,066 |
| | — |
| | 64,999 |
| | 97,249 |
| | — |
|
All directors and executive officers as a group (9 persons) | | 327,081 |
| | 1,114,828 |
| | — |
| |
All directors and executive officers as a group (7 persons) | | | 521,956 |
| | 1,209,588 |
| | — |
|
|
| |
* | Director of the respective Company |
** | Named Executive Officer of the respective Company |
*** | Director and Named Executive Officer of the respective Company |
| |
(1) | The number of shares of Entergy Corporation common stock owned by each individual and by all non-employee directors and executive officers as a group does not exceed one percent of the outstanding shares of Entergy Corporation common stock. |
| |
(2) | For the non-employee directors, the balances include phantom units that are issued under the Service Recognition Program. All non-employee directors are credited with phantom units for each year of service on the Entergy Corporation Board. These phantom units do not have voting rights or accrue dividends, and will be settled in shares of Entergy Corporation common stock following the non-employee director’s separation from the Board. |
| |
(3) | Represents the balances of phantom units each executive holds under the defined contribution restoration plan and the deferral provisions of the Equity Ownership Plan.Entergy Corporation’s equity ownership plans. These units will be paid out in either Entergy Corporation Common Stock or cash equivalent to the value of one share of Entergy Corporation common stock per unit on the date of payout, including accrued dividends. The deferral period is determined by the individual and is at least two years from the award of the bonus. Messrs. Donald Hintz, and Frederickson have deferred receipt of some of their quarterly stock grants. The deferred shares will be settled in cash in an amount equal to the market value of Entergy Corporation common stock at the end of the deferral period. |
Equity Compensation Plan Information
The following table summarizes the equity compensation plan information as of December 31, 2017.2019. Information is included for equity compensation plans approved by the stockholders andshareholders. There are no shares authorized for issuance under equity compensation plans not approved by the stockholders.
shareholders.
| | Plan | | Number of Securities to be Issued Upon Exercise of Outstanding Options (a) | | Weighted Average Exercise Price (b) | | Number of Securities Remaining Available for Future Issuance (excluding securities reflected in column (a))(c) | | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights (a) | | Weighted Average Exercise Price (b)(2) | | Number of Securities Remaining Available for Future Issuance (excluding securities reflected in column (a))(c) |
Equity compensation plans approved by security holders (1) | | 5,164,854 |
| | $83.26 | | 3,498,788 |
| | 2,448,913 |
| | $78.48 | | 7,266,822 |
|
Equity compensation plans not approved by security holders(2) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Total | | 5,164,854 |
| | $83.26 | | 3,498,788 |
| | 2,448,913 |
| | $78.48 | | 7,266,822 |
|
| |
(1) | Includes the 2007 Equity Ownership Plan, the 2011 Equity Ownership Plan, and the 2015 Equity OwnershipPlan, and the 2019 Omnibus Incentive Plan. The 2007 Equity Ownership Plan was approved by Entergy Corporation shareholders on May 12, 2006, and only applied to awards granted between January 1, 2007 and May 5, 2011. The 2011 Equity Ownership Plan was approved by Entergy Corporation shareholders on May 6, 2011, and only applied to awards granted between May 6, 2011 and May 7, 2015. The 2015 Equity Ownership Plan was approved by Entergy Corporation shareholders on May 8, 2015, and 6,900,000only applied to awards granted between May 8, 2015 and May 3, 2019. The 2019 Omnibus Incentive Plan was approved by the Entergy Corporation shareholders on May 3, 2019, and 7,300,000 shares of Entergy Corporation common stock can be issued from the 2015 Equity Ownership2019 Omnibus Incentive Plan, with no more than 1,500,000all shares available for equity-based incentive stock option grants. The 2015 Plan applies to awards granted on or after May 8, 2015.awards. The 2007 Equity Ownership Plan, the 2011 Equity Ownership Plan, and the 2015 Equity Ownership Plan, (theand the 2019 Omnibus Incentive Plan (collectively, the “Plans”) are administered by the Personnel Committee of the Board of Directors (other than with respect to awards granted to non-employee directors, which awards are administered by the entire Board of Directors). Eligibility under the Plans is limited to the non-employee directors and to the officers and employees of an Entergy employer and any corporation 80% or morean affiliate of whose stock (based on voting power) or value is owned, directly or indirectly, by Entergy Corporation. The Plans provide for the issuance of stock options, restricted stock, equity awards (units whose value is related to the value of shares of the common stock but do not represent actual shares of common stock), performance awards (performance shares or units valued by reference to shares of common stock or performance units valued by reference to financial measures or property other than common stock), restricted stock unit awards, and other stock-based awards. |
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(2) | Entergy has a Board-approved stock-based compensation plan. However, effective May 9, 2003, the Board has directed that no further awards be issued under that plan. As of December 31, 2017, all optionsThe weighted average exercise price reported in this column does not include outstanding under the plan were either exercised or expired.performance awards. |
Item 13. Certain Relationships and Related Party Transactions and Director Independence
For information regarding certain relationship, related transactions and director independence of Entergy Corporation, see the Entergy Corporation Proxy Statement under the headings “Corporate Governance at Entergy - Director Independence” and “Corporate Governance at Entergy - Corporate Governance Policies - Our Transactions withReview and Approval of Related Party Persons Policy.Transactions.”
Entergy Corporation’s Board of Directors has adopted a written policies and procedures for the review, approval or ratification ofRelated Party Transaction Approval Policy that applies:
To any transaction involving an amount in excessor series of $120,000transactions in which anyEntergy Corporation or a subsidiary is a participant;
When the amount involved exceeds $120,000; and
When a Related Party (an Entergy Corporation director or executive officer, of Entergy Corporation, any nominee for director, orany shareholder owning an excess of 5% of the total equity of Entergy Corporation and any immediate family member of the foregoingany such person) has a direct or will have aindirect material interest (other than solely as contemplateda result of being a director or a less than 10% beneficial owner of another entity).
The policy is administered by Item 404(a) of Regulation S-K (“Related Person Transactions”). Under these policies and procedures, Entergy Corporation’s Corporate Governance CommitteeCommittee. The committee will consider relevant facts and circumstance in determining whether or not to approve or ratify such a subcommittee of its Board of Directors consisting entirely of independent directors reviews the transaction, and either approveswill approve or rejects the transaction after taking into account the following factors:
Whether the proposed transaction is on termsratify only those transactions that are, at least as favorable to Entergy Corporation as those achievable with an unaffiliated third party;
Size of the transaction and amount of consideration;
Nature of the interest;
Whether the transaction involves a conflict of interest;
Whether the transaction involves services available from unaffiliated third parties; and
Any other factors thatin the Corporate Governance Committee’s judgment, appropriate or desirable under the circumstances. The Corporate Governance Committee has determined that certain types of transactions do not create or subcommittee deems relevant.
The policy does not apply to (a)involve a direct or indirect material interest, including (i) compensation and related personparty transactions involving a director or an executive officer solely resulting from that person’s service as a director or employment with Entergy Corporation so long as the compensation is approved by the Entergy Corporation Board of Directors (or an appropriate committee), (b); (ii) transactions involving public utility services at rates or charges fixed in conformity with law or governmental authority,authority; or (c) any other categories of transactions currently or(iii) all business relationships between Entergy Corporation and a Related Party made in the future excluded fromordinary course of business on terms and conditions generally available in the reporting requirements of Item 404(a) of Regulation S-K.
Related Party Transactions
Sincemarketplace an in accordance with applicable law. To Entergy Corporation’s knowledge, since January 1, 2017,2019, neither Entergy Corporation nor any of its affiliates has participated in any Related Person Transaction.Party transaction.
Item 14. Principal Accountant Fees and Services(Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)
Aggregate fees billed to Entergy Corporation (consolidated), Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy for the years ended December 31, 20172019 and 20162018 by Deloitte & Touche LLP were as follows:
| | | 2017 | | 2016 | 2019 | | 2018 |
Entergy Corporation (consolidated) | | | | | | |
Audit Fees |
| $8,401,895 |
| |
| $8,932,000 |
|
| $8,710,000 |
| |
| $8,801,895 |
|
Audit-Related Fees (a) | 875,000 |
| | 865,000 |
| 775,000 |
| | 1,067,119 |
|
Total audit and audit-related fees | 9,276,895 |
| | 9,797,000 |
| 9,485,000 |
| | 9,869,014 |
|
Tax Fees | — |
| | — |
| — |
| | — |
|
All Other Fees | — |
| | — |
| 31,835 |
| | — |
|
Total Fees (b) |
| $9,276,895 |
| |
| $9,797,000 |
|
| $9,516,835 |
| |
| $9,869,014 |
|
Entergy Arkansas | | | | | | |
Audit Fees |
| $1,018,860 |
| |
| $1,056,881 |
|
| $1,015,125 |
| |
| $1,030,758 |
|
Audit-Related Fees (a) | — |
| | — |
| — |
| | — |
|
Total audit and audit-related fees | 1,018,860 |
| | 1,056,881 |
| 1,015,125 |
| | 1,030,758 |
|
Tax Fees | — |
| | — |
| — |
| | — |
|
All Other Fees | — |
| | — |
| — |
| | — |
|
Total Fees (b) |
| $1,018,860 |
| |
| $1,056,881 |
|
| $1,015,125 |
| |
| $1,030,758 |
|
Entergy Louisiana | | | | | | |
Audit Fees |
| $1,887,719 |
| |
| $2,138,762 |
|
| $1,871,918 |
| |
| $1,916,517 |
|
Audit-Related Fees (a) | 500,000 |
| | 450,000 |
| 360,000 |
| | 500,000 |
|
Total audit and audit-related fees | 2,387,719 |
| | 2,588,762 |
| 2,231,918 |
| | 2,416,517 |
|
Tax Fees | — |
| | — |
| — |
| | — |
|
All Other Fees | — |
| | — |
| — |
| | — |
|
Total Fees (b) |
| $2,387,719 |
| |
| $2,588,762 |
|
| $2,231,918 |
| |
| $2,416,517 |
|
Entergy Mississippi | | | | | | |
Audit Fees |
| $933,860 |
| |
| $971,881 |
|
| $1,005,125 |
| |
| $910,758 |
|
Audit-Related Fees (a) | — |
| | — |
| — |
| | — |
|
Total audit and audit-related fees | 933,860 |
| | 971,881 |
| 1,005,125 |
| | 910,758 |
|
Tax Fees | — |
| | — |
| — |
| | — |
|
All Other Fees | — |
| | — |
| — |
| | — |
|
Total Fees (b) |
| $933,860 |
| |
| $971,881 |
|
| $1,005,125 |
| |
| $910,758 |
|
| | | 2017 | | 2016 | 2019 | | 2018 |
Entergy New Orleans | | | | | | |
Audit Fees |
| $953,860 |
| |
| $1,056,881 |
|
| $950,125 |
| |
| $965,758 |
|
Audit-Related Fees (a) | — |
| | — |
| — |
| | — |
|
Total audit and audit-related fees | 953,860 |
| | 1,056,881 |
| 950,125 |
| | 965,758 |
|
Tax Fees | — |
| | — |
| — |
| | — |
|
All Other Fees | — |
| | — |
| — |
| | — |
|
Total Fees (b) |
| $953,860 |
| |
| $1,056,881 |
|
| $950,125 |
| |
| $965,758 |
|
Entergy Texas | | | | | | |
Audit Fees |
| $1,093,860 |
| |
| $1,076,881 |
|
| $1,165,125 |
| |
| $1,200,758 |
|
Audit-Related Fees (a) | — |
| | — |
| — |
| | — |
|
Total audit and audit-related fees | 1,093,860 |
| | 1,076,881 |
| 1,165,125 |
| | 1,200,758 |
|
Tax Fees | — |
| | — |
| — |
| | — |
|
All Other Fees | — |
| | — |
| — |
| | — |
|
Total Fees (b) |
| $1,093,860 |
| |
| $1,076,881 |
|
| $1,165,125 |
| |
| $1,200,758 |
|
System Energy | | | | | | |
Audit Fees |
| $868,860 |
| |
| $861,881 |
|
| $930,125 |
| |
| $850,758 |
|
Audit-Related Fees (a) | — |
| | — |
| — |
| | — |
|
Total audit and audit-related fees | 868,860 |
| | 861,881 |
| 930,125 |
| | 850,758 |
|
Tax Fees | — |
| | — |
| — |
| | — |
|
All Other Fees | — |
| | — |
| — |
| | — |
|
Total Fees (b) |
| $868,860 |
| |
| $861,881 |
|
| $930,125 |
| |
| $850,758 |
|
| |
(a) | Includes fees for employee benefit plan audits, consultation on financial accounting and reporting, and other attestation services. |
| |
(b) | 100% of fees paid in 20172019 and 20162018 were pre-approved by the Entergy Corporation Audit Committee. |
Entergy Audit Committee Guidelines for Pre-approval of Independent Auditor Services
The Audit Committee has adopted the following guidelines regarding the engagement of Entergy’s independent auditor to perform services for Entergy:
| |
1. | The independent auditor will provide the Audit Committee, for approval, an annual engagement letter outlining the scope of services proposed to be performed during the fiscal year, including audit services and other permissible non-audit services (e.g. audit-related services, tax services, and all other services). |
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2. | For other permissible services not included in the engagement letter, Entergy management will submit a description of the proposed service, including a budget estimate, to the Audit Committee for pre-approval. Management and the independent auditor must agree that the requested service is consistent with the SEC’s rules on auditor independence prior to submission to the Audit Committee. The Audit Committee, at its discretion, will pre-approve permissible services and has established the following additional guidelines for permissible non-audit services provided by the independent auditor: |
Aggregate non-audit service fees are targeted at fifty percent or less of the approved audit service fee.
All other services should only be provided by the independent auditor if it is a highly qualified provider of that service or if the Audit Committee pre-approves the independent audit firm to provide the service.
| |
3. | The Audit Committee will be informed quarterly as to the status of pre-approved services actually provided by the independent auditor. |
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4. | To ensure prompt handling of unexpected matters, the Audit Committee delegates to the Audit Committee Chair or its designee the authority to approve permissible services and fees. The Audit Committee Chair or designee will report action taken to the Audit Committee at the next scheduled Audit Committee meeting. |
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5. | The Vice President and General Auditor will be responsible for tracking all independent auditor fees and will report quarterly to the Audit Committee. |
PART IV
Item 15. Exhibits and Financial Statement Schedules
|
| |
(a)1. | Financial Statements and Independent Auditors’ Reports for Entergy, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy are listed in the Table of Contents. |
| |
(a)2. | Financial Statement Schedules |
| |
| ReportReports of Independent Registered Public Accounting Firm (see page 530)517) |
| |
| Financial Statement Schedules are listed in the Index to Financial Statement Schedules (see page S-1) |
| |
(a)3. | Exhibits |
| |
| Exhibits for Entergy, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy are listed in the Exhibit Index (see page 507)494 and are incorporated by reference herein). Each management contract or compensatory plan or arrangement required to be filed as an exhibit hereto is identified as such by footnote in the Exhibit Index. |
Item 16. Form 10-K Summary (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)
None.
EXHIBIT INDEX
The following exhibits indicated by an asterisk preceding the exhibit number are filed herewith. The balance of the exhibits have heretoforepreviously been filed with the SEC as the exhibits and in the file numbers indicated and are incorporated herein by reference. The exhibits marked with a (+) are management contracts or compensatory plans or arrangements required to be filed herewith and required to be identified as such by Item 15 of Form 10-K.
Some of the agreements included or incorporated by reference as exhibits to this Form 10-K contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties were made solely for the benefit of the other parties to the applicable agreement and (i) were not intended to be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate; (ii) may have been qualified in such agreement by disclosures that were made to the other party in connection with the negotiation of the applicable agreement; (iii) may apply contract standards of “materiality” that are different from the standard of “materiality” under the applicable securities laws; and (iv) were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement.
Entergy acknowledges that, notwithstanding the inclusion of the foregoing cautionary statements, it is responsible for considering whether additional specific disclosures of material information regarding material contractual provisions are required to make the statements in this Form 10-K not misleading.
(2) Plan of Acquisition, Reorganization, Arrangement, Liquidation or Succession
Entergy LouisianaArkansas
Entergy Louisiana
|
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(b) 1 -- | |
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(a)(b) 2 -- | |
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(a)(b) 3 -- | |
Entergy Mississippi
Entergy New Orleans
(3) Articles of Incorporation and By-lawsBylaws
Entergy Corporation
System Energy
Entergy Arkansas
Entergy Louisiana
Entergy Mississippi
Entergy New Orleans
Entergy Texas
(4)Instruments Defining Rights of Security Holders, Including Indentures
Entergy Corporation
|
| |
(a) 1 -- | See (4)(b) through (4)(g) below for instruments defining the rights of security holders of System Energy, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and Entergy Texas. |
| |
(a) 2 -- | |
| |
(a) 3 -- | |
| |
(a) 4 -- | |
| |
(a) 5 -- | |
| |
(a) 6 -- | |
|
| |
(a) 5 -- | |
| |
(a) 6 -- | |
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(a) 7 -- | Second Amended and Restated Credit Agreement dated as of AugustSeptember 14, 2015,2018, among Entergy Corporation, as the Borrower, the banks and other financial institutions party theretolisted on the signatures pages thereof, as Lenders, Citibank, N.A., as Administrative Agent and LC Issuing Bank, MUFG Bank, Ltd., as an LC Issuing Bank, and the other LC Issuing Banks partyfrom time to time parties thereto (4(g) to Form 10-Q for the quarter ended September 30, 20152018 in 1-11299). |
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(a) 8 -- | AmendmentExtension Agreement, dated as of August 28, 2015,September 13, 2019, to Second Amended and Restated Credit Agreement dated as of AugustSeptember 14, 2015,2018, among Entergy Corporation, as the Borrower, the banks and other financial institutions party theretolisted on the signature pages thereof, as Lenders, Citibank, N.A., as Administrative Agent and LC Issuing Bank, MUFG Bank, Ltd., as an LC Issuing Bank, and the other LC Issuing Banks party thereto (4(h)from time to Form 10-Q for the quarter ended September 30, 2015 in 1-11299). |
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(a) 9 -- | Extension Agreement, dated August 8, 2016, to Amended and Restated Credit Agreement dated as of August 14, 2015, among Entergy Corporation, as the Borrower, the banks and other financial institutions party thereto as Lenders, Citibank, N.A., as Administrative Agent and as an LC Issuing Bank, and the other LC Issuing Banks party thereto (4(l) to Form 10-Q for the quarter ended September 30, 2016 in 1-11299). |
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(a) 10 -- | Amendment dated as of August 8, 2016, to Amended and Restated Credit Agreement dated as of August 14, 2015, among Entergy Corporation, as the Borrower, the banks and other financial institutions party thereto as Lenders, Citibank, N.A., as Administrative Agent and as an LC Issuing Bank, and the other LC Issuing Banks party thereto (4(m) to Form 10-Q for the quarter ended September 30, 2016 in 1-11299). |
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(a) 11 -- | Extension Agreement, dated August 7, 2017, to Amended and Restated Credit Agreement dated as of August 14, 2015, as amended, among Entergy Corporation, as the Borrower, the banks and other financial institutions party thereto as Lenders, Citibank, N.A., as Administrative Agent and as an LC Issuing Bank, and the other LC Issuing Banks partytime parties thereto (4(a) to Form 10-Q for the quarter ended September 30, 2017)2019 in 1-11299).
|
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(a) 12 -- | Amendment, dated as of October 17, 2017, to Amended and Restated Credit Agreement dated as of August 14, 2015, as amended, among Entergy Corporation, as the Borrower, the banks and other financial institutions party thereto as Lenders, Citibank, N.A., as Administrative Agent and as an LC Issuing Bank, and the other LC Issuing Banks party thereto (4(b) to Form 10-Q for the quarter ended September 30, 2017). |
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*(a) 139 -- | Agreement, dated asDescription of October 17, 2017, pursuant to Amended and Restated Credit Agreement dated asEntergy Corporation’s securities registered under Section 12 of August 14, 2015, as amended, among Entergy Corporation, as the Borrower, the banks and other financial institutions party thereto as Lenders, Citibank, N.A., as Administrative Agent and as an LC Issuing Bank, and the other LC Issuing Banks party thereto (4(c) to Form 10-Q for the quarter ended September 30, 2017).Securities Exchange Act of 1934. |
System Energy
|
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(b) 1 -- | |
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(b) 2 -- | |
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*(b) 3 -- | |
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(b) 3 -- | |
Entergy Arkansas
|
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(c) 1 -- | Mortgage and Deed of Trust, dated as of October 1, 1944, as amended by the following Supplemental Indentures: (7(d) in 2-5463 (Mortgage); 7(b) in 2-7121 (First); 4(a)-7 in 2-10261 (Seventh); 2(b)-10 in 2-15767 (Tenth); 2(c) in 2-28869 (Sixteenth); 2(c) in 2-35107 (Eighteenth); 2(d) in 2-36646 (Nineteenth); 2(c) in 2-39253 (Twentieth); * Filed herewith4(c)1 to Form 10-K for the year ended December 31, 2017 in 1-10764 (Thirtieth); * Filed herewith4(c)1 to Form 10-K for the year ended December 31, 2017 in 1-10764 (Thirty-first);4(c)1 to Form 10-K for the year ended December 31, 2017 in 1-10764 (Thirty-ninth);* Filed herewith (Thirty-ninth)4(c)1 to Form 10-K for the year ended December 31, 2017 in 1-10764 (Forty-first);; * Filed herewith (Forty-first); 4(d)(2) in 33-54298 (Forty-sixth); C-2 to Form U5S for the year ended December 31,1995 (Fifty-third); 4(c)1 to Form 10-K for the year ended December 31, 2008 in 1-10764 (Sixty-eighth); 4.06 to Form 8-K filed October 8, 2010 in 1-10764 (Sixty-ninth); 4.06 to Form 8-K filed November 12, 2010 in 1-10764 (Seventieth); 4.06 to Form 8-K filed December 13, 2012 in 1-10764 (Seventy-first); 4(e) to Form 8-K filed January 9, 2013 in 1-10764 (Seventy-second); 4.06 to Form 8-K filed May 30, 2013 in 1-10764 (Seventy-third); 4.06 to Form 8-K filed June 4, 2013 in 1-10764 (Seventy-fourth); 4.05 to Form 8-K filed March 14, 2014 in 1-10764 (Seventy-sixth); 4.05 to Form 8-K filed December 9, 2014 in 1-10764 (Seventy-seventh); 4.05 to Form 8-K filed January 8, 2016 in 1-10764 (Seventy-eighth); and 4.05 to Form 8-K filed August 16, 2016 in 1-10764 (Seventy-ninth); 4(a) to Form 10-Q for the quarter ended September 30, 2018 (Eightieth); 4.1 to Form 8-K12B filed December 3, 2018 in 1-10764 (Eighty-first); and 4.39 to Form 8-K filed March 19, 2019 in 1-10764 (Eighty-second)). |
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(c) 2 -- | Second Amended and Restated Credit Agreement dated as of AugustSeptember 14, 2015,2018, among Entergy Arkansas, as the Borrower, the banks and other financial institutions party theretolisted on the signature pages thereof, as Lenders, Citibank, N.A., as Administrative Agent, andJPMorgan Chase Bank, N.A., as an LC Issuing Bank, and the other LC Issuing Banks partyfrom time to time parties thereto (4(i)(4(h) to Form 10-Q for the quarter ended September 30, 20152018 in 1-10764). |
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(c) 3 -- | AmendmentBorrower Assumption Agreement dated as of August 28, 2015, toNovember 30, 2018 of Entergy Arkansas Power, LLC under the Second Amended and Restated Credit Agreement dated as of AugustSeptember 14, 2015,2018, among Entergy Arkansas, as the Borrower, the banks and other financial institutions party theretolisted on the signature pages thereof, as Lenders, Citibank, N.A., as Administrative Agent, andJPMorgan Chase Bank, N.A., as an LC Issuing Bank, and the other LC Issuing Banks partyfrom time to time parties thereto (4(j)(4.2 to Form 10-Q for the quarter ended September 30, 20158-K12B filed December 3, 2018 in 1-10764). |
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(c) 4 -- | Extension Agreement, dated August 8, 2016,September 13, 2019, to Second Amended and Restated Credit Agreement dated as of AugustSeptember 14, 2015,2018, as supplemented by the Borrower Assumption Agreement of Entergy Arkansas Power, LLC dated as of November 30, 2018, among Entergy Arkansas, as the Borrower, the banks and other financial institutions party theretolisted on the signature pages thereof, as Lenders, Citibank, N.A., as Administrative Agent, andJPMorgan Chase Bank, N.A., as an LC Issuing Bank, and the other LC Issuing Banks partyfrom time to time parties thereto (4(n)(4(b) to Form 10-Q for the quarter ended September 30, 20162019 in 1-10764). |
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(c) 5 -- | Amendment dated as of August 8, 2016, to Amended and Restated Credit Agreement dated as of August 14, 2015, among Entergy Arkansas, as the Borrower, the banks and other financial institutions party thereto as Lenders, Citibank, N.A., as Administrative Agent and as an LC Issuing Bank, and the other LC Issuing Banks party thereto (4(o) to Form 10-Q for the quarter ended September 30, 2016 in 1-10764). |
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(c) 6 -- | Extension Agreement, dated August 7, 2017, to Amended and Restated Credit Agreement dated as of August 14, 2015, as amended, among Entergy Arkansas, Inc., as the Borrower, the banks and other financial institutions party thereto as Lenders, Citibank, N.A., as Administrative Agent and as an LC Issuing Bank, and the other LC Issuing Banks party thereto (4(d) to Form 10-Q for the quarter ended September 30, 2017 in 1-10764). |
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(c) 7 -- | Amendment, dated as of October 17, 2017, to Amended and Restated Credit Agreement dated as of August 14, 2015, as amended, among Entergy Arkansas, Inc., as the Borrower, the banks and other financial institutions party thereto as Lenders, Citibank, N.A., as Administrative Agent and as an LC Issuing Bank, and the other LC Issuing Banks party thereto (4(e) to Form 10-Q for the quarter ended September 30, 2017 in 1-10764). |
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(c) 8-- | Agreement, dated as of October 17, 2017, pursuant to Amended and Restated Credit Agreement dated as of August 14, 2015, as amended, among Entergy Arkansas, Inc., as the Borrower, the banks and other financial institutions party thereto as Lenders, Citibank, N.A., as Administrative Agent and as an LC Issuing Bank, and the other LC Issuing Banks party thereto (4(f) to Form 10-Q for the quarter ended September 30, 2017 in 1-10764). |
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*(c) 9 -- | |
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(c) 106 -- | |
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*(c) 7 -- | |
Entergy Louisiana
|
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(d) 1 -- | Mortgage and Deed of Trust, dated as of April 1, 1944, as amended by the following Supplemental Indentures: (7(d) in 2-5317 (Mortgage); 7(b) in 2-7408 (First); * Filed herewith4(d)1 to Form 10-K for the year ended December 31, 2017 in 1-32718 (Sixth);; 2(c) in 2-34659 (Twelfth); * Filed herewith4(d)1 to Form 10-K for the year ended December 31, 2017 in 1-32718 (Thirteenth); 2(b)-2 in 2-38378 (Fourteenth); * Filed herewith4(d)1 to Form 10-K for the year ended December 31, 2017 in 1-32718 (Twenty-first);4(d)1 to Form 10-K for the year ended December 31, 2017 in 1-32718 (Twenty-fifth);* Filed herewith (Twenty-fifth)4(d)1 to Form 10-K for the year ended December 31, 2017 in 1-32718 (Twenty-ninth);4(d)1 to Form 10-K for the year ended December 31, 2017 in 1-32718 (Forty-second);* Filed herewith (Twenty-ninth); * Filed herewith (Forty-second); A-2(a) to Rule 24 Certificate filed April 4, 1996 in 70-8487 (Fifty-first); B-4(i) to Rule 24 Certificate filed January 10, 2006 in 70-10324 (Sixty-third); B-4(ii) to Rule 24 Certificate filed January 10, 2006 in 70-10324 (Sixty-fourth); 4(a) to Form 10-Q for the quarter ended September 30, 2008 in 1-32718 (Sixty-fifth); 4(e)1 to Form 10-K for the year ended December 31, 2009 in 1-132718 (Sixty-sixth); 4.08 to Form 8-K filed September 24, 2010 in 1-32718 (Sixty-eighth); 4.08 to Form 8-K filed March 24, 2011 in 1-32718 (Seventy-first); 4(a) to Form 10-Q for the quarter ended June 30, 2011 in 1-32718 (Seventy-second); 4.08 to Form 8-K filed July 3, 2012 in 1-32718 (Seventy-fifth); 4.08 to Form 8-K filed December 4, 2012 in 1-32718 (Seventy-sixth); 4.08 to Form 8-K filed May 21, 2013 in 1-32718 (Seventy-seventh); 4.08 to Form 8-K filed August 23, 2013 in 1-32718 (Seventy-eighth); 4.08 to Form 8-K filed June 24, 2014 in 1-32718 (Seventy-ninth); 4.08 to Form 8-K filed July 1, 2014 in 1-32718 (Eightieth); 4.08 to Form 8-K filed November 21, 2014 (Eighty-first); 4.1 to Form 8-K12B filed October 1, 2015 (Eighty-second); 4(g) to Form 8-K filed March 18, 2016 in 1-32718 (Eighty-third); 4.33 to Form 8-K filed March 24, 2016 in 1-32718 (Eighty-fourth); 4.33 to Form 8-K filed August 17, 2016 in 1-32718 (Eighty-sixth); 4.334.43 to Form 8-K filed October 4, 2016 in 1-32718 (Eighty-seventh); and 4.43 to Form 8-K filed May 23, 2017 in 1-32718 (Eighty-eighth); 4.43 to Form 8‑K filed March 23, 2018 in 1-32718 (Eighty-ninth); 4.43 to Form 8-K filed August 14, 2018 in 1-32718 (Ninetieth); and 4.43 to Form 8-K filed March 12, 2019 in 1-32718 (Ninety-first)). |
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(d) 2 -- | Second Amended and Restated Credit Agreement dated as of AugustSeptember 14, 2015,2018, among Entergy Louisiana, [Old Entergy Louisiana] and Entergy Gulf States Louisiana, as the Borrowers,Borrower, the banks and other financial institutions party theretolisted on the signature pages thereof, as Lenders, Citibank, N.A., as Administrative Agent, Wells Fargo Bank, National Association and BNP Paribas, as an LC Issuing Bank,Banks, and the other LC Issuing Banks partyfrom time to time parties thereto (4.4(4(i) to Form 8-K12B filed October 1, 201510-Q for the quarter ended September 30, 2018 in 1-32718). |
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(d) 3 -- | AmendmentExtension Agreement, dated as of August 28, 2015,September 13, 2019, to Second Amended and Restated Credit Agreement dated as of AugustSeptember 14, 2015,2018, among Entergy Louisiana, [Old Entergy Louisiana] and Entergy Gulf States Louisiana, as the Borrowers,Borrower, the banks and other financial institutions party theretolisted on the signature pages thereof, as Lenders, Citibank, N.A., as Administrative Agent, Wells Fargo Bank, National Association and BNP Paribas, as an LC Issuing Bank,Banks, and the other LC Issuing Banks partyfrom time to time parties thereto (4.5(4(c) to Form 8-K12B filed October 1, 201510-Q for the quarter ended September 30, 2019 in 1-32718). |
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(d) 4 -- | Borrower Assumption Agreement dated as of October 1, 2015 of Entergy Louisiana [New Entergy Louisiana] under Amended and Restated Credit Agreement dated as of August 14, 2015, among Entergy Louisiana [Old Entergy Louisiana] and Entergy Gulf States Louisiana, as the Borrowers, the banks and other financial institutions party thereto as Lenders, Citibank, N.A., as Administrative Agent and as an LC Issuing Bank, and the other LC Issuing Banks party thereto, as amended (4.6 to Form 8-K12B filed October 1, 2015 in 1-32718). |
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(d) 5 -- | Extension Agreement, dated August 8, 2016, to Amended and Restated Credit Agreement dated as of August 14, 2015, among Entergy Louisiana, as the Borrower, the banks and other financial institutions party thereto as Lenders, Citibank, N.A., as Administrative Agent and as an LC Issuing Bank, and the other LC Issuing Banks party thereto (4(p) to Form 10-Q for the quarter ended September 30, 2016 in 1-32718). |
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(d) 6 -- | Amendment dated as of August 8, 2016, to Amended and Restated Credit Agreement dated as of August 14, 2015, among Entergy Louisiana, as the Borrower, the banks and other financial institutions party thereto as Lenders, Citibank, N.A., as Administrative Agent and as an LC Issuing Bank, and the other LC Issuing Banks party thereto (4(q) to Form 10-Q for the quarter ended September 30, 2016 in 1-32718). |
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(d) 7 -- | Extension Agreement, dated August 7, 2017, to Amended and Restated Credit Agreement dated as of August 14, 2015, as amended, among Entergy Louisiana, LLC, as the Borrower, the banks and other financial institutions party thereto as Lenders, Citibank, N.A., as Administrative Agent and as an LC Issuing Bank, and the other LC Issuing Banks party thereto (4(g) to Form 10-Q for the quarter ended September 30, 2017 in 1-32718). |
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|
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(d) 8 -- | Amendment, dated as of October 17, 2017, to Amended and Restated Credit Agreement dated as of August 14, 2015, as amended, among Entergy Louisiana, LLC, as the Borrower, the banks and other financial institutions party thereto as Lenders, Citibank, N.A., as Administrative Agent and as an LC Issuing Bank, and the other LC Issuing Banks party thereto (4(h) to Form 10-Q for the quarter ended September 30, 2017 in 1-32718). |
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(d) 9 -- | Agreement, dated as of October 17, 2017, pursuant to Amended and Restated Credit Agreement dated as of August 14, 2015, as amended, among Entergy Louisiana, LLC, as the Borrower, the banks and other financial institutions party thereto as Lenders, Citibank, N.A., as Administrative Agent and as an LC Issuing Bank, and the other LC Issuing Banks party thereto (4(i) to Form 10-Q for the quarter ended September 30, 2017 in 1-32718). |
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*(d) 10 -- | |
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*(d) 115 -- | |
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*(d) 126 -- | |
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(d) 137 -- | |
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(d) 148 -- | |
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(d) 159 -- | Indenture of Mortgage, dated September 1, 1926, as amended by the following Supplemental Indentures: (7-A-9 in Registration No. 2-6893 (Seventh); * Filed herewith 4(d)15 to Form 10-K for the year ended December 31, 2017 in 1-32718 (Eighteenth); 2-A-8 in Registration No. 2-66612 (Thirty-eighth); 4(b) to Form 10-Q for the quarter ended March 31,1999 in 1-27031 (Fifty-eighth); 4(a) to Form 10-Q for the quarter ended June 30, 2008 in 333-148557 (Seventy-sixth); 4(a) to Form 10-Q for the quarter ended September 30, 2009 in 0-20371 (Seventy-seventh); 4.07 to Form 8-K filed October 1, 2010 in 0-20371 (Seventy-eighth); 4.07 to Form 8-K filed July 1, 2014 in 0-20371 (Eighty-first); 4.2 to Form 8-K12B filed October 1, 2015 in 1-32718 (Eighty-second); 4.3 to Form 8-K12B filed October 1, 2015 in 1-32718 (Eighty-third);4.42 to Form 8-K filed March 24, 2016 in 1-32718 (Eighty-fourth); 4.42 to Form 8-K filed May 19, 2016 in 1-32718 (Eighty-fifth); 4.42 to Form 8-K filed August 17, 2016 in 1-32718 (Eighty-sixth); 4.42 to Form 8-K filed October 4, 2016 in 1-32718 (Eighty-seventh); and 4.42 to Form 8-K filed May 23, 2017 in 1-32718 (Eighty-eighth); 4.42 to Form 8-K filed March 23, 2018 in 1-32718 (Eighty-ninth); 4.42 to Form 8-K filed August 14, 2018 in 1-32718 (Ninetieth); and 4.42 to Form 8-K filed March 12, 2019 in 1-32718 (Ninety-first)). |
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(d) 1610 -- | Agreement of Resignation, Appointment and Acceptance, dated as of October 3, 2007, among Entergy Gulf States, Inc., JPMorgan Chase Bank, National Association, as resigning trustee, and The Bank of New York, as successor trustee (4(a) to Form 10-Q for the quarter ended September 30, 2007 in 1-27031). |
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(d) 1711 -- | Mortgage and Deed of Trust of Entergy Louisiana, dated as of November 1, 2015, as amended by the following Supplemental Indentures: (4.38 in Registration No. 333-190911-07 (Mortgage); 4(f) to Form 8-K filed March 18, 2016 in 1-32718 (First); 4.40 to Form 8-K filed March 24, 2016 in 1-32718 (Second); 4(h) to Form 10-Q for the quarter ended March 31, 2016 in 1-32718 (Fourth); 4.40 to Form 8-K filed May 19, 2016 in 1-32718 (Fifth); 4.40 to Form 8-K filed August 17, 2016 in 1-32718 (Sixth); 4.41 to Form 8-K filed October 4, 2016 in 1-32718 (Seventh); and 4.41 to Form 8-K filed May 23, 2017 in 1-32718 (Eighth); 4.41 to Form 8-K filed March 23, 2018 in 1-32718 (Ninth); 4.41 to Form 8-K filed August 14, 2018 in 1-32718 (Tenth); and 4.41 to Form 8-K filed March 12, 2019 in 1-32718 (Eleventh)). |
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(d) 1812 -- | |
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(d) 1913 -- | |
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(d) 2014 -- | |
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(d) 2115 -- | |
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(d) 2216 -- | |
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(d) 2317 -- | |
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(d) 18 -- | |
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(d) 19 -- | |
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(d) 20 -- | |
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*(d) 21 -- | |
Entergy Mississippi
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(e) 1 -- | Mortgage and Deed of Trust, dated as of February 1, 1988, as amended by the following Supplemental Indentures: (* Filed herewith(4(e)1 to Form 10-K for the year ended December 31, 2017 in 1-31508 (Mortgage);4(e)1 to Form 10-K for the year ended December 31, 2017 in 1-31508 (Sixth);* Filed herewith (Sixth); A-2(c) to Rule 24 Certificate filed May 14, 1999 in 70-8719 (Thirteenth); 4(b) to Form 10-Q for the quarter ended June 30, 2009 in 1-31508 (Twenty-sixth); 4.38 to Form 8-K filed December 11, 2012 in 1-31508 (Thirtieth); 4.05 to Form 8-K filed March 21, 2014 in 1-31508 (Thirty-first); 4.05 to Form 8-K filed May 13, 2016 in 1-31508 (Thirty-second); 4.16 to Form 8-K filed September 15, 2016 in 1-31508 (Thirty-third); and 4.16 to Form 8-K filed November 14, 2017 in 1-31508 (Thirty-fourth); 4.1 to Form 8-K filed November 21, 2018 in 1-31508 (Thirty-fifth); 4.1 to Form 8-K12B filed December 3, 2018 in 1-31508 (Thirty-sixth); 4(a) to Form 8-K filed December 12, 2018 in 1-31508 (Thirty-seventh); and 4.46 to Form 8-K filed June 5, 2019 in 1-31508 (Thirty-eighth)). |
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*(e) 2 -- | |
Entergy New Orleans
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(f) 1 -- | Mortgage and Deed of Trust, dated as of May 1, 1987, as amended by the following Supplemental Indentures: (* Filed herewith(4(f)1 to Form 10-K for the year ended December 31, 2017 in 1-35747 (Mortgage); * Filed herewith4(f)1 to Form 10-K for the year ended December 31, 2017 in 1-35747 (Third);; 4(b) to Form 10-Q for the quarter ended June 30, 1998 in 0-5807 (Seventh); 4.02 to Form 8-K filed November 23, 2010 in 0-5807 (Fifteenth); 4.02 to Form 8-K filed November 29, 2012 in 1-35747 (Sixteenth); 4.02 to Form 8-K filed June 21, 2013 in 1-35747 (Seventeenth); 4(m) to Form 10-Q for the quarter ended March 31, 2016 in 1-35747 (Eighteenth); 4.02 to Form 8-K filed March 22, 2016 in 1-35747 (Nineteenth); 4.02 to Form 8-K filed May 24, 2016 in 1-35747 (Twentieth); and 4.1 to Form 8-K12B filed December 1, 2017 in 1-35747 (Twenty-first); and 4(a) to Form 8-K filed September 27, 2018 in 1-35747 (Twenty-second)). |
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(f) 2 -- | Second Amended and Restated Credit Agreement ($25,000,000), dated as of November 20, 2015,16, 2018, among Entergy New Orleans, as the Borrower, the banks and other financial institutions party theretolisted on the signature pages thereof, as Lenders, and Bank of America, N.A., as Administrative Agent and LC Issuing Bank, and the other LC Issuing Banks from time to time parties thereto (4(f)2 to Form 10-K for the year ended December 31, 20152018 in 1-35747). |
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(f) 3 -- | Amendment, dated as of June 30, 2016, to Amended and RestatedTerm Loan Credit Agreement dated as of November 20, 2015,December 18, 2019, by and among Entergy New Orleans, as the Borrower, the banks and other financial institutions party theretolisted on the signature pages thereof, as Lenders, and Bank of America, N.A., as Administrative Agent (4(f)(4(a) to Form 10-Q for the quarter ended June 30, 20168-K filed December 18, 2019 in 1-35747). |
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*(f) 4 -- | Amendment, dated as of September 26, 2017, to Amended and Restated Credit Agreement, dated as of November 20, 2015, as amended, among Entergy New Orleans, as the Borrower, the banks and other financial institutions party thereto as Lenders, and Bank of America, N.A., as Administrative Agent (4(j) to Form 10-Q for the quarter ending September 30, 2017 in 1-35747). |
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(f) 5 -- | Borrower Assumption Agreement, dated as of November 30, 2017,Description of Entergy New Orleans Power, LLCOrleans’s securities registered under Section 12 of the Amended and Restated Credit Agreement dated asSecurities Exchange Act of November, 2015, as amended, among Entergy New Orleans, Inc., as the Borrower, the banks and other financial institutions party thereto as Lenders, Bank of America, N.A., as Administrative Agent (4.2 to Form 8-K12B filed December 1, 2017 in 1-35747).1934. |
Entergy Texas
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(g) 2 -- | |
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(g) 32 -- | |
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*(g) 43 -- | |
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(g) 54 -- | |
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(g) 8 -- | AmendedOfficer’s Certificate No. 12-B-10 dated January 3, 2019, supplemental to Indenture, Deed of Trust and Restated CreditSecurity Agreement dated as of August 14, 2015, amongOctober 1, 2008, between Entergy Texas and The Bank of New York Mellon, as the Borrower, the banks and other financial institutions party thereto as Lenders, Citibank, N.A., as Administrative Agent and as an LC Issuing Bank, and the other LC Issuing Banks party thereto (4(k)trustee (4.47(b) to Form 10-Q for the quarter ended September 30, 20158-K filed January 8, 2019 in 1-34360). |
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(g) 9 -- | AmendmentOfficer’s Certificate No. 13-B-11 dated asSeptember 16, 2019, supplemental to Indenture, Deed of August 28, 2015, to AmendedTrust and Restated CreditSecurity Agreement dated as of August 14, 2015, amongOctober 1, 2008, between Entergy Texas and The Bank of New York Mellon, as the Borrower, the banks and other financial institutions party thereto as Lenders, Citibank, N.A., as Administrative Agent and as an LC Issuing Bank, and the other LC Issuing Banks party thereto (4(l)trustee (4.57 to Form 10-Q for the quarter ended8-K filed September 30, 201520, 2019 in 1-34360). |
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(g) 10 -- | Extension Agreement, dated August 8, 2016, toSecond Amended and Restated Credit Agreement dated as of AugustSeptember 14, 2015,2018, among Entergy Texas, as the Borrower, the banks and other financial institutions party theretolisted on the signature pages thereof, as Lenders, Citibank, N.A., as Administrative Agent, JPMorgan Chase Bank, N.A., BNP Paribas, Mizuho Bank, Ltd., and The Bank of Nova Scotia, as an LC Issuing Bank,Banks, and the other LC Issuing Banks partyfrom time to time parties thereto (4(r)(4(j) to Form 10-Q for the quarter ended September 30, 20162018 in 1-34360). |
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(g) 11 -- | AmendmentExtension Agreement, dated as of August 8, 2016,September 13, 2019, to Second Amended and Restated Credit Agreement dated as of AugustSeptember 14, 2015,2018, among Entergy Texas, as the Borrower, the banks and other financial institutions party theretolisted on the signature pages thereof, as Lenders, Citibank, N.A., as Administrative Agent, JPMorgan Chase Bank, N.A., BNP Paribas, Mizuho Bank, Ltd., and The Bank of Nova Scotia, as an LC Issuing Bank,Banks, and the other LC Issuing Banks partyfrom time to time parties thereto (4(s)(4(d) to Form 10-Q for the quarter ended September 30, 20162019 in 1-34360). |
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(g) 12 -- | Extension Agreement, dated August 7, 2017, to Amended and Restated Credit Agreement dated asStatement of August 14, 2015, as amended, amongResolution Establishing the 5.375% Series A Preferred Stock, Cumulative, No Par Value (Liquidation Value $25 Per Share) of Entergy Texas Inc., as the Borrower, the banks and other financial institutions party thereto as Lenders, Citibank, N.A., as Administrative Agent and as an LC Issuing Bank, and the other LC Issuing Banks party thereto (4(k)(3.3 to Form 10-Q for the quarter ended8-A filed September 30, 20174, 2019 in 1-34360). |
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*(g) 13 -- | Amendment, dated asDescription of October 17, 2017, to Amended and Restated Credit Agreement dated asEntergy Texas’s securities registered under Section 12 of August 14, 2015, as amended, among Entergy Texas, Inc., as the Borrower, the banks and other financial institutions party thereto as Lenders, Citibank, N.A., as Administrative Agent and as an LC Issuing Bank, and the other LC Issuing Banks party thereto (4(l) to Form 10-Q for the quarter ended September 30, 2017 in 1-34360). |
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(g) 14 -- | Amendment, dated asSecurities Exchange Act of October 17, 2017, pursuant to Amended and Restated Credit Agreement dated as of August 14, 2015, as amended, among Entergy Texas, Inc., as the Borrower, the banks and other financial institutions party thereto as Lenders, Citibank, N.A., as Administrative Agent and as an LC Issuing Bank, and the other LC Issuing Banks party thereto (4(m) to Form 10-Q for the quarter ended September 30, 2017 in 1-34360).1934. |
(10) Material Contracts
Entergy Corporation
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System Energy
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(b) 6 -- | Thirty-seventh Assignment of Availability Agreement, Consent and Agreement, dated as of September 1, 2012, among System Energy, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and The Bank of New York Mellon, as successor trustee (10(a)15 to Form 10-K for the year ended December 31, 2012 in 1-11299). |
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(b) 7 -- | Amendment to the Thirty-seventh Assignment of Availability Agreement, Consent and Agreement, dated as of September 18, 2015, among System Energy, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and The Bank of New York Mellon, as successor trustee (4.25 to Form S-3 filed October 2, 2015). |
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(12) Statement Re Computation(14) Code of RatiosEthics
Entergy Corporation
(23) Consents of Experts and Counsel
(31) Rule 13a-14(a)/15d-14(a) Certifications
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(101) XBRL Documents
Entergy CorporationInteractive Data File
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*INS - | Inline XBRL Instance Document.Document - The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
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*SCH - | Inline XBRL Taxonomy Extension Schema Document. |
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*CAL - | Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
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*DEF - | Inline XBRL Taxonomy Extension Definition Linkbase Document. |
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*LAB - | Inline XBRL Taxonomy Extension Label Linkbase Document. |
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*PRE - | Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
*(104) Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibits 101)
_________________
|
| | |
| * | Filed herewith. |
| ** | Furnished, not filed, herewith. |
| + | Management contracts or compensatory plans or arrangements. |
ENTERGY CORPORATION
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof.
|
| |
| ENTERGY CORPORATION |
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| By /s/ Alyson M. MountKimberly A. Fontan |
| Alyson M. MountKimberly A. Fontan |
| Senior Vice President and Chief Accounting Officer |
| |
| Date: February 26, 201821, 2020 |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. The signature of each of the undersigned shall be deemed to relate only to matters having reference to the above-named company and any subsidiaries thereof.
|
| | |
Signature | Title | Date |
| | |
/s/ Alyson M. Mount Kimberly A. Fontan Alyson M. MountKimberly A. Fontan
| Senior Vice President and Chief Accounting Officer (Principal Accounting Officer) | February 26, 201821, 2020 |
Leo P. Denault (Chairman of the Board, Chief Executive Officer and Director; Principal Executive Officer); Andrew S. Marsh (Executive Vice President and Chief Financial Officer; Principal Financial Officer); Maureen S. Bateman,John R. Burbank, Patrick J. Condon, Kirkland H. Donald, Philip L. Frederickson, Alexis M. Herman, Donald C. Hintz,M. Elise Hyland, Stuart L. Levenick, Blanche L. Lincoln, and Karen A. Puckett and W. J. Tauzin (Directors).
|
| |
By: /s/ Alyson M. MountKimberly A. Fontan | February 26, 201821, 2020 |
(Alyson M. Mount,Kimberly A. Fontan, Attorney-in-fact) | |
ENTERGY ARKANSAS, INC.LLC
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof.
|
| |
| ENTERGY ARKANSAS, INC.LLC |
| |
| By /s/ Alyson M. MountKimberly A. Fontan |
| Alyson M. MountKimberly A. Fontan |
| Senior Vice President and Chief Accounting Officer |
| |
| Date: February 26, 201821, 2020 |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. The signature of each of the undersigned shall be deemed to relate only to matters having reference to the above-named company and any subsidiaries thereof.
|
| | |
Signature | Title | Date |
| | |
/s/ Alyson M. Mount Kimberly A. Fontan Alyson M. MountKimberly A. Fontan
| Senior Vice President and Chief Accounting Officer (Principal Accounting Officer) | February 26, 201821, 2020 |
Richard C. Riley (ChairmanLaura R. Landreaux (Chair of the Board, President, Chief Executive Officer, and Director; Principal Executive Officer); Andrew S. Marsh (Executive Vice President, Chief Financial Officer, and Director; Principal Financial Officer); Paul D. Hinnenkamp and Roderick K. West (Directors).
|
| |
By: /s/ Alyson M. MountKimberly A. Fontan | February 26, 201821, 2020 |
(Alyson M. Mount,Kimberly A. Fontan, Attorney-in-fact) | |
ENTERGY LOUISIANA, LLC
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof.
|
| |
| ENTERGY LOUISIANA, LLC |
| |
| By /s/ Alyson M. MountKimberly A. Fontan |
| Alyson M. MountKimberly A. Fontan |
| Senior Vice President and Chief Accounting Officer |
| |
| Date: February 26, 201821, 2020 |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. The signature of each of the undersigned shall be deemed to relate only to matters having reference to the above-named company and any subsidiaries thereof.
|
| | |
Signature | Title | Date |
| | |
/s/ Alyson M. Mount Kimberly A. Fontan Alyson M. MountKimberly A. Fontan
| Senior Vice President and Chief Accounting Officer (Principal Accounting Officer) | February 26, 201821, 2020 |
Phillip R. May, Jr. (Chairman of the Board, President, Chief Executive Officer, and Director; Principal Executive Officer); Andrew S. Marsh (Executive Vice President, Chief Financial Officer, and Director; Principal Financial Officer); Paul D. Hinnenkamp and Roderick K. West (Directors).
|
| |
By: /s/ Alyson M. MountKimberly A. Fontan | February 26, 201821, 2020 |
(Alyson M. Mount,Kimberly A. Fontan, Attorney-in-fact) | |
ENTERGY MISSISSIPPI, INC.LLC
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof.
|
| |
| ENTERGY MISSISSIPPI, INC.LLC |
| |
| By /s/ Alyson M. MountKimberly A. Fontan |
| Alyson M. MountKimberly A. Fontan |
| Senior Vice President and Chief Accounting Officer |
| |
| Date: February 26, 201821, 2020 |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. The signature of each of the undersigned shall be deemed to relate only to matters having reference to the above-named company and any subsidiaries thereof.
|
| | |
Signature | Title | Date |
| | |
/s/ Alyson M. Mount Kimberly A. Fontan Alyson M. MountKimberly A. Fontan
| Senior Vice President and Chief Accounting Officer (Principal Accounting Officer) | February 26, 201821, 2020 |
Haley R. Fisackerly (Chairman of the Board, President, Chief Executive Officer, and Director; Principal Executive Officer); Andrew S. Marsh (Executive Vice President, Chief Financial Officer, and Director; Principal Financial Officer); Paul D. Hinnenkamp and Roderick K. West (Directors).
|
| |
By: /s/ Alyson M. MountKimberly A. Fontan | February 26, 201821, 2020 |
(Alyson M. Mount,Kimberly A. Fontan, Attorney-in-fact) | |
ENTERGY NEW ORLEANS, LLC
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof.
|
| |
| ENTERGY NEW ORLEANS, LLC |
| |
| By /s/ Alyson M. MountKimberly A. Fontan |
| Alyson M. MountKimberly A. Fontan |
| Senior Vice President and Chief Accounting Officer |
| |
| Date: February 26, 201821, 2020 |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. The signature of each of the undersigned shall be deemed to relate only to matters having reference to the above-named company and any subsidiaries thereof.
|
| | |
Signature | Title | Date |
| | |
/s/ Alyson M. Mount Kimberly A. Fontan Alyson M. MountKimberly A. Fontan
| Senior Vice President and Chief Accounting Officer (Principal Accounting Officer) | February 26, 201821, 2020 |
Charles L. Rice, Jr.David D. Ellis (Chairman of the Board, President, Chief Executive Officer, and Director; Principal Executive Officer); Andrew S. Marsh (Executive Vice President, Chief Financial Officer, and Director; Principal Financial Officer); Paul D. Hinnenkamp and Roderick K. West (Directors).
|
| |
By: /s/ Alyson M. MountKimberly A. Fontan | February 26, 201821, 2020 |
(Alyson M. Mount,Kimberly A. Fontan, Attorney-in-fact) | |
ENTERGY TEXAS, INC.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof.
|
| |
| ENTERGY TEXAS, INC. |
| |
| By /s/ Alyson M. MountKimberly A. Fontan |
| Alyson M. MountKimberly A. Fontan |
| Senior Vice President and Chief Accounting Officer |
| |
| Date: February 26, 201821, 2020 |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. The signature of each of the undersigned shall be deemed to relate only to matters having reference to the above-named company and any subsidiaries thereof.
|
| | |
Signature | Title | Date |
| | |
/s/ Alyson M. Mount Kimberly A. Fontan Alyson M. MountKimberly A. Fontan
| Senior Vice President and Chief Accounting Officer (Principal Accounting Officer) | February 26, 201821, 2020 |
Sallie T. Rainer (Chair of the Board, President, Chief Executive Officer, and Director; Principal Executive Officer); Andrew S. Marsh (Executive Vice President, Chief Financial Officer, and Director; Principal Financial Officer); Paul D. Hinnenkamp and Roderick K. West (Directors).
|
| |
By: /s/ Alyson M. MountKimberly A. Fontan | February 26, 201821, 2020 |
(Alyson M. Mount,Kimberly A. Fontan, Attorney-in-fact) | |
SYSTEM ENERGY RESOURCES, INC.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof.
|
| |
| SYSTEM ENERGY RESOURCES, INC. |
| |
| By /s/ Alyson M. MountKimberly A. Fontan |
| Alyson M. MountKimberly A. Fontan |
| Senior Vice President and Chief Accounting Officer |
| |
| Date: February 26, 201821, 2020 |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. The signature of each of the undersigned shall be deemed to relate only to matters having reference to the above-named company and any subsidiaries thereof.
|
| | |
Signature | Title | Date |
| | |
/s/ Alyson M. Mount Kimberly A. Fontan Alyson M. MountKimberly A. Fontan
| Senior Vice President and Chief Accounting Officer (Principal Accounting Officer) | February 26, 201821, 2020 |
Roderick K. West (Chairman of the Board, President, Chief Executive Officer, and Director; Principal Executive Officer); Andrew S. Marsh (Executive Vice President, Chief Financial Officer, and Director; Principal Financial Officer); A. Christopher Bakken, III and Steven C. McNeal (Directors).
|
| |
By: /s/ Alyson M. MountKimberly A. Fontan | February 26, 201821, 2020 |
(Alyson M. Mount,Kimberly A. Fontan, Attorney-in-fact) | |
EXHIBIT 23(a)
CONSENTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement No. 333-213335333-233403 on Form S-3 and in Registration Statements Nos. 333-140183, 333-174148, 333-204546, 333-206556, 333-227150 and 333-206556333-231800 on Form S-8 of our reports dated February 26, 2018,21, 2020, relating to the consolidated financial statements and financial statement schedule of Entergy Corporation and Subsidiaries, and the effectiveness of Entergy Corporation and Subsidiaries’ internal control over financial reporting, appearing in this Annual Report on Form 10-K of Entergy Corporation for the year ended December 31, 2017.2019.
We consent to the incorporation by reference in Registration Statement No. 333-213335-06333-233403-05 on Form S-3 of our reports dated February 26, 2018,21, 2020, relating to the consolidated financial statements and financial statement schedule of Entergy Arkansas, Inc.LLC and Subsidiaries appearing in this Annual Report on Form 10-K of Entergy Arkansas, Inc.LLC for the year ended December 31, 2017.2019.
We consent to the incorporation by reference in Registration Statement No. 333-213335-03233403-04 on Form S-3 of our reports dated February 26, 2018,21, 2020, relating to the consolidated financial statements and financial statement schedule of Entergy Louisiana, LLC and Subsidiaries appearing in this Annual Report on Form 10‑K of Entergy Louisiana, LLC for the year ended December 31, 2017.2019.
We consent to the incorporation by reference in Registration Statement No. 333-213335-05233403-03 on Form S-3 of our reports dated February 26, 2018,21, 2020, relating to the consolidatedfinancial statements and financial statement schedule of Entergy Mississippi, LLC appearing in this Annual Report on Form 10‑K of Entergy Mississippi, LLC for the year ended December 31, 2019.
We consent to the incorporation by reference in Registration Statement No. 233403-02 on Form S-3 of our reports dated February 21, 2020, relating to the financial statements and financial statement schedule of Entergy Texas, Inc. and Subsidiaries appearing in this Annual Report on Form 10-K of Entergy Texas, Inc. for the year ended December 31, 2017.2019.
We consent to the incorporation by reference in Registration Statement No. 333-213335-04233403-01 on Form S-3 of our report dated February 26, 2018,21, 2020, relating to the financial statements of System Energy Resources, Inc. appearing in this Annual Report on Form 10-K of System Energy Resources, Inc. for the year ended December 31, 2017.2019.
/s/ DELOITTE & TOUCHE LLP
New Orleans, Louisiana
February 26, 201821, 2020
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and Board of Directors of
Entergy Corporation and Subsidiaries
Opinion on the Financial Statement Schedule
We have audited the consolidated financial statements of Entergy Corporation and Subsidiaries (the “Corporation”) as of December 31, 20172019 and 2016,2018, and for each of the three years in the period ended December 31, 2017,2019, and the Corporation’s internal control over financial reporting as of December 31, 2017,2019, and have issued our reports thereon dated February 26, 2018.21, 2020. Our audits also included the consolidated financial statement schedule of the Corporation listed in Item��Item 15. This consolidated financial statement schedule is the responsibility of the Corporation’s management. Our responsibility is to express an opinion on the Corporation’s consolidated financial statement schedule based on our audits. In our opinion, such consolidated financial statement schedule, when considered in relation to the consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
/s/ DELOITTE & TOUCHE LLP
New Orleans, Louisiana
February 26, 201821, 2020
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and Board of Directors of
Entergy Arkansas, Inc. and Subsidiaries
Entergy Mississippi, Inc.
Entergy Texas, Inc. and Subsidiaries
To the membersmember and Board of Directors of
Entergy Arkansas, LLC and Subsidiaries
Entergy Louisiana, LLC and Subsidiaries
Entergy Mississippi, LLC
Entergy New Orleans, LLC and Subsidiaries
Opinion on the Financial Statement Schedules
We have audited the consolidated financial statements of Entergy Arkansas, Inc.LLC and Subsidiaries, Entergy Louisiana, LLC and Subsidiaries, Entergy New Orleans, LLC and Subsidiaries, and Entergy Texas, Inc. and Subsidiaries, and we have also audited the financial statements of Entergy Mississippi, Inc.LLC (collectively the “Companies”) as of December 31, 20172019 and 2016,2018, and for each of the three years in the period ended December 31, 2017,2019, and have issued our reports thereon dated February 26, 2018.21, 2020. Our audits also included the financial statement schedules of the respective Companies listed in Item 15. These financial statement schedules are the responsibility of the respective Companies’ management. Our responsibility is to express an opinion on the Companies’ financial statement schedules based on our audits. In our opinion, such financial statement schedules, when considered in relation to the financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.
/s/ DELOITTE & TOUCHE LLP
New Orleans, Louisiana
February 26, 201821, 2020
INDEX TO FINANCIAL STATEMENT SCHEDULES
|
| | |
Schedule | | Page |
| | |
II | Valuation and Qualifying Accounts 2017, 2016,2019, 2018, and 2015:2017: | |
| | |
| | |
| | |
| | |
| | |
| | |
Schedules other than those listed above are omitted because they are not required, not applicable, or the required information is shown in the financial statements or notes thereto.
Columns have been omitted from schedules filed because the information is not applicable.
|
| | | | | | | | | | | | | | | | |
ENTERGY CORPORATION AND SUBSIDIARIES |
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS |
For the Years Ended December 31, 2019, 2018, and 2017 |
(In Thousands) |
Column A | | Column B | | Column C | | Column D | | Column E |
| | | | | | Other | | |
| | Balance at | | Additions | | Changes | | Balance |
Description | | Beginning of Period | | Charged to Income | | Deductions (1) | | at End of Period |
Allowance for doubtful accounts | | | | | | | | |
2019 | |
| $7,322 |
| |
| $2,806 |
| |
| $2,724 |
| |
| $7,404 |
|
2018 | |
| $13,587 |
| |
| $3,936 |
| |
| $10,201 |
| |
| $7,322 |
|
2017 | |
| $11,924 |
| |
| $4,211 |
| |
| $2,548 |
| |
| $13,587 |
|
Notes: | | |
| | |
| | |
| | |
|
(1) Deductions represent write-offs of accounts receivable balances and are reduced by recoveries of amounts previously written off. |
|
| | | | | | | | | | | | | | | | |
ENTERGY CORPORATION AND SUBSIDIARIES |
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS |
For the Years Ended December 31, 2017, 2016, and 2015 |
(In Thousands) |
Column A | | Column B | | Column C | | Column D | | Column E |
| | | | | | Other | | |
| | Balance at | | Additions | | Changes | | Balance |
Description | | Beginning of Period | | Charged to Income | | Deductions (1) | | at End of Period |
Allowance for doubtful accounts | | | | | | | | |
2017 | |
| $11,924 |
| |
| $4,211 |
| |
| $2,548 |
| |
| $13,587 |
|
2016 | |
| $39,895 |
| |
| $7,505 |
| |
| $35,476 |
| |
| $11,924 |
|
2015 | |
| $35,663 |
| |
| $6,926 |
| |
| $2,694 |
| |
| $39,895 |
|
Notes: | | |
| | |
| | |
| | |
|
(1) Deductions represent write-offs of accounts receivable balances and are reduced by recoveries of amounts previously written off. |
|
| | | | | | | | | | | | | | | | |
ENTERGY ARKANSAS, LLC AND SUBSIDIARIES |
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS |
For the Years Ended December 31, 2019, 2018, and 2017 |
(In Thousands) |
Column A | | Column B | | Column C | | Column D | | Column E |
| | | | | | Other | | |
| | Balance at | | Additions | | Changes | | Balance |
Description | | Beginning of Period | | Charged to Income | | Deductions (1) | | at End of Period |
Allowance for doubtful accounts | | | | | | | | |
2019 | |
| $1,264 |
| |
| $1,000 |
| |
| $1,095 |
| |
| $1,169 |
|
2018 | |
| $1,063 |
| |
| $810 |
| |
| $609 |
| |
| $1,264 |
|
2017 | |
| $1,211 |
| |
| $503 |
| |
| $651 |
| |
| $1,063 |
|
Notes: | | |
| | |
| | |
| | |
|
(1) Deductions represent write-offs of accounts receivable balances and are reduced by recoveries of amounts previously written off. |
|
| | | | | | | | | | | | | | | | |
ENTERGY ARKANSAS, INC. AND SUBSIDIARIES |
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS |
For the Years Ended December 31, 2017, 2016, and 2015 |
(In Thousands) |
Column A | | Column B | | Column C | | Column D | | Column E |
| | | | | | Other | | |
| | Balance at | | Additions | | Changes | | Balance |
Description | | Beginning of Period | | Charged to Income | | Deductions (1) | | at End of Period |
Allowance for doubtful accounts | | | | | | | | |
2017 | |
| $1,211 |
| |
| $503 |
| |
| $651 |
| |
| $1,063 |
|
2016 | |
| $34,226 |
| |
| $902 |
| |
| $33,917 |
| |
| $1,211 |
|
2015 | |
| $32,247 |
| |
| $2,759 |
| |
| $780 |
| |
| $34,226 |
|
Notes: | | |
| | |
| | |
| | |
|
(1) Deductions represent write-offs of accounts receivable balances and are reduced by recoveries of amounts previously written off. |
|
| | | | | | | | | | | | | | | | |
ENTERGY LOUISIANA, LLC AND SUBSIDIARIES |
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS |
For the Years Ended December 31, 2019, 2018, and 2017 |
(In Thousands) |
Column A | | Column B | | Column C | | Column D | | Column E |
| | | | | | Other | | |
| | Balance at | | Additions | | Changes | | Balance |
Description | | Beginning of Period | | Charged to Income | | Deductions (1) | | at End of Period |
Allowance for doubtful accounts | | | | | | | | |
2019 | |
| $1,813 |
| |
| $762 |
| |
| $673 |
| |
| $1,902 |
|
2018 | |
| $8,430 |
| |
| $2,395 |
| |
| $9,012 |
| |
| $1,813 |
|
2017 | |
| $6,277 |
| |
| $3,108 |
| |
| $955 |
| |
| $8,430 |
|
Notes: | | |
| | |
| | |
| | |
|
(1) Deductions represent write-offs of accounts receivable balances and are reduced by recoveries of amounts previously written off. |
|
| | | | | | | | | | | | | | | | |
ENTERGY LOUISIANA, LLC AND SUBSIDIARIES |
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS |
For the Years Ended December 31, 2017, 2016, and 2015 |
(In Thousands) |
Column A | | Column B | | Column C | | Column D | | Column E |
| | | | | | Other | | |
| | Balance at | | Additions | | Changes | | Balance |
Description | | Beginning of Period | | Charged to Income | | Deductions (1) | | at End of Period |
Allowance for doubtful accounts | | | | | | | | |
2017 | |
| $6,277 |
| |
| $3,108 |
| |
| $955 |
| |
| $8,430 |
|
2016 | |
| $4,209 |
| |
| $2,942 |
| |
| $874 |
| |
| $6,277 |
|
2015 | |
| $1,609 |
| |
| $3,464 |
| |
| $864 |
| |
| $4,209 |
|
Notes: | | |
| | |
| | |
| | |
|
(1) Deductions represent write-offs of accounts receivable balances and are reduced by recoveries of amounts previously written off. |
|
| | | | | | | | | | | | | | | | |
ENTERGY MISSISSIPPI, LLC |
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS |
For the Years Ended December 31, 2019, 2018, and 2017 |
(In Thousands) |
Column A | | Column B | | Column C | | Column D | | Column E |
| | | | | | Other | | |
| | Balance at | | Additions | | Changes | | Balance |
Description | | Beginning of Period | | Charged to Income | | Deductions (1) | | at End of Period |
Allowance for doubtful accounts | | | | | | | | |
2019 | |
| $563 |
| |
| $406 |
| |
| $333 |
| |
| $636 |
|
2018 | |
| $574 |
| |
| $265 |
| |
| $276 |
| |
| $563 |
|
2017 | |
| $549 |
| |
| $255 |
| |
| $230 |
| |
| $574 |
|
Notes: | | |
| | |
| | |
| | |
|
(1) Deductions represent write-offs of accounts receivable balances and are reduced by recoveries of amounts previously written off. |
|
| | | | | | | | | | | | | | | | |
ENTERGY MISSISSIPPI, INC. |
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS |
For the Years Ended December 31, 2017, 2016, and 2015 |
(In Thousands) |
Column A | | Column B | | Column C | | Column D | | Column E |
| | | | | | Other | | |
| | Balance at | | Additions | | Changes | | Balance |
Description | | Beginning of Period | | Charged to Income | | Deductions (1) | | at End of Period |
Allowance for doubtful accounts | | | | | | | | |
2017 | |
| $549 |
| |
| $255 |
| |
| $230 |
| |
| $574 |
|
2016 | |
| $718 |
| |
| $259 |
| |
| $428 |
| |
| $549 |
|
2015 | |
| $873 |
| |
| $247 |
| |
| $402 |
| |
| $718 |
|
Notes: | | |
| | |
| | |
| | |
|
(1) Deductions represent write-offs of accounts receivable balances and are reduced by recoveries of amounts previously written off. |
|
| | | | | | | | | | | | | | | | |
ENTERGY NEW ORLEANS, LLC AND SUBSIDIARIES |
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS |
For the Years Ended December 31, 2019, 2018, and 2017 |
(In Thousands) |
Column A | | Column B | | Column C | | Column D | | Column E |
| | | | | | Other | | |
| | Balance at | | Additions | | Changes | | Balance |
Description | | Beginning of Period | | Charged to Income | | Deductions (1) | | at End of Period |
Allowance for doubtful accounts | | | | | | | | |
2019 | |
| $3,222 |
| |
| $316 |
| |
| $312 |
| |
| $3,226 |
|
2018 | |
| $3,057 |
| |
| $187 |
| |
| $22 |
| |
| $3,222 |
|
2017 | |
| $3,059 |
| |
| $152 |
| |
| $154 |
| |
| $3,057 |
|
Notes: | | |
| | |
| | |
| | |
|
(1) Deductions represent write-offs of accounts receivable balances and are reduced by recoveries of amounts previously written off. |
|
| | | | | | | | | | | | | | | | |
ENTERGY NEW ORLEANS, LLC AND SUBSIDIARIES |
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS |
For the Years Ended December 31, 2017, 2016, and 2015 |
(In Thousands) |
Column A | | Column B | | Column C | | Column D | | Column E |
| | | | | | Other | | |
| | Balance at | | Additions | | Changes | | Balance |
Description | | Beginning of Period | | Charged to Income | | Deductions (1) | | at End of Period |
Allowance for doubtful accounts | | | | | | | | |
2017 | |
| $3,059 |
| |
| $152 |
| |
| $154 |
| |
| $3,057 |
|
2016 | |
| $268 |
| |
| $2,872 |
| |
| $81 |
| |
| $3,059 |
|
2015 | |
| $262 |
| |
| $217 |
| |
| $211 |
| |
| $268 |
|
Notes: | | |
| | |
| | |
| | |
|
(1) Deductions represent write-offs of accounts receivable balances and are reduced by recoveries of amounts previously written off. |
|
| | | | | | | | | | | | | | | | |
ENTERGY TEXAS, INC. AND SUBSIDIARIES |
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS |
For the Years Ended December 31, 2019, 2018, and 2017 |
(In Thousands) |
Column A | | Column B | | Column C | | Column D | | Column E |
| | | | | | Other | | |
| | Balance at | | Additions | | Changes | | Balance |
Description | | Beginning of Period | | Charged to Income | | Deductions (1) | | at End of Period |
Allowance for doubtful accounts | | | | | | | | |
2019 | |
| $461 |
| |
| $321 |
| |
| $311 |
| |
| $471 |
|
2018 | |
| $463 |
| |
| $279 |
| |
| $281 |
| |
| $461 |
|
2017 | |
| $828 |
| |
| $192 |
| |
| $557 |
| |
| $463 |
|
Notes: | | |
| | |
| | |
| | |
|
(1) Deductions represent write-offs of accounts receivable balances and are reduced by recoveries of amounts previously written off. |
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ENTERGY TEXAS, INC. AND SUBSIDIARIES |
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS |
For the Years Ended December 31, 2017, 2016, and 2015 |
(In Thousands) |
Column A | | Column B | | Column C | | Column D | | Column E |
| | | | | | Other | | |
| | Balance at | | Additions | | Changes | | Balance |
Description | | Beginning of Period | | Charged to Income | | Deductions (1) | | at End of Period |
Allowance for doubtful accounts | | | | | | | | |
2017 | |
| $828 |
| |
| $192 |
| |
| $557 |
| |
| $463 |
|
2016 | |
| $474 |
| |
| $531 |
| |
| $177 |
| |
| $828 |
|
2015 | |
| $672 |
| |
| $239 |
| |
| $437 |
| |
| $474 |
|
Notes: | | |
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(1) Deductions represent write-offs of accounts receivable balances and are reduced by recoveries of amounts previously written off. |