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):

Entergy operates primarily through two business segments: Utility and Entergy Wholesale Commodities.

Following are income statement variances for Utility, Entergy Wholesale Commodities, Parent & Other, and Entergy comparing the firstthird quarter 2019 to the firstthird quarter 2018 showing how much the line item increased or (decreased) in comparison to the prior period:

Following is an analysis of the change in net revenueoperating revenues comparing the first quarternine months ended September 30, 2019 to the first quarternine months ended September 30, 2018:

The return of unprotected excess accumulated deferred income taxes to customers resulted from activity in 2019 at the Utility operating companies in response to the enactment of the Tax Cuts and Jobs Act. The return of unprotected excess accumulated deferred income taxes began in second quarter 2018. In the nine months ended September 30, 2019, $212 million was returned to customers through reductions in operating revenues as compared to $427 million in the nine months ended September 30, 2018. There is no effect on net income as the reductions in net revenueoperating revenues were offset by reductions in income tax expense. See Note 2 to the financial statements in the Form 10-K for further discussion of regulatory activity regarding the Tax Cuts and Jobs Act.     

The retail electric price variance is primarily due to:

Other operation and maintenance expenses decreasedincreased from $588$1,852 million for the first quarternine months ended September 30, 2018 to $585$1,894 million for the first quarternine months ended September 30, 2019 primarily due to:

Depreciation and amortization expenses increased primarily due to to:

Other income increased primarily due to an increase in the allowance for equity funds used during construction due to higher construction work in progress in 2019, which included the Lake Charles Power Station, St. Charles Power Station, Montgomery County Power Station, and New Orleans Power Station projects. The increase was partiallysubstantially 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 increaseto:

Other income increased primarily due to higher gains on decommissioning trust fund investments in the first quarternine months ended September 30, 2019 as compared to the first quarternine months ended September 30, 2018. See Notes 8 and 9 to the financial statements herein for a discussion of decommissioning trust fund investments.

Other expenses increased primarily due to an increase in nuclear refueling outage expenses as a result of the amortization in 2019 of higher costs associated with a refueling outage at Palisades.

The effective income tax rate was 14.2%7.8% for the first quarternine months ended September 30, 2019. The difference in the effective income tax rate for the first quarternine months ended September 30, 2019 versus the federal statutory rate of 21% was primarily due to amortization of excess accumulated deferred income taxes and certain book and tax differences related to utility plant items, partially offset by state income taxes and the tax effects of the disposition of Vermont Yankee. 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 a discussion of the tax effects of the Vermont Yankee disposition.

The effective income tax rate was 24.3%(128.4%) for the first quarternine months ended September 30, 2018. The difference in the effective income tax rate for the first quarternine months ended September 30, 2018 versus the federal statutory rate of 21% was primarily due to stateamortization of excess accumulated deferred income taxes, a write-offrestructuring of the investment holdings in one 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. See Note 10 to the financial statements herein and Notes 2 and 3 to the financial statements in the Form 10-K for a stock-based compensation deferred tax asset,discussion of the effects and regulatory activity regarding the Tax Cuts and Jobs Act. See Note 3 to the financial statements in the Form 10-K for a discussion of the IRS audit settlement and the provision for uncertain tax positions, partially offset by certain book and tax differences related to utility plant items and book and tax differences related to the allowance for equity funds used during construction.restructuring.

 

As discussed in more detail in Note 16 to the financial statements herein, in January 2019, Entergy transferred 100% of the membership interests in Entergy Nuclear Vermont Yankee, LLC, the owner of the Vermont Yankee plant, to a subsidiary of NorthStar.

As discussed in the Form 10-K, Entergy entered into a purchase and sale agreement with Holtec International to sell to a Holtec subsidiary 100% of the equity interests in Entergy Nuclear Generation Company, the owner of Pilgrim, for $1,000 (subject to adjustments for net liabilities and other amounts). On August 22, 2019, the NRC approved the transfer of Pilgrim’s facility licenses to Holtec. At that time, hearing requests filed by the Commonwealth of Massachusetts and Pilgrim Watch challenging Holtec’s financial qualifications and the sufficiency of the NRC’s review of the associated environmental impacts of the license transfer were pending with the NRC Commissioners. The NRC approval order included a condition acknowledging the NRC’s longstanding authority to modify, condition, or rescind the license transfer order as a result of any hearing that may be conducted.  On August 26, 2019, as permitted by the August 22 order, Entergy and Holtec closed the transaction. On September 3 and 4, 2019, Pilgrim Watch and Massachusetts each filed with the NRC motions to stay the effectiveness of the August 22 order pending the resolution of the NRC hearing process. The NRC has not yet ruled on the Pilgrim Watch and Massachusetts hearing requests or the stay motions. In addition, on September 25, 2019, Massachusetts filed a petition with the U.S. Court of Appeals for the District of Columbia Circuit, asking the court to vacate the NRC’s August 22 license transfer approval order and related approvals. On October 16, 2019, Entergy and Holtec filed a motion to intervene in the U.S. Court of Appeals proceeding. On October 28, 2019, Massachusetts filed a motion for stay pending appeal. The court of appeals has not yet ruled on Massachusetts’ petition.

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 quarterMay 2021, following the defueling of Indian Point 3.

As consideration for the transfer to Holtec of its interest in Indian Point, Entergy will receive nominal cash consideration. The Indian Point transaction is expected to result in a loss based on the difference between Entergy’s adjusted net investment in the subsidiaries at closing and the sale price net of any agreed adjustments. As of March 31,September 30, 2019, Entergy’s adjusted net investment in the Indian Point units was $315$240 million. The primary variables in the ultimate loss that Entergy will incur are the values of the nuclear decommissioning trusts and the asset retirement obligations at closing, the financial results from plant operations until the closing, and the level of any unrealized 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.

Entergy expects to incur employee retention and severance expenses associated with management’s strategy to reduce the size ofexit the Entergy Wholesale Commodities’ merchant fleetpower business of approximately $130$100 million in 2019, of which $34$70 million has been incurred as of March 31,September 30, 2019, and a total of approximately $110$135 million from 2020 through 2022. In addition, Entergy Wholesale Commodities incurred impairment charges related to nuclear fuel spending, nuclear refueling outage spending, and expenditures for capital assets of $74$8 million for the three months ended March 31,September 30, 2019 and $98 million for the nine months ended September 30, 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 ofexit the Entergy Wholesale Commodities’ merchant fleet.power business. Entergy expects to continue to incur costs associated with nuclear fuel-related spending and expenditures for capital assets and, except for Palisades, expects to continue to charge these costs to expense as incurred because Entergy expects the value of the plants to continue to be impaired.

Entergy’s debt to capital ratio is shown in the following table. The increasedecrease in the debt to capital ratio for Entergy as of March 31,September 30, 2019 is primarily due to the net issuancesettlement of debtthe remaining equity forwards in 2019. See Note 3 to the financial statements herein for a discussion of the equity forward sale agreements.

Entergy Corporation has in place a credit facility that has a borrowing capacity of $3.5 billion and expires in September 2023.2024.  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 threenine months ended March 31,September 30, 2019 was 4.03%3.94% on the drawn portion of the facility. Following is a summary of the borrowings outstanding and capacity available under the facility as of March 31,September 30, 2019:

Entergy Corporation has a commercial paper program with a Board-approved program limit of up to $2 billion. As of March 31,September 30, 2019, Entergy Corporation had approximately $1,942$1,918 million of commercial paper outstanding. The weighted-average interest rate for the threenine months ended March 31,September 30, 2019 was 3.03%2.88%.

In January 2019, Entergy Nuclear 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 Entergy subsidiary after the transfer. The credit facility has a borrowing capacity of $139 million and expires in November 2020. As of March 31,September 30, 2019, $139 million in cash borrowings were outstanding under the credit facility.  The weighted average interest rate for the threenine months ended March 31,September 30, 2019 was 4.28%4.07% 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.

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 AprilOctober 2019 meeting, the Board declared a dividend of $0.91$0.93 per share, which isan increase from the sameprevious $0.91 quarterly dividend per share that Entergy has paid since the third quarter 2018.

As shown in Entergy’s Consolidated Statements of Cash Flows, cash flows for the threenine months ended March 31,September 30, 2019 and 2018 were as follows:

Net cash flow provided by operating activities decreased by $56increased $258 million for the threenine months ended March 31,September 30, 2019 compared to the threenine months ended March 31,September 30, 2018 primarily due to:

Net cash flow used in investing activities decreased $23increased $25 million for the threenine months ended March 31,September 30, 2019 compared to the threenine months ended March 31,September 30, 2018 primarily due to:to an increase of $197 million in construction expenditures, primarily in the Utility business, as discussed below, partially offset by:

Net cash flow provided by financing activities increased $111$35 million for the threenine months ended March 31,September 30, 2019 compared to the threenine months ended March 31,September 30, 2018 primarily due to:

See Note 2 to the financial statements herein for updates to the discussion in the Form 10-K regarding these proceedings.

See Note 2 to the financial statements herein for updates to the discussion in the Form 10-K regarding federal regulatory proceedings.

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. The sensitivities may not reflect the total maximum upside potential from higher market prices. The information contained in the following table represents projections at a point in time and will vary over time based on numerous factors, such as future market prices, contracting activities, and generation. Following is a summary of Entergy Wholesale Commodities’ current forward capacity and generation contracts as well as total revenue projections based on market prices as of March 31,September 30, 2019 (2019 represents the remainder of the year):

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 guarantee.  Cash and letters of credit are also acceptable forms of credit support. At March 31,September 30, 2019, based on power prices at that time, Entergy had liquidity exposure of $121$85 million under the guarantees in place supporting Entergy Wholesale Commodities transactions and $34$21 million of posted cash collateral. In the event of a decrease in Entergy Corporation’s credit rating to below investment grade, based on power prices as of March 31,September 30, 2019, Entergy would have been required to provide approximately $75$30 million of additional cash or letters of credit under some of the agreements. As of March 31,September 30, 2019, the liquidity exposure associated with Entergy Wholesale Commodities assurance requirements, including return of previously posted collateral from counterparties, would increase by $235$140 million for a $1 per MMBtu increase in gas prices in both the short- and long-term markets.

As of March 31,September 30, 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.

See Note 1 to the financial statements in the Form 10-K for discussion of new accounting pronouncements.