UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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X | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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| For the Quarterly Period Ended September 30, 2018March 31, 2019 |
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| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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| For the transition period from ____________ to ____________ |
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Commission File Number | Registrant, State of Incorporation or Organization, Address of Principal Executive Offices, Telephone Number, and IRS Employer Identification No. | |
Commission File Number | Registrant, State of Incorporation or Organization, Address of Principal Executive Offices, Telephone Number, and IRS Employer Identification No. |
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1-11299 | ENTERGY CORPORATION (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 |
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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 |
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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 |
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1-31508 | ENTERGY MISSISSIPPI, INC.LLC (a Mississippi corporation)Texas limited liability company) 308 East Pearl Street Jackson, Mississippi 39201 Telephone (601) 368-5000 64-020583083-1950019
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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 every Interactive Data File required to be submitted 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 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.
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| 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:
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Common Stock OutstandingRegistrant | Trading Symbol | Title of Class | Name of Each Exchange on Which Registered |
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Entergy Corporation | ($0.01 par value)ETR | 181,142,215Common Stock, $0.01 Par Value – 189,926,451 shares outstanding at April 30, 2019 | New York Stock Exchange LLC NYSE Chicago, Inc. |
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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 |
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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 |
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Entergy Mississippi, LLC | EMP | Mortgage Bonds, 4.90% Series due October 2066 | New York Stock Exchange LLC |
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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 |
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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 and the Quarterly Reports on Form 10-Q for the quarters ended March 31, 2018 and June 30, 2018, filed by the individual registrants with the SEC, and should be read in conjunction therewith.
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Part I. Financial Information |
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Entergy Corporation and Subsidiaries | |
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Notes to Financial Statements | |
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Entergy Arkansas, Inc.LLC and Subsidiaries | |
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Entergy Louisiana, LLC and Subsidiaries | |
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Entergy Mississippi, Inc.LLC | |
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Entergy New Orleans, LLC and Subsidiaries | |
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Entergy Texas, Inc. and Subsidiaries | |
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System Energy Resources, Inc. | |
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Part II. Other Information |
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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 Entergy’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: |
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Abbreviation or Acronym | Term |
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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)
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Abbreviation or Acronym | Term |
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Indian Point 2 | Unit 2 of Indian Point Energy Center (nuclear), owned by an Entergy subsidiary in the Entergy Wholesale Commodities business segment |
Indian Point 3 | Unit 3 of Indian Point Energy Center (nuclear), owned by an Entergy subsidiary in the Entergy Wholesale Commodities business segment |
IRS | Internal Revenue Service |
ISO | Independent System Operator |
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)
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Abbreviation or Acronym | Term |
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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 |
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ENTERGY CORPORATION AND SUBSIDIARIES
MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS
Entergy operates primarily through two business segments: Utility and Entergy Wholesale Commodities.
The Utility business segment includes the generation, transmission, distribution, and sale of electric power in portions of Arkansas, Mississippi, Texas, and Louisiana, including the City of New Orleans; and operation of a small natural gas distribution business.
The Entergy Wholesale Commodities business segment includes the ownership, operation, and decommissioning of nuclear power plants located in the northern United States and the sale of the electric power produced by its operating plants to wholesale customers. Entergy Wholesale Commodities also provides services to other nuclear power plant owners and owns interests in non-nuclear power plants that sell the electric power produced by those plants to wholesale customers. See “Entergy Wholesale Commodities Exit from the Merchant Power Business” below 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
ThirdFirst Quarter 20182019 Compared to ThirdFirst Quarter 20172018
Following are income statement variances for Utility, Entergy Wholesale Commodities, Parent & Other, and Entergy comparing the thirdfirst quarter 20182019 to the thirdfirst quarter 20172018 showing how much the line item increased or (decreased) in comparison to the prior period:
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Utility | | Entergy Wholesale Commodities | |
Parent & Other (a) | |
Entergy | |
Utility | | Entergy Wholesale Commodities | |
Parent & Other (a) | |
Entergy |
| | (In Thousands) | | (In Thousands) |
3rd Quarter 2017 Consolidated Net Income (Loss) | |
| $403,733 |
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| $55,765 |
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| ($57,854 | ) | |
| $401,644 |
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2018 Consolidated Net Income (Loss) | | |
| $217,940 |
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| ($17,779 | ) | |
| ($63,961 | ) | |
| $136,200 |
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Net revenue (operating revenue less fuel expense, purchased power, and other regulatory charges/credits) | | (253,847 | ) | | (50,681 | ) | | (2 | ) | | (304,530 | ) | | (43,585 | ) | | 10,643 |
| | 19 |
| | (32,923 | ) |
Other operation and maintenance | | 50,746 |
| | 24,903 |
| | 3,363 |
| | 79,012 |
| | (2,636 | ) | | (2,116 | ) | | 4,218 |
| | (534 | ) |
Asset write-offs, impairments, and related charges | | — |
| | 138,994 |
| | — |
| | 138,994 |
| | — |
| | 1,055 |
| | — |
| | 1,055 |
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Taxes other than income taxes | | 1,388 |
| | 775 |
| | 279 |
| | 2,442 |
| | (2,191 | ) | | (3,607 | ) | | (845 | ) | | (6,643 | ) |
Depreciation and amortization | | (17,013 | ) | | (12,845 | ) | | (253 | ) | | (30,111 | ) | | 10,020 |
| | (111 | ) | | 300 |
| | 10,209 |
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Other income | | 26,926 |
| | 88,207 |
| | (624 | ) | | 114,509 |
| | 7,076 |
| | 182,512 |
| | (1,738 | ) | | 187,850 |
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Interest expense | | 2,256 |
| | 3,386 |
| | 7,526 |
| | 13,168 |
| | 5,650 |
| | 919 |
| | 7,317 |
| | 13,886 |
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Other expenses | | (628 | ) | | (6,271 | ) | | — |
| | (6,899 | ) | | 229 |
| | 15,171 |
| | — |
| | 15,400 |
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Income taxes | | (367,682 | ) | | (161,222 | ) | | 4,103 |
| | (524,801 | ) | | (63,788 | ) | | 66,986 |
| | (4,090 | ) | | (892 | ) |
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3rd Quarter 2018 Consolidated Net Income (Loss) | |
| $507,745 |
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| $105,571 |
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| ($73,498 | ) | |
| $539,818 |
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2019 Consolidated Net Income (Loss) | | |
| $234,147 |
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| $97,079 |
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| ($72,580 | ) | |
| $258,646 |
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(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.
Third quarter 2018 results of operations includes impairment charges of $155 million ($123 million net-of-tax) due to costs being charged directly to expense as a result of the impaired value of the Entergy Wholesale
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) 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, a $107 million reduction of income tax expense, recognized by Entergy Wholesale Commodities, as a result of a restructuring of the investment holdings in one of its nuclear plant decommissioning trust funds, and a $23 million reduction of income tax expense, recognized by Entergy Wholesale Commodities, as a result of a state income tax audit.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 a discussion of management’s strategy to reduceshut down and sell all of the size of theremaining plants in Entergy Wholesale Commodities’ merchant nuclear fleet. See Note 10 to the financial statements herein for discussion of the state income tax audit and restructuring of its interest in the decommissioning trust fund.
Net Revenue
Utility
Following is an analysis of the change in net revenue comparing the thirdfirst quarter 20182019 to the thirdfirst quarter 2017:2018:
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20172018 net revenue |
| $1,8111,460 |
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Return of unprotected excess accumulated deferred income taxes to customers | (27761 | ) |
Grand Gulf recoveryVolume/weather | (3938 | ) |
Retail electric price | 61 |
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Other | (86 | ) |
Volume/weather | 44 |
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Net wholesale revenue | 26 |
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20182019 net revenue |
| $1,5571,416 |
|
The return of unprotected excess accumulated deferred income taxes to customers resulted from activity in 2019 at the third quarter 2018 at Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System EnergyUtility 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. Entergy Texas’s proposal for the return of its unprotected excess accumulated deferred income taxes is pending before the PUCT in an unopposed settlement in its base rate case proceeding. See Note 2 to the financial statements herein and in the Form 10-K for further discussion of regulatory activity regarding the Tax Cuts and Jobs Act.
The Grand Gulf recoveryvolume/weather variance is primarily due to a reduction in depreciation expense recognized in third quarter 2018 upon FERC approvalthe effect of the settlement in the Unit Power Sales Agreement proceeding, a reduction in income tax expense associated with the reduction in the federal income tax rate in 2018,less favorable weather on residential and a reduction in recoverable decommissioning costs, primarily attributable to increased earnings on the decommissioning trust funds. This wascommercial sales, partially offset by increasesan increase in other capacity costs. See Note 2 to the financial statements herein for a discussion of the Unit Power Sales Agreement settlement. See Note 3 to the financial statementsindustrial usage. The increase in the Form 10-K for a discussion of the Tax Cutindustrial usage is primarily driven by continued growth from new and Jobs Act.expansion projects and increased demand from existing customers.
The retail electric price variance is primarily due toto:
the regulatory charges recorded in the thirdfirst quarter 2018 to reflect the effects of regulatory agreements to return the benefits of the lower income tax rate in 2018 to customers inEntergy Louisiana and New Orleans and a decrease in formula rate plan revenues implemented with the first billing cycle of September 2017 at Entergy Louisiana. The decrease was substantially offset by 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, and APSC;
a base rate increase effective October 2018 at Entergy Texas, as approved by the PUCT;
an increase in energy efficiency revenues. formula rate plan 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.
proceedings discussed above.
Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis
The volume/weather variance is primarily due to an increase of 1,851 GWh, or 6%, 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 driven by small industrials and cogeneration sales, as well as continued growth from new and expansion customers. The increase was partially offset by the effect of less favorable weather during the unbilled sales period.
The net wholesale revenue variance is primarily because of the regulatory lag experienced by certain Utility operating companies as a result of the change in the federal income tax rate in 2018 and its effect on wholesale rates. See Note 2 herein and in the Form 10-K for discussion of regulatory activity regarding the Tax Cuts and Jobs Act.
Entergy Wholesale Commodities
Following is an analysis of the change in net revenue comparing the thirdfirst quarter 20182019 to the thirdfirst quarter 2017:2018:
|
| | | |
| Amount |
| (In Millions) |
2017 net revenue |
| $392 |
|
Nuclear realized price changes | (24 | ) |
Nuclear volume | (14 | ) |
Other | (13 | ) |
2018 net revenue |
| $341382 |
|
Nuclear volume | 15 |
|
Other | (4 | ) |
2019 net revenue |
| $393 |
|
As shown in the table above, net revenue for Entergy Wholesale Commodities decreasedincreased by $51$11 million in the thirdfirst quarter 20182019 as compared to the thirdfirst quarter 20172018 primarily due to lower realized wholesale energy prices, partially offset by higher capacity prices, and lower volume in the Entergy Wholesale Commodities nuclear fleet resulting from morefewer non-refueling outage days in the thirdfirst quarter 20182019 as compared to the thirdfirst quarter 2017.2018.
Following are key performance measures for Entergy Wholesale Commodities for the third quarterfirst quarters 20182019 and 2017:2018:
| | | 2018 | | 2017 | 2019 | | 2018 |
Owned capacity (MW) | 3,962 | | 3,962 | 3,962 | | 3,962 |
GWh billed | 7,576 | | 8,234 | 7,203 | | 6,996 |
| | |
Entergy Wholesale Commodities Nuclear Fleet (a) | | |
Capacity factor | 90% | | 98% | 85% | | 83% |
GWh billed | 6,976 | | 7,633 | 6,690 | | 6,408 |
Average energy price ($/MWh) | $38.01 | | $39.94 | $51.43 | | $52.29 |
Average capacity price ($/kW-month) | $9.32 | | $9.09 | $4.71 | | $3.83 |
Refueling outage days: | | |
Indian Point 2 | | — | | 13 |
Indian Point 3 | | 21 | | — |
| |
(a) | The Entergy Wholesale Commodities nuclear power plants had no refueling outage days in the third quarter 2018 or the third quarter 2017. |
Other Income Statement Items
Utility
Other operation and maintenance expenses increaseddecreased from $584$588 million for the thirdfirst quarter 20172018 to $635$585 million for the thirdfirst quarter 20182019 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
an increase of $16$4 million in spending 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 an overalla higher scope of work performed in thirdthe first quarter 20182019 as compared to thirdthe first quarter 2017;
an increase of $15 million in energy efficiency costs;
an increase of $8 million in customer service costs primarily due to higher contract costs;
an increase of $7 million in information technology costs primarily due to higher software maintenance costs and higher contract costs; and
a $6 million loss in 2018 on the sale of fuel oil inventory per an agreement approved by the MPSC in June 2018 resulting from the stipulation related to the effects of the Tax Act. There is no effect on net income as the loss on the sale of fuel oil inventory is offset by a reduction in income tax expense.2018.
Depreciation and amortization expenses decreasedincreased primarily due to additions to plant in 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 herein and in the Form 10-K for further discussion of the Unit Power Sales Agreement.
Other income increased primarily due to changes in decommissioning trust fund investment activity, including portfolio rebalancing of certain of the decommissioning trust funds in the third quarter 2018.
Entergy Wholesale Commodities
Other operation and maintenance expenses increased from $184 million for the third quarter 2017 to $209 million for the third quarter 2018 primarily due to an increase of $19 million in severance and retention costs as a result of 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 a discussion of management’s strategy to reduce the size of the Entergy Wholesale Commodities’ merchant fleet.
The asset write-offs, impairments, and related charges variance is primarily due to impairment charges of $155 million ($123 million net-of-tax) in the third quarter 2018 compared to impairment charges of $16 million ($10 million net-of-tax) in the third 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. The increase in impairment charges in the third quarter 2018 is primarily due to $117 million ($93 million net-of-tax) of impairment charges related to Pilgrim primarily resulting from the effects of an updated decommissioning cost study. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Entergy Wholesale Commodities Exit from the Merchant Power Business” below and in the Form 10-K for a discussion of management’s strategy to reduce the size of the Entergy Wholesale Commodities’ merchant fleet. See Note 14 to the financial statements herein for a discussion of asset retirement obligations. See Note 14 to the financial statements in the Form 10-K for a discussion of impairment of long-lived assets.
Depreciation and amortization expenses decreased primarily due to the decision in the 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.
Other income increased primarily due to higher realized gains on the decommissioning trust fund investments in the third quarter 2018 as compared to the third quarter 2017, including the effect of portfolio rebalancing in the third quarter 2018.
Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis
Income Taxes
The effective income tax rate was (110.2%) for the third quarter 2018. The difference in the effective income tax rate for the third quarter 2018 versus the federal statutory rate of 21% was primarily due to amortization of excess accumulated deferred income taxes, a restructuring of the investment holdings in one of the Entergy Wholesale Commodities’ nuclear plant decommissioning trusts for which additional tax basis is now recoverable, and the conclusion of a state income tax audit involving Entergy Wholesale Commodities. See Notes 2 and 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 discussions of the restructuring and the conclusion of the state income tax audit.
The effective income tax rate was 37.6% for the third quarter 2017. The difference in the effective income tax rate for the third quarter 2017 versus the federal statutory rate of 35% was primarily due to state income taxes, partially offset by book and tax differences related to the allowance for equity funds used during construction.
Nine Months Ended September 30, 2018 Compared to Nine Months Ended September 30, 2017
Following are income statement variances for Utility, Entergy Wholesale Commodities, Parent & Other, and Entergy comparing the nine months ended September 30, 2018 to the nine months ended September 30, 2017 showing how much the line item increased or (decreased) in comparison to the prior period:
|
| | | | | | | | | | | | | | | | |
| |
Utility | | Entergy Wholesale Commodities | |
Parent & Other (a) | |
Entergy |
| | (In Thousands) |
2017 Consolidated Net Income (Loss) | |
| $817,738 |
| |
| $252,455 |
| |
| ($169,129 | ) | |
| $901,064 |
|
| | | | | | | | |
Net revenue (operating revenue less fuel expense, purchased power, and other regulatory charges/credits) | | (377,472 | ) | | (140,849 | ) | | (13 | ) | | (518,334 | ) |
Other operation and maintenance | | 114,009 |
| | (61,579 | ) | | 8,444 |
| | 60,874 |
|
Asset write-offs, impairments, and related charges | | — |
| | (124,502 | ) | | — |
| | (124,502 | ) |
Taxes other than income taxes | | 18,478 |
| | (2,337 | ) | | 451 |
| | 16,592 |
|
Depreciation and amortization | | 10,660 |
| | (40,640 | ) | | (253 | ) | | (30,233 | ) |
Gain on sale of assets | | — |
| | (16,270 | ) | | — |
| | (16,270 | ) |
Other income | | 28,651 |
| | 25,853 |
| | (2,464 | ) | | 52,040 |
|
Interest expense | | 9,449 |
| | 7,618 |
| | 18,504 |
| | 35,571 |
|
Other expenses | | (2,633 | ) | | (29,664 | ) | | — |
| | (32,297 | ) |
Income taxes | | (785,124 | ) | | 340,837 |
| | 11,905 |
| | (432,382 | ) |
| | | | | | | | |
2018 Consolidated Net Income (Loss) | |
| $1,104,078 |
| |
| $31,456 |
| |
| ($210,657 | ) | |
| $924,877 |
|
| |
(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.
Results of operations for the nine months ended September 30, 2018 include impairment charges of $297 million ($235 million net-of-tax) due to costs being charged directly to expense 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, a $107 million reduction of income tax expense, recognized by Entergy Wholesale Commodities, as a
Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis
result of a restructuring of the investment holdings in one of its nuclear plant decommissioning trust funds, a $52 million income tax benefit, recognized by Entergy Louisiana, as a result of the settlement of the 2012-2013 IRS audit, associated with the Hurricane Katrina and Hurricane Rita contingent sharing obligation associated with the Louisiana Act 55 financing, and a $23 million reduction of income tax expense, recognized by Entergy Wholesale Commodities, as a result of a state income tax audit. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Entergy Wholesale Commodities Exit from the Merchant Power Business” below and in the Form 10-K for a discussion of management’s strategy to reduce the size of the Entergy Wholesale Commodities’ merchant fleet. See Note 10 to the financial statements herein for discussion of the IRS audit settlement, the state income tax audit, and restructuring of its interest in the decommissioning trust fund.
Results of operations for the nine months ended September 30, 2017 include impairment charges of $422 million ($274 million net-of-tax) due to costs being charged directly to expense 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 and a reduction of income tax expense, net of unrecognized tax benefits, of $373 million as a result of a change in the tax classification of legal entities that own Entergy Wholesale Commodities nuclear power plants. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Entergy Wholesale Commodities Exit from the Merchant Power Business” below and in the Form 10-K for a discussion of management’s strategy to reduce the size of the Entergy Wholesale Commodities’ merchant fleet and Note 3 to the financial statements in the Form 10-K for additional discussion of the tax elections.
Net Revenue
Utility
Following is an analysis of the change in net revenue comparing the nine months ended September 30, 2018 to the nine months ended September 30, 2017:
|
| | | |
| Amount |
| (In Millions) |
2017 net revenue |
| $4,765 |
|
Return of unprotected excess accumulated deferred income taxes to customers | (555 | ) |
Grand Gulf recovery | (74 | ) |
Retail electric price | (4 | ) |
Net wholesale revenue | 35 |
|
Volume/weather | 203 |
|
Other | 18 |
|
2018 net revenue |
| $4,388 |
|
The return of unprotected excess accumulated deferred income taxes to customers resulted from activity in 2018 at Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy in response to the enactment of the Tax Cuts and Jobs Act. There is no effect on net income as the reductions in net revenue were offset by reductions in income tax expense. Entergy Texas’s proposal for the return of its unprotected excess accumulated deferred income taxes is pending before the PUCT in an unopposed settlement in its base rate case proceeding. See Note 2 to the financial statements herein and in the Form 10-K for further discussion of regulatory activity regarding the Tax Cuts and Jobs Act.
The Grand Gulf recovery variance is primarily due to a reduction in depreciation expense recognized in third quarter 2018 upon FERC approval of the settlement in the Unit Power Sales Agreement proceeding, a reduction in income tax expense associated with the reduction in the federal income tax rate in 2018, and a reduction in recoverable decommissioning costs, primarily attributable to increased earnings on the decommissioning trust funds. This was
Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis
partially offset by increases in other capacity costs. See Note 2 to the financial statements herein for a discussion of the Unit Power Sales Agreement settlement. See Note 3 to the financial statements in the Form 10-K for a discussion of the Tax Cut and Jobs Act.
The retail electric price variance is primarily due to regulatory charges recorded in 2018 to reflect the effects of regulatory agreements to return the benefits of the lower income tax rate in 2018 to customers in Louisiana and New Orleans. The decrease was substantially offset by the following:
an increase in formula rate plan rates effective with the first billing cycle of January 2018 at Entergy Arkansas, as approved by the APSC;
an increase in energy efficiency revenues;
higher storm damage rider revenues at Entergy Mississippi; and
an increase in the distribution cost recovery factor rider rate in September 2017 at Entergy Texas, as approved by the PUCT.
See Note 2 to the financial statements herein and in the Form 10-K for further discussion of the regulatory proceedings discussed above.
The net wholesale revenue variance is primarily because of the regulatory lag experienced by certain Utility operating companies as a result of the change in the federal income tax rate in 2018 and its effect on wholesale rates. See Note 2 herein and in the Form 10-K for discussion of regulatory activity regarding the Tax Cuts and Jobs Act.
The volume/weather variance is primarily due to an increase of 4,576 GWh, or 5%, 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 driven by small industrials sales, as well as continued growth from new and expansion customers.
Entergy Wholesale Commodities
Following is an analysis of the change in net revenue comparing the nine months ended September 30, 2018 to the nine months ended September 30, 2017:
|
| | | |
| Amount |
| (In Millions) |
2017 net revenue |
| $1,136 |
|
FitzPatrick reimbursement agreement | (98 | ) |
Nuclear realized price changes | (35 | ) |
Nuclear volume | 21 |
|
Other | (29 | ) |
2018 net revenue |
| $995 |
|
As shown in the table above, net revenue for Entergy Wholesale Commodities decreased by $141 million in the nine months ended September 30, 2018as compared to the nine months ended September 30, 2017 primarily due to:
a decrease resulting from the reimbursement agreement with Exelon pursuant to which Exelon reimbursed Entergy in the first quarter 2017 for specified out-of-pocket costs associated with preparing for the refueling and operation of FitzPatrick that otherwise would have been avoided had Entergy shut down FitzPatrick in January 2017. Revenues received from Exelon under the reimbursement agreement were offset by other operation and maintenance expenses and taxes other than income taxes and had no effect on net income. See Note 14 to the financial statements in the Form 10-K for discussion of the sale of FitzPatrick and the reimbursement agreement with Exelon; and
Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis
lower realized wholesale energy prices and the effect of rising forward power prices on electricity derivative instruments that are not designated as hedging instruments, partially offset by higher capacity prices.
The decrease was partially offset by higher volume in the Entergy Wholesale Commodities nuclear fleet resulting from fewer refueling outage days in the nine months ended September 30, 2018, partially offset by a larger exercise of resupply options in the nine months ended September 30, 2017 provided for in purchase power agreements where Entergy Wholesale Commodities may elect to supply power from another source when the plant is not running.
Following are key performance measures for Entergy Wholesale Commodities for the nine months ended September 30, 2018and 2017:
|
| | | |
| 2018 | | 2017 |
Owned capacity (MW) | 3,962 | | 3,962 |
GWh billed | 21,853 | | 22,616 |
| | | |
Entergy Wholesale Commodities Nuclear Fleet | | | |
Capacity factor | 86% | | 79% |
GWh billed | 20,096 | | 20,861 |
Average energy price ($/MWh) | $40.72 | | $42.46 |
Average capacity price ($/kW-month) | $7.01 | | $6.33 |
Refueling outage days: | | | |
FitzPatrick | — | | 42 |
Indian Point 2 | 33 | | — |
Indian Point 3 | — | | 66 |
Pilgrim | — | | 43 |
Palisades | — | | 27 |
Other Income Statement Items
Utility
Other operation and maintenance expenses increased from $1,738 million for the nine months ended September 30, 2017 to $1,852 million for the nine months ended September 30, 2018 primarily due to:
an increase of $38 million in fossil-fueled generation expenses primarily due to an overall higher scope of work performed in 2018 as compared to 2017;
an increase of $27 million in energy efficiency costs;
an increase of $12 million in storm damage provisions, primarily at Entergy Mississippi. See Note 2 to the financial statements herein and in the Form 10-K for discussion of storm cost recovery;
an increase of $11 million in customer service costs primarily due to higher contract costs;
an increase of $10 million in transmission expenses primarily due to higher labor and contract costs to support industrial customers;
an increase of $10 million in information technology costs primarily due to higher software maintenance costs and higher labor costs, including contract labor;
an increase of $6 million in nuclear generation expenses primarily due to higher nuclear labor costs, including contract labor, to position the nuclear fleet to meet its operational goals and a higher scope of work performed during plant outages in 2018 as compared to the same period in 2017;
a $6 million loss in 2018 on the sale of fuel oil inventory per an agreement approved by the MPSC in June 2018 resulting from the stipulation related to the effects of the Tax Act. There is no effect on net income as the loss on the sale of fuel oil inventory is offset by a reduction in income tax expense; and
an increase of $6 million in vegetation maintenance costs.
Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis
The increase was partially offset by higher nuclear insurance refunds of $15 million.
Taxes other than income taxes increased primarily due to increases in ad valorem taxes and payroll taxes. Ad valorem taxes increased primarily due to higher assessments.
Other income increased primarily due to changes in decommissioning trust fund investment activity, including portfolio rebalancing of certain of the decommissioning trust funds in the third quarter 2018 and 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.
Entergy Wholesale Commodities
Other operationMontgomery County Power Station, and maintenance expenses decreased from $661 million for the nine months ended September 30, 2017 to $599 million for the nine months ended September 30, 2018 primarily due to the absence of other operation and maintenance expenses from the FitzPatrick plant, which was sold to Exelon in March 2017.New Orleans Power Station projects. The decreaseincrease was partially offset by changes in decommissioning trust fund activity, including portfolio rebalancing of certain of the decommissioning trust funds in 2018.
Interest expense increased primarily due to an increase of $17 million in severance and retention costs as a result of management’s strategydebt outstanding at the Utility operating companies. See Note 5 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 andfinancial statements in the Form 10-K for a discussion of management’s strategy to reduce the size of the Entergy Wholesale Commodities’ merchant fleet.
The asset write-offs, impairments, and related charges variance is primarily due to impairment charges of $297 million ($235 million net-of-tax) in the nine months ended September 30, 2018 compared to impairment charges of $422 million ($274 million net-of-tax) in the nine months ended September 30, 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. The decrease in impairment charges in 2018 is primarily due to Palisades expenditures incurred after September 30, 2017, no longer being charged to expense as incurred but recorded as assets and depreciated or amortized, and the timing of nuclear refueling outage spending and nuclear fuel spending at the remaining impaired Entergy Wholesale Commodities nuclear plants, partially offset by an increase in impairment charges related to Pilgrim primarily resulting from the effects of an updated decommissioning cost study. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Entergy Wholesale Commodities Exit from the Merchant Power Business” below and in the Form 10-K for a discussion of management’s strategy to reduce the size of the Entergy Wholesale Commodities’ merchant fleet. See Note 144 to the financial statements herein for a discussion of asset retirement obligations. See Note 14 to the financial statements in the Form 10-K for a discussion of impairment of long-lived assets.long-term debt.
Depreciation and amortization expenses decreased primarily due to the decision in the 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.
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. See Note 14 to the financial statements in the Form 10-K for discussion of the sale of FitzPatrick.
Other income increased primarily due to higher realized gains on the decommissioning trust fund investments in the nine months ended September 30, 2018first quarter 2019 as compared to the nine months ended September 30, 2017, includingfirst quarter 2018. See Notes 8 and 9 to the effectfinancial statements herein for a discussion of portfolio rebalancing in 2018.
Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis
decommissioning trust fund investments.
Other expenses decreasedincreased primarily due to the absence of decommissioning expense from the FitzPatrick plant after it was sold to Exelonan increase in March 2017 and a reduction in deferrednuclear refueling outage amortization costs related to the impairmentsexpenses as a result of the Indian Point 3, Indian Point 2, and Palisades plants and related assets. See Note 14 to the financial statements in the Form 10-K for discussionamortization of the sale of FitzPatrick and impairments and related charges.higher costs associated with a refueling outage at Palisades.
Income Taxes
The effective income tax rate was (128.4%)14.2% for the nine months ended September 30, 2018.first quarter 2019. The difference in the effective income tax rate for the nine months ended September 30, 2018first quarter 2019 versus the federal statutory rate of 21% was primarily due to amortization of excess accumulated deferred income taxes, a restructuringpartially offset by the tax effects of the investment holdings in onedisposition of the Entergy Wholesale Commodities’ nuclear plant decommissioning trusts for which additional tax basis is now recoverable, and an IRS audit settlement for the 2012-2013 tax returns.Vermont Yankee. See Notes 2 and 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 a discussion of the IRS audit settlement andtax effects of the restructuring.Vermont Yankee disposition.
The effective income tax rate was (10.8%)24.3% for the nine months ended September 30, 2017.first quarter 2018. The difference in the effective income tax rate for the nine months ended September 30, 2017first quarter 2018 versus the federal statutory rate of 35%21% was primarily due to state income taxes, a change in thewrite-off of a stock-based compensation deferred tax classification of legal entities that own Entergy Wholesale Commodities nuclear power plants, which resulted in both permanent and temporary differences under the income tax accounting standardsasset, and the re-determinedprovision for uncertain tax basis of the FitzPatrick plant as a result of its sale on March 31, 2017,positions, partially offset by state income taxes. See Note 3certain book and tax differences related to utility plant items and book and tax differences related to the financial statements in the Form 10-Kallowance for further discussion of the change in tax classification and the tax benefit associated with the sale of FitzPatrick.equity funds used during construction.
Entergy Corporation and Subsidiaries
Management's Financial Discussion and 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 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 parties that set forthamounts). The sale of Entergy Nuclear Generation Company will include the terms on which the agencies and parties support the Vermont Public Utility Commission’s approvaltransfer of the transaction. The agreements provide additional financial assurancenuclear decommissioning trust and obligation for decommissioning, spent fuel management and site restoration, and detailplant decommissioning. Subject to the site restoration standards that will apply to protectconditions discussed in the environment andForm 10-K, the health and safety of workers and the public. The provisions of the agreements will become effective upon approval of the transaction by the Vermont Public Utility Commission consistent with the agreements’ terms, the NRC’s approval of the license transfer application, and the closing of the transaction. In October 2018 the
Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis
NRC issued an order approving the application to transfer Vermont Yankee’s license to NorthStar for decommissioning. The Vermont Public Utility Commission is expected to issue its decision inclose by the fourth quarterend of 2018.
Entergy Nuclear Vermont Yankee has an outstanding credit facility with borrowing capacity of $145 million to pay for dry fuel storage costs. This credit facility is guaranteed by Entergy Corporation. At or before closing, a subsidiary of Entergy will assume the obligations under the existing credit facility or enter into a new credit facility, and Entergy will guarantee the credit facility. At the closing of the sale transaction, NorthStar will pay $1,000 for the membership interests in Entergy Nuclear Vermont Yankee, and NorthStar will cause Entergy Nuclear Vermont Yankee to issue a promissory note to an Entergy affiliate. The amount of the promissory note issued will be equal to the amount drawn under the credit facility or the amount drawn under the new credit facility, plus borrowing fees and costs incurred by Entergy in connection with such facility. The principal amount drawn under the outstanding credit facility was $132 million as of September 30, 2018.2019. The transaction is expected to result in a loss based on the difference between Entergy’s adjusted net investment in Entergy Nuclear Vermont YankeeGeneration Company and the sale price plus any agreed adjustments. As of September 30, 2018, Entergy’s adjusted net investment in Entergy Nuclear Vermont Yankee was $266 million. The primary variables in the ultimate loss are the values of the nuclear decommissioning trusts and the asset retirement obligations at closing, financial results from the plant until the closing, and any changes in Entergy’s investment in Entergy Nuclear Vermont Yankee before closing.
Planned Sales of Pilgrim and Palisades
On July 30, 2018, Entergy entered into purchase and sale agreements with Holtec International to sell to a Holtec subsidiary (i) 100% of the equity interests in Entergy Nuclear Generation Company, the owner of Pilgrim, and (ii) 100% of the equity interests in Entergy Nuclear Palisades, LLC, the owner of Palisades and the Big Rock Point Site. The sales of Entergy Nuclear Generation Company and Entergy Nuclear Palisades will include the transfer of each entity’s nuclear decommissioning trust and obligation for spent fuel management and plant decommissioning. At the closing of each sale transaction, the Holtec subsidiary will pay $1,000 each (subject to adjustment for net liabilities and other amounts) for the equity interests in Entergy Nuclear Generation Company and Entergy Nuclear Palisades.
The Pilgrim transaction is subject to certain closing conditions, including: the permanent shutdown of Pilgrim and the transfer of all nuclear fuel from the reactor vessel to the spent nuclear fuel pool; NRC approval for the transfer of the operating and the independent spent fuel storage installation licenses; FERC approval for the change in control of the switchyard; receipt of a favorable private letter ruling from the IRS; the market value of the nuclear decommissioning trust for Pilgrim, less the hypothetical income tax on the aggregate unrealized gain of such fund assets at closing, equaling or exceeding a specified minimum amount; and, the Palisades purchase and sale agreement not having been terminated due to a breach by Holtec or its subsidiary.
The Palisades transaction is subject to certain closing conditions, including: the permanent shutdown of Palisades and the transfer of all nuclear fuel from the reactor vessel to the spent nuclear fuel pool; NRC regulatory approval for the transfer of the Palisades and Big Rock Point operating and independent spent fuel storage installation licenses; receipt of a favorable private letter ruling from the IRS; the market value of the nuclear decommissioning trust for Palisades, less the hypothetical income tax on the aggregate unrealized gain of such fund assets at closing, equaling or exceeding a specified minimum amount; and, the Pilgrim transaction having closed.
Subject to the above conditions, the Pilgrim transaction is expected to close by the end ofMarch 31, 2019, and the Palisades transaction is expected to close by the end of 2022. Each transaction is expected to result in a loss based on the difference between Entergy’s net investment in each subsidiary and the sale price plus any agreed adjustments. As of September 30, 2018, Entergy’s adjusted net investment in Entergy Nuclear Generation Company was $456 million and Entergy’s adjusted net investment in Entergy Nuclear Palisades was $210$180 million. The primary variables in the ultimate loss that Entergy will incur are the values of the nuclear decommissioning truststrust and the asset retirement obligationsobligation 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 obtaining from the New York State Department of Environmental Conservation an agreement related to Holtec’s decommissioning plan as being consistent with applicable standards. The transaction closing is targeted for third quarter 2021, following the defueling of Indian Point 3.
Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis
As consideration for the transfer to Holtec of its interest in Indian Point, Entergy will receive nominal cash consideration. The Indian Point transaction is expected to result in a loss based on the difference between Entergy’s adjusted net investment in the subsidiaries at closing and the sale price net of any agreed adjustments. As of 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 nuclear decommissioning trusts and the asset retirement obligations at closing, the financial results from plant operations until the closing, and the level of unrealized any deferred tax balances at closing. The terms of the transaction include limitations on withdrawals from the nuclear decommissioning trusts to fund decommissioning activities and controls on how Entergy manages the investment of nuclear decommissioning trust assets between signing and closing; however, the agreement does not require a minimum level of funding in the nuclear decommissioning trusts as a condition to closing.
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 $155$130 million in 2018,2019, of which $103$34 million has been incurred as of September 30, 2018,March 31, 2019, and a total of approximately $215$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 $155$74 million for the three months ended September 30, 2018 and $297 million for the nine months ended September 30, 2018.March 31, 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. Following are updates to that discussion.
In April 2018 the NRC issued a supplement to the final supplemental environmental impact statement, and in August 2018 the NRC issued a supplemental safety evaluation report. The supplements update the environmental record and safety record related to the Indian Point license renewal. In September 2018 the NRC issued renewed operating licenses for Indian Point 2 through April 2024 and for Indian Point 3 through April 2025.
As discussed in the Form 10-K, in January 2017, Entergy reached a settlement with New York State, several State agencies, and Riverkeeper, Inc. under which Indian Point 2 and Indian Point 3 will cease commercial operation by April 30, 2020 and April 30, 2021, respectively. Operations may be extended up to four additional years for each unit by mutual agreement of Entergy and New York State based on an exigent reliability need for Indian Point generation. In accordance with the FERC-approved tariff of the New York Independent System Operator (NYISO), Entergy submitted to the NYISO a notice of generator deactivation based on the dates in the settlement. In December 2017 the NYISO issued a report stating there will not be a system reliability need following the deactivation of Indian Point. In April 2018 the NYISO issued a determination that the retirement of Indian Point was economically justified and, therefore, did not raise competition concerns.
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.
Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis
Capital Structure
Entergy’s debt to capital ratio is shown in the following table. The increase in the debt to capital ratio for Entergy as of September 30, 2018March 31, 2019 is primarily due to the net issuance of debt in 2018.2019.
| | | September 30, 2018 | | December 31, 2017 | March 31, 2019 | | December 31, 2018 |
Debt to capital | 68.2 | % | | 67.1 | % | 67.8 | % | | 66.7 | % |
Effect of excluding securitization bonds | (0.5 | %) | | (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 | (1.3 | %) | | (1.1 | %) | (1.2 | %) | | (0.6 | %) |
Net debt to net capital, excluding securitization bonds (a) | 66.4 | % | | 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 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 ninethree months ended September 30, 2018March 31, 2019 was 3.46%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 September 30, 2018:March 31, 2019:
| | Capacity | | Borrowings | | Letters of Credit | | Capacity Available | | Borrowings | | Letters of Credit | | Capacity Available |
(In Millions) | $3,500 | | $630 | | $6 | | $2,864 | | $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 Nuclear Vermont Yankee has a credit facility guaranteed by Entergy Corporation with a borrowing capacity of $145 million that expires in November 2020. As of September 30, 2018, $132 million in cash borrowings were outstanding under the credit facility. The weighted average interest rate for the nine months ended September
Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis
30, 2018 was 3.37% on the drawn portion of the facility. See Note 4 to the financial statements herein for additional discussion of the Vermont Yankee facility.
Entergy Corporation has a commercial paper program with a Board-approved program limit of up to $2 billion. As of September 30, 2018,March 31, 2019, Entergy Corporation had approximately $1,947$1,942 million of commercial paper outstanding. The weighted-average interest rate for the ninethree months ended September 30, 2018March 31, 2019 was 2.42%3.03%.
Equity Forward Sale Agreements
In June 2018,January 2019, Entergy marketedNuclear Vermont Yankee was transferred to NorthStar and its credit facility was assumed by Vermont Yankee Asset Retirement Management, LLC, Entergy Nuclear Vermont Yankee’s parent company that remains an equity offeringEntergy subsidiary after the transfer. The credit facility has a borrowing capacity of 15.3$139 million sharesand expires in November 2020. As of common stock. In lieu of issuing equity atMarch 31, 2019, $139 million in cash borrowings were outstanding under the timecredit facility. The weighted average interest rate for the three months ended March 31, 2019 was 4.28% on the drawn portion of the offering, Entergy entered into forward sale agreements with several counterparties. Settlement of the forward sale agreements is expected to occur on or prior to June 7, 2019.facility. See Note 314 to the financial statements in the Form 10-K and Note 16 to the financial statements herein for discussion of the equity forwards.transfer of Entergy Nuclear Vermont Yankee to NorthStar.
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.
Preliminary Capital Investment Plan Estimate for 2019-2021
Entergy is developing its capital investment plan for 2019 through 2021 and currently anticipates that the Utility will make approximately $11.1 billion in capital investments during that period and that Entergy Wholesale Commodities will make approximately $0.2 billion in capital investments, not including nuclear fuel, during that period. The preliminary Utility estimate includes amounts associated with specific investments such as the New Orleans Power Station, the Washington Parish Energy Center, and the Choctaw Generating Station, each discussed below, the Lake Charles Power Station, the St. Charles Power Station, and the Montgomery County Power Station; transmission projects to enhance reliability, reduce congestion, and enable economic growth; distribution spending to enhance reliability and improve service to customers, including advanced meters and related investments; resource planning, including potential generation projects; system improvements; investments in the nuclear fleet; software and security; and other investments. The preliminary Entergy Wholesale Commodities estimate includes amounts associated with specific investments, such as the investments in the nuclear fleet, component replacement, software and security, and dry cask storage. Estimated capital expenditures are subject to periodic review and modification and may vary based on the ongoing effects of business restructuring, regulatory constraints and requirements, environmental regulations, business opportunities, market volatility, economic trends, changes in project plans, and the ability to access capital.
New Orleans Power Station
As discussed in the Form 10-K, in June 2016, 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 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 Spring 2020, subject to receipt of all necessary permits by the end of November 2018. 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. In May 2018 the City Council announced that it would initiate an investigation into allegations that Entergy New Orleans, Entergy, or some other
Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis
entity paid or participated in paying certain attendees and speakers in support of the New Orleans Power Station to attend or speak at certain meetings organized by the City Council. In June 2018, Entergy New Orleans produced documents in response to a City Council resolution relating to this investigation. The City Council issued a request for qualifications for an investigator and in June 2018 selected two investigators. In October 2018 the investigators for the City Council released their report, concluding that individuals were paid to attend and/or speak in support of the New Orleans Power Station and that Entergy New Orleans “knew or should have known that such conduct occurred or reasonably might occur.” The City Council held a special meeting on October 31, 2018 to allow the investigators to present the report and for the City Council to consider next steps. At that meeting, the City Council issued a resolution requiring Entergy New Orleans to show cause why it should not be fined $5 million as a result of the findings in the report. A response to the resolution is due within 30 days from issuance of the certified resolution. Entergy New Orleans disagrees with certain characterizations and omissions of fact in the report and submitted its response to the City Council.
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. In April 2018 the parties reached a settlement recommending certification and cost recovery through the additional capacity mechanism of the formula rate plan, consistent with prior LPSC precedent with respect to the certification and recovery of plants previously acquired by Entergy Louisiana. The LPSC issued an order approving the settlement in May 2018.
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, as well as clearanceFERC. Clearance under the Hart-Scott-Rodino Antitrust Improvements Act.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.
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 October 2018April 2019 meeting, the Board declared a dividend of $0.91 per share, an increase fromwhich is the previous $0.89same 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 ninethree months ended September 30,March 31, 2019 and 2018 and 2017 were as follows:
| | | 2018 | | 2017 | 2019 | | 2018 |
| (In Millions) | (In Millions) |
Cash and cash equivalents at beginning of period |
| $781 |
| |
| $1,188 |
|
| $481 |
| |
| $781 |
|
| | | | | | |
Cash flow provided by (used in): | |
| | |
| |
| | |
|
Operating activities | 1,860 |
| | 1,713 |
| 501 |
| | 557 |
|
Investing activities | (3,000 | ) | | (2,828 | ) | (951 | ) | | (974 | ) |
Financing activities | 1,347 |
| | 473 |
| 952 |
| | 841 |
|
Net increase (decrease) in cash and cash equivalents | 207 |
| | (642 | ) | |
Net increase in cash and cash equivalents | | 502 |
| | 424 |
|
| | | | | | |
Cash and cash equivalents at end of period |
| $988 |
| |
| $546 |
|
| $983 |
| |
| $1,205 |
|
Operating Activities
Net cash flow provided by operating activities increaseddecreased by $147$56 million for the ninethree months ended September 30, 2018March 31, 2019 compared to the ninethree months ended September 30, 2017March 31, 2018 primarily due to:
a decrease of $130 million in spending on nuclear refueling outages in 2018 as compared to the same period in 2017;
severance and retention payments of $92 million in 2017. See Note 7 to the financial statements herein for a discussion of severance and retention costs in connection with management’s strategy to manage and reduce the risk of the Entergy Wholesale Commodities business;
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;
the effect of favorable weather on billed Utility sales in 2018; and
an increase due to the timing of recovery of fuel and purchased power costs in 2018 as compared to the same period in 2017. See Note 2 to the financial statements in the Form 10-K for a discussion of fuel and purchased power cost recovery.
The increase was partially offset by:
lower Entergy Wholesale Commodities net revenue in 2018 as compared to the same period in 2017 (except for the revenues resulting from the FitzPatrick reimbursement agreement with Exelon), as discussed above. See Note 14 to the financial statements in the Form 10-K for discussion of the reimbursement agreement;
the return of unprotected excess accumulated deferred income taxes to Utility customers. See Note 2 to the financial statements herein and in the Form 10-K for a discussion of the regulatory activity regarding the Tax Cuts and Jobs Act;
the effect of less favorable weather on billed Utility sales in 2019;
an increase of $50$41 million in interest paidspending on nuclear refueling outages in 20182019 as compared to the same period in 20172018; and
an increase of $29 million in interest paid in 2019 as compared to the same period in 2018 resulting from an increase in interest expense;debt outstanding.
income tax payments
The decrease was partially offset by:
an increase due to the timing of $18 millionrecovery of fuel and purchased power costs in 20182019 as compared to income tax refunds of $12 millionthe same period in 2017. Entergy made income tax payments in 2018 for estimated federal income taxes. Entergy received income tax refunds in 2017 resulting from the carryback of net operating losses; and
proceeds of $23 million received in 2017 from the DOE resulting from litigation regarding spent nuclear fuel storage costs that were previously expensed.2018. See Note 82 to the financial statements herein and in the Form 10-K for a discussion of the spent nuclear fuel litigation.
and purchased power cost recovery; and
Entergy Corporation$80 million in pension contributions in 2019 as compared to same period in 2018. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Critical Accounting Estimates” in the Form 10-K and Subsidiaries
Management's Financial DiscussionNote 6 to the financial statements herein for a discussion of qualified pension and Analysisother postretirement benefits funding.
Investing Activities
Net cash flow used in investing activities increased $172decreased $23 million for the ninethree months ended September 30, 2018March 31, 2019 compared to the ninethree months ended September 30, 2017March 31, 2018 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 $261 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 $183 million in fossil-fueled generation construction expenditures primarily due to higher spending in 2018 on self-build projects in the Utility business and an increase of $62 million in nuclear construction expenditures primarily due to a higher scope of work performed during the Grand Gulf outage in 2018;
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; and
proceeds of $25 million received in 2017 from the DOE resulting from litigation regarding spent nuclear fuel storage costs that were previously capitalized. See Note 8 to the financial statements in the Form 10-K for discussion of the DOE litigation.
The increase was partially offset by:
$113 million in funds held on deposit in 2017 for principal and interest payments that were due October 1, 2017;
changes in the decommissioning trust funds, including portfolio rebalancing of certain decommissioning trust funds in the third quarter 2018; and
a decrease of $55$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.
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 $874$111 million for the ninethree months ended September 30, 2018March 31, 2019 compared to the ninethree months ended September 30, 2017March 31, 2018 primarily due to a decrease in net repayments of $812 million of commercial paper in 2019. The increase was partially offset by:
long-term debt activity providing approximately $1,422$1,145 million of cash in 20182019 compared to using approximately $309 thousand$1,772 million in 2017. Borrowings and repayments2018;
the repurchase in first quarter 2019 of borrowings on Entergy’s long-term credit facility are included$50 million of Class A mandatorily redeemable preferred membership units in long-term debt activity. The increase was partially offsetEntergy Holdings Company LLC, a wholly-owned Entergy subsidiary, that were held by a decreasethird party; and
short-term borrowings of $448$39 million in net issuances of commercial paper in 2018 compared to the same period in 2017 and a net decrease of $121 million in 2018 in short-term borrowings 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.
Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis
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 use 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 September 30, 2018 (2018March 31, 2019 (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% | | 95% | | 86% | | 87% | | 66% | | 98% | | 95% | | 91% | | 66% |
Firm LD (c) | | 10% | | —% | | —% | | —% | | —% | |
Offsetting positions (d) | | (10%) | | —% | | —% | | —% | | —% | |
Total | | 98% | | 95% | | 86% | | 87% | | 66% | |
Planned generation (TWh) (e) (f) | | 6.7 | | 25.6 | | 17.7 | | 9.6 | | 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 September 30, 2018 | | $33.6 | | $40.3 | | $42.9 | | $57.3 | | $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% | | 26% | | 36% | | 68% | | 97% | |
Capacity contracts (i) | | 42% | | 22% | | 3% | | —% | | —% | |
Percent of capacity sold forward (e): | | |
Bundled capacity and energy contracts (f) | | | 27% | | 37% | | 68% | | 97% |
Capacity contracts (g) | | | 30% | | 27% | | —% | | —% |
Total | | 64% | | 48% | | 39% | | 68% | | 97% | | 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) | | $8.0 | | $7.2 | | $1.8 | | $— | | $— | | $5.1 | | $3.2 | | $— | | $— |
| | |
Total Energy and Capacity Revenues (j) | | |
Total Energy and Capacity Revenues (h) | | |
Expected sold and market total revenue per MWh | | $44.1 | | $46.3 | | $46.9 | | $55.3 | | $47.1 | | $38.9 | | $45.1 | | $55.0 | | $47.5 |
Sensitivity: -/+ $10 per MWh market price change | | $44.0-$44.3 | | $45.8-$46.8 | | $45.9-$47.9 | | $54.0-$56.7 | | $43.3-$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. 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
Palisades plants, see “Entergy Wholesale Commodities Exit from the Merchant Power Business” 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 September 30, 2018March 31, 2019 market conditions, planned generation volumes, and hedged positions, would have a corresponding effect on pre-tax income of ($1)$4 million for the remainder of 2018.2019. As of September 30, 2017,March 31, 2018, a positive $10 per MWhMW change would have had a corresponding effect on pre-tax income of $9$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 September 30, 2018March 31, 2019 market conditions, planned generation volumes, and hedged positions, would have a corresponding effect on pre-tax income of $1($4) million for the remainder of 2018.2019. As of September 30, 2017,March 31, 2018, a negative $10 per MWhMW change would have had a corresponding effect on pre-tax income of ($9)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 September 30, 2018,March 31, 2019, based on power prices at that time, Entergy had liquidity exposure of $131$121 million under the guarantees in place supporting Entergy Wholesale Commodities transactions and $42$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 September 30, 2018,March 31, 2019, Entergy would have been required to provide approximately $78$75 million of additional cash or letters of credit under some of the agreements. As of September 30, 2018,March 31, 2019, the liquidity exposure associated with Entergy Wholesale Commodities assurance requirements, including return of previously posted collateral from counterparties, would increase by $307$235 million for a $1 per MMBtu increase in gas prices in both the short- and long-term markets.
As of September 30, 2018,March 31, 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 are updatesis an update to that discussion.
ANO
See Note 8 to the financial statements in the Form 10-K for discussion of the NRC’s decision in March 2015 to move ANO into the “multiple/repetitive degraded cornerstone column,” or Column 4, of the NRC’s Reactor Oversight Process Action Matrix, and the resulting significant additional NRC inspection activities at the ANO site. In June 2018 the NRC moved ANO 1 and ANO 2 into the “licensee response column,” or Column 1, of the NRC’s Reactor Oversight Process Action Matrix. This action followed NRC inspections to review ANO 1’s and ANO 2’s performance in addressing issues that had previously resulted in classification in Column 4.
Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis
Grand GulfPilgrim
As discussed in the Form 10-K, in November 2016In March 2019 the NRC placed Grand Gulf in the “regulatory responsemoved Pilgrim from its “multiple/repetitive degraded cornerstone column,” or Column 2,4, of its Reactor Oversight Process Action Matrix. In August 2018 the NRC moved Grand Gulf intoMatrix to its “licensee response column,” or Column 1 of the NRC’s Reactor Oversight Process Action Matrix. This action followed NRC inspections to review Grand Gulf’s performance in addressing issues that had previously resulted in classification in Column 2. Based on performance indicator data for the third quarter 2018, Entergy expects that the NRC will announce that Grand Gulf has moved back to Column 2. In August 2018 operators safely performed a reduction in power to address an operational issue with a plant system. As a result of the power reduction, the threshold for one of the NRC’s performance indicators was exceeded, which results in a Column 2 designation under the NRC’s Reactor Oversight Process Action Matrix at least until new performance indicator data is reported in the first quarter 2019.1.
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 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. The following are updates to that discussion.
In February 2016 the FASB issued ASU No. 2016-02, “Leases (Topic 842).” The ASU’s core principle is that “a lessee should recognize the assets and liabilities that arise from leases.” The ASU considers that “all leases create an asset and a liability,” and accordingly requires recording the assets and liabilities related to all leases with a term greater than 12 months. In January 2018 the FASB issued ASU No. 2018-01, “Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842,” providing entities the option to elect not to evaluate existing land easements that are not currently accounted for under the previous lease standard. In July 2018 the FASB issued ASU No. 2018-11, “Leases (Topic 842): Targeted Improvements,” which is intended to simplify the transition requirements giving entities the option to apply the transition provisions of the new standard at the date of adoption instead of at the earliest comparative period presented and provides a practical expedient for the separation of lease and nonlease components for lessors. Entergy plans to adopt ASU 2016-02 along with the practical expedients provided by ASU 2018-01 and 2018-11 when they become effective for Entergy in the first quarter 2019. Entergy does not expect that ASU 2016-02 will materially affect its results of operations, financial position, or cash flows but it will significantly expand the level of lease related disclosure.
In September 2018 the FASB issued ASU No. 2018-15, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service.” The ASU requires entities to capitalize implementation costs associated with cloud computing arrangements classified as hosting arrangements and amortize those costs over the contract term. These costs are required to be capitalized in the same line as prepayments of the costs, and subsequently amortized in the same lines as the hosting service element of the arrangement. ASU 2018-15 is effective for Entergy for the first quarter 2020. Entergy does not expect to early adopt the standard. Entergy expects that it will elect to adopt ASU 2018-15 on a prospective basis, which will affect its statement of financial position by presenting implementation costs for hosting arrangements as prepayments, and net income by amortizing those costs as operation and maintenance expense over the contract term of the arrangement. Entergy is evaluating ASU 2018-15 for other effects on its results of operations, financial position, or cash flows.
| | ENTERGY CORPORATION AND SUBSIDIARIES | CONSOLIDATED INCOME STATEMENTS | For the Three and Nine Months Ended September 30, 2018 and 2017 | |
For the Three Months Ended March 31, 2019 and 2018 | | For the Three Months Ended March 31, 2019 and 2018 |
(Unaudited) | | | | | |
| Three Months Ended | | Nine Months Ended | |
| 2018 | | 2017 | | 2018 | | 2017 | 2019 | | 2018 |
| (In Thousands, Except Share Data) | (In Thousands, Except Share Data) |
OPERATING REVENUES | | | | | | | | | | |
Electric |
| $2,697,887 |
| |
| $2,793,798 |
| |
| $7,276,374 |
| |
| $7,056,758 |
|
| $2,121,024 |
| |
| $2,248,262 |
|
Natural gas | 26,352 |
| | 26,585 |
| | 112,990 |
| | 100,011 |
| 54,948 |
| | 56,695 |
|
Competitive businesses | 380,080 |
| | 423,245 |
| | 1,107,606 |
| | 1,293,867 |
| 433,612 |
| | 418,924 |
|
TOTAL | 3,104,319 |
| | 3,243,628 |
| | 8,496,970 |
| | 8,450,636 |
| 2,609,584 |
| | 2,723,881 |
|
| | | | | | | | | | |
OPERATING EXPENSES | | | | | | | | | | |
Operation and Maintenance: | | | | | | | | | | |
Fuel, fuel-related expenses, and gas purchased for resale | 729,269 |
| | 612,950 |
| | 1,638,367 |
| | 1,426,462 |
| 478,330 |
| | 443,296 |
|
Purchased power | 439,380 |
| | 408,140 |
| | 1,252,437 |
| | 1,182,404 |
| 339,507 |
| | 396,023 |
|
Nuclear refueling outage expenses | 37,937 |
| | 43,273 |
| | 116,057 |
| | 124,126 |
| 50,441 |
| | 42,760 |
|
Other operation and maintenance | 854,013 |
| | 775,001 |
| | 2,477,699 |
| | 2,416,825 |
| 783,051 |
| | 783,585 |
|
Asset write-offs, impairments, and related charges | 155,215 |
| | 16,221 |
| | 297,082 |
| | 421,584 |
| 73,979 |
| | 72,924 |
|
Decommissioning | 93,829 |
| | 95,392 |
| | 285,834 |
| | 310,062 |
| 102,119 |
| | 94,400 |
|
Taxes other than income taxes | 161,916 |
| | 159,474 |
| | 485,682 |
| | 469,090 |
| 158,575 |
| | 165,218 |
|
Depreciation and amortization | 324,628 |
| | 354,739 |
| | 1,022,099 |
| | 1,052,332 |
| 357,274 |
| | 347,065 |
|
Other regulatory charges (credits) | 37,097 |
| | 19,435 |
| | 223,416 |
| | (59,314 | ) | (16,946 | ) | | 42,946 |
|
TOTAL | 2,833,284 |
| | 2,484,625 |
| | 7,798,673 |
| | 7,343,571 |
| 2,326,330 |
| | 2,388,217 |
|
| | | | | | | | |
Gain on sale of assets | — |
| | — |
| | — |
| | 16,270 |
| |
| | | | | | | | | | |
OPERATING INCOME | 271,035 |
| | 759,003 |
| | 698,297 |
| | 1,123,335 |
| 283,254 |
| | 335,664 |
|
| | | | | | | | | | |
OTHER INCOME | | | | | | | | | | |
Allowance for equity funds used during construction | 32,354 |
| | 24,338 |
| | 92,367 |
| | 65,722 |
| 38,216 |
| | 28,343 |
|
Interest and investment income | 177,081 |
| | 58,332 |
| | 265,086 |
| | 194,978 |
| 228,149 |
| | 16,870 |
|
Miscellaneous - net | (43,591 | ) | | (31,335 | ) | | (123,439 | ) | | (78,726 | ) | (64,658 | ) | | (31,356 | ) |
TOTAL | 165,844 |
| | 51,335 |
| | 234,014 |
| | 181,974 |
| 201,707 |
| | 13,857 |
|
| | | | | | | | | | |
INTEREST EXPENSE | | | | | | | | | | |
Interest expense | 195,311 |
| | 178,391 |
| | 570,548 |
| | 522,857 |
| 200,993 |
| | 182,923 |
|
Allowance for borrowed funds used during construction | (15,244 | ) | | (11,492 | ) | | (43,177 | ) | | (31,057 | ) | (17,449 | ) | | (13,265 | ) |
TOTAL | 180,067 |
| | 166,899 |
| | 527,371 |
| | 491,800 |
| 183,544 |
| | 169,658 |
|
| | | | | | | | | | |
INCOME BEFORE INCOME TAXES | 256,812 |
| | 643,439 |
| | 404,940 |
| | 813,509 |
| 301,417 |
| | 179,863 |
|
| | | | | | | | | | |
Income taxes | (283,006 | ) | | 241,795 |
| | (519,937 | ) | | (87,555 | ) | 42,771 |
| | 43,663 |
|
| | | | | | | | | | |
CONSOLIDATED NET INCOME | 539,818 |
| | 401,644 |
| | 924,877 |
| | 901,064 |
| 258,646 |
| | 136,200 |
|
| | | | | | | | | | |
Preferred dividend requirements of subsidiaries | 3,439 |
| | 3,446 |
| | 10,317 |
| | 10,338 |
| 4,109 |
| | 3,439 |
|
| | | | | | | | | | |
NET INCOME ATTRIBUTABLE TO ENTERGY CORPORATION |
| $536,379 |
| |
| $398,198 |
| |
| $914,560 |
| |
| $890,726 |
|
| $254,537 |
| |
| $132,761 |
|
| | | | | | | | | | |
Earnings per average common share: | | | | | | | | | | |
Basic |
| $2.96 |
| |
| $2.22 |
| |
| $5.06 |
| |
| $4.96 |
|
| $1.34 |
| |
| $0.73 |
|
Diluted |
| $2.92 |
| |
| $2.21 |
| |
| $5.01 |
| |
| $4.94 |
|
| $1.32 |
| |
| $0.73 |
|
| | | | | | | | | | |
Basic average number of common shares outstanding | 181,002,303 |
| | 179,563,819 |
| | 180,845,440 |
| | 179,458,914 |
| 189,575,187 |
| | 180,707,575 |
|
Diluted average number of common shares outstanding | 183,664,583 |
| | 180,464,069 |
| | 182,692,325 |
| | 180,163,074 |
| 192,234,191 |
| | 181,431,968 |
|
| | | | | | | | | | |
See Notes to Financial Statements. | | | | | | | | | | |
| | ENTERGY CORPORATION AND SUBSIDIARIES | CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | For the Three and Nine Months Ended September 30, 2018 and 2017 | |
For the Three Months Ended March 31, 2019 and 2018 | | For the Three Months Ended March 31, 2019 and 2018 |
(Unaudited) | | | | | | | |
| Three Months Ended | | Nine Months Ended | |
| 2018 | | 2017 | | 2018 | | 2017 | 2019 | | 2018 |
| (In Thousands) | (In Thousands) |
| | | | | | | | | | |
Net Income |
| $539,818 |
| |
| $401,644 |
| |
| $924,877 |
| |
| $901,064 |
|
| $258,646 |
| |
| $136,200 |
|
| | | | | | | | | | |
Other comprehensive income (loss) | | | | | | | | |
Cash flow hedges net unrealized gain (loss) (net of tax expense (benefit) of ($8,517), $7,062, ($480), and $17,387) | (32,004 | ) | | 13,213 |
| | (1,645 | ) | | 32,634 |
| |
Pension and other postretirement liabilities (net of tax expense of $4,126, $6,818, $12,919, and $19,034) | 15,265 |
| | 12,297 |
| | 47,404 |
| | 31,845 |
| |
Net unrealized investment gain (loss) (net of tax expense (benefit) of ($825), $30,644, $1,708, and $72,808) | (1,745 | ) | | 33,395 |
| | (37,242 | ) | | 82,918 |
| |
Foreign currency translation (net of tax benefit of $-, $-, $-, and $403) | — |
| | — |
| | — |
| | (748 | ) | |
Other comprehensive income (loss) | (18,484 | ) | | 58,905 |
| | 8,517 |
| | 146,649 |
| |
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 | 521,334 |
| | 460,549 |
| | 933,394 |
| | 1,047,713 |
| 271,473 |
| | 215,345 |
|
Preferred dividend requirements of subsidiaries | 3,439 |
| | 3,446 |
| | 10,317 |
| | 10,338 |
| 4,109 |
| | 3,439 |
|
Comprehensive Income Attributable to Entergy Corporation |
| $517,895 |
| |
| $457,103 |
| |
| $923,077 |
| |
| $1,037,375 |
|
| $267,364 |
| |
| $211,906 |
|
| | | | | | | | | | |
See Notes to Financial Statements. | | | | | | | | | | |
| | ENTERGY CORPORATION AND SUBSIDIARIES | CONSOLIDATED STATEMENTS OF CASH FLOWS | For the Nine Months Ended September 30, 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 | | | | | | | | |
Consolidated net income | |
| $924,877 |
| |
| $901,064 |
| |
| $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 | | 1,517,344 |
| | 1,561,565 |
| | 530,224 |
| | 525,181 |
|
Deferred income taxes, investment tax credits, and non-current taxes accrued | | 82,641 |
| | (90,607 | ) | | 104,884 |
| | 104,607 |
|
Asset write-offs, impairments, and related charges | | 210,263 |
| | 241,838 |
| | 25,462 |
| | 25,800 |
|
Gain on sale of assets | | — |
| | (16,270 | ) | |
Changes in working capital: | | | | | | | | |
Receivables | | (153,703 | ) | | (198,029 | ) | | 39,697 |
| | 131,150 |
|
Fuel inventory | | 49,728 |
| | 20,746 |
| | (4,401 | ) | | (16,261 | ) |
Accounts payable | | 79,949 |
| | (75,962 | ) | | (63,613 | ) | | (68,857 | ) |
Taxes accrued | | 43,510 |
| | 66,895 |
| | (44,083 | ) | | (56,301 | ) |
Interest accrued | | (9,398 | ) | | (6,111 | ) | | (20,546 | ) | | (10,011 | ) |
Deferred fuel costs | | (25,284 | ) | | (117,636 | ) | | 20,201 |
| | (76,238 | ) |
Other working capital accounts | | (86,063 | ) | | (81,779 | ) | | (42,016 | ) | | (28,004 | ) |
Changes in provisions for estimated losses | | 28,599 |
| | (10,073 | ) | | 13,720 |
| | 10,744 |
|
Changes in other regulatory assets | | 207,135 |
| | 117,430 |
| | (162,192 | ) | | 84,349 |
|
Changes in other regulatory liabilities | | (413,684 | ) | | 22,124 |
| | 130,924 |
| | (31,380 | ) |
Changes in pensions and other postretirement liabilities | | (345,526 | ) | | (354,297 | ) | | (7,713 | ) | | (97,418 | ) |
Other | | (250,884 | ) | | (268,147 | ) | | (278,005 | ) | | (76,168 | ) |
Net cash flow provided by operating activities | | 1,859,504 |
| | 1,712,751 |
| | 501,189 |
| | 557,393 |
|
| | | | | | | | |
INVESTING ACTIVITIES | | | | | | | | |
Construction/capital expenditures | | (2,883,047 | ) | | (2,622,104 | ) | | (951,629 | ) | | (931,479 | ) |
Allowance for equity funds used during construction | | 92,829 |
| | 66,437 |
| | 38,322 |
| | 28,512 |
|
Nuclear fuel purchases | | (170,819 | ) | | (226,054 | ) | | (38,445 | ) | | (49,647 | ) |
Proceeds from sale of assets | | 12,915 |
| | 100,000 |
| |
Insurance proceeds received for property damages | | 10,523 |
| | 26,157 |
| | — |
| | 1,582 |
|
Changes in securitization account | | (12,985 | ) | | (6,494 | ) | | (1,084 | ) | | (7,063 | ) |
Payments to storm reserve escrow account | | (4,515 | ) | | (1,925 | ) | | (2,285 | ) | | (1,175 | ) |
Receipts from storm reserve escrow account | | — |
| | 8,836 |
| |
Increase in other investments | | (36,140 | ) | | (112,217 | ) | |
Litigation proceeds for reimbursement of spent nuclear fuel storage costs | | — |
| | 25,493 |
| |
Decrease (increase) in other investments | | | 39,045 |
| | (406 | ) |
Proceeds from nuclear decommissioning trust fund sales | | 4,177,919 |
| | 1,902,783 |
| | 1,307,547 |
| | 1,091,332 |
|
Investment in nuclear decommissioning trust funds | | (4,187,161 | ) | | (1,988,634 | ) | | (1,342,429 | ) | | (1,106,094 | ) |
Net cash flow used in investing activities | | (3,000,481 | ) | | (2,827,722 | ) | | (950,958 | ) | | (974,438 | ) |
| | | | | | | | |
See Notes to Financial Statements. | | | | | | | | |
| | ENTERGY CORPORATION AND SUBSIDIARIES | CONSOLIDATED STATEMENTS OF CASH FLOWS | For the Nine Months Ended September 30, 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) |
FINANCING ACTIVITIES | | | | | | | | |
Proceeds from the issuance of: | | | | | | | | |
Long-term debt | | 5,604,131 |
| | 1,222,606 |
| | 3,444,230 |
| | 2,505,726 |
|
Treasury stock | | 24,646 |
| | 15,121 |
| | 35,577 |
| | 1,952 |
|
Retirement of long-term debt | | (4,181,820 | ) | | (1,222,915 | ) | | (2,298,855 | ) | | (734,000 | ) |
Repurchase of preferred membership units | | | (50,000 | ) | | — |
|
Changes in credit borrowings and commercial paper - net | | 368,370 |
| | 937,677 |
| | (17 | ) | | (773,177 | ) |
Other | | 25,540 |
| | (337 | ) | | (1,945 | ) | | 5,193 |
|
Dividends paid: | | | | | | | | |
Common stock | | (482,865 | ) | | (468,396 | ) | | (172,591 | ) | | (160,887 | ) |
Preferred stock | | (10,317 | ) | | (10,338 | ) | | (4,109 | ) | | (3,439 | ) |
Net cash flow provided by financing activities | | 1,347,685 |
| | 473,418 |
| | 952,290 |
| | 841,368 |
|
| | | | | | | | |
Net increase (decrease) in cash and cash equivalents | | 206,708 |
| | (641,553 | ) | |
Net increase in cash and cash equivalents | | | 502,521 |
| | 424,323 |
|
| | | | | | | | |
Cash and cash equivalents at beginning of period | | 781,273 |
| | 1,187,844 |
| | 480,975 |
| | 781,273 |
|
| | | | | | | | |
Cash and cash equivalents at end of period | |
| $987,981 |
| |
| $546,291 |
| |
| $983,496 |
| |
| $1,205,596 |
|
| | | | | | | | |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | | | | | | | | |
Cash paid (received) during the period for: | | | | | | | | |
Interest - net of amount capitalized | |
| $558,381 |
| |
| $507,912 |
| |
| $214,935 |
| |
| $185,606 |
|
Income taxes | |
| $18,200 |
| |
| ($11,883 | ) | |
| ($13,844 | ) | |
| ($4,297 | ) |
| | | | | | | | |
See Notes to Financial Statements. | | | | | | | | |
| | ENTERGY CORPORATION AND SUBSIDIARIES | CONSOLIDATED BALANCE SHEETS | ASSETS | September 30, 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 | |
| $64,787 |
| |
| $56,629 |
| |
| $118,384 |
| |
| $56,690 |
|
Temporary cash investments | | 923,194 |
| | 724,644 |
| | 865,112 |
| | 424,285 |
|
Total cash and cash equivalents | | 987,981 |
| | 781,273 |
| | 983,496 |
| | 480,975 |
|
Accounts receivable: | | | | | | | | |
Customer | | 789,633 |
| | 673,347 |
| | 589,519 |
| | 558,494 |
|
Allowance for doubtful accounts | | (15,589 | ) | | (13,587 | ) | | (7,458 | ) | | (7,322 | ) |
Other | | 166,222 |
| | 169,377 |
| | 158,293 |
| | 167,722 |
|
Accrued unbilled revenues | | 426,387 |
| | 383,813 |
| | 334,355 |
| | 395,511 |
|
Total accounts receivable | | 1,366,653 |
| | 1,212,950 |
| | 1,074,709 |
| | 1,114,405 |
|
Deferred fuel costs | | 61,309 |
| | 95,746 |
| | 19,209 |
| | 27,251 |
|
Fuel inventory - at average cost | | 132,916 |
| | 182,643 |
| | 121,705 |
| | 117,304 |
|
Materials and supplies - at average cost | | 747,770 |
| | 723,222 |
| | 771,707 |
| | 752,843 |
|
Deferred nuclear refueling outage costs | | 149,810 |
| | 133,164 |
| | 231,628 |
| | 230,960 |
|
Prepayments and other | | 248,107 |
| | 156,333 |
| | 205,322 |
| | 234,326 |
|
TOTAL | | 3,694,546 |
| | 3,285,331 |
| | 3,407,776 |
| | 2,958,064 |
|
| | | | | | | | |
OTHER PROPERTY AND INVESTMENTS | | | | | | | | |
Investment in affiliates - at equity | | 198 |
| | 198 |
| |
Decommissioning trust funds | | 7,444,346 |
| | 7,211,993 |
| | 6,877,865 |
| | 6,920,164 |
|
Non-utility property - at cost (less accumulated depreciation) | | 302,784 |
| | 260,980 |
| | 310,215 |
| | 304,382 |
|
Other | | 436,527 |
| | 441,862 |
| | 439,849 |
| | 437,265 |
|
TOTAL | | 8,183,855 |
| | 7,915,033 |
| | 7,627,929 |
| | 7,661,811 |
|
| | | | | | | | |
PROPERTY, PLANT, AND EQUIPMENT | | | | | | | | |
Electric | | 48,362,347 |
| | 47,287,370 |
| | 50,260,871 |
| | 49,831,486 |
|
Property under capital lease | | 620,419 |
| | 620,544 |
| |
Natural gas | | 488,169 |
| | 453,162 |
| | 509,987 |
| | 496,150 |
|
Construction work in progress | | 2,832,826 |
| | 1,980,508 |
| | 3,289,734 |
| | 2,888,639 |
|
Nuclear fuel | | 846,845 |
| | 923,200 |
| | 790,398 |
| | 861,272 |
|
TOTAL PROPERTY, PLANT, AND EQUIPMENT | | 53,150,606 |
| | 51,264,784 |
| | 54,850,990 |
| | 54,077,547 |
|
Less - accumulated depreciation and amortization | | 22,057,870 |
| | 21,600,424 |
| | 22,198,769 |
| | 22,103,101 |
|
PROPERTY, PLANT, AND EQUIPMENT - NET | | 31,092,736 |
| | 29,664,360 |
| | 32,652,221 |
| | 31,974,446 |
|
| | | | | | | | |
DEFERRED DEBITS AND OTHER ASSETS | | | | | | | | |
Regulatory assets: | | | | | | | | |
Other regulatory assets (includes securitization property of $388,391 as of September 30, 2018 and $485,031 as of December 31, 2017) | | 4,728,555 |
| | 4,935,689 |
| |
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 | | 239,446 |
| | 239,298 |
| | 239,595 |
| | 239,496 |
|
Goodwill | | 377,172 |
| | 377,172 |
| | 377,172 |
| | 377,172 |
|
Accumulated deferred income taxes | | 21,307 |
| | 178,204 |
| | 61,255 |
| | 54,593 |
|
Other | | 133,555 |
| | 112,062 |
| | 330,745 |
| | 262,988 |
|
TOTAL | | 5,500,035 |
| | 5,842,425 |
| | 5,917,455 |
| | 5,680,745 |
|
| | | | | | | | |
TOTAL ASSETS | |
| $48,471,172 |
| |
| $46,707,149 |
| |
| $49,605,381 |
| |
| $48,275,066 |
|
| | | | | | | | |
See Notes to Financial Statements. | | | | | | | | |
| | ENTERGY CORPORATION AND SUBSIDIARIES | CONSOLIDATED BALANCE SHEETS | LIABILITIES AND EQUITY | September 30, 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 | |
| $735,009 |
| |
| $760,007 |
| |
| $150,010 |
| |
| $650,009 |
|
Notes payable and commercial paper | | 1,946,677 |
| | 1,578,308 |
| | 1,942,322 |
| | 1,942,339 |
|
Accounts payable | | 1,392,114 |
| | 1,452,216 |
| | 1,406,327 |
| | 1,496,058 |
|
Customer deposits | | 409,153 |
| | 401,330 |
| | 409,433 |
| | 411,505 |
|
Taxes accrued | | 258,477 |
| | 214,967 |
| | 210,156 |
| | 254,241 |
|
Interest accrued | | 178,573 |
| | 187,972 |
| | 172,645 |
| | 193,192 |
|
Deferred fuel costs | | 86,949 |
| | 146,522 |
| | 64,653 |
| | 52,396 |
|
Obligations under capital leases | | 1,466 |
| | 1,502 |
| |
Pension and other postretirement liabilities | | 57,471 |
| | 71,612 |
| | 62,218 |
| | 61,240 |
|
Current portion of unprotected excess accumulated deferred income taxes | | 500,419 |
| | — |
| | 239,664 |
| | 248,127 |
|
Other | | 184,255 |
| | 221,771 |
| | 203,655 |
| | 134,437 |
|
TOTAL | | 5,750,563 |
| | 5,036,207 |
| | 4,861,083 |
| | 5,443,544 |
|
| | | | | | | | |
NON-CURRENT LIABILITIES | | | | | | | | |
Accumulated deferred income taxes and taxes accrued | | 4,427,744 |
| | 4,466,503 |
| | 4,252,292 |
| | 4,107,152 |
|
Accumulated deferred investment tax credits | | 213,237 |
| | 219,634 |
| | 211,013 |
| | 213,101 |
|
Obligations under capital leases | | 20,887 |
| | 22,015 |
| |
Regulatory liability for income taxes-net | | 1,802,528 |
| | 2,900,204 |
| | 1,737,479 |
| | 1,817,021 |
|
Other regulatory liabilities | | 1,772,093 |
| | 1,588,520 |
| | 1,839,183 |
| | 1,620,254 |
|
Decommissioning and asset retirement cost liabilities | | 6,555,835 |
| | 6,185,814 |
| | 6,577,180 |
| | 6,355,543 |
|
Accumulated provisions | | 506,959 |
| | 478,273 |
| | 527,866 |
| | 514,107 |
|
Pension and other postretirement liabilities | | 2,579,270 |
| | 2,910,654 |
| | 2,607,394 |
| | 2,616,085 |
|
Long-term debt (includes securitization bonds of $462,889 as of September 30, 2018 and $544,921 as of December 31, 2017) | | 15,780,827 |
| | 14,315,259 |
| |
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 | | 450,746 |
| | 393,748 |
| | 634,211 |
| | 1,006,249 |
|
TOTAL | | 34,110,126 |
| | 33,480,624 |
| | 35,554,504 |
| | 33,767,815 |
|
| | | | | | | | |
Commitments and Contingencies | | | | | | | | |
| | | | | | | | |
Subsidiaries' preferred stock without sinking fund | | 197,771 |
| | 197,803 |
| | 219,427 |
| | 219,402 |
|
| | | | | | | | |
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 |
| |
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 | | 5,441,696 |
| | 5,433,433 |
| | 5,920,183 |
| | 5,951,431 |
|
Retained earnings | | 8,953,611 |
| | 7,977,702 |
| | 8,809,902 |
| | 8,721,150 |
|
Accumulated other comprehensive loss | | (632,126 | ) | | (23,531 | ) | | (551,152 | ) | | (557,173 | ) |
Less - treasury stock, at cost (73,621,473 shares in 2018 and 74,235,135 shares in 2017) | | 5,353,017 |
| | 5,397,637 |
| |
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 | | 8,412,712 |
| | 7,992,515 |
| | 8,970,367 |
| | 8,844,305 |
|
| | | | | | | | |
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | |
| $48,471,172 |
| |
| $46,707,149 |
| |
| $49,605,381 |
| |
| $48,275,066 |
|
| | | | | | | | |
See Notes to Financial Statements. | | | | | | | | |
| | ENTERGY CORPORATION AND SUBSIDIARIES | CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY | For the Nine Months Ended September 30, 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 Shareholders’ Equity |
|
|
|
| Common Shareholders’ Equity |
|
|
| Subsidiaries’ Preferred Stock | | Common Stock | | Treasury Stock | | Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Total | Subsidiaries’ Preferred Stock | | Common Stock | | Treasury Stock | | Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Total |
| (In Thousands) | (In Thousands) |
| | | | | | | | | | | | | | |
Balance at December 31, 2016 |
| $— |
| |
| $2,548 |
| |
| ($5,498,584 | ) | |
| $5,417,245 |
| |
| $8,195,571 |
| |
| ($34,971 | ) | |
| $8,081,809 |
| |
| | | | | | | | | | | | | | |
Consolidated net income (a) | 10,338 |
| | — |
| | — |
| | — |
| | 890,726 |
| | — |
| | 901,064 |
| |
Other comprehensive income | — |
| | — |
| | — |
| | — |
| | — |
| | 146,649 |
| | 146,649 |
| |
Common stock issuances related to stock plans | — |
| | — |
| | 36,086 |
| | 3,363 |
| | — |
| | — |
| | 39,449 |
| |
Common stock dividends declared | — |
| | — |
| | — |
| | — |
| | (468,396 | ) | | — |
| | (468,396 | ) | |
Preferred dividend requirements of subsidiaries (a) | (10,338 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (10,338 | ) | |
| | | | | | | | | | | | | | |
Balance at September 30, 2017 |
| $— |
| |
| $2,548 |
| |
| ($5,462,498 | ) | |
| $5,420,608 |
| |
| $8,617,901 |
| |
| $111,678 |
| |
| $8,690,237 |
| |
| | | | | | | | | | | | | | |
Balance at December 31, 2017 |
| $— |
| |
| $2,548 |
| |
| ($5,397,637 | ) | |
| $5,433,433 |
| |
| $7,977,702 |
| |
| ($23,531 | ) | |
| $7,992,515 |
|
| $— |
| |
| $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 | ) | — |
| | — |
| | — |
| | — |
| | 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 |
|
| $— |
| |
| $2,548 |
| |
| ($5,397,637 | ) | |
| $5,433,433 |
| |
| $8,553,959 |
| |
| ($656,148 | ) | |
| $7,936,155 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Consolidated net income (a) | 10,317 |
| | — |
| | — |
| | — |
| | 914,560 |
| | — |
| | 924,877 |
| |
Consolidated net income | | 3,439 |
| | — |
| | — |
| | — |
| | 132,761 |
| | — |
| | 136,200 |
|
Other comprehensive income | — |
| | — |
| | — |
| | — |
| | — |
| | 8,517 |
| | 8,517 |
| — |
| | — |
| | — |
| | — |
| | — |
| | 79,145 |
| | 79,145 |
|
Common stock issuances related to stock plans | — |
| | — |
| | 44,620 |
| | 8,263 |
| | — |
| | — |
| | 52,883 |
| — |
| | — |
| | 20,477 |
| | (16,170 | ) | | — |
| | — |
| | 4,307 |
|
Common stock dividends declared | — |
| | — |
| | — |
| | — |
| | (482,865 | ) | | — |
| | (482,865 | ) | — |
| | — |
| | — |
| | — |
| | (160,887 | ) | | — |
| | (160,887 | ) |
Preferred dividend requirements of subsidiaries (a) | (10,317 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (10,317 | ) | |
Preferred dividend requirements of subsidiaries | | (3,439 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (3,439 | ) |
Reclassification pursuant to ASU 2018-02 | — |
| | — |
| | — |
| | — |
| | (32,043 | ) | | 15,505 |
| | (16,538 | ) | — |
| | — |
| | — |
| | — |
| | (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 September 30, 2018 |
| $— |
| |
| $2,548 |
| |
| ($5,353,017 | ) | |
| $5,441,696 |
| |
| $8,953,611 |
| |
| ($632,126 | ) | |
| $8,412,712 |
| |
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. | See Notes to Financial Statements. | | | | | | | | | | | | | See Notes to Financial Statements. | | | | | | | | | | | | |
| |
(a) Consolidated net income and preferred dividend requirements of subsidiaries for 2018 and 2017 include $10.3 million and $10.3 million, respectively, of preferred dividends on subsidiaries’ preferred stock without sinking fund that is not presented within equity. | |
| | ENTERGY CORPORATION AND SUBSIDIARIES | SELECTED OPERATING RESULTS | For the Three and Nine Months Ended September 30, 2018 and 2017 | |
For the Three Months Ended March 31, 2019 and 2018 | | For the Three Months Ended March 31, 2019 and 2018 |
(Unaudited) | | | | | | | | | | | | | |
| | Three Months Ended | | Increase/ | | | | Nine Months Ended | | Increase/ | | |
Description | | 2018 | | 2017 | | (Decrease) | | % | | 2019 | | 2018 | | (Decrease) | | % |
| | (Dollars in Millions) | | | | (Dollars in Millions) | | |
Utility electric operating revenues: | | | | | | | | | | | | | | | | |
Residential | |
| $1,139 |
| |
| $1,107 |
| |
| $32 |
| | 3 |
| |
| $803 |
| |
| $892 |
| |
| ($89 | ) | | (10 | ) |
Commercial | | 694 |
| | 721 |
| | (27 | ) | | (4 | ) | | 554 |
| | 596 |
| | (42 | ) | | (7 | ) |
Industrial | | 683 |
| | 721 |
| | (38 | ) | | (5 | ) | | 601 |
| | 597 |
| | 4 |
| | 1 |
|
Governmental | | 61 |
| | 62 |
| | (1 | ) | | (2 | ) | | 53 |
| | 57 |
| | (4 | ) | | (7 | ) |
Total billed retail | | 2,577 |
| | 2,611 |
| | (34 | ) | | (1 | ) | | 2,011 |
| | 2,142 |
| | (131 | ) | | (6 | ) |
Sales for resale | | 76 |
| | 78 |
| | (2 | ) | | (3 | ) | | 84 |
| | 69 |
| | 15 |
| | 22 |
|
Other | | 45 |
| | 105 |
| | (60 | ) | | (57 | ) | | 26 |
| | 37 |
| | (11 | ) | | (30 | ) |
Total | |
| $2,698 |
| |
| $2,794 |
| |
| ($96 | ) | | (3 | ) | |
| $2,121 |
| |
| $2,248 |
| |
| ($127 | ) | | (6 | ) |
| | | | | | | | | | | | | | | | |
Utility billed electric energy sales (GWh): | | | | | | | | | | | | | | | | |
Residential | | 11,821 |
| | 10,833 |
| | 988 |
| | 9 |
| | 8,471 |
| | 9,287 |
| | (816 | ) | | (9 | ) |
Commercial | | 8,726 |
| | 8,271 |
| | 455 |
| | 6 |
| | 6,423 |
| | 6,732 |
| | (309 | ) | | (5 | ) |
Industrial | | 12,879 |
| | 12,503 |
| | 376 |
| | 3 |
| | 11,683 |
| | 11,405 |
| | 278 |
| | 2 |
|
Governmental | | 714 |
| | 682 |
| | 32 |
| | 5 |
| | 601 |
| | 608 |
| | (7 | ) | | (1 | ) |
Total retail | | 34,140 |
| | 32,289 |
| | 1,851 |
| | 6 |
| | 27,178 |
| | 28,032 |
| | (854 | ) | | (3 | ) |
Sales for resale | | 2,978 |
| | 3,387 |
| | (409 | ) | | (12 | ) | | 3,814 |
| | 3,244 |
| | 570 |
| | 18 |
|
Total | | 37,118 |
| | 35,676 |
| | 1,442 |
| | 4 |
| | 30,992 |
| | 31,276 |
| | (284 | ) | | (1 | ) |
| | | | | | | | | | | | | | | | |
Entergy Wholesale Commodities: | | | | | | | | | | | | | | | | |
Operating revenues | |
| $380 |
| |
| $423 |
| |
| ($43 | ) | | (10 | ) | |
| $434 |
| |
| $419 |
| |
| $15 |
| | 4 |
|
Billed electric energy sales (GWh) | | 7,576 |
| | 8,234 |
| | (658 | ) | | (8 | ) | | 7,203 |
| | 6,996 |
| | 207 |
| | 3 |
|
| | | | | | | | | |
| | | | | | | | | |
| | Nine Months Ended | | Increase/ | | | |
Description | | 2018 | | 2017 | | (Decrease) | | % | |
| | (Dollars in Millions) | | | |
Utility electric operating revenues: | | | | | | | | | |
Residential | |
| $2,800 |
| |
| $2,560 |
| |
| $240 |
| | 9 |
| |
Commercial | | 1,871 |
| | 1,861 |
| | 10 |
| | 1 |
| |
Industrial | | 1,905 |
| | 1,937 |
| | (32 | ) | | (2 | ) | |
Governmental | | 174 |
| | 172 |
| | 2 |
| | 1 |
| |
Total billed retail | | 6,750 |
| | 6,530 |
| | 220 |
| | 3 |
| |
Sales for resale | | 215 |
| | 202 |
| | 13 |
| | 6 |
| |
Other | | 311 |
| | 325 |
| | (14 | ) | | (4 | ) | |
Total | |
| $7,276 |
| |
| $7,057 |
| |
| $219 |
| | 3 |
| |
| | | | | | | | | |
Utility billed electric energy sales (GWh): | | | | | | | | | |
Residential | | 28,857 |
| | 25,810 |
| | 3,047 |
| | 12 |
| |
Commercial | | 22,401 |
| | 21,595 |
| | 806 |
| | 4 |
| |
Industrial | | 36,503 |
| | 35,829 |
| | 674 |
| | 2 |
| |
Governmental | | 1,934 |
| | 1,885 |
| | 49 |
| | 3 |
| |
Total retail | | 89,695 |
| | 85,119 |
| | 4,576 |
| | 5 |
| |
Sales for resale | | 8,788 |
| | 8,255 |
| | 533 |
| | 6 |
| |
Total | | 98,483 |
| | 93,374 |
| | 5,109 |
| | 5 |
| |
| | | | | | | | | |
Entergy Wholesale Commodities: | | | | | | | | | |
Operating revenues | |
| $1,108 |
| |
| $1,294 |
| |
| ($186 | ) | | (14 | ) | |
Billed electric energy sales (GWh) | | 21,853 |
| | 22,616 |
| | (763 | ) | | (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. In June 2018 the NRC moved ANO 1 and ANO 2 into the “licensee response column,” or Column 1, of the NRC’s Reactor Oversight Process Action Matrix. This action followed NRC inspections to review ANO 1’s and ANO 2’s performance in addressing issues that had previously resulted in classification in Column 4.
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. In September 2018 the DOE submitted an offer of judgment to resolve claims in the second round Entergy Nuclear Generation Company case involving Pilgrim. The $62 million offer was accepted by Entergy Nuclear Generation Company, and the U.S. Court of Federal Claims issued a judgment in that amount in favor of Entergy Nuclear Generation Company. Entergy received payment from the U.S. Treasury in October 2018.
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.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
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.
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 CutsFuel and Jobs Actpurchased power cost recovery
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.Entergy Arkansas
After assessing the activity described in more detail below regarding the status of the proposals the Registrant Subsidiaries made to their regulators for the return of unprotected excess accumulated deferred income taxes to customers, in 2018, Entergy and each of the Registrant Subsidiaries are reclassifying 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.Energy Cost Recovery Rider
Entergy Arkansas
See the Form 10-K for a discussion of the activity of the APSC andIn March 2019, Entergy Arkansas after enactmentfiled its annual redetermination 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 stated that its order was not a final determination and that the APSC had made no decision at that time on the appropriate final accounting or ratemaking treatment of the amounts in question. A hearing was held in May 2018 regarding the APSC’s inquiries into the effects of the Tax Act, including Entergy Arkansas’s proposal to utilize its existing formulaenergy cost rate plan rider for its customers to realize the remaining benefits of the Tax Act. Entergy Arkansas’s formula rate plan rider includes a netting adjustment that compares actual annual costs and salespursuant to the projected annual costs and sales used to establish rates. In July 2018 the APSC issued an order agreeing with Entergy Arkansas’s proposal to have the effects on current income tax expense flow through Entergy Arkansas’s formula rate plan rider and Entergy Arkansas’s treatment of protected and unprotected excess accumulated deferred income taxes. The APSC also directed Entergy Arkansas to submit in the tax adjustment rider proceeding, discussed below, the adjustments to all other riders affected by the Tax Act and to include an amendment for a true-up mechanism where a rider affected by the Tax Act does not already contain a true-up mechanism. Entergy Arkansas’s compliance tariff filings were accepted by the APSC in October 2018.
Consistent with its previously stated intent to return unprotected excess accumulated deferred income taxes to customers as expeditiously as possible, Entergy Arkansas initiated a tariff proceeding in February 2018 proposing to establish a tax adjustment rider to provide retail customers with certain tax benefits associated with the Tax Act. For the residential customer class, the unprotected excess accumulated deferred income taxes will be returned to
Entergy Corporation and Subsidiaries
Notes to Financial Statements
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 nine-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, which reflected a decrease from $0.01882 per kWh to $0.01462 per kWh and became effective with the first billing cycle in April 2019. In March 2019 the Arkansas Attorney General filed a response to Entergy Arkansas’s annual adjustment and included with its filing a motion for investigation of alleged overcharges to customers in connection with the FERC’s October 2018 order in the opportunity sales proceeding. Entergy Arkansas filed its response to the Attorney General’s motion in April 2018.2019 in which Entergy Arkansas stated its intent to initiate a proceeding to address recovery issues related to the October 2018 FERC order.
Entergy Louisiana
SeeIn July 2014 the Form 10-K forLPSC authorized its staff to initiate an audit of Entergy Louisiana’s fuel adjustment clause filings. The audit includes a discussionreview of the activityreasonableness of charges flowed by Entergy Louisiana through its fuel adjustment clause for the period from 2010 through 2013. In January 2019 the LPSC and Entergy Louisiana after enactment of the Tax Act in December 2017.staff consultant issued its audit report. In July 2018its report, the LPSC issued a proposed rule requiring utilities to adjust rates prospectively to reflect the lower tax rate (either through a formula rate plan or rate case), refund excess tax expense collected since January 1, 2018 until the lower tax rate is reflected in rates (with the refund occurring over one year), and refund excess accumulated deferred income taxes over two years. Entergy Louisiana believes that its formula rate plan settlement, approved in April 2018 and discussed below, addresses fully its obligations regarding the Tax Act and will seek such confirmation in its comments to the proposed rule.
In the formula rate plan settlement approved by the LPSC in April 2018 the parties agreedstaff consultant recommended that Entergy Louisiana will returnrefund approximately $7.3 million, plus interest, to customers one-halfbased upon the imputation of a claim of vendor fault in servicing its eligible unprotected excess deferred income taxes from May 2018 through December 2018 and return to customers the other half from January 2019 through August 2022. In addition, the parties agreed that in order to flow back to customers certain other tax benefits created by the Tax Act,nuclear plant. Entergy Louisiana would establishrecorded a regulatory liability effective January 1, 2018provision in the amount of $9.1 million per month to reflect these tax benefits already included in retail rates until new base rates underfirst quarter 2019 for the formula rate plan are established (September 2018), and this regulatory liability will be returned to customers over the next formula rate plan rate-effective period (September 2018 through August 2019). As of September 30, 2018, Entergy Louisiana has a $67 million regulatory liability recorded pursuant to this provisionpotential outcome 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 2017 test year filing, which, as discussed below, Entergy Louisiana filed in June 2018.audit.
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 Corporation and Subsidiaries
Notes to Financial Statements
In June 2018, Entergy Mississippi and the Mississippi Public Utilities Staff entered into and filed a joint stipulation in Entergy Mississippi’s formula rate plan filing that addressed Entergy Mississippi’s 2018 formula rate plan evaluation report and the ratemaking effects of the Tax Act. Also in June 2018 the MPSC approved the stipulation, which provides for incorporating the reduction of the statutory federal income tax rate through the formula rate plan. Entergy Mississippi’s formula rate plan includes a look-back evaluation report filing in March 2019 that will compare actual 2018 results to the allowed return on rate base. The stipulation provides for the flow-back of protected excess accumulated deferred income taxes over approximately 40 years through the formula rate plan. The stipulation also provides for the offset of unprotected excess accumulated deferred income taxes of $127.2 million against net utility plant and $2.2 million against other regulatory assets, and the return to customers of the remaining balance of unprotected excess accumulated deferred income taxes as recovery of a portion of fuel oil inventory and customer bill credits over a three-month period from July 2018 through September 2018, with any true-up to be reflected in the November 2018 power management rider submittal. Entergy Mississippi recorded the reduction against net utility plant and other regulatory assets in June 2018. In third quarter 2018, Entergy Mississippi returned unprotected excess accumulated deferred income taxes of $25.8 million through customer bill credits and $5.8 million through the sale of fuel oil inventory.
Entergy New Orleans
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 regulatory liabilities to account for the Tax Act’s effect on Entergy New Orleans’s revenue requirement and to make a filing by mid-March 2018 regarding the Tax Act’s effects on Entergy New Orleans’s operating income and rate base and potential mechanisms for customers to receive benefits of the Tax Act. The City Council’s resolution also directed Entergy New Orleans to request that Entergy Services file with the FERC for revisions of the Unit Power Sales Agreement and MSS-4 replacement tariffs to address the return of excess accumulated deferred income taxes. Entergy has submitted filings of this type to the FERC.
In March 2018, Entergy New Orleans filed its response to the resolution stating that the Tax Act reduced income tax expense from what 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. Entergy New Orleans submitted supplemental information in April 2018 and May 2018. Shortly thereafter, Entergy New Orleans and the City Council’s advisors reached an agreement in principle that provides for benefits that will be realized by Entergy New Orleans customers through bill credits starting in July 2018 and offsets to future investments in energy efficiency programs, grid modernization, and Smart City projects, as well as additional benefits related to the filings made at FERC. The agreement in principle was approved by the City Council in June 2018.
Entergy Texas
As discussed below, in May 2018, Entergy Texas filed its 2018 base rate case with the PUCT. Entergy Texas’s proposed rates and revenues reflect the inclusion of the federal income tax reductions due to the Tax Act. See the discussion below regarding the terms of an unopposed settlement submitted by the parties to the 2018 rate case that, if approved by the PUCT, establishes the amounts and timing of the return of protected and unprotected excess accumulated deferred income taxes to Entergy Texas customers.
System Energy
In a filing made with the FERC in March 2018, Entergy proposed revisions to the Unit Power Sales Agreement, among other agreements, to reflect the effects of the Tax Act. In the filing, System Energy proposed to return all of its unprotected excess accumulated deferred income taxes to its customers by the end of 2018. In May 2018 the FERC
Entergy Corporation and Subsidiaries
Notes to Financial Statements
accepted System Energy’s proposed tax revisions with an effective date of June 1, 2018, subject to refund and the outcome of settlement and hearing procedures. Settlement discussions are ongoing.
Fuel and purchased power cost recovery
Entergy Arkansas
Energy Cost Recovery Rider
In March 2018, Entergy Arkansas filed its annual redetermination of its energy cost rate pursuant to the energy cost recovery rider, which reflected an increase in the rate from $0.01547 per kWh to $0.01882 per kWh. The Arkansas Attorney General filed a response to Entergy Arkansas’s annual redetermination filing requesting that the APSC suspend the proposed tariff to investigate the amount of the redetermination or, alternatively, to allow recovery subject to refund. Among the reasons the Attorney General cited for suspension were questions pertaining to how Entergy Arkansas forecasted sales and potential implications of the Tax Act. Entergy Arkansas replied to the Attorney General’s filing and stated that, to the extent there are questions pertaining to its load forecasting or the operation of the energy cost recovery rider, those issues exceed the scope of the instant rate redetermination. Entergy Arkansas also stated that potential effects of the Tax Act are appropriately considered in the APSC’s separate proceeding looking at potential implications of the new tax law. The APSC general staff filed a reply to the Attorney General’s filing and agreed that Entergy Arkansas’s filing complied with the terms of the energy cost recovery rider. The redetermined rate became effective with the first billing cycle of April 2018. Subsequently in April 2018 the APSC issued an order declining to suspend Entergy Arkansas’s energy cost recovery rider rate and declining to require further investigation at that time of the issues suggested by the Attorney General in the proceeding. Following a period of discovery, the Attorney General filed a supplemental response in October 2018 raising new issues with Entergy Arkansas’s March 2018 rate redetermination and asserting that $45.7 million of the increase should be collected subject to refund pending further investigation. Also in October 2018, Entergy Arkansas filed to dismiss the Attorney General’s supplemental response, the APSC general staff filed a motion to strike the Attorney General’s filing, and the Attorney General filed its supplemental response disputing Entergy Arkansas and the APSC staff’s filing.
Entergy Louisiana
In July 2014 the LPSC authorized its staff to initiate an audit of the fuel adjustment clause filings by Entergy Gulf States Louisiana, whose business was combined with Entergy Louisiana in 2015. The audit includes a review of the reasonableness of charges flowed through Entergy Gulf States Louisiana’s fuel adjustment clause for the period from 2010 through 2013. Discovery commenced in July 2015. No report of audit has been issued.
In May 2018 the LPSC staff provided notice of audits of Entergy Louisiana’s purchased gas adjustment clause filings. The audit includes a review of the reasonableness of charges flowed through Entergy Louisiana’s purchased gas adjustment clause for the period from 2016 through 2017. Discovery commenced in September 2018. No report of audit has been issued.
Entergy Mississippi
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 June 2017 the District Court issued a case management order setting a trial date in November 2018. Discovery ended in May 2018. In June 2018, Entergy filed motions for summary judgment, which are currently pending before the District Court. In July 2018 the Attorney General filed briefs opposing the summary judgment.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
In September 2018 the District Court held oral arguments on the Entergy companies’ motion to strikeDecember 2008 the Attorney General’s jury demand. At the hearing, the Attorney General withdrew his oppositionlawsuit was removed to the Entergy companies’ motion to strike the Attorney General’s jury demand.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 Texas
As discussed in the Form 10-K, in July 2015 certain parties filed briefs in an open PUCT proceeding asserting that 23
Entergy Texas should refundCorporation and Subsidiaries
Notes 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 Texas filed a complaint in Federal District Court for the Western District of Texas and a petition in the Travis County (State) District Court appealing the PUCT’s decision. The pending appeals did not stay the PUCT’s decision, 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 of the Federal District Court ruling to the U.S. Court of Appeals for the Fifth Circuit. Oral argument was held before the Fifth Circuit in February 2018. In April 2018 the Fifth Circuit reversed the decision of the Federal District Court, reinstating the original PUCT decision. In October 2018, Entergy Texas filed a notice of nonsuit in its appeal to the Travis County District Court regarding the PUCT’s January 2016 decision.Financial Statements
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 approved by the PUCT in March 2018.
Retail Rate Proceedings
See Note 2 to the financial statements in the Form 10-K for information regarding retail rate proceedings involving the Utility operating companies. The following are updates to that information.discussion.
Filings with the APSC (Entergy Arkansas)
2018 Formula Rate Plan Filing
In July 2018, Entergy Arkansas filed with the APSC its 2018 formula rate plan filing to set its formula rate for the 2019 calendar year. The filing shows Entergy Arkansas’s projected earned return on common equity for the twelve months ended December 31, 2019 test period to be below the formula rate plan bandwidth. Additionally, the filing includes the first netting adjustment under the current formula rate plan for the historical test year 2017, which is a comparison of projected costs and sales approvedAs discussed in the 2016 formula rate plan filing to actual 2017 costs and sales data. The filing includes a projected $73.4 millionrevenue deficiency for 2019 and a $95.6 million revenue deficiency for the 2017 historical test year, for a total revenue requirement of $169 million for this filing. By operation of the formula rate plan, Entergy Arkansas’s recovery of the revenue requirement is subject to a four percent annual revenue constraint. Because Entergy Arkansas’s revenue requirement in this filing exceeds the constraint, the resulting increase is limited to four percent of total revenue, which is $65.4 million. The matter is scheduled for hearing in November 2018, and Entergy Arkansas requested that the APSC issue an order approving the proposed formula rate plan adjustment in December 2018, with the proposed formula rate plan adjustment effective with the first billing cycle of January 2019. In October 2018 the APSC staff and intervening parties filed their errors and objections to Entergy Arkansas’s 2018 formula rate plan filing, although no party proposed adjustments that would serve to reduce the requested revenue
Entergy Corporation and Subsidiaries
Notes to Financial Statements
requirement below the annual revenue constraint. Entergy Arkansas also filed its rebuttal to the APSC staff and intervenors in October 2018. Later in October 2018 the parties submitted motions, which are pending with the APSC, to approve a partial settlement as to certain factual issues and to brief certain contested legal issues.
Similar to the 2018 filing,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. To the extent that Entergy Arkansas expects this netting adjustment to reflect actual 2018 revenues that are in excess of the actual costs for that year, Entergy Arkansas will record a regulatory provision inIn the fourth quarter 2018.
Internal Restructuring
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. 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. In July 2018 Entergy Arkansas filedrecorded a settlement, reached by all parties inprovision of $35.1 million that reflected the APSC proceeding, resolving all issues. The APSC approvedestimate of the settlement agreement and restructuring in August 2018. Entergy expects to realize a permanent tax benefit at closing, and, pursuant to the settlement agreement, Entergy Arkansashistorical year netting adjustment that will credit retail customers $39.6 million over six years, beginning in 2019. Entergy Arkansas has also received the required FERC and NRC approvals. The restructuring is anticipated to close on or before December 1, 2018.
Filings with the LPSC (Entergy Louisiana)
Retail Rates - Electric
2016 Formula Rate Plan Filing
As discussed in the Form 10-K, in May 2017, Entergy Louisiana filed its formula rate plan evaluation report for its 2016 calendar year operations. Rates reflecting the adjustmentsbe included in the formula rate plan evaluation report were implemented with2019 filing to reflect the first billing cycle of September 2017, subject to refund. In September 2017 the LPSC issued its report indicating that no changes to Entergy Louisiana’s original formula rate plan evaluation report were required but reserved for several issues, including Entergy Louisiana’s September 2017 update to its formula rate plan evaluation report. In July 2018, Entergy Louisiana and the LPSC staff filed an unopposed joint report setting forth a correction to the annualization calculation, the effect of which was a net $3.5 million revenue requirement reduction, and indicating that there are no outstanding issues with the 2016 formula rate plan report, the supplemental report, or the interim updates. In September 2018 the LPSC approved the unopposed joint report.
Formula Rate Plan Extension 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 intervenedchange 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:
Entergy Corporation and Subsidiaries
Notes to Financial Statements
a mid-point reset of formula rate plan revenues associated with actual 2018 results when compared to a 9.95% earnedthe allowed rate of return on common equity forequity. In 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 andfirst quarter 2019, test years;
narrowing of the common equity bandwidth to plus or minus 60 basis points around the target earned return on common equity;
a cap on potential revenue increase of $35Entergy Arkansas recorded an additional $10.5 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.
2017 Formula Rate Plan Filing
In June 2018, Entergy Louisiana filed its formula rate plan evaluation report for its 2017 calendar year operations. As stated above under “Formula Rate Plan Extension Request,” for the 2017 test year there will be a mid-point reset of formula rate plan revenues to a 9.95% earned return on common equity for the 2017 test year. As such, base rider formula rate plan revenue is to be adjusted prospectively to increase or decrease the earned return on equity fully to the approved cost of equity of 9.95%. The 2017 test year evaluation report produced an earned return on equity of 8.16%, due in large part to revenue-neutral realignments to other recovery mechanisms. Without these realignments, the evaluation report produces an earned return on equity of 9.88% and a resulting base rider formula rate plan revenue increase of $4.8 million. Excluding the Tax Act credits provided for by the tax reform adjustment mechanisms, total formula rate plan revenues will further increase by a total of $98 million as a result of the evaluation report due to adjustments to the additional capacity and MISO cost recovery mechanisms of the formula rate plan, and implementation of the transmission recovery mechanism. In August 2018, Entergy Louisiana filed a supplemental formula rate plan evaluation report to reflect changes from the 2016 test year formula rate plan proceedings, a decrease to the transmission recovery mechanism to reflect lower actual capital additions, and a decrease to evaluation period expensesprovision to reflect the terms of a new power sales agreement. Based on the August 2018 update, Entergy Louisiana would recognize a total decrease in formula rate plan revenue of approximately $17.6 million. Resultscurrent estimate of the updated 2017 evaluation report filing were implemented with the September 2018 billing month subjecthistorical year netting adjustment to refund and review by the LPSC staff and intervenors. In accordance with the terms of the formula rate plan, in September 2018 the LPSC staff and intervenors submitted their responses to Entergy Louisiana’s original formula rate plan evaluation report and supplemental compliance updates. The LPSC staff asserted objections/reservations regarding 1) Entergy Louisiana’s proposed rate adjustments associated with the return of excess accumulated deferred income taxes pursuant to the Tax Act and the treatment of accumulated deferred income taxes related to reductions of rate base; 2) Entergy Louisiana’s reservation regarding treatment of a regulatory asset related to certain special orders by the LPSC; and 3) test year expenses billed from Entergy Services to Entergy Louisiana. Intervenors also objected to Entergy Louisiana’s treatment of the regulatory asset related to certain special orders by the LPSC. A procedural schedule has not yet been established to resolve these issues.
Entergy Louisiana alsobe included in its filing a presentation of an initial proposal to combine the legacy Entergy Louisiana and legacy Entergy Gulf States Louisiana residential rates, which combination, if approved, would be accomplished on a revenue-neutral basis intended not to affect the rates of other customer classes.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
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. Entergy Louisiana submitted a compliance filing regarding retirement of Willow Glen 2 and 4, and the LPSC closed the proceeding.
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%. As-filed rates from the supplemental filing were implemented, subject to refund, with customers receiving a cost reduction of approximately $0.7 million effective with bills rendered on and after the first billing cycle of May 2018, as well as a $0.2 million reduction in the gas infrastructure rider effective with bills rendered on and after the first billing cycle of July 2018. The proceeding is currently in its discovery phase. A procedural schedule has not been established.2019 filing.
Filings with the MPSC (Entergy Mississippi)
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, resulting in no change in rates. In Junebandwidth. The 2018 Entergy Mississippi and the Mississippi Public Utilities Staff entered into a stipulation that confirmed that Entergy Mississippi’s earned returns for both the 2017 look-back filing and 2018 test year were within the respective formula rate plan bandwidths. In June 2018 the MPSC approved the stipulation, which resulted in no change in rates. See “Regulatory activity regarding the Tax Cuts and Jobs Act” above for additional discussion regarding the proposed treatment of the effects of the lower federal corporate income tax rate.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Entergy Mississippi’s formula rate plan includes a look-back evaluation report filing in March 2019 that will comparecompares actual 2018 results to the performance-adjusted allowed return on rate base. To the extent that Entergy Mississippi expects this look-back evaluation report to show the 2018 earnedapproved benchmark return on rate base exceededand 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 will recordrecorded a regulatory provision$0.8 million increase in the fourth quarter 2018.
In October 2018, Entergy Mississippi proposed revisionsprovision to its formula rate plan that would provide for a mechanism,reflect the interim capacity rate adjustment mechanism,amount shown in the formula rate planlook-back filing. The filing is currently subject to recoverMPSC review. A final order is expected in 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.
Internal Restructuring
In March 2018, Entergy Mississippi filed an applicationsecond quarter 2019, 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. Entergy Mississippi proposed in its application to credit retail customers $27 million over six years, beginning in 2019, if the restructuring closed on or before December 1, 2018. In September 2018, Entergy Mississippi and the Mississippi Public Utilities Staff entered into and filed a joint stipulation regarding the restructuring filing. In September 2018 the MPSC issued an order accepting the stipulation in its entirety and approving the restructuring and credits to retail customers of $27 million over six years, consisting of annual payments of $4.5 millionresulting rates effective for the years 2019-2024. Entergy Mississippi has also received the required FERC and NRC approvals. 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 pricefirst billing cycle 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.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Filings with the City Council (Entergy New Orleans)
Energy Smart Programs
As discussed in the Form 10-K, in September 2017, Entergy New Orleans filed a supplemental plan and proposed several options for an interim cost recovery mechanism necessary to recover program costs during the period between when existing funds directed to Energy Smart programs were depleted and when new rates from the then-anticipated 2018 combined rate case (subsequently filed in July 2018), which will include a cost recovery mechanism for Energy Smart funding, take effect (estimated to be August 2019). In December 2017 the City Council approved an energy efficiency cost recovery rider as an interim funding mechanism for Energy Smart, subject to verification that no additional funding sources exist. In June 2018 the City Council also approved a resolution recommending that Entergy New Orleans allocate approximately $13.5 million of benefits resulting from the Tax Act to Energy Smart. Entergy New Orleans is seeking approval of a permanent and stable source of funding for Energy Smart as part of its base rate case filed in July 2018 and revised in September 2018.
Base Rate Case
In July 2018, Entergy New Orleans filed its 2018 base rate case with the City Council but withdrew it in August 2018. In September 2018, Entergy New Orleans filed a revised electric and gas base rate case with the City Council. The revised filing requests a 10.5% return on equity for electric operations with opportunity to earn a 10.75% return on equity through a performance adder provision of the electric formula rate plan, and requests a 10.75% return on equity for gas operations. The proposed electric rates in the revised filing reflect a net reduction of $20.3 million. The reduction in electric rates includes a base rate increase of $135.2 million, of which $131.5 million is associated with moving costs currently collected through fuel and riders into base rates, plus a request for an advanced metering surcharge to recover $7.1 million associated with advanced metering infrastructure, offset by a net decrease of $31.1 million related to projected fuel and energy efficiency riders. The filing also includes a proposed gas rate decrease of $142 thousand. Entergy New Orleans’s rates reflect the inclusion of federal income tax reductions due to the Tax Act and the provisions of a previously-approved agreement in principle determining how the benefits of the Tax Act would flow. Entergy New Orleans included cost of service studies for electric and gas operations for the twelve months ending December 31, 2017 and the projected twelve months ending December 31, 2018. In addition, Entergy New Orleans included capital additions expected to be placed into service for the period through December 31, 2019. Entergy New Orleans’s request for a change in rates is based on the projected twelve months ending December 31, 2018.
The filing’s major provisions include: (1) a new electric rate structure, which realigns the revenue requirement associated with capacity and long-term service agreement expense from certain existing riders to base revenue, provides for the recovery of the cost of advanced metering infrastructure, and partially blends rates for Entergy New Orleans’s customers residing in Algiers with customers residing in the remainder of Orleans Parish through a three-year phase-in; (2) contemporaneous cost recovery riders for investments in energy efficiency/demand response, incremental changes in capacity/long-term service agreement costs, grid modernization investment, and gas infrastructure replacement investment; and (3) formula rate plans for both electric and gas operations. The procedural schedule calls for an evidentiary hearing to be held in June 2019.
Filings with the PUCT (Entergy Texas)
2018 Base Rate Case
In May 2018,In January 2019, Entergy Texas filed afor 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 casecase. 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 seeking an increase in base rates anda request to set a new distribution cost recovery factor (DCRF) rider. The proposed new DCRF rider rates ofis designed to collect approximately $166$3.2 million of which $48 million is associated with moving costs currently being collected through riders into base rates such that the total incremental revenue requirement increase is approximately $118 million.annually from Entergy Texas’s proposed rates and revenues reflect the inclusion of federal income tax reductions due to the Tax Act as well as a rider designed to return unprotected excess accumulated deferred income taxes over a period of two years following PUCT approval. The base rate case isretail customers based on a 12-month test year endingits capital invested in distribution between January 1, 2018 and December 31, 2017.2018. A procedural schedule has been established, with a hearing in June 2019.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
In addition,December 2018, Entergy Texas includedfiled 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 additions placed into service for the period of Aprilinvested in transmission between January 1, 2013 through December 31, 2017, as well as a post-test year adjustment to include capital additions placed in service by June2018 and September 30, 2018. In October 2018 theApril 2019 parties filed an unopposed settlement resolving all issuestestimony 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 the proceeding, supporting testimony, a proposed order approving the settlement, and a motion for interim rates effective for usage on and after October 17, 2018. The unopposed settlement reflects the following terms: a base rate increase of $53.2 million (net of costs realigned from riders), a $25 million refund to reflect the lower federal income tax rate applicable toTCRF. Entergy Texas from January 25, 2018 through the date new rates are implemented, $6 million of capitalized skylining tree hazard costs will not be recovered from customers, $242.5 million of protected excess accumulated deferred income taxes, which includesfiled a tax gross-up, will be returned to customers through base rates under the average rate assumption method over the lives of the associated assets, and $185.2 million of unprotected excess accumulated deferred income taxes, which includes a tax gross-up, will be returned to customers through a rider. The unprotected excess accumulated deferred income taxes rider will include carrying charges and will be in effect over a period of 12 months for large industrial customers and over a period of four years for other customers. The settlement, if approved by the PUCT, would provide final resolution of all issues in the matter, including those related to the Tax Act. In October 2018 the ALJ granted the unopposed motion for interim rates to be effective for service rendered on or after October 17, 2018. The unopposed settlement is pending consideration by the PUCT.
Advanced Metering Infrastructure (AMI) Filings
Entergy Mississippi
See the Form 10-K for discussion of the MPSC order finding that Entergy Mississippi’s deployment of AMI is in the public interest and granting a certificate of public convenience and necessity. In June 2018, as part of the order approving the joint stipulation between the Mississippi Public Utilities Staff and Entergy Mississippi addressing Entergy Mississippi’s 2018 formula rate plan evaluation report and the ratemaking effects of the Tax Act, the MPSC approved the acceleration of the recovery of substantially all of Entergy Mississippi’s existing customer meters in anticipation of AMI deployment.
Entergy New Orleans
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 in fourth quarter 2018.April 2019. In April 20182019 the City Council adopted a resolution directinghearing on Entergy New Orleans to explore the options for accelerating the deployment of AMI. In June 2018 the City Council approved a one year acceleration of AMI in its service area for an incremental $4.4 million, bringing the total capital spending related to AMI for Entergy New Orleans to $79.4 million.
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 2011Texas’s motion 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 its brief arguing that the FERC should require the Utility operating companies to issue refunds for the 20-month refund period from September 2001 to May 2003. In May 2018, Entergy filed its brief arguing that the FERC should not require the Utility operating companies to issue refunds for the 20-month refund period from September 2001 to May 2003.
Also as discussed in the Form 10-K, the hearing on the bandwidth calculation for the seven months June 1, 2005 through December 31, 2005 occurred in July 2016. The presiding judge issued an initial decision in November 2016. In May 2018 the FERC issued an order affirming the initial decision and ordered a comprehensive recalculation
Entergy Corporation and Subsidiaries
Notes to Financial Statements
of the bandwidth payments/receipts for the seven months June 1, 2005 through December 31, 2005 and a recalculation of the 2006 and 2007 test years as a result of limited revisions. Entergy filed the comprehensive recalculation of the bandwidth payments/receipts for the seven months June 1, 2005 through December 31, 2005 and the 2006 and 2007 test years in July 2018. The filing shows the additional following payments and receipts among the Utility operating companies:
|
| |
| Payments (Receipts) |
| (In Millions) |
Entergy Arkansas | ($4) |
Entergy Louisiana | ($23) |
Entergy Mississippi | $16 |
Entergy New Orleans | $5 |
Entergy Texas | $6 |
These paymentsmerits were made in July 2018.
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 November 2015,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 an initial decision in July 2016. Inby 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 affirmingPUCT. This matter is currently awaiting the ALJ’s initialproposal for decision. Entergy filed in May 2018 the bandwidth true-up payments and receipts for the 2011-2014 rate filings (table does not net to zero due to rounding):
|
| |
| Payments (Receipts) |
| (In Millions) |
Entergy Arkansas | $3 |
Entergy Louisiana | $3 |
Entergy Mississippi | ($1) |
Entergy New Orleans | $1 |
Entergy Texas | ($5) |
These payments were made in May 2018.
Utility Operating Company Termination of System Agreement Participation
As discussed in the Form 10-K, Entergy Arkansas and Entergy Mississippi ceased participating in the System Agreement effective December 18, 2013 and November 7, 2015, respectively. Entergy Louisiana, Entergy New Orleans, and Entergy Texas terminated participation in the System Agreement on August 31, 2016, which resulted in the termination of the System Agreement in its entirety pursuant to a settlement agreement approved by the FERC in December 2015.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
In December 2013 the FERC set one issue for hearing involving whether and how the benefits associated with settlement with Union Pacific regarding certain coal delivery issues should be allocated among Entergy Arkansas and the other Utility operating companies post-termination of the System Agreement. In December 2014 a FERC ALJ issued an initial decision finding that Entergy Arkansas would realize benefits after December 18, 2013 from the 2008 settlement agreement between Entergy Services, Entergy Arkansas, and Union Pacific, related to certain coal delivery issues. In March 2016 the FERC issued an opinion affirming the December 2014 initial decision with regard to the determination that there were benefits related to the Union Pacific settlement, which were realized post-Entergy Arkansas’s December 2013 withdrawal from the System Agreement, that should be shared with the other Utility operating companies utilizing the methodology proposed by the MPSC and trued-up to actual coal volumes purchased. In May 2016, Entergy made a compliance filing that provided the calculation of Union Pacific settlement benefits utilizing the methodology adopted by the initial decision, trued-up for the actual volumes of coal purchased. The payments were made in May 2016. In August 2016 the FERC issued an order accepting Entergy’s compliance filing. Also in August 2016 the APSC filed a petition for review of the FERC’s March 2016 and August 2016 orders with the U.S. Court of Appeals for the D.C. Circuit. In June 2018 the D.C. Circuit denied the APSC’s petition.
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. In May 2018 the D.C. Circuit denied the LPSC’s rehearing request. In August 2018 the LPSC filed with the Supreme Court of the United States a petition for a writ of certiorari to review the judgment of the D.C. Circuit.
Entergy Arkansas Opportunity Sales Proceeding
SeeAs discussed in the Form 10-K, for discussion of thein December 2018, Entergy Arkansas opportunity sales proceeding filed with the FERC. In October 2018 the FERC issued an order addressing the ALJ’s July 2017 initial decision. The FERC reversed the ALJ’s decision to cap the reduction in Entergy Arkansas’s payment to account for the increased bandwidth payments that Entergy Arkansas made to the other operating companies. The FERC also reversed the ALJ’s decision that Grand Gulf sales from January through September 2000 should be included in the calculation of Entergy Arkansas’s payment. The FERC affirmed on other grounds the ALJ’s rejection of the LPSC’s claim that certain joint account sales should be accounted for as part of the calculation of Entergy Arkansas’s payment. The FERC directed Entergy to make a compliance filing by December 17,in response to the FERC’s October 2018 providingorder in the opportunity sales proceeding. The compliance filing provided a final calculation of Entergy Arkansas’s payments to the other Utility operating companies, pursuantincluding interest. No protests were filed in response to the findings in the order and explaining how Entergy Arkansas will pay refunds, including the timeline for making those refunds. The FERC’s decision effectively establishes the base amount Entergy Arkansas must pay to the other Utility operating companies for the period of 2000-2009 to be approximately $68 million. Entergy Arkansas will also pay interest on the base amount to the other Utility operating companies, currently estimated to be approximately $64 million as of September 30,December 2018 for an estimated total of $132 million. This amount is consistent with the liability previously recognized by Entergy Arkansas.compliance filing. The December 2018 compliance filing will includeis pending FERC action.
In February 2019 the recipients and final amount of payments owed by Entergy Arkansas, as well asLPSC filed a new complaint relating to two issues that were raised in the timingopportunity sales proceeding, but that, in its October 2018 order, the FERC held were outside the scope of the payments. Because management currently expectsproceeding. In March 2019, Entergy Services filed an answer and motion to recoverdismiss the retail portion of the payments due as a result of this proceeding, Entergy Arkansas previously recognized a regulatory asset with a balance of $114 million as of September 30, 2018.new complaint.
Complaints Against System Energy
Return on Equity and Capital Structure Complaints
As discussed inSee the Form 10-K in January 2017for a discussion of the return on equity complaints filed by the APSC and the MPSC filed a complaint withand by the FERCLPSC against System Energy. The LPSC’s complaint seeksalso includes a reduction in the return on equity component of the Unit Power Sales Agreement
Entergy Corporation and Subsidiaries
Noteschallenge to Financial Statements
pursuant to which System Energy sells its Grand Gulf capacity and energy to Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans. Entergy Arkansas also sells some of its Grand Gulf capacity and energy to Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans under separate agreements. The current return on equity under the Unit Power Sales Agreement is 10.94%, which was established in a rate proceeding that became final in July 2001.
The APSC and MPSC complaint alleges that the return on equity is unjust and unreasonable because current capital market and other considerations indicate that it is excessive. The complaint requests the FERC to institute proceedings to investigate the return on equity and establish a lower return on equity, and also requests that the FERC establish January 23, 2017 as a refund effective date. The complaint includes return on equity analysis that purports to establish that the range of reasonable return on equity for System Energy is between 8.37% and 8.67%. System Energy answered the complaint in February 2017 and disputes that a return on equity of 8.37% to 8.67% is just and reasonable. The LPSC and the City Council intervened in the proceeding expressing support for the complaint. System Energy is recording a provision against revenue for the potential outcome of this proceeding. In September 2017 the FERC established a refund effective date of January 23, 2017, consolidated the return on equity complaint with the proceeding described in Unit Power Sales Agreement below, and directed the parties to engage in settlement proceedings before an ALJ. The parties have been unable to settle the return on equity issue and a FERC hearing judge was assigned in July 2018. The 15-month refund 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 respect to System Energy’s return on equity and also requests the FERC to investigate System Energy’s capital structure. The APSC, MPSC, and City Council intervened in the proceeding, filed an answer expressing support for the complaint, and asked the FERC to consolidate this proceeding with the proceeding initiated by the complaint of the APSC and MPSC in January 2017. System Energy answered the LPSC complaint in May 2018 and also filed a motion to dismiss the complaint. In July 2018 the LPSC answered System Energy’s motion to dismiss.
In August 2018 the FERC issued an order dismissing the LPSC’s request to investigate System Energy’s capital structure and setting for hearing System Energy’sthe 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 washas been scheduled for JuneSeptember 2019, butand the procedural schedule is currently being held in abeyance. An ALJ ordered the abeyance after the FERC,parties are required to address an order (issued in a separate proceeding on the return on equity forinvolving New England transmission owners, issued an orderowners) that proposed modifying itsthe 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 docketedinitiated a new proceeding for the amended capital structure complaint, in a new proceeding, and System Energy submitted a response toin October 2018. In January 2019 the FERC set the amended capital structure complaint for settlement and hearing proceedings. Settlement procedures in October 2018.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
Grand Gulf Sale-leaseback Renewal Complaint
InAs 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 in 2015 of a sale-leaseback transaction originally entered into in December 1988 for an 11.5% undivided interest in Grand Gulf Unit 1. The complaint alleges
In February 2019 the presiding ALJ ruled that System Energy violated the filed rate andhearing ordered by the FERC’s ratemaking and accounting requirements when itFERC includes the issue of whether specific subcategories of accumulated deferred income tax should be included in, Unit Power Sales Agreement billingsor 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 thatthe APSC and MPSC address various issues raised by the LPSC. System Energy is double-recovering costs by including both the lease payments and the capital additions in Unit Power Sales Agreement billings. The complaint also claimsdisputes that System Energy was imprudent in entering into the sale-leaseback renewal because the Utility operating companies that purchase Grand Gulf’s output from System Energy could have obtained cheaper capacity and energy in the MISO markets. The complaint further alleges that System Energy violated various other reporting and accounting requirements and should have sought prior FERC approval of the lease renewal. The complaint seeks various forms
Entergy Corporation and Subsidiaries
Notes to Financial Statements
of relief from the FERC. The complaint seeksany refunds are owed for capital addition costs for all years in which they were recorded in allegedly non-formula accounts or, alternatively, the disallowance of the return on equity for the capital additions in those years plus interest. The complaint also asks that the FERC disallow and refund the lease costs of the sale-leaseback renewal on grounds of imprudence, investigate System Energy’s treatment of a DOE litigation payment, and impose certain forward-looking procedural protections, including audit rights for retail regulators of the Unit Power Sales Agreement formula rates. The APSC, MPSC, and City Council have intervened in the proceeding.
In June 2018, System Energy and Entergy Services filed a motion to dismiss and answer to the LPSC complaint denying that System Energy’s treatment of the sale-leaseback renewal and capital additions violated the terms of the filed rate or any other FERC ratemaking, accounting, or legal requirements or otherwise constituted double recovery. The response also argued that the complaint is inconsistent with a FERC-approved settlement to which the LPSC is a party and that explicitly authorizes System Energy to recover its lease payments. Finally, the response argued that both the capital additions and the sale-leaseback renewal were prudent investments and the LPSC complaint fails to justify any disallowance or refunds. The response asked that the FERC dismiss and reject the LPSC complaint without further action, investigation, or hearing, but also offered to submit formula rate protocols for the Unit Power Sales Agreement similar to the procedures used for reviewing transmission rates under the MISO tariff. In September 2018 the FERC issued an order setting the complaint for hearing and settlement proceedings. The FERC established a refund effective date of May 2018.
Unit Power Sales Agreement
As discussed in the Form 10-K, in August 2017, System Energy submitted to the FERC proposed limited amendments to the Unit Power Sales Agreement to adopt (1) updated rates for use in calculating Grand Gulf plant depreciation and amortization expenses and (2) updated nuclear decommissioning cost annual revenue requirements, both of which are recovered through the Unit Power Sales Agreement rate formula. The proposed amendments would result in lower charges to the Utility operating companies that buy capacity and energy from System Energybillings under the Unit Power Sales Agreement. The FERC accepted the proposed amendments effective October 1, 2017, and established a refund effective date of October 11, 2017 with respect to the rate decrease. In June 2018, System Energy filed with the FERC an uncontested settlement relating to the updated depreciation rates and nuclear decommissioning cost annual revenue requirements. In August 2018 the FERC issued an order accepting the settlement. In third quarter 2018, System Energy recorded a reduction in depreciation expense of approximately $26 million, representing the cumulative difference in depreciation expense resulting from the depreciation rates used from October 11, 2017 through September 30, 2018 and the depreciation rates included in the settlement filing accepted by the FERC.
Storm Cost Recovery Filings with Retail Regulators
Entergy Mississippi
As discussed in the Form 10-K, Entergy MississippiA hearing has approval from the MPSC to collect a storm damage provision of $1.75 million per month. If Entergy Mississippi’s accumulated storm damage provision balance exceeds $15 million, the collection of the storm damage provision ceases until such time that the accumulated storm damage provision becomes less than $10 million. As of June 30, 2018, Entergy Mississippi’s storm damage provision balance exceeded $15 million. Accordingly the storm damage provision was reset to zero beginning with August 2018 bills.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:
| | | | | | | | | | | | | | | | | | | | | | | For the Three Months Ended March 31, |
| For the Three Months Ended September 30, | 2019 | | 2018 |
| 2018 | | 2017 | (In Millions, Except Per Share Data) |
| (In Millions, Except Per Share Data) | Income | | Shares | | $/share | | Income | | Shares | | $/share |
Basic earnings per share | Income | | Shares | | $/share | | Income | | Shares | | $/share | | | | | | | | | | | |
Net income attributable to Entergy Corporation |
| $536.4 |
| | 181.0 |
| |
| $2.96 |
| |
| $398.2 |
| | 179.6 |
| |
| $2.22 |
|
| $254.5 |
| | 189.6 |
| |
| $1.34 |
| |
| $132.8 |
| | 180.7 |
| |
| $0.73 |
|
Average dilutive effect of: | | | | | | | | | | | | | | | | | | | | | | |
Stock options | | | 0.4 |
| | (0.01 | ) | | | | 0.2 |
| | — |
| | | 0.4 |
| | — |
| | | | 0.2 |
| | — |
|
Other equity plans | | | 0.8 |
| | (0.01 | ) | | | | 0.7 |
| | (0.01 | ) | | | 0.5 |
| | (0.01 | ) | | | | 0.5 |
| | — |
|
Equity forwards | | | 1.5 |
| | (0.02 | ) | | | | — |
| | — |
| | | 1.7 |
| | (0.01 | ) | | | | — |
| | — |
|
Diluted earnings per share |
| $536.4 |
| | 183.7 |
| |
| $2.92 |
| |
| $398.2 |
| | 180.5 |
| |
| $2.21 |
|
| $254.5 |
| | 192.2 |
| |
| $1.32 |
| |
| $132.8 |
| | 181.4 |
| |
| $0.73 |
|
The number of stock options not included in the calculation of diluted common shares outstanding due to their antidilutive effect was approximately 1.10.7 million for the three months ended September 30, 2018March 31, 2019 and approximately 2.54 million for the three months ended September 30, 2017.
|
| | | | | | | | | | | | | | | | | | | | | |
| For the Nine Months Ended September 30, |
| 2018 | | 2017 |
| (In Millions, Except Per Share Data) |
Basic earnings per share | Income | | Shares | | $/share | | Income | | Shares | | $/share |
Net income attributable to Entergy Corporation |
| $914.6 |
| | 180.8 |
| |
| $5.06 |
| |
| $890.7 |
| | 179.5 |
| |
| $4.96 |
|
Average dilutive effect of: | | | | | | | | | | | |
Stock options | | | 0.3 |
| | (0.01 | ) | | | | 0.2 |
| | (0.01 | ) |
Other equity plans | | | 0.7 |
| | (0.01 | ) | | | | 0.5 |
| | (0.01 | ) |
Equity forwards | | | 0.9 |
| | (0.03 | ) | | | | — |
| | — |
|
Diluted earnings per share |
| $914.6 |
| | 182.7 |
| |
| $5.01 |
| |
| $890.7 |
| | 180.2 |
| |
| $4.94 |
|
The number of stock options not included in the calculation of diluted common shares outstanding due to their antidilutive effect was approximately 1.1 million for the nine months ended September 30, 2018 and approximately 3.3 million for the nine months ended September 30, 2017.March 31, 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 September 30, 2018March 31, 2018.
Entergy Corporation and $0.87 for the three months ended September 30, 2017. Dividends declared per common share were $2.67 for the nine months ended September 30, 2018 and $2.61 for the nine months ended September 30, 2017.Subsidiaries
Notes to Financial Statements
Equity Forward Sale Agreements
InAs 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. No
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 Corporation and Subsidiaries
Notesis required to Financial Statements
amounts have or will be recorded on Entergy’s balance sheetsettle its remaining obligations under the forward sale agreements with respect to the equity offering until settlementsremaining 8,448,171 shares of the equity forwards occur. The equity forwards require Entergy to, at its electioncommon stock on a settlement date or dates on or prior to June 7, 2019, either (i) physically settle the transactions by issuing the total of 15.3 million shares of its common stock to the investment banks in exchange for net proceeds at the then-applicable forward sale price specified by the agreements (initially $74.45 per share) or (ii) net settle the transactions in whole or in part through the delivery or receipt of cash or shares. The forward sale price is subject to adjustment on a daily basis based on a floating interest rate factor and will decrease by other fixed amounts specified in the agreements.
If Entergy elects physical settlement of the forward sale agreements, it expects to use the net proceeds for general corporate purposes, which may include repayment of commercial paper, outstanding loans under Entergy's revolving credit facility, or other debt.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 September 30, 2018,March 31, 2019, Entergy would have been required to deliver 1.42.0 million shares.
Treasury Stock
During the ninethree months ended September 30, 2018,March 31, 2019, Entergy Corporation issued 613,662860,093 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 ninethree months ended September 30, 2018.March 31, 2019.
Retained Earnings
On October 26, 2018,April 3, 2019, Entergy Corporation’s Board of Directors declared a common stock dividend of $0.91 per share, payable on DecemberJune 3, 2018,2019, to holders of record as of November 8, 2018.May 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 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
Entergy Corporation and Subsidiaries
Notes to Financial Statements
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 September 30, 2018March 31, 2019 by component:
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) | 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, July 1, 2018 |
| ($14,874 | ) | |
| ($589,926 | ) | |
| ($8,842 | ) | |
| ($613,642 | ) | |
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 | (40,401 | ) | | — |
| | (7,173 | ) | | (47,574 | ) | 28,312 |
| | — |
| | 13,539 |
| | 41,851 |
|
Amounts reclassified from accumulated other comprehensive income (loss) | 8,397 |
| | 15,265 |
| | 5,428 |
| | 29,090 |
| (40,738 | ) | | 11,550 |
| | 164 |
| | (29,024 | ) |
Net other comprehensive income (loss) for the period | (32,004 | ) | | 15,265 |
| | (1,745 | ) | | (18,484 | ) | (12,426 | ) | | 11,550 |
| | 13,703 |
| | 12,827 |
|
Ending balance, September 30, 2018 |
| ($46,878 | ) | |
| ($574,661 | ) | |
| ($10,587 | ) | |
| ($632,126 | ) | |
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 September 30, 2017 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) |
Beginning balance, July 1, 2017 |
| $23,414 |
| |
| ($449,898 | ) | |
| $479,257 |
| |
| $52,773 |
|
Other comprehensive income (loss) before reclassifications | 27,884 |
| | — |
| | 35,630 |
| | 63,514 |
|
Amounts reclassified from accumulated other comprehensive income (loss) | (14,671 | ) | | 12,297 |
| | (2,235 | ) | | (4,609 | ) |
Net other comprehensive income (loss) for the period | 13,213 |
| | 12,297 |
| | 33,395 |
| | 58,905 |
|
Ending balance, September 30, 2017 |
| $36,627 |
| |
| ($437,601 | ) | |
| $512,652 |
| |
| $111,678 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The following table presents changes in accumulated other comprehensive income (loss) for Entergy for the nine months ended September 30,March 31, 2018 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 | (31,816 | ) | | — |
| | (50,958 | ) | | (82,774 | ) |
Amounts reclassified from accumulated other comprehensive income (loss) | 30,171 |
| | 47,404 |
| | 13,716 |
| | 91,291 |
|
Net other comprehensive income (loss) for the period | (1,645 | ) | | 47,404 |
| | (37,242 | ) | | 8,517 |
|
| | | | | | | |
Reclassification pursuant to ASU 2018-02 | (7,756 | ) | | (90,966 | ) | | 114,227 |
| | 15,505 |
|
| | | | | | | |
Ending balance, September 30, 2018 |
| ($46,878 | ) | |
| ($574,661 | ) | |
| ($10,587 | ) | |
| ($632,126 | ) |
The following table presents changes in accumulated other comprehensive income (loss) for Entergy for the nine months ended September 30, 2017 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 | ) |
|
| | | | | | | | | | | | | | | | | | | |
| Cash flow hedges net unrealized gain (loss) | | Pension and other postretirement liabilities | | Net unrealized investment gain (loss) | | Foreign currency translation | | Total Accumulated Other Comprehensive Income (Loss) |
| (In Thousands) |
Beginning balance, January 1, 2017 |
| $3,993 |
| |
| ($469,446 | ) | |
| $429,734 |
| |
| $748 |
| |
| ($34,971 | ) |
Other comprehensive income (loss) before reclassifications | 88,550 |
| | — |
| | 109,372 |
| | (748 | ) | | 197,174 |
|
Amounts reclassified from accumulated other comprehensive income (loss) | (55,916 | ) | | 31,845 |
| | (26,454 | ) | | — |
| | (50,525 | ) |
Net other comprehensive income (loss) for the period | 32,634 |
| | 31,845 |
| | 82,918 |
| | (748 | ) | | 146,649 |
|
Ending balance, September 30, 2017 |
| $36,627 |
| |
| ($437,601 | ) | |
| $512,652 |
| |
| $— |
| |
| $111,678 |
|
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 September 30, 2018March 31, 2019 and 2017:2018:
|
| | | | | | | | |
| | Pension and Other Postretirement Liabilities |
| | 2018 | | 2017 |
| | (In Thousands) |
Beginning balance, July 1, | |
| ($57,451 | ) | |
| ($49,122 | ) |
Amounts reclassified from accumulated other comprehensive income (loss) | | (500 | ) | | (370 | ) |
Net other comprehensive income (loss) for the period | | (500 | ) | | (370 | ) |
| | | | |
Ending balance, September 30, | |
| ($57,951 | ) | |
| ($49,492 | ) |
The following table presents changes in accumulated other comprehensive income (loss) for Entergy Louisiana for the nine months ended September 30, 2018 and 2017: |
| | | | | | | | |
| | 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 | ) |
|
| | | | | | | | |
| | 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) | | (1,502 | ) | | (1,050 | ) |
Net other comprehensive income (loss) for the period | | (1,502 | ) | | (1,050 | ) |
| | | | |
Reclassification pursuant to ASU 2018-02 | | (10,049 | ) | | — |
|
| | | | |
Ending balance, September 30, | |
| ($57,951 | ) | |
| ($49,492 | ) |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Total reclassifications out of accumulated other comprehensive income (loss) (AOCI) into income for Entergy for the three months ended September 30,March 31, 2019 and 2018 and 2017 are as follows:
|
| | | | | | | | | |
| Amounts reclassified from AOCI |
| Income Statement Location |
| 2018 | | 2017 | | |
| (In Thousands) |
|
|
Cash flow hedges net unrealized gain (loss) |
| | |
|
|
Power contracts |
| ($10,566 | ) | |
| $22,756 |
|
| Competitive business operating revenues |
Interest rate swaps | (63 | ) | | (185 | ) |
| Miscellaneous - net |
Total realized gain (loss) on cash flow hedges | (10,629 | ) | | 22,571 |
|
|
|
| 2,232 |
| | (7,900 | ) |
| Income taxes |
Total realized gain (loss) on cash flow hedges (net of tax) |
| ($8,397 | ) | |
| $14,671 |
|
|
|
|
|
| | |
|
|
Pension and other postretirement liabilities |
|
| | |
|
|
Amortization of prior-service credit |
| $5,425 |
| |
| $6,565 |
|
| (a) |
Amortization of loss | (24,740 | ) | | (21,480 | ) |
| (a) |
Settlement loss | (76 | ) | | (4,200 | ) |
| (a) |
Total amortization | (19,391 | ) | | (19,115 | ) |
|
|
| 4,126 |
| | 6,818 |
|
| Income taxes |
Total amortization (net of tax) |
| ($15,265 | ) | |
| ($12,297 | ) |
|
|
|
| | |
|
|
Net unrealized investment gain (loss) |
| | |
|
|
Realized gain (loss) |
| ($8,589 | ) | |
| $4,382 |
|
| Interest and investment income |
| 3,161 |
| | (2,147 | ) |
| Income taxes |
Total realized investment gain (loss) (net of tax) |
| ($5,428 | ) | |
| $2,235 |
|
|
|
|
|
| | |
|
|
Total reclassifications for the period (net of tax) |
| ($29,090 | ) | |
| $4,609 |
|
|
|
| |
(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 for the nine months ended September 30, 2018 and 2017 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 |
| ($37,913 | ) | |
| $86,678 |
| | Competitive business operating revenues |
| $51,615 |
| |
| ($30,082 | ) | | Competitive business operating revenues |
Interest rate swaps | (278 | ) | | (654 | ) | | Miscellaneous - net | (48 | ) | | (122 | ) | | Miscellaneous - net |
Total realized gain (loss) on cash flow hedges | (38,191 | ) | | 86,024 |
| | 51,567 |
| | (30,204 | ) | |
| 8,020 |
| | (30,108 | ) | | Income taxes | (10,829 | ) | | 6,343 |
| | Income taxes |
Total realized gain (loss) on cash flow hedges (net of tax) |
| ($30,171 | ) | |
| $55,916 |
| |
| $40,738 |
| |
| ($23,861 | ) | |
| | | | | | | | |
Pension and other postretirement liabilities | | | | | | | | |
Amortization of prior-service credit |
| $16,278 |
| |
| $19,691 |
| | (a) |
| $5,326 |
| |
| $5,426 |
| | (a) |
Amortization of loss | (74,503 | ) | | (64,605 | ) | | (a) | (18,988 | ) | | (24,952 | ) | | (a) |
Settlement loss | (2,098 | ) | | (5,965 | ) | | (a) | (1,137 | ) | | (1,616 | ) | | (a) |
Total amortization | (60,323 | ) | | (50,879 | ) | | (14,799 | ) | | (21,142 | ) | |
| 12,919 |
| | 19,034 |
| | Income taxes | 3,249 |
| | 4,568 |
| | Income taxes |
Total amortization (net of tax) |
| ($47,404 | ) | |
| ($31,845 | ) | |
| ($11,550 | ) | |
| ($16,574 | ) | |
| | | | | | | | |
Net unrealized investment gain (loss) | | | | | | | | |
Realized gain (loss) |
| ($21,703 | ) | |
| $51,871 |
| | Interest and investment income |
| ($259 | ) | |
| $53,314 |
| | Interest and investment income |
| 7,987 |
| | (25,417 | ) | | Income taxes | 95 |
| | (19,620 | ) | | Income taxes |
Total realized investment gain (loss) (net of tax) |
| ($13,716 | ) | |
| $26,454 |
| |
| ($164 | ) | |
| $33,694 |
| |
| | | | | | | | |
Total reclassifications for the period (net of tax) |
| ($91,291 | ) | |
| $50,525 |
| |
| $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 September 30,March 31, 2019 and 2018 and 2017 are as follows:
|
| | | | | | | | | | |
| | Amounts reclassified from AOCI | | Income Statement Location |
| | 2018 | | 2017 | | |
| | (In Thousands) | | |
Pension and other postretirement liabilities | | | | | | |
Amortization of prior-service credit | |
| $1,934 |
| |
| $1,934 |
| | (a) |
Amortization of loss | | (1,257 | ) | | (1,332 | ) | | (a) |
Total amortization | | 677 |
| | 602 |
| | |
| | (177 | ) | | (232 | ) | | Income taxes |
Total amortization (net of tax) | | 500 |
| | 370 |
| | |
| | | | | | |
Total reclassifications for the period (net of tax) | |
| $500 |
| |
| $370 |
| | |
| |
(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. |
Total reclassifications out of accumulated other comprehensive income (loss) (AOCI) into income for Entergy Louisiana for the nine months ended September 30, 2018 and 2017 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 | |
| $5,802 |
| |
| $5,802 |
| | (a) | |
| $1,838 |
| |
| $1,934 |
| | (a) |
Amortization of loss | | (3,770 | ) | | (3,996 | ) | | (a) | | (527 | ) | | (1,257 | ) | | (a) |
Total amortization | | 2,032 |
| | 1,806 |
| | | 1,311 |
| | 677 |
| |
| | (530 | ) | | (756 | ) | | Income taxes | | (342 | ) | | (176 | ) | | Income taxes |
Total amortization (net of tax) | | 1,502 |
| | 1,050 |
| | | 969 |
| | 501 |
| |
| | | | | | | | | | |
Total reclassifications for the period (net of tax) | |
| $1,502 |
| |
| $1,050 |
| | |
| $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 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 ninethree months ended September 30, 2018March 31, 2019 was 3.46%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 September 30, 2018.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
March 31, 2019.
| | Capacity | | Borrowings | | Letters of Credit | | Capacity Available | | Borrowings | | Letters of Credit | | Capacity Available |
(In Millions) | $3,500 | | $630 | | $6 | | $2,864 | | $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 September 30, 2018,March 31, 2019, Entergy Corporation had approximately $1,947$1,942 million of commercial paper outstanding. The weighted-average interest rate for the ninethree months ended September 30, 2018March 31, 2019 was 2.42%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 September 30, 2018March 31, 2019 as follows:
|
| | | | | | | | | | |
Company | | Expiration Date | | Amount of Facility | | Interest Rate (a) | | Amount Drawn as of September 30, 2018March 31, 2019
| | Letters of Credit Outstanding as of September 30, 2018March 31, 2019 |
Entergy Arkansas | | April 20192020 | | $20 million (b) | | 3.49%3.75% | | $— | | $— |
Entergy Arkansas | | September 2023 | | $150 million (c) | | 3.49%3.75% | | $— | | $— |
Entergy Louisiana | | September 2023 | | $350 million (c) | | 3.49%3.75% | | $— | | $— |
Entergy Mississippi | | May 2019 | | $37.5 million (d) | | 3.74%4.00% | | $— | | $— |
Entergy Mississippi | | May 2019 | | $35 million (d) | | 3.74%4.00% | | $— | | $— |
Entergy Mississippi | | May 2019 | | $10 million (d) | | 3.74%4.00% | | $— | | $— |
Entergy New Orleans | | November 20182021 | | $25 million (c) | | 3.72%3.77% | | $— | | $0.8 million |
Entergy Texas | | September 2023 | | $150 million (c) | | 3.74%4.00% | | $— | | $1.3 million |
| |
(a) | For credit facilities with no borrowings as of September 30, 2018, theThe interest rate is the estimated interest rate as of September 30, 2018March 31, 2019 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. |
| |
(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 September 30, 2018:
Entergy Corporation and Subsidiaries
Notes to Financial Statements
March 31, 2019:
|
| | | | | | |
Company | | Amount of Uncommitted Facility | | Letter of Credit Fee | | Letters of Credit Issued as of September 30, 2018March 31, 2019 (a)
|
Entergy Arkansas | | $25 million | | 0.70% | | $1 million |
Entergy Louisiana | | $125 million | | 0.70% | | $2243 million |
Entergy Mississippi | | $40 million | | 0.70% | | $11.212.1 million |
Entergy New Orleans | | $15 million | | 1.00% | | $2.11 million |
Entergy Texas | | $50 million | | 0.70% | | $2011.7 million |
| |
(a) | As of September 30, 2018,March 31, 2019, letters of credit posted with MISO covered financial transmission rights exposure of $1 million for Entergy Arkansas, $0.2$0.4 million for Entergy Mississippi, and $3.6$1.5 million for Entergy Texas. See Note 8 to the financial statements herein for discussion of financial transmission rights. |
The short-term borrowings of the Registrant Subsidiaries are limited to amounts authorized by the FERC. The current FERC-authorized limits for Entergy New Orleans are effective through October 31, 2019. 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 September 30, 2018March 31, 2019 (aggregating both internal and external short-term borrowings) for the Registrant Subsidiaries:
| | | Authorized | | Borrowings | Authorized | | Borrowings |
| (In Millions) | (In Millions) |
Entergy Arkansas | $250 | | $— | $250 | | $— |
Entergy Louisiana | $450 | | $— | $450 | | $— |
Entergy Mississippi | $175 | | $34 | $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 September 30, 2018, $132March 31, 2019, $139 million in cash borrowings were outstanding under the credit facility. The weighted average interest rate for the ninethree months ended September 30, 2018March 31, 2019 was 3.37%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 September 30, 2018March 31, 2019 as follows:
Entergy Corporation and Subsidiaries
Notes to Financial Statements
| | Company | | Expiration Date | | Amount of Facility | | Weighted Average Interest Rate on Borrowings (a) | | Amount Outstanding as of September 30, 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 | | September 2021 | | $80 | | 3.18% | | $70.4 | | September 2021 | | $80 | | 3.50% | | $42.6 |
Entergy Louisiana River Bend VIE | | September 2021 | | $105 | | 3.18% | | $34.5 | | September 2021 | | $105 | | 3.46% | | $95.4 |
Entergy Louisiana Waterford VIE | | September 2021 | | $105 | | 3.18% | | $30.5 | | September 2021 | | $105 | | 3.48% | | $79.5 |
System Energy VIE | | September 2021 | | $120 | | 3.18% | | $37.7 | | 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. |
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 September 30, 2018March 31, 2019 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 May 2018,March 2019, Entergy Arkansas issued $250$350 million of 4.00%4.20% Series first mortgage bonds due June 2028.April 2049. Entergy Arkansas expects to use the proceeds together with other funds, to redeem $9.35 million of its 4.72% Series preferred stock, $7 million of its 4.32% Series preferred stock, and $15 million of its 4.56% Series preferred stock, and 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 expects to use the proceeds, together with other funds, to finance the construction of the Lake Charles Power Station and the St. Charles Power 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 a portion of the proceeds to repay, at maturity, its $375$500 million of 6.0%7.125% Series first mortgage bonds due May 2018;February 2019, and for general corporate purposes.
(System Energy)
In March 2019, System Energy issued $134 million of 2.50% Series 2019 revenue refunding bonds due April 2022. The proceeds were used to repay borrowings from the money pool; andredeem, prior to repay borrowings under its $350maturity, $134 million of 5.875% Series 1998 pollution control revenue refunding bonds due April 2022.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
million credit facility. The remaining proceeds, together with other funds, are being used to finance the construction of the Lake Charles Power Station and St. Charles Power Station, and for general corporate purposes.
In August 2018, Entergy Louisiana issued $600 million of 4.20% collateral trust mortgage bonds due September 2048. Entergy Louisiana used a portion of the proceeds to repay at maturity its $300 million of 6.5% Series first mortgage bonds due September 2018. The remaining proceeds, together with other funds, are being used to finance the construction of the Lake Charles Power Station and St. Charles Power Station, and for general corporate purposes.
(Entergy New Orleans)
In September 2018, Entergy New Orleans issued $60 million of 4.51% Series first mortgage bonds due September 2033. Entergy New Orleans is using the proceeds for general corporate purposes.
(System Energy)
In March 2018 the System Energy nuclear fuel trust variable interest entity issued $100 million of 3.42% Series J notes due April 2021. The System Energy nuclear fuel trust variable interest entity used the proceeds to purchase nuclear fuel.
In October 2018 the System Energy nuclear fuel trust variable interest entity paid, at maturity, its $85 million of 3.78% Series I notes.
Fair Value
The book value and the fair value of long-term debt for Entergy Corporation and the Registrant Subsidiaries as of September 30, 2018March 31, 2019 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 |
| $16,515,836 |
| |
| $16,232,180 |
|
| $17,317,896 |
| |
| $17,613,263 |
|
Entergy Arkansas |
| $3,242,282 |
| |
| $3,031,681 |
|
| $3,555,152 |
| |
| $3,471,105 |
|
Entergy Louisiana |
| $6,761,123 |
| |
| $6,757,649 |
|
| $7,377,912 |
| |
| $7,665,243 |
|
Entergy Mississippi |
| $1,270,830 |
| |
| $1,234,124 |
|
| $1,325,915 |
| |
| $1,332,283 |
|
Entergy New Orleans |
| $491,570 |
| |
| $499,764 |
|
| $483,844 |
| |
| $510,959 |
|
Entergy Texas |
| $1,527,817 |
| |
| $1,546,101 |
|
| $1,680,966 |
| |
| $1,755,754 |
|
System Energy |
| $639,455 |
| |
| $610,485 |
|
| $610,798 |
| |
| $586,518 |
|
| |
(a) | The values exclude lease obligations of $34 million at System Energy and long-term DOE obligations of $186$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. |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
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 September 30, 2018,March 31, 2019, there were options on 4,071,3013,210,237 shares of common stock outstanding with a weighted-average exercise price of $74.53.$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 September 30, 2018.March 31, 2019. The aggregate intrinsic value of the stock options outstanding as of September 30, 2018March 31, 2019 was $26.9$55.8 million.
The following table includes financial information for outstanding stock options for the three months ended September 30, 2018March 31, 2019 and 2017:2018:
|
| | | | | | | |
| 2018 | | 2017 |
| (In Millions) |
Compensation expense included in Entergy’s net income |
| $1.1 |
| |
| $1.1 |
|
Tax benefit recognized in Entergy’s net income |
| $0.2 |
| |
| $0.5 |
|
Compensation cost capitalized as part of fixed assets and inventory |
| $0.1 |
| |
| $0.2 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The following table includes financial information for outstanding stock options for the nine months ended September 30, 2018 and 2017:
| | | 2018 | | 2017 | 2019 | | 2018 |
| (In Millions) | (In Millions) |
Compensation expense included in Entergy’s net income |
| $3.3 |
| |
| $3.3 |
|
| $1.0 |
| |
| $1.1 |
|
Tax benefit recognized in Entergy’s net income |
| $0.8 |
| |
| $1.3 |
|
| $0.2 |
| |
| $0.3 |
|
Compensation cost capitalized as part of fixed assets and inventory |
| $0.5 |
| |
| $0.6 |
|
| $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. For the 2018-20202019-2021 performance period, a cumulative utility earnings metric was 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 September 30, 2018March 31, 2019 and 2017:2018:
|
| | | | | | | |
| 2018 | | 2017 |
| (In Millions) |
Compensation expense included in Entergy’s net income |
| $8.5 |
| |
| $7.6 |
|
Tax benefit recognized in Entergy’s net income |
| $2.2 |
| |
| $3.0 |
|
Compensation cost capitalized as part of fixed assets and inventory |
| $2.5 |
| |
| $2.1 |
|
The following table includes financial information for other outstanding equity awards for the nine months ended September 30, 2018 and 2017:
| | | 2018 | | 2017 | 2019 | | 2018 |
| (In Millions) | (In Millions) |
Compensation expense included in Entergy’s net income |
| $26.0 |
| |
| $24.1 |
|
| $8.8 |
| |
| $8.8 |
|
Tax benefit recognized in Entergy’s net income |
| $6.6 |
| |
| $9.3 |
|
| $2.2 |
| |
| $2.2 |
|
Compensation cost capitalized as part of fixed assets and inventory |
| $7.3 |
| |
| $6.3 |
|
| $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 by Entergy 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 in other operation and maintenance expenses and decreases in other income for the three months ended September 30, 2017, with no change in net income, of $30 million for Entergy. The retroactive presentation changes resulted in decreases in other operation and maintenance expenses and decreases in other income for the nine months ended September 30, 2017, with no change in net income, of $76 million for Entergy.
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 September 30, 2017 and for the nine months ended September 30, 2017, with no change in net income, of the following for the Registrant Subsidiaries:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy |
| (In Thousands) |
Three months ended September 30, 2017 |
| $3,515 |
| |
| $8,585 |
| |
| $778 |
| |
| $356 |
| |
| $43 |
| |
| $1,521 |
|
Nine months ended September 30, 2017 |
| $9,995 |
| |
| $20,942 |
| |
| $1,862 |
| |
| $794 |
| |
| ($194 | ) | |
| $4,778 |
|
The retroactive effect of the change for the years ended December 31, 2017, 2016, and 2015 would be decreases in other operation and maintenance expenses and decreases in other income, with no change in net income, of $101 million, $71 million, and $148 million, respectively, for Entergy.
The retroactive effect of the change for the years ended December 31, 2017, 2016, and 2015 would be decreases (increases) in other operation and maintenance expenses and decreases (increases) in other income, with no change in net income, of the following for the Registrant Subsidiaries:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy |
| (In Thousands) |
For the Year Ended December 31, 2017 |
| $13,668 |
| |
| $27,796 |
| |
| $2,742 |
| |
| $1,293 |
| |
| $179 |
| |
| $6,190 |
|
For the Year Ended December 31, 2016 |
| $13,392 |
| |
| $26,118 |
| |
| $2,424 |
| |
| $1,014 |
| |
| ($1,054 | ) | |
| $5,088 |
|
For the Year Ended December 31, 2015 |
| $30,671 |
| |
| $50,686 |
| |
| $6,268 |
| |
| $3,975 |
| |
| $4,000 |
| |
| $10,213 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Components of Qualified Net Pension Cost
Entergy’s qualified pension cost, including amounts capitalized, for the thirdfirst quarters of 20182019 and 2017,2018, included the following components:
|
| | | | | | | |
| 2018 | | 2017 |
| (In Thousands) |
Service cost - benefits earned during the period |
| $38,752 |
| |
| $33,410 |
|
Interest cost on projected benefit obligation | 66,854 |
| | 65,206 |
|
Expected return on assets | (110,535 | ) | | (102,056 | ) |
Amortization of prior service cost | 99 |
| | 65 |
|
Amortization of loss | 68,526 |
| | 56,930 |
|
Net pension costs |
| $63,696 |
| |
| $53,555 |
|
Entergy’s qualified pension cost, including amounts capitalized, for the nine months ended September 30, 2018 and 2017, included the following components: |
| | | | | | | |
| 2019 | | 2018 |
| (In Thousands) |
Service cost - benefits earned during the period |
| $33,607 |
| |
| $38,752 |
|
Interest cost on projected benefit obligation | 73,941 |
| | 66,854 |
|
Expected return on assets | (103,884 | ) | | (110,535 | ) |
Amortization of prior service cost | — |
| | 99 |
|
Amortization of loss | 58,418 |
| | 68,526 |
|
Settlement charges | 1,137 |
| | — |
|
Net pension costs |
| $63,219 |
| |
| $63,696 |
|
|
| | | | | | | |
| 2018 | | 2017 |
| (In Thousands) |
Service cost - benefits earned during the period |
| $116,256 |
| |
| $100,230 |
|
Interest cost on projected benefit obligation | 200,562 |
| | 195,618 |
|
Expected return on assets | (331,605 | ) | | (306,168 | ) |
Amortization of prior service cost | 297 |
| | 195 |
|
Amortization of loss | 205,578 |
| | 170,790 |
|
Net pension costs |
| $191,088 |
| |
| $160,665 |
|
The Registrant Subsidiaries’ qualified pension cost, including amounts capitalized, for their employees for the thirdfirst 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 projected benefit obligation | | 13,004 |
| | 14,940 |
| | 3,769 |
| | 1,813 |
| | 3,348 |
| | 3,227 |
| | 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 |
| | (In Thousands) |
Service cost - benefits earned during the period | |
| $5,090 |
| |
| $6,925 |
| |
| $1,472 |
| |
| $625 |
| |
| $1,364 |
| |
| $1,536 |
|
Interest cost on projected benefit obligation | | 12,944 |
| | 14,809 |
| | 3,732 |
| | 1,791 |
| | 3,392 |
| | 3,091 |
|
Expected return on assets | | (20,427 | ) | | (23,017 | ) | | (6,131 | ) | | (2,800 | ) | | (6,180 | ) | | (4,663 | ) |
Amortization of loss | | 11,640 |
| | 12,354 |
| | 3,053 |
| | 1,658 |
| | 2,310 |
| | 2,964 |
|
Net pension cost | |
| $9,247 |
| |
| $11,071 |
| |
| $2,126 |
| |
| $1,274 |
| |
| $886 |
| |
| $2,928 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The Registrant Subsidiaries’ qualified pension cost, including amounts capitalized, for their employees for the nine months ended September 30, 2018 and 2017, 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 | |
| $18,567 |
| |
| $25,338 |
| |
| $5,466 |
| |
| $2,019 |
| |
| $4,767 |
| |
| $5,328 |
|
Interest cost on projects benefit obligation | | 39,012 |
| | 44,820 |
| | 11,307 |
| | 5,439 |
| | 10,044 |
| | 9,681 |
|
Expected return on assets | | (65,553 | ) | | (74,427 | ) | | (19,506 | ) | | (8,979 | ) | | (19,569 | ) | | (14,973 | ) |
Amortization of loss | | 40,236 |
| | 43,350 |
| | 10,830 |
| | 5,862 |
| | 7,878 |
| | 11,145 |
|
Net pension cost | |
| $32,262 |
| |
| $39,081 |
| |
| $8,097 |
| |
| $4,341 |
| |
| $3,120 |
| |
| $11,181 |
|
| | 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 | |
| $15,270 |
| |
| $20,775 |
| |
| $4,416 |
| |
| $1,875 |
| |
| $4,092 |
| |
| $4,608 |
| |
| $6,189 |
| |
| $8,446 |
| |
| $1,822 |
| |
| $673 |
| |
| $1,589 |
| |
| $1,776 |
|
Interest cost on projected benefit obligation | | 38,832 |
| | 44,427 |
| | 11,196 |
| | 5,373 |
| | 10,176 |
| | 9,273 |
| | 13,004 |
| | 14,940 |
| | 3,769 |
| | 1,813 |
| | 3,348 |
| | 3,227 |
|
Expected return on assets | | (61,281 | ) | | (69,051 | ) | | (18,393 | ) | | (8,400 | ) | | (18,540 | ) | | (13,989 | ) | | (21,851 | ) | | (24,809 | ) | | (6,502 | ) | | (2,993 | ) | | (6,523 | ) | | (4,991 | ) |
Amortization of loss | | 34,920 |
| | 37,062 |
| | 9,159 |
| | 4,974 |
| | 6,930 |
| | 8,892 |
| | 13,412 |
| | 14,450 |
| | 3,610 |
| | 1,954 |
| | 2,626 |
| | 3,715 |
|
Net pension cost | |
| $27,741 |
| |
| $33,213 |
| |
| $6,378 |
| |
| $3,822 |
| |
| $2,658 |
| |
| $8,784 |
| |
| $10,754 |
| |
| $13,027 |
| |
| $2,699 |
| |
| $1,447 |
| |
| $1,040 |
| |
| $3,727 |
|
Non-Qualified Net Pension Cost
Entergy recognized $4.2$4 million and $15.8$8.9 million in pension cost for its non-qualified pension plans in the thirdfirst quarters of 20182019 and 2017,2018, respectively. Reflected in the pension cost for non-qualified pension plans in the third quartersfirst quarter of 2018 and 2017 were settlement charges of $212 thousand and $11.6$4.4 million respectively, related to the payment of lump sum benefits out of the plan. Entergy recognized $19.7 million and $28.9 million in pension cost for its non-qualified pension plans for the nine months ended September 30, 2018 and 2017, respectively. Reflected in the pension cost for non-qualified pension plans for the nine months ended September 30, 2018 and 2017 were settlement charges of $7 million and $15.5 million, respectively, related to the payment of lump sum benefits out of this plan.
The Registrant Subsidiaries recognized the following pension cost for their employees for their non-qualified pension plans for the third quarters of 2018 and 2017:
|
| | | | | | | | | | | | | | | | | | | |
| Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas |
| (In Thousands) |
2018 |
| $114 |
| |
| $42 |
| |
| $73 |
| |
| $20 |
| |
| $122 |
|
2017 |
| $111 |
| |
| $46 |
| |
| $62 |
| |
| $18 |
| |
| $124 |
|
Reflected in Entergy Arkansas’s non-qualified pension costs in the third quarters of 2018 and 2017, were settlement charges of $7 thousand and $10 thousand, respectively, 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 nine months ended September 30, 2018first quarters of 2019 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 |
| $369 |
| |
| $138 |
| |
| $230 |
| |
| $62 |
| |
| $529 |
|
| $132 |
| |
| $50 |
| |
| $80 |
| |
| $21 |
| |
| $137 |
|
2017 |
| $483 |
| |
| $141 |
| |
| $189 |
| |
| $55 |
| |
| $377 |
| |
Reflected in Entergy Arkansas’s non-qualified pension costs forin the nine months ended September 30, 2018 and 2017, were settlement chargesfirst quarter of $30 thousand and $173 thousand, respectively, related to the payment of lump sum benefits out of the plan. Reflected in Entergy Texas’s non-qualified pension costs for the nine months ended September 30, 2018 were settlement charges of $139$12 thousand related to the payment of lump sum benefits out of the plan.
Components of Net Other Postretirement Benefit Cost
Entergy’s other postretirement benefit cost, including amounts capitalized, for the thirdfirst quarters of 20182019 and 2017,2018, included the following components:
|
| | | | | | | |
| 2018 | | 2017 |
| (In Thousands) |
Service cost - benefits earned during the period |
| $6,782 |
| |
| $6,729 |
|
Interest cost on accumulated postretirement benefit obligation (APBO) | 12,681 |
| | 13,960 |
|
Expected return on assets | (10,373 | ) | | (9,408 | ) |
Amortization of prior service credit | (9,251 | ) | | (10,356 | ) |
Amortization of loss | 3,432 |
| | 5,476 |
|
Net other postretirement benefit cost |
| $3,271 |
| |
| $6,401 |
|
Entergy’s other postretirement benefit cost, including amounts capitalized, for the nine months ended September 30, 2018 and 2017, included the following components: |
| | | | | | | |
| 2019 | | 2018 |
| (In Thousands) |
Service cost - benefits earned during the period |
| $4,675 |
| |
| $6,782 |
|
Interest cost on accumulated postretirement benefit obligation (APBO) | 11,975 |
| | 12,681 |
|
Expected return on assets | (9,562 | ) | | (10,373 | ) |
Amortization of prior service credit | (8,844 | ) | | (9,251 | ) |
Amortization of loss | 358 |
| | 3,432 |
|
Net other postretirement benefit cost |
| ($1,398 | ) | |
| $3,271 |
|
|
| | | | | | | |
| 2018 | | 2017 |
| (In Thousands) |
Service cost - benefits earned during the period |
| $20,346 |
| |
| $20,187 |
|
Interest cost on accumulated postretirement benefit obligation (APBO) | 38,043 |
| | 41,880 |
|
Expected return on assets | (31,119 | ) | | (28,224 | ) |
Amortization of prior service credit | (27,753 | ) | | (31,068 | ) |
Amortization of loss | 10,296 |
| | 16,428 |
|
Net other postretirement benefit cost |
| $9,813 |
| |
| $19,203 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The Registrant Subsidiaries’ other postretirement benefit cost, including amounts capitalized, for their employees for the thirdfirst 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 |
| | (In Thousands) |
Service cost - benefits earned during the period | |
| $863 |
| |
| $1,593 |
| |
| $290 |
| |
| $142 |
| |
| $372 |
| |
| $320 |
|
Interest cost on APBO | | 2,255 |
| | 3,025 |
| | 690 |
| | 469 |
| | 1,124 |
| | 559 |
|
Expected return on assets | | (3,959 | ) | | — |
| | (1,200 | ) | | (1,159 | ) | | (2,180 | ) | | (717 | ) |
Amortization of prior service credit | | (1,278 | ) | | (1,934 | ) | | (456 | ) | | (186 | ) | | (579 | ) | | (378 | ) |
Amortization of loss | | 1,115 |
| | 465 |
| | 419 |
| | 105 |
| | 826 |
| | 390 |
|
Net other postretirement benefit cost | |
| ($1,004 | ) | |
| $3,149 |
| |
| ($257 | ) | |
| ($629 | ) | |
| ($437 | ) | |
| $174 |
|
The Registrant Subsidiaries’ other postretirement benefit cost, including amounts capitalized, for their employees for the nine months ended September 30, 2018 and 2017, 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 | |
| $2,379 |
| |
| $4,668 |
| |
| $963 |
| |
| $387 |
| |
| $990 |
| |
| $918 |
| |
| $591 |
| |
| $1,160 |
| |
| $262 |
| |
| $92 |
| |
| $236 |
| |
| $243 |
|
Interest cost on APBO | | 5,991 |
| | 8,367 |
| | 2,049 |
| | 1,251 |
| | 2,817 |
| | 1,500 |
| | 1,807 |
| | 2,666 |
| | 670 |
| | 395 |
| | 854 |
| | 476 |
|
Expected return on assets | | (13,026 | ) | | — |
| | (3,909 | ) | | (3,939 | ) | | (7,338 | ) | | (2,349 | ) | | (3,991 | ) | | — |
| | (1,199 | ) | | (1,237 | ) | | (2,276 | ) | | (697 | ) |
Amortization of prior service credit | | (3,834 | ) | | (5,802 | ) | | (1,368 | ) | | (558 | ) | | (1,737 | ) | | (1,134 | ) | | (1,238 | ) | | (1,837 | ) | | (439 | ) | | (171 | ) | | (561 | ) | | (363 | ) |
Amortization of loss | | 867 |
| | 1,164 |
| | 1,131 |
| | 102 |
| | 618 |
| | 699 |
| |
Amortization of (gain) loss | | | 144 |
| | (174 | ) | | 181 |
| | 58 |
| | 121 |
| | 89 |
|
Net other postretirement benefit cost | |
| ($7,623 | ) | |
| $8,397 |
| |
| ($1,134 | ) | |
| ($2,757 | ) | |
| ($4,650 | ) | |
| ($366 | ) | |
| ($2,687 | ) | |
| $1,815 |
| |
| ($525 | ) | |
| ($863 | ) | |
| ($1,626 | ) | |
| ($252 | ) |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
| | 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 | |
| $2,589 |
| |
| $4,779 |
| |
| $870 |
| |
| $426 |
| |
| $1,116 |
| |
| $960 |
| |
| $793 |
| |
| $1,556 |
| |
| $321 |
| |
| $129 |
| |
| $330 |
| |
| $306 |
|
Interest cost on APBO | | 6,765 |
| | 9,075 |
| | 2,070 |
| | 1,407 |
| | 3,372 |
| | 1,677 |
| | 1,997 |
| | 2,789 |
| | 683 |
| | 417 |
| | 939 |
| | 500 |
|
Expected return on assets | | (11,877 | ) | | — |
| | (3,600 | ) | | (3,477 | ) | | (6,540 | ) | | (2,151 | ) | | (4,342 | ) | | — |
| | (1,303 | ) | | (1,313 | ) | | (2,446 | ) | | (783 | ) |
Amortization of prior service credit | | (3,834 | ) | | (5,802 | ) | | (1,368 | ) | | (558 | ) | | (1,737 | ) | | (1,134 | ) | | (1,278 | ) | | (1,934 | ) | | (456 | ) | | (186 | ) | | (579 | ) | | (378 | ) |
Amortization of loss | | 3,345 |
| | 1,395 |
| | 1,257 |
| | 315 |
| | 2,478 |
| | 1,170 |
| | 289 |
| | 388 |
| | 377 |
| | 34 |
| | 206 |
| | 233 |
|
Net other postretirement benefit cost | |
| ($3,012 | ) | |
| $9,447 |
| |
| ($771 | ) | |
| ($1,887 | ) | |
| ($1,311 | ) | |
| $522 |
| |
| ($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 thirdfirst 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 |
| |
| ($71 | ) | |
| $5,425 |
| |
Amortization of prior service (cost) credit | |
|
| $— |
|
|
| $5,375 |
|
|
| ($49 | ) |
|
| $5,326 |
|
Amortization of loss | | (21,958 | ) | | (1,932 | ) | | (850 | ) | | (24,740 | ) |
| (18,735 | ) |
| 308 |
|
| (561 | ) |
| (18,988 | ) |
Settlement loss | | — |
| | — |
| | (76 | ) | | (76 | ) |
| (1,137 | ) |
| — |
|
| — |
|
| (1,137 | ) |
| |
| ($22,057 | ) | |
| $3,663 |
| |
| ($997 | ) | |
| ($19,391 | ) |
|
| ($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 | ) |
|
| $6,718 |
|
|
| ($88 | ) |
|
| $6,565 |
| |
Amortization of prior service (cost) credit | | |
| ($99 | ) | |
| $5,595 |
| |
| ($70 | ) | |
| $5,426 |
|
Amortization of loss |
| (18,451 | ) |
| (2,202 | ) |
| (827 | ) |
| (21,480 | ) | | (21,957 | ) | | (1,932 | ) | | (1,063 | ) | | (24,952 | ) |
Settlement loss |
| — |
|
| — |
|
| (4,200 | ) |
| (4,200 | ) | | — |
| | — |
| | (1,616 | ) | | (1,616 | ) |
|
|
| ($18,516 | ) |
|
| $4,516 |
|
|
| ($5,115 | ) |
|
| ($19,115 | ) | |
| ($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
Entergy and Entergy Louisiana reclassified the following costs out of accumulated other comprehensive income (loss) (before taxes and including amounts capitalized) for the nine months ended September 30, 2018 and 2017:
|
| | | | | | | | | | | | | | | | |
2018 |
| Qualified Pension Costs |
| Other Postretirement Costs |
| Non-Qualified Pension Costs |
| Total |
|
| (In Thousands) |
|
|
Entergy |
|
|
|
|
|
|
|
|
Amortization of prior service (cost)/credit |
|
| ($297 | ) |
|
| $16,786 |
|
|
| ($211 | ) |
|
| $16,278 |
|
Amortization of loss |
| (65,870 | ) |
| (5,801 | ) |
| (2,832 | ) |
| (74,503 | ) |
Settlement loss |
| — |
|
| — |
|
| (2,098 | ) |
| (2,098 | ) |
|
|
| ($66,167 | ) |
|
| $10,985 |
|
|
| ($5,141 | ) |
|
| ($60,323 | ) |
Entergy Louisiana |
|
|
|
|
|
|
|
|
Amortization of prior service credit |
|
| $— |
|
|
| $5,802 |
|
|
| $— |
|
|
| $5,802 |
|
Amortization of loss |
| (2,601 | ) |
| (1,164 | ) |
| (5 | ) |
| (3,770 | ) |
|
|
| ($2,601 | ) |
|
| $4,638 |
|
|
| ($5 | ) |
|
| $2,032 |
|
|
| | | | | | | | | | | | | | | | |
2017 | | Qualified Pension Costs | | Other Postretirement Costs | | Non-Qualified Pension Costs | | Total |
| | (In Thousands) | | |
Entergy | | | | | | | | |
Amortization of prior service (cost)/credit | |
| ($195 | ) | |
| $20,152 |
| |
| ($266 | ) | |
| $19,691 |
|
Amortization of loss | | (55,351 | ) | | (6,606 | ) | | (2,648 | ) | | (64,605 | ) |
Settlement loss | | — |
| | — |
| | (5,965 | ) | | (5,965 | ) |
| |
| ($55,546 | ) | |
| $13,546 |
| |
| ($8,879 | ) | |
| ($50,879 | ) |
Entergy Louisiana | | | | | | | | |
Amortization of prior service credit | |
| $— |
| |
| $5,802 |
| |
| $— |
| |
| $5,802 |
|
Amortization of loss | | (2,594 | ) | | (1,395 | ) | | (7 | ) | | (3,996 | ) |
| |
| ($2,594 | ) | |
| $4,407 |
| |
| ($7 | ) | |
| $1,806 |
|
Employer Contributions
Based on current assumptions, Entergy expects to contribute $383.5$176.9 million to its qualified pension plans in 2018.2019. As of September 30, 2018,March 31, 2019, Entergy had contributed $315.6$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 |
| |
| $71,919 |
| |
| $14,933 |
| |
| $7,250 |
| |
| $10,883 |
| |
| $13,786 |
|
Pension contributions made through September 2018 |
| $51,982 |
| |
| $58,363 |
| |
| $12,203 |
| |
| $5,938 |
| |
| $9,323 |
| |
| $11,152 |
|
Remaining estimated pension contributions to be made in 2018 |
| $12,080 |
| |
| $13,556 |
| |
| $2,730 |
| |
| $1,312 |
| |
| $1,560 |
| |
| $2,634 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| 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 September 30, 2018March 31, 2019 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 thirdfirst quarters of 20182019 and 20172018 is as follows: |
| | | | | | | | | | | | | | | | | | | | |
| | Utility | | Entergy Wholesale Commodities | | All Other | | Eliminations | | Entergy |
| | (In Thousands) |
2018 | | | | | | | | | | |
Operating revenues | |
| $2,724,279 |
| |
| $380,080 |
| |
| $— |
| |
| ($40 | ) | |
| $3,104,319 |
|
Income taxes | |
| ($137,035 | ) | |
| ($135,659 | ) | |
| ($10,312 | ) | |
| $— |
| |
| ($283,006 | ) |
Consolidated net income (loss) | |
| $507,745 |
| |
| $105,571 |
| |
| ($41,601 | ) | |
| ($31,897 | ) | |
| $539,818 |
|
2017 | | | | | | | | | | |
Operating revenues | |
| $2,820,421 |
| |
| $423,245 |
| |
| $— |
| |
| ($38 | ) | |
| $3,243,628 |
|
Income taxes | |
| $230,647 |
| |
| $25,563 |
| |
| ($14,415 | ) | |
| $— |
| |
| $241,795 |
|
Consolidated net income (loss) | |
| $403,733 |
| |
| $55,765 |
| |
| ($25,956 | ) | |
| ($31,898 | ) | |
| $401,644 |
|
Entergy’s segment financial information for the nine months ended September 30, 2018 and 2017 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 | |
| $7,389,477 |
| |
| $1,107,606 |
| |
| $— |
| |
| ($113 | ) | |
| $8,496,970 |
| |
| $2,304,990 |
| |
| $418,924 |
| |
| $— |
| |
| ($33 | ) | |
| $2,723,881 |
|
Income taxes | |
| ($325,134 | ) | |
| ($166,882 | ) | |
| ($27,921 | ) | |
| $— |
| |
| ($519,937 | ) | |
| $52,224 |
| |
| ($1,078 | ) | |
| ($7,483 | ) | |
| $— |
| |
| $43,663 |
|
Consolidated net income (loss) | |
| $1,104,078 |
| |
| $31,456 |
| |
| ($114,962 | ) | |
| ($95,695 | ) | |
| $924,877 |
| |
| $217,940 |
| |
| ($17,779 | ) | |
| ($32,063 | ) | |
| ($31,898 | ) | |
| $136,200 |
|
Total assets as of September 30, 2018 | |
| $44,889,498 |
| |
| $5,507,013 |
| |
| $1,274,909 |
| |
| ($3,200,248 | ) | |
| $48,471,172 |
| |
2017 | | | | | | | | | | | |
Operating revenues | |
| $7,156,865 |
| |
| $1,293,867 |
| |
| $— |
| |
| ($96 | ) | |
| $8,450,636 |
| |
Income taxes | |
| $459,990 |
| |
| ($507,719 | ) | |
| ($39,826 | ) | |
| $— |
| |
| ($87,555 | ) | |
Consolidated net income (loss) | |
| $817,738 |
| |
| $252,455 |
| |
| ($73,434 | ) | |
| ($95,695 | ) | |
| $901,064 |
| |
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 thirdfirst quarters of 20182019 and 20172018 were comprised of the following:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| 2018 | | 2017 |
| 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 July 1, |
| $143 |
| |
| $14 |
| |
| $157 |
| |
| $36 |
| |
| $21 |
| |
| $57 |
|
Restructuring costs accrued | 43 |
| | — |
| | 43 |
| | 23 |
| | — |
| | 23 |
|
Non-cash portion | — |
| | — |
| | — |
| | — |
| | (7 | ) | | (7 | ) |
Balance as of September 30, |
| $186 |
| |
| $14 |
| |
| $200 |
| |
| $59 |
| |
| $14 |
| |
| $73 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| 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 $155$74 million in the thirdfirst quarter 20182019 and $16$73 million in the thirdfirst quarter 20172018 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.
Total restructuring charges for the nine months ended September 30, 2018these strategic decisions and 2017 were comprised of the following:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| 2018 | | 2017 |
| 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, |
| $83 |
| |
| $14 |
| |
| $97 |
| |
| $70 |
| |
| $21 |
| |
| $91 |
|
Restructuring costs accrued | 103 |
| | — |
| | 103 |
| | 89 |
| | — |
| | 89 |
|
Non-cash portion | — |
| | — |
| | — |
| | — |
| | (7 | ) | | (7 | ) |
Cash paid out | — |
| | — |
| | — |
| | 100 |
| | — |
| | 100 |
|
Balance as of September 30, |
| $186 |
| |
| $14 |
| |
| $200 |
| |
| $59 |
| |
| $14 |
| |
| $73 |
|
In addition, Entergy incurred $297 million in the nine months ended September 30, 2018 and $422 million in the nine months ended September 30, 2017 of impairment charges related to nuclear fuel spending, nuclear refueling outage spending, and expenditures for capital assets.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
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 $155$130 million in 2018,2019, of which $103$34 million has been incurred as of September 30, 2018,March 31, 2019, and a total of approximately $215$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’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
Entergy Corporation and Subsidiaries
Notes to Financial Statements
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 September 30, 2018March 31, 2019 is approximately 2.52 years. Planned generation currently under contract from Entergy Wholesale Commodities nuclear power plants is 98% for the remainder of 2018,2019, of which approximately 87%72% is sold under financial derivatives and the remainder under normal purchase/normal sale contracts. Total planned generation for the remainder of 20182019 is 6.718.6 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 September 30, 2018,March 31, 2019, derivative contracts with seven counterparties were in a liability position (approximately $68$49 million total). In addition to the corporate guarantee, $30$19 million in cash collateral was required to be posted by the Entergy subsidiary to its counterparties. As of December 31, 2017, derivative contracts with eight counterparties were in a liability position (approximately $65 million total). In addition to the corporate guarantee, $1 million in cash collateral was required to be posted by the Entergy subsidiary to its counterparties and $4$1 million in cash collateral and $34$4 million in letters of credit were required to be posted by its counterparties to the Entergy subsidiary. As of December 31, 2018, derivative contracts with six counterparties were in a liability position (approximately $34 million total). In addition to the corporate guarantee, $19 million in cash collateral was required to be posted by the Entergy subsidiary to its counterparties. If the Entergy Corporation credit rating falls below investment grade, Entergy would have to post collateral equal to the estimated outstanding liability under the contract at the applicable date.
Entergy manages fuel price volatility for its Louisiana jurisdictions (Entergy Louisiana and Entergy New Orleans) and Entergy Mississippi through the purchase of short-term natural gas swaps and options that financially settle against either the average Henry Hub Gas Daily prices or the NYMEX futures.Henry Hub. These swaps and options are marked-to-market through fuel expense with offsetting regulatory assets or liabilities. All benefits or costs of the program are recorded in fuel costs. The notional volumes of these swaps are based on a portion of projected annual exposure to gas price volatility for electric generation at Entergy Louisiana and Entergy Mississippi and projected winter purchases for gas distribution at Entergy New Orleans. The maximum length of time over which Entergy has executed natural gas swaps and options as of 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 September 30, 2018March 31, 2019 is 13,814,00045,740,000 MMBtu for Entergy, including 6,300,00036,540,000 MMBtu for Entergy Louisiana 6,790,000and 9,200,000 MMBtu for Entergy Mississippi, and 724,000 MMBtu for Entergy New Orleans.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 2018, Entergy participated in the annual financial transmission rights auction process for the MISO planning year of June 1, 2018 through May 31, 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
Entergy Corporation and Subsidiaries
Notes to Financial Statements
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 September 30, 2018March 31, 2019 is 77,52018,928 GWh for Entergy, including 17,5574,099 GWh for Entergy Arkansas, 33,1448,235 GWh for Entergy Louisiana, 10,2952,520 GWh for Entergy Mississippi, 3,758948 GWh for Entergy New Orleans, and 12,4413,047 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 September 30, 2018March 31, 2019 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 September 30, 2018March 31, 2019 and December 31, 2017, respectively.2018.
The fair values of Entergy’s derivative instruments in the consolidated balance sheet as of September 30,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 December 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) | | $10 | | ($10) | | $— | | Entergy Wholesale Commodities |
Electricity swaps and options | | Other deferred debits and other assets (non-current portion) | | $10 | | ($10) | | $— | | Entergy Wholesale Commodities |
Liabilities: | | | | | | | | | | |
Electricity swaps and options | | Other current liabilities (current portion) | | $62 | | ($10) | | $52 | | Entergy Wholesale Commodities |
Electricity swaps and options | | Other non-current liabilities (non-current portion) | | $24 | | ($11) | | $13 | | Entergy Wholesale Commodities |
Derivatives not designated as hedging instruments | | | | | | | | | | |
Assets: | | | | | | | | | | |
Electricity swaps and options | | Prepayments and other (current portion) | | $3 | | ($3) | | $— | | Entergy Wholesale Commodities |
Natural gas swaps | | Prepayments and other | | $1 | | $— | | $1 | | Utility |
Financial transmission rights | | Prepayments and other | | $31 | | ($2) | | $29 | | Utility and Entergy Wholesale Commodities |
Liabilities: | | | | | | | | | | |
Electricity swaps and options | | Other current liabilities (current portion) | | $4 | | ($3) | | $1 | | Entergy Wholesale Commodities |
Electricity swaps and options | | Other non-current liabilities (non-current portion) | | $1 | | $— | | $1 | | Entergy Wholesale Commodities |
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 $30$1 million held and $19 million posted as of September 30, 2018March 31, 2019 and $1$19 million posted and $4 million held as of December 31, 2017.2018. Also excludes letters of credit in the amount of $5$4 million held and $2 million posted as of September 30, 2018March 31, 2019 and $34$4 million in letters of credit heldposted as of December 31, 2017.2018. |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The effects of Entergy’s derivative instruments designated as cash flow hedges on the consolidated income statements for the three months ended September 30,March 31, 2019 and 2018 and 2017 are as follows:
|
| | | | | | |
Instrument | | Amount of gain (loss) recognized in other comprehensive income | | Income Statement location | | Amount of gain (loss) reclassified from accumulated other comprehensive income into income (a) |
| | (In Millions) | | | | (In Millions) |
2018 | | | | | | |
Electricity swaps and options | | ($51) | | Competitive businesses operating revenues | | ($11) |
| | | | | | |
2017 | | | | | | |
Electricity swaps and options | | $43 | | Competitive businesses operating revenues | | $23 |
| |
(a) | Before taxes of ($2) million and $8 million for the three months ended September 30, 2018 and 2017, respectively |
The effects of Entergy’s derivative instruments designated as cash flow hedges on the consolidated income statements for the nine months ended September 30, 2018 and 2017 are as follows:
| | Instrument | | Amount of gain (loss) recognized in other comprehensive income | | Income Statement location | | Amount of gain (loss) reclassified from accumulated other comprehensive income into income (a) | | 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 | | ($40) | | Competitive businesses operating revenues | | ($38) | | $91 | | Competitive businesses operating revenues | | ($30) |
| | |
2017 | | |
Electricity swaps and options | | $136 | | Competitive businesses operating revenues | | $87 | |
| |
(a) | Before taxes of ($8)$11 million and $30($6) million for the ninethree months ended September 30,March 31, 2019 and 2018, and 2017, respectively |
At each reporting period,Prior to the adoption of ASU 2017-12, Entergy measuresmeasured its hedges for ineffectiveness. Any ineffectiveness iswas recognized in earnings during the period. The ineffective portion of cash flow hedges iswas recorded in competitive businessbusinesses operating revenues. The change in fair value of Entergy’s cash flow hedges due to ineffectiveness during the three months ended September 30,March 31, 2018 and 2017 was ($3.1) million and $2.4 million, respectively. The change in fair value of Entergy’s cash flow hedges due to ineffectiveness during the nine months ended September 30, 2018 and 2017 was ($5.2) million and $6.4 million, respectively.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
$13.3 million.
Based on market prices as of September 30, 2018,March 31, 2019, unrealized gains (losses) recorded in accumulated other comprehensive income on cash flow hedges relating to power sales totaled ($58)53) million of net unrealized losses. Approximately ($47)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.
The effects of Entergy’s derivative instruments not designated as hedging instruments on the consolidated income statements for the three months ended September 30, 2018 and 2017 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) |
2018 | | | | | | |
Natural gas swaps | | $— | | Fuel, fuel-related expenses, and gas purchased for resale | (a) | $— |
Financial transmission rights | | $— | | Purchased power expense | (b) | $31 |
Electricity swaps and options | | $— | (c) | Competitive business operating revenues | | ($2) |
| | | | | | |
2017 | | | | | | |
Natural gas swaps | | $— | | Fuel, fuel-related expenses, and gas purchased for resale | (a) | ($3) |
Financial transmission rights | | $— | | Purchased power expense | (b) | $28 |
Electricity swaps and options | | ($2) | (c) | Competitive business operating revenues | | $— |
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 ninethree months ended September 30,March 31, 2019 and 2018 and 2017 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) |
20182019 | |
| | | | |
Natural gas swaps and options | | $— | | Fuel, fuel-related expenses, and gas purchased for resale | (a) | $5($1) |
Financial transmission rights |
| $— |
| Purchased power expense | (b) | $10421 |
Electricity swaps and options | | $— | (c) | Competitive business operating revenues | | $—5 |
| | | | | | |
20172018 | | | | | | |
Natural gas swaps | | $— | | Fuel, fuel-related expenses, and gas purchased for resale | (a) | ($20)$— |
Financial transmission rights | | $— | | Purchased power expense | (b) | $10332 |
Electricity swaps and options | | $2— | (c) | Competitive business operating revenues | | $—1 |
| |
(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 September 30, 2018March 31, 2019 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 | | Prepayments and other | | $1.0 | | $— | | $1.0 | | Entergy Louisiana | |
Natural gas swaps | | Prepayments and other | | $0.4 | | $— | | $0.4 | | Entergy Mississippi | |
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 | | $11.6 | | ($0.3) | | $11.3 | | Entergy Arkansas | | Prepayments and other | | $1.2 | | ($0.1) | | $1.1 | | Entergy Arkansas |
Financial transmission rights | | Prepayments and other | | $12.2 | | ($0.2) | | $12.0 | | Entergy Louisiana | | Prepayments and other | | $2.8 | | $— | | $2.8 | | Entergy Louisiana |
Financial transmission rights | | Prepayments and other | | $3.7 | | $— | | $3.7 | | Entergy Mississippi | | Prepayments and other | | $0.7 | | $— | | $0.7 | | Entergy Mississippi |
Financial transmission rights | | Prepayments and other | | $2.1 | | $— | | $2.1 | | Entergy New Orleans | | Prepayments and other | | $0.5 | | $— | | $0.5 | | Entergy New Orleans |
Financial transmission rights | | Prepayments and other | | $1.7 | | ($1.6) | | $0.1 | | 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 | |
| $0.8 |
| |
| $— |
| |
| $0.8 |
| | 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 |
| |
(d) | As of September 30,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 $1 million for Entergy Arkansas, $0.2 million for Entergy Mississippi, and $3.6$4.1 million for Entergy Texas. |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
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 million for Entergy Texas.
The effects of the Registrant Subsidiaries’ derivative instruments not designated as hedging instruments on their income statements for the three months ended September 30, 2018 and 2017 are as follows:
|
| | | | | | |
Instrument | | Income Statement Location | | Amount of gain
(loss) recorded
in the income statement | | Registrant |
| | | | (In Millions) | | |
2018 | | | | | | |
Natural gas swaps | | Fuel, fuel-related expenses, and gas purchased for resale | | ($0.7) | (a) | Entergy Louisiana |
Natural gas swaps | | Fuel, fuel-related expenses, and gas purchased for resale | | $0.1 | (a) | Entergy Mississippi |
| | | | | | |
Financial transmission rights | | Purchased power expense | | $10.1 | (b) | Entergy Arkansas |
Financial transmission rights | | Purchased power expense | | $13.8 | (b) | Entergy Louisiana |
Financial transmission rights | | Purchased power expense | | $5.4 | (b) | Entergy Mississippi |
Financial transmission rights | | Purchased power expense | | $2.0 | (b) | Entergy New Orleans |
Financial transmission rights | | Purchased power expense | | ($0.4) | (b) | Entergy Texas |
| | | | | | |
2017 | | | | | | |
Natural gas swaps | | Fuel, fuel-related expenses, and gas purchased for resale | | ($2.6) | (a) | Entergy Louisiana |
Natural gas swaps | | Fuel, fuel-related expenses, and gas purchased for resale | | ($0.6) | (a) | Entergy Mississippi |
| | | | | | |
Financial transmission rights | | Purchased power expense | | $4.2 | (b) | Entergy Arkansas |
Financial transmission rights | | Purchased power expense | | $9.4 | (b) | Entergy Louisiana |
Financial transmission rights | | Purchased power expense | | $4.7 | (b) | Entergy Mississippi |
Financial transmission rights | | Purchased power expense | | $1.9 | (b) | Entergy New Orleans |
Financial transmission rights | | Purchased power expense | | $7.0 | (b) | 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 ninethree months ended September 30,March 31, 2019 and 2018 and 2017 are as follows:
|
| | | | | | |
Instrument |
| Income Statement Location |
| Amount of gain (loss) recorded in the income statement |
| Registrant |
| | | | (In Millions) | | |
20182019 | | | |
| | |
Natural gas swaps and options | | Fuel, fuel-related expenses, and gas purchased for resale | | $4.20.8 | (a) | Entergy Louisiana |
Natural gas swaps | | Fuel, fuel-related expenses, and gas purchased for resale | | $0.9($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 | | $20.18.4 | (b) | Entergy Arkansas |
Financial transmission rights | | Purchased power expense | | $57.28.8 | (b) | Entergy Louisiana |
Financial transmission rights | | Purchased power expense | | $23.01.1 | (b) | Entergy Mississippi |
Financial transmission rights | | Purchased power expense | | $10.51.9 | (b) | Entergy New Orleans |
Financial transmission rights | | Purchased power expense | | ($5.6)$0.3 | (b) | Entergy Texas |
| | | | | | |
20172018 | | | | | | |
Natural gas swaps | | Fuel, fuel-related expenses, and gas purchased for resale | | ($16.3) | (a) | Entergy Louisiana |
Natural gas swaps | | Fuel, fuel-related expenses, and gas purchased for resale | | ($3.1)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 | | $19.38.0 | (b) | Entergy Arkansas |
Financial transmission rights | | Purchased power expense | | $38.917.6 | (b) | Entergy Louisiana |
Financial transmission rights | | Purchased power expense | | $16.37.8 | (b) | Entergy Mississippi |
Financial transmission rights | | Purchased power expense | | $7.73.3 | (b) | Entergy New Orleans |
Financial transmission rights | | Purchased power expense | | $19.2($3.5) | (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. |
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
Entergy Corporation and Subsidiaries
Notes to Financial Statements
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.
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
Control group include: gathering, validating and reporting market data, providing market risk analyses and valuations in support of Entergy Wholesale Commodities’ commercial transactions, developing and administering protocols for the management of market risks, and implementing and maintaining controls around changes to market data in the energy trading and risk management system. The Business Unit Risk Control group is also responsible for managing the energy trading and risk management system, forecasting revenues, forward positions and analysis. The Accounting Policy and Entergy Wholesale Commodities Accounting group performs functions related to market and counterparty settlements, revenue reporting and analysis and financial accounting. The Business Unit Risk Control group reports to the Vice President and Treasurer while the Accounting Policy and Entergy Wholesale Commodities Accounting group reports to the Chief Accounting Officer.
The amounts reflected as the fair value of electricity swaps are based on the estimated amount that the contracts are in-the-money at the balance sheet date (treated as an asset) or out-of-the-money at the balance sheet date (treated as a liability) and would equal the estimated amount receivable to or payable by Entergy if the contracts were settled at that date. These derivative contracts include cash flow hedges that swap fixed for floating cash flows for sales of the output from the Entergy Wholesale Commodities business. The fair values are based on the mark-to-market comparison between the fixed contract prices and the floating prices determined each period from quoted forward power market prices. The differences between the fixed price in the swap contract and these market-related prices multiplied by the volume specified in the contract and discounted at the counterparties’ credit adjusted risk free rate are recorded as derivative contract assets or liabilities. For contracts that have unit contingent terms, a further discount is applied based on the historical relationship between contract and market prices for similar contract terms.
The amounts reflected as the fair values of electricity options are valued based on a Black Scholes model, and are calculated at the end of each month for accounting purposes. Inputs to the valuation include end of day forward market prices for the period when the transactions will settle, implied volatilities based on market volatilities provided by a third 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 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 September 30, 2018March 31, 2019 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 | |
| $923 |
| |
| $— |
| |
| $— |
| |
| $923 |
| |
| $865 |
| |
| $— |
| |
| $— |
| |
| $865 |
|
Decommissioning trust funds (a): | | | | | | | | | | | | | | | | |
Equity securities | | 1,569 |
| | — |
| | — |
| | 1,569 |
| | 1,357 |
| | — |
| | — |
| | 1,357 |
|
Debt securities | | 1,167 |
| | 1,678 |
| | — |
| | 2,845 |
| | 1,320 |
| | 1,672 |
| | — |
| | 2,992 |
|
Common trusts (b) | | | | | | | | 3,030 |
| | | | | | | | 2,529 |
|
Power contracts | | | — |
| | — |
| | 3 |
| | 3 |
|
Securitization recovery trust account | | 58 |
| | — |
| | — |
| | 58 |
| | 52 |
| | — |
| | — |
| | 52 |
|
Escrow accounts | | 401 |
| | — |
| | — |
| | 401 |
| | 405 |
| | — |
| | — |
| | 405 |
|
Gas hedge contracts | | 1 |
| | — |
| | — |
| | 1 |
| | 1 |
| | — |
| | — |
| | 1 |
|
Financial transmission rights | | — |
| | — |
| | 29 |
| | 29 |
| | — |
| | — |
| | 5 |
| | 5 |
|
| |
| $4,119 |
| |
| $1,678 |
| |
| $29 |
| |
| $8,856 |
| |
| $4,000 |
| |
| $1,672 |
| |
| $8 |
| |
| $8,209 |
|
| | | | | | | | | | | | | | | | |
Liabilities: | | | | | | | | | | | | | | | | |
Power contracts | |
| $— |
| |
| $— |
| |
| $67 |
| |
| $67 |
| |
| $— |
| |
| $— |
| |
| $49 |
| |
| $49 |
|
Gas hedge contracts | | | 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 September 30, 2018March 31, 2019 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 July 1, |
| ($25 | ) | |
| $41 |
| |
| $38 |
| |
| $57 |
| |
Balance as of January 1, | |
| ($31 | ) | |
| $15 |
| |
| ($65 | ) | |
| $21 |
|
Total gains (losses) for the period (a) | | | | | | | | | | | | | | |
Included in earnings | (4 | ) | | — |
| | 2 |
| | — |
| 5 |
| | — |
| | 14 |
| | (1 | ) |
Included in other comprehensive income | (51 | ) | | — |
| | 43 |
| | — |
| 26 |
| | — |
| | 91 |
| | — |
|
Included as a regulatory liability/asset | — |
| | 19 |
| | — |
| | 8 |
| — |
| | 11 |
| | — |
| | 20 |
|
Settlements | 13 |
| | (31 | ) | | (23 | ) | | (28 | ) | (46 | ) | | (21 | ) | | 35 |
| | (32 | ) |
Balance as of September 30, |
| ($67 | ) | |
| $29 |
| |
| $60 |
| |
| $37 |
| |
Balance as of March 31, | |
| ($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 $1.7($4.9) million for the three months ended September 30, 2018March 31, 2019 and $0.4$0.2 million for the three months ended September 30, 2017.March 31, 2018. |
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 nine months ended September 30, 2018 and 2017:
|
| | | | | | | | | | | | | | | |
| 2018 | | 2017 |
| Power Contracts | | Financial transmission rights | | Power Contracts | | Financial transmission rights |
| (In Millions) |
Balance as of January 1, |
| ($65 | ) | |
| $21 |
| |
| $5 |
| |
| $21 |
|
Total gains (losses) for the period (a) | | | | | | | |
Included in earnings | (5 | ) | | (1 | ) | | 6 |
| | 1 |
|
Included in other comprehensive income | (40 | ) | | — |
| | 136 |
| | — |
|
Included as a regulatory liability/asset | — |
| | 67 |
| | — |
| | 56 |
|
Issuances of financial transmission rights | — |
| | 46 |
| | — |
| | 62 |
|
Settlements | 43 |
| | (104 | ) | | (87 | ) | | (103 | ) |
Balance as of September 30, |
| ($67 | ) | |
| $29 |
| |
| $60 |
| |
| $37 |
|
| |
(a) | Change in unrealized gains or losses for the period included in earnings for derivatives held at the end of the reporting period is $1.1 million for the nine months ended September 30, 2018 and $1 million for the nine months ended September 30, 2017. |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The following table sets forth a description of the types of transactions classified as Level 3 in the fair value hierarchy and significant unobservable inputs to each which cause that classification as of September 30, 2018:March 31, 2019:
|
| | | | | | | | | |
Transaction Type | | Fair Value as of September 30, 2018March 31, 2019
| | Significant Unobservable Inputs | | Range from Average % | | Effect on Fair Value |
| | (In Millions) | | | | | | | (In Millions) |
Power contracts - electricity swaps | | ($67)46) | | Unit contingent discount | | +/- | 4% - 4.75% | | ($6)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 September 30, 2018March 31, 2019 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 Arkansas
|
| | | | | | | | | | | | | | | | |
2018 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | (In Millions) |
Assets: | | | | | | | | |
Temporary cash investments | |
| $208.7 |
| |
| $— |
| |
| $— |
| |
| $208.7 |
|
Decommissioning trust funds (a): | | | | | | | | |
Equity securities | | 2.2 |
| | — |
| | — |
| | 2.2 |
|
Debt securities | | 111.0 |
| | 267.5 |
| | — |
| | 378.5 |
|
Common trusts (b) | | | | | | | | 616.2 |
|
Securitization recovery trust account | | 8.6 |
| | — |
| | — |
| | 8.6 |
|
Financial transmission rights | | — |
| | — |
| | 11.3 |
| | 11.3 |
|
| |
| $330.5 |
| |
| $267.5 |
| |
| $11.3 |
| |
| $1,225.5 |
|
|
| | | | | | | | | | | | | | | | |
2017 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | (In Millions) |
Assets: | | | | | | | | |
Decommissioning trust funds (a): | | | | | | | | |
Equity securities | |
| $11.7 |
| |
| $— |
| |
| $— |
| |
| $11.7 |
|
Debt securities | | 115.8 |
| | 232.4 |
| | — |
| | 348.2 |
|
Common trusts (b) | | | | | | | | 585.0 |
|
Securitization recovery trust account | | 3.7 |
| | — |
| | — |
| | 3.7 |
|
Escrow accounts | | 2.4 |
| | — |
| | — |
| | 2.4 |
|
Financial transmission rights | | — |
| | — |
| | 3.0 |
| | 3.0 |
|
| |
| $133.6 |
| |
| $232.4 |
| |
| $3.0 |
| |
| $954.0 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Entergy LouisianaArkansas
| | 2018 | | Level 1 | | Level 2 | | Level 3 | | Total | |
2019 | | | Level 1 | | Level 2 | | Level 3 | | Total |
| | (In Millions) | | (In Millions) |
Assets: | | | | | | | | | | | | | | | | |
Temporary cash investments | |
| $213.2 |
| |
| $— |
| |
| $— |
| |
| $213.2 |
| |
| $189.5 |
| |
| $— |
| |
| $— |
| |
| $189.5 |
|
Decommissioning trust funds (a): | | | | | | | | | | | | | | | | |
Equity securities | | 12.9 |
| | — |
| | — |
| | 12.9 |
| | 5.5 |
| | — |
| | — |
| | 5.5 |
|
Debt securities | | 157.9 |
| | 362.6 |
| | — |
| | 520.5 |
| | 99.2 |
| | 291.8 |
| | — |
| | 391.0 |
|
Common trusts (b) | | | | | | | | 861.8 |
| | | | | | | | 600.8 |
|
Escrow accounts | | 288.1 |
| | — |
| | — |
| | 288.1 |
| |
Securitization recovery trust account | | 10.0 |
| | — |
| | — |
| | 10.0 |
| | 8.2 |
| | — |
| | — |
| | 8.2 |
|
Gas hedge contracts | | 1.0 |
| | — |
| | — |
| | 1.0 |
| |
Financial transmission rights | | — |
| | — |
| | 12.0 |
| | 12.0 |
| | — |
| | — |
| | 1.1 |
| | 1.1 |
|
| |
| $683.1 |
| |
| $362.6 |
| |
| $12.0 |
| |
| $1,919.5 |
| |
| $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: | | | | | | | | | | | | | | | | |
Temporary cash investments | |
| $30.1 |
| |
| $— |
| |
| $— |
| |
| $30.1 |
| |
Decommissioning trust funds (a): | | |
| | |
| | |
| | |
| | | | | | | | |
Equity securities | | 15.2 |
| | — |
| | — |
| | 15.2 |
| |
| $4.0 |
| |
| $— |
| |
| $— |
| |
| $4.0 |
|
Debt securities | | 143.3 |
| | 350.5 |
| | — |
| | 493.8 |
| | 94.8 |
| | 286.5 |
| | — |
| | 381.3 |
|
Common trusts (b) | | | | | | | | 803.1 |
| | | | | | | | 526.7 |
|
Escrow accounts | | 289.5 |
| | — |
| | — |
| | 289.5 |
| |
Securitization recovery trust account | | 2.0 |
| | — |
| | — |
| | 2.0 |
| | 4.7 |
| | — |
| | — |
| | 4.7 |
|
Financial transmission rights | | — |
| | — |
| | 10.2 |
| | 10.2 |
| | — |
| | — |
| | 3.4 |
| | 3.4 |
|
| |
| $480.1 |
| |
| $350.5 |
| |
| $10.2 |
| |
| $1,643.9 |
| |
| $103.5 |
| |
| $286.5 |
| |
| $3.4 |
| |
| $920.1 |
|
| | | | | | | | | |
Liabilities: | | | | | | | | | |
Gas hedge contracts | |
| $5.0 |
| |
| $— |
| |
| $— |
| |
| $5.0 |
| |
Entergy MississippiLouisiana
| | 2018 | | Level 1 | | Level 2 | | Level 3 | | Total | |
2019 | | | Level 1 | | Level 2 | | Level 3 | | Total |
| | (In Millions) | | (In Millions) |
Assets: | | | | | | | | | | | | | | | | |
Temporary cash investments | | |
| $237.0 |
| |
| $— |
| |
| $— |
| |
| $237.0 |
|
Decommissioning trust funds (a): | | | | | | | | | |
Equity securities | | | 10.4 |
| | — |
| | — |
| | 10.4 |
|
Debt securities | | | 184.6 |
| | 371.1 |
| | — |
| | 555.7 |
|
Common trusts (b) | | | | | | | | | 841.9 |
|
Escrow accounts | | $32.3 | |
| $— |
| |
| $— |
| | $32.3 | | 291.2 |
| | — |
| | — |
| | 291.2 |
|
Securitization recovery trust account | | | 9.0 |
| | — |
| | — |
| | 9.0 |
|
Gas hedge contracts | | 0.4 |
| | — |
| | — |
| | 0.4 |
| | 1.5 |
| | — |
| | — |
| | 1.5 |
|
Financial transmission rights | | — |
| | — |
| | 3.7 |
| | 3.7 |
| | — |
| | — |
| | 2.8 |
| | 2.8 |
|
| |
| $32.7 |
| |
| $— |
| |
| $3.7 |
| |
| $36.4 |
| |
| $733.7 |
| |
| $371.1 |
| |
| $2.8 |
| |
| $1,949.5 |
|
| | | | | | | | | |
Liabilities: | | | | | | | | | |
Gas hedge contracts | | |
| $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 | |
| $4.5 |
| |
| $— |
| |
| $— |
| |
| $4.5 |
| |
| $43.1 |
| |
| $— |
| |
| $— |
| |
| $43.1 |
|
Decommissioning trust funds (a): | | | |
| | |
| | |
| | |
|
Equity securities | | | 13.3 |
| | — |
| | — |
| | 13.3 |
|
Debt securities | | | 162.0 |
| | 370.9 |
| | — |
| | 532.9 |
|
Common trusts (b) | | | | | | | | | 738.8 |
|
Escrow accounts | | 32.0 |
| | — |
| | — |
| | 32.0 |
| | 289.5 |
| | — |
| | — |
| | 289.5 |
|
Securitization recovery trust account | | | 3.6 |
| | — |
| | — |
| | 3.6 |
|
Gas hedge contracts | | | — |
| | 1.9 |
| | — |
| | 1.9 |
|
Financial transmission rights | | — |
| | — |
| | 2.1 |
| | 2.1 |
| | — |
| | — |
| | 8.3 |
| | 8.3 |
|
| |
| $36.5 |
| |
| $— |
| |
| $2.1 |
| |
| $38.6 |
| |
| $511.5 |
| |
| $372.8 |
| |
| $8.3 |
| |
| $1,631.4 |
|
| | | | | | | | | | | | | | | | |
Liabilities: | | | | | | | | | | | | | | | | |
Gas hedge contracts | |
| $1.2 |
| |
| $— |
| |
| $— |
| |
| $1.2 |
| |
| $0.7 |
| |
| $0.4 |
| |
| $— |
| |
| $1.1 |
|
Entergy Mississippi
|
| | | | | | | | | | | | | | | | |
2019 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | (In Millions) |
Assets: | | | | | | | | |
Escrow accounts | | $32.6 | |
| $— |
| |
| $— |
| | $32.6 |
Financial transmission rights | | — |
| | — |
| | 0.7 |
| | 0.7 |
|
| |
| $32.6 |
| |
| $— |
| |
| $0.7 |
| |
| $33.3 |
|
| | | | | | | | |
Liabilities: | | | | | | | | |
Gas hedge contracts | |
| $0.8 |
| |
| $— |
| |
| $— |
| |
| $0.8 |
|
|
| | | | | | | | | | | | | | | | |
2018 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | (In Millions) |
Assets: | | | | | | | | |
Temporary cash investments | |
| $36.9 |
| |
| $— |
| |
| $— |
| |
| $36.9 |
|
Escrow accounts | | 32.4 |
| | — |
| | — |
| | 32.4 |
|
Financial transmission rights | | — |
| | — |
| | 2.2 |
| | 2.2 |
|
| |
| $69.3 |
| |
| $— |
| |
| $2.2 |
| |
| $71.5 |
|
Entergy New Orleans
|
| | | | | | | | | | | | | | | | |
2018 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | (In Millions) |
Assets: | | | | | | | | |
Temporary cash investments | |
| $32.9 |
| |
| $— |
| |
| $— |
| |
| $32.9 |
|
Securitization recovery trust account | | 5.6 |
| | — |
| | — |
| | 5.6 |
|
Escrow accounts | | 80.4 |
| | — |
| | — |
| | 80.4 |
|
Financial transmission rights | | — |
| | — |
| | 2.1 |
| | 2.1 |
|
| |
| $118.9 |
| |
| $— |
| |
| $2.1 |
| |
| $121.0 |
|
|
| | | | | | | | | | | | | | | | |
2017 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | (In Millions) |
Assets: | | | | | | | | |
Temporary cash investments | |
| $32.7 |
| |
| $— |
| |
| $— |
| |
| $32.7 |
|
Securitization recovery trust account | | 1.5 |
| | — |
| | — |
| | 1.5 |
|
Escrow accounts | | 81.9 |
| | — |
| | — |
| | 81.9 |
|
Financial transmission rights | | — |
| | — |
| | 2.2 |
| | 2.2 |
|
| |
| $116.1 |
| |
| $— |
| |
| $2.2 |
| |
| $118.3 |
|
| | | | | | | | |
Liabilities: | | | | | | | | |
Gas hedge contracts | |
| $0.2 |
| |
| $— |
| |
| $— |
| |
| $0.2 |
|
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 | |
| $19.0 |
| |
| $— |
| |
| $— |
| |
| $19.0 |
| |
Assets: | | | | | | | | | |
Securitization recovery trust account | | 33.7 |
| | — |
| | — |
| | 33.7 |
| |
| $5.1 |
| |
| $— |
| |
| $— |
| |
| $5.1 |
|
Escrow accounts | | | 81.3 |
| | — |
| | — |
| | 81.3 |
|
Financial transmission rights | | — |
| | — |
| | 0.1 |
| | 0.1 |
| | — |
| | — |
| | 0.5 |
| | 0.5 |
|
| |
| $52.7 |
| |
| $— |
| |
| $0.1 |
| |
| $52.8 |
| |
| $86.4 |
| |
| $— |
| |
| $0.5 |
| |
| $86.9 |
|
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: | | | | | | | | | |
Assets: | | | | | | | | | |
Temporary cash investments | |
| $115.5 |
| |
| $— |
| |
| $— |
| |
| $115.5 |
| |
| $19.7 |
| |
| $— |
| |
| $— |
| |
| $19.7 |
|
Securitization recovery trust account | | 37.7 |
| | — |
| | — |
| | 37.7 |
| | 2.2 |
| | — |
| | — |
| | 2.2 |
|
Escrow accounts | | | 80.9 |
| | — |
| | — |
| | 80.9 |
|
Financial transmission rights | | — |
| | — |
| | 3.4 |
| | 3.4 |
| | — |
| | — |
| | 1.3 |
| | 1.3 |
|
| |
| $153.2 |
| |
| $— |
| |
| $3.4 |
| |
| $156.6 |
| |
| $102.8 |
| |
| $— |
| |
| $1.3 |
| |
| $104.1 |
|
| | | | | | | | | |
Liabilities: | | | | | | | | | |
Gas hedge contracts | | |
| $0.1 |
| |
| $— |
| |
| $— |
| |
| $0.1 |
|
System EnergyEntergy Texas
|
| | | | | | | | | | | | | | | | |
2018 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | (In Millions) |
Assets: | | | | | | | | |
Temporary cash investments | |
| $254.4 |
| |
| $— |
| |
| $— |
| |
| $254.4 |
|
Decommissioning trust funds (a): | | | | | | | | |
Equity securities | | 7.4 |
| | — |
| | — |
| | 7.4 |
|
Debt securities | | 211.1 |
| | 148.1 |
| | — |
| | 359.2 |
|
Common trusts (b) | | | | | | | | 585.8 |
|
| |
| $472.9 |
| |
| $148.1 |
| |
| $— |
| |
| $1,206.8 |
|
|
| | | | | | | | | | | | | | | | |
2019 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | (In Millions) |
Assets: | | | | | | | | |
Temporary cash investments | |
| $22.2 |
| |
| $— |
| |
| $— |
| |
| $22.2 |
|
Securitization recovery trust account | | 29.5 |
| | — |
| | — |
| | 29.5 |
|
| |
| $51.7 |
| |
| $— |
| |
| $— |
| |
| $51.7 |
|
| | | | | | | | |
Liabilities: | | | | | | | | |
Financial transmission rights | |
| $— |
| |
| $— |
| |
| $0.3 |
| |
| $0.3 |
|
|
| | | | | | | | | | | | | | | | |
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 |
|
|
| | | | | | | | | | | | | | | | |
2018 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | (In Millions) |
Assets: | | | | | | | | |
Securitization recovery trust account | |
| $40.2 |
| |
| $— |
| |
| $— |
| |
| $40.2 |
|
| | | | | | | | |
Liabilities: | | | | | | | | |
Financial transmission rights | |
| $— |
| |
| $— |
| |
| $0.5 |
| |
| $0.5 |
|
| |
(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. |
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 September 30, 2018.
|
| | | | | | | | | | | | | | | | | | | |
| Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas |
| (In Millions) |
Balance as of July 1, 2018 |
| $10.5 |
| |
| $18.2 |
| |
| $4.4 |
| |
| $3.0 |
| |
| $4.7 |
|
Gains included as a regulatory liability/asset | 10.9 |
| | 7.6 |
| | 4.7 |
| | 1.1 |
| | (5.0 | ) |
Settlements | (10.1 | ) | | (13.8 | ) | | (5.4 | ) | | (2.0 | ) | | 0.4 |
|
Balance as of September 30, 2018 |
| $11.3 |
| |
| $12.0 |
| |
| $3.7 |
| |
| $2.1 |
| |
| $0.1 |
|
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 September 30, 2017.
|
| | | | | | | | | | | | | | | | | | | |
| Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas |
| (In Millions) |
Balance as of July 1, 2017 |
| $8.3 |
| |
| $28.3 |
| |
| $9.1 |
| |
| $5.2 |
| |
| $5.5 |
|
Gains included as a regulatory liability/asset | 0.3 |
| | (0.1 | ) | | 1.1 |
| | 0.2 |
| | 6.5 |
|
Settlements | (4.2 | ) | | (9.4 | ) | | (4.7 | ) | | (1.9 | ) | | (7.0 | ) |
Balance as of September 30, 2017 |
| $4.4 |
| |
| $18.8 |
| |
| $5.5 |
| |
| $3.5 |
| |
| $5.0 |
|
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 nine months ended September 30, 2018.
|
| | | | | | | | | | | | | | | | | | | |
| Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas |
| (In Millions) |
Balance as of January 1, 2018 |
| $3.0 |
| |
| $10.2 |
| |
| $2.1 |
| |
| $2.2 |
| |
| $3.4 |
|
Issuances of financial transmission rights | 11.8 |
| | 20.0 |
| | 4.5 |
| | 3.7 |
| | 6.1 |
|
Gains included as a regulatory liability/asset | 16.6 |
| | 39.0 |
| | 20.1 |
| | 6.7 |
| | (15.0 | ) |
Settlements | (20.1 | ) | | (57.2 | ) | | (23.0 | ) | | (10.5 | ) | | 5.6 |
|
Balance as of September 30, 2018 |
| $11.3 |
| |
| $12.0 |
| |
| $3.7 |
| |
| $2.1 |
| |
| $0.1 |
|
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 nine months ended September 30, 2017.
|
| | | | | | | | | | | | | | | | | | | |
| Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas |
| (In Millions) |
Balance as of January 1, 2017 |
| $5.4 |
| |
| $8.5 |
| |
| $3.2 |
| |
| $1.1 |
| |
| $3.1 |
|
Issuances of financial transmission rights | 8.9 |
| | 31.0 |
| | 9.6 |
| | 5.0 |
| | 7.1 |
|
Gains (losses) included as a regulatory liability/asset | 9.4 |
| | 18.2 |
| | 9.0 |
| | 5.1 |
| | 14.0 |
|
Settlements | (19.3 | ) | | (38.9 | ) | | (16.3 | ) | | (7.7 | ) | | (19.2 | ) |
Balance as of September 30, 2017 |
| $4.4 |
| |
| $18.8 |
| |
| $5.5 |
| |
| $3.5 |
| |
| $5.0 |
|
NOTE 9. DECOMMISSIONING TRUST FUNDS (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, and System Energy)
The NRC requires Entergy subsidiaries to maintain nuclear decommissioning trusts to fund the costs of decommissioning ANO 1, ANO 2, River Bend, Waterford 3, Grand Gulf, Pilgrim, Indian Point 1, Indian Point 2, Indian Point 3, Vermont Yankee, and Palisades. Entergy’s nuclear decommissioning trust funds invest 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 increasing accumulated other comprehensive loss by $633 million as of January 1, 2018, for the cumulative effect of the unrealized gains and losses on investments in equity securities held by the decommissioning trust funds that do not meet the criteria for regulatory accounting treatment. Beginning in 2018, unrealized gains and losses on investments in equity securities held by the nuclear decommissioning 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 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, 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. 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
Entergy Corporation and Subsidiaries
Notes to Financial Statements
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 and nine months ended September 30, 2018 on equity securities still held as of September 30, 2018 were $369 million and $464 million, respectively. 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 available-for-sale securities held as of September 30, 2018 and December 31, 2017 are summarized as follows:
|
| | | | | | | | | | | | |
| | Fair Value | | Total Unrealized Gains | | Total Unrealized Losses |
| | (In Millions) |
2018 | | | | | | |
Debt Securities (a) | |
| $2,448 |
| |
| $10 |
| |
| $51 |
|
| | | | | | |
2017 | | | | | | |
Equity Securities | |
| $4,662 |
| |
| $2,131 |
| |
| $1 |
|
Debt Securities | | 2,550 |
| | 44 |
| | 16 |
|
Total | |
| $7,212 |
| |
| $2,175 |
| |
| $17 |
|
| |
(a) | Debt securities presented herein do not include the $397 million of debt securities held in the wholly-owned registered investment company, which are not accounted for as available-for-sale. |
The unrealized gains/(losses) above are reported before deferred taxes of $472 million as of December 31, 2017 for equity securities, and ($6) million as of September 30, 2018 and $7 million as of December 31, 2017 for debt securities. The amortized cost of available-for-sale debt securities was $2,489 million as of September 30, 2018 and $2,539 million as of December 31, 2017. As of September 30, 2018, available-for-sale debt securities have an average coupon rate of approximately 3.36%, an average duration of approximately 5.98 years, and an average maturity of approximately 10.4 years.
The fair value and gross unrealized losses of 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 September 30, 2018:
|
| | | | | | | | |
| | Debt Securities |
| | Fair Value | | Gross Unrealized Losses |
| | (In Millions) |
Less than 12 months | |
| $1,691 |
| |
| $33 |
|
More than 12 months | | 357 |
| | 18 |
|
Total | |
| $2,048 |
| |
| $51 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
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 |
|
The fair value of available-for-sale debt securities, summarized by contractual maturities, as of September 30, 2018 and December 31, 2017 are as follows:
|
| | | | | | | |
| 2018 | | 2017 |
| (In Millions) |
less than 1 year |
| $119 |
| |
| $74 |
|
1 year - 5 years | 934 |
| | 902 |
|
5 years - 10 years | 628 |
| | 812 |
|
10 years - 15 years | 108 |
| | 147 |
|
15 years - 20 years | 92 |
| | 100 |
|
20 years+ | 567 |
| | 515 |
|
Total |
| $2,448 |
| |
| $2,550 |
|
During the three months ended September 30, 2018 and 2017, proceeds from the dispositions of securities amounted to $2,377 million and $440 million, respectively. During the three months ended September 30, 2018 and 2017, gross gains of $4 million and $9 million, respectively, and gross losses of $15 million and $2 million, respectively, related to available-for-sale securities were reclassified out of other comprehensive income or other regulatory liabilities/assets into earnings.
During the nine months ended September 30, 2018 and 2017, proceeds from the dispositions of securities amounted to $4,178 million and $1,903 million, respectively. During the nine months ended September 30, 2018 and 2017, gross gains of $6 million and $79 million, respectively, and gross losses of $37 million and $9 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 September 30, 2018 are $509 million for Indian Point 1, $644 million for Indian Point 2, $835 million for Indian Point 3, $476 million for Palisades, $1,081 million for Pilgrim, and $554 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 September 30, 2018 and December 31, 2017 are summarized as follows:
Entergy Corporation and Subsidiaries
Notes to Financial Statements
|
| | | | | | | | | | | | |
| | Fair Value | | Total Unrealized Gains | | Total Unrealized Losses |
| | (In Millions) |
2018 | | | | | | |
Debt Securities | |
| $378.5 |
| |
| $0.2 |
| |
| $10.9 |
|
| | | | | | |
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 available-for-sale debt securities was $389.2 million as of September 30, 2018 and $349.1 million as of December 31, 2017. As of September 30, 2018, available-for-sale debt securities have an average coupon rate of approximately 2.68%, an average duration of approximately 4.6 years, and an average maturity of approximately 6.47 years.
The unrealized gains/(losses) recognized during the three and nine months ended September 30, 2018 on equity securities still held as of September 30, 2018 were $37.8 million and $46 million, respectively. 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 investment type and length of time that the securities have been in a continuous loss position, are as follows as of September 30, 2018:
|
| | | | | | | | |
| | Debt Securities |
| | Fair Value | | Gross Unrealized Losses |
| | (In Millions) |
Less than 12 months | |
| $259.7 |
| |
| $6.8 |
|
More than 12 months | | 78.2 |
| | 4.1 |
|
Total | |
| $337.9 |
| |
| $10.9 |
|
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 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The fair value of available-for-sale debt securities, summarized by contractual maturities, as of September 30, 2018 and December 31, 2017 are as follows:
|
| | | | | | | |
| 2018 | | 2017 |
| (In Millions) |
less than 1 year |
| $40.8 |
| |
| $13.0 |
|
1 year - 5 years | 174.4 |
| | 123.4 |
|
5 years - 10 years | 115.6 |
| | 180.6 |
|
10 years - 15 years | 10.6 |
| | 4.8 |
|
15 years - 20 years | 5.8 |
| | 3.4 |
|
20 years+ | 31.3 |
| | 23.0 |
|
Total |
| $378.5 |
| |
| $348.2 |
|
During the three months endedSeptember 30, 2018 and 2017, proceeds from the dispositions of securities amounted to $137.9 million and $51.9 million, respectively. During the three months ended September 30, 2018 and 2017, gross gains of $0.01 million and $0.04 million, respectively, and gross losses of $0.6 million and $0.5 thousand, respectively, related to available-for-sale securities were reclassified out of other regulatory liabilities/assets into earnings.
During the nine months endedSeptember 30, 2018 and 2017, proceeds from the dispositions of securities amounted to $259.3 million and $219.2 million, respectively. During the nine months ended September 30, 2018 and 2017, gross gains of $0.1 million and $11.7 million, respectively, and gross losses of $3 million and $0.2 million, respectively, related to available-for-sale securities were reclassified out of other regulatory liabilities/assets into earnings.
Entergy Louisiana
Entergy Louisiana holds equity securities and available-for-sale debt securities in nuclear decommissioning trust accounts. The available-for-sale securities held as of September 30, 2018 and December 31, 2017 are summarized as follows:
|
| | | | | | | | | | | | |
| | Fair Value | | Total Unrealized Gains | | Total Unrealized Losses |
| | (In Millions) |
2018 | | | | | | |
Debt Securities | |
| $520.5 |
| |
| $2.0 |
| |
| $9.3 |
|
| | | | | | |
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 available-for-sale debt securities was $527.8 million as of September 30, 2018 and $490 million as of December 31, 2017. As of September 30, 2018, the available-for-sale debt securities have an average coupon rate of approximately 4.07%, an average duration of approximately 6.74 years, and an average maturity of approximately 13.75 years.
The unrealized gains/(losses) recognized during the three and nine months ended September 30, 2018 on equity securities still held as of September 30, 2018 were $55 million and $66.3 million, respectively. The equity securities
Entergy Corporation and Subsidiaries
Notes to Financial Statements
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 investment type and length of time that the securities have been in a continuous loss position, are as follows as of September 30, 2018:
|
| | | | | | | | |
| | Debt Securities |
| | Fair Value | | Gross Unrealized Losses |
| | (In Millions) |
Less than 12 months | |
| $355.6 |
| |
| $5.8 |
|
More than 12 months | | 74.0 |
| | 3.5 |
|
Total | |
| $429.6 |
| |
| $9.3 |
|
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 |
|
The fair value of available-for-sale debt securities, summarized by contractual maturities, as of September 30, 2018 and December 31, 2017 are as follows:
|
| | | | | | | |
| 2018 | | 2017 |
| (In Millions) |
less than 1 year |
| $22.4 |
| |
| $23.2 |
|
1 year - 5 years | 122.0 |
| | 122.8 |
|
5 years - 10 years | 117.9 |
| | 109.3 |
|
10 years - 15 years | 37.7 |
| | 52.7 |
|
15 years - 20 years | 41.3 |
| | 50.7 |
|
20 years+ | 179.2 |
| | 135.1 |
|
Total |
| $520.5 |
| |
| $493.8 |
|
During the three months ended September 30, 2018 and 2017, proceeds from the dispositions of securities amounted to $773.9 million and $50.5 million, respectively. During the three months ended September 30, 2018 and 2017, gross gains of $1.9 million and $2.9 million, respectively, and gross losses of $3.6 million and $0.1 million, respectively, related to available-for-sale securities were reclassified out of other regulatory liabilities/assets into earnings.
During the nine months ended September 30, 2018 and 2017, proceeds from the dispositions of securities amounted to $943.3 million and $176.1 million, respectively. During the nine months ended September 30, 2018 and 2017, gross gains of $2.5 million and $7.9 million, respectively, and gross losses of $4.8 million and $0.4 million, respectively, related to available-for-sale securities were reclassified out of other regulatory liabilities/assets into earnings.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
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 September 30, 2018March 31, 2019 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 | |
| $359.2 |
| |
| $0.9 |
| |
| $7.1 |
| |
| $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 $365.5$390.4 million as of September 30, 2018March 31, 2019 and $327.5$389 million as of December 31, 2017.2018. As of September 30, 2018,March 31, 2019, available-for-sale debt securities have an average coupon rate of approximately 2.95%2.85%, an average duration of approximately 6.24.81 years, and an average maturity of approximately 9.087.34 years.
The unrealized gains/(losses) recognized during the three and nine months ended September 30, 2018March 31, 2019 on equity securities still held as of September 30, 2018March 31, 2019 were $35.9 million and $43.8 million, respectively.$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 investment type and length of time that the securities have been in a continuous loss position, are as follows as of September 30,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:
| | | | Debt Securities | | | | | | | |
| | Fair Value | | Gross Unrealized Losses | Fair Value | | Gross Unrealized Losses |
| (In Millions) | (In Millions) |
Less than 12 months | |
| $267.6 |
| |
| $5.2 |
|
| $65.8 |
| |
| $0.5 |
|
More than 12 months | | 34.3 |
| | 1.9 |
| 231.1 |
| | 7.7 |
|
Total | |
| $301.9 |
| |
| $7.1 |
|
| $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 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 typelength 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 | |
| $26.5 |
| |
| $0.2 |
|
More than 12 months | | 87.4 |
| | 1.2 |
|
Total | |
| $113.9 |
| |
| $1.4 |
|
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, 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 September 30, 2018March 31, 2019 and December 31, 20172018 are as follows:
| | | 2018 | | 2017 | 2019 | | 2018 |
| (In Millions) | (In Millions) |
less than 1 year |
| $2.2 |
| |
| $4.1 |
| |
Less than 1 year | |
| $42.4 |
| |
| $31.1 |
|
1 year - 5 years | 195.4 |
| | 173.0 |
| 119.3 |
| | 130.5 |
|
5 years - 10 years | 78.2 |
| | 78.5 |
| 135.7 |
| | 111.0 |
|
10 years - 15 years | 5.6 |
| | 1.0 |
| 26.8 |
| | 29.0 |
|
15 years - 20 years | 11.0 |
| | 6.9 |
| 44.5 |
| | 37.1 |
|
20 years+ | 66.8 |
| | 67.0 |
| 187.0 |
| | 194.2 |
|
Total |
| $359.2 |
| |
| $330.5 |
|
| $555.7 |
| |
| $532.9 |
|
During the three months ended September 30,March 31, 2019 and 2018, and 2017, proceeds from the dispositions of available-for-sale securities amounted to $157.8$56.2 million and $54.6$125.5 million, respectively. During the three months ended September 30,March 31, 2019 and 2018, and 2017, gross gains of $6.5 thousand$0.3 million and $0.2$0.5 million, respectively, and gross losses of $0.3$0.2 million and $0.2$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 ninethree months ended September 30,March 31, 2019 and 2018, and 2017, proceeds from the dispositions of available-for-sale securities amounted to $357.2$42.1 million and $308.1$54.2 million, respectively. During the ninethree months ended September 30,March 31, 2019 and 2018, and 2017, gross gains of $0.3$0.4 million and $0.7$0.1 million, respectively, and gross losses of $4.8$0.1 million and $1.5$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 did not have any material other-than-temporary impairments relating to credit losses on debt securities for the three and nine months ended September 30, 2018March 31, 2019 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.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
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.
2012-2013 IRS Audit
The IRS completed its examination of the 2012 and 2013 tax years and issued its 2012-2013 Revenue Agent Report (RAR) in June 2018. Entergy agreed to all proposed adjustments contained in the RAR. Entergy and the Registrant Subsidiaries recorded the effects of these adjustments in June 2018.
As a result of the issuance of the RAR, Entergy Louisiana was able to recognize previously unrecognized tax benefits of $52 million related to the Hurricane Katrina and Hurricane Rita contingent sharing obligation associated with the Louisiana Act 55 financing.
The conclusion and settlement of the IRS audit described above caused a decrease in Entergy Louisiana’s balance of unrecognized tax benefits, which changed from $926 million as of December 31, 2017 to $855 million as of September 30, 2018, net of carryovers for losses and credits. The reduction of unrecognized tax benefits was primarily recorded in the second quarter 2018 with no significant additional changes to Entergy Louisiana’s unrecognized tax benefit balance recognized during the third quarter 2018.
Tax Cuts and Jobs Act
As discussed in the Form 10-K, the Tax Cuts and Jobs Act limits the deduction for net business interest expense in certain circumstances. The limitation does not apply to interest expense allocable to the Utility. In Notice 2018-28 released on April 2, 2018, the IRS announced that it intends to issue proposed regulations that will provide guidance to assist taxpayers in complying with the new interest provisions under 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 limitations in 2018 which did not have a material effect on financial position, results of operations, or cash flows.
For a discussion of proceedings commenced or other responses by Entergy’s regulators to the Tax Cuts and Jobs Act, see Note 2 to the financial statements herein and in the Form 10-K.
During the second and third quarters of 2018,three months ended March 31, 2019, Entergy Arkansas, Entergy Louisiana, and Entergy Mississippi, Entergy New Orleans and System Energy began returningTexas returned unprotected excess accumulated deferred income taxes, associated with the effects of the Tax Cuts and Jobs Act, to their customers through rate riders and other means approved by each Registrant Subsidiary’stheir respective regulatory commission.commissions. Return of the unprotected excess accumulated deferred income taxes results in a reduction in the regulatory liability for income taxes and a corresponding reduction in income tax expense. This has a significant effect on the effective tax rate for the period as compared to the statutory tax rate. InFor the third quarter 2018three 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, $153$32 million; Entergy Louisiana, $55 million; Entergy Mississippi, $32 million; Entergy New Orleans, $9$7 million; and System Energy, $34 million. In the nine months ended September 30, 2018 the return of unprotected excess accumulated deferred income taxes reduced the Registrant Subsidiaries’ regulatory liability for income taxes as follows: Entergy Arkansas, $260 million; Entergy Louisiana, $86 million; Entergy Mississippi, $161 million; Entergy New Orleans, $9 million; and System Energy, $46Texas, $22 million.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
As discussedOther Tax Matters
In April 2019 the state of Arkansas enacted corporate income tax law changes that phase in an Arkansas tax rate reduction from 6.5% to 5.9% by the year 2022. The rate reduction will eventually 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 the net operating loss carryover period from five to ten years. The adoption of these tax law changes throughout the phase-in period is not expected to have a significant effect on the financial position, results of operations, or cash flows of Entergy Arkansas, the Utility, or Entergy.
Vermont Yankee
The Vermont Yankee transaction resulted in Entergy generating a net deferred tax asset in January 2019. The deferred tax asset could not be fully realized by Entergy in the first quarter of 2019; accordingly, Entergy accrued a net tax expense of $29 million on the disposition of Vermont Yankee. See Note 216 to the financial statements herein the unopposed settlement of Entergy Texas’s 2018 rate case, if approved by the PUCT, establishes the amounts of protected and unprotected excess accumulated deferred income taxes that Entergy Texas will return to customers. As of September 30, 2018, Entergy Texas’s regulatory liability for protected excess accumulated deferred income taxes was $269 million and its regulatory liability for unprotected excess accumulated deferred income taxes was $201 million.
Other Tax Matters
In the third quarter 2018, Entergy completed a restructuringdiscussion of the investment holdings in one of the Entergy Wholesale Commodities nuclear plant decommissioning trusts that resulted in an adjustment to tax basis for the trust. The accounting standards provide that a taxable temporary difference does not exist if the tax law provides a means by which an amount can be recovered without incurrence of tax. The restructuring allows Entergy to recover assets from the trust without incurring tax. As such, the tax basis recognized resulted in the reversal of a deferred tax liability and reduction of income tax expense of approximately $107 million.
A state income tax audit involving Entergy Wholesale Commodities was concluded during the third quarter 2018. Upon conclusion of the audit, subsidiaries within Entergy Wholesale Commodities reversed a portion of the provision for uncertain tax positions totaling approximately $23 million, net of tax and interest paid.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 September 30, 2018March 31, 2019 are $255$324 million for Entergy, $27.8$29.9 million for Entergy Arkansas, $80.1$118 million for Entergy Louisiana, $8.9$13.8 million for Entergy Mississippi, $18.7$8.2 million for Entergy New Orleans, $13.9$72.3 million for Entergy Texas, and $38.1$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 September 30, 2018March 31, 2019 and in the three months ended September 30, 2017. System Energy made payments on its lease, including interest, of $17.2 million in the nine months ended September 30, 2018 and in the nine months ended September 30, 2017.March 31, 2018.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
NOTE 13. REVENUE RECOGNITION (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 or nine months ended September 30, 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 and nine months ended September 30,March 31, 2019 and 2018 wereare as follows:
| | | | 2018 | | | | | | | |
| | Three Months Ended | | Nine Months Ended | | 2019 | | 2018 |
| | (In Thousands) | | (In Thousands) |
Utility: | | | | | | | | |
Residential | |
| $1,138,744 |
| |
| $2,799,539 |
| |
| $802,539 |
| |
| $892,085 |
|
Commercial | | 693,760 |
| | 1,871,380 |
| | 554,058 |
| | 595,720 |
|
Industrial | | 682,823 |
| | 1,904,828 |
| | 601,000 |
| | 597,186 |
|
Governmental | | 60,647 |
| | 173,949 |
| | 52,960 |
| | 56,478 |
|
Total billed retail | | 2,575,974 |
| | 6,749,696 |
| | 2,010,557 |
| | 2,141,469 |
|
| | | | | | | | |
Sales for resale (a) | | 76,247 |
| | 214,984 |
| | 84,435 |
| | 69,526 |
|
Other electric revenues (b) | | 42,847 |
| | 289,668 |
| | 15,470 |
| | 27,433 |
|
Non-customer revenues (c) | | 2,819 |
| | 22,026 |
| | 10,562 |
| | 9,834 |
|
Total electric revenues | | 2,697,887 |
| | 7,276,374 |
| | 2,121,024 |
| | 2,248,262 |
|
| | | | | | | | |
Natural gas | | 26,352 |
| | 112,990 |
| | 54,948 |
| | 56,695 |
|
| | | | | | | | |
Entergy Wholesale Commodities: | | | | | | | | |
Competitive businesses sales (a) | | 407,763 |
| | 1,148,460 |
| | 360,471 |
| | 409,135 |
|
Non-customer revenues (c) | | (27,683 | ) | | (40,854 | ) | | 73,141 |
| | 9,789 |
|
Total competitive businesses | | 380,080 |
| | 1,107,606 |
| | 433,612 |
| | 418,924 |
|
| | | | | | | | |
Total operating revenues | |
| $3,104,319 |
| |
| $8,496,970 |
| |
| $2,609,584 |
| |
| $2,723,881 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The Registrant Subsidiaries’ total revenues for the three months ended September 30, 2018March 31, 2019 were as follows:
| | 2018 | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | |
2019 | | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas |
| | (In Thousands) | | (In Thousands) |
| | | | | | | | | | | | | | | | | | | | |
Residential | |
| $250,081 |
| |
| $408,680 |
| |
| $170,258 |
| |
| $86,014 |
| |
| $223,711 |
| |
| $209,867 |
| |
| $264,065 |
| |
| $128,809 |
| |
| $52,076 |
| |
| $147,722 |
|
Commercial | | 119,950 |
| | 272,985 |
| | 126,987 |
| | 62,428 |
| | 111,409 |
| | 124,578 |
| | 206,779 |
| | 97,914 |
| | 45,741 |
| | 79,046 |
|
Industrial | | 126,079 |
| | 393,884 |
| | 44,383 |
| | 9,655 |
| | 108,823 |
| | 121,577 |
| | 346,678 |
| | 37,697 |
| | 7,250 |
| | 87,798 |
|
Governmental | | 4,445 |
| | 17,566 |
| | 11,488 |
| | 20,364 |
| | 6,785 |
| | 4,899 |
| | 16,891 |
| | 10,036 |
| | 15,901 |
| | 5,233 |
|
Total billed retail | | 500,555 |
|
| 1,093,115 |
|
| 353,116 |
|
| 178,461 |
|
| 450,728 |
| | 460,921 |
|
| 834,413 |
|
| 274,456 |
|
| 120,968 |
|
| 319,799 |
|
| | | | | | | | | | | | | | | | | | | | |
Sales for resale (a) | | 60,338 |
| | 71,634 |
| | 7,876 |
| | 4,863 |
| | 23,290 |
| | 79,584 |
| | 83,955 |
| | 4,814 |
| | 10,224 |
| | 16,775 |
|
Other electric revenues (b) | | 4,446 |
| | 34,220 |
| | 4,079 |
| | (1,107 | ) | | 2,735 |
| | 2,304 |
| | 12,441 |
| | 405 |
| | (1,706 | ) | | 3,496 |
|
Non-customer revenues (c) | | 3,060 |
| | (2,691 | ) | | 2,663 |
| | 1,947 |
| | 478 |
| | 3,003 |
| | 5,884 |
| | 2,569 |
| | 1,397 |
| | 404 |
|
Total electric revenues | | 568,399 |
|
| 1,196,278 |
|
| 367,734 |
|
| 184,164 |
|
| 477,231 |
| | 545,812 |
|
| 936,693 |
|
| 282,244 |
|
| 130,883 |
|
| 340,474 |
|
| | | | | | | | | | | | | | | | | | | | |
Natural gas | | — |
| | 10,334 |
| | — |
| | 16,018 |
| | — |
| | — |
| | 22,637 |
| | — |
| | 32,311 |
| | — |
|
| | | | | | | | | | | | | | | | | | | | |
Total operating revenues | |
| $568,399 |
|
|
| $1,206,612 |
|
|
| $367,734 |
|
|
| $200,182 |
|
|
| $477,231 |
| |
| $545,812 |
|
|
| $959,330 |
|
|
| $282,244 |
|
|
| $163,194 |
|
|
| $340,474 |
|
The Registrant Subsidiaries’ total revenues for the ninethree months ended September 30,March 31, 2018 were as follows:
| | 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) |
| | | | | | | | | | | | | | | | | | | | |
Residential | |
| $644,735 |
| |
| $972,113 |
| |
| $451,331 |
| |
| $208,821 |
| |
| $522,539 |
| |
| $235,524 |
| |
| $295,517 |
| |
| $148,342 |
| |
| $64,575 |
| |
| $148,126 |
|
Commercial | | 334,325 |
| | 719,652 |
| | 354,799 |
| | 171,224 |
| | 291,380 |
| | 120,634 |
| | 224,928 |
| | 110,460 |
| | 54,272 |
| | 85,427 |
|
Industrial | | 335,529 |
| | 1,114,898 |
| | 133,012 |
| | 26,493 |
| | 294,896 |
| | 111,477 |
| | 352,336 |
| | 42,501 |
| | 7,570 |
| | 83,302 |
|
Governmental | | 12,859 |
| | 51,581 |
| | 33,788 |
| | 56,503 |
| | 19,218 |
| | 4,648 |
| | 17,310 |
| | 10,848 |
| | 17,691 |
| | 5,981 |
|
Total billed retail | | 1,327,448 |
| | 2,858,244 |
| | 972,930 |
| | 463,041 |
| | 1,128,033 |
| | 472,283 |
| | 890,091 |
| | 312,151 |
| | 144,108 |
| | 322,836 |
|
| | | | | | | | | | | | | | | | | | | | |
Sales for resale (a) | | 179,637 |
| | 272,690 |
| | 21,645 |
| | 24,390 |
| | 71,828 |
| | 66,103 |
| | 89,255 |
| | 1,993 |
| | 13,337 |
| | 23,361 |
|
Other electric revenues (b) | | 98,571 |
| | 124,749 |
| | 35,055 |
| | 7,404 |
| | 28,468 |
| | 10,024 |
| | 20,503 |
| | (719 | ) | | (3,111 | ) | | 2,264 |
|
Non-customer revenues (c) | | 8,372 |
| | 7,390 |
| | 7,536 |
| | 4,749 |
| | 1,328 |
| | 2,614 |
| | 5,257 |
| | 2,318 |
| | 1,484 |
| | 479 |
|
Total electric revenues | | 1,614,028 |
| | 3,263,073 |
| | 1,037,166 |
| | 499,584 |
| | 1,229,657 |
| | 551,024 |
| | 1,005,106 |
| | 315,743 |
| | 155,818 |
| | 348,940 |
|
| | | | | | | | | | | | | | | | | | | | |
Natural gas | | — |
| | 45,671 |
| | — |
| | 67,319 |
| | — |
| | — |
| | 24,238 |
| | — |
| | 32,457 |
| | — |
|
| | | | | | | | | | | | | | | | | | | | |
Total operating revenues | |
| $1,614,028 |
| |
| $3,308,744 |
| |
| $1,037,166 |
| |
| $566,903 |
| |
| $1,229,657 |
| |
| $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 |
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 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.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Competitive Businesses Revenues
The Entergy Wholesale Commodities segment derives almost all of its revenue from sales of electric power and capacity produced by its operating plants to wholesale customers. The majority of Entergy Wholesale Commodities revenues are from Entergy’s nuclear power plants located in the northern United States. Entergy issues monthly invoices to the counterparties for these electric sales at the respective contracted or ISO market rate of electricity and related services provided during the previous month.
Most of the Palisades nuclear plant output is sold under a 15-year PPA with Consumers Energy, executed as part of the acquisition of the plant in 2007 and expiring in 2022. 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.
Most of Entergy’s contracts, except in a few cases where there are defined minimums or stated terms, are on demand. This results in customer bills that vary each month based on an approved tariff and usage. Entergy imposes monthly or annual minimum requirements on some customers primarily as credit and cost recovery guarantees and not as pricing for unsatisfied performance obligations. These minimums typically expire after the initial term or when specified costs have been recovered. The minimum amounts are part of each month’s bill and recognized as revenue accordingly. Some of the subsidiaries within the Entergy Wholesale Commodities segment have operations and maintenance services contracts that have fixed components and terms longer than one year. The total fixed consideration related to these unsatisfied performance obligations, however, is not material to Entergy revenues.
Recovery of Fuel Costs
Entergy’s Utility operating companies’ rate schedules include either fuel adjustment clauses or fixed fuel factors, which allow either current recovery in billings to customers or deferral of fuel costs until the costs are billed to customers. Where the fuel component of revenues is based on a pre-determined fuel cost (fixed fuel factor), the fuel factor remains in effect until changed as part of a general rate case, fuel reconciliation, or fixed fuel factor filing. System Energy’s operating revenues are intended to recover from Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans operating expenses and capital costs attributable to Grand Gulf. The capital costs are based on System Energy’s common equity funds allocable to its net investment in Grand Gulf, plus System Energy’s effective interest cost for its debt allocable to its investment in Grand Gulf.
Taxes Imposed on Revenue-Producing Transactions
Governmental authorities assess taxes that are both imposed on and concurrent with a specific revenue-producing transaction between a seller and a customer, including, but not limited to, sales, use, value added, and some excise taxes. Entergy presents these taxes on a net basis, excluding them from revenues.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
NOTE 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. The following are updatesis 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 the Form 10-K, Entergy Wholesale Commodities plant owners will submit filings with the NRC for planned shutdown activities as the nuclear plants individually approach and begin decommissioning. Entergy Nuclear Generation Company expects to file its Post-Shutdown Decommissioning Activities Report (PSDAR) with the NRC in the fourth quarter 2018 for the Pilgrim plant. As part of the development of the PSDAR, Entergy obtained a revised decommissioning cost study in the third quarter 2018. The revised estimate resulted in a $117.5 million increase in the decommissioning cost liability and a corresponding impairment charge. See Note 14 to the financial statements in the Form 10-K, for a discussion of impairmentin January 2019, Entergy transferred 100% of the Pilgrim plant.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 September 30, 2018,March 31, 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 September 30, 2018March 31, 2019 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
Third Quarter2018 Compared to Third Quarter2017
Net income increased $36.3$2.9 million primarily due to a lower effective income tax rate andnuclear 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, partially offset by higher other operation and maintenance expenses.
Nine Months EndedSeptember 30, 2018 Compared to Nine Months EndedSeptember 30, 2017
Net income increased $102.2 million primarily due to a lower effective income tax rate and 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, partially offset by higher other operation and maintenance expenses, partially offset by higher interest expense and higher depreciation and amortization expenses, and lower other income.expenses.
Net Revenue
Third Quarter 2018 Compared to Third Quarter 2017
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 thirdfirst quarter 20182019 to the thirdfirst quarter 2017:2018:
|
| | | |
| Amount |
| (In Millions) |
20172018 net revenue |
| $481.8374.1 |
|
Return of unprotected excess accumulated deferred income taxes to customers | (152.831.8 | ) |
Volume/weatherFormula rate plan regulatory provision | 10.9(10.5 | ) |
Retail electric price | 25.610.6 |
|
Other | (6.03.8 | )
|
20182019 net revenue |
| $359.5346.2 |
|
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 herein and in the Form 10-K for further discussion of regulatory activity regarding the Tax Cuts and Jobs Act.
The volume/weather varianceformula rate plan regulatory provision is primarily due to an increase of 548 GWh, or 9%, 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 an increase in demand from mid-size to small customers and a new customeradditional provision recorded in the primary metals industry.
Entergy Arkansas, Inc. and Subsidiaries
Management's Financial Discussion and Analysis
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.
Nine Months Ended September 30, 2018 Compared to Nine Months Ended September 30, 2017
Net revenue consists of operating revenues net of: 1) fuel, fuel-related expenses, and gas purchased for resale, 2) purchased power expenses, and 3) other regulatory credits. Following is an analysis of the change in net revenue comparing the nine months ended September 30, 2018 to the nine months ended September 30, 2017:
|
| | | |
| Amount |
| (In Millions) |
2017 net revenue |
| $1,178.6 |
|
Return of unprotected excess accumulated deferred income taxes to customers | (260.4 | ) |
Retail electric price | 68.2 |
|
Volume/weather | 78.0 |
|
Other | 4.7 |
|
2018 net revenue |
| $1,069.1 |
|
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 herein and in the Form 10-K for further discussion of regulatory activity regarding the Tax Cuts and Jobs Act.
The retail electric price variance is primarily due to an increase in formula rate plan rates effective with the first billing cycle of January 2018 and an increase in the energy efficiency rider effective January 2018, each 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 1,478 GWh, or 9%, 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 and an increase in demand from mid-size to small customers.
Other Income Statement Variances
Third Quarter 2018 ComparedNuclear refueling outage expenses decreased primarily due to Third Quarter 2017the amortization of lower costs associated with the most recent outages as compared to previous outages.
Entergy Arkansas, LLC and Subsidiaries
Management's Financial Discussion and Analysis
Other operation and maintenance expenses increaseddecreased primarily due to an increasea decrease of $8.5$8.9 million in energy efficiency costs and an increase of $6.8 million in fossil-fuelednuclear 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 long-term service agreementsoftware 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 thirdfirst quarter 2018 as compared to the same period2018;
an increase of $1 million in 2017.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.
Other income increased primarily due to changes in decommissioning trust fund investment activity, including portfolio rebalancing for the ANO 1 decommissioning trust fund in third quarter 2018.
Entergy Arkansas, Inc. and Subsidiaries
Management's Financial Discussion and Analysis
Nine Months Ended September 30, 2018 Compared to Nine Months Ended September 30, 2017
Other operation and maintenance expenses increased primarily due to:
an increase of $14.2 million in energy efficiency costs;
an increase of $11 million in fossil-fueled generation expenses primarily due to higher long-term service agreement costs and higher labor costs in 2018 as compared to the same period in 2017; and
an increase of $9.3 million in nuclear generation expenses primarily due to higher labor costs, including contract labor, to position the nuclear fleet to meet its operational goals. 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.
The increase was partially offset by higher nuclear insurance refunds of $6.5 million.
Depreciation and amortization expenses increased primarily due to additions to plant in service.
Other income decreased primarily due to changes in decommissioning trust fund investment activity, including portfolio rebalancing for the ANO 1 decommissioning trust fund in 2018 and 2017.
Interest expense increased primarily due to the issuance of $250 million of 4.0%4.00% Series first mortgage bonds in May 2018 and the issuance of $220$350 million of 3.5%4.20% Series first mortgage bonds in May 2017.March 2019.
Income Taxes
The effective income tax rate was (631.3%(138.2%) for the thirdfirst quarter 2018.2019. The difference in the effective income tax rate for the thirdfirst quarter 20182019 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 and the provision for uncertain tax positions.taxes. See Notes 2 andNote 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 (286.4%)20.7% for the nine months ended September 30,first quarter 2018. The difference in the effective income tax rate for the nine months ended September 30,first quarter 2018 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 partially offset by state income taxes. See Notes 2 and 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 39% for the third quarter 2017. The difference in the effective income tax rate for the third quarter 2017 versus the federal statutory rate of 35% was primarily due to state income taxes.
The effective income tax rate was 39.4% for the nine months ended September 30, 2017. The difference in the effective income tax rate for the nine months ended September 30, 2017 versus the federal statutory rate of 35% was primarily due to 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.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, 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
Entergy Arkansas, Inc. and Subsidiaries
Management's Financial Discussion and Analysis
uncertainties associated with accounting for the Tax Act.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 and 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 ninethree months ended September 30,March 31, 2019 and 2018 and 2017 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 | 362,585 |
| | 367,551 |
| 206,467 |
| | 179,890 |
|
Investing activities | (574,337 | ) | | (667,841 | ) | (160,961 | ) | | (161,344 | ) |
Financing activities | 427,318 |
| | 280,245 |
| 144,616 |
| | (23,839 | ) |
Net increase (decrease) in cash and cash equivalents | 215,566 |
| | (20,045 | ) | 190,122 |
| | (5,293 | ) |
| | | | | | |
Cash and cash equivalents at end of period |
| $221,782 |
| |
| $464 |
|
| $190,241 |
| |
| $923 |
|
Operating Activities
Net cash flow provided by operating activities decreased $5increased $26.6 million for the ninethree months ended September 30, 2018March 31, 2019 compared to the ninethree months ended September 30, 2017March 31, 2018 primarily due to the return of unprotected excess accumulated deferred income taxes to customers. See Note 2 to the financial statements herein and in the Form 10-K for further discussion of regulatory activity regarding the Tax Cuts and Jobs Act. The decrease was partially offset by:
the timing of recovery of fuel and purchased power costs;
the effect of favorable weather on billed sales;
the timing of payments to vendors;
costs and a decrease of $18.1 million in spending on nuclear refueling outages in 2018; and
a decrease of $10.3$16.9 million in pension contributions in 2018.2019. 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
Net cash flow used in investing activities decreased $93.5$0.4 million for the ninethree months ended September 30, 2018March 31, 2019 compared to the ninethree months ended September 30, 2017March 31, 2018 primarily due to:
$66 million in funds held on deposit in 2017 for principal and interest payments due October 1, 2017;
to a decrease of $32.5$18.8 million in nuclear construction expenditures primarily due to a lower scope of work performed on various nuclear projects in 20182019 as compared to the same period in 2017;2018 and
a decrease of $18.9$11.1 million as a result of fluctuations in storm spending.
nuclear fuel activity because of variations from year to year in the timing and pricing of fuel reload requirements in the Utility business, material and service deliveries, and the timing of cash payments during the nuclear fuel cycle. The decrease was 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 $13.4$30.5 million for the ninethree months ended September 30, 2018.March 31, 2019. The money
Entergy Arkansas, Inc. and Subsidiaries
Management's Financial Discussion and Analysis
pool is an inter-company borrowing arrangement designed to reduce the Utility subsidiaries’ need for external short-term borrowings.
Financing Activities
Entergy Arkansas’s cash provided by financing activities increased $147.1provided $144.6 million of cash for the ninethree months ended September 30, 2018March 31, 2019 compared to using $23.8 million of cash for the ninethree months ended September 30, 2017March 31, 2018 primarily due to:to the following activity:
athe issuance of $350 million capital contribution from Entergy Corporationof 4.20% Series first mortgage bonds in 2018 in anticipation of the return of unprotected excess accumulated deferred income taxes to customersMarch 2019;
money pool activity; and upcoming planned capital investments;
net long-term borrowings of $45.5$50 million in 2018 on the Entergy Arkansas nuclear fuel company variable interest entitylong-term credit facility; and
the issuance of $250 million of 4.0% Series first mortgage bonds in May 2018 as compared to the issuance of $220 million of 3.5% Series first mortgage bonds in May 2017.facility.
The increase was partially offset by:
money pool activity; and80
net repayments of short-term borrowings of $50 million on the Entergy Arkansas, nuclear fuel company variable interest entity credit facility in 2018 as compared to net short-term borrowings of $23.3 million on the Entergy Arkansas nuclear fuel company variable interest entity credit facility in 2017.LLC and Subsidiaries
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 $166.1$182.7 million in 20182019 compared to increasingdecreasing by $43.9$42.3 million in 2017.2018.
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 debt to capital ratio is shown in the following table. The decreaseincrease in the debt to capital ratio for Entergy Arkansas is primarily due to the issuance of $350 million capital contribution from Entergy Corporationof first mortgage bonds in 2018.March 2019.
| | | September 30, 2018 | | December 31, 2017 | March 31, 2019 | | December 31, 2018 |
Debt to capital | 51.9 | % | | 55.5 | % | 54.1 | % | | 52.0 | % |
Effect of excluding the securitization bonds | (0.2 | %) | | (0.3 | %) | (0.1 | %) | | (0.2 | %) |
Debt to capital, excluding securitization bonds (a) | 51.7 | % | | 55.2 | % | 54.0 | % | | 51.8 | % |
Effect of subtracting cash | (1.8 | %) | | — | % | (1.4 | %) | | — | % |
Net debt to net capital, excluding securitization bonds (a) | 49.9 | % | | 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 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
Entergy Arkansas, Inc. and Subsidiaries
Management's Financial Discussion and Analysis
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 is developing its capital investment plan for 2019 through 2021 and currently anticipates making $2.3 billion in capital investments during that period. The preliminary estimate includes amounts associated with specific investments such as transmission projects to enhance reliability, reduce congestion, and enable economic growth; distribution spending to enhance reliability and improve service to customers, including advanced meters and related investments; resource planning, including potential generation projects; system improvements; investments in ANO 1 and 2; software and security; and other investments. Estimated capital expenditures are subject to periodic review and modification and may vary based on the ongoing effects of regulatory constraints and requirements, environmental compliance, business opportunities, market volatility, economic trends, business restructuring, changes in project plans, and the ability to access capital.
Entergy Arkansas’s receivables from or (payables to) the money pool were as follows:
|
| | | | | | |
September 30, 2018 | | December 31, 2017 | | September 30, 2017 | | December 31, 2016 |
(In Thousands) |
$13,421 | | ($166,137) | | ($95,114) | | ($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 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 September 30, 2018,March 31, 2019, no cash borrowings 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 September 30, 2018,March 31, 2019, a $1 million letter of credit was outstanding under Entergy Arkansas’s uncommitted letter of credit facility. See Note 4 to the financial statements 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 September 2021. As of September 30, 2018, $70.4March 31, 2019, $42.6 million in loans were outstanding under the credit facility for the Entergy Arkansas 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 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.
Entergy Arkansas, Inc. and Subsidiaries
Management's Financial Discussion and Analysis
Retail Rates
2018 Formula Rate Plan Filing
In July 2018, Entergy Arkansas filed with the APSC its 2018 formula rate plan filing to set its formula rate for the 2019 calendar year. The filing shows Entergy Arkansas’s projected earned return on common equity for the twelve months ended December 31, 2019 test period to be below the formula rate plan bandwidth. Additionally, the filing includes the first netting adjustment under the current formula rate plan for the historical test year 2017, which is a comparison of projected costs and sales approvedAs discussed in the 2016 formula rate plan filing to actual 2017 costs and sales data. The filing includes a projected $73.4 millionrevenue deficiency for 2019 and a $95.6 million revenue deficiency for the 2017 historical test year, for a total revenue requirement of $169 million for this filing. By operation of the formula rate plan, Entergy Arkansas’s recovery of the revenue requirement is subject to a four percent annual revenue constraint. Because Entergy Arkansas’s revenue requirement in this filing exceeds the constraint, the resulting increase is limited to four percent of total revenue, which is $65.4 million. The matter is scheduled for hearing in November 2018, and Entergy Arkansas requested that the APSC issue an order approving the proposed formula rate plan adjustment in December 2018, with the proposed formula rate plan adjustment effective with the first billing cycle of January 2019. In October 2018 the APSC staff and intervening parties filed their errors and objections to Entergy Arkansas’s 2018 formula rate plan filing, although no party proposed adjustments that would serve to reduce the requested revenue requirement below the annual revenue constraint. Entergy Arkansas also filed its rebuttal to the APSC staff and intervenors in October 2018. Later in October 2018 the parties submitted motions, which are pending with the APSC, to approve a partial settlement as to certain factual issues and to brief certain contested legal issues.
Similar to the 2018 filing,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. ToIn the extent thatfourth quarter 2018 Entergy Arkansas expects thisrecorded 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 reflect actual 2018 revenues that are in excess of the actual costs for that year, Entergy Arkansas will record a regulatory provisionbe included in the fourth quarter 2018.
Internal Restructuring
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. 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’s2019 filing. In July 2018, Entergy Arkansas filed a settlement, reached by all parties in the APSC proceeding, resolving all issues. The APSC approved the settlement agreement and restructuring in August 2018. Pursuant to the settlement agreement, Entergy Arkansas will credit retail customers $39.6 million over six years, beginning in 2019. Entergy Arkansas has also received the required FERC and NRC approvals. The restructuring is anticipated to close 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 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 Attorney General cited for suspension were questions pertaining to howopportunity sales proceeding. Entergy Arkansas forecasted sales and potential implications of the Tax Act. Entergy Arkansas repliedfiled its response to the Attorney General’s filing andmotion in April 2019 in which Entergy Arkansas stated that,its intent to initiate a proceeding to address recovery issues related 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 potentialOctober 2018 FERC order.
Entergy Arkansas, Inc.LLC and Subsidiaries
Management's Financial Discussion and Analysis
implications of the new tax law. The APSC general staff filed a reply to the Attorney General’s filing and agreed that Entergy Arkansas’s filing complied with the terms of the energy cost recovery rider. The redetermined rate became effective with the first billing cycle of April 2018. Subsequently in April 2018 the APSC issued an order declining to suspend Entergy Arkansas’s energy cost recovery rider rate and declining to require further investigation at that time of the issues suggested by the Attorney General in the proceeding. Following a period of discovery, the Attorney General filed a supplemental response in October 2018 raising new issues with Entergy Arkansas’s March 2018 rate redetermination and asserting that $45.7 million of the increase should be collected subject to refund pending further investigation. Also in October 2018, Entergy Arkansas filed to dismiss the Attorney General’s supplemental response, the APSC general staff filed a motion to strike the Attorney General’s filing, and the Attorney General filed its supplemental response disputing Entergy Arkansas and the APSC staff’s filing.
Opportunity Sales Proceeding
SeeAs discussed in the Form 10-K, for discussion of thein December 2018, Entergy Arkansas opportunity sales proceeding filed with the FERC. In October 2018 the FERC issued an order addressing the ALJ’s July 2017 initial decision. The FERC reversed the ALJ’s decision to cap the reduction in Entergy Arkansas’s payment to account for the increased bandwidth payments that Entergy Arkansas made to the other operating companies. The FERC also reversed the ALJ’s decision that Grand Gulf sales from January through September 2000 should be included in the calculation of Entergy Arkansas’s payment. The FERC affirmed on other grounds the ALJ’s rejection of the LPSC’s claim that certain joint account sales should be accounted for as part of the calculation of Entergy Arkansas’s payment. The FERC directed Entergy to make a compliance filing by December 17,in response to the FERC’s October 2018 providingorder in the opportunity sales proceeding. The compliance filing provided a final calculation of Entergy Arkansas’s payments to the other Utility operating companies, pursuantincluding interest. No protests were filed in response to the findings in the order and explaining how Entergy Arkansas will pay refunds, including the timeline for making those refunds. The FERC’s decision effectively establishes the base amount Entergy Arkansas must pay to the other Utility operating companies for the period of 2000-2009 to be approximately $68 million. Entergy Arkansas will also pay interest on the base amount to the other Utility operating companies, currently estimated to be approximately $64 million as of September 30,December 2018 for an estimated total of $132 million. This amount is consistent with the liability previously recognized by Entergy Arkansas.compliance filing. The December 2018 compliance filing will includeis pending FERC action.
In February 2019 the recipients and final amount of payments owed by Entergy Arkansas, as well asLPSC filed a new complaint relating to two issues that were raised in the timingopportunity sales proceeding, but that in its October 2018 order, the FERC held were outside the scope of the payments. Because management currently expectsproceeding. In March 2019, Entergy Services filed an answer and motion to recoverdismiss the retail portion of the payments due as a result of this proceeding, Entergy Arkansas previously recognized a regulatory asset with a balance of $114 million as of September 30, 2018.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. The following is an update to that discussion.
ANO
See Note 8 to the financial statements in the Form 10-K for discussion of the NRC’s decision in March 2015 to move ANO into the “multiple/repetitive degraded cornerstone column,” or Column 4, of the NRC’s Reactor Oversight Process Action Matrix, and the resulting significant additional NRC inspection activities at the ANO site. In June 2018 the NRC moved ANO 1 and ANO 2 into the “licensee response column,” or Column 1, of the NRC’s Reactor Oversight Process Action Matrix. This action followed NRC inspections to review ANO 1’s and ANO 2’s performance in addressing issues that had previously resulted in classification in the “multiple/repetitive degraded cornerstone column,” or Column 4.
Entergy Arkansas, 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 the estimates and judgments necessary in Entergy Arkansas’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. The following is an update to that discussion.
In the first quarter 2019, Entergy Arkansas recorded a revision to its estimated decommissioning cost liabilities for ANO 1 and ANO 2 as a result of a revised decommissioning cost study. The revised estimates resulted in a $126.2 million increase in its decommissioning cost liabilities, along with corresponding increases in the related asset retirement cost assets that will be depreciated over the remaining lives of the units.
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 |
CONSOLIDATED INCOME STATEMENTS |
For the Three and Nine Months Ended September 30, 2018 and 2017 |
(Unaudited) |
| | | | |
| | Three Months Ended | | Nine Months Ended |
| | 2018 | | 2017 | | 2018 | | 2017 |
| | (In Thousands) | | (In Thousands) |
OPERATING REVENUES | | | | | | | | |
Electric | |
| $568,399 |
| |
| $673,226 |
| |
| $1,614,028 |
| |
| $1,644,239 |
|
| | | | | | | | |
OPERATING EXPENSES | | | | | | | | |
Operation and Maintenance: | | | | | | | | |
Fuel, fuel-related expenses, and gas purchased for resale | | 164,438 |
| | 133,254 |
| | 379,240 |
| | 283,354 |
|
Purchased power | | 58,213 |
| | 63,423 |
| | 195,024 |
| | 193,108 |
|
Nuclear refueling outage expenses | | 19,062 |
| | 22,988 |
| | 61,623 |
| | 59,942 |
|
Other operation and maintenance | | 188,882 |
| | 171,498 |
| | 536,032 |
| | 502,696 |
|
Decommissioning | | 15,226 |
| | 14,320 |
| | 44,971 |
| | 42,321 |
|
Taxes other than income taxes | | 27,972 |
| | 29,259 |
| | 80,322 |
| | 78,438 |
|
Depreciation and amortization | | 73,579 |
| | 70,433 |
| | 218,261 |
| | 206,586 |
|
Other regulatory credits - net | | (13,758 | ) | | (5,219 | ) | | (29,378 | ) | | (10,797 | ) |
TOTAL | | 533,614 |
| | 499,956 |
| | 1,486,095 |
| | 1,355,648 |
|
| | | | | | | | |
OPERATING INCOME | | 34,785 |
| | 173,270 |
| | 127,933 |
| | 288,591 |
|
| | | | | | | | |
OTHER INCOME | | | | | | | | |
Allowance for equity funds used during construction | | 3,735 |
| | 4,140 |
| | 12,214 |
| | 13,922 |
|
Interest and investment income | | 12,060 |
| | 6,738 |
| | 21,352 |
| | 27,865 |
|
Miscellaneous - net | | (3,063 | ) | | (3,332 | ) | | (10,815 | ) | | (9,976 | ) |
TOTAL | | 12,732 |
| | 7,546 |
| | 22,751 |
| | 31,811 |
|
| | | | | | | | |
INTEREST EXPENSE | | | | | | | | |
Interest expense | | 31,632 |
| | 31,010 |
| | 92,315 |
| | 86,776 |
|
Allowance for borrowed funds used during construction | | (1,739 | ) | | (1,944 | ) | | (5,737 | ) | | (6,458 | ) |
TOTAL | | 29,893 |
| | 29,066 |
| | 86,578 |
| | 80,318 |
|
| | | | | | | | |
INCOME BEFORE INCOME TAXES | | 17,624 |
| | 151,750 |
| | 64,106 |
| | 240,084 |
|
| | | | | | | | |
Income taxes | | (111,266 | ) | | 59,112 |
| | (183,595 | ) | | 94,592 |
|
| | | | | | | | |
NET INCOME | | 128,890 |
| | 92,638 |
| | 247,701 |
| | 145,492 |
|
| | | | | | | | |
Preferred dividend requirements | | 357 |
| | 357 |
| | 1,071 |
| | 1,071 |
|
| | | | | | | | |
EARNINGS APPLICABLE TO COMMON STOCK | |
| $128,533 |
| |
| $92,281 |
| |
| $246,630 |
| |
| $144,421 |
|
| | | | | | | | |
See Notes to Financial Statements. | | | | | | | | |
(Page left blank intentionally)
|
| | | | | | | | |
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, INC. AND SUBSIDIARIES | |
ENTERGY ARKANSAS, LLC AND SUBSIDIARIES | | ENTERGY ARKANSAS, LLC AND SUBSIDIARIES |
CONSOLIDATED STATEMENTS OF CASH FLOWS | For the Nine Months Ended September 30, 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 | |
| $247,701 |
| |
| $145,492 |
| |
| $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 | | 335,939 |
| | 311,725 |
| | 117,255 |
| | 115,976 |
|
Deferred income taxes, investment tax credits, and non-current taxes accrued | | 28,463 |
| | 78,390 |
| | 30,756 |
| | 11,877 |
|
Changes in assets and liabilities: | | | | | | | | |
Receivables | | (33,422 | ) | | (45,180 | ) | | 22,194 |
| | 31,033 |
|
Fuel inventory | | 7,523 |
| | 10,089 |
| | 260 |
| | (13,868 | ) |
Accounts payable | | (20,904 | ) | | (78,396 | ) | | (56,432 | ) | | (26,924 | ) |
Taxes accrued | | 30,686 |
| | 15,367 |
| | (10,616 | ) | | 10,072 |
|
Interest accrued | | 13,558 |
| | 12,436 |
| | 12,661 |
| | 9,748 |
|
Deferred fuel costs | | 24,463 |
| | (53,664 | ) | | 44,926 |
| | 1,971 |
|
Other working capital accounts | | (8,827 | ) | | (6,762 | ) | | 1,599 |
| | 5,591 |
|
Provisions for estimated losses | | 10,013 |
| | 10,094 |
| | 9,930 |
| | 6,520 |
|
Other regulatory assets | | 22,574 |
| | (4,680 | ) | | (56,263 | ) | | 13,835 |
|
Other regulatory liabilities | | (218,518 | ) | | 43,473 |
| | 53,386 |
| | (13,546 | ) |
Pension and other postretirement liabilities | | (64,461 | ) | | (73,107 | ) | | (910 | ) | | (19,277 | ) |
Other assets and liabilities | | (12,203 | ) | | 2,274 |
| | (1,400 | ) | | 10,627 |
|
Net cash flow provided by operating activities | | 362,585 |
| | 367,551 |
| | 206,467 |
| | 179,890 |
|
| | | | | | | | |
INVESTING ACTIVITIES | | | | | | | | |
Construction expenditures | | (517,882 | ) | | (558,985 | ) | | (147,214 | ) | | (167,485 | ) |
Allowance for equity funds used during construction | | 12,572 |
| | 14,521 |
| | 3,506 |
| | 4,143 |
|
Nuclear fuel purchases | | (79,142 | ) | | (95,289 | ) | | (214 | ) | | (19,391 | ) |
Proceeds from sale of nuclear fuel | | 31,897 |
| | 51,029 |
| | 22,834 |
| | 30,907 |
|
Proceeds from nuclear decommissioning trust fund sales | | 259,331 |
| | 219,223 |
| | 34,423 |
| | 34,865 |
|
Investment in nuclear decommissioning trust funds | | (269,913 | ) | | (228,740 | ) | | (40,223 | ) | | (40,238 | ) |
Change in money pool receivable - net | | (13,421 | ) | | — |
| | (30,521 | ) | | — |
|
Changes in securitization account | | (4,821 | ) | | (3,619 | ) | | (3,553 | ) | | (4,145 | ) |
Insurance proceeds | | 7,043 |
| | — |
| |
Change in other investments | | (1 | ) | | (65,981 | ) | |
Other | | | 1 |
| | — |
|
Net cash flow used in investing activities | | (574,337 | ) | | (667,841 | ) | | (160,961 | ) | | (161,344 | ) |
| | | | | | | | |
FINANCING ACTIVITIES | | | | | | | | |
Proceeds from the issuance of long-term debt | | 658,427 |
| | 222,717 |
| | 603,655 |
| | 175,000 |
|
Retirement of long-term debt | | (372,447 | ) | | (6,803 | ) | | (275,904 | ) | | (149,904 | ) |
Capital contribution from parent | | 350,000 |
| | — |
| |
Changes in short-term borrowings - net | | (49,974 | ) | | 23,257 |
| | — |
| | (6,087 | ) |
Changes in money pool payable - net | | (166,137 | ) | | 43,882 |
| | (182,738 | ) | | (42,279 | ) |
Dividends paid: | | | | | | | | |
Preferred stock | | (1,071 | ) | | (1,071 | ) | | — |
| | (357 | ) |
Other | | 8,520 |
| | (1,737 | ) | | (397 | ) | | (212 | ) |
Net cash flow provided by financing activities | | 427,318 |
| | 280,245 |
| |
Net cash flow provided by (used in) financing activities | | | 144,616 |
| | (23,839 | ) |
| | | | | | | | |
Net increase (decrease) in cash and cash equivalents | | 215,566 |
| | (20,045 | ) | | 190,122 |
| | (5,293 | ) |
Cash and cash equivalents at beginning of period | | 6,216 |
| | 20,509 |
| | 119 |
| | 6,216 |
|
Cash and cash equivalents at end of period | |
| $221,782 |
| |
| $464 |
| |
| $190,241 |
| |
| $923 |
|
| | | | | | | | |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | | | | |
| | | | |
|
Cash paid during the period for: | | | | | | | | |
Interest - net of amount capitalized | |
| $74,966 |
| |
| $70,321 |
| |
| $19,458 |
| |
| $18,761 |
|
| | | | | | | | |
See Notes to Financial Statements. | | | | | | | | |
| | ENTERGY ARKANSAS, INC. AND SUBSIDIARIES | |
ENTERGY ARKANSAS, LLC AND SUBSIDIARIES | | ENTERGY ARKANSAS, LLC AND SUBSIDIARIES |
CONSOLIDATED BALANCE SHEETS | ASSETS | September 30, 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 | |
| $13,121 |
| |
| $6,184 |
| |
| $746 |
| |
| $118 |
|
Temporary cash investments | | 208,661 |
| | 32 |
| | 189,495 |
| | 1 |
|
Total cash and cash equivalents | | 221,782 |
| | 6,216 |
| | 190,241 |
| | 119 |
|
Securitization recovery trust account | | 8,570 |
| | 3,748 |
| | 8,218 |
| | 4,666 |
|
Accounts receivable: | | | | | | | | |
Customer | | 141,294 |
| | 110,016 |
| | 130,054 |
| | 94,348 |
|
Allowance for doubtful accounts | | (1,420 | ) | | (1,063 | ) | | (1,455 | ) | | (1,264 | ) |
Associated companies | | 57,253 |
| | 38,765 |
| | 63,023 |
| | 48,184 |
|
Other | | 51,756 |
| | 65,209 |
| | 43,548 |
| | 64,393 |
|
Accrued unbilled revenues | | 116,007 |
| | 105,120 |
| | 86,910 |
| | 108,092 |
|
Total accounts receivable | | 364,890 |
| | 318,047 |
| | 322,080 |
| | 313,753 |
|
Deferred fuel costs | | 38,691 |
| | 63,302 |
| | — |
| | 19,235 |
|
Fuel inventory - at average cost | | 21,835 |
| | 29,358 |
| | 22,888 |
| | 23,148 |
|
Materials and supplies - at average cost | | 196,623 |
| | 192,853 |
| | 205,601 |
| | 196,314 |
|
Deferred nuclear refueling outage costs | | 57,683 |
| | 56,485 |
| | 60,689 |
| | 78,966 |
|
Prepayments and other | | 22,316 |
| | 12,108 |
| | 10,073 |
| | 14,553 |
|
TOTAL | | 932,390 |
| | 682,117 |
| | 819,790 |
| | 650,754 |
|
| | | | | | | | |
OTHER PROPERTY AND INVESTMENTS | | | | | | | | |
Decommissioning trust funds | | 996,857 |
| | 944,890 |
| | 997,263 |
| | 912,049 |
|
Other | | 785 |
| | 3,160 |
| | 5,478 |
| | 5,480 |
|
TOTAL | | 997,642 |
| | 948,050 |
| | 1,002,741 |
| | 917,529 |
|
| | | | | | | | |
UTILITY PLANT | | | | | | | | |
Electric | | 11,376,058 |
| | 11,059,538 |
| | 11,744,151 |
| | 11,611,041 |
|
Construction work in progress | | 350,554 |
| | 280,888 |
| | 304,981 |
| | 243,731 |
|
Nuclear fuel | | 240,582 |
| | 277,345 |
| | 171,038 |
| | 220,602 |
|
TOTAL UTILITY PLANT | | 11,967,194 |
| | 11,617,771 |
| | 12,220,170 |
| | 12,075,374 |
|
Less - accumulated depreciation and amortization | | 4,908,917 |
| | 4,762,352 |
| | 4,865,283 |
| | 4,864,818 |
|
UTILITY PLANT - NET | | 7,058,277 |
| | 6,855,419 |
| | 7,354,887 |
| | 7,210,556 |
|
| | | | | | | | |
DEFERRED DEBITS AND OTHER ASSETS | | | | | | | | |
Regulatory assets: | | | | | | | | |
Other regulatory assets (includes securitization property of $17,247 as of September 30, 2018 and $28,583 as of December 31, 2017) | | 1,544,863 |
| | 1,567,437 |
| |
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 | | 67,244 |
| | 67,096 |
| | 67,393 |
| | 67,294 |
|
Other | | 18,252 |
| | 13,910 |
| | 26,292 |
| | 20,486 |
|
TOTAL | | 1,630,359 |
| | 1,648,443 |
| | 1,684,925 |
| | 1,622,757 |
|
| | | | | | | | |
TOTAL ASSETS | |
| $10,618,668 |
| |
| $10,134,029 |
| |
| $10,862,343 |
| |
| $10,401,596 |
|
| | | | | | | | |
See Notes to Financial Statements. | | | | | | | | |
| | ENTERGY ARKANSAS, INC. AND SUBSIDIARIES | |
ENTERGY ARKANSAS, LLC AND SUBSIDIARIES | | ENTERGY ARKANSAS, LLC AND SUBSIDIARIES |
CONSOLIDATED BALANCE SHEETS | LIABILITIES AND EQUITY | September 30, 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 | | | | | | | | |
Short-term borrowings | |
| $— |
| |
| $49,974 |
| |
Accounts payable: | | | | | | | | |
Associated companies | | 183,372 |
| | 365,915 |
| |
| $47,717 |
| |
| $251,768 |
|
Other | | 172,820 |
| | 215,942 |
| | 140,708 |
| | 187,387 |
|
Customer deposits | | 99,138 |
| | 97,687 |
| | 99,380 |
| | 99,053 |
|
Taxes accrued | | 78,007 |
| | 47,321 |
| | 46,273 |
| | 56,889 |
|
Interest accrued | | 31,773 |
| | 18,215 |
| | 31,554 |
| | 18,893 |
|
Deferred fuel costs | | | 25,790 |
| | — |
|
Current portion of unprotected excess accumulated deferred income taxes | | 179,712 |
| | — |
| | 100,594 |
| | 99,316 |
|
Other | | 32,411 |
| | 29,922 |
| | 39,020 |
| | 23,943 |
|
TOTAL | | 777,233 |
| | 824,976 |
| | 531,036 |
| | 737,249 |
|
| | | | | | | | |
NON-CURRENT LIABILITIES | | | | | | | | |
Accumulated deferred income taxes and taxes accrued | | 1,235,625 |
| | 1,190,669 |
| | 1,131,314 |
| | 1,085,545 |
|
Accumulated deferred investment tax credits | | 33,203 |
| | 34,104 |
| | 32,602 |
| | 32,903 |
|
Regulatory liability for income taxes - net | | 533,179 |
| | 985,823 |
| | 467,198 |
| | 505,748 |
|
Other regulatory liabilities | | 418,005 |
| | 363,591 |
| | 493,326 |
| | 402,668 |
|
Decommissioning | | 1,026,816 |
| | 981,213 |
| | 1,190,346 |
| | 1,048,428 |
|
Accumulated provisions | | 44,742 |
| | 34,729 |
| | 58,909 |
| | 48,979 |
|
Pension and other postretirement liabilities | | 288,870 |
| | 353,274 |
| | 312,361 |
| | 313,295 |
|
Long-term debt (includes securitization bonds of $27,958 as of September 30, 2018 and $34,662 as of December 31, 2017) | | 3,242,282 |
| | 2,952,399 |
| |
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 | | 13,979 |
| | 5,147 |
| | 67,875 |
| | 17,919 |
|
TOTAL | | 6,836,701 |
| | 6,900,949 |
| | 7,309,083 |
| | 6,681,244 |
|
| | | | | | | | |
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 | | 1,140,264 |
| | 790,264 |
| |
Retained earnings | | 1,832,650 |
| | 1,586,020 |
| |
EQUITY | | | | | |
Member's equity | | | 3,022,224 |
| | 2,983,103 |
|
TOTAL | | 2,973,384 |
| | 2,376,754 |
| | 3,022,224 |
| | 2,983,103 |
|
| | | | | | | | |
TOTAL LIABILITIES AND EQUITY | |
| $10,618,668 |
| |
| $10,134,029 |
| |
| $10,862,343 |
| |
| $10,401,596 |
|
| | | | | | | | |
See Notes to Financial Statements. | | | | | | | | |
|
| | | | | | | | | | | | | | | | |
ENTERGY ARKANSAS, INC. AND SUBSIDIARIES |
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON EQUITY |
For the Nine Months Ended September 30, 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 | | — |
| | — |
| | 145,492 |
| | 145,492 |
|
Preferred stock dividends | | — |
| | — |
| | (1,071 | ) | | (1,071 | ) |
| | | | | | | | |
Balance at September 30, 2017 | |
| $470 |
| |
| $790,243 |
| |
| $1,607,025 |
| |
| $2,397,738 |
|
| | | | | | | | |
| | | | | | | | |
Balance at December 31, 2017 | |
| $470 |
| |
| $790,264 |
| |
| $1,586,020 |
| |
| $2,376,754 |
|
| | | | | | | | |
Net income | | — |
| | — |
| | 247,701 |
| | 247,701 |
|
Capital contribution from parent | | — |
| | 350,000 |
| | — |
| | 350,000 |
|
Preferred stock dividends | | — |
| | — |
| | (1,071 | ) | | (1,071 | ) |
| | | | | | | | |
Balance at September 30, 2018 | |
| $470 |
| |
| $1,140,264 |
| |
| $1,832,650 |
| |
| $2,973,384 |
|
| | | | | | | | |
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, INC. AND SUBSIDIARIES | |
ENTERGY ARKANSAS, LLC AND SUBSIDIARIES | | ENTERGY ARKANSAS, LLC AND SUBSIDIARIES |
SELECTED OPERATING RESULTS | For the Three and Nine Months Ended September 30, 2018 and 2017 | |
For the Three Months Ended March 31, 2019 and 2018 | | For the Three Months Ended March 31, 2019 and 2018 |
(Unaudited) | | | | | | | | | | | | | |
| | Three Months Ended | | Increase/ | | | | Nine Months Ended | | Increase/ | | |
Description | | 2018 | | 2017 | | (Decrease) | | % | | 2019 | | 2018 | | (Decrease) | | % |
| | (Dollars In Millions) | | | | (Dollars In Millions) | | |
Electric Operating Revenues: | Electric Operating Revenues: | | | | | | | Electric Operating Revenues: | | | | | | |
Residential | |
| $250 |
| |
| $254 |
| |
| ($4 | ) | | (2 | ) | |
| $210 |
| |
| $236 |
| |
| ($26 | ) | | (11 | ) |
Commercial | | 120 |
| | 150 |
| | (30 | ) | | (20 | ) | | 125 |
| | 121 |
| | 4 |
| | 3 |
|
Industrial | | 126 |
| | 145 |
| | (19 | ) | | (13 | ) | | 122 |
| | 111 |
| | 11 |
| | 10 |
|
Governmental | | 4 |
| | 6 |
| | (2 | ) | | (33 | ) | | 5 |
| | 5 |
| | — |
| | — |
|
Total billed retail | | 500 |
| | 555 |
| | (55 | ) | | (10 | ) | | 462 |
| | 473 |
| | (11 | ) | | (2 | ) |
Sales for resale: | | | | | | | | | | | | | | | | |
Associated companies | | 23 |
| | 33 |
| | (10 | ) | | (30 | ) | | 29 |
| | 30 |
| | (1 | ) | | (3 | ) |
Non-associated companies | | 37 |
| | 45 |
| | (8 | ) | | (18 | ) | | 50 |
| | 36 |
| | 14 |
| | 39 |
|
Other | | 8 |
| | 40 |
| | (32 | ) | | (80 | ) | | 5 |
| | 12 |
| | (7 | ) | | (58 | ) |
Total | |
| $568 |
| |
| $673 |
| |
| ($105 | ) | | (16 | ) | |
| $546 |
| |
| $551 |
| |
| ($5 | ) | | (1 | ) |
| | | | | | | | | | | | | | | | |
Billed Electric Energy Sales (GWh): | | | | | | | | | | | | | | | | |
Residential | | 2,482 |
| | 2,236 |
| | 246 |
| | 11 |
| | 2,205 |
| | 2,329 |
| | (124 | ) | | (5 | ) |
Commercial | | 1,816 |
| | 1,723 |
| | 93 |
| | 5 |
| | 1,326 |
| | 1,365 |
| | (39 | ) | | (3 | ) |
Industrial | | 2,283 |
| | 2,074 |
| | 209 |
| | 10 |
| | 1,845 |
| | 1,828 |
| | 17 |
| | 1 |
|
Governmental | | 67 |
| | 67 |
| | — |
| | — |
| | 57 |
| | 56 |
| | 1 |
| | 2 |
|
Total retail | | 6,648 |
| | 6,100 |
| | 548 |
| | 9 |
| | 5,433 |
| | 5,578 |
| | (145 | ) | | (3 | ) |
Sales for resale: | | | | | | | | | | | | | | | | |
Associated companies | | 483 |
| | 483 |
| | — |
| | — |
| | 597 |
| | 487 |
| | 110 |
| | 23 |
|
Non-associated companies | | 1,818 |
| | 2,026 |
| | (208 | ) | | (10 | ) | | 2,519 |
| | 1,717 |
| | 802 |
| | 47 |
|
Total | | 8,949 |
| | 8,609 |
| | 340 |
| | 4 |
| | 8,549 |
| | 7,782 |
| | 767 |
| | 10 |
|
| | | | | | | | | |
| | Nine Months Ended | | Increase/ | | | |
Description | | 2018 | | 2017 | | (Decrease) | | % | |
| | (Dollars In Millions) | | | |
Electric Operating Revenues: | | | | | | | |
Residential | |
| $645 |
| |
| $597 |
| |
| $48 |
| | 8 |
| |
Commercial | | 334 |
| | 375 |
| | (41 | ) | | (11 | ) | |
Industrial | | 335 |
| | 355 |
| | (20 | ) | | (6 | ) | |
Governmental | | 13 |
| | 15 |
| | (2 | ) | | (13 | ) | |
Total billed retail | | 1,327 |
| | 1,342 |
| | (15 | ) | | (1 | ) | |
Sales for resale: | | | | | | | | | |
Associated companies | | 80 |
| | 96 |
| | (16 | ) | | (17 | ) | |
Non-associated companies | | 100 |
| | 96 |
| | 4 |
| | 4 |
| |
Other | | 107 |
| | 110 |
| | (3 | ) | | (3 | ) | |
Total | |
| $1,614 |
| |
| $1,644 |
| |
| ($30 | ) | | (2 | ) | |
| | | | | | | | | |
Billed Electric Energy Sales (GWh): | | | | | | | | | |
Residential | | 6,455 |
| | 5,625 |
| | 830 |
| | 15 |
| |
Commercial | | 4,577 |
| | 4,410 |
| | 167 |
| | 4 |
| |
Industrial | | 6,064 |
| | 5,584 |
| | 480 |
| | 9 |
| |
Governmental | | 181 |
| | 180 |
| | 1 |
| | 1 |
| |
Total retail | | 17,277 |
| | 15,799 |
| | 1,478 |
| | 9 |
| |
Sales for resale: | | | | | | | | | |
Associated companies | | 1,206 |
| | 1,316 |
| | (110 | ) | | (8 | ) | |
Non-associated companies | | 4,706 |
| | 4,374 |
| | 332 |
| | 8 |
| |
Total | | 23,189 |
| | 21,489 |
| | 1,700 |
| | 8 |
| |
ENTERGY LOUISIANA, LLC AND SUBSIDIARIES
MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS
Results of Operations
Net Income
Third Quarter 2018 Compared to Third Quarter 2017
Net income increased $32 million primarily due to a lower effective income tax rate and 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. The increase was partially offset by higher other operation and maintenance expenses and higher depreciation and amortization expenses.
Nine Months Ended September 30, 2018 Compared to Nine Months Ended September 30, 2017
Net income increased $109.1$16 million primarily due to 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. The increase was partially offset by higher other operation and maintenance expenses, andpartially offset by higher depreciation and amortization expenses.
Net Revenue
Third Quarter 2018 Compared to Third Quarter 2017
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 thirdfirst quarter 20182019 to the thirdfirst quarter 2017:2018:
|
| | | |
| Amount |
| (In Millions) |
20172018 net revenue |
| $717.4573.7 |
|
Retail electric price | 46.0 |
|
Return of unprotected excess accumulated deferred income taxes to customers | (54.8 | ) |
Retail electric price | (12.67.0 | ) |
Volume/weather | 14.7(29.6 | ) |
Other | 6.3(0.8 | ) |
20182019 net revenue |
| $671.0582.3 |
|
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 herein and in the Form 10-K for further discussion of regulatory activity regarding the Tax Cuts and Jobs Act.
The retail electric pricevolume/weather variance is primarily due to regulatory charges of $18.3 million recorded in the third 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 anda decrease of 225 GWh, or 2%, in formula rate plan revenues implemented withbilled electricity usage, including the first billing cycleeffect of September 2017.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
resulting from lower Grand Gulf purchased power expenses. See Note 2 to the financial statements herein and in the Form 10-K for further discussion of the formula rate plan extension proceeding.
The volume/weather variance is primarily due to the effect of more favorable weather on residential and commercial sales.
Nine Months Ended September 30, 2018 Compared to Nine Months Ended September 30, 2017
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 nine months ended September 30, 2018 to the nine months ended September 30, 2017:
|
| | | |
| Amount |
| (In Millions) |
2017 net revenue |
| $1,901.7 |
|
Return of unprotected excess accumulated deferred income taxes to customers | (86.3 | ) |
Retail electric price | (52.7 | ) |
Volume/weather | 65.1 |
|
Other | 13.4 |
|
2018 net revenue |
| $1,841.2 |
|
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 herein and in the Form 10-K for further discussion of regulatory activity regarding the Tax Cuts and Jobs Act.
The retail electric price variance is primarily due to regulatory charges of $73.3 million recorded in 2018 to reflect the effects of a provision in the settlement reached in the formula rate plan extension proceeding to return the benefits of the lower federal income tax rate in 2018 to customers. Partially offsetting the decrease were increases resulting from lower Grand Gulf purchased power expenses and an energy efficiency rider, effective January 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.
The volume/weather variance is primarily due to an increase of 1,257 GWh, or 3%, in billed electricity usage, including the effect of more favorable weather on residential and commercial sales. The increase was partially offset by a decrease in industrial usage primarily due to a decrease in demand from existing customers.
Other Income Statement Variances
Third Quarter 2018 Compared to Third Quarter 2017
Other operation and maintenance expenses increaseddecreased primarily due to:
an increase of $3.6 million in fossil-fueled generation expenses primarily due to an overall higher scope of work performed in the third quarter 2018 as compared to the same period in 2017;
an increase of $3.1 million in information technology expenses primarily due to higher software maintenance costs and higher contract costs;
a $1.7 million loss on disposal of assets in 2018 and a $1.4 million gain on disposal of assets in 2017; and
an increase of $2.5 million in energy efficiency costs.
Entergy Louisiana, LLC and Subsidiaries
Management's Financial Discussion and Analysis
The increase was partially offset by a decrease of $4.8$9.7 million in nuclear generation expenses primarily due to a lower scope of work performed during non-refueling plant outages in the thirdfirst quarter 20182019 as compared to the same periodfirst quarter 2018 and lower nuclear labor costs; and
a decrease of $4.1 million in 2017.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 equityborrowed funds used during construction due to higher construction work in progress in 2018, which included2019, including the Lake Charles Power Station and St. Charles Power Station projects. The increase was partially offset due to a change in decommissioning trust fund investment activity, including portfolio rebalancing of certain of the decommissioning trust funds in 2017.
Nine Months Ended September 30, 2018 Compared to Nine Months Ended September 30, 2017
Other operation and maintenance expenses increased primarily due to:
an increase of $21.8 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;
an increase of $6.8 million in energy efficiency costs;
an increase of $6.8 million in transmission expenses primarily due to higher labor and contract costs to support industrial customers;
an increase of $6.4 million in information technology expenses primarily due to higher software maintenance costs and higher contract costs; and
an increase of $5.5 million in nuclear generation expenses primarily due to higher nuclear labor costs, including contract labor, to position the nuclear fleet to meet its operational goals and a higher scope of work performed during plant outages in 2018 as compared to the same period in 2017.
The increase was partially offset by higher nuclear insurance refunds of $4.2 million in 2018.
Taxes other than income taxes increased primarily due to increases in ad valorem taxes resulting from higher assessments.
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 equity funds used during construction due to higher construction work in progress in 2018, which included the Lake Charles Power Station and St. Charles Power Station projects. The increase was partiallysubstantially offset by a change in decommissioning trust fund investment activity, including portfolio rebalancing of certain of the decommissioning trust funds in 2017.activity.
Income Taxes
The effective income tax rate was 1.3%11.5% for the thirdfirst quarter 2018.2019. The difference in the effective income tax rate for the thirdfirst 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, the amortization of excess accumulated deferred income taxes, and book and tax differences related to the non-taxable income distributions earned on preferred membership interests,allowance for equity funds used during construction, partially offset by state income taxes. See Notes 2 andNote 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 (6.3%)16.3% for the nine months ended September 30,first quarter 2018. The difference in the effective income tax rate for the nine months ended September 30,first quarter 2018 versus the federal statutory rate of 21% was primarily due to the amortization of excess accumulated deferred income taxes, an IRS audit settlement for the 2012-2013 tax returns, and book and tax differences related to the non-taxable income distributions earned on preferred membership interests, partially offset by state income taxes. See Notes 2 and 10 to the financial statements herein and
Entergy Louisiana, LLC and Subsidiaries
Management's Financial Discussion and Analysis
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 a discussion of the IRS audit settlement.
The effective income tax rate was 33.6% for the third quarter 2017. The difference in the effective income tax rate for the third quarter 2017 versus the federal statutory rate of 35% 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.taxes and a write-off of a stock-based compensation deferred tax asset.
The effective income tax rate was 32.4% for the nine months ended September 30, 2017. The difference in the nine months ended September 30, 2017 versus the federal statutory rate of 35% 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.
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.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 and Entergy’s regulators tothat have considered the effects of the Tax Act.
Liquidity and Capital Resources
Cash Flow
Cash flows for the nine months ended September 30, 2018 and 2017 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 | 943,300 |
| | 927,176 |
|
Investing activities | (1,283,844 | ) | | (1,379,365 | ) |
Financing activities | 518,222 |
| | 293,862 |
|
Net increase (decrease) in cash and cash equivalents | 177,678 |
| | (158,327 | ) |
| | | |
Cash and cash equivalents at end of period |
| $213,585 |
| |
| $55,523 |
|
Operating Activities
Net cash flow provided by operating activities increased $16.1 million for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017 primarily due to:
a decrease of $78.7 million in spending on nuclear refueling outages; and
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.
Entergy Louisiana, LLC and Subsidiaries
Management's Financial Discussion and Analysis
The increase was partially offset by:Liquidity and Capital Resources
a decreaseCash 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 $114collection of receivables from customers;
an increase of $28.7 million in income tax refundsspending on nuclear refueling outages;
an increase of $20.3 million in 2018interest payments in the first quarter 2019 as compared to the same period in 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;first quarter 2018; and
the return of unprotected excess accumulated deferred income taxes to customers. See Note 2 to the financial statements hereinin the Form 10-K for a discussion of the regulatory activity regarding the Tax Cuts and Jobs 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 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 $95.5$172.6 million for the ninethree months ended September 30, 2018March 31, 2019 compared to the ninethree months ended September 30, 2017March 31, 2018 primarily due to:
money pool activity;
a decrease of $152.5$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
money pool activity;
$33.3 million in funds held on deposit in 2017 for interest payments due October 1, 2017;92
a decreaseEntergy Louisiana, LLC and Subsidiaries
Management's Financial Discussion and Analysis
an increase of $14.1$42.6 million in nuclear construction expenditures primarily due to decreasedincreased spending on various nuclear projects; and
a decrease of $8.9 millionprojects in information technology construction expenditures primarily due to higher spending in 2017 on various information technology projects and upgrades.2019.
The decrease was partially offset by:
an increase of $89.9 million in fossil-fueled generation construction expenditures primarily due to higher spending on the Lake Charles Power Station project in 2018, partially offset by lower spending on the St. Charles Power Station project in 2018; and
an increase of $80 million in transmission construction expenditures primarily due to a higher scope of work performed in 2018 as compared to the same period in 2017.
IncreasesDecreases in Entergy Louisiana’s receivable from the money pool are a usesource of cash flow, and Entergy Louisiana’s receivable from the money pool increaseddecreased by $2.4$8.9 million for the ninethree months ended September 30, 2018March 31, 2019 compared to increasing by $50.4$170.2 million for the ninethree months ended September 30, 2017.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 increased $224.4decreased $288.7 million for the ninethree months ended September 30, 2018March 31, 2019 compared to the ninethree months ended September 30, 2017March 31, 2018 primarily due to:
the issuance of $750 million of 4.00% Series first mortgage bonds in March 2018. A portion2018;
net borrowings of $100 million on the proceedsEntergy 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 used to repay $375partially offset by the issuance of $525 million of 6.0%4.20% Series first mortgage bonds in May 2018;
the issuance of $600 million of 4.20% collateral trust mortgage bonds in August 2018. A portion of the proceeds was used to repay $300 million of 6.5% Series first mortgage bonds in September 2018;March 2019 and
a decrease of $35.3 million in common equity distributions.
The increase was partially offset by:
the issuance of $450 million of 3.12% collateral trust mortgage bonds in May 2017. A portion of the proceeds was used to repay $45.3 million of Waterford Series collateral trust mortgage notes;
Entergy Louisiana, LLC and Subsidiaries
Management's Financial Discussion and Analysis
net repayments of short-termlong-term borrowings of $43.5$54.3 million on the nuclear fuel company variable interest entities’ credit facilities in 20182019 compared to net short-term borrowings of $36.8 million in 2017; and
net repayments of long-term borrowings of $37$49.7 million on the nuclear fuel company variable interest entities’ credit facilities in 2018 compared to net long-term borrowings of $115.1 million in 2017.2018.
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.
| | | September 30, 2018 | | December 31, 2017 | March 31, 2019 | | December 31, 2018 |
Debt to capital | 54.0 | % | | 53.8 | % | 55.3 | % | | 53.6 | % |
Effect of excluding securitization bonds | (0.3 | %) | | (0.3 | %) | (0.2 | %) | | (0.3 | %) |
Debt to capital, excluding securitization bonds (a) | 53.7 | % | | 53.5 | % | 55.1 | % | | 53.3 | % |
Effect of subtracting cash | (0.8 | %) | | (0.1 | %) | (1.1 | %) | | (0.1 | %) |
Net debt to net capital, excluding securitization bonds (a) | 52.9 | % | | 53.4 | % | 54.0 | % | | 53.2 | % |
| |
(a) | Calculation excludes the securitization bonds, which are non-recourse to Entergy Louisiana. |
Net debt consists of debt less cash and cash equivalents. Debt consists of short-term borrowings, 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 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 is developing its capital investment plan for 2019 through 2021 and currently anticipates making $4.1 billion in capital investments during that period. The preliminary estimate includes amounts associated with specific investments, such as the Washington Parish Energy Center, discussed below, and the St. Charles Power Station and the Lake Charles Power Station; transmission projects to enhance reliability, reduce congestion, and enable economic growth; distribution spending to enhance reliability and improve service to customers, including advanced meters and related investments; resource planning, including potential generation projects; system improvements; investments in River Bend and Waterford 3; software and security; and other investments. Estimated capital expenditures are subject to periodic review and modification and may vary based on the ongoing effects of regulatory constraints and requirements, environmental compliance, business opportunities, market volatility, economic trends, business restructuring, changes in project plans, and the ability to access capital.
Entergy Louisiana, LLC and Subsidiaries
Management's Financial Discussion and Analysis
Entergy Louisiana’s receivables from the money pool were as follows:
|
| | | | | | |
September 30, 2018 | | December 31, 2017 | | September 30, 2017 | | December 31, 2016 |
(In Thousands) |
$13,617 | | $11,173 | | $72,899 | | $22,503 |
|
| | | | | | |
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 money pool.
Entergy Louisiana has a credit facility in the amount of $350 million scheduled to expire in September 2023. 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 September 30, 2018,March 31, 2019, there were no cash borrowings and no letters of credit outstanding under the credit facility. In addition, Entergy Louisiana is a party to an uncommitted letter of credit facility as a means to post collateral to support its obligations to MISO. As of September 30, 2018,March 31, 2019, a $22$43 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, each in the amount of $105 million and scheduled to expire in September 2021. As of September 30, 2018, $34.5March 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 September 30, 2018, $30.5March 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.
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. In April 2018 the parties reached a settlement recommending certification and cost recovery through the additional capacity mechanism of the formula rate plan, consistent with prior LPSC precedent with respect to the certification and recovery of plants previously acquired by Entergy Louisiana. The LPSC issued an order approving the settlement in May 2018.
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 updatesis an update to that discussion.
Fuel and purchased power cost recovery
In July 2014 the LPSC authorized its staff to initiate an audit of the fuel adjustment clause filings by Entergy Gulf States Louisiana, whose business was combined with Entergy Louisiana in 2015. The audit includes a review of the reasonableness of charges flowed through Entergy Gulf States Louisiana’s fuel adjustment clause for the period from 2010 through 2013. Discovery commenced in July 2015. No report of audit has been issued.
In May 2018 the LPSC staff provided notice of audits of Entergy Louisiana’s purchased gas adjustment clause filings. The audit includes a review of the reasonableness of charges flowed by Entergy Louisiana through Entergy Louisiana’s purchased gasits fuel adjustment clause for the period from 20162010 through 2017. Discovery commenced in September 2018. No report of audit has been issued.
Entergy Louisiana, LLC and Subsidiaries
Management's Financial Discussion and Analysis
Retail Rates - Electric
2016 Formula Rate Plan Filing
As discussed in the Form 10-K, in May 2017, Entergy Louisiana filed its formula rate plan evaluation report for its 2016 calendar year operations. Rates reflecting the adjustments included in the formula rate plan evaluation report were implemented with the first billing cycle of September 2017, subject to refund.2013. In September 2017 the LPSC issued its report indicating that no changes to Entergy Louisiana’s original formula rate plan evaluation report were required but reserved for several issues, including Entergy Louisiana’s September 2017 update to its formula rate plan evaluation report. In July 2018, Entergy Louisiana andJanuary 2019, the LPSC staff filed an unopposed jointconsultant issued its audit report. In its report, setting forth a correction to the annualization calculation, the effect of which was a net $3.5 million revenue requirement reduction, and indicating that there are no outstanding issues with the 2016 formula rate plan report, the supplemental report, or the interim updates. In September 2018 the LPSC approved the unopposed joint report.
Formula Rate Plan Extension 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 target earned return on common equity;
a cap on potential revenue increase of $35 million for the 2018 evaluation period, and $70 million for the cumulative 2018 and 2019 evaluation periods, on formula rate plan cost of service rate increases (the cap excludes rate changes associated with the transmission recovery mechanism described below and rate changes associated with additional capacity);
a framework for the flow back of certain tax benefits created by the Tax Act to customers; 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.
2017 Formula Rate Plan Filing
In June 2018, Entergy Louisiana filed its formula rate plan evaluation report for its 2017 calendar year operations. As stated above under “Formula Rate Plan Extension Request,” for the 2017 test year there will be a mid-point reset of formula rate plan revenues to a 9.95% earned return on common equity for the 2017 test year. As such, base rider formula rate plan revenue is to be adjusted prospectively to increase or decrease the earned return on equity fully to the approved cost of equity of 9.95%. The 2017 test year evaluation report produced an earned return on equity of 8.16%, due in large part to revenue-neutral realignments to other recovery mechanisms. Without these realignments, the evaluation report produces an earned return on equity of 9.88% and a resulting base rider formula rate plan revenue increase of $4.8 million. Excluding the Tax Act credits provided for by the tax reform adjustment mechanisms, total formula rate plan revenues will further increase by a total of $98 million as a result of the evaluation report due to
Entergy Louisiana, LLC and Subsidiaries
Management's Financial Discussion and Analysis
adjustments to the additional capacity and MISO cost recovery mechanisms of the formula rate plan, and implementation of the transmission recovery mechanism. In August 2018, Entergy Louisiana filed a supplemental formula rate plan evaluation report to reflect changes from the 2016 test year formula rate plan proceedings, a decrease to the transmission recovery mechanism to reflect lower actual capital additions, and a decrease to evaluation period expenses to reflect the terms of a new power sales agreement. Based on the August 2018 update, Entergy Louisiana would recognize a total decrease in formula rate plan revenue of approximately $17.6 million. Results of the updated 2017 evaluation report filing were implemented with the September 2018 billing month subject to refund and review by the LPSC staff and intervenors. In accordance with the terms of the formula rate plan, in September 2018 the LPSC staff and intervenors submitted their responses to Entergy Louisiana’s original formula rate plan evaluation report and supplemental compliance updates. The LPSC staff asserted objections/reservations regarding 1) Entergy Louisiana’s proposed rate adjustments associated with the return of excess accumulated deferred income taxes pursuant to the Tax Act and the treatment of accumulated deferred income taxes related to reductions of rate base; 2) Entergy Louisiana’s reservation regarding treatment of a regulatory asset related to certain special orders by the LPSC; and 3) test year expenses billed from Entergy Services to Entergy Louisiana. Intervenors also objected to Entergy Louisiana’s treatment of the regulatory asset related to certain special orders by the LPSC. A procedural schedule has not yet been established to resolve these issues.
Entergy Louisiana also included in its filing a presentation of an initial proposal to combine the legacy Entergy Louisiana and legacy Entergy Gulf States Louisiana residential rates, which combination, if approved, would be accomplished on a revenue-neutral basis intended not to affect the rates of other customer classes.
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’sconsultant recommended order finding that Entergy Louisiana did not demonstrate thatrefund approximately $7.3 million, plus interest, to customers based upon the imputation of a claim of vendor fault in servicing its decision to permanently surrender transmission rightsnuclear plant. Entergy Louisiana recorded a provision in first quarter 2019 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. Entergy Louisiana submitted a compliance filing regarding retirement of Willow Glen 2 and 4, and the LPSC closed the proceeding.
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 filingpotential outcome 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
Entergy Louisiana, LLC and Subsidiaries
Management's Financial Discussion and Analysis
deferred operation and maintenance costs incurred by Entergy Louisiana in connection with the August 2016 flooding disaster in its gas service area. The supplemental filing reflects an earned return on common equity of 10.79%. As-filed rates from the supplemental filing were implemented, subject to refund, with customers receiving a cost reduction of approximately $0.7 million effective with bills rendered on and after the first billing cycle of May 2018, as well as a $0.2 million reduction in the gas infrastructure rider effective with bills rendered on and after the first billing cycle of July 2018. The proceeding is currently in its discovery phase. A procedural schedule has not been established.audit.
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.
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 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, 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 AnalysisNote 1 to the financial statements in the Form 10-K for a discussion of new accounting pronouncements.
| | ENTERGY LOUISIANA, LLC AND SUBSIDIARIES | CONSOLIDATED INCOME STATEMENTS | For the Three and Nine Months Ended September 30, 2018 and 2017 | |
For the Three Months Ended March 31, 2019 and 2018 | | For the Three Months Ended March 31, 2019 and 2018 |
(Unaudited) | | | | | | |
| | Three Months Ended | | Nine Months Ended | | |
| | 2018 | | 2017 | | 2018 | | 2017 | | 2019 | | 2018 |
| | (In Thousands) | | (In Thousands) | | (In Thousands) |
OPERATING REVENUES | | | | | | | | | | | | |
Electric | |
| $1,196,278 |
| |
| $1,280,475 |
| |
| $3,263,073 |
| |
| $3,216,677 |
| |
| $936,693 |
| |
| $1,005,106 |
|
Natural gas | | 10,334 |
| | 10,019 |
| | 45,671 |
| | 38,034 |
| | 22,637 |
| | 24,238 |
|
TOTAL | | 1,206,612 |
| | 1,290,494 |
| | 3,308,744 |
| | 3,254,711 |
| | 959,330 |
| | 1,029,344 |
|
| | | | | | | | | | | | |
OPERATING EXPENSES | | | | | | | | | | | | |
Operation and Maintenance: | | | | | | | | | | | | |
Fuel, fuel-related expenses, and gas purchased for resale | | 318,987 |
| | 301,584 |
| | 700,296 |
| | 635,684 |
| | 147,349 |
| | 180,781 |
|
Purchased power | | 218,063 |
| | 273,325 |
| | 736,449 |
| | 795,825 |
| | 257,306 |
| | 251,772 |
|
Nuclear refueling outage expenses | | 12,969 |
| | 13,616 |
| | 38,739 |
| | 38,565 |
| | 12,808 |
| | 13,099 |
|
Other operation and maintenance | | 239,230 |
| | 229,664 |
| | 724,604 |
| | 683,754 |
| | 225,888 |
| | 234,380 |
|
Decommissioning | | 13,654 |
| | 12,444 |
| | 39,906 |
| | 36,850 |
| | 13,879 |
| | 12,772 |
|
Taxes other than income taxes | | 44,594 |
| | 45,059 |
| | 143,021 |
| | 135,418 |
| | 49,682 |
| | 51,280 |
|
Depreciation and amortization | | 124,030 |
| | 117,923 |
| | 366,950 |
| | 349,660 |
| | 126,134 |
| | 120,822 |
|
Other regulatory charges (credits) - net | | (1,433 | ) | | (1,795 | ) | | 30,781 |
| | (78,503 | ) | | (27,660 | ) | | 23,119 |
|
TOTAL | | 970,094 |
| | 991,820 |
| | 2,780,746 |
| | 2,597,253 |
| | 805,386 |
| | 888,025 |
|
| | | | | | | | | | | | |
OPERATING INCOME | | 236,518 |
| | 298,674 |
| | 527,998 |
| | 657,458 |
| | 153,944 |
| | 141,319 |
|
| | | | | | | | | | | | |
OTHER INCOME | | | | | | | | | | | | |
Allowance for equity funds used during construction | | 20,423 |
| | 13,393 |
| | 57,292 |
| | 34,492 |
| | 23,914 |
| | 17,745 |
|
Interest and investment income | | 53,009 |
| | 42,662 |
| | 143,137 |
| | 124,411 |
| | 71,986 |
| | 43,275 |
|
Miscellaneous - net | | (25,782 | ) | | (11,542 | ) | | (56,217 | ) | | (29,573 | ) | | (42,344 | ) | | (7,665 | ) |
TOTAL | | 47,650 |
| | 44,513 |
| | 144,212 |
| | 129,330 |
| | 53,556 |
| | 53,355 |
|
| | | | | | | | | | | | |
INTEREST EXPENSE | | | | | | | | | | | | |
Interest expense | | 73,084 |
| | 69,518 |
| | 216,762 |
| | 205,316 |
| | 74,703 |
| | 70,096 |
|
Allowance for borrowed funds used during construction | | (10,168 | ) | | (6,713 | ) | | (28,382 | ) | | (17,428 | ) | | (11,367 | ) | | (8,763 | ) |
TOTAL | | 62,916 |
| | 62,805 |
| | 188,380 |
| | 187,888 |
| | 63,336 |
| | 61,333 |
|
| | | | | | | | | | | | |
INCOME BEFORE INCOME TAXES | | 221,252 |
| | 280,382 |
| | 483,830 |
| | 598,900 |
| | 144,164 |
| | 133,341 |
|
| | | | | | | | | | | | |
Income taxes | | 2,944 |
| | 94,098 |
| | (30,430 | ) | | 193,759 |
| | 16,531 |
| | 21,748 |
|
| | | | | | | | | | | | |
NET INCOME | |
| $218,308 |
| |
| $186,284 |
| |
| $514,260 |
| |
| $405,141 |
| |
| $127,633 |
| |
| $111,593 |
|
| | | | | | | | | | | | |
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. | | | | |
(Page left blank intentionally)
|
| | | | | | | | | | | | | | | |
ENTERGY LOUISIANA, LLC AND SUBSIDIARIES |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME |
For the Three and Nine Months Ended September 30, 2018 and 2017 |
(Unaudited) |
| | | |
| Three Months Ended | | Nine Months Ended |
| 2018 | | 2017 | | 2018 | | 2017 |
| (In Thousands) | | (In Thousands) |
| | | | | | | |
Net Income |
| $218,308 |
| |
| $186,284 |
| |
| $514,260 |
| |
| $405,141 |
|
Other comprehensive loss | | | | | | | |
Pension and other postretirement liabilities (net of tax benefit of $177, $232, $530, and $756) | (500 | ) | | (370 | ) | | (1,502 | ) | | (1,050 | ) |
Other comprehensive loss | (500 | ) | | (370 | ) | | (1,502 | ) | | (1,050 | ) |
Comprehensive Income |
| $217,808 |
| |
| $185,914 |
| |
| $512,758 |
| |
| $404,091 |
|
| | | | | | | |
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 LOUISIANA, LLC AND SUBSIDIARIES |
CONSOLIDATED STATEMENTS OF CASH FLOWS |
For the Nine Months Ended September 30, 2018 and 2017 |
(Unaudited) |
| | 2018 | | 2017 |
| | (In Thousands) |
OPERATING ACTIVITIES | | | | |
Net income | |
| $514,260 |
| |
| $405,141 |
|
Adjustments to reconcile net income to net cash flow provided by operating activities: | | | | |
Depreciation, amortization, and decommissioning, including nuclear fuel amortization | | 490,638 |
| | 458,963 |
|
Deferred income taxes, investment tax credits, and non-current taxes accrued | | 167,603 |
| | 303,397 |
|
Changes in working capital: | | | | |
Receivables | | (61,281 | ) | | (92,610 | ) |
Fuel inventory | | 6,120 |
| | 7,643 |
|
Accounts payable | | (20,481 | ) | | 31,865 |
|
Prepaid taxes and taxes accrued | | (22,893 | ) | | 97,138 |
|
Interest accrued | | 2,382 |
| | 9,149 |
|
Deferred fuel costs | | (25,781 | ) | | (37,753 | ) |
Other working capital accounts | | (5,086 | ) | | (49,266 | ) |
Changes in provisions for estimated losses | | 7,800 |
| | (6,331 | ) |
Changes in other regulatory assets | | 49,245 |
| | 60,014 |
|
Changes in other regulatory liabilities | | (29,943 | ) | | (72,060 | ) |
Changes in pension and other postretirement liabilities | | (59,305 | ) | | (70,489 | ) |
Other | | (69,978 | ) | | (117,625 | ) |
Net cash flow provided by operating activities | | 943,300 |
| | 927,176 |
|
| | | | |
INVESTING ACTIVITIES | | | | |
Construction expenditures | | (1,322,633 | ) | | (1,177,121 | ) |
Allowance for equity funds used during construction | | 57,292 |
| | 34,492 |
|
Nuclear fuel purchases | | (32,362 | ) | | (159,637 | ) |
Proceeds from the sale of nuclear fuel | | 54,088 |
| | 28,884 |
|
Receipts from storm reserve escrow account | | — |
| | 8,836 |
|
Payments to storm reserve escrow account | | (3,297 | ) | | (1,422 | ) |
Changes to securitization account | | (8,056 | ) | | (6,538 | ) |
Proceeds from nuclear decommissioning trust fund sales | | 943,306 |
| | 176,056 |
|
Investment in nuclear decommissioning trust funds | | (973,218 | ) | | (204,500 | ) |
Changes in money pool receivable - net | | (2,444 | ) | | (50,396 | ) |
Insurance proceeds | | 3,480 |
| | 5,305 |
|
Changes in other investments - net | | — |
| | (33,324 | ) |
Net cash flow used in investing activities | | (1,283,844 | ) | | (1,379,365 | ) |
| | | | |
FINANCING ACTIVITIES | | | | |
Proceeds from the issuance of long-term debt | | 1,950,482 |
| | 646,850 |
|
Retirement of long-term debt | | (1,338,227 | ) | | (296,359 | ) |
Changes in short-term borrowings - net | | (43,540 | ) | | 36,762 |
|
Distributions paid: | | | | |
Common equity | | (56,000 | ) | | (91,250 | ) |
Other | | 5,507 |
| | (2,141 | ) |
Net cash flow provided by financing activities | | 518,222 |
| | 293,862 |
|
| | | | |
Net increase (decrease) in cash and cash equivalents | | 177,678 |
| | (158,327 | ) |
Cash and cash equivalents at beginning of period | | 35,907 |
| | 213,850 |
|
Cash and cash equivalents at end of period | |
| $213,585 |
| |
| $55,523 |
|
| | | | |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | | | | |
Cash paid (received) during the period for: | | | | |
Interest - net of amount capitalized | |
| $208,028 |
| |
| $189,896 |
|
Income taxes | |
| ($2,973 | ) | |
| ($116,937 | ) |
| | | | |
See Notes to Financial Statements. | | | | |
|
| | | | | | | | |
ENTERGY LOUISIANA, LLC AND SUBSIDIARIES |
CONSOLIDATED BALANCE SHEETS |
ASSETS |
September 30, 2018 and December 31, 2017 |
(Unaudited) |
| | 2018 | | 2017 |
| | (In Thousands) |
CURRENT ASSETS | | | | |
Cash and cash equivalents: | | | | |
Cash | |
| $363 |
| |
| $5,836 |
|
Temporary cash investments | | 213,222 |
| | 30,071 |
|
Total cash and cash equivalents | | 213,585 |
| | 35,907 |
|
Accounts receivable: | | | | |
Customer | | 296,121 |
| | 254,308 |
|
Allowance for doubtful accounts | | (9,634 | ) | | (8,430 | ) |
Associated companies | | 137,252 |
| | 143,524 |
|
Other | | 65,677 |
| | 60,893 |
|
Accrued unbilled revenues | | 177,722 |
| | 153,118 |
|
Total accounts receivable | | 667,138 |
| | 603,413 |
|
Fuel inventory | | 33,608 |
| | 39,728 |
|
Materials and supplies - at average cost | | 326,192 |
| | 299,881 |
|
Deferred nuclear refueling outage costs | | 29,313 |
| | 65,711 |
|
Prepaid taxes | | 4,736 |
| | — |
|
Prepayments and other | | 47,105 |
| | 34,035 |
|
TOTAL | | 1,321,677 |
| | 1,078,675 |
|
| | | | |
OTHER PROPERTY AND INVESTMENTS | | | | |
Investment in affiliate preferred membership interests | | 1,390,587 |
| | 1,390,587 |
|
Decommissioning trust funds | | 1,395,216 |
| | 1,312,073 |
|
Storm reserve escrow account | | 288,056 |
| | 284,759 |
|
Non-utility property - at cost (less accumulated depreciation) | | 285,099 |
| | 245,255 |
|
Other | | 14,773 |
| | 18,999 |
|
TOTAL | | 3,373,731 |
| | 3,251,673 |
|
| | | | |
UTILITY PLANT | | | | |
Electric | | 20,204,568 |
| | 19,678,536 |
|
Natural gas | | 208,480 |
| | 191,899 |
|
Construction work in progress | | 1,737,898 |
| | 1,281,452 |
|
Nuclear fuel | | 219,139 |
| | 337,402 |
|
TOTAL UTILITY PLANT | | 22,370,085 |
| | 21,489,289 |
|
Less - accumulated depreciation and amortization | | 8,787,797 |
| | 8,703,047 |
|
UTILITY PLANT - NET | | 13,582,288 |
| | 12,786,242 |
|
| | | | |
DEFERRED DEBITS AND OTHER ASSETS | | | | |
Regulatory assets: | | | | |
Other regulatory assets (includes securitization property of $54,910 as of September 30, 2018 and $71,367 as of December 31, 2017) | | 1,096,597 |
| | 1,145,842 |
|
Deferred fuel costs | | 168,122 |
| | 168,122 |
|
Other | | 27,124 |
| | 18,310 |
|
TOTAL | | 1,291,843 |
| | 1,332,274 |
|
| | | | |
TOTAL ASSETS | |
| $19,569,539 |
| |
| $18,448,864 |
|
| | | | |
See Notes to Financial Statements. | | | | |
|
| | | | | | | | |
ENTERGY LOUISIANA, LLC AND SUBSIDIARIES |
CONSOLIDATED BALANCE SHEETS |
LIABILITIES AND EQUITY |
September 30, 2018 and December 31, 2017 |
(Unaudited) |
| | 2018 | | 2017 |
| | (In Thousands) |
CURRENT LIABILITIES | | | | |
Currently maturing long-term debt | |
| $3 |
| |
| $675,002 |
|
Short-term borrowings | | — |
| | 43,540 |
|
Accounts payable: | | | | |
Associated companies | | 83,469 |
| | 126,685 |
|
Other | | 337,473 |
| | 404,374 |
|
Customer deposits | | 155,263 |
| | 150,623 |
|
Taxes accrued | | — |
| | 18,157 |
|
Interest accrued | | 77,910 |
| | 75,528 |
|
Deferred fuel costs | | 45,666 |
| | 71,447 |
|
Current portion of unprotected excess accumulated deferred income taxes | | 157,173 |
| | — |
|
Other | | 60,072 |
| | 79,037 |
|
TOTAL | | 917,029 |
| | 1,644,393 |
|
| | | | |
NON-CURRENT LIABILITIES | | | | |
Accumulated deferred income taxes and taxes accrued | | 2,244,767 |
| | 2,050,371 |
|
Accumulated deferred investment tax credits | | 118,217 |
| | 121,870 |
|
Regulatory liability for income taxes - net | | 470,300 |
| | 725,368 |
|
Other regulatory liabilities | | 829,011 |
| | 761,059 |
|
Decommissioning | | 1,272,795 |
| | 1,140,461 |
|
Accumulated provisions | | 310,248 |
| | 302,448 |
|
Pension and other postretirement liabilities | | 688,498 |
| | 748,384 |
|
Long-term debt (includes securitization bonds of $67,634 as of September 30, 2018 and $77,736 as of December 31, 2017) | | 6,761,120 |
| | 5,469,069 |
|
Other | | 195,776 |
| | 176,637 |
|
TOTAL | | 12,890,732 |
| | 11,495,667 |
|
| | | | |
Commitments and Contingencies | | | | |
| | | | |
EQUITY | | | | |
Member's equity | | 5,819,729 |
| | 5,355,204 |
|
Accumulated other comprehensive loss | | (57,951 | ) | | (46,400 | ) |
TOTAL | | 5,761,778 |
| | 5,308,804 |
|
| | | | |
TOTAL LIABILITIES AND EQUITY | |
| $19,569,539 |
| |
| $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, 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 |
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY |
For the Nine Months Ended September 30, 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 | 405,141 |
| | — |
| | 405,141 |
|
Other comprehensive loss | — |
| | (1,050 | ) | | (1,050 | ) |
Distributions declared on common equity | (91,250 | ) | | — |
| | (91,250 | ) |
Other | (62 | ) | | — |
| | (62 | ) |
| | | | | |
Balance at September 30, 2017 |
| $5,444,080 |
| |
| ($49,492 | ) | |
| $5,394,588 |
|
| | | | | |
| | | | | |
Balance at December 31, 2017 |
| $5,355,204 |
| |
| ($46,400 | ) | |
| $5,308,804 |
|
| | | | | |
Net income | 514,260 |
| | — |
| | 514,260 |
|
Other comprehensive loss | — |
| | (1,502 | ) | | (1,502 | ) |
Distributions declared on common equity | (56,000 | ) | | — |
| | (56,000 | ) |
Reclassification pursuant to ASU 2018-02 | 6,262 |
| | (10,049 | ) | | (3,787 | ) |
Other | 3 |
| | — |
| | 3 |
|
| | | | | |
Balance at September 30, 2018 |
| $5,819,729 |
| |
| ($57,951 | ) | |
| $5,761,778 |
|
| | | | | |
See Notes to Financial Statements. | | | | | |
| | ENTERGY LOUISIANA, LLC AND SUBSIDIARIES | SELECTED OPERATING RESULTS | For the Three and Nine Months Ended September 30, 2018 and 2017 | |
For the Three Months Ended March 31, 2019 and 2018 | | For the Three Months Ended March 31, 2019 and 2018 |
(Unaudited) | | | | | | | | |
| | Three Months Ended | | Increase/ | | | |
Description | | 2018 | | 2017 | | (Decrease) | | % | |
| | (Dollars In Millions) | | | |
Electric Operating Revenues: | | | | | | | | | |
Residential | |
| $409 |
| |
| $411 |
| |
| ($2 | ) | | — |
| |
Commercial | | 273 |
| | 285 |
| | (12 | ) | | (4 | ) | |
Industrial | | 394 |
| | 428 |
| | (34 | ) | | (8 | ) | |
Governmental | | 17 |
| | 19 |
| | (2 | ) | | (11 | ) | |
Total billed retail | | 1,093 |
| | 1,143 |
| | (50 | ) | | (4 | ) | |
Sales for resale: | | | | | | | | | |
Associated companies | | 58 |
| | 69 |
| | (11 | ) | | (16 | ) | |
Non-associated companies | | 14 |
| | 23 |
| | (9 | ) | | (39 | ) | |
Other | | 31 |
| | 45 |
| | (14 | ) | | (31 | ) | |
Total | |
| $1,196 |
| |
| $1,280 |
| |
| ($84 | ) | | (7 | ) | |
| | | | | | | | | |
Billed Electric Energy Sales (GWh): | | | | | | | | | |
Residential | | 4,658 |
| | 4,301 |
| | 357 |
| | 8 |
| |
Commercial | | 3,382 |
| | 3,228 |
| | 154 |
| | 5 |
| |
Industrial | | 7,619 |
| | 7,627 |
| | (8 | ) | | — |
| |
Governmental | | 216 |
| | 208 |
| | 8 |
| | 4 |
| |
Total retail | | 15,875 |
| | 15,364 |
| | 511 |
| | 3 |
| |
Sales for resale: | | | | | | | | | |
Associated companies | | 1,545 |
| | 1,164 |
| | 381 |
| | 33 |
| |
Non-associated companies | | 369 |
| | 616 |
| | (247 | ) | | (40 | ) | |
Total | | 17,789 |
| | 17,144 |
| | 645 |
| | 4 |
| |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | Nine Months Ended | | Increase/ | | | | Nine Months Ended | | Increase/ | | |
Description | | 2018 | | 2017 | | (Decrease) | | % | | 2019 | | 2018 | | (Decrease) | | % |
| | (Dollars In Millions) | | | | (Dollars In Millions) | | |
Electric Operating Revenues: | | | | | | | | | | | | | | | | |
Residential | |
| $972 |
| |
| $911 |
| |
| $61 |
| | 7 |
| |
| $264 |
| |
| $296 |
| |
| ($32 | ) | | (11 | ) |
Commercial | | 720 |
| | 716 |
| | 4 |
| | 1 |
| | 207 |
| | 225 |
| | (18 | ) | | (8 | ) |
Industrial | | 1,115 |
| | 1,147 |
| | (32 | ) | | (3 | ) | | 347 |
| | 352 |
| | (5 | ) | | (1 | ) |
Governmental | | 51 |
| | 51 |
| | — |
| | — |
| | 17 |
| | 17 |
| | — |
| | — |
|
Total billed retail | | 2,858 |
| | 2,825 |
| | 33 |
| | 1 |
| | 835 |
| | 890 |
| | (55 | ) | | (6 | ) |
Sales for resale: | | | | | | | | | | | | | | | | |
Associated companies | | 229 |
| | 204 |
| | 25 |
| | 12 |
| | 68 |
| | 74 |
| | (6 | ) | | (8 | ) |
Non-associated companies | | 44 |
| | 53 |
| | (9 | ) | | (17 | ) | | 16 |
| | 15 |
| | 1 |
| | 7 |
|
Other | | 132 |
| | 135 |
| | (3 | ) | | (2 | ) | | 18 |
| | 26 |
| | (8 | ) | | (31 | ) |
Total | |
| $3,263 |
| |
| $3,217 |
| |
| $46 |
| | 1 |
| |
| $937 |
| |
| $1,005 |
| |
| ($68 | ) | | (7 | ) |
| | | | | | | | | | | | | | | | |
Billed Electric Energy Sales (GWh): | | | | | | | | | | | | | | | | |
Residential | | 11,221 |
| | 10,154 |
| | 1,067 |
| | 11 |
| | 3,080 |
| | 3,459 |
| | (379 | ) | | (11 | ) |
Commercial | | 8,781 |
| | 8,497 |
| | 284 |
| | 3 |
| | 2,519 |
| | 2,661 |
| | (142 | ) | | (5 | ) |
Industrial | | 22,160 |
| | 22,272 |
| | (112 | ) | | (1 | ) | | 7,343 |
| | 7,049 |
| | 294 |
| | 4 |
|
Governmental | | 613 |
| | 595 |
| | 18 |
| | 3 |
| | 203 |
| | 201 |
| | 2 |
| | 1 |
|
Total retail | | 42,775 |
| | 41,518 |
| | 1,257 |
| | 3 |
| | 13,145 |
| | 13,370 |
| | (225 | ) | | (2 | ) |
Sales for resale: | | | | | | | | | | | | | | | | |
Associated companies | | 4,099 |
| | 3,399 |
| | 700 |
| | 21 |
| | 1,080 |
| | 1,014 |
| | 66 |
| | 7 |
|
Non-associated companies | | 1,237 |
| | 1,280 |
| | (43 | ) | | (3 | ) | | 505 |
| | 513 |
| | (8 | ) | | (2 | ) |
Total | | 48,111 |
| | 46,197 |
| | 1,914 |
| | 4 |
| | 14,730 |
| | 14,897 |
| | (167 | ) | | (1 | ) |
| | | | | | | | | | | | | | | | |
ENTERGY MISSISSIPPI, INC.LLC
MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS
Results of Operations
Net Income
Third Quarter2018 Compared to Third Quarter2017
Net income increased $4.2decreased $7.4 million primarily due to a lower effective income tax rate, partially offset by higher other operation and maintenance expenses.
Nine Months Ended September 30, 2018 Compared to Nine Months Ended September 30, 2017
Net income increased $19.8 million primarily due to a lower effective income tax rate and higher net revenue, each after excluding the effect of the return of unprotected excess accumulated deferred income taxes to customers, discussed below. The increase is partially offset by higher other operation and maintenance expenses and higher depreciation and amortization expenses.revenue.
Net Revenue
Third Quarter2018 Compared to Third Quarter2017
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 thirdfirst quarter 20182019 to the thirdfirst quarter 2017:2018:
|
| | | |
| Amount |
| (In Millions) |
2017 net revenue |
| $201.3 |
|
Return of unprotected excess accumulated deferred income taxes to customers | (25.8 | ) |
Volume/weather | 3.5 |
|
Other | (0.1 | ) |
2018 net revenue |
| $178.9164.5 |
|
Volume/weather | (5.1 | ) |
Retail electric price | (3.3 | ) |
Other | (0.9 | ) |
2019 net revenue |
| $155.2 |
|
The return of unprotected excess accumulated deferred income taxes to customers is due to the return of unprotected excess accumulated deferred income taxes through customer bill credits over a three-month period from July 2018 through September 2018 per an agreement approved by the MPSC in June 2018 resulting from the stipulation related to the effects of the Tax Cuts and Jobs Act. There is no effect on net income as the reduction in net revenue is offset by a reduction in income tax expense. See Note 2 to the financial statements herein and 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 increasea decrease of 257226 GWh, or 7%, in billed electricity usage, including the effect of moreless favorable weather on residential sales.
Entergy Mississippi, Inc.
Management's Financial Discussion and Analysis
Nine Months Ended September 30, 2018 Compared to Nine Months Ended September 30, 2017
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 nine months ended September 30, 2018 to the nine months ended September 30, 2017:
|
| | | |
| Amount |
| (In Millions) |
2017 net revenue |
| $529.6 |
|
Return of unprotected excess accumulated deferred income taxes to customers | (153.0 | ) |
Retail electric price | 8.6 |
|
Volume/weather | 19.5 |
|
Other | 1.6 |
|
2018 net revenue |
| $406.3 |
|
The return of unprotected excess accumulated deferred income taxes to customers is due to a regulatory charge recorded in June 2018 that resulted in a $127.2 million reduction in net utility plant and the return of unprotected excess accumulated deferred income taxes through customer bill credits over a three-month period from July 2018 through September 2018, each per an agreement approved by the MPSC in June 2018, resulting from the stipulation related to the effects of the Tax Cuts and Jobs Act. There is no effect on net income as the reductions in net revenue are offset by a reduction in income tax expense. See Note 2 to the financial statements herein and in the Form 10-K for further discussion of regulatory activity regarding the Tax Cuts and Jobs Act.
The retail electric price variance is primarily due to higherlower 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 rate increase effective October 2018. See Note 2 to the financial statements herein and in the Form 10-K for further discussion of the storm damage rider.
The volume/weather variance is primarily due to an increase of 645 GWh, or 7%, in billed electricity usage, including the effect of more favorable weather on residential sales.
Other Income Statement Variances
Third Quarter2018 Compared to Third Quarter2017
Other operation and maintenance expenses increased primarily due to:
a $5.8 million loss on the sale of fuel oil inventory per an agreement approved by the MPSC in June 2018 resulting from the stipulation related to the effects of the Tax Act. There is no effect on net income as the loss on the sale of fuel oil inventory is offset by a reduction in income tax expense;
an increase of $3.2 million in fossil-fueled generation expensesdecreased primarily due to higher long-term service agreement costs; and
an increasea decrease of $1.6$5.1 million in customer service costs primarily due to higher contract costs and write-offs of customer accounts.
Taxes other than income taxes increased primarily due to an increase in ad valorem taxes and an increase in local franchise taxes. Ad valorem taxes increased primarily due to higher assessments. Local franchise taxes increased primarily due to higher revenues in the third quarter 2018 as compared to the third quarter 2017.
Entergy Mississippi, Inc.
Management's Financial Discussion and Analysis
Nine Months Ended September 30, 2018 Compared to Nine Months Ended September 30, 2017
Other operation and maintenance expenses increased primarily due to:
an increase of $10.2 million in stormstorm damage provisions.provisions, offset by several individually insignificant items. See Note 2 to the financial statements herein and in the Form 10-K for a discussion of storm cost recovery;
a $5.8 million loss on the sale of fuel oil inventory per an agreement approved by the MPSC in June 2018 resulting from the stipulation related to the effects of the Tax Act. There is no effect on net income as the loss on the sale of fuel oil inventory is offset by a reduction in income tax expense;
an increase of $2.6 million in vegetation maintenance costs; and
an increase of $2.5 million in customer service costs primarily due to higher contract costs and write-offs of customer accounts.
Taxes other than income taxes increased primarily due to an increase in ad valorem taxes and an increase in local franchise taxes. Ad valorem taxes increased primarily due to higher assessments. Local franchise taxes increased primarily due to higher revenues in 2018 as compared to the same period in 2017.
Depreciation and amortization expenses increased primarily due to additions to plant in service.
Interest expense increased primarily due to the issuance of $150 million of 3.25% Series first mortgage bonds in November 2017.recovery.
Income Taxes
The effective income tax rate was (46.7%)18.3% for the thirdfirst quarter 2018.2019. The difference in the effective income tax rate for the thirdfirst quarter 20182019 versus the federal statutory rate of 21% was primarily due to the amortization of excess accumulated deferred income taxes. See Notes 2book and 10tax differences related 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 1,039.9% for the nine months ended September 30, 2018. The difference in the effective income tax rate for the nine months ended September 30, 2018 versus the federal statutory rate of 21% was primarily due to the amortization of excess accumulated deferred income taxes, state income taxes,utility plant items and book and tax differences related to the allowance for equity funds used during construction. See Notes 2construction, partially offset by state income taxes and 10 to the financial statements herein and Notes 2 and 3 to the financial statements in the Form 10-Kprovision for a discussion of the effects and regulatory activity regarding the Tax Cuts and Jobs Act.uncertain tax positions.
The effective income tax rates were 37.8%rate was 23.3% for the thirdfirst quarter 2017 and 38.4% for the nine months ended September 30, 2017.2018. The differencesdifference in the effective income tax ratesrate for the thirdfirst quarter 2017 and the nine months ended September 30, 20172018 versus the federal statutory rate of 35% were21% 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 the allowance for equity funds used during construction.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.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 and Entergy’s regulators tothat have considered the effects of the Tax Act.
Entergy Mississippi, Inc.
Management's Financial Discussion and Analysis
Liquidity and Capital Resources
Cash Flow
Cash flows for the ninethree months ended September 30,March 31, 2019 and 2018 and 2017 were as follows:
| | | 2018 | | 2017 | 2019 | | 2018 |
| (In Thousands) | (In Thousands) |
Cash and cash equivalents at beginning of period |
| $6,096 |
| |
| $76,834 |
|
| $36,954 |
| |
| $6,096 |
|
| | | | | | |
Cash flow provided by (used in): | | | | | | |
Operating activities | 218,024 |
| | 129,314 |
| 9,992 |
| | (8,841 | ) |
Investing activities | (268,165 | ) | | (300,966 | ) | (54,376 | ) | | (76,268 | ) |
Financing activities | 44,090 |
| | 94,867 |
| 8,315 |
| | 79,316 |
|
Net decrease in cash and cash equivalents | (6,051 | ) | | (76,785 | ) | (36,069 | ) | | (5,793 | ) |
| | | | | | |
Cash and cash equivalents at end of period |
| $45 |
| |
| $49 |
|
| $885 |
| |
| $303 |
|
Operating Activities
Net cash flow provided byEntergy Mississippi’s operating activities increased $88.7provided $10 million in cash for the ninethree months ended September 30, 2018March 31, 2019 compared to using $8.8 million in cash for the ninethree months ended September 30, 2017March 31, 2018 primarily due to:
the timing of collection of receivables from customers;
a decrease of $4.6 million in interest paid in 2019 as compared to 2018;
a decrease of $4 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; and
the timing of recovery of fuel and purchased power costs;
$26.2 millioncosts in proceeds from the sale of fuel oil inventory in 2018;
the effect of favorable weather on billed sales;
the timing of collection of storm damage rider revenues. See Note 22019 as compared to the financial statements herein and in the Form 10-K for further discussion of the storm damage rider; and
a decrease of $7.9 million in storm spending in 2018.
The increase was partially offset by:
the return of unprotected excess accumulated deferred income taxes to customers;
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; and
an increase of $6.2 million in interest paid in 2018 resulting from an increase in interest expense.
Investing Activities
Net cash flow used in investing activities decreased $32.8$21.9 million for the ninethree months ended September 30, 2018March 31, 2019 compared to the ninethree months ended September 30, 2017March 31, 2018 primarily due to a decrease of $48.8 million in transmission construction expenditures primarily due to a lower scope of work performed in 2018 as compared to the same period in 2017 and a decrease of $13.3 million in storm spending in 2018.money pool activity. The decrease was partially offset by:
money pool activity;
by an increase of $9.6 million in fossil-fueled generation construction expenditures, an increase of $7.5 million in information technologytransmission construction expenditures, and an increase of $5.6 million in distribution construction expenditures, each primarily due to increased spending on various technology projects;a higher scope of work performed in 2019 as compared to 2018.
Entergy Mississippi, LLC
Management's Financial Discussion and Analysis
an increase of $7.3 million related to facility site improvements.
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 ninethree months ended September 30,
Entergy Mississippi, Inc.
Management's Financial Discussion and Analysis
2018 compared to decreasing by $10.6 million for the nine months ended September 30, 2017.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 $50.8$71 million for the ninethree months ended September 30, 2018March 31, 2019 compared to the ninethree months ended September 30, 2017March 31, 2018 primarily due to money pool activity. The decrease was partially offset by a decrease of $10.5 million in common stock dividends paid in 2018 resulting from Entergy Mississippi’s routine evaluation of its ability to pay dividends based on historical and planned capital investments and an increase in advances received from customers for transmission projects.
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 $33.8$10.9 million for the ninethree months ended September 30, 2018March 31, 2019 compared to increasing by $106.2$74.9 million for the ninethree months ended September 30, 2017.March 31, 2018.
Capital Structure
Entergy Mississippi’s debt to capital ratio is shown in the following table. The decrease in the debt to capital ratio for Entergy Mississippi is primarily due to an increase in retained earnings.
| | | September 30, 2018 | | December 31, 2017 | March 31, 2019 | | December 31, 2018 |
Debt to capital | 49.3 | % | | 51.5 | % | 50.5 | % | | 50.6 | % |
Effect of subtracting cash | — | % | | (0.2 | %) | — | % | | (0.7 | %) |
Net debt to net capital | 49.3 | % | | 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 is developing its capital investment plan for 2019 through 2021 and currently anticipates making $1.7 billion in capital investments during that period. The preliminary estimate includes amounts associated with specific investments such as the Choctaw Generating Station, discussed below; transmission projects to enhance reliability, reduce congestion, and enable economic growth; distribution spending to enhance reliability and improve service to customers, including advanced meters and related investments; resource planning, including potential generation projects; system improvements; software and security; and other investments. Estimated capital expenditures are subject to periodic review and modification and may vary based on the ongoing effects of regulatory constraints and requirements, environmental compliance, business opportunities, market volatility, economic trends, business restructuring, changes in project plans, and the ability to access capital.
Entergy Mississippi, Inc.
Management's Financial Discussion and Analysis
Entergy Mississippi’s receivables from or (payables to) the money pool were as follows:
|
| | | | | | |
September 30, 2018 | | December 31, 2017 | | September 30, 2017 | | December 31, 2016 |
(In Thousands) |
($33,816) | | $1,633 | | ($106,180) | | $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.
In May 2018,
Entergy Mississippi, renewedLLC
Management's Financial Discussion and Analysis
Entergy Mississippi has three of its four separate credit facilities through May 2019, decreasingin the aggregate amount available for borrowing under theof $82.5 million scheduled to expire in May 2019. Entergy Mississippi expects to renew its credit facilities prior to $82.5 million.expiration. No borrowings were outstanding under the credit facilities as of September 30, 2018.March 31, 2019. In addition, Entergy Mississippi is a party to an uncommitted letter of credit facility as a means to post collateral to support its obligations to MISO. As of September 30, 2018, $11.2March 31, 2019, $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, as well as clearanceFERC. Clearance under the Hart-Scott-Rodino Antitrust Improvements Act.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 June 2017 the District Court issued a case management order setting a trial date in November 2018. Discovery ended in May 2018. In June 2018, Entergy filed motions for summary judgment, which are currently pending before the District Court. In July 2018 the Attorney General filed briefs opposing the summary judgment.
In September 2018 the District Court held oral arguments on the Entergy companies’ motion to strikeDecember 2008 the Attorney General’s jury demand. At the hearing, the Attorney General withdrew his oppositionlawsuit was removed to the Entergy
Entergy Mississippi, Inc.
Management's Financial Discussion and Analysis
companies’ motion to strike the Attorney General’s jury demand.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, 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, resulting in no change in rates. In Junebandwidth. The 2018 Entergy Mississippi and the Mississippi Public Utilities Staff entered into a stipulation that confirmed that Entergy Mississippi’s earned returns for both the 2017 look-back filing and 2018 test year were within the respective formula rate plan bandwidths. In June 2018 the MPSC approved the stipulation, which resulted in no change in rates. See Note 2 to the financial statements herein and in the Form 10-K for further discussion regarding the proposed treatment of the effects of the lower federal corporate income tax rate.
Entergy Mississippi’s formula rate plan includes a look-back evaluation report filing in March 2019 that will comparecompares actual 2018 results to the performance-adjusted allowed return on rate base. To the extent that Entergy Mississippi expects this look-back evaluation report to show the 2018 earnedapproved benchmark return on rate base exceededand 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 will recordrecorded a regulatory provision$0.8 million increase in the fourth quarter 2018.
In October 2018, Entergy Mississippi proposed revisionsprovision to its formula rate plan that would provide for a mechanism,reflect the interim capacity rate adjustment mechanism,amount shown in the formula rate planlook-back filing. The filing is currently subject to recoverMPSC review. A final order is expected in 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.
Internal Restructuring
In March 2018, Entergy Mississippi filed an applicationsecond quarter 2019, 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. Entergy Mississippi proposed in its application to credit retail customers $27 million over six years, beginning in 2019, if the restructuring closed on or before December 1, 2018. In September 2018, Entergy Mississippi and the Mississippi Public Utilities Staff entered into and filed a joint stipulation regarding the restructuring filing. In September 2018 the MPSC issued an order accepting the stipulation in its entirety and approving the restructuring and credits to retail customers of $27 million over six years, consisting of annual payments of $4.5 millionresulting rates effective for the years 2019-2024. Entergy Mississippi has also received the required FERC and NRC approvals. 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 pricefirst billing cycle 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, Inc.
Management's Financial Discussion and Analysis
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
See the Form 10-K for discussion of the MPSC order finding that Entergy Mississippi’s deployment of AMI is in the public interest and granting a certificate of public convenience and necessity. In June 2018, as part of the order approving the joint stipulation between the Mississippi Public Utilities Staff and Entergy Mississippi addressing Entergy Mississippi’s 2018 formula rate plan evaluation report and the ratemaking effects of the Tax Act, the MPSC approved the acceleration of the recovery of substantially all of Entergy Mississippi’s existing customer meters in anticipation of AMI deployment.
Storm Cost Recovery Filings with Retail Regulators
As discussed in the Form 10-K, Entergy Mississippi has approval from the MPSC to collect a storm damage provision of $1.75 million per month. If Entergy Mississippi’s accumulated storm damage provision balance exceeds $15 million, the collection of the storm damage provision ceases until such time that the accumulated storm damage provision becomes less than $10 million. As of June 30, 2018, Entergy Mississippi’s storm damage provision balance exceeded $15 million. Accordingly the storm damage provision was reset to zero beginning with August 2018 bills.July 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 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 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.
Entergy Mississippi, 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 furthera discussion of new accounting pronouncements.
| | ENTERGY MISSISSIPPI, INC. | |
ENTERGY MISSISSIPPI, LLC | | ENTERGY MISSISSIPPI, LLC |
INCOME STATEMENTS | For the Three and Nine Months Ended September 30, 2018 and 2017 | |
For the Three Months Ended March 31, 2019 and 2018 | | For the Three Months Ended March 31, 2019 and 2018 |
(Unaudited) | | | | | | | |
| | Three Months Ended | | Nine Months Ended | | |
| | 2018 | | 2017 | | 2018 | | 2017 | | 2019 | | 2018 |
| | (In Thousands) | | (In Thousands) | | (In Thousands) |
OPERATING REVENUES | | | | | | | | | | | | |
Electric | |
| $367,734 |
| |
| $349,197 |
| |
| $1,037,166 |
| |
| $898,852 |
| |
| $282,244 |
| |
| $315,743 |
|
| | | | | | | | | | | | |
OPERATING EXPENSES | | | | | | | | | | | | |
Operation and Maintenance: | | | | | | | | | | | | |
Fuel, fuel-related expenses, and gas purchased for resale | | 78,533 |
| | 61,681 |
| | 207,724 |
| | 146,869 |
| | 53,229 |
| | 63,528 |
|
Purchased power | | 104,787 |
| | 90,086 |
| | 289,397 |
| | 236,409 |
| | 71,455 |
| | 87,456 |
|
Other operation and maintenance | | 69,936 |
| | 56,713 |
| | 193,979 |
| | 170,337 |
| | 59,183 |
| | 59,458 |
|
Taxes other than income taxes | | 26,024 |
| | 23,568 |
| | 75,212 |
| | 71,518 |
| | 26,127 |
| | 25,394 |
|
Depreciation and amortization | | 37,752 |
| | 36,176 |
| | 114,293 |
| | 106,935 |
| | 39,088 |
| | 38,182 |
|
Other regulatory charges (credits) - net | | 5,487 |
| | (3,840 | ) | | 133,715 |
| | (13,983 | ) | |
Other regulatory charges - net | | | 2,370 |
| | 293 |
|
TOTAL | | 322,519 |
| | 264,384 |
| | 1,014,320 |
| | 718,085 |
| | 251,452 |
| | 274,311 |
|
| | | | | | | | | | | | |
OPERATING INCOME | | 45,215 |
| | 84,813 |
| | 22,846 |
| | 180,767 |
| | 30,792 |
| | 41,432 |
|
| | | | | | | | | | | | |
OTHER INCOME | | | | | | | | | | | | |
Allowance for equity funds used during construction | | 2,251 |
| | 2,566 |
| | 6,351 |
| | 6,741 |
| | 1,913 |
| | 1,978 |
|
Interest and investment income | | 1 |
| | — |
| | 26 |
| | 33 |
| | 152 |
| | 25 |
|
Miscellaneous - net | | 116 |
| | (832 | ) | | (1,866 | ) | | (2,894 | ) | | (263 | ) | | (571 | ) |
TOTAL | | 2,368 |
| | 1,734 |
| | 4,511 |
| | 3,880 |
| | 1,802 |
| | 1,432 |
|
| | | | | | | | | | | | |
INTEREST EXPENSE | | | | | | | | | | | | |
Interest expense | | 13,950 |
| | 12,713 |
| | 41,916 |
| | 37,953 |
| | 14,540 |
| | 13,905 |
|
Allowance for borrowed funds used during construction | | (944 | ) | | (1,048 | ) | | (2,662 | ) | | (2,681 | ) | | (785 | ) | | (828 | ) |
TOTAL | | 13,006 |
| | 11,665 |
| | 39,254 |
| | 35,272 |
| | 13,755 |
| | 13,077 |
|
| | | | | | | | | | | | |
INCOME (LOSS) BEFORE INCOME TAXES | | 34,577 |
| | 74,882 |
| | (11,897 | ) | | 149,375 |
| |
INCOME BEFORE INCOME TAXES | | | 18,839 |
| | 29,787 |
|
| | | | | | | | | | | | |
Income taxes | | (16,156 | ) | | 28,337 |
| | (123,715 | ) | | 57,369 |
| | 3,441 |
| | 6,944 |
|
| | | | | | | | | | | | |
NET INCOME | | 50,733 |
| | 46,545 |
| | 111,818 |
| | 92,006 |
| | 15,398 |
| | 22,843 |
|
| | | | | | | | | | | | |
Preferred dividend requirements and other | | 238 |
| | 238 |
| | 715 |
| | 715 |
| | — |
| | 238 |
|
| | | | | | | | | | | | |
EARNINGS APPLICABLE TO COMMON STOCK | |
| $50,495 |
| |
| $46,307 |
| |
| $111,103 |
| |
| $91,291 |
| |
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 Nine Months Ended September 30, 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 | |
| $111,818 |
| |
| $92,006 |
| |
| $15,398 |
| |
| $22,843 |
|
Adjustments to reconcile net income to net cash flow provided by operating activities: | | | | | |
Adjustments to reconcile net income to net cash flow provided by (used in) operating activities: | | | | | |
Depreciation and amortization | | 114,293 |
| | 106,935 |
| | 39,088 |
| | 38,182 |
|
Deferred income taxes, investment tax credits, and non-current taxes accrued | | 40,537 |
| | 65,204 |
| | 12,072 |
| | 7,787 |
|
Changes in assets and liabilities: | | | | | | | | |
Receivables | | (49,456 | ) | | (31,085 | ) | | 18,364 |
| | 1,018 |
|
Fuel inventory | | 33,705 |
| | 8,059 |
| | (4,267 | ) | | (767 | ) |
Accounts payable | | (9,845 | ) | | (2,644 | ) | | (5,722 | ) | | (24,818 | ) |
Taxes accrued | | (24,280 | ) | | (5,815 | ) | | (66,445 | ) | | (56,244 | ) |
Interest accrued | | (4,767 | ) | | (2,366 | ) | | (293 | ) | | (5,548 | ) |
Deferred fuel costs | | 9,826 |
| | (27,344 | ) | | 17,635 |
| | 13,817 |
|
Other working capital accounts | | (8,348 | ) | | (279 | ) | | 3,444 |
| | (4,856 | ) |
Provisions for estimated losses | | 7,894 |
| | (10,274 | ) | | (846 | ) | | 4,754 |
|
Other regulatory assets | | 26,060 |
| | (33,323 | ) | | (3,478 | ) | | 4,586 |
|
Other regulatory liabilities | | (139,063 | ) | | (5,118 | ) | | (9,301 | ) | | 766 |
|
Pension and other postretirement liabilities | | (15,987 | ) | | (18,863 | ) | | 269 |
| | (4,604 | ) |
Other assets and liabilities | | 125,637 |
| | (5,779 | ) | | (5,926 | ) | | (5,757 | ) |
Net cash flow provided by operating activities | | 218,024 |
| | 129,314 |
| |
Net cash flow provided by (used in) operating activities | | | 9,992 |
| | (8,841 | ) |
| | | | | | | | |
INVESTING ACTIVITIES | | | | | | | | |
Construction expenditures | | (275,189 | ) | | (313,910 | ) | | (97,487 | ) | | (79,141 | ) |
Allowance for equity funds used during construction | | 6,351 |
| | 6,741 |
| | 1,913 |
| | 1,978 |
|
Changes in money pool receivable - net | | 1,633 |
| | 10,595 |
| | 41,380 |
| | 1,633 |
|
Change in other investments | | — |
| | (3,185 | ) | |
Other | | (960 | ) | | (1,207 | ) | | (182 | ) | | (738 | ) |
Net cash flow used in investing activities | | (268,165 | ) | | (300,966 | ) | | (54,376 | ) | | (76,268 | ) |
| | | | | | | | |
FINANCING ACTIVITIES | | | | | | | | |
Changes in money pool payable - net | | 33,816 |
| | 106,180 |
| | 10,925 |
| | 74,892 |
|
Dividends paid: | | | | | |
Common stock | | — |
| | (10,500 | ) | |
Distributions/dividends paid: | | | | | |
Preferred stock | | (715 | ) | | (715 | ) | | — |
| | (238 | ) |
Other | | 10,989 |
| | (98 | ) | | (2,610 | ) | | 4,662 |
|
Net cash flow provided by financing activities | | 44,090 |
| | 94,867 |
| | 8,315 |
| | 79,316 |
|
| | | | | | | | |
Net decrease in cash and cash equivalents | | (6,051 | ) | | (76,785 | ) | | (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 | |
| $45 |
| |
| $49 |
| |
| $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 | |
| $44,781 |
| |
| $38,549 |
| |
| $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 | September 30, 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 | |
| $38 |
| |
| $1,607 |
| |
| $878 |
| |
| $11 |
|
Temporary cash investments | | 7 |
| | 4,489 |
| | 7 |
| | 36,943 |
|
Total cash and cash equivalents | | 45 |
| | 6,096 |
| | 885 |
| | 36,954 |
|
Accounts receivable: | | |
| | |
| | |
| | |
|
Customer | | 102,986 |
| | 72,039 |
| | 71,621 |
| | 73,205 |
|
Allowance for doubtful accounts | | (830 | ) | | (574 | ) | | (647 | ) | | (563 | ) |
Associated companies | | 54,578 |
| | 45,081 |
| | 3,641 |
| | 51,065 |
|
Other | | 16,294 |
| | 9,738 |
| | 7,678 |
| | 8,647 |
|
Accrued unbilled revenues | | 55,335 |
| | 54,256 |
| | 40,488 |
| | 50,171 |
|
Total accounts receivable | | 228,363 |
| | 180,540 |
| | 122,781 |
| | 182,525 |
|
Deferred fuel costs | | 22,618 |
| | 32,444 |
| | — |
| | 8,016 |
|
Fuel inventory - at average cost | | 11,901 |
| | 45,606 |
| | 16,198 |
| | 11,931 |
|
Materials and supplies - at average cost | | 46,041 |
| | 42,571 |
| | 49,576 |
| | 47,255 |
|
Prepayments and other | | 10,674 |
| | 7,041 |
| | 4,043 |
| | 9,365 |
|
TOTAL | | 319,642 |
| | 314,298 |
| | 193,483 |
| | 296,046 |
|
| | | | | | | | |
OTHER PROPERTY AND INVESTMENTS | | |
| | |
| | |
| | |
|
Non-utility property - at cost (less accumulated depreciation) | | 4,580 |
| | 4,592 |
| | 4,572 |
| | 4,576 |
|
Storm reserve escrow account | | 32,284 |
| | 31,969 |
| | 32,629 |
| | 32,447 |
|
TOTAL | | 36,864 |
| | 36,561 |
| | 37,201 |
| | 37,023 |
|
| | | | | | | | |
UTILITY PLANT | | |
| | |
| | |
| | |
|
Electric | | 4,624,415 |
| | 4,660,297 |
| | 4,834,942 |
| | 4,780,720 |
|
Property under capital lease | | — |
| | 125 |
| |
Construction work in progress | | 181,766 |
| | 149,367 |
| | 182,618 |
| | 128,149 |
|
TOTAL UTILITY PLANT | | 4,806,181 |
| | 4,809,789 |
| | 5,017,560 |
| | 4,908,869 |
|
Less - accumulated depreciation and amortization | | 1,652,552 |
| | 1,681,306 |
| | 1,667,543 |
| | 1,641,821 |
|
UTILITY PLANT - NET | | 3,153,629 |
| | 3,128,483 |
| | 3,350,017 |
| | 3,267,048 |
|
| | | | | | | | |
DEFERRED DEBITS AND OTHER ASSETS | | |
| | |
| | |
| | |
|
Regulatory assets: | | |
| | |
| | |
| | |
|
Other regulatory assets | | 371,849 |
| | 397,909 |
| | 346,527 |
| | 343,049 |
|
Other | | 4,859 |
| | 2,124 |
| | 9,878 |
| | 3,638 |
|
TOTAL | | 376,708 |
| | 400,033 |
| | 356,405 |
| | 346,687 |
|
| | | | | | | | |
TOTAL ASSETS | |
| $3,886,843 |
| |
| $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 | September 30, 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 |
| |
| $150,000 |
|
Accounts payable: | | |
| | |
| | |
| | |
|
Associated companies | | 67,933 |
| | 55,689 |
| | 53,027 |
| | 42,928 |
|
Other | | 80,909 |
| | 77,326 |
| | 74,694 |
| | 79,117 |
|
Customer deposits | | 84,260 |
| | 83,654 |
| | 85,830 |
| | 85,085 |
|
Taxes accrued | | 58,563 |
| | 82,843 |
| | 11,107 |
| | 77,552 |
|
Interest accrued | | 18,134 |
| | 22,901 |
| | 19,938 |
| | 20,231 |
|
Current portion of unprotected excess accumulated deferred income taxes | | 9,262 |
| | — |
| |
Deferred fuel costs | | | 9,619 |
| | — |
|
Other | | 10,169 |
| | 12,785 |
| | 15,111 |
| | 7,526 |
|
TOTAL | | 479,230 |
| | 335,198 |
| | 419,326 |
| | 462,439 |
|
| | | | | | | | |
NON-CURRENT LIABILITIES | | |
| | |
| | |
| | |
|
Accumulated deferred income taxes and taxes accrued | | 533,861 |
| | 488,806 |
| | 566,047 |
| | 551,869 |
|
Accumulated deferred investment tax credits | | 8,747 |
| | 8,867 |
| | 10,146 |
| | 10,186 |
|
Regulatory liability for income taxes - net | | 239,118 |
| | 411,011 |
| | 244,123 |
| | 246,402 |
|
Other regulatory liabilities | | | 26,600 |
| | 33,622 |
|
Asset retirement cost liabilities | | 9,977 |
| | 9,219 |
| | 9,333 |
| | 9,206 |
|
Accumulated provisions | | 52,658 |
| | 44,764 |
| | 50,296 |
| | 51,142 |
|
Pension and other postretirement liabilities | | 85,509 |
| | 101,498 |
| | 93,324 |
| | 93,100 |
|
Long-term debt | | 1,120,830 |
| | 1,270,122 |
| | 1,175,915 |
| | 1,175,750 |
|
Other | | 47,559 |
| | 11,639 |
| | 34,372 |
| | 20,862 |
|
TOTAL | | 2,098,259 |
| | 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 | | 1,089,480 |
| | 978,377 |
| |
EQUITY | | | |
| | |
|
Member's equity | | | 1,307,624 |
| | 1,292,226 |
|
TOTAL | | 1,288,973 |
| | 1,177,870 |
| | 1,307,624 |
| | 1,292,226 |
|
| | | | | | | | |
TOTAL LIABILITIES AND EQUITY | |
| $3,886,843 |
| |
| $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 Nine Months Ended September 30, 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 | — |
| | — |
| | 92,006 |
| | 92,006 |
|
Common stock dividends | — |
| | — |
| | (10,500 | ) | | (10,500 | ) |
Preferred stock dividends | — |
| | — |
| | (715 | ) | | (715 | ) |
| | | | | | | |
Balance at September 30, 2017 |
| $199,326 |
| |
| $167 |
| |
| $976,089 |
| |
| $1,175,582 |
|
| | | | | | | |
| | | | | | | |
Balance at December 31, 2017 |
| $199,326 |
| |
| $167 |
| |
| $978,377 |
| |
| $1,177,870 |
|
| | | | | | | |
Net income | — |
| | — |
| | 111,818 |
| | 111,818 |
|
Preferred stock dividends | — |
| | — |
| | (715 | ) | | (715 | ) |
| | | | | | | |
Balance at September 30, 2018 |
| $199,326 |
| |
| $167 |
| |
| $1,089,480 |
| |
| $1,288,973 |
|
| | | | | | | |
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 and Nine Months Ended September 30, 2018 and 2017 | |
For the Three Months Ended March 31, 2019 and 2018 | | For the Three Months Ended March 31, 2019 and 2018 |
(Unaudited) | | | | | | | | | | | | | |
| | Three Months Ended | | Increase/ | | | | Three Months Ended | | Increase/ | | |
|
Description | | 2018 | | 2017 | | (Decrease) | | % | | 2019 | | 2018 | | (Decrease) | | % |
| | (Dollars In Millions) | | | | (Dollars In Millions) | | |
|
Electric Operating Revenues: | | | | | | | | | | |
| | |
| | |
| | |
|
Residential | |
| $170 |
| |
| $158 |
| |
| $12 |
| | 8 |
| |
| $129 |
| |
| $148 |
| |
| ($19 | ) | | (13 | ) |
Commercial | | 127 |
| | 121 |
| | 6 |
| | 5 |
| | 98 |
| | 110 |
| | (12 | ) | | (11 | ) |
Industrial | | 44 |
| | 41 |
| | 3 |
| | 7 |
| | 38 |
| | 43 |
| | (5 | ) | | (12 | ) |
Governmental | | 12 |
| | 11 |
| | 1 |
| | 9 |
| | 10 |
| | 11 |
| | (1 | ) | | (9 | ) |
Total billed retail | | 353 |
| | 331 |
| | 22 |
| | 7 |
| | 275 |
| | 312 |
| | (37 | ) | | (12 | ) |
Sales for resale: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Non-associated companies | | 8 |
| | 4 |
| | 4 |
| | 100 |
| | 5 |
| | 2 |
| | 3 |
| | 150 |
|
Other | | 7 |
| | 14 |
| | (7 | ) | | (50 | ) | | 2 |
| | 2 |
| | — |
| | — |
|
Total | |
| $368 |
| |
| $349 |
| |
| $19 |
| | 5 |
| |
| $282 |
| |
| $316 |
| |
| ($34 | ) | | (11 | ) |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Billed Electric Energy Sales (GWh): | | |
| | |
| | |
| | |
| | | | | | | | |
Residential | | 1,899 |
| | 1,747 |
| | 152 |
| | 9 |
| | 1,315 |
| | 1,449 |
| | (134 | ) | | (9 | ) |
Commercial | | 1,475 |
| | 1,407 |
| | 68 |
| | 5 |
| | 1,040 |
| | 1,100 |
| | (60 | ) | | (5 | ) |
Industrial | | 692 |
| | 665 |
| | 27 |
| | 4 |
| | 566 |
| | 597 |
| | (31 | ) | | (5 | ) |
Governmental | | 128 |
| | 118 |
| | 10 |
| | 8 |
| | 98 |
| | 99 |
| | (1 | ) | | (1 | ) |
Total retail | | 4,194 |
| | 3,937 |
| | 257 |
| | 7 |
| | 3,019 |
| | 3,245 |
| | (226 | ) | | (7 | ) |
Sales for resale: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Non-associated companies | | 303 |
| | 251 |
| | 52 |
| | 21 |
| | 166 |
| | 193 |
| | (27 | ) | | (14 | ) |
Total | | 4,497 |
| | 4,188 |
| | 309 |
| | 7 |
| | 3,185 |
| | 3,438 |
| | (253 | ) | | (7 | ) |
| | | | | | | | | |
| | | | | | | | | |
| | Nine Months Ended | | Increase/ | | |
| |
Description | | 2018 | | 2017 | | (Decrease) | | % | |
| | (Dollars In Millions) | | |
| |
Electric Operating Revenues: | | |
| | |
| | |
| | |
| |
Residential | |
| $451 |
| |
| $380 |
| |
| $71 |
| | 19 |
| |
Commercial | | 355 |
| | 314 |
| | 41 |
| | 13 |
| |
Industrial | | 133 |
| | 115 |
| | 18 |
| | 16 |
| |
Governmental | | 34 |
| | 30 |
| | 4 |
| | 13 |
| |
Total billed retail | | 973 |
| | 839 |
| | 134 |
| | 16 |
| |
Sales for resale: | | |
| | |
| | |
| | |
| |
Non-associated companies | | 21 |
| | 16 |
| | 5 |
| | 31 |
| |
Other | | 43 |
| | 44 |
| | (1 | ) | | (2 | ) | |
Total | |
| $1,037 |
| |
| $899 |
| |
| $138 |
| | 15 |
| |
| | |
| | |
| | |
| | |
| |
Billed Electric Energy Sales (GWh): | | | | | | | | | |
Residential | | 4,547 |
| | 4,072 |
| | 475 |
| | 12 |
| |
Commercial | | 3,722 |
| | 3,611 |
| | 111 |
| | 3 |
| |
Industrial | | 1,916 |
| | 1,869 |
| | 47 |
| | 3 |
| |
Governmental | | 329 |
| | 317 |
| | 12 |
| | 4 |
| |
Total retail | | 10,514 |
| | 9,869 |
| | 645 |
| | 7 |
| |
Sales for resale: | | |
| | |
| | |
| | |
| |
Non-associated companies | | 903 |
| | 744 |
| | 159 |
| | 21 |
| |
Total | | 11,417 |
| | 10,613 |
| | 804 |
| | 8 |
| |
ENTERGY NEW ORLEANS, LLC AND SUBSIDIARIES
MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS
Results of Operations
Net Income
Third Quarter 2018 Compared to Third Quarter2017
Net income increased $2.9decreased $1.9 million primarily due to higher other operation and maintenance expenses, a lowerhigher effective income tax rate, and 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, partially offset by higher other operation and maintenance expenses.
Nine Months Ended September 30, 2018 Compared to Nine Months Ended September 30, 2017
Net income increased $6.2 million primarily due to a lower effective income tax rate and higher net revenue, partially offset by higherlower taxes other operation and maintenance expenses.than income taxes.
Net Revenue
Third Quarter 2018 Compared to Third Quarter2017
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 change in net revenue comparing the thirdfirst quarter 20182019 to the thirdfirst quarter 2017:2018:
|
| | | |
| Amount |
| (In Millions) |
20172018 net revenue |
| $88.375.0 |
|
Return of unprotected excess accumulated deferred income taxes to customersRough production cost equalization | (9.01.5 | ) |
Volume/weather | 1.0(1.3 | ) |
Retail electric priceAmortization of income tax rate change liability | 2.33.1 |
|
Other | (0.91.2 | ) |
20182019 net revenue |
| $81.774.1 |
|
The returnrough production cost equalization variance is due to the use in the first quarter of unprotected excess accumulated deferred income taxes2018 of prior rough production cost equalization proceeds to customers resulted from the return of unprotected excess accumulated deferred income taxes through the fuel adjustment clause beginningoffset investments in July 2018. ThereEnergy 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 as the reduction in net revenue is offset by a reduction in income tax expense.income. See Note 2 to the financial statements herein and in the Form 10-K for further discussion of regulatory activity regarding the Tax Cuts and Jobs Act.Energy Smart program funding.
The volume/weather variance is primarily due to an increasea decrease of 111100 GWh, or 7%, in billed electricity usage, including the effect of more favorable weather on residential and commercial sales and a 1% increase in the average number of electric customers.
The retail electric price variance is primarily due to an increase in the purchased power and capacity acquisition cost recovery rider primarily due to higher credits to customers in 2017 as part of the Entergy New Orleans internal restructuring agreement in principle, partially offset by a decrease in the revenue requirement related to Power Block
Entergy New Orleans, LLC and Subsidiaries
Management's Financial Discussion and Analysis
1 of the Union Power Station. See Note 2 to the financial statements in the Form 10-K for further discussion of the credits associated with Entergy New Orleans’s internal restructuring.
Nine Months Ended September 30, 2018 Compared to Nine Months Ended September 30, 2017
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 nine months ended September 30, 2018 to nine months ended September 30, 2017:
|
| | | |
| Amount |
| (In Millions) |
2017 net revenue |
| $237.8 |
|
Volume/weather | 9.3 |
|
Net gas revenue | 2.4 |
|
Retail electric price | (2.5 | ) |
Return of unprotected excess accumulated deferred income taxes to customers | (9.0 | ) |
Other | 2.0 |
|
2018 net revenue |
| $240.0 |
|
The volume/weather variance is primarily due to an increase of 250 GWh, or 6%, in billed electricity usage, including the effect of more favorable weather 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 the amortization of the regulatory charges of $4.1 million recordedliability that Entergy New Orleans began recording in 2018 as a resultfor the lower income tax rate. This portion of an agreement with the City Council to return the benefits of the lower federal income tax rate are being given to customers through investments in 2018 to customers.Energy Smart energy efficiency programs. The amortization of income tax rate change liability is offset in other operation and 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 regulatory proceedings.
The return of unprotected excess accumulated deferred income taxes to customers resulted from the return of unprotected excess accumulated deferred income taxes through the fuel adjustment clause beginning in July 2018. There is no effect on net income as the reduction in net revenue is offset by a reduction in income tax expense. See Note 2 to the financial statements herein and in the Form 10-K for further discussion of regulatory activity regarding the Tax Cuts and Jobs Act.
Other Income Statement Variances
Third Quarter 2018 Compared to Third Quarter2017
Other operation and maintenance expenses increased primarily due to:
an increase of $1.8 million in energy efficiency costs;
an increase of $0.9$1.5 million in information technology costs primarily due to higher software maintenance costs and higher contract costs;
an increase of $0.9 million in energy efficiency costs; and
an increase of $0.8$0.9 million in costs related to customer service costs primarily dueinitiatives to higher contract costsexplore new technologies and write-offs of customer accounts.services.
Entergy New Orleans, LLC and Subsidiaries
Management's Financial Discussion and Analysis
Nine Months Ended September 30, 2018 Compared to Nine Months Ended September 30, 2017The increase was partially offset by:
Other operation and maintenance expenses increased primarily due to:
an increasea decrease of $3.3 million in energy efficiency costs;
an increase of $3$1.2 million in distribution expenses primarily due to higherlower contract labor costs, including an increase resulting from the timingcosts; and
a decrease of storm hardening work$1.1 million in fossil-fueled generation expenses primarily due to lower plant operating expenses in 2019 as compared to 2018.
Taxes other than income taxes decreased primarily due to a decrease in local franchise taxes primarily due to lower electric retail revenues in 2019 as compared to the prior year;
an increase of $1.6 millionsame period in customer service costs primarily due to higher contract costs and write-offs of customer accounts;
an increase of $1.2 million in information technology costs primarily due to higher software maintenance costs and higher contract costs; and
an increase of $1.1 million in loss provisions.2018.
Income Taxes
The effective income tax rates were (20.0%)rate was 25.3% for the thirdfirst quarter 2018 and 7.2% for the nine months ended September 30, 2018.2019. The differencesdifference in the effective income tax ratesrate for the thirdfirst quarter 20182019 versus the federal statutory rate of 21% was primarily due to permanent book and tax differences, state income taxes, and the nine months ended September 30,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% werewas primarily due to the amortization of excess accumulated deferred income taxes and flow-through tax accounting partially offset by state income taxes. See Notes 2 and 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 rates were 36.6% for the third quarter 2017 and 36.3% for the nine months ended September 30, 2017. The differences in the effective income tax rates for the third quarter 2017 and the nine months ended September 30, 2017 versus the federal statutory rate of 35% were primarily due to state income taxes and certain book and tax differences related to utility plant items, partially offset by flow-throughstate income taxes, the provision for uncertain tax accounting.positions, 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, 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.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 and 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, 2019 and 2018 were as follows:
|
| | | | | | | |
| 2019 | | 2018 |
| (In Thousands) |
Cash and cash equivalents at beginning of period |
| $19,677 |
| |
| $32,741 |
|
| | | |
Cash flow provided by (used in): | | | |
Operating activities | 16,522 |
| | 7,049 |
|
Investing activities | (36,783 | ) | | (31,573 | ) |
Financing activities | 1,378 |
| | (6,857 | ) |
Net decrease in cash and cash equivalents | (18,883 | ) | | (31,381 | ) |
| | | |
Cash and cash equivalents at end of period |
| $794 |
| |
| $1,360 |
|
Entergy New Orleans, LLC and Subsidiaries
Management's Financial Discussion and Analysis
Liquidity and Capital Resources
Cash Flow
Cash flows for the nine months ended September 30, 2018 and 2017 were as follows:
|
| | | | | | | |
| 2018 | | 2017 |
| (In Thousands) |
Cash and cash equivalents at beginning of period |
| $32,741 |
| |
| $103,068 |
|
| | | |
Cash flow provided by (used in): | | | |
Operating activities | 100,327 |
| | 84,240 |
|
Investing activities | (133,233 | ) | | (116,704 | ) |
Financing activities | 33,085 |
| | (41,722 | ) |
Net increase (decrease) in cash and cash equivalents | 179 |
| | (74,186 | ) |
| | | |
Cash and cash equivalents at end of period |
| $32,920 |
| |
| $28,882 |
|
Operating Activities
Net cash flow provided by operating activities increased $16.1$9.5 million for the ninethree months ended September 30, 2018March 31, 2019 compared to the ninethree months ended September 30, 2017March 31, 2018 primarily due to to:
the timing of payments to vendors, partially offset by vendors;
the returntiming of unprotected excess accumulated deferred income taxesrecovery of fuel and purchased power costs; and
a decrease of $2 million in pension contributions in 2019 as compared to customers.2018. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Critical Accounting Estimates” in the Form 10-K and Note 26 to the financial statements herein and in the Form 10-K for furthera discussion of regulatory activity regarding the Tax Cutsqualified pension and Jobs Act.other postretirement benefits funding.
Investing Activities
Net cash flow used in investing activities increased $16.5$5.2 million for the ninethree months ended September 30, 2018March 31, 2019 compared to the ninethree months ended September 30, 2017March 31, 2018 primarily due to:
an increase of $54.4$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 2019 as compared to the same period in 2018; and
an increase of $14.2$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 and a $10.6 million decrease in storm spending in 2018.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 $10.6$22 million for the ninethree months ended September 30, 2018March 31, 2019 compared to increasing $32.1decreasing $12.3 million for the ninethree months ended September 30, 2017.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 New Orleans’s financing activities provided $33.1$1.4 million of cash for the ninethree months ended September 30, 2018March 31, 2019 compared to using $41.7$6.9 million of cash for the ninethree months ended September 30, 2017March 31, 2018 primarily due to the issuance of $60 million of 4.51% Series first mortgage bonds in September 2018 and a decrease of $12.4$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 Taxplanned capital investments.
Entergy New Orleans, LLC and Subsidiaries
Management's Financial Discussion and Analysis
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.
Capital Structure
Entergy New Orleans’s debt to capital ratio is shown in the following table. The increasedecrease in the debt to capital ratio is primarily due to the issuance of long-term debtan increase in 2018.member’s equity in 2019.
| | | September 30, 2018 | | December 31, 2017 | March 31, 2019 | | December 31, 2018 |
Debt to capital | 52.6 | % | | 51.3 | % | 51.7 | % | | 52.1 | % |
Effect of excluding securitization bonds | (3.8 | %) | | (4.7 | %) | (3.5 | %) | | (3.5 | %) |
Debt to capital, excluding securitization bonds (a) | 48.8 | % | | 46.6 | % | 48.2 | % | | 48.6 | % |
Effect of subtracting cash | (2.0 | %) | | (2.4 | %) | — | % | | (1.2 | %) |
Net debt to net capital, excluding securitization bonds (a) | 46.8 | % | | 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.
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 is developing its capital investment plan for 2019 through 2021 and currently anticipates making $600 million in capital investments during that period. The preliminary estimate includes amounts associated with specific investments such as the New Orleans Power Station, discussed below; transmission projects to enhance reliability, reduce congestion, and enable economic growth; distribution spending to enhance reliability and improve service to customers, including advanced meters and related investments; system improvements; software and security; and other investments. Estimated capital expenditures are subject to periodic review and modification and may vary based on the ongoing effects of regulatory constraints and requirements, environmental compliance, business opportunities, market volatility, economic trends, business restructuring, changes in project plans, and the ability to access capital.
Entergy New Orleans’s receivables from or (payables to) the money pool were as follows:
|
| | | | | | |
September 30, 2018 | | December 31, 2017 | | September 30, 2017 | | December 31, 2016 |
(In Thousands) |
$2,116 | | $12,723 | | $46,282 | | $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, LLC and Subsidiaries
Management's Financial Discussion and Analysis
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 September 30, 2018,March 31, 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 September 30, 2018,March 31, 2019, a $2.1$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.
Gas Infrastructure Rebuild PlanRenewables
As discussed in the Form 10-K, in September 2016, Entergy New Orleans submitted to the City Council a request for authorization for Entergy New Orleans to proceed with annual incremental capital funding of $12.5 million for its gas infrastructure rebuild plan and proposed that recovery of the investment be determined in connection with its next base rate case. The City Council authorized Entergy New Orleans to proceed with its replacement plans and established a schedule for proceedings in advance of the rate case intended to provide an opportunity for evaluation of the gas infrastructure plan that would best serve the public interest and the effect on customers of the approval of any such plan. In the course of that proceeding, the City Council’s advisors submitted pre-filed testimony recommending that Entergy New Orleans be allowed to continue with its conditioned-based approach to gas pipeline replacement to replace approximately 238 miles of low pressure pipe at a rate of approximately 25 miles per year. The City Council’s advisors also recommended that Entergy New Orleans be required to adhere to certain reporting requirements and recognized the need to address the sustained level of investment in gas infrastructure on customer bills. In September 2017, Entergy New Orleans filed rebuttal testimony suggesting that its recovery of future investment and customer effects would be addressed in the rate case that Entergy New Orleans was required to file in July 2018. The procedural schedule was suspended in order to allow for resolution of the proceeding.
New Orleans Power Station
As discussed in the Form 10-K, in June 2016, 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 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 Spring 2020, subject to receipt of all necessary permits by the end of November 2018. 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. In May 2018 the City Council announced that it would initiate an investigation into allegations that Entergy New Orleans, Entergy, or some other entity paid or participated in paying certain attendees and speakers in support of the New Orleans Power Station to attend or speak at certain meetings organized by the City Council. In June 2018, Entergy New Orleans produced documents in response to a City Council resolution relating to this investigation. The City Council issued a request for qualifications for an investigator and in June 2018 selected two investigators. In October 2018 the investigators for the City Council released their report, concluding that individuals were paid to attend and/or speak in support of the New Orleans Power Station and that Entergy New Orleans “knew or should have known that such conduct occurred or reasonably might occur.” The City Council held a special meeting on October 31, 2018 to allow the investigators to present the report and for the City Council to consider next steps. At that meeting, the City Council issued a resolution requiring Entergy New Orleans to show cause why it should not be fined $5 million as a result of the findings in the report. A response to the resolution is due within 30 days from issuance of the certified resolution. Entergy New Orleans disagrees with certain characterizations and omissions of fact in the report and submitted its response to the City Council.
Entergy New Orleans, LLC and Subsidiaries
Management's Financial Discussion and Analysis
Renewables
In July 2018, Entergy New Orleans filed an application with the City Council requesting approval of three utility-scale solar projects totaling 90 MW. If approved,In December 2018 the resource additions will allowCity Council advisors requested that Entergy New Orleans pursue alternative deal structures for the Washington Parish project and attempt to make significant progress towards meeting its voluntary commitment toreduce costs for the City Council to add up to 10020 MW of renewable energy resources. The three projects include constructing a self-build solar plant in Orleans Parish with an outputproject. As a result of 20 MW, acquiring asettlement discussions, in March 2019, Entergy New Orleans revised its application to convert the build-own transfer acquisition of the 50 MW solar facility in Washington Parish through a build-own-transfer acquisition, and procuring 20 MW of solar power from a project to be built in St. James Parish through a power purchase agreement. In August 2018Also in March 2019 the City Council approved a procedural schedule opening discovery that is designedmotion to encourageallow settlement by December 2018.
Advanced Metering Infrastructure (AMI) Filings
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 expecteddiscussions to begin in fourth quarter 2018. In April 2018 the City Council adopted a resolution directing Entergy New Orleans to explore the options for accelerating the deployment of AMI. Incontinue until June 2018 the City Council approved a one year acceleration of AMI in its service area for an incremental $4.4 million, bringing the total capital spending related to AMI for Entergy New Orleans to $79.4 million. 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.
Retail Rates
Energy Smart Programs
As discussed in the Form 10-K, in September 2017, Entergy New Orleans filed a supplemental plan and proposed several options for an interim cost recovery mechanism necessary to recover program costs during the period between when existing funds directed to Energy Smart programs were depleted and when new rates from the then-anticipated 2018 combined rate case (subsequently filed in July 2018), which will include a cost recovery mechanism for Energy Smart funding, take effect (estimated to be August 2019). In December 2017 the City Council approved an energy efficiency cost recovery rider as an interim funding mechanism for Energy Smart, subject to verification that no additional funding sources exist. In June 2018 the City Council also approved a resolution recommending that Entergy New Orleans allocate approximately $13.5 million of benefits resulting from the Tax Act to Energy Smart. Entergy New Orleans is seeking approval of a permanent and stable source of funding for Energy Smart as part of its base rate case filed in July 2018 and revised in September 2018.
Base Rate Case
In July 2018, Entergy New Orleans filed its 2018 base rate case with the City Council, but withdrew it in August 2018. In September 2018, Entergy New Orleans filed a revised electric and gas base rate case with the City Council. The revised filing requests a 10.5% return on equity for electric operations with opportunity to earn a 10.75% return on equity through a performance adder provision of the electric formula rate plan, and requests a 10.75% return on equity for gas operations. The proposed electric rates in the revised filing reflect a net reduction of $20.3 million. The reduction in electric rates includes a base rate increase of $135.2 million, of which $131.5 million is associated with moving costs currently collected through fuel and riders into base rates, plus a request for an advanced metering
Entergy New Orleans, LLC and Subsidiaries
Management's Financial Discussion and Analysis
surcharge to recover $7.1 million associated with advanced metering infrastructure, offset by a net decrease of $31.1 million related to projected fuel and energy efficiency riders. The filing also includes a proposed gas rate decrease of $142 thousand. Entergy New Orleans’s rates reflect the inclusion of federal income tax reductions due to the Tax Act and the provisions of a previously-approved agreement in principle determining how the benefits of the Tax Act would flow. Entergy New Orleans included cost of service studies for electric and gas operations for the twelve months ending December 31, 2017 and the projected twelve months ending December 31, 2018. In addition, Entergy New Orleans included capital additions expected to be placed into service for the period through December 31, 2019. Entergy New Orleans’s request for a change in rates is based on the projected twelve months ending December 31, 2018.
The filing’s major provisions include: (1) a new electric rate structure, which realigns the revenue requirement associated with capacity and long-term service agreement expense from certain existing riders to base revenue, provides for the recovery of the cost of advanced metering infrastructure, and partially blends rates for Entergy New Orleans’s customers residing in Algiers with customers residing in the remainder of Orleans Parish through a three-year phase-in; (2) contemporaneous cost recovery riders for investments in energy efficiency/demand response, incremental changes in capacity/long-term service agreement costs, grid modernization investment, and gas infrastructure replacement investment; and (3) formula rate plans for both electric and gas operations. The procedural schedule calls for an evidentiary hearing to be held in June 2019.
Reliability Investigation
In August 2017 the City Council established a docket to investigate the reliability of the Entergy New Orleans distribution system and to consider implementing certain reliability standards and possible financial penalties for not meeting any such standards. In April 2018 the City Council adopted a resolution directing Entergy New Orleans to demonstrate that it has been prudent in the management and maintenance of the reliability of its distribution system. The resolution also called for Entergy New Orleans to file a revised reliability plan addressing the current state of its distribution system and proposing remedial measures for increasing reliability. In June 2018, Entergy New Orleans filed its response to the City Council’s resolution regarding the prudence of its management and maintenance of the reliability of its distribution system. In July 2018, Entergy New Orleans filed its revised reliability plan discussing the various reliability programs that it uses to improve distribution system reliability and discussing generally the positive effect that advanced meter deployment and grid modernization can have on future reliability. Entergy New Orleans has retained a national consulting firm with expertise in distribution system reliability to conduct a review of Entergy New Orleans’s distribution system reliability-related practices and procedures and to provide recommendations for improving distribution system reliability. The report was filed with the City Council in October 2018. The City Council also approved a resolution that opens a prudence investigation into whether Entergy New Orleans was imprudent for not acting sooner to address outages in New Orleans and whether fines should be imposed. In January 2019, Entergy New Orleans filed testimony in response to the prudence investigation and asserting that it had been prudent in managing system reliability. In April 2019 the City Council advisors filed comments and testimony asserting that Entergy New Orleans did not act prudently in maintaining and improving its distribution system reliability in recent years and recommending that a financial penalty in the range of $1.5 million to $2 million should be assessed. Entergy New Orleans disagrees with the recommendation and 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.
Entergy New Orleans, LLC and Subsidiaries
Management's Financial Discussion and Analysis
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 and Nine Months Ended September 30, 2018 and 2017 | |
For the Three Months Ended March 31, 2019 and 2018 | | For the Three Months Ended March 31, 2019 and 2018 |
(Unaudited) | | | | | | |
| | Three Months Ended | | Nine Months Ended | | |
| | 2018 | | 2017 | | 2018 | | 2017 | | 2019 | | 2018 |
| | (In Thousands) | | (In Thousands) | | (In Thousands) |
OPERATING REVENUES | | | | | | | | | | | | |
Electric | |
| $184,164 |
| |
| $182,451 |
| |
| $499,584 |
| |
| $482,251 |
| |
| $130,883 |
| |
| $155,818 |
|
Natural gas | | 16,018 |
| | 16,566 |
| | 67,319 |
| | 61,977 |
| | 32,311 |
| | 32,457 |
|
TOTAL | | 200,182 |
| | 199,017 |
| | 566,903 |
| | 544,228 |
| | 163,194 |
| | 188,275 |
|
| | | | | | | | | | | | |
OPERATING EXPENSES | | | | | | | | | | | | |
Operation and Maintenance: | | | | | | | | | | | | |
Fuel, fuel-related expenses, and gas purchased for resale | | 54,754 |
| | 26,082 |
| | 93,859 |
| | 79,118 |
| | 30,760 |
| | 23,739 |
|
Purchased power | | 57,828 |
| | 79,137 |
| | 214,773 |
| | 220,601 |
| | 60,649 |
| | 83,156 |
|
Other operation and maintenance | | 30,593 |
| | 26,092 |
| | 87,312 |
| | 73,462 |
| | 30,298 |
| | 28,299 |
|
Taxes other than income taxes | | 15,551 |
| | 15,135 |
| | 43,534 |
| | 41,397 |
| | 13,542 |
| | 15,132 |
|
Depreciation and amortization | | 14,059 |
| | 13,286 |
| | 41,756 |
| | 39,356 |
| | 14,164 |
| | 13,747 |
|
Other regulatory charges - net | | 5,853 |
| | 5,514 |
| | 18,313 |
| | 6,717 |
| |
Other regulatory charges (credits) - net | | | (2,355 | ) | | 6,333 |
|
TOTAL | | 178,638 |
| | 165,246 |
| | 499,547 |
| | 460,651 |
| | 147,058 |
| | 170,406 |
|
| | | | | | | | | | | | |
OPERATING INCOME | | 21,544 |
| | 33,771 |
| | 67,356 |
| | 83,577 |
| | 16,136 |
| | 17,869 |
|
| | | | | | | | | | | | |
OTHER INCOME | | | | | | | | | | | | |
Allowance for equity funds used during construction | | 1,694 |
| | 654 |
| | 3,762 |
| | 1,656 |
| | 2,290 |
| | 851 |
|
Interest and investment income | | 30 |
| | 222 |
| | 330 |
| | 521 |
| | 179 |
| | 93 |
|
Miscellaneous - net | | (660 | ) | | (317 | ) | | (2,401 | ) | | (617 | ) | | (1,506 | ) | | (337 | ) |
TOTAL | | 1,064 |
| | 559 |
| | 1,691 |
| | 1,560 |
| | 963 |
| | 607 |
|
| | | | | | | | | | | | |
INTEREST EXPENSE | | | | | | | | | | | | |
Interest expense | | 5,388 |
| | 5,313 |
| | 15,936 |
| | 16,012 |
| | 5,936 |
| | 5,279 |
|
Allowance for borrowed funds used during construction | | (626 | ) | | (229 | ) | | (1,390 | ) | | (580 | ) | | (914 | ) | | (314 | ) |
TOTAL | | 4,762 |
| | 5,084 |
| | 14,546 |
| | 15,432 |
| | 5,022 |
| | 4,965 |
|
| | | | | | | | | | | | |
INCOME BEFORE INCOME TAXES | | 17,846 |
| | 29,246 |
| | 54,501 |
| | 69,705 |
| | 12,077 |
| | 13,511 |
|
| | | | | | | | | | | | |
Income taxes | | (3,561 | ) | | 10,717 |
| | 3,943 |
| | 25,316 |
| | 3,054 |
| | 2,629 |
|
| | | | | | | | | | | | |
NET INCOME | | 21,407 |
| | 18,529 |
| | 50,558 |
| | 44,389 |
| |
| $9,023 |
| |
| $10,882 |
|
| | | | | | | | | | | | |
Preferred dividend requirements and other | | — |
| | 241 |
| | — |
| | 724 |
| |
| | | | | | | | | |
EARNINGS APPLICABLE TO COMMON EQUITY | |
| $21,407 |
| |
| $18,288 |
| |
| $50,558 |
| |
| $43,665 |
| |
| | | | | | | | | |
See Notes to Financial Statements. | | | | | | | | | | | | |
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| | ENTERGY NEW ORLEANS, LLC AND SUBSIDIARIES | CONSOLIDATED STATEMENTS OF CASH FLOWS | For the Nine Months Ended September 30, 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 | |
| $50,558 |
| |
| $44,389 |
| |
| $9,023 |
| |
| $10,882 |
|
Adjustments to reconcile net income to net cash flow provided by operating activities: | | | | | | | | |
Depreciation and amortization | | 41,756 |
| | 39,356 |
| | 14,164 |
| | 13,747 |
|
Deferred income taxes, investment tax credits, and non-current taxes accrued | | 25,605 |
| | 30,834 |
| | 9,743 |
| | 17,909 |
|
Changes in assets and liabilities: | | | | | | | | |
Receivables | | (15,310 | ) | | (17,030 | ) | | (20 | ) | | 3,378 |
|
Fuel inventory | | 495 |
| | (490 | ) | | 1,529 |
| | 951 |
|
Accounts payable | | 8,868 |
| | (4,950 | ) | | 8,298 |
| | (7,973 | ) |
Prepaid taxes | | (8,743 | ) | | (4,484 | ) | |
Prepaid taxes and taxes accrued | | | (4,443 | ) | | (13,351 | ) |
Interest accrued | | 564 |
| | 546 |
| | 650 |
| | (81 | ) |
Deferred fuel costs | | (59 | ) | | 4,258 |
| | (71 | ) | | (11,309 | ) |
Other working capital accounts | | (5,062 | ) | | (6,750 | ) | | (15,144 | ) | | (12,082 | ) |
Provisions for estimated losses | | 417 |
| | (1,702 | ) | | 454 |
| | 196 |
|
Other regulatory assets | | 19,068 |
| | 10,093 |
| | (16,528 | ) | | 7,226 |
|
Other regulatory liabilities | | (5,353 | ) | | (1,131 | ) | | (8,634 | ) | | 1,331 |
|
Pension and other postretirement liabilities | | (12,956 | ) | | (13,793 | ) | | (1,706 | ) | | (3,686 | ) |
Other assets and liabilities | | 479 |
| | 5,094 |
| | 19,207 |
| | (89 | ) |
Net cash flow provided by operating activities | | 100,327 |
| | 84,240 |
| | 16,522 |
| | 7,049 |
|
| | | | | | | | |
INVESTING ACTIVITIES | | | | | | | | |
Construction expenditures | | (142,585 | ) | | (81,143 | ) | | (57,788 | ) | | (41,105 | ) |
Allowance for equity funds used during construction | | 3,762 |
| | 1,656 |
| | 2,290 |
| | 851 |
|
Changes in money pool receivable - net | | 10,607 |
| | (32,067 | ) | | 22,016 |
| | 12,291 |
|
Receipts from storm reserve escrow account | | 3 |
| | — |
| | — |
| | 3 |
|
Payments to storm reserve escrow account | | (905 | ) | | (406 | ) | | (451 | ) | | (232 | ) |
Changes in securitization account | | (4,115 | ) | | (2,990 | ) | | (2,850 | ) | | (3,381 | ) |
Change in other investments | | — |
| | (1,754 | ) | |
Net cash flow used in investing activities | | (133,233 | ) | | (116,704 | ) | | (36,783 | ) | | (31,573 | ) |
| | | | | | | | |
FINANCING ACTIVITIES | | | | | | | | |
Proceeds from the issuance of long-term debt | | 59,590 |
| | — |
| |
Retirement of long-term debt | | (5,342 | ) | | (5,114 | ) | |
Change in money pool payable - net | | | 1,877 |
| | — |
|
Distributions/dividends paid: | | | | | | | | |
Common equity | | (23,750 | ) | | (36,100 | ) | | — |
| | (6,250 | ) |
Preferred stock | | — |
| | (724 | ) | |
Other | | 2,587 |
| | 216 |
| | (499 | ) | | (607 | ) |
Net cash flow provided by (used in) financing activities | | 33,085 |
| | (41,722 | ) | | 1,378 |
| | (6,857 | ) |
| | | | | | | | |
Net increase (decrease) in cash and cash equivalents | | 179 |
| | (74,186 | ) | |
Net decrease in cash and cash equivalents | | | (18,883 | ) | | (31,381 | ) |
Cash and cash equivalents at beginning of period | | 32,741 |
| | 103,068 |
| | 19,677 |
| | 32,741 |
|
Cash and cash equivalents at end of period | |
| $32,920 |
| |
| $28,882 |
| |
| $794 |
| |
| $1,360 |
|
| | | | | | | | |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | | | | | | | | |
Cash paid during the period for: | | | | | | | | |
Interest - net of amount capitalized | |
| $14,584 |
| |
| $14,668 |
| |
| $5,027 |
| |
| $5,098 |
|
| | | | | | | | |
See Notes to Financial Statements. | | | | | | | | |
| | ENTERGY NEW ORLEANS, LLC AND SUBSIDIARIES | CONSOLIDATED BALANCE SHEETS | ASSETS | September 30, 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 |
| |
| $30 |
| |
| $794 |
| |
| $26 |
|
Temporary cash investments | | 32,894 |
| | 32,711 |
| | — |
| | 19,651 |
|
Total cash and cash equivalents | | 32,920 |
| | 32,741 |
| | 794 |
| | 19,677 |
|
Securitization recovery trust account | | 5,570 |
| | 1,455 |
| | 5,075 |
| | 2,224 |
|
Accounts receivable: | | | | |
| | | | |
|
Customer | | 61,107 |
| | 51,006 |
| | 47,422 |
| | 43,890 |
|
Allowance for doubtful accounts | | (3,135 | ) | | (3,057 | ) | | (3,033 | ) | | (3,222 | ) |
Associated companies | | 17,464 |
| | 22,976 |
| | 2,054 |
| | 27,938 |
|
Other | | 5,986 |
| | 6,471 |
| | 7,115 |
| | 4,090 |
|
Accrued unbilled revenues | | 21,315 |
| | 20,638 |
| | 16,049 |
| | 18,907 |
|
Total accounts receivable | | 102,737 |
| | 98,034 |
| | 69,607 |
| | 91,603 |
|
Fuel inventory - at average cost | | 1,395 |
| | 1,890 |
| | 4 |
| | 1,533 |
|
Materials and supplies - at average cost | | 12,944 |
| | 10,381 |
| | 11,989 |
| | 12,133 |
|
Prepaid taxes | | 35,222 |
| | 26,479 |
| |
Prepayments and other | | 11,160 |
| | 8,030 |
| | 17,250 |
| | 6,905 |
|
TOTAL | | 201,948 |
| | 179,010 |
| | 104,719 |
| | 134,075 |
|
| | | | | | | | |
OTHER PROPERTY AND INVESTMENTS | | | | | | | | |
Non-utility property at cost (less accumulated depreciation) | | 1,016 |
| | 1,016 |
| | 1,016 |
| | 1,016 |
|
Storm reserve escrow account | | 80,448 |
| | 79,546 |
| | 81,305 |
| | 80,853 |
|
Other | | — |
| | 2,373 |
| |
TOTAL | | 81,464 |
| | 82,935 |
| | 82,321 |
| | 81,869 |
|
| | | | | | | | |
UTILITY PLANT | | | | | | | | |
Electric | | 1,334,227 |
| | 1,302,235 |
| | 1,358,401 |
| | 1,364,091 |
|
Natural gas | | 279,689 |
| | 261,263 |
| | 291,484 |
| | 284,728 |
|
Construction work in progress | | 139,839 |
| | 46,993 |
| | 184,527 |
| | 146,668 |
|
TOTAL UTILITY PLANT | | 1,753,755 |
| | 1,610,491 |
| | 1,834,412 |
| | 1,795,487 |
|
Less - accumulated depreciation and amortization | | 659,315 |
| | 631,178 |
| | 675,943 |
| | 670,135 |
|
UTILITY PLANT - NET | | 1,094,440 |
| | 979,313 |
| | 1,158,469 |
| | 1,125,352 |
|
| | | | | | | | |
DEFERRED DEBITS AND OTHER ASSETS | | | | | | | | |
Regulatory assets: | | | | | | | | |
Deferred fuel costs | | 4,080 |
| | 4,080 |
| | 4,080 |
| | 4,080 |
|
Other regulatory assets (includes securitization property of $62,857 as of September 30, 2018 and $72,095 as of December 31, 2017) | | 232,365 |
| | 251,433 |
| |
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 | | 1,471 |
| | 1,065 |
| | 1,991 |
| | 1,416 |
|
TOTAL | | 237,916 |
| | 256,578 |
| | 252,395 |
| | 235,292 |
|
| | | | | | | | |
TOTAL ASSETS | |
| $1,615,768 |
| |
| $1,497,836 |
| |
| $1,597,904 |
| |
| $1,576,588 |
|
| | | | | | | | |
See Notes to Financial Statements. | | | | | | | | |
| | ENTERGY NEW ORLEANS, LLC AND SUBSIDIARIES | CONSOLIDATED BALANCE SHEETS | LIABILITIES AND EQUITY | September 30, 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 | | | | | | | | |
Payable due to associated company | |
| $2,077 |
| |
| $2,077 |
| |
| $1,979 |
| |
| $1,979 |
|
Accounts payable: | | | | | | | | |
Associated companies | | 35,094 |
| | 47,472 |
| | 44,433 |
| | 43,416 |
|
Other | | 67,197 |
| | 29,777 |
| | 48,308 |
| | 36,686 |
|
Customer deposits | | 28,617 |
| | 28,442 |
| | 28,683 |
| | 28,667 |
|
Taxes accrued | | | — |
| | 4,068 |
|
Interest accrued | | 6,051 |
| | 5,487 |
| | 7,016 |
| | 6,366 |
|
Deferred fuel costs | | 7,715 |
| | 7,774 |
| | 1,217 |
| | 1,288 |
|
Current portion of unprotected excess accumulated deferred income taxes | | 26,200 |
| | — |
| | 25,220 |
| | 25,301 |
|
Other | | 7,459 |
| | 7,351 |
| | 6,611 |
| | 9,521 |
|
TOTAL CURRENT LIABILITIES | | 180,410 |
| | 128,380 |
| | 163,467 |
| | 157,292 |
|
| | | | | | | | |
NON-CURRENT LIABILITIES | | | | | | | | |
Accumulated deferred income taxes and taxes accrued | | 310,767 |
| | 283,302 |
| | 334,694 |
| | 323,595 |
|
Accumulated deferred investment tax credits | | 2,242 |
| | 2,323 |
| | 2,197 |
| | 2,219 |
|
Regulatory liability for income taxes - net | | 78,164 |
| | 119,259 |
| | 57,233 |
| | 60,249 |
|
Asset retirement cost liabilities | | 3,236 |
| | 3,076 |
| | 3,347 |
| | 3,291 |
|
Accumulated provisions | | 85,500 |
| | 85,083 |
| | 87,048 |
| | 86,594 |
|
Pension and other postretirement liabilities | | 7,774 |
| | 20,755 |
| | 3,920 |
| | 5,626 |
|
Long-term debt (includes securitization bonds of $69,259 as of September 30, 2018 and $74,419 as of December 31, 2017) | | 473,147 |
| | 418,447 |
| |
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 | | 16,346 |
| | 16,346 |
| | 14,367 |
| | 14,367 |
|
Other | | 15,826 |
| | 5,317 |
| | 10,160 |
| | 11,047 |
|
TOTAL NON-CURRENT LIABILITIES | | 993,002 |
| | 953,908 |
| | 980,464 |
| | 974,346 |
|
| | | | | | | | |
Commitments and Contingencies | | | | | | | | |
| | | | | | | | |
EQUITY | | | | | | | | |
Member's equity | | 442,356 |
| | 415,548 |
| | 453,973 |
| | 444,950 |
|
TOTAL | | 442,356 |
| | 415,548 |
| | 453,973 |
| | 444,950 |
|
| | | | | | | | |
TOTAL LIABILITIES AND EQUITY | |
| $1,615,768 |
| |
| $1,497,836 |
| |
| $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 NineThree Months Ended September 30,March 31, 2019 and 2018 and 2017 |
(Unaudited) |
| |
| |
| Member’s Equity |
| (In Thousands) |
| |
Balance at December 31, 20162017 |
| $426,946415,548 |
|
| |
Net income | 44,38910,882 |
|
Common equity distributions | (36,100 | ) |
Preferred stock dividends | (7246,250 | ) |
| |
Balance at September 30, 2017March 31, 2018 |
| $434,511420,180 |
|
| |
| |
Balance at December 31, 20172018 |
| $415,548444,950 |
|
| |
Net income | 50,5589,023 |
|
Common equity distributions | (23,750 | ) |
| |
Balance at September 30, 2018March 31, 2019 |
| $442,356453,973 |
|
| |
See Notes to Financial Statements. | |
|
| | ENTERGY NEW ORLEANS, LLC AND SUBSIDIARIES | SELECTED OPERATING RESULTS | For the Three and Nine Months Ended September 30, 2018 and 2017 | |
For the Three Months Ended March 31, 2019 and 2018 | | For the Three Months Ended March 31, 2019 and 2018 |
(Unaudited) | | | | | | | | | | | | | |
| | Three Months Ended | | Increase/ | | | | Three Months Ended | | Increase/ | | |
|
Description | | 2018 | | 2017 | | (Decrease) | | % | | 2019 | | 2018 | | (Decrease) | | % |
| | (Dollars In Millions) | | | | (Dollars In Millions) | | |
|
Electric Operating Revenues: | | | | | | | | | | | | |
| | |
| | |
|
Residential | |
| $86 |
| |
| $82 |
| |
| $4 |
| | 5 |
| |
| $52 |
| |
| $65 |
| |
| ($13 | ) | | (20 | ) |
Commercial | | 62 |
| | 63 |
| | (1 | ) | | (2 | ) | | 46 |
| | 54 |
| | (8 | ) | | (15 | ) |
Industrial | | 10 |
| | 9 |
| | 1 |
| | 11 |
| | 7 |
| | 8 |
| | (1 | ) | | (13 | ) |
Governmental | | 20 |
| | 21 |
| | (1 | ) | | (5 | ) | | 16 |
| | 18 |
| | (2 | ) | | (11 | ) |
Total billed retail | | 178 |
| | 175 |
| | 3 |
| | 2 |
| | 121 |
| | 145 |
| | (24 | ) | | (17 | ) |
Sales for resale: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Non-associated companies | | 5 |
| | 3 |
| | 2 |
| | 67 |
| | 10 |
| | 13 |
| | (3 | ) | | (23 | ) |
Other | | 1 |
| | 4 |
| | (3 | ) | | (75 | ) | | — |
| | (2 | ) | | 2 |
| | (100 | ) |
Total | |
| $184 |
| |
| $182 |
| |
| $2 |
| | 1 |
| |
| $131 |
| |
| $156 |
| |
| ($25 | ) | | (16 | ) |
| | | | | | | | | | | | | | | | |
Billed Electric Energy Sales (GWh): | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Residential | | 779 |
| | 711 |
| | 68 |
| | 10 |
| | 511 |
| | 577 |
| | (66 | ) | | (11 | ) |
Commercial | | 660 |
| | 634 |
| | 26 |
| | 4 |
| | 492 |
| | 524 |
| | (32 | ) | | (6 | ) |
Industrial | | 128 |
| | 119 |
| | 9 |
| | 8 |
| | 97 |
| | 99 |
| | (2 | ) | | (2 | ) |
Governmental | | 225 |
| | 217 |
| | 8 |
| | 4 |
| | 181 |
| | 181 |
| | — |
| | — |
|
Total retail | | 1,792 |
| | 1,681 |
| | 111 |
| | 7 |
| | 1,281 |
| | 1,381 |
| | (100 | ) | | (7 | ) |
Sales for resale: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Non-associated companies | | 281 |
| | 255 |
| | 26 |
| | 10 |
| | 528 |
| | 627 |
| | (99 | ) | | (16 | ) |
Total | | 2,073 |
| | 1,936 |
| | 137 |
| | 7 |
| | 1,809 |
| | 2,008 |
| | (199 | ) | | (10 | ) |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | Nine Months Ended | | Increase/ | | |
| |
Description | | 2018 | | 2017 | | (Decrease) | | % | |
| | (Dollars In Millions) | | |
| |
Electric Operating Revenues: | | | | |
| | |
| | |
| |
Residential | |
| $209 |
| |
| $191 |
| |
| $18 |
| | 9 |
| |
Commercial | | 171 |
| | 173 |
| | (2 | ) | | (1 | ) | |
Industrial | | 26 |
| | 26 |
| | — |
| | — |
| |
Governmental | | 57 |
| | 58 |
| | (1 | ) | | (2 | ) | |
Total billed retail | | 463 |
| | 448 |
| | 15 |
| | 3 |
| |
Sales for resale: | | |
| | |
| | |
| | |
| |
Non associated companies | | 24 |
| | 21 |
| | 3 |
| | 14 |
| |
Other | | 12 |
| | 13 |
| | (1 | ) | | (8 | ) | |
Total | |
| $499 |
| |
| $482 |
| |
| $17 |
| | 4 |
| |
| | | | | | | | | |
Billed Electric Energy Sales (GWh): | | |
| | |
| | |
| | |
| |
Residential | | 1,846 |
| | 1,635 |
| | 211 |
| | 13 |
| |
Commercial | | 1,711 |
| | 1,690 |
| | 21 |
| | 1 |
| |
Industrial | | 338 |
| | 322 |
| | 16 |
| | 5 |
| |
Governmental | | 591 |
| | 589 |
| | 2 |
| | — |
| |
Total retail | | 4,486 |
| | 4,236 |
| | 250 |
| | 6 |
| |
Sales for resale: | | |
| | |
| | |
| | |
| |
Non-associated companies | | 1,218 |
| | 1,270 |
| | (52 | ) | | (4 | ) | |
Total | | 5,704 |
| | 5,506 |
| | 198 |
| | 4 |
| |
| | | | | | | | | |
| | | | | | | | | |
ENTERGY TEXAS, INC. AND SUBSIDIARIES
MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS
Results of Operations
Net Income
Third Quarter2018 Compared to Third Quarter2017
Net income increased $26.3$4 million primarily due to higher net revenue, and a lower effectiveafter excluding the effect of the return of unprotected excess accumulated deferred income tax rate, partiallytaxes which is offset byin income taxes, and higher other operation and maintenance expenses.
Nine Months Ended September 30, 2018 Compared to Nine Months Ended September 30, 2017
Net income, increased $42.4 million primarily due to higher net revenue and a lower effective income tax rate, partially offset by higher other operation and maintenance expenses and higher depreciation and amortization expenses.
Net Revenue
Third Quarter 2018 Compared to Third Quarter 2017
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 thirdfirst quarter 20182019 to the thirdfirst quarter 2017:2018:
|
| | | |
| Amount |
| (In Millions) |
20172018 net revenue |
| $181.5144.9 |
|
Return of unprotected excess accumulated deferred income taxes to customers | (22.3 | ) |
Volume/weather | 13.6(3.5 |
|
Purchased power capacity | 10.9 | ) |
Retail electric price | 3.310.6 |
|
Other | 1.62.3 |
|
20182019 net revenue |
| $210.9132.0 |
|
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 an increasea decrease of 420160 GWh, or 8%4%, in billed electricity usage, including the effect of moreless favorable weather on residential and commercial sales and an increase in commercial and industrial usage. The increase in commercial usage is primarily due to the effects of the power outages caused by Hurricane Harvey, which decreased sales volume in 2017. The increase in industrial usage is primarily due to new customers in the chemicals and wood products industries and an increase in demand from mid-size to small customers.
The purchased power capacity variance is primarily due to decreased purchased power capacity costs under Entergy Texas’s purchased power agreements with Entergy Louisiana.sales.
The retail electric price variance is primarily due to an annual base rate increase in the distribution cost recovery factor rider rate in September 2017,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 distribution cost recovery factor riderrate 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 as 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
Nine Months Ended September 30, 2018 Compared to Nine Months Ended September 30, 2017
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 nine months ended September 30, 2018 to the nine months ended September 30, 2017:
|
| | | |
| Amount |
| (In Millions) |
2017 net revenue |
| $474.8 |
|
Volume/weather | 30.6 |
|
Retail electric price | 10.4 |
|
Purchased power capacity | 9.5 |
|
Other | 0.4 |
|
2018 net revenue |
| $525.7 |
|
The volume/weather variance is primarily due to an increase of 944 GWh, or 7%, in billed electricity usage, including the effect of more favorable weather on residential and commercial sales and an increase in commercial and industrial usage. The increase in commercial usage is primarily due to the effects of the power outages caused by Hurricane Harvey, which decreased sales volume in 2017. The increase in industrial usage isOther income increased primarily due to an increase in demand from mid-size to small customers and new customers in the chemicals and wood products industries.
The retail electric price variance is primarilyallowance for equity funds used during construction due to increaseshigher construction work in the transmission cost recovery factor rider rateprogress in March 2017 and the distribution cost recovery factor rider rate in September 2017, each 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 purchased power capacity variance is primarily due to decreased purchased power capacity costs under Entergy Texas’s purchased power agreements with Entergy Louisiana.
Other Income Statement Variances
Third Quarter 2018 Compared to Third Quarter 2017
Other operation and maintenance expenses increased primarily due to:
an increase of $2.7 million in energy efficiency costs2019 primarily due to the timing of recovery from customers;
an increase of $1.5 million in fossil-fueled generation expenses primarily due to an overall higher scope of work performed in the third quarter 2018 as compared to the same period in 2017;
an increase of $1.3 million in customer service costs primarily due to higher contract costs and write-offs of customer accounts;
an increase of $1 million in information technology costs primarily due to higher software maintenance costs and higher contract costs; and
an increase of $1 million in distribution operations costs primarily due to the timing of work performed and an overall higher scope of work performed in 2018 as compared to the same period in 2017.Montgomery County Power Station project.
The increase was partially offset by a gain on the sale of assets in 2018 of $2.1 million.
Entergy Texas, Inc. and Subsidiaries
Management's Financial Discussion and Analysis
Nine Months Ended September 30, 2018 Compared to Nine Months Ended September 30, 2017
Other operation and maintenance expenses increased primarily due to:
an increase of $3.8 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;
an increase of $3.2 million in energy efficiency costs primarily due to the timing of recovery from customers;
an increase of $3.1 million in distribution operations costs primarily due to the timing of work performed and an overall higher scope of work performed in 2018 as compared to the same period in 2017; and
an increase of $1.9 million in customer service costs primarily due to higher contract costs and write-offs of customer accounts.
The increase was partially offset by a gain on the sale of assets in 2018 of $2.1 million.
Depreciation and amortization expenses increased primarily due to additions to plant in service.
Income Taxes
The effective income tax rate was 20.4%(554.5%) for the thirdfirst 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 thirdfirst quarter 2018 versus the federal statutory rate of 21% was primarily due to book and tax differences related to the allowance for equity funds used during construction and certain book and tax differences related to utility plant items.
The effective income tax rate was 21.1% for the nine months ended September 30, 2018. The difference in the effective income tax rate for the nine months ended September 30, 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 the provision for uncertain tax positions,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 and certain book and tax differences related to utility plant items.
The effective income tax rate was 35.9% for the third quarter 2017. The difference in the effective income tax rate for the third quarter 2017 versus the federal statutory rate of 35% was primarily due to 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.
The effective income tax rate was 34.6% for the nine months ended September 30, 2017. The difference in the effective income tax rate for the nine months ended September 30, 2017 versus the federal statutory rate of 35% was primarily due to book and tax differences related to the allowance for equity funds used during construction and the reversal of a portion of the provision for uncertain tax positions, partially offset by certain book and tax differences related to utility plant items 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, 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.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 and 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, 2019 and 2018 were as follows:
|
| | | | | | | |
| 2019 | | 2018 |
| (In Thousands) |
Cash and cash equivalents at beginning of period |
| $56 |
| |
| $115,513 |
|
| | | |
Cash flow provided by (used in): | | | |
Operating activities | 42,651 |
| | 1,048 |
|
Investing activities | (163,922 | ) | | (52,129 | ) |
Financing activities | 143,444 |
| | (25,456 | ) |
Net increase (decrease) in cash and cash equivalents | 22,173 |
| | (76,537 | ) |
| | | |
Cash and cash equivalents at end of period |
| $22,229 |
| |
| $38,976 |
|
Operating Activities
Net cash flow provided by operating activities increased $41.6 million for the three months ended March 31, 2019 compared to the three months ended March 31, 2018 primarily due to the timing of recovery of fuel and purchased power costs, partially offset by the return of unprotected excess accumulated deferred income taxes to customers. 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.
Entergy Texas, Inc. and Subsidiaries
Management's Financial Discussion and Analysis
Liquidity and Capital Resources
Cash Flow
Cash flows for the nine months ended September 30, 2018 and 2017 were as follows:
|
| | | | | | | |
| 2018 | | 2017 |
| (In Thousands) |
Cash and cash equivalents at beginning of period |
| $115,513 |
| |
| $6,181 |
|
| | | |
Cash flow provided by (used in): | | | |
Operating activities | 197,677 |
| | 192,954 |
|
Investing activities | (233,850 | ) | | (228,582 | ) |
Financing activities | (58,843 | ) | | 30,949 |
|
Net decrease in cash and cash equivalents | (95,016 | ) | | (4,679 | ) |
| | | |
Cash and cash equivalents at end of period |
| $20,497 |
| |
| $1,502 |
|
Operating Activities
Net cash flow provided by operating activities increased $4.7 million for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017 primarily due to increased net income, partially offset by the timing of recovery of fuel and purchased power costs and the timing of collection of receivables from customers.
Investing Activities
Net cash flow used in investing activities increased $5.3$111.8 million for the ninethree months ended September 30, 2018March 31, 2019 compared to the ninethree months ended September 30, 2017March 31, 2018 primarily due to to:
an increase of $48.8$43.1 million in fossil-fueled generation construction expenditures primarily due to increased spending on the Montgomery County Power Station. TheStation;
an increase was partially offset by 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.
DecreasesIncreases in Entergy Texas’s receivable from the money pool are a sourceuse of cash flow, and Entergy Texas’s receivable from the money pool decreasedincreased by $43.7$3.6 million for the ninethree months ended September 30, 2018March 31, 2019 compared to decreasing by $0.7$32.3 million for the ninethree months ended September 30, 2017.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 used $58.8provided $143.4 million of cash for the ninethree months ended September 30, 2018March 31, 2019 compared to providing $30.9using $25.5 million of cash for the ninethree months ended September 30, 2017March 31, 2018 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.
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 $89.3$22.4 million for the ninethree months ended September 30, 2017.
Entergy Texas, Inc. and Subsidiaries
Management's Financial Discussion and Analysis
March 31, 2019.
Capital Structure
Entergy Texas’s debt to capital ratio is shown in the following table. The decreaseincrease in the debt to capital ratio for Entergy Texas is primarily due to the increasenet issuance of $200 million of first mortgage bonds in retained earnings.2019.
| | | September 30, 2018 | | December 31, 2017 | March 31, 2019 | | December 31, 2018 |
Debt to capital | 52.6 | % | | 55.7 | % | 53.9 | % | | 51.6 | % |
Effect of excluding the securitization bonds | (5.4 | %) | | (6.3 | %) | (4.2 | %) | | (5.2 | %) |
Debt to capital, excluding securitization bonds (a) | 47.2 | % | | 49.4 | % | 49.7 | % | | 46.4 | % |
Effect of subtracting cash | (0.4 | %) | | (2.5 | %) | (0.4 | %) | | — | % |
Net debt to net capital, excluding securitization bonds (a) | 46.8 | % | | 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 is developing its capital investment plan for 2019 through 2021 and currently anticipates making $1.9 billion in capital investments during that period. The preliminary estimate includes amounts associated with specific investments such as Montgomery County Power Station; transmission projects to enhance reliability, reduce congestion, and enable economic growth; distribution spending to enhance reliability and improve service to customers, including advanced meters and related investments; system improvements; software and security; and other investments. Estimated capital expenditures are subject to periodic review and modification and may vary based on the ongoing effects of regulatory constraints and requirements, environmental compliance, business opportunities, market volatility, economic trends, business restructuring, changes in project plans, and the ability to access capital.
Entergy Texas’s receivables from or (payables to) the money pool were as follows:
|
| | | | | | |
September 30, 2018 | | December 31, 2017 | | September 30, 2017 | | December 31, 2016 |
(In Thousands) |
$1,217 | | $44,903 | | ($89,312) | | $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 has a credit facility in the amount of $150 million scheduled to expire in September 2023. The credit facility includes fronting commitments for the issuance of letters of credit against $30 million of the borrowing
Entergy Texas, Inc. and Subsidiaries
Management's Financial Discussion and Analysis
capacity of the facility. As of September 30, 2018,March 31, 2019, there were no cash borrowings and $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 September 30, 2018, a $20March 31, 2019, 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 recovery
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 Texas filed a complaint in Federal District Court for the Western District of Texas and a petition in the Travis County (State) District Court appealing the PUCT’s decision. The pending appeals did not stay the PUCT’s decision, 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 of the Federal District Court ruling to the U.S. Court of Appeals for the Fifth Circuit. Oral argument was held before the Fifth Circuit in February 2018. In April 2018 the Fifth Circuit reversed the decision of the Federal District Court, reinstating the original PUCT decision. In October 2018, Entergy Texas filed a notice of nonsuit of its claims in the State District Court’s appeal of the PUCT’s January 2016 decision.
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. For most customers, the refunds flowed through bills beginning January 2018 and continued through March 2018. The fuel refund was approved by the PUCT in March 2018.
2018 Base Rate Case
In May 2018,January 2019, Entergy Texas filed afor 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 casecase. 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.
Distribution Cost Recovery Factor (DCRF) Rider
In March 2019, Entergy Texas filed with the PUCT seeking an increase in base rates anda request to set a new DCRF rider. The proposed new DCRF rider rates ofis designed to collect approximately $166$3.2 million of which $48 million is associated with moving costs currently being collected through riders into base rates such that the total incremental revenue requirement increase is approximately $118 million.annually from Entergy Texas’s proposed rates and revenues reflect the inclusion of federal income tax reductions due to the Tax Act as well as a rider designed to return unprotected excess accumulated deferred income taxes over a period of two years following PUCT approval. The base rate case isretail customers based on a 12-month test year endingits capital invested in distribution between January 1, 2018 and December 31, 2017. In addition, Entergy Texas included capital additions placed into service for the period of April 1, 2013 through December 31, 2017, as well as2018. A procedural schedule has been established, with a post-test year adjustment to include capital additions placedhearing in service by June 30, 2018. In October 2018 the parties filed an unopposed settlement resolving all issues in the proceeding, supporting testimony, a proposed order approving the settlement, and a motion for interim rates effective for usage on and after October 17, 2018. The unopposed settlement reflects the following terms: a base rate increase of $53.2 million (net of costs realigned from riders), a $25 million refund to reflect the lower federal income tax rate applicable to Entergy Texas from January 25, 2018 through the date new rates are implemented, $6 million of capitalized skylining tree hazard costs will not be recovered from customers, $242.5 million of protected excess accumulated deferred income taxes, which includes a tax gross-up, will be returned to customers through base rates under the average rate assumption method over the lives of the associated assets, and $185.2 million of unprotected excess accumulated deferred income2019.
Entergy Texas, Inc. and Subsidiaries
Management's Financial Discussion and Analysis
taxes, which includesTransmission Cost Recovery Factor (TCRF) Rider
In December 2018, Entergy Texas filed with the PUCT a tax gross-up, will be returnedrequest to customers throughset a new TCRF rider. The unprotected excess accumulated deferred income taxesproposed new TCRF rider will include carrying chargesis 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 willSeptember 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 effect over a period of 12 months for large industrial customers and overTCRF. Entergy Texas filed a period of four years for other customers. The settlement, if approved by the PUCT, would provide final resolution of all issues in the matter, including those related to the Tax Act. In October 2018 the ALJ granted the unopposed motion for interim rates to be effective for service renderedApril 2019. In April 2019 the hearing on or after October 17, 2018. The unopposed settlementEntergy 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 pending considerationissued by the 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.
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 and Nine Months Ended September 30, 2018 and 2017 | |
For the Three Months Ended March 31, 2019 and 2018 | | For the Three Months Ended March 31, 2019 and 2018 |
(Unaudited) | | | | | | |
| | Three Months Ended | | Nine Months Ended | | |
| | 2018 | | 2017 | | 2018 | | 2017 | | 2019 | | 2018 |
| | (In Thousands) | | (In Thousands) | | (In Thousands) |
OPERATING REVENUES | | | | | | | | | | | | |
Electric | |
| $477,231 |
| |
| $432,909 |
| |
| $1,229,657 |
| |
| $1,175,324 |
| |
| $340,474 |
| |
| $348,940 |
|
| | | | | | | | | | | | |
OPERATING EXPENSES | | | | | | | | | | | | |
Operation and Maintenance: | | | | | | | | | | | | |
Fuel, fuel-related expenses, and gas purchased for resale | | 79,130 |
| | 60,292 |
| | 154,925 |
| | 164,447 |
| | 48,103 |
| | 18,706 |
|
Purchased power | | 153,673 |
| | 163,532 |
| | 463,933 |
| | 474,241 |
| | 140,868 |
| | 159,692 |
|
Other operation and maintenance | | 58,795 |
| | 51,874 |
| | 171,317 |
| | 162,594 |
| | 59,626 |
| | 52,674 |
|
Taxes other than income taxes | | 20,752 |
| | 20,811 |
| | 61,461 |
| | 59,506 |
| | 18,640 |
| | 20,403 |
|
Depreciation and amortization | | 31,365 |
| | 29,788 |
| | 93,272 |
| | 87,272 |
| | 37,037 |
| | 30,766 |
|
Other regulatory charges - net | | 33,550 |
| | 27,619 |
| | 85,064 |
| | 61,879 |
| | 19,459 |
| | 25,617 |
|
TOTAL | | 377,265 |
| | 353,916 |
| | 1,029,972 |
| | 1,009,939 |
| | 323,733 |
| | 307,858 |
|
| | | | | | | | | | | | |
OPERATING INCOME | | 99,966 |
| | 78,993 |
| | 199,685 |
| | 165,385 |
| | 16,741 |
| | 41,082 |
|
| | | | | | | | | | | | |
OTHER INCOME | | | | | | | | | | | | |
Allowance for equity funds used during construction | | 2,222 |
| | 1,849 |
| | 5,716 |
| | 4,762 |
| | 5,081 |
| | 1,661 |
|
Interest and investment income | | 601 |
| | 244 |
| | 1,698 |
| | 656 |
| | 1,682 |
| | 555 |
|
Miscellaneous - net | | 468 |
| | 1,255 |
| | (154 | ) | | 679 |
| | (363 | ) | | 113 |
|
TOTAL | | 3,291 |
| | 3,348 |
| | 7,260 |
| | 6,097 |
| | 6,400 |
| | 2,329 |
|
| | | | | | | | | | | | |
INTEREST EXPENSE | | | | | | | | | | | | |
Interest expense | | 21,760 |
| | 21,714 |
| | 65,646 |
| | 64,949 |
| | 22,460 |
| | 22,051 |
|
Allowance for borrowed funds used during construction | | (1,253 | ) | | (1,134 | ) | | (3,224 | ) | | (2,896 | ) | | (2,580 | ) | | (938 | ) |
TOTAL | | 20,507 |
| | 20,580 |
| | 62,422 |
| | 62,053 |
| | 19,880 |
| | 21,113 |
|
| | | | | | | | | | | | |
INCOME BEFORE INCOME TAXES | | 82,750 |
| | 61,761 |
| | 144,523 |
| | 109,429 |
| | 3,261 |
| | 22,298 |
|
| | | | | | | | | | | | |
Income taxes | | 16,904 |
| | 22,173 |
| | 30,538 |
| | 37,886 |
| | (18,081 | ) | | 4,948 |
|
| | | | | | | | | | | | |
NET INCOME | |
| $65,846 |
| |
| $39,588 |
| |
| $113,985 |
| |
| $71,543 |
| |
| $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 Nine Months Ended September 30, 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 | |
| $113,985 |
| |
| $71,543 |
| |
| $21,342 |
| |
| $17,350 |
|
Adjustments to reconcile net income to net cash flow provided by operating activities: | | | | | | | | |
Depreciation and amortization | | 93,272 |
| | 87,272 |
| | 37,037 |
| | 30,766 |
|
Deferred income taxes, investment tax credits, and non-current taxes accrued | | 640 |
| | 36,252 |
| | (10,123 | ) | | (21,607 | ) |
Changes in assets and liabilities: | | | | | | | | |
Receivables | | (40,287 | ) | | (30,030 | ) | | 65,394 |
| | 9,190 |
|
Fuel inventory | | 1,045 |
| | (7,371 | ) | | (173 | ) | | (134 | ) |
Accounts payable | | (12,864 | ) | | 24,711 |
| | (57,447 | ) | | (24,653 | ) |
Taxes accrued | | 24,476 |
| | 1,122 |
| | (9,465 | ) | | 3,981 |
|
Interest accrued | | (6,084 | ) | | (7,207 | ) | | (4,638 | ) | | (5,575 | ) |
Deferred fuel costs | | (33,734 | ) | | (3,134 | ) | | 8,331 |
| | (28,626 | ) |
Other working capital accounts | | 891 |
| | (8,455 | ) | | (913 | ) | | 4,788 |
|
Provisions for estimated losses | | 1,006 |
| | (1,460 | ) | | 1,074 |
| | (208 | ) |
Other regulatory assets | | 64,311 |
| | 59,549 |
| | 1,358 |
| | 20,497 |
|
Other regulatory liabilities | | 15,313 |
| | (1,500 | ) | | (24,365 | ) | | 5,145 |
|
Pension and other postretirement liabilities | | (20,999 | ) | | (22,978 | ) | | (1,120 | ) | | (6,851 | ) |
Other assets and liabilities | | (3,294 | ) | | (5,360 | ) | | 16,359 |
| | (3,015 | ) |
Net cash flow provided by operating activities | | 197,677 |
| | 192,954 |
| | 42,651 |
| | 1,048 |
|
| | | | | | | | |
INVESTING ACTIVITIES | | | | | | | | |
Construction expenditures | | (291,118 | ) | | (243,226 | ) | | (176,186 | ) | | (94,123 | ) |
Allowance for equity funds used during construction | | 5,820 |
| | 4,879 |
| | 5,111 |
| | 1,696 |
|
Proceeds from sale of assets | | 3,753 |
| | — |
| |
Insurance proceeds received from property damages | | — |
| | 2,431 |
| |
Changes in money pool receivable - net | | 43,686 |
| | 681 |
| | (3,571 | ) | | 32,313 |
|
Changes in securitization account | | 4,009 |
| | 6,653 |
| | 10,724 |
| | 7,985 |
|
Net cash flow used in investing activities | | (233,850 | ) | | (228,582 | ) | | (163,922 | ) | | (52,129 | ) |
| | | | | | | | |
FINANCING ACTIVITIES | | | | | | | | |
Proceeds from the issuance of long-term debt | | | 692,633 |
| | — |
|
Retirement of long-term debt | | (60,500 | ) | | (58,076 | ) | | (525,841 | ) | | (24,977 | ) |
Change in money pool payable - net | | — |
| | 89,312 |
| | (22,389 | ) | | — |
|
Other | | 1,657 |
| | (287 | ) | | (959 | ) | | (479 | ) |
Net cash flow provided by (used in) financing activities | | (58,843 | ) | | 30,949 |
| | 143,444 |
| | (25,456 | ) |
| | | | | | | | |
Net decrease in cash and cash equivalents | | (95,016 | ) | | (4,679 | ) | |
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 | |
| $20,497 |
| |
| $1,502 |
| |
| $22,229 |
| |
| $38,976 |
|
| | | | | | | | |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | | | | | | | | |
Cash paid (received) during the period for: | | | | | | | | |
Interest - net of amount capitalized | |
| $69,669 |
| |
| $70,237 |
| |
| $26,002 |
| |
| $26,939 |
|
Income taxes | |
| ($624 | ) | |
| ($1,446 | ) | |
| $— |
| |
| ($1,624 | ) |
| | | | | | | | |
See Notes to Financial Statements. | | | | | | | | |
| | ENTERGY TEXAS, INC. AND SUBSIDIARIES | CONSOLIDATED BALANCE SHEETS | ASSETS | September 30, 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 | |
| $1,541 |
| |
| $32 |
| |
| $26 |
| |
| $26 |
|
Temporary cash investments | | 18,956 |
| | 115,481 |
| | 22,203 |
| | 30 |
|
Total cash and cash equivalents | | 20,497 |
| | 115,513 |
| | 22,229 |
| | 56 |
|
Securitization recovery trust account | | 33,675 |
| | 37,683 |
| | 29,461 |
| | 40,185 |
|
Accounts receivable: | | | | | | | | |
Customer | | 105,040 |
| | 74,382 |
| | 63,194 |
| | 69,714 |
|
Allowance for doubtful accounts | | (570 | ) | | (463 | ) | | (412 | ) | | (461 | ) |
Associated companies | | 51,624 |
| | 90,629 |
| | 16,273 |
| | 64,441 |
|
Other | | 9,560 |
| | 9,831 |
| | 9,964 |
| | 12,275 |
|
Accrued unbilled revenues | | 56,008 |
| | 50,682 |
| | 46,415 |
| | 51,288 |
|
Total accounts receivable | | 221,662 |
| | 225,061 |
| | 135,434 |
| | 197,257 |
|
Fuel inventory - at average cost | | 41,686 |
| | 42,731 |
| | 42,840 |
| | 42,667 |
|
Materials and supplies - at average cost | | 40,083 |
| | 38,605 |
| | 43,560 |
| | 41,883 |
|
Prepayments and other | | 19,968 |
| | 19,710 |
| | 11,231 |
| | 15,903 |
|
TOTAL | | 377,571 |
| | 479,303 |
| | 284,755 |
| | 337,951 |
|
| | | | | | | | |
OTHER PROPERTY AND INVESTMENTS | | | | | | | | |
Investments in affiliates - at equity | | 458 |
| | 457 |
| | 436 |
| | 448 |
|
Non-utility property - at cost (less accumulated depreciation) | | 376 |
| | 376 |
| | 376 |
| | 376 |
|
Other | | 18,999 |
| | 19,235 |
| | 19,433 |
| | 19,218 |
|
TOTAL | | 19,833 |
| | 20,068 |
| | 20,245 |
| | 20,042 |
|
| | | | | | | | |
UTILITY PLANT | | | | | | | | |
Electric | | 4,693,662 |
| | 4,569,295 |
| | 4,804,948 |
| | 4,773,984 |
|
Construction work in progress | | 223,279 |
| | 102,088 |
| | 450,207 |
| | 325,193 |
|
TOTAL UTILITY PLANT | | 4,916,941 |
| | 4,671,383 |
| | 5,255,155 |
| | 5,099,177 |
|
Less - accumulated depreciation and amortization | | 1,650,889 |
| | 1,579,387 |
| | 1,694,292 |
| | 1,684,569 |
|
UTILITY PLANT - NET | | 3,266,052 |
| | 3,091,996 |
| | 3,560,863 |
| | 3,414,608 |
|
| | | | | | | | |
DEFERRED DEBITS AND OTHER ASSETS | | | | | | | | |
Regulatory assets: | | | | | | | | |
Other regulatory assets (includes securitization property of $253,493 as of September 30, 2018 and $313,123 as of December 31, 2017) | | 597,087 |
| | 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 | | 32,118 |
| | 26,973 |
| | 31,171 |
| | 29,371 |
|
TOTAL | | 629,205 |
| | 688,371 |
| | 627,861 |
| | 627,419 |
|
| | | | | | | | |
TOTAL ASSETS | |
| $4,292,661 |
| |
| $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 | September 30, 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 | | 42,825 |
| | 59,347 |
| | 48,588 |
| | 119,371 |
|
Other | | 106,968 |
| | 126,095 |
| | 158,286 |
| | 150,679 |
|
Customer deposits | | 41,875 |
| | 40,925 |
| | 40,967 |
| | 43,387 |
|
Taxes accrued | | 70,135 |
| | 45,659 |
| | 44,048 |
| | 53,513 |
|
Interest accrued | | 19,472 |
| | 25,556 |
| | 19,717 |
| | 24,355 |
|
Current portion of unprotected excess accumulated deferred income taxes | | | 73,112 |
| | 87,627 |
|
Deferred fuel costs | | 33,567 |
| | 67,301 |
| | 28,028 |
| | 19,697 |
|
Current portion of unprotected excess accumulated deferred income taxes | | 91,126 |
| | — |
| |
Other | | 9,792 |
| | 8,132 |
| | 9,233 |
| | 6,353 |
|
TOTAL | | 915,760 |
| | 373,015 |
| | 421,979 |
| | 1,004,982 |
|
| | | | | | | | |
NON-CURRENT LIABILITIES | | | | | | | | |
Accumulated deferred income taxes and taxes accrued | | 548,173 |
| | 544,642 |
| | 543,550 |
| | 552,535 |
|
Accumulated deferred investment tax credits | | 11,403 |
| | 11,983 |
| | 11,021 |
| | 11,176 |
|
Regulatory liability for income taxes - net | | 320,640 |
| | 412,620 |
| | 254,771 |
| | 264,623 |
|
Other regulatory liabilities | | 23,017 |
| | 6,850 |
| | 47,886 |
| | 47,884 |
|
Asset retirement cost liabilities | | 7,123 |
| | 6,835 |
| | 7,322 |
| | 7,222 |
|
Accumulated provisions | | 11,121 |
| | 10,115 |
| | 14,930 |
| | 13,856 |
|
Pension and other postretirement liabilities | | — |
| | 17,853 |
| | 3,699 |
| | 4,834 |
|
Long-term debt (includes securitization bonds of $298,038 as of September 30, 2018 and $358,104 as of December 31, 2017) | | 1,027,817 |
| | 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 | | 53,455 |
| | 48,508 |
| | 63,856 |
| | 56,771 |
|
TOTAL | | 2,002,749 |
| | 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 | | 727,706 |
| | 613,721 |
| | 797,298 |
| | 775,956 |
|
TOTAL | | 1,374,152 |
| | 1,260,167 |
| | 1,443,744 |
| | 1,422,402 |
|
| | | | | | | | |
TOTAL LIABILITIES AND EQUITY | |
| $4,292,661 |
| |
| $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 Nine Months Ended September 30, 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) | (In Thousands) |
| | | | | | | | | | | | | | |
Balance at December 31, 2016 |
| $49,452 |
| |
| $481,994 |
| |
| $537,548 |
| |
| $1,068,994 |
| |
| | | | | | | | |
Net income | — |
| | — |
| | 71,543 |
| | 71,543 |
| |
| | | | | | | | |
Balance at September 30, 2017 |
| $49,452 |
| |
| $481,994 |
| |
| $609,091 |
| |
| $1,140,537 |
| |
| | | | | | | | |
| | | | | | | | |
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 | — |
| | — |
| | 113,985 |
| | 113,985 |
| — |
| | — |
| | 17,350 |
| | 17,350 |
|
| | | | | | | | | | | | | | |
Balance at September 30, 2018 |
| $49,452 |
| |
| $596,994 |
| |
| $727,706 |
| |
| $1,374,152 |
| |
Balance at March 31, 2018 | |
| $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 and Nine Months Ended September 30, 2018 and 2017 | |
For the Three Months Ended March 31, 2019 and 2018 | | For the Three Months Ended March 31, 2019 and 2018 |
(Unaudited) | | | | | | | | | | | | | |
| | Three Months Ended | | Increase/ | | | | Three Months Ended | | Increase/ | | |
Description | | 2018 | | 2017 | | (Decrease) | | % | | 2019 | | 2018 | | (Decrease) | | % |
| | (Dollars In Millions) | | | | (Dollars In Millions) | | |
Electric Operating Revenues: | | | | | | | | | | | | | | | | |
Residential | |
| $224 |
| |
| $202 |
| |
| $22 |
| | 11 |
| |
| $148 |
| |
| $148 |
| |
| $— |
| | — |
|
Commercial | | 111 |
| | 101 |
| | 10 |
| | 10 |
| | 79 |
| | 85 |
| | (6 | ) | | (7 | ) |
Industrial | | 109 |
| | 97 |
| | 12 |
| | 12 |
| | 88 |
| | 83 |
| | 5 |
| | 6 |
|
Governmental | | 7 |
| | 6 |
| | 1 |
| | 17 |
| | 5 |
| | 6 |
| | (1 | ) | | (17 | ) |
Total billed retail | | 451 |
| | 406 |
| | 45 |
| | 11 |
| | 320 |
| | 322 |
| | (2 | ) | | (1 | ) |
Sales for resale: | | | | | | | | | | | | | | | | |
Associated companies | | 18 |
| | 18 |
| | — |
| | — |
| | 14 |
| | 13 |
| | 1 |
| | 8 |
|
Non-associated companies | | 5 |
| | 4 |
| | 1 |
| | 25 |
| | 3 |
| | 10 |
| | (7 | ) | | (70 | ) |
Other | | 3 |
| | 5 |
| | (2 | ) | | (40 | ) | | 3 |
| | 4 |
| | (1 | ) | | (25 | ) |
Total | |
| $477 |
| |
| $433 |
| |
| $44 |
| | 10 |
| |
| $340 |
| |
| $349 |
| |
| ($9 | ) | | (3 | ) |
| | | | | | | | | | | | | | | | |
Billed Electric Energy Sales (GWh): | | | | | | | | | | | | | | | | |
Residential | | 2,003 |
| | 1,839 |
| | 164 |
| | 9 |
| | 1,360 |
| | 1,474 |
| | (114 | ) | | (8 | ) |
Commercial | | 1,392 |
| | 1,279 |
| | 113 |
| | 9 |
| | 1,046 |
| | 1,083 |
| | (37 | ) | | (3 | ) |
Industrial | | 2,156 |
| | 2,018 |
| | 138 |
| | 7 |
| | 1,831 |
| | 1,832 |
| | (1 | ) | | — |
|
Governmental | | 78 |
| | 73 |
| | 5 |
| | 7 |
| | 62 |
| | 70 |
| | (8 | ) | | (11 | ) |
Total retail | | 5,629 |
| | 5,209 |
| | 420 |
| | 8 |
| | 4,299 |
| | 4,459 |
| | (160 | ) | | (4 | ) |
Sales for resale: | | | | | | | | | | | | | | | | |
Associated companies | | 446 |
| | 386 |
| | 60 |
| | 16 |
| | 402 |
| | 366 |
| | 36 |
| | 10 |
|
Non-associated companies | | 208 |
| | 238 |
| | (30 | ) | | (13 | ) | | 96 |
| | 194 |
| | (98 | ) | | (51 | ) |
Total | | 6,283 |
| | 5,833 |
| | 450 |
| | 8 |
| | 4,797 |
| | 5,019 |
| | (222 | ) | | (4 | ) |
| | | | | | | | | |
| | | | | | | | | |
| | Nine Months Ended | | Increase/ | | | |
Description | | 2018 | | 2017 | | (Decrease) | | % | |
| | (Dollars In Millions) | | | |
Electric Operating Revenues: | | | | | | | | | |
Residential | |
| $523 |
| |
| $482 |
| |
| $41 |
| | 9 |
| |
Commercial | | 291 |
| | 282 |
| | 9 |
| | 3 |
| |
Industrial | | 295 |
| | 292 |
| | 3 |
| | 1 |
| |
Governmental | | 19 |
| | 18 |
| | 1 |
| | 6 |
| |
Total billed retail | | 1,128 |
| | 1,074 |
| | 54 |
| | 5 |
| |
Sales for resale: | | | | | | | | | |
Associated companies | | 46 |
| | 47 |
| | (1 | ) | | (2 | ) | |
Non-associated companies | | 26 |
| | 18 |
| | 8 |
| | 44 |
| |
Other | | 30 |
| | 36 |
| | (6 | ) | | (17 | ) | |
Total | |
| $1,230 |
| |
| $1,175 |
| |
| $55 |
| | 5 |
| |
| | | | | | | | | |
Billed Electric Energy Sales (GWh): | | | | | | | | | |
Residential | | 4,789 |
| | 4,326 |
| | 463 |
| | 11 |
| |
Commercial | | 3,610 |
| | 3,387 |
| | 223 |
| | 7 |
| |
Industrial | | 6,024 |
| | 5,781 |
| | 243 |
| | 4 |
| |
Governmental | | 220 |
| | 205 |
| | 15 |
| | 7 |
| |
Total retail | | 14,643 |
| | 13,699 |
| | 944 |
| | 7 |
| |
Sales for resale: | | | | | | | | | |
Associated companies | | 1,199 |
| | 1,149 |
| | 50 |
| | 4 |
| |
Non-associated companies | | 725 |
| | 586 |
| | 139 |
| | 24 |
| |
Total | | 16,567 |
| | 15,434 |
| | 1,133 |
| | 7 |
| |
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.
Third Quarter 2018 Compared to Third Quarter2017
Net income increased $2.4$1.3 million primarily due to the increase in operating revenues resulting from changes in rate base as compared to the same period in the prior year and a lower effective income tax rate.
Nine Months Ended September 30, 2018 Compared to Nine Months Ended September 30, 2017
Net income increased $8.4 million primarily due to:
an increase in the allowance for equity funds used during construction resulting from spending on Grand Gulf outage projects in 2018;
the increase in operating revenues resulting from changes in rate base as compared to the same period in the prior 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.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 and 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, 2019 and 2018 were as follows:
|
| | | | | | | |
| 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
Liquidity and Capital ResourcesOperating Activities
Cash Flow
Cash flows for the nine months ended September 30, 2018 and 2017 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 | 131,556 |
| | 279,485 |
|
Investing activities | (169,573 | ) | | (259,598 | ) |
Financing activities | 5,371 |
| | (120,783 | ) |
Net decrease in cash and cash equivalents | (32,646 | ) | | (100,896 | ) |
| | | |
Cash and cash equivalents at end of period |
| $254,541 |
| |
| $144,967 |
|
Operating Activities
Net cash flow provided by operating activities decreased by $147.9$7.7 million for the ninethree months ended September 30, 2018March 31, 2019 compared to the ninethree months ended September 30, 2017March 31, 2018 primarily due to an increasethe timing of collection of receivables, offset by a decrease in spending of $49$3.7 million on nuclear refueling outages in 20182019 as compared to the same period in 20172018 and a decrease of $3.4 million in pension contributions in 2019. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Critical Accounting Estimates” in the returnForm 10-K and Note 6 to the financial statements herein for a discussion of unprotected excess accumulated deferred income taxes.qualified pension and other postretirement benefits funding.
Investing Activities
Net cash flow used inSystem Energy’s investing activities decreased $90provided $70.7 million of cash for the ninethree months ended September 30, 2018March 31, 2019 compared to using $86 million of cash for the ninethree months ended September 30, 2017March 31, 2018 primarily due to:
money pool activity;
changes in the decommissioning trust fund including portfolio rebalancing of the Grand Gulf decommissioning trust fund in the third quarter 2018; and
$9.1 million in funds held on deposit in 2017 for interest payments which were due October 1, 2017.
The decrease was partially offset by:
an increase of $133.6$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 cycle; and
an increase of $112.4 million in nuclear construction expenditures primarily as a result of a higher scope of work performed during the Grand Gulf outage in 2018.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 $95.3$81.6 million for the ninethree months ended September 30, 2018March 31, 2019 compared to increasingdecreasing by $202.7$21.5 million for the ninethree months ended September 30, 2017.March 31, 2018. The money pool is an inter-company borrowing arrangement designed to reduce the Utility subsidiaries’ need for external short-term borrowings.
System Energy Resources, Inc.
Management's Financial Discussion and Analysis
Financing Activities
System Energy’s financing activities provided $5.4used $65.8 million of cash for the ninethree months ended September 30, 2018March 31, 2019 compared to using $120.8providing $12.1 million of cash for the ninethree months ended September 30, 2017March 31, 2018 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 payment in February 2017, at maturity, of $50 million of the System Energy nuclear fuel company variable interest entity’s 4.02% Series H notes;
a decrease of $21.1 million in common stock dividends and distributions in 2018 in order to maintain the targeted capital structure; and
net repayments of short-termlong-term borrowings of $17.8$19.8 million in 2019 on the nuclear fuel company variable interest entity’s credit facility in 2018 compared to net short-termrepayments of long-term borrowings of $14.9$50 million in 2018 on the nuclear fuel company variable interest entity’s credit facilityfacility; and
a decrease of $17.7 million in 2017.common stock dividends and distributions in 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 debt to capital ratio is 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.
| | | September 30, 2018 | | December 31, 2017 | March 31, 2019 | | December 31, 2018 |
Debt to capital | 47.2 | % | | 44.5 | % | 46.1 | % | | 46.1 | % |
Effect of subtracting cash | (12.2 | %) | | (16.0 | %) | (7.4 | %) | | (4.0 | %) |
Net debt to net capital | 35.0 | % | | 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 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 is developing its capital investment plan for 2019 through 2021 and currently anticipates making $405 million in capital investments during that period. The estimate includes amounts associated with specific investments and initiatives such as investments in Grand Gulf.
System Energy Resources, Inc.
Management's Financial Discussion and Analysis
System Energy’s receivables from the money pool were as follows:
|
| | | | | | |
September 30, 2018 | | December 31, 2017 | | September 30, 2017 | | December 31, 2016 |
(In Thousands) |
$16,365 | | $111,667 | | $236,467 | | $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 September 2021. As of September 30, 2018, $37.7March 31, 2019, $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.
Complaints Against System Energy
Return on Equity Complaints
As discussed in the Form 10-K, in January 2017 the APSC and MPSC filed a complaint with the FERC against System Energy. The complaint seeks a reduction in the return on equity component of the Unit Power Sales Agreement pursuant to which System Energy sells its Grand Gulf capacity and energy to Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans. Entergy Arkansas also sells some of its Grand Gulf capacity and energy to Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans under separate agreements. The current return on equity under the Unit Power Sales Agreement is 10.94%, which was established in a rate proceeding that became final in July 2001.
The APSC and MPSC complaint alleges that the return on equity is unjust and unreasonable because current capital market and other considerations indicate that it is excessive. The complaint requests the FERC to institute proceedings to investigate the return on equity and establish a lower return on equity, and also requests that the FERC establish January 23, 2017 as a refund effective date. The complaint includes return on equity analysis that purports to establish that the range of reasonable return on equity for System Energy is between 8.37% and 8.67%. System Energy answered the complaint in February 2017 and disputes that a return on equity of 8.37% to 8.67% is just and reasonable. The LPSC and the City Council intervened in the proceeding expressing support for the complaint. System Energy is recording a provision against revenue for the potential outcome of this proceeding. In September 2017 the FERC established a refund effective date of January 23, 2017, consolidated the return on equity complaint with the proceeding described in Unit Power Sales Agreement below, and directed the parties to engage in settlement proceedings before an ALJ. The parties have been unable to settle the return on equity issue and a FERC hearing judge was assigned in July 2018. The 15-month refund 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 respect to System Energy’s return on equity and also requests the FERC to investigate System Energy’s capital structure. The APSC, MPSC, and City Council intervened in the proceeding, filed an answer expressing support for the complaint, and asked the FERC to consolidate this proceeding with the proceeding initiated by the complaint of the APSC and MPSC in January 2017.
System Energy Resources, Inc.
Management's Financial Discussion and Analysis
Complaints Against System Energy answered
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 in May 2018 and also filedincludes a motionchallenge to dismiss the complaint. In July 2018 the LPSC answered System Energy’s motion to dismiss.
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 System Energy’sthe 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 washas been scheduled for JuneSeptember 2019, butand the procedural schedule is currently being held in abeyance. An ALJ ordered the abeyance after the FERC,parties are required to address an order (issued in a separate proceeding on the return on equity forinvolving New England transmission owners, issued an orderowners) that proposed modifying itsthe 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 docketedinitiated a new proceeding for the amended capital structure complaint, in a new proceeding, and System Energy submitted a response toin October 2018. In January 2019 the FERC set the amended capital structure complaint for settlement and hearing proceedings. Settlement procedures in October 2018.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
InAs 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 in 2015 of a sale-leaseback transaction originally entered into in December 1988 for an 11.5% undivided interest in Grand Gulf Unit 1. The complaint alleges
In February 2019 the presiding ALJ ruled that System Energy violated the filed rate andhearing ordered by the FERC’s ratemaking and accounting requirements when itFERC includes the issue of whether specific subcategories of accumulated deferred income tax should be included in, Unit Power Sales Agreement billingsor 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 thatthe APSC and MPSC address various issues raised by the LPSC. System Energy is double-recovering costs by including both the lease payments and the capital additions in Unit Power Sales Agreement billings. The complaint also claimsdisputes that System Energy was imprudent in entering into the sale-leaseback renewal because the Utility operating companies that purchase Grand Gulf’s output from System Energy could have obtained cheaper capacity and energy in the MISO markets. The complaint further alleges that System Energy violated various other reporting and accounting requirements and should have sought prior FERC approval of the lease renewal. The complaint seeks various forms of relief from the FERC. The complaint seeksany refunds are owed for capital addition costs for all years in which they were recorded in allegedly non-formula accounts or, alternatively, the disallowance of the return on equity for the capital additions in those years plus interest. The complaint also asks that the FERC disallow and refund the lease costs of the sale-leaseback renewal on grounds of imprudence, investigate System Energy’s treatment of a DOE litigation payment, and impose certain forward-looking procedural protections, including audit rights for retail regulators ofbillings under the Unit Power Sales Agreement formula rates.Agreement. A hearing has been scheduled for November 2019.
In June 2018, System Energy and Entergy Services filed a motion to dismiss and answer to the LPSC complaint denying that System Energy’s treatment of the sale-leaseback renewal and capital additions violated the terms of the filed rate or any other FERC ratemaking, accounting, or legal requirements or otherwise constituted double recovery. The response also argued that the complaint is inconsistent with a FERC-approved settlement to which the LPSC is a party and that explicitly authorizes System Energy to recover its lease payments. Finally, the response argued that both the capital additions and the sale-leaseback renewal were prudent investments and the LPSC complaint fails to justify any disallowance or refunds. The response asked that the FERC dismiss and reject the LPSC complaint without further action, investigation, or hearing, but also offered to submit formula rate protocols for the Unit Power Sales Agreement similar to the procedures used for reviewing transmission rates under the MISO tariff. In September 2018 the FERC issued an order setting the complaint for hearing and settlement proceedings. The FERC established a refund effective date of May 2018.
Unit Power Sales Agreement
As discussed in the Form 10-K, in August 2017, System Energy submitted to the FERC proposed limited amendments to the Unit Power Sales Agreement to adopt (1) updated rates for use in calculating Grand Gulf plant depreciation and amortization expenses and (2) updated nuclear decommissioning cost annual revenue requirements, both of which are recovered through the Unit Power Sales Agreement rate formula. The proposed amendments would
System Energy Resources, Inc.
Management's Financial Discussion and Analysis
result in lower charges to the Utility operating companies that buy capacity and energy from System Energy under the Unit Power Sales Agreement. In June 2018, System Energy filed with the FERC an uncontested settlement relating to the updated depreciation rates and nuclear decommissioning cost annual revenue requirements. In August 2018 the FERC issued an order accepting the settlement. In third quarter 2018, System Energy recorded a reduction in depreciation expense of approximately $26 million, representing the cumulative difference in depreciation expense resulting from the depreciation rates used from October 11, 2017 through September 30, 2018 and the depreciation rates included in the settlement filing accepted by the FERC.
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.
As discussed in the Form 10-K, in November 2016 the NRC placed Grand Gulf in the “regulatory response column,” or Column 2, of its Reactor Oversight Process Action Matrix. In August 2018 the NRC moved Grand Gulf into the “licensee response column,” or Column 1, of the NRC’s Reactor Oversight Process Action Matrix. This action followed NRC inspections to review Grand Gulf’s performance in addressing issues that had previously resulted in classification in Column 2. Based on performance indicator data for the third quarter 2018, Entergy expects that the NRC will announce that Grand Gulf has moved back to Column 2. In August 2018 operators safely performed a reduction in power to address an operational issue with a plant system. As a result of the power reduction, the threshold for one of the NRC’s performance indicators was exceeded, which results in a Column 2 designation under the NRC’s Reactor Oversight Process Action Matrix at least until new performance indicator data is reported in the first quarter 2019.
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.
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 and Nine Months Ended September 30, 2018 and 2017 | |
For the Three Months Ended March 31, 2019 and 2018 | | For the Three Months Ended March 31, 2019 and 2018 |
(Unaudited) | | | | | | |
| | Three Months Ended | | Nine Months Ended | | |
| | 2018 | | 2017 | | 2018 | | 2017 | | 2019 | | 2018 |
| | (In Thousands) | | (In Thousands) | | (In Thousands) |
OPERATING REVENUES | | | | | | | | | | | | |
Electric | |
| $78,965 |
| |
| $156,106 |
| |
| $339,864 |
| |
| $475,849 |
| |
| $140,104 |
| |
| $148,443 |
|
| | | | | | | | | | | | |
OPERATING EXPENSES | | | | | | | | | | | | |
Operation and Maintenance: | | | | | | | | | | | | |
Fuel, fuel-related expenses, and gas purchased for resale | | 14,484 |
| | 16,170 |
| | 44,939 |
| | 53,164 |
| | 21,561 |
| | 28,425 |
|
Nuclear refueling outage expenses | | 5,906 |
| | 4,435 |
| | 12,698 |
| | 13,595 |
| | 8,186 |
| | 3,972 |
|
Other operation and maintenance | | 48,969 |
| | 49,871 |
| | 143,003 |
| | 149,325 |
| | 45,282 |
| | 45,339 |
|
Decommissioning | | 8,626 |
| | 8,290 |
| | 25,624 |
| | 34,974 |
| | 8,799 |
| | 8,457 |
|
Taxes other than income taxes | | 7,106 |
| | 6,679 |
| | 21,069 |
| | 19,767 |
| | 7,539 |
| | 7,097 |
|
Depreciation and amortization | | 4,355 |
| | 34,524 |
| | 71,143 |
| | 105,152 |
| | 26,574 |
| | 33,321 |
|
Other regulatory charges (credits) - net | | 7,398 |
| | (2,843 | ) | | (15,080 | ) | | (24,626 | ) | |
Other regulatory credits - net | | | (9,205 | ) | | (9,109 | ) |
TOTAL | | 96,844 |
| | 117,126 |
| | 303,396 |
| | 351,351 |
| | 108,736 |
| | 117,502 |
|
| | | | | | | | | | | | |
OPERATING INCOME (LOSS) | | (17,879 | ) | | 38,980 |
| | 36,468 |
| | 124,498 |
| |
OPERATING INCOME | | | 31,368 |
| | 30,941 |
|
| | | | | | | | | | | | |
OTHER INCOME | | | | | | | | | | | | |
Allowance for equity funds used during construction | | 2,028 |
| | 1,736 |
| | 7,032 |
| | 4,148 |
| | 1,589 |
| | 2,100 |
|
Interest and investment income | | 23,738 |
| | 6,624 |
| | 33,567 |
| | 15,021 |
| | 6,991 |
| | 6,886 |
|
Miscellaneous - net | | (1,421 | ) | | (1,651 | ) | | (4,391 | ) | | (5,139 | ) | | (1,228 | ) | | (1,176 | ) |
TOTAL | | 24,345 |
| | 6,709 |
| | 36,208 |
| | 14,030 |
| | 7,352 |
| | 7,810 |
|
| | | | | | | | | | | | |
INTEREST EXPENSE | | | | | | | | | | | | |
Interest expense | | 9,753 |
| | 9,169 |
| | 28,734 |
| | 27,469 |
| | 9,397 |
| | 9,325 |
|
Allowance for borrowed funds used during construction | | (515 | ) | | (425 | ) | | (1,783 | ) | | (1,014 | ) | | (389 | ) | | (532 | ) |
TOTAL | | 9,238 |
| | 8,744 |
| | 26,951 |
| | 26,455 |
| | 9,008 |
| | 8,793 |
|
| | | | | | | | | | | | |
INCOME (LOSS) BEFORE INCOME TAXES | | (2,772 | ) | | 36,945 |
| | 45,725 |
| | 112,073 |
| |
INCOME BEFORE INCOME TAXES | | | 29,712 |
| | 29,958 |
|
| | | | | | | | | | | | |
Income taxes | | (25,744 | ) | | 16,362 |
| | (22,942 | ) | | 51,793 |
| | 6,134 |
| | 7,650 |
|
| | | | | | | | | | | | |
NET INCOME | |
| $22,972 |
| |
| $20,583 |
| |
| $68,667 |
| |
| $60,280 |
| |
| $23,578 |
| |
| $22,308 |
|
| | | | | | | | | | | | |
See Notes to Financial Statements. | | | | | | | | | | | | |
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| | SYSTEM ENERGY RESOURCES, INC. | STATEMENTS OF CASH FLOWS | For the Nine Months Ended September 30, 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 | | $68,667 |
| |
| $60,280 |
| |
| $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 | | 133,877 |
| | 184,625 |
| | 53,731 |
| | 66,323 |
|
Deferred income taxes, investment tax credits, and non-current taxes accrued | | 14,159 |
| | 44,017 |
| | 4,975 |
| | 7,929 |
|
Changes in assets and liabilities: | | | | | | | | |
Receivables | | 20,806 |
| | 21,147 |
| | (7,613 | ) | | 5,883 |
|
Accounts payable | | 22,637 |
| | 2,344 |
| | (5,182 | ) | | (9,632 | ) |
Prepaid taxes and taxes accrued | | (1,017 | ) | | 2,956 |
| | (13,575 | ) | | (15,033 | ) |
Interest accrued | | 2,311 |
| | 401 |
| | (3,150 | ) | | 736 |
|
Other working capital accounts | | (52,524 | ) | | 7,605 |
| | 3,635 |
| | (5,874 | ) |
Other regulatory assets | | (4,773 | ) | | 1,196 |
| | (3,730 | ) | | (1,960 | ) |
Other regulatory liabilities | | (36,119 | ) | | 53,519 |
| | 70,486 |
| | (18,988 | ) |
Pension and other postretirement liabilities | | (11,629 | ) | | (14,665 | ) | | 319 |
| | (3,537 | ) |
Other assets and liabilities | | (24,839 | ) | | (83,940 | ) | | (65,757 | ) | | 17,216 |
|
Net cash flow provided by operating activities | | 131,556 |
| | 279,485 |
| | 57,717 |
| | 65,371 |
|
| | | | | | | | |
INVESTING ACTIVITIES | | | | | | | | |
Construction expenditures | | (166,458 | ) | | (60,041 | ) | | (25,557 | ) | | (30,707 | ) |
Allowance for equity funds used during construction | | 7,032 |
| | 4,148 |
| | 1,589 |
| | 2,100 |
|
Nuclear fuel purchases | | (110,485 | ) | | (24,239 | ) | | (3 | ) | | (74,257 | ) |
Proceeds from the sale of nuclear fuel | | 12,867 |
| | 60,188 |
| | 18,280 |
| | — |
|
Changes in other investments - net | | — |
| | (9,061 | ) | |
Proceeds from nuclear decommissioning trust fund sales | | 357,209 |
| | 308,134 |
| | 56,988 |
| | 54,210 |
|
Investment in nuclear decommissioning trust funds | | (365,040 | ) | | (336,069 | ) | | (62,223 | ) | | (58,833 | ) |
Changes in money pool receivable - net | | 95,302 |
| | (202,658 | ) | | 81,635 |
| | 21,531 |
|
Net cash flow used in investing activities | | (169,573 | ) | | (259,598 | ) | |
Net cash flow provided by (used in) investing activities | | | 70,709 |
| | (85,956 | ) |
| | | | | | | | |
FINANCING ACTIVITIES | | | | | | | | |
Proceeds from the issuance of long-term debt | | 211,985 |
| | — |
| | 529,493 |
| | 100,000 |
|
Retirement of long-term debt | | (124,304 | ) | | (50,003 | ) | | (549,803 | ) | | (50,002 | ) |
Changes in short-term borrowings - net | | (17,830 | ) | | 14,858 |
| | — |
| | 25,339 |
|
Common stock dividends and distributions | | (64,480 | ) | | (85,610 | ) | | (45,500 | ) | | (63,240 | ) |
Other | | — |
| | (28 | ) | |
Net cash flow provided by (used in) financing activities | | 5,371 |
| | (120,783 | ) | | (65,810 | ) | | 12,097 |
|
| | | | | | | | |
Net decrease in cash and cash equivalents | | (32,646 | ) | | (100,896 | ) | |
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 | |
| $254,541 |
| |
| $144,967 |
| |
| $158,301 |
| |
| $278,699 |
|
| | | | | | | | |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | | | | | | | | |
Cash paid during the period for: | | | | | | | | |
Interest - net of amount capitalized | |
| $10,308 |
| |
| $26,251 |
| |
| $12,461 |
| |
| $8,592 |
|
| | | | | | | | |
See Notes to Financial Statements. | | | | | | | | |
| | SYSTEM ENERGY RESOURCES, INC. | BALANCE SHEETS | ASSETS | September 30, 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 | |
| $153 |
| |
| $78 |
| |
| $57 |
| |
| $68 |
|
Temporary cash investments | | 254,388 |
| | 287,109 |
| | 158,244 |
| | 95,617 |
|
Total cash and cash equivalents | | 254,541 |
| | 287,187 |
| | 158,301 |
| | 95,685 |
|
Accounts receivable: | | | | | | | | |
Associated companies | | 55,727 |
| | 170,149 |
| | 74,667 |
| | 148,571 |
|
Other | | 4,840 |
| | 6,526 |
| | 5,272 |
| | 5,390 |
|
Total accounts receivable | | 60,567 |
| | 176,675 |
| | 79,939 |
| | 153,961 |
|
Materials and supplies - at average cost | | 93,074 |
| | 88,424 |
| | 101,609 |
| | 97,225 |
|
Deferred nuclear refueling outage costs | | 53,174 |
| | 7,908 |
| | 36,624 |
| | 44,424 |
|
Prepaid taxes | | | 18,990 |
| | 5,415 |
|
Prepayments and other | | 5,099 |
| | 2,489 |
| | 2,764 |
| | 2,985 |
|
TOTAL | | 466,455 |
| | 562,683 |
| | 398,227 |
| | 399,695 |
|
| | | | | | | | |
OTHER PROPERTY AND INVESTMENTS | | | | | | | | |
Decommissioning trust funds | | 952,413 |
| | 905,686 |
| | 951,334 |
| | 869,543 |
|
TOTAL | | 952,413 |
| | 905,686 |
| | 951,334 |
| | 869,543 |
|
| | | | | | | | |
UTILITY PLANT | | | | | | | | |
Electric | | 4,434,393 |
| | 4,327,849 |
| | 5,027,651 |
| | 5,036,116 |
|
Property under capital lease | | 588,281 |
| | 588,281 |
| |
Construction work in progress | | 71,482 |
| | 69,937 |
| | 82,554 |
| | 70,156 |
|
Nuclear fuel | | 259,450 |
| | 207,513 |
| | 195,023 |
| | 234,889 |
|
TOTAL UTILITY PLANT | | 5,353,606 |
| | 5,193,580 |
| | 5,305,228 |
| | 5,341,161 |
|
Less - accumulated depreciation and amortization | | 3,191,434 |
| | 3,175,018 |
| | 3,226,329 |
| | 3,212,080 |
|
UTILITY PLANT - NET | | 2,162,172 |
| | 2,018,562 |
| | 2,078,899 |
| | 2,129,081 |
|
| | | | | | | | |
DEFERRED DEBITS AND OTHER ASSETS | | | | | | | | |
Regulatory assets: | | | | | | | | |
Other regulatory assets | | 449,100 |
| | 444,327 |
| | 450,101 |
| | 446,371 |
|
Other | | 4,835 |
| | 7,629 |
| | 3,992 |
| | 4,124 |
|
TOTAL | | 453,935 |
| | 451,956 |
| | 454,093 |
| | 450,495 |
|
| | | | | | | | |
TOTAL ASSETS | |
| $4,034,975 |
| |
| $3,938,887 |
| |
| $3,882,553 |
| |
| $3,848,814 |
|
| | | | | | | | |
See Notes to Financial Statements. | | | | | | | | |
| | SYSTEM ENERGY RESOURCES, INC. | BALANCE SHEETS | LIABILITIES AND EQUITY | September 30, 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 | |
| $85,006 |
| |
| $85,004 |
| |
| $8 |
| |
| $6 |
|
Short-term borrowings | | — |
| | 17,830 |
| |
Accounts payable: | | | | | | | | |
Associated companies | | 38,522 |
| | 16,878 |
| | 7,596 |
| | 11,031 |
|
Other | | 62,015 |
| | 62,868 |
| | 39,660 |
| | 47,565 |
|
Taxes accrued | | 45,567 |
| | 46,584 |
| |
Interest accrued | | 15,700 |
| | 13,389 |
| | 10,145 |
| | 13,295 |
|
Current portion of unprotected excess accumulated deferred income taxes | | 36,946 |
| | — |
| | 7,396 |
| | 4,426 |
|
Other | | 2,436 |
| | 2,434 |
| | 2,830 |
| | 2,832 |
|
TOTAL | | 286,192 |
| | 244,987 |
| | 67,635 |
| | 79,155 |
|
| | | | | | | | |
NON-CURRENT LIABILITIES | | | | | | | | |
Accumulated deferred income taxes and taxes accrued | | 795,150 |
| | 776,420 |
| | 813,026 |
| | 805,296 |
|
Accumulated deferred investment tax credits | | 38,447 |
| | 39,406 |
| | 38,354 |
| | 38,673 |
|
Regulatory liability for income taxes - net | | 161,126 |
| | 246,122 |
| | 152,289 |
| | 158,998 |
|
Other regulatory liabilities | | 467,922 |
| | 455,991 |
| | 456,112 |
| | 381,887 |
|
Decommissioning | | 887,288 |
| | 861,664 |
| | 904,800 |
| | 896,000 |
|
Pension and other postretirement liabilities | | 110,245 |
| | 121,874 |
| | 98,958 |
| | 98,639 |
|
Long-term debt | | 554,449 |
| | 466,484 |
| | 610,790 |
| | 630,744 |
|
Other | | 19,160 |
| | 15,130 |
| | 25,313 |
| | 22,224 |
|
TOTAL | | 3,033,787 |
| | 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 | | 113,146 |
| | 52,459 |
| | 113,426 |
| | 135,348 |
|
TOTAL | | 714,996 |
| | 710,809 |
| | 715,276 |
| | 737,198 |
|
| | | | | | | | |
TOTAL LIABILITIES AND EQUITY | |
| $4,034,975 |
| |
| $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 Nine Months Ended September 30, 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 | — |
| | 60,280 |
| | 60,280 |
| |
Common stock dividends | — |
| | (85,610 | ) | | (85,610 | ) | |
| | | | | | |
Balance at September 30, 2017 |
| $679,350 |
| |
| $34,143 |
| |
| $713,493 |
| |
| | | | | | (In Thousands) |
| | | | | | | | | | |
Balance at December 31, 2017 |
| $658,350 |
| |
| $52,459 |
| |
| $710,809 |
|
| $658,350 |
| |
| $52,459 |
| |
| $710,809 |
|
| | | | | | | | | | |
Net income | — |
| | 68,667 |
| | 68,667 |
| — |
| | 22,308 |
| | 22,308 |
|
Common stock dividends and distributions | (56,500 | ) | | (7,980 | ) | | (64,480 | ) | (56,500 | ) | | (6,740 | ) | | (63,240 | ) |
| | | | | | | | | | |
Balance at September 30, 2018 |
| $601,850 |
| |
| $113,146 |
| |
| $714,996 |
| |
Balance at March 31, 2018 | |
| $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) |
| | | | | | | | |
7/1/01/2018-7/2019-1/31/20182019 | | — |
| |
| $— |
| | — |
| |
| $350,052,918 |
|
8/2/01/2018-8/31/20182019-2/28/2019 | | — |
| |
| $— |
| | — |
| |
| $350,052,918 |
|
9/3/01/2018-9/30/20182019-3/31/2019 | | — |
| |
| $— |
| | — |
| |
| $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
Spent Nuclear Fuel
See the discussion in Part I, Item 1 in the Form 10-K for information regarding Spent Nuclear Fuel. Following is an update to that discussion.
In September 2018 the DOE submitted an offer of judgment to resolve claims in the second round Entergy Nuclear Generation Company case involving Pilgrim in the amount of $62 million. The offer was accepted by Entergy Nuclear Generation Company, and the U.S. Court of Federal Claims issued a judgment in that amount in favor of Entergy Nuclear Generation Company. Entergy received payment from the U.S. Treasury in October 2018.
Management cannot predict the timing or amount of any potential recoveries on other claims filed by Entergy subsidiaries, and cannot predict the timing of any eventual receipt from the DOE of the U.S. Court of Federal Claims damage awards.
Nuclear 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.
NRC Reactor Oversight Process
See the discussion in Part I, Item 1 in the Form 10-K for information regarding the NRC’s Reactor Oversight Process and the status of each of Entergy’s nuclear plants. In June 2018 the NRC moved ANO 1 and ANO 2 into the “licensee response column,” or Column 1, of the NRC’s Reactor Oversight Process Action Matrix. This action followed NRC inspections to review ANO 1’s and ANO 2’s performance in addressing issues that had previously resulted in classification in the “multiple/repetitive degraded cornerstone column,” or Column 4. In August 2018 the NRC moved Grand Gulf into Column 1 of the NRC’s Reactor Oversight Process Action Matrix. This action followed NRC inspections to review Grand Gulf’s performance in addressing issues that had previously resulted in classification in the “regulatory response column,” or Column 2. Based on performance indicator data for the third quarter 2018, Entergy expects that the NRC will announce that Grand Gulf has moved back to Column 2. In August 2018 operators safely performed a reduction in power to address an operational issue with a plant system. As a result of the power reduction, the threshold for one of the NRC’s performance indicators was exceeded, which results in a Column 2 designation under the NRC’s Reactor Oversight Process Action Matrix at least until new performance indicator data is reported in the first quarter 2019.
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 nonattainment 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. Opponents filed a legal challenge to the December 2016 redesignation based on the February 2018 D.C. Circuit decision.2030.
Groundwater at Certain Nuclear Sites
As discussed in the Form 10-K, in March 2008February 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 EPA revised the NAAQS for ozone, creating the potential for additional counties and parishes in which Entergy operates to be placed in nonattainment status. In April 2012 the EPA released its final nonattainment designations for the 2008 ozone NAAQS. In Entergy’s utility service area, the Houston-Galveston-Brazoria, Texas; Baton Rouge, Louisiana; and Memphis, Tennessee/Mississippi/Arkansas areas were designated as in “marginal” nonattainment. In August 2015 and January 2016, the EPA proposed determinations that the Baton Rouge and Memphis areas had attained the 2008 standard. In May 2016 the EPA finalized those determinations and extended the Houston-Galveston-Brazoria area’s attainment date for the 2008 ozone standard to July 20, 2016 and reclassified the Baton Rouge area as attainment for ozone under the 2008 8-hour ozone standard. In December 2016 the EPAsource of elevated tritium determined that the Houston-Galveston-Brazoria area had failedsource was related to attain the 2008 ozone standard by the 2016 attainment date. This finding reclassified the Houston-Galveston-Brazoria area from marginala temporary system to “moderate” and set the attainment deadline as July 20, 2018. In May 2018 the EPA published a proposed rule approving the Houston-Galveston-Brazoria attainment demonstrationprocess water in preparation for the 2008 8-hour ozone standard. Final EPA action remains pending.
As discussed in the Form 10-K, in October 2015 the EPAregularly scheduled refueling outage at Indian Point 2. The NRC had issued a final rule lowering the primary and secondary NAAQS for ozone to a levelgreen notice of 70 parts per billion. States were required to assess their attainment status and recommend designationsviolation related to the EPA. In January 2018 the EPA proposed that the following counties and parishes inadequacy of Entergy’s service territory be listed as in nonattainment: in Louisiana, Ascension Parish, East Baton Rouge Parish, West Baton Rouge Parish, Iberville Parish, and Livingston Parish; in Texas, Montgomery County. In addition to Lewis Creek in Montgomery County, Texas, Entergy owns or operates fossil-fueled generating units in East Baton Rouge Parish (Louisiana Station) and in Iberville Parish (Willow Glen), Louisiana. In May 2018 the EPA issued its final designations for the 2015 ozone NAAQS. The following parishes/counties initially were proposed as nonattainment, but designated as attainment in the final rule: in Louisiana, Ascension Parish, East Baton Rouge Parish, West Baton Rouge Parish, Iberville Parish, and Livingston Parish; in Texas, Liberty County and Waller Counties within the Houston-Galveston-Brazoria area. The final designations were effective in August 2018. Entergy will continue to work with state environmental agencies on appropriate methods for assessing attainment and nonattainment with the new standard and, where necessary, in planning for compliance. Following designations by the EPA, states will be required to develop plans intended to return nonattainment areas to a condition of attainment. The timing for that action depends largely on the severity of nonattainment in a given area.
Regional Haze
In September 2016 the EPA published the final Arkansas Regional Haze federal implementation plan (FIP). In most respects, the EPA finalized its original proposal but shortened the time for compliance for installation of the NOx controls. The FIP required an emission limitation consistent with SO2 scrubbers at both White Bluff and Independence by October 2021 and NOxcontrols by April 2018. The EPA declined to adopt Entergy’s proposals related to ceasing coal use as an alternative to SO2 scrubbers for White Bluff SO2 Best Available Retrofit Control Technology.
In November 2016, Entergy and other interested parties, including the State of Arkansas, filed petitions for administrative reconsideration and stay at the EPA as well as petitions for judicial review in the U.S. Court of Appeals for the Eighth Circuit. The Eighth Circuit continues to review its prior grant of the government’s motion to hold the appeal litigation in abeyance pending settlement discussions and pending the State’s development of a state implementation plan (SIP) that, if approved by the EPA, would replace the FIP. The state has proposed its replacement SIP in two parts: Part I considers NOx requirements, and Part II considers SO2 requirements. The EPA approved the Part I NOx SIP in January 2018. The Part I SIP requires that Entergy address NOx impacts on visibility via compliance with the Cross State Air Pollution Rule ozone-season emission trading program. Arkansas has finalized a Part II SIP which is under review by the EPA and is currently pending a state administrative appeal. The final Part II SIP requires that Entergy achieve SO2 emission reductions via the use of low-sulfur coal at both White Bluff and Independence within three years. The Part II SIP also requires that Entergy cease to use coal at White Bluff by December 31, 2028 and notes the current planning assumption that Entergy’s Independence units will cease to burn coal by December 31, 2030.
New and Existing Source Performance Standards for Greenhouse Gas Emissions
As discussed in the Form 10-K, in October 2017 the EPA proposed a new rule that would repeal the Clean Power Plan on the grounds that it exceeds the EPA’s statutory authority under the Clean Air Act. In December 2017 the EPA issued an advanced notice of proposed rulemaking regarding Section 111(d), seeking comment on the form and content of a replacement for the Clean Power Plan, if one is promulgated. In August 2018 the EPA published its proposal to replace the Clean Power Plan. The Affordable Clean Energy (ACE) Rule, which in its current form focuses on existing coal-fired electric generating units, proposes to determine that heat rate improvements are the best system of emission reductions. The rule also proposes revisions to the New Source Review program to prevent that program from being a barrier to installing heat rate improvement projects under ACE. Additionally, the rule provides states more discretion in determining how the best system for emission reductions applies to individual units, including technical feasibility and the remaining useful lifeintroduction of the facility. Comments on the proposal were due in October 2018. Entergy will continue to be engaged in this rulemaking process.
Federal Jurisdiction of Waters of the United States
As discussed in the Form 10-K, in September 2013 the EPA and the U.S. Army Corps of Engineers announced the intention to propose a rule to clarify federal Clean Water Act jurisdiction over waters of the United States. The announcement was made in conjunction with the EPA’s release of a draft scientific report on the “connectivity” of waters that the agency said would inform the rulemaking. This report was finalized in January 2015. The final rule was published in the Federal Register in June 2015. The rule could significantly increase the number and types of waters included in the EPA’s and the U.S. Army Corps of Engineers’ jurisdiction, which in turn could pose additional permitting and pollutant management burdens on Entergy’s operations. The final rule has been challenged in various federal courts by several parties, including most states. In September 2018, the U.S. District Court for the Southern District of Texas issued a preliminary injunction staying the 2015 rule in Texas, Louisiana, and Mississippi. The 2015 rule now is stayed throughout Entergy’s utility service territory. Entergy will continue to monitor this rulemaking and litigation.
Coal Combustion Residuals
As discussed in the Form 10-K, in December 2016 the Water Infrastructure Improvements for the Nation Act (WIIN Act) was signedradioactivity into law, which authorizes states to regulate coal ash rather than leaving primary enforcement to citizen suit actions. States may submit to the EPA proposals for a permit program. In September 2017 the EPA agreed to reconsider certain provisions of the coal combustion residuals (CCR) rule in light of the WIIN Act. In March 2018 the EPA published its proposed revisions to the CCR rule with comments due at the end of April 2018. In July 2018 the EPA released its initial revisions extending certain deadlines and incorporating some risk-based standards. The EPA is expected to release additional revisions in another rulemaking. In August 2018 the D.C. Circuit vacated several provisions of the CCR rule on the basis that they were inconsistent with the Resource Conservation and Recovery Act and remanded the matter to the EPA to conduct further rulemaking.
Other Environmental Matters
Entergy Texas
In December 2016 a transformer inside the Hartburg, Texas Substation had an internal fault resulting in a release of approximately 15,000 gallons of non-PCB mineral oil. Cleanup ensued immediately; however, rain caused much of the oil to spread across the substation yard and into a nearby wetland. The Texas Commission on Environmental Quality (TCEQ) and the National Response Center were immediately notified, and the TCEQ responded to the site approximately two hours after the cleanup was initiated. The remediation liability is estimated at $2.2 million; however, this number could fluctuate depending on the remediation extent and wetland mitigation requirements. In July 2017,groundwater. Entergy entered into the Voluntary Cleanup Program with the TCEQ. Additional direction is expected from the TCEQ regarding final remediation requirements for the site. In November 2017 additional soil sampling was completed in the wetland areacorrective actions and, in February 2018, a site summary report of findings was submitted to2019, the TCEQ. The TCEQ responded in June 2018NRC concluded that Entergy had achieved full compliance and has requested an ecological exclusion criteria checklist/Tier II screening-level ecological risk assessment, an additional site assessment, additional soil samples, groundwater samples, and some additional diagrams and maps. Entergy has developed and is implementing a response plan addressingclosed the TCEQ’s requests.violation.
Item 6. Exhibits
|
| | |
| *4(a) - | |
| | |
| 4(b) - | |
| | |
| 4(c) - | |
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| 4(c) - | |
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| 4(d) - | |
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| 4(e) - | Officer’s Certificate No. 12-B-9,14-B-10, dated August 8, 2018,March 6, 2019, supplemental to Mortgage and Deed of Trust of Entergy Louisiana, dated as of November 1, 2015 (4.40 to Form 8-K filed August 14, 2018March 12, 2019 in 1-32718). |
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| 4(f) - | Twenty-second Supplemental Indenture,Loan Agreement, dated as of September 15, 2018, to Entergy New Orleans MortgageMarch 1, 2019, between Mississippi Business Finance Corporation and Deed of Trust, dated as of May 1, 1987 (4(a)System Energy (4(b) to Form 8-K filed September 27, 2018March 28, 2019 in 1-35747)1-9067). |
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| *4(g) - | Second Amended and Restated Credit Agreement dated as of September 14, 2018, among Entergy Corporation, as Borrower, the banks and other financial institutions listed on the signatures pages thereof, Citibank, N.A., as Administrative Agent and LC Issuing Bank, MUFG Bank, Ltd., as LC Issuing Bank, and the other LC Issuing Banks from time to time parties thereto. |
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| *4(h) - | Second Amended and Restated Credit Agreement dated as of September 14, 2018, among Entergy Arkansas, as Borrower, the banks and other financial institutions listed on the signature pages thereof, Citibank, N.A., as Administrative Agent, JPMorgan Chase Bank, N.A., as LC Issuing Bank, and the other LC Issuing Banks from time to time parties thereto. |
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| *4(i) - | Second Amended and Restated Credit Agreement dated as of September 14, 2018, among Entergy Louisiana, as Borrower, the banks and other financial institutions listed on the signature pages thereof, Citibank, N.A., as Administrative Agent, Wells Fargo Bank, National Association and BNP Paribas, as LC Issuing Banks, and the other LC Issuing Banks from time to time parties thereto. |
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| *4(j) - | Second Amended and Restated Credit Agreement dated as of September 14, 2018, among Entergy Texas, as Borrower, the banks and other financial institutions listed on the signature pages thereof, Citibank, N.A., as Administrative Agent, JPMorgan Chase Bank, N.A., BNP Paribas, Mizuho Bank, Ltd., and The Bank of Nova Scotia, as LC Issuing Banks, and the other LC Issuing Banks from time to time parties thereto. |
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| *14 - | |
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| *32(a) - | |
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| *32(n) - | |
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| *101 INS - | XBRL Instance Document. |
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| *101 SCH - | XBRL Taxonomy Extension Schema Document. |
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| *101 PRE - | XBRL Taxonomy Presentation Linkbase Document. |
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| *101 LAB - | XBRL Taxonomy Label Linkbase Document. |
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| *101 CAL - | XBRL Taxonomy Calculation Linkbase Document. |
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| *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.
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ENTERGY CORPORATION ENTERGY ARKANSAS, INC.LLC ENTERGY LOUISIANA, LLC ENTERGY MISSISSIPPI, INC.LLC ENTERGY NEW ORLEANS, LLC ENTERGY TEXAS, INC. SYSTEM ENERGY RESOURCES, INC. |
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/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: November 5, 2018May 3, 2019