UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|
| |
| (Mark One) | |
| X | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| | |
| | For the Quarterly Period Ended March 31, 20182019 |
| | OR |
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| | |
| | For the transition period from ____________ to ____________ |
|
| | | | |
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. |
| | | | |
| 1-11299 | ENTERGY CORPORATION (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 82-2212934 |
| | | | | |
| | | | | |
| 1-10764 | ENTERGY ARKANSAS, INC.LLC (an Arkansas corporation)a Texas limited liability company) 425 West Capitol Avenue Little Rock, Arkansas 72201 Telephone (501) 377-4000 71-000590083-1918668
| | 1-34360 | ENTERGY TEXAS, INC. (a Texas corporation) 10055 Grogans Mill Road The Woodlands, Texas 77380 Telephone (409) 981-2000 61-1435798 |
| | | | | |
| | | | | |
| 1-32718 | ENTERGY LOUISIANA, LLC (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 72-0752777 |
| | | | | |
| | | | | |
| 1-31508 | ENTERGY MISSISSIPPI, INC.LLC (a Mississippi corporation)Texas limited liability company) 308 East Pearl Street Jackson, Mississippi 39201 Telephone (601) 368-5000 64-020583083-1950019
| | | |
| | | | | |
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. Yes þ 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 registrants were required to submit and post such files). Yes þ No o
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.
|
| | | | | | | | | |
| | Large accelerated filer | | 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
Securities registered pursuant to Section 12(b) of the Act:
|
| | | |
Common Stock OutstandingRegistrant | Trading Symbol | Title of Class | Name of Each Exchange on Which Registered |
| | Outstanding at April 30, 2018 | |
| Entergy Corporation | ($0.01 par value)ETR | 180,823,624Common Stock, $0.01 Par Value – 189,926,451 shares outstanding at April 30, 2019 | New York Stock Exchange LLC NYSE Chicago, Inc. |
| | | |
| Entergy Arkansas, LLC | EAB | Mortgage Bonds, 4.90% Series due December 2052 | New York Stock Exchange LLC |
| EAE | Mortgage Bonds, 4.75% Series due June 2063 | New York Stock Exchange LLC |
| EAI | Mortgage Bonds, 4.875% Series due September 2066 | New York Stock Exchange LLC |
| | | |
| Entergy Louisiana, LLC | ELJ | Mortgage Bonds, 5.25% Series due July 2052 | New York Stock Exchange LLC |
| ELU | Mortgage Bonds, 4.70% Series due June 2063 | New York Stock Exchange LLC |
| ELC | Mortgage Bonds, 4.875% Series due September 2066 | New York Stock Exchange LLC |
| | | |
| Entergy Mississippi, LLC | EMP | Mortgage Bonds, 4.90% Series due October 2066 | New York Stock Exchange LLC |
| | | |
| Entergy New Orleans, LLC | ENJ | Mortgage Bonds, 5.0% Series due December 2052 | New York Stock Exchange LLC |
| ENO | Mortgage Bonds, 5.50% Series due April 2066 | New York Stock Exchange LLC |
| | | |
| Entergy Texas, Inc. | EZT | Mortgage Bonds, 5.625% Series due June 2064 | New York Stock Exchange LLC |
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. separately file this combined Quarterly Report on Form 10-Q. Information contained herein relating to any individual company is filed by such company on its own behalf. Each company reports herein only as to itself and makes no other representations whatsoever as to any other company. This combined Quarterly Report on Form 10-Q supplements and updates the Annual Report on Form 10‑K for the calendar year ended December 31, 2017,2018, filed by the individual registrants with the SEC, and should be read in conjunction therewith.
|
| |
| | Page Number |
| | |
| |
| |
| | |
| Part I. Financial Information |
| | |
| Entergy Corporation and Subsidiaries | |
| |
| |
| |
| |
| |
| |
| |
| Notes to Financial Statements | |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
Entergy Arkansas, Inc.LLC and Subsidiaries | |
| |
| |
| |
| |
| |
| |
| Entergy Louisiana, LLC and Subsidiaries | |
| |
| |
| |
| |
|
| |
| | Page Number |
| | |
| |
| |
| |
| |
| |
Entergy Mississippi, Inc.LLC | |
| |
| |
| |
| |
| |
| |
| Entergy New Orleans, LLC and Subsidiaries | |
| |
| |
| |
| |
| |
| |
| Entergy Texas, Inc. and Subsidiaries | |
| |
| |
| |
| |
| |
| |
| System Energy Resources, Inc. | |
| |
| |
| |
| |
| |
| | |
| Part II. Other Information |
| | |
| |
| |
| |
| |
| |
| |
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 those factors discussed or incorporated by reference in (a) Item 1A. Risk Factors in the Form 10-K, (b) Management’s Financial Discussion and Analysis in the Form 10-K and in this report, 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;
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, 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 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 of 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;
FORWARD-LOOKING INFORMATION (Continued)
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;
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, 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;
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 and 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 northern 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 effect of litigation and government investigations or proceedings;
changes in technology, including (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, and (iii) competition from other companies offering products and services to ourEntergy’s customers based on new or emerging technologies;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;
FORWARD-LOOKING INFORMATION (Concluded)
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;
FORWARD-LOOKING INFORMATION (Concluded)
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;
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 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;
factors that could lead to impairment of long-lived assets; and
the ability to successfully complete strategic transactions 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.
DEFINITIONS
Certain abbreviations or acronyms used in the text and notes are defined below: |
| |
| Abbreviation or Acronym | Term |
| | |
| 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 |
| 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 |
| 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 |
| Form 10-K | Annual Report on Form 10-K for the calendar year ended December 31, 20172018 filed with the SEC by Entergy Corporation and its Registrant Subsidiaries |
| Grand Gulf | Unit No. 1 of Grand Gulf Nuclear Station (nuclear), 90% owned or leased by System Energy |
| 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)
|
| |
| Abbreviation or Acronym | Term |
| | |
| 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 |
| kW | Kilowatt, which equals one thousand watts |
| kWh | Kilowatt-hour(s) |
| LPSC | Louisiana Public Service Commission |
| 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) |
| 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), owned by an Entergy subsidiary in the Entergy Wholesale Commodities business segment |
| PPA | Purchased power agreement or power purchase agreement |
| 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. |
| River Bend | River Bend Station (nuclear), owned by Entergy Louisiana |
| SEC | Securities and Exchange Commission |
| 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 |
DEFINITIONS (Concluded)
|
| |
| Abbreviation or Acronym | Term |
| | |
| Vermont Yankee | Vermont Yankee Nuclear Power Station (nuclear), 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 |
(Page left blank intentionally)
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 and in the Form 10-K for discussion of the operation and planned shutdown orand sale of each of the Entergy Wholesale Commodities nuclear power plants.
See Note 7 to the financial statements herein for financial information regarding Entergy’s business segments.
Results of Operations
First Quarter 20182019 Compared to First Quarter 20172018
Following are income statement variances for Utility, Entergy Wholesale Commodities, Parent & Other, and Entergy comparing the first quarter 20182019 to the first quarter 20172018 showing how much the line item increased or (decreased) in comparison to the prior period:
| | | | |
Utility | | Entergy Wholesale Commodities | |
Parent & Other (a) | |
Entergy | |
Utility | | Entergy Wholesale Commodities | |
Parent & Other (a) | |
Entergy |
| | | (In Thousands) | | (In Thousands) |
| 2017 Consolidated Net Income (Loss) | |
| $167,623 |
| |
| ($27,196 | ) | |
| ($54,376 | ) | |
| $86,051 |
| |
| 2018 Consolidated Net Income (Loss) | | |
| $217,940 |
| |
| ($17,779 | ) | |
| ($63,961 | ) | |
| $136,200 |
|
| | | | | | | | | | | | | | | | | |
| Net revenue (operating revenue less fuel expense, purchased power, and other regulatory charges/credits) | | 55,485 |
| | (112,287 | ) | | (8 | ) | | (56,810 | ) | | (43,585 | ) | | 10,643 |
| | 19 |
| | (32,923 | ) |
| Other operation and maintenance | | 30,871 |
| | (94,110 | ) | | (32 | ) | | (63,271 | ) | | (2,636 | ) | | (2,116 | ) | | 4,218 |
| | (534 | ) |
| Asset write-offs, impairments, and related charges | | — |
| | (138,867 | ) | | — |
| | (138,867 | ) | | — |
| | 1,055 |
| | — |
| | 1,055 |
|
| Taxes other than income taxes | | 15,293 |
| | (6,578 | ) | | 150 |
| | 8,865 |
| | (2,191 | ) | | (3,607 | ) | | (845 | ) | | (6,643 | ) |
| Depreciation and amortization | | 14,187 |
| | (14,444 | ) | | 57 |
| | (200 | ) | | 10,020 |
| | (111 | ) | | 300 |
| | 10,209 |
|
| Gain on sale of assets | | — |
| | (16,270 | ) | | — |
| | (16,270 | ) | |
| Other income | | 11,550 |
| | (57,372 | ) | | (689 | ) | | (46,511 | ) | | 7,076 |
| | 182,512 |
| | (1,738 | ) | | 187,850 |
|
| Interest expense | | 1,984 |
| | 1,823 |
| | 3,804 |
| | 7,611 |
| | 5,650 |
| | 919 |
| | 7,317 |
| | 13,886 |
|
| Other expenses | | 651 |
| | (20,429 | ) | | — |
| | (19,778 | ) | | 229 |
| | 15,171 |
| | — |
| | 15,400 |
|
| Income taxes | | (46,268 | ) | | 77,259 |
| | 4,909 |
| | 35,900 |
| | (63,788 | ) | | 66,986 |
| | (4,090 | ) | | (892 | ) |
| | | | | | | | | | | | | | | | | |
| 2018 Consolidated Net Income (Loss) | |
| $217,940 |
| |
| ($17,779 | ) | |
| ($63,961 | ) | |
| $136,200 |
| |
| 2019 Consolidated Net Income (Loss) | | |
| $234,147 |
| |
| $97,079 |
| |
| ($72,580 | ) | |
| $258,646 |
|
| |
| (a) | Parent & Other includes eliminations, which are primarily intersegment activity. |
Refer to “ENTERGY CORPORATION AND SUBSIDIARIES - SELECTED OPERATING RESULTS” for further information with respect to operating statistics.
Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis
First quarter 2019 results of operations includes impairment charges of $74 million ($58 million net-of-tax) and first quarter 2018 results of operations includes impairment charges of $73 million ($58 million net-of-tax) and first quarter 2017 results of operations includes impairment charges of $212 million ($138 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.power business. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Entergy Wholesale Commodities Exit from the Merchant Power Business” below and in the Form 10-K for discussion of management’s strategy to reduceshut down and sell all of the size of theremaining plants in Entergy Wholesale Commodities’ merchant nuclear fleet.
Net Revenue
Utility
Following is an analysis of the change in net revenue comparing the first quarter 20182019 to the first quarter 2017:2018:
|
| | | |
| | Amount |
| | (In Millions) |
2017 net revenue |
| $1,404 |
|
Volume/weather | 58 |
|
Retail electric price | 7 |
|
Grand Gulf recovery | (18 | ) |
Other | 9 |
|
| 2018 net revenue |
| $1,460 |
|
| Return of unprotected excess accumulated deferred income taxes to customers | (61 | ) |
| Volume/weather | (38 | ) |
| Retail electric price | 61 |
|
| Other | (6 | ) |
| 2019 net revenue |
| $1,416 |
|
The return of unprotected excess accumulated deferred income taxes to customers resulted from activity in 2019 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. There is no effect on net income as the reductions in net revenue were offset by reductions in income tax expense. See Note 2 to the financial statements in the Form 10-K for further discussion of regulatory activity regarding the Tax Cuts and Jobs Act.
The volume/weather variance is primarily due to an increase of 2,246 GWh, or 9%, in billed electricity usage, including the effect of moreless favorable weather on residential and commercial sales, andpartially offset by an increase in industrial usage. The increase in industrial usage is primarily due to an increase indriven by continued growth from new and expansion projects and increased demand forfrom existing customers in the petroleum refining industry and a new customer in the primary metals industry.customers.
The retail electric price variance is primarily due to:
the regulatory charges recorded in first quarter 2018 to reflect the effects of regulatory agreements to return the benefits of the lower income tax rate in 2018 to Entergy Louisiana customers;
an increase in formula rate plan rates effective with the first billing cycle of January 20182019 at Entergy Arkansas, as approved by the APSC;
increases in the transmission cost recovery factor ridera base rate in March 2017 and the distribution cost recovery factor rider rate in September 2017increase effective October 2018 at Entergy Texas, each as approved by the PUCT; and
an increase in energy efficiency rider revenues.
The increase was partially offset by regulatory charges recorded in the first quarter 2018 to reflect the effects of a provision in the settlement reached in Entergy Louisiana’s formula rate plan extension proceeding.revenues implemented with the first billing cycle of September 2018 at Entergy Louisiana, as approved by the LPSC; and
the implementation of an advanced metering system customer charge effective January 2019 at Entergy Louisiana, as approved by the LPSC.
See Note 2 to the financial statements herein and in the Form 10-K for further discussion of the regulatory proceedings discussed above.
The Grand Gulf recovery variance is primarily due to recovery of lower operating costs in the first quarter 2018 as compared to the first quarter 2017.
Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis
Entergy Wholesale Commodities
Following is an analysis of the change in net revenue comparing the first quarter 20182019 to the first quarter 2017:2018:
|
| | | |
| | Amount |
| | (In Millions) |
2017 net revenue |
| $494 |
|
FitzPatrick reimbursement agreement | (98 | ) |
Nuclear volume | (26 | ) |
Nuclear realized price changes | 27 |
|
Other | (15 | ) |
| 2018 net revenue |
| $382 |
|
| Nuclear volume | 15 |
|
| Other | (4 | ) |
| 2019 net revenue |
| $393 |
|
As shown in the table above, net revenue for Entergy Wholesale Commodities decreasedincreased by $112$11 million in the first quarter 20182019 as compared to the first quarter 20172018 primarily due to:
a decrease resulting from the reimbursement agreement with Exelon pursuant to which Exelon reimbursed Entergy in the first quarter 2017 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 were offset by other operation and maintenance expenses and taxes other than income taxes and had no effect on net income; and
lowerhigher volume in the Entergy Wholesale Commodities nuclear fleet resulting from more unplannedfewer non-refueling outage days in first quarter 2018 as compared to first quarter 2017.
The decrease was partially offset by higher realized wholesale energy prices and higher capacity prices in the first quarter 2018.
See Note 142019 as compared to the financial statements in the Form 10-K for discussion of the sale of FitzPatrick and the reimbursement agreement with Exelon.first quarter 2018.
Following are key performance measures for Entergy Wholesale Commodities for the first quarterquarters 20182019 and 2017:2018:
| | | | 2018 | | 2017 | 2019 | | 2018 |
Owned capacity (MW) (a) | 3,962 | | 4,800 | 3,962 | | 3,962 |
| GWh billed | 7,885 | | 8,363 | 7,203 | | 6,996 |
| | | |
| Entergy Wholesale Commodities Nuclear Fleet | | |
| Capacity factor | 83% | | 80% | 85% | | 83% |
| GWh billed | 6,408 | | 7,835 | 6,690 | | 6,408 |
| Average energy and capacity revenue per MWh | $56.96 | | $55.15 | |
| Average energy price ($/MWh) | | $51.43 | | $52.29 |
| Average capacity price ($/kW-month) | | $4.71 | | $3.83 |
| Refueling outage days: | | |
| FitzPatrick | — | | 42 | |
| Indian Point 2 | 13 | | — | — | | 13 |
| Indian Point 3 | — | | 19 | 21 | | — |
| |
(a) | Owned capacity for the first quarter 2017 includes the 838 MW FitzPatrick plant, which was sold to Exelon in March 2017. See Note 14 to the financial statements in the Form 10-K for discussion of the sale of FitzPatrick. |
Other Income Statement Items
Utility
Other operation and maintenance expenses decreased from $588 million for the first quarter 2018 to $585 million for the first quarter 2019 primarily due to:
a decrease of $20 million in nuclear generation expenses primarily due to a lower scope of work performed in the first quarter 2019 as compared to first quarter 2018 and lower nuclear labor costs, including contract labor;
a decrease of $5 million in storm damage provisions at Entergy Mississippi. See Note 2 to the financial statements in the Form 10-K for discussion of storm cost recovery; and
a decrease of $4 million in energy efficiency costs due to the timing of recovery from customers.
The decrease was partially offset by:
an increase of $8 million in information technology costs primarily due to higher software maintenance costs and higher contract costs;
an increase of $5 million in outside legal costs primarily due to a settlement received in 2018 which reduced legal costs in the first quarter 2018;
Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis
Other Income Statement Items
Utility
Other operation and maintenance expenses increased from $557 million for the first quarter 2017 to $588 million for the first quarter 2018 primarily due to:
an increase of $19$4 million in nuclearspending on customer initiatives to explore new technologies and services;
an increase of $3 million in advanced metering costs, including customer education costs; and
an increase of $3 million in fossil-fueled generation expenses primarily due to a higher scope of work performed during plant outages in the first quarter 20182019 as compared to the first quarter 2017 and higher nuclear labor costs, including contract labor, to position the nuclear fleet to meet its operational goals;
an increase of $9 million in energy efficiency costs;
an increase of $6 million in fossil-fueled generation expenses primarily due to an overall higher scope of work performed in first quarter 2018 as compared to first quarter 2017; and
an increase of $6 million in storm damage provisions. See Note 2 to the financial statements in the Form 10-K for discussion of storm cost recovery.
The increase was partially offset by higher nuclear insurance refunds of $8 million.
Taxes other than income taxes increased primarily due to increases in ad valorem taxes, local franchise taxes, and payroll taxes. Ad valorem taxes increased primarily due to higher assessments. Local franchise taxes increased primarily due to higher revenues in first quarter 2018 as compared to first quarter 2017.2018.
Depreciation and amortization expenses increased primarily due to additions to plant in service.service, partially offset by updated depreciation rates used in calculating Grand Gulf plant depreciation and amortization expenses under the Unit Power Sales Agreement as part of a settlement approved by the FERC in August 2018. See Note 2 to the financial statements in the Form 10-K for further discussion of the Unit Power Sales Agreement.
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 2018,2019, which included the Lake Charles Power Station, St. Charles Power Station, project,Montgomery County Power Station, and New Orleans Power Station projects. The increase was partially offset by changes in decommissioning trust fund investment activity, including portfolio rebalancing of certain of the decommissioning trust funds.funds in 2018.
Interest expense increased primarily due to an increase in debt outstanding at the Utility operating companies. See Note 5 to the financial statements in the Form 10-K and Note 4 to the financial statements herein for a discussion of long-term debt.
Entergy Wholesale Commodities
Other operationincome increased primarily due to gains on decommissioning trust fund investments in the first quarter 2019 as compared to the first quarter 2018. See Notes 8 and maintenance9 to the financial statements herein for a discussion of decommissioning trust fund investments.
Other expenses decreased from $285 millionincreased primarily due to an increase in nuclear refueling outage expenses as a result of the amortization of higher costs associated with a refueling outage at Palisades.
Income Taxes
The effective income tax rate was 14.2% for the first quarter 2017 to $191 million2019. The difference in the effective income tax rate for the first quarter 20182019 versus the federal statutory rate of 21% was primarily due to amortization of excess accumulated deferred income taxes, partially offset by the absencetax effects of other operationthe disposition of Vermont Yankee. See Notes 2 and maintenance expenses from10 to the FitzPatrick plant, which was sold to Exelon in March 2017. See Note 14financial statements herein and Notes 2 and 3 to the financial statements in the Form 10-K for discussion of the sale of FitzPatrick.
The asset write-offs, impairments, and related charges variance is primarily due to impairment charges of $73 million ($58 million net-of-tax) in the first quarter 2018 compared to impairment charges of $212 million ($138 million net-of-tax) in the first quarter 2017. The impairment charges are due to nuclear fuel spending, nuclear refueling outage spending, and expenditures for capital assets being 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 of the Entergy Wholesale Commodities’ merchant fleet. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Entergy Wholesale Commodities Exit from the Merchant Power Business” below and in the Form 10-K for discussion of management’s strategy to reduce the size of the Entergy Wholesale Commodities’ merchant fleet.
Depreciation and amortization expenses decreased primarily due to the decision in third quarter 2017 to continue operating Palisades until May 31, 2022. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Entergy Wholesale Commodities Exit from the Merchant Power Business” in the Form 10-K for a discussion of the planned shutdown of Palisades.
Entergy Corporationeffects and Subsidiaries
Management's Financial Discussionregulatory activity regarding the Tax Cuts and Analysis
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 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 of $16 million on the sale.Jobs Act. See Note 14 to the financial statements in the Form 10-K for discussion of the sale of FitzPatrick.
Other income decreased primarily due to losses on the decommissioning trust fund investments in first quarter 2018, including unrealized losses on equity investments that were previously recorded to other comprehensive income for periods prior to 2018. See Note 910 to the financial statements herein for a discussion of the implementation of ASU No. 2016-01 “Financial Instruments (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities” effective January 1, 2018.
Other expenses decreased primarily due to the absence of decommissioning expense from the FitzPatrick plant after it was sold to Exelon in March 2017. See Note 14 to the financial statements in the Form 10-K for discussiontax effects of the sale of FitzPatrick.
Income TaxesVermont Yankee disposition.
The effective income tax rate was 24.3% for the first quarter 2018. The difference in the effective income tax rate for the first quarter 2018 versus the federal statutory rate of 21% was primarily due to state income taxes, a write-off of a stock-based compensation deferred tax asset, and the provision for uncertain tax positions, partially offset by certain book and tax differences related to utility plant items and book and tax differences related to the allowance for equity funds used during construction.
The effective income tax rate was 8.3% for the first quarter 2017. The difference in the effective income tax rate for the first quarter 2017 versus the federal statutory rate
Entergy Corporation and bookSubsidiaries
Management's Financial Discussion and tax differences related to the allowance for equity funds used during construction, partially offset by a write-off of a stock-based compensation deferred tax asset, state income taxes, certain book and tax differences related to utility plant items, and the provision for uncertain tax positions. See Note 3 to the financial statements in the Form 10-K for further discussion of the tax benefit associated with the sale of FitzPatrick and the write-off of the stock-based compensation deferred tax asset.Analysis
Income Tax Legislation
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Income Tax Legislation” in the Form 10-K for a discussion of the Tax Cuts and Jobs Act enacted in December 2017. SeeNote 3 to the financial statements in the Form 10-K contains additional discussion of the effect of the Tax Act on 2018 results of operations and financial position, the provisions of the Tax Act, and the uncertainties associated with accounting for the Tax Act, and Note 10 to the financial statements herein contains updates to that discussion. Note 2 to the financial statements herein and in the Form 10-K forcontains a discussion of the regulatory proceedings commenced or other responses by Entergy’s regulators tothat have considered the effects of the Tax Cuts and Jobs Act.
Entergy Wholesale Commodities Exit from the Merchant Power Business
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Entergy Wholesale Commodities Exit from the Merchant Power Business” in the Form 10-K for a discussion of management’s strategy to reduce the size ofshut down and sell all remaining plants in the Entergy Wholesale Commodities’ merchant nuclear fleet. Following are updates to that discussion.
Shutdown and Planned Sale of Vermont Yankee Disposition
As discussed in more detail in Note 16 to the Form 10-K,financial statements herein, in December 2014 the Vermont Yankee plant ceased power production and entered its decommissioning phase, and in November 2016,January 2019, Entergy entered into an agreement to selltransferred 100% of the membership interests in Entergy Nuclear Vermont Yankee, LLC, the owner of the Vermont Yankee plant, to a subsidiary of NorthStar. In March 2018,
Planned Sale of Pilgrim
As discussed in the Form 10-K, Entergy and NorthStar entered into a settlementpurchase and sale agreement and a Memorandumto sell 100% of Understanding with Statethe equity interests in Entergy Nuclear Generation Company, the owner of Vermont agenciesPilgrim, for $1,000 (subject to adjustments for net liabilities and other interested partiesamounts). The sale of Entergy Nuclear Generation Company will include the transfer of the nuclear decommissioning trust and obligation for spent fuel management and plant decommissioning. Subject to the conditions discussed in the Form 10-K, the transaction is expected to close by the end of 2019. The transaction is expected to result in a loss based on the difference between Entergy’s adjusted net investment in Entergy Nuclear Generation Company and the sale price plus any agreed adjustments. As of March 31, 2019, Entergy’s adjusted net investment in Entergy Nuclear Generation Company was $180 million. The primary variables in the ultimate loss that set forthEntergy will incur are the termsvalues of the nuclear decommissioning trust and the asset retirement obligation at closing, the financial results from plant operations until the closing, and the level of any unrealized deferred tax balances at closing.
Planned Sale of Indian Point Energy Center
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.
The transaction is subject to closing conditions, including approval from the NRC. Entergy and Holtec also plan to seek an order from the New York State Public Service Commission disclaiming jurisdiction, or alternatively approving the transaction. Closing is also conditioned on whichobtaining from the agencies and parties supportNew 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 third quarter 2021, following the Vermont Public Utilitydefueling of Indian Point 3.
Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis
Commission’s approvalAs 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 March 31, 2019, Entergy’s adjusted net investment in the Indian Point units was $315 million. The primary variables in the ultimate loss that Entergy will incur are the values of the transaction. The agreements provide additional financial assurance fornuclear decommissioning spent fuel management and site restoration, and detail the site restoration standards that will apply to protect the environmenttrusts and the health and safety of workersasset retirement obligations at closing, the financial results from plant operations until the closing, and the public.level of unrealized any deferred tax balances at closing. The provisions of the agreements will become effective upon approvalterms of the transaction byinclude limitations on withdrawals from the Vermont Public Utility Commission consistent withnuclear decommissioning trusts to fund decommissioning activities and controls on how Entergy manages the agreements’ terms,investment of nuclear decommissioning trust assets between signing and closing; however, the NRC’s approvalagreement does not require a minimum level of the license transfer application, and the closing of the transaction. The Vermont Public Utility Commission and the NRC are expected to issue their decisionsfunding in the third or fourth quarter of 2018.nuclear decommissioning trusts as a condition to closing.
Costs Associated with Entergy Wholesale Commodities Strategic Transactions
Entergy expects to incur employee retention and severance expenses associated with management’s strategy to reduce the size of the Entergy Wholesale Commodities’ merchant fleet of approximately $165$130 million in 2018,2019, of which $26$34 million has been incurred as of March 31, 2018,2019, and a total of approximately $205$110 million from 20192020 through mid-2022.2022. In addition, Entergy Wholesale Commodities incurred impairment charges related to nuclear fuel spending, nuclear refueling outage spending, and expenditures for capital assets of $73$74 million for the three months ended March 31, 2018.2019. These costs were charged to expense as incurred as a result of the impaired value of certain 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. 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.
Entergy Wholesale Commodities Authorizations to Operate Indian Point
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Entergy Wholesale Commodities Authorizations to Operate Indian Point” in the Form 10-K for a discussion of the NRC operating licensing proceedings for Indian Point 2 and Indian Point 3 and the settlement reached with New York State in January 2017. The following is an update to that discussion.
In April 2018 the NRC issued a supplement to the final supplemental environmental impact statement. The supplement updates the environmental record related to the Indian Point license renewal. The NRC is expected to issue its decision in the Indian Point 2 and Indian Point 3 license renewal proceedings in fourth quarter 2018.
Liquidity and Capital Resources
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Liquidity and Capital Resources” in the Form 10-K for a discussion of Entergy’s capital structure, capital expenditure plans and other uses of capital, and sources of capital. Following are updates to that discussion.
Capital Structure
Entergy’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 for Entergy as of March 31, 20182019 is primarily due to the net issuance of debt in 2018.2019.
| | | | March 31, 2018 | | December 31, 2017 | March 31, 2019 | | December 31, 2018 |
| Debt to capital | 68.4 | % | | 67.1 | % | 67.8 | % | | 66.7 | % |
| Effect of excluding securitization bonds | (0.7 | %) | | (0.8 | %) | (0.5 | %) | | (0.6 | %) |
| Debt to capital, excluding securitization bonds (a) | 67.7 | % | | 66.3 | % | 67.3 | % | | 66.1 | % |
| Effect of subtracting cash | (1.6 | %) | | (1.1 | %) | (1.2 | %) | | (0.6 | %) |
| Net debt to net capital, excluding securitization bonds (a) | 66.1 | % | | 65.2 | % | 66.1 | % | | 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, capitalfinancing 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 in the Form 10-K. 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.
Entergy Corporation has in place a credit facility that has a borrowing capacity of $3.5 billion and expires in August 2022.September 2023. The facility includes 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 three months ended March 31, 20182019 was 3.31%4.03% on the drawn portion of the facility. Following is a summary of the borrowings outstanding and capacity available under the facility as of March 31, 2018:2019:
| | | Capacity | | Borrowings | | Letters of Credit | | Capacity Available | | Borrowings | | Letters of Credit | | Capacity Available |
(In Millions) | | $3,500 | | $1,125 | | $6 | | $2,369 | | $320 | | $6 | | $3,174 |
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 facility’s maturity date may occur. See Note 4 to the financial statements herein for additional discussion of the Entergy Corporation credit facility and discussion of the Registrant Subsidiaries’ credit facilities.
Entergy Corporation has a commercial paper program with a Board-approved program limit of up to $2 billion. As of March 31, 2019, Entergy Corporation had approximately $1,942 million of commercial paper outstanding. The weighted-average interest rate for the three months ended March 31, 2019 was 3.03%.
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. As of March 31, 2018, $1182019, $139 million in cash borrowings were outstanding under the credit facility. The weighted average interest rate for the three months ended March 31, 20182019 was 3.10%4.28% on the drawn portion of the facility. See Note 414 to the financial statements in the Form 10-K and Note 16 to the financial statements herein for additional discussion of the transfer of Entergy Nuclear Vermont Yankee facility.to NorthStar.
Entergy Corporation has a commercial paper program with a Board-approved program limit of up to $2 billion. As of March 31, 2018, Entergy Corporation had $655 million of commercial paper outstanding. The weighted-average interest rate for the three months ended March 31, 2018 was 1.88%.
Capital Expenditure Plans and Other Uses of Capital
See the table and discussion in the Form 10-K under “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Liquidity and Capital Resources - Capital Expenditure Plans and Other Uses of Capital,” that sets forth the amounts of planned construction and other capital investments by operating segment for 20182019 through 2020.2021. Following are updates to thethat discussion.
Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis
New Orleans Power
Choctaw Generating Station
As discussedIn August 2018, Entergy Mississippi announced that it signed an asset purchase agreement to acquire from a subsidiary of GenOn Energy Inc. the Choctaw Generating Station, an 810 MW natural gas fired combined-cycle turbine plant located near French Camp, Mississippi. The purchase price is expected to be approximately $314 million. Entergy Mississippi also expects to invest in various plant upgrades at the Form 10-K, in June 2016,facility after closing and expects the total cost of the acquisition to be approximately $401 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. These include regulatory approvals from the MPSC and the FERC. Clearance under the Hart-Scott-Rodino Antitrust Improvements Act has occurred. In October 2018, Entergy New OrleansMississippi 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. 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, or alternatively, a 128 MW unit composed of natural gas-fired reciprocating engines and a related cost recovery plan. In March 2018 the City Council adopted a resolution approving construction of the 128 MW unit. The targeted commercial operation date is January 2020, subject to receipt of all necessary permits. In April 2018 intervenors opposing the construction of the New Orleans Power Station filed with the City Council a request for rehearing, which was subsequently denied, and a petition for judicial review of the City Council’s decision, and also filed a lawsuit challenging the City Council’s approval based on Louisiana’s open meeting law.
Washington Parish Energy Center
As discussed in the Form 10-K, in April 2017, Entergy Louisiana signed an agreement with a subsidiary of Calpine Corporation for the construction and purchase of a peaking plant. 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 extended and the hearing continued from June 2018 to August 2018 in order to allow the parties an opportunity to reach settlement. In April 2018 the parties filed an unopposed joint motion for consideration of proposed stipulation by the LPSCMPSC seeking approval of the signed settlement agreement at the May 16, 2018 LPSC Business and Executive Session. The settlement recommends certificationacquisition and cost recovery throughrecovery. In a separate filing in October 2018, Entergy Mississippi proposed revisions to its formula rate plan that would provide for a mechanism, the additionalinterim capacity rate adjustment mechanism, ofin the formula rate plan consistent with prior LPSC precedent with respect to recover the certification and recoverynon-fuel related costs of plants previouslyadditional owned capacity acquired by Entergy Louisiana.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 additions approved by the MPSC. Closing is expected to occur by the end of 2019. Due diligence performed on the plant indicates that there exists a potential mechanical issue that must be addressed prior to closing. There is some possibility that closing may be delayed to allow time for this issue to be resolved.
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 completion and after the other purchase contingencies have been met. Closing is expected to occur by the end of 2021.
Dividends
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 April 20182019 meeting, the Board declared a dividend of $0.89$0.91 per share, which is the same quarterly
dividend per share that Entergy has paid since the fourththird quarter 2017.2018.
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 three months ended March 31, 20182019 and 20172018 were as follows:
|
| | | | | | | |
| | 2018 | | 2017 |
| | (In Millions) |
| Cash and cash equivalents at beginning of period |
| $781 |
| |
| $1,188 |
|
| | | | |
| Cash flow provided by (used in): | |
| | |
|
| Operating activities | 557 |
| | 529 |
|
| Investing activities | (974 | ) | | (812 | ) |
| Financing activities | 841 |
| | 178 |
|
| Net increase (decrease) in cash and cash equivalents | 424 |
| | (105 | ) |
| | | | |
| Cash and cash equivalents at end of period |
| $1,205 |
| |
| $1,083 |
|
Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis
|
| | | | | | | |
| | 2019 | | 2018 |
| | (In Millions) |
| Cash and cash equivalents at beginning of period |
| $481 |
| |
| $781 |
|
| | | | |
| Cash flow provided by (used in): | |
| | |
|
| Operating activities | 501 |
| | 557 |
|
| Investing activities | (951 | ) | | (974 | ) |
| Financing activities | 952 |
| | 841 |
|
| Net increase in cash and cash equivalents | 502 |
| | 424 |
|
| | | | |
| Cash and cash equivalents at end of period |
| $983 |
| |
| $1,205 |
|
Operating Activities
Net cash flow provided by operating activities increaseddecreased by $28$56 million for the three months ended March 31, 20182019 compared to the three months ended March 31, 20172018 primarily due to:
a refundthe return of unprotected excess accumulated deferred income taxes 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.Utility customers. See Note 2 to the financial statements in the Form 10-K for a discussion of the settlementregulatory activity regarding the Tax Cuts and refund;Jobs Act;
a decreasethe effect of $35less favorable weather on billed Utility sales in 2019;
an increase of $41 million in spending on nuclear refueling outages in 20182019 as compared to the same period in 2017;2018; and
the effectan increase of favorable weather on billed Utility sales.
The increase was partially offset by:
lower Entergy Wholesale Commodities net revenue, excluding the effect of revenues resulting from the FitzPatrick reimbursement agreement with Exelon,$29 million in 2018interest paid in 2019 as compared to the same period in 2017, as discussed above. See Note 14 to the financial statements2018 resulting from an increase in the Form 10-K for discussion of the reimbursement agreement;debt outstanding.
a
The decrease was partially offset by:
an increase due to the timing of recovery of fuel and purchased power costs in 20182019 as compared to the same period in 2017.2018. See Note 2 to the financial statements herein and in the Form 10-K for a discussion of fuel and purchased power cost recovery; and
proceedsa decrease of $23$80 million received in first quarter 2017 frompension contributions in 2019 as compared to same period in 2018. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Critical Accounting Estimates” in the DOE resulting from litigation regarding spent nuclear fuel storage costs that were previously expensed. SeeForm 10-K and Note 86 to the financial statements in the Form 10-Kherein for a discussion of the spent nuclear fuel litigation;qualified pension and other postretirement benefits funding.
a decrease of $14 million in income tax refunds in the first quarter 2018 as compared to the first quarter 2017. Entergy received income tax refunds in 2018 resulting from overpayment of state income taxes and received income tax refunds in 2017 resulting from the carryback of net operating losses.
Investing Activities
Net cash flow used in investing activities increased $162decreased $23 million for the three months ended March 31, 20182019 compared to the three months ended March 31, 20172018 primarily due to:
a decrease in collateral posted to provide credit support to secure its obligations under agreements to sell power produced by Entergy Wholesale Commodities’ power plants; and
an increase of $137 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 $83 million in fossil-fueled generation construction expenditures primarily due to higher spending in 2018 on the Lake Charles Power Station project and an increase of $35 million in transmission construction expenditures primarily due to a higher scope of work performed on transmission projects in 2018 as compared to 2017; and
proceeds of $100 million from the sale in March 2017 of the FitzPatrick plant to Exelon. See Note 14 to the financial statements in the Form 10-K for a discussion of the sale of FitzPatrick.
The increase was partially offset by a decrease of $88$11 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.
Financing Activities
Net cash flow provided by financing activities increased $663 million for the three months ended March 31, 2018 compared to the three months ended March 31, 2017 primarily due to long-term debt activity providing approximately $1,772 million of cash in 2018 compared to using approximately $575 million of cash in 2017. Included in the long-term debt activity is $915 million in 2018 for borrowings on the Entergy Corporation long-term credit facility and $475 million in 2017 for the repayment of borrowings on the Entergy Corporation long-term credit facility. The increase was partially offset by Entergy’s net repayments of $812 million of commercial paper in 2018 compared
Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis
The decrease was partially offset by changes in the decommissioning trust funds and an increase of $20 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 $32 million in transmission construction expenditures due to a higher scope of work performed in 2019 on various projects;
an increase of $27 million in distribution construction expenditures primarily due to a higher scope of work performed in 2019 on various projects; and
an increase of $21 million in nuclear construction expenditures primarily due to higher spending on various nuclear projects.
The increase in construction expenditures was partially offset by:
a decrease of $33 million in fossil-fueled generation construction expenditures primarily due to lower spending in 2019 on self-build projects in the Utility business; and
a decrease of $22 million in information technology capital expenditures primarily due to lower spending in 2019 on various projects.
Financing Activities
Net cash flow provided by financing activities increased $111 million for the three months ended March 31, 2019 compared to the three months ended March 31, 2018 primarily due to a decrease in net issuancesrepayments of $744$812 million of commercial paper in 2017 and a net decrease2019. The increase was partially offset by:
long-term debt activity providing approximately $1,145 million of $126cash in 2019 compared to approximately $1,772 million in 20182018;
the repurchase in first quarter 2019 of $50 million of Class A mandatorily redeemable preferred membership units in Entergy Holdings Company LLC, a wholly-owned Entergy subsidiary, that were held by a third party; and
short-term borrowings of $39 million in 2018 by the nuclear fuel company variable interest entities.
For the details of Entergy’s commercial paper program, the nuclear fuel company variable interest entities’ short-term borrowings, and long-term debt, see Note 4 to the financial statements herein and Note 5 to the financial statements in the Form 10-K.
Rate, Cost-recovery, and Other Regulation
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Rate, Cost-recovery, and Other Regulation” in the Form 10-K for discussions of rate regulation, federal regulation, and related regulatory proceedings.
State and Local Rate Regulation and Fuel-Cost Recovery
See Note 2 to the financial statements herein for updates to the discussion in the Form 10-K regarding these proceedings.
Federal Regulation
See Note 2 to the financial statements herein for updates to the discussion in the Form 10-K regarding federal regulatory proceedings.
Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis
Market and Credit Risk Sensitive Instruments
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 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 March 31, 2018 (20182019 (2019 represents the remainder of the year):
Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis
Entergy Wholesale Commodities Nuclear Portfolio
| | | | | 2018 | | 2019 | | 2020 | | 2021 | | 2022 | | 2019 | | 2020 | | 2021 | | 2022 |
| Energy | | |
| Percent of planned generation under contract (a): | | |
| Unit-contingent (b) | | 98% | | 91% | | 60% | | 78% | | 67% | | 98% | | 95% | | 91% | | 66% |
| Firm LD (c) | | 9% | | —% | | —% | | —% | | —% | |
| Offsetting positions (d) | | (9%) | | —% | | —% | | —% | | —% | |
| Total | | 98% | | 91% | | 60% | | 78% | | 67% | |
| Planned generation (TWh) (e) (f) | | 20.7 | | 25.5 | | 17.9 | | 9.7 | | 2.8 | |
| Planned generation (TWh) (c) (d) | | | 18.6 | | 17.7 | | 9.6 | | 2.8 |
| Average revenue per MWh on contracted volumes: | | |
| Expected based on market prices as of March 31, 2018 | | $32.6 | | $40.6 | | $44.6 | | $58.6 | | $58.8 | |
| Expected based on market prices as of March 31, 2019 | | | $34.7 | | $42.0 | | $56.9 | | $58.8 |
| | | |
| Capacity | | |
| Percent of capacity sold forward (g): | | |
| Bundled capacity and energy contracts (h) | | 22% | | 25% | | 36% | | 69% | | 99% | |
| Capacity contracts (i) | | 46% | | 13% | | —% | | —% | | —% | |
| Percent of capacity sold forward (e): | | |
| Bundled capacity and energy contracts (f) | | | 27% | | 37% | | 68% | | 97% |
| Capacity contracts (g) | | | 30% | | 27% | | —% | | —% |
| Total | | 68% | | 38% | | 36% | | 69% | | 99% | | 57% | | 64% | | 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) | | | 3,167 | | 2,195 | | 1,158 | | 338 |
| Average revenue under contract per kW per month (applies to capacity contracts only) | | $8.2 | | $9.1 | | $— | | $— | | $— | | $5.1 | | $3.2 | | $— | | $— |
| | | |
| Total Energy and Capacity Revenues (j) | | |
| Total Energy and Capacity Revenues (h) | | |
| Expected sold and market total revenue per MWh | | $44.5 | | $46.1 | | $45.7 | | $53.9 | | $47.6 | | $38.9 | | $45.1 | | $55.0 | | $47.5 |
| Sensitivity: -/+ $10 per MWh market price change | | $44.4-$44.5 | | $45.2-$47.0 | | $42.1-$49.4 | | $51.7-$56.1 | | $44.3-$50.9 | | $38.7-$39.1 | | $45.0-$45.2 | | $54.1-$55.9 | | $44.1-$51.0 |
| |
| (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. |
Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis
| |
| (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, the 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. Assumes NRC license renewals for two units, as follows (with current license expirations in parentheses):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. |
Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis
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” in the Form 10-K. For a discussion regarding the license renewals for Indian Point 2 and Indian Point 3, see “Entergy Wholesale Commodities Authorizations to Operate Indian Point” in the Form 10-K.
| |
(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. |
| |
(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 March 31, 20182019 market conditions, planned generation volumes, and hedged positions, would have a corresponding effect on pre-tax income of $1.4$4 million for the remainder of 2018.2019. As of March 31, 2017,2018, a positive $10 per MWhMW change would have had a corresponding effect on pre-tax income of $22$1.4 million for the remainder of 2017.2018. A negative $10 per MWh change in the annual average energy price in the markets based on March 31, 20182019 market conditions, planned generation volumes, and hedged positions, would have a corresponding effect on pre-tax income of ($1.4)4) million for the remainder of 2018.2019. As of March 31, 2017,2018, a negative $10 per MWhMW change would have had a corresponding effect on pre-tax income of ($19)1.4) million for the remainder of 2017.2018.
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 March 31, 2018,2019, based on power prices at that time, Entergy had liquidity exposure of $126$121 million under the guarantees in place supporting Entergy Wholesale Commodities transactions and $8$34 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 March 31, 2018,2019, Entergy would have been required to provide approximately $64$75 million of additional cash or letters of credit under some of the agreements. As of March 31, 2018,2019, the liquidity exposure associated with Entergy Wholesale Commodities assurance requirements, including return of previously posted collateral from counterparties, would increase by $319$235 million for a $1 per MMBtu increase in gas prices in both the short- and long-term markets.
As of March 31, 2018,2019, 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.
Nuclear Matters
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS – Nuclear Matters” in the Form 10-K for a discussion of nuclear matters. The following is an update to that discussion.
Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis
Pilgrim
In March 2019 the NRC moved Pilgrim from its “multiple/repetitive degraded cornerstone column,” or Column 4, of its Reactor Oversight Process Action Matrix to its “licensee response column,” or Column 1.
Critical Accounting Estimates
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Critical Accounting Estimates” in the Form 10-K for a discussion of the estimates and judgments necessary in Entergy’s accounting for nuclear decommissioning costs, utility regulatory accounting, unbilled revenue, impairment of long-lived assets and trust fund
Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis
investments, taxation and uncertain tax positions, qualified pension and other postretirement benefits, and other contingencies.
New Accounting Pronouncements
See Note 1 to the financial statements in the Form 10-K for discussion of new accounting pronouncements.
|
| | | | | | | | |
| ENTERGY CORPORATION AND SUBSIDIARIES |
| CONSOLIDATED INCOME STATEMENTS |
| For the Three Months Ended March 31, 2018 and 2017 |
| (Unaudited) |
| | | |
| | 2018 | | 2017 | |
| | (In Thousands, Except Share Data) | |
| OPERATING REVENUES | | | | |
| Electric |
| $2,248,262 |
| |
| $1,991,740 |
| |
| Natural gas | 56,695 |
| | 43,351 |
| |
| Competitive businesses | 418,924 |
| | 553,367 |
| |
| TOTAL | 2,723,881 |
| | 2,588,458 |
| |
| | | | | |
| OPERATING EXPENSES | | | | |
| Operation and Maintenance: | | | | |
| Fuel, fuel-related expenses, and gas purchased for resale | 443,296 |
| | 417,566 |
| |
| Purchased power | 396,023 |
| | 357,768 |
| |
| Nuclear refueling outage expenses | 42,760 |
| | 42,564 |
| |
| Other operation and maintenance | 783,585 |
| | 846,856 |
| |
| Asset write-offs, impairments, and related charges | 72,924 |
| | 211,791 |
| |
| Decommissioning | 94,400 |
| | 114,374 |
| |
| Taxes other than income taxes | 165,218 |
| | 156,353 |
| |
| Depreciation and amortization | 347,065 |
| | 347,265 |
| |
| Other regulatory charges (credits) | 42,946 |
| | (85,302 | ) | |
| TOTAL | 2,388,217 |
| | 2,409,235 |
| |
| | | | | |
| Gain on sale of assets | — |
| | 16,270 |
| |
| | | | | |
| OPERATING INCOME | 335,664 |
| | 195,493 |
| |
| | | | | |
| OTHER INCOME | | | | |
| Allowance for equity funds used during construction | 28,343 |
| | 19,008 |
| |
| Interest and investment income | 16,870 |
| | 56,549 |
| |
| Miscellaneous - net | (31,356 | ) | | (15,189 | ) | |
| TOTAL | 13,857 |
| | 60,368 |
| |
| | | | | |
| INTEREST EXPENSE | | | | |
| Interest expense | 182,923 |
| | 171,089 |
| |
| Allowance for borrowed funds used during construction | (13,265 | ) | | (9,042 | ) | |
| TOTAL | 169,658 |
| | 162,047 |
| |
| | | | | |
| INCOME BEFORE INCOME TAXES | 179,863 |
| | 93,814 |
| |
| | | | | |
| Income taxes | 43,663 |
| | 7,763 |
| |
| | | | | |
| CONSOLIDATED NET INCOME | 136,200 |
| | 86,051 |
| |
| | | | | |
| Preferred dividend requirements of subsidiaries | 3,439 |
| | 3,446 |
| |
| | | | | |
| NET INCOME ATTRIBUTABLE TO ENTERGY CORPORATION |
| $132,761 |
| |
| $82,605 |
| |
| | | | | |
| Earnings per average common share: | | | | |
| Basic |
| $0.73 |
| |
| $0.46 |
| |
| Diluted |
| $0.73 |
| |
| $0.46 |
| |
| Dividends declared per common share |
| $0.89 |
| |
| $0.87 |
| |
| | | | | |
| Basic average number of common shares outstanding | 180,707,575 |
| | 179,335,063 |
| |
| Diluted average number of common shares outstanding | 181,431,968 |
| | 179,842,053 |
| |
| | | | | |
| See Notes to Financial Statements. | | | | |
|
| | | | | | | |
| ENTERGY CORPORATION AND SUBSIDIARIES |
| CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME |
| For the Three Months Ended March 31, 2018 and 2017 |
| (Unaudited) |
| | |
| | 2018 | | 2017 |
| | (In Thousands) |
| | | | |
| Net Income |
| $136,200 |
| |
| $86,051 |
|
| | | |
| Other comprehensive income | | | |
| Cash flow hedges net unrealized gain (loss) (net of tax expense (benefit) of $25,349 and ($359)) | 95,427 |
| | (528 | ) |
| Pension and other postretirement liabilities (net of tax expense of $4,568 and $6,377) | 16,574 |
| | 8,632 |
|
| Net unrealized investment gain (loss) (net of tax expense of $5,375 and $39,294) | (32,856 | ) | | 37,827 |
|
| Other comprehensive income | 79,145 |
| | 45,931 |
|
| | | |
| Comprehensive Income | 215,345 |
| | 131,982 |
|
| Preferred dividend requirements of subsidiaries | 3,439 |
| | 3,446 |
|
| Comprehensive Income Attributable to Entergy Corporation |
| $211,906 |
| |
| $128,536 |
|
| | | | |
| See Notes to Financial Statements. | | | |
|
| | | | | | | | |
| ENTERGY CORPORATION AND SUBSIDIARIES |
| CONSOLIDATED STATEMENTS OF CASH FLOWS |
| For the Three Months Ended March 31, 2018 and 2017 |
| (Unaudited) |
| | | 2018 | | 2017 |
| | | (In Thousands) |
| OPERATING ACTIVITIES | | | | |
| Consolidated net income | |
| $136,200 |
| |
| $86,051 |
|
| Adjustments to reconcile consolidated net income to net cash flow provided by operating activities: | | | | |
| Depreciation, amortization, and decommissioning, including nuclear fuel amortization | | 525,181 |
| | 531,373 |
|
| Deferred income taxes, investment tax credits, and non-current taxes accrued | | 104,607 |
| | 16,497 |
|
| Asset write-offs, impairments, and related charges | | 25,800 |
| | 145,026 |
|
| Gain on sale of assets | | — |
| | (16,270 | ) |
| Changes in working capital: | | | | |
| Receivables | | 131,150 |
| | 156,201 |
|
| Fuel inventory | | (16,261 | ) | | 6,465 |
|
| Accounts payable | | (68,857 | ) | | (47,682 | ) |
| Taxes accrued | | (56,301 | ) | | (58,832 | ) |
| Interest accrued | | (10,011 | ) | | (13,921 | ) |
| Deferred fuel costs | | (76,238 | ) | | (7,389 | ) |
| Other working capital accounts | | (28,004 | ) | | (7,324 | ) |
| Changes in provisions for estimated losses | | 10,744 |
| | (4,031 | ) |
| Changes in other regulatory assets | | 84,349 |
| | 47,497 |
|
| Changes in other regulatory liabilities | | (31,380 | ) | | (18,324 | ) |
| Changes in pensions and other postretirement liabilities | | (97,418 | ) | | (86,430 | ) |
| Other | | (76,168 | ) | | (199,514 | ) |
| Net cash flow provided by operating activities | | 557,393 |
| | 529,393 |
|
| | | | | |
| INVESTING ACTIVITIES | | | | |
| Construction/capital expenditures | | (931,479 | ) | | (794,448 | ) |
| Allowance for equity funds used during construction | | 28,512 |
| | 19,254 |
|
| Nuclear fuel purchases | | (49,647 | ) | | (137,613 | ) |
| Proceeds from sale of assets | | — |
| | 100,000 |
|
| Insurance proceeds received for property damages | | 1,582 |
| | 20,909 |
|
| Changes in securitization account | | (7,063 | ) | | (963 | ) |
| Payments to storm reserve escrow account | | (1,175 | ) | | (480 | ) |
| Receipts from storm reserve escrow account | | — |
| | 8,836 |
|
| Increases in other investments | | (406 | ) | | (10,377 | ) |
| Litigation proceeds for reimbursement of spent nuclear fuel storage costs | | — |
| | 25,493 |
|
| Proceeds from nuclear decommissioning trust fund sales | | 1,091,332 |
| | 513,750 |
|
| Investment in nuclear decommissioning trust funds | | (1,106,094 | ) | | (556,161 | ) |
| Net cash flow used in investing activities | | (974,438 | ) | | (811,800 | ) |
| | | | | |
| See Notes to Financial Statements. | | | | |
|
| | | | | | | | |
| ENTERGY CORPORATION AND SUBSIDIARIES |
| CONSOLIDATED STATEMENTS OF CASH FLOWS |
| For the Three Months Ended March 31, 2018 and 2017 |
| (Unaudited) |
| | | 2018 | | 2017 |
| | | (In Thousands) |
| FINANCING ACTIVITIES | | | | |
| Proceeds from the issuance of: | | | | |
| Long-term debt | | 2,505,726 |
| | 236,198 |
|
| Treasury stock | | 1,952 |
| | 2,448 |
|
| Retirement of long-term debt | | (734,000 | ) | | (811,690 | ) |
| Changes in credit borrowings and commercial paper - net | | (773,177 | ) | | 908,378 |
|
| Other | | 5,193 |
| | 1,810 |
|
| Dividends paid: | | | | |
| Common stock | | (160,887 | ) | | (156,073 | ) |
| Preferred stock | | (3,439 | ) | | (3,446 | ) |
| Net cash flow provided by financing activities | | 841,368 |
| | 177,625 |
|
| | | | |
| Net increase (decrease) in cash and cash equivalents | | 424,323 |
| | (104,782 | ) |
| | | | |
| Cash and cash equivalents at beginning of period | | 781,273 |
| | 1,187,844 |
|
| | | | |
| Cash and cash equivalents at end of period | |
| $1,205,596 |
| |
| $1,083,062 |
|
| | | | | |
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | | | | |
| Cash paid (received) during the period for: | | | | |
| Interest - net of amount capitalized | |
| $185,606 |
| |
| $178,134 |
|
| Income taxes | |
| ($4,297 | ) | |
| ($18,044 | ) |
| | | | | |
| See Notes to Financial Statements. | | | | |
|
| | | | | | | |
| ENTERGY CORPORATION AND SUBSIDIARIES |
| CONSOLIDATED INCOME STATEMENTS |
| For the Three Months Ended March 31, 2019 and 2018 |
| (Unaudited) |
| | |
| | 2019 | | 2018 |
| | (In Thousands, Except Share Data) |
| OPERATING REVENUES | | | |
| Electric |
| $2,121,024 |
| |
| $2,248,262 |
|
| Natural gas | 54,948 |
| | 56,695 |
|
| Competitive businesses | 433,612 |
| | 418,924 |
|
| TOTAL | 2,609,584 |
| | 2,723,881 |
|
| | | | |
| OPERATING EXPENSES | | | |
| Operation and Maintenance: | | | |
| Fuel, fuel-related expenses, and gas purchased for resale | 478,330 |
| | 443,296 |
|
| Purchased power | 339,507 |
| | 396,023 |
|
| Nuclear refueling outage expenses | 50,441 |
| | 42,760 |
|
| Other operation and maintenance | 783,051 |
| | 783,585 |
|
| Asset write-offs, impairments, and related charges | 73,979 |
| | 72,924 |
|
| Decommissioning | 102,119 |
| | 94,400 |
|
| Taxes other than income taxes | 158,575 |
| | 165,218 |
|
| Depreciation and amortization | 357,274 |
| | 347,065 |
|
| Other regulatory charges (credits) | (16,946 | ) | | 42,946 |
|
| TOTAL | 2,326,330 |
| | 2,388,217 |
|
| | | | |
| OPERATING INCOME | 283,254 |
| | 335,664 |
|
| | | | |
| OTHER INCOME | | | |
| Allowance for equity funds used during construction | 38,216 |
| | 28,343 |
|
| Interest and investment income | 228,149 |
| | 16,870 |
|
| Miscellaneous - net | (64,658 | ) | | (31,356 | ) |
| TOTAL | 201,707 |
| | 13,857 |
|
| | | | |
| INTEREST EXPENSE | | | |
| Interest expense | 200,993 |
| | 182,923 |
|
| Allowance for borrowed funds used during construction | (17,449 | ) | | (13,265 | ) |
| TOTAL | 183,544 |
| | 169,658 |
|
| | | | |
| INCOME BEFORE INCOME TAXES | 301,417 |
| | 179,863 |
|
| | | | |
| Income taxes | 42,771 |
| | 43,663 |
|
| | | | |
| CONSOLIDATED NET INCOME | 258,646 |
| | 136,200 |
|
| | | | |
| Preferred dividend requirements of subsidiaries | 4,109 |
| | 3,439 |
|
| | | | |
| NET INCOME ATTRIBUTABLE TO ENTERGY CORPORATION |
| $254,537 |
| |
| $132,761 |
|
| | | | |
| Earnings per average common share: | | | |
| Basic |
| $1.34 |
| |
| $0.73 |
|
| Diluted |
| $1.32 |
| |
| $0.73 |
|
| | | | |
| Basic average number of common shares outstanding | 189,575,187 |
| | 180,707,575 |
|
| Diluted average number of common shares outstanding | 192,234,191 |
| | 181,431,968 |
|
| | | | |
| See Notes to Financial Statements. | | | |
|
| | | | | | | | |
| ENTERGY CORPORATION AND SUBSIDIARIES |
| CONSOLIDATED BALANCE SHEETS |
| ASSETS |
| March 31, 2018 and December 31, 2017 |
| (Unaudited) |
| | | 2018 | | 2017 |
| | | (In Thousands) |
| CURRENT ASSETS | | | | |
| Cash and cash equivalents: | | | | |
| Cash | |
| $57,921 |
| |
| $56,629 |
|
| Temporary cash investments | | 1,147,675 |
| | 724,644 |
|
| Total cash and cash equivalents | | 1,205,596 |
| | 781,273 |
|
| Accounts receivable: | | | | |
| Customer | | 616,653 |
| | 673,347 |
|
| Allowance for doubtful accounts | | (14,515 | ) | | (13,587 | ) |
| Other | | 163,039 |
| | 169,377 |
|
| Accrued unbilled revenues | | 316,624 |
| | 383,813 |
|
| Total accounts receivable | | 1,081,801 |
| | 1,212,950 |
|
| Deferred fuel costs | | 83,445 |
| | 95,746 |
|
| Fuel inventory - at average cost | | 198,904 |
| | 182,643 |
|
| Materials and supplies - at average cost | | 741,677 |
| | 723,222 |
|
| Deferred nuclear refueling outage costs | | 112,365 |
| | 133,164 |
|
| Prepayments and other | | 231,946 |
| | 156,333 |
|
| TOTAL | | 3,655,734 |
| | 3,285,331 |
|
| | | | | |
| OTHER PROPERTY AND INVESTMENTS | | | | |
| Investment in affiliates - at equity | | 198 |
| | 198 |
|
| Decommissioning trust funds | | 7,115,686 |
| | 7,211,993 |
|
| Non-utility property - at cost (less accumulated depreciation) | | 289,074 |
| | 260,980 |
|
| Other | | 433,868 |
| | 441,862 |
|
| TOTAL | | 7,838,826 |
| | 7,915,033 |
|
| | | | | |
| PROPERTY, PLANT, AND EQUIPMENT | | | | |
| Electric | | 47,515,661 |
| | 47,287,370 |
|
| Property under capital lease | | 620,419 |
| | 620,544 |
|
| Natural gas | | 462,756 |
| | 453,162 |
|
| Construction work in progress | | 2,347,660 |
| | 1,980,508 |
|
| Nuclear fuel | | 857,893 |
| | 923,200 |
|
| TOTAL PROPERTY, PLANT, AND EQUIPMENT | | 51,804,389 |
| | 51,264,784 |
|
| Less - accumulated depreciation and amortization | | 21,701,715 |
| | 21,600,424 |
|
| PROPERTY, PLANT, AND EQUIPMENT - NET | | 30,102,674 |
| | 29,664,360 |
|
| | | | | |
| DEFERRED DEBITS AND OTHER ASSETS | | | | |
| Regulatory assets: | | | | |
| Other regulatory assets (includes securitization property of $455,148 as of March 31, 2018 and $485,031 as of December 31, 2017) | | 4,851,338 |
| | 4,935,689 |
|
| Deferred fuel costs | | 239,347 |
| | 239,298 |
|
| Goodwill | | 377,172 |
| | 377,172 |
|
| Accumulated deferred income taxes | | 21,144 |
| | 178,204 |
|
| Other | | 195,290 |
| | 112,062 |
|
| TOTAL | | 5,684,291 |
| | 5,842,425 |
|
| | | | | |
| TOTAL ASSETS | |
| $47,281,525 |
| |
| $46,707,149 |
|
| | | | | |
| See Notes to Financial Statements. | | | | |
|
| | | | | | | |
| ENTERGY CORPORATION AND SUBSIDIARIES |
| CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME |
| For the Three Months Ended March 31, 2019 and 2018 |
| (Unaudited) |
| | |
| | 2019 | | 2018 |
| | (In Thousands) |
| | | | |
| Net Income |
| $258,646 |
| |
| $136,200 |
|
| | | |
| Other comprehensive income | | | |
| Cash flow hedges net unrealized gain (loss) (net of tax expense (benefit) of ($5,352) and $25,349) | (12,426 | ) | | 95,427 |
|
| Pension and other postretirement liabilities (net of tax expense of $3,249 and $4,568) | 11,550 |
| | 16,574 |
|
| Net unrealized investment gain (loss) (net of tax expense of $8,073 and $5,375) | 13,703 |
| | (32,856 | ) |
| Other comprehensive income | 12,827 |
| | 79,145 |
|
| | | |
| Comprehensive Income | 271,473 |
| | 215,345 |
|
| Preferred dividend requirements of subsidiaries | 4,109 |
| | 3,439 |
|
| Comprehensive Income Attributable to Entergy Corporation |
| $267,364 |
| |
| $211,906 |
|
| | | | |
| See Notes to Financial Statements. | | | |
|
| | | | | | | | |
| ENTERGY CORPORATION AND SUBSIDIARIES |
| CONSOLIDATED BALANCE SHEETS |
| LIABILITIES AND EQUITY |
| March 31, 2018 and December 31, 2017 |
| (Unaudited) |
| | | 2018 | | 2017 |
| | | (In Thousands) |
| CURRENT LIABILITIES | | | | |
| Currently maturing long-term debt | |
| $1,260,008 |
| |
| $760,007 |
|
| Notes payable and commercial paper | | 805,131 |
| | 1,578,308 |
|
| Accounts payable | | 1,260,718 |
| | 1,452,216 |
|
| Customer deposits | | 403,072 |
| | 401,330 |
|
| Taxes accrued | | 158,667 |
| | 214,967 |
|
| Interest accrued | | 177,961 |
| | 187,972 |
|
| Deferred fuel costs | | 58,032 |
| | 146,522 |
|
| Obligations under capital leases | | 1,419 |
| | 1,502 |
|
| Pension and other postretirement liabilities | | 63,612 |
| | 71,612 |
|
| Current portion of unprotected excess accumulated deferred income taxes | | 912,103 |
| | — |
|
| Other | | 131,949 |
| | 221,771 |
|
| TOTAL | | 5,232,672 |
| | 5,036,207 |
|
| | | | | |
| NON-CURRENT LIABILITIES | | | | |
| Accumulated deferred income taxes and taxes accrued | | 4,452,168 |
| | 4,466,503 |
|
| Accumulated deferred investment tax credits | | 217,502 |
| | 219,634 |
|
| Obligations under capital leases | | 21,632 |
| | 22,015 |
|
| Regulatory liability for income taxes-net | | 1,981,963 |
| | 2,900,204 |
|
| Other regulatory liabilities | | 1,563,278 |
| | 1,588,520 |
|
| Decommissioning and asset retirement cost liabilities | | 6,328,664 |
| | 6,185,814 |
|
| Accumulated provisions | | 489,026 |
| | 478,273 |
|
| Pension and other postretirement liabilities | | 2,821,236 |
| | 2,910,654 |
|
| Long-term debt (includes securitization bonds of $520,253 as of March 31, 2018 and $544,921 as of December 31, 2017) | | 15,591,628 |
| | 14,315,259 |
|
| Other | | 409,014 |
| | 393,748 |
|
| TOTAL | | 33,876,111 |
| | 33,480,624 |
|
| | | | | |
| Commitments and Contingencies | | | | |
| | | | | |
| Subsidiaries' preferred stock without sinking fund | | 197,799 |
| | 197,803 |
|
| | | | | |
| COMMON EQUITY | | | | |
| Common stock, $.01 par value, authorized 500,000,000 shares; issued 254,752,788 shares in 2018 and in 2017 | | 2,548 |
| | 2,548 |
|
| Paid-in capital | | 5,417,263 |
| | 5,433,433 |
|
| Retained earnings | | 8,493,790 |
| | 7,977,702 |
|
| Accumulated other comprehensive loss | | (561,498 | ) | | (23,531 | ) |
| Less - treasury stock, at cost (73,953,521 shares in 2018 and 74,235,135 shares in 2017) | | 5,377,160 |
| | 5,397,637 |
|
| TOTAL | | 7,974,943 |
| | 7,992,515 |
|
| | | | | |
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | |
| $47,281,525 |
| |
| $46,707,149 |
|
| | | | | |
| See Notes to Financial Statements. | | | | |
|
| | | | | | | | |
| ENTERGY CORPORATION AND SUBSIDIARIES |
| CONSOLIDATED STATEMENTS OF CASH FLOWS |
| For the Three Months Ended March 31, 2019 and 2018 |
| (Unaudited) |
| | | 2019 | | 2018 |
| | | (In Thousands) |
| OPERATING ACTIVITIES | | | | |
| Consolidated net income | |
| $258,646 |
| |
| $136,200 |
|
| Adjustments to reconcile consolidated net income to net cash flow provided by operating activities: | | | | |
| Depreciation, amortization, and decommissioning, including nuclear fuel amortization | | 530,224 |
| | 525,181 |
|
| Deferred income taxes, investment tax credits, and non-current taxes accrued | | 104,884 |
| | 104,607 |
|
| Asset write-offs, impairments, and related charges | | 25,462 |
| | 25,800 |
|
| Changes in working capital: | | | | |
| Receivables | | 39,697 |
| | 131,150 |
|
| Fuel inventory | | (4,401 | ) | | (16,261 | ) |
| Accounts payable | | (63,613 | ) | | (68,857 | ) |
| Taxes accrued | | (44,083 | ) | | (56,301 | ) |
| Interest accrued | | (20,546 | ) | | (10,011 | ) |
| Deferred fuel costs | | 20,201 |
| | (76,238 | ) |
| Other working capital accounts | | (42,016 | ) | | (28,004 | ) |
| Changes in provisions for estimated losses | | 13,720 |
| | 10,744 |
|
| Changes in other regulatory assets | | (162,192 | ) | | 84,349 |
|
| Changes in other regulatory liabilities | | 130,924 |
| | (31,380 | ) |
| Changes in pensions and other postretirement liabilities | | (7,713 | ) | | (97,418 | ) |
| Other | | (278,005 | ) | | (76,168 | ) |
| Net cash flow provided by operating activities | | 501,189 |
| | 557,393 |
|
| | | | | |
| INVESTING ACTIVITIES | | | | |
| Construction/capital expenditures | | (951,629 | ) | | (931,479 | ) |
| Allowance for equity funds used during construction | | 38,322 |
| | 28,512 |
|
| Nuclear fuel purchases | | (38,445 | ) | | (49,647 | ) |
| Insurance proceeds received for property damages | | — |
| | 1,582 |
|
| Changes in securitization account | | (1,084 | ) | | (7,063 | ) |
| Payments to storm reserve escrow account | | (2,285 | ) | | (1,175 | ) |
| Decrease (increase) in other investments | | 39,045 |
| | (406 | ) |
| Proceeds from nuclear decommissioning trust fund sales | | 1,307,547 |
| | 1,091,332 |
|
| Investment in nuclear decommissioning trust funds | | (1,342,429 | ) | | (1,106,094 | ) |
| Net cash flow used in investing activities | | (950,958 | ) | | (974,438 | ) |
| | | | | |
| See Notes to Financial Statements. | | | | |
|
| | | | | | | | |
| ENTERGY CORPORATION AND SUBSIDIARIES |
| CONSOLIDATED STATEMENTS OF CASH FLOWS |
| For the Three Months Ended March 31, 2019 and 2018 |
| (Unaudited) |
| | | 2019 | | 2018 |
| | | (In Thousands) |
| FINANCING ACTIVITIES | | | | |
| Proceeds from the issuance of: | | | | |
| Long-term debt | | 3,444,230 |
| | 2,505,726 |
|
| Treasury stock | | 35,577 |
| | 1,952 |
|
| Retirement of long-term debt | | (2,298,855 | ) | | (734,000 | ) |
| Repurchase of preferred membership units | | (50,000 | ) | | — |
|
| Changes in credit borrowings and commercial paper - net | | (17 | ) | | (773,177 | ) |
| Other | | (1,945 | ) | | 5,193 |
|
| Dividends paid: | | | | |
| Common stock | | (172,591 | ) | | (160,887 | ) |
| Preferred stock | | (4,109 | ) | | (3,439 | ) |
| Net cash flow provided by financing activities | | 952,290 |
| | 841,368 |
|
| | | | |
| Net increase in cash and cash equivalents | | 502,521 |
| | 424,323 |
|
| | | | |
| Cash and cash equivalents at beginning of period | | 480,975 |
| | 781,273 |
|
| | | | |
| Cash and cash equivalents at end of period | |
| $983,496 |
| |
| $1,205,596 |
|
| | | | | |
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | | | | |
| Cash paid (received) during the period for: | | | | |
| Interest - net of amount capitalized | |
| $214,935 |
| |
| $185,606 |
|
| Income taxes | |
| ($13,844 | ) | |
| ($4,297 | ) |
| | | | | |
| See Notes to Financial Statements. | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| ENTERGY CORPORATION AND SUBSIDIARIES |
| CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY |
| For the Three Months Ended March 31, 2018 and 2017 |
| (Unaudited) |
| | | | | | |
|
|
| Common Shareholders’ Equity |
|
|
| | Subsidiaries’ Preferred Stock | | Common Stock | | Treasury Stock | | Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Total |
| | (In Thousands) |
| | | | | | | | | | | | | | |
| Balance at December 31, 2016 |
| $— |
| |
| $2,548 |
| |
| ($5,498,584 | ) | |
| $5,417,245 |
| |
| $8,195,571 |
| |
| ($34,971 | ) | |
| $8,081,809 |
|
| | | | | | | | | | | | | | |
| Consolidated net income (a) | 3,446 |
| | — |
| | — |
| | — |
| | 82,605 |
| | — |
| | 86,051 |
|
| Other comprehensive income | — |
| | — |
| | — |
| | — |
| | — |
| | 45,931 |
| | 45,931 |
|
| Common stock issuances related to stock plans | — |
| | — |
| | 22,083 |
| | (19,166 | ) | | — |
| | — |
| | 2,917 |
|
| Common stock dividends declared | — |
| | — |
| | — |
| | — |
| | (156,073 | ) | | — |
| | (156,073 | ) |
| Preferred dividend requirements of subsidiaries (a) | (3,446 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (3,446 | ) |
| | | | | | | | | | | | | | |
| Balance at March 31, 2017 |
| $— |
| |
| $2,548 |
| |
| ($5,476,501 | ) | |
| $5,398,079 |
| |
| $8,122,103 |
| |
| $10,960 |
| |
| $8,057,189 |
|
| | | | | | | | | | | | | | |
| 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 |
|
| | | | | | | | | | | | | | |
| Consolidated net income (a) | 3,439 |
| | — |
| | — |
| | — |
| | 132,761 |
| | — |
| | 136,200 |
|
| Other comprehensive income | — |
| | — |
| | — |
| | — |
| | — |
| | 79,145 |
| | 79,145 |
|
| Common stock issuances related to stock plans | — |
| | — |
| | 20,477 |
| | (16,170 | ) | | — |
| | — |
| | 4,307 |
|
| Common stock dividends declared | — |
| | — |
| | — |
| | — |
| | (160,887 | ) | | — |
| | (160,887 | ) |
| Preferred dividend requirements of subsidiaries (a) | (3,439 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (3,439 | ) |
| Reclassification pursuant to ASU 2018-02 | — |
| | — |
| | — |
| | — |
| | (32,043 | ) | | 15,505 |
| | (16,538 | ) |
| | | | | | | | | | | | | | |
| Balance at March 31, 2018 |
| $— |
| |
| $2,548 |
| |
| ($5,377,160 | ) | |
| $5,417,263 |
| |
| $8,493,790 |
| |
| ($561,498 | ) | |
| $7,974,943 |
|
| | | | | | | | | | | | | | |
| See Notes to Financial Statements. | | | | | | | | | | | | |
| |
| (a) Consolidated net income and preferred dividend requirements of subsidiaries for 2018 and 2017 include $3.4 million and $3.4 million, respectively, of preferred dividends on subsidiaries’ preferred stock without sinking fund that is not presented within equity. |
|
| | | | | | | | |
| ENTERGY CORPORATION AND SUBSIDIARIES |
| CONSOLIDATED BALANCE SHEETS |
| ASSETS |
| March 31, 2019 and December 31, 2018 |
| (Unaudited) |
| | | 2019 | | 2018 |
| | | (In Thousands) |
| CURRENT ASSETS | | | | |
| Cash and cash equivalents: | | | | |
| Cash | |
| $118,384 |
| |
| $56,690 |
|
| Temporary cash investments | | 865,112 |
| | 424,285 |
|
| Total cash and cash equivalents | | 983,496 |
| | 480,975 |
|
| Accounts receivable: | | | | |
| Customer | | 589,519 |
| | 558,494 |
|
| Allowance for doubtful accounts | | (7,458 | ) | | (7,322 | ) |
| Other | | 158,293 |
| | 167,722 |
|
| Accrued unbilled revenues | | 334,355 |
| | 395,511 |
|
| Total accounts receivable | | 1,074,709 |
| | 1,114,405 |
|
| Deferred fuel costs | | 19,209 |
| | 27,251 |
|
| Fuel inventory - at average cost | | 121,705 |
| | 117,304 |
|
| Materials and supplies - at average cost | | 771,707 |
| | 752,843 |
|
| Deferred nuclear refueling outage costs | | 231,628 |
| | 230,960 |
|
| Prepayments and other | | 205,322 |
| | 234,326 |
|
| TOTAL | | 3,407,776 |
| | 2,958,064 |
|
| | | | | |
| OTHER PROPERTY AND INVESTMENTS | | | | |
| Decommissioning trust funds | | 6,877,865 |
| | 6,920,164 |
|
| Non-utility property - at cost (less accumulated depreciation) | | 310,215 |
| | 304,382 |
|
| Other | | 439,849 |
| | 437,265 |
|
| TOTAL | | 7,627,929 |
| | 7,661,811 |
|
| | | | | |
| PROPERTY, PLANT, AND EQUIPMENT | | | | |
| Electric | | 50,260,871 |
| | 49,831,486 |
|
| Natural gas | | 509,987 |
| | 496,150 |
|
| Construction work in progress | | 3,289,734 |
| | 2,888,639 |
|
| Nuclear fuel | | 790,398 |
| | 861,272 |
|
| TOTAL PROPERTY, PLANT, AND EQUIPMENT | | 54,850,990 |
| | 54,077,547 |
|
| Less - accumulated depreciation and amortization | | 22,198,769 |
| | 22,103,101 |
|
| PROPERTY, PLANT, AND EQUIPMENT - NET | | 32,652,221 |
| | 31,974,446 |
|
| | | | | |
| DEFERRED DEBITS AND OTHER ASSETS | | | | |
| Regulatory assets: | | | | |
| Other regulatory assets (includes securitization property of $333,783 as of March 31, 2019 and $360,790 as of December 31, 2018) | | 4,908,688 |
| | 4,746,496 |
|
| Deferred fuel costs | | 239,595 |
| | 239,496 |
|
| Goodwill | | 377,172 |
| | 377,172 |
|
| Accumulated deferred income taxes | | 61,255 |
| | 54,593 |
|
| Other | | 330,745 |
| | 262,988 |
|
| TOTAL | | 5,917,455 |
| | 5,680,745 |
|
| | | | | |
| TOTAL ASSETS | |
| $49,605,381 |
| |
| $48,275,066 |
|
| | | | | |
| See Notes to Financial Statements. | | | | |
|
| | | | | | | | |
| ENTERGY CORPORATION AND SUBSIDIARIES |
| CONSOLIDATED BALANCE SHEETS |
| LIABILITIES AND EQUITY |
| March 31, 2019 and December 31, 2018 |
| (Unaudited) |
| | | 2019 | | 2018 |
| | | (In Thousands) |
| CURRENT LIABILITIES | | | | |
| Currently maturing long-term debt | |
| $150,010 |
| |
| $650,009 |
|
| Notes payable and commercial paper | | 1,942,322 |
| | 1,942,339 |
|
| Accounts payable | | 1,406,327 |
| | 1,496,058 |
|
| Customer deposits | | 409,433 |
| | 411,505 |
|
| Taxes accrued | | 210,156 |
| | 254,241 |
|
| Interest accrued | | 172,645 |
| | 193,192 |
|
| Deferred fuel costs | | 64,653 |
| | 52,396 |
|
| Pension and other postretirement liabilities | | 62,218 |
| | 61,240 |
|
| Current portion of unprotected excess accumulated deferred income taxes | | 239,664 |
| | 248,127 |
|
| Other | | 203,655 |
| | 134,437 |
|
| TOTAL | | 4,861,083 |
| | 5,443,544 |
|
| | | | | |
| NON-CURRENT LIABILITIES | | | | |
| Accumulated deferred income taxes and taxes accrued | | 4,252,292 |
| | 4,107,152 |
|
| Accumulated deferred investment tax credits | | 211,013 |
| | 213,101 |
|
| Regulatory liability for income taxes-net | | 1,737,479 |
| | 1,817,021 |
|
| Other regulatory liabilities | | 1,839,183 |
| | 1,620,254 |
|
| Decommissioning and asset retirement cost liabilities | | 6,577,180 |
| | 6,355,543 |
|
| Accumulated provisions | | 527,866 |
| | 514,107 |
|
| Pension and other postretirement liabilities | | 2,607,394 |
| | 2,616,085 |
|
| Long-term debt (includes securitization bonds of $398,291 as of March 31, 2019 and $423,858 as of December 31, 2018) | | 17,167,886 |
| | 15,518,303 |
|
| Other | | 634,211 |
| | 1,006,249 |
|
| TOTAL | | 35,554,504 |
| | 33,767,815 |
|
| | | | | |
| Commitments and Contingencies | | | | |
| | | | | |
| Subsidiaries' preferred stock without sinking fund | | 219,427 |
| | 219,402 |
|
| | | | | |
| COMMON EQUITY | | | | |
| Common stock, $.01 par value, authorized 500,000,000 shares; issued 261,587,009 shares in 2019 and in 2018 | | 2,616 |
| | 2,616 |
|
| Paid-in capital | | 5,920,183 |
| | 5,951,431 |
|
| Retained earnings | | 8,809,902 |
| | 8,721,150 |
|
| Accumulated other comprehensive loss | | (551,152 | ) | | (557,173 | ) |
| Less - treasury stock, at cost (71,670,773 shares in 2019 and 72,530,866 shares in 2018) | | 5,211,182 |
| | 5,273,719 |
|
| TOTAL | | 8,970,367 |
| | 8,844,305 |
|
| | | | | |
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | |
| $49,605,381 |
| |
| $48,275,066 |
|
| | | | | |
| See Notes to Financial Statements. | | | | |
|
| | | | | | | | | | | | | | | |
| ENTERGY CORPORATION AND SUBSIDIARIES |
| SELECTED OPERATING RESULTS |
| For the Three Months Ended March 31, 2018 and 2017 |
| (Unaudited) |
| | | | | | | |
| | | | | Increase/ | | |
| Description | | 2018 | | 2017 | | (Decrease) | | % |
| | (Dollars in Millions) | | |
| Utility electric operating revenues: | | | | | | | | |
| Residential | |
| $892 |
| |
| $705 |
| |
| $187 |
| | 27 |
|
| Commercial | | 596 |
| | 536 |
| | 60 |
| | 11 |
|
| Industrial | | 597 |
| | 565 |
| | 32 |
| | 6 |
|
| Governmental | | 57 |
| | 53 |
| | 4 |
| | 8 |
|
| Total billed retail | | 2,142 |
| | 1,859 |
| | 283 |
| | 15 |
|
| Sales for resale | | 69 |
| | 78 |
| �� | (9 | ) | | (12 | ) |
| Other | | 37 |
| | 55 |
| | (18 | ) | | (33 | ) |
| Total | |
| $2,248 |
| |
| $1,992 |
| |
| $256 |
| | 13 |
|
| | | | | | | | |
| Utility billed electric energy sales (GWh): | | | | | | | | |
| Residential | | 9,287 |
| | 7,637 |
| | 1,650 |
| | 22 |
|
| Commercial | | 6,732 |
| | 6,439 |
| | 293 |
| | 5 |
|
| Industrial | | 11,405 |
| | 11,117 |
| | 288 |
| | 3 |
|
| Governmental | | 608 |
| | 593 |
| | 15 |
| | 3 |
|
| Total retail | | 28,032 |
| | 25,786 |
| | 2,246 |
| | 9 |
|
| Sales for resale | | 3,244 |
| | 3,022 |
| | 222 |
| | 7 |
|
| Total | | 31,276 |
| | 28,808 |
| | 2,468 |
| | 9 |
|
| | | | | | | | |
| Entergy Wholesale Commodities: | | | | | | | | |
| Operating revenues | |
| $419 |
| |
| $553 |
| |
| ($134 | ) | | (24 | ) |
| Billed electric energy sales (GWh) | | 7,885 |
| | 8,363 |
| | (478 | ) | | (6 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| ENTERGY CORPORATION AND SUBSIDIARIES |
| CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY |
| For the Three Months Ended March 31, 2019 and 2018 |
| (Unaudited) |
| | | | | | |
|
|
| Common Shareholders’ Equity |
|
|
| | Subsidiaries’ Preferred Stock | | Common Stock | | Treasury Stock | | Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Total |
| | (In Thousands) |
| 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 |
|
| | | | | | | | | | | | | | |
| Consolidated net income | 3,439 |
| | — |
| | — |
| | — |
| | 132,761 |
| | — |
| | 136,200 |
|
| Other comprehensive income | — |
| | — |
| | — |
| | — |
| | — |
| | 79,145 |
| | 79,145 |
|
| Common stock issuances related to stock plans | — |
| | — |
| | 20,477 |
| | (16,170 | ) | | — |
| | — |
| | 4,307 |
|
| Common stock dividends declared | — |
| | — |
| | — |
| | — |
| | (160,887 | ) | | — |
| | (160,887 | ) |
| Preferred dividend requirements of subsidiaries | (3,439 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (3,439 | ) |
| Reclassification pursuant to ASU 2018-02 | — |
| | — |
| | — |
| | — |
| | (32,043 | ) | | 15,505 |
| | (16,538 | ) |
| Balance at March 31, 2018 |
| $— |
| |
| $2,548 |
| |
| ($5,377,160 | ) | |
| $5,417,263 |
| |
| $8,493,790 |
| |
| ($561,498 | ) | |
| $7,974,943 |
|
| | | | | | | | | | | | | | |
| 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 | 4,109 |
| | — |
| | — |
| | — |
| | 254,537 |
| | — |
| | 258,646 |
|
| Other comprehensive income | — |
| | — |
| | — |
| | — |
| | — |
| | 12,827 |
| | 12,827 |
|
| Common stock issuances related to stock plans | — |
| | — |
| | 62,537 |
| | (31,248 | ) | | — |
| | — |
| | 31,289 |
|
| Common stock dividends declared | — |
| | — |
| | — |
| | — |
| | (172,591 | ) | | — |
| | (172,591 | ) |
| Preferred dividend requirements of subsidiaries | (4,109 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (4,109 | ) |
| Balance at March 31, 2019 |
| $— |
| |
| $2,616 |
| |
| ($5,211,182 | ) | |
| $5,920,183 |
| |
| $8,809,902 |
| |
| ($551,152 | ) | |
| $8,970,367 |
|
| | | | | | | | | | | | | | |
| See Notes to Financial Statements. | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | |
| ENTERGY CORPORATION AND SUBSIDIARIES |
| SELECTED OPERATING RESULTS |
| For the Three Months Ended March 31, 2019 and 2018 |
| (Unaudited) |
| | | | | | | |
| | | Nine Months Ended | | Increase/ | | |
| Description | | 2019 | | 2018 | | (Decrease) | | % |
| | (Dollars in Millions) | | |
| Utility electric operating revenues: | | | | | | | | |
| Residential | |
| $803 |
| |
| $892 |
| |
| ($89 | ) | | (10 | ) |
| Commercial | | 554 |
| | 596 |
| | (42 | ) | | (7 | ) |
| Industrial | | 601 |
| | 597 |
| | 4 |
| | 1 |
|
| Governmental | | 53 |
| | 57 |
| | (4 | ) | | (7 | ) |
| Total billed retail | | 2,011 |
| | 2,142 |
| | (131 | ) | | (6 | ) |
| Sales for resale | | 84 |
| | 69 |
| | 15 |
| | 22 |
|
| Other | | 26 |
| | 37 |
| | (11 | ) | | (30 | ) |
| Total | |
| $2,121 |
| |
| $2,248 |
| |
| ($127 | ) | | (6 | ) |
| | | | | | | | |
| Utility billed electric energy sales (GWh): | | | | | | | | |
| Residential | | 8,471 |
| | 9,287 |
| | (816 | ) | | (9 | ) |
| Commercial | | 6,423 |
| | 6,732 |
| | (309 | ) | | (5 | ) |
| Industrial | | 11,683 |
| | 11,405 |
| | 278 |
| | 2 |
|
| Governmental | | 601 |
| | 608 |
| | (7 | ) | | (1 | ) |
| Total retail | | 27,178 |
| | 28,032 |
| | (854 | ) | | (3 | ) |
| Sales for resale | | 3,814 |
| | 3,244 |
| | 570 |
| | 18 |
|
| Total | | 30,992 |
| | 31,276 |
| | (284 | ) | | (1 | ) |
| | | | | | | | |
| Entergy Wholesale Commodities: | | | | | | | | |
| Operating revenues | |
| $434 |
| |
| $419 |
| |
| $15 |
| | 4 |
|
| Billed electric energy sales (GWh) | | 7,203 |
| | 6,996 |
| | 207 |
| | 3 |
|
ENTERGY CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. 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, except as otherwise discussed in the Form 10-K or in this report. Entergy discusses regulatory proceedings in Note 2 to the financial statements in the Form 10-K and herein and discusses tax proceedings in Note 3 to the financial statements in the Form 10-K and Note 10 to the financial statements herein.
Vidalia Purchased Power Agreement
See Note 8 to the financial statements in the Form 10-K for information on Entergy Louisiana’s Vidalia purchased power agreement.
ANO Damage, Outage, and NRC Reviews
See Note 8 to the financial statements in the Form 10-K for a discussion of the ANO stator incident, subsequent NRC reviews, and the deferral of replacement power costs.
Pilgrim NRC Oversight and Planned Shutdown
See Note 8 to the financial statements in the Form 10-K for a discussion of the NRC’s enhanced inspections of Pilgrim and Entergy’s planned shutdown of Pilgrim on May 31, 2019. In March 2019 the NRC moved Pilgrim from its “multiple/repetitive degraded cornerstone column,” or Column 4, of its Reactor Oversight Process Action Matrix to its “licensee response column,” or Column 1.
Spent Nuclear Fuel Litigation
See Note 8 to the financial statements in the Form 10-K for information on Entergy’s spent nuclear fuel litigation.
Nuclear Insurance
See Note 8 to the financial statements in the Form 10-K for information on nuclear liability and property insurance associated with Entergy’s nuclear power plants.
Non-Nuclear Property Insurance
See Note 8 to the financial statements in the Form 10-K for information on Entergy’s non-nuclear property insurance program.
Employment and Labor-related Proceedings
See Note 8 to the financial statements in the Form 10-K for information on Entergy’s employment and labor-related proceedings.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Asbestos Litigation (Entergy Arkansas, Entergy Louisiana, Entergy New Orleans, and Entergy Texas)
See Note 8 to the financial statements in the Form 10-K for information regarding asbestos litigation.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
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
See Note 2 to the financial statements in the Form 10-K for information regarding regulatory assets and regulatory liabilities in the Utility business presented on the balance sheets of Entergy and the Registrant Subsidiaries. The following are updates to that discussion.
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 in the Form 10-K for discussion of the effects of the enactment in December 2017 of the Tax Cuts and Jobs Act (the Tax Act), including its effects on Entergy’s and the Registrant Subsidiaries’ regulatory asset/liability for income taxes.
After assessing the activity described in more detail below regarding the proposals the Registrant Subsidiaries have made to their regulators for the return of unprotected excess accumulated deferred income taxes to customers, in the first quarter 2018, Entergy and each of the Registrant Subsidiaries reclassified from the regulatory liability for income taxes to current liabilities the portion of their unprotected excess accumulated deferred income taxes that they expect to return to customers over the next twelve months.
Entergy Arkansas
See the Form 10-K for a discussion of the activity of the APSC and Entergy Arkansas after enactment of the Tax Act in December 2017. The APSC granted Entergy Arkansas’s request for clarification regarding the APSC’s order issued after enactment of the Tax Act. The APSC states that its order was not a final determination and that the APSC has made no decision at this time on the appropriate final accounting or ratemaking treatment of the amounts in question.
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 docket in February 2018 proposing to establish a tax adjustment rider to provide retail customers with certain tax benefits associated with the Tax Act. For the residential customer class, the unprotected excess accumulated deferred income taxes will be returned to customers over a 21-month period from April 2018 through December 2019. For all other customer classes, the unprotected excess accumulated deferred income taxes will be returned to customers over a 9-month period from April 2018 through December 2018. A true-up provision also was included, with any over- or under-returned unprotected excess accumulated deferred income taxes to be 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.
Entergy Louisiana
See the Form 10-K for a discussion of the activity of the LPSC and Entergy Louisiana after enactment of the Tax Act in December 2017. At the March 2018 LPSC Business and Executive Session, the LPSC staff provided a report on the tax-related rulemaking and invited additional interventions and comments before a proposed rule is issued. The LPSC staff commented that the proposed rule would likely set forth a generic mechanism that can be used by utilities to reflect the effects of the Tax Act in rates and a process by which utilities can propose utility specific treatment, if desired.
See the “Formula Rate Plan Extension Request” discussion below. In the formula rate plan settlement approved by the LPSC in April 2018 the parties agreed that Entergy Louisiana will return to customers one-half of its eligible
Entergy Corporation and Subsidiaries
Notes to Financial Statements
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 parties agreed that in order to flow back to customers certain other tax benefits created by the Tax Act, Entergy Louisiana would establish a regulatory liability effective January 1, 2018 in the amount of $9.1 million per month until new base rates under the formula rate plan are established, and this regulatory liability will be returned to customers over the next formula rate plan rate-effective period. Entergy Louisiana recorded a $27 million regulatory liability in the first quarter 2018 pursuant to this provision of the settlement. 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 analysis thereof as part of the formula rate plan review proceeding for the upcoming 2017 test year filing.
Entergy Mississippi
As discussed in the Form 10-K, after enactment of the Tax 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 Tax Act will be reflected in the formula rate plan under which the utility operates. Entergy Mississippi's plan, as filed with the MPSC on February 26, 2018, included a request to reflect the changes related to the Tax Act in the 2018 formula rate plan filing. Entergy Mississippi filed its 2018 formula rate plan on March 15, 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.
Also, in March 2018 the MPSC issued a subsequent order in its generic tax reform docket ordering utilities, including Entergy Mississippi, to explain the implementation of the utilities tax adjustment clause, or, in the alternative, why the tax adjustment clause is inapplicable; submit an analysis of the ratemaking effects of the Tax Act on current and future revenue requirements for rate schedules that include a gross-up for federal taxes; and make appropriate accounting entries to recognize the removal of excess deferred taxes from the balance of the utility’s accumulated deferred income tax account, or, in the alternative, explain why recording such entries is not appropriate. In April 2018, Entergy Mississippi filed its response to the MPSC stating that the tax adjustment clauses in its base rates are properly implemented through its formula rate plan. Entergy Mississippi also provided analysis of the ratemaking effects of the Tax Act.
Entergy New Orleans
As discussed in the Form 10-K, 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. In March 2018, Entergy New Orleans filed its response to that resolution stating that the Tax Act reduced income tax expense from what is presently 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 programs, grid modernization, and Smart City projects. 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 has submitted filings of this type to the FERC.
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 proposes to return all of its unprotected excess accumulated deferred income taxes to its customers by the end of 2018.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Fuel and purchased power cost recovery
Entergy Arkansas
Energy Cost Recovery Rider
In March 2018,2019, Entergy Arkansas filed its annual redetermination of its energy cost rate pursuant to the energy cost recovery rider, which reflected an increase in the ratea decrease from $0.01547$0.01882 per kWh to $0.01882$0.01462 per kWh. ThekWh 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 redeterminationadjustment and included with its filing requesting thata motion for investigation of alleged overcharges to customers in connection with the APSC suspendFERC’s October 2018 order in the proposed tariff to investigate the amount of the redetermination or, alternatively, to allow recovery subject to refund. Among the reasons the Arkansas Attorney General cited for suspension were questions pertaining to howopportunity sales proceeding. Entergy Arkansas forecasted sales and potential implications offiled its response to the Tax Act.Attorney General’s motion in April 2019 in which Entergy Arkansas repliedstated its intent to initiate a proceeding to address recovery issues related to the Arkansas 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 looking at potential implications of the new tax law. The APSC general staff filed a reply to the Arkansas Attorney General’s filing and agreed that Entergy Arkansas’s filing complied with the terms of the energy cost recovery rider. In AprilOctober 2018 the APSC issued an order declining to suspend Entergy Arkansas’s energy cost recovery rider rate and declining to require further investigation of the issues suggested by the Attorney General in the proceeding at this time. The redetermined rate became effective with the first billing cycle of April 2018.FERC order.
Entergy TexasLouisiana
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.
Entergy Mississippi
Mississippi Attorney General Complaint
As discussed in the Form 10-K, in July 2015 certain parties filed briefs in an open 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 year 2006 production costs. In October 2015 an ALJ issued a proposal for decision recommending that the additional 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 TexasMississippi Attorney General filed a complaint in Federalstate 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 defendants have denied the allegations. In December 2008 the Attorney General’s lawsuit was removed to U.S. District Court forin Jackson, Mississippi. Pre-trial and settlement conferences were held in October 2018. In October 2018 the Western District of Texas and a petition in the Travis County (State) District Court appealingrescheduled the PUCT’s decision. The pending appeals did not staytrial to April 2019. In April 2019 the PUCT’s decision, and Entergy Texas refunded to customers the $10.9 million over a four-month period beginning with the first billing cycle of July 2016. 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 2017remanded the PUCT and an intervenor filed petitions for appealAttorney General’s lawsuit to the U.S.Hinds County Chancery 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 the U.S. Court of Appeals for the Fifth Circuit reversed the decision of the Federal District Court, reinstating the original PUCT decision. Entergy Texas is considering its legal options. The State District Court appeal of the PUCT’s January 2016 decision remains pending.Jackson, Mississippi.
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 2018Corporation and continued through March 2018. The fuel refund was approved by the PUCT in March 2018.Subsidiaries
Notes to Financial Statements
Retail Rate Proceedings
See Note 2 to the financial statements in the Form 10-K for detailed information regarding retail rate proceedings involving the Utility operating companies. The following are updates to that information.discussion.
Filings with the APSC (Entergy Arkansas)
Formula Rate Plan
As discussed in the Form 10-K, the formula rate plan filing that will be made in July 2019 to set the formula rates for the 2020 calendar year will include a netting adjustment that will compare projected costs and sales for 2018 that were approved in the 2017 formula rate plan filing to actual 2018 costs and sales data. 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 will be included in the 2019 filing to reflect the change in formula rate plan revenues associated with actual 2018 results when compared to the allowed rate of return on equity. In the first quarter 2019, Entergy Arkansas recorded an additional $10.5 million provision to reflect the current estimate of the historical year netting adjustment to be included in the 2019 filing.
Filings with the MPSC (Entergy Mississippi)
Formula Rate Plan
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. The filing is currently subject to MPSC review. A final order is expected in the second quarter 2019, with the resulting rates effective for the first billing cycle of July 2019.
Filings with the PUCT (Entergy Texas)
Base Rate Case
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. Entergy Texas is evaluating its response to the parties’ positions. A hearing is scheduled for June 2019.
Other Filings
In March 2019, Entergy Texas filed with the PUCT a request to set a new distribution cost recovery factor (DCRF) rider. The proposed new DCRF rider is designed to collect approximately $3.2 million annually from Entergy Texas’s retail customers based on its capital invested in distribution between January 1, 2018 and December 31, 2018. A procedural schedule has been established, with a hearing in June 2019.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
In December 2018, Entergy Texas filed with the PUCT a request to set a new transmission cost recovery factor (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. The PUCT has previously ruled that load growth adjustments should not be included in a TCRF. Entergy Texas filed a motion for interim rates to be effective April 2019. In April 2019 the hearing on Entergy Texas’s motion and the hearing on the merits were held, and the ALJ suspended the date on which the TCRF would be put into permanent effect until July 2019, unless an earlier decision is issued by the PUCT. This matter is currently awaiting the ALJ’s proposal for decision.
Entergy Arkansas Opportunity Sales Proceeding
As discussed in the Form 10-K, in December 2018, Entergy made a compliance filing in response to the FERC’s October 2018 order in the opportunity sales proceeding. 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.
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.
Complaints Against System Energy
Return on Equity and Capital Structure Complaints
See the Form 10-K for a discussion of the return on equity complaints filed by the APSC and the MPSC and by the LPSC against System Energy. The LPSC’s complaint also includes a challenge to System Energy’s capital structure. 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 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 consolidated hearing has been scheduled for September 2019, and 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 capital structure complaint for settlement and hearing proceedings. Settlement procedures in the capital structure proceeding commenced in February 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).
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Filings with the APSC (Entergy Arkansas)
Internal RestructuringGrand Gulf Sale-leaseback Renewal Complaint
As discussed in the Form 10-K, 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. In April 2018 the Missouri Public Service Commission approved Entergy Arkansas’s filing. If the appropriate approvals are obtained, Entergy Arkansas expects the restructuring will be consummated on or before December 1, 2018.
Filings with the LPSC (Entergy Louisiana)
Retail Rates - Electric
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 of its terms. Those modifications include: a one-time resetting of base rates to the midpoint of the band at Entergy Louisiana’s authorized return on equity of 9.95% for the 2017 test year; narrowing of the formula rate plan bandwidth from a total of 160 basis points to 80 basis points; 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. Several parties intervened in the proceeding and all parties participated in settlement discussions. In April 2018 the LPSC approved an unopposed joint motion filed by Entergy Louisiana and the LPSC staff that settles the matter. The settlement 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, 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, 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 manner similar to the additional capacity mechanism.
Union Power Station and Deactivation or Retirement Decisions for Entergy Louisiana Plants
As discussed in the Form 10-K, 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/
Entergy Corporation and Subsidiaries
Notes to Financial Statements
retirement decisions for these four units in addition to information on the current deactivation decisions for the ten-year planning horizon. 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. In March 2018 the LPSC adopted the ALJ’s recommended order finding that Entergy Louisiana did not demonstrate that its decision to permanently surrender transmission rights for the mothballed (not retired) Willow Glen 2 and 4 units was reasonable and that Entergy Louisiana should hold customers harmless from increased transmission expenses should those units be reactivated. Because no party or the LPSC suggested that Willow Glen 2 and 4 should be reactivated and because the cost to return those units to service far exceeds the revenue the units were expected to generate in MISO, Entergy Louisiana retired Willow Glen 2 and 4 in March 2018.
Retail Rates - Gas
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 of the Tax Act in late-December 2017, 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 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%. If the as-filed rates from the supplemental filing are accepted by the LPSC, customers will receive 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 prospective reduction in the gas infrastructure rider effective with bills rendered on and after the first billing cycle of July 2018.
Filings with the MPSC (Entergy Mississippi)
Formula Rate Plan
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. The filing is currently subject to MPSC review. See “Regulatory activity regarding the Tax Cuts and Jobs Act” above for additional discussion regarding the proposed treatment of the effects of the lower federal corporate income tax rate.
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. The restructuring is subject to regulatory review and approval by the MPSC, the FERC, and the NRC. If the MPSC approves the restructuring by August 2018 and the restructuring closes on or before December 1, 2018, Entergy Mississippi proposed in its application to credit retail customers $27 million over six years, beginning in 2019. If the MPSC, the FERC, and the NRC approvals are obtained, Entergy Mississippi expects the restructuring will be consummated on or before December 1, 2018.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
It is currently contemplated that Entergy Mississippi would undertake a multi-step restructuring, which would include the following:
Entergy Mississippi would redeem its outstanding preferred stock, at the aggregate redemption price of approximately $21.2 million, including call premiums, plus accumulated and unpaid dividends, if any.
Entergy Mississippi would convert from a Mississippi corporation to a Texas corporation.
Under the Texas Business Organizations Code (TXBOC), Entergy Mississippi will allocate 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 will assume substantially all of the liabilities of Entergy Mississippi, in a transaction regarded as a merger under the TXBOC. Entergy Mississippi will remain in existence and hold the membership interests in Entergy Mississippi Power and Light.
Entergy Mississippi will contribute 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 will be a wholly-owned subsidiary of Entergy Utility Holding Company, LLC.
Entergy Mississippi will change its name to Entergy Utility Enterprises, Inc., and Entergy Mississippi Power and Light will then change its name to Entergy Mississippi, LLC.
Upon the completion of the restructuring, Entergy Mississippi, LLC will hold substantially all of the assets, and will have assumed substantially all of the liabilities, of Entergy Mississippi. Entergy Mississippi may modify or supplement the steps to be taken to effectuate the restructuring.
Advanced Metering Infrastructure (AMI) Filings
Entergy New Orleans
As discussed in the Form 10-K, in February 2018 the City Council approved Entergy New Orleans’s application seeking a finding that Entergy New Orleans’s deployment of advanced electric and gas metering infrastructure is in the public interest. Deployment of the information technology infrastructure began in 2017 and deployment of the communications network is expected to begin later in 2018. In April 2018 the City Council adopted a resolution directing Entergy New Orleans to explore the options for accelerating the deployment of AMI. Entergy New Orleans is required to report its findings to the City Council by June 2018.
System Agreement Cost Equalization Proceedings
As discussed in the Form 10-K, in August 2017 the D.C. Circuit issued a decision denying the LPSC’s appeal of the FERC’s October 2011 and February 2014 orders, but also granting the request by all parties to the appeal for remand and agency reconsideration 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 matter was remanded back to the FERC and, in March 2018, the LPSC filed at the FERC its initial brief addressing the issue that the D.C. Circuit remanded back to the FERC in August 2017. In its brief, the LPSC argued that the FERC should require the Utility operating companies to issue refunds for the 20-month refund period from September 2001 to May 2003.
Rough Production Cost Equalization Rates
Consolidated 2011, 2012, 2013, and 2014 Rate Filing Proceedings
As discussed in the Form 10-K, 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
Entergy Corporation and Subsidiaries
Notes to Financial Statements
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. In March 2018 the FERC issued an order affirming the initial decision. In April 2018 the LPSC requested rehearing of the FERC’s March 2018 order affirming the ALJ’s initial decision. Based on the March 2018 FERC order, the following preliminary estimated payments/receipts were recorded in March 2018 among the Utility operating companies:
|
| |
| Payments (Receipts) |
| (In Millions) |
Entergy Arkansas | $6 |
Entergy New Orleans | $2 |
Entergy Texas | ($8) |
Entergy Services expects to file in May 2018 the bandwidth true-up payments and receipts for the 2011-2014 rate filings.
Interruptible Load Proceedings
See the Form 10-K for a discussion of the interruptible load proceedings. As discussed in the Form 10-K, the LPSC appealed the April and September 2016 orders to the D.C. Circuit. In March 2018 the D.C. Circuit issued an order denying the LPSC’s appeal and affirming the FERC’s decision that it would be inequitable to award refunds in the proceeding. In April 2018 the LPSC sought rehearing en banc of the D.C. Circuit’s order denying the LPSC’s appeal.
Complaint Against System Energy
As discussed in the Form 10-K, in January 2017 the APSC and the MPSC filed a complaint requesting that the FERC establish proceedings to investigate System Energy’s return on equity under the Unit Power Sales Agreement, establish a refund effective date, and establish a new and lower return on equity. 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” in the Form 10-K, and directed the parties to engage in settlement proceedings before an ALJ. Settlement discussions are ongoing. The refund effective date 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 fifteen-month refund period. The LPSC complaint requests similar relief from the FERC with respectand Entergy Services related to System Energy’s return on equity and also requestsrenewal of a sale-leaseback transaction originally entered into in December 1988 for an 11.5% undivided interest in Grand Gulf Unit 1.
In February 2019 the presiding ALJ ruled that the hearing ordered by the FERC to investigateincludes the issue of whether specific subcategories of accumulated deferred income tax should be included in, or excluded from, System Energy’s capital structureformula rate. In March 2019 the LPSC, MPSC, APSC and applicationCity 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 taxes associated with uncertain tax positions (claimed to be approximately $334.5 million as of System Energy’s allowed depreciation rates to plantDecember 2018), and the cost of capital additions associated with the Grand Gulf sale/leaseback transactions.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 expects to answerdisputes that any refunds are owed for billings under the LPSC complaint in May 2018.Unit Power Sales Agreement. A hearing has been scheduled for November 2019.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
NOTE 3. EQUITY (Entergy Corporation and Entergy Louisiana)
Common Stock
Earnings per Share
The following table presents Entergy’s basic and diluted earnings per share calculations included on the consolidated income statements:
The following table presents Entergy’s basic and diluted earnings per share calculations included on the consolidated income statements:
|
| | | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended March 31, |
| | 2019 | | 2018 |
| | (In Millions, Except Per Share Data) |
| | Income | | Shares | | $/share | | Income | | Shares | | $/share |
| Basic earnings per share | | | | | | | | | | | |
| Net income attributable to Entergy Corporation |
| $254.5 |
| | 189.6 |
| |
| $1.34 |
| |
| $132.8 |
| | 180.7 |
| |
| $0.73 |
|
| Average dilutive effect of: | | | | | | | | | | | |
| Stock options | | | 0.4 |
| | — |
| | | | 0.2 |
| | — |
|
| Other equity plans | | | 0.5 |
| | (0.01 | ) | | | | 0.5 |
| | — |
|
| Equity forwards | | | 1.7 |
| | (0.01 | ) | | | | — |
| | — |
|
| Diluted earnings per share |
| $254.5 |
| | 192.2 |
| |
| $1.32 |
| |
| $132.8 |
| | 181.4 |
| |
| $0.73 |
|
|
| | | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended March 31, |
| | 2018 | | 2017 |
| | (In Millions, Except Per Share Data) |
| Basic earnings per share | Income | | Shares | | $/share | | Income | | Shares | | $/share |
| Net income attributable to Entergy Corporation |
| $132.8 |
| | 180.7 |
| |
| $0.73 |
| |
| $82.6 |
| | 179.3 |
| |
| $0.46 |
|
| Average dilutive effect of: | | | | | | | | | | | |
| Stock options | | | 0.2 |
| | — |
| | | | 0.1 |
| | — |
|
| Other equity plans | | | 0.5 |
| | — |
| | | | 0.4 |
| | — |
|
| Diluted earnings per share |
| $132.8 |
| | 181.4 |
| |
| $0.73 |
| |
| $82.6 |
| | 179.8 |
| |
| $0.46 |
|
The number of stock options not included in the calculation of diluted common shares outstanding due to their antidilutive effect was approximately 0.7 million for the three months ended March 31, 2019 and approximately 4 million for the three months ended March 31, 2018 and approximately 4.9 million for the three months ended March 31, 2017.2018.
Entergy’s stock options and other equity compensation plans are discussed in Note 5 to the financial statements herein and in Note 12 to the financial statements in the Form 10-K.
Dividends declared per common share were $0.91 for the three months ended March 31, 2019 and $0.89 for the three months ended March 31, 2018.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Equity Forward Sale Agreements
As discussed in Note 7 to the financial statements in the Form 10-K, 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. 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 approximately $500 million. Entergy is required to settle its remaining obligations under the forward sale agreements with respect to the remaining 8,448,171 shares of common stock on a settlement date or dates on or prior to June 7, 2019.
Until settlement of the remaining equity forwards, earnings per share dilution resulting from the agreements, if any, will be determined under the treasury stock method. Share dilution occurs when the average market price of Entergy’s common stock is higher than the average forward sales price. If Entergy had elected to net share settle the forward sale agreements as of March 31, 2019, Entergy would have been required to deliver 2.0 million shares.
Treasury Stock
During the three months ended March 31, 2018,2019, Entergy Corporation issued 281,614860,093 shares of its previously repurchased common stock to satisfy stock option exercises, vesting of shares of restricted stock, and other stock-based awards. Entergy Corporation did not repurchase any of its common stock during the three months ended March 31, 2018.2019.
Retained Earnings
On April 11, 2018,3, 2019, Entergy Corporation’s Board of Directors declared a common stock dividend of $0.89$0.91 per share, payable on June 1, 2018,3, 2019, to holders of record as of May 10, 2018.9, 2019.
Entergy implemented ASU No. 2016-01 “Financial Instruments (Subtopic 825-10)2017-12 “Derivatives and Hedging (Topic 815): Recognition and Measurement of Financial Assets and Financial Liabilities”Targeted Improvements to Accounting for Hedging Activities” effective January 1, 2018.2019. The ASU requires investments in equity securities, excluding those accounted for undermakes a number of amendments to hedge accounting, most significantly changing the equity method or resulting in consolidationrecognition and presentation of the investee, to be measured at fair value with changes recognized in net income.highly effective hedges. Entergy implemented this standard using a modified retrospective method, and recorded an adjustment increasing retained earnings and reducingincreasing accumulated other comprehensive incomeloss by $633approximately $8 million as of January 1, 20182019 for the cumulative effect of the unrealized gains and lossesineffectiveness portion of designated hedges on investments in equity securities held by the decommissioning trust funds that do not meet the criteria for regulatory accounting treatment. See Note 9 to the financial statements herein for further discussion of effects of the new standard.nuclear power sales.
Entergy implemented ASU No. 2016-16, “Income Taxes2017-08 “Receivables (Topic 740)310): Intra-Entity Transfers of AssetsNonrefundable Fees and Other Than Inventory”Costs” effective January 1, 2018.2019. The ASU requires entitiesamends the amortization period for certain purchased callable debt securities held at a premium to recognize the income tax consequences of intra-entity asset transfers, other than inventory, at the time the transfer occurs.earliest call date. Entergy implemented this standard
Entergy Corporation and Subsidiaries
Notes to Financial Statements
using athe modified retrospective method,approach, and recorded an adjustment decreasing retained earnings and decreasing accumulated other comprehensive loss by $56approximately $1 million as of January 1, 20182019 for the cumulative effect of recording deferred tax assets on previously-recognized intra-entity asset transfers.
Entergy adopted ASU No. 2018-02, “Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income,” in the first 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 stranded 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 comprehensive income.amended amortization period.
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 three months ended March 31, 20182019 by component:
|
| | | | | | | | | | | | | | | |
| | 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 | 71,566 |
| | — |
| | 838 |
| | 72,404 |
|
| Amounts reclassified from accumulated other comprehensive income (loss) | 23,861 |
| | 16,574 |
| | (33,694 | ) | | 6,741 |
|
| Net other comprehensive income (loss) for the period | 95,427 |
| | 16,574 |
| | (32,856 | ) | | 79,145 |
|
| | | | | | | | |
| Reclassification pursuant to ASU 2018-02 | (7,756 | ) | | (90,966 | ) | | 114,227 |
| | 15,505 |
|
| | | | | | | | |
| Ending balance, March 31, 2018 |
| $50,194 |
| |
| ($605,491 | ) | |
| ($6,201 | ) | |
| ($561,498 | ) |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
|
| | | | | | | | | | | | | | | |
| | 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, 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 | 28,312 |
| | — |
| | 13,539 |
| | 41,851 |
|
| Amounts reclassified from accumulated other comprehensive income (loss) | (40,738 | ) | | 11,550 |
| | 164 |
| | (29,024 | ) |
| Net other comprehensive income (loss) for the period | (12,426 | ) | | 11,550 |
| | 13,703 |
| | 12,827 |
|
| Ending balance, March 31, 2019 |
| ($43,246 | ) | |
| ($520,372 | ) | |
| $12,466 |
| |
| ($551,152 | ) |
The following table presents changes in accumulated other comprehensive income (loss) for Entergy for the three months ended March 31, 20172018 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, 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 | 32,608 |
| | — |
| | 39,872 |
| | — |
| | 72,480 |
| 71,566 |
| | — |
| | 838 |
| | 72,404 |
|
| Amounts reclassified from accumulated other comprehensive income (loss) | (33,136 | ) | | 8,632 |
| | (2,045 | ) | | — |
| | (26,549 | ) | 23,861 |
| | 16,574 |
| | (33,694 | ) | | 6,741 |
|
| Net other comprehensive income (loss) for the period | (528 | ) | | 8,632 |
| | 37,827 |
| | — |
| | 45,931 |
| 95,427 |
| | 16,574 |
| | (32,856 | ) | | 79,145 |
|
| Ending balance, March 31, 2017 |
| $3,465 |
| |
| ($460,814 | ) | |
| $467,561 |
| |
| $748 |
| |
| $10,960 |
| |
| | | | | | | | | |
| Reclassification pursuant to ASU 2018-02 | | (7,756 | ) | | (90,966 | ) | | 114,227 |
| | 15,505 |
|
| | | | | | | | | |
| Ending balance, March 31, 2018 | |
| $50,194 |
| |
| ($605,491 | ) | |
| ($6,201 | ) | |
| ($561,498 | ) |
The following table presents changes in accumulated other comprehensive income (loss) for Entergy Louisiana for the three months ended March 31, 2018 and 2017:
|
| | | | | | | | |
| | | Pension and Other
Postretirement Liabilities |
| | | 2018 | | 2017 |
| | | (In Thousands) |
| Beginning balance, January 1, | |
| ($46,400 | ) | |
| ($48,442 | ) |
Amounts reclassified from accumulated other
comprehensive income (loss) | | (501 | ) | | (370 | ) |
| Net other comprehensive income (loss) for the period | | (501 | ) | | (370 | ) |
| | | | | |
| Reclassification pursuant to ASU 2018-02 | | (10,049 | ) | | — |
|
| | | | | |
| Ending balance, March 31, | |
| ($56,950 | ) | |
| ($48,812 | ) |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The following table presents changes in accumulated other comprehensive income (loss) for Entergy Louisiana for the three months ended March 31, 2019 and 2018:
|
| | | | | | | | |
| | | Pension and Other
Postretirement Liabilities |
| | | 2019 | | 2018 |
| | | (In Thousands) |
| Beginning balance, January 1, | |
| ($6,153 | ) | |
| ($46,400 | ) |
Amounts reclassified from accumulated other
comprehensive income (loss) | | (969 | ) | | (501 | ) |
| Net other comprehensive income (loss) for the period | | (969 | ) | | (501 | ) |
| | | | | |
| Reclassification pursuant to ASU 2018-02 | | — |
| | (10,049 | ) |
| | | | | |
| Ending balance, March 31, | |
| ($7,122 | ) | |
| ($56,950 | ) |
Total reclassifications out of accumulated other comprehensive income (loss) (AOCI) into income for Entergy for the three months ended March 31, 20182019 and 20172018 are as follows: | |
| Amounts reclassified
from AOCI |
| Income Statement Location | Amounts reclassified from AOCI | | Income Statement Location |
| | 2018 | | 2017 | | 2019 | | 2018 | |
| (In Thousands) |
| (In Thousands) | |
| Cash flow hedges net unrealized gain (loss) |
| | |
| | | | |
| Power contracts |
| ($30,082 | ) | |
| $51,227 |
|
| Competitive business operating revenues |
| $51,615 |
| |
| ($30,082 | ) | | Competitive business operating revenues |
| Interest rate swaps | (122 | ) | | (250 | ) |
| Miscellaneous - net | (48 | ) | | (122 | ) | | Miscellaneous - net |
| Total realized gain (loss) on cash flow hedges | (30,204 | ) | | 50,977 |
|
|
| 51,567 |
| | (30,204 | ) | |
| 6,343 |
| | (17,841 | ) |
| Income taxes | (10,829 | ) | | 6,343 |
| | Income taxes |
| Total realized gain (loss) on cash flow hedges (net of tax) |
| ($23,861 | ) | |
| $33,136 |
|
|
|
| $40,738 |
| |
| ($23,861 | ) | |
|
|
| | |
|
| | | | |
| Pension and other postretirement liabilities |
|
| | |
|
| | | | |
| Amortization of prior-service credit |
| $5,426 |
| |
| $6,562 |
|
| (a) |
| $5,326 |
| |
| $5,426 |
| | (a) |
| Amortization of loss | (24,952 | ) | | (21,571 | ) |
| (a) | (18,988 | ) | | (24,952 | ) | | (a) |
| Settlement loss | (1,616 | ) | | — |
|
| (a) | (1,137 | ) | | (1,616 | ) | | (a) |
| Total amortization | (21,142 | ) | | (15,009 | ) |
|
| (14,799 | ) | | (21,142 | ) | |
| 4,568 |
| | 6,377 |
|
| Income taxes | 3,249 |
| | 4,568 |
| | Income taxes |
| Total amortization (net of tax) |
| ($16,574 | ) | |
| ($8,632 | ) |
|
|
| ($11,550 | ) | |
| ($16,574 | ) | |
|
| | |
| | | | |
| Net unrealized investment gain (loss) |
| | |
| | | | |
| Realized gain (loss) |
| $53,314 |
| |
| $4,010 |
|
| Interest and investment income |
| ($259 | ) | |
| $53,314 |
| | Interest and investment income |
| (19,620 | ) | | (1,965 | ) |
| Income taxes | 95 |
| | (19,620 | ) | | Income taxes |
| Total realized investment gain (loss) (net of tax) |
| $33,694 |
| |
| $2,045 |
|
|
|
| ($164 | ) | |
| $33,694 |
| |
|
|
| | |
|
| | | | |
| Total reclassifications for the period (net of tax) |
| ($6,741 | ) | |
| $26,549 |
|
|
|
| $29,024 |
| |
| ($6,741 | ) | |
| |
| (a) | These accumulated other comprehensive income (loss) components are included in the computation of net periodic pension and other postretirement cost. See Note 6 to the financial statements herein for additional details. |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Total reclassifications out of accumulated other comprehensive income (loss) (AOCI) into income for Entergy Louisiana for the three months ended March 31, 20182019 and 20172018 are as follows:
| | | | | Amounts reclassified
from AOCI | | Income Statement Location | | Amounts reclassified
from AOCI | | Income Statement Location |
| | | 2018 | | 2017 | | | 2019 | | 2018 | |
| | | (In Thousands) | | | (In Thousands) | |
| Pension and other postretirement liabilities | | | | | | | | | | |
| Amortization of prior-service credit | |
| $1,934 |
| |
| $1,934 |
| | (a) | |
| $1,838 |
| |
| $1,934 |
| | (a) |
| Amortization of loss | | (1,257 | ) | | (1,332 | ) | | (a) | | (527 | ) | | (1,257 | ) | | (a) |
| Total amortization | | 677 |
| | 602 |
| | | 1,311 |
| | 677 |
| |
| | | (176 | ) | | (232 | ) | | Income taxes | | (342 | ) | | (176 | ) | | Income taxes |
| Total amortization (net of tax) | | 501 |
| | 370 |
| | | 969 |
| | 501 |
| |
| | | | | | | | | | | |
| Total reclassifications for the period (net of tax) | |
| $501 |
| |
| $370 |
| | |
| $969 |
| |
| $501 |
| |
| |
| (a) | These accumulated other comprehensive income (loss) components are included in the computation of net periodic pension and other postretirement cost. See Note 6 to the financial statements herein for additional details. |
NOTE 4. REVOLVING CREDIT FACILITIES, LINES OF CREDIT, SHORT-TERM BORROWINGS, AND LONG-TERM DEBT (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 2023. The facility includes 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 three months ended March 31, 20182019 was 3.31%4.03% on the drawn portion of the facility. Following is a summary of the borrowings outstanding and capacity available under the facility as of March 31, 2018.2019.
| | | Capacity | | Borrowings | | Letters of Credit | | Capacity Available | | Borrowings | | Letters of Credit | | Capacity Available |
(In Millions) | | $3,500 | | $1,125 | | $6 | | $2,369 | | $320 | | $6 | | $3,174 |
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 has a commercial paper program with a Board-approved program limit of up to $2 billion. At March 31, 2018,2019, Entergy Corporation had $655approximately $1,942 million of commercial paper outstanding. The weighted-average interest rate for the three months ended March 31, 20182019 was 1.88%3.03%.
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 March 31, 20182019 as follows:
|
| | | | | | | | | | |
| Company | | Expiration Date | | Amount of Facility | | Interest Rate (a) | | Amount Drawn as of March 31, 20182019 | | Letters of Credit Outstanding as of March 31, 20182019 |
| Entergy Arkansas | | April 20182020 | | $20 million (b) | | 3.14%3.75% | | $— | | $— |
| Entergy Arkansas | | August 2022September 2023 | | $150 million (c) | | 3.12%3.75% | | $50 million— | | $— |
| Entergy Louisiana | | August 2022September 2023 | | $350 million (c) | | 2.94% | | $100 million | | $9.1 million |
Entergy Mississippi | | May 2018 | | $37.5 million (d) | | 3.39%3.75% | | $— | | $— |
| Entergy Mississippi | | May 20182019 | | $3537.5 million (d) | | 3.39%4.00% | | $— | | $— |
| Entergy Mississippi | | May 20182019 | | $2035 million (d) | | 3.39%4.00% | | $— | | $— |
| Entergy Mississippi | | May 20182019 | | $10 million (d) | | 3.39%4.00% | | $— | | $— |
| Entergy New Orleans | | November 20182021 | | $25 million (c) | | 3.36%3.77% | | $— | | $0.8 million |
| Entergy Texas | | August 2022September 2023 | | $150 million (c) | | 3.39%4.00% | | $— | | $24.41.3 million |
| |
| (a) | For credit facilities with no borrowings as of March 31, 2018, theThe interest rate is the estimated interest rate as of March 31, 20182019 that would have been applied to outstanding borrowings under the facility. |
| |
| (b) | Borrowings under the Entergy Arkansas credit facility may be secured by a security interest in its accounts receivable at Entergy Arkansas’s option. In April 2018, Entergy Arkansas renewed its credit facility through April 2019. |
| |
| (c) | The credit facility includes 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. Entergy Mississippi expects to renew its credit facilities prior to expiration. |
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 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 March 31, 2018:2019:
|
| | | | | | |
| Company | | Amount of Uncommitted Facility | | Letter of Credit Fee | | Letters of Credit Issued as of March 31, 20182019 (a) |
| Entergy Arkansas | | $25 million | | 0.70% | | $1 million |
| Entergy Louisiana | | $125 million | | 0.70% | | $23.843 million |
| Entergy Mississippi | | $40 million | | 0.70% | | $16.612.1 million |
| Entergy New Orleans | | $15 million | | 1.00% | | $4.81 million |
| Entergy Texas | | $50 million | | 0.70% | | $25.611.7 million |
| |
| (a) | As of March 31, 2018,2019, letters of credit posted with MISO covered financial transmission rights exposure of $0.2 million for Entergy Arkansas, $0.1$0.4 million for Entergy Mississippi, and $0.2$1.5 million for Entergy Texas. See Note 8 to the financial statements herein for discussion of financial transmission rights. |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
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. The current FERC-
Entergy Corporation and Subsidiaries
Notes to Financial Statements
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 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 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 March 31, 20182019 (aggregating both internal and external short-term borrowings) for the Registrant Subsidiaries:
| | | | Authorized | | Borrowings | Authorized | | Borrowings |
| | (In Millions) | (In Millions) |
| Entergy Arkansas | $250 | | $124 | $250 | | $— |
| Entergy Louisiana | $450 | | $— | $450 | | $— |
| Entergy Mississippi | $175 | | $75 | $175 | | $11 |
| Entergy New Orleans | $150 | | $— | $150 | | $2 |
| Entergy Texas | $200 | | $— | $200 | | $— |
| System Energy | $200 | | $— | $200 | | $— |
Vermont Yankee Asset Retirement Management, LLC Credit Facility
In January 2019, Entergy Nuclear Vermont Yankee Credit Facility
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. The commitment fee is currently 0.20% of the undrawn commitment amount. As of March 31, 2018, $1182019, $139 million in cash borrowings were outstanding under the credit facility. The weighted average interest rate for the three months ended March 31, 20182019 was 3.10%4.28% on the drawn portion of the facility. See Note 14 to the financial statements in the Form 10-K and Note 16 to the financial statements herein for discussion of the transfer of Entergy Nuclear Vermont Yankee to NorthStar.
Variable Interest Entities (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, and System Energy)
See Note 17 to the financial statements in the Form 10-K for a discussion of the consolidation of the nuclear fuel company variable interest entities (VIEs). To finance the acquisition and ownership of nuclear fuel, the nuclear fuel company VIEs have credit facilities and three of the four VIEs also issuedhave commercial paper programs in place. Following is a summary as of March 31, 20182019 as follows:
| | | Company | | Expiration Date | | Amount of Facility | | Weighted Average Interest Rate on Borrowings (a) | | Amount Outstanding as of March 31, 2018 | | Expiration Date | | Amount of Facility | | Weighted Average Interest Rate on Borrowings (a) | | Amount Outstanding as of March 31, 2019 |
| | |
| | (Dollars in Millions) | |
| | (Dollars in Millions) |
| Entergy Arkansas VIE | | May 2019 | | $80 | | 3.74% | | $43.9 (b) | | September 2021 | | $80 | | 3.50% | | $42.6 |
| Entergy Louisiana River Bend VIE | | May 2019 | | $105 | | 2.82% | | $52.3 | | September 2021 | | $105 | | 3.46% | | $95.4 |
| Entergy Louisiana Waterford VIE | | May 2019 | | $85 | | 3.35% | | $62.9 (b) | | September 2021 | | $105 | | 3.48% | | $79.5 |
| System Energy VIE | | May 2019 | | $120 | | 3.46% | | $43.2 (b) | | September 2021 | | $120 | | 3.45% | | $94.1 |
| |
| (a) | Includes letter of credit fees and bank fronting fees on commercial paper issuances, if any, by the nuclear fuel company variable interest entities for Entergy Arkansas, Entergy Louisiana, and System Energy. The nuclear fuel company variable interest entity for Entergy Louisiana River Bend does not issue commercial paper, but borrows directly on its bank credit facility. |
| |
(b) | The total amount outstanding as of March 31, 2018 is commercial paper, and is classified as a current liability. |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
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 March 31, 20182019 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% Series I due October 2018 | | $85 million |
System Energy VIE | | 3.42% Series J due April 2021 | | $100 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.
Debt Issuances and Retirements
(Entergy Arkansas)
In March 2019, Entergy Arkansas issued $350 million of 4.20% Series first mortgage bonds due April 2049. Entergy Arkansas expects to use the proceeds for general corporate purposes.
(Entergy Louisiana)
In March 2018,2019, Entergy Louisiana issued $750$525 million of 4.00%4.20% Series collateral trust mortgage bonds due March 2033.April 2050. Entergy Louisiana is usingexpects to use the proceeds, together with other funds, to finance the construction of the Lake Charles Power Station and the St. Charles Power Station;Station, and for general corporate purposes.
(Entergy Texas)
In January 2019, Entergy Texas issued $300 million of 4.0% Series first mortgage bonds due March 2029 and $400 million of 4.5% Series first mortgage bonds due March 2039. Entergy Texas used the proceeds to repay, at maturity, its $375$500 million of 6.0%7.125% Series first mortgage bonds due May 2018; to repay borrowings from the money pool; to repay borrowings under its $350 million credit facility;February 2019, and for general corporate purposes.
(System Energy)
In March 2018 the2019, System Energy nuclear fuel trust variable interest entity issued $100$134 million of 3.42%2.50% Series J notes2019 revenue refunding bonds due April 2021.2022. The System Energy nuclear fuel trust variable interest entityproceeds were used the proceeds to purchase additional nuclear fuel.redeem, prior to maturity, $134 million of 5.875% Series 1998 pollution control revenue refunding bonds due April 2022.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Fair Value
The book value and the fair value of long-term debt for Entergy Corporation and the Registrant Subsidiaries as of March 31, 20182019 are as follows:
| | | | Book Value of Long-Term Debt | | Fair Value of Long-Term Debt (a) (b) | Book Value of Long-Term Debt | | Fair Value of Long-Term Debt (a) (b) |
| | (In Thousands) | (In Thousands) |
| Entergy |
| $16,851,636 |
| |
| $16,771,585 |
|
| $17,317,896 |
| |
| $17,613,263 |
|
| Entergy Arkansas |
| $2,978,569 |
| |
| $2,812,019 |
|
| $3,555,152 |
| |
| $3,471,105 |
|
| Entergy Louisiana |
| $6,938,439 |
| |
| $7,022,323 |
|
| $7,377,912 |
| |
| $7,665,243 |
|
| Entergy Mississippi |
| $1,270,399 |
| |
| $1,252,877 |
|
| $1,325,915 |
| |
| $1,332,283 |
|
| Entergy New Orleans |
| $436,995 |
| |
| $446,981 |
|
| $483,844 |
| |
| $510,959 |
|
| Entergy Texas |
| $1,562,555 |
| |
| $1,603,892 |
|
| $1,680,966 |
| |
| $1,755,754 |
|
| System Energy |
| $601,582 |
| |
| $576,121 |
|
| $610,798 |
| |
| $586,518 |
|
| |
| (a) | The values exclude lease obligations of $34 million at System Energy and long-term DOE obligations of $184$188 million at Entergy Arkansas, and include debt due within one year. |
| |
| (b) | Fair values are classified as Level 2 in the fair value hierarchy discussed in Note 8 to the financial statements herein. |
The book value and the fair value of long-term debt for Entergy Corporation and the Registrant Subsidiaries as of December 31, 20172018 were as follows:
| | | | Book Value of Long-Term Debt | | Fair Value of Long-Term Debt (a) (b) | Book Value of Long-Term Debt | | Fair Value of Long-Term Debt (a) (b) |
| | (In Thousands) | (In Thousands) |
| Entergy |
| $15,075,266 |
| |
| $15,367,453 |
|
| $16,168,312 |
| |
| $15,880,239 |
|
| Entergy Arkansas |
| $2,952,399 |
| |
| $2,865,844 |
|
| $3,225,759 |
| |
| $3,002,627 |
|
| Entergy Louisiana |
| $6,144,071 |
| |
| $6,389,774 |
|
| $6,805,768 |
| |
| $6,834,134 |
|
| Entergy Mississippi |
| $1,270,122 |
| |
| $1,285,741 |
|
| $1,325,750 |
| |
| $1,276,452 |
|
| Entergy New Orleans |
| $436,870 |
| |
| $455,968 |
|
| $483,704 |
| |
| $491,569 |
|
| Entergy Texas |
| $1,587,150 |
| |
| $1,661,902 |
|
| $1,513,735 |
| |
| $1,528,828 |
|
| System Energy |
| $551,488 |
| |
| $529,119 |
|
| $630,750 |
| |
| $596,123 |
|
| |
| (a) | The values exclude the lease obligations of $34 million at System Energy and long-term DOE obligations of $183$187 million at Entergy Arkansas, and include debt due within one year. |
| |
| (b) | Fair values are classified as Level 2 in the fair value hierarchy discussed in Note 8 to the financial statements herein. |
NOTE 5. STOCK-BASED COMPENSATION (Entergy Corporation)
Entergy grants stock and stock-based awards, which are described more fully in Note 12 to the financial statements in the Form 10-K. Awards under Entergy’s plans generally vest over three years.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Stock Options
Entergy granted options on 687,400693,161 shares of its common stock under the 2015 Equity Ownership Plan during the first quarter 20182019 with a fair value of $6.99$8.32 per option. As of March 31, 2018,2019, there were options on 4,393,9903,210,237 shares of common stock outstanding with a weighted-average exercise price of $74.39.$78.25. The intrinsic value, which has no effect on net income, of the outstanding stock options 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 March 31, 2018.2019. The aggregate intrinsic value of the stock options outstanding as of March 31, 20182019 was $19.3$55.8 million.
The following table includes financial information for outstanding stock options for the three months ended March 31, 20182019 and 2017:2018:
| | | | 2018 | | 2017 | 2019 | | 2018 |
| | (In Millions) | (In Millions) |
| Compensation expense included in Entergy’s net income |
| $1.1 |
| |
| $1.1 |
|
| $1.0 |
| |
| $1.1 |
|
| Tax benefit recognized in Entergy’s net income |
| $0.3 |
| |
| $0.4 |
|
| $0.2 |
| |
| $0.3 |
|
| Compensation cost capitalized as part of fixed assets and inventory |
| $0.2 |
| |
| $0.2 |
|
| $0.3 |
| |
| $0.2 |
|
Other Equity Awards
In January 20182019 the Board approved and Entergy granted 333,850355,537 restricted stock awards and 182,408180,824 long-term incentive awards under the 2015 Equity Ownership Plan. The restricted stock awards were made effective as of January 25, 201831, 2019 and were valued at $78.08$89.19 per share, which was the closing price of Entergy’s common stock on that date. One-third of the restricted stock awards will vest upon each anniversary of the grant date. Shares of restricted stock 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 three-year vesting period.
In addition, long-term incentive awards were also granted in the form of performance units that represent 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 on the number of performance units earned. Beginning withFor the 2018-20202019-2021 performance period, a cumulative utility earnings metric has been added to the Long-Term Performance Unit Program to supplement theperformance will be measured based eighty percent on relative total shareholder return measure that historically has been used in this program with each measure equally weighted.and twenty percent on a cumulative adjusted earnings per share metric. The performance units were granted effective as of January 25, 201831, 2019 and halfeighty percent were valued at $78.08$102.07 per share based on various factors, primarily market conditions; and twenty percent were valued at $89.19 per share, the closing price of Entergy’s common stock on that date;date. Performance units have the same dividend rights as shares of Entergy common stock and half were valued at $86.75are considered issued and outstanding shares of Entergy upon vesting. Performance units are expensed ratably over the three-year vesting period and compensation cost for the portion of the award based on cumulative adjusted earnings per share will be adjusted based on various factors, primarily market conditions.the number of units that ultimately vest. See Note 12 to the financial statements in the Form 10-K for a description of the Long-Term Performance Unit Program. Shares of restricted stock 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. Performance units have the same dividend rights as shares of Entergy common stock, are considered issued and outstanding shares of Entergy upon vesting, and are expensed ratably over the 3-year vesting period.
The following table includes financial information for other outstanding equity awards for the three months ended March 31, 20182019 and 2017:2018:
| | | | 2018 | | 2017 | 2019 | | 2018 |
| | (In Millions) | (In Millions) |
| Compensation expense included in Entergy’s net income |
| $8.8 |
| |
| $8.2 |
|
| $8.8 |
| |
| $8.8 |
|
| Tax benefit recognized in Entergy’s net income |
| $2.2 |
| |
| $3.1 |
|
| $2.2 |
| |
| $2.2 |
|
| Compensation cost capitalized as part of fixed assets and inventory |
| $2.3 |
| |
| $2.0 |
|
| $2.9 |
| |
| $2.3 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
NOTE 6. RETIREMENT AND OTHER POSTRETIREMENT BENEFITS (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)
Entergy implemented ASU No. 2017-07, “Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost” effective January 1, 2018. 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 and are presented in miscellaneous - net in other income. The amendment regarding the presentation of net benefit cost was required to be applied retrospectively for all periods presented. In addition, the ASU allows only the service cost component of net benefit cost to be eligible for capitalization on a prospective basis. In accordance with the regulatory treatment of net benefit cost of the Registrant Subsidiaries, a regulatory asset/liability will be recorded in other regulatory assets/liabilities for the non-service cost components of net benefit cost that would have been capitalized. The retroactive presentation changes resulted in decreases (increases) in other operation and maintenance expenses and decreases (increases) in other income for the three months ended March 31, 2017, with no change in net income, of $21 million for Entergy, $2.8 million for Entergy Arkansas, $6.1 million for Entergy Louisiana, $0.6 million for Entergy Mississippi, $0.2 million for Entergy New Orleans, ($0.2) million for Entergy Texas, and $0.9 million for System Energy. The retroactive effect of the change for the year ended December 31, 2017 would be decreases in other operation and maintenance expenses and decreases in other income, with no change in net income, of $108 million for Entergy, $13.7 million for Entergy Arkansas, $27.8 million for Entergy Louisiana, $2.7 million for Entergy Mississippi, $1.3 million for Entergy New Orleans, $0.2 million for Entergy Texas, and $6.2 million for System Energy. The retroactive effect of the change for the year ended December 31, 2016 would be decreases (increases) in other operation and maintenance expenses and decreases (increases) in other income, with no change in net income, of $71 million for Entergy, $13.4 million for Entergy Arkansas, $26.1 million for Entergy Louisiana, $2.4 million for Entergy Mississippi, $1 million for Entergy New Orleans, ($1.1) million for Entergy Texas, and $5.1 million for System Energy. The retroactive effect of the change for the year ended December 31, 2015 would be decreases in other operation and maintenance expenses and decreases in other income, with no change in net income, of $148 million for Entergy, $30.7 million for Entergy Arkansas, $50.7 million for Entergy Louisiana, $6.3 million for Entergy Mississippi, $4 million for Entergy New Orleans, $4 million for Entergy Texas, and $10.2 million for System Energy.
Components of Qualified Net Pension Cost
Entergy’s qualified pension cost, including amounts capitalized, for the first quarters of 20182019 and 2017,2018, included the following components:
| | | | 2018 | | 2017 | 2019 | | 2018 |
| | (In Thousands) | (In Thousands) |
| Service cost - benefits earned during the period |
| $38,752 |
| |
| $33,410 |
|
| $33,607 |
| |
| $38,752 |
|
| Interest cost on projected benefit obligation | 66,854 |
| | 65,206 |
| 73,941 |
| | 66,854 |
|
| Expected return on assets | (110,535 | ) | | (102,056 | ) | (103,884 | ) | | (110,535 | ) |
| Amortization of prior service cost | 99 |
| | 65 |
| — |
| | 99 |
|
| Amortization of loss | 68,526 |
| | 56,930 |
| 58,418 |
| | 68,526 |
|
| Settlement charges | | 1,137 |
| | — |
|
| Net pension costs |
| $63,696 |
| |
| $53,555 |
|
| $63,219 |
| |
| $63,696 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The Registrant Subsidiaries’ qualified pension cost, including amounts capitalized, for their employees for the first quarters of 20182019 and 2017,2018, included the following components:
| | | 2018 | | 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) |
| Service cost - benefits earned during the period | |
| $6,189 |
| |
| $8,446 |
| |
| $1,822 |
| |
| $673 |
| |
| $1,589 |
| |
| $1,776 |
| |
| $5,261 |
| |
| $7,284 |
| |
| $1,629 |
| |
| $569 |
| |
| $1,350 |
| |
| $1,550 |
|
| Interest cost on projects benefit obligation | | 13,004 |
| | 14,940 |
| | 3,769 |
| | 1,813 |
| | 3,348 |
| | 3,227 |
| |
| Interest cost on projected benefit obligation | | | 14,175 |
| | 15,882 |
| | 4,068 |
| | 1,874 |
| | 3,613 |
| | 3,364 |
|
| Expected return on assets | | (21,851 | ) | | (24,809 | ) | | (6,502 | ) | | (2,993 | ) | | (6,523 | ) | | (4,991 | ) | | (20,176 | ) | | (22,652 | ) | | (5,968 | ) | | (2,696 | ) | | (5,862 | ) | | (4,678 | ) |
| Amortization of loss | | 13,412 |
| | 14,450 |
| | 3,610 |
| | 1,954 |
| | 2,626 |
| | 3,715 |
| | 11,840 |
| | 11,643 |
| | 3,104 |
| | 1,529 |
| | 2,334 |
| | 2,850 |
|
| Net pension cost | |
| $10,754 |
| |
| $13,027 |
| |
| $2,699 |
| |
| $1,447 |
| |
| $1,040 |
| |
| $3,727 |
| |
| $11,100 |
| |
| $12,157 |
| |
| $2,833 |
| |
| $1,276 |
| |
| $1,435 |
| |
| $3,086 |
|
| | | 2017 | | 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) |
| Service cost - benefits earned during the period | |
| $5,090 |
| |
| $6,925 |
| |
| $1,472 |
| |
| $625 |
| |
| $1,364 |
| |
| $1,536 |
| |
| $6,189 |
| |
| $8,446 |
| |
| $1,822 |
| |
| $673 |
| |
| $1,589 |
| |
| $1,776 |
|
| Interest cost on projected benefit obligation | | 12,944 |
| | 14,809 |
| | 3,732 |
| | 1,791 |
| | 3,392 |
| | 3,091 |
| | 13,004 |
| | 14,940 |
| | 3,769 |
| | 1,813 |
| | 3,348 |
| | 3,227 |
|
| Expected return on assets | | (20,427 | ) | | (23,017 | ) | | (6,131 | ) | | (2,800 | ) | | (6,180 | ) | | (4,663 | ) | | (21,851 | ) | | (24,809 | ) | | (6,502 | ) | | (2,993 | ) | | (6,523 | ) | | (4,991 | ) |
| Amortization of loss | | 11,640 |
| | 12,354 |
| | 3,053 |
| | 1,658 |
| | 2,310 |
| | 2,964 |
| | 13,412 |
| | 14,450 |
| | 3,610 |
| | 1,954 |
| | 2,626 |
| | 3,715 |
|
| Net pension cost | |
| $9,247 |
| |
| $11,071 |
| |
| $2,126 |
| |
| $1,274 |
| |
| $886 |
| |
| $2,928 |
| |
| $10,754 |
| |
| $13,027 |
| |
| $2,699 |
| |
| $1,447 |
| |
| $1,040 |
| |
| $3,727 |
|
Non-Qualified Net Pension Cost
Entergy recognized $8.9$4 million and $4.6$8.9 million in pension cost for its non-qualified pension plans in the first quarters of 20182019 and 2017,2018, respectively. Reflected in the pension cost for non-qualified pension plans in the first quarter of 2018 is awere settlement charges of $4.4 million settlement charge related to the payment of lump sum benefits out of the plan.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The Registrant Subsidiaries recognized the following pension cost for their employees for their non-qualified pension plans for the first quarters of 20182019 and 2017:2018:
| | | | 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) |
| 2019 | |
| $73 |
| |
| $43 |
| |
| $75 |
| |
| $5 |
| |
| $124 |
|
| 2018 |
| $132 |
| |
| $50 |
| |
| $80 |
| |
| $21 |
| |
| $137 |
|
| $132 |
| |
| $50 |
| |
| $80 |
| |
| $21 |
| |
| $137 |
|
| 2017 |
| $105 |
| |
| $48 |
| |
| $64 |
| |
| $18 |
| |
| $127 |
| |
Reflected in Entergy Arkansas’s non-qualified pension costs in the first quarter of 2018 iswere settlement charges of $12 thousand in settlement charges related to the payment of lump sum benefits out of thisthe plan.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Components of Net Other Postretirement Benefit Cost
Entergy’s other postretirement benefit cost, including amounts capitalized, for the first quarters of 20182019 and 2017,2018, included the following components:
| | | | 2018 | | 2017 | 2019 | | 2018 |
| | (In Thousands) | (In Thousands) |
| Service cost - benefits earned during the period |
| $6,782 |
| |
| $6,729 |
|
| $4,675 |
| |
| $6,782 |
|
| Interest cost on accumulated postretirement benefit obligation (APBO) | 12,681 |
| | 13,960 |
| 11,975 |
| | 12,681 |
|
| Expected return on assets | (10,373 | ) | | (9,408 | ) | (9,562 | ) | | (10,373 | ) |
| Amortization of prior service credit | (9,251 | ) | | (10,356 | ) | (8,844 | ) | | (9,251 | ) |
| Amortization of loss | 3,432 |
| | 5,476 |
| 358 |
| | 3,432 |
|
| Net other postretirement benefit cost |
| $3,271 |
| |
| $6,401 |
|
| ($1,398 | ) | |
| $3,271 |
|
The Registrant Subsidiaries’ other postretirement benefit cost, including amounts capitalized, for their employees for the first quarters of 20182019 and 2017,2018, included the following components:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| 2018 | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy |
| | | (In Thousands) |
| Service cost - benefits earned during the period | |
| $793 |
| |
| $1,556 |
| |
| $321 |
| |
| $129 |
| |
| $330 |
| |
| $306 |
|
| Interest cost on APBO | | 1,997 |
| | 2,789 |
| | 683 |
| | 417 |
| | 939 |
| | 500 |
|
| Expected return on assets | | (4,342 | ) | | — |
| | (1,303 | ) | | (1,313 | ) | | (2,446 | ) | | (783 | ) |
| Amortization of prior service credit | | (1,278 | ) | | (1,934 | ) | | (456 | ) | | (186 | ) | | (579 | ) | | (378 | ) |
| Amortization of loss | | 289 |
| | 388 |
| | 377 |
| | 34 |
| | 206 |
| | 233 |
|
| Net other postretirement benefit cost | |
| ($2,541 | ) | |
| $2,799 |
| |
| ($378 | ) | |
| ($919 | ) | |
| ($1,550 | ) | |
| ($122 | ) |
| | | 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) |
| Service cost - benefits earned during the period | |
| $863 |
| |
| $1,593 |
| |
| $290 |
| |
| $142 |
| |
| $372 |
| |
| $320 |
| |
| $591 |
| |
| $1,160 |
| |
| $262 |
| |
| $92 |
| |
| $236 |
| |
| $243 |
|
| Interest cost on APBO | | 2,255 |
| | 3,025 |
| | 690 |
| | 469 |
| | 1,124 |
| | 559 |
| | 1,807 |
| | 2,666 |
| | 670 |
| | 395 |
| | 854 |
| | 476 |
|
| Expected return on assets | | (3,959 | ) | | — |
| | (1,200 | ) | | (1,159 | ) | | (2,180 | ) | | (717 | ) | | (3,991 | ) | | — |
| | (1,199 | ) | | (1,237 | ) | | (2,276 | ) | | (697 | ) |
| Amortization of prior service credit | | (1,278 | ) | | (1,934 | ) | | (456 | ) | | (186 | ) | | (579 | ) | | (378 | ) | | (1,238 | ) | | (1,837 | ) | | (439 | ) | | (171 | ) | | (561 | ) | | (363 | ) |
| Amortization of loss | | 1,115 |
| | 465 |
| | 419 |
| | 105 |
| | 826 |
| | 390 |
| |
| Amortization of (gain) loss | | | 144 |
| | (174 | ) | | 181 |
| | 58 |
| | 121 |
| | 89 |
|
| Net other postretirement benefit cost | |
| ($1,004 | ) | |
| $3,149 |
| |
| ($257 | ) | |
| ($629 | ) | |
| ($437 | ) | |
| $174 |
| |
| ($2,687 | ) | |
| $1,815 |
| |
| ($525 | ) | |
| ($863 | ) | |
| ($1,626 | ) | |
| ($252 | ) |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| 2018 | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy |
| | | (In Thousands) |
| Service cost - benefits earned during the period | |
| $793 |
| |
| $1,556 |
| |
| $321 |
| |
| $129 |
| |
| $330 |
| |
| $306 |
|
| Interest cost on APBO | | 1,997 |
| | 2,789 |
| | 683 |
| | 417 |
| | 939 |
| | 500 |
|
| Expected return on assets | | (4,342 | ) | | — |
| | (1,303 | ) | | (1,313 | ) | | (2,446 | ) | | (783 | ) |
| Amortization of prior service credit | | (1,278 | ) | | (1,934 | ) | | (456 | ) | | (186 | ) | | (579 | ) | | (378 | ) |
| Amortization of loss | | 289 |
| | 388 |
| | 377 |
| | 34 |
| | 206 |
| | 233 |
|
| Net other postretirement benefit cost | |
| ($2,541 | ) | |
| $2,799 |
| |
| ($378 | ) | |
| ($919 | ) | |
| ($1,550 | ) | |
| ($122 | ) |
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) for the first quarters of 20182019 and 2017:2018:
| | | 2018 |
| Qualified
Pension
Costs |
| Other
Postretirement
Costs |
| Non-Qualified
Pension Costs |
| Total | |
| 2019 | |
| Qualified
Pension
Costs |
| Other
Postretirement
Costs |
| Non-Qualified
Pension Costs |
| Total |
|
| (In Thousands) |
|
|
| (In Thousands) |
|
|
| Entergy |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Amortization of prior service (cost)/credit |
|
| ($99 | ) |
|
| $5,595 |
|
|
| ($70 | ) |
|
| $5,426 |
| |
| Amortization of prior service (cost) credit | |
|
| $— |
|
|
| $5,375 |
|
|
| ($49 | ) |
|
| $5,326 |
|
| Amortization of loss |
| (21,957 | ) |
| (1,932 | ) |
| (1,063 | ) |
| (24,952 | ) |
| (18,735 | ) |
| 308 |
|
| (561 | ) |
| (18,988 | ) |
| Settlement loss |
| — |
|
| — |
|
| (1,616 | ) |
| (1,616 | ) |
| (1,137 | ) |
| — |
|
| — |
|
| (1,137 | ) |
|
|
| ($22,056 | ) |
|
| $3,663 |
|
|
| ($2,749 | ) |
|
| ($21,142 | ) |
|
| ($19,872 | ) |
|
| $5,683 |
|
|
| ($610 | ) |
|
| ($14,799 | ) |
| Entergy Louisiana |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Amortization of prior service credit |
|
| $— |
|
|
| $1,934 |
|
|
| $— |
|
|
| $1,934 |
|
|
| $— |
|
|
| $1,838 |
|
|
| $— |
|
|
| $1,838 |
|
| Amortization of loss |
| (867 | ) |
| (388 | ) |
| (2 | ) |
| (1,257 | ) |
| (699 | ) |
| 174 |
|
| (2 | ) |
| (527 | ) |
|
|
| ($867 | ) |
|
| $1,546 |
|
|
| ($2 | ) |
|
| $677 |
|
|
| ($699 | ) |
|
| $2,012 |
|
|
| ($2 | ) |
|
| $1,311 |
|
| | | 2017 | | Qualified
Pension
Costs | | Other
Postretirement
Costs | | Non-Qualified
Pension Costs | | Total | |
| 2018 | | | Qualified
Pension
Costs | | Other
Postretirement
Costs | | Non-Qualified
Pension Costs | | Total |
| | | (In Thousands) | | | | (In Thousands) | | |
| Entergy | | | | | | | | | | | | | | | | |
| Amortization of prior service (cost)/credit | |
| ($65 | ) | |
| $6,717 |
| |
| ($90 | ) | |
| $6,562 |
| |
| Amortization of prior service (cost) credit | | |
| ($99 | ) | |
| $5,595 |
| |
| ($70 | ) | |
| $5,426 |
|
| Amortization of loss | | (18,450 | ) | | (2,202 | ) | | (919 | ) | | (21,571 | ) | | (21,957 | ) | | (1,932 | ) | | (1,063 | ) | | (24,952 | ) |
| Settlement loss | | | — |
| | — |
| | (1,616 | ) | | (1,616 | ) |
| | |
| ($18,515 | ) | |
| $4,515 |
| |
| ($1,009 | ) | |
| ($15,009 | ) | |
| ($22,056 | ) | |
| $3,663 |
| |
| ($2,749 | ) | |
| ($21,142 | ) |
| Entergy Louisiana | | | | | | | | | | | | | | | | |
| Amortization of prior service credit | |
| $— |
| |
| $1,934 |
| |
| $— |
| |
| $1,934 |
| |
| $— |
| |
| $1,934 |
| |
| $— |
| |
| $1,934 |
|
| Amortization of loss | | (865 | ) | | (465 | ) | | (2 | ) | | (1,332 | ) | | (867 | ) | | (388 | ) | | (2 | ) | | (1,257 | ) |
| | |
| ($865 | ) | |
| $1,469 |
| |
| ($2 | ) | |
| $602 |
| |
| ($867 | ) | |
| $1,546 |
| |
| ($2 | ) | |
| $677 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Employer Contributions
Based on current assumptions, Entergy expects to contribute $352.1$176.9 million to its qualified pension plans in 2018.2019. As of March 31, 2018,2019, Entergy had contributed $91.8$11.7 million to its pension plans. Based on current assumptions, the Registrant Subsidiaries expect to contribute the following to qualified pension plans for their employees in 2018:2019:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy |
| | (In Thousands) |
| Expected 2018 pension contributions |
| $64,062 |
| |
| $71,917 |
| |
| $14,933 |
| |
| $7,250 |
| |
| $10,883 |
| |
| $13,786 |
|
| Pension contributions made through March 2018 |
| $17,373 |
| |
| $19,510 |
| |
| $4,194 |
| |
| $2,061 |
| |
| $3,873 |
| |
| $3,715 |
|
| Remaining estimated pension contributions to be made in 2018 |
| $46,689 |
| |
| $52,407 |
| |
| $10,739 |
| |
| $5,189 |
| |
| $7,010 |
| |
| $10,071 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy |
| | (In Thousands) |
| Expected 2019 pension contributions |
| $27,112 |
| |
| $26,451 |
| |
| $7,701 |
| |
| $1,800 |
| |
| $1,645 |
| |
| $8,285 |
|
| Pension contributions made through March 2019 |
| $454 |
| |
| $1,914 |
| |
| $156 |
| |
| $111 |
| |
| $286 |
| |
| $290 |
|
| Remaining estimated pension contributions to be made in 2019 |
| $26,658 |
| |
| $24,537 |
| |
| $7,545 |
| |
| $1,689 |
| |
| $1,359 |
| |
| $7,995 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
NOTE 7. BUSINESS SEGMENT INFORMATION (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)
Entergy Corporation
Entergy’s reportable segments as of March 31, 20182019 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 Louisiana, including the City of New Orleans; and operation of a small natural gas distribution business.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 provides services to other nuclear power plant owners and ownsincludes 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’s segment financial information for the first quarters of 20182019 and 20172018 is as follows: | | | | | Utility | | Entergy Wholesale Commodities | | All Other | | Eliminations | | Entergy | | Utility | | Entergy Wholesale Commodities | | All Other | | Eliminations | | Entergy |
| | | (In Thousands) | | (In Thousands) |
| 2019 | | | | | | | | | | | |
| Operating revenues | | |
| $2,175,982 |
| |
| $433,612 |
| |
| $— |
| |
| ($10 | ) | |
| $2,609,584 |
|
| Income taxes | | |
| ($11,564 | ) | |
| $65,908 |
| |
| ($11,573 | ) | |
| $— |
| |
| $42,771 |
|
| Consolidated net income (loss) | | |
| $234,147 |
| |
| $97,079 |
| |
| ($40,682 | ) | |
| ($31,898 | ) | |
| $258,646 |
|
| Total assets as of March 31, 2019 | | |
| $46,502,826 |
| |
| $5,065,643 |
| |
| $719,602 |
| |
| ($2,682,690 | ) | |
| $49,605,381 |
|
| 2018 | | | | | | | | | | | | | | | | | | | | |
| Operating revenues | |
| $2,304,990 |
| |
| $418,924 |
| |
| $— |
| |
| ($33 | ) | |
| $2,723,881 |
| |
| $2,304,990 |
| |
| $418,924 |
| |
| $— |
| |
| ($33 | ) | |
| $2,723,881 |
|
| Income taxes | |
| $52,224 |
| |
| ($1,078 | ) | |
| ($7,483 | ) | |
| $— |
| |
| $43,663 |
| |
| $52,224 |
| |
| ($1,078 | ) | |
| ($7,483 | ) | |
| $— |
| |
| $43,663 |
|
| Consolidated net income (loss) | |
| $217,940 |
| |
| ($17,779 | ) | |
| ($32,063 | ) | |
| ($31,898 | ) | |
| $136,200 |
| |
| $217,940 |
| |
| ($17,779 | ) | |
| ($32,063 | ) | |
| ($31,898 | ) | |
| $136,200 |
|
| Total assets as of March 31, 2018 | |
| $43,690,561 |
| |
| $5,504,233 |
| |
| $834,463 |
| |
| ($2,747,732 | ) | |
| $47,281,525 |
| |
| 2017 | | | | | | | | | | | |
| Operating revenues | |
| $2,035,112 |
| |
| $553,367 |
| |
| $— |
| |
| ($21 | ) | |
| $2,588,458 |
| |
| Income taxes | |
| $98,492 |
| |
| ($78,337 | ) | |
| ($12,392 | ) | |
| $— |
| |
| $7,763 |
| |
| Consolidated net income (loss) | |
| $167,623 |
| |
| ($27,197 | ) | |
| ($22,477 | ) | |
| ($31,898 | ) | |
| $86,051 |
| |
| Total assets as of December 31, 2017 | |
| $42,978,669 |
| |
| $5,638,009 |
| |
| $1,011,612 |
| |
| ($2,921,141 | ) | |
| $46,707,149 |
| |
| Total assets as of December 31, 2018 | | |
| $44,777,167 |
| |
| $5,459,275 |
| |
| $733,366 |
| |
| ($2,694,742 | ) | |
| $48,275,066 |
|
The Entergy Wholesale Commodities business is sometimes referred to as the “competitive businesses.” Eliminations are primarily intersegment activity. Almost all of Entergy’s goodwill is related to the Utility segment.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
As discussed in Note 13 to the financial statements in the Form 10-K, 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 sizeshut down and sell all of the remaining plants in the merchant nuclear fleet. These decisions and transactions resulted in asset impairments; employee retention and severance expenses and other benefits-related costs; and contracted economic development contributions.
Total restructuring charges for the first quarterquarters of 2019 and 2018 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, 2018 |
| $83 |
| |
| $14 |
| |
| $97 |
|
| Restructuring costs accrued | 26 |
| | — |
| | 26 |
|
| Balance as of March 31, 2018 |
| $109 |
| |
| $14 |
| |
| $123 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Total restructuring charges for the first quarter 2017 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, 2017 |
| $70 |
| |
| $21 |
| |
| $91 |
|
| Restructuring costs accrued | 24 |
| | — |
| | 24 |
|
| Balance as of March 31, 2017 |
| $94 |
| |
| $21 |
| |
| $115 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | 2019 | | 2018 |
| | 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) |
| Balance as of January 1, |
| $179 |
| |
| $14 |
| |
| $193 |
| |
| $83 |
| |
| $14 |
| |
| $97 |
|
| Restructuring costs accrued | 34 |
| | — |
| | 34 |
| | 26 |
| | — |
| | 26 |
|
| Balance as of March 31, |
| $213 |
| |
| $14 |
| |
| $227 |
| |
| $109 |
| |
| $14 |
| |
| $123 |
|
In addition, Entergy Wholesale Commodities incurred $74 million in the first quarter 2019 and $73 million in the first quarter 2018 and $212 million in the first quarter 2017 of impairment chargesand other related to nuclear fuel spending, nuclear refueling outage spending, and expenditures for capital assets. These costs are 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 livescharges associated with management’s strategy to reduce the size of the Entergy Wholesale Commodities’ merchant fleet.these strategic decisions and transactions.
Going forward, Entergy Wholesale Commodities expects to incur employee retention and severance expenses associated with management’s strategy to reduceexit the size of the Entergy Wholesale Commodities’ merchant fleetpower business of approximately $165$130 million in 2018,2019, of which $26$34 million has been incurred as of March 31, 2018,2019, and a total of approximately $205$110 million from 20192020 through mid-2022.
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.
NOTE 8. 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 price risk, equity price, and interest rate risk. Entergy uses derivatives primarily to mitigate commodity price risk, particularly power price and fuel price risk.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
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 also uses 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 Corporation and Subsidiaries
Notes to Financial Statements
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. 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 March 31, 20182019 is approximately 32 years. Planned generation currently under contract from Entergy Wholesale Commodities nuclear power plants is 98% for the remainder of 2018,2019, of which approximately 79%72% is sold under financial derivatives and the remainder under normal purchase/normal sale contracts. Total planned generation for the remainder of 20182019 is 20.718.6 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. In addition, collateral agreements allow for termination and liquidation of all positions in the event of a failure or inability to post collateral.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
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 March 31, 2018,2019, derivative contracts with one counterpartyseven counterparties were in a liability position (approximately $0.3$49 million total). In addition to the corporate guarantee, $0.5$19 million in cash collateral waswere required to be posted by the Entergy subsidiary to its counterparties and $6$1 million in cash collateral and $69$4 million in letters of credit were required to be posted by its counterparties to the Entergy subsidiary. As of December 31, 2017,2018, derivative contracts with eightsix counterparties were in a liability position (approximately $65$34 million total). In addition to the corporate guarantee, $1$19 million in cash collateral was required to be posted by the Entergy subsidiary to its counterparties and $4 million in cash collateral and $34 million in letters of credit were required to be posted by its counterparties to the Entergy subsidiary.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 Corporation and Subsidiaries
Notes to Financial Statements
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 March 31, 2019 is 5 years for Entergy Louisiana and the maximum length of time over which Entergy New Orleans.has executed natural gas swaps as of March 31, 2019 is 7 months for Entergy Mississippi. The total volume of natural gas swaps and options outstanding as of March 31, 20182019 is 63,890,00045,740,000 MMBtu for Entergy, including 53,730,00036,540,000 MMBtu for Entergy Louisiana and 10,160,0009,200,000 MMBtu for Entergy Mississippi. 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 2017,2018, Entergy participated in the annual financial transmission rights auction process for the MISO planning year of June 1, 20172018 through May 31, 2018.2019. Financial transmission rights are derivative instruments which 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 transmission rights outstanding as of March 31, 20182019 is 18,49018,928 GWh for Entergy, including 4,1534,099 GWh for Entergy Arkansas, 8,1628,235 GWh for Entergy Louisiana, 2,5622,520 GWh for Entergy Mississippi, 943948 GWh for Entergy New Orleans, and 2,5413,047 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 March 31, 20182019 and December 31, 2017.2018. Letters of credit posted with MISO covered the financial transmission rights exposure for Entergy Arkansas, Entergy Mississippi and Entergy Texas as of March 31, 20182019 and December 31, 2017.2018.
The fair values of Entergy’s derivative instruments in the consolidated balance sheet as of March 31, 2019 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.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
|
| | | | | | | | | | |
| Instrument | | Balance Sheet Location | | Fair Value (a) | | Offset (b) | | Net (c) (d) | | Business |
| | | | | (In Millions) | | |
| Derivatives designated as hedging instruments | | | | | | | | | | |
| Assets: | | | | | | | | | | |
| Electricity swaps and options | | Prepayments and other (current portion) | | $6 | | ($6) | | $— | | Entergy Wholesale Commodities |
| Electricity swaps and options | | Other deferred debits and other assets (non-current portion) | | $3 | | ($3) | | $— | | Entergy Wholesale Commodities |
| Liabilities: | | | | | | | | | | |
| Electricity swaps and options | | Other current liabilities (current portion) | | $45 | | ($9) | | $36 | | Entergy Wholesale Commodities |
| Electricity swaps and options | | Other non-current liabilities (non-current portion) | | $16 | | ($3) | | $13 | | Entergy Wholesale Commodities |
| Derivatives not designated as hedging instruments | | | | | | | | | | |
| Assets: | | | | | | | | | | |
| Electricity swaps and options | | Prepayments and other (current portion) | | $9 | | ($6) | | $3 | | Entergy Wholesale Commodities |
| Electricity swaps and options | | Other deferred debits and other assets (non-current portion) | | $2 | | ($2) | | $— | | 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 | | $6 | | ($1) | | $5 | | Utility and Entergy Wholesale Commodities |
| Liabilities: | | | | | | | | | | |
| Electricity swaps and options | | Other current liabilities
(current portion) | | $2 | | ($2) | | $— | | Entergy Wholesale Commodities |
| Electricity swaps and options | | Other non-current liabilities (non-current portion) | | $2 | | ($2) | | $— | | Entergy Wholesale Commodities |
| Natural gas swaps and options | | Other current liabilities | | $1 | | $— | | $1 | | Utility |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The fair values of Entergy’s derivative instruments in the consolidated balance sheet as of MarchDecember 31, 2018 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 | | Gross Fair Value (a) | | Offsetting Position (b) | | Net Fair Value (c) (d) | | Business |
| | | | | (In Millions) | | |
| Derivatives designated as hedging instruments | | | | | | | | | | |
| Assets: | | | | | | | | | | |
| Electricity swaps and options | | Prepayments and other (current portion) | | $63 | | ($14) | | $49 | | Entergy Wholesale Commodities |
| Electricity swaps and options | | Other deferred debits and other assets (non-current portion) | | $31 | | ($5) | | $26 | | Entergy Wholesale Commodities |
| Liabilities: | | | | | | | | | | |
| Electricity swaps and options | | Other current liabilities
(current portion) | | $13 | | ($13) | | $— | | Entergy Wholesale Commodities |
| Electricity swaps and options | | Other non-current liabilities (non-current portion) | | $5 | | ($5) | | $— | | Entergy Wholesale Commodities |
| Derivatives not designated as hedging instruments | | | | | | | | | | |
| Assets: | | | | | | | | | | |
| Electricity swaps and options | | Prepayments and other (current portion) | | $3 | | ($3) | | $— | | Entergy Wholesale Commodities |
| Financial transmission rights | | Prepayments and other | | $9 | | ($1) | | $8 | | Utility and Entergy Wholesale Commodities |
| Liabilities: | | | | | | | | | | |
| Electricity swaps and options | | Other current liabilities
(current portion) | | $4 | | ($4) | | $— | | Entergy Wholesale Commodities |
| Natural gas swaps | | Other current liabilities | | $1 | | $— | | $1 | | 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, 2017 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 | | Gross Fair Value (a) | | Offsetting Position (b) | | Net Fair Value (c) (d) | | Business | | Balance Sheet Location | | Fair Value (a) | | Offset (b) | | Net (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) | | $32 | | ($32) | | $— | | 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) | | $7 | | ($7) | | $— | | Entergy Wholesale Commodities |
| Liabilities: | | | | | | | | | | | | | | | | |
| Electricity swaps and options | | Other current liabilities (current portion) | | $86 | | ($20) | | $66 | | 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) | | $17 | | ($14) | | $3 | | 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) | | $9 | | ($9) | | $— | | Entergy Wholesale Commodities | | 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 | | $22 | | ($1) | | $21 | | Utility and Entergy Wholesale Commodities | | Prepayments and other | | $16 | | ($1) | | $15 | | Utility and Entergy Wholesale Commodities |
| Liabilities: | | | | | | | | | | | | | | | | |
| Electricity swaps and options | | Other current liabilities (current portion) | | $9 | | ($8) | | $1 | | Entergy Wholesale Commodities | | Other current liabilities (current portion) | | $1 | | ($1) | | $— | | Entergy Wholesale Commodities |
| Natural gas swaps | | Other current liabilities | | $6 | | $— | | $6 | | Utility | |
| Natural gas swaps and options | | | Other current liabilities | | $1 | | $— | | $1 | | Utility |
| |
| (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 Entergy Corporation and Subsidiaries’ Consolidated Balance Sheet |
| |
| (d) | Excludes cash collateral in the amount of $1 million postedheld and $6$19 million heldposted as of March 31, 20182019 and $1$19 million posted and $4 million held as of December 31, 2017.2018. Also excludes $69 million in letters of credit in the amount of $4 million held and $2 million posted as of March 31, 20182019 and $34$4 million in letters of credit heldposted as of December 31, 2017.2018. |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
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 three months ended March 31, 20182019 and 20172018 are as follows:
| | | 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) | | 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) | | (In Millions) | | (In Millions) |
| 2019 | | |
| Electricity swaps and options | | | $26 | | Competitive businesses operating revenues | | $52 |
| | | |
| 2018 | | |
| Electricity swaps and options | | $91 | | Competitive businesses operating revenues | | ($30) | | $91 | | Competitive businesses operating revenues | | ($30) |
| | | |
| 2017 | | |
| Electricity swaps and options | | $50 | | Competitive businesses operating revenues | | $51 | |
| |
| (a) | Before taxes of ($6)$11 million and $18($6) million for the three months ended March 31, 20182019 and 2017,2018, 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 businessbusinesses operating revenues. The change in fair value of Entergy’s cash flow hedges due to ineffectiveness during the three months ended March 31, 2018 and 2017 was $13.3 million and ($1) million, respectively.million.
Based on market prices as of March 31, 2018,2019, unrealized gains (losses) recorded in accumulated other comprehensive income on cash flow hedges relating to power sales totaled $65($53) million of net unrealized gains.losses. Approximately $41($39) 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 three months ended March 31, 20182019 and 20172018 are as follows:
|
| | | | | | |
| Instrument |
| Amount of gain (loss) recognized in accumulated other comprehensive income |
| Income Statement
location |
| Amount of gain (loss)
recorded in the income statement |
| | | (In Millions) | | | | (In Millions) |
| 2019 | |
| | | | |
| Natural gas swaps and options | | $— | | Fuel, fuel-related expenses, and gas purchased for resale | (a) | ($1) |
| Financial transmission rights |
| $— |
| Purchased power expense | (b) | $21 |
| Electricity swaps and options | | $— | (c) | Competitive business operating revenues | | $5 |
| | | | | | |
| 2018 | |
| | | | |
| Natural gas swaps | | $— | | Fuel, fuel-related expenses, and gas purchased for resale | (a) | $— |
| Financial transmission rights |
| $— |
| Purchased power expense | (b) | $32 |
| Electricity swaps and options | | $— | (c) | Competitive business operating revenues | | $1 |
| | | | | | |
2017 | | | | | | |
Natural gas swaps | | $— | | Fuel, fuel-related expenses, and gas purchased for resale | (a) | ($7) |
Financial transmission rights | | $— | | Purchased power expense | (b) | $30 |
Electricity swaps and options | | $9 | (c) | Competitive business operating revenues | | $— |
| |
| (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 recognized in accumulated other comprehensive income from electricity swaps and options de-designated as hedged items. |
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 March 31, 20182019 are shown in the table below. Certain investments are subject to master netting agreements and are presented on the balance sheets 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 | | Balance Sheet Location | | Fair Value (a) | | Offset (b) | | Net (c) (d) | | Registrant |
| | | (In Millions) | | | (In Millions) | |
| Assets: | | | | | | | | | | | | | | |
| Natural gas swaps and options | | | Prepayments and other | | $0.2 | | $— | | $0.2 | | Entergy Louisiana |
| Natural gas swaps and options | | | Other deferred debits and other assets (non-current portion) | | $1.3 | | $— | | $1.3 | | Entergy Louisiana |
| | | | | | | | | |
| Financial transmission rights | | Prepayments and other | |
| $1.9 |
| |
| ($0.1 | ) | |
| $1.8 |
| | Entergy Arkansas | | Prepayments and other | | $1.2 | | ($0.1) | | $1.1 | | Entergy Arkansas |
| Financial transmission rights | | Prepayments and other | |
| $3.8 |
| |
| ($0.4 | ) | |
| $3.4 |
| | Entergy Louisiana | | Prepayments and other | | $2.8 | | $— | | $2.8 | | Entergy Louisiana |
| Financial transmission rights | | Prepayments and other | |
| $0.9 |
| |
| $— |
| |
| $0.9 |
| | Entergy Mississippi | | Prepayments and other | | $0.7 | | $— | | $0.7 | | Entergy Mississippi |
| Financial transmission rights | | Prepayments and other | |
| $0.7 |
| |
| $— |
| |
| $0.7 |
| | Entergy New Orleans | | Prepayments and other | | $0.5 | | $— | | $0.5 | | Entergy New Orleans |
| Financial transmission rights | | Prepayments and other | |
| $1.4 |
| |
| $— |
| |
| $1.4 |
| | Entergy Texas | | Prepayments and other | | $0.3 | | ($0.6) | | ($0.3) | | Entergy Texas |
| | | | | | | | | | | | | | | |
| Liabilities: | | | | | | | | | | | | | | |
| Natural gas swaps and options | | | Other current liabilities | |
| $0.3 |
| |
| $— |
| |
| $0.3 |
| | Entergy Louisiana |
| Natural gas swaps | | Other current liabilities | |
| $1.2 |
| |
| $— |
| |
| $1.2 |
| | Entergy Louisiana | | Other current liabilities | |
| $0.8 |
| |
| $— |
| |
| $0.8 |
| | Entergy Mississippi |
| Natural gas swaps | | Other current liabilities | |
| $0.2 |
| |
| $— |
| |
| $0.2 |
| | Entergy Mississippi | |
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, 20172018 are as follows:
| | | Instrument | | Balance Sheet Location | | Gross Fair Value (a) | | Offsetting Position (b) | | Net Fair Value (c) (d) | | Registrant | | Balance Sheet Location | | Fair Value (a) | | Offset (b) | | Net (c) (d) | | Registrant |
| | | (In Millions) | | | (In Millions) | |
| Assets: | | | | | | | | |
| Financial transmission rights | | Prepayments and other | |
| $3.2 |
| |
| ($0.2 | ) | |
| $3.0 |
| | Entergy Arkansas | |
| 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 | |
| $11.0 |
| |
| ($0.8 | ) | |
| $10.2 |
| | Entergy Louisiana | | Prepayments and other | | $3.6 | | ($0.2) | | $3.4 | | Entergy Arkansas |
| Financial transmission rights | | Prepayments and other | |
| $2.1 |
| |
| $— |
| |
| $2.1 |
| | Entergy Mississippi | | Prepayments and other | | $8.4 | | ($0.1) | | $8.3 | | Entergy Louisiana |
| Financial transmission rights | | Prepayments and other | |
| $2.2 |
| |
| $— |
| |
| $2.2 |
| | Entergy New Orleans | | Prepayments and other | | $2.2 | | $— | | $2.2 | | Entergy Mississippi |
| Financial transmission rights | | Prepayments and other | |
| $3.6 |
| |
| ($0.2 | ) | |
| $3.4 |
| | Entergy Texas | | Prepayments and other | | $1.3 | | $— | | $1.3 | | Entergy New Orleans |
| | | | | | | | | |
| Liabilities: | | | | | | | | |
| Financial transmission rights | | | Other current liabilities | | $0.9 | | ($1.4) | | ($0.5) | | Entergy Texas |
| | | |
| Natural gas swaps and options | | | Other current liabilities | | $1.1 | | $— | | $1.1 | | Entergy Louisiana |
| Natural gas swaps | | Other current liabilities | |
| $5.0 |
| |
| $— |
| |
| $5.0 |
| | Entergy Louisiana | | Other current liabilities | | $0.1 | | $— | | $0.1 | | Entergy New Orleans |
| Natural gas swaps | | Other current liabilities | |
| $1.2 |
| |
| $— |
| |
| $1.2 |
| | Entergy Mississippi | |
| Natural gas swaps | | Other current liabilities | |
| $0.2 |
| |
| $— |
| |
| $0.2 |
| | Entergy New Orleans | |
| |
| (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 |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
| |
| (d) | As of March 31, 2019, letters of credit posted with MISO covered financial transmission rights exposure of $0.4 million for Entergy Mississippi and $1.5 million for Entergy Texas. As of December 31, 2018, 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 $0.2 million for Entergy Texas. As of December 31, 2017, 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$4.1 million for Entergy 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 three months ended March 31, 20182019 and 20172018 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 | | $0.8 | (a) | Entergy Louisiana |
| Natural gas swaps | | Fuel, fuel-related expenses, and gas purchased for resale | | ($1.8) | (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 expense | | $8.4 | (b) | Entergy Arkansas |
| Financial transmission rights | | Purchased power expense | | $8.8 | (b) | Entergy Louisiana |
| Financial transmission rights | | Purchased power expense | | $1.1 | (b) | Entergy Mississippi |
| Financial transmission rights | | Purchased power expense | | $1.9 | (b) | Entergy New Orleans |
| Financial transmission rights | | Purchased power expense | | $0.3 | (b) | Entergy Texas |
| | | | | | |
| 2018 | | | | | | |
| Natural gas swaps | | Fuel, fuel-related expenses, and gas purchased for resale | | ($0.2) | (a) | Entergy Mississippi |
| Natural gas swaps | | Fuel, fuel-related expenses, and gas purchased for resale | | ($0.1) | (a) | Entergy New Orleans |
| | | | | | | |
| Financial transmission rights | | Purchased power expense | | $8.0 | (b) | Entergy Arkansas |
| Financial transmission rights | | Purchased power expense | | $17.6 | (b) | Entergy Louisiana |
| Financial transmission rights | | Purchased power expense | | $7.8 | (b) | Entergy Mississippi |
| Financial transmission rights | | Purchased power expense | | $3.3 | (b) | Entergy New Orleans |
| Financial transmission rights | | Purchased power expense | | ($3.5) | (b) | Entergy Texas |
| | | | | | |
2017 | | | | | | |
Natural gas swaps | | Fuel, fuel-related expenses, and gas purchased for resale | | ($6.1) | (a) | Entergy Louisiana |
Natural gas swaps | | Fuel, fuel-related expenses, and gas purchased for resale | | ($1.1) | (a) | Entergy Mississippi |
Natural gas swaps | | Fuel, fuel-related expenses, and gas purchased for resale | | ($0.1) | (a) | Entergy New Orleans |
| | | | | | |
Financial transmission rights | | Purchased power expense | | $4.6 | (b) | Entergy Arkansas |
Financial transmission rights | | Purchased power expense | | $15.2 | (b) | Entergy Louisiana |
Financial transmission rights | | Purchased power expense | | $3.1 | (b) | Entergy Mississippi |
Financial transmission rights | | Purchased power expense | | $2.4 | (b) | Entergy New Orleans |
Financial transmission rights | | Purchased power expense | | $5.3 | (b) | Entergy Texas |
| |
| (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. |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
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
Entergy Corporation and Subsidiaries
Notes to Financial Statements
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 |
| |
| – | inputs that are derived principally from or corroborated by observable market data by correlation or other means. |
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.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
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
Entergy Corporation and Subsidiaries
Notes to Financial Statements
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 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 monthly 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 proposed derivative transactions, an analysis is completed to assess the risk of adding the proposed derivative to Entergy 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
Entergy Corporation and Subsidiaries
Notes to Financial Statements
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.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
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 March 31, 20182019 and December 31, 2017.2018. 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.
| | | 2018 | | Level 1 | | Level 2 | | Level 3 | | Total | |
| 2019 | | | Level 1 | | Level 2 | | Level 3 | | Total |
| | | (In Millions) | | (In Millions) |
| Assets: | | | | | | | | | | | | | | | | |
| Temporary cash investments | |
| $1,148 |
| |
| $— |
| |
| $— |
| |
| $1,148 |
| |
| $865 |
| |
| $— |
| |
| $— |
| |
| $865 |
|
| Decommissioning trust funds (a): | | | | | | | | | | | | | | | | |
| Equity securities | | 577 |
| | — |
| | — |
| | 577 |
| | 1,357 |
| | — |
| | — |
| | 1,357 |
|
| Debt securities | | 1,084 |
| | 1,535 |
| | — |
| | 2,619 |
| | 1,320 |
| | 1,672 |
| | — |
| | 2,992 |
|
| Common trusts (b) | | | | | | | | 3,920 |
| | | | | | | | 2,529 |
|
| Power contracts | | — |
| | — |
| | 75 |
| | 75 |
| | — |
| | — |
| | 3 |
| | 3 |
|
| Securitization recovery trust account | | 52 |
| | — |
| | — |
| | 52 |
| | 52 |
| | — |
| | — |
| | 52 |
|
| Escrow accounts | | 398 |
| | — |
| | — |
| | 398 |
| | 405 |
| | — |
| | — |
| | 405 |
|
| Gas hedge contracts | | | 1 |
| | — |
| | — |
| | 1 |
|
| Financial transmission rights | | — |
| | — |
| | 8 |
| | 8 |
| | — |
| | — |
| | 5 |
| | 5 |
|
| | |
| $3,259 |
| |
| $1,535 |
| |
| $83 |
| |
| $8,797 |
| |
| $4,000 |
| |
| $1,672 |
| |
| $8 |
| |
| $8,209 |
|
| | | | | | | | | | |
| Liabilities: | | | | | | | | | | | | | | | | |
| Power contracts | | |
| $— |
| |
| $— |
| |
| $49 |
| |
| $49 |
|
| Gas hedge contracts | |
| $1 |
| |
| $— |
| |
| $— |
| |
| $1 |
| | 1 |
| | — |
| | — |
| | 1 |
|
| | | |
| $1 |
| |
| $— |
| |
| $49 |
| |
| $50 |
|
| | | 2017 | | Level 1 | | Level 2 | | Level 3 | | Total | |
| 2018 | | | Level 1 | | Level 2 | | Level 3 | | Total |
| | | (In Millions) | | (In Millions) |
| Assets: | | | | | | | | | | | | | | | | |
| Temporary cash investments | |
| $725 |
| |
| $— |
| |
| $— |
| |
| $725 |
| |
| $424 |
| |
| $— |
| |
| $— |
| |
| $424 |
|
| Decommissioning trust funds (a): | | | | | | | | | | | | | | | | |
| Equity securities | | 526 |
| | — |
| | — |
| | 526 |
| | 1,686 |
| | — |
| | — |
| | 1,686 |
|
| Debt securities | | 1,125 |
| | 1,425 |
| | — |
| | 2,550 |
| | 1,259 |
| | 1,625 |
| | — |
| | 2,884 |
|
| Common trusts (b) | | | | | | | | 4,136 |
| | | | | | | | 2,350 |
|
| Power contracts | | — |
| | — |
| | 5 |
| | 5 |
| | — |
| | — |
| | 3 |
| | 3 |
|
| Securitization recovery trust account | | 45 |
| | — |
| | — |
| | 45 |
| | 51 |
| | — |
| | — |
| | 51 |
|
| Escrow accounts | | 406 |
| | — |
| | — |
| | 406 |
| | 403 |
| | — |
| | — |
| | 403 |
|
| Gas hedge contracts | | | — |
| | 2 |
| | — |
| | 2 |
|
| Financial transmission rights | | — |
| | — |
| | 21 |
| | 21 |
| | — |
| | — |
| | 15 |
| | 15 |
|
| | |
| $2,827 |
| |
| $1,425 |
| |
| $26 |
| |
| $8,414 |
| |
| $3,823 |
| |
| $1,627 |
| |
| $18 |
| |
| $7,818 |
|
| Liabilities: | | | | | | | | | | | | | | | | |
| Power contracts | |
| $— |
| |
| $— |
| |
| $70 |
| |
| $70 |
| |
| $— |
| |
| $— |
| |
| $34 |
| |
| $34 |
|
| Gas hedge contracts | | 6 |
| | — |
| | — |
| | 6 |
| | 1 |
| | — |
| | — |
| | 1 |
|
| | |
| $6 |
| |
| $— |
| |
| $70 |
| |
| $76 |
| |
| $1 |
| |
| $— |
| |
| $34 |
| |
| $35 |
|
| |
| (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 9 to the financial statements herein for additional information on the investment portfolios. |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
| |
| (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 (liabilities) for the fair value of derivatives classified as Level 3 in the fair value hierarchy for the three months ended March 31, 20182019 and 2017:2018:
| | | | 2018 | | 2017 | 2019 | | 2018 |
| | Power Contracts | | Financial transmission rights | | Power Contracts | | Financial transmission rights | Power Contracts | | Financial transmission rights | | Power Contracts | | Financial transmission rights |
| (In Millions) | (In Millions) |
| Balance as of January 1, |
| ($65 | ) | |
| $21 |
| |
| $5 |
| |
| $21 |
|
| ($31 | ) | |
| $15 |
| |
| ($65 | ) | |
| $21 |
|
| Total gains (losses) for the period (a) | | | | | | | | | | | | | | |
| Included in earnings | 14 |
| | (1 | ) | | — |
| | — |
| 5 |
| | — |
| | 14 |
| | (1 | ) |
| Included in other comprehensive income | 91 |
| | — |
| | 50 |
| | — |
| 26 |
| | — |
| | 91 |
| | — |
|
| Included as a regulatory liability/asset | — |
| | 20 |
| | — |
| | 17 |
| — |
| | 11 |
| | — |
| | 20 |
|
| Settlements | 35 |
| | (32 | ) | | (50 | ) | | (30 | ) | (46 | ) | | (21 | ) | | 35 |
| | (32 | ) |
| Balance as of March 31, |
| $75 |
| |
| $8 |
| |
| $5 |
| |
| $8 |
|
| ($46 | ) | |
| $5 |
| |
| $75 |
| |
| $8 |
|
| |
| (a) | Change in unrealized gains or losses for the period included in earnings for derivatives held at the end of the reporting period is ($4.9) million for the three months ended March 31, 2019 and $0.2 million for the three months ended March 31, 2018 and $0.4 million for the three months ended March 31, 2017.2018. |
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 March 31, 2018:2019:
|
| | | | | | | | | |
| Transaction Type | | Fair Value as of March 31, 20182019 | | Significant Unobservable Inputs | | Range from Average % | | Effect on Fair Value |
| | | (In Millions) | | | | | | | (In Millions) |
| Power contracts - electricity swaps | | $75($46) | | Unit contingent discount | | +/- | 4% - 4.75% | | $5($5) - $7($6) |
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 March 31, 20182019 and December 31, 2017.2018. 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 Corporation and Subsidiaries
Notes to Financial Statements
Entergy Arkansas
| | | 2018 | | Level 1 | | Level 2 | | Level 3 | | Total | |
| 2019 | | | Level 1 | | Level 2 | | Level 3 | | Total |
| | | (In Millions) | | (In Millions) |
| Assets: | | | | | | | | | | | | | | | | |
| Temporary cash investments | | |
| $189.5 |
| |
| $— |
| |
| $— |
| |
| $189.5 |
|
| Decommissioning trust funds (a): | | | | | | | | | | | | | | | | |
| Equity securities | |
| $3.6 |
| |
| $— |
| |
| $— |
| |
| $3.6 |
| | 5.5 |
| | — |
| | — |
| | 5.5 |
|
| Debt securities | | 111.3 |
| | 239.5 |
| | — |
| | 350.8 |
| | 99.2 |
| | 291.8 |
| | — |
| | 391.0 |
|
| Common trusts (b) | | | | | | | | 581.3 |
| | | | | | | | 600.8 |
|
| Securitization recovery trust account | | 7.9 |
| | — |
| | — |
| | 7.9 |
| | 8.2 |
| | — |
| | — |
| | 8.2 |
|
| Financial transmission rights | | — |
| | — |
| | 1.8 |
| | 1.8 |
| | — |
| | — |
| | 1.1 |
| | 1.1 |
|
| | |
| $122.8 |
| |
| $239.5 |
| |
| $1.8 |
| |
| $945.4 |
| |
| $302.4 |
| |
| $291.8 |
| |
| $1.1 |
| |
| $1,196.1 |
|
| | | 2017 | | Level 1 | | Level 2 | | Level 3 | | Total | |
| 2018 | | | Level 1 | | Level 2 | | Level 3 | | Total |
| | | (In Millions) | | (In Millions) |
| Assets: | | | | | | | | | | | | | | | | |
| Decommissioning trust funds (a): | | | | | | | | | | | | | | | | |
| Equity securities | |
| $11.7 |
| |
| $— |
| |
| $— |
| |
| $11.7 |
| |
| $4.0 |
| |
| $— |
| |
| $— |
| |
| $4.0 |
|
| Debt securities | | 115.8 |
| | 232.4 |
| | — |
| | 348.2 |
| | 94.8 |
| | 286.5 |
| | — |
| | 381.3 |
|
| Common trusts (b) | | | | | | | | 585.0 |
| | | | | | | | 526.7 |
|
| Securitization recovery trust account | | 3.7 |
| | — |
| | — |
| | 3.7 |
| | 4.7 |
| | — |
| | — |
| | 4.7 |
|
| Escrow accounts | | 2.4 |
| | — |
| | — |
| | 2.4 |
| |
| Financial transmission rights | | — |
| | — |
| | 3.0 |
| | 3.0 |
| | — |
| | — |
| | 3.4 |
| | 3.4 |
|
| | |
| $133.6 |
| |
| $232.4 |
| |
| $3.0 |
| |
| $954.0 |
| |
| $103.5 |
| |
| $286.5 |
| |
| $3.4 |
| |
| $920.1 |
|
Entergy Louisiana
| | | 2018 | | Level 1 | | Level 2 | | Level 3 | | Total | |
| 2019 | | | Level 1 | | Level 2 | | Level 3 | | Total |
| | | (In Millions) | | (In Millions) |
| Assets: | | | | | | | | | | | | | | | | |
| Temporary cash investments | |
| $561.9 |
| |
| $— |
| |
| $— |
| |
| $561.9 |
| |
| $237.0 |
| |
| $— |
| |
| $— |
| |
| $237.0 |
|
| Decommissioning trust funds (a): | | | | | | | | | | | | | | | | |
| Equity securities | | 12.2 |
| | — |
| | — |
| | 12.2 |
| | 10.4 |
| | — |
| | — |
| | 10.4 |
|
| Debt securities | | 145.6 |
| | 370.7 |
| | — |
| | 516.3 |
| | 184.6 |
| | 371.1 |
| | — |
| | 555.7 |
|
| Common trusts (b) | | | | | | | | 775.9 |
| | | | | | | | 841.9 |
|
| Escrow accounts | | 285.6 |
| | — |
| | — |
| | 285.6 |
| | 291.2 |
| | — |
| | — |
| | 291.2 |
|
| Securitization recovery trust account | | 9.5 |
| | — |
| | — |
| | 9.5 |
| | 9.0 |
| | — |
| | — |
| | 9.0 |
|
| Gas hedge contracts | | | 1.5 |
| | — |
| | — |
| | 1.5 |
|
| Financial transmission rights | | — |
| | — |
| | 3.4 |
| | 3.4 |
| | — |
| | — |
| | 2.8 |
| | 2.8 |
|
| | |
| $1,014.8 |
| |
| $370.7 |
| |
| $3.4 |
| |
| $2,164.8 |
| |
| $733.7 |
| |
| $371.1 |
| |
| $2.8 |
| |
| $1,949.5 |
|
| | | | | | | | | | | | | | | | | |
| Liabilities: | | | | | | | | | | | | | | | | |
| Gas hedge contracts | |
| $1.2 |
| |
| $— |
| |
| $— |
| |
| $1.2 |
| |
| $0.3 |
| |
| $— |
| |
| $— |
| |
| $0.3 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
| | | 2017 | | Level 1 | | Level 2 | | Level 3 | | Total | |
| 2018 | | | Level 1 | | Level 2 | | Level 3 | | Total |
| | | (In Millions) | | (In Millions) |
| Assets: | | | | | | | | | | | | | | | | |
| Temporary cash investments | |
| $30.1 |
| |
| $— |
| |
| $— |
| |
| $30.1 |
| |
| $43.1 |
| |
| $— |
| |
| $— |
| |
| $43.1 |
|
| Decommissioning trust funds (a): | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Equity securities | | 15.2 |
| | — |
| | — |
| | 15.2 |
| | 13.3 |
| | — |
| | — |
| | 13.3 |
|
| Debt securities | | 143.3 |
| | 350.5 |
| | — |
| | 493.8 |
| | 162.0 |
| | 370.9 |
| | — |
| | 532.9 |
|
| Common trusts (b) | | | | | | | | 803.1 |
| | | | | | | | 738.8 |
|
| Escrow accounts | | 289.5 |
| | — |
| | — |
| | 289.5 |
| | 289.5 |
| | — |
| | — |
| | 289.5 |
|
| Securitization recovery trust account | | 2.0 |
| | — |
| | — |
| | 2.0 |
| | 3.6 |
| | — |
| | — |
| | 3.6 |
|
| Gas hedge contracts | | | — |
| | 1.9 |
| | — |
| | 1.9 |
|
| Financial transmission rights | | — |
| | — |
| | 10.2 |
| | 10.2 |
| | — |
| | — |
| | 8.3 |
| | 8.3 |
|
| | |
| $480.1 |
| |
| $350.5 |
| |
| $10.2 |
| |
| $1,643.9 |
| |
| $511.5 |
| |
| $372.8 |
| |
| $8.3 |
| |
| $1,631.4 |
|
| | | | | | | | | | | | | | | | | |
| Liabilities: | | | | | | | | | | | | | | | | |
| Gas hedge contracts | |
| $5.0 |
| |
| $— |
| |
| $— |
| |
| $5.0 |
| |
| $0.7 |
| |
| $0.4 |
| |
| $— |
| |
| $1.1 |
|
Entergy Mississippi
| | | 2018 | | Level 1 | | Level 2 | | Level 3 | | Total | |
| 2019 | | | Level 1 | | Level 2 | | Level 3 | | Total |
| | | (In Millions) | | (In Millions) |
| Assets: | | | | | | | | | | | | | | | | |
| Temporary cash investments | |
| $0.3 |
| |
| $— |
| |
| $— |
| |
| $0.3 |
| |
| Escrow accounts | | 32.1 |
| | — |
| | — |
| | 32.1 |
| | $32.6 | |
| $— |
| |
| $— |
| | $32.6 |
| Financial transmission rights | | — |
| | — |
| | 0.9 |
| | 0.9 |
| | — |
| | — |
| | 0.7 |
| | 0.7 |
|
| | |
| $32.4 |
| |
| $— |
| |
| $0.9 |
| |
| $33.3 |
| |
| $32.6 |
| |
| $— |
| |
| $0.7 |
| |
| $33.3 |
|
| | | | | | | | | | | | | | | | | |
| Liabilities: | | | | | | | | | | | | | | | | |
| Gas hedge contracts | |
| $0.2 |
| |
| $— |
| |
| $— |
| |
| $0.2 |
| |
| $0.8 |
| |
| $— |
| |
| $— |
| |
| $0.8 |
|
| | | 2017 | | Level 1 | | Level 2 | | Level 3 | | Total | |
| 2018 | | | Level 1 | | Level 2 | | Level 3 | | Total |
| | | (In Millions) | | (In Millions) |
| Assets: | | | | | | | | | | | | | | | | |
| Temporary cash investments | |
| $4.5 |
| |
| $— |
| |
| $— |
| |
| $4.5 |
| |
| $36.9 |
| |
| $— |
| |
| $— |
| |
| $36.9 |
|
| Escrow accounts | | 32.0 |
| | — |
| | — |
| | 32.0 |
| | 32.4 |
| | — |
| | — |
| | 32.4 |
|
| Financial transmission rights | | — |
| | — |
| | 2.1 |
| | 2.1 |
| | — |
| | — |
| | 2.2 |
| | 2.2 |
|
| | |
| $36.5 |
| |
| $— |
| |
| $2.1 |
| |
| $38.6 |
| |
| $69.3 |
| |
| $— |
| |
| $2.2 |
| |
| $71.5 |
|
| | | | | | | | | | |
| Liabilities: | | | | | | | | | |
| Gas hedge contracts | |
| $1.2 |
| |
| $— |
| |
| $— |
| |
| $1.2 |
| |
Entergy New Orleans
|
| | | | | | | | | | | | | | | | |
| 2019 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | | (In Millions) |
| Assets: | | | | | | | | |
| Securitization recovery trust account | |
| $5.1 |
| |
| $— |
| |
| $— |
| |
| $5.1 |
|
| Escrow accounts | | 81.3 |
| | — |
| | — |
| | 81.3 |
|
| Financial transmission rights | | — |
| | — |
| | 0.5 |
| | 0.5 |
|
| | |
| $86.4 |
| |
| $— |
| |
| $0.5 |
| |
| $86.9 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Entergy New Orleans
|
| | | | | | | | | | | | | | | | |
| 2018 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | | (In Millions) |
| Assets: | | | | | | | | |
| Temporary cash investments | |
| $1.3 |
| |
| $— |
| |
| $— |
| |
| $1.3 |
|
| Securitization recovery trust account | | 4.8 |
| | — |
| | — |
| | 4.8 |
|
| Escrow accounts | | 79.8 |
| | — |
| | — |
| | 79.8 |
|
| Financial transmission rights | | — |
| | — |
| | 0.7 |
| | 0.7 |
|
| | |
| $85.9 |
| |
| $— |
| |
| $0.7 |
| |
| $86.6 |
|
| | | 2017 | | Level 1 | | Level 2 | | Level 3 | | Total | |
| 2018 | | | Level 1 | | Level 2 | | Level 3 | | Total |
| | | (In Millions) | | (In Millions) |
| Assets: | | | | | | | | | | | | | | | | |
| Temporary cash investments | |
| $32.7 |
| |
| $— |
| |
| $— |
| |
| $32.7 |
| |
| $19.7 |
| |
| $— |
| |
| $— |
| |
| $19.7 |
|
| Securitization recovery trust account | | 1.5 |
| | — |
| | — |
| | 1.5 |
| | 2.2 |
| | — |
| | — |
| | 2.2 |
|
| Escrow accounts | | 81.9 |
| | — |
| | — |
| | 81.9 |
| | 80.9 |
| | — |
| | — |
| | 80.9 |
|
| Financial transmission rights | | — |
| | — |
| | 2.2 |
| | 2.2 |
| | — |
| | — |
| | 1.3 |
| | 1.3 |
|
| | |
| $116.1 |
| |
| $— |
| |
| $2.2 |
| |
| $118.3 |
| |
| $102.8 |
| |
| $— |
| |
| $1.3 |
| |
| $104.1 |
|
| | | | | | | | | | | | | | | | | |
| Liabilities: | | | | | | | | | | | | | | | | |
| Gas hedge contracts | |
| $0.2 |
| |
| $— |
| |
| $— |
| |
| $0.2 |
| |
| $0.1 |
| |
| $— |
| |
| $— |
| |
| $0.1 |
|
Entergy Texas
| | | 2018 | | Level 1 | | Level 2 | | Level 3 | | Total | |
| 2019 | | | Level 1 | | Level 2 | | Level 3 | | Total |
| | | (In Millions) | | (In Millions) |
Assets: | | | | | | | | | | | | | | | | |
| Temporary cash investments | |
| $39.0 |
| |
| $— |
| |
| $— |
| |
| $39.0 |
| |
| $22.2 |
| |
| $— |
| |
| $— |
| |
| $22.2 |
|
| Securitization recovery trust account | | 29.7 |
| | — |
| | — |
| | 29.7 |
| | 29.5 |
| | — |
| | — |
| | 29.5 |
|
| | | |
| $51.7 |
| |
| $— |
| |
| $— |
| |
| $51.7 |
|
| | | | | | | | | | |
| Liabilities: | | | | | | | | | |
| Financial transmission rights | | — |
| | — |
| | 1.4 |
| | 1.4 |
| |
| $— |
| |
| $— |
| |
| $0.3 |
| |
| $0.3 |
|
| | |
| $68.7 |
| |
| $— |
| |
| $1.4 |
| |
| $70.1 |
| |
| | | 2017 | | Level 1 | | Level 2 | | Level 3 | | Total | |
| 2018 | | | Level 1 | | Level 2 | | Level 3 | | Total |
| | | (In Millions) | | (In Millions) |
Assets: | | | | | | | | | | | | | | | | |
| Temporary cash investments | |
| $115.5 |
| |
| $— |
| |
| $— |
| |
| $115.5 |
| |
| Securitization recovery trust account | | 37.7 |
| | — |
| | — |
| | 37.7 |
| |
| $40.2 |
| |
| $— |
| |
| $— |
| |
| $40.2 |
|
| | | | | | | | | | |
| Liabilities: | | | | | | | | | |
| Financial transmission rights | | — |
| | — |
| | 3.4 |
| | 3.4 |
| |
| $— |
| |
| $— |
| |
| $0.5 |
| |
| $0.5 |
|
| | |
| $153.2 |
| |
| $— |
| |
| $3.4 |
| |
| $156.6 |
| |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
System Energy
|
| | | | | | | | | | | | | | | | |
| 2018 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | | (In Millions) |
| Assets: | | | | | | | | |
| Temporary cash investments | |
| $278.7 |
| |
| $— |
| |
| $— |
| |
| $278.7 |
|
| Decommissioning trust funds (a): | | | | | | | | |
| Equity securities | | 2.3 |
| | — |
| | — |
| | 2.3 |
|
| Debt securities | | 172.5 |
| | 153.1 |
| | — |
| | 325.6 |
|
| Common trusts (b) | | | | | | | | 568.3 |
|
| | |
| $453.5 |
| |
| $153.1 |
| |
| $— |
| |
| $1,174.9 |
|
|
| | | | | | | | | | | | | | | | |
| 2017 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | | (In Millions) |
| Assets: | | | | | | | | |
| Temporary cash investments | |
| $287.1 |
| |
| $— |
| |
| $— |
| |
| $287.1 |
|
| Decommissioning trust funds (a): | | | | | | | | |
| Equity securities | | 3.1 |
| | — |
| | — |
| | 3.1 |
|
| Debt securities | | 187.2 |
| | 143.3 |
| | — |
| | 330.5 |
|
| Common trusts (b) | | | | | | | | 572.1 |
|
| | |
| $477.4 |
| |
| $143.3 |
| |
| $— |
| |
| $1,192.8 |
|
| |
(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 9 to the financial statements herein 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 three months ended March 31, 2018.
|
| | | | | | | | | | | | | | | | | | | |
| | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas |
| | (In Millions) |
| Balance as of January 1, |
| $3.0 |
| |
| $10.2 |
| |
| $2.1 |
| |
| $2.2 |
| |
| $3.4 |
|
| Gains included as a regulatory liability/asset | 6.8 |
| | 10.8 |
| | 6.6 |
| | 1.8 |
| | (5.5 | ) |
| Settlements | (8.0 | ) | | (17.6 | ) | | (7.8 | ) | | (3.3 | ) | | 3.5 |
|
| Balance as of March 31, |
| $1.8 |
| |
| $3.4 |
| |
| $0.9 |
| |
| $0.7 |
| |
| $1.4 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
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 three months ended March 31, 2017.
|
| | | | | | | | | | | | | | | | | | | |
| | 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 |
|
| Gains (losses) included as a regulatory liability/asset | 0.1 |
| | 10.8 |
| | 1.2 |
| | 1.8 |
| | 3.2 |
|
| Settlements | (4.6 | ) | | (15.2 | ) | | (3.1 | ) | | (2.4 | ) | | (5.3 | ) |
| Balance as of March 31, |
| $0.9 |
| |
| $4.1 |
| |
| $1.3 |
| |
| $0.5 |
| |
| $1.0 |
|
NOTE 9. DECOMMISSIONING TRUST FUNDS (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, and System Energy)
Entergy holds equity securities and available-for-sale debt securities in nuclear decommissioning trust accounts. The NRC requires Entergy subsidiaries to maintain 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. The funds are invested primarily in equity securities, fixed-rate debt securities, and cash and cash equivalents.
Entergy 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 equity 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 Entergy recorded an adjustment increasing retained earnings and reducing 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 equity securities held by the decommissioning trust funds that do not meet the criteria for regulatory accounting treatment. Going forward, 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 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 excess 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 Palisades 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 available-for-sale debt securities in the trust funds are recognized in the accumulated other comprehensive income component of shareholders’ equity. Unrealized losses (where cost exceeds fair market value) on the available-for-sale debt securities in the 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. Generally, Entergy records 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 three months ended March 31, 2018 on equity securities still held as of March 31, 2018 were ($64) million. The equity securities are generally held in funds that are designed
Entergy Corporation and Subsidiaries
Notes to Financial Statements
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 Index or the Russell 3000 Index.
The available-for-sale securities held as of March 31, 2018 and December 31, 2017 are summarized as follows:
|
| | | | | | | | | | | | |
| | | Fair Value | | Total Unrealized Gains | | Total Unrealized Losses |
| | | (In Millions) |
| 2018 | | | | | | |
| Debt Securities | | 2,619 |
| | 23 |
| | 48 |
|
| | | | | | | |
| 2017 | | | | | | |
| Equity Securities | |
| $4,662 |
| |
| $2,131 |
| |
| $1 |
|
| Debt Securities | | 2,550 |
| | 44 |
| | 16 |
|
| Total | |
| $7,212 |
| |
| $2,175 |
| |
| $17 |
|
The unrealized gains/(losses) above are reported before deferred taxes of $472 million as of December 31, 2017 for equity securities, and ($2) million as of March 31, 2018 and $7 million as of December 31, 2017 for debt securities. The amortized cost of debt securities was $2,643 million as of March 31, 2018 and $2,539 million as of December 31, 2017. As of March 31, 2018, the debt securities have an average coupon rate of approximately 3.26%, an average duration of approximately 6.18 years, and an average maturity of approximately 10.09 years.
The fair value and gross unrealized losses of the available-for-sale 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 March 31, 2018:
|
| | | | | | | | |
| | | Debt Securities |
| | | Fair Value | | Gross Unrealized Losses |
| | | (In Millions) |
| Less than 12 months | |
| $1,667 |
| |
| $35 |
|
| More than 12 months | | 241 |
| | 13 |
|
| Total | |
| $1,908 |
| |
| $48 |
|
The fair value and gross unrealized losses of available-for-sale 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:
|
| | | | | | | | | | | | | | | |
| | Equity Securities | | Debt Securities |
| | Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses |
| | (In Millions) |
| Less than 12 months |
| $8 |
| |
| $1 |
| |
| $1,099 |
| |
| $7 |
|
| More than 12 months | — |
| | — |
| | 265 |
| | 9 |
|
| Total |
| $8 |
| |
| $1 |
| |
| $1,364 |
| |
| $16 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The fair value of debt securities, summarized by contractual maturities, as of March 31, 2018 and December 31, 2017 are as follows:
|
| | | | | | | |
| | 2018 | | 2017 |
| | (In Millions) |
| less than 1 year |
| $89 |
| |
| $74 |
|
| 1 year - 5 years | 928 |
| | 902 |
|
| 5 years - 10 years | 784 |
| | 812 |
|
| 10 years - 15 years | 152 |
| | 147 |
|
| 15 years - 20 years | 101 |
| | 100 |
|
| 20 years+ | 565 |
| | 515 |
|
| Total |
| $2,619 |
| |
| $2,550 |
|
During the three months ended March 31, 2018 and 2017, proceeds from the dispositions of securities amounted to $1,091 million and $514 million, respectively. During the three months ended March 31, 2018 and 2017, gross gains of $1 million and $9 million, respectively, and gross losses of $7 million and $5 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 March 31, 2018 are $485 million for Indian Point 1, $614 million for Indian Point 2, $789 million for Indian Point 3, $453 million for Palisades, $1,048 million for Pilgrim, and $591 million for Vermont Yankee. 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 for the Registrant Subsidiaries’ nuclear plants are detailed below.
Entergy Arkansas
Entergy Arkansas holds equity securities and available-for-sale debt securities in nuclear decommissioning trust accounts. The available-for-sale securities held as of March 31, 2018 and December 31, 2017 are summarized as follows:
|
| | | | | | | | | | | | |
| | | Fair Value | | Total Unrealized Gains | | Total Unrealized Losses |
| | | (In Millions) |
| 2018 | | | | | | |
| Debt Securities | | 350.8 |
| | 0.5 |
| | 9.7 |
|
| | | | | | | |
| 2017 | | | | | | |
| Equity Securities | |
| $596.7 |
| |
| $354.9 |
| |
| $— |
|
| Debt Securities | | 348.2 |
| | 2.1 |
| | 3.0 |
|
| Total | |
| $944.9 |
| |
| $357.0 |
| |
| $3.0 |
|
The amortized cost of debt securities was $360 million as of March 31, 2018 and $349.1 million as of December 31, 2017. As of March 31, 2018, the debt securities have an average coupon rate of approximately 2.67%, an average duration of approximately 5.48 years, and an average maturity of approximately 6.90 years.
The unrealized gains/(losses) recognized during the three months ended March 31, 2018 on equity securities still held as of March 31, 2018 were ($8) million. The equity securities are generally held in funds that are designed
Entergy Corporation and Subsidiaries
Notes to Financial Statements
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 the available-for-sale 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 March 31, 2018:
|
| | | | | | | | |
| | | Debt Securities |
| | | Fair Value | | Gross Unrealized Losses |
| | | (In Millions) |
| Less than 12 months | |
| $277.8 |
| |
| $7.2 |
|
| More than 12 months | | 42.5 |
| | 2.5 |
|
| Total | |
| $320.3 |
| |
| $9.7 |
|
The fair value and gross unrealized losses of the available-for-sale 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:
|
| | | | | | | | | | | | | | | |
| | Equity Securities | | Debt Securities |
| | Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses |
| | (In Millions) |
| Less than 12 months |
| $— |
| |
| $— |
| |
| $168.0 |
| |
| $1.2 |
|
| More than 12 months | — |
| | — |
| | 41.4 |
| | 1.8 |
|
| Total |
| $— |
| |
| $— |
| |
| $209.4 |
| |
| $3.0 |
|
The fair value of debt securities, summarized by contractual maturities, as of March 31, 2018 and December 31, 2017 are as follows:
|
| | | | | | | |
| | 2018 | | 2017 |
| | (In Millions) |
| less than 1 year |
| $14.1 |
| |
| $13.0 |
|
| 1 year - 5 years | 130.6 |
| | 123.4 |
|
| 5 years - 10 years | 177.9 |
| | 180.6 |
|
| 10 years - 15 years | 3.4 |
| | 4.8 |
|
| 15 years - 20 years | 7.0 |
| | 3.4 |
|
| 20 years+ | 17.8 |
| | 23.0 |
|
| Total |
| $350.8 |
| |
| $348.2 |
|
During the three months endedMarch 31, 2018 and 2017, proceeds from the dispositions of securities amounted to $34.9 million and $36 million, respectively. During the three months ended March 31, 2018 and 2017, gross gains of $0.1 million and $0.5 million, respectively, and gross losses of $0.1 million and $0.1 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
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 March 31, 2018 and December 31, 2017 are summarized as follows:
|
| | | | | | | | | | | | |
| | | Fair Value | | Total Unrealized Gains | | Total Unrealized Losses |
| | | (In Millions) |
| 2018 | | | | | | |
| Debt Securities | | 516.3 |
| | 5.7 |
| | 8.4 |
|
| | | | | | | |
| 2017 | | | | | | |
| Equity Securities | |
| $818.3 |
| |
| $461.2 |
| |
| $— |
|
| Debt Securities | | 493.8 |
| | 10.9 |
| | 3.6 |
|
| Total | |
| $1,312.1 |
| |
| $472.1 |
| |
| $3.6 |
|
The amortized cost of debt securities was $519 million as of March 31, 2018 and $490 million as of December 31, 2017. As of March 31, 2018, the debt securities have an average coupon rate of approximately 3.83%, an average duration of approximately 6.05 years, and an average maturity of approximately 11.85 years.
The unrealized gains/(losses) recognized during the three months ended March 31, 2018 on equity securities still held as of March 31, 2018 were ($10.8) 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 the available-for-sale 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 March 31, 2018:
|
| | | | | | | | |
| | | Debt Securities |
| | | Fair Value | | Gross Unrealized Losses |
| | | (In Millions) |
| Less than 12 months | |
| $254.9 |
| |
| $4.6 |
|
| More than 12 months | | 78.8 |
| | 3.8 |
|
| Total | |
| $333.7 |
| |
| $8.4 |
|
The fair value and gross unrealized losses of the available-for-sale 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:
|
| | | | | | | | | | | | | | | |
| | Equity Securities | | Debt Securities |
| | Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses |
| | (In Millions) |
| Less than 12 months |
| $— |
| |
| $— |
| |
| $135.3 |
| |
| $1.1 |
|
| More than 12 months | — |
| | — |
| | 84.4 |
| | 2.5 |
|
| Total |
| $— |
| |
| $— |
| |
| $219.7 |
| |
| $3.6 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The fair value of debt securities, summarized by contractual maturities, as of March 31, 2018 and December 31, 2017 are as follows:
|
| | | | | | | |
| | 2018 | | 2017 |
| | (In Millions) |
| less than 1 year |
| $28.1 |
| |
| $23.2 |
|
| 1 year - 5 years | 136.7 |
| | 122.8 |
|
| 5 years - 10 years | 108.4 |
| | 109.3 |
|
| 10 years - 15 years | 52.9 |
| | 52.7 |
|
| 15 years - 20 years | 44.7 |
| | 50.7 |
|
| 20 years+ | 145.5 |
| | 135.1 |
|
| Total |
| $516.3 |
| |
| $493.8 |
|
During the three months ended March 31, 2018 and 2017, proceeds from the dispositions of securities amounted to $125.5 million and $40.6 million, respectively. During the three months ended March 31, 2018 and 2017, gross gains of $0.5 million and $0.03 million, respectively, and gross losses of $0.8 million and $0.2 million, respectively, related to available-for-sale securities were reclassified out of other regulatory liabilities/assets into earnings.
System Energy
|
| | | | | | | | | | | | | | | | |
| 2019 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | | (In Millions) |
| Assets: | | | | | | | | |
| Temporary cash investments | |
| $158.2 |
| |
| $— |
| |
| $— |
| |
| $158.2 |
|
| Decommissioning trust funds (a): | | | | | | | | |
| Equity securities | | 4.7 |
| | — |
| | — |
| | 4.7 |
|
| Debt securities | | 226.8 |
| | 148.4 |
| | — |
| | 375.2 |
|
| Common trusts (b) | | | | | | | | 571.4 |
|
| | |
| $389.7 |
| |
| $148.4 |
| |
| $— |
| |
| $1,109.5 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
|
| | | | | | | | | | | | | | | | |
| 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 |
|
| |
| (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 9 to the financial statements herein 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 three months ended March 31, 2019.
|
| | | | | | | | | | | | | | | | | | | |
| | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas |
| | (In Millions) |
| Balance as of January 1, |
| $3.4 |
| |
| $8.3 |
| |
| $2.2 |
| |
| $1.3 |
| |
| ($0.5 | ) |
| Gains (losses) included as a regulatory liability/asset | 6.1 |
| | 3.3 |
| | (0.4 | ) | | 1.1 |
| | 0.5 |
|
| Settlements | (8.4 | ) | | (8.8 | ) | | (1.1 | ) | | (1.9 | ) | | (0.3 | ) |
| Balance as of March 31, |
| $1.1 |
| |
| $2.8 |
| |
| $0.7 |
| |
| $0.5 |
| |
| ($0.3 | ) |
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 three months ended March 31, 2018.
|
| | | | | | | | | | | | | | | | | | | |
| | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas |
| | (In Millions) |
| Balance as of January 1, |
| $3.0 |
| |
| $10.2 |
| |
| $2.1 |
| |
| $2.2 |
| |
| $3.4 |
|
| Gains (losses) included as a regulatory liability/asset | 6.8 |
| | 10.8 |
| | 6.6 |
| | 1.8 |
| | (5.5 | ) |
| Settlements | (8.0 | ) | | (17.6 | ) | | (7.8 | ) | | (3.3 | ) | | 3.5 |
|
| Balance as of March 31, |
| $1.8 |
| |
| $3.4 |
| |
| $0.9 |
| |
| $0.7 |
| |
| $1.4 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
NOTE 9. DECOMMISSIONING TRUST FUNDS (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, and System EnergyEnergy)
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, and Palisades. Entergy’s nuclear decommissioning trust funds invest in equity securities, fixed-rate debt securities, and cash and cash equivalents.
As discussed in Note 16 to the financial statements herein and Note 14 to the financial statements in the Form 10-K, in January 2019, Entergy completed the transfer of the Vermont Yankee plant to NorthStar. As part of the transaction, Entergy transferred the Vermont Yankee decommissioning trust fund to NorthStar. As of December 31, 2018, the value of the decommissioning trust fund was $532 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 unrealized 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, and Palisades 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 available-for-sale debt securities in the trust funds are recognized in the accumulated other comprehensive income component of shareholders’ equity. Unrealized losses (where cost exceeds fair market value) on the available-for-sale debt securities in the 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 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 three months ended March 31, 2019 on equity securities still held as of March 31, 2019 were $340 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 Index 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 March 31, 2019 and December 31, 2018 are summarized as follows:
|
| | | | | | | | | | | | |
| | | Fair Value | | Total Unrealized Gains | | Total Unrealized Losses |
| | | (In Millions) |
| 2019 | | | | | | |
| Debt Securities (a) | |
| $2,562 |
| |
| $51 |
| |
| $9 |
|
| | | | | | | |
| 2018 | | | | | | |
| Debt Securities (a) | |
| $2,495 |
| |
| $19 |
| |
| $35 |
|
| |
| (a) | Debt securities presented herein do not include the $430 million and $389 million of debt securities held in the wholly-owned registered investment company as of March 31, 2019 and December 31, 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 $7 million as of March 31, 2019 and ($1) million as of December 31, 2018 for debt securities. The amortized cost of available-for-sale debt securities was $2,520 million as of March 31, 2019 and $2,511 million as of December 31, 2018. As of March 31, 2019, available-for-sale debt securities have an average coupon rate of approximately 3.28%, an average duration of approximately 5.42 years, and an average maturity of approximately 9.13 years.
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 March 31, 2019:
|
| | | | | | | | |
| | | Fair Value | | Gross Unrealized Losses |
| | | (In Millions) |
| Less than 12 months | |
| $197 |
| |
| $1 |
|
| More than 12 months | | 588 |
| | 8 |
|
| Total | |
| $785 |
| |
| $9 |
|
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 March 31, 2019 and December 31, 2018 are as follows:
|
| | | | | | | |
| | 2019 | | 2018 |
| | (In Millions) |
| Less than 1 year |
| $185 |
| |
| $199 |
|
| 1 year - 5 years | 1,100 |
| | 1,066 |
|
| 5 years - 10 years | 609 |
| | 544 |
|
| 10 years - 15 years | 67 |
| | 77 |
|
| 15 years - 20 years | 95 |
| | 78 |
|
| 20 years+ | 506 |
| | 531 |
|
| Total |
| $2,562 |
| |
| $2,495 |
|
During the three months ended March 31, 2019 and 2018, proceeds from the dispositions of available-for-sale securities amounted to $365 million and $1,091 million, respectively. During the three months ended March 31, 2019 and 2018, gross gains of $2 million and $1 million, respectively, and gross losses of $2 million and $7 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 March 31, 2019 are $510 million for Indian Point 1, $645 million for Indian Point 2, $845 million for Indian Point 3, $481 million for Palisades, and $1,040 million for Pilgrim. The fair values of the decommissioning trust funds related to the Entergy Wholesale Commodities nuclear plants as of December 31, 2018 are $471 million
Entergy Corporation and Subsidiaries
Notes to Financial Statements
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 equity securities and available-for-sale debt securities in nuclear decommissioning trust accounts. The available-for-sale securities held as of March 31, 20182019 and December 31, 20172018 are summarized as follows:
| | | | | Fair Value | | Total Unrealized Gains | | Total Unrealized Losses | | Fair Value | | Total Unrealized Gains | | Total Unrealized Losses |
| | | (In Millions) | | (In Millions) |
| 2019 | | | | | | | |
| Debt Securities | | |
| $391.0 |
| |
| $2.9 |
| |
| $2.3 |
|
| | | | | | | | |
| 2018 | | | | | | | | | | | | |
| Debt Securities | | 325.6 |
| | 1.4 |
| | 5.8 |
| |
| $381.3 |
| |
| $0.6 |
| |
| $8.2 |
|
| | | | | | | | |
| 2017 | | | | | | | |
| Equity Securities | |
| $575.2 |
| |
| $308.6 |
| |
| $— |
| |
| Debt Securities | | 330.5 |
| | 4.2 |
| | 1.2 |
| |
| Total | |
| $905.7 |
| |
| $312.8 |
| |
| $1.2 |
| |
The amortized cost of available-for-sale debt securities was $330$390.4 million as of March 31, 20182019 and $327.5$389 million as of December 31, 2017.2018. As of March 31, 2018, the2019, available-for-sale debt securities have an average coupon rate of approximately 2.72%2.85%, an average duration of approximately 6.384.81 years, and an average maturity of approximately 9.397.34 years.
The unrealized gains/(losses) recognized during the three months ended March 31, 20182019 on equity securities still held as of March 31, 2019 were $70.7 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 debt securities, summarized by length of time that the securities have been in a continuous loss position, are as follows as of March 31, 2019:
|
| | | | | | | | |
| | | Fair Value | | Gross Unrealized Losses |
| | | (In Millions) |
| Less than 12 months | |
| $3.6 |
| |
| $— |
|
| More than 12 months | | 182.7 |
| | 2.3 |
|
| Total | |
| $186.3 |
| |
| $2.3 |
|
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 |
| $65.8 |
| |
| $0.5 |
|
| More than 12 months | 231.1 |
| | 7.7 |
|
| Total |
| $296.9 |
| |
| $8.2 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The fair value of available-for-sale debt securities, summarized by contractual maturities, as of March 31, 2019 and December 31, 2018 are as follows:
|
| | | | | | | |
| | 2019 | | 2018 |
| | (In Millions) |
| Less than 1 year |
| $35.6 |
| |
| $32.5 |
|
| 1 year - 5 years | 163.7 |
| | 170.3 |
|
| 5 years - 10 years | 123.7 |
| | 114.0 |
|
| 10 years - 15 years | 10.2 |
| | 10.3 |
|
| 15 years - 20 years | 9.4 |
| | 8.1 |
|
| 20 years+ | 48.4 |
| | 46.1 |
|
| Total |
| $391.0 |
| |
| $381.3 |
|
During the three months endedMarch 31, 2019 and 2018, proceeds from the dispositions of available-for-sale securities amounted to $10.9 million and $34.9 million, respectively. During the three months ended March 31, 2019 and 2018, gross gains of $0.02 million and $0.1 million, respectively, and gross losses of $0.1 million and $0.1 million, respectively, related to available-for-sale securities were ($7.8)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 March 31, 2019 and December 31, 2018 are summarized as follows:
|
| | | | | | | | | | | | |
| | | Fair Value | | Total Unrealized Gains | | Total Unrealized Losses |
| | | (In Millions) |
| 2019 | | | | | | |
| Debt Securities | |
| $555.7 |
| |
| $17.1 |
| |
| $1.4 |
|
| | | | | | | |
| 2018 | | | | | | |
| Debt Securities | |
| $532.9 |
| |
| $4.1 |
| |
| $6.0 |
|
The amortized cost of available-for-sale debt securities was $539.9 million as of March 31, 2019 and $534.8 million as of December 31, 2018. As of March 31, 2019, the available-for-sale debt securities have an average coupon rate of approximately 3.92%, an average duration of approximately 6.62 years, and an average maturity of approximately 13.26 years.
The unrealized gains/(losses) recognized during the three months ended March 31, 2019 on equity securities still held as of March 31, 2019 were $98.5 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.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The fair value and gross unrealized losses of the available-for-sale 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 March 31, 2018:2019:
| | | | | Debt Securities | | | | | | | | |
| | | Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses |
| | (In Millions) | | (In Millions) |
| Less than 12 months | |
| $240.7 |
| |
| $5.5 |
| |
| $26.5 |
| |
| $0.2 |
|
| More than 12 months | | 10.2 |
| | 0.3 |
| | 87.4 |
| | 1.2 |
|
| Total | |
| $250.9 |
| |
| $5.8 |
| |
| $113.9 |
| |
| $1.4 |
|
The fair value and gross unrealized losses of the available-for-sale 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, 2017:2018:
| | | | Equity Securities | | Debt Securities | | | | | | | |
| | 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 |
|
| $170.1 |
| |
| $2.1 |
|
| More than 12 months | — |
| | — |
| | 10.4 |
| | 0.2 |
| 145.8 |
| | 3.9 |
|
| Total |
| $— |
| |
| $— |
| |
| $207.3 |
| |
| $1.2 |
|
| $315.9 |
| |
| $6.0 |
|
The fair value of available-for-sale debt securities, summarized by contractual maturities, as of March 31, 20182019 and December 31, 20172018 are as follows:
| | | | 2018 | | 2017 | 2019 | | 2018 |
| | (In Millions) | (In Millions) |
| less than 1 year |
| $5.5 |
| |
| $4.1 |
| |
| Less than 1 year | |
| $42.4 |
| |
| $31.1 |
|
| 1 year - 5 years | 164.5 |
| | 173.0 |
| 119.3 |
| | 130.5 |
|
| 5 years - 10 years | 78.4 |
| | 78.5 |
| 135.7 |
| | 111.0 |
|
| 10 years - 15 years | 3.8 |
| | 1.0 |
| 26.8 |
| | 29.0 |
|
| 15 years - 20 years | 10.7 |
| | 6.9 |
| 44.5 |
| | 37.1 |
|
| 20 years+ | 62.7 |
| | 67.0 |
| 187.0 |
| | 194.2 |
|
| Total |
| $325.6 |
| |
| $330.5 |
|
| $555.7 |
| |
| $532.9 |
|
During the three months ended March 31, 20182019 and 2017,2018, proceeds from the dispositions of available-for-sale securities amounted to $54.2$56.2 million and $75.8$125.5 million, respectively. During the three months ended March 31, 20182019 and 2017,2018, gross gains of $0.1$0.3 million and $0.5 million, respectively, and gross losses of $0.2 million and $0.8 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
System Energy
System Energy holds equity securities and available-for-sale debt securities in nuclear decommissioning trust accounts. The available-for-sale securities held as of March 31, 2019 and December 31, 2018 are summarized as follows:
|
| | | | | | | | | | | | |
| | | Fair Value | | Total Unrealized Gains | | Total Unrealized Losses |
| | | (In Millions) |
| 2019 | | | | | | |
| Debt Securities | |
| $375.2 |
| |
| $6.9 |
| |
| $1.2 |
|
| | | | | | | |
| 2018 | | | | | | |
| Debt Securities | |
| $364.2 |
| |
| $2.9 |
| |
| $5.8 |
|
The amortized cost of available-for-sale debt securities was $369.5 million as of March 31, 2019 and $367.1 million as of December 31, 2018. As of March 31, 2019, available-for-sale debt securities have an average coupon rate of approximately 3.08%, an average duration of approximately 6.34 years, and an average maturity of approximately 9.06 years.
The unrealized gains/(losses) recognized during the three months ended March 31, 2019 on equity securities still held as of March 31, 2019 were $67.3 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 debt securities, summarized by length of time that the securities have been in a continuous loss position, are as follows as of March 31, 2019:
|
| | | | | | | | |
| | | Fair Value | | Gross Unrealized Losses |
| | (In Millions) |
| Less than 12 months | |
| $44.2 |
| |
| $— |
|
| More than 12 months | | 77.4 |
| | 1.2 |
|
| Total | |
| $121.6 |
| |
| $1.2 |
|
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 March 31, 2019 and December 31, 2018 are as follows:
|
| | | | | | | |
| | 2019 | | 2018 |
| | (In Millions) |
| Less than 1 year |
| $14.5 |
| |
| $22.8 |
|
| 1 year - 5 years | 195.0 |
| | 188.0 |
|
| 5 years - 10 years | 80.1 |
| | 73.4 |
|
| 10 years - 15 years | 4.1 |
| | 5.2 |
|
| 15 years - 20 years | 10.2 |
| | 10.2 |
|
| 20 years+ | 71.3 |
| | 64.6 |
|
| Total |
| $375.2 |
| |
| $364.2 |
|
During the three months ended March 31, 2019 and 2018, proceeds from the dispositions of available-for-sale securities amounted to $42.1 million and $54.2 million, respectively. During the three months ended March 31, 2019 and 2018, gross gains of $0.4 million and $0.1 million, respectively, and gross losses of $0.6$0.1 million and $0.7$0.6 million, respectively, related to available-for-sale securities were reclassified out of other regulatory liabilities/assets into earnings.
Other-than-temporary impairments and unrealized gains and losses
Entergy evaluates the 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
Entergy Corporation and Subsidiaries
Notes to Financial Statements
did not have any material other-than-temporary impairments relating to credit losses on debt securities for the three months ended March 31, 20182019 and 2017.2018. 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.
NOTE 10. INCOME TAXES (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)
See “Income Tax Audits” and “Other Tax Matters” in Note 3 to the financial statements in the Form 10-K for a discussion of income tax audits, the Tax Cuts and Jobs Act, and other income tax matters involving Entergy. The following are updates to that discussion.
As discussed inTax Cuts and Jobs Act
During the Form 10-K,three months ended March 31, 2019, Entergy Arkansas, Entergy Louisiana, and Entergy Texas returned unprotected excess accumulated deferred income taxes, associated with the effects of the Tax Cuts and Jobs Act, limitsto their customers through rate riders and other means approved by their respective regulatory commissions. Return of the deductionunprotected excess accumulated deferred income taxes results in a reduction in the regulatory liability for net business interest expenseincome taxes and a corresponding reduction in certain circumstances. The limitation does not apply to interest expense allocableincome tax expense. This has a significant effect on the effective tax rate for the period as compared to the Utility. statutory tax rate. For the three months ended March 31, 2019 the return of unprotected excess accumulated deferred income taxes reduced the Registrant Subsidiaries’ regulatory liability for income taxes as follows: Entergy Arkansas, $32 million; Entergy Louisiana, $7 million; and Entergy Texas, $22 million.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Other Tax Matters
In Notice 2018-28 released on April 2, 2018,2019 the IRS announcedstate of Arkansas enacted corporate income tax law changes that it intendsphase in an Arkansas tax rate reduction from 6.5% to issue proposed regulations that5.9% by the year 2022. The rate reduction will provide guidanceeventually reduce Entergy Arkansas’s combined federal and state applicable tax rate by 0.4% once fully adopted. The Arkansas tax law enactment also phases in an increase to assist taxpayers in complying with the new interest provisions undernet operating loss carryover period from five to ten years. The adoption of these tax law changes throughout the Tax Cuts and Jobs Act. The notice provides general and limited information of the IRS’s interpretation regarding methodologies that could be used for the allocation of the interest expense limitation. As a result of the new provision contained in the Tax Cuts and Jobs Act, Entergy recorded a limitation in the first quarter 2018 which didphase-in period is not expected to have a materialsignificant effect on the financial position, results of operations, or cash flows.flows of Entergy Arkansas, the Utility, or Entergy.
ForVermont Yankee
The Vermont Yankee transaction resulted in Entergy generating a discussionnet deferred tax asset in January 2019. The deferred tax asset could not be fully realized by Entergy in the first quarter of proceedings commenced or other responses by Entergy’s regulators to2019; accordingly, Entergy accrued a net tax expense of $29 million on the Tax Cuts and Jobs Act, seedisposition of Vermont Yankee. See Note 216 to the financial statements herein and infor discussion of the Form 10-K.Vermont Yankee transaction.
NOTE 11. PROPERTY, PLANT, AND EQUIPMENT (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)
Construction Expenditures in Accounts Payable
Construction expenditures included in accounts payable at March 31, 20182019 are $280$324 million for Entergy, $39.1$29.9 million for Entergy Arkansas, $119.4$118 million for Entergy Louisiana, $7.5$13.8 million for Entergy Mississippi, $5.6$8.2 million for Entergy New Orleans, $14.8$72.3 million for Entergy Texas, and $41.9$20.2 million for System Energy. Construction expenditures included in accounts payable at December 31, 20172018 are $368$311 million for Entergy, $58.8$35.7 million for Entergy Arkansas, $160.4$104.6 million for Entergy Louisiana, $17.1$13.6 million for Entergy Mississippi, $2.5$5.8 million for Entergy New Orleans, $32.8$55.6 million for Entergy Texas, and $33.9$26.3 million for System Energy.
NOTE 12. VARIABLE INTEREST ENTITIES (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)
See Note 17 to the financial statements in the Form 10-K for a discussion of variable interest entities. See Note 4 to the financial statements herein for details of the nuclear fuel companies’ credit facilities and commercial paper borrowings and long-term debt.
System Energy is considered to hold a variable interest in the lessor from which it leases an undivided interest representing approximately 11.5% of 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 in the Form 10-K. System Energy made payments on its lease, including interest, of $8.6 million in the three months ended March 31, 20182019 and $8.6 million in the three months ended March 31, 2017.2018.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
NOTE 13. REVENUE RECOGNITION(Entergy (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)
Revenue Recognition
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 how Entergy recognizes revenue, however, no adjustment to retained earnings was required. Similarly, there was no effect on revenues recognized under Topic 606 for the three months ended March 31, 2018.
Revenues from electric service and the sale of natural gas are recognized when services are transferredSee Note 19 to the customerfinancial statements in an amount equal to what Entergy has the right to bill the customer because this amount represents the valueForm 10-K for a discussion of services provided to customers.
revenue recognition. Entergy’s total revenues for the three months ended March 31, 2019 and 2018 wereare as follows:
|
| | | | |
| | 2018 |
| | (In Thousands) |
Utility: | | |
Residential | |
| $892,085 |
|
Commercial | | 595,720 |
|
Industrial | | 597,186 |
|
Governmental | | 56,478 |
|
Total billed retail | | 2,141,469 |
|
| | |
Sales for resale (a) | | 69,526 |
|
Other electric revenues (b) | | 27,433 |
|
Non-customer revenues (c) | | 9,834 |
|
Total electric revenues | | 2,248,262 |
|
| | |
Natural gas | | 56,695 |
|
| | |
Entergy Wholesale Commodities: | | |
Competitive businesses sales (a) | | 409,135 |
|
Non-customer revenues (c) | | 9,789 |
|
Total competitive businesses | | 418,924 |
|
| | |
Total operating revenues | |
| $2,723,881 |
|
|
| | | | | | | | |
| | | 2019 | | 2018 |
| | | (In Thousands) |
| Utility: | | | | |
| Residential | |
| $802,539 |
| |
| $892,085 |
|
| Commercial | | 554,058 |
| | 595,720 |
|
| Industrial | | 601,000 |
| | 597,186 |
|
| Governmental | | 52,960 |
| | 56,478 |
|
| Total billed retail | | 2,010,557 |
| | 2,141,469 |
|
| | | | | |
| Sales for resale (a) | | 84,435 |
| | 69,526 |
|
| Other electric revenues (b) | | 15,470 |
| | 27,433 |
|
| Non-customer revenues (c) | | 10,562 |
| | 9,834 |
|
| Total electric revenues | | 2,121,024 |
| | 2,248,262 |
|
| | | | | |
| Natural gas | | 54,948 |
| | 56,695 |
|
| | | | | |
| Entergy Wholesale Commodities: | | | | |
| Competitive businesses sales (a) | | 360,471 |
| | 409,135 |
|
| Non-customer revenues (c) | | 73,141 |
| | 9,789 |
|
| Total competitive businesses | | 433,612 |
| | 418,924 |
|
| | | | | |
| Total operating revenues | |
| $2,609,584 |
| |
| $2,723,881 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The Registrant Subsidiaries’ total revenues for the three months ended March 31, 2019 were as follows:
|
| | | | | | | | | | | | | | | | | | | | |
| 2019 | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas |
| | | (In Thousands) |
| | | | | | | | | | | |
| Residential | |
| $209,867 |
| |
| $264,065 |
| |
| $128,809 |
| |
| $52,076 |
| |
| $147,722 |
|
| Commercial | | 124,578 |
| | 206,779 |
| | 97,914 |
| | 45,741 |
| | 79,046 |
|
| Industrial | | 121,577 |
| | 346,678 |
| | 37,697 |
| | 7,250 |
| | 87,798 |
|
| Governmental | | 4,899 |
| | 16,891 |
| | 10,036 |
| | 15,901 |
| | 5,233 |
|
| Total billed retail | | 460,921 |
|
| 834,413 |
|
| 274,456 |
|
| 120,968 |
|
| 319,799 |
|
| | | | | | | | | | | |
| Sales for resale (a) | | 79,584 |
| | 83,955 |
| | 4,814 |
| | 10,224 |
| | 16,775 |
|
| Other electric revenues (b) | | 2,304 |
| | 12,441 |
| | 405 |
| | (1,706 | ) | | 3,496 |
|
| Non-customer revenues (c) | | 3,003 |
| | 5,884 |
| | 2,569 |
| | 1,397 |
| | 404 |
|
| Total electric revenues | | 545,812 |
|
| 936,693 |
|
| 282,244 |
|
| 130,883 |
|
| 340,474 |
|
| | | | | | | | | | | |
| Natural gas | | — |
| | 22,637 |
| | — |
| | 32,311 |
| | — |
|
| | | | | | | | | | | |
| Total operating revenues | |
| $545,812 |
|
|
| $959,330 |
|
|
| $282,244 |
|
|
| $163,194 |
|
|
| $340,474 |
|
The Registrant Subsidiaries’ total revenues for the three months ended March 31, 2018 were as follows:
|
| | | | | | | | | | | | | | | | | | | | |
| 2018 | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas |
| | | (In Thousands) |
| | | | | | | | | | | |
| Residential | |
| $235,524 |
| |
| $295,517 |
| |
| $148,342 |
| |
| $64,575 |
| |
| $148,126 |
|
| Commercial | | 120,634 |
| | 224,928 |
| | 110,460 |
| | 54,272 |
| | 85,427 |
|
| Industrial | | 111,477 |
| | 352,336 |
| | 42,501 |
| | 7,570 |
| | 83,302 |
|
| Governmental | | 4,648 |
| | 17,310 |
| | 10,848 |
| | 17,691 |
| | 5,981 |
|
| Total billed retail | | 472,283 |
| | 890,091 |
| | 312,151 |
| | 144,108 |
| | 322,836 |
|
| | | | | | | | | | | |
| Sales for resale (a) | | 66,103 |
| | 89,255 |
| | 1,993 |
| | 13,337 |
| | 23,361 |
|
| Other electric revenues (b) | | 10,024 |
| | 20,503 |
| | (719 | ) | | (3,111 | ) | | 2,264 |
|
| Non-customer revenues (c) | | 2,614 |
| | 5,257 |
| | 2,318 |
| | 1,484 |
| | 479 |
|
| Total electric revenues | | 551,024 |
| | 1,005,106 |
| | 315,743 |
| | 155,818 |
| | 348,940 |
|
| | | | | | | | | | | |
| Natural gas | | — |
| | 24,238 |
| | — |
| | 32,457 |
| | — |
|
| | | | | | | | | | | |
| Total operating revenues | |
| $551,024 |
| |
| $1,029,344 |
| |
| $315,743 |
| |
| $188,275 |
| |
| $348,940 |
|
| |
| (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
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.
| |
| (b) | Other electric revenues consist primarily of transmission and ancillary services provided to participants of an ISO-administered market and unbilled revenue. |
| |
| (c) | Non-customer 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. Energy is provided 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
Entergy Corporation and Subsidiaries
Notes to Financial Statements
such as weather affect the calculation of unbilled revenues from one period to the other. This may result in variability of reported revenues from one period to the next as prior estimates are reversed and new estimates recorded.
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 non-customer revenue 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 the City of New Orleans, including Algiers, 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.
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. The PPA prices are for a set price per MWh and escalate each year, up to $61.50/MWh in 2022. 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. Additionally, as the PPA pricing was considered below-market at the time of acquisition, a liability was recorded for the fair value of the below-market PPA, and is being amortized to revenue over the life of the agreement.
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.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
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.
NOTE 14. ASSET RETIREMENT OBLIGATIONS (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)
See Note 9 to the financial statements in the Form 10-K for a discussion of asset retirement obligations. Following are updatesThe following is an update to that discussion.
In the first quarter 2018,2019, Entergy LouisianaArkansas recorded a revision to its estimated decommissioning cost liabilityliabilities for River BendANO 1 and ANO 2 as a result of a revised decommissioning cost study. The revised estimateestimates resulted in an $85.4a $126.2 million increase in its decommissioning cost liability,liabilities, along with a corresponding increaseincreases in the related asset retirement cost assetassets that will be depreciated over the remaining lifelives of the unit.units.
NOTE 15. 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 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 March 31, 2019, Entergy and the Registrant Subsidiaries held operating and financing leases for fleet vehicles used in operations, real estate, fuel storage facilities, and power purchase agreements. Excluded from this 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.
Leases have remaining terms of one year to 30 years. Real estate leases generally include at least one five-year renewal option; however, renewal is not typically considered certain unless Entergy or a Registrant Subsidiary makes significant leasehold improvements or other modifications which would hinder its ability to easily move. In
Entergy Corporation and Subsidiaries
Notes to Financial Statements
certain of the lease agreements for fleet vehicles used in operations, Entergy and the Registrant Subsidiaries provide residual value guarantees to the lessor; however, due to the nature of the agreements and Entergy’s continuing relationship with the lessor, 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 three months ended March 31, 2019:
|
| | | | |
| | (In Thousands) |
| Operating lease cost | |
| $15,720 |
|
| Financing lease cost: | | |
| Amortization of right-of-use assets | |
| $2,912 |
|
| Interest on lease liabilities | |
| $753 |
|
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 financing lease costs which are included in financing activities.
The Registrant Subsidiaries incurred the following lease costs for the three months ended March 31, 2019:
|
| | | | | | | | | | | | | | | | | | | |
| | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas |
| | (In Thousands) |
| Operating lease cost |
| $3,295 |
| |
| $3,026 |
| |
| $1,753 |
| |
| $357 |
| |
| $1,085 |
|
| Financing lease cost: | | | | | | | | | |
| Amortization of right-of-use assets |
| $629 |
| |
| $1,025 |
| |
| $348 |
| |
| $176 |
| |
| $306 |
|
| Interest on lease liabilities |
| $105 |
| |
| $152 |
| |
| $59 |
| |
| $30 |
| |
| $46 |
|
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 financing 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 March 31, 2019 are $241 million related to operating leases and $60 million related to financing leases.
Included within Utility Plant on the Registrant Subsidiaries’ respective balance sheets at March 31, 2019 are the following amounts:
|
| | | | | | | | | | | | | | | | | | | |
| | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas |
| | (In Thousands) |
| Operating leases |
| $52,916 |
| |
| $36,066 |
| |
| $18,926 |
| |
| $4,961 |
| |
| $9,991 |
|
| Financing leases |
| $11,317 |
| |
| $16,978 |
| |
| $6,358 |
| |
| $2,974 |
| |
| $5,076 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The following lease-related liabilities are recorded within the respective Other lines on Entergy’s consolidated balance sheet as of March 31, 2019:
|
| | | | |
| | (In Thousands) |
| Current liabilities: | | |
| Operating leases | |
| $53,121 |
|
| Financing leases | |
| $11,590 |
|
| Non-current liabilities: | | |
| Operating leases | |
| $173,456 |
|
| Financing leases | |
| $53,065 |
|
The following lease-related liabilities are recorded within the respective Other lines on the Registrant Subsidiaries’ respective balance sheets at March 31, 2019:
|
| | | | | | | | | | | | | | | | | | | |
| | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas |
| | (In Thousands) |
| Current liabilities: | | | | | | | | | |
| Operating leases |
| $11,321 |
| |
| $10,958 |
| |
| $6,461 |
| |
| $1,748 |
| |
| $3,071 |
|
| Financing leases |
| $2,465 |
| |
| $4,052 |
| |
| $1,382 |
| |
| $678 |
| |
| $1,281 |
|
| Non-current liabilities: | | | | | | | | | |
| Operating leases |
| $41,597 |
| |
| $25,144 |
| |
| $12,565 |
| |
| $3,218 |
| |
| $7,007 |
|
| Financing leases |
| $8,851 |
| |
| $13,039 |
| |
| $4,975 |
| |
| $2,296 |
| |
| $3,708 |
|
The following information contains the weighted average remaining lease term in years and the weighted average discount rate for the operating and financing leases of Entergy at March 31, 2019:
|
| | | |
| Weighted average remaining lease terms: | | |
| Operating leases | | 5.51 |
|
| Financing leases | | 7.06 |
|
| Weighted average discount rate: | | |
| Operating leases | | 3.75 | % |
| Financing leases | | 4.64 | % |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The following information contains the weighted average remaining lease term in years and the weighted average discount rate for the operating and financing leases of the Registrant Subsidiaries at March 31, 2019:
|
| | | | | | | | | | | | | | |
| | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas |
| | |
| Weighted average remaining lease terms: | | | | | | | | | |
| Operating leases | 6.38 |
| | 4.32 |
| | 5.09 |
| | 5.64 |
| | 4.15 |
|
| Financing leases | 5.64 |
| | 5.29 |
| | 5.39 |
| | 5.81 |
| | 5.09 |
|
| Weighted average discount rate: | | | | | | | | | |
| Operating leases | 3.29 | % | | 3.54 | % | | 3.67 | % | | 3.55 | % | | 3.80 | % |
| Financing leases | 3.71 | % | | 3.56 | % | | 3.70 | % | | 3.97 | % | | 3.72 | % |
Maturity of the lease liabilities for Entergy as of March 31, 2019 are as follows:
|
| | | | | | | | |
| Year | | Operating Leases | | Financing Leases |
| | | (In Thousands) |
| | | | | |
| Remainder for 2019 | |
| $44,143 |
| |
| $10,375 |
|
| 2020 | | 52,905 |
| | 12,489 |
|
| 2021 | | 43,482 |
| | 10,941 |
|
| 2022 | | 34,768 |
| | 9,743 |
|
| 2023 | | 27,974 |
| | 8,680 |
|
| Years thereafter | | 45,259 |
| | 26,744 |
|
| Minimum lease payments | | 248,531 |
| | 78,972 |
|
| Less: amount representing interest | | 21,954 |
| | 14,318 |
|
| Present value of net minimum lease payments | |
| $226,577 |
| |
| $64,654 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Maturity of the lease liabilities for the Registrant Subsidiaries as of March 31, 2019 are as follows:
Operating Leases
|
| | | | | | | | | | | | | | | | | | | | |
| Year | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas |
| | | (In Thousands) |
| | | | | | | | | | | |
| Remainder of 2019 | |
| $9,285 |
| |
| $8,316 |
| |
| $5,231 |
| |
| $1,036 |
| |
| $2,631 |
|
| 2020 | | 11,085 |
| | 9,795 |
| | 5,845 |
| | 1,216 |
| | 2,961 |
|
| 2021 | | 9,137 |
| | 8,009 |
| | 3,886 |
| | 945 |
| | 2,186 |
|
| 2022 | | 6,763 |
| | 5,137 |
| | 2,505 |
| | 622 |
| | 1,196 |
|
| 2023 | | 5,600 |
| | 3,262 |
| | 1,228 |
| | 460 |
| | 839 |
|
| Years thereafter | | 15,713 |
| | 3,346 |
| | 2,313 |
| | 999 |
| | 1,104 |
|
| Minimum lease payments | | 57,583 |
| | 37,865 |
| | 21,008 |
| | 5,278 |
| | 10,917 |
|
| Less: amount representing interest | | 4,664 |
| | 1,764 |
| | 1,982 |
| | 312 |
| | 839 |
|
| Present value of net minimum lease payments | |
| $52,919 |
| |
| $36,101 |
| |
| $19,026 |
| |
| $4,966 |
| |
| $10,078 |
|
Financing Leases
|
| | | | | | | | | | | | | | | | | | | | |
| Year | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas |
| | | (In Thousands) |
| | | | | | | | | | | |
| Remainder of 2019 | |
| $2,071 |
| |
| $3,302 |
| |
| $1,159 |
| |
| $592 |
| |
| $1,010 |
|
| 2020 | | 2,464 |
| | 3,843 |
| | 1,431 |
| | 616 |
| | 1,165 |
|
| 2021 | | 2,067 |
| | 3,189 |
| | 1,266 |
| | 505 |
| | 973 |
|
| 2022 | | 1,778 |
| | 2,749 |
| | 1,073 |
| | 454 |
| | 766 |
|
| 2023 | | 1,551 |
| | 2,301 |
| | 867 |
| | 407 |
| | 633 |
|
| Years thereafter | | 2,476 |
| | 5,414 |
| | 1,154 |
| | 748 |
| | 796 |
|
| Minimum lease payments | | 12,407 |
| | 20,798 |
| | 6,950 |
| | 3,322 |
| | 5,343 |
|
| Less: amount representing interest | | 1,091 |
| | 3,707 |
| | 592 |
| | 349 |
| | 354 |
|
| Present value of net minimum lease payments | |
| $11,316 |
| |
| $17,091 |
| |
| $6,358 |
| |
| $2,973 |
| |
| $4,989 |
|
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.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
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 |
|
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.
As of December 31, 2018 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 |
| | | (In Thousands) |
| 2019 | |
| $20,421 |
| |
| $25,970 |
| |
| $9,344 |
| |
| $2,493 |
| |
| $5,744 |
|
| 2020 | | 13,918 |
| | 21,681 |
| | 8,763 |
| | 2,349 |
| | 4,431 |
|
| 2021 | | 11,931 |
| | 19,514 |
| | 7,186 |
| | 1,901 |
| | 3,625 |
|
| 2022 | | 9,458 |
| | 15,756 |
| | 5,675 |
| | 1,314 |
| | 2,218 |
|
| 2023 | | 7,782 |
| | 12,092 |
| | 2,946 |
| | 1,043 |
| | 1,561 |
|
| Years thereafter | | 23,297 |
| | 22,003 |
| | 4,417 |
| | 2,323 |
| | 2,726 |
|
| Minimum lease payments | |
| $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 |
|
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 $2.8 million in 2018, $4 million in 2017, and $3.4 million in 2016 for Entergy Arkansas and $0.4 million in 2018, $0.3 million in 2017, and $0.3 million in 2016 for Entergy Louisiana. Oil tank facilities lease payments for Entergy Mississippi were $0.1 million in 2018, $1.6 million in 2017, and $1.6 million in 2016.
On January 1, 2019, Entergy implemented ASU No. 2016-02, “Leases (Topic 842)” along with the practical expedients provided by ASU No. 2018-01, “Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842,” and ASU No. 2018-11, “Leases (Topic 842): Targeted Improvements.” See Note 1 to the financial statements in the Form 10-K for further discussion of ASU No. 2016-02.
Power Purchase Agreements
As of December 31, 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 |
| | | (In Thousands) |
| 2019 | |
| $31,159 |
| |
| $31,159 |
|
| 2020 | | 31,876 |
| | 31,876 |
|
| 2021 | | 32,609 |
| | 32,609 |
|
| 2022 | | 10,180 |
| | 10,180 |
|
| Minimum lease payments | |
| $105,824 |
| |
| $105,824 |
|
| |
| (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.
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.
Entergy Corporation and Subsidiaries
Notes to 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 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 which 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.
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, 2018 and 2017.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
As of December 31, 2018, 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) |
| | |
| 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 |
|
NOTE 16. DISPOSITIONS (Entergy Corporation)
Vermont Yankee
As discussed in Note 14 to the financial statements in the Form 10-K, in January 2019, Entergy transferred 100% of the membership interests in Entergy Nuclear Vermont Yankee, LLC, the owner of the Vermont Yankee plant, to a subsidiary of NorthStar.
Entergy Nuclear Vermont Yankee had an outstanding credit facility that was used to pay for dry fuel storage costs. This credit facility was guaranteed by Entergy Corporation. Vermont Yankee Asset Retirement Management, LLC, a subsidiary of Entergy, assumed the obligations under the credit facility. At the closing of the transaction, NorthStar caused Entergy Nuclear Vermont Yankee, renamed NorthStar Vermont Yankee, to issue a $139 million promissory note to Vermont Yankee Asset Retirement Management. The amount of the note included the balance outstanding on the credit facility, as well as borrowing fees and costs incurred by Entergy in connection with the credit facility.
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 Vermont Yankee spent fuel disposal contract was assigned to NorthStar as part of the 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 first quarter of 2019; accordingly, Entergy accrued a net tax expense of $29 million on the disposition of Vermont Yankee. The transaction also resulted in other charges of $5.4 million ($4.2 million after-tax) in the first quarter 2019.
________________
In the opinion of the management of Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy, the accompanying unaudited financial statements contain all adjustments (consisting primarily of normal recurring accruals and reclassification of previously reported amounts to conform to current classifications) necessary for a fair statement of the results for the interim periods presented. Entergy’s business is subject to seasonal fluctuations, however, with peak periods occurring typically during the first and third quarters. The results for the interim periods presented should not be used as a basis for estimating results of operations for a full year.
Part I, Item 3. Quantitative and Qualitative Disclosures About Market Risk
See “Market and Credit Risk Sensitive Instruments” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis.
Part I, Item 4. Controls and Procedures
Disclosure Controls and Procedures
As of March 31, 2018,2019, 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.
Changes in Internal Controls over Financial Reporting
Under the supervision and with the participation of each Registrants’ management, including its respective PEO and PFO, each Registrant evaluated changes in internal control over financial reporting that occurred during the quarter ended March 31, 20182019 and found no change that has materially affected, or is reasonably likely to materially affect, internal control over financial reporting.
ENTERGY ARKANSAS, INC.LLC AND SUBSIDIARIES
MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS
Results of Operations
Net Income
Net income increased $22$2.9 million primarily due to lower nuclear refueling outage expenses, higher net revenue, after excluding the effect of the return of unprotected excess accumulated deferred income taxes to customers which is offset in income taxes, and a lower effective income tax rate, partially offset by higher other operation and maintenance expenses, partially offset by higher interest expense and higher depreciation and amortization expenses, higher taxes other than income taxes, and higher nuclear refueling outage expenses.
Net Revenue
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.charges (credits). Following is an analysis of the change in net revenue comparing the first quarter 20182019 to the first quarter 2017:2018:
|
| | | |
| | Amount |
| | (In Millions) |
2017 net revenue |
| $330.3 |
|
Retail electric price | 22.4 |
|
Volume/weather | 20.4 |
|
Other | 1.0 |
|
| 2018 net revenue |
| $374.1 |
|
| Return of unprotected excess accumulated deferred income taxes to customers | (31.8 | ) |
| Formula rate plan regulatory provision | (10.5 | ) |
| Retail electric price | 10.6 |
|
| Other | 3.8 |
|
| 2019 net revenue |
| $346.2 |
|
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. There is no effect on net income as the reduction in net revenue was offset by a reduction in income tax expense. See Note 2 to the financial statements in the Form 10-K for further discussion of regulatory activity regarding the Tax Cuts and Jobs Act.
The formula rate plan regulatory provision is due to an additional provision recorded in the first quarter 2019 to reflect the current estimate of the historical year netting adjustment to be included in the 2019 formula rate plan filing that will be made in July 2019. See Note 2 to the financial statements herein for a discussion of the upcoming formula rate plan filing.
The retail electric price variance is primarily due to an increase in formula rate plan rates effective with the first billing cycle of January 2018 and an increase in the energy efficiency rider effective January 2018, each2019 as approved by the APSC. See Note 2 to the financial statements in the Form 10-K for further discussion of the formula rate plan filing.
The volume/weather variance is primarily due to an increase of 599 GWh, or 12%, in billed electricity usage, including the effect of more favorable weather on residential and commercial sales and an increase in industrial usage. The increase in industrial usage is primarily due to a new customer in the primary metals industry.
Other Income Statement Variances
Nuclear refueling outage expenses increaseddecreased primarily due to the amortization of higherlower costs associated with the most recent outages as compared to previous outages.
Other operation and maintenance expenses increased primarily due to an increase of $6.5 million in nuclear generation expenses primarily due to higher labor costs, including contract labor, to position the nuclear fleet to meet its operational goals and an increase of $3.7 million in energy efficiency costs. The increase was partially offset by higher nuclear insurance refunds of $3.6 million. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS –Nuclear Matters” in the Form 10-K for a discussion of the increased operating costs to position the nuclear fleet to meet its operational goals.
Taxes other than income taxes increased primarily due to increases in local franchise taxes and payroll taxes. The increase in local franchise taxes is primarily due to higher billing factors and higher electric retail revenues.
Entergy Arkansas, Inc.LLC and Subsidiaries
Management's Financial Discussion and Analysis
Other operation and maintenance expenses decreased primarily due to a decrease of $8.9 million in nuclear generation expenses primarily due to a lower scope of work performed in the first quarter 2019 as compared to the first quarter 2018 and lower nuclear labor costs, including contract labor.
The decrease was partially offset by:
an increase of $1.8 million in information technology costs primarily due to higher software maintenance costs and higher labor costs;
an increase of $1.1 million in outside legal costs primarily due to a settlement received in 2018 which reduced legal costs in the first quarter 2018;
an increase of $1 million in advanced metering costs, including customer education costs; and
several individually insignificant items.
Depreciation and amortization expenses increased primarily due to additions to plant in service.
Interest expense increased primarily due to the issuance of $220$250 million of 3.5%4.00% Series first mortgage bonds in May 2017.2018 and the issuance of $350 million of 4.20% Series first mortgage bonds in March 2019.
Income Taxes
The effective income tax rate was (138.2%) for the first quarter 2019. The difference in the effective income tax rate for the first quarter 2019 versus the federal statutory rate of 21% was primarily due to the amortization of excess accumulated deferred income taxes and certain book and tax differences related to utility plant items and book and tax differences related to the allowance for equity funds used during construction, partially offset by state income taxes. See Note 10 to the financial statements herein and Notes 2 and 3 to the financial statements in the Form 10-K for a discussion of the effects and regulatory activity regarding the Tax Cuts and Jobs Act. See Note 10 to the financial statements herein for discussion of corporate income tax law changes that phase in an Arkansas tax rate reduction.
The effective income tax rate was 20.7% for the first quarter 2018. The difference in the effective income tax rate for the first quarter 2018 versus the federal statutory rate of 21% was primarily due to certain book and tax differences related to utility plant items and book and tax differences related to the allowance for equity funds used during construction, partially offset by state income taxes and a write-off of a stock-based compensation deferred tax asset.
The effective income tax rate was 44.4% for the first quarter 2017. The difference in the effective income tax rate for the first quarter 2017 versus the federal statutory rate of 35% was primarily due to a write-off of a stock-based compensation deferred tax asset, state income taxes, and certain book and tax differences related to utility plant items, partially offset by book and tax differences related to the allowance for equity funds used during construction.
Income Tax Legislation
See the “Income Tax Legislation” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis in the Form 10-K for a discussion of the Tax Cuts and Jobs Act, the federal income tax legislation enacted in December 2017. Note 3 to the financial statements in the Form 10-K contains additional discussion of the effect of the Tax Act on 20172018 results of operations and financial position, the provisions of the Tax Act, and the uncertainties associated with accounting for the Tax Act, and Note 10 to the financial statements herein contains updates to that discussion. Note 2 to the financial statements herein and in the Form 10-K contains a discussion of the regulatory proceedings commenced or other responses by Entergy’s regulators tothat have considered the effects of the Tax Act.
Entergy Arkansas, LLC and Subsidiaries
Management's Financial Discussion and Analysis
Liquidity and Capital Resources
Cash Flow
Cash flows for the three months ended March 31, 20182019 and 20172018 were as follows:
| | | | 2018 | | 2017 | 2019 | | 2018 |
| | (In Thousands) | (In Thousands) |
| Cash and cash equivalents at beginning of period |
| $6,216 |
| |
| $20,509 |
|
| $119 |
| |
| $6,216 |
|
| | | | | | | |
| Cash flow provided by (used in): |
|
| | |
|
|
| | |
|
| Operating activities | 179,890 |
| | 154,541 |
| 206,467 |
| | 179,890 |
|
| Investing activities | (161,344 | ) | | (207,097 | ) | (160,961 | ) | | (161,344 | ) |
| Financing activities | (23,839 | ) | | 32,522 |
| 144,616 |
| | (23,839 | ) |
| Net decrease in cash and cash equivalents | (5,293 | ) | | (20,034 | ) | |
| Net increase (decrease) in cash and cash equivalents | | 190,122 |
| | (5,293 | ) |
| | | | | | | |
| Cash and cash equivalents at end of period |
| $923 |
| |
| $475 |
|
| $190,241 |
| |
| $923 |
|
Operating Activities
Net cash flow provided by operating activities increased $25.3$26.6 million for the three months ended March 31, 20182019 compared to the three months ended March 31, 20172018 primarily due to the timing of payments to vendors and the timing of recovery of fuel and purchased power costs partially offset byand a decrease of $16.9 million in pension contributions in 2019. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Critical Accounting Estimates” in the timingForm 10-K and Note 6 to the financial statements herein for a discussion of receivables from customers.
Entergy Arkansas, Inc.qualified pension and Subsidiaries
Management's Financial Discussion and Analysis
other postretirement benefits funding.
Investing Activities
Net cash flow used in investing activities decreased $45.8$0.4 million for the three months ended March 31, 20182019 compared to the three months ended March 31, 20172018 primarily due to a decrease of $18.8 million in cash usednuclear construction expenditures primarily due to a lower scope of $49work performed on various nuclear projects in 2019 as compared to the same period in 2018 and a decrease of $11.1 million as a result of the 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 and a decrease of $15.8 million in transmission construction expenditures primarily due to a lower scope of work performed in 2018 as compared to the same period in 2017.cycle. The decrease was partiallysubstantially offset by money pool activity.
Increases in Entergy Arkansas’s receivable from the money pool are a use of cash flow, and Entergy Arkansas’s receivable from the money pool increased by $30.5 million for the three months ended March 31, 2019. The money pool is an increase of $8.6 million in information technology construction expenditures primarily dueinter-company borrowing arrangement designed to increased spending on various technology projects and an increase of $6.1 million in nuclear construction expenditures primarily due to a higher scope of work performed on various nuclear projects in 2018 as compared toreduce the same period in 2017.Utility subsidiaries’ need for external short-term borrowings.
Financing Activities
Entergy Arkansas’s financing activities usedprovided $144.6 million of cash for the three months ended March 31, 2019 compared to using $23.8 million of cash for the three months ended March 31, 2018 comparedprimarily due to providing $32.5the following activity:
the issuance of $350 million of cash for the three months ended4.20% Series first mortgage bonds in March 31, 2017 primarily due to:2019;
net repayments of short-term borrowings of $6.1 million on the Entergy Arkansas nuclear fuel company variable interest entity credit facility in 2018 as compared to net short-term borrowings of $52.3 million on the Entergy Arkansas nuclear fuel company variable interest entity credit facility in 2017;money pool activity; and
borrowings of $50 million in 2018 on the Entergy Arkansas long-term credit facility;facility.
repayment
Entergy Arkansas, nuclear fuel company variable interest entity credit facility;LLC and Subsidiaries
money pool activity.Management's Financial Discussion and Analysis
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 $42.3$182.7 million in 20182019 compared to decreasing by $20.2$42.3 million in 2017. The money pool is an inter-company borrowing arrangement designed to reduce the Utility subsidiaries’ need for external short-term borrowings.2018.
See Note 4 to the financial statements herein and Note 5 to the financial statements in the Form 10-K for more details on long-term debt.
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 $350 million of first mortgage bonds in March 2019.
| | | | March 31, 2018 | | December 31, 2017 | March 31, 2019 | | December 31, 2018 |
| Debt to capital | 55.3 | % | | 55.5 | % | 54.1 | % | | 52.0 | % |
| Effect of excluding the securitization bonds | (0.3 | %) | | (0.3 | %) | (0.1 | %) | | (0.2 | %) |
| Debt to capital, excluding securitization bonds (a) | 55.0 | % | | 55.2 | % | 54.0 | % | | 51.8 | % |
| Effect of subtracting cash | — | % | | — | % | (1.4 | %) | | — | % |
| Net debt to net capital, excluding securitization bonds (a) | 55.0 | % | | 55.2 | % | 52.6 | % | | 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, financing 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
Entergy Arkansas, Inc. and Subsidiaries
Management's Financial Discussion and Analysis
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 in the Form 10-K. 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.
Uses and Sources of Capital
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Liquidity and Capital Resources” in the Form 10-K for a discussion of Entergy Arkansas’s uses and sources of capital. Following are updates to the information provided in the Form 10-K.
Entergy Arkansas’s payables toreceivables from or (payables to) the money pool were as follows:
|
| | | | | | |
March 31, 2018 | | December 31, 2017 | | March 31, 2017 | | December 31, 2016 |
| (In Thousands) |
| $123,858 | | $166,137 | | $31,008 | | $51,232 |
|
| | | | | | |
March 31, 2019 | | December 31, 2018 | | March 31, 2018 | | December 31, 2017 |
| (In Thousands) |
| $30,521 | | ($182,738) | | ($123,858) | | ($166,137) |
See Note 4 to the financial statements in the Form 10-K for a description of the money pool.
Entergy Arkansas, LLC and Subsidiaries
Management's Financial Discussion and Analysis
Entergy Arkansas has a credit facility in the amount of $150 million scheduled to expire in August 2022.September 2023. Entergy Arkansas also has a $20 million credit facility scheduled to expire in April 2019.2020. 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 March 31, 2018,2019, no cash borrowings of $50 million and no letters of credit were 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 March 31, 2018,2019, a $1 million letter of credit was outstanding under Entergy Arkansas’s uncommitted letter of credit facility. See Note 4 to the financial statements herein for additional discussion of the credit facilities.
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 March 31, 2018, $43.92019, $42.6 million in letters of credit to support a like amount of commercial paper issuedloans were outstanding under the credit facility for the Entergy Arkansas nuclear fuel company variable interest entity credit facility.entity. See Note 4 to the financial statements herein for additional discussion of the nuclear fuel company variable interest entity credit facility.
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 completion and after the other purchase contingencies have been met. Closing is expected to occur by the end of 2021.
State and Local Rate Regulation and Fuel-Cost Recovery
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS – State and Local Rate Regulation and Fuel-Cost Recovery” in the Form 10-K for a discussion of state and local rate regulation and fuel-cost recovery. The following are updates to that discussion.
Retail Rates
Internal Restructuring
As discussed in the Form 10-K, the formula rate plan filing that will be made in NovemberJuly 2019 to set the formula rates for the 2020 calendar year will include a netting adjustment that will compare projected costs and sales for 2018 that were approved in the 2017 formula rate plan filing to actual 2018 costs and sales data. In the fourth quarter 2018 Entergy Arkansas filed an application withrecorded a provision of $35.1 million that reflected the APSC seeking authorization to undertake a restructuringestimate of the historical year netting adjustment that would resultwill be included in the transfer2019 filing to reflect the change in formula rate plan revenues associated with actual 2018 results when compared to the allowed rate of substantially allreturn on equity. In the first quarter 2019, Entergy Arkansas recorded an additional $10.5 million provision to reflect the current estimate of the assets and operations of Entergy Arkansashistorical year netting adjustment 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 byincluded in the APSC, the FERC, and the NRC. Entergy Arkansas also filed a notice with the Missouri Public Service Commission in December 2017 out of2019 filing.
Entergy Arkansas, Inc. and Subsidiaries
Management's Financial Discussion and Analysis
an abundance of caution, although Entergy Arkansas does not serve any retail customers in Missouri. In April 2018 the Missouri Public Service Commission approved Entergy Arkansas’s filing. If the appropriate approvals are obtained, Entergy Arkansas expects the restructuring will be consummated on or before December 1, 2018.
Energy Cost Recovery Rider
In March 2018,2019, Entergy Arkansas filed its annual redetermination of its energy cost rate pursuant to the energy cost recovery rider, which reflected an increase in the ratea decrease from $0.01547$0.01882 per kWh to $0.01882$0.01462 per kWh. ThekWh 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 redeterminationadjustment and included with its filing requestinga 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.
Entergy Arkansas, LLC and Subsidiaries
Management's Financial Discussion and Analysis
Opportunity Sales Proceeding
As discussed in the Form 10-K, in December 2018, Entergy made a compliance filing in response to the FERC’s October 2018 order in the opportunity sales proceeding. 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.
In February 2019 the LPSC filed a new complaint relating to two issues that were raised in the APSC suspendopportunity sales proceeding, but that in its October 2018 order, the proposed tariff to investigateFERC held were outside the amountscope of the redetermination or, alternatively,proceeding. In March 2019, Entergy Services filed an answer and motion to allow recovery subjectdismiss the new complaint.
Federal Regulation
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS –Federal Regulation”in the Form 10-K for a discussion of federal regulation.
Nuclear Matters
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS –Nuclear Matters” in the Form 10-K for a discussion of nuclear matters.
Environmental Risks
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS -Environmental Risks” in the Form 10-K for a discussion of environmental risks.
Critical Accounting Estimates
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS -Critical Accounting Estimates” in the Form 10-K for a discussion of the estimates and judgments necessary in Entergy Arkansas’s accounting for nuclear decommissioning costs, utility regulatory accounting, impairment of long-lived assets and trust fund investments, taxation and uncertain tax positions, qualified pension and other postretirement benefits, and other contingencies. The following is an update to refund. Amongthat discussion.
In the reasons the Arkansas Attorney General cited for suspension were questions pertaining to howfirst quarter 2019, Entergy Arkansas forecasted salesrecorded a revision to its estimated decommissioning cost liabilities for ANO 1 and potential implicationsANO 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.
New Accounting Pronouncements
See “New Accounting Pronouncements” section of Note 1 to the financial statements in the Form 10-K for a discussion of new accounting pronouncements.
|
| | | | | | | | |
| ENTERGY ARKANSAS, LLC AND SUBSIDIARIES |
| CONSOLIDATED INCOME STATEMENTS |
| For the Three Months Ended March 31, 2019 and 2018 |
| (Unaudited) |
| | | |
| | | 2019 | | 2018 |
| | | (In Thousands) |
| OPERATING REVENUES | | | | |
| Electric | |
| $545,812 |
| |
| $551,024 |
|
| | | | | |
| OPERATING EXPENSES | | | | |
| Operation and Maintenance: | | | | |
| Fuel, fuel-related expenses, and gas purchased for resale | | 152,159 |
| | 108,306 |
|
| Purchased power | | 47,058 |
| | 71,972 |
|
| Nuclear refueling outage expenses | | 17,248 |
| | 23,402 |
|
| Other operation and maintenance | | 166,460 |
| | 169,358 |
|
| Decommissioning | | 15,761 |
| | 14,760 |
|
| Taxes other than income taxes | | 28,363 |
| | 27,905 |
|
| Depreciation and amortization | | 75,847 |
| | 71,981 |
|
| Other regulatory charges (credits) - net | | 445 |
| | (3,307 | ) |
| TOTAL | | 503,341 |
| | 484,377 |
|
| | | | | |
| OPERATING INCOME | | 42,471 |
| | 66,647 |
|
| | | | | |
| OTHER INCOME | | | | |
| Allowance for equity funds used during construction | | 3,428 |
| | 4,008 |
|
| Interest and investment income | | 6,183 |
| | 6,814 |
|
| Miscellaneous - net | | (3,690 | ) | | (3,871 | ) |
| TOTAL | | 5,921 |
| | 6,951 |
|
| | | | | |
| INTEREST EXPENSE | | | | |
| Interest expense | | 33,383 |
| | 29,766 |
|
| Allowance for borrowed funds used during construction | | (1,414 | ) | | (1,890 | ) |
| TOTAL | | 31,969 |
| | 27,876 |
|
| | | | | |
| INCOME BEFORE INCOME TAXES | | 16,423 |
| | 45,722 |
|
| | | | | |
| Income taxes | | (22,698 | ) | | 9,467 |
|
| | | | | |
| NET INCOME | | 39,121 |
| | 36,255 |
|
| | | | | |
| Preferred dividend requirements | | — |
| | 357 |
|
| | | | | |
| EARNINGS APPLICABLE TO COMMON EQUITY | |
| $39,121 |
| |
| $35,898 |
|
| | | | | |
| See Notes to Financial Statements. | | | | |
|
| | | | | | | | |
| ENTERGY ARKANSAS, LLC AND SUBSIDIARIES |
| CONSOLIDATED STATEMENTS OF CASH FLOWS |
| For the Three Months Ended March 31, 2019 and 2018 |
| (Unaudited) |
| | | 2019 | | 2018 |
| | | (In Thousands) |
| OPERATING ACTIVITIES | | | | |
| Net income | |
| $39,121 |
| |
| $36,255 |
|
| Adjustments to reconcile net income to net cash flow provided by operating activities: | | | | |
| Depreciation, amortization, and decommissioning, including nuclear fuel amortization | | 117,255 |
| | 115,976 |
|
| Deferred income taxes, investment tax credits, and non-current taxes accrued | | 30,756 |
| | 11,877 |
|
| Changes in assets and liabilities: | | | | |
| Receivables | | 22,194 |
| | 31,033 |
|
| Fuel inventory | | 260 |
| | (13,868 | ) |
| Accounts payable | | (56,432 | ) | | (26,924 | ) |
| Taxes accrued | | (10,616 | ) | | 10,072 |
|
| Interest accrued | | 12,661 |
| | 9,748 |
|
| Deferred fuel costs | | 44,926 |
| | 1,971 |
|
| Other working capital accounts | | 1,599 |
| | 5,591 |
|
| Provisions for estimated losses | | 9,930 |
| | 6,520 |
|
| Other regulatory assets | | (56,263 | ) | | 13,835 |
|
| Other regulatory liabilities | | 53,386 |
| | (13,546 | ) |
| Pension and other postretirement liabilities | | (910 | ) | | (19,277 | ) |
| Other assets and liabilities | | (1,400 | ) | | 10,627 |
|
| Net cash flow provided by operating activities | | 206,467 |
| | 179,890 |
|
| | | | | |
| INVESTING ACTIVITIES | | | | |
| Construction expenditures | | (147,214 | ) | | (167,485 | ) |
| Allowance for equity funds used during construction | | 3,506 |
| | 4,143 |
|
| Nuclear fuel purchases | | (214 | ) | | (19,391 | ) |
| Proceeds from sale of nuclear fuel | | 22,834 |
| | 30,907 |
|
| Proceeds from nuclear decommissioning trust fund sales | | 34,423 |
| | 34,865 |
|
| Investment in nuclear decommissioning trust funds | | (40,223 | ) | | (40,238 | ) |
| Change in money pool receivable - net | | (30,521 | ) | | — |
|
| Changes in securitization account | | (3,553 | ) | | (4,145 | ) |
| Other | | 1 |
| | — |
|
| Net cash flow used in investing activities | | (160,961 | ) | | (161,344 | ) |
| | | | | |
| FINANCING ACTIVITIES | | | | |
| Proceeds from the issuance of long-term debt | | 603,655 |
| | 175,000 |
|
| Retirement of long-term debt | | (275,904 | ) | | (149,904 | ) |
| Changes in short-term borrowings - net | | — |
| | (6,087 | ) |
| Changes in money pool payable - net | | (182,738 | ) | | (42,279 | ) |
| Dividends paid: | | | | |
| Preferred stock | | — |
| | (357 | ) |
| Other | | (397 | ) | | (212 | ) |
| Net cash flow provided by (used in) financing activities | | 144,616 |
| | (23,839 | ) |
| | | | | |
| Net increase (decrease) in cash and cash equivalents | | 190,122 |
| | (5,293 | ) |
| Cash and cash equivalents at beginning of period | | 119 |
| | 6,216 |
|
| Cash and cash equivalents at end of period | |
| $190,241 |
| |
| $923 |
|
| | | | | |
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | | | | |
|
| Cash paid during the period for: | | | | |
| Interest - net of amount capitalized | |
| $19,458 |
| |
| $18,761 |
|
| | | | | |
| See Notes to Financial Statements. | | | | |
|
| | | | | | | | |
| ENTERGY ARKANSAS, LLC AND SUBSIDIARIES |
| CONSOLIDATED BALANCE SHEETS |
| ASSETS |
| March 31, 2019 and December 31, 2018 |
| (Unaudited) |
| | | 2019 | | 2018 |
| | | (In Thousands) |
| CURRENT ASSETS | | | | |
| Cash and cash equivalents: | | | | |
| Cash | |
| $746 |
| |
| $118 |
|
| Temporary cash investments | | 189,495 |
| | 1 |
|
| Total cash and cash equivalents | | 190,241 |
| | 119 |
|
| Securitization recovery trust account | | 8,218 |
| | 4,666 |
|
| Accounts receivable: | | | | |
| Customer | | 130,054 |
| | 94,348 |
|
| Allowance for doubtful accounts | | (1,455 | ) | | (1,264 | ) |
| Associated companies | | 63,023 |
| | 48,184 |
|
| Other | | 43,548 |
| | 64,393 |
|
| Accrued unbilled revenues | | 86,910 |
| | 108,092 |
|
| Total accounts receivable | | 322,080 |
| | 313,753 |
|
| Deferred fuel costs | | — |
| | 19,235 |
|
| Fuel inventory - at average cost | | 22,888 |
| | 23,148 |
|
| Materials and supplies - at average cost | | 205,601 |
| | 196,314 |
|
| Deferred nuclear refueling outage costs | | 60,689 |
| | 78,966 |
|
| Prepayments and other | | 10,073 |
| | 14,553 |
|
| TOTAL | | 819,790 |
| | 650,754 |
|
| | | | | |
| OTHER PROPERTY AND INVESTMENTS | | | | |
| Decommissioning trust funds | | 997,263 |
| | 912,049 |
|
| Other | | 5,478 |
| | 5,480 |
|
| TOTAL | | 1,002,741 |
| | 917,529 |
|
| | | | | |
| UTILITY PLANT | | | | |
| Electric | | 11,744,151 |
| | 11,611,041 |
|
| Construction work in progress | | 304,981 |
| | 243,731 |
|
| Nuclear fuel | | 171,038 |
| | 220,602 |
|
| TOTAL UTILITY PLANT | | 12,220,170 |
| | 12,075,374 |
|
| Less - accumulated depreciation and amortization | | 4,865,283 |
| | 4,864,818 |
|
| UTILITY PLANT - NET | | 7,354,887 |
| | 7,210,556 |
|
| | | | | |
| DEFERRED DEBITS AND OTHER ASSETS | | | | |
| Regulatory assets: | | | | |
| Other regulatory assets (includes securitization property of $11,096 as of March 31, 2019 and $14,329 as of December 31, 2018) | | 1,591,240 |
| | 1,534,977 |
|
| Deferred fuel costs | | 67,393 |
| | 67,294 |
|
| Other | | 26,292 |
| | 20,486 |
|
| TOTAL | | 1,684,925 |
| | 1,622,757 |
|
| | | | | |
| TOTAL ASSETS | |
| $10,862,343 |
| |
| $10,401,596 |
|
| | | | | |
| See Notes to Financial Statements. | | | | |
|
| | | | | | | | |
| ENTERGY ARKANSAS, LLC AND SUBSIDIARIES |
| CONSOLIDATED BALANCE SHEETS |
| LIABILITIES AND EQUITY |
| March 31, 2019 and December 31, 2018 |
| (Unaudited) |
| | | 2019 | | 2018 |
| | | (In Thousands) |
| CURRENT LIABILITIES | | | | |
| Accounts payable: | | | | |
| Associated companies | |
| $47,717 |
| |
| $251,768 |
|
| Other | | 140,708 |
| | 187,387 |
|
| Customer deposits | | 99,380 |
| | 99,053 |
|
| Taxes accrued | | 46,273 |
| | 56,889 |
|
| Interest accrued | | 31,554 |
| | 18,893 |
|
| Deferred fuel costs | | 25,790 |
| | — |
|
| Current portion of unprotected excess accumulated deferred income taxes | | 100,594 |
| | 99,316 |
|
| Other | | 39,020 |
| | 23,943 |
|
| TOTAL | | 531,036 |
| | 737,249 |
|
| | | | | |
| NON-CURRENT LIABILITIES | | | | |
| Accumulated deferred income taxes and taxes accrued | | 1,131,314 |
| | 1,085,545 |
|
| Accumulated deferred investment tax credits | | 32,602 |
| | 32,903 |
|
| Regulatory liability for income taxes - net | | 467,198 |
| | 505,748 |
|
| Other regulatory liabilities | | 493,326 |
| | 402,668 |
|
| Decommissioning | | 1,190,346 |
| | 1,048,428 |
|
| Accumulated provisions | | 58,909 |
| | 48,979 |
|
| Pension and other postretirement liabilities | | 312,361 |
| | 313,295 |
|
| Long-term debt (includes securitization bonds of $20,975 as of March 31, 2019 and $20,898 as of December 31, 2018) | | 3,555,152 |
| | 3,225,759 |
|
| Other | | 67,875 |
| | 17,919 |
|
| TOTAL | | 7,309,083 |
| | 6,681,244 |
|
| | | | | |
| EQUITY | | | | |
| Member's equity | | 3,022,224 |
| | 2,983,103 |
|
| TOTAL | | 3,022,224 |
| | 2,983,103 |
|
| | | | | |
| TOTAL LIABILITIES AND EQUITY | |
| $10,862,343 |
| |
| $10,401,596 |
|
| | | | | |
| See Notes to Financial Statements. | | | | |
|
| | | | |
| ENTERGY ARKANSAS, LLC AND SUBSIDIARIES |
| CONSOLIDATED STATEMENTS OF CHANGES IN MEMBER'S EQUITY |
| For the Three Months Ended March 31, 2019 and 2018 |
| (Unaudited) |
| | |
| | |
| | Member's Equity |
| | (In Thousands) |
| | |
| Balance at December 31, 2017 | |
| $2,376,754 |
|
| | |
| Net income | | 36,255 |
|
| Preferred stock dividends | | (357 | ) |
| | |
| Balance at March 31, 2018 | |
| $2,412,652 |
|
| | |
| | |
| Balance at December 31, 2018 | |
| $2,983,103 |
|
| | |
| Net income | | 39,121 |
|
| | |
| Balance at March 31, 2019 | |
| $3,022,224 |
|
| | |
| See Notes to Financial Statements. | | |
|
| | | | | | | | | | | | | | | |
| ENTERGY ARKANSAS, LLC AND SUBSIDIARIES |
| SELECTED OPERATING RESULTS |
| For the Three Months Ended March 31, 2019 and 2018 |
| (Unaudited) |
| | | | | | | |
| | | Nine Months Ended | | Increase/ | | |
| Description | | 2019 | | 2018 | | (Decrease) | | % |
| | | (Dollars In Millions) | | |
| Electric Operating Revenues: | | | | | | |
| Residential | |
| $210 |
| |
| $236 |
| |
| ($26 | ) | | (11 | ) |
| Commercial | | 125 |
| | 121 |
| | 4 |
| | 3 |
|
| Industrial | | 122 |
| | 111 |
| | 11 |
| | 10 |
|
| Governmental | | 5 |
| | 5 |
| | — |
| | — |
|
| Total billed retail | | 462 |
| | 473 |
| | (11 | ) | | (2 | ) |
| Sales for resale: | | | | | | | | |
| Associated companies | | 29 |
| | 30 |
| | (1 | ) | | (3 | ) |
| Non-associated companies | | 50 |
| | 36 |
| | 14 |
| | 39 |
|
| Other | | 5 |
| | 12 |
| | (7 | ) | | (58 | ) |
| Total | |
| $546 |
| |
| $551 |
| |
| ($5 | ) | | (1 | ) |
| | | | | | | | | |
| Billed Electric Energy Sales (GWh): | | | | | | | | |
| Residential | | 2,205 |
| | 2,329 |
| | (124 | ) | | (5 | ) |
| Commercial | | 1,326 |
| | 1,365 |
| | (39 | ) | | (3 | ) |
| Industrial | | 1,845 |
| | 1,828 |
| | 17 |
| | 1 |
|
| Governmental | | 57 |
| | 56 |
| | 1 |
| | 2 |
|
| Total retail | | 5,433 |
| | 5,578 |
| | (145 | ) | | (3 | ) |
| Sales for resale: | | | | | | | | |
| Associated companies | | 597 |
| | 487 |
| | 110 |
| | 23 |
|
| Non-associated companies | | 2,519 |
| | 1,717 |
| | 802 |
| | 47 |
|
| Total | | 8,549 |
| | 7,782 |
| | 767 |
| | 10 |
|
ENTERGY LOUISIANA, LLC AND SUBSIDIARIES
MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS
Results of Operations
Net Income
Net income increased $16 million primarily due to higher net revenue and lower other operation and maintenance expenses, partially offset by higher depreciation and amortization expenses.
Net Revenue
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 the first quarter 2019 to the first quarter 2018:
|
| | | |
| Amount |
| (In Millions) |
| 2018 net revenue |
| $573.7 |
|
| Retail electric price | 46.0 |
|
| Return of unprotected excess accumulated deferred income taxes to customers | (7.0 | ) |
| Volume/weather | (29.6 | ) |
| Other | (0.8 | ) |
| 2019 net revenue |
| $582.3 |
|
The retail electric price variance is primarily due to regulatory charges of $27 million recorded in the first quarter 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, an increase in formula rate plan revenues, as approved by the LPSC, implemented with the first billing cycle of September 2018, and the implementation of an advanced metering system customer charge, as approved by the LPSC, effective January 2019. See Note 2 to the financial statements in the Form 10-K for further discussion of the formula rate plan proceedings and advanced metering system customer charge.
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. There is no effect on net income as the reduction in net revenue was offset by a reduction in income tax expense. See Note 2 to the financial statements in the Form 10-K for further discussion of regulatory activity regarding the Tax Cuts and Jobs Act.
The volume/weather variance is primarily due to a decrease of 225 GWh, or 2%, in billed electricity usage, including the effect of less favorable weather on residential and commercial sales. The decrease was partially offset by an increase in industrial usage primarily due to an increase in demand from existing customers.
Entergy Louisiana, LLC and Subsidiaries
Management's Financial Discussion and Analysis
Other Income Statement Variances
Other operation and maintenance expenses decreased primarily due to:
a decrease of $9.7 million in nuclear generation expenses primarily due to a lower scope of work performed during non-refueling plant outages in the first quarter 2019 as compared to the first quarter 2018 and lower nuclear labor costs; and
a decrease of $4.1 million in energy efficiency costs due to the timing of recovery from customers.
The decrease was partially offset by:
an increase of $2.2 million in information technology costs primarily due to higher software maintenance costs and higher contract costs; and
an increase of $2.1 million in loss provisions primarily due to a litigation provision recorded in first quarter 2019.
Depreciation and amortization expenses increased primarily due to additions to plant in service.
Other income increased 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 Lake Charles Power Station and St. Charles Power Station projects. The increase was substantially offset by a change in decommissioning trust fund investment activity.
Income Taxes
The effective income tax rate was 11.5% for the first quarter 2019. The difference in the effective income tax rate for the first quarter 2019 versus the federal statutory rate of 21% was primarily due to book and tax differences related to the non-taxable income distributions earned on preferred membership interests, the amortization of excess accumulated deferred income taxes, and book and tax differences related to the allowance for equity funds used during construction, partially offset by state income taxes. See Note 10 to the financial statements herein and Notes 2 and 3 to the financial statements in the Form 10-K for a discussion of the effects and regulatory activity regarding the Tax Cuts and Jobs Act.
The effective income tax rate was 16.3% for the first quarter 2018. The difference in the effective income tax rate for the first quarter 2018 versus the federal statutory rate of 21% was primarily due to book and tax differences related to the non-taxable income distributions earned on preferred membership interests, certain book and tax differences related to utility plant items, and book and tax differences related to the allowance for equity funds used during construction, partially offset by state income taxes and a write-off of a stock-based compensation deferred tax asset.
Income Tax Legislation
See the “Income Tax Legislation” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis in the Form 10-K for a discussion of the Tax Cuts and Jobs Act. Entergy Arkansas repliedAct, the federal income tax legislation enacted in December 2017. Note 3 to the Arkansas Attorney General’s filingfinancial statements in the Form 10-K contains additional discussion of the effect of the Tax Act on 2018 results of operations and stated that,financial position, the provisions of the Tax Act, and the uncertainties associated with accounting for the Tax Act, and Note 10 to the extent there are questions pertainingfinancial statements herein contains updates to its load forecasting orthat discussion. Note 2 to the operationfinancial statements in the Form 10-K contains a discussion of the energy cost recovery rider, those issues exceedregulatory proceedings that have considered the scope of the instant rate redetermination. Entergy Arkansas also stated that potential effects of the Tax Act.
Entergy Louisiana, LLC and Subsidiaries
Management's Financial Discussion and Analysis
Liquidity and Capital Resources
Cash Flow
Cash flows for the three months ended March 31, 2019 and 2018 were as follows:
|
| | | | | | | |
| | 2019 | | 2018 |
| | (In Thousands) |
| Cash and cash equivalents at beginning of period |
| $43,364 |
| |
| $35,907 |
|
| | | | |
| Cash flow provided by (used in): | | | |
| Operating activities | 179,583 |
| | 328,040 |
|
| Investing activities | (441,392 | ) | | (613,950 | ) |
| Financing activities | 523,608 |
| | 812,289 |
|
| Net increase in cash and cash equivalents | 261,799 |
| | 526,379 |
|
| | | | |
| Cash and cash equivalents at end of period |
| $305,163 |
| |
| $562,286 |
|
Operating Activities
Net cash flow provided by operating activities decreased $148.5 million for the three months ended March 31, 2019 compared to the three months ended March 31, 2018 primarily due to:
the timing of collection of receivables from customers;
an increase of $28.7 million in spending on nuclear refueling outages;
an increase of $20.3 million in interest payments in the first quarter 2019 as compared to the first quarter 2018; and
the return of unprotected excess accumulated deferred income taxes to customers. See Note 2 to the financial statements in the Form 10-K for a discussion of the regulatory activity regarding the Tax Cuts and Job Act are appropriately consideredJobs Act.
The decrease was partially offset by a decrease of $17.6 million in pension contributions in 2019 as compared to 2018. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Critical Accounting Estimates” in the APSC’s separate proceeding looking at potential implicationsForm 10-K and Note 6 to the financial statements herein for a discussion of qualified pension and other postretirement benefits funding.
Investing Activities
Net cash flow used in investing activities decreased $172.6 million for the three months ended March 31, 2019 compared to the three months ended March 31, 2018 primarily due to:
money pool activity;
a decrease of $90.3 million in fossil-fueled generation construction expenditures primarily due to lower spending on the St. Charles Power Station and Lake Charles Power Station projects in 2019; and
a decrease of $22 million in transmission construction expenditures primarily due to a lower scope of work performed in 2019 as compared to the same period in 2018.
The decrease was partially offset by:
an increase of $85.7 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 service deliveries, and the timing of cash payments during the nuclear fuel cycle; and
Entergy Louisiana, LLC and Subsidiaries
Management's Financial Discussion and Analysis
an increase of $42.6 million in nuclear construction expenditures primarily due to increased spending on various nuclear projects 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 $8.9 million for the three months ended March 31, 2019 compared to increasing by $170.2 million for the three months ended March 31, 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 $288.7 million for the three months ended March 31, 2019 compared to the three months ended March 31, 2018 primarily due to:
the issuance of $750 million of 4.00% Series first mortgage bonds in March 2018;
net borrowings of $100 million on the Entergy Louisiana long-term credit facility in 2018;
$49 million in common equity distributions in the first quarter 2019 primarily to maintain Entergy Louisiana’s targeted capital structure; and
net short-term borrowings of $19.4 million in 2018 on the nuclear fuel company variable interest entities’ credit facilities.
The decrease was partially offset by the issuance of $525 million of 4.20% Series first mortgage bonds in March 2019 and net long-term borrowings of $54.3 million on the nuclear fuel company variable interest entities’ credit facilities in 2019 compared to net repayments of long-term borrowings of $49.7 million on the nuclear fuel company variable interest entities’ credit facilities in 2018.
See Note 4 to the financial statements herein and Note 5 to the financial statements in the Form 10-K for more details on long-term debt.
Capital Structure
Entergy Louisiana’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 $525 million of first mortgage bonds in March 2019.
|
| | | | | |
| | March 31, 2019 | | December 31, 2018 |
| Debt to capital | 55.3 | % | | 53.6 | % |
| Effect of excluding securitization bonds | (0.2 | %) | | (0.3 | %) |
| Debt to capital, excluding securitization bonds (a) | 55.1 | % | | 53.3 | % |
| Effect of subtracting cash | (1.1 | %) | | (0.1 | %) |
| Net debt to net capital, excluding securitization bonds (a) | 54.0 | % | | 53.2 | % |
| |
| (a) | Calculation excludes the securitization bonds, which are non-recourse to Entergy Louisiana. |
Debt consists of short-term borrowings, financing 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 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 in the Form 10-K. 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, LLC and Subsidiaries
Management's Financial Discussion and Analysis
Uses and Sources of Capital
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Liquidity and Capital Resources” in the Form 10-K for a discussion of Entergy Louisiana’s uses and sources of capital. Following are updates to the information provided in the Form 10-K.
Entergy Louisiana’s receivables from the money pool were as follows:
|
| | | | | | |
March 31, 2019 | | December 31, 2018 | | March 31, 2018 | | December 31, 2017 |
| (In Thousands) |
| $37,965 | | $46,845 | | $181,336 | | $11,173 |
See Note 4 to the financial statements in the Form 10-K for a description of the new tax law.money pool.
Entergy Louisiana has a credit facility in the amount of $350 million scheduled to expire in September 2023. The APSC general staff filedcredit facility includes fronting commitments for the issuance of letters of credit against $15 million of the borrowing capacity of the facility. As of March 31, 2019, there were no cash borrowings and no letters of credit outstanding under the credit facility. In addition, Entergy Louisiana is a replyparty to an uncommitted letter of credit facility as a means to post collateral to support its obligations to MISO. As of March 31, 2019, a $43 million letter of credit was outstanding under Entergy Louisiana’s uncommitted letter of credit facility. See Note 4 to the Arkansas Attorney General’s filingfinancial statements herein 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 agreedscheduled to expire in September 2021. As of March 31, 2019, $95.4 million in loans were outstanding under the credit facility for the Entergy Louisiana River Bend nuclear fuel company variable interest entity. As of March 31, 2019, $79.5 million in loans were outstanding under the credit facility for the Entergy Louisiana Waterford nuclear fuel company variable interest entity. See Note 4 to the financial statements herein for additional discussion of the nuclear fuel company variable interest entity credit facilities.
State and Local Rate Regulation and Fuel-Cost Recovery
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS –State and Local Rate Regulation and Fuel Cost Recovery”in the Form 10-K for a discussion of state and local rate regulation and fuel cost recovery. The following is an update to that discussion.
Fuel and purchased power recovery
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 Arkansas’s filing complied withLouisiana refund approximately $7.3 million, plus interest, to customers based upon the termsimputation 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 energy cost recovery rider. In April 2018 the APSC issued an order declining to suspend Entergy Arkansas’s energy cost recovery rider rateaudit.
Industrial and declining to require further investigation of the issues suggested by the Attorney GeneralCommercial Customers
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS –Industrial and Commercial Customers” in the proceeding at this time. The redetermined rate became effective with the first billing cycleForm 10-K for a discussion of April 2018.industrial and commercial customers.
Entergy Louisiana, LLC and Subsidiaries
Management's Financial Discussion and Analysis
Federal Regulation
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS – Federal Regulation” in the Form 10-K for a discussion of federal regulation.
Nuclear Matters
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Nuclear Matters” in the Form 10-K for a discussion of nuclear matters.
Environmental Risks
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Environmental Risks” in the Form 10-K for a discussion of environmental risks.
Critical Accounting Estimates
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Critical Accounting Estimates” in the Form 10-K for a discussion of the estimates and judgments necessary in Entergy Arkansas’sLouisiana’s accounting for nuclear decommissioning costs, utility regulatory accounting, unbilled revenue, impairment of long-lived assets and trust fund investments, taxation and uncertain tax positions, qualified pension and other postretirement benefits, and other contingencies.
New Accounting Pronouncements
See “New Accounting Pronouncements” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and AnalysisNote 1 to the financial statements in the Form 10-K for a discussion of new accounting pronouncements.
| | | ENTERGY ARKANSAS, INC. AND SUBSIDIARIES | |
| ENTERGY LOUISIANA, LLC AND SUBSIDIARIES | | ENTERGY LOUISIANA, LLC AND SUBSIDIARIES |
CONSOLIDATED INCOME STATEMENTS | | For the Three Months Ended March 31, 2018 and 2017 | |
| For the Three Months Ended March 31, 2019 and 2018 | | For the Three Months Ended March 31, 2019 and 2018 |
(Unaudited) | | | | | |
| | | | | |
| | | 2018 | | 2017 | | 2019 | | 2018 |
| | | (In Thousands) | | (In Thousands) |
| OPERATING REVENUES | | | | | | | | |
| Electric | |
| $551,024 |
| |
| $474,351 |
| |
| $936,693 |
| |
| $1,005,106 |
|
| Natural gas | | | 22,637 |
| | 24,238 |
|
| TOTAL | | | 959,330 |
| | 1,029,344 |
|
| | | | | | | | | |
| OPERATING EXPENSES | | | | | | | | |
| Operation and Maintenance: | | | | | | | | |
| Fuel, fuel-related expenses, and gas purchased for resale | | 108,306 |
| | 99,409 |
| | 147,349 |
| | 180,781 |
|
| Purchased power | | 71,972 |
| | 55,133 |
| | 257,306 |
| | 251,772 |
|
| Nuclear refueling outage expenses | | 23,402 |
| | 19,619 |
| | 12,808 |
| | 13,099 |
|
| Other operation and maintenance | | 169,358 |
| | 163,008 |
| | 225,888 |
| | 234,380 |
|
| Decommissioning | | 14,760 |
| | 13,895 |
| | 13,879 |
| | 12,772 |
|
| Taxes other than income taxes | | 27,905 |
| | 24,051 |
| | 49,682 |
| | 51,280 |
|
| Depreciation and amortization | | 71,981 |
| | 67,066 |
| | 126,134 |
| | 120,822 |
|
| Other regulatory credits - net | | (3,307 | ) | | (10,526 | ) | |
| Other regulatory charges (credits) - net | | | (27,660 | ) | | 23,119 |
|
| TOTAL | | 484,377 |
| | 431,655 |
| | 805,386 |
| | 888,025 |
|
| | | | | | | | | |
| OPERATING INCOME | | 66,647 |
| | 42,696 |
| | 153,944 |
| | 141,319 |
|
| | | | | | | | | |
| OTHER INCOME | | | | | | | | |
| Allowance for equity funds used during construction | | 4,008 |
| | 4,350 |
| | 23,914 |
| | 17,745 |
|
| Interest and investment income | | 6,814 |
| | 6,932 |
| | 71,986 |
| | 43,275 |
|
| Miscellaneous - net | | (3,871 | ) | | (2,956 | ) | | (42,344 | ) | | (7,665 | ) |
| TOTAL | | 6,951 |
| | 8,326 |
| | 53,556 |
| | 53,355 |
|
| | | | | | | | | |
| INTEREST EXPENSE | | | | | | | | |
| Interest expense | | 29,766 |
| | 27,252 |
| | 74,703 |
| | 70,096 |
|
| Allowance for borrowed funds used during construction | | (1,890 | ) | | (1,962 | ) | | (11,367 | ) | | (8,763 | ) |
| TOTAL | | 27,876 |
| | 25,290 |
| | 63,336 |
| | 61,333 |
|
| | | | | | | | | |
| INCOME BEFORE INCOME TAXES | | 45,722 |
| | 25,732 |
| | 144,164 |
| | 133,341 |
|
| | | | | | | | | |
| Income taxes | | 9,467 |
| | 11,428 |
| | 16,531 |
| | 21,748 |
|
| | | | | | | | | |
| NET INCOME | | 36,255 |
| | 14,304 |
| |
| $127,633 |
| |
| $111,593 |
|
| | | | | | | | | |
| Preferred dividend requirements | | 357 |
| | 357 |
| |
| | | | | | |
| EARNINGS APPLICABLE TO COMMON STOCK | |
| $35,898 |
| |
| $13,947 |
| |
| | | | | | |
| See Notes to Financial Statements. | | | | | | | | |
|
| | | | | | | | |
| ENTERGY ARKANSAS, INC. AND SUBSIDIARIES |
| CONSOLIDATED STATEMENTS OF CASH FLOWS |
| For the Three Months Ended March 31, 2018 and 2017 |
| (Unaudited) |
| | | 2018 | | 2017 |
| | | (In Thousands) |
| OPERATING ACTIVITIES | | | | |
| Net income | |
| $36,255 |
| |
| $14,304 |
|
| Adjustments to reconcile net income to net cash flow provided by operating activities: | | | | |
| Depreciation, amortization, and decommissioning, including nuclear fuel amortization | | 115,976 |
| | 105,721 |
|
| Deferred income taxes, investment tax credits, and non-current taxes accrued | | 11,877 |
| | 16,361 |
|
| Changes in assets and liabilities: | | | | |
| Receivables | | 31,033 |
| | 53,355 |
|
| Fuel inventory | | (13,868 | ) | | (5,747 | ) |
| Accounts payable | | (26,924 | ) | | (73,635 | ) |
| Taxes accrued | | 10,072 |
| | 7,175 |
|
| Interest accrued | | 9,748 |
| | 8,562 |
|
| Deferred fuel costs | | 1,971 |
| | (9,137 | ) |
| Other working capital accounts | | 5,591 |
| | 15,485 |
|
| Provisions for estimated losses | | 6,520 |
| | 1,997 |
|
| Other regulatory assets | | 13,835 |
| | 1,815 |
|
| Other regulatory liabilities | | (13,546 | ) | | 23,435 |
|
| Pension and other postretirement liabilities | | (19,277 | ) | | (19,553 | ) |
| Other assets and liabilities | | 10,627 |
| | 14,403 |
|
| Net cash flow provided by operating activities | | 179,890 |
| | 154,541 |
|
| | | | | |
| INVESTING ACTIVITIES | | | | |
| Construction expenditures | | (167,485 | ) | | (165,496 | ) |
| Allowance for equity funds used during construction | | 4,143 |
| | 4,557 |
|
| Nuclear fuel purchases | | (19,391 | ) | | (88,537 | ) |
| Proceeds from sale of nuclear fuel | | 30,907 |
| | 51,029 |
|
| Proceeds from nuclear decommissioning trust fund sales | | 34,865 |
| | 36,013 |
|
| Investment in nuclear decommissioning trust funds | | (40,238 | ) | | (40,961 | ) |
| Changes in securitization account | | (4,145 | ) | | (3,702 | ) |
| Net cash flow used in investing activities | | (161,344 | ) | | (207,097 | ) |
| | | | | |
| FINANCING ACTIVITIES | | | | |
| Proceeds from the issuance of long-term debt | | 175,000 |
| | — |
|
| Retirement of long-term debt | | (149,904 | ) | | — |
|
| Changes in short-term borrowings - net | | (6,087 | ) | | 52,300 |
|
| Changes in money pool payable - net | | (42,279 | ) | | (20,224 | ) |
| Dividends paid: | | | | |
| Preferred stock | | (357 | ) | | (357 | ) |
| Other | | (212 | ) | | 803 |
|
| Net cash flow provided by (used in) financing activities | | (23,839 | ) | | 32,522 |
|
| | | | | |
| Net decrease in cash and cash equivalents | | (5,293 | ) | | (20,034 | ) |
| Cash and cash equivalents at beginning of period | | 6,216 |
| | 20,509 |
|
| Cash and cash equivalents at end of period | |
| $923 |
| |
| $475 |
|
| | | | | |
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | | | | |
|
| Cash paid during the period for: | | | | |
| Interest - net of amount capitalized | |
| $18,761 |
| |
| $17,311 |
|
| | | | | |
| See Notes to Financial Statements. | | | | |
|
| | | | | | | | |
| ENTERGY LOUISIANA, LLC AND SUBSIDIARIES |
| CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME |
| For the Three Months Ended March 31, 2019 and 2018 |
| (Unaudited) |
| | | |
| | | 2019 | | 2018 |
| | | (In Thousands) |
| | | | | |
| Net Income | |
| $127,633 |
| |
| $111,593 |
|
| Other comprehensive loss | | | | |
| Pension and other postretirement liabilities (net of tax benefit of $342 and $176) | | (969 | ) | | (501 | ) |
| Other comprehensive loss | | (969 | ) | | (501 | ) |
| Comprehensive Income | |
| $126,664 |
| |
| $111,092 |
|
| | | | | |
| See Notes to Financial Statements. | | | | |
|
| | | | | | | | |
| ENTERGY ARKANSAS, INC. AND SUBSIDIARIES |
| CONSOLIDATED BALANCE SHEETS |
| ASSETS |
| March 31, 2018 and December 31, 2017 |
| (Unaudited) |
| | | 2018 | | 2017 |
| | | (In Thousands) |
| CURRENT ASSETS | | | | |
| Cash and cash equivalents: | | | | |
| Cash | |
| $891 |
| |
| $6,184 |
|
| Temporary cash investments | | 32 |
| | 32 |
|
| Total cash and cash equivalents | | 923 |
| | 6,216 |
|
| Securitization recovery trust account | | 7,893 |
| | 3,748 |
|
| Accounts receivable: | | | | |
| Customer | | 127,821 |
| | 110,016 |
|
| Allowance for doubtful accounts | | (1,250 | ) | | (1,063 | ) |
| Associated companies | | 34,105 |
| | 38,765 |
|
| Other | | 46,631 |
| | 65,209 |
|
| Accrued unbilled revenues | | 79,707 |
| | 105,120 |
|
| Total accounts receivable | | 287,014 |
| | 318,047 |
|
| Deferred fuel costs | | 61,282 |
| | 63,302 |
|
| Fuel inventory - at average cost | | 43,226 |
| | 29,358 |
|
| Materials and supplies - at average cost | | 198,585 |
| | 192,853 |
|
| Deferred nuclear refueling outage costs | | 49,047 |
| | 56,485 |
|
| Prepayments and other | | 9,597 |
| | 12,108 |
|
| TOTAL | | 657,567 |
| | 682,117 |
|
| | | | | |
| OTHER PROPERTY AND INVESTMENTS | | | | |
| Decommissioning trust funds | | 935,728 |
| | 944,890 |
|
| Other | | 786 |
| | 3,160 |
|
| TOTAL | | 936,514 |
| | 948,050 |
|
| | | | | |
| UTILITY PLANT | | | | |
| Electric | | 11,111,420 |
| | 11,059,538 |
|
| Construction work in progress | | 361,843 |
| | 280,888 |
|
| Nuclear fuel | | 226,435 |
| | 277,345 |
|
| TOTAL UTILITY PLANT | | 11,699,698 |
| | 11,617,771 |
|
| Less - accumulated depreciation and amortization | | 4,827,210 |
| | 4,762,352 |
|
| UTILITY PLANT - NET | | 6,872,488 |
| | 6,855,419 |
|
| | | | | |
| DEFERRED DEBITS AND OTHER ASSETS | | | | |
| Regulatory assets: | | | | |
| Other regulatory assets (includes securitization property of $24,682 as of March 31, 2018 and $28,583 as of December 31, 2017) | | 1,553,602 |
| | 1,567,437 |
|
| Deferred fuel costs | | 67,145 |
| | 67,096 |
|
| Other | | 20,397 |
| | 13,910 |
|
| TOTAL | | 1,641,144 |
| | 1,648,443 |
|
| | | | | |
| TOTAL ASSETS | |
| $10,107,713 |
| |
| $10,134,029 |
|
| | | | | |
| See Notes to Financial Statements. | | | | |
|
| | | | | | | | |
| ENTERGY ARKANSAS, INC. AND SUBSIDIARIES |
| CONSOLIDATED BALANCE SHEETS |
| LIABILITIES AND EQUITY |
| March 31, 2018 and December 31, 2017 |
| (Unaudited) |
| | | 2018 | | 2017 |
| | | (In Thousands) |
| CURRENT LIABILITIES | | | | |
| Short-term borrowings | |
| $43,887 |
| |
| $49,974 |
|
| Accounts payable: | | | | |
| Associated companies | | 308,104 |
| | 365,915 |
|
| Other | | 169,916 |
| | 215,942 |
|
| Customer deposits | | 97,885 |
| | 97,687 |
|
| Taxes accrued | | 57,393 |
| | 47,321 |
|
| Interest accrued | | 27,963 |
| | 18,215 |
|
| Current portion of unprotected excess accumulated deferred income taxes | | 386,489 |
| | — |
|
| Other | | 28,730 |
| | 29,922 |
|
| TOTAL | | 1,120,367 |
| | 824,976 |
|
| | | | | |
| NON-CURRENT LIABILITIES | | | | |
| Accumulated deferred income taxes and taxes accrued | | 1,205,470 |
| | 1,190,669 |
|
| Accumulated deferred investment tax credits | | 33,803 |
| | 34,104 |
|
| Regulatory liability for income taxes - net | | 597,025 |
| | 985,823 |
|
| Other regulatory liabilities | | 352,354 |
| | 363,591 |
|
| Decommissioning | | 995,973 |
| | 981,213 |
|
| Accumulated provisions | | 41,249 |
| | 34,729 |
|
| Pension and other postretirement liabilities | | 334,016 |
| | 353,274 |
|
| Long-term debt (includes securitization bonds of $34,739 as of March 31, 2018 and $34,662 as of December 31, 2017) | | 2,978,569 |
| | 2,952,399 |
|
| Other | | 4,885 |
| | 5,147 |
|
| TOTAL | | 6,543,344 |
| | 6,900,949 |
|
| | | | | |
| 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 2018 and 2017 | | 470 |
| | 470 |
|
| Paid-in capital | | 790,264 |
| | 790,264 |
|
| Retained earnings | | 1,621,918 |
| | 1,586,020 |
|
| TOTAL | | 2,412,652 |
| | 2,376,754 |
|
| | | | | |
| TOTAL LIABILITIES AND EQUITY | |
| $10,107,713 |
| |
| $10,134,029 |
|
| | | | | |
| See Notes to Financial Statements. | | | | |
|
| | | | | | | | | | | | | | | | |
| ENTERGY ARKANSAS, INC. AND SUBSIDIARIES |
| CONSOLIDATED STATEMENTS OF CHANGES IN COMMON EQUITY |
| For the Three Months Ended March 31, 2018 and 2017 |
| (Unaudited) |
| | | | | |
| | | Common Equity | | |
| | | Common
Stock | | Paid-in
Capital | | Retained
Earnings | | Total |
| | | (In Thousands) |
| | | | | | | | | |
| Balance at December 31, 2016 | |
| $470 |
| |
| $790,243 |
| |
| $1,462,604 |
| |
| $2,253,317 |
|
| | | | | | | | | |
| Net income | | — |
| | — |
| | 14,304 |
| | 14,304 |
|
| Preferred stock dividends | | — |
| | — |
| | (357 | ) | | (357 | ) |
| | | | | | | | | |
| Balance at March 31, 2017 | |
| $470 |
| |
| $790,243 |
| |
| $1,476,551 |
| |
| $2,267,264 |
|
| | | | | | | | | |
| | | | | | | | | |
| Balance at December 31, 2017 | |
| $470 |
| |
| $790,264 |
| |
| $1,586,020 |
| |
| $2,376,754 |
|
| | | | | | | | | |
| Net income | | — |
| | — |
| | 36,255 |
| | 36,255 |
|
| Preferred stock dividends | | — |
| | — |
| | (357 | ) | | (357 | ) |
| | | | | | | | | |
| Balance at March 31, 2018 | |
| $470 |
| |
| $790,264 |
| |
| $1,621,918 |
| |
| $2,412,652 |
|
| | | | | | | | | |
| See Notes to Financial Statements. | | | | | | | | |
|
| | | | | | | | |
| ENTERGY LOUISIANA, LLC AND SUBSIDIARIES |
| CONSOLIDATED STATEMENTS OF CASH FLOWS |
| For the Three Months Ended March 31, 2019 and 2018 |
| (Unaudited) |
| | | 2019 | | 2018 |
| | | (In Thousands) |
| OPERATING ACTIVITIES | | | | |
| Net income | |
| $127,633 |
| |
| $111,593 |
|
| Adjustments to reconcile net income to net cash flow provided by operating activities: | | | | |
| Depreciation, amortization, and decommissioning, including nuclear fuel amortization | | 153,368 |
| | 157,887 |
|
| Deferred income taxes, investment tax credits, and non-current taxes accrued | | 49,041 |
| | 86,443 |
|
| Changes in working capital: | | | | |
| Receivables | | (849 | ) | | 53,786 |
|
| Fuel inventory | | 31 |
| | (1,402 | ) |
| Accounts payable | | (26,475 | ) | | (18,036 | ) |
| Prepaid taxes and taxes accrued | | 16,311 |
| | (24,705 | ) |
| Interest accrued | | (9,300 | ) | | 6,365 |
|
| Deferred fuel costs | | (50,620 | ) | | (52,090 | ) |
| Other working capital accounts | | (41,481 | ) | | (55 | ) |
| Changes in provisions for estimated losses | | 2,962 |
| | (481 | ) |
| Changes in other regulatory assets | | (91,490 | ) | | 28,579 |
|
| Changes in other regulatory liabilities | | 49,352 |
| | (6,088 | ) |
| Changes in pension and other postretirement liabilities | | (1,954 | ) | | (18,075 | ) |
| Other | | 3,054 |
| | 4,319 |
|
| Net cash flow provided by operating activities | | 179,583 |
| | 328,040 |
|
| | | | | |
| INVESTING ACTIVITIES | | | | |
| Construction expenditures | | (401,573 | ) | | (469,398 | ) |
| Allowance for equity funds used during construction | | 23,914 |
| | 17,745 |
|
| Nuclear fuel purchases | | (59,422 | ) | | (9,997 | ) |
| Proceeds from the sale of nuclear fuel | | — |
| | 36,301 |
|
| Payments to storm reserve escrow account | | (1,651 | ) | | (853 | ) |
| Changes to securitization account | | (5,405 | ) | | (7,523 | ) |
| Proceeds from nuclear decommissioning trust fund sales | | 101,555 |
| | 125,453 |
|
| Investment in nuclear decommissioning trust funds | | (107,690 | ) | | (137,097 | ) |
| Changes in money pool receivable - net | | 8,880 |
| | (170,163 | ) |
| Insurance proceeds | | — |
| | 1,582 |
|
| Net cash flow used in investing activities | | (441,392 | ) | | (613,950 | ) |
| | | | | |
| FINANCING ACTIVITIES | | | | |
| Proceeds from the issuance of long-term debt | | 1,212,989 |
| | 947,038 |
|
| Retirement of long-term debt | | (642,307 | ) | | (154,117 | ) |
| Changes in short-term borrowings - net | | — |
| | 19,382 |
|
| Distributions paid: | | | | |
| Common equity | | (49,000 | ) | | — |
|
| Other | | 1,926 |
| | (14 | ) |
| Net cash flow provided by financing activities | | 523,608 |
| | 812,289 |
|
| | | | | |
| Net increase in cash and cash equivalents | | 261,799 |
| | 526,379 |
|
| Cash and cash equivalents at beginning of period | | 43,364 |
| | 35,907 |
|
| Cash and cash equivalents at end of period | |
| $305,163 |
| |
| $562,286 |
|
| | | | | |
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | | | | |
| Cash paid (received) during the period for: | | | | |
| Interest - net of amount capitalized | |
| $81,940 |
| |
| $61,613 |
|
| Income taxes | |
| $— |
| |
| ($2,973 | ) |
| | | | | |
| See Notes to Financial Statements. | | | | |
|
| | | | | | | | |
| ENTERGY LOUISIANA, LLC AND SUBSIDIARIES |
| CONSOLIDATED BALANCE SHEETS |
| ASSETS |
| March 31, 2019 and December 31, 2018 |
| (Unaudited) |
| | | 2019 | | 2018 |
| | | (In Thousands) |
| CURRENT ASSETS | | | | |
| Cash and cash equivalents: | | | | |
| Cash | |
| $68,144 |
| |
| $252 |
|
| Temporary cash investments | | 237,019 |
| | 43,112 |
|
| Total cash and cash equivalents | | 305,163 |
| | 43,364 |
|
| Accounts receivable: | | | | |
| Customer | | 219,503 |
| | 199,903 |
|
| Allowance for doubtful accounts | | (1,912 | ) | | (1,813 | ) |
| Associated companies | | 106,149 |
| | 123,363 |
|
| Other | | 73,120 |
| | 60,879 |
|
| Accrued unbilled revenues | | 144,493 |
| | 167,052 |
|
| Total accounts receivable | | 541,353 |
| | 549,384 |
|
| Deferred fuel costs | | 19,209 |
| | — |
|
| Fuel inventory | | 34,387 |
| | 34,418 |
|
| Materials and supplies - at average cost | | 328,666 |
| | 324,627 |
|
| Deferred nuclear refueling outage costs | | 61,384 |
| | 24,406 |
|
| Prepayments and other | | 38,550 |
| | 38,715 |
|
| TOTAL | | 1,328,712 |
| | 1,014,914 |
|
| | | | | |
| OTHER PROPERTY AND INVESTMENTS | | | | |
| Investment in affiliate preferred membership interests | | 1,390,587 |
| | 1,390,587 |
|
| Decommissioning trust funds | | 1,408,045 |
| | 1,284,996 |
|
| Storm reserve escrow account | | 291,176 |
| | 289,525 |
|
| Non-utility property - at cost (less accumulated depreciation) | | 292,380 |
| | 286,555 |
|
| Other | | 15,085 |
| | 14,927 |
|
| TOTAL | | 3,397,273 |
| | 3,266,590 |
|
| | | | | |
| UTILITY PLANT | | | | |
| Electric | | 20,614,483 |
| | 20,532,312 |
|
| Natural gas | | 218,502 |
| | 211,421 |
|
| Construction work in progress | | 1,997,965 |
| | 1,864,582 |
|
| Nuclear fuel | | 329,778 |
| | 298,022 |
|
| TOTAL UTILITY PLANT | | 23,160,728 |
| | 22,906,337 |
|
| Less - accumulated depreciation and amortization | | 8,827,954 |
| | 8,837,596 |
|
| UTILITY PLANT - NET | | 14,332,774 |
| | 14,068,741 |
|
| | | | | |
| DEFERRED DEBITS AND OTHER ASSETS | | | | |
| Regulatory assets: | | | | |
| Other regulatory assets (includes securitization property of $44,739 as of March 31, 2019 and $49,753 as of December 31, 2018) | | 1,196,567 |
| | 1,105,077 |
|
| Deferred fuel costs | | 168,122 |
| | 168,122 |
|
| Other | | 32,729 |
| | 28,371 |
|
| TOTAL | | 1,397,418 |
| | 1,301,570 |
|
| | | | | |
| TOTAL ASSETS | |
| $20,456,177 |
| |
| $19,651,815 |
|
| | | | | |
| See Notes to Financial Statements. | | | | |
|
| | | | | | | | |
| ENTERGY LOUISIANA, LLC AND SUBSIDIARIES |
| CONSOLIDATED BALANCE SHEETS |
| LIABILITIES AND EQUITY |
| March 31, 2019 and December 31, 2018 |
| (Unaudited) |
| | | 2019 | | 2018 |
| | | (In Thousands) |
| CURRENT LIABILITIES | | | | |
| Currently maturing long-term debt | |
| $2 |
| |
| $2 |
|
| Accounts payable: | | | | |
| Associated companies | | 82,848 |
| | 102,749 |
|
| Other | | 380,874 |
| | 390,367 |
|
| Customer deposits | | 154,573 |
| | 155,314 |
|
| Taxes accrued | | 47,179 |
| | 30,868 |
|
| Interest accrued | | 74,150 |
| | 83,450 |
|
| Deferred fuel costs | | — |
| | 31,411 |
|
| Current portion of unprotected excess accumulated deferred income taxes | | 33,343 |
| | 31,457 |
|
| Other | | 59,002 |
| | 49,202 |
|
| TOTAL | | 831,971 |
| | 874,820 |
|
| | | | | |
| NON-CURRENT LIABILITIES | | | | |
| Accumulated deferred income taxes and taxes accrued | | 2,280,532 |
| | 2,226,721 |
|
| Accumulated deferred investment tax credits | | 115,782 |
| | 116,999 |
|
| Regulatory liability for income taxes - net | | 561,864 |
| | 581,001 |
|
| Other regulatory liabilities | | 815,387 |
| | 748,784 |
|
| Decommissioning | | 1,296,647 |
| | 1,280,272 |
|
| Accumulated provisions | | 313,717 |
| | 310,755 |
|
| Pension and other postretirement liabilities | | 641,132 |
| | 643,171 |
|
| Long-term debt (includes securitization bonds of $55,747 as of March 31, 2019 and $55,682 as of December 31, 2018) | | 7,377,910 |
| | 6,805,766 |
|
| Other | | 240,664 |
| | 160,608 |
|
| TOTAL | | 13,643,635 |
| | 12,874,077 |
|
| | | | | |
| Commitments and Contingencies | | | | |
| | | | | |
| EQUITY | | | | |
| Member's equity | | 5,987,693 |
| | 5,909,071 |
|
| Accumulated other comprehensive loss | | (7,122 | ) | | (6,153 | ) |
| TOTAL | | 5,980,571 |
| | 5,902,918 |
|
| | | | | |
| TOTAL LIABILITIES AND EQUITY | |
| $20,456,177 |
| |
| $19,651,815 |
|
| | | | | |
| See Notes to Financial Statements. | | | | |
|
| | | | | | | | | | | | | | | |
| ENTERGY ARKANSAS, INC. AND SUBSIDIARIES |
| SELECTED OPERATING RESULTS |
| For the Three Months Ended March 31, 2018 and 2017 |
| (Unaudited) |
| | | | | | | |
| | | | | | | | | |
| | |
| | Increase/ | | |
| Description | | 2018 | | 2017 | | (Decrease) | | % |
| | | (Dollars In Millions) | | |
| Electric Operating Revenues: | | | | | | |
| Residential | |
| $236 |
| |
| $183 |
| |
| $53 |
| | 29 |
|
| Commercial | | 121 |
| | 106 |
| | 15 |
| | 14 |
|
| Industrial | | 111 |
| | 96 |
| | 15 |
| | 16 |
|
| Governmental | | 5 |
| | 4 |
| | 1 |
| | 25 |
|
| Total billed retail | | 473 |
| | 389 |
| | 84 |
| | 22 |
|
| Sales for resale: | | | | | | | | |
| Associated companies | | 30 |
| | 32 |
| | (2 | ) | | (6 | ) |
| Non-associated companies | | 36 |
| | 45 |
| | (9 | ) | | (20 | ) |
| Other | | 12 |
| | 8 |
| | 4 |
| | 50 |
|
| Total | |
| $551 |
| |
| $474 |
| |
| $77 |
| | 16 |
|
| | | | | | | | | |
| Billed Electric Energy Sales (GWh): | | | | | | | | |
| Residential | | 2,329 |
| | 1,927 |
| | 402 |
| | 21 |
|
| Commercial | | 1,365 |
| | 1,315 |
| | 50 |
| | 4 |
|
| Industrial | | 1,828 |
| | 1,681 |
| | 147 |
| | 9 |
|
| Governmental | | 56 |
| | 56 |
| | — |
| | — |
|
| Total retail | | 5,578 |
| | 4,979 |
| | 599 |
| | 12 |
|
| Sales for resale: | | | | | | | | |
| Associated companies | | 487 |
| | 446 |
| | 41 |
| | 9 |
|
| Non-associated companies | | 1,717 |
| | 1,962 |
| | (245 | ) | | (12 | ) |
| Total | | 7,782 |
| | 7,387 |
| | 395 |
| | 5 |
|
|
| | | | | | | | | | | |
| ENTERGY LOUISIANA, LLC AND SUBSIDIARIES |
| CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY |
| For the Three Months Ended March 31, 2019 and 2018 |
| (Unaudited) |
| | | | |
| | Common Equity | | |
| | Member’s
Equity | | Accumulated Other Comprehensive Loss | | Total |
| | (In Thousands) |
| | | | | | |
| Balance at December 31, 2017 |
| $5,355,204 |
| |
| ($46,400 | ) | |
| $5,308,804 |
|
| | | | | | |
| Net income | 111,593 |
| | — |
| | 111,593 |
|
| Other comprehensive loss | — |
| | (501 | ) | | (501 | ) |
| Reclassification pursuant to ASU 2018-02 | 6,262 |
| | (10,049 | ) | | (3,787 | ) |
| Other | 24 |
| | — |
| | 24 |
|
| | | | | | |
| Balance at March 31, 2018 |
| $5,473,083 |
| |
| ($56,950 | ) | |
| $5,416,133 |
|
| | | | | | |
| | | | | | |
| Balance at December 31, 2018 |
| $5,909,071 |
| |
| ($6,153 | ) | |
| $5,902,918 |
|
| | | | | | |
| Net income | 127,633 |
| | — |
| | 127,633 |
|
| Other comprehensive loss | — |
| | (969 | ) | | (969 | ) |
| Distributions declared on common equity | (49,000 | ) | | — |
| | (49,000 | ) |
| Other | (11 | ) | | — |
| | (11 | ) |
| | | | | | |
| Balance at March 31, 2019 |
| $5,987,693 |
| |
| ($7,122 | ) | |
| $5,980,571 |
|
| | | | | | |
| See Notes to Financial Statements. | | | | | |
|
| | | | | | | | | | | | | | | |
| ENTERGY LOUISIANA, LLC AND SUBSIDIARIES |
| SELECTED OPERATING RESULTS |
| For the Three Months Ended March 31, 2019 and 2018 |
| (Unaudited) |
| | | | | | | |
| | | | | | | | | |
| | | Nine Months Ended | | Increase/ | | |
| Description | | 2019 | | 2018 | | (Decrease) | | % |
| | | (Dollars In Millions) | | |
| Electric Operating Revenues: | | | | | | | | |
| Residential | |
| $264 |
| |
| $296 |
| |
| ($32 | ) | | (11 | ) |
| Commercial | | 207 |
| | 225 |
| | (18 | ) | | (8 | ) |
| Industrial | | 347 |
| | 352 |
| | (5 | ) | | (1 | ) |
| Governmental | | 17 |
| | 17 |
| | — |
| | — |
|
| Total billed retail | | 835 |
| | 890 |
| | (55 | ) | | (6 | ) |
| Sales for resale: | | | | | | | | |
| Associated companies | | 68 |
| | 74 |
| | (6 | ) | | (8 | ) |
| Non-associated companies | | 16 |
| | 15 |
| | 1 |
| | 7 |
|
| Other | | 18 |
| | 26 |
| | (8 | ) | | (31 | ) |
| Total | |
| $937 |
| |
| $1,005 |
| |
| ($68 | ) | | (7 | ) |
| | | | | | | | | |
| Billed Electric Energy Sales (GWh): | | | | | | | | |
| Residential | | 3,080 |
| | 3,459 |
| | (379 | ) | | (11 | ) |
| Commercial | | 2,519 |
| | 2,661 |
| | (142 | ) | | (5 | ) |
| Industrial | | 7,343 |
| | 7,049 |
| | 294 |
| | 4 |
|
| Governmental | | 203 |
| | 201 |
| | 2 |
| | 1 |
|
| Total retail | | 13,145 |
| | 13,370 |
| | (225 | ) | | (2 | ) |
| Sales for resale: | | | | | | | | |
| Associated companies | | 1,080 |
| | 1,014 |
| | 66 |
| | 7 |
|
| Non-associated companies | | 505 |
| | 513 |
| | (8 | ) | | (2 | ) |
| Total | | 14,730 |
| | 14,897 |
| | (167 | ) | | (1 | ) |
| | | | | | | | | |
ENTERGY LOUISIANA,MISSISSIPPI, LLC AND SUBSIDIARIES
MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS
Results of Operations
Net Income
Net income increased $17.2decreased $7.4 million primarily due to a lower effective income tax rate, higher net revenue, and higher other income, partially offset by higher other operation and maintenance expenses, higher taxes other than income taxes, and higher depreciation and amortization expenses.revenue.
Net Revenue
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).charges. Following is an analysis of the change in net revenue comparing the first quarter 20182019 to the first quarter 2017:2018:
|
| | | |
| | Amount |
| | (In Millions) |
20172018 net revenue |
| $561.1164.5 |
|
| Volume/weather | 24.2(5.1 |
) |
| Retail electric price | (20.13.3 | ) |
| Other | 8.5(0.9 |
) |
20182019 net revenue |
| $573.7155.2 |
|
The volume/weather variance is primarily due to an increasea decrease of 824226 GWh, or 7%, in billed electricity usage, including the effect of moreless favorable weather on residential sales.
The retail electric price variance is primarily due to lower storm damage rider revenues. Entergy Mississippi resumed billing the storm damage rider effective with the September 2017 billing cycle and ceased billing the storm damage rider effective with the August 2018 billing cycle. The decrease was partially offset by higher ad valorem tax adjustment rider revenues resulting from a regulatory charge of $27 million recorded in the first quarter 2018 to reflect the effects of a provision in the settlement reached in the formula rate plan extension proceeding.increase effective October 2018. See Note 2 to the financial statements herein and in the Form 10-K for further discussion of the formula rate plan extension proceeding.storm damage rider.
Other Income Statement Variances
Other operation and maintenance expenses increased primarily due to:
an increase of $14 million in nuclear generation expensesdecreased primarily due to higher nuclear labor costs, including contract labor, to position the nuclear fleet to meet its operational goals and a higher scope of work performed during plant outages in 2018 as compared to the same period in 2017; and
an increase of $7.1 million in fossil-fueled generation expenses primarily due to an overall higher scope of work performed in 2018 as compared to the same period in 2017.
The increase was partially offset by a decrease of $5.4$5.1 million in loss provisions.
Taxes other than income taxes increased primarily duestorm damage provisions, offset by several individually insignificant items. See Note 2 to increases in ad valorem taxes, local franchise taxes, and payroll taxes. Ad valorem taxes increased primarily due to higher assessments. Local franchise taxes increased primarily due to higher revenuesthe financial statements in the first quarter 2018 as compared to the same period in 2017.
Depreciation and amortization expenses increased primarily due to additions to plant in service.
Entergy Louisiana, LLC and Subsidiaries
Management's Financial Discussion and Analysis
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 2018, which included the St. Charles Power Station project, and changes in decommissioning trust fund investment activity, including portfolio rebalancing of certain of the decommissioning trust funds.storm cost recovery.
Income Taxes
The effective income tax rate was 16.3%18.3% for the first quarter 2018.2019. The difference in the effective income tax rate for the first quarter 20182019 versus the federal statutory rate of 21% was primarily due to book and tax differences related to the non-taxable income distributions earned on preferred membership interests, certain book and tax differences related to utility plant items and book and tax differences related to the allowance for equity funds used during construction, partially offset by state income taxes and a write-off of a stock-based compensation deferredthe provision for uncertain tax asset.positions.
The effective income tax rate was 31.3%23.3% for the first quarter 2017.2018. The difference in the effective income tax rate for the first quarter 20172018 versus the federal statutory rate of 35%21% was primarily due to book and tax differences related to the non-taxable income distributions earned on preferred membership interests and book and tax differences related to the allowance for equity funds used during construction, partially offset by state income taxes and a write-off of a stock-based compensation deferred tax asset.asset, partially offset by certain book and tax differences related to utility plant items.
Entergy Mississippi, LLC
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 in the Form 10-K for a discussion of the Tax Cuts and Jobs Act, the federal income tax legislation enacted in December 2017. Note 3 to the financial statements in the Form 10-K contains additional discussion of the effect of the Tax Act on 20172018 results of operations and financial position, the provisions of the Tax Act, and the uncertainties associated with accounting for the Tax Act, and Note 10 to the financial statements herein contains updates to that discussion. Note 2 to the financial statements herein and in the Form 10-K contains discussionsa discussion of the regulatory proceedings commenced or other responses by Entergy’s regulators tothat have considered the effects of the Tax Act.
Liquidity and Capital Resources
Cash Flow
Cash flows for the three months ended March 31, 20182019 and 20172018 were as follows:
|
| | | | | | | |
| | 2018 | | 2017 |
| | (In Thousands) |
| Cash and cash equivalents at beginning of period |
| $35,907 |
| |
| $213,850 |
|
| | | | |
| Cash flow provided by (used in): | | | |
| Operating activities | 328,040 |
| | 339,704 |
|
| Investing activities | (613,950 | ) | | (472,011 | ) |
| Financing activities | 812,289 |
| | (14,250 | ) |
| Net increase (decrease) in cash and cash equivalents | 526,379 |
| | (146,557 | ) |
| | | | |
| Cash and cash equivalents at end of period |
| $562,286 |
| |
| $67,293 |
|
Entergy Louisiana, LLC and Subsidiaries
Management's Financial Discussion and Analysis
|
| | | | | | | |
| | 2019 | | 2018 |
| | (In Thousands) |
| Cash and cash equivalents at beginning of period |
| $36,954 |
| |
| $6,096 |
|
| | | | |
| Cash flow provided by (used in): | | | |
| Operating activities | 9,992 |
| | (8,841 | ) |
| Investing activities | (54,376 | ) | | (76,268 | ) |
| Financing activities | 8,315 |
| | 79,316 |
|
| Net decrease in cash and cash equivalents | (36,069 | ) | | (5,793 | ) |
| | | | |
| Cash and cash equivalents at end of period |
| $885 |
| |
| $303 |
|
Operating Activities
Net cash flow provided byEntergy Mississippi’s operating activities decreased $11.7provided $10 million in cash for the three months ended March 31, 20182019 compared to the three months ended March 31, 2017 primarily due to:
a decrease of $114using $8.8 million in income tax refunds in the first quarter 2018 as compared to the first quarter 2017. Entergy Louisiana received income tax refunds in 2017 in accordance with an intercompany income tax allocation agreement resulting from the utilization of Entergy Louisiana’s net operating losses; and
a decrease due to the timing of recovery of fuel and purchased power costs.
The decrease 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 in the Form 10-K for discussion of the settlement and refund; and
a decrease of $22.7 million in spending on nuclear refueling outages.
Investing Activities
Net cash flow used in investing activities increased $141.9 million for the three months ended March 31, 2018 compared to the three months ended March 31, 2017 primarily due to:
money pool activity;
an increase of $60.9 million in transmission construction expenditures due to a higher scope of work performed in 2018 as compared to the same period in 2017; and
an increase of $53.7 million in fossil-fueled generation construction expenditures primarily due to higher spending on the Lake Charles Power Station and the St. Charles Power Station projects in 2018.
The increase was partially offset by a decrease of $137 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.
Increases in Entergy Louisiana’s receivable from the money pool are a use of cash flow, and Entergy Louisiana‘s receivable from the money pool increased by $170.2 million for the three months ended March 31, 2018 compared to increasing by $8 million for the three months ended March 31, 2017. The money pool is an inter-company borrowing arrangement designed to reduce the Utility subsidiaries’ need for external short-term borrowings.
Financing Activities
Entergy Louisiana’s financing activities provided $812.3 million of cash for the three months ended March 31, 2018 compared to using $14.3 million of cash for the three months ended March 31, 2017 primarily due to the following activity:to:
the issuancetiming of $750 millioncollection of 4.00% Series first mortgage bonds in March 2018;receivables from customers;
equity distributionsa decrease of $42.1$4.6 million in the first quarter 2017. There were no distributionsinterest paid in the first quarter 2018 in anticipation of the excess deferred income taxes to be returned to customers2019 as a result of the enactment of the Tax Cuts and Jobs Act in December 2017. See Note 2 to the financial statements herein and in the Form 10-K for discussion of regulatory proceedings related to the enactment of the Tax Cuts and Jobs Act;
net borrowings of $100 million on the Entergy Louisiana long-term credit facility in 2018; and
net borrowings of $19.4 million on Entergy Louisiana’s nuclear fuel company variable interest entities’ credit facilities in 2018 compared to net borrowings2018;
a decrease of $87.5$4 million in 2017.
Entergy Louisiana, LLC and Subsidiaries
Management's Financial Discussion and Analysis
See Note 4pension contributions in 2019 as compared to the financial statements herein and Note 5 to the financial statements in the Form 10-K for more details on long-term debt.
Capital Structure
Entergy Louisiana’s capitalization is balanced between equity and debt, as shown in the following table. The increase in the debt to capital ratio for Entergy Louisiana is primarily due to the issuance of long-term debt in 2018.
|
| | | | | |
| | March 31, 2018 | | December 31, 2017 |
| Debt to capital | 56.4 | % | | 53.8 | % |
| Effect of excluding securitization bonds | (0.3 | %) | | (0.3 | %) |
| Debt to capital, excluding securitization bonds (a) | 56.1 | % | | 53.5 | % |
| Effect of subtracting cash | (2.1 | %) | | (0.1 | %) |
| Net debt to net capital, excluding securitization bonds (a) | 54.0 | % | | 53.4 | % |
| |
(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 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 in the Form 10-K. 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.
Uses and Sources of Capital
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Liquidity and Capital Resources” in the Form 10-K for a discussion of Entergy Louisiana’s uses and sources of capital. Following are updates to the information provided in the Form 10-K.
Entergy Louisiana’s receivables from the money pool were as follows:
|
| | | | | | |
March 31, 2018 | | December 31, 2017 | | March 31, 2017 | | December 31, 2016 |
| (In Thousands) |
| $181,336 | | $11,173 | | $30,550 | | $22,503 |
See Note 4 to the financial statements in the Form 10-K for a description of the money pool.
Entergy Louisiana has a credit facility in the amount of $350 million scheduled to expire in August 2022. 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 March 31, 2018, there were $100 million of cash borrowings and $9.1 million of 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 March 31, 2018, a $23.8 million letter of credit was outstanding under Entergy Louisiana’s uncommitted letter of credit facility. See Note 4 to the financial statements herein for additional discussion of the credit facilities.
The Entergy Louisiana nuclear fuel company variable interest entities have two separate credit facilities, one in the amount of $105 million and one in the amount of $85 million, both scheduled to expire in May 2019. As of March 31, 2018, $52.3 million in loans were outstanding under the credit facility for the Entergy Louisiana River Bend
Entergy Louisiana, LLC and Subsidiaries
Management's Financial Discussion and Analysis
nuclear fuel company variable interest entity. As of March 31, 2018, $62.9 million in letters of credit to support a like amount of commercial paper issued were outstanding under the Entergy Louisiana Waterford nuclear fuel company variable interest entity credit facility. See Note 4 to the financial statements herein for additional discussion of the nuclear fuel company variable interest entity credit facilities.
Washington Parish Energy Center
As discussed in the Form 10-K, in April 2017, Entergy Louisiana signed an agreement with a subsidiary of Calpine Corporation for the construction and purchase of a peaking plant. 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 extended and the hearing continued from June 2018 to August 2018 in order to allow the parties an opportunity to reach settlement. In April 2018 the parties filed an unopposed joint motion for consideration of proposed stipulation by the LPSC seeking approval of the signed settlement agreement at the May 16, 2018 LPSC Business and Executive Session. The settlement recommends 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.
State and Local Rate Regulation and Fuel-Cost Recovery
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS –State and Local Rate Regulation and Fuel Cost Recovery”in the Form 10-K for a discussion of state and local rate regulation and fuel cost recovery. The following are updates to that discussion.
Retail Rates - Electric
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 of its terms. Those modifications include: a one-time resetting of base rates to the midpoint of the band at Entergy Louisiana’s authorized return on equity of 9.95% for the 2017 test year; narrowing of the formula rate plan bandwidth from a total of 160 basis points to 80 basis points; 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. Several parties intervened in the proceeding and all parties participated in settlement discussions. In April 2018, the LPSC approved an unopposed joint motion filed by Entergy Louisiana and the LPSC staff that settles the matter. The settlement 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, 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 annually for projects placed in service up to one month prior to rate change outside of sharing that is designed to operate in a manner similar to the additional capacity mechanism.
Entergy Louisiana, LLC and Subsidiaries
Management's Financial Discussion and Analysis
Union Power Station and Deactivation or Retirement Decisions for Entergy Louisiana Plants
As discussed in the Form 10-K, 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. 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. In March 2018 the LPSC adopted the ALJ’s recommended order finding that Entergy Louisiana did not demonstrate that its decision to permanently surrender transmission rights for the mothballed (not retired) Willow Glen 2 and 4 units was reasonable and that Entergy Louisiana should hold customers harmless from increased transmission expenses should those units be reactivated. Because no party or the LPSC suggested that Willow Glen 2 and 4 should be reactivated and because the cost to return those units to service far exceeds the revenue the units were expected to generate in MISO, Entergy Louisiana retired Willow Glen 2 and 4 in March 2018.
Retail Rates - Gas
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 of the Tax Act in late-December 2017, 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 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%. If the as-filed rates from the supplemental filing are accepted by the LPSC, customers will receive 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 prospective reduction in the gas infrastructure rider effective with bills rendered on and after the first billing cycle of July 2018.
Industrial and Commercial Customers
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS –Industrial and Commercial Customers” in the Form 10-K for a discussion of industrial and commercial customers.
Federal Regulation
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS –Federal Regulation”in the Form 10-K for a discussion of federal regulation.
Nuclear Matters
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS -Nuclear Matters” in the Form 10-K for a discussion of nuclear matters.
Entergy Louisiana, LLC and Subsidiaries
Management's Financial Discussion and Analysis
Environmental Risks
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS -Environmental Risks” in the Form 10-K for a discussion of environmental risks.
Critical Accounting Estimates
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS -Critical Accounting Estimates” in the Form 10-K and Note 6 to the financial statements herein for a discussion of the estimates and judgments necessary in Entergy Louisiana’s accounting for nuclear decommissioning costs, utility regulatory accounting, unbilled revenue, impairment of long-lived assets and trust fund investments, taxation and uncertain tax positions, qualified pension and other postretirement benefits funding; and other contingencies. The following is an update to that discussion.
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.
New Accounting Pronouncements
See “New Accounting Pronouncements” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for discussion of new accounting pronouncements.
|
| | | | | | | | |
| ENTERGY LOUISIANA, LLC AND SUBSIDIARIES |
| CONSOLIDATED INCOME STATEMENTS |
| For the Three Months Ended March 31, 2018 and 2017 |
| (Unaudited) |
| | | |
| | | 2018 | | 2017 |
| | | (In Thousands) |
| OPERATING REVENUES | | | | |
| Electric | |
| $1,005,106 |
| |
| $864,076 |
|
| Natural gas | | 24,238 |
| | 16,707 |
|
| TOTAL | | 1,029,344 |
| | 880,783 |
|
| | | | | |
| OPERATING EXPENSES | | | | |
| Operation and Maintenance: | | | | |
| Fuel, fuel-related expenses, and gas purchased for resale | | 180,781 |
| | 154,044 |
|
| Purchased power | | 251,772 |
| | 239,827 |
|
| Nuclear refueling outage expenses | | 13,099 |
| | 12,185 |
|
| Other operation and maintenance | | 234,380 |
| | 217,112 |
|
| Decommissioning | | 12,772 |
| | 12,123 |
|
| Taxes other than income taxes | | 51,280 |
| | 45,283 |
|
| Depreciation and amortization | | 120,822 |
| | 115,630 |
|
| Other regulatory charges (credits) - net | | 23,119 |
| | (74,187 | ) |
| TOTAL | | 888,025 |
| | 722,017 |
|
| | | | | |
| OPERATING INCOME | | 141,319 |
| | 158,766 |
|
| | | | | |
| OTHER INCOME | | | | |
| Allowance for equity funds used during construction | | 17,745 |
| | 9,990 |
|
| Interest and investment income | | 43,275 |
| | 39,830 |
|
| Miscellaneous - net | | (7,665 | ) | | (9,142 | ) |
| TOTAL | | 53,355 |
| | 40,678 |
|
| | | | | |
| INTEREST EXPENSE | | | | |
| Interest expense | | 70,096 |
| | 67,315 |
|
| Allowance for borrowed funds used during construction | | (8,763 | ) | | (5,174 | ) |
| TOTAL | | 61,333 |
| | 62,141 |
|
| | | | | |
| INCOME BEFORE INCOME TAXES | | 133,341 |
| | 137,303 |
|
| | | | | |
| Income taxes | | 21,748 |
| | 42,925 |
|
| | | | | |
| NET INCOME | |
| $111,593 |
| |
| $94,378 |
|
| | | | | |
| See Notes to Financial Statements. | | | | |
|
| | | | | | | |
| ENTERGY LOUISIANA, LLC AND SUBSIDIARIES |
| CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME |
| For the Three Months Ended March 31, 2018 and 2017 |
| (Unaudited) |
| | |
| | 2018 | | 2017 |
| | (In Thousands) |
| | | | |
| Net Income |
| $111,593 |
| |
| $94,378 |
|
| Other comprehensive loss | | | |
| Pension and other postretirement liabilities (net of tax benefit of $176 and $232) | (501 | ) | | (370 | ) |
| Other comprehensive loss | (501 | ) | | (370 | ) |
| Comprehensive Income |
| $111,092 |
| |
| $94,008 |
|
| | | | |
| See Notes to Financial Statements. | | | |
|
| | | | | | | | |
| ENTERGY LOUISIANA, LLC AND SUBSIDIARIES |
| CONSOLIDATED STATEMENTS OF CASH FLOWS |
| For the Three Months Ended March 31, 2018 and 2017 |
| (Unaudited) |
| | | 2018 | | 2017 |
| | | (In Thousands) |
| OPERATING ACTIVITIES | | | | |
| Net income | |
| $111,593 |
| |
| $94,378 |
|
| Adjustments to reconcile net income to net cash flow provided by operating activities: | | | | |
| Depreciation, amortization, and decommissioning, including nuclear fuel amortization | | 157,887 |
| | 151,472 |
|
| Deferred income taxes, investment tax credits, and non-current taxes accrued | | 86,443 |
| | 163,299 |
|
| Changes in working capital: | | | | |
| Receivables | | 53,786 |
| | 75,196 |
|
| Fuel inventory | | (1,402 | ) | | 3,066 |
|
| Accounts payable | | (18,036 | ) | | (7,846 | ) |
| Prepaid taxes and taxes accrued | | (24,705 | ) | | 22,563 |
|
| Interest accrued | | 6,365 |
| | 5,983 |
|
| Deferred fuel costs | | (52,090 | ) | | (19,487 | ) |
| Other working capital accounts | | (55 | ) | | (20,810 | ) |
| Changes in provisions for estimated losses | | (481 | ) | | (4,059 | ) |
| Changes in other regulatory assets | | 28,579 |
| | 28,922 |
|
| Changes in other regulatory liabilities | | (6,088 | ) | | (59,969 | ) |
| Changes in pension and other postretirement liabilities | | (18,075 | ) | | (17,054 | ) |
| Other | | 4,319 |
| | (75,950 | ) |
| Net cash flow provided by operating activities | | 328,040 |
| | 339,704 |
|
| | | | | |
| INVESTING ACTIVITIES | | | | |
| Construction expenditures | | (469,398 | ) | | (360,693 | ) |
| Allowance for equity funds used during construction | | 17,745 |
| | 9,990 |
|
| Nuclear fuel purchases | | (9,997 | ) | | (139,620 | ) |
| Proceeds from the sale of nuclear fuel | | 36,301 |
| | 28,884 |
|
| Receipts from storm reserve escrow account | | — |
| | 8,836 |
|
| Payments to storm reserve escrow account | | (853 | ) | | (332 | ) |
| Changes to securitization account | | (7,523 | ) | | (5,527 | ) |
| Proceeds from nuclear decommissioning trust fund sales | | 125,453 |
| | 40,586 |
|
| Investment in nuclear decommissioning trust funds | | (137,097 | ) | | (51,393 | ) |
| Changes in money pool receivable - net | | (170,163 | ) | | (8,047 | ) |
| Insurance proceeds | | 1,582 |
| | 5,305 |
|
| Net cash flow used in investing activities | | (613,950 | ) | | (472,011 | ) |
| | | | | |
| FINANCING ACTIVITIES | | | | |
| Proceeds from the issuance of long-term debt | | 947,038 |
| | — |
|
| Retirement of long-term debt | | (154,117 | ) | | (57,499 | ) |
| Changes in short-term borrowings - net | | 19,382 |
| | 87,504 |
|
| Distributions paid: | | | | |
| Common equity | | — |
| | (42,125 | ) |
| Other | | (14 | ) | | (2,130 | ) |
| Net cash flow provided by (used in) financing activities | | 812,289 |
| | (14,250 | ) |
| | | | | |
| Net increase (decrease) in cash and cash equivalents | | 526,379 |
| | (146,557 | ) |
| Cash and cash equivalents at beginning of period | | 35,907 |
| | 213,850 |
|
| Cash and cash equivalents at end of period | |
| $562,286 |
| |
| $67,293 |
|
| | | | | |
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | | | | |
| Cash paid (received) during the period for: | | | | |
| Interest - net of amount capitalized | |
| $61,613 |
| |
| $59,261 |
|
| Income taxes | |
| ($2,973 | ) | |
| ($116,937 | ) |
| | | | | |
| See Notes to Financial Statements. | | | | |
|
| | | | | | | | |
| ENTERGY LOUISIANA, LLC AND SUBSIDIARIES |
| CONSOLIDATED BALANCE SHEETS |
| ASSETS |
| March 31, 2018 and December 31, 2017 |
| (Unaudited) |
| | | 2018 | | 2017 |
| | | (In Thousands) |
| CURRENT ASSETS | | | | |
| Cash and cash equivalents: | | | | |
| Cash | |
| $385 |
| |
| $5,836 |
|
| Temporary cash investments | | 561,901 |
| | 30,071 |
|
| Total cash and cash equivalents | | 562,286 |
| | 35,907 |
|
| Accounts receivable: | | | | |
| Customer | | 219,522 |
| | 254,308 |
|
| Allowance for doubtful accounts | | (9,137 | ) | | (8,430 | ) |
| Associated companies | | 306,933 |
| | 143,524 |
|
| Other | | 64,776 |
| | 60,893 |
|
| Accrued unbilled revenues | | 137,696 |
| | 153,118 |
|
| Total accounts receivable | | 719,790 |
| | 603,413 |
|
| Fuel inventory | | 41,130 |
| | 39,728 |
|
| Materials and supplies - at average cost | | 309,433 |
| | 299,881 |
|
| Deferred nuclear refueling outage costs | | 52,723 |
| | 65,711 |
|
| Prepayments and other | | 41,147 |
| | 34,035 |
|
| TOTAL | | 1,726,509 |
| | 1,078,675 |
|
| | | | | |
| OTHER PROPERTY AND INVESTMENTS | | | | |
| Investment in affiliate preferred membership interests | | 1,390,587 |
| | 1,390,587 |
|
| Decommissioning trust funds | | 1,304,423 |
| | 1,312,073 |
|
| Storm reserve escrow account | | 285,612 |
| | 284,759 |
|
| Non-utility property - at cost (less accumulated depreciation) | | 273,388 |
| | 245,255 |
|
| Other | | 14,407 |
| | 18,999 |
|
| TOTAL | | 3,268,417 |
| | 3,251,673 |
|
| | | | | |
| UTILITY PLANT | | | | |
| Electric | | 19,722,068 |
| | 19,678,536 |
|
| Natural gas | | 195,230 |
| | 191,899 |
|
| Construction work in progress | | 1,490,196 |
| | 1,281,452 |
|
| Nuclear fuel | | 275,750 |
| | 337,402 |
|
| TOTAL UTILITY PLANT | | 21,683,244 |
| | 21,489,289 |
|
| Less - accumulated depreciation and amortization | | 8,597,382 |
| | 8,703,047 |
|
| UTILITY PLANT - NET | | 13,085,862 |
| | 12,786,242 |
|
| | | | | |
| DEFERRED DEBITS AND OTHER ASSETS | | | | |
| Regulatory assets: | | | | |
| Other regulatory assets (includes securitization property of $66,296 as of March 31, 2018 and $71,367 as of December 31, 2017) | | 1,117,263 |
| | 1,145,842 |
|
| Deferred fuel costs | | 168,122 |
| | 168,122 |
|
| Other | | 23,323 |
| | 18,310 |
|
| TOTAL | | 1,308,708 |
| | 1,332,274 |
|
| | | | | |
| TOTAL ASSETS | |
| $19,389,496 |
| |
| $18,448,864 |
|
| | | | | |
| See Notes to Financial Statements. | | | | |
|
| | | | | | | | |
| ENTERGY LOUISIANA, LLC AND SUBSIDIARIES |
| CONSOLIDATED BALANCE SHEETS |
| LIABILITIES AND EQUITY |
| March 31, 2018 and December 31, 2017 |
| (Unaudited) |
| | | 2018 | | 2017 |
| | | (In Thousands) |
| CURRENT LIABILITIES | | | | |
| Currently maturing long-term debt | |
| $675,002 |
| |
| $675,002 |
|
| Short-term borrowings | | 62,922 |
| | 43,540 |
|
| Accounts payable: | | | | |
| Associated companies | | 86,427 |
| | 126,685 |
|
| Other | | 375,783 |
| | 404,374 |
|
| Customer deposits | | 151,492 |
| | 150,623 |
|
| Taxes accrued | | — |
| | 18,157 |
|
| Interest accrued | | 81,893 |
| | 75,528 |
|
| Deferred fuel costs | | 19,357 |
| | 71,447 |
|
| Current portion of unprotected excess accumulated deferred income taxes | | 217,850 |
| | — |
|
| Other | | 63,165 |
| | 79,037 |
|
| TOTAL | | 1,733,891 |
| | 1,644,393 |
|
| | | | | |
| NON-CURRENT LIABILITIES | | | | |
| Accumulated deferred income taxes and taxes accrued | | 2,144,037 |
| | 2,050,371 |
|
| Accumulated deferred investment tax credits | | 120,652 |
| | 121,870 |
|
| Regulatory liability for income taxes - net | | 506,092 |
| | 725,368 |
|
| Other regulatory liabilities | | 756,397 |
| | 761,059 |
|
| Decommissioning | | 1,240,833 |
| | 1,140,461 |
|
| Accumulated provisions | | 301,967 |
| | 302,448 |
|
| Pension and other postretirement liabilities | | 730,116 |
| | 748,384 |
|
| Long-term debt (includes securitization bonds of $77,801 as of March 31, 2018 and $77,736 as of December 31, 2017) | | 6,263,437 |
| | 5,469,069 |
|
| Other | | 175,941 |
| | 176,637 |
|
| TOTAL | | 12,239,472 |
| | 11,495,667 |
|
| | | | | |
| Commitments and Contingencies | | | | |
| | | | | |
| EQUITY | | | | |
| Member's equity | | 5,473,083 |
| | 5,355,204 |
|
| Accumulated other comprehensive loss | | (56,950 | ) | | (46,400 | ) |
| TOTAL | | 5,416,133 |
| | 5,308,804 |
|
| | | | | |
| TOTAL LIABILITIES AND EQUITY | |
| $19,389,496 |
| |
| $18,448,864 |
|
| | | | | |
| See Notes to Financial Statements. | | | | |
|
| | | | | | | | | | | |
| ENTERGY LOUISIANA, LLC AND SUBSIDIARIES |
| CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY |
| For the Three Months Ended March 31, 2018 and 2017 |
| (Unaudited) |
| | | | |
| | Common Equity | | |
| | Member’s
Equity | | Accumulated Other Comprehensive Loss | | Total |
| | (In Thousands) |
| | | | | | |
| Balance at December 31, 2016 |
| $5,130,251 |
| |
| ($48,442 | ) | |
| $5,081,809 |
|
| | | | | | |
| Net income | 94,378 |
| | — |
| | 94,378 |
|
| Other comprehensive loss | — |
| | (370 | ) | | (370 | ) |
| Distributions declared on common equity | (42,125 | ) | | — |
| | (42,125 | ) |
| Other | (4 | ) | | — |
| | (4 | ) |
| | | | | | |
| Balance at March 31, 2017 |
| $5,182,500 |
| |
| ($48,812 | ) | |
| $5,133,688 |
|
| | | | | | |
| | | | | | |
| Balance at December 31, 2017 |
| $5,355,204 |
| |
| ($46,400 | ) | |
| $5,308,804 |
|
| | | | | | |
| Net income | 111,593 |
| | — |
| | 111,593 |
|
| Other comprehensive loss | — |
| | (501 | ) | | (501 | ) |
| Reclassification pursuant to ASU 2018-02 | 6,262 |
| | (10,049 | ) | | (3,787 | ) |
| Other | 24 |
| | — |
| | 24 |
|
| | | | | | |
| Balance at March 31, 2018 |
| $5,473,083 |
| |
| ($56,950 | ) | |
| $5,416,133 |
|
| | | | | | |
| See Notes to Financial Statements. | | | | | |
|
| | | | | | | | | | | | | | | |
| ENTERGY LOUISIANA, LLC AND SUBSIDIARIES |
| SELECTED OPERATING RESULTS |
| For the Three Months Ended March 31, 2018 and 2017 |
| (Unaudited) |
| | | | | | | | | |
| | | | | Increase/ | | |
| Description | | 2018 | | 2017 | | (Decrease) | | % |
| | | (Dollars In Millions) | | |
| Electric Operating Revenues: | | | | | | | | |
| Residential | |
| $296 |
| |
| $221 |
| |
| $75 |
| | 34 |
|
| Commercial | | 225 |
| | 195 |
| | 30 |
| | 15 |
|
| Industrial | | 352 |
| | 325 |
| | 27 |
| | 8 |
|
| Governmental | | 17 |
| | 15 |
| | 2 |
| | 13 |
|
| Total billed retail | | 890 |
| | 756 |
| | 134 |
| | 18 |
|
| Sales for resale: | | | | | | | | |
| Associated companies | | 74 |
| | 62 |
| | 12 |
| | 19 |
|
| Non-associated companies | | 15 |
| | 14 |
| | 1 |
| | 7 |
|
| Other | | 26 |
| | 32 |
| | (6 | ) | | (19 | ) |
| Total | |
| $1,005 |
| |
| $864 |
| |
| $141 |
| | 16 |
|
| | | | | | | | | |
| Billed Electric Energy Sales (GWh): | | | | | | | | |
| Residential | | 3,459 |
| | 2,852 |
| | 607 |
| | 21 |
|
| Commercial | | 2,661 |
| | 2,540 |
| | 121 |
| | 5 |
|
| Industrial | | 7,049 |
| | 6,961 |
| | 88 |
| | 1 |
|
| Governmental | | 201 |
| | 193 |
| | 8 |
| | 4 |
|
| Total retail | | 13,370 |
| | 12,546 |
| | 824 |
| | 7 |
|
| Sales for resale: | | | | | | | | |
| Associated companies | | 1,014 |
| | 994 |
| | 20 |
| | 2 |
|
| Non-associated companies | | 513 |
| | 295 |
| | 218 |
| | 74 |
|
| Total | | 14,897 |
| | 13,835 |
| | 1,062 |
| | 8 |
|
| | | | | | | | | |
ENTERGY MISSISSIPPI, INC.
MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS
Results of Operations
Net Income
Net income increased $5.7 million primarily due to higher net revenue and a lower effective income tax rate, partially offset by higher depreciation and amortization expenses.
Net Revenue
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 the first quarter 2018 to the first quarter 2017:
|
| | | |
| Amount |
| (In Millions) |
2017 net revenue |
| $154.1 |
|
Retail electric price | 5.2 |
|
Volume/weather | 4.8 |
|
Other | 0.4 |
|
2018 net revenue |
| $164.5 |
|
The retail electric price variance is primarily due to higher storm damage rider revenues. Entergy Mississippi resumed billing the storm damage rider effective with the September 2017 billing cycle. See Note 2 to the financial statements in the Form 10-K for further discussion on the storm damage rider.
The volume/weather variance is primarily due to an increase of 309 GWh, or 11%, in billed electricity usage, including the effect of more favorable weather on residential sales.
Other Income Statement Variances
Other operation and maintenance expenses increased primarily due to an increase of $5.1 million in storm damage provisions. See Note 2 to the financial statements in the Form 10-K for a discussion of storm cost recovery.
Depreciation and amortization expenses increased primarily due to additions to plant in service.
Income Taxes
The effective income tax rate was 23.3% for the first quarter 2018. The difference in the effective income tax rate for the first quarter 2018 versus the federal statutory rate of 21% was primarily due to state income taxes and a write-off of a stock-based compensation deferred tax asset, partially offset by certain book and tax differences related to utility plant items.
The effective income tax rate was 41.0% for the first quarter 2017. The difference in the effective income tax rate for the first quarter 2017 versus the federal statutory rate of 35% was primarily due to a write-off of a stock-based compensation deferred tax asset and state income taxes, partially offset by book and tax differences related to the allowance for equity funds used during construction.
Entergy Mississippi, Inc.
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 in the Form 10-K for a discussion of the Tax Cuts and Jobs Act, the federal income tax legislation enacted in December 2017. Note 3 to the financial statements in the Form 10-K contains additional discussion of the effect of the Tax Act on 2017 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 herein and in the Form 10-K contains discussion of proceedings commenced or other responses by Entergy’s regulators to the Tax Act.
Liquidity and Capital Resources
Cash Flow
Cash flows for the three months ended March 31, 2018 and 2017 were as follows:
|
| | | | | | | |
| | 2018 | | 2017 |
| | (In Thousands) |
| Cash and cash equivalents at beginning of period |
| $6,096 |
| |
| $76,834 |
|
| | | | |
| Cash flow provided by (used in): | | | |
| Operating activities | (8,841 | ) | | (9,132 | ) |
| Investing activities | (76,268 | ) | | (79,691 | ) |
| Financing activities | 79,316 |
| | 12,036 |
|
| Net decrease in cash and cash equivalents | (5,793 | ) | | (76,787 | ) |
| | | | |
| Cash and cash equivalents at end of period |
| $303 |
| |
| $47 |
|
Operating Activities
Net cash flow used in operating activities decreased $0.3 million for the three months ended March 31, 2018 compared to the three months ended March 31, 2017 primarily due to the timing of recovery of fuel and purchased power costs in 20182019 as compared to the same period in 2017 substantially offset by income tax refunds of $15.1 million in 2017. Entergy Mississippi received state income tax refunds of $15.1 million in 2017 in accordance with an intercompany income tax allocation agreement resulting from the carryback of net operating losses.2018.
Investing Activities
Net cash flow used in investing activities decreased $3.4$21.9 million for the three months ended March 31, 20182019 compared to the three months ended March 31, 20172018 primarily due to amoney pool activity. The decrease was partially offset by an increase of $14.8$9.6 million in fossil-fueled generation construction expenditures, an increase of $7.5 million in transmission construction expenditures, and an increase of $5.6 million in distribution construction expenditures, each primarily due to a lowerhigher scope of work performed in 20182019 as compared to the same period in 2017, partially offset by money pool activity.2018.
Entergy Mississippi, LLC
Management's Financial Discussion and Analysis
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 $41.4 million for the three months ended March 31, 2019 compared to decreasing by $1.6 million for the three months ended March 31, 2018 compared to decreasing by $10.6 million for the three months ended March 31, 2017.2018. 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 increased $67.3decreased $71 million for the three months ended March 31, 20182019 compared to the three months ended March 31, 20172018 primarily due to money pool activity.
Entergy Mississippi, Inc.
Management's Financial Discussion and Analysis
Increases in Entergy Mississippi’s payable to the money pool are a source of cash flow, and Entergy Mississippi’s payable to the money pool increased by $10.9 million for the three months ended March 31, 2019 compared to increasing by $74.9 million for the three months ended March 31, 2018 compared to increasing by $12.3 million for the three months ended March 31, 2017.2018.
Capital Structure
Entergy Mississippi’s capitalizationdebt to capital ratio is balanced between equity and debt, as shown in the following table.
| | | | March 31, 2018 | | December 31, 2017 | March 31, 2019 | | December 31, 2018 |
| Debt to capital | 51.0 | % | | 51.5 | % | 50.5 | % | | 50.6 | % |
| Effect of subtracting cash | — | % | | (0.2 | %) | — | % | | (0.7 | %) |
| Net debt to net capital | 51.0 | % | | 51.3 | % | 50.5 | % | | 49.9 | % |
Net debt consists of debt less cash and cash equivalents. Debt consists of short-term borrowings, financing 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 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.
Uses and Sources of Capital
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Liquidity and Capital Resources” in the Form 10-K for a discussion of Entergy Mississippi’s uses and sources of capital. Following are updates to the information provided in the Form 10-K.
Entergy Mississippi’s receivables from or (payables to) the money pool were as follows:
|
| | | | | | |
| March 31, 2018 | | December 31, 2017 | | March 31, 2017 | | December 31, 2016 |
| (In Thousands) |
| ($74,892) | | $1,633 | | ($12,324) | | $10,595 |
|
| | | | | | |
March 31, 2019 | | December 31, 2018 | | March 31, 2018 | | December 31, 2017 |
| (In Thousands) |
| ($10,925) | | $41,380 | | ($74,892) | | $1,633 |
See Note 4 to the financial statements in the Form 10-K for a description of the money pool.
Entergy Mississippi, LLC
Management's Financial Discussion and Analysis
Entergy Mississippi has fourthree separate credit facilities in the aggregate amount of $102.5$82.5 million scheduled to expire in May 2018.2019. Entergy Mississippi expects to renew its credit facilities prior to expiration. No borrowings were outstanding under the credit facilities as of March 31, 2018.2019. 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 March 31, 2018, $16.62019, $12.1 million of letters of credit were outstanding under Entergy Mississippi’s uncommitted letter of credit facility. See Note 4 to the financial statements herein for additional discussion of the credit facilities.
Choctaw Generating Station
In August 2018, Entergy Mississippi announced that it signed an asset purchase agreement to acquire from a subsidiary of GenOn Energy Inc. the Choctaw Generating Station, an 810 MW natural gas fired combined-cycle turbine plant located near French Camp, Mississippi. The purchase price is expected to be approximately $314 million. Entergy Mississippi also expects to invest in various plant upgrades at the facility after closing and expects the total cost of the acquisition to be approximately $401 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. These include regulatory approvals from the MPSC and the FERC. Clearance under the Hart-Scott-Rodino Antitrust Improvements Act has occurred. In October 2018, Entergy Mississippi filed an application with the MPSC seeking approval of the acquisition and cost recovery. In a separate filing in October 2018, 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 non-fuel annual ownership costs of the Choctaw Generating Station, as well as to allow similar cost recovery treatment for other future capacity additions approved by the MPSC. Closing is expected to occur by the end of 2019. Due diligence performed on the plant indicates that there exists a potential mechanical issue that must be addressed prior to closing. There is some possibility that closing may be delayed to allow time for this issue to be resolved.
State and Local Rate Regulation and Fuel-Cost Recovery
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - State and Local Rate Regulation and Fuel-Cost Recovery” in the Form 10-K for a discussion of the formula rate plan and fuel and purchased power cost recovery. The following are updates to that discussion.
Mississippi Attorney General Complaint
As discussed in the Form 10-K, 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 defendants have denied the allegations. In December 2008 the Attorney General’s lawsuit was removed to U.S. District Court in Jackson, Mississippi. Pre-trial and settlement conferences were held in October 2018. In October 2018 the District Court rescheduled the trial to April 2019. In April 2019 the District Court remanded the Attorney General’s lawsuit to the Hinds County Chancery Court in Jackson, Mississippi.
Entergy Mississippi, Inc.LLC
Management's Financial Discussion and Analysis
Formula Rate Plan
In March 2018,2019, Entergy Mississippi submitted its formula rate plan 20182019 test year filing and 20172018 look-back filing showing Entergy Mississippi’s earned return for the historical 20172018 calendar year to be above the formula rate plan bandwidth and projected earned return for the 20182019 calendar year in large part asto be below the formula rate plan bandwidth. The 2019 test year filing shows a result$36.8 million rate increase is necessary to reset Entergy Mississippi’s earned return on common equity to the specified point of the lower federal corporate income taxadjustment of 6.94% return on rate effective in 2018, to bebase, 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 resultingmechanism. In the first quarter 2019, Entergy Mississippi recorded a $0.8 million increase in no changethe provision to reflect the amount shown in rates.the look-back filing. The filing is currently subject to MPSC review. See Note 2 toA final order is expected in the financial statements herein for additional discussion regarding the proposed treatment of the effects of the lower federal corporate income tax rate.
Internal Restructuring
In March 2018, Entergy Mississippi filed an applicationsecond quarter 2019, with the MPSC seeking authorization to undertake a restructuring that would result inresulting rates effective for the transferfirst billing cycle 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. The restructuring is subject to regulatory review and approval by the MPSC, the FERC, and the NRC. If the MPSC approves the restructuring by August 2018 and the restructuring closes on or before December 1, 2018, Entergy Mississippi proposed in its application to credit retail customers $27 million over six years, beginning inJuly 2019. If the MPSC, the FERC, and the NRC approvals are obtained, Entergy Mississippi expects the restructuring will be consummated on or before December 1, 2018.
It is currently contemplated that Entergy Mississippi would undertake a multi-step restructuring, which would include the following:
Entergy Mississippi would redeem its outstanding preferred stock, at the aggregate redemption price of approximately $21.2 million, including call premiums, plus accumulated and unpaid dividends, if any.
Entergy Mississippi would convert from a Mississippi corporation to a Texas corporation.
Under the Texas Business Organizations Code (TXBOC), Entergy Mississippi will allocate 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 will assume substantially all of the liabilities of Entergy Mississippi, in a transaction regarded as a merger under the TXBOC. Entergy Mississippi will remain in existence and hold the membership interests in Entergy Mississippi Power and Light.
Entergy Mississippi will contribute 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 will be a wholly-owned subsidiary of Entergy Utility Holding Company, LLC.
Entergy Mississippi will change its name to Entergy Utility Enterprises, Inc., and Entergy Mississippi Power and Light will then change its name to Entergy Mississippi, LLC.
Upon the completion of the restructuring, Entergy Mississippi, LLC will hold substantially all of the assets, and will have assumed substantially all of the liabilities, of Entergy Mississippi. Entergy Mississippi may modify or supplement the steps to be taken to effectuate the restructuring.
Federal Regulation
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS – Federal Regulation” in the Form 10-K for a discussion of federal regulation.
Nuclear Matters
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Nuclear Matters” in the Form 10-K for a discussion of nuclear matters.
Entergy Mississippi, Inc.
Management's Financial Discussion and Analysis
Environmental Risks
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS – Environmental Risks” in the Form 10-K for a discussion of environmental risks.
Critical Accounting Estimates
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Critical Accounting Estimates” in the Form 10-K for a discussion of the estimates and judgments necessary in Entergy Mississippi’s accounting for utility regulatory accounting, unbilled revenue, impairment of long-lived assets and trust fund investments, taxation and uncertain tax positions, qualified pension and other postretirement benefits, and other contingencies.
New Accounting Pronouncements
See “New Accounting Pronouncements” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and AnalysisNote 1 to the financial statements in the Form 10-K for furthera discussion of new accounting pronouncements.
| | | ENTERGY MISSISSIPPI, INC. | |
| ENTERGY MISSISSIPPI, LLC | | ENTERGY MISSISSIPPI, LLC |
INCOME STATEMENTS | | For the Three Months Ended March 31, 2018 and 2017 | |
| For the Three Months Ended March 31, 2019 and 2018 | | For the Three Months Ended March 31, 2019 and 2018 |
(Unaudited) | | | | | | |
| | | | | |
| | | 2018 | | 2017 | | 2019 | | 2018 |
| | | (In Thousands) | | (In Thousands) |
| OPERATING REVENUES | | | | | | | | |
| Electric | |
| $315,743 |
| |
| $258,443 |
| |
| $282,244 |
| |
| $315,743 |
|
| | | | | | | | | |
| OPERATING EXPENSES | | | | | | | | |
| Operation and Maintenance: | | | | | | | | |
| Fuel, fuel-related expenses, and gas purchased for resale | | 63,528 |
| | 39,140 |
| | 53,229 |
| | 63,528 |
|
| Purchased power | | 87,456 |
| | 71,070 |
| | 71,455 |
| | 87,456 |
|
| Other operation and maintenance | | 59,458 |
| | 54,622 |
| | 59,183 |
| | 59,458 |
|
| Taxes other than income taxes | | 25,394 |
| | 23,972 |
| | 26,127 |
| | 25,394 |
|
| Depreciation and amortization | | 38,182 |
| | 35,317 |
| | 39,088 |
| | 38,182 |
|
| Other regulatory charges (credits) - net | | 293 |
| | (5,837 | ) | |
| Other regulatory charges - net | | | 2,370 |
| | 293 |
|
| TOTAL | | 274,311 |
| | 218,284 |
| | 251,452 |
| | 274,311 |
|
| | | | | | | | | |
| OPERATING INCOME | | 41,432 |
| | 40,159 |
| | 30,792 |
| | 41,432 |
|
| | | | | | | | | |
| OTHER INCOME | | | | | | | | |
| Allowance for equity funds used during construction | | 1,978 |
| | 1,843 |
| | 1,913 |
| | 1,978 |
|
| Interest and investment income | | 25 |
| | 26 |
| | 152 |
| | 25 |
|
| Miscellaneous - net | | (571 | ) | | (976 | ) | | (263 | ) | | (571 | ) |
| TOTAL | | 1,432 |
| | 893 |
| | 1,802 |
| | 1,432 |
|
| | | | | | | | | |
| INTEREST EXPENSE | | | | | | | | |
| Interest expense | | 13,905 |
| | 12,672 |
| | 14,540 |
| | 13,905 |
|
| Allowance for borrowed funds used during construction | | (828 | ) | | (720 | ) | | (785 | ) | | (828 | ) |
| TOTAL | | 13,077 |
| | 11,952 |
| | 13,755 |
| | 13,077 |
|
| | | | | | | | | |
| INCOME BEFORE INCOME TAXES | | 29,787 |
| | 29,100 |
| | 18,839 |
| | 29,787 |
|
| | | | | | | | | |
| Income taxes | | 6,944 |
| | 11,942 |
| | 3,441 |
| | 6,944 |
|
| | | | | | | | | |
| NET INCOME | | 22,843 |
| | 17,158 |
| | 15,398 |
| | 22,843 |
|
| | | | | | | | | |
| Preferred dividend requirements and other | | 238 |
| | 238 |
| | — |
| | 238 |
|
| | | | | | | | | |
| EARNINGS APPLICABLE TO COMMON STOCK | |
| $22,605 |
| |
| $16,920 |
| |
| EARNINGS APPLICABLE TO COMMON EQUITY | | |
| $15,398 |
| |
| $22,605 |
|
| | | | | | | | | |
| See Notes to Financial Statements. | | | | | | | | |
(Page left blank intentionally)
| | | ENTERGY MISSISSIPPI, INC. | |
| ENTERGY MISSISSIPPI, LLC | | ENTERGY MISSISSIPPI, LLC |
STATEMENTS OF CASH FLOWS | | For the Three Months Ended March 31, 2018 and 2017 | |
| For the Three Months Ended March 31, 2019 and 2018 | | For the Three Months Ended March 31, 2019 and 2018 |
(Unaudited) | | | | 2018 | | 2017 | | 2019 | | 2018 |
| | | (In Thousands) | | (In Thousands) |
| OPERATING ACTIVITIES | | | | | | | | |
| Net income | |
| $22,843 |
| |
| $17,158 |
| |
| $15,398 |
| |
| $22,843 |
|
| Adjustments to reconcile net income to net cash flow used in operating activities: | | | | | |
| Adjustments to reconcile net income to net cash flow provided by (used in) operating activities: | | | | | |
| Depreciation and amortization | | 38,182 |
| | 35,317 |
| | 39,088 |
| | 38,182 |
|
| Deferred income taxes, investment tax credits, and non-current taxes accrued | | 7,787 |
| | 13,505 |
| | 12,072 |
| | 7,787 |
|
| Changes in assets and liabilities: | | | | | | | | |
| Receivables | | 1,018 |
| | 17,890 |
| | 18,364 |
| | 1,018 |
|
| Fuel inventory | | (767 | ) | | 2,672 |
| | (4,267 | ) | | (767 | ) |
| Accounts payable | | (24,818 | ) | | (19,639 | ) | | (5,722 | ) | | (24,818 | ) |
| Taxes accrued | | (56,244 | ) | | (38,825 | ) | | (66,445 | ) | | (56,244 | ) |
| Interest accrued | | (5,548 | ) | | (2,953 | ) | | (293 | ) | | (5,548 | ) |
| Deferred fuel costs | | 13,817 |
| | (5,236 | ) | | 17,635 |
| | 13,817 |
|
| Other working capital accounts | | (4,856 | ) | | (578 | ) | | 3,444 |
| | (4,856 | ) |
| Provisions for estimated losses | | 4,754 |
| | (1,772 | ) | | (846 | ) | | 4,754 |
|
| Other regulatory assets | | 4,586 |
| | (10,918 | ) | | (3,478 | ) | | 4,586 |
|
| Other regulatory liabilities | | 766 |
| | (3,341 | ) | | (9,301 | ) | | 766 |
|
| Pension and other postretirement liabilities | | (4,604 | ) | | (4,613 | ) | | 269 |
| | (4,604 | ) |
| Other assets and liabilities | | (5,757 | ) | | (7,799 | ) | | (5,926 | ) | | (5,757 | ) |
| Net cash flow used in operating activities | | (8,841 | ) | | (9,132 | ) | |
| Net cash flow provided by (used in) operating activities | | | 9,992 |
| | (8,841 | ) |
| | | | | | | | | |
| INVESTING ACTIVITIES | | | | | | | | |
| Construction expenditures | | (79,141 | ) | | (92,087 | ) | | (97,487 | ) | | (79,141 | ) |
| Allowance for equity funds used during construction | | 1,978 |
| | 1,843 |
| | 1,913 |
| | 1,978 |
|
| Changes in money pool receivable - net | | 1,633 |
| | 10,595 |
| | 41,380 |
| | 1,633 |
|
| Other | | (738 | ) | | (42 | ) | | (182 | ) | | (738 | ) |
| Net cash flow used in investing activities | | (76,268 | ) | | (79,691 | ) | | (54,376 | ) | | (76,268 | ) |
| | | | | | | | | |
| FINANCING ACTIVITIES | | | | | | | | |
| Changes in money pool payable - net | | 74,892 |
| | 12,324 |
| | 10,925 |
| | 74,892 |
|
| Dividends paid: | | | | | |
| Distributions/dividends paid: | | | | | |
| Preferred stock | | (238 | ) | | (238 | ) | | — |
| | (238 | ) |
| Other | | 4,662 |
| | (50 | ) | | (2,610 | ) | | 4,662 |
|
| Net cash flow provided by financing activities | | 79,316 |
| | 12,036 |
| | 8,315 |
| | 79,316 |
|
| | | | | | | | | |
| Net decrease in cash and cash equivalents | | (5,793 | ) | | (76,787 | ) | | (36,069 | ) | | (5,793 | ) |
| Cash and cash equivalents at beginning of period | | 6,096 |
| | 76,834 |
| | 36,954 |
| | 6,096 |
|
| Cash and cash equivalents at end of period | |
| $303 |
| |
| $47 |
| |
| $885 |
| |
| $303 |
|
| | | | | | | | | |
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | | | | | | | | |
| Cash paid (received) during the period for: | | | | | |
| Cash paid during the period for: | | | | | |
| Interest - net of amount capitalized | |
| $18,820 |
| |
| $15,036 |
| |
| $14,193 |
| |
| $18,820 |
|
| Income taxes | |
| $— |
| |
| ($15,087 | ) | |
| | | | | | | | | |
| See Notes to Financial Statements. | | | | | | | | |
| | | ENTERGY MISSISSIPPI, INC. | |
| ENTERGY MISSISSIPPI, LLC | | ENTERGY MISSISSIPPI, LLC |
BALANCE SHEETS | ASSETS | | March 31, 2018 and December 31, 2017 | |
| March 31, 2019 and December 31, 2018 | | March 31, 2019 and December 31, 2018 |
(Unaudited) | | | | 2018 | | 2017 | | 2019 | | 2018 |
| | | (In Thousands) | | (In Thousands) |
| CURRENT ASSETS | | | | | | | | |
| Cash and cash equivalents: | | | | | | | | |
| Cash | |
| $13 |
| |
| $1,607 |
| |
| $878 |
| |
| $11 |
|
| Temporary cash investments | | 290 |
| | 4,489 |
| | 7 |
| | 36,943 |
|
| Total cash and cash equivalents | | 303 |
| | 6,096 |
| | 885 |
| | 36,954 |
|
| Accounts receivable: | | |
| | |
| | |
| | |
|
| Customer | | 83,092 |
| | 72,039 |
| | 71,621 |
| | 73,205 |
|
| Allowance for doubtful accounts | | (635 | ) | | (574 | ) | | (647 | ) | | (563 | ) |
| Associated companies | | 39,490 |
| | 45,081 |
| | 3,641 |
| | 51,065 |
|
| Other | | 14,768 |
| | 9,738 |
| | 7,678 |
| | 8,647 |
|
| Accrued unbilled revenues | | 41,174 |
| | 54,256 |
| | 40,488 |
| | 50,171 |
|
| Total accounts receivable | | 177,889 |
| | 180,540 |
| | 122,781 |
| | 182,525 |
|
| Deferred fuel costs | | 18,627 |
| | 32,444 |
| | — |
| | 8,016 |
|
| Fuel inventory - at average cost | | 46,373 |
| | 45,606 |
| | 16,198 |
| | 11,931 |
|
| Materials and supplies - at average cost | | 42,957 |
| | 42,571 |
| | 49,576 |
| | 47,255 |
|
| Prepayments and other | | 8,120 |
| | 7,041 |
| | 4,043 |
| | 9,365 |
|
| TOTAL | | 294,269 |
| | 314,298 |
| | 193,483 |
| | 296,046 |
|
| | | | | | | | | |
| OTHER PROPERTY AND INVESTMENTS | | |
| | |
| | |
| | |
|
| Non-utility property - at cost (less accumulated depreciation) | | 4,588 |
| | 4,592 |
| | 4,572 |
| | 4,576 |
|
| Storm reserve escrow account | | 32,061 |
| | 31,969 |
| | 32,629 |
| | 32,447 |
|
| TOTAL | | 36,649 |
| | 36,561 |
| | 37,201 |
| | 37,023 |
|
| | | | | | | | | |
| UTILITY PLANT | | |
| | |
| | |
| | |
|
| Electric | | 4,725,645 |
| | 4,660,297 |
| | 4,834,942 |
| | 4,780,720 |
|
| Property under capital lease | | — |
| | 125 |
| |
| Construction work in progress | | 146,168 |
| | 149,367 |
| | 182,618 |
| | 128,149 |
|
| TOTAL UTILITY PLANT | | 4,871,813 |
| | 4,809,789 |
| | 5,017,560 |
| | 4,908,869 |
|
| Less - accumulated depreciation and amortization | | 1,711,157 |
| | 1,681,306 |
| | 1,667,543 |
| | 1,641,821 |
|
| UTILITY PLANT - NET | | 3,160,656 |
| | 3,128,483 |
| | 3,350,017 |
| | 3,267,048 |
|
| | | | | | | | | |
| DEFERRED DEBITS AND OTHER ASSETS | | |
| | |
| | |
| | |
|
| Regulatory assets: | | |
| | |
| | |
| | |
|
| Other regulatory assets | | 393,323 |
| | 397,909 |
| | 346,527 |
| | 343,049 |
|
| Other | | 5,679 |
| | 2,124 |
| | 9,878 |
| | 3,638 |
|
| TOTAL | | 399,002 |
| | 400,033 |
| | 356,405 |
| | 346,687 |
|
| | | | | | | | | |
| TOTAL ASSETS | |
| $3,890,576 |
| |
| $3,879,375 |
| |
| $3,937,106 |
| |
| $3,946,804 |
|
| | | | | | | | | |
| See Notes to Financial Statements. | | |
| | |
| | |
| | |
|
| | | ENTERGY MISSISSIPPI, INC. | |
| ENTERGY MISSISSIPPI, LLC | | ENTERGY MISSISSIPPI, LLC |
BALANCE SHEETS | LIABILITIES AND EQUITY | | March 31, 2018 and December 31, 2017 | |
| March 31, 2019 and December 31, 2018 | | March 31, 2019 and December 31, 2018 |
(Unaudited) | | | | 2018 | | 2017 | | 2019 | | 2018 |
| | | (In Thousands) | | (In Thousands) |
| CURRENT LIABILITIES | | |
| | |
| | |
| | |
|
| Currently maturing long-term debt | | |
| $150,000 |
| |
| $150,000 |
|
| Accounts payable: | | |
| | |
| | |
| | |
|
| Associated companies | |
| $117,633 |
| |
| $55,689 |
| | 53,027 |
| | 42,928 |
|
| Other | | 55,887 |
| | 77,326 |
| | 74,694 |
| | 79,117 |
|
| Customer deposits | | 83,574 |
| | 83,654 |
| | 85,830 |
| | 85,085 |
|
| Taxes accrued | | 26,599 |
| | 82,843 |
| | 11,107 |
| | 77,552 |
|
| Interest accrued | | 17,353 |
| | 22,901 |
| | 19,938 |
| | 20,231 |
|
| Current portion of unprotected excess accumulated deferred income taxes | | 162,140 |
| | — |
| |
| Deferred fuel costs | | | 9,619 |
| | — |
|
| Other | | 8,708 |
| | 12,785 |
| | 15,111 |
| | 7,526 |
|
| TOTAL | | 471,894 |
| | 335,198 |
| | 419,326 |
| | 462,439 |
|
| | | | | | | | | |
| NON-CURRENT LIABILITIES | | |
| | |
| | |
| | |
|
| Accumulated deferred income taxes and taxes accrued | | 497,129 |
| | 488,806 |
| | 566,047 |
| | 551,869 |
|
| Accumulated deferred investment tax credits | | 8,827 |
| | 8,867 |
| | 10,146 |
| | 10,186 |
|
| Regulatory liability for income taxes - net | | 248,739 |
| | 411,011 |
| | 244,123 |
| | 246,402 |
|
| Other regulatory liabilities | | | 26,600 |
| | 33,622 |
|
| Asset retirement cost liabilities | | 9,348 |
| | 9,219 |
| | 9,333 |
| | 9,206 |
|
| Accumulated provisions | | 49,518 |
| | 44,764 |
| | 50,296 |
| | 51,142 |
|
| Pension and other postretirement liabilities | | 96,893 |
| | 101,498 |
| | 93,324 |
| | 93,100 |
|
| Long-term debt | | 1,270,399 |
| | 1,270,122 |
| | 1,175,915 |
| | 1,175,750 |
|
| Other | | 16,973 |
| | 11,639 |
| | 34,372 |
| | 20,862 |
|
| TOTAL | | 2,197,826 |
| | 2,345,926 |
| | 2,210,156 |
| | 2,192,139 |
|
| | | | | | | | | |
| 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 2018 and 2017 | | 199,326 |
| | 199,326 |
| |
| Capital stock expense and other | | 167 |
| | 167 |
| |
| Retained earnings | | 1,000,982 |
| | 978,377 |
| |
| EQUITY | | | |
| | |
|
| Member's equity | | | 1,307,624 |
| | 1,292,226 |
|
| TOTAL | | 1,200,475 |
| | 1,177,870 |
| | 1,307,624 |
| | 1,292,226 |
|
| | | | | | | | | |
| TOTAL LIABILITIES AND EQUITY | |
| $3,890,576 |
| |
| $3,879,375 |
| |
| $3,937,106 |
| |
| $3,946,804 |
|
| | | | | | | | | |
| See Notes to Financial Statements. | | |
| | |
| | |
| | |
|
|
| | | | | | | | | | | | | | | |
| ENTERGY MISSISSIPPI, INC. |
| STATEMENTS OF CHANGES IN COMMON EQUITY |
| For the Three Months Ended March 31, 2018 and 2017 |
| (Unaudited) |
| | | | |
| | Common Equity | | |
| | Common Stock | | Capital Stock Expense and Other | | Retained Earnings | | Total |
| | (In Thousands) |
| | | | | | | | |
| Balance at December 31, 2016 |
| $199,326 |
| |
| $167 |
| |
| $895,298 |
| |
| $1,094,791 |
|
| | | | | | | | |
| Net income | — |
| | — |
| | 17,158 |
| | 17,158 |
|
| Preferred stock dividends | — |
| | — |
| | (238 | ) | | (238 | ) |
| | | | | | | | |
| Balance at March 31, 2017 |
| $199,326 |
| |
| $167 |
| |
| $912,218 |
| |
| $1,111,711 |
|
| | | | | | | | |
| | | | | | | | |
| Balance at December 31, 2017 |
| $199,326 |
| |
| $167 |
| |
| $978,377 |
| |
| $1,177,870 |
|
| | | | | | | | |
| Net income | — |
| | — |
| | 22,843 |
| | 22,843 |
|
| Preferred stock dividends | — |
| | — |
| | (238 | ) | | (238 | ) |
| | | | | | | | |
| Balance at March 31, 2018 |
| $199,326 |
| |
| $167 |
| |
| $1,000,982 |
| |
| $1,200,475 |
|
| | | | | | | | |
| See Notes to Financial Statements. | |
| | |
| | |
| | |
|
|
| | | | |
| ENTERGY MISSISSIPPI, LLC |
| STATEMENTS OF CHANGES IN MEMBER'S EQUITY |
| For the Three Months Ended March 31, 2019 and 2018 |
| (Unaudited) |
| | |
| | |
| | Member's Equity |
| | (In Thousands) |
| | |
| Balance at December 31, 2017 | |
| $1,177,870 |
|
| | |
| Net income | | 22,843 |
|
| Preferred stock dividends | | (238 | ) |
| | |
| Balance at March 31, 2018 | |
| $1,200,475 |
|
| | |
| | |
| Balance at December 31, 2018 | |
| $1,292,226 |
|
| | |
| Net income | | 15,398 |
|
| | |
| Balance at March 31, 2019 | |
| $1,307,624 |
|
| | |
| See Notes to Financial Statements. | | |
|
| | | ENTERGY MISSISSIPPI, INC. | |
| ENTERGY MISSISSIPPI, LLC | | ENTERGY MISSISSIPPI, LLC |
SELECTED OPERATING RESULTS | | For the Three Months Ended March 31, 2018 and 2017 | |
| For the Three Months Ended March 31, 2019 and 2018 | | For the Three Months Ended March 31, 2019 and 2018 |
(Unaudited) | | | | | | | | | | | | | | |
| | | | | Increase/ | | |
| | Three Months Ended | | Increase/ | | |
|
| Description | | 2018 | | 2017 | | (Decrease) | | % | | 2019 | | 2018 | | (Decrease) | | % |
| | | (Dollars In Millions) | | |
| | (Dollars In Millions) | | |
|
| Electric Operating Revenues: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Residential | |
| $148 |
| |
| $111 |
| |
| $37 |
| | 33 |
| |
| $129 |
| |
| $148 |
| |
| ($19 | ) | | (13 | ) |
| Commercial | | 110 |
| | 92 |
| | 18 |
| | 20 |
| | 98 |
| | 110 |
| | (12 | ) | | (11 | ) |
| Industrial | | 43 |
| | 36 |
| | 7 |
| | 19 |
| | 38 |
| | 43 |
| | (5 | ) | | (12 | ) |
| Governmental | | 11 |
| | 9 |
| | 2 |
| | 22 |
| | 10 |
| | 11 |
| | (1 | ) | | (9 | ) |
| Total billed retail | | 312 |
| | 248 |
| | 64 |
| | 26 |
| | 275 |
| | 312 |
| | (37 | ) | | (12 | ) |
| Sales for resale: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Non-associated companies | | 2 |
| | 5 |
| | (3 | ) | | (60 | ) | | 5 |
| | 2 |
| | 3 |
| | 150 |
|
| Other | | 2 |
| | 5 |
| | (3 | ) | | (60 | ) | | 2 |
| | 2 |
| | — |
| | — |
|
| Total | |
| $316 |
| |
| $258 |
| |
| $58 |
| | 22 |
| |
| $282 |
| |
| $316 |
| |
| ($34 | ) | | (11 | ) |
| | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Billed Electric Energy Sales (GWh): | | | | | | | | | | | | | | | | |
| Residential | | 1,449 |
| | 1,190 |
| | 259 |
| | 22 |
| | 1,315 |
| | 1,449 |
| | (134 | ) | | (9 | ) |
| Commercial | | 1,100 |
| | 1,062 |
| | 38 |
| | 4 |
| | 1,040 |
| | 1,100 |
| | (60 | ) | | (5 | ) |
| Industrial | | 597 |
| | 586 |
| | 11 |
| | 2 |
| | 566 |
| | 597 |
| | (31 | ) | | (5 | ) |
| Governmental | | 99 |
| | 98 |
| | 1 |
| | 1 |
| | 98 |
| | 99 |
| | (1 | ) | | (1 | ) |
| Total retail | | 3,245 |
| | 2,936 |
| | 309 |
| | 11 |
| | 3,019 |
| | 3,245 |
| | (226 | ) | | (7 | ) |
| Sales for resale: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Non-associated companies | | 193 |
| | 181 |
| | 12 |
| | 7 |
| | 166 |
| | 193 |
| | (27 | ) | | (14 | ) |
| Total | | 3,438 |
| | 3,117 |
| | 321 |
| | 10 |
| | 3,185 |
| | 3,438 |
| | (253 | ) | | (7 | ) |
ENTERGY NEW ORLEANS, LLC AND SUBSIDIARIES
MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS
Results of Operations
Net Income
Net income remained relatively unchanged, decreasing by $0.1decreased $1.9 million becauseprimarily due to higher other operation and maintenance expenses, a higher effective income tax rate, and higherlower net revenue, partially offset by lower taxes other than income taxes were offset by higher net revenue and a lower effective income tax rate.taxes.
Net Revenue
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.charges (credits). Following is an analysis of the changeschange in net revenue comparing the first quarter 20182019 to the first quarter 2017:2018:
|
| | | |
| | Amount |
| | (In Millions) |
2017 net revenue |
| $70.2 |
|
Volume/weather | 3.6 |
|
Net gas revenue | 2.2 |
|
Retail electric price | (2.6 | ) |
Other | 1.6 |
|
| 2018 net revenue |
| $75.0 |
|
| Rough production cost equalization | (1.5 | ) |
| Volume/weather | (1.3 | ) |
| Amortization of income tax rate change liability | 3.1 |
|
| Other | (1.2 | ) |
| 2019 net revenue |
| $74.1 |
|
The rough production cost equalization variance is due to the use in the first quarter of 2018 of prior rough production cost equalization proceeds to offset investments in Energy Smart energy efficiency programs. The rough production cost equalization variance is offset in other operation and maintenance expenses and has no effect on net income. See Note 2 to the financial statements in the Form 10-K for discussion of Energy Smart program funding.
The volume/weather variance is primarily due to an increasea decrease of 128100 GWh, or 10%7%, in billed electricity usage, including the effect of more favorable weather primarily on residential and commercial sales and a 1% increase in the average number of electric customers.
The net gas revenue variance is primarily due to the effect of moreless favorable weather on residential and commercial sales.
The retail electric priceamortization of income tax rate change liability variance is primarily due to:
a decrease into the purchased power and capacity acquisition cost recovery rider primarily due to credits to customers as partamortization of the regulatory liability that Entergy New Orleans internal restructuring agreementbegan recording in principle, effective with2018 for the first billing cyclelower income tax rate. This portion of June 2017; and
a regulatory charge of $1.6 million recorded in the first quarter 2018 as a result of a filing made with the City Council in March 2018 proposing to return to customers the benefits of the reduction inlower income tax expense resulting from the enactmentrate are being given to customers through investments in Energy Smart energy efficiency programs. The amortization of the Tax Cutsincome tax rate change liability is offset in other operation and Jobs Act.maintenance expenses and has no effect on net income. See Note 2 to the financial statements herein and in the Form 10-K for further discussion of the credits associated with Entergy New Orleans’s internal restructuring and regulatory proceedings related to the enactment ofactivity regarding the Tax Cuts and Jobs Act.
Other Income Statement Variances
Other operation and maintenance expenses increased primarily due to:
an increase of $2.2$1.5 million in distribution expenses information technology costs primarily due to an overall higher scope of work performed in 2018 compared to the same period in 2017software maintenance costs and higher vegetation maintenancecontract costs;
an increase of $0.9 million in energy efficiency costs; and
an increase of $0.9 million in costs related to customer initiatives to explore new technologies and services.
Entergy New Orleans, LLC and Subsidiaries
Management's Financial Discussion and Analysis
anThe increase was partially offset by:
a decrease of $1.2 million in energy efficiencydistribution expenses primarily due to lower contract labor costs; and
an increasea decrease of $1$1.1 million in fossil-fueled generation expenses primarily due to higherlower plant operating expenses at Power Block 1 of the Union Power Station in 20182019 as compared to 2017.2018.
Taxes other than income taxes increaseddecreased primarily due to an increasea decrease in local franchise taxes primarily due to higherlower electric and gas retail revenues in first quarter 20182019 as compared to first quarter 2017.the same period in 2018.
Income Taxes
The effective income tax rate was 25.3% for the first quarter 2019. The difference in the effective income tax rate for the first quarter 2019 versus the federal statutory rate of 21% was primarily due to permanent book and tax differences, state income taxes, and the provision for uncertain tax positions, partially offset by flow-through tax accounting, certain book and tax differences related to utility plant items, and book and tax differences related to the allowance for equity funds used during construction.
The effective income tax rate was 19.5% for the first quarter 2018. The difference in the effective income tax rate for the first quarter 2018 versus the federal statutory rate of 21% was primarily due to flow-through tax accounting and certain book and tax differences related to utility plant items, partially offset by state income taxes, the provision for uncertain tax positions, and a write-off of a stock-based compensation deferred tax asset.
The effective income tax rate was 36.4% for the first quarter 2017. The difference in the effective income tax rate for the first quarter 2017 versus the federal statutory rate of 35% was primarily due to state income taxes, certain book and tax differences related to utility plant items, and a write-off of a stock-based compensation deferred tax asset, partially offset by flow-through tax accounting.
Income Tax Legislation
See the “Income Tax Legislation” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis in the Form 10-K for a discussion of the Tax Cuts and Jobs Act, the federal income tax legislation enacted in December 2017. Note 3 to the financial statements in the Form 10-K contains additional discussion of the effect of the Tax Act on 20172018 results of operations and financial position, the provisions of the Tax Act, and the uncertainties associated with accounting for the Tax Act, and Note 10 to the financial statements herein contains updates to that discussion. Note 2 to the financial statements herein and in the Form 10-K discussescontains a discussion of the regulatory proceedings commenced or other responses by Entergy’s regulators tothat have considered the effects of the Tax Act.
Liquidity and Capital Resources
Cash Flow
Cash flows for the three months ended March 31, 20182019 and 20172018 were as follows:
| | | | 2018 | | 2017 | 2019 | | 2018 |
| | (In Thousands) | (In Thousands) |
| Cash and cash equivalents at beginning of period |
| $32,741 |
| |
| $103,068 |
|
| $19,677 |
| |
| $32,741 |
|
| | | | | | | |
| Cash flow provided by (used in): | | | | | | |
| Operating activities | 7,049 |
| | 5,619 |
| 16,522 |
| | 7,049 |
|
| Investing activities | (31,573 | ) | | (40,751 | ) | (36,783 | ) | | (31,573 | ) |
| Financing activities | (6,857 | ) | | (11,868 | ) | 1,378 |
| | (6,857 | ) |
| Net decrease in cash and cash equivalents | (31,381 | ) | | (47,000 | ) | (18,883 | ) | | (31,381 | ) |
| | | | | | | |
| Cash and cash equivalents at end of period |
| $1,360 |
| |
| $56,068 |
|
| $794 |
| |
| $1,360 |
|
Operating Activities
Net cash flow provided by operating activities increased $1.4 million for the three months ended March 31, 2018 compared to the three months ended March 31, 2017 primarily due to the timing of collections from customers and the timing of payments to vendors, substantially offset by the timing of recovery of fuel and purchased power costs.
Entergy New Orleans, LLC and Subsidiaries
Management's Financial Discussion and Analysis
Operating Activities
Net cash flow provided by operating activities increased $9.5 million for the three months ended March 31, 2019 compared to the three months ended March 31, 2018 primarily due to:
the timing of payments to vendors;
the timing of recovery of fuel and purchased power costs; and
a decrease of $2 million in pension contributions in 2019 as compared to 2018. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Critical Accounting Estimates” in the Form 10-K and Note 6 to the financial statements herein for a discussion of qualified pension and other postretirement benefits funding.
Investing Activities
Net cash flow used in investing activities decreased $9.2increased $5.2 million for the three months ended March 31, 20182019 compared to the three months ended March 31, 20172018 primarily due to money pool activity and a decrease of $8.6 million in storm spending. The decrease was partially offset by to:
an increase of $13.3$9.5 million in fossil-fueled generation construction expenditures primarily due to higher spending on the New Orleans Power Station projectand New Orleans Solar projects in 20182019 as compared to the same period in 2018; and
an increase of $7.2$5.8 million in distributiontransmission construction expenditures primarily due to a higher scope of work performed in 20182019 as compared to the same period in 2017,2018, including investment in the reliability and infrastructure of Entergy New Orleans’s distribution system.system reliability and infrastructure.
The increase was partially offset by money pool activity.
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 $22 million for the three months ended March 31, 2019 compared to decreasing $12.3 million in 2018 compared to increasing $12.1 million in 2017.for the three months ended March 31, 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 inEntergy New Orleans’s financing activities decreased $5provided $1.4 million of cash for the three months ended March 31, 2019 compared to using $6.9 million of cash for the three months ended March 31, 2018 compared to the three months ended March 31, 2017 primarily due to a decrease of $6$6.3 million in common equity distributions in 2018 as compared to 2017.2018. Common equity distributions were lower in 20182019 primarily as a result of the construction of the New Orleans Power Station, as discussed below, andincrease in anticipation of the excess accumulated deferred income taxes to be returned to customers as a result of the enactment of the Tax Cuts and Jobs Act in December 2017. See Note 2 to the financial statements herein and in the Form 10-K for discussion of regulatory proceedings related to the enactment of the Tax Cuts and Jobs Act.planned capital investments.
Capital Structure
Entergy New Orleans’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 is primarily due to an increase in member’s equity in 2019.
| | | | March 31, 2018 | | December 31, 2017 | March 31, 2019 | | December 31, 2018 |
| Debt to capital | 51.0 | % | | 51.3 | % | 51.7 | % | | 52.1 | % |
| Effect of excluding securitization bonds | (4.7 | %) | | (4.7 | %) | (3.5 | %) | | (3.5 | %) |
| Debt to capital, excluding securitization bonds (a) | 46.3 | % | | 46.6 | % | 48.2 | % | | 48.6 | % |
| Effect of subtracting cash | (0.1 | %) | | (2.4 | %) | — | % | | (1.2 | %) |
| Net debt to net capital, excluding securitization bonds (a) | 46.2 | % | | 44.2 | % | 48.2 | % | | 47.4 | % |
| |
| (a) | Calculation excludes the securitization bonds, which are non-recourse to Entergy New Orleans. |
Entergy New Orleans, LLC and Subsidiaries
Management's Financial Discussion and Analysis
Net debt consists of debt less cash and cash equivalents. Debt consists of short-term borrowings, financing lease obligations, long-term debt, including the currently maturing portion, and the long-term payable due to an associated company. Capital consists of debt 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 in the Form 10-K. 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, LLC and Subsidiaries
Management's Financial Discussion and Analysis
Uses and Sources of Capital
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Liquidity and Capital Resources” in the Form 10-K for a discussion of Entergy New Orleans’s uses and sources of capital. Following are updates to the information provided in the Form 10-K.
Entergy New Orleans’s receivables from or (payables to) the money pool were as follows:
|
| | | | | | |
| March 31, 2018 | | December 31, 2017 | | March 31, 2017 | | December 31, 2016 |
| (In Thousands) |
| $432 | | $12,723 | | $26,315 | | $14,215 |
|
| | | | | | |
March 31, 2019 | | December 31, 2018 | | March 31, 2018 | | December 31, 2017 |
| (In Thousands) |
| ($1,877) | | $22,016 | | $432 | | $12,723 |
See Note 4 to the financial statements in the Form 10-K 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 includes fronting commitments for the issuance of letters of credit against $10 million of the borrowing capacity of the facility. As of March 31, 2018,2019, there were no 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 March 31, 2018,2019, a $4.8$1 million letter of credit was outstanding under Entergy New Orleans’s uncommitted letter of credit facility. See Note 4 to the financial statements herein for additional discussion of the credit facilities.
New Orleans Power StationRenewables
As discussed in the Form 10-K, in June 2016,July 2018, Entergy New Orleans 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 siterequesting approval of the existing Michoud generating facility.three utility-scale solar projects totaling 90 MW. 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, or alternatively, a 128 MW unit composed of natural gas-fired reciprocating engines and a related cost recovery plan. In MarchDecember 2018 the City Council adoptedadvisors requested that Entergy New Orleans pursue alternative deal structures for the Washington Parish project and attempt to reduce costs for the 20 MW Orleans Parish project. As a resolution approving constructionresult of settlement discussions, in March 2019, Entergy New Orleans revised its application to convert the build-own transfer acquisition of the 12850 MW unit. The targeted commercial operation date is January 2020, subjectfacility in Washington Parish to receipt of all necessary permits. In April 2018 intervenors opposing the construction of the New Orleans Power Station filed with the City Council a request for rehearing, which was subsequently denied, and a petition for judicial review of the City Council’s decision, and also filed a lawsuit challenging the City Council’s approval based on Louisiana’s open meeting law.
Advanced Metering Infrastructure (AMI) Filings
As discussedpower purchase agreement. Also in the Form 10-K, in February 2018March 2019 the City Council approved Entergy New Orleans’s application seeking a finding that Entergy New Orleans’s deployment of advanced electric and gas metering infrastructure is in the public interest. Deployment of the information technology infrastructure began in 2017 and deployment of the communications network is expectedmotion to begin later in 2018. In April 2018 the City Council adopted a resolution directing Entergy New Orleansallow settlement discussions to explore the options for accelerating the deployment of AMI. Entergy New Orleans is required to report its findings to the City Council bycontinue until June 2018.2019.
State and Local Rate Regulation
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS – State and Local Rate Regulation” in the Form 10-K for a discussion of state and local rate regulation. The following are updatesis an update to that discussion.
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 within 30 days 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. On April 30,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 motionnational consulting firm with expertise in distribution system reliability to extend all deadlinesconduct 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 proceeding by 30 days.range of $1.5 million to $2 million should be assessed. Entergy New Orleans disagrees with the recommendation and plans to submit rebuttal testimony in May 2019.
Federal Regulation
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS – Federal Regulation” in the Form 10-K for a discussion of federal regulation.
Nuclear Matters
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Nuclear Matters” in the Form 10-K for further discussion of nuclear matters.
Environmental Risks
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Environmental Risks” in the Form 10-K for a discussion of environmental risks.
Critical Accounting Estimates
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Critical Accounting Estimates” in the Form 10-K for a discussion of the estimates and judgments necessary in Entergy New Orleans’s accounting for utility regulatory accounting, unbilled revenue, impairment of long-lived assets and trust fund investments, taxation and uncertain tax positions, qualified pension and other postretirement benefits, and other contingencies.
New Accounting Pronouncements
See “New Accounting Pronouncements” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and AnalysisNote 1 to the financial statements in the Form 10-K for a discussion of new accounting pronouncements.
| | ENTERGY NEW ORLEANS, LLC AND SUBSIDIARIES | CONSOLIDATED INCOME STATEMENTS | | For the Three Months Ended March 31, 2018 and 2017 | |
| For the Three Months Ended March 31, 2019 and 2018 | | For the Three Months Ended March 31, 2019 and 2018 |
(Unaudited) | | | | | | |
| | | 2018 | | 2017 | | 2019 | | 2018 |
| | | (In Thousands) | | (In Thousands) |
| OPERATING REVENUES | | | | | | | | |
| Electric | |
| $155,818 |
| |
| $142,345 |
| |
| $130,883 |
| |
| $155,818 |
|
| Natural gas | | 32,457 |
| | 26,644 |
| | 32,311 |
| | 32,457 |
|
| TOTAL | | 188,275 |
| | 168,989 |
| | 163,194 |
| | 188,275 |
|
| | | | | | | | | |
| OPERATING EXPENSES | | | | | | | | |
| Operation and Maintenance: | | | | | | | | |
| Fuel, fuel-related expenses, and gas purchased for resale | | 23,739 |
| | 30,075 |
| | 30,760 |
| | 23,739 |
|
| Purchased power | | 83,156 |
| | 68,359 |
| | 60,649 |
| | 83,156 |
|
| Other operation and maintenance | | 28,299 |
| | 22,291 |
| | 30,298 |
| | 28,299 |
|
| Taxes other than income taxes | | 15,132 |
| | 12,846 |
| | 13,542 |
| | 15,132 |
|
| Depreciation and amortization | | 13,747 |
| | 13,050 |
| | 14,164 |
| | 13,747 |
|
| Other regulatory charges - net | | 6,333 |
| | 385 |
| |
| Other regulatory charges (credits) - net | | | (2,355 | ) | | 6,333 |
|
| TOTAL | | 170,406 |
| | 147,006 |
| | 147,058 |
| | 170,406 |
|
| | | | | | | | | |
| OPERATING INCOME | | 17,869 |
| | 21,983 |
| | 16,136 |
| | 17,869 |
|
| | | | | | | | | |
| OTHER INCOME | | | | | | | | |
| Allowance for equity funds used during construction | | 851 |
| | 450 |
| | 2,290 |
| | 851 |
|
| Interest and investment income | | 93 |
| | 135 |
| | 179 |
| | 93 |
|
| Miscellaneous - net | | (337 | ) | | (123 | ) | | (1,506 | ) | | (337 | ) |
| TOTAL | | 607 |
| | 462 |
| | 963 |
| | 607 |
|
| | | | | | | | | |
| INTEREST EXPENSE | | | | | | | | |
| Interest expense | | 5,279 |
| | 5,343 |
| | 5,936 |
| | 5,279 |
|
| Allowance for borrowed funds used during construction | | (314 | ) | | (158 | ) | | (914 | ) | | (314 | ) |
| TOTAL | | 4,965 |
| | 5,185 |
| | 5,022 |
| | 4,965 |
|
| | | | | | | | | |
| INCOME BEFORE INCOME TAXES | | 13,511 |
| | 17,260 |
| | 12,077 |
| | 13,511 |
|
| | | | | | | | | |
| Income taxes | | 2,629 |
| | 6,282 |
| | 3,054 |
| | 2,629 |
|
| | | | | | | | | |
| NET INCOME | | 10,882 |
| | 10,978 |
| |
| $9,023 |
| |
| $10,882 |
|
| | | | | | | | | |
| Preferred dividend requirements and other | | — |
| | 241 |
| |
| | | | | | |
| EARNINGS APPLICABLE TO COMMON EQUITY | |
| $10,882 |
| |
| $10,737 |
| |
| | | | | | |
| See Notes to Financial Statements. | | | | | | | | |
(pagePage left blank intentionally)
|
| | | | | | | | |
| ENTERGY NEW ORLEANS, LLC AND SUBSIDIARIES |
| CONSOLIDATED STATEMENTS OF CASH FLOWS |
| For the Three Months Ended March 31, 2018 and 2017 |
| (Unaudited) |
| | | 2018 | | 2017 |
| | | (In Thousands) |
| OPERATING ACTIVITIES | | | | |
| Net income | |
| $10,882 |
| |
| $10,978 |
|
| Adjustments to reconcile net income to net cash flow provided by operating activities: | | | | |
| Depreciation and amortization | | 13,747 |
| | 13,050 |
|
| Deferred income taxes, investment tax credits, and non-current taxes accrued | | 17,909 |
| | 7,102 |
|
| Changes in assets and liabilities: | | | | |
| Receivables | | 3,378 |
| | (2,659 | ) |
| Fuel inventory | | 951 |
| | 1,798 |
|
| Accounts payable | | (7,973 | ) | | (11,920 | ) |
Prepaid taxes
| | (13,351 | ) | | (1,992 | ) |
| Interest accrued | | (81 | ) | | 34 |
|
| Deferred fuel costs | | (11,309 | ) | | 6,096 |
|
| Other working capital accounts | | (12,082 | ) | | (13,106 | ) |
| Provisions for estimated losses | | 196 |
| | (655 | ) |
| Other regulatory assets | | 7,226 |
| | 300 |
|
| Other regulatory liabilities | | 1,331 |
| | (934 | ) |
| Pension and other postretirement liabilities | | (3,686 | ) | | (3,915 | ) |
| Other assets and liabilities | | (89 | ) | | 1,442 |
|
| Net cash flow provided by operating activities | | 7,049 |
| | 5,619 |
|
| | | | | |
| INVESTING ACTIVITIES | | | | |
| Construction expenditures | | (41,105 | ) | | (26,079 | ) |
| Allowance for equity funds used during construction | | 851 |
| | 450 |
|
| Changes in money pool receivable - net | | 12,291 |
| | (12,100 | ) |
| Receipts from storm reserve escrow account | | 3 |
| | — |
|
| Payments to storm reserve escrow account | | (232 | ) | | (110 | ) |
| Changes in securitization account | | (3,381 | ) | | (2,912 | ) |
| Net cash flow used in investing activities | | (31,573 | ) | | (40,751 | ) |
| | | | | |
| FINANCING ACTIVITIES | | | | |
| Dividends paid: | | | | |
| Common stock | | (6,250 | ) | | (12,200 | ) |
| Preferred stock | | — |
| | (241 | ) |
| Other | | (607 | ) | | 573 |
|
| Net cash flow used in financing activities | | (6,857 | ) | | (11,868 | ) |
| | | | | |
| Net decrease in cash and cash equivalents | | (31,381 | ) | | (47,000 | ) |
| Cash and cash equivalents at beginning of period | | 32,741 |
| | 103,068 |
|
| Cash and cash equivalents at end of period | |
| $1,360 |
| |
| $56,068 |
|
| | | | | |
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | | | | |
| Cash paid during the period for: | | | | |
| Interest - net of amount capitalized | |
| $5,098 |
| |
| $5,043 |
|
| | | | | |
| See Notes to Financial Statements. | | | | |
|
| | | | | | | | |
| ENTERGY NEW ORLEANS, LLC AND SUBSIDIARIES |
| CONSOLIDATED BALANCE SHEETS |
| ASSETS |
| March 31, 2018 and December 31, 2017 |
| (Unaudited) |
| | | 2018 | | 2017 |
| | | (In Thousands) |
| CURRENT ASSETS | | | | |
| Cash and cash equivalents | | | | |
| Cash | |
| $26 |
| |
| $30 |
|
| Temporary cash investments | | 1,334 |
| | 32,711 |
|
| Total cash and cash equivalents | | 1,360 |
| | 32,741 |
|
Securitization recovery trust account
| | 4,836 |
| | 1,455 |
|
| Accounts receivable: | | | | |
|
| Customer | | 51,744 |
| | 51,006 |
|
| Allowance for doubtful accounts | | (3,072 | ) | | (3,057 | ) |
| Associated companies | | 9,576 |
| | 22,976 |
|
| Other | | 10,051 |
| | 6,471 |
|
| Accrued unbilled revenues | | 14,066 |
| | 20,638 |
|
| Total accounts receivable | | 82,365 |
| | 98,034 |
|
| Deferred fuel costs | | 3,535 |
| | — |
|
| Fuel inventory - at average cost | | 939 |
| | 1,890 |
|
| Materials and supplies - at average cost | | 11,562 |
| | 10,381 |
|
| Prepaid taxes | | 39,830 |
| | 26,479 |
|
| Prepayments and other | | 18,794 |
| | 8,030 |
|
| TOTAL | | 163,221 |
| | 179,010 |
|
| | | | | |
| OTHER PROPERTY AND INVESTMENTS | | | | |
| Non-utility property at cost (less accumulated depreciation) | | 1,016 |
| | 1,016 |
|
| Storm reserve escrow account | | 79,775 |
| | 79,546 |
|
| Other | | — |
| | 2,373 |
|
| TOTAL | | 80,791 |
| | 82,935 |
|
| | | | | |
| UTILITY PLANT | | | | |
| Electric | | 1,314,262 |
| | 1,302,235 |
|
| Natural gas | | 267,527 |
| | 261,263 |
|
| Construction work in progress | | 71,845 |
| | 46,993 |
|
| TOTAL UTILITY PLANT | | 1,653,634 |
| | 1,610,491 |
|
| Less - accumulated depreciation and amortization | | 643,737 |
| | 631,178 |
|
| UTILITY PLANT - NET | | 1,009,897 |
| | 979,313 |
|
| | | | | |
| DEFERRED DEBITS AND OTHER ASSETS | | | | |
| Regulatory assets: | | | | |
| Deferred fuel costs | | 4,080 |
| | 4,080 |
|
| Other regulatory assets (includes securitization property of $69,199 as of March 31, 2018 and $72,095 as of December 31, 2017) | | 244,207 |
| | 251,433 |
|
| Other | | 1,843 |
| | 1,065 |
|
| TOTAL | | 250,130 |
| | 256,578 |
|
| | | | | |
| TOTAL ASSETS | |
| $1,504,039 |
| |
| $1,497,836 |
|
| | | | | |
| See Notes to Financial Statements. | | | | |
|
| | | | | | | | |
| ENTERGY NEW ORLEANS, LLC AND SUBSIDIARIES |
| CONSOLIDATED STATEMENTS OF CASH FLOWS |
| For the Three Months Ended March 31, 2019 and 2018 |
| (Unaudited) |
| | | 2019 | | 2018 |
| | | (In Thousands) |
| OPERATING ACTIVITIES | | | | |
| Net income | |
| $9,023 |
| |
| $10,882 |
|
| Adjustments to reconcile net income to net cash flow provided by operating activities: | | | | |
| Depreciation and amortization | | 14,164 |
| | 13,747 |
|
| Deferred income taxes, investment tax credits, and non-current taxes accrued | | 9,743 |
| | 17,909 |
|
| Changes in assets and liabilities: | | | | |
| Receivables | | (20 | ) | | 3,378 |
|
| Fuel inventory | | 1,529 |
| | 951 |
|
| Accounts payable | | 8,298 |
| | (7,973 | ) |
| Prepaid taxes and taxes accrued | | (4,443 | ) | | (13,351 | ) |
| Interest accrued | | 650 |
| | (81 | ) |
| Deferred fuel costs | | (71 | ) | | (11,309 | ) |
| Other working capital accounts | | (15,144 | ) | | (12,082 | ) |
| Provisions for estimated losses | | 454 |
| | 196 |
|
| Other regulatory assets | | (16,528 | ) | | 7,226 |
|
| Other regulatory liabilities | | (8,634 | ) | | 1,331 |
|
| Pension and other postretirement liabilities | | (1,706 | ) | | (3,686 | ) |
| Other assets and liabilities | | 19,207 |
| | (89 | ) |
| Net cash flow provided by operating activities | | 16,522 |
| | 7,049 |
|
| | | | | |
| INVESTING ACTIVITIES | | | | |
| Construction expenditures | | (57,788 | ) | | (41,105 | ) |
| Allowance for equity funds used during construction | | 2,290 |
| | 851 |
|
| Changes in money pool receivable - net | | 22,016 |
| | 12,291 |
|
| Receipts from storm reserve escrow account | | — |
| | 3 |
|
| Payments to storm reserve escrow account | | (451 | ) | | (232 | ) |
| Changes in securitization account | | (2,850 | ) | | (3,381 | ) |
| Net cash flow used in investing activities | | (36,783 | ) | | (31,573 | ) |
| | | | | |
| FINANCING ACTIVITIES | | | | |
| Change in money pool payable - net | | 1,877 |
| | — |
|
| Distributions/dividends paid: | | | | |
| Common equity | | — |
| | (6,250 | ) |
| Other | | (499 | ) | | (607 | ) |
| Net cash flow provided by (used in) financing activities | | 1,378 |
| | (6,857 | ) |
| | | | | |
| Net decrease in cash and cash equivalents | | (18,883 | ) | | (31,381 | ) |
| Cash and cash equivalents at beginning of period | | 19,677 |
| | 32,741 |
|
| Cash and cash equivalents at end of period | |
| $794 |
| |
| $1,360 |
|
| | | | | |
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | | | | |
| Cash paid during the period for: | | | | |
| Interest - net of amount capitalized | |
| $5,027 |
| |
| $5,098 |
|
| | | | | |
| See Notes to Financial Statements. | | | | |
|
| | | | | | | | |
| ENTERGY NEW ORLEANS, LLC AND SUBSIDIARIES |
| CONSOLIDATED BALANCE SHEETS |
| LIABILITIES AND EQUITY |
| March 31, 2018 and December 31, 2017 |
| (Unaudited) |
| | | 2018 | | 2017 |
| | | (In Thousands) |
| CURRENT LIABILITIES | | | | |
| Payable due to associated company | |
| $2,077 |
| |
| $2,077 |
|
| Accounts payable: | | | | |
| Associated companies | | 43,119 |
| | 47,472 |
|
| Other | | 29,267 |
| | 29,777 |
|
| Customer deposits | | 28,727 |
| | 28,442 |
|
| Interest accrued | | 5,406 |
| | 5,487 |
|
| Deferred fuel costs | | — |
| | 7,774 |
|
| Current portion of unprotected excess accumulated deferred income taxes | | 27,857 |
| | — |
|
| Other | | 4,564 |
| | 7,351 |
|
| TOTAL CURRENT LIABILITIES | | 141,017 |
| | 128,380 |
|
| | | | | |
| NON-CURRENT LIABILITIES | | | | |
| Accumulated deferred income taxes and taxes accrued | | 302,461 |
| | 283,302 |
|
| Accumulated deferred investment tax credits | | 2,296 |
| | 2,323 |
|
| Regulatory liability for income taxes - net | | 90,359 |
| | 119,259 |
|
| Asset retirement cost liabilities | | 3,128 |
| | 3,076 |
|
| Accumulated provisions | | 85,279 |
| | 85,083 |
|
| Pension and other postretirement liabilities | | 17,061 |
| | 20,755 |
|
| Long-term debt (includes securitization bonds of $74,480 as of March 31, 2018 and $74,419 as of December 31, 2017) | | 418,572 |
| | 418,447 |
|
| Long-term payable due to associated company | | 16,346 |
| | 16,346 |
|
| Other | | 7,340 |
| | 5,317 |
|
| TOTAL NON-CURRENT LIABILITIES | | 942,842 |
| | 953,908 |
|
| | | | | |
| Commitments and Contingencies | | | | |
| | | | | |
| EQUITY | | | | |
| Member's equity | | 420,180 |
| | 415,548 |
|
| TOTAL | | 420,180 |
| | 415,548 |
|
| | | | | |
| TOTAL LIABILITIES AND EQUITY | |
| $1,504,039 |
| |
| $1,497,836 |
|
| | | | | |
| See Notes to Financial Statements. | | | | |
|
| | | | | | | | |
| ENTERGY NEW ORLEANS, LLC AND SUBSIDIARIES |
| CONSOLIDATED BALANCE SHEETS |
| ASSETS |
| March 31, 2019 and December 31, 2018 |
| (Unaudited) |
| | | 2019 | | 2018 |
| | | (In Thousands) |
| CURRENT ASSETS | | | | |
| Cash and cash equivalents | | | | |
| Cash | |
| $794 |
| |
| $26 |
|
| Temporary cash investments | | — |
| | 19,651 |
|
| Total cash and cash equivalents | | 794 |
| | 19,677 |
|
| Securitization recovery trust account | | 5,075 |
| | 2,224 |
|
| Accounts receivable: | | | | |
|
| Customer | | 47,422 |
| | 43,890 |
|
| Allowance for doubtful accounts | | (3,033 | ) | | (3,222 | ) |
| Associated companies | | 2,054 |
| | 27,938 |
|
| Other | | 7,115 |
| | 4,090 |
|
| Accrued unbilled revenues | | 16,049 |
| | 18,907 |
|
| Total accounts receivable | | 69,607 |
| | 91,603 |
|
| Fuel inventory - at average cost | | 4 |
| | 1,533 |
|
| Materials and supplies - at average cost | | 11,989 |
| | 12,133 |
|
| Prepayments and other | | 17,250 |
| | 6,905 |
|
| TOTAL | | 104,719 |
| | 134,075 |
|
| | | | | |
| OTHER PROPERTY AND INVESTMENTS | | | | |
| Non-utility property at cost (less accumulated depreciation) | | 1,016 |
| | 1,016 |
|
| Storm reserve escrow account | | 81,305 |
| | 80,853 |
|
| TOTAL | | 82,321 |
| | 81,869 |
|
| | | | | |
| UTILITY PLANT | | | | |
| Electric | | 1,358,401 |
| | 1,364,091 |
|
| Natural gas | | 291,484 |
| | 284,728 |
|
| Construction work in progress | | 184,527 |
| | 146,668 |
|
| TOTAL UTILITY PLANT | | 1,834,412 |
| | 1,795,487 |
|
| Less - accumulated depreciation and amortization | | 675,943 |
| | 670,135 |
|
| UTILITY PLANT - NET | | 1,158,469 |
| | 1,125,352 |
|
| | | | | |
| DEFERRED DEBITS AND OTHER ASSETS | | | | |
| Regulatory assets: | | | | |
| Deferred fuel costs | | 4,080 |
| | 4,080 |
|
| Other regulatory assets (includes securitization property of $58,089 as of March 31, 2019 and $60,453 as of December 31, 2018) | | 246,324 |
| | 229,796 |
|
| Other | | 1,991 |
| | 1,416 |
|
| TOTAL | | 252,395 |
| | 235,292 |
|
| | | | | |
| TOTAL ASSETS | |
| $1,597,904 |
| |
| $1,576,588 |
|
| | | | | |
| See Notes to Financial Statements. | | | | |
|
| | | | | | | | |
| ENTERGY NEW ORLEANS, LLC AND SUBSIDIARIES |
| CONSOLIDATED BALANCE SHEETS |
| LIABILITIES AND EQUITY |
| March 31, 2019 and December 31, 2018 |
| (Unaudited) |
| | | 2019 | | 2018 |
| | | (In Thousands) |
| CURRENT LIABILITIES | | | | |
| Payable due to associated company | |
| $1,979 |
| |
| $1,979 |
|
| Accounts payable: | | | | |
| Associated companies | | 44,433 |
| | 43,416 |
|
| Other | | 48,308 |
| | 36,686 |
|
| Customer deposits | | 28,683 |
| | 28,667 |
|
| Taxes accrued | | — |
| | 4,068 |
|
| Interest accrued | | 7,016 |
| | 6,366 |
|
| Deferred fuel costs | | 1,217 |
| | 1,288 |
|
| Current portion of unprotected excess accumulated deferred income taxes | | 25,220 |
| | 25,301 |
|
| Other | | 6,611 |
| | 9,521 |
|
| TOTAL CURRENT LIABILITIES | | 163,467 |
| | 157,292 |
|
| | | | | |
| NON-CURRENT LIABILITIES | | | | |
| Accumulated deferred income taxes and taxes accrued | | 334,694 |
| | 323,595 |
|
| Accumulated deferred investment tax credits | | 2,197 |
| | 2,219 |
|
| Regulatory liability for income taxes - net | | 57,233 |
| | 60,249 |
|
| Asset retirement cost liabilities | | 3,347 |
| | 3,291 |
|
| Accumulated provisions | | 87,048 |
| | 86,594 |
|
| Pension and other postretirement liabilities | | 3,920 |
| | 5,626 |
|
| Long-term debt (includes securitization bonds of $63,681 as of March 31, 2019 and $63,620 as of December 31, 2018) | | 467,498 |
| | 467,358 |
|
| Long-term payable due to associated company | | 14,367 |
| | 14,367 |
|
| Other | | 10,160 |
| | 11,047 |
|
| TOTAL NON-CURRENT LIABILITIES | | 980,464 |
| | 974,346 |
|
| | | | | |
| Commitments and Contingencies | | | | |
| | | | | |
| EQUITY | | | | |
| Member's equity | | 453,973 |
| | 444,950 |
|
| TOTAL | | 453,973 |
| | 444,950 |
|
| | | | | |
| TOTAL LIABILITIES AND EQUITY | |
| $1,597,904 |
| |
| $1,576,588 |
|
| | | | | |
| See Notes to Financial Statements. | | | | |
|
| | | |
| ENTERGY NEW ORLEANS, LLC AND SUBSIDIARIES |
| CONSOLIDATED STATEMENTS OF CHANGES IN MEMBER'S EQUITY |
For the Three Months Ended March 31, 20182019 and 20172018 |
| (Unaudited) |
| | |
| | |
| | Member’s Equity |
| | (In Thousands) |
| |
Balance at December 31, 2016 |
| $426,946 |
|
| |
Net income | 10,978 |
|
Common equity distributions | (12,200 | ) |
Preferred stock dividends | (241 | ) |
| |
Balance at March 31, 2017 |
| $425,483 |
|
| |
| | |
| Balance at December 31, 2017 |
| $415,548 |
|
| | |
| Net income | 10,882 |
|
| Common equity distributions | (6,250 | ) |
| | |
| Balance at March 31, 2018 |
| $420,180 |
|
| | |
| |
| Balance at December 31, 2018 |
| $444,950 |
|
| |
| Net income | 9,023 |
|
| |
| Balance at March 31, 2019 |
| $453,973 |
|
| |
| See Notes to Financial Statements. | |
|
| | ENTERGY NEW ORLEANS, LLC AND SUBSIDIARIES | SELECTED OPERATING RESULTS | | For the Three Months Ended March 31, 2018 and 2017 | |
| For the Three Months Ended March 31, 2019 and 2018 | | For the Three Months Ended March 31, 2019 and 2018 |
(Unaudited) | | | | | | | | | | | | | | |
| | | | | Increase/ | | |
| | Three Months Ended | | Increase/ | | |
|
| Description | | 2018 | | 2017 | | (Decrease) | | % | | 2019 | | 2018 | | (Decrease) | | % |
| | | (Dollars In Millions) | | |
| | (Dollars In Millions) | | |
|
| Electric Operating Revenues: | | | | |
| | |
| | |
| | | | |
| | |
| | |
|
| Residential | |
| $65 |
| |
| $53 |
| |
| $12 |
| | 23 |
| |
| $52 |
| |
| $65 |
| |
| ($13 | ) | | (20 | ) |
| Commercial | | 54 |
| | 54 |
| | — |
| | — |
| | 46 |
| | 54 |
| | (8 | ) | | (15 | ) |
| Industrial | | 8 |
| | 8 |
| | — |
| | — |
| | 7 |
| | 8 |
| | (1 | ) | | (13 | ) |
| Governmental | | 18 |
| | 18 |
| | — |
| | — |
| | 16 |
| | 18 |
| | (2 | ) | | (11 | ) |
| Total billed retail | | 145 |
| | 133 |
| | 12 |
| | 9 |
| | 121 |
| | 145 |
| | (24 | ) | | (17 | ) |
| Sales for resale: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Non associated companies | | 13 |
| | 9 |
| | 4 |
| | 44 |
| |
| Non-associated companies | | | 10 |
| | 13 |
| | (3 | ) | | (23 | ) |
| Other | | (2 | ) | | — |
| | (2 | ) | | — |
| | — |
| | (2 | ) | | 2 |
| | (100 | ) |
| Total | |
| $156 |
| |
| $142 |
| |
| $14 |
| | 10 |
| |
| $131 |
| |
| $156 |
| |
| ($25 | ) | | (16 | ) |
| | | | | | | | | | | | | | | | | |
| Billed Electric Energy Sales (GWh): | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Residential | | 577 |
| | 456 |
| | 121 |
| | 27 |
| | 511 |
| | 577 |
| | (66 | ) | | (11 | ) |
| Commercial | | 524 |
| | 515 |
| | 9 |
| | 2 |
| | 492 |
| | 524 |
| | (32 | ) | | (6 | ) |
| Industrial | | 99 |
| | 98 |
| | 1 |
| | 1 |
| | 97 |
| | 99 |
| | (2 | ) | | (2 | ) |
| Governmental | | 181 |
| | 184 |
| | (3 | ) | | (2 | ) | | 181 |
| | 181 |
| | — |
| | — |
|
| Total retail | | 1,381 |
| | 1,253 |
| | 128 |
| | 10 |
| | 1,281 |
| | 1,381 |
| | (100 | ) | | (7 | ) |
| Sales for resale: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Non-associated companies | | 627 |
| | 507 |
| | 120 |
| | 24 |
| | 528 |
| | 627 |
| | (99 | ) | | (16 | ) |
| Total | | 2,008 |
| | 1,760 |
| | 248 |
| | 14 |
| | 1,809 |
| | 2,008 |
| | (199 | ) | | (10 | ) |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
ENTERGY TEXAS, INC. AND SUBSIDIARIES
MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS
Results of Operations
Net Income
Net income increased $6.5$4 million primarily due to higher net revenue, after excluding the effect of the return of unprotected excess accumulated deferred income taxes which is offset in income taxes, and a lower effectivehigher other income, tax rate, partially offset by higher other operation and maintenance expenses and higher depreciation and amortization expenses.
Net Revenue
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 the first quarter 20182019 to the first quarter 2017:2018:
|
| | | |
| | Amount |
| | (In Millions) |
2017 net revenue |
| $140.3 |
|
Retail electric price | 6.0 |
|
Volume/weather | 5.0 |
|
Net wholesale revenue | (6.0 | ) |
Other | (0.4 | ) |
| 2018 net revenue |
| $144.9 |
|
| Return of unprotected excess accumulated deferred income taxes to customers | (22.3 | ) |
| Volume/weather | (3.5 | ) |
| Retail electric price | 10.6 |
|
| Other | 2.3 |
|
| 2019 net revenue |
| $132.0 |
|
The return of unprotected excess accumulated deferred income taxes to customers resulted from the return of unprotected excess accumulated deferred income taxes through a rider effective October 2018. There is no effect on net income as the reduction in net revenue was offset by a reduction in income tax expense. See Note 2 to the financial statements in the Form 10-K for further discussion of regulatory activity regarding the Tax Cuts and Jobs Act.
The volume/weather variance is primarily due to a decrease of 160 GWh, or 4%, in billed electricity usage, including the effect of less favorable weather on residential and commercial sales.
The retail electric price variance is primarily due to increases in the transmission cost recovery factor rideran annual base rate in March 2017 and the distribution cost recovery factor rider in September 2017, eachincrease of $53.2 million effective October 2018 as approved by the PUCT. See Note 2 to the financial statements in the Form 10-K for further discussion of the transmission cost recovery factor rider and the distribution cost recovery factor rider filings.
The volume/weather variance is primarily due to the effect of more favorable weather on residential sales, an increase in residential and commercial usage resulting from a 1% increase in the average number of residential customers and a 3% increase in the average number of commercial customers, and an increase in industrial usage. The increase was partially offset by decreased usage during the unbilled sales period. The increase in industrial usage is primarily due to an increase in demand for mid-size to small customers.
The net wholesale revenue variance is primarily due to increased purchased power capacity costs.rate case filing.
Other Income Statement Variances
Other operation and maintenance expenses increased primarily due to an increase of $4.3 million in fossil-fueled generation expenses primarily due to a higher scope of work performed during plant outages in 2019 as compared to 2018 and an increase of $1 million in information technology costs primarily due to higher labor costs and higher software maintenance costs in 2019 as compared to 2018.
Depreciation and amortization expenses increased primarily due toas result of new rates established in the settlement of the 2018 base rate case and additions to plant in service.
Entergy Texas, Inc. and Subsidiaries
Management's Financial Discussion and Analysis
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 2019 primarily due to the Montgomery County Power Station project.
Income Taxes
The effective income tax rate was (554.5%) for the first quarter 2019. The difference in the effective income tax rate for the first quarter 2019 versus the federal statutory rate of 21% was primarily due to the amortization of excess accumulated deferred income taxes. See Note 10 to the financial statements herein and Notes 2 and 3 to the financial statements in the Form 10-K for a discussion of the effects and regulatory activity regarding the Tax Cuts and Jobs Act.
The effective income tax rate was 22.2% for the first quarter 2018. The difference in the effective income tax rate for the first quarter 2018 versus the federal statutory rate of 21% was primarily due to a write-off of a stock-based
compensation deferred tax asset in 2018 and state income taxes, partially offset by certain book and tax differences related to utility plant items and book and tax differences related to the allowance for equity funds used during construction.
Entergy Texas, Inc. and Subsidiaries
Management's Financial Discussion and Analysis
The effective income tax rate was 43.2% for the first quarter 2017. The difference in the effective income tax rate for the first quarter 2017 versus the federal statutory rate of 35% was primarily due to a write-off of a stock-based compensation deferred tax asset in 2017 and certain book and tax differences related to utility plant items, partially offset by book and tax differences related to the allowance for equity funds used during construction.
Income Tax Legislation
See the “Income Tax Legislation” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis in the Form 10-K for a discussion of the Tax Cuts and Jobs Act, the federal income tax legislation enacted in December 2017. Note 3 to the financial statements in the Form 10-K contains additional discussion of the effect of the Tax Act on 20172018 results of operations and financial position, the provisions of the Tax Act, and the uncertainties associated with accounting for the Tax Act, and Note 10 to the financial statements herein contains updates to that discussion. Note 2 to the financial statements herein and in the Form 10-K contains discussionsa discussion of the regulatory proceedings commenced or other responses by Entergy’s regulators tothat have considered the effects of the Tax Act.
Liquidity and Capital Resources
Cash Flow
Cash flows for the three months ended March 31, 20182019 and 20172018 were as follows:
| | | | 2018 | | 2017 | 2019 | | 2018 |
| | (In Thousands) | (In Thousands) |
| Cash and cash equivalents at beginning of period |
| $115,513 |
| |
| $6,181 |
|
| $56 |
| |
| $115,513 |
|
| | | | | | | |
| Cash flow provided by (used in): | | | | | | |
| Operating activities | 1,048 |
| | 59,580 |
| 42,651 |
| | 1,048 |
|
| Investing activities | (52,129 | ) | | (69,587 | ) | (163,922 | ) | | (52,129 | ) |
| Financing activities | (25,456 | ) | | 3,914 |
| 143,444 |
| | (25,456 | ) |
| Net decrease in cash and cash equivalents | (76,537 | ) | | (6,093 | ) | |
| Net increase (decrease) in cash and cash equivalents | | 22,173 |
| | (76,537 | ) |
| | | | | | | |
| Cash and cash equivalents at end of period |
| $38,976 |
| |
| $88 |
|
| $22,229 |
| |
| $38,976 |
|
Operating Activities
Net cash flow provided by operating activities decreased $58.5increased $41.6 million for the three months ended March 31, 20182019 compared to the three months ended March 31, 20172018 primarily due to the timing of recovery of fuel and purchased power costs.
Investing Activities
Net cash flow used in investing activities decreased $17.5 million forcosts, partially offset by the three months ended March 31, 2018 comparedreturn of unprotected excess accumulated deferred income taxes to customers. See Note 2 to the three months ended March 31, 2017 primarily due to money poolfinancial statements in the Form 10-K for further discussion of regulatory activity regarding the Tax Cuts and cash collateral of $14 million posted in March 2017 to support Entergy Texas’s obligations to MISO. The decrease was partially offset by:
an increase of $17.5 million in fossil-fueled generation construction expenditures primarily due to increased spending on the Lewis Creek Dam restoration project; and
an increase of $6.6 million in transmission construction expenditures primarily due to a higher scope of work performed in 2018 as compared to the same period in 2017.
Decreases in Entergy Texas’s receivable from the money pool are a source of cash flow, and Entergy Texas’s receivable from the money pool decreased by $32.3 million for the three months ended March 31, 2018 compared toJobs Act.
Entergy Texas, Inc. and Subsidiaries
Management's Financial Discussion and Analysis
decreasing by $0.7
Investing Activities
Net cash flow used in investing activities increased $111.8 million for the three months ended March 31, 2017.2019 compared to the three months ended March 31, 2018 primarily due to:
an increase of $43.1 million in fossil-fueled generation construction expenditures primarily due to increased spending on the Montgomery County Power Station;
an increase of $37 million in transmission construction expenditures primarily due to a higher scope of work performed in 2019 as compared to 2018; 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 $3.6 million for the three months ended March 31, 2019 compared to decreasing by $32.3 million for the three months ended March 31, 2018. The money pool is an inter-company borrowing arrangement designed to reduce the Utility subsidiaries’ need for external short-term borrowings.
Financing Activities
Entergy Texas’s financing activities usedprovided $143.4 million of cash for the three months ended March 31, 2019 compared to using $25.5 million of cash for the three months ended March 31, 2018 compared to providing $3.9 million of cash for the three months ended March 31, 2017 primarily due to the issuance of $300 million of 4.0% Series first mortgage bonds and $400 million of 4.5% Series first mortgage bonds in January 2019, partially offset by the repayment, at maturity, of $500 million of 7.125% Series first mortgage bonds in February 2019 and money pool activity. See Note 4 to the financial statements herein and Note 5 to the financial statements in the Form 10-K for more details on long-term debt.
IncreasesDecreases in Entergy Texas’s payable to the money pool are a sourceuse of cash flow, and Entergy Texas’s payable to the money pool increaseddecreased by $28.9$22.4 million for the three months ended March 31, 2017.2019.
Capital Structure
Entergy Texas’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 for Entergy Texas is primarily due to the net issuance of $200 million of first mortgage bonds in 2019.
| | | | March 31, 2018 | | December 31, 2017 | March 31,
2019 | | December 31, 2018 |
| Debt to capital | 55.0 | % | | 55.7 | % | 53.9 | % | | 51.6 | % |
| Effect of excluding the securitization bonds | (6.0 | %) | | (6.3 | %) | (4.2 | %) | | (5.2 | %) |
| Debt to capital, excluding securitization bonds (a) | 49.0 | % | | 49.4 | % | 49.7 | % | | 46.4 | % |
| Effect of subtracting cash | (0.8 | %) | | (2.5 | %) | (0.4 | %) | | — | % |
| Net debt to net capital, excluding securitization bonds (a) | 48.2 | % | | 46.9 | % | 49.3 | % | | 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 financing 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 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 in the Form 10-K. 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
Entergy Texas, Inc. and Subsidiaries
Management's Financial Discussion and Analysis
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.
Uses and Sources of Capital
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Liquidity and Capital Resources” in the Form 10-K for a discussion of Entergy Texas’s uses and sources of capital. Following are updates to information provided in the Form 10-K.
Entergy Texas’s receivables from or (payables to) the money pool were as follows:
|
| | | | | | |
March 31,
2018 | | December 31, 2017 | | March 31,
2017 | | December 31, 2016 |
| (In Thousands) |
| $12,590 | | $44,903 | | ($28,941) | | $681 |
|
| | | | | | |
March 31,
2019 | | December 31, 2018 | | March 31, 2018 | | December 31, 2017 |
| (In Thousands) |
| $3,571 | | ($22,389) | | $12,590 | | $44,903 |
See Note 4 to the financial statements in the Form 10-K 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 2023. The credit facility includes fronting commitments for the issuance of letters of credit against $30 million of the borrowing capacity of the facility. As of March 31, 2018,2019, there were no cash borrowings and $24.4$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 March 31, 2018, a $25.62019, an $11.7 million letter of credit was outstanding under Entergy Texas’s uncommitted letter of credit facility. See Note 4 to the financial statements herein for additional discussion of the credit facilities.
State and Local Rate Regulation and Fuel-Cost Recovery
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - State and Local Rate Regulation and Fuel-Cost Recovery” in the Form 10-K for a discussion of state and local rate regulation and fuel-cost recovery. The following are updates to that discussion.
Fuel and purchased power cost recovery2018 Base Rate Case
As discussedIn 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 Form 10-K,$7.2 million requested. Entergy Texas is evaluating its response to the parties’ positions. A hearing is scheduled for June 2019.
Distribution Cost Recovery Factor (DCRF) Rider
In March 2019, Entergy Texas filed with the PUCT a request to set a new DCRF rider. The proposed new DCRF rider is designed to collect approximately $3.2 million annually from Entergy Texas’s retail customers based on its capital invested in July 2015 certaindistribution between January 1, 2018 and December 31, 2018. A procedural schedule has been established, with a hearing in June 2019.
Entergy Texas, Inc. and Subsidiaries
Management's Financial Discussion and Analysis
Transmission Cost Recovery Factor (TCRF) Rider
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 briefstestimony proposing a load growth adjustment, which would fully offset Entergy Texas’s proposed TCRF revenue requirement. The PUCT has previously ruled that load growth adjustments should not be included in an open 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 year 2006 production costs. In October 2015 an ALJ issued a proposal for decision recommending that the additional bandwidth remedy payments be refunded to retail customers. In January 2016 the PUCT issued its order affirming the ALJ’s recommendation, andTCRF. Entergy Texas filed a motion for rehearing ofinterim rates to be effective April 2019. In April 2019 the PUCT’s decision,hearing on Entergy Texas’s motion and the hearing on the merits were held, and the ALJ suspended the date on 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’sTCRF would be put into permanent effect until July 2019, unless an earlier decision and Entergy Texas refunded to customers the $10.9 million over a four-month period beginning with the first billing cycle of July 2016. 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 the U.S. Court of Appeals for the Fifth Circuit reversed the decision of the Federal District Court, reinstating the original PUCT decision. Entergy Texas is considering its legal options. The State District Court appeal of the PUCT’s January 2016 decision remains pending.
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 continued through March 2018. The fuel refund was approvedissued by the PUCT in March 2018.PUCT. This matter is currently awaiting the ALJ’s proposal for decision.
Federal Regulation
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS – Federal Regulation” in the Form 10-K for a discussion of federal regulation.
Industrial and Commercial Customers
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS – Industrial and Commercial Customers” in the Form 10-K for a discussion of industrial and commercial customers.
Nuclear Matters
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Nuclear Matters” in the Form 10-K for discussion of nuclear matters.
Entergy Texas, Inc. and Subsidiaries
Management's Financial Discussion and Analysis
Environmental Risks
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Environmental Risks” in the Form 10-K for a discussion of environmental risks.
Critical Accounting Estimates
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Critical Accounting Estimates” in the Form 10-K for a discussion of utility regulatory accounting, unbilled revenue, impairment of long-lived assets and trust fund investments, taxation and uncertain tax positions, qualified pension and other postretirement benefits, and other contingencies.
New Accounting Pronouncements
See “New Accounting Pronouncements” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and AnalysisNote 1 to the financial statements in the Form 10-K for a discussion of new accounting pronouncements.
| | ENTERGY TEXAS, INC. AND SUBSIDIARIES | CONSOLIDATED INCOME STATEMENTS | | For the Three Months Ended March 31, 2018 and 2017 | |
| For the Three Months Ended March 31, 2019 and 2018 | | For the Three Months Ended March 31, 2019 and 2018 |
(Unaudited) | | | | | | |
| | | 2018 | | 2017 | | 2019 | | 2018 |
| | | (In Thousands) | | (In Thousands) |
| OPERATING REVENUES | | | | | | | | |
| Electric | |
| $348,940 |
| |
| $363,927 |
| |
| $340,474 |
| |
| $348,940 |
|
| | | | | | | | | |
| OPERATING EXPENSES | | | | | | | | |
| Operation and Maintenance: | | | | | | | | |
| Fuel, fuel-related expenses, and gas purchased for resale | | 18,706 |
| | 58,013 |
| | 48,103 |
| | 18,706 |
|
| Purchased power | | 159,692 |
| | 150,384 |
| | 140,868 |
| | 159,692 |
|
| Other operation and maintenance | | 52,674 |
| | 54,128 |
| | 59,626 |
| | 52,674 |
|
| Taxes other than income taxes | | 20,403 |
| | 19,444 |
| | 18,640 |
| | 20,403 |
|
| Depreciation and amortization | | 30,766 |
| | 28,111 |
| | 37,037 |
| | 30,766 |
|
| Other regulatory charges - net | | 25,617 |
| | 15,227 |
| | 19,459 |
| | 25,617 |
|
| TOTAL | | 307,858 |
| | 325,307 |
| | 323,733 |
| | 307,858 |
|
| | | | | | | | | |
| OPERATING INCOME | | 41,082 |
| | 38,620 |
| | 16,741 |
| | 41,082 |
|
| | | | | | | | | |
| OTHER INCOME | | | | | | | | |
| Allowance for equity funds used during construction | | 1,661 |
| | 1,281 |
| | 5,081 |
| | 1,661 |
|
| Interest and investment income | | 555 |
| | 201 |
| | 1,682 |
| | 555 |
|
| Miscellaneous - net | | 113 |
| | 40 |
| | (363 | ) | | 113 |
|
| TOTAL | | 2,329 |
| | 1,522 |
| | 6,400 |
| | 2,329 |
|
| | | | | | | | | |
| INTEREST EXPENSE | | | | | | | | |
| Interest expense | | 22,051 |
| | 21,808 |
| | 22,460 |
| | 22,051 |
|
| Allowance for borrowed funds used during construction | | (938 | ) | | (761 | ) | | (2,580 | ) | | (938 | ) |
| TOTAL | | 21,113 |
| | 21,047 |
| | 19,880 |
| | 21,113 |
|
| | | | | | | | | |
| INCOME BEFORE INCOME TAXES | | 22,298 |
| | 19,095 |
| | 3,261 |
| | 22,298 |
|
| | | | | | | | | |
| Income taxes | | 4,948 |
| | 8,241 |
| | (18,081 | ) | | 4,948 |
|
| | | | | | | | | |
| NET INCOME | |
| $17,350 |
| |
| $10,854 |
| |
| $21,342 |
| |
| $17,350 |
|
| | | | | | | | | |
| See Notes to Financial Statements. | | | | | | | | |
(Page left blank intentionally)
| | ENTERGY TEXAS, INC. AND SUBSIDIARIES | CONSOLIDATED STATEMENTS OF CASH FLOWS | | For the Three Months Ended March 31, 2018 and 2017 | |
| For the Three Months Ended March 31, 2019 and 2018 | | For the Three Months Ended March 31, 2019 and 2018 |
(Unaudited) | | | | 2018 | | 2017 | | 2019 | | 2018 |
| | | (In Thousands) | | (In Thousands) |
| OPERATING ACTIVITIES | | | | | | | | |
| Net income | |
| $17,350 |
| |
| $10,854 |
| |
| $21,342 |
| |
| $17,350 |
|
| Adjustments to reconcile net income to net cash flow provided by operating activities: | | | | | | | | |
| Depreciation and amortization | | 30,766 |
| | 28,111 |
| | 37,037 |
| | 30,766 |
|
| Deferred income taxes, investment tax credits, and non-current taxes accrued | | (21,607 | ) | | (25,678 | ) | | (10,123 | ) | | (21,607 | ) |
| Changes in assets and liabilities: | | | | | | | | |
| Receivables | | 9,190 |
| | (683 | ) | | 65,394 |
| | 9,190 |
|
| Fuel inventory | | (134 | ) | | 4,581 |
| | (173 | ) | | (134 | ) |
| Accounts payable | | (24,653 | ) | | (1,150 | ) | | (57,447 | ) | | (24,653 | ) |
| Taxes accrued | | 3,981 |
| | 16,110 |
| | (9,465 | ) | | 3,981 |
|
| Interest accrued | | (5,575 | ) | | (6,816 | ) | | (4,638 | ) | | (5,575 | ) |
| Deferred fuel costs | | (28,626 | ) | | 20,375 |
| | 8,331 |
| | (28,626 | ) |
| Other working capital accounts | | 4,788 |
| | 1,422 |
| | (913 | ) | | 4,788 |
|
| Provisions for estimated losses | | (208 | ) | | 663 |
| | 1,074 |
| | (208 | ) |
| Other regulatory assets | | 20,497 |
| | 23,762 |
| | 1,358 |
| | 20,497 |
|
| Other regulatory liabilities | | 5,145 |
| | (2,498 | ) | | (24,365 | ) | | 5,145 |
|
| Pension and other postretirement liabilities | | (6,851 | ) | | (5,814 | ) | | (1,120 | ) | | (6,851 | ) |
| Other assets and liabilities | | (3,015 | ) | | (3,659 | ) | | 16,359 |
| | (3,015 | ) |
| Net cash flow provided by operating activities | | 1,048 |
| | 59,580 |
| | 42,651 |
| | 1,048 |
|
| | | | | | | | | |
| INVESTING ACTIVITIES | | | | | | | | |
| Construction expenditures | | (94,123 | ) | | (68,765 | ) | | (176,186 | ) | | (94,123 | ) |
| Allowance for equity funds used during construction | | 1,696 |
| | 1,320 |
| | 5,111 |
| | 1,696 |
|
| Increase in other investments | | — |
| | (14,000 | ) | |
| Changes in money pool receivable - net | | 32,313 |
| | 681 |
| | (3,571 | ) | | 32,313 |
|
| Changes in securitization account | | 7,985 |
| | 11,177 |
| | 10,724 |
| | 7,985 |
|
| Net cash flow used in investing activities | | (52,129 | ) | | (69,587 | ) | | (163,922 | ) | | (52,129 | ) |
| | | | | | | | | |
| FINANCING ACTIVITIES | | | | | | | | |
| Proceeds from the issuance of long-term debt | | | 692,633 |
| | — |
|
| Retirement of long-term debt | | (24,977 | ) | | (24,188 | ) | | (525,841 | ) | | (24,977 | ) |
| Change in money pool payable - net | | — |
| | 28,941 |
| | (22,389 | ) | | — |
|
| Other | | (479 | ) | | (839 | ) | | (959 | ) | | (479 | ) |
| Net cash flow provided by (used in) financing activities | | (25,456 | ) | | 3,914 |
| | 143,444 |
| | (25,456 | ) |
| | | | | | | | | |
| Net decrease in cash and cash equivalents | | (76,537 | ) | | (6,093 | ) | |
| Net increase (decrease) in cash and cash equivalents | | | 22,173 |
| | (76,537 | ) |
| Cash and cash equivalents at beginning of period | | 115,513 |
| | 6,181 |
| | 56 |
| | 115,513 |
|
| Cash and cash equivalents at end of period | |
| $38,976 |
| |
| $88 |
| |
| $22,229 |
| |
| $38,976 |
|
| | | | | | | | | |
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | | | | | | | | |
| Cash paid (received) during the period for: | | | | | | | | |
| Interest - net of amount capitalized | |
| $26,939 |
| |
| $27,986 |
| |
| $26,002 |
| |
| $26,939 |
|
| Income taxes | |
| ($1,624 | ) | |
| ($3,446 | ) | |
| $— |
| |
| ($1,624 | ) |
| | | | | | | | | |
| See Notes to Financial Statements. | | | | | | | | |
| | ENTERGY TEXAS, INC. AND SUBSIDIARIES | CONSOLIDATED BALANCE SHEETS | ASSETS | | March 31, 2018 and December 31, 2017 | |
| March 31, 2019 and December 31, 2018 | | March 31, 2019 and December 31, 2018 |
(Unaudited) | | | | 2018 | | 2017 | | 2019 | | 2018 |
| | | (In Thousands) | | (In Thousands) |
| CURRENT ASSETS | | | | | | | | |
| Cash and cash equivalents: | | | | | | | | |
| Cash | |
| $26 |
| |
| $32 |
| |
| $26 |
| |
| $26 |
|
| Temporary cash investments | | 38,950 |
| | 115,481 |
| | 22,203 |
| | 30 |
|
| Total cash and cash equivalents | | 38,976 |
| | 115,513 |
| | 22,229 |
| | 56 |
|
| Securitization recovery trust account | | 29,698 |
| | 37,683 |
| | 29,461 |
| | 40,185 |
|
| Accounts receivable: | | | | | | | | |
| Customer | | 63,979 |
| | 74,382 |
| | 63,194 |
| | 69,714 |
|
| Allowance for doubtful accounts | | (422 | ) | | (463 | ) | | (412 | ) | | (461 | ) |
| Associated companies | | 68,569 |
| | 90,629 |
| | 16,273 |
| | 64,441 |
|
| Other | | 7,450 |
| | 9,831 |
| | 9,964 |
| | 12,275 |
|
| Accrued unbilled revenues | | 43,982 |
| | 50,682 |
| | 46,415 |
| | 51,288 |
|
| Total accounts receivable | | 183,558 |
| | 225,061 |
| | 135,434 |
| | 197,257 |
|
| Fuel inventory - at average cost | | 42,865 |
| | 42,731 |
| | 42,840 |
| | 42,667 |
|
| Materials and supplies - at average cost | | 39,294 |
| | 38,605 |
| | 43,560 |
| | 41,883 |
|
| Prepayments and other | | 13,502 |
| | 19,710 |
| | 11,231 |
| | 15,903 |
|
| TOTAL | | 347,893 |
| | 479,303 |
| | 284,755 |
| | 337,951 |
|
| | | | | | | | | |
| OTHER PROPERTY AND INVESTMENTS | | | | | | | | |
| Investments in affiliates - at equity | | 481 |
| | 457 |
| | 436 |
| | 448 |
|
| Non-utility property - at cost (less accumulated depreciation) | | 376 |
| | 376 |
| | 376 |
| | 376 |
|
| Other | | 19,454 |
| | 19,235 |
| | 19,433 |
| | 19,218 |
|
| TOTAL | | 20,311 |
| | 20,068 |
| | 20,245 |
| | 20,042 |
|
| | | | | | | | | |
| UTILITY PLANT | | | | | | | | |
| Electric | | 4,614,489 |
| | 4,569,295 |
| | 4,804,948 |
| | 4,773,984 |
|
| Construction work in progress | | 122,764 |
| | 102,088 |
| | 450,207 |
| | 325,193 |
|
| TOTAL UTILITY PLANT | | 4,737,253 |
| | 4,671,383 |
| | 5,255,155 |
| | 5,099,177 |
|
| Less - accumulated depreciation and amortization | | 1,603,585 |
| | 1,579,387 |
| | 1,694,292 |
| | 1,684,569 |
|
| UTILITY PLANT - NET | | 3,133,668 |
| | 3,091,996 |
| | 3,560,863 |
| | 3,414,608 |
|
| | | | | | | | | |
| DEFERRED DEBITS AND OTHER ASSETS | | | | | | | | |
| Regulatory assets: | | | | | | | | |
| Other regulatory assets (includes securitization property of $295,062 as of March 31, 2018 and $313,123 as of December 31, 2017) | | 640,901 |
| | 661,398 |
| |
| Other regulatory assets (includes securitization property of $219,904 as of March 31, 2019 and $236,336 as of December 31, 2018) | | | 596,690 |
| | 598,048 |
|
| Other | | 28,731 |
| | 26,973 |
| | 31,171 |
| | 29,371 |
|
| TOTAL | | 669,632 |
| | 688,371 |
| | 627,861 |
| | 627,419 |
|
| | | | | | | | | |
| TOTAL ASSETS | |
| $4,171,504 |
| |
| $4,279,738 |
| |
| $4,493,724 |
| |
| $4,400,020 |
|
| | | | | | | | | |
| See Notes to Financial Statements. | | |
| | |
| | |
| | |
|
| | ENTERGY TEXAS, INC. AND SUBSIDIARIES | CONSOLIDATED BALANCE SHEETS | LIABILITIES AND EQUITY | | March 31, 2018 and December 31, 2017 | |
| March 31, 2019 and December 31, 2018 | | March 31, 2019 and December 31, 2018 |
(Unaudited) | | | | 2018 | | 2017 | | 2019 | | 2018 |
| | | (In Thousands) | | (In Thousands) |
| CURRENT LIABILITIES | | | | | | | | |
| Currently maturing long-term debt | |
| $500,000 |
| |
| $— |
| |
| $— |
| |
| $500,000 |
|
| Accounts payable: | | | | | | | | |
| Associated companies | | 51,454 |
| | 59,347 |
| | 48,588 |
| | 119,371 |
|
| Other | | 87,369 |
| | 126,095 |
| | 158,286 |
| | 150,679 |
|
| Customer deposits | | 41,395 |
| | 40,925 |
| | 40,967 |
| | 43,387 |
|
| Taxes accrued | | 49,640 |
| | 45,659 |
| | 44,048 |
| | 53,513 |
|
| Interest accrued | | 19,981 |
| | 25,556 |
| | 19,717 |
| | 24,355 |
|
| Current portion of unprotected excess accumulated deferred income taxes | | | 73,112 |
| | 87,627 |
|
| Deferred fuel costs | | 38,675 |
| | 67,301 |
| | 28,028 |
| | 19,697 |
|
| Current portion of unprotected excess accumulated deferred income taxes | | 41,325 |
| | — |
| |
| Other | | 6,926 |
| | 8,132 |
| | 9,233 |
| | 6,353 |
|
| TOTAL | | 836,765 |
| | 373,015 |
| | 421,979 |
| | 1,004,982 |
|
| | | | | | | | | |
| NON-CURRENT LIABILITIES | | | | | | | | |
| Accumulated deferred income taxes and taxes accrued | | 522,688 |
| | 544,642 |
| | 543,550 |
| | 552,535 |
|
| Accumulated deferred investment tax credits | | 11,790 |
| | 11,983 |
| | 11,021 |
| | 11,176 |
|
| Regulatory liability for income taxes - net | | 372,230 |
| | 412,620 |
| | 254,771 |
| | 264,623 |
|
| Other regulatory liabilities | | 11,060 |
| | 6,850 |
| | 47,886 |
| | 47,884 |
|
| Asset retirement cost liabilities | | 6,930 |
| | 6,835 |
| | 7,322 |
| | 7,222 |
|
| Accumulated provisions | | 9,907 |
| | 10,115 |
| | 14,930 |
| | 13,856 |
|
| Pension and other postretirement liabilities | | 11,008 |
| | 17,853 |
| | 3,699 |
| | 4,834 |
|
| Long-term debt (includes securitization bonds of $333,233 as of March 31, 2018 and $358,104 as of December 31, 2017) | | 1,062,555 |
| | 1,587,150 |
| |
| Long-term debt (includes securitization bonds of $257,887 as of March 31, 2019 and $283,659 as of December 31, 2018) | | | 1,680,966 |
| | 1,013,735 |
|
| Other | | 49,054 |
| | 48,508 |
| | 63,856 |
| | 56,771 |
|
| TOTAL | | 2,057,222 |
| | 2,646,556 |
| | 2,628,001 |
| | 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 2018 and 2017 | | 49,452 |
| | 49,452 |
| |
| 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 |
| | 596,994 |
| | 596,994 |
| | 596,994 |
|
| Retained earnings | | 631,071 |
| | 613,721 |
| | 797,298 |
| | 775,956 |
|
| TOTAL | | 1,277,517 |
| | 1,260,167 |
| | 1,443,744 |
| | 1,422,402 |
|
| | | | | | | | | |
| TOTAL LIABILITIES AND EQUITY | |
| $4,171,504 |
| |
| $4,279,738 |
| |
| $4,493,724 |
| |
| $4,400,020 |
|
| | | | | | | | | |
| See Notes to Financial Statements. | | | | | | | | |
| | ENTERGY TEXAS, INC. AND SUBSIDIARIES | CONSOLIDATED STATEMENTS OF CHANGES IN COMMON EQUITY | | For the Three Months Ended March 31, 2018 and 2017 | |
| For the Three Months Ended March 31, 2019 and 2018 | | For the Three Months Ended March 31, 2019 and 2018 |
(Unaudited) | | | | | | | | |
| | Common Equity | | | Common Equity | | |
| | Common Stock | | Paid-in Capital | | Retained Earnings | | Total | Common Stock | | Paid-in Capital | | Retained Earnings | | Total |
| | (In Thousands) | |
| | | | | | | | | |
| Balance at December 31, 2016 |
| $49,452 |
| |
| $481,994 |
| |
| $537,548 |
| |
| $1,068,994 |
| |
| | | | | | | | | |
| Net income | — |
| | — |
| | 10,854 |
| | 10,854 |
| |
| | | | | | | | | |
| Balance at March 31, 2017 |
| $49,452 |
| |
| $481,994 |
| |
| $548,402 |
| |
| $1,079,848 |
| |
| | | | | | | | | (In Thousands) |
| | | | | | | | | | | | | | | |
| 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 | — |
| | — |
| | 17,350 |
| | 17,350 |
| — |
| | — |
| | 17,350 |
| | 17,350 |
|
| | | | | | | | | | | | | | | |
| Balance at March 31, 2018 |
| $49,452 |
| |
| $596,994 |
| |
| $631,071 |
| |
| $1,277,517 |
|
| $49,452 |
| |
| $596,994 |
| |
| $631,071 |
| |
| $1,277,517 |
|
| | | | | | | | | | | | | | | |
| | | | | | | | | |
| Balance at December 31, 2018 | |
| $49,452 |
| |
| $596,994 |
| |
| $775,956 |
| |
| $1,422,402 |
|
| | | | | | | | | |
| Net income | | — |
| | — |
| | 21,342 |
| | 21,342 |
|
| | | | | | | | | |
| Balance at March 31, 2019 | |
| $49,452 |
| |
| $596,994 |
| |
| $797,298 |
| |
| $1,443,744 |
|
| | | | | | | | | |
| See Notes to Financial Statements. | | | | | | | | | | | | | | |
| | ENTERGY TEXAS, INC. AND SUBSIDIARIES | SELECTED OPERATING RESULTS | | For the Three Months Ended March 31, 2018 and 2017 | |
| For the Three Months Ended March 31, 2019 and 2018 | | For the Three Months Ended March 31, 2019 and 2018 |
(Unaudited) | | | | | | | | | | | | | | |
| | | | | Increase/ | | | | Three Months Ended | | Increase/ | | |
| Description | | 2018 | | 2017 | | (Decrease) | | % | | 2019 | | 2018 | | (Decrease) | | % |
| | | (Dollars In Millions) | | | | (Dollars In Millions) | | |
| Electric Operating Revenues: | | | | | | | | | | | | | | | | |
| Residential | |
| $148 |
| |
| $137 |
| |
| $11 |
| | 8 |
| |
| $148 |
| |
| $148 |
| |
| $— |
| | — |
|
| Commercial | | 85 |
| | 90 |
| | (5 | ) | | (6 | ) | | 79 |
| | 85 |
| | (6 | ) | | (7 | ) |
| Industrial | | 83 |
| | 100 |
| | (17 | ) | | (17 | ) | | 88 |
| | 83 |
| | 5 |
| | 6 |
|
| Governmental | | 6 |
| | 6 |
| | — |
| | — |
| | 5 |
| | 6 |
| | (1 | ) | | (17 | ) |
| Total billed retail | | 322 |
| | 333 |
| | (11 | ) | | (3 | ) | | 320 |
| | 322 |
| | (2 | ) | | (1 | ) |
| Sales for resale: | | | | | | | | | | | | | | | | |
| Associated companies | | 13 |
| | 13 |
| | — |
| | — |
| | 14 |
| | 13 |
| | 1 |
| | 8 |
|
| Non-associated companies | | 10 |
| | 5 |
| | 5 |
| | 100 |
| | 3 |
| | 10 |
| | (7 | ) | | (70 | ) |
| Other | | 4 |
| | 13 |
| | (9 | ) | | (69 | ) | | 3 |
| | 4 |
| | (1 | ) | | (25 | ) |
| Total | |
| $349 |
| |
| $364 |
| |
| ($15 | ) | | (4 | ) | |
| $340 |
| |
| $349 |
| |
| ($9 | ) | | (3 | ) |
| | | | | | | | | | | | | | | | | |
| Billed Electric Energy Sales (GWh): | | | | | | | | | | | | | | | | |
| Residential | | 1,474 |
| | 1,213 |
| | 261 |
| | 22 |
| | 1,360 |
| | 1,474 |
| | (114 | ) | | (8 | ) |
| Commercial | | 1,083 |
| | 1,006 |
| | 77 |
| | 8 |
| | 1,046 |
| | 1,083 |
| | (37 | ) | | (3 | ) |
| Industrial | | 1,832 |
| | 1,790 |
| | 42 |
| | 2 |
| | 1,831 |
| | 1,832 |
| | (1 | ) | | — |
|
| Governmental | | 70 |
| | 63 |
| | 7 |
| | 11 |
| | 62 |
| | 70 |
| | (8 | ) | | (11 | ) |
| Total retail | | 4,459 |
| | 4,072 |
| | 387 |
| | 10 |
| | 4,299 |
| | 4,459 |
| | (160 | ) | | (4 | ) |
| Sales for resale: | | | | | | | | | | | | | | | | |
| Associated companies | | 366 |
| | 338 |
| | 28 |
| | 8 |
| | 402 |
| | 366 |
| | 36 |
| | 10 |
|
| Non-associated companies | | 194 |
| | 77 |
| | 117 |
| | 152 |
| | 96 |
| | 194 |
| | (98 | ) | | (51 | ) |
| Total | | 5,019 |
| | 4,487 |
| | 532 |
| | 12 |
| | 4,797 |
| | 5,019 |
| | (222 | ) | | (4 | ) |
SYSTEM ENERGY RESOURCES, INC.
MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS
Results of Operations
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.
Net income increased $2$1.3 million primarily due to a lower effective income tax rate, partially offset by lowerthe increase in operating revenuerevenues resulting from lowerchanges in rate base as compared to the prior year.year and a lower effective income tax rate.
Income Tax Legislation
See the “Income Tax Legislation” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis in the Form 10-K for a discussion of the Tax Cuts and Jobs Act, the federal income tax legislation enacted in December 2017. Note 3 to the financial statements in the Form 10-K contains additional discussion of the effect of the Tax Act on 20172018 results of operations and financial position, the provisions of the Tax Act, and the uncertainties associated with accounting for the Tax Act, and Note 10 to the financial statements herein contains updates to that discussion. Note 2 to the financial statements herein and in the Form 10-K contains discussionsa discussion of the regulatory proceedings commenced or other responses by Entergy’s regulators tothat have considered the effects of the Tax Act.
Liquidity and Capital Resources
Cash Flow
Cash flows for the three months ended March 31, 20182019 and 20172018 were as follows:
|
| | | | | | | |
| | 2018 | | 2017 |
| | (In Thousands) |
| Cash and cash equivalents at beginning of period |
| $287,187 |
| |
| $245,863 |
|
| | | | |
| Cash flow provided by (used in): | | | |
| Operating activities | 65,371 |
| | 65,776 |
|
| Investing activities | (85,956 | ) | | (65,068 | ) |
| Financing activities | 12,097 |
| | (6,163 | ) |
| Net decrease in cash and cash equivalents | (8,488 | ) | | (5,455 | ) |
| | | | |
| Cash and cash equivalents at end of period |
| $278,699 |
| |
| $240,408 |
|
Operating Activities
Net cash flow provided by operating activities remained relatively unchanged, decreasing by $0.4 million for the three months ended March 31, 2018 compared to the three months ended March 31, 2017. |
| | | | | | | |
| | 2019 | | 2018 |
| | (In Thousands) |
| Cash and cash equivalents at beginning of period |
| $95,685 |
| |
| $287,187 |
|
| | | | |
| Cash flow provided by (used in): | | | |
| Operating activities | 57,717 |
| | 65,371 |
|
| Investing activities | 70,709 |
| | (85,956 | ) |
| Financing activities | (65,810 | ) | | 12,097 |
|
| Net increase (decrease) in cash and cash equivalents | 62,616 |
| | (8,488 | ) |
| | | | |
| Cash and cash equivalents at end of period |
| $158,301 |
| |
| $278,699 |
|
System Energy Resources, Inc.
Management's Financial Discussion and Analysis
InvestingOperating Activities
Net cash flow used in investingprovided by operating activities increased $20.9decreased by $7.7 million for the three months ended March 31, 20182019 compared to the three months ended March 31, 20172018 primarily due to the timing of collection of receivables, offset by a decrease in spending of $3.7 million on nuclear refueling outages in 2019 as compared to the same period in 2018 and a decrease of $3.4 million in pension contributions in 2019. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Critical Accounting Estimates” in the Form 10-K and Note 6 to the financial statements herein for a discussion of qualified pension and other postretirement benefits funding.
Investing Activities
System Energy’s investing activities provided $70.7 million of cash for the three months ended March 31, 2019 compared to using $86 million of cash for the three months ended March 31, 2018 primarily due to:
an increase of $112.7$92.5 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 cyclecycle; and an increase of $17.6 million in nuclear construction expenditures primarily as a result of a higher scope of work performed in 2018 on Grand Gulf outage projects. The increase was partially offset by
money pool activity.
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 $81.6 million for the three months ended March 31, 2019 compared to decreasing by $21.5 million for the three months ended March 31, 2018 compared to increasing by $80.7 million for the three months ended March 31, 2017.2018. The money pool is an inter-company borrowing arrangement designed to reduce the Utility subsidiaries’ need for external short-term borrowings.
Financing Activities
System Energy’s financing activities providedused $65.8 million of cash for the three months ended March 31, 2019 compared to providing $12.1 million of cash for the three months ended March 31, 2018 compared to using $6.2 million of cash for the three months ended March 31, 2017 primarily due to the following activity:
net short-term borrowings of $25.3 million in 2018 on the nuclear fuel company variable interest entity’s credit facility;
the issuance in March 2018 of $100 million of 3.42% Series J notes by the System Energy nuclear fuel company variable interest entity;
the paymentnet repayments of long-term borrowings of $19.8 million in February 2017, at maturity, of $50 million of2019 on the System Energy nuclear fuel company variable interest entity’s 4.02% Series H notes;
common stock dividends and distributions of $63.2 million in first quarter 2018 in ordercredit facility compared to maintain the targeted capital structure;
net repayments of long-term borrowings of $50 million in 2018 on the nuclear fuel company variable interest entity’s credit facility; and
net short-term borrowingsa decrease of $25.3$17.7 million in the three months ended March 31, 2018 compared to net short-term borrowings of $43.9 millioncommon stock dividends and distributions in the three months ended March 31, 2017 on the nuclear fuel company variable interest entity’s credit facility.2019.
In March 2019, System Energy issued $134 million of 2.50% Series 2019 revenue refunding bonds due April 2022. The proceeds were used to redeem, prior to maturity, $134 million of 5.875% Series 1998 pollution control revenue refunding bonds due April 2022. See Note 4 to the financial statements herein and Note 5 to the financial statements in the Form 10-K for more details on long-term debt.
System Energy Resources, Inc.
Management's Financial Discussion and Analysis
Capital Structure
System Energy’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 for System Energy is 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.
| | | | March 31, 2018 | | December 31, 2017 | March 31, 2019 | | December 31, 2018 |
| Debt to capital | 49.0 | % | | 44.5 | % | 46.1 | % | | 46.1 | % |
| Effect of subtracting cash | (13.7 | %) | | (16.0 | %) | (7.4 | %) | | (4.0 | %) |
| Net debt to net capital | 35.3 | % | | 28.5 | % | 38.7 | % | | 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
System Energy Resources, Inc.
Management's Financial Discussion and Analysis
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.
Uses and Sources of Capital
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Liquidity and Capital Resources” in the Form 10-K for a discussion of System Energy’s uses and sources of capital. Following are updates to the information provided in the Form 10-K.
System Energy’s receivables from the money pool were as follows:
|
| | | | | | |
March 31, 2018 | | December 31, 2017 | | March 31, 2017 | | December 31, 2016 |
| (In Thousands) |
| $90,136 | | $111,667 | | $114,553 | | $33,809 |
|
| | | | | | |
March 31, 2019 | | December 31, 2018 | | March 31, 2018 | | December 31, 2017 |
| (In Thousands) |
| $25,487 | | $107,122 | | $90,136 | | $111,667 |
See Note 4 to the financial statements in the Form 10-K 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 March 31, 2018, $43.22019, $94.1 million in letters of credit to support a like amount of commercial paper issued were outstanding under the System Energy nuclear fuel company variable interest entity credit facility. See Note 4 to the financial statements herein for additional discussion of the variable interest entity credit facility.
Federal Regulation
See the “Rate, Cost-recovery, and Other Regulation - Federal Regulation” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis in the Form 10-K and Note 2 to the financial statements herein and in the Form 10-K for a discussion of federal regulation.
System Energy Resources, Inc.
Management's Financial Discussion and Analysis
Complaints Against System Energy
Return on Equity and Capital Structure Complaints
See the Form 10-K for a discussion of the return on equity complaints filed by the APSC and the MPSC and by the LPSC against System Energy. The LPSC’s complaint also includes a challenge to System Energy’s capital structure. 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 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 consolidated hearing has been scheduled for September 2019, and 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 capital structure complaint for settlement and hearing proceedings. Settlement procedures in the capital structure proceeding commenced in February 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).
Grand Gulf Sale-leaseback Renewal Complaint
As discussed in the Form 10-K, 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.
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 taxes 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. A hearing has been scheduled for November 2019.
System Energy Resources, Inc.
Management's Financial Discussion and Analysis
Nuclear Matters
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS – Nuclear Matters” in the Form 10-K for a discussion of nuclear matters.
Environmental Risks
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS – Environmental Risks” in the Form 10-K for a discussion of environmental risks.
Critical Accounting Estimates
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Critical Accounting Estimates” in the Form 10-K for a discussion of the estimates and judgments necessary in System Energy’s accounting for nuclear decommissioning costs, utility regulatory accounting, impairment of long-lived assets and trust fund investments, taxation and uncertain tax positions, qualified pension and other postretirement benefits, and other contingencies.
System Energy Resources, Inc.
Management's Financial Discussion and Analysis
New Accounting Pronouncements
See “New Accounting Pronouncements” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and AnalysisNote 1 to the financial statements in the Form 10-K for a discussion of new accounting pronouncements.
| | SYSTEM ENERGY RESOURCES, INC. | INCOME STATEMENTS | | For the Three Months Ended March 31, 2018 and 2017 | |
| For the Three Months Ended March 31, 2019 and 2018 | | For the Three Months Ended March 31, 2019 and 2018 |
(Unaudited) | | | | | | |
| | | 2018 | | 2017 | | 2019 | | 2018 |
| | | (In Thousands) | | (In Thousands) |
| OPERATING REVENUES | | | | | | | | |
| Electric | |
| $148,443 |
| |
| $154,787 |
| |
| $140,104 |
| |
| $148,443 |
|
| | | | | | | | | |
| OPERATING EXPENSES | | | | | | | | |
| Operation and Maintenance: | | | | | | | | |
| Fuel, fuel-related expenses, and gas purchased for resale | | 28,425 |
| | 15,334 |
| | 21,561 |
| | 28,425 |
|
| Nuclear refueling outage expenses | | 3,972 |
| | 4,773 |
| | 8,186 |
| | 3,972 |
|
| Other operation and maintenance | | 45,339 |
| | 47,463 |
| | 45,282 |
| | 45,339 |
|
| Decommissioning | | 8,457 |
| | 13,232 |
| | 8,799 |
| | 8,457 |
|
| Taxes other than income taxes | | 7,097 |
| | 6,424 |
| | 7,539 |
| | 7,097 |
|
| Depreciation and amortization | | 33,321 |
| | 35,441 |
| | 26,574 |
| | 33,321 |
|
| Other regulatory credits - net | | (9,109 | ) | | (10,362 | ) | | (9,205 | ) | | (9,109 | ) |
| TOTAL | | 117,502 |
| | 112,305 |
| | 108,736 |
| | 117,502 |
|
| | | | | | | | | |
| OPERATING INCOME | | 30,941 |
| | 42,482 |
| | 31,368 |
| | 30,941 |
|
| | | | | | | | | |
| OTHER INCOME | | | | | | | | |
| Allowance for equity funds used during construction | | 2,100 |
| | 1,094 |
| | 1,589 |
| | 2,100 |
|
| Interest and investment income | | 6,886 |
| | 4,674 |
| | 6,991 |
| | 6,886 |
|
| Miscellaneous - net | | (1,176 | ) | | (1,066 | ) | | (1,228 | ) | | (1,176 | ) |
| TOTAL | | 7,810 |
| | 4,702 |
| | 7,352 |
| | 7,810 |
|
| | | | | | | | | |
| INTEREST EXPENSE | | | | | | | | |
| Interest expense | | 9,325 |
| | 9,119 |
| | 9,397 |
| | 9,325 |
|
| Allowance for borrowed funds used during construction | | (532 | ) | | (267 | ) | | (389 | ) | | (532 | ) |
| TOTAL | | 8,793 |
| | 8,852 |
| | 9,008 |
| | 8,793 |
|
| | | | | | | | | |
| INCOME BEFORE INCOME TAXES | | 29,958 |
| | 38,332 |
| | 29,712 |
| | 29,958 |
|
| | | | | | | | | |
| Income taxes | | 7,650 |
| | 17,985 |
| | 6,134 |
| | 7,650 |
|
| | | | | | | | | |
| NET INCOME | |
| $22,308 |
| |
| $20,347 |
| |
| $23,578 |
| |
| $22,308 |
|
| | | | | | | | | |
| See Notes to Financial Statements. | | | | | | | | |
(Page left blank intentionally)
| | SYSTEM ENERGY RESOURCES, INC. | STATEMENTS OF CASH FLOWS | | For the Three Months Ended March 31, 2018 and 2017 | |
| For the Three Months Ended March 31, 2019 and 2018 | | For the Three Months Ended March 31, 2019 and 2018 |
(Unaudited) | | | | 2018 | | 2017 | | 2019 | | 2018 |
| | | (In Thousands) | | (In Thousands) |
| OPERATING ACTIVITIES | | | | | | | | |
| Net income | |
| $22,308 |
| |
| $20,347 |
| |
| $23,578 |
| |
| $22,308 |
|
| Adjustments to reconcile net income to net cash flow provided by operating activities: | | | | | | | | |
| Depreciation, amortization, and decommissioning, including nuclear fuel amortization | | 66,323 |
| | 61,562 |
| | 53,731 |
| | 66,323 |
|
| Deferred income taxes, investment tax credits, and non-current taxes accrued | | 7,929 |
| | 18,293 |
| | 4,975 |
| | 7,929 |
|
| Changes in assets and liabilities: | | | | | | | | |
| Receivables | | 5,883 |
| | 13,953 |
| | (7,613 | ) | | 5,883 |
|
| Accounts payable | | (9,632 | ) | | (3,008 | ) | | (5,182 | ) | | (9,632 | ) |
| Prepaid taxes and taxes accrued | | (15,033 | ) | | (15,032 | ) | | (13,575 | ) | | (15,033 | ) |
| Interest accrued | | 736 |
| | 295 |
| | (3,150 | ) | | 736 |
|
| Other working capital accounts | | (5,874 | ) | | (1,111 | ) | | 3,635 |
| | (5,874 | ) |
| Other regulatory assets | | (1,960 | ) | | (1,571 | ) | | (3,730 | ) | | (1,960 | ) |
| Other regulatory liabilities | | (18,988 | ) | | 23,401 |
| | 70,486 |
| | (18,988 | ) |
| Pension and other postretirement liabilities | | (3,537 | ) | | (4,187 | ) | | 319 |
| | (3,537 | ) |
| Other assets and liabilities | | 17,216 |
| | (47,166 | ) | | (65,757 | ) | | 17,216 |
|
| Net cash flow provided by operating activities | | 65,371 |
| | 65,776 |
| | 57,717 |
| | 65,371 |
|
| | | | | | | | | |
| INVESTING ACTIVITIES | | | | | | | | |
| Construction expenditures | | (30,707 | ) | | (14,096 | ) | | (25,557 | ) | | (30,707 | ) |
| Allowance for equity funds used during construction | | 2,100 |
| | 1,094 |
| | 1,589 |
| | 2,100 |
|
| Nuclear fuel purchases | | (74,257 | ) | | (21,765 | ) | | (3 | ) | | (74,257 | ) |
| Proceeds from the sale of nuclear fuel | | — |
| | 60,188 |
| | 18,280 |
| | — |
|
| Proceeds from nuclear decommissioning trust fund sales | | 54,210 |
| | 75,787 |
| | 56,988 |
| | 54,210 |
|
| Investment in nuclear decommissioning trust funds | | (58,833 | ) | | (85,532 | ) | | (62,223 | ) | | (58,833 | ) |
| Changes in money pool receivable - net | | 21,531 |
| | (80,744 | ) | | 81,635 |
| | 21,531 |
|
| Net cash flow used in investing activities | | (85,956 | ) | | (65,068 | ) | |
| Net cash flow provided by (used in) investing activities | | | 70,709 |
| | (85,956 | ) |
| | | | | | | | | |
| FINANCING ACTIVITIES | | | | | | | | |
| Proceeds from the issuance of long-term debt | | 100,000 |
| | — |
| | 529,493 |
| | 100,000 |
|
| Retirement of long-term debt | | (50,002 | ) | | (50,001 | ) | | (549,803 | ) | | (50,002 | ) |
| Changes in short-term borrowings - net | | 25,339 |
| | 43,851 |
| | — |
| | 25,339 |
|
| Common stock dividends and distributions | | (63,240 | ) | | — |
| | (45,500 | ) | | (63,240 | ) |
| Other | | — |
| | (13 | ) | |
| Net cash flow provided by (used in) financing activities | | 12,097 |
| | (6,163 | ) | | (65,810 | ) | | 12,097 |
|
| | | | | | | | | |
| Net decrease in cash and cash equivalents | | (8,488 | ) | | (5,455 | ) | |
| Net increase (decrease) in cash and cash equivalents | | | 62,616 |
| | (8,488 | ) |
| Cash and cash equivalents at beginning of period | | 287,187 |
| | 245,863 |
| | 95,685 |
| | 287,187 |
|
| Cash and cash equivalents at end of period | |
| $278,699 |
| |
| $240,408 |
| |
| $158,301 |
| |
| $278,699 |
|
| | | | | | | | | |
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | | | | | | | | |
| Cash paid during the period for: | | | | | | | | |
| Interest - net of amount capitalized | |
| $8,592 |
| |
| $8,593 |
| |
| $12,461 |
| |
| $8,592 |
|
| | | | | | | | | |
| See Notes to Financial Statements. | | | | | | | | |
| | SYSTEM ENERGY RESOURCES, INC. | BALANCE SHEETS | ASSETS | | March 31, 2018 and December 31, 2017 | |
| March 31, 2019 and December 31, 2018 | | March 31, 2019 and December 31, 2018 |
(Unaudited) | | | | 2018 | | 2017 | | 2019 | | 2018 |
| | | (In Thousands) | | (In Thousands) |
| CURRENT ASSETS | | | | | | | | |
| Cash and cash equivalents: | | | | | | | | |
| Cash | |
| $47 |
| |
| $78 |
| |
| $57 |
| |
| $68 |
|
| Temporary cash investments | | 278,652 |
| | 287,109 |
| | 158,244 |
| | 95,617 |
|
| Total cash and cash equivalents | | 278,699 |
| | 287,187 |
| | 158,301 |
| | 95,685 |
|
| Accounts receivable: | | | | | | | | |
| Associated companies | | 142,321 |
| | 170,149 |
| | 74,667 |
| | 148,571 |
|
| Other | | 6,940 |
| | 6,526 |
| | 5,272 |
| | 5,390 |
|
| Total accounts receivable | | 149,261 |
| | 176,675 |
| | 79,939 |
| | 153,961 |
|
| Materials and supplies - at average cost | | 89,431 |
| | 88,424 |
| | 101,609 |
| | 97,225 |
|
| Deferred nuclear refueling outage costs | | 9,668 |
| | 7,908 |
| | 36,624 |
| | 44,424 |
|
| Prepaid taxes | | | 18,990 |
| | 5,415 |
|
| Prepayments and other | | 5,596 |
| | 2,489 |
| | 2,764 |
| | 2,985 |
|
| TOTAL | | 532,655 |
| | 562,683 |
| | 398,227 |
| | 399,695 |
|
| | | | | | | | | |
| OTHER PROPERTY AND INVESTMENTS | | | | | | | | |
| Decommissioning trust funds | | 896,219 |
| | 905,686 |
| | 951,334 |
| | 869,543 |
|
| TOTAL | | 896,219 |
| | 905,686 |
| | 951,334 |
| | 869,543 |
|
| | | | | | | | | |
| UTILITY PLANT | | | | | | | | |
| Electric | | 4,331,713 |
| | 4,327,849 |
| | 5,027,651 |
| | 5,036,116 |
|
| Property under capital lease | | 588,281 |
| | 588,281 |
| |
| Construction work in progress | | 100,467 |
| | 69,937 |
| | 82,554 |
| | 70,156 |
|
| Nuclear fuel | | 248,372 |
| | 207,513 |
| | 195,023 |
| | 234,889 |
|
| TOTAL UTILITY PLANT | | 5,268,833 |
| | 5,193,580 |
| | 5,305,228 |
| | 5,341,161 |
|
| Less - accumulated depreciation and amortization | | 3,203,002 |
| | 3,175,018 |
| | 3,226,329 |
| | 3,212,080 |
|
| UTILITY PLANT - NET | | 2,065,831 |
| | 2,018,562 |
| | 2,078,899 |
| | 2,129,081 |
|
| | | | | | | | | |
| DEFERRED DEBITS AND OTHER ASSETS | | | | | | | | |
| Regulatory assets: | | | | | | | | |
| Other regulatory assets | | 446,287 |
| | 444,327 |
| | 450,101 |
| | 446,371 |
|
| Other | | 11,363 |
| | 7,629 |
| | 3,992 |
| | 4,124 |
|
| TOTAL | | 457,650 |
| | 451,956 |
| | 454,093 |
| | 450,495 |
|
| | | | | | | | | |
| TOTAL ASSETS | |
| $3,952,355 |
| |
| $3,938,887 |
| |
| $3,882,553 |
| |
| $3,848,814 |
|
| | | | | | | | | |
| See Notes to Financial Statements. | | | | | | | | |
| | SYSTEM ENERGY RESOURCES, INC. | BALANCE SHEETS | LIABILITIES AND EQUITY | | March 31, 2018 and December 31, 2017 | |
| March 31, 2019 and December 31, 2018 | | March 31, 2019 and December 31, 2018 |
(Unaudited) | | | | 2018 | | 2017 | | 2019 | | 2018 |
| | | (In Thousands) | | (In Thousands) |
| CURRENT LIABILITIES | | | | | | | | |
| Currently maturing long-term debt | |
| $85,005 |
| |
| $85,004 |
| |
| $8 |
| |
| $6 |
|
| Short-term borrowings | | 43,170 |
| | 17,830 |
| |
| Accounts payable: | | | | | | | | |
| Associated companies | | 6,189 |
| | 16,878 |
| | 7,596 |
| | 11,031 |
|
| Other | | 65,448 |
| | 62,868 |
| | 39,660 |
| | 47,565 |
|
| Taxes accrued | | 31,551 |
| | 46,584 |
| |
| Interest accrued | | 14,125 |
| | 13,389 |
| | 10,145 |
| | 13,295 |
|
| Current portion of unprotected excess accumulated deferred income taxes | | 76,442 |
| | — |
| | 7,396 |
| | 4,426 |
|
| Other | | 2,437 |
| | 2,434 |
| | 2,830 |
| | 2,832 |
|
| TOTAL | | 324,367 |
| | 244,987 |
| | 67,635 |
| | 79,155 |
|
| | | | | | | | | |
| NON-CURRENT LIABILITIES | | | | | | | | |
| Accumulated deferred income taxes and taxes accrued | | 785,726 |
| | 776,420 |
| | 813,026 |
| | 805,296 |
|
| Accumulated deferred investment tax credits | | 39,087 |
| | 39,406 |
| | 38,354 |
| | 38,673 |
|
| Regulatory liability for income taxes - net | | 167,518 |
| | 246,122 |
| | 152,289 |
| | 158,998 |
|
| Other regulatory liabilities | | 439,165 |
| | 455,991 |
| | 456,112 |
| | 381,887 |
|
| Decommissioning | | 870,120 |
| | 861,664 |
| | 904,800 |
| | 896,000 |
|
| Pension and other postretirement liabilities | | 118,337 |
| | 121,874 |
| | 98,958 |
| | 98,639 |
|
| Long-term debt | | 516,577 |
| | 466,484 |
| | 610,790 |
| | 630,744 |
|
| Other | | 21,581 |
| | 15,130 |
| | 25,313 |
| | 22,224 |
|
| TOTAL | | 2,958,111 |
| | 2,983,091 |
| | 3,099,642 |
| | 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 2018 and 2017 | | 601,850 |
| | 658,350 |
| |
| 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 | | 68,027 |
| | 52,459 |
| | 113,426 |
| | 135,348 |
|
| TOTAL | | 669,877 |
| | 710,809 |
| | 715,276 |
| | 737,198 |
|
| | | | | | | | | |
| TOTAL LIABILITIES AND EQUITY | |
| $3,952,355 |
| |
| $3,938,887 |
| |
| $3,882,553 |
| |
| $3,848,814 |
|
| | | | | | | | | |
| See Notes to Financial Statements. | | | | | | | | |
| | SYSTEM ENERGY RESOURCES, INC. | STATEMENTS OF CHANGES IN COMMON EQUITY | | For the Three Months Ended March 31, 2018 and 2017 | |
| For the Three Months Ended March 31, 2019 and 2018 | | For the Three Months Ended March 31, 2019 and 2018 |
(Unaudited) | | | | | | | | |
| | Common Equity | | | Common Equity | | |
| | Common Stock | | Retained Earnings | | Total | Common Stock | | Retained Earnings | | Total |
| | (In Thousands) | |
| | | | | | | |
| Balance at December 31, 2016 |
| $679,350 |
| |
| $59,473 |
| |
| $738,823 |
| |
| | | | | | | |
| Net income | — |
| | 20,347 |
| | 20,347 |
| |
| | | | | | | |
| Balance at March 31, 2017 |
| $679,350 |
| |
| $79,820 |
| |
| $759,170 |
| |
| | | | | | | (In Thousands) |
| | | | | | | | | | | |
| Balance at December 31, 2017 |
| $658,350 |
| |
| $52,459 |
| |
| $710,809 |
|
| $658,350 |
| |
| $52,459 |
| |
| $710,809 |
|
| | | | | | | | | | | |
| Net income | — |
| | 22,308 |
| | 22,308 |
| — |
| | 22,308 |
| | 22,308 |
|
| Common stock dividends and distributions | (56,500 | ) | | (6,740 | ) | | (63,240 | ) | (56,500 | ) | | (6,740 | ) | | (63,240 | ) |
| | | | | | | | | | | |
| Balance at March 31, 2018 |
| $601,850 |
| |
| $68,027 |
| |
| $669,877 |
|
| $601,850 |
| |
| $68,027 |
| |
| $669,877 |
|
| | | | | | | | | | | |
| | | | | | | |
| Balance at December 31, 2018 | |
| $601,850 |
| |
| $135,348 |
| |
| $737,198 |
|
| | | | | | | |
| Net income | | — |
| | 23,578 |
| | 23,578 |
|
| Common stock dividends and distributions | | — |
| | (45,500 | ) | | (45,500 | ) |
| | | | | | | |
| Balance at March 31, 2019 | |
| $601,850 |
| |
| $113,426 |
| |
| $715,276 |
|
| | | | | | | |
| See Notes to Financial Statements. | | | | | | | | | | |
ENTERGY CORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See “PART I, Item 1, Litigation” in the Form 10-K for a discussion of legal, administrative, and other regulatory proceedings affecting Entergy. Also see Note 1 and Note 2 to the financial statements herein and “Item 5, Other Information, Environmental Regulation” below for updates regarding environmental proceedings and regulation.
Item 1A. Risk Factors
There have been no material changes to the risk factors discussed in “PART I, Item 1A, Risk Factors” in the Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities (a)
|
| | | | | | | | | | | | | | |
| 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 (b) |
| | | | | | | | | |
1/01/2018-1/2019-1/31/20182019 | | — |
| |
| $— |
| | — |
| |
| $350,052,918 |
|
2/01/2018-2/2019-2/28/20182019 | | — |
| |
| $— |
| | — |
| |
| $350,052,918 |
|
3/01/2018-3/2019-3/31/20182019 | | — |
| |
| $— |
| | — |
| |
| $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 2018,2019, Entergy withheld 71,22976,735 shares of its common stock at $76.83$86.03 per share, 43,69882,550 shares of its common stock at $78.29$86.51 per share, and 16,69138,326 shares of its common stock at $78.51$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.
| |
| (a) | See Note 12 to the financial statements in the Form 10-K for additional discussion of the stock-based compensation plans. |
| |
| (b) | Maximum amount of shares that may yet be repurchased relates only to the $500 million plan and 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. |
Item 5. Other Information
Regulation of the Nuclear Power Industry
Following are updatesis an update to the “Regulation of the Nuclear Power Industry” section of Part I, Item 1 of the Form 10-K.
Nuclear Waste Policy Act of 1982
Nuclear Plant Decommissioning
See the discussion in Part I, Item 1 in the Form 10-K for information regarding decommissioning funding for the nuclear plants. Following is an update to that discussion.
In March 20182019 filings with the NRC were made reporting on decommissioning funding for certainall of Entergy subsidiaries’ nuclear plants reporting on decommissioning funding.. Those reports showed that decommissioning funding for each of thosethe nuclear plants met the NRC’s financial assurance requirements.
Environmental Regulation
Following are updates to the “Environmental Regulation” section of Part I, Item 1 of the Form 10-K.
Clean Air Act and Subsequent Amendments
Ozone NonattainmentPotential Legislative, Regulatory, and Judicial Developments
As discussed in the Form 10-K, 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. Entergy voluntarily conducted a climate scenario analysis and published a comprehensive report in March 2019. The report follows the Houston-Galveston-Brazoria area was originally classified as “moderate” nonattainment under the 1997 8-hour ozone standard with an attainment date of June 15, 2010. In April 2015 the EPA revoked the 1997 ozone national ambient air quality standards (NAAQS),framework and in May 2016 the EPA issued a proposed rule approving a substitute for the Houston-Galveston-Brazoria area. This redesignation indicates that the area has attained the revoked 1997 8-hour ozone NAAQS due to permanent and enforceable emission reductions and that it will maintain that NAAQS for 10 years from the daterecommendations of the approval. Final approval, which was effective in December 2016,Task Force on Climate-related Disclosures (TCFD), 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 area no longer being subject to any remaining anti-backsliding or non-attainment new source review requirements associated with the revoked 1997 NAAQS. In February 2018 the U.S. Court of Appeals for the D.C. Circuit opined that the EPA violated the Clean Air ActUtility’s emission rate by revoking the 1997 standard and50 percent from 2000 levels by creating the process that allowed states to avoid certain “anti-backsliding” provisions of the Act. The EPA has not stated whether it will request additional review of this decision or what actions it will take to review further the 1997 designations.2030.
Coal Combustion ResidualsGroundwater at Certain Nuclear Sites
As discussed in the Form 10-K, in DecemberFebruary 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 Water Infrastructure Improvementssource of elevated tritium determined that the source was related to a temporary system to process water in preparation 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 submitregularly scheduled refueling outage at Indian Point 2. The NRC had issued a green notice of violation related to the EPA proposals for a permit program. In September 2017adequacy of Entergy’s controls to prevent the EPA agreed to reconsider certain provisionsintroduction of radioactivity into the CCR (coal combustion residuals) rulesite groundwater. Entergy completed corrective actions and, in light ofFebruary 2019, the WIIN Act. In March 2018NRC concluded that Entergy had achieved full compliance and closed the EPA published its proposed revisions to the CCR rule with comments due at the end of April 2018.violation.
Amendments to Articles of Incorporation
Entergy Arkansas
On May 1, 2018, Entergy Arkansas adopted the Third Amended and Restated Articles of Incorporation to amend its Second Amended and Restated Articles of Incorporation to correct certain typographical errors contained
in such Second Amended and Restated Articles of Incorporation. The Articles of Amendment and Restatement for the Third Amended and Restated Articles of Incorporation of Entergy Arkansas are included in this filing as Exhibit 3(a).
Entergy Mississippi
On May 1, 2018, Entergy Mississippi adopted the Third Amended and Restated Articles of Incorporation to amend its Second Amended and Restated Articles of Incorporation (i) to correct certain typographical errors contained in such Second Amended and Restated Articles of Incorporation and (ii) to delete all provisions relating to the 6.25% Preferred Stock, Cumulative, $25 Par Value, as it has redeemed all shares of such series of preferred stock. Such Third Amended and Restated Articles of Incorporation are included in this filing as Exhibit 3(b).
Earnings Ratios (Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)
The Registrant Subsidiaries have calculated ratios of earnings to fixed charges and ratios of earnings to combined fixed charges and preferred dividends/distributions pursuant to Item 503 of Regulation S-K of the SEC as follows:
|
| | | | | | | | | | | | | | | | | |
| | | Ratios of Earnings to Fixed Charges |
| | | Twelve Months Ended | | Three Months Ended |
| | | December 31, | | March 31, |
| | | 2013 | | 2014 | | 2015 | | 2016 | | 2017 | | 2018 |
| Entergy Arkansas | | 3.62 |
| | 3.08 |
| | 2.04 |
| | 3.32 |
| | 2.87 |
| | 2.50 |
| Entergy Louisiana | | 3.30 |
| | 3.44 |
| | 3.36 |
| | 3.57 |
| | 3.85 |
| | 2.86 |
| Entergy Mississippi | | 3.19 |
| | 3.23 |
| | 3.59 |
| | 3.96 |
| | 4.49 |
| | 3.08 |
| Entergy New Orleans | | 1.85 |
| | 3.55 |
| | 4.90 |
| | 4.61 |
| | 4.50 |
| | 3.44 |
| Entergy Texas | | 1.94 |
| | 2.39 |
| | 2.22 |
| | 2.92 |
| | 2.41 |
| | 2.00 |
| System Energy | | 5.66 |
| | 4.04 |
| | 4.53 |
| | 5.39 |
| | 4.91 |
| | 4.14 |
|
| | | | | | | | | | | | | | | | | |
| | | Ratios of Earnings to Combined Fixed Charges and Preferred Dividends/Distributions |
| | | Twelve Months Ended | | Three Months Ended |
| | | December 31, | | March 31, |
| | | 2013 | | 2014 | | 2015 | | 2016 | | 2017 | | 2018 |
| Entergy Arkansas | | 3.25 |
| | 2.76 |
| | 1.85 |
| | 3.09 |
| | 2.81 |
| | 2.46 |
| Entergy Louisiana | | 3.14 |
| | 3.28 |
| | 3.24 |
| | 3.57 |
| | 3.85 |
| | 2.86 |
| Entergy Mississippi | | 2.97 |
| | 3.00 |
| | 3.34 |
| | 3.71 |
| | 4.36 |
| | 3.01 |
| Entergy New Orleans | | 1.70 |
| | 3.26 |
| | 4.50 |
| | 4.30 |
| | 4.24 |
| | 3.44 |
The Registrant Subsidiaries accrue interest expense related to unrecognized tax benefits in income tax expense and do not include it in fixed charges.
Item 6. Exhibits
|
| | |
| | *3(a)4(a) - | |
| | | |
| | *3(b)4(b) - | |
| | |
| 4(a) - | |
| | | |
| | 4(b)4(c) - | |
| | | |
| | 4(c)4(d) - | |
| | |
|
| | |
| 4(e) - | |
| | | |
| | 4(d)4(f) - | Officer’s Certificate No. 10-B-8, dated March 20, 2018, supplemental to Mortgage and Deed of Trust of Entergy Louisiana, LLC,Loan Agreement, dated as of NovemberMarch 1, 2015 (4.402019, between Mississippi Business Finance Corporation and System Energy (4(b) to Form 8-K filed March 23, 201828, 2019 in 1-32718)1-9067). |
| | |
| *12(a) - | |
| | |
| *12(b) - | |
| | |
| *12(c) - | |
| | |
| *12(d) - | |
| | |
| *12(e) - | |
| | |
| *12(f) - | |
| | | |
| | *31(a) - | |
| | | |
| | *31(b) - | |
| | | |
| | *31(c) - | |
| | | |
| | *31(d) - | |
| | | |
| | *31(e) - | |
| | | |
| | *31(f) - | |
| | | |
| | *31(g) - | |
| | | |
| | *31(h) - | |
| | | |
| | *31(i) - | |
| | | |
| | *31(j) - | |
| | | |
| | *31(k) - | |
| | | |
| | *31(l) - | |
| | | |
| | *31(m) - | |
| | | |
| | *31(n) - | |
| | | |
| | *32(a) - | |
| | | |
| | *32(b) - | |
| | | |
|
| | |
| | *32(c) - | |
| | | |
| | *32(d) - | |
| | | |
| | *32(e) - | |
| | | |
| | *32(f) - | |
| | | |
| | *32(g) - | |
| | | |
| | *32(h) - | |
| | | |
| | *32(i) - | |
| | | |
| | *32(j) - | |
| | | |
| | *32(k) - | |
| | | |
| | *32(l) - | |
| | | |
| | *32(m) - | |
| | | |
| | *32(n) - | |
| | | |
| | *101 INS - | XBRL Instance Document. |
| | | |
| | *101 SCH - | XBRL Taxonomy Extension Schema Document. |
| | | |
| | *101 PRE - | XBRL Taxonomy Presentation Linkbase Document. |
| | | |
|
| | |
| | *101 LAB - | XBRL Taxonomy Label Linkbase Document. |
| | | |
| | *101 CAL - | XBRL Taxonomy Calculation Linkbase Document. |
| | | |
| | *101 DEF - | XBRL Definition Linkbase Document. |
___________________________
Pursuant to Item 601(b)(4)(iii) of Regulation S-K, Entergy Corporation agrees to furnish to the Commission upon request any instrument with respect to long-term debt that is not registered or listed herein as an Exhibit because the total amount of securities authorized under such agreement does not exceed ten percent of the total assets of Entergy Corporation and its subsidiaries on a consolidated basis.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, each registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The signature for each undersigned company shall be deemed to relate only to matters having reference to such company or its subsidiaries.
|
|
ENTERGY CORPORATION ENTERGY ARKANSAS, INC.LLC ENTERGY LOUISIANA, LLC ENTERGY MISSISSIPPI, INC.LLC ENTERGY NEW ORLEANS, LLC ENTERGY TEXAS, INC. SYSTEM ENERGY RESOURCES, INC. |
| |
| |
| /s/ Alyson M. Mount |
Alyson M. Mount
Senior Vice President and Chief Accounting Officer
(For each Registrant and for each as
Principal Accounting Officer) |
Date: May 4, 20183, 2019