0000065984 etr:EntergyTexasMember etr:CommercialMember us-gaap:ElectricityMember 2019-01-01 2019-03-31
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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| (Mark One) | |
X☑ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2020
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| For the Quarterly Period Ended March 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 | | 1-35747 | ENTERGY NEW ORLEANS, LLC |
| (a Delaware corporation) 639 Loyola Avenue New Orleans, Louisiana 70113 Telephone (504) 576-4000 72-1229752
| | 1-35747 | ENTERGY NEW ORLEANS, LLC
(a Texas limited liability company) 1600 Perdido Street New Orleans, Louisiana 70112 Telephone (504) 670-3700 |
| 72-1229752 | | | 82-2212934 |
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| 1-10764 | ENTERGY ARKANSAS, LLC | | 1-34360 | ENTERGY TEXAS, INC. |
| (a Texas limited liability company) 425 West Capitol Avenue Little Rock, Arkansas 72201 Telephone (501) 377-4000 83-1918668
| | 1-34360 | ENTERGY TEXAS, INC.
(a Texas corporation) 10055 Grogans Mill Road The Woodlands, Texas 77380 Telephone (409) 981-2000 |
| 83-1918668 | | | 61-1435798 |
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| 1-32718 | ENTERGY LOUISIANA, LLC | | 1-09067 | SYSTEM ENERGY RESOURCES, INC. |
| (a Texas limited liability company) 4809 Jefferson Highway Jefferson, Louisiana 70121 Telephone (504) 576-4000 47-4469646
| | 1-09067 | SYSTEM ENERGY RESOURCES, INC.
(an Arkansas corporation) 1340 Echelon Parkway Jackson, Mississippi 39213 Telephone (601) 368-5000 |
| 47-4469646 | | | 72-0752777 |
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| 1-31508 | ENTERGY MISSISSIPPI, LLC | | | |
| (a Texas limited liability company) 308 East Pearl Street Jackson, Mississippi 39201 Telephone (601) 368-5000 | | | |
| 83-1950019 | | | |
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Securities registered pursuant to Section 12(b) of the Act:
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| Registrant | Title of Class | Trading Symbol | Name of Each Exchange on Which Registered |
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| Entergy Corporation | Common Stock, $0.01 Par Value | ETR | New York Stock Exchange |
| Common Stock, $0.01 Par Value | ETR | NYSE Chicago, Inc. |
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| Entergy Arkansas, LLC | Mortgage Bonds, 4.90% Series due December 2052 | EAB | New York Stock Exchange |
| Mortgage Bonds, 4.75% Series due June 2063 | EAE | New York Stock Exchange |
| Mortgage Bonds, 4.875% Series due September 2066 | EAI | New York Stock Exchange |
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| Entergy Louisiana, LLC | Mortgage Bonds, 5.25% Series due July 2052 | ELJ | New York Stock Exchange |
| Mortgage Bonds, 4.70% Series due June 2063 | ELU | New York Stock Exchange |
| Mortgage Bonds, 4.875% Series due September 2066 | ELC | New York Stock Exchange |
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| Entergy Mississippi, LLC | Mortgage Bonds, 4.90% Series due October 2066 | EMP | New York Stock Exchange |
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| Entergy New Orleans, LLC | Mortgage Bonds, 5.0% Series due December 2052 | ENJ | New York Stock Exchange |
| Mortgage Bonds, 5.50% Series due April 2066 | ENO | New York Stock Exchange |
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| Entergy Texas, Inc. | Mortgage Bonds, 5.625% Series due June 2064 | EZT | New York Stock Exchange |
| 5.375% Series A Preferred Stock, Cumulative, No Par Value (Liquidation Value $25 Per Share) | ETI/PR | New York Stock Exchange |
Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days.
Yesþ☑ No o☐
Indicate by check mark whether the registrants have submitted electronically 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). Yesþ☑ 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
Non-accelerated filer | | Smaller reporting company | | Emerging growth company |
| Entergy Corporation | ü | | | | | | | | |
| Entergy Arkansas, LLC | | | | | ü | | | | |
| Entergy Louisiana, LLC | | | | | ��ü | | | | |
| Entergy Mississippi, 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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Registrant | Trading
Symbol
| Title of Class | Name of Each Exchange
on Which Registered
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| Common Stock Outstanding | | | Outstanding at April 30, 2020 |
| Entergy Corporation | ETR($0.01 par value) | Common 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 LLC200,161,934 |
Entergy Corporation, Entergy Arkansas, LLC, Entergy Louisiana, LLC, Entergy Mississippi, 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, 2018,2019, 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, LLC and Subsidiaries | |
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| Entergy Louisiana, LLC and Subsidiaries | |
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| Entergy Mississippi, 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 and in this report, (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;
continuing long-term risks and uncertainties associated with the termination of the System Agreement in 2016, including the potential absence of federal authority to resolve certain issues among the Utility operating companies and their retail regulators;
regulatory and operating challenges and uncertainties and economic risks associated with the Utility operating companies’ participation in MISO, including the benefits of continued MISO participation, the effect of current or projected MISO market rules and market and system conditions in the MISO markets, the allocation of MISO system transmission upgrade costs, the MISO-wide base rate of return on equity allowed or any MISO-related charges and credits required by the FERC, and the effect of planning decisions that MISO makes with respect to future transmission investments by the Utility operating companies;
changes in utility regulation, including with respect to retail and wholesale competition, the ability to recover net utility assets and other potential stranded costs, and the application of more stringent return on equity criteria, transmission reliability requirements or market power criteria by the FERC or the U.S. Department of Justice;
changes in the regulation or regulatory oversight of Entergy’s nuclear generating facilities and nuclear materials and fuel, including with respect to the planned potential, or actual shutdown and sale of each of the nuclear generating facilities owned or operated by Entergy Wholesale Commodities, and the effects of new or existing safety or environmental concerns regarding nuclear power plants and nuclear fuel;
resolution of pending or future applications, and related regulatory proceedings and litigation, for license 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;
FORWARD-LOOKING INFORMATION (Continued)
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 and sale of each of these nuclear plants;
FORWARD-LOOKING INFORMATION (Continued)
the prices and availability of fuel and power Entergy must purchase for its Utility customers, and Entergy’s ability to meet credit support requirements for fuel and power supply contracts;
volatility and changes in markets for electricity, natural gas, uranium, emissions allowances, and other energy-related commodities, and the effect of those changes on Entergy and its customers;
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 discharges to water, requirements for waste management and disposal and for the remediation of contaminated sites, wetlands protection and permitting, and changes in costs of compliance with environmental laws and regulations;
changes in laws and regulations, agency positions, or associated litigation related to protected species and associated critical habitat designations;
the effects of changes in federal, state, or local laws and regulations, and other governmental actions or policies, including changes in monetary, fiscal, tax, environmental, trade/tariff, domestic purchase requirements, or energy policies;
the effects of full or partial shutdowns of the federal government or delays in obtaining government or regulatory actions or decisions;
uncertainty regarding the establishment of interim or permanent sites for spent nuclear fuel and nuclear waste storage and disposal and the level of spent fuel and nuclear waste disposal fees charged by the U.S. government or other providers related to such sites;
variations in weather and the occurrence of hurricanes and other storms and disasters, including uncertainties associated with efforts to remediate the effects of hurricanes, ice storms, or other weather events and the recovery of costs associated with restoration, including accessing funded storm reserves, federal and local cost recovery mechanisms, securitization, and insurance;insurance, as well as any related unplanned outages;
the risk that an incident at any nuclear generation facility in the U.S. could lead to the assessment of significant retrospective assessments and/or retrospective insurance premiums as a result of Entergy’s participation in a secondary financial protection system, a utility industry mutual insurance company, and industry self-insurance programs;
effects of climate change, including the potential for increases in extreme weather events and sea levels or coastal land and wetland loss;
changes in the quality and availability of water supplies and the related regulation of water use and diversion;
Entergy’s ability to manage its capital projects, including completion of projects timely and within budget and to obtain the anticipated performance or other benefits, and its operation and maintenance costs;
Entergy’s ability to purchase and sell assets at attractive prices and on other attractive terms;
the economic climate, and particularly economic conditions in Entergy’s Utility service area and the 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;
the effects of Entergy’s strategies to reduce tax payments, especially in light of federal income tax reform;payments;
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;
FORWARD-LOOKING INFORMATION (Concluded)
the effecteffects 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 government policies incentivizing development of the foregoing, and (iii) competition from other companies offering products and services to Entergy’s customers based on new or emerging technologies or alternative sources of generation;
the effects, including increased security costs, of threatened or actual terrorism, cyber-attacks or data security breaches, natural or man-made electromagnetic pulses that affect transmission or generation infrastructure, accidents, and war or a catastrophic event such as a nuclear accident or a natural gas pipeline explosion;
the effects of a global event or pandemic, such as the COVID-19 global pandemic, including economic and societal disruptions; volatility in the capital markets (and any related increased cost of capital or any inability to access the capital markets or draw on available bank credit facilities); reduced demand for electricity, particularly from commercial and industrial customers; increased or unrecoverable costs; supply chain, vendor, and contractor disruptions; delays in completion of capital or other construction projects, maintenance, and other operations activities, including prolonged outages; impacts to Entergy’s workforce availability, health, or safety; increased cybersecurity risks as a result of many employees telecommuting; increased late or uncollectible customer payments; regulatory delays; executive orders affecting, or increased regulation of, our business; changes in credit ratings or outlooks as a result of any of the foregoing; or other adverse impacts on Entergy’s ability to execute on its business strategies and initiatives or, more generally, on Entergy’s results of operations, financial condition, and liquidity;
Entergy’s ability to attract and retain talented management, directors, and employees with specialized skills;
FORWARD-LOOKING INFORMATION (Concluded)
Entergy’s ability to attract, retain and manage an appropriately qualified workforce;
changes in accounting standards and corporate governance;
declines in the market prices of marketable securities and resulting funding requirements and the effects on benefits costs for Entergy’s defined benefit pension and other postretirement benefit plans;
future wage and employee benefit costs, including changes in discount rates and returns on benefit plan assets;
changes in decommissioning trust fund values or earnings or in the timing of, requirements for, or cost to decommission Entergy’s nuclear plant sites and the implementation of decommissioning of such sites following shutdown;
the decision to cease merchant power generation at all Entergy Wholesale Commodities nuclear power plants by mid-2022, including the implementation of the planned shutdowns and sales of Pilgrim, Indian Point 2, Indian Point 3, and Palisades;
the effectiveness of Entergy’s risk management policies and procedures and the ability and willingness of its counterparties to satisfy their financial and performance commitments;
the potential for the factors that couldlisted herein to lead to the impairment of long-lived assets; and
theEntergy and its subsidiaries’ ability to successfully execute on their business strategies, including their ability to complete strategic transactions that Entergy may undertake, including mergers, acquisitions, divestitures, or restructurings, regulatory or other limitations imposed as a result of any such strategic transaction, and the success of the business following any such strategic transaction.undertake.
DEFINITIONS
Certain abbreviations or acronyms used in the text and notes are defined below: |
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| Abbreviation or Acronym | Term |
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| 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 |
| COVID-19 | The novel coronavirus disease declared a pandemic by the World Health Organization and the Centers for Disease Control and Prevention in March 2020 |
| 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, 20182019 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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| 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) |
| Nelson Unit 6 | Unit No. 6 (coal) of the Nelson Steam Electric Generating Station, 70% of which is co-owned by Entergy Louisiana (57.5%) and Entergy Texas (42.5%) and 10.9% of which is owned by an Entergy subsidiary in the Entergy Wholesale Commodities business segment |
| Net debt to net capital ratio | Gross debt less cash and cash equivalents divided by total capitalization less cash and cash equivalents |
| Net MW in operation | Installed capacity owned and operated |
| NRC | Nuclear Regulatory Commission |
NYPA | New York Power Authority |
| Palisades | Palisades Nuclear Plant (nuclear), owned by an Entergy subsidiary in the Entergy Wholesale Commodities business segment |
| Parent & Other | The portions of Entergy not included in the Utility or Entergy Wholesale Commodities segments, primarily consisting of the activities of the parent company, Entergy Corporation |
| Pilgrim | Pilgrim Nuclear Power Station (nuclear), previously owned by an Entergy subsidiary in the Entergy Wholesale Commodities business segment, which ceased power production in May 2019 and was sold in August 2019 |
| PPA | Purchased power agreement or power purchase agreement |
| PUCT | Public Utility Commission of Texas |
| Registrant Subsidiaries | Entergy Arkansas, LLC, Entergy Louisiana, LLC, Entergy Mississippi, 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 |
DEFINITIONS (Concluded)
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| Abbreviation or Acronym | Term |
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| 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), previously owned by an Entergy subsidiary in the Entergy Wholesale Commodities business segment, which ceased power production in December 2014 and was disposed of in January 2019 |
| Waterford 3 | Unit No. 3 (nuclear) of the Waterford Steam Electric Station, owned 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 |
ENTERGY CORPORATION AND SUBSIDIARIES
MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS
Entergy operates primarily through two business segments: Utility and Entergy Wholesale Commodities.
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| • | 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. |
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| • | 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 and sale of each of the Entergy Wholesale Commodities nuclear power plants. |
The Utility business segment includes the generation, transmission, distribution, and sale of electric power in portions of Arkansas, Mississippi, Texas, and Louisiana, including the City of New Orleans; and operation of a small natural gas distribution business.
The Entergy Wholesale Commodities business segment includes the ownership, operation, and decommissioning of nuclear power plants located in the northern United States and the sale of the electric power produced by its operating plants to wholesale customers. Entergy Wholesale Commodities also provides services to other nuclear power plant owners and owns interests in non-nuclear power plants that sell the electric power produced by those plants to wholesale customers. See “Entergy Wholesale Commodities Exit from the Merchant Power Business” below and in the Form 10-K for discussion of the operation and planned shutdown and 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.
The COVID-19 Pandemic
The COVID-19 pandemic and the measures to control it have adversely affected economic activity and conditions worldwide and have affected the demand for the products and services of many businesses in Entergy’s service area. Entergy expects a decline in sales volume during 2020 due to the COVID-19 pandemic, especially in the commercial and industrial sectors, although the effect in the first quarter 2020 was minimal. In addition, although the effect in the first quarter 2020 was also minimal, Entergy expects negative changes during 2020 to its customers’ payment patterns and its operating cash flow activity due to the COVID-19 pandemic. These negative changes are likely to include an increase in uncollectible accounts expense.
Entergy provides critical services to its customers and has implemented its comprehensive incident response plan, which contemplates major events such as storms or pandemics. Entergy’s focus has been on the safety and wellness of its employees; providing safe, reliable service for its customers; analyzing and addressing the financial effects of the COVID-19 pandemic; and continuing its plans for the future. Entergy implemented precautionary measures for safety on and off the job for employees working at plants and in the field and implemented telecommuting practices for employees who can work from home. Entergy suspended service disconnections for customers and is working with regulators to address routine and non-routine matters and allow continuation of capital spending plans. Most of the Utility operating companies have received accounting orders to defer costs associated with COVID-19. To date, Entergy has not had material effects to its major projects or capital spending plans. Entergy is working with suppliers and contractors for continued availability of resources, equipment, and supplies to keep operations and major projects going forward and on schedule. Entergy plans to implement expense-related spending reductions in 2020, which it does not expect to affect safety or service reliability, in order to offset some of the financial effects of the COVID-19 pandemic. Despite the negative effects of the pandemic on financial markets, certain of the Utility operating companies issued a total of $1.065 billion of long-term mortgage bonds in March 2020, and Entergy Arkansas and Entergy Mississippi renewed their short-term credit facilities. In addition to cash on hand, Entergy’s sources of liquidity are outlined in “Capital Structure and Resources” and in Note 4 to the financial statements herein.
Despite Entergy’s actions in response to the COVID-19 pandemic, uncertainty exists regarding the full depth and length of the effects of COVID-19 on Entergy’s sales volume, revenue, collections and cash flows, expenses, liquidity, and capital needs. Entergy will continue to monitor actively the COVID-19 pandemic and related developments affecting its workforce, customers, suppliers, operations, and financial condition.
Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis
Results of Operations
First Quarter 20192020 Compared to First Quarter 20182019
Following are income statement variances for Utility, Entergy Wholesale Commodities, Parent & Other, and Entergy comparing the first quarter 20192020 to the first quarter 20182019 showing how much the line item increased or (decreased) in comparison to the prior period:
| | | | |
Utility | | Entergy Wholesale Commodities | |
Parent & Other (a) | |
Entergy | |
Utility | | Entergy Wholesale Commodities | |
Parent & Other (a) | |
Entergy |
| | | (In Thousands) | | (In Thousands) |
| 2018 Consolidated Net Income (Loss) | |
| $217,940 |
| |
| ($17,779 | ) | |
| ($63,961 | ) | |
| $136,200 |
| |
| 2019 Net Income (Loss) Attributable to Entergy Corporation | | |
| $230,585 |
| |
| $96,532 |
| |
| ($72,580 | ) | |
| $254,537 |
|
| | | | | | | | | | | | | | | | | |
| Net revenue (operating revenue less fuel expense, purchased power, and other regulatory charges/credits) | | (43,585 | ) | | 10,643 |
| | 19 |
| | (32,923 | ) | |
| Operating revenues | | | (81,353 | ) | | (101,063 | ) | | 11 |
| | (182,405 | ) |
| Fuel, fuel-related expenses, and gas purchased for resale | | | (75,964 | ) | | (4,963 | ) | | — |
| | (80,927 | ) |
| Purchased power | | | (117,810 | ) | | (5,083 | ) | | — |
| | (122,893 | ) |
| Other regulatory charges (credits) | | | 9,267 |
| | — |
| | — |
| | 9,267 |
|
| Other operation and maintenance | | (2,636 | ) | | (2,116 | ) | | 4,218 |
| | (534 | ) | | (19,649 | ) | | (57,650 | ) | | (3,668 | ) | | (80,967 | ) |
| Asset write-offs, impairments, and related charges | | — |
| | 1,055 |
| | — |
| | 1,055 |
| | — |
| | (68,884 | ) | | — |
| | (68,884 | ) |
| Taxes other than income taxes | | (2,191 | ) | | (3,607 | ) | | (845 | ) | | (6,643 | ) | | 4,466 |
| | 7,341 |
| | (88 | ) | | 11,719 |
|
| Depreciation and amortization | | 10,020 |
| | (111 | ) | | 300 |
| | 10,209 |
| | 45,485 |
| | (3,126 | ) | | 77 |
| | 42,436 |
|
| Other income | | 7,076 |
| | 182,512 |
| | (1,738 | ) | | 187,850 |
| |
| Other income (deductions) | | | (7,967 | ) | | (352,243 | ) | | 992 |
| | (359,218 | ) |
| Interest expense | | 5,650 |
| | 919 |
| | 7,317 |
| | 13,886 |
| | 11,986 |
| | (3,746 | ) | | (1,639 | ) | | 6,601 |
|
| Other expenses | | 229 |
| | 15,171 |
| | — |
| | 15,400 |
| | 4,582 |
| | (13,240 | ) | | — |
| | (8,658 | ) |
| Income taxes | | (63,788 | ) | | 66,986 |
| | (4,090 | ) | | (892 | ) | | (41,385 | ) | | (96,448 | ) | | 23,868 |
| | (113,965 | ) |
| Preferred dividend requirements of subsidiaries | | | 471 |
| | — |
| | — |
| | 471 |
|
| | | | | | | | | | | | | | | | | |
| 2019 Consolidated Net Income (Loss) | |
| $234,147 |
| |
| $97,079 |
| |
| ($72,580 | ) | |
| $258,646 |
| |
| 2020 Net Income (Loss) Attributable to Entergy Corporation | | |
| $319,816 |
| |
| ($110,975 | ) | |
| ($90,127 | ) | |
| $118,714 |
|
| |
| (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.
First quarter 2020 results of operations include losses of $211 million (pre-tax) on Entergy Wholesale Commodities’ nuclear decommissioning trust fund investments reflecting the equity market decline in March 2020 associated with the COVID-19 pandemic. See Notes 8 and 9 to the financial statements herein for a discussion of decommissioning trust fund investments. First quarter 2020 results of operations also include impairment charges of $5 million ($4 million net-of-tax) as a result of expenditures for capital assets being charged directly to expense as incurred as a result of the impaired value of the Entergy Wholesale Commodities nuclear plants’ long-lived assets due to the significantly reduced remaining estimated operating lives associated with management’s strategy to exit the Entergy Wholesale Commodities merchant power business. See “Entergy Wholesale Commodities Exit from the Merchant Power Business” below and in the Form 10-K for discussion of management’s strategy to shut down and sell all of the remaining plants in the Entergy Wholesale Commodities merchant nuclear fleet.
Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis
First quarter 2019 results of operations includesinclude 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 exit the Entergy Wholesale Commodities’Commodities merchant power business. See “Entergy Wholesale Commodities Exit from the Merchant Power Business” below and in the Form 10-K for discussion of management’s strategy to shut down and sell all of the remaining plants in the Entergy Wholesale Commodities’Commodities merchant nuclear fleet.
Net RevenueOperating Revenues
Utility
Following is an analysis of the change in net revenueoperating revenues comparing the first quarter 20192020 to the first quarter 2018:2019:
|
| | | |
| | Amount |
| | (In Millions) |
20182019 operating revenues |
| $2,176 |
|
Fuel, rider, and other revenues that do not significantly affect net revenueincome |
(164 | $1,460) |
| Volume/weather |
(10 | ) |
| Return of unprotected excess accumulated deferred income taxes to customers | (6134 | ) |
Volume/weather | (38 | )
|
| Retail electric price | 6159 |
|
Other2020 operating revenues | (6 | ) |
2019 net revenue |
| $1,4162,095 |
|
The Utility operating companies’ results include revenues from rate mechanisms designed to recover fuel, purchased power, and other costs such that the revenues and expenses associated with these items generally offset and do not affect net income. “Fuel, rider, and other revenues that do not significantly affect net income” includes the revenue variance associated with these items.
The volume/weather variance is primarily due to the effect of less favorable weather on residential sales and decreased commercial usage, partially offset by an increase in industrial usage and increased usage during the unbilled sales period. The increase in industrial usage is primarily due to growth from new customers, partially offset by decreased demand from existing customers and co-generation and decreased small industrial sales.
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 first quarter 2020, $27 million was returned to customers through reductions in operating revenues as compared to $61 million in first quarter 2019. 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 volume/weather variance is primarily due to the effect of less favorable weather on residential and commercial sales, partially offset by an increase in industrial usage. The increase in industrial usage is primarily driven by continued growth from new and expansion projects and increased demand from existing customers.
The retail electric price variance is primarily due to:
an interim increase in formula rate plan revenues effective June 2019 due to the regulatory charges recorded in first quarter 2018 to reflect the effects of regulatory agreements to return the benefitsinclusion of the lower income tax rate in 2018 tofirst-year revenue requirement for the J. Wayne Leonard Power Station (formerly St. Charles Power Station) at Entergy Louisiana, customers;as approved by the LPSC;
an interim capacity rate adjustment to the formula rate plan to recover non-fuel related costs of acquiring and operating the Choctaw Generating Station effective January 2020 and an increase in formula rate plan revenues
Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis
effective with the first billing cycle of July 2019, each at Entergy Mississippi, as approved by the MPSC;
an increase in the transmission cost recovery factor rider in January 2020 at Entergy Texas, as approved by the PUCT; and
an increase in formula rate plan rates effective with the first billing cycle of January 20192020 at Entergy Arkansas, as approved by the APSC;APSC.
a base rate
The increase effective October 2018was partially offset by provisions recorded in the first quarter 2020 at Entergy Texas, as approved byNew Orleans for the PUCT;revenue collected in 2020 that will be refunded to customers through new rates implemented in April 2020 based on an August 2019 effective date for the rate decrease.
an increase in 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 discussed above.
Entergy Corporation and Subsidiaries
Management's Management’s Financial Discussion and Analysis
for discussion of the COVID-19 pandemic.
Entergy Wholesale Commodities
Following is an analysis of the change in net revenue comparing the first quarter 2019 to the first quarter 2018:
|
| | | |
| Amount |
| (In Millions) |
2018 net revenue |
| $382 |
|
Nuclear volume | 15 |
|
Other | (4 | ) |
2019 net revenue |
| $393 |
|
As shown in the table above, net revenueOperating revenues for Entergy Wholesale Commodities increased by $11decreased from $434 million infor the first quarter2019 as compared to $333 million for the first quarter 20182020 primarily due to the shutdown of Pilgrim in May 2019 and lower realized wholesale energy and capacity prices, partially offset by higher volume in the remaining Entergy Wholesale Commodities nuclear fleet resulting from fewer non-refueling outage days in the first quarter 20192020 as compared to the first quarter 2018.2019.
Following are key performance measures for Entergy Wholesale Commodities for the first quarters20192020 and 2018:2019:
| | | | 2019 | | 2018 | 2020 | | 2019 |
Owned capacity (MW) | 3,962 | | 3,962 | 3,274 | | 3,962 |
| GWh billed | 7,203 | | 6,996 | 6,757 | | 7,203 |
| | | |
| Entergy Wholesale Commodities Nuclear Fleet | | |
| Capacity factor | 85% | | 83% | 99% | | 85% |
| GWh billed | 6,690 | | 6,408 | 6,259 | | 6,690 |
| Average energy price ($/MWh) | $51.43 | | $52.29 | $47.42 | | $51.43 |
| Average capacity price ($/kW-month) | $4.71 | | $3.83 | $1.07 | | $4.71 |
| Refueling outage days: | | |
| Indian Point 2 | — | | 13 | |
| Indian Point 3 | 21 | | — | — | | 21 |
| |
| (a) | The reduction in owned capacity is due to the shutdown of the 688 MW Pilgrim plant in May 2019, which was subsequently sold in August 2019. |
Other Income Statement Items
Utility
Other operation and maintenance expenses decreased from $588 million for the first quarter 2018 to $585 million for the first quarter 2019 to $566 million for the first quarter 2020 primarily due to:
higher nuclear insurance refunds of $18 million;
Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis
a decrease of $20$15 million in fossil-fueled generation expenses due to a lower scope of work performed during plant outages in 2020 as compared to 2019; and
a decrease of $11 million in nuclear generation expenses primarily due to a lower scope of work performed in the first quarter 20192020 as compared to first quarter 20182019 and lower nuclear labor costs, including contract labor;labor.
The decrease was partially offset by:
| |
| • | an increase of $11 million in compensation and benefits costs primarily due to an increase in net periodic pension and other postretirement benefits costs as a result of a decrease in the discount rate used to value the benefit liabilities and an increase in employee health benefits costs. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Critical Accounting Estimates” in the Form 10-K, Note 6 to the financial statements herein, and Note 11 to the financial statements in the Form 10-K for further discussion of pension and other postretirement benefit costs; and |
an increase 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; andrecovery.
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 $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 due to a higher scope of work performed in the first quarter 2019 as compared to the first quarter 2018.
Depreciation and amortization expenses increased primarily due to additions to plant in service, partially offset by updatedincluding the J. Wayne Leonard Power Station (formerly St. Charles Power Station) and the Choctaw Generating Station, and new depreciation rates used in calculating Grand Gulf plant depreciation and amortization expenses under the Unit Power Sales Agreementat Entergy Mississippi, as part of a settlement approved by the FERCMPSC.
Interest expense increased primarily due to the issuance in August 2018.March 2019 of $525 million of 4.20% Series mortgage bonds by Entergy Louisiana and the issuance in March 2019 of $350 million of 4.20% Series mortgage bonds by Entergy Arkansas.
Entergy Wholesale Commodities
Other operation and maintenance expenses decreased from $189 million for the first quarter 2019 to $131 million for the first quarter 2020 primarily due to:
a decrease of $31 million in nuclear generation expenditures primarily due to the absence of other operation and maintenance expenses from the Pilgrim plant, after it was shut down in May 2019 and subsequently sold. See Note 214 to the financial statements in the Form 10-K for further discussion of the Unit Power Sales Agreement.sale of the Pilgrim plant; and
| |
| • | a decrease of $16 million in severance and retention expenses. Severance and retention expenses were incurred in 2020 and 2019 due to management’s strategy to exit the Entergy Wholesale Commodities merchant power business. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Entergy Wholesale Commodities Exit from the Merchant Power Business” below and in the Form 10-K for a discussion of management’s strategy to shut down and sell all of the remaining plants in the Entergy Wholesale Commodities merchant nuclear fleet. See Note 7 to the financial statements herein for further discussion of severance and retention expenses resulting from management’s strategy to shut down and sell all of the remaining plants in the Entergy Wholesale Commodities merchant nuclear fleet. |
Other income increased primarilyAsset write-offs, impairments, and related charges for the first quarter 2020 include impairment charges of $5 million ($4 million net-of-tax) as a result of expenditures for capital assets. Asset write-offs, impairments, and related charges for the first quarter 2019 include impairment charges of $74 million ($58 million net-of-tax) as a result of nuclear refueling outage spending and expenditures for capital assets. These costs were charged to expense as incurred as a result of the impaired fair value of the Entergy Wholesale Commodities nuclear plants’ long-lived assets due to an increasethe significantly reduced remaining estimated operating lives associated with management’s strategy to exit the Entergy Wholesale Commodities merchant power business. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Entergy Wholesale Commodities Exit from the Merchant Power Business” below and in the allowanceForm 10-K for equity funds used during construction duea discussion of management’s strategy to higher construction work in progress in 2019, which included the Lake Charles Power Station, St. Charles Power Station, Montgomery County Power Station,shut down and New Orleans Power Station projects. The increase was partially offset by changes in decommissioning trust fund activity, including portfolio rebalancing of certainsell all of the decommissioning trust fundsremaining plants in 2018.the Entergy
Interest expense increased primarily due to an increase in debt outstanding at the Utility operating companies.5
Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis
Wholesale Commodities merchant nuclear fleet. See Note 514 to the financial statements in the Form 10-K and Note 4 to the financial statements herein for a discussion of long-term debt.impairment of long-lived assets.
Entergy Wholesale Commodities
Other income increased primarily due to gainsdecreased because of losses on decommissioning trust fund investments in the first quarter 2019 as2020 compared to the first quarter 2018.2019. These losses reflect the equity market decline in March 2020 associated with the COVID-19 pandemic. See Notes 8 and 9 to the financial statements herein for a discussion of decommissioning trust fund investments.
Other expenses increaseddecreased primarily due to an increasethe absence of decommissioning expense from the Pilgrim plant, after it was sold in nuclear refueling outage expenses as a resultAugust 2019. See Note 14 to the financial statements in the Form 10-K for further discussion of the amortizationsale of higher costs associated with a refueling outage at Palisades.the Pilgrim plant.
Income Taxes
The effective income tax rate was (136.6%) for the first quarter 2020. The difference in the effective income tax rate for the first quarter 2020 versus the federal statutory rate of 21% was primarily due to the settlement with the IRS on the treatment of funds received in conjunction with the Act 55 financing of Hurricane Isaac storm costs, permanent differences related to income tax deductions for stock-based compensation, amortization of excess accumulated deferred income taxes, certain book and tax differences related to utility plant items, and tax differences related to the allowance for equity funds used during construction, partially offset by state income taxes. See Note 10 to the financial statements herein for discussion of the IRS settlement and the income tax deductions for stock-based compensation. 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 14.2% for the first quarter 2019. The difference in the effective income tax rate for the first quarter 2019 versus the federal statutory rate of 21% was primarily due to amortization of excess accumulated deferred income taxes, partially offset by 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 103 to the financial statements hereinin the Form 10-K for a discussion of the tax effects of the Vermont Yankee disposition.
The effective income tax rate was 24.3% for the first quarter 2018. The difference in the effective income tax rate for the first quarter 2018 versus the federal statutory rate of 21% was primarily due to state income taxes, a write-off of a stock-based compensation deferred tax asset, and the provision for uncertain tax positions, partially offset by certain book and tax differences related to utility plant items and book and tax differences related to the allowance for equity funds used during construction.
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, 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 2019, 2018, and 2017 results of operations and financial position, the provisions of the Tax Act, and the uncertainties associated with accounting for the Tax Act, and Note 10 to the financial statements herein contains updates to that discussion. Note 2 to the financial statements in the Form 10-K contains a discussion of the regulatory proceedings that 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 shut down and sell all remaining plants in the Entergy Wholesale Commodities’Commodities merchant nuclear fleet. Following are updates to that discussion.
Vermont Yankee Disposition
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.
PlannedShutdown and Sale of Pilgrim
As discussed in the Form 10-K, Entergy entered into a purchase and sale agreement to sell 100% ofPilgrim ceased operations in May 2019. In August 2019 the equity interests in Entergy Nuclear Generation Company, the owner of Pilgrim, for $1,000 (subject to adjustments for net liabilities and other amounts). The sale of Entergy Nuclear Generation Company will includeNRC approved the transfer of Pilgrim’s facility licenses to Holtec International. At that time, hearing requests filed by the
Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis
Commonwealth of Massachusetts and Pilgrim Watch challenging Holtec’s financial qualifications and the nuclear decommissioning trustsufficiency 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 obligationHoltec closed the transaction. The NRC has not yet ruled on the Pilgrim Watch and Massachusetts hearing requests. In addition, on September 25, 2019, Massachusetts filed a petition with the U.S. Court of Appeals for spent fuel managementthe District of Columbia Circuit, asking the court to vacate the NRC’s August 22 license transfer approval order and plant decommissioning. Subjectrelated approvals. On November 6, 2019, the court granted Entergy and Holtec intervenor status in the U.S. Court of Appeals proceeding. On November 22, 2019, Entergy and Holtec filed a motion to dismiss Massachusetts’s petition; the conditionsNRC also filed a motion to dismiss on the same date. On January 17, 2020, the States of New York, Connecticut, Illinois, Iowa, Maryland, Michigan, Minnesota, New Jersey, New Mexico, Oregon, Pennsylvania, and Vermont filed a brief as amici curiae in support of Massachusetts’s petition. The court of appeals has not yet ruled on Massachusetts’s initial petition or on the NRC or Entergy/Holtec motions to dismiss. On January 22, 2020, Massachusetts filed a second petition with the D.C. Circuit asking the court to review the NRC’s December 17 order denying its stay motion. On February 12, 2020, the court granted Entergy and Holtec intervenor status in the proceeding on the second petition and consolidated the proceedings for Massachusetts’ two petitions. On February 26, 2020, Massachusetts filed its preliminary procedural filings. The court has not yet issued a scheduling order for the remainder of the proceeding.
Planned Shutdown and Sale of Indian Point 2 and Indian Point 3
As discussed in the Form 10-K, the transaction is expected to close by the end of 2019. The transaction is expected to result in a loss based on the difference between Entergy’s adjusted net investment in Entergy Nuclear Generation Company and the sale price plus any agreed adjustments. As of March 31, 2019, Entergy’s adjusted net investment in Entergy Nuclear Generation Company was $180 million. The primary variables in the ultimate loss that Entergy will incur are the values of the nuclear decommissioning trust and the asset retirement obligation at closing, the financial results from plant operations until the closing, and the level of any unrealized deferred tax balances at closing.
Planned Sale of Indian Point Energy Center
In April 2019, Entergy entered into an agreement to sell, directly or indirectly, 100% of the equity interests in the subsidiaries that own Indian Point 1, Indian Point 2, and Indian Point 3, after Indian Point 3 has been shut down and defueled, to a Holtec International subsidiary for decommissioning. The sale includeswill include the transfer of the licenses, spent fuel, decommissioning liabilities, and nuclear decommissioning trusts for the three units.
The Subject to the conditions discussed in the Form 10-K, the transaction is subjecttargeted 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 quarterclose in May 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 terms of the transaction do not require a minimum level of funding in the nuclear decommissioning trusts as a condition to closing. 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, 2019,2020, Entergy’s adjusted net investment in the Indian Point units was $315$55 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 termsIndian Point 2 ceased operations on April 30, 2020.
Planned Shutdown and Sale of Palisades
As discussed in the Form 10-K, in July 2018, Entergy entered into a purchase and sale agreement to sell 100% of the transactionequity interests in Entergy Nuclear Palisades, LLC, the owner of Palisades and the Big Rock Point Site, for $1,000 (subject to adjustment for net liabilities and other amounts). The sale of Entergy Nuclear Palisades will include limitations on withdrawals fromthe transfer of the nuclear decommissioning truststrust and obligation for spent fuel management and plant decommissioning. In February 2020 the parties signed an amendment to fund decommissioning activitiesthe purchase and controls on how Entergy managessale agreement to remove the investment ofclosing condition that the nuclear decommissioning trust assets between signingfund must have a specified amount and closing; however, the agreement does not require a minimum level of funding inEntergy agreed to contribute $20 million to the nuclear decommissioning trusts as a conditiontrust fund at closing, among other amendments. Subject to the conditions discussed in the Form 10-K, the transaction is expected to close by the end of 2022. As of March 31, 2020, Entergy’s adjusted net investment in Palisades was $15 million. The primary variables in the ultimate loss or gain that Entergy will incur on the transaction are the values of the nuclear decommissioning trust and the asset retirement obligations at closing, the financial results from plant operations until the closing, and the level of any unrealized deferred tax balances at closing.
Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis
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 ofexit the Entergy Wholesale Commodities’Commodities merchant fleetpower business of approximately $130$75 million in 2019,2020, of which $34$21 million has been incurred as of March 31, 2019,2020, and a total of approximately $110$55 million from 20202021 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$5 million for the three months ended March 31, 2019.2020. 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’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.
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.
Although the effect in the first quarter 2020 was minimal, Entergy expects negative changes during 2020 to its customer payment patterns and its cash flow activity due to the COVID-19 pandemic. See “The COVID-19 Pandemic” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for discussion of the COVID-19 pandemic. Additional discussion of Entergy’s liquidity and capital resources follows.
Capital Structure and Resources
Entergy’s debt to capital ratio is shown in the following table. The increase in the debt to capital ratio for Entergy as of March 31, 20192020 is primarily due to the net issuance of debt in 2019.2020.
| | | | March 31, 2019 | | December 31, 2018 | March 31, 2020 | | December 31, 2019 |
| Debt to capital | 67.8 | % | | 66.7 | % | 67.2 | % | | 65.5 | % |
| Effect of excluding securitization bonds | (0.5 | %) | | (0.6 | %) | (0.3 | %) | | (0.4 | %) |
| Debt to capital, excluding securitization bonds (a) | 67.3 | % | | 66.1 | % | 66.9 | % | | 65.1 | % |
| Effect of subtracting cash | (1.2 | %) | | (0.6 | %) | (1.6 | %) | | (0.5 | %) |
| Net debt to net capital, excluding securitization bonds (a) | 66.1 | % | | 65.5 | % | 65.3 | % | | 64.6 | % |
| |
| (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, financingfinance 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 and Subsidiaries
Management's Financial Discussion and Analysis
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 three months ended March 31, 20192020 was 4.03%2.99% 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, 2019:2020:
|
| | | | | | |
| Capacity | | Borrowings | | Letters of Credit | | Capacity Available |
| (In Millions) |
| $3,500 | | $922 | | $6 | | $2,572 |
|
| | | | | | |
| Capacity | | Borrowings | | Letters of Credit | | Capacity Available |
| (In Millions) |
| $3,500 | | $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 companiesRegistrant Subsidiaries (except Entergy New Orleans) defaults on other indebtedness or is in bankruptcy or insolvency proceedings, an acceleration of the facility’s maturity date may occur. See Note 4 to the financial statements herein for additional discussion of the Entergy Corporation credit facility and discussion of the Registrant Subsidiaries’ credit facilities.
Entergy Corporation has a commercial paper program with a Board-approved program limit of up to $2 billion. As of March 31, 2019,2020, Entergy Corporation had approximately $1,942 million of commercial paper outstanding. The weighted-average interest rate for the three months ended March 31, 20192020 was 3.03%2.02%.
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 afterCertain of the transfer. The credit facility hasUtility operating companies have a borrowing capacitytotal of $139$373 million and expires in November 2020. As ofstorm reserve escrow accounts at March 31, 2019, $139 million in cash borrowings were outstanding under the credit facility. The weighted average interest rate for the three months ended March 31, 2019 was 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.2020.
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 20192020 through 2021.2022. Following are updates to that discussion.
Lake Charles Power Station
As discussed in the Form 10-K, the LPSC issued an order in July 2017 approving certification that the public necessity and convenience would be served by the construction of the Lake Charles Power Station. The plant commenced commercial operation in March 2020.
New Orleans Power Station
As discussed in the Form 10-K, in June 2019, a state court judge in New Orleans affirmed the City Council’s approval of the New Orleans Power Station and dismissed the petition for judicial review of that decision that had been filed in April 2018. The petitioners have filed an appeal of that ruling. Also in June 2019, with regard to the lawsuit challenging the City Council’s decision on the basis of a violation of the open meetings law, the same state court judge in New Orleans ruled that there was a violation of the open meetings law at the February 2018 meeting of the City Council’s Utility Committee at which that Committee considered the New Orleans Power Station approval, and further ruled that, although there was no violation of the open meetings law at the March 2018 full City Council
Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis
meeting at which the New Orleans Power Station was approved, both the approval of the Utility Committee and the approval of the full City Council were void. The City Council and Entergy New Orleans each filed a suspensive appeal of the open meetings law ruling. A suspensive appeal suspends the effect of the judgment in the open meetings law proceeding while the appeal is being taken. The petitioners sought in the state appellate court, and then at the Louisiana Supreme Court, to terminate the suspension of the effect of the judgment, but both courts declined to do so. Appellate briefing on the merits both in the open meetings law appeal and in the judicial review appeal occurred in November and December 2019 and oral argument in both cases was heard in January 2020. In February 2020 the state appellate court reversed the lower court’s ruling that the City Council’s approval of the New Orleans Power Station was void due to a violation of the open meetings law at the City Council’s Utility Committee meeting in February 2018. The state appellate court ruled that there was no violation of the open meetings law at the City Council meeting in March 2018 and that the lower court erred in voiding the City Council resolution approving the New Orleans Power Station. In March 2020, the appellees in that proceeding filed a writ application with the Louisiana Supreme Court seeking review of the appellate court’s decision and several New Orleans-based organizations filed an amicus brief in support of the appellees’ writ application. Briefs from Entergy New Orleans and the City Council in opposition to the writ application are due in May 2020. In April 2020 the state appellate court affirmed the district court’s judicial review decision that affirmed the City Council’s approval of the New Orleans Power Station as in the public interest. Construction of the plant is on schedule, with commercial operation expected in mid-2020.
Choctaw Generating Station
Sunflower Solar Facility
In AugustNovember 2018, Entergy Mississippi announced that it signed an assetagreement for the purchase agreement to acquire from a subsidiary of GenOn Energy Inc. the Choctaw Generating Station, an 810approximately 100 MW natural gas fired combined-cycle turbine plant located near French Camp,to-be-constructed solar photovoltaic facility that will be sited on approximately 1,000 acres in Sunflower County, Mississippi. The estimated base purchase price is expected to be approximately $314$138.4 million. The estimated total investment, including the base purchase price and other related costs, for Entergy Mississippi also expects to invest in various plant upgrades atacquire the facility after closing and expects the total cost of the acquisition to beSunflower Solar Facility is approximately $401$153.2 million. The purchase is contingent upon, among other things, obtaining necessary approvals, including full cost recovery, from applicable federal and state regulatory and permitting agencies. These include regulatory approvals fromThe project will be built by Sunflower County Solar Project, LLC, an indirect subsidiary of Recurrent Energy, LLC. Entergy Mississippi will purchase the MPSCfacility upon mechanical completion and after the FERC. Clearance under the Hart-Scott-Rodino Antitrust Improvements Act has occurred.other purchase contingencies have been met. In OctoberDecember 2018, Entergy Mississippi filed an applicationa joint petition with Sunflower Solar Project at the MPSC seeking approval offor Sunflower Solar Project to construct and for Entergy Mississippi to acquire and thereafter own, operate, improve, and maintain the acquisition and cost recovery. In a separate filing in October 2018,solar facility. Entergy Mississippi has 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 asSunflower Solar Facility. In December 2019 the MPSC approved Entergy Mississippi’s proposed revisions to allow similar cost recovery treatmentits formula rate plan to provide for other futurean interim capacity additions approvedrate adjustment mechanism. Recovery through the interim capacity rate adjustment requires MPSC approval for each new resource. In August 2019 consultants retained by the MPSC.Mississippi Public Utilities Staff filed a report expressing concerns regarding the project economics. In March 2020, Entergy Mississippi filed supplemental testimony addressing questions and observations raised by the consultants retained by the Mississippi Public Utilities Staff. A hearing before the MPSC was held in March 2020. In April 2020 the MPSC issued an order approving certification of the Sunflower Solar Facility and its recovery through the interim capacity rate adjustment mechanism, subject to certain conditions including: (i) that Entergy Mississippi pursue a partnership structure through which the partnership would acquire and own the facility under the build-own-transfer agreement and (ii) that if Entergy Mississippi does not consummate the partnership structure under the terms of the order, there will be a cap on the level of recoverable costs. Closing is expectedtargeted 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.2021.
Searcy Solar Facility
In MarchAs discussed in the Form 10-K, in May 2019, Entergy Arkansas announcedfiled a petition with the APSC seeking a finding that it signed an agreement for the purchase of the Searcy Solar Facility was in the public interest. In April 2020 the APSC issued an approximately 100 MW to-be-constructed solar energyorder approving Entergy Arkansas’s acquisition of the Searcy Solar facility as being in the public interest, but declined to approve Entergy Arkansas’s preferred cost recovery rider mechanism, finding instead, based on the particular facts and circumstances presented, 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 federalthe formula rate plan rider was a sufficient recovery mechanism.
Entergy Corporation and state regulatorySubsidiaries
Management's Financial Discussion 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.Analysis
Dividends
Declarations of dividends on Entergy’s common stock are made at the discretion of the Board. Among other things, the Board evaluates the level of Entergy’s common stock dividends based upon earnings per share from the Utility operating segment and the Parent and Other portion of the business, financial strength, and future investment opportunities. At its April 20192020 meeting, the Board declared a dividend of $0.91$0.93 per share, which is the same quarterly dividend per share that Entergy has paid since the third quarter 2018.2019.
Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis
Cash Flow Activity
As shown in Entergy’s Consolidated Statements of Cash Flows, cash flows for the three months ended March 31, 20192020 and 20182019 were as follows:
| | | | 2019 | | 2018 | 2020 | | 2019 |
| | (In Millions) | (In Millions) |
| Cash and cash equivalents at beginning of period |
| $481 |
| |
| $781 |
|
| $426 |
| |
| $481 |
|
| | | | | | | |
| Cash flow provided by (used in): | |
| | |
| |
| | |
|
| Operating activities | 501 |
| | 557 |
| 659 |
| | 501 |
|
| Investing activities | (951 | ) | | (974 | ) | (1,045 | ) | | (951 | ) |
| Financing activities | 952 |
| | 841 |
| 1,424 |
| | 952 |
|
| Net increase in cash and cash equivalents | 502 |
| | 424 |
| 1,038 |
| | 502 |
|
| | | | | | | |
| Cash and cash equivalents at end of period |
| $983 |
| |
| $1,205 |
|
| $1,464 |
| |
| $983 |
|
Operating Activities
Net cash flow provided by operating activities decreased by $56increased $158 million for the three months ended March 31, 20192020 compared to the three months ended March 31, 20182019 primarily due to:
the decrease in the return of unprotected excess accumulated deferred income taxes to Utility customers. See Note 2 to the financial statements in the Form 10-K for a discussion of the regulatory activity regarding the Tax Cuts and Jobs Act;
the effect of less favorable weather on billed Utility sales in 2019;
an increase of $41 million in spending on nuclear refueling outages in 2019 as compared to the same period in 2018; and
an increase of $29 million in interest paid in 2019 as compared to the same period in 2018 resulting from an increase in debt outstanding.
The decrease was partially offset by:
an increase due to the timing of recovery of fuel and purchased power costs;
a decrease of $38 million in spending on nuclear refueling outage expenses;
timing of collections from customers;
an increase of $17 million of nuclear insurance refunds; and
$13 million in proceeds received from the DOE in 2020 resulting from litigation regarding spent nuclear fuel storage costs in 2019 as compared to the same period in 2018.that were previously expensed. See Note 28 to the financial statements herein and in the Form 10-K for a discussion of the spent nuclear fuel and purchased power cost recovery;litigation.
The increase was partially offset by:
| |
| • | an increase of $48 million in pension contributions in 2020 as compared to the same period in 2019. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Critical Accounting Estimates” in the Form 10-K and Note 6 to the financial statements herein for a discussion of qualified pension and other postretirement benefits funding; |
the effect of less favorable weather on billed Utility sales in 2020; and
a decreasean increase of $80$32 million in pension contributionsincentive-based compensation payments in 2019 as compared to same period in 2018. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Critical Accounting Estimates” in the Form 10-K2020.
Entergy Corporation and Note 6 to the financial statements herein for a discussion of qualified pensionSubsidiaries
Management's Financial Discussion and other postretirement benefits funding.Analysis
Investing Activities
Net cash flow used in investing activities decreased $23increased $95 million for the three months ended March 31, 20192020 compared to the three months ended March 31, 20182019 primarily due to:
a decreasean increase of $108 million in construction expenditures in the Utility business primarily due to an increase of $53 million largely resulting from investment in the infrastructure of the distribution system, including increased spending on advanced metering infrastructure, and an increase of $49 million in storm spending in 2020;
an increase of $47 million in nuclear fuel purchases due to variations from year to year in the timing and pricing of fuel reload requirements, materials and services deliveries, and the timing of cash payments during the nuclear fuel cycle;
an increase of $37 million primarily due to changes in collateral posted to provide credit support to secure its obligations under agreements to sell power produced by Entergy Wholesale Commodities’ power plants; and
an increase of $11$25 million in nuclear fuel purchases dueplant upgrades for the Choctaw Generating Station in March 2020. See Note 14 to variations from year to yearthe financial statements in the timing and pricingForm 10-K for further discussion of fuel reload requirements, material and services deliveries, and the timing of cash payments during the nuclear fuel cycle.Choctaw Generating Station purchase.
Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis
The decreaseincrease was partially offset by changesby:
$62 million in proceeds received from the DOE in 2020 resulting from litigation regarding spent nuclear fuel storage costs that were previously capitalized. See Note 8 to the financial statements in the decommissioning trust funds and an increaseForm 10-K for discussion 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;spent nuclear fuel litigation; and
an increase of $21$41 million in nuclear construction expenditures primarily due to higher spending on various nuclear projects.net receipts from storm reserve escrow accounts.
The increase in construction expenditures was partially offset by:
a decrease of $33 million in fossil-fueled generation construction expenditures primarily due to lower spending in 2019 on self-build projects in the Utility business; and
a decrease of $22 million in information technology capital expenditures primarily due to lower spending in 2019 on various projects.
Financing Activities
Net cash flow provided by financing activities increased $111$472 million for the three months ended March 31, 20192020 compared to the three months ended March 31, 20182019 primarily due to a decrease in net repayments of $812 million of commercial paper in 2019. The increase was partially offset by:to:
long-term debt activity providing approximately $1,581 million of cash in 2020 compared to providing approximately $1,145 million of cash in 2019 compared to approximately $1,772 million in 2018;2019; and
the repurchase in first quarter 2019 of $50 million of Class A mandatorily redeemable preferred membership units in Entergy Holdings Company LLC, a wholly-owned Entergy subsidiary, that were held by a third party; andparty.
short-term borrowings of $39 million in 2018 by the nuclear fuel company variable interest entities.
For the details of Entergy’s commercial paper program, the nuclear fuel company variable interest entities’ short-term borrowings, and long-term debt, see Note 4 to the financial statements herein and Note 5 to the financial statements in the Form 10-K.
Rate, Cost-recovery, and Other Regulation
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS -Rate, Cost-recovery, and Other Regulation” in the Form 10-K for discussions of rate regulation, federal regulation, and related regulatory proceedings.
State and Local Rate Regulation and Fuel-Cost Recovery
See Note 2 to the financial statements herein for updates to the discussion in the Form 10-K regarding these proceedings.
Federal Regulation
See Note 2 to the financial statements herein for updates to the discussion in the Form 10-K regarding federal regulatory proceedings.
Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis
Market and Credit Risk Sensitive Instruments
Commodity Price Risk
Power Generation
As a wholesale generator, Entergy Wholesale Commodities’ core business is selling energy, measured in MWh, to its customers. Entergy Wholesale Commodities enters into forward contracts with its customers and also sells energy in the day ahead or spot markets. Entergy Wholesale Commodities also sells unforced capacity, which allows load-serving entities to meet specified reserve and related requirements placed on them by the ISOs in their respective areas. Entergy Wholesale Commodities’ forward physical power contracts consist of contracts to sell energy only, contracts to sell capacity only, and bundled contracts in which it sells both capacity and energy. While the terminology and payment mechanics vary in these contracts, each of these types of contracts requires Entergy Wholesale Commodities to deliver MWh of energy, make capacity available, or both. In addition to its forward physical power contracts, Entergy Wholesale Commodities may also 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, 2019 (20192020 (2020 represents the remainder of the year):
Entergy Wholesale Commodities Nuclear Portfolio
| | | | | 2019 | | 2020 | | 2021 | | 2022 | | 2020 | | 2021 | | 2022 |
| Energy | | |
| Percent of planned generation under contract (a): | | |
| Unit-contingent (b) | | 98% | | 95% | | 91% | | 66% | | 97% | | 94% | | 99% |
| Planned generation (TWh) (c) (d) | | 18.6 | | 17.7 | | 9.6 | | 2.8 | | 11.6 | | 9.6 | | 2.8 |
| Average revenue per MWh on contracted volumes: | | |
| Expected based on market prices as of March 31, 2019 | | $34.7 | | $42.0 | | $56.9 | | $58.8 | |
| Expected based on market prices as of March 31, 2020 | | | $38.1 | | $55.8 | | $47.1 |
| | | |
| Capacity | | |
| Percent of capacity sold forward (e): | | |
| Bundled capacity and energy contracts (f) | | 27% | | 37% | | 68% | | 97% | | 40% | | 68% | | 97% |
| Capacity contracts (g) | | 30% | | 27% | | —% | | —% | | 45% | | —% | | —% |
| Total | | 57% | | 64% | | 68% | | 97% | | 85% | | 68% | | 97% |
| Planned net MW in operation (average) (d) | | 3,167 | | 2,195 | | 1,158 | | 338 | | 2,195 | | 1,158 | | 338 |
| Average revenue under contract per kW per month (applies to capacity contracts only) | | $5.1 | | $3.2 | | $— | | $— | | $3.1 | | $— | | $— |
| | | |
| Total Energy and Capacity Revenues (h) | | |
| Expected sold and market total revenue per MWh | | $38.9 | | $45.1 | | $55.0 | | $47.5 | | $42.2 | | $54.1 | | $46.8 |
| Sensitivity: -/+ $10 per MWh market price change | | $38.7-$39.1 | | $45.0-$45.2 | | $54.1-$55.9 | | $44.1-$51.0 | | $42.0-$42.3 | | $53.5-$54.6 | | $46.7-$47.0 |
| |
| (a) | Percent of planned generation output sold or purchased forward under contracts, forward physical contracts, forward financial contracts, or options that mitigate price uncertainty. 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) | Amount of output expected to be generated by Entergy Wholesale Commodities nuclear resources considering plant operating characteristics and outage schedules. |
| |
| (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. |
| |
| (e) | Percent of planned qualified capacity sold to mitigate price uncertainty under physical or financial transactions. |
| |
| (f) | A contract for the sale of installed capacity and related energy, priced per megawatt-hour sold. |
| |
| (g) | A contract for the sale of an installed capacity product in a regional market. |
| |
| (h) | Includes assumptions on converting a portion of the portfolio to contracted with fixed price and excludes non-cash revenue from the amortization of the Palisades below-market purchased power agreement, mark-to-market activity, and service revenues. |
Entergy estimates that a positive $10 per MWh change in the annual average energy price in the markets in which the Entergy Wholesale Commodities nuclear business sells power, based on March 31, 20192020 market conditions, planned generation volumes, and hedged positions, would have a corresponding effect on pre-tax income of $4$2 million for the remainder of 2019.2020. As of March 31, 2018,2019, a positive $10 per MW change would have had a corresponding effect on pre-tax income of $1.4$4 million for the remainder of 2018.2019. A negative $10 per MWh change in the annual average energy price in the markets based on March 31, 20192020 market conditions, planned generation volumes, and hedged positions, would have a corresponding effect on pre-tax income of ($4)2) million for the remainder of 2019.2020. As of March 31, 2018,2019, a negative $10 per MW change would have had a corresponding effect on pre-tax income of ($1.4)4) million for the remainder of 2018.2019.
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, 2019,2020, based on power prices at that time, Entergy had liquidity exposure of $121$77 million under the guarantees in place supporting Entergy Wholesale Commodities transactions and $34$14 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, 2019,2020, 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, 2019,2020, the liquidity exposure associated with Entergy Wholesale Commodities assurance requirements, including return of previously posted collateral from counterparties, would increase by $235$66 million for a $1 per MMBtu increase in gas prices in both the short- and long-term markets.
As of March 31, 2019,2020, substantially all of the credit exposure associated with the planned energy output under contract for Entergy Wholesale Commodities nuclear plants through 2022 is with counterparties or their guarantors that have public investment grade credit ratings.
Nuclear Matters
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS –Nuclear Matters” in the Form 10-K for a discussion of nuclear matters. The following is an update to that discussion.
Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis
Pilgrim
In March 2019 the NRC moved Pilgrim from its “multiple/repetitive degraded cornerstone column,” or Column 4, of its Reactor Oversight Process Action Matrix to its “licensee response column,” or Column 1.
Critical Accounting Estimates
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS -Critical Accounting Estimates” in the Form 10-K for a discussion of the estimates and judgments necessary in Entergy’s accounting for nuclear decommissioning costs, utility regulatory accounting, impairment of long-lived assets and trust fund investments, taxation and uncertain tax positions, qualified pension and other postretirement benefits, and other contingencies. Following is an update to the discussion in the Form 10-K. Following are updates to that discussion.
Qualified Pension and Other Postretirement Benefits
As discussed in the Form 10-K, Entergy sponsors qualified, defined benefit pension plans that cover substantially all employees, including cash balance plans and final average pay plans. Entergy’s reported costs of providing these benefits, as described in Note 11 to the financial statements in the Form 10-K, are affected by numerous factors. Key actuarial assumptions utilized in determining qualified pension and other postretirement health care and life insurance costs include the expected long-term rate of return on plan assets. For 2020, Entergy assumed a long-term rate of return on its qualified pension plan assets of 7.00%. Through March 31, 2020, due to the decline in the equity markets associated with the COVID-19 pandemic, Entergy experienced a 12% loss on its qualified pension plan assets, which have declined in fair value from $6.3 billion at December 31, 2019 to $5.4 billion at March 31, 2020.
As described more fully in the Form 10-K, in accordance with pension accounting standards, Entergy utilizes a number of accounting mechanisms that reduce the volatility of reported pension costs. Differences between actuarial assumptions and actual plan results are deferred and are amortized into expense when the accumulated differences exceed 10% of the greater of the projected benefit obligation or the market-related value of plan assets. The excess is amortized over the average remaining service period of active employees.
Minimum required funding calculations as determined under Pension Protection Act guidance are performed annually as of January 1 of each year and are based on measurements of the assets and funding liabilities as measured at that date, and Entergy’s expected contributions for 2020 are reported in Note 6 to the financial statements herein. Any excess of the funding liability over the calculated fair market value of assets results in a funding shortfall that, under the Pension Protection Act, must be funded over a seven-year rolling period. The Pension Protection Act also imposes certain plan limitations if the funded percentage, which is based on calculated fair market values of assets divided by funding liabilities, does not meet certain thresholds. For funding purposes, asset gains and losses are smoothed in to the calculated fair market value of assets. The funding liability is based upon a weighted average 24-month corporate bond rate published by the U.S. Treasury which is generally subject to a corridor of the 25-year average of prior segment rates. Periodic changes in asset returns and interest rates can affect funding shortfalls and future cash contributions.
As described in Note 6 to the financial statements herein, in March 2020, Entergy announced changes to its other postretirement benefits. As a result, Entergy now expects 2020 other postretirement health care and life insurance benefit income, including amounts capitalized, of $17.2 million.
New Accounting Pronouncements
See Note 1 to the financial statements in the Form 10-K for discussion of new accounting pronouncements.
| | ENTERGY CORPORATION AND SUBSIDIARIES | CONSOLIDATED INCOME STATEMENTS | | For the Three Months Ended March 31, 2019 and 2018 | |
| For the Three Months Ended March 31, 2020 and 2019 | | For the Three Months Ended March 31, 2020 and 2019 |
(Unaudited) | | | | |
| | 2019 | | 2018 | 2020 | | 2019 |
| | (In Thousands, Except Share Data) | (In Thousands, Except Share Data) |
| OPERATING REVENUES | | | | | | |
| Electric |
| $2,121,024 |
| |
| $2,248,262 |
|
| $2,050,638 |
| |
| $2,121,024 |
|
| Natural gas | 54,948 |
| | 56,695 |
| 43,976 |
| | 54,948 |
|
| Competitive businesses | 433,612 |
| | 418,924 |
| 332,565 |
| | 433,612 |
|
| TOTAL | 2,609,584 |
| | 2,723,881 |
| 2,427,179 |
| | 2,609,584 |
|
| | | | | | | |
| OPERATING EXPENSES | | | | | | |
| Operation and Maintenance: | | | | | | |
| Fuel, fuel-related expenses, and gas purchased for resale | 478,330 |
| | 443,296 |
| 397,403 |
| | 478,330 |
|
| Purchased power | 339,507 |
| | 396,023 |
| 216,614 |
| | 339,507 |
|
| Nuclear refueling outage expenses | 50,441 |
| | 42,760 |
| 50,218 |
| | 50,441 |
|
| Other operation and maintenance | 783,051 |
| | 783,585 |
| 702,084 |
| | 783,051 |
|
| Asset write-offs, impairments, and related charges | 73,979 |
| | 72,924 |
| 5,095 |
| | 73,979 |
|
| Decommissioning | 102,119 |
| | 94,400 |
| 93,684 |
| | 102,119 |
|
| Taxes other than income taxes | 158,575 |
| | 165,218 |
| 170,294 |
| | 158,575 |
|
| Depreciation and amortization | 357,274 |
| | 347,065 |
| 399,710 |
| | 357,274 |
|
| Other regulatory charges (credits) | (16,946 | ) | | 42,946 |
| |
| Other regulatory credits | | (7,679 | ) | | (16,946 | ) |
| TOTAL | 2,326,330 |
| | 2,388,217 |
| 2,027,423 |
| | 2,326,330 |
|
| | | | | | | |
| OPERATING INCOME | 283,254 |
| | 335,664 |
| 399,756 |
| | 283,254 |
|
| | | | | | | |
| OTHER INCOME | | | | |
| OTHER INCOME (DEDUCTIONS) | | | | |
| Allowance for equity funds used during construction | 38,216 |
| | 28,343 |
| 35,953 |
| | 38,216 |
|
| Interest and investment income | 228,149 |
| | 16,870 |
| |
| Interest and investment income (loss) | | (216,853 | ) | | 228,149 |
|
| Miscellaneous - net | (64,658 | ) | | (31,356 | ) | 23,389 |
| | (64,658 | ) |
| TOTAL | 201,707 |
| | 13,857 |
| (157,511 | ) | | 201,707 |
|
| | | | | | | |
| INTEREST EXPENSE | | | | | | |
| Interest expense | 200,993 |
| | 182,923 |
| 205,589 |
| | 200,993 |
|
| Allowance for borrowed funds used during construction | (17,449 | ) | | (13,265 | ) | (15,444 | ) | | (17,449 | ) |
| TOTAL | 183,544 |
| | 169,658 |
| 190,145 |
| | 183,544 |
|
| | | | | | | |
| INCOME BEFORE INCOME TAXES | 301,417 |
| | 179,863 |
| 52,100 |
| | 301,417 |
|
| | | | | | | |
| Income taxes | 42,771 |
| | 43,663 |
| (71,194 | ) | | 42,771 |
|
| | | | | | | |
| CONSOLIDATED NET INCOME | 258,646 |
| | 136,200 |
| 123,294 |
| | 258,646 |
|
| | | | | | | |
| Preferred dividend requirements of subsidiaries | 4,109 |
| | 3,439 |
| 4,580 |
| | 4,109 |
|
| | | | | | | |
| NET INCOME ATTRIBUTABLE TO ENTERGY CORPORATION |
| $254,537 |
| |
| $132,761 |
|
| $118,714 |
| |
| $254,537 |
|
| | | | | | | |
| Earnings per average common share: | | | | | | |
| Basic |
| $1.34 |
| |
| $0.73 |
|
| $0.59 |
| |
| $1.34 |
|
| Diluted |
| $1.32 |
| |
| $0.73 |
|
| $0.59 |
| |
| $1.32 |
|
| | | | | | | |
| Basic average number of common shares outstanding | 189,575,187 |
| | 180,707,575 |
| 199,790,016 |
| | 189,575,187 |
|
| Diluted average number of common shares outstanding | 192,234,191 |
| | 181,431,968 |
| 200,901,349 |
| | 192,234,191 |
|
| | | | | | | |
| See Notes to Financial Statements. | | | | | | |
| | ENTERGY CORPORATION AND SUBSIDIARIES | CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | | For the Three Months Ended March 31, 2019 and 2018 | |
| For the Three Months Ended March 31, 2020 and 2019 | | For the Three Months Ended March 31, 2020 and 2019 |
(Unaudited) | | | | |
| | 2019 | | 2018 | 2020 | | 2019 |
| | (In Thousands) | (In Thousands) |
| | | | | | | |
| Net Income |
| $258,646 |
| |
| $136,200 |
|
| $123,294 |
| |
| $258,646 |
|
| | | | | | |
| 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 | ) | |
| Cash flow hedges net unrealized loss (net of tax benefit of $5,777 and $5,352) | | (21,710 | ) | | (12,426 | ) |
| Pension and other postretirement liabilities (net of tax expense of $15,076 and $3,249) | | 53,899 |
| | 11,550 |
|
| Net unrealized investment gain (net of tax expense of $8,743 and $8,073) | | 15,744 |
| | 13,703 |
|
| Other comprehensive income | 12,827 |
| | 79,145 |
| 47,933 |
| | 12,827 |
|
| | | | | | |
| Comprehensive Income | 271,473 |
| | 215,345 |
| 171,227 |
| | 271,473 |
|
| Preferred dividend requirements of subsidiaries | 4,109 |
| | 3,439 |
| 4,580 |
| | 4,109 |
|
| Comprehensive Income Attributable to Entergy Corporation |
| $267,364 |
| |
| $211,906 |
|
| $166,647 |
| |
| $267,364 |
|
| | | | | | | |
| See Notes to Financial Statements. | | | | | | |
| | ENTERGY CORPORATION AND SUBSIDIARIES | CONSOLIDATED STATEMENTS OF CASH FLOWS | | For the Three Months Ended March 31, 2019 and 2018 | |
| For the Three Months Ended March 31, 2020 and 2019 | | For the Three Months Ended March 31, 2020 and 2019 |
(Unaudited) | | | | 2019 | | 2018 | | 2020 | | 2019 |
| | | (In Thousands) | | (In Thousands) |
| OPERATING ACTIVITIES | | | | | | | | |
| Consolidated net income | |
| $258,646 |
| |
| $136,200 |
| |
| $123,294 |
| |
| $258,646 |
|
| Adjustments to reconcile consolidated net income to net cash flow provided by operating activities: | | | | | | | | |
| Depreciation, amortization, and decommissioning, including nuclear fuel amortization | | 530,224 |
| | 525,181 |
| | 568,596 |
| | 530,224 |
|
| Deferred income taxes, investment tax credits, and non-current taxes accrued | | 104,884 |
| | 104,607 |
| | (31,405 | ) | | 104,884 |
|
| Asset write-offs, impairments, and related charges | | 25,462 |
| | 25,800 |
| | 4,962 |
| | 25,462 |
|
| Changes in working capital: | | | | | | | | |
| Receivables | | 39,697 |
| | 131,150 |
| | 70,357 |
| | 39,697 |
|
| Fuel inventory | | (4,401 | ) | | (16,261 | ) | | (15,389 | ) | | (4,401 | ) |
| Accounts payable | | (63,613 | ) | | (68,857 | ) | | (127,727 | ) | | (63,613 | ) |
| Taxes accrued | | (44,083 | ) | | (56,301 | ) | | (44,241 | ) | | (44,083 | ) |
| Interest accrued | | (20,546 | ) | | (10,011 | ) | | (4,791 | ) | | (20,546 | ) |
| Deferred fuel costs | | 20,201 |
| | (76,238 | ) | | 30,560 |
| | 20,201 |
|
| Other working capital accounts | | (42,016 | ) | | (28,004 | ) | | (21,758 | ) | | (42,016 | ) |
| Changes in provisions for estimated losses | | 13,720 |
| | 10,744 |
| | (35,829 | ) | | 13,720 |
|
| Changes in other regulatory assets | | (162,192 | ) | | 84,349 |
| | 99,275 |
| | (162,192 | ) |
| Changes in other regulatory liabilities | | 130,924 |
| | (31,380 | ) | | (450,905 | ) | | 130,924 |
|
| Changes in pensions and other postretirement liabilities | | (7,713 | ) | | (97,418 | ) | |
| Changes in pension and other postretirement liabilities | | | (113,071 | ) | | (7,713 | ) |
| Other | | (278,005 | ) | | (76,168 | ) | | 607,132 |
| | (278,005 | ) |
| Net cash flow provided by operating activities | | 501,189 |
| | 557,393 |
| | 659,060 |
| | 501,189 |
|
| | | | | | | | | |
| INVESTING ACTIVITIES | | | | | | | | |
| Construction/capital expenditures | | (951,629 | ) | | (931,479 | ) | | (1,043,608 | ) | | (951,629 | ) |
| Allowance for equity funds used during construction | | 38,322 |
| | 28,512 |
| | 35,953 |
| | 38,322 |
|
| Nuclear fuel purchases | | (38,445 | ) | | (49,647 | ) | | (85,334 | ) | | (38,445 | ) |
| Insurance proceeds received for property damages | | — |
| | 1,582 |
| |
| Payment for purchase of plant | | | (24,633 | ) | | — |
|
| Changes in securitization account | | (1,084 | ) | | (7,063 | ) | | (70 | ) | | (1,084 | ) |
| Payments to storm reserve escrow account | | (2,285 | ) | | (1,175 | ) | | (1,557 | ) | | (2,285 | ) |
| Decrease (increase) in other investments | | 39,045 |
| | (406 | ) | |
| Receipts from storm reserve escrow account | | | 40,589 |
| | — |
|
| Decrease in other investments | | | 2,265 |
| | 39,045 |
|
| Litigation proceeds for reimbursement of spent nuclear fuel storage costs | | | 62,162 |
| | — |
|
| Proceeds from nuclear decommissioning trust fund sales | | 1,307,547 |
| | 1,091,332 |
| | 687,487 |
| | 1,307,547 |
|
| Investment in nuclear decommissioning trust funds | | (1,342,429 | ) | | (1,106,094 | ) | | (718,741 | ) | | (1,342,429 | ) |
| Net cash flow used in investing activities | | (950,958 | ) | | (974,438 | ) | | (1,045,487 | ) | | (950,958 | ) |
| | | | | | | | | |
| See Notes to Financial Statements. | | | | | | | | |
| | ENTERGY CORPORATION AND SUBSIDIARIES | CONSOLIDATED STATEMENTS OF CASH FLOWS | | For the Three Months Ended March 31, 2019 and 2018 | |
| For the Three Months Ended March 31, 2020 and 2019 | | For the Three Months Ended March 31, 2020 and 2019 |
(Unaudited) | | | | 2019 | | 2018 | | 2020 | | 2019 |
| | | (In Thousands) | | (In Thousands) |
| FINANCING ACTIVITIES | | | | | | | | |
| Proceeds from the issuance of: | | | | | | | | |
| Long-term debt | | 3,444,230 |
| | 2,505,726 |
| | 3,195,345 |
| | 3,444,230 |
|
| Treasury stock | | 35,577 |
| | 1,952 |
| | 39,964 |
| | 35,577 |
|
| Retirement of long-term debt | | (2,298,855 | ) | | (734,000 | ) | | (1,614,578 | ) | | (2,298,855 | ) |
| Repurchase of preferred membership units | | (50,000 | ) | | — |
| | — |
| | (50,000 | ) |
| Changes in credit borrowings and commercial paper - net | | (17 | ) | | (773,177 | ) | | (4,911 | ) | | (17 | ) |
| Other | | (1,945 | ) | | 5,193 |
| | (756 | ) | | (1,945 | ) |
| Dividends paid: | | | | | | | | |
| Common stock | | (172,591 | ) | | (160,887 | ) | | (185,763 | ) | | (172,591 | ) |
| Preferred stock | | (4,109 | ) | | (3,439 | ) | | (4,763 | ) | | (4,109 | ) |
| Net cash flow provided by financing activities | | 952,290 |
| | 841,368 |
| | 1,424,538 |
| | 952,290 |
|
| | | | | | | | |
| Net increase in cash and cash equivalents | | 502,521 |
| | 424,323 |
| | 1,038,111 |
| | 502,521 |
|
| | | | | | | | |
| Cash and cash equivalents at beginning of period | | 480,975 |
| | 781,273 |
| | 425,722 |
| | 480,975 |
|
| | | | | | | | |
| Cash and cash equivalents at end of period | |
| $983,496 |
| |
| $1,205,596 |
| |
| $1,463,833 |
| |
| $983,496 |
|
| | | | | | | | | |
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | | | | | | | | |
| Cash paid (received) during the period for: | | | | | | | | |
| Interest - net of amount capitalized | |
| $214,935 |
| |
| $185,606 |
| |
| $203,466 |
| |
| $214,935 |
|
| Income taxes | |
| ($13,844 | ) | |
| ($4,297 | ) | |
| ($23,063 | ) | |
| ($13,844 | ) |
| | | | | | | | | |
| See Notes to Financial Statements. | | | | | | | | |
| | ENTERGY CORPORATION AND SUBSIDIARIES | CONSOLIDATED BALANCE SHEETS | ASSETS | | March 31, 2019 and December 31, 2018 | |
| March 31, 2020 and December 31, 2019 | | March 31, 2020 and December 31, 2019 |
(Unaudited) | | | | 2019 | | 2018 | | 2020 | | 2019 |
| | | (In Thousands) | | (In Thousands) |
| CURRENT ASSETS | | | | | | | | |
| Cash and cash equivalents: | | | | | | | | |
| Cash | |
| $118,384 |
| |
| $56,690 |
| |
| $283,491 |
| |
| $34,242 |
|
| Temporary cash investments | | 865,112 |
| | 424,285 |
| | 1,180,342 |
| | 391,480 |
|
| Total cash and cash equivalents | | 983,496 |
| | 480,975 |
| | 1,463,833 |
| | 425,722 |
|
| Accounts receivable: | | | | | | | | |
| Customer | | 589,519 |
| | 558,494 |
| | 602,278 |
| | 595,509 |
|
| Allowance for doubtful accounts | | (7,458 | ) | | (7,322 | ) | | (8,521 | ) | | (7,404 | ) |
| Other | | 158,293 |
| | 167,722 |
| | 112,368 |
| | 219,870 |
|
| Accrued unbilled revenues | | 334,355 |
| | 395,511 |
| | 369,948 |
| | 400,617 |
|
| Total accounts receivable | | 1,074,709 |
| | 1,114,405 |
| | 1,076,073 |
| | 1,208,592 |
|
| Deferred fuel costs | | 19,209 |
| | 27,251 |
| |
| Fuel inventory - at average cost | | 121,705 |
| | 117,304 |
| | 160,865 |
| | 145,476 |
|
| Materials and supplies - at average cost | | 771,707 |
| | 752,843 |
| | 837,855 |
| | 824,989 |
|
| Deferred nuclear refueling outage costs | | 231,628 |
| | 230,960 |
| | 167,124 |
| | 157,568 |
|
| Prepayments and other | | 205,322 |
| | 234,326 |
| | 268,201 |
| | 283,645 |
|
| TOTAL | | 3,407,776 |
| | 2,958,064 |
| | 3,973,951 |
| | 3,045,992 |
|
| | | | | | | | | |
| OTHER PROPERTY AND INVESTMENTS | | | | | | | | |
| Decommissioning trust funds | | 6,877,865 |
| | 6,920,164 |
| | 5,778,285 |
| | 6,404,030 |
|
| Non-utility property - at cost (less accumulated depreciation) | | 310,215 |
| | 304,382 |
| | 335,314 |
| | 332,864 |
|
| Other | | 439,849 |
| | 437,265 |
| | 460,569 |
| | 496,452 |
|
| TOTAL | | 7,627,929 |
| | 7,661,811 |
| | 6,574,168 |
| | 7,233,346 |
|
| | | | | | | | | |
| PROPERTY, PLANT, AND EQUIPMENT | | | | | | | | |
| Electric | | 50,260,871 |
| | 49,831,486 |
| | 55,524,303 |
| | 54,271,467 |
|
| Natural gas | | 509,987 |
| | 496,150 |
| | 553,323 |
| | 547,110 |
|
| Construction work in progress | | 3,289,734 |
| | 2,888,639 |
| | 2,469,130 |
| | 2,823,291 |
|
| Nuclear fuel | | 790,398 |
| | 861,272 |
| | 657,216 |
| | 677,181 |
|
| TOTAL PROPERTY, PLANT, AND EQUIPMENT | | 54,850,990 |
| | 54,077,547 |
| | 59,203,972 |
| | 58,319,049 |
|
| Less - accumulated depreciation and amortization | | 22,198,769 |
| | 22,103,101 |
| | 23,422,851 |
| | 23,136,356 |
|
| PROPERTY, PLANT, AND EQUIPMENT - NET | | 32,652,221 |
| | 31,974,446 |
| | 35,781,121 |
| | 35,182,693 |
|
| | | | | | | | | |
| DEFERRED DEBITS AND OTHER ASSETS | | | | | | | | |
| Regulatory assets: | | | | | | | | |
| Other regulatory assets (includes securitization property of $333,783 as of March 31, 2019 and $360,790 as of December 31, 2018) | | 4,908,688 |
| | 4,746,496 |
| |
| Other regulatory assets (includes securitization property of $212,163 as of March 31, 2020 and $239,219 as of December 31, 2019) | | | 5,192,780 |
| | 5,292,055 |
|
| Deferred fuel costs | | 239,595 |
| | 239,496 |
| | 240,024 |
| | 239,892 |
|
| Goodwill | | 377,172 |
| | 377,172 |
| | 377,172 |
| | 377,172 |
|
| Accumulated deferred income taxes | | 61,255 |
| | 54,593 |
| | 76,680 |
| | 64,461 |
|
| Other | | 330,745 |
| | 262,988 |
| | 339,133 |
| | 288,301 |
|
| TOTAL | | 5,917,455 |
| | 5,680,745 |
| | 6,225,789 |
| | 6,261,881 |
|
| | | | | | | | | |
| TOTAL ASSETS | |
| $49,605,381 |
| |
| $48,275,066 |
| |
| $52,555,029 |
| |
| $51,723,912 |
|
| | | | | | | | | |
| See Notes to Financial Statements. | | | | | | | | |
| | ENTERGY CORPORATION AND SUBSIDIARIES | CONSOLIDATED BALANCE SHEETS | LIABILITIES AND EQUITY | | March 31, 2019 and December 31, 2018 | |
| March 31, 2020 and December 31, 2019 | | March 31, 2020 and December 31, 2019 |
(Unaudited) | | | | 2019 | | 2018 | | 2020 | | 2019 |
| | | (In Thousands) | | (In Thousands) |
| CURRENT LIABILITIES | | | | | | | | |
| Currently maturing long-term debt | |
| $150,010 |
| |
| $650,009 |
| |
| $1,230,015 |
| |
| $795,012 |
|
| Notes payable and commercial paper | | 1,942,322 |
| | 1,942,339 |
| | 1,941,816 |
| | 1,946,727 |
|
| Accounts payable | | 1,406,327 |
| | 1,496,058 |
| | 1,502,392 |
| | 1,499,861 |
|
| Customer deposits | | 409,433 |
| | 411,505 |
| | 408,803 |
| | 409,171 |
|
| Taxes accrued | | 210,156 |
| | 254,241 |
| | 189,214 |
| | 233,455 |
|
| Interest accrued | | 172,645 |
| | 193,192 |
| | 189,338 |
| | 194,129 |
|
| Deferred fuel costs | | 64,653 |
| | 52,396 |
| | 228,379 |
| | 197,687 |
|
| Pension and other postretirement liabilities | | 62,218 |
| | 61,240 |
| | 62,129 |
| | 66,184 |
|
| Current portion of unprotected excess accumulated deferred income taxes | | 239,664 |
| | 248,127 |
| | 64,339 |
| | 76,457 |
|
| Other | | 203,655 |
| | 134,437 |
| | 201,514 |
| | 201,780 |
|
| TOTAL | | 4,861,083 |
| | 5,443,544 |
| | 6,017,939 |
| | 5,620,463 |
|
| | | | | | | | | |
| NON-CURRENT LIABILITIES | | | | | | | | |
| Accumulated deferred income taxes and taxes accrued | | 4,252,292 |
| | 4,107,152 |
| | 4,384,494 |
| | 4,401,190 |
|
| Accumulated deferred investment tax credits | | 211,013 |
| | 213,101 |
| | 205,041 |
| | 207,113 |
|
| Regulatory liability for income taxes-net | | 1,737,479 |
| | 1,817,021 |
| | 1,600,189 |
| | 1,633,159 |
|
| Other regulatory liabilities | | 1,839,183 |
| | 1,620,254 |
| | 1,555,188 |
| | 1,961,005 |
|
| Decommissioning and asset retirement cost liabilities | | 6,577,180 |
| | 6,355,543 |
| | 6,250,951 |
| | 6,159,212 |
|
| Accumulated provisions | | 527,866 |
| | 514,107 |
| | 498,199 |
| | 534,028 |
|
| Pension and other postretirement liabilities | | 2,607,394 |
| | 2,616,085 |
| | 2,689,249 |
| | 2,798,265 |
|
| 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 |
| |
| Long-term debt (includes securitization bonds of $271,391 as of March 31, 2020 and $297,981 as of December 31, 2019) | | | 18,228,528 |
| | 17,078,643 |
|
| Other | | 634,211 |
| | 1,006,249 |
| | 646,899 |
| | 852,749 |
|
| TOTAL | | 35,554,504 |
| | 33,767,815 |
| | 36,058,738 |
| | 35,625,364 |
|
| | | | | | | | | |
| Commitments and Contingencies | | | | | | | | |
| | | | | | | | | |
| Subsidiaries' preferred stock without sinking fund | | 219,427 |
| | 219,402 |
| | 219,385 |
| | 219,410 |
|
| | | | | | | | | |
| COMMON EQUITY | | | | | |
| Common stock, $.01 par value, authorized 500,000,000 shares; issued 261,587,009 shares in 2019 and in 2018 | | 2,616 |
| | 2,616 |
| |
| EQUITY | | | | | |
| Common stock, $.01 par value, authorized 500,000,000 shares; issued 270,035,180 shares in 2020 and 2019 | | | 2,700 |
| | 2,700 |
|
| Paid-in capital | | 5,920,183 |
| | 5,951,431 |
| | 6,510,683 |
| | 6,564,436 |
|
| Retained earnings | | 8,809,902 |
| | 8,721,150 |
| | 9,190,141 |
| | 9,257,609 |
|
| Accumulated other comprehensive loss | | (551,152 | ) | | (557,173 | ) | | (398,987 | ) | | (446,920 | ) |
| Less - treasury stock, at cost (71,670,773 shares in 2019 and 72,530,866 shares in 2018) | | 5,211,182 |
| | 5,273,719 |
| |
| Less - treasury stock, at cost (69,874,430 shares in 2020 and 70,886,400 shares in 2019) | | | 5,080,570 |
| | 5,154,150 |
|
| Total common shareholders' equity | | | 10,223,967 |
| | 10,223,675 |
|
| Subsidiaries' preferred stock without sinking fund | | | 35,000 |
| | 35,000 |
|
| TOTAL | | 8,970,367 |
| | 8,844,305 |
| | 10,258,967 |
| | 10,258,675 |
|
| | | | | | | | | |
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | |
| $49,605,381 |
| |
| $48,275,066 |
| |
| $52,555,029 |
| |
| $51,723,912 |
|
| | | | | | | | | |
| See Notes to Financial Statements. | | | | | | | | |
| | ENTERGY CORPORATION AND SUBSIDIARIES | | CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY | |
| For the Three Months Ended March 31, 2019 and 2018 | |
| CONSOLIDATED STATEMENT OF CHANGES IN EQUITY | | CONSOLIDATED STATEMENT OF CHANGES IN EQUITY |
| For the Three Months Ended March 31, 2020 and 2019 | | For the Three Months Ended March 31, 2020 and 2019 |
(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 Loss | | Total |
| | (In Thousands) | |
| Balance at December 31, 2017 |
| $— |
| |
| $2,548 |
| |
| ($5,397,637 | ) | |
| $5,433,433 |
| |
| $7,977,702 |
| |
| ($23,531 | ) | |
| $7,992,515 |
| |
| Implementation of accounting standards | — |
| | — |
| | — |
| | — |
| | 576,257 |
| | (632,617 | ) | | (56,360 | ) | |
| Balance at January 1, 2018 |
| $— |
| |
| $2,548 |
| |
| ($5,397,637 | ) | |
| $5,433,433 |
| |
| $8,553,959 |
| |
| ($656,148 | ) | |
| $7,936,155 |
| |
| | | | | | | | | | | | | | | |
| Consolidated net income | 3,439 |
| | — |
| | — |
| | — |
| | 132,761 |
| | — |
| | 136,200 |
| |
| Other comprehensive income | — |
| | — |
| | — |
| | — |
| | — |
| | 79,145 |
| | 79,145 |
| |
| Common stock issuances related to stock plans | — |
| | — |
| | 20,477 |
| | (16,170 | ) | | — |
| | — |
| | 4,307 |
| |
| Common stock dividends declared | — |
| | — |
| | — |
| | — |
| | (160,887 | ) | | — |
| | (160,887 | ) | |
| Preferred dividend requirements of subsidiaries | (3,439 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (3,439 | ) | |
| Reclassification pursuant to ASU 2018-02 | — |
| | — |
| | — |
| | — |
| | (32,043 | ) | | 15,505 |
| | (16,538 | ) | |
| Balance at March 31, 2018 |
| $— |
| |
| $2,548 |
| |
| ($5,377,160 | ) | |
| $5,417,263 |
| |
| $8,493,790 |
| |
| ($561,498 | ) | |
| $7,974,943 |
| |
| | | | | | | | | | | | | | | (In Thousands) |
| Balance at December 31, 2018 |
| $— |
| |
| $2,616 |
| |
| ($5,273,719 | ) | |
| $5,951,431 |
| |
| $8,721,150 |
| |
| ($557,173 | ) | |
| $8,844,305 |
|
| $— |
| |
| $2,616 |
| |
| ($5,273,719 | ) | |
| $5,951,431 |
| |
| $8,721,150 |
| |
| ($557,173 | ) | |
| $8,844,305 |
|
| Implementation of accounting standards | — |
| | — |
| | — |
| | — |
| | 6,806 |
| | (6,806 | ) | | — |
| — |
| | — |
| | — |
| | — |
| | 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 |
| — |
| | 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 |
| 4,109 |
| | — |
| | — |
| | — |
| | 254,537 |
| | — |
| | 258,646 |
|
| Other comprehensive income | — |
| | — |
| | — |
| | — |
| | — |
| | 12,827 |
| | 12,827 |
| — |
| | — |
| | — |
| | — |
| | — |
| | 12,827 |
| | 12,827 |
|
| Common stock issuances related to stock plans | — |
| | — |
| | 62,537 |
| | (31,248 | ) | | — |
| | — |
| | 31,289 |
| — |
| | — |
| | 62,537 |
| | (31,248 | ) | | — |
| | — |
| | 31,289 |
|
| Common stock dividends declared | — |
| | — |
| | — |
| | — |
| | (172,591 | ) | | — |
| | (172,591 | ) | — |
| | — |
| | — |
| | — |
| | (172,591 | ) | | — |
| | (172,591 | ) |
| Preferred dividend requirements of subsidiaries | (4,109 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (4,109 | ) | |
| Preferred dividend requirements of subsidiaries (a) | | (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 |
|
| $— |
| |
| $2,616 |
| |
| ($5,211,182 | ) | |
| $5,920,183 |
| |
| $8,809,902 |
| |
| ($551,152 | ) | |
| $8,970,367 |
|
| | | | | | | | | | | | | | | |
| See Notes to Financial Statements. | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance at December 31, 2019 |
| $35,000 |
| |
| $2,700 |
| |
| ($5,154,150 | ) | |
| $6,564,436 |
| |
| $9,257,609 |
| |
| ($446,920 | ) | |
| $10,258,675 |
|
| Implementation of accounting standards | — |
| | — |
| | — |
| | — |
| | (419 | ) | | — |
| | (419 | ) |
| Balance at January 1, 2020 | 35,000 |
| | 2,700 |
| | (5,154,150 | ) | | 6,564,436 |
| | 9,257,190 |
| | (446,920 | ) | | 10,258,256 |
|
| | | | | | | | | | | | | | |
| Consolidated net income | 4,580 |
| | — |
| | — |
| | — |
| | 118,714 |
| | — |
| | 123,294 |
|
| Other comprehensive income | — |
| | — |
| | — |
| | — |
| | — |
| | 47,933 |
| | 47,933 |
|
| Common stock issuances related to stock plans | — |
| | — |
| | 73,580 |
| | (53,753 | ) | | — |
| | — |
| | 19,827 |
|
| Common stock dividends declared | — |
| | — |
| | — |
| | — |
| | (185,763 | ) | | — |
| | (185,763 | ) |
| Preferred dividend requirements of subsidiaries (a) | (4,580 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (4,580 | ) |
| Balance at March 31, 2020 |
| $35,000 |
| |
| $2,700 |
| |
| ($5,080,570 | ) | |
| $6,510,683 |
| |
| $9,190,141 |
| |
| ($398,987 | ) | |
| $10,258,967 |
|
| | | | | | | | | | | | | | |
| See Notes to Financial Statements. | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| (a) Consolidated net income and preferred dividend requirements of subsidiaries include $4.1 million for 2020 and 2019 of preferred dividends on subsidiaries’ preferred stock without sinking fund that is not presented as equity. |
| | ENTERGY CORPORATION AND SUBSIDIARIES | SELECTED OPERATING RESULTS | | For the Three Months Ended March 31, 2019 and 2018 | |
| For the Three Months Ended March 31, 2020 and 2019 | | For the Three Months Ended March 31, 2020 and 2019 |
(Unaudited) | | | | | | | | | | | | | | |
| | | Nine Months Ended | | Increase/ | | | | Nine Months Ended | | Increase/ | | |
| Description | | 2019 | | 2018 | | (Decrease) | | % | |
| | | 2020 | | 2019 | | (Decrease) | | % |
| | (Dollars in Millions) | | | | (Dollars in Millions) | | |
| Utility electric operating revenues: | | | | | | | | | | | | | | | | |
| Residential | |
| $803 |
| |
| $892 |
| |
| ($89 | ) | | (10 | ) | |
| $798 |
| |
| $803 |
| |
| ($5 | ) | | (1 | ) |
| Commercial | | 554 |
| | 596 |
| | (42 | ) | | (7 | ) | | 539 |
| | 554 |
| | (15 | ) | | (3 | ) |
| Industrial | | 601 |
| | 597 |
| | 4 |
| | 1 |
| | 557 |
| | 601 |
| | (44 | ) | | (7 | ) |
| Governmental | | 53 |
| | 57 |
| | (4 | ) | | (7 | ) | | 53 |
| | 53 |
| | — |
| | — |
|
| Total billed retail | | 2,011 |
| | 2,142 |
| | (131 | ) | | (6 | ) | | 1,947 |
| | 2,011 |
| | (64 | ) | | (3 | ) |
| Sales for resale | | 84 |
| | 69 |
| | 15 |
| | 22 |
| | 54 |
| | 84 |
| | (30 | ) | | (36 | ) |
| Other | | 26 |
| | 37 |
| | (11 | ) | | (30 | ) | | 50 |
| | 26 |
| | 24 |
| | 92 |
|
| Total | |
| $2,121 |
| |
| $2,248 |
| |
| ($127 | ) | | (6 | ) | |
| $2,051 |
| |
| $2,121 |
| |
| ($70 | ) | | (3 | ) |
| | | | | | | | | | | | | | | | |
| Utility billed electric energy sales (GWh): | | | | | | | | | | | | | | | | |
| Residential | | 8,471 |
| | 9,287 |
| | (816 | ) | | (9 | ) | | 8,126 |
| | 8,471 |
| | (345 | ) | | (4 | ) |
| Commercial | | 6,423 |
| | 6,732 |
| | (309 | ) | | (5 | ) | | 6,244 |
| | 6,423 |
| | (179 | ) | | (3 | ) |
| Industrial | | 11,683 |
| | 11,405 |
| | 278 |
| | 2 |
| | 11,815 |
| | 11,683 |
| | 132 |
| | 1 |
|
| Governmental | | 601 |
| | 608 |
| | (7 | ) | | (1 | ) | | 595 |
| | 601 |
| | (6 | ) | | (1 | ) |
| Total retail | | 27,178 |
| | 28,032 |
| | (854 | ) | | (3 | ) | | 26,780 |
| | 27,178 |
| | (398 | ) | | (1 | ) |
| Sales for resale | | 3,814 |
| | 3,244 |
| | 570 |
| | 18 |
| | 3,117 |
| | 3,814 |
| | (697 | ) | | (18 | ) |
| Total | | 30,992 |
| | 31,276 |
| | (284 | ) | | (1 | ) | | 29,897 |
| | 30,992 |
| | (1,095 | ) | | (4 | ) |
| | | | | | | | | | | | | | | | |
| Entergy Wholesale Commodities: | | | | | | | | | | | | | | | | |
| Operating revenues | |
| $434 |
| |
| $419 |
| |
| $15 |
| | 4 |
| |
| $333 |
| |
| $434 |
| |
| ($101 | ) | | (23 | ) |
| Billed electric energy sales (GWh) | | 7,203 |
| | 6,996 |
| | 207 |
| | 3 |
| | 6,757 |
| | 7,203 |
| | (446 | ) | | (6 | ) |
ENTERGY CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. COMMITMENTS AND CONTINGENCIES (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)
Entergy and the Registrant Subsidiaries are involved in a number of legal, regulatory, and tax proceedings before various courts, regulatory commissions, and governmental agencies in the ordinary course of business. While management is unable to predict with certainty the outcome of such proceedings, management does not believe that the ultimate resolution of these matters will have a material adverse effect on Entergy’s results of operations, cash flows, or financial condition, except as otherwise discussed in the Form 10-K or in this report. Entergy discusses regulatory proceedings in Note 2 to the financial statements in the Form 10-K and herein and discusses tax proceedings in Note 3 to the financial statements in the Form 10-K and Note 10 to the financial statements herein.
Vidalia Purchased Power Agreement
See Note 8 to the financial statements in the Form 10-K for information on Entergy Louisiana’s Vidalia purchased power agreement.
ANO Damage, Outage, and NRC Reviews
See Note 8 to the financial statements in the Form 10-K for a discussion of the ANO stator incident, subsequent NRC reviews, and the deferral of replacement power costs.
Pilgrim NRC Oversight and Planned Shutdown
See Note 8 to the financial statements in the Form 10-K for a discussion of the NRC’s enhanced inspections of Pilgrim and Entergy’s planned shutdown of Pilgrim on May 31, 2019. In March 2019 the NRC moved Pilgrim from its “multiple/repetitive degraded cornerstone column,” or Column 4, of its Reactor Oversight Process Action Matrix to its “licensee response column,” or Column 1.
Spent Nuclear Fuel Litigation
See Note 8 to the financial statements in the Form 10-K for information on Entergy’s spent nuclear fuel litigation.
Nuclear Insurance
See Note 8 to the financial statements in the Form 10-K for information on nuclear liability and property insurance associated with Entergy’s nuclear power plants.
Non-Nuclear Property Insurance
See Note 8 to the financial statements in the Form 10-K for information on Entergy’s non-nuclear property insurance program.
Employment and Labor-related Proceedings
See Note 8 to the financial statements in the Form 10-K for information on Entergy’s employment and labor-related proceedings.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Asbestos Litigation(Entergy Arkansas, Entergy Louisiana, Entergy New Orleans, and Entergy Texas)
See Note 8 to the financial statements in the Form 10-K for information regarding asbestos litigation.
Grand Gulf-Related Agreements
See Note 8 to the financial statements in the Form 10-K for information regarding Grand Gulf-related agreements.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
NOTE 2. RATE AND REGULATORY MATTERS(Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)
Regulatory Assets and Regulatory Liabilities
See Note 2 to the financial statements in the Form 10-K for information regarding regulatory assets and regulatory liabilities in the Utility business presented on the balance sheets of Entergy and the Registrant Subsidiaries. The following are updates to that discussion.
Regulatory activity regarding the Tax Cuts and Jobs Act
System Energy
In a filing made with the FERC in March 2018, Entergy proposed revisions to the Unit Power Sales Agreement, among other agreements, to reflect the effects of the Tax Act. In the filing System Energy proposed to return all of its unprotected excess accumulated deferred income taxes to its customers by the end of 2018. In May 2018 the FERC accepted System Energy’s proposed tax revisions with an effective date of June 1, 2018, subject to refund and the outcome of settlement and hearing procedures. Settlement discussions were terminated in April 2019, and the hearing was held in March 2020. The retail regulators of the Utility operating companies that are parties to the Unit Power Sales Agreement are challenging the treatment and amount of excess tax liabilities associated with uncertain tax positions related to nuclear decommissioning. The initial decision is due in July 2020.
Fuel and purchased power cost recovery
Entergy Arkansas
Energy Cost Recovery Rider
In March 2019,2020, Entergy Arkansas filed its annual redetermination of its energy cost rate pursuant to the energy cost recovery rider, which reflected a decrease from $0.01882$0.01462 per kWh to $0.01462$0.01052 per kWh andkWh. The redetermined rate became effective with the first billing cycle in April 2019. In March 20192020 through the Arkansas Attorney General filed a response to Entergy Arkansas’s annual adjustment and included with its filing a motion for investigationnormal operation of alleged overcharges to customers in connection with the FERC’s October 2018 order in the opportunity sales proceeding. Entergy Arkansas filed its response to the Attorney General’s motion in April 2019 in which Entergy Arkansas stated its intent to initiate a proceeding to address recovery issues related to the October 2018 FERC order.tariff.
Entergy Louisiana
In July 2014March 2020 the LPSC authorized its staff to initiateprovided notice of an audit of Entergy Louisiana’s fuel adjustment clause filings. The audit includes a review of the reasonableness of charges flowed bythrough Entergy Louisiana through itsLouisiana’s fuel adjustment clause for the period from 20102016 through 2013. 2019. Discovery has not yet commenced.
Entergy Texas
In JanuarySeptember 2019, the LPSC staff consultant issuedEntergy Texas filed an application to reconcile its audit report. In its report, the LPSC staff consultant recommended that Entergy Louisiana refund approximately $7.3 million, plus interest, to customers based upon the imputation of a claim of vendor fault in servicing its nuclear plant. Entergy Louisiana recorded a provision in the first quarter 2019fuel and purchased power costs for the potential outcomeperiod from April 2016 through March 2019. During the reconciliation period, Entergy Texas incurred approximately $1.6 billion in Texas jurisdictional eligible fuel and purchased power expenses, net of certain revenues credited to such expenses and other adjustments. Entergy Texas estimated an under-recovery balance of approximately $25.8 million, including interest, which Entergy Texas requested authority to carry over as the audit.
Entergy Mississippi
Mississippi Attorney General Complaint
As discussed inbeginning balance for the Form 10-K, the Mississippi Attorney General filed a complaint in state court in December 2008 against Entergy Corporation, Entergy Mississippi, Entergy Services, and Entergy Power alleging, among other things, violations of Mississippi statutes, fraud, and breach of good faith and fair dealing, and requesting an accounting and restitution. The defendants have denied the allegations. In December 2008 the Attorney General’s lawsuit was removed to U.S. District Court in Jackson, Mississippi. Pre-trial and settlement conferences were held in October 2018. In October 2018 the District Court rescheduled the trial tosubsequent reconciliation period beginning April 2019. In March 2020 an intervenor filed testimony proposing that the PUCT disallow: (1) $2 million in replacement power costs associated with generation outages during the reconciliation period; and (2) $24.4 million associated with the operation of the Spindletop natural gas storage facility during the reconciliation period. In April 20192020, Entergy Texas filed rebuttal testimony refuting all points raised by the District Court remandedintervenor. A hearing on the Attorney General’s lawsuit to the Hinds County Chancery Court in Jackson, Mississippi.merits is currently set for May 2020.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
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 discussion.
Filings with the APSCLPSC (Entergy Arkansas)Louisiana)
Retail Rates - Electric
2018 Formula Rate Plan Filing
As discussedCommercial operation at Lake Charles Power Station commenced in the Form 10-K, theMarch 2020. In March 2020, Entergy Louisiana filed an update to its 2018 formula rate plan filing that will be made in July 2019evaluation report to setinclude the formula rates for the 2020 calendar year will include a netting adjustment that will compare projected costs and sales for 2018 that were approved in the 2017 formula rate plan filing to actual 2018 costs and sales data. In the fourth quarter 2018 Entergy Arkansas recorded a provisionestimated first-year revenue requirement of $35.1$108 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 comparedthe Lake Charles Power Station. The resulting interim adjustment to the allowed rate of return on equity. Inrates became effective with the first quarter 2019, Entergy Arkansas recorded an additional $10.5 million provision to reflect the current estimatebilling cycle of the historical year netting adjustment to be included in the 2019 filing. April 2020.
Filings with the MPSC (Entergy Mississippi)
Formula Rate Plan Filing
In March 2019,2020, Entergy Mississippi submitted its formula rate plan 20192020 test year filing and 20182019 look-back filing showing Entergy Mississippi’s earned return for the historical 20182019 calendar year to be abovebelow the formula rate plan bandwidth and projected earned return for the 20192020 calendar year to be below the formula rate plan bandwidth. The 20192020 test year filing shows a $36.8$24.6 million rate increase is necessary to reset Entergy Mississippi’s earned return on common equity to the specified point of adjustment of 6.94%6.51% return on rate base, within the formula rate plan bandwidth. The 20182019 look-back filing compares actual 20182019 results to the approved benchmark return on rate base and showsreflects the need for a $10.1$7.3 million interim decreaseincrease in formula rate plan revenues is necessary.revenues. In accordance with 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 underMPSC-approved revisions to the formula rate plan, performance-adjusted bandwidth mechanism. In the first quarter 2019, Entergy Mississippi recordedimplemented a $0.8$24.3 million interim rate increase, inreflecting a cap equal to 2% of 2019 retail revenues, effective with the provision to reflect the amount shown in the look-back filing. The filing is currentlyApril 2020 billing cycle, subject to refund, pending a final MPSC review.order. A final order is expected in the second quarter 2019,2020, with the resulting final rates, including amounts above the 2% cap of 2019 retail revenues, effective July 2020.
Filings with the City Council (Entergy New Orleans)
Energy Efficiency
As discussed in the Form 10-K, in December 2019, Entergy New Orleans filed an application with the City Council seeking approval of an implementation plan for the first billing cycleEnergy Smart energy efficiency program from April 2020 through December 2022. Entergy New Orleans proposed to recover the costs of July 2019.the program through mechanisms previously approved by the City Council or through the energy efficiency cost recovery rider, which was approved in the 2018 combined rate case resolution. In February 2020 the City Council approved Entergy New Orleans’s application.
2018 Base Rate Case Filing
See the Form 10-K for discussion of the electric and gas base rate case filed in September 2018. In response to the City Council’s November 2019 resolution in the rate case, Entergy New Orleans made a compliance filing in December 2019 and also filed timely a petition for appeal and judicial review and for stay of or injunctive relief alleging that the resolution is unlawful in failing to produce just and reasonable rates. A hearing on the requested injunction was scheduled in Civil District Court for February 2020, but by joint motion of the City Council and Entergy New Orleans, the Civil District Court issued an order for a limited remand to the City Council to consider a potential agreement in principle/stipulation at its February 20, 2020 meeting. On February 17, 2020, Entergy New Orleans filed
Entergy Corporation and Subsidiaries
Notes to Financial Statements
with the City Council an agreement in principle between Entergy New Orleans and the City Council’s advisors. On February 20, 2020, the City Council voted to approve the proposed agreement in principle and issued a resolution modifying the required treatment of certain accumulated deferred income taxes. As a result of the agreement in principle, the total annual revenue requirement reduction will be approximately $45 million ($42 million electric, including $29 million in rider reductions; and $3 million gas). As a result, Entergy New Orleans fully implemented the new rates in April 2020. The merits of the appeal will be subject to a separate procedural schedule issued by the Civil District Court.
2020 Formula Rate Plan Filing
In April 2020, Entergy New Orleans filed a motion with the City Council to delay its formula rate plan filing until June 2020. In May 2020 the City Council issued an order extending the filing deadline for Entergy New Orleans’s formula rate plan filing to June 29, 2020.
Filings with the PUCT (Entergy Texas)
Base Rate CaseDistribution Cost Recovery Factor (DCRF) Rider
In January 2019, Entergy Texas filed for recovery of rate case expenses totaling $7.2 million. The amounts requested primarily include internal and external expenses related to litigating the 2018 base rate case. Parties filed testimony in April 2019 recommending a disallowance ranging from $3.2 million to $4.2 million of the $7.2 million requested. Entergy Texas is evaluating its response to the parties’ positions. A hearing is scheduled for June 2019.
Other Filings
In March 2019,2020, Entergy Texas filed with the PUCT a request to set a new distribution cost recovery factor (DCRF)amend its DCRF rider. The proposed new DCRF rider is designed to collect approximately $3.2$23.6 million annually, or $20.4 million in incremental annual DCRF revenue beyond Entergy Texas’s currently effective DCRF rider from Entergy Texas’s retail customers based on its capital invested in distribution between January 1, 20182019 and December 31, 2018. A procedural schedule has been established, with a hearing2019.
Transmission Cost Recovery Factor (TCRF) Rider
As discussed in June 2019.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
In December 2018,the Form 10-K, in August 2019, Entergy Texas filed with the PUCT a request to set a new transmission cost recovery factor (TCRF)amend its TCRF rider. The proposed new TCRF rider is designed to collect approximately $2.7$19.4 million annually from Entergy Texas’s retail customers based on its capital invested in transmission between January 1, 2018 and SeptemberJune 30, 2019. In January 2020 the PUCT issued an order approving an unopposed settlement providing for recovery of the requested revenue requirement. Entergy Texas implemented the amended rider beginning with bills covering usage on and after January 23, 2020.
System Agreement Cost Equalization Proceedings
Rough Production Cost Equalization Rates
Consolidated 2011, 2012, 2013, and 2014 Rate Filing Proceedings
As discussed in the Form 10-K, in April 2018 the LPSC requested rehearing of the FERC’s March 2018 order affirming the ALJ’s initial decision in the consolidated proceedings. Entergy filed in May 2018 the bandwidth true-up payments and receipts for the 2011-2014 rate filings and the payments were made in May 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 ruled2020 the FERC issued an order partially granting the LPSC’s rehearing request. In the order the FERC reversed its prior finding and determined that load growth adjustmentsthe tax gain portion of the Waterford 3 financing accumulated deferred income tax should not be included in a TCRF.the bandwidth calculation. The order requires Entergy Texas filed a motionServices to redetermine bandwidth true-up payments and receipts for interim rates to be effective April 2019. In April 2019 the hearing on Entergy Texas’s motion and the hearing on the merits were held, and the ALJ suspended the date on which the TCRF would be put into permanent effect until July 2019, unless an earlier decision is issued by the PUCT. This matter is currently awaiting the ALJ’s proposal for decision.2010-2012 test years.
Entergy Arkansas Opportunity Sales Proceeding
As discussed in the Form 10-K, in December 2018, Entergy made a compliance filing in responsethe FERC’s opportunity sales orders have been appealed to the FERC’s October 2018 orderD.C. Circuit by Entergy, the LPSC, and the APSC. In February 2020 all of the appeals were consolidated and in April 2020 the D.C. Circuit established a briefing schedule. Briefing will occur in May 2020 through September 2020.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Also as discussed in the Form 10-K, in May 2019, Entergy Arkansas filed an application with the APSC requesting approval of a special rider tariff to recover the costs of its opportunity sales payments from its retail customers over a 24-month period. In January 2020 the Attorney General and Arkansas Electric Energy Consumers, Inc. filed testimony opposing the recovery by Entergy Arkansas of the opportunity sales proceeding. The compliance filing providedpayment but also claiming that certain components of the payment should be segregated and refunded to customers. In March 2020, Entergy Arkansas filed rebuttal testimony. Also in March 2020, Entergy Arkansas, the APSC staff, and the Arkansas Electric Energy Consumers, Inc. filed a joint motion asking the APSC to issue a final calculation of Entergy Arkansas’s payments todecision based on the other Utility operating companies, including interest. No protests were filed in response to the December 2018 compliance filing. The December 2018 compliance filing is pending FERC action.
In February 2019 the LPSC filed a new complaint relating to two issues that were raisedrecord in the opportunity sales proceeding but that,and cancel the April 2020 evidentiary hearing. The Arkansas Attorney General did not oppose the request, which was granted by the APSC in its October 2018 order, the FERC held were outside the scope of the proceeding. In March 2019, Entergy Services filed an answer and motion to dismiss the new complaint.2020. A final decision is expected in July 2020.
Complaints Against System Energy
Return on Equity and Capital Structure Complaints
SeeAs discussed in the Form 10-K, forin November 2019, in a discussion of the return on equity complaints filed by the APSC and the MPSC and by the LPSC against System Energy. The LPSC’s complaint also includes a challenge to System Energy’s capital structure. In August 2018proceeding that did not involve Entergy, the FERC issued an order dismissingaddressing the LPSC’s request to investigate System Energy’s capital structure and settingmethodology for hearingdetermining the return on equity complaint, with a refund effective date of April 2018. The portion ofapplicable to transmission owners in MISO. Thereafter, the LPSC’s complaint dealing with return on equity was subsequently consolidated withparticipants in the System Energy proceeding agreed to amend the procedural schedule to allow the participants to file supplemental testimony addressing the order in the MISO transmission owner proceeding (Opinion No. 569).
In February 2020 the LPSC, the MPSC and APSC, and MPSC complaint for hearing. The consolidated hearing has been scheduled for September 2019, and the parties are required to address an order (issued in a separate proceeding involving New England transmission owners) that proposed modifying the FERC’s standard methodology for determining return on equity. In September 2018, System Energy filed a request for rehearing and the LPSC filed a request for rehearing or reconsideration of the FERC’s August 2018 order. The LPSC’s request referenced an amended complaint that it filed on the same day raising the same capital structure claim the FERC had earlier dismissed. The FERC initiated a new proceeding for the amended capital structure complaint,trial staff filed supplemental testimony addressing Opinion No. 569 and System Energy submitted a response in October 2018. In January 2019 the FERC set the amended capital structure complaint for settlement and hearing proceedings. Settlement procedures in the capital structure proceeding commenced in February 2019.
In January 2019 the LPSC and the APSC and MPSC filed direct testimony inhow it would affect the return on equity proceeding.evaluation for the two complaint periods concerning System Energy. For the first refund period, January 23, 2017 through April 23, 2018,based on their respective interpretations and applications of the Opinion No. 569 methodology, the LPSC argues for an authorized return on equity for System Energy of 7.81%8.44%; the MPSC and the APSC and MPSC argue for an authorized return on equity of 8.41%; and the FERC trial staff argues for System Energyan authorized return on equity of 8.24%9.22%. For the second refund period April 27, 2018 through July 27, 2019, and for application on a prospective basis, based on their respective interpretations and applications of the Opinion No. 569 methodology, the LPSC argues for an authorized return on equity for System Energy of 7.97%7.89%; the MPSC and APSC argue that an authorized return on equity of 8.01% may be appropriate; and the APSC and MPSC argueFERC trial staff argues for an authorized return on equity forof 8.66%.
In April 2020, System Energy of 8.41%. In March 2019,filed supplemental answering testimony addressing Opinion No. 569. System Energy submitted answering testimony inargues that the Opinion No. 569 methodology is conceptually and analytically defective for purposes of establishing just and reasonable authorized return on equity determinations and proposes an alternative approach. As its primary recommendation, System Energy continues to support the return on equity proceeding. Fordeterminations in its March 2019 testimony for the first refund period System Energy’sand its June 2019 testimony argues for a return on equity of 10.10% (median) or 10.70% (midpoint). For the second refund period,period. Under the Opinion No. 569 methodology, System Energy’s testimony shows thatEnergy calculates a “presumptively just and reasonable range” for the calculated returnsauthorized return on equity for the first refund period fallof 8.57% to 9.52%, and for the second refund period of 8.28% to 9.11%. System Energy argues that these ranges are not just and reasonable results. Under its proposed alternative methodology, System Energy calculates an authorized return on equity of 10.26% for the first refund period, which also falls 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 equityrange calculated for the second refund period (and going forward),and prospectively.
The schedule was further revised in March 2020, and rebuttal testimony addressing Opinion No. 569 is due in June 2020; the hearing in the System Energy arguesproceeding will commence in August 2020; and the return on equity shouldinitial decision will be either 10.32% (median) or 10.69% (midpoint).due in December 2020.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Grand Gulf Sale-leaseback Renewal Complaint
As discussed in the Form 10-K, in May 2018 the LPSC filed a complaint against System Energy and Entergy Services related to System Energy’s renewal of a sale-leaseback transaction originally entered into in December 1988 for an 11.5% undivided interest in Grand Gulf Unit 1.
In February 2019 the presiding ALJ ruled that the hearing ordered by the FERC includes the issue of whether specific subcategories of accumulated deferred income tax should be included in, or excluded from, System Energy’s formula rate. In March 2019 the LPSC, MPSC, APSC, and City
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Council filed direct testimony. The LPSC testimony seekssought 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
In June 2019 System Energy filed answering testimony arguing that the FERC should reject all claims for refunds. Among other things, System Energy argued that claims for refunds of the City Councilcosts of lease renewal payments and capital additions should be rejected because those costs were recovered consistent with the Unit Power Sales Agreement formula rate, System Energy was not over or double recovering any costs, and customers will save costs over the initial and renewal terms of the leases. System Energy argued that claims for refunds associated with liabilities arising from uncertain tax positions should be rejected because the liabilities do not provide cost-free capital, the repayment timing of the liabilities is uncertain, and the APSC and MPSC address various issues raisedoutcome of the underlying tax positions is uncertain. System Energy’s testimony also challenged the refund calculations supplied by the LPSC.other parties.
In August 2019 the FERC trial staff filed direct and answering testimony seeking refunds for rate base reductions for the liabilities associated with uncertain tax positions. The FERC trial staff also argued that System Energy disputesrecovered $32 million more than it should have in depreciation expense for capital additions. In September 2019, System Energy filed cross-answering testimony disputing the FERC trial staff’s arguments for refunds, stating that the FERC trial staff’s position regarding depreciation rates for capital additions is not unreasonable, but explaining that any refunds are owed for billingschange in depreciation expense is only one element of a Unit Power Sales Agreement re-billing calculation. Adjustments to depreciation expense in any re-billing under the Unit Power Sales Agreement. Agreement formula rate will also involve changes to accumulated depreciation, accumulated deferred income taxes, and other formula elements as needed. In October 2019 the LPSC filed rebuttal testimony increasing the amount of refunds sought for the liabilities associated with uncertain tax positions. The LPSC now seeks approximately $512 million, plus interest, which is approximately $170 million through March 31, 2020. The FERC trial staff also filed rebuttal testimony in which it seeks refunds of a similar amount as the LPSC for the liabilities associated with uncertain tax positions. The LPSC testimony also argued that adjustments to depreciation rates should affect rate base on a prospective basis only.
A hearing haswas held before a FERC ALJ in November 2019. In April 2020 the ALJ issued the initial decision. Among other things, the ALJ determined that refunds were due on three main issues. First, with regard to the lease renewal payments, the ALJ determined that System Energy is recovering an unjust acquisition premium through the lease renewal payments, and that System Energy’s recovery from customers through rates should be limited to the cost of service based on the remaining net book value of the leased assets, which is approximately $70 million. The ALJ found that the remedy for this issue should be the refund of lease payments (approximately $17.2 million per year since July 2015) with interest determined at the FERC quarterly interest rate, which would be offset by the addition of the net book value of the leased assets in the cost of service. The ALJ did not calculate a value for the refund expected as a result of this remedy. In addition, System Energy would no longer recover the lease payments in rates prospectively. Second, with regard to the liabilities associated with uncertain tax positions, the ALJ determined that the liabilities are accumulated deferred income taxes and System Energy’s rate base should have been reduced for those liabilities. If the ALJ’s initial decision is upheld, the estimated refund for this issue through March 31, 2020, is approximately $397 million, plus interest, which is approximately $96 million through March 31, 2020. The ALJ also found that System Energy should include liabilities associated with uncertain tax positions as a rate base reduction going forward. Third, with regard to the depreciation expense adjustments, the ALJ found that System Energy should correct for the error in re-billings retroactively and prospectively, but that System Energy should not be permitted to recover interest on any retroactive return on enhanced rate base resulting from such corrections. If the initial decision is affirmed on this issue, System Energy estimates refunds of approximately $18 million, which includes interest through March 31, 2020.
The ALJ initial decision is an interim step in the FERC litigation process, and an ALJ’s determinations made in an initial decision are not controlling on the FERC. System Energy plans to file briefs on exceptions to the FERC, re-urging its positions and requesting the reversal of many of the findings in the ALJ’s initial decision, including the lease renewal and uncertain tax position issues. The ALJ in the initial decision acknowledges that these are issues of first impression before the FERC. Briefs on exceptions from all parties are scheduled for November 2019.June 2020, and briefs opposing
Entergy Corporation and Subsidiaries
Notes to Financial Statements
exceptions are scheduled for September 2020. The FERC will then review the case and issue an order on the proceeding, and the FERC may accept, reject, or modify the ALJ’s initial decision in whole or in part. Refunds, if any, that might be required will only become due after the FERC issues its order reviewing the initial decision.
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 March 31, |
| | 2019 | | 2018 | 2020 | | 2019 |
| | (In Millions, Except Per Share Data) | (In Millions, Except Per Share Data) |
| | Income | | Shares | | $/share | | Income | | Shares | | $/share | Income | | Shares | | $/share | | Income | | Shares | | $/share |
| Basic earnings per share | | | | | | | | | | | | | | | | | | | | | | |
| Net income attributable to Entergy Corporation |
| $254.5 |
| | 189.6 |
| |
| $1.34 |
| |
| $132.8 |
| | 180.7 |
| |
| $0.73 |
|
| $118.7 |
| | 199.8 |
| |
| $0.59 |
| |
| $254.5 |
| | 189.6 |
| |
| $1.34 |
|
| Average dilutive effect of: | | | | | | | | | | | | | | | | | | | | | | |
| Stock options | | | 0.4 |
| | — |
| | | | 0.2 |
| | — |
| | | 0.7 |
| | — |
| | | | 0.4 |
| | — |
|
| Other equity plans | | | 0.5 |
| | (0.01 | ) | | | | 0.5 |
| | — |
| | | 0.4 |
| | — |
| | | | 0.5 |
| | (0.01 | ) |
| Equity forwards | | | 1.7 |
| | (0.01 | ) | | | | — |
| | — |
| | | — |
| | — |
| | | | 1.7 |
| | (0.01 | ) |
| Diluted earnings per share |
| $254.5 |
| | 192.2 |
| |
| $1.32 |
| |
| $132.8 |
| | 181.4 |
| |
| $0.73 |
|
| $118.7 |
| | 200.9 |
| |
| $0.59 |
| |
| $254.5 |
| | 192.2 |
| |
| $1.32 |
|
The number of stock options not included in the calculation of diluted common shares outstanding due to their antidilutive effect was approximately 0.5 million for the three months ended March 31, 2020 and approximately 0.7 million for the three months ended March 31, 2019 and approximately 4 million for the three months ended March 31, 2018.2019.
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 $0.93 for the three months ended March 31, 2020 and $0.91 for the three months ended March 31, 2019 and $0.89 for the three months ended March 31, 2018.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Equity Forward Sale Agreements
As discussed in Note 7 to the financial statements in the Form 10-K, in June 2018, Entergy marketed an equity offering of 15.3 million shares of common stock. In lieu of issuing equity at the time of the offering, Entergy entered into forward sale agreements with various investment banks. In December 2018, Entergy physically settled a portion of its obligations under the forward sale agreements by delivering 6,834,221 shares of common stock in exchange for cash proceeds of approximately $500 million. Entergy is required to settle its remaining obligations under the forward sale agreements with respect to the remaining 8,448,171 shares of common stock on a settlement date or dates on or prior to June 7, 2019.
Until settlement of the remaining equity forwards, earnings per share dilution resulting from the agreements, if any, will be determined under the treasury stock method. Share dilution occurs when the average market price of Entergy’s common stock is higher than the average forward sales price. If Entergy had elected to net share settle the forward sale agreements as of March 31, 2019, Entergy would have been required to deliver 2.0 million shares.
Treasury Stock
During the three months ended March 31, 2019,2020, Entergy Corporation issued 860,0931,011,970 shares of its previously repurchased common stock to satisfy stock option exercises, vesting of shares of restricted stock, and other stock-based awards. Entergy Corporation did not repurchase any of its common stock during the three months ended March 31, 2019.2020.
Retained Earnings
On April 3, 2019,8, 2020, Entergy Corporation’s Board of Directors declared a common stock dividend of $0.91$0.93 per share, payable on June 3, 2019,1, 2020, to holders of record as of May 9, 2019.7, 2020.
Entergy implemented ASU No. 2017-12 “DerivativesCorporation and Hedging (Topic 815): Targeted ImprovementsSubsidiaries
Notes to Accounting for Hedging Activities” effective January 1, 2019. The ASU makes a number of amendments to hedge accounting, most significantly changing the recognition and presentation of highly effective hedges. Entergy implemented this standard using a modified retrospective method, and recorded an adjustment increasing retained earnings and increasing accumulated other comprehensive loss by approximately $8 million as of January 1, 2019 for the cumulative effect of the ineffectiveness portion of designated hedges on nuclear power sales.Financial Statements
Entergy implemented ASU 2017-08 “Receivables (Topic 310): Nonrefundable Fees and Other Costs” effective January 1, 2019. The ASU amends the amortization period for certain purchased callable debt securities held at a premium to the earliest call date. Entergy implemented this standard using the modified retrospective approach, and recorded an adjustment decreasing retained earnings and decreasing accumulated other comprehensive loss by approximately $1 million as of January 1, 2019 for the cumulative effect of the amended amortization period.
Comprehensive Income
Accumulated other comprehensive income (loss) is included in the equity section of the balance sheets of Entergy and Entergy Louisiana. The following table presents changes in accumulated other comprehensive income (loss) for Entergy for the three months ended March 31, 20192020 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) |
| | (In Thousands) |
| Ending balance, December 31, 2018 |
| ($23,135 | ) | |
| ($531,922 | ) | |
| ($2,116 | ) | |
| ($557,173 | ) |
| Implementation of accounting standards | (7,685 | ) | | — |
| | 879 |
| | (6,806 | ) |
| Beginning balance, January 1, 2019 |
| ($30,820 | ) | |
| ($531,922 | ) | |
| ($1,237 | ) | |
| ($563,979 | ) |
| | | | | | | | |
| Other comprehensive income (loss) before reclassifications | 28,312 |
| | — |
| | 13,539 |
| | 41,851 |
|
| Amounts reclassified from accumulated other comprehensive income (loss) | (40,738 | ) | | 11,550 |
| | 164 |
| | (29,024 | ) |
| Net other comprehensive income (loss) for the period | (12,426 | ) | | 11,550 |
| | 13,703 |
| | 12,827 |
|
| Ending balance, March 31, 2019 |
| ($43,246 | ) | |
| ($520,372 | ) | |
| $12,466 |
| |
| ($551,152 | ) |
|
| | | | | | | | | | | | | | | |
| | 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, December 31, 2019 |
| $84,206 |
| |
| ($557,072 | ) | |
| $25,946 |
| |
| ($446,920 | ) |
| | | | | | | | |
| Other comprehensive income (loss) before reclassifications | 52,846 |
| | 34,349 |
| | 17,713 |
| | 104,908 |
|
| Amounts reclassified from accumulated other comprehensive income (loss) | (74,556 | ) | | 19,550 |
| | (1,969 | ) | | (56,975 | ) |
| Net other comprehensive income (loss) for the period | (21,710 | ) | | 53,899 |
| | 15,744 |
| | 47,933 |
|
| | | | | | | | |
| Ending balance, March 31, 2020 |
| $62,496 |
| |
| ($503,173 | ) | |
| $41,690 |
| |
| ($398,987 | ) |
The following table presents changes in accumulated other comprehensive income (loss) for Entergy for the three months ended March 31, 20182019 by component:
| | | | Cash flow hedges net unrealized gain (loss) | | Pension and other postretirement liabilities | | Net unrealized investment gain (loss) | | Total Accumulated Other Comprehensive Income (Loss) | 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) |
| | | | | | | | | |
| Ending balance, December 31, 2017 |
| ($37,477 | ) | |
| ($531,099 | ) | |
| $545,045 |
| |
| ($23,531 | ) | |
| Ending balance, December 31, 2018 | |
| ($23,135 | ) | |
| ($531,922 | ) | |
| ($2,116 | ) | |
| ($557,173 | ) |
| Implementation of accounting standards | — |
| | — |
| | (632,617 | ) | | (632,617 | ) | (7,685 | ) | | — |
| | 879 |
| | (6,806 | ) |
| Beginning balance, January 1, 2018 |
| ($37,477 | ) | |
| ($531,099 | ) | |
| ($87,572 | ) | |
| ($656,148 | ) | |
| Beginning balance, January 1, 2019 | |
| ($30,820 | ) | |
| ($531,922 | ) | |
| ($1,237 | ) | |
| ($563,979 | ) |
| | | | | | | | | | | | | | | |
| Other comprehensive income (loss) before reclassifications | 71,566 |
| | — |
| | 838 |
| | 72,404 |
| 28,312 |
| | — |
| | 13,539 |
| | 41,851 |
|
| Amounts reclassified from accumulated other comprehensive income (loss) | 23,861 |
| | 16,574 |
| | (33,694 | ) | | 6,741 |
| (40,738 | ) | | 11,550 |
| | 164 |
| | (29,024 | ) |
| Net other comprehensive income (loss) for the period | 95,427 |
| | 16,574 |
| | (32,856 | ) | | 79,145 |
| (12,426 | ) | | 11,550 |
| | 13,703 |
| | 12,827 |
|
| | | | | | | | | | | | | | | |
| 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 | ) | |
| Ending balance, March 31, 2019 | |
| ($43,246 | ) | |
| ($520,372 | ) | |
| $12,466 |
| |
| ($551,152 | ) |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The following table presents changes in accumulated other comprehensive income (loss) for Entergy Louisiana for the three months ended March 31, 20192020 and 2018:2019:
|
| | | | | | | | |
| | | Pension and Other
Postretirement Liabilities |
| | | 2020 | | 2019 |
| | | (In Thousands) |
| Beginning balance, January 1, | |
| $4,562 |
| |
| ($6,153 | ) |
| | | | | |
| Other comprehensive income (loss) before reclassifications | | 10,050 |
| | — |
|
Amounts reclassified from accumulated other
comprehensive income (loss) | | (583 | ) | | (969 | ) |
| Net other comprehensive income (loss) for the period | | 9,467 |
| | (969 | ) |
| | | | | |
| Ending balance, March 31, | |
| $14,029 |
| |
| ($7,122 | ) |
|
| | | | | | | | |
| | | Pension and Other
Postretirement Liabilities |
| | | 2019 | | 2018 |
| | | (In Thousands) |
| Beginning balance, January 1, | |
| ($6,153 | ) | |
| ($46,400 | ) |
Amounts reclassified from accumulated other
comprehensive income (loss) | | (969 | ) | | (501 | ) |
| Net other comprehensive income (loss) for the period | | (969 | ) | | (501 | ) |
| | | | | |
| Reclassification pursuant to ASU 2018-02 | | — |
| | (10,049 | ) |
| | | | | |
| Ending balance, March 31, | |
| ($7,122 | ) | |
| ($56,950 | ) |
Total reclassifications out of accumulated other comprehensive income (loss) (AOCI) into income for Entergy for the three months ended March 31, 2020 and 2019 and 2018 arewere as follows:
| | | | Amounts reclassified from AOCI | | Income Statement Location | Amounts reclassified from AOCI | | Income Statement Location |
| | 2019 | | 2018 | | 2020 | | 2019 | |
| | (In Thousands) | | (In Thousands) | |
| Cash flow hedges net unrealized gain (loss) | | | | | | | | |
| Power contracts |
| $51,615 |
| |
| ($30,082 | ) | | Competitive business operating revenues |
| $94,423 |
| |
| $51,615 |
| | Competitive business operating revenues |
| Interest rate swaps | (48 | ) | | (122 | ) | | Miscellaneous - net | (48 | ) | | (48 | ) | | Miscellaneous - net |
| Total realized gain (loss) on cash flow hedges | 51,567 |
| | (30,204 | ) | | 94,375 |
| | 51,567 |
| |
| | (10,829 | ) | | 6,343 |
| | Income taxes | |
| Income taxes | | (19,819 | ) | | (10,829 | ) | | Income taxes |
| Total realized gain (loss) on cash flow hedges (net of tax) |
| $40,738 |
| |
| ($23,861 | ) | |
| $74,556 |
| |
| $40,738 |
| |
| | | | | | | | | |
| Pension and other postretirement liabilities | | | | | | | | |
| Amortization of prior-service credit |
| $5,326 |
| |
| $5,426 |
| | (a) |
| $3,719 |
| |
| $5,326 |
| | (a) |
| Amortization of loss | (18,988 | ) | | (24,952 | ) | | (a) | (27,318 | ) | | (18,988 | ) | | (a) |
| Settlement loss | (1,137 | ) | | (1,616 | ) | | (a) | — |
| | (1,137 | ) | | (a) |
| Total amortization | (14,799 | ) | | (21,142 | ) | | (23,599 | ) | | (14,799 | ) | |
| | 3,249 |
| | 4,568 |
| | Income taxes | |
| Income taxes | | 4,049 |
| | 3,249 |
| | Income taxes |
| Total amortization (net of tax) |
| ($11,550 | ) | |
| ($16,574 | ) | |
| ($19,550 | ) | |
| ($11,550 | ) | |
| | | | | | | | | |
| Net unrealized investment gain (loss) | | | | | | | | |
| Realized gain (loss) |
| ($259 | ) | |
| $53,314 |
| | Interest and investment income |
| $3,116 |
| |
| ($259 | ) | | Interest and investment income |
| | 95 |
| | (19,620 | ) | | Income taxes | |
| Income taxes | | (1,147 | ) | | 95 |
| | Income taxes |
| Total realized investment gain (loss) (net of tax) |
| ($164 | ) | |
| $33,694 |
| |
| $1,969 |
| |
| ($164 | ) | |
| | | | | | | | | |
| Total reclassifications for the period (net of tax) |
| $29,024 |
| |
| ($6,741 | ) | |
| $56,975 |
| |
| $29,024 |
| |
| |
| (a) | These accumulated other comprehensive income (loss) components arewere included in the computation of net periodic pension and other postretirement cost. See Note 6 to the financial statements herein for additional details. |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Total reclassifications out of accumulated other comprehensive income (loss) (AOCI) into income for Entergy Louisiana for the three months ended March 31, 2020 and 2019 and 2018 arewere as follows:
|
| | | | | | | | | | |
| | | Amounts reclassified
from AOCI | | Income Statement Location |
| | | 2020 | | 2019 | | |
| | | (In Thousands) | | |
| Pension and other postretirement liabilities | | | | | | |
| Amortization of prior-service credit | |
| $1,089 |
| |
| $1,838 |
| | (a) |
| Amortization of loss | | (301 | ) | | (527 | ) | | (a) |
| Total amortization | | 788 |
| | 1,311 |
| | |
| Income taxes | | (205 | ) | | (342 | ) | | Income taxes |
| Total amortization (net of tax) | | 583 |
| | 969 |
| | |
| | | | | | | |
| Total reclassifications for the period (net of tax) | |
| $583 |
| |
| $969 |
| | |
|
| | | | | | | | | | |
| | | Amounts reclassified
from AOCI | | Income Statement Location |
| | | 2019 | | 2018 | | |
| | | (In Thousands) | | |
| Pension and other postretirement liabilities | | | | | | |
| Amortization of prior-service credit | |
| $1,838 |
| |
| $1,934 |
| | (a) |
| Amortization of loss | | (527 | ) | | (1,257 | ) | | (a) |
| Total amortization | | 1,311 |
| | 677 |
| | |
| | | (342 | ) | | (176 | ) | | Income taxes |
| Total amortization (net of tax) | | 969 |
| | 501 |
| | |
| | | | | | | |
| Total reclassifications for the period (net of tax) | |
| $969 |
| |
| $501 |
| | |
| |
| (a) | These accumulated other comprehensive income (loss) components arewere 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 2023.2024. 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 three months ended March 31, 20192020 was 4.03%2.99% 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, 2019.2020.
|
| | | | | | |
| Capacity | | Borrowings | | Letters of Credit | | Capacity Available |
| (In Millions) |
| $3,500 | | $922 | | $6 | | $2,572 |
|
| | | | | | |
| Capacity | | Borrowings | | Letters of Credit | | Capacity Available |
| (In Millions) |
| $3,500 | | $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 companiesRegistrant Subsidiaries (except Entergy New Orleans) defaults on other indebtedness or is in bankruptcy or insolvency proceedings, an acceleration of the facility maturity date may occur.
Entergy Corporation has a commercial paper program with a Board-approved program limit of up to $2 billion. At March 31, 2019,2020, Entergy Corporation had approximately $1,942 million of commercial paper outstanding. The weighted-average interest rate for the three months ended March 31, 20192020 was 3.03%2.02%.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and Entergy Texas each had credit facilities available as of March 31, 20192020 as follows:
|
| | | | | | | | | | |
| Company | | Expiration Date | | Amount of Facility | | Interest Rate (a) | | Amount Drawn as of March 31, 20192020 | | Letters of Credit Outstanding as of March 31, 20192020 |
| Entergy Arkansas | | April 20202021 | | $20 million (b) | | 3.75%2.11% | | $— | | $— |
| Entergy Arkansas | | September 20232024 | | $150 million (c) | | 3.75%2.11% | | $— | | $— |
| Entergy Louisiana | | September 20232024 | | $350 million (c) | | 3.75%2.11% | | $— | | $— |
| Entergy Mississippi | | May 2019April 2021 | | $37.5 million (d) | | 4.00%2.49% | | $— | | $— |
| Entergy Mississippi | | May 2019April 2021 | | $35 million (d) | | 4.00%2.49% | | $— | | $— |
| Entergy Mississippi | | May 2019April 2021 | | $10 million (d) | | 4.00%2.49% | | $— | | $— |
| Entergy New Orleans | | November 2021 | | $25 million (c) | | 3.77%2.26% | | $— | | $0.8 million |
| Entergy Texas | | September 20232024 | | $150 million (c) | | 4.00%2.49% | | $— | | $1.3 million |
| |
| (a) | The interest rate is the estimated interest rate as of March 31, 20192020 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 0.225% of the undrawn commitment amount. Each of the credit facilities requires the Registrant Subsidiary borrower to maintain a debt ratio, as defined, of 65% or less of its total capitalization. Each Registrant Subsidiary is in compliance with this covenant.
In addition, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and Entergy Texas each entered into one or more uncommitted standby letter of credit facilities as a means to post collateral to support its obligations to MISO. Following is a summary of the uncommitted standby letter of credit facilities as of March 31, 2019:2020:
|
| | | | | | |
| Company | | Amount of Uncommitted Facility | | Letter of Credit Fee | | Letters of Credit Issued as of March 31, 20192020 (a) |
| Entergy Arkansas | | $25 million | | 0.70% | | $1 million |
| Entergy Louisiana | | $125 million | | 0.70% | | $4325.6 million |
| Entergy Mississippi | | $4064 million | | 0.70% | | $12.11.8 million |
| Entergy New Orleans | | $15 million | | 1.00% | | $1 million |
| Entergy Texas | | $50 million | | 0.70% | | $11.710.4 million |
| |
| (a) | As of March 31, 2019,2020, letters of credit posted with MISO covered financial transmission rights exposure of $0.4$0.2 million for Entergy Mississippi, and $1.5 million for Entergy Texas.Mississippi. 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, 2019.2021. The current FERC-
Entergy Corporation and Subsidiaries
Notes to Financial Statements
authorizedFERC-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
Entergy Corporation and Subsidiaries
Notes to Financial Statements
also borrow from the Entergy System money pool and from other internal short-term borrowing arrangements. The money pool and the other internal borrowing arrangements are inter-company borrowing arrangements designed to reduce the Utility subsidiaries’ dependence on external short-term borrowings. Borrowings from internal and external short termshort-term borrowings combined may not exceed the FERC-authorized limits. The following arewere the FERC-authorized limits for short-term borrowings and the outstanding short-term borrowings as of March 31, 20192020 (aggregating both internal and external short-term borrowings) for the Registrant Subsidiaries:
|
| | | |
| | Authorized | | Borrowings |
| | (In Millions) |
| Entergy Arkansas | $250 | | $— |
| Entergy Louisiana | $450 | | $— |
| Entergy Mississippi | $175 | | $19 |
| Entergy New Orleans | $150 | | $— |
| Entergy Texas | $200 | | $— |
| System Energy | $200 | | $— |
|
| | | |
| | Authorized | | Borrowings |
| | (In Millions) |
| Entergy Arkansas | $250 | | $— |
| Entergy Louisiana | $450 | | $— |
| Entergy Mississippi | $175 | | $11 |
| Entergy New Orleans | $150 | | $2 |
| Entergy Texas | $200 | | $— |
| System Energy | $200 | | $— |
Vermont Yankee Asset Retirement Management, LLC Credit Facility
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. The commitment fee is currently 0.20% of the undrawn commitment amount. As of March 31, 2019, $139 million in cash borrowings were outstanding under the credit facility. The weighted average interest rate for the three months ended March 31, 2019 was 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 have commercial paper programs in place. Following is a summary as of March 31, 2019 as follows:2020:
|
| | | | | | | | |
| Company | | Expiration Date | | Amount of Facility | | Weighted Average Interest Rate on Borrowings (a) | | Amount Outstanding as of March 31, 2020 |
| | |
| | (Dollars in Millions) |
| Entergy Arkansas VIE | | September 2021 | | $80 | | 2.59% | | $43.8 |
| Entergy Louisiana River Bend VIE | | September 2021 | | $105 | | 2.69% | | $58.4 |
| Entergy Louisiana Waterford VIE | | September 2021 | | $105 | | 2.69% | | $33.3 |
| System Energy VIE | | September 2021 | | $120 | | 2.59% | | $88.3 |
|
| | | | | | | | |
| Company | | Expiration Date | | Amount of Facility | | Weighted Average Interest Rate on Borrowings (a) | | Amount Outstanding as of March 31, 2019 |
| | |
| | (Dollars in Millions) |
| Entergy Arkansas VIE | | September 2021 | | $80 | | 3.50% | | $42.6 |
| Entergy Louisiana River Bend VIE | | September 2021 | | $105 | | 3.46% | | $95.4 |
| Entergy Louisiana Waterford VIE | | September 2021 | | $105 | | 3.48% | | $79.5 |
| System Energy VIE | | 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.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The nuclear fuel company variable interest entities had notes payable that arewere included in debt on the respective balance sheets as of March 31, 20192020 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 | | 3.42% Series J due April 2021 | | $100 million |
In accordance with regulatory treatment, interest on the nuclear fuel company variable interest entities’ credit facilities, commercial paper, and long-term notes payable is reported in fuel expense.
Debt Issuances and Retirements
(Entergy Arkansas)
In March 2019,2020, Entergy Arkansas issued $350$100 million of 4.20%4.00% Series first mortgage bonds due April 2049.June 2028. Entergy Arkansas expects to useis using the proceeds for general corporate purposes.
(Entergy Louisiana)
In March 2019,2020, Entergy Louisiana issued $525$350 million of 2.90% Series mortgage bonds due March 2051. Entergy Louisiana is using the proceeds, together with other funds, to repay borrowings of $100 million on its $350 million credit facility and for general corporate purposes.
In March 2020, Entergy Louisiana issued $300 million of 4.20% Series collateral trust mortgage bonds due April 2050.September 2048. Entergy Louisiana expects to use the proceeds, together with other funds, to repay, at maturity, its $250 million of 3.95% Series mortgage bonds due October 2020 and for general corporate purposes.
(Entergy New Orleans)
In March 2020, Entergy New Orleans issued $62 million of 3.75% Series mortgage bonds due March 2040 and $78 million of 3.00% Series mortgage bonds due March 2025. Entergy New Orleans is using the proceeds to repay short-term debt, to finance a portion of the construction of the Lake Charles Power Station and the St. CharlesNew Orleans Power Station, and for general corporate purposes.
(Entergy Texas)
In January 2019,March 2020, Entergy Texas issued $300$175 million of 4.0%3.55% Series first mortgage bonds due March 2029 and $400 million of 4.5% Series first mortgage bonds due March 2039.September 2049. Entergy Texas usedis using the proceeds, together with other funds, to finance a portion of the construction of the Montgomery County Power Station, to repay at maturity,borrowings of $100 million on its $500$150 million of 7.125% Series first mortgage bonds due February 2019,credit facility, 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 redeem, prior to maturity, $134 million of 5.875% Series 1998 pollution control revenue refunding bonds due April 2022.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Fair Value
The book value and the fair value of long-term debt for Entergy Corporation and the Registrant Subsidiaries as of March 31, 2019 are2020 were as follows:
|
| | | | | | | |
| | Book Value of Long-Term Debt | | Fair Value of Long-Term Debt (a) |
| | (In Thousands) |
| Entergy |
| $19,458,543 |
| |
| $20,426,604 |
|
| Entergy Arkansas |
| $3,655,723 |
| |
| $3,831,058 |
|
| Entergy Louisiana |
| $7,923,381 |
| |
| $8,496,243 |
|
| Entergy Mississippi |
| $1,614,156 |
| |
| $1,692,495 |
|
| Entergy New Orleans |
| $680,188 |
| |
| $652,690 |
|
| Entergy Texas |
| $2,091,130 |
| |
| $2,239,980 |
|
| System Energy |
| $604,925 |
| |
| $615,747 |
|
|
| | | | | | | |
| | Book Value of Long-Term Debt | | Fair Value of Long-Term Debt (a) (b) |
| | (In Thousands) |
| Entergy |
| $17,317,896 |
| |
| $17,613,263 |
|
| Entergy Arkansas |
| $3,555,152 |
| |
| $3,471,105 |
|
| Entergy Louisiana |
| $7,377,912 |
| |
| $7,665,243 |
|
| Entergy Mississippi |
| $1,325,915 |
| |
| $1,332,283 |
|
| Entergy New Orleans |
| $483,844 |
| |
| $510,959 |
|
| Entergy Texas |
| $1,680,966 |
| |
| $1,755,754 |
|
| System Energy |
| $610,798 |
| |
| $586,518 |
|
| |
| (a) | The values exclude lease obligations of $34 million at System Energy and long-term DOE obligations of $188 million at Entergy Arkansas, and include debt due within one year. |
| |
(b) | Fair values arewere classified as Level 2 in the fair value hierarchy discussed in Note 8 to the financial statements herein. |
The book value and the fair value of long-term debt for Entergy Corporation and the Registrant Subsidiaries as of December 31, 20182019 were as follows:
|
| | | | | | | |
| | Book Value of Long-Term Debt | | Fair Value of Long-Term Debt (a) |
| | (In Thousands) |
| Entergy |
| $17,873,655 |
| |
| $19,059,950 |
|
| Entergy Arkansas |
| $3,517,208 |
| |
| $3,747,914 |
|
| Entergy Louisiana |
| $7,303,669 |
| |
| $7,961,168 |
|
| Entergy Mississippi |
| $1,614,129 |
| |
| $1,709,505 |
|
| Entergy New Orleans |
| $560,906 |
| |
| $523,846 |
|
| Entergy Texas |
| $1,922,956 |
| |
| $2,090,215 |
|
| System Energy |
| $548,107 |
| |
| $565,209 |
|
|
| | | | | | | |
| | Book Value of Long-Term Debt | | Fair Value of Long-Term Debt (a) (b) |
| | (In Thousands) |
| Entergy |
| $16,168,312 |
| |
| $15,880,239 |
|
| Entergy Arkansas |
| $3,225,759 |
| |
| $3,002,627 |
|
| Entergy Louisiana |
| $6,805,768 |
| |
| $6,834,134 |
|
| Entergy Mississippi |
| $1,325,750 |
| |
| $1,276,452 |
|
| Entergy New Orleans |
| $483,704 |
| |
| $491,569 |
|
| Entergy Texas |
| $1,513,735 |
| |
| $1,528,828 |
|
| System Energy |
| $630,750 |
| |
| $596,123 |
|
| |
| (a) | The values exclude the lease obligations of $34 million at System Energy and long-term DOE obligations of $187 million at Entergy Arkansas, and include debt due within one year. |
| |
(b) | Fair values arewere 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 693,161530,716 shares of its common stock under the 2015 Equity Ownership2019 Omnibus Incentive Plan during the first quarter 20192020 with a fair value of $8.32$11.45 per option. As of March 31, 2019,2020, there were options on 3,210,2372,474,280 shares of common stock outstanding with a weighted-average exercise price of $78.25.$89.74. The intrinsic value, which has no effect on net income, of the outstanding stock options is calculated by the positive difference between the weighted average exercise price of the stock options granted and Entergy Corporation’s common stock price as of March 31, 2019.2020. The aggregate intrinsic value of the stock options outstanding as of March 31, 20192020 was $55.8$30.5 million.
The following table includes financial information for outstanding stock options for the three months ended March 31, 20192020 and 2018:2019:
|
| | | | | | | |
| | 2020 | | 2019 |
| | (In Millions) |
| Compensation expense included in Entergy’s net income |
| $1.0 |
| |
| $1.0 |
|
| Tax benefit recognized in Entergy’s net income |
| $0.3 |
| |
| $0.2 |
|
| Compensation cost capitalized as part of fixed assets and materials and supplies |
| $0.4 |
| |
| $0.3 |
|
|
| | | | | | | |
| | 2019 | | 2018 |
| | (In Millions) |
| Compensation expense included in Entergy’s net income |
| $1.0 |
| |
| $1.1 |
|
| Tax benefit recognized in Entergy’s net income |
| $0.2 |
| |
| $0.3 |
|
| Compensation cost capitalized as part of fixed assets and inventory |
| $0.3 |
| |
| $0.2 |
|
Other Equity Awards
In January 20192020 the Board approved and Entergy granted 355,537313,805 restricted stock awards and 180,824134,853 long-term incentive awards under the 2015 Equity Ownership2019 Omnibus Incentive Plan. The restricted stock awards were made effective as of January 31, 201930, 2020 and were valued at $89.19$131.72 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. One-third of the restricted stock awards and accrued dividends will vest upon each anniversary of the grant date.
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 2019-20212020-2022 performance period, performance will be measured based eighty80 percent on relative total shareholder return and twenty20 percent on a cumulative adjusted earnings per share metric. The performance units were granted as of January 31, 201930, 2020 and eighty80 percent were valued at $102.07$169.74 per share based on various factors, primarily market conditions; and twenty20 percent were valued at $89.19$131.72 per share, the closing price of Entergy’s common stock on that date. Performance units have the same dividend rights as shares of Entergy common stock and are 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 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.
The following table includes financial information for other outstanding equity awards for the three months ended March 31, 20192020 and 2018:2019:
|
| | | | | | | |
| | 2020 | | 2019 |
| | (In Millions) |
| Compensation expense included in Entergy’s net income |
| $9.4 |
| |
| $8.8 |
|
| Tax benefit recognized in Entergy’s net income |
| $2.4 |
| |
| $2.2 |
|
| Compensation cost capitalized as part of fixed assets and materials and supplies |
| $3.4 |
| |
| $2.9 |
|
|
| | | | | | | |
| | 2019 | | 2018 |
| | (In Millions) |
| Compensation expense included in Entergy’s net income |
| $8.8 |
| |
| $8.8 |
|
| Tax benefit recognized in Entergy’s net income |
| $2.2 |
| |
| $2.2 |
|
| Compensation cost capitalized as part of fixed assets and inventory |
| $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)
Components of Qualified Net Pension Cost
Entergy’s qualified pension cost, including amounts capitalized, for the first quarters of 20192020 and 2018,2019, included the following components:
|
| | | | | | | |
| | 2020 | | 2019 |
| | (In Thousands) |
| Service cost - benefits earned during the period |
| $40,379 |
| |
| $33,607 |
|
| Interest cost on projected benefit obligation | 60,799 |
| | 73,941 |
|
| Expected return on assets | (103,565 | ) | | (103,884 | ) |
| Amortization of net loss | 87,259 |
| | 58,418 |
|
| Settlement charges | — |
| | 1,137 |
|
| Net pension costs |
| $84,872 |
| |
| $63,219 |
|
|
| | | | | | | |
| | 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 |
|
The Registrant Subsidiaries’ qualified pension cost, including amounts capitalized, for their employees for the first quarters of 20192020 and 2018,2019, included the following components:
| | | 2019 | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy | |
| 2020 | | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy |
| | | (In Thousands) | | (In Thousands) |
| Service cost - benefits earned during the period | |
| $5,261 |
| |
| $7,284 |
| |
| $1,629 |
| |
| $569 |
| |
| $1,350 |
| |
| $1,550 |
| |
| $6,566 |
| |
| $8,794 |
| |
| $2,023 |
| |
| $663 |
| |
| $1,546 |
| |
| $1,965 |
|
| Interest cost on projected benefit obligation | | 14,175 |
| | 15,882 |
| | 4,068 |
| | 1,874 |
| | 3,613 |
| | 3,364 |
| | 11,433 |
| | 12,841 |
| | 3,340 |
| | 1,456 |
| | 2,782 |
| | 2,814 |
|
| Expected return on assets | | (20,176 | ) | | (22,652 | ) | | (5,968 | ) | | (2,696 | ) | | (5,862 | ) | | (4,678 | ) | | (19,622 | ) | | (22,402 | ) | | (5,757 | ) | | (2,627 | ) | | (5,486 | ) | | (4,663 | ) |
| Amortization of loss | | 11,840 |
| | 11,643 |
| | 3,104 |
| | 1,529 |
| | 2,334 |
| | 2,850 |
| |
| Amortization of net loss | | | 16,897 |
| | 16,627 |
| | 4,748 |
| | 2,005 |
| | 3,265 |
| | 4,279 |
|
| Net pension cost | |
| $11,100 |
| |
| $12,157 |
| |
| $2,833 |
| |
| $1,276 |
| |
| $1,435 |
| |
| $3,086 |
| |
| $15,274 |
| |
| $15,860 |
| |
| $4,354 |
| |
| $1,497 |
| |
| $2,107 |
| |
| $4,395 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| 2019 | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy |
| | | (In Thousands) |
| Service cost - benefits earned during the period | |
| $5,261 |
| |
| $7,284 |
| |
| $1,629 |
| |
| $569 |
| |
| $1,350 |
| |
| $1,550 |
|
| Interest cost on projected benefit obligation | | 14,175 |
| | 15,882 |
| | 4,068 |
| | 1,874 |
| | 3,613 |
| | 3,364 |
|
| Expected return on assets | | (20,176 | ) | | (22,652 | ) | | (5,968 | ) | | (2,696 | ) | | (5,862 | ) | | (4,678 | ) |
| Amortization of net loss | | 11,840 |
| | 11,643 |
| | 3,104 |
| | 1,529 |
| | 2,334 |
| | 2,850 |
|
| Net pension cost | |
| $11,100 |
| |
| $12,157 |
| |
| $2,833 |
| |
| $1,276 |
| |
| $1,435 |
| |
| $3,086 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| 2018 | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy |
| | | (In Thousands) |
| Service cost - benefits earned during the period | |
| $6,189 |
| |
| $8,446 |
| |
| $1,822 |
| |
| $673 |
| |
| $1,589 |
| |
| $1,776 |
|
| Interest cost on projected benefit obligation | | 13,004 |
| | 14,940 |
| | 3,769 |
| | 1,813 |
| | 3,348 |
| | 3,227 |
|
| Expected return on assets | | (21,851 | ) | | (24,809 | ) | | (6,502 | ) | | (2,993 | ) | | (6,523 | ) | | (4,991 | ) |
| Amortization of loss | | 13,412 |
| | 14,450 |
| | 3,610 |
| | 1,954 |
| | 2,626 |
| | 3,715 |
|
| Net pension cost | |
| $10,754 |
| |
| $13,027 |
| |
| $2,699 |
| |
| $1,447 |
| |
| $1,040 |
| |
| $3,727 |
|
Non-Qualified Net Pension Cost
Entergy recognized $4$4.5 million and $8.9$4 million in pension cost for its non-qualified pension plans in the first quarters of 2020 and 2019, and 2018, respectively. Reflected in the pension cost for non-qualified pension plans in the first quarter of 2018 were settlement charges of $4.4 million related to the payment of lump sum benefits out of the plan.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The Registrant Subsidiaries recognized the following pension cost for their employees for their non-qualified pension plans for the first quarters of 20192020 and 2018:2019:
| | | | 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) |
| 2020 | |
| $83 |
| |
| $37 |
| |
| $90 |
| |
| $8 |
| |
| $117 |
|
| 2019 |
| $73 |
| |
| $43 |
| |
| $75 |
| |
| $5 |
| |
| $124 |
|
| $73 |
| |
| $43 |
| |
| $75 |
| |
| $5 |
| |
| $124 |
|
| 2018 |
| $132 |
| |
| $50 |
| |
| $80 |
| |
| $21 |
| |
| $137 |
| |
Reflected in Entergy Arkansas’s non-qualified pension costs in the first quarter of 2018 were settlement charges of $12 thousand related to the payment of lump sum benefits out of the plan.
Components of Net Other Postretirement Benefit Cost (Income)
Entergy’s other postretirement benefit cost (income), including amounts capitalized, for the first quarters of 20192020 and 2018,2019, included the following components:
|
| | | | | | | |
| | 2020 | | 2019 |
| | (In Thousands) |
| Service cost - benefits earned during the period |
| $5,801 |
| |
| $4,675 |
|
| Interest cost on accumulated postretirement benefit obligation (APBO) | 7,932 |
| | 11,975 |
|
| Expected return on assets | (10,328 | ) | | (9,562 | ) |
| Amortization of prior service credit | (5,922 | ) | | (8,844 | ) |
| Amortization of net loss | 468 |
| | 358 |
|
| Net other postretirement benefit cost (income) |
| ($2,049 | ) | |
| ($1,398 | ) |
|
| | | | | | | |
| | 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 |
|
The Registrant Subsidiaries’ other postretirement benefit cost (income), including amounts capitalized, for their employees for the first quarters of 20192020 and 2018,2019, included the following components:
| | | 2019 | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy | |
| 2020 | | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy |
| | | (In Thousands) | | (In Thousands) |
| Service cost - benefits earned during the period | |
| $591 |
| |
| $1,160 |
| |
| $262 |
| |
| $92 |
| |
| $236 |
| |
| $243 |
| |
| $828 |
| |
| $1,423 |
| |
| $351 |
| |
| $105 |
| |
| $303 |
| |
| $294 |
|
| Interest cost on APBO | | 1,807 |
| | 2,666 |
| | 670 |
| | 395 |
| | 854 |
| | 476 |
| | 1,217 |
| | 1,723 |
| | 422 |
| | 227 |
| | 582 |
| | 307 |
|
| Expected return on assets | | (3,991 | ) | | — |
| | (1,199 | ) | | (1,237 | ) | | (2,276 | ) | | (697 | ) | | (4,326 | ) | | — |
| | (1,307 | ) | | (1,355 | ) | | (2,435 | ) | | (748 | ) |
| Amortization of prior service credit | | (1,238 | ) | | (1,837 | ) | | (439 | ) | | (171 | ) | | (561 | ) | | (363 | ) | | (661 | ) | | (1,089 | ) | | (321 | ) | | (76 | ) | | (550 | ) | | (219 | ) |
| Amortization of (gain) loss | | 144 |
| | (174 | ) | | 181 |
| | 58 |
| | 121 |
| | 89 |
| |
| Net other postretirement benefit cost | |
| ($2,687 | ) | |
| $1,815 |
| |
| ($525 | ) | |
| ($863 | ) | |
| ($1,626 | ) | |
| ($252 | ) | |
| Amortization of net (gain) loss | | | 55 |
| | (199 | ) | | 29 |
| | (38 | ) | | 212 |
| | 20 |
|
| Net other postretirement benefit cost (income) | | |
| ($2,887 | ) | |
| $1,858 |
| |
| ($826 | ) | |
| ($1,137 | ) | |
| ($1,888 | ) | |
| ($346 | ) |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| 2019 | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy |
| | | (In Thousands) |
| Service cost - benefits earned during the period | |
| $591 |
| |
| $1,160 |
| |
| $262 |
| |
| $92 |
| |
| $236 |
| |
| $243 |
|
| Interest cost on APBO | | 1,807 |
| | 2,666 |
| | 670 |
| | 395 |
| | 854 |
| | 476 |
|
| Expected return on assets | | (3,991 | ) | | — |
| | (1,199 | ) | | (1,237 | ) | | (2,276 | ) | | (697 | ) |
| Amortization of prior service credit | | (1,238 | ) | | (1,837 | ) | | (439 | ) | | (171 | ) | | (561 | ) | | (363 | ) |
| Amortization of net (gain) loss | | 144 |
| | (174 | ) | | 181 |
| | 58 |
| | 121 |
| | 89 |
|
| Net other postretirement benefit cost (income) | |
| ($2,687 | ) | |
| $1,815 |
| |
| ($525 | ) | |
| ($863 | ) | |
| ($1,626 | ) | |
| ($252 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| 2018 | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy |
| | | (In Thousands) |
| Service cost - benefits earned during the period | |
| $793 |
| |
| $1,556 |
| |
| $321 |
| |
| $129 |
| |
| $330 |
| |
| $306 |
|
| Interest cost on APBO | | 1,997 |
| | 2,789 |
| | 683 |
| | 417 |
| | 939 |
| | 500 |
|
| Expected return on assets | | (4,342 | ) | | — |
| | (1,303 | ) | | (1,313 | ) | | (2,446 | ) | | (783 | ) |
| Amortization of prior service credit | | (1,278 | ) | | (1,934 | ) | | (456 | ) | | (186 | ) | | (579 | ) | | (378 | ) |
| Amortization of loss | | 289 |
| | 388 |
| | 377 |
| | 34 |
| | 206 |
| | 233 |
|
| Net other postretirement benefit cost | |
| ($2,541 | ) | |
| $2,799 |
| |
| ($378 | ) | |
| ($919 | ) | |
| ($1,550 | ) | |
| ($122 | ) |
Reclassification out of Accumulated Other Comprehensive Income (Loss)
Entergy and Entergy Louisiana reclassified the following costs out of accumulated other comprehensive income (loss) (before taxes and including amounts capitalized) for the first quarters of 20192020 and 2018:2019:
| | | 2019 |
| Qualified
Pension
Costs |
| Other
Postretirement
Costs |
| Non-Qualified
Pension Costs |
| Total | |
| 2020 | |
| Qualified
Pension
Costs |
| Other
Postretirement
Costs |
| Non-Qualified
Pension Costs |
| Total |
|
| (In Thousands) |
|
|
| (In Thousands) |
|
|
| Entergy |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Amortization of prior service (cost) credit |
|
| $— |
|
|
| $5,375 |
|
|
| ($49 | ) |
|
| $5,326 |
|
|
| $— |
|
|
| $3,776 |
|
|
| ($57 | ) |
|
| $3,719 |
|
| Amortization of loss |
| (18,735 | ) |
| 308 |
|
| (561 | ) |
| (18,988 | ) | |
| Settlement loss |
| (1,137 | ) |
| — |
|
| — |
|
| (1,137 | ) | |
| Amortization of net loss | |
| (26,462 | ) |
| (25 | ) |
| (831 | ) |
| (27,318 | ) |
|
|
| ($19,872 | ) |
|
| $5,683 |
|
|
| ($610 | ) |
|
| ($14,799 | ) |
|
| ($26,462 | ) |
|
| $3,751 |
|
|
| ($888 | ) |
|
| ($23,599 | ) |
| Entergy Louisiana |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Amortization of prior service credit |
|
| $— |
|
|
| $1,838 |
|
|
| $— |
|
|
| $1,838 |
|
|
| $— |
|
|
| $1,089 |
|
|
| $— |
|
|
| $1,089 |
|
| Amortization of loss |
| (699 | ) |
| 174 |
|
| (2 | ) |
| (527 | ) | |
| Amortization of net gain (loss) | |
| (499 | ) |
| 199 |
|
| (1 | ) |
| (301 | ) |
|
|
| ($699 | ) |
|
| $2,012 |
|
|
| ($2 | ) |
|
| $1,311 |
|
|
| ($499 | ) |
|
| $1,288 |
|
|
| ($1 | ) |
|
| $788 |
|
|
| | | | | | | | | | | | | | | | |
| 2019 | | Qualified
Pension
Costs | | Other
Postretirement
Costs | | Non-Qualified
Pension Costs | | Total |
| | | (In Thousands) | | |
| Entergy | | | | | | | | |
| Amortization of prior service (cost) credit | |
| $— |
| |
| $5,375 |
| |
| ($49 | ) | |
| $5,326 |
|
| Amortization of net gain (loss) | | (18,735 | ) | | 308 |
| | (561 | ) | | (18,988 | ) |
| Settlement loss | | (1,137 | ) | | — |
| | — |
| | (1,137 | ) |
| | |
| ($19,872 | ) | |
| $5,683 |
| |
| ($610 | ) | |
| ($14,799 | ) |
| Entergy Louisiana | | | | | | | | |
| Amortization of prior service credit | |
| $— |
| |
| $1,838 |
| |
| $— |
| |
| $1,838 |
|
| Amortization of net gain (loss) | | (699 | ) | | 174 |
| | (2 | ) | | (527 | ) |
| | |
| ($699 | ) | |
| $2,012 |
| |
| ($2 | ) | |
| $1,311 |
|
|
| | | | | | | | | | | | | | | | |
| 2018 | | Qualified
Pension
Costs | | Other
Postretirement
Costs | | Non-Qualified
Pension Costs | | Total |
| | | (In Thousands) | | |
| Entergy | | | | | | | | |
| Amortization of prior service (cost) credit | |
| ($99 | ) | |
| $5,595 |
| |
| ($70 | ) | |
| $5,426 |
|
| Amortization of loss | | (21,957 | ) | | (1,932 | ) | | (1,063 | ) | | (24,952 | ) |
| Settlement loss | | — |
| | — |
| | (1,616 | ) | | (1,616 | ) |
| | |
| ($22,056 | ) | |
| $3,663 |
| |
| ($2,749 | ) | |
| ($21,142 | ) |
| Entergy Louisiana | | | | | | | | |
| Amortization of prior service credit | |
| $— |
| |
| $1,934 |
| |
| $— |
| |
| $1,934 |
|
| Amortization of loss | | (867 | ) | | (388 | ) | | (2 | ) | | (1,257 | ) |
| | |
| ($867 | ) | |
| $1,546 |
| |
| ($2 | ) | |
| $677 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Accounting for Pension and Other Postretirement Benefits
In accordance with ASU No. 2017-07, “Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost”, the other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations and are presented by Entergy in miscellaneous - net in other income.
Other Postretirement Benefits
In March 2020, Entergy announced changes to its other postretirement benefits. Effective January 1, 2021, certain retired, former non-bargaining employees age 65 and older who are eligible for Entergy-sponsored retiree welfare benefits, and their eligible spouses who are age 65 and older (collectively, Medicare-eligible participants), will be eligible to participate in a new Entergy-sponsored retiree health plan, and will no longer be eligible for retiree coverage under the Entergy Corporation Companies’ Benefits Plus Medical, Dental and Vision Plans. Under the new Entergy retiree health plan, Medicare-eligible participants will be eligible to participate in a health reimbursement arrangement which they may use towards the purchase of various types of qualified insurance offered through a Medicare exchange provider and for other qualified medical expenses. In accordance with accounting standards, the effects of this change have been reflected in the March 31, 2020 other postretirement obligation. The changes affecting active bargaining unit employees will be negotiated with the unions prior to implementation, where necessary, and to the extent required by law.
Employer Contributions
Based on current assumptions, Entergy expects to contribute $176.9$216.3 million to its qualified pension plans in 2019.2020. As of March 31, 2019,2020, Entergy had contributed $11.7$59.8 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 2019:2020:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy |
| | (In Thousands) |
| Expected 2020 pension contributions |
| $32,512 |
| |
| $38,766 |
| |
| $7,768 |
| |
| $3,248 |
| |
| $3,549 |
| |
| $10,544 |
|
| Pension contributions made through March 2020 |
| $10,120 |
| |
| $8,676 |
| |
| $2,560 |
| |
| $563 |
| |
| $453 |
| |
| $3,299 |
|
| Remaining estimated pension contributions to be made in 2020 |
| $22,392 |
| |
| $30,090 |
| |
| $5,208 |
| |
| $2,685 |
| |
| $3,096 |
| |
| $7,245 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | 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 |
|
NOTE 7. BUSINESS SEGMENT INFORMATION (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)
Entergy Corporation
Entergy’s reportable segments as of March 31, 2019 are2020 were Utility and Entergy Wholesale Commodities. Utility includes the generation, transmission, distribution, and sale of electric power in portions of Arkansas, Louisiana, Mississippi, and Texas, and natural gas utility service in portions of Louisiana. Entergy Wholesale Commodities includes the ownership, operation, and decommissioning of nuclear power plants located in the northern United States and the sale of the electric power produced by its operating plants to wholesale customers. Entergy Wholesale Commodities also includes the ownership of interests in non-nuclear power plants that sell the electric power produced by those plants to wholesale customers. “All Other” includes the parent company, Entergy Corporation, and other business activity.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Entergy’s segment financial information for the first quarters of 2020 and 2019 and 2018 iswas as follows: |
| | | | | | | | | | | | | | | | | | | | |
| | | Utility | | Entergy Wholesale Commodities | | All Other | | Eliminations | | Entergy |
| | | (In Thousands) |
| 2019 | | | | | | | | | | |
| Operating revenues | |
| $2,175,982 |
| |
| $433,612 |
| |
| $— |
| |
| ($10 | ) | |
| $2,609,584 |
|
| Income taxes | |
| ($11,564 | ) | |
| $65,908 |
| |
| ($11,573 | ) | |
| $— |
| |
| $42,771 |
|
| Consolidated net income (loss) | |
| $234,147 |
| |
| $97,079 |
| |
| ($40,682 | ) | |
| ($31,898 | ) | |
| $258,646 |
|
| Total assets as of March 31, 2019 | |
| $46,502,826 |
| |
| $5,065,643 |
| |
| $719,602 |
| |
| ($2,682,690 | ) | |
| $49,605,381 |
|
| 2018 | | | | | | | | | | |
| Operating revenues | |
| $2,304,990 |
| |
| $418,924 |
| |
| $— |
| |
| ($33 | ) | |
| $2,723,881 |
|
| Income taxes | |
| $52,224 |
| |
| ($1,078 | ) | |
| ($7,483 | ) | |
| $— |
| |
| $43,663 |
|
| Consolidated net income (loss) | |
| $217,940 |
| |
| ($17,779 | ) | |
| ($32,063 | ) | |
| ($31,898 | ) | |
| $136,200 |
|
| Total assets as of December 31, 2018 | |
| $44,777,167 |
| |
| $5,459,275 |
| |
| $733,366 |
| |
| ($2,694,742 | ) | |
| $48,275,066 |
|
|
| | | | | | | | | | | | | | | | | | | | |
| | | Utility | | Entergy Wholesale Commodities | | All Other | | Eliminations | | Entergy |
| | | (In Thousands) |
| 2020 | | | | | | | | | | |
| Operating revenues | | $2,094,629 | | $332,549 | | $11 | |
| ($10 | ) | | $2,427,179 |
| Income taxes | | ($52,949) | | ($30,540) | |
| $12,295 |
| |
| $— |
| | ($71,194) |
| Consolidated net income (loss) | | $323,849 | |
| ($110,428 | ) | |
| ($58,228 | ) | |
| ($31,899 | ) | | $123,294 |
| Total assets as of March 31, 2020 | | $50,421,661 | | $3,921,539 | | $697,784 | |
| ($2,485,955 | ) | | $52,555,029 |
| 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 December 31, 2019 | | $49,557,664 | | $4,154,961 | | $514,020 | |
| ($2,502,733 | ) | | $51,723,912 |
The Entergy Wholesale Commodities business is sometimes referred to as the “competitive businesses.” Eliminations arewere primarily intersegment activity. Almost all of Entergy’s goodwill iswas 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 shut down and sell all of the remaining plants in the merchant nuclear fleet. These decisions and transactions resulted in asset impairments; employee retention and severance expenses and other benefits-related costs; and contracted economic development contributions.
Total restructuring charges for the first quarters of 20192020 and 20182019 were comprised of the following:
| | | | 2019 | | 2018 | 2020 | | 2019 |
| | 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 | Employee retention and severance
expenses and other benefits-related costs | | Contracted economic development costs | | Total | | Employee retention and severance
expenses and other benefits-related costs | | Contracted economic development costs | | Total |
| | (In Millions) | (In Millions) |
| Balance as of January 1, |
| $179 |
| |
| $14 |
| |
| $193 |
| |
| $83 |
| |
| $14 |
| |
| $97 |
|
| $129 |
| |
| $14 |
| |
| $143 |
| |
| $179 |
| |
| $14 |
| |
| $193 |
|
| Restructuring costs accrued | 34 |
| | — |
| | 34 |
| | 26 |
| | — |
| | 26 |
| 21 |
| | — |
| | 21 |
| | 34 |
| | — |
| | 34 |
|
| Balance as of March 31, |
| $213 |
| |
| $14 |
| |
| $227 |
| |
| $109 |
| |
| $14 |
| |
| $123 |
|
| $150 |
| |
| $14 |
| |
| $164 |
| |
| $213 |
| |
| $14 |
| |
| $227 |
|
In addition, Entergy Wholesale Commodities incurred $5 million in the first quarter 2020 and $74 million in the first quarter 2019 and $73 million in the first quarter 2018 of impairment and other related charges associated with these strategic decisions and transactions.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Going forward, Entergy Wholesale Commodities expects to incur employee retention and severance expenses associated with management’s strategy to exit the merchant power business of approximately $130$75 million in 2019,2020, of which $34$21 million has been incurred as of March 31, 2019,2020, and a total of approximately $110$55 million from 20202021 through mid-2022.2022.
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 may also usesuse a combination of financial contracts, including swaps, collars, and options, to mitigate commodity price risk. When the market price falls, the combination of instruments is expected to settle in gains that offset lower revenue from generation, which results in a more predictable cash flow.
Entergy’s exposure to market risk is determined by a number of factors, including the size, term, composition, and diversification of positions held, as well as market volatility and liquidity. For instruments such as options, the time period during which the option may be exercised and the relationship between the current market price of the underlying instrument and the option’s contractual strike or exercise price also affects the level of market risk. A significant factor influencing the overall level of market risk to which Entergy is exposed is its use of hedging techniques to mitigate such risk. Hedging instruments and volumes are chosen based on ability to mitigate risk associated with future energy and capacity prices; however, other considerations are factored into hedge product and volume decisions including corporate liquidity, corporate credit ratings, counterparty credit risk, hedging costs, firm settlement risk, and product availability in the marketplace. Entergy manages market risk by actively monitoring compliance with stated risk management policies as well as monitoring the effectiveness of its hedging policies and strategies. Entergy’s risk management policies limit the amount of total net exposure and rolling net exposure during the stated periods. These policies, including related risk limits, are regularly assessed to ensure their appropriateness given Entergy’s objectives.
Derivatives
Some derivative instruments are classified as cash flow hedges due to their financial settlement provisions
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 March 31, 20192020 is approximately 2 years.1 year. Planned generation currently under contract from Entergy Wholesale Commodities nuclear power plants is 98%97% for the remainder of 2019,2020, of which approximately 72%61% is sold under financial derivatives and the remainder under normal purchase/normal sale contracts. Total planned generation for the remainder of 20192020 is 18.611.6 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 guarantee, as determined in accordance with Entergy’s credit policy. In addition, collateral agreements allow for termination and liquidation of all positions in the event of a failure or inability to post collateral.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Certain of the agreements to sell the power produced by Entergy Wholesale Commodities power plants contain provisions that require an Entergy subsidiary to provide credit support to secure its obligations depending on the mark-to-market values of the contracts. The primary form of credit support to satisfy these requirements is an Entergy Corporation guarantee. As of March 31, 2019,2020, there were no derivative contracts with seven counterparties were in a liability position (approximately $49 million total).position. In addition to the corporate guarantee, $19$9 million in cash collateral werewas required to be posted by the Entergy subsidiary to its counterparties and $1 million in cash and $4$95 million in letters of credit were required to be posted by its counterparties to the Entergy subsidiary. As of December 31, 2018,2019, there were no derivative contracts with six counterparties were in a liability position (approximately $34 million total).position. In addition to the corporate guarantee, $19$11 million in cash collateral was required to be posted by the Entergy subsidiary to its counterparties.counterparties and $1 million in cash collateral and $98 million in letters of credit were required to be posted by it counterparties to the Entergy subsidiary. 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 natural gas swaps and options that financially settle against either the average Henry Hub Gas Daily prices or the NYMEX 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 hashad executed natural gas swaps and options as of March 31, 2019 is 52020 was 4 years for Entergy Louisiana and the maximum length of time over which Entergy hashad executed natural gas swaps as of March 31, 2019 is2020 was 7 months for Entergy Mississippi. The total volume of natural gas swaps and options outstanding as of March 31, 2019 is 45,740,0002020 was 42,371,000 MMBtu for Entergy, including 36,540,00029,220,000 MMBtu for Entergy Louisiana and 9,200,00013,151,000 MMBtu for Entergy Mississippi. Credit support for these natural gas swaps and options is covered by master agreements that do not require Entergy to provide collateral based on mark-to-market value, but do carry adequate assurance language that may lead to requests for collateral.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
During the second quarter 2018,2019, Entergy participated in the annual financial transmission rights auction process for the MISO planning year of June 1, 20182019 through May 31, 2019.2020. Financial transmission rights are derivative instruments whichthat represent economic hedges of future congestion charges that will be incurred in serving Entergy’s customer load. They are not designated as hedging instruments. Entergy initially records financial transmission rights at their estimated fair value and subsequently adjusts the carrying value to their estimated fair value at the end of each accounting period prior to settlement. Unrealized gains or losses on financial transmission rights held by Entergy Wholesale Commodities are included in operating revenues. The Utility operating companies recognize regulatory liabilities or assets for unrealized gains or losses on financial transmission rights. The total volume of financial transmission rights outstanding as of March 31, 2019 is 18,9282020 was 18,987 GWh for Entergy, including 4,0994,368 GWh for Entergy Arkansas, 8,2358,517 GWh for Entergy Louisiana, 2,5202,427 GWh for Entergy Mississippi, 948934 GWh for Entergy New Orleans, and 3,0472,662 GWh for Entergy Texas. Credit support for financial transmission rights held by the Utility operating companies is covered by cash and/or letters of credit issued by each Utility operating company as required by MISO. Credit support for financial transmission rights held by Entergy Wholesale Commodities is covered by cash. No cash or letters of credit were required to be posted for financial transmission rights exposure for Entergy Wholesale Commodities as of March 31, 20192020 and December 31, 2018.2019. Letters of credit posted with MISO covered the financial transmission rights exposure for Entergy Mississippi and Entergy Texas as of March 31, 20192020 and December 31, 2018.2019.
The fair values of Entergy’s derivative instruments in the consolidated balance sheet as of March 31, 2020 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) | | $81 | | $— | | $81 | | Entergy Wholesale Commodities |
| Derivatives not designated as hedging instruments | | | | | | | | | | |
| Assets: | | | | | | | | | | |
| Electricity swaps and options | | Prepayments and other (current portion) | | $8 | | ($4) | | $4 | | 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 | | $4 | | $— | | $4 | | Utility and Entergy Wholesale Commodities |
| Liabilities: | | | | | | | | | | |
| Electricity swaps and options | | Other current liabilities
(current portion) | | $3 | | ($3) | | $— | | Entergy Wholesale Commodities |
| Natural gas swaps and options | | Other current liabilities
(current portion) | | $7 | | $— | | $7 | | Utility |
| Natural gas swaps and options | | Other non-current liabilities (non-current portion) | | $2 | | $— | | $2 | | Utility |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The fair values of Entergy’s derivative instruments in the consolidated balance sheet as of December 31, 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.
|
| | | | | | | | | | |
| 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) | | $92 | | ($1) | | $91 | | Entergy Wholesale Commodities |
| Electricity swaps and options | | Other deferred debits and other assets (non-current portion) | | $17 | | $— | | $17 | | Entergy Wholesale Commodities |
| Liabilities: | | | | | | | | | | |
| Electricity swaps and options | | Other current liabilities (current portion) | | $1 | | ($1) | | $— | | Entergy Wholesale Commodities |
| Derivatives not designated as hedging instruments | | | | | | | | | | |
| Assets: | | | | | | | | | | |
| Electricity swaps and options | | Prepayments and other (current portion) | | $11 | | ($1) | | $10 | | Entergy Wholesale Commodities |
| Natural gas swaps and options | | Other deferred debits and other assets (non-current portion) | | $1 | | $— | | $1 | | Utility |
| Financial transmission rights | | Prepayments and other | | $10 | | $— | | $10 | | Utility and Entergy Wholesale Commodities |
| Liabilities: | | | | | | | | | | |
| Electricity swaps and options | | Other current liabilities (current portion) | | $2 | | ($2) | | $— | | Entergy Wholesale Commodities |
| Natural gas swaps and options | | Other current liabilities (current portion) | | $5 | | $— | | $5 | | Utility |
| Natural gas swaps and options | | Other non-current liabilities (non-current portion) | | $2 | | $— | | $2 | | Utility |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
|
| | | | | | | | | | |
| 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 | | 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) | | $32 | | ($32) | | $— | | Entergy Wholesale Commodities |
| Electricity swaps and options | | Other deferred debits and other assets (non-current portion) | | $7 | | ($7) | | $— | | Entergy Wholesale Commodities |
| Liabilities: | | | | | | | | | | |
| Electricity swaps and options | | Other current liabilities (current portion) | | $54 | | ($33) | | $21 | | Entergy Wholesale Commodities |
| Electricity swaps and options | | Other non-current liabilities (non-current portion) | | $20 | | ($7) | | $13 | | Entergy Wholesale Commodities |
| Derivatives not designated as hedging instruments | | | | | | | | | | |
| Assets: | | | | | | | | | | |
| Electricity swaps and options | | Prepayments and other (current portion) | | $4 | | ($2) | | $2 | | Entergy Wholesale Commodities |
| Electricity swaps and options | | Other deferred debits and other assets (non-current portion) | | $1 | | $— | | $1 | | Entergy Wholesale Commodities |
| Natural gas swaps and options | | Other deferred debits and other assets (non-current portion) | | $2 | | $— | | $2 | | Utility |
| Financial transmission rights | | Prepayments and other | | $16 | | ($1) | | $15 | | Utility and Entergy Wholesale Commodities |
| Liabilities: | | | | | | | | | | |
| Electricity swaps and options | | Other current liabilities (current portion) | | $1 | | ($1) | | $— | | Entergy Wholesale Commodities |
| Natural gas swaps and options | | Other current liabilities | | $1 | | $— | | $1 | | Utility |
| |
| (a) | Represents the gross amounts of recognized assets/liabilities |
| |
| (b) | Represents the netting of fair value balances with the same counterparty |
| |
| (c) | Represents the net amounts of assets/liabilities presented on the Entergy Corporation and Subsidiaries’ Consolidated Balance Sheet |
| |
| (d) | Excludes cash collateral in the amount of $1 million held and $19$9 million posted as of March 31, 20192020 and $19$11 million posted and $1 million held as of December 31, 2018.2019. Also excludes letters of credit in the amount of $4$95 million held and $2 million posted as of March 31, 20192020 and $4$98 million postedheld as of December 31, 2018.2019. |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The effects of Entergy’s derivative instruments designated as cash flow hedges on the consolidated income statements for the three months ended March 31, 2020 and 2019 and 2018 arewere 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) |
| 2020 | | | | | | |
| Electricity swaps and options | | $67 | | Competitive businesses operating revenues | | $94 |
| | | | | | | |
| 2019 | | | | | | |
| Electricity swaps and options | | $26 | | Competitive businesses operating revenues | | $52 |
|
| | | | | | |
| Instrument | | Amount of gain recognized in other
comprehensive income | | Income Statement location | | Amount of gain (loss)
reclassified from
accumulated other comprehensive income into income (a) |
| | (In Millions) | | | | (In Millions) |
| 2019 | | | | | | |
| Electricity swaps and options | | $26 | | Competitive businesses operating revenues | | $52 |
| | | | | | | |
| 2018 | | | | | | |
| Electricity swaps and options | | $91 | | Competitive businesses operating revenues | | ($30) |
| |
| (a) | Before taxes of $11$20 million and ($6)$11 million for the three months ended March 31, 20192020 and 2018,2019, respectively |
Prior to the adoption of ASU 2017-12, Entergy measured its hedges for ineffectiveness. Any ineffectiveness was recognized in earnings during the period. The ineffective portion of cash flow hedges was recorded in competitive businesses operating revenues. The change in fair value of Entergy’s cash flow hedges due to ineffectiveness during the three months ended March 31, 2018 was $13.3 million.
Based on market prices as of March 31, 2019,2020, unrealized gains (losses) recorded in accumulated other comprehensive income on cash flow hedges relating to power sales totaled ($53)$81 million of net unrealized losses. Approximately ($39)$80 million is expected to be reclassified from accumulated other comprehensive income to operating revenues in the next twelve months. The actual amount reclassified from accumulated other comprehensive income, however, could vary due to future changes in market prices.
Entergy may effectively liquidate a cash flow hedge instrument by entering into a contract offsetting the original hedge, and then de-designating the original hedge in this situation. Gains or losses accumulated in other comprehensive income prior to de-designation continue to be deferred in other comprehensive income until they are included in income as the original hedged transaction occurs. From the point of de-designation, the gains or losses on the original hedge and the offsetting contract are recorded as assets or liabilities on the balance sheet and offset as they flow through to earnings.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The effects of Entergy’s derivative instruments not designated as hedging instruments on the consolidated income statements for the three months ended March 31, 2020 and 2019 were as follows:
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The effects of Entergy’s derivative instruments not designated as hedging instruments on the consolidated income statements for the three months ended March 31, 2019 and 2018 are as follows:
|
| | | | | | |
| Instrument |
| Income Statement
location |
| Amount of gain (loss) recognized in accumulated other comprehensive income |
| Income Statement
location |
| Amount of gain (loss)
recorded in the income statement |
| | | (In Millions) | | | | (In Millions) |
2019 | |
2020 | | | | |
| Natural gas swaps and options | | Fuel, fuel-related expenses, and gas purchased for resale | (a) | ($7) |
| Financial transmission rights |
| Purchased power expense | (b) | $13 |
| Electricity swaps and options (c) | | Competitive business operating revenues | | $— |
| | | | |
| 2019 | | | | |
| Natural gas swaps | | Fuel, fuel-related expenses, and gas purchased for resale | (a) | ($1) |
| Financial transmission rights |
| $— |
| Purchased power expense | (b) | $21 |
| Electricity swaps and options (c) | | $— | (c) | Competitive business operating revenues | | $5 |
| | | | | | |
2018 | | | | | | |
Natural gas swaps | | $— | | Fuel, fuel-related expenses, and gas purchased for resale | (a) | $— |
Financial transmission rights | | $— | | Purchased power expense | (b) | $32 |
Electricity swaps and options | | $— | (c) | Competitive business operating revenues | | $1 |
| |
| (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 gainThere were no gains (losses) recognized in accumulated other comprehensive income from electricity swaps and options de-designated as hedged items.options. |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The fair values of the Registrant Subsidiaries’ derivative instruments not designated as hedging instruments on their balance sheets as of March 31, 20192020 are shown in the table below. Certain investments, including those not designated as hedging instruments, are subject to master netting agreements and are presented onin the balance sheetssheet on a net basis in accordance with accounting guidance for derivatives and hedging.
| | | Instrument | | Balance Sheet Location | | Fair Value (a) | | Offset (b) | | Net (c) (d) | | Registrant | | Balance Sheet Location | | Gross Fair Value (a) | | Offsetting Position (b) | | Net Fair Value (c) (d) | | Registrant |
| | | (In Millions) | | | (In Millions) | |
| Assets: | | | | | | | | |
| Natural gas swaps and options | | Prepayments and other | | $0.2 | | $— | | $0.2 | | Entergy Louisiana | | 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 | | Other deferred debits and other assets (non-current portion) | | $0.9 | | $— | | $0.9 | | Entergy Louisiana |
| | | | | | | | | |
| Financial transmission rights | | Prepayments and other | | $1.2 | | ($0.1) | | $1.1 | | Entergy Arkansas | | Prepayments and other | | $1.1 | | $— | | $1.1 | | Entergy Arkansas |
| Financial transmission rights | | Prepayments and other | | $2.8 | | $— | | $2.8 | | Entergy Louisiana | | Prepayments and other | | $2.0 | | ($0.1) | | $1.9 | | Entergy Louisiana |
| Financial transmission rights | | Prepayments and other | | $0.7 | | $— | | $0.7 | | Entergy Mississippi | | Prepayments and other | | $0.3 | | $— | | $0.3 | | Entergy Mississippi |
| Financial transmission rights | | Prepayments and other | | $0.5 | | $— | | $0.5 | | Entergy New Orleans | | Prepayments and other | | $0.3 | | $— | | $0.3 | | Entergy Texas |
| Financial transmission rights | | 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 | | Other current liabilities | | $2.5 | | $— | | $2.5 | | Entergy Louisiana |
| Natural gas swaps and options | | | Other non-current liabilities | | $2.3 | | $— | | $2.3 | | Entergy Louisiana |
| Natural gas swaps | | Other current liabilities | |
| $0.8 |
| |
| $— |
| |
| $0.8 |
| | Entergy Mississippi | | Other current liabilities | | $4.4 | | $— | | $4.4 | | 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, 2018 are2019 were as follows:
| | | Instrument | | Balance Sheet Location | | Fair Value (a) | | Offset (b) | | Net (c) (d) | | Registrant | | Balance Sheet Location | | Gross Fair Value (a) | | Offsetting Position (b) | | Net Fair Value (c) (d) | | Registrant |
| | | (In Millions) | | | (In Millions) | |
| Assets: | | |
| Natural gas swaps and options | | Prepayments and other | | $0.3 | | $— | | $0.3 | | Entergy Louisiana | | Other deferred debits and other assets | | $0.8 | | $— | | $0.8 | | Entergy Louisiana |
| Natural gas swaps and options | | Other deferred debits and other assets | | $1.6 | | $— | | $1.6 | | Entergy Louisiana | |
| | | |
| Financial transmission rights | | | Prepayments and other | | $3.4 | | ($0.1) | | $3.3 | | Entergy Arkansas |
| Financial transmission rights | | Prepayments and other | | $3.6 | | ($0.2) | | $3.4 | | Entergy Arkansas | | Prepayments and other | | $4.5 | | $— | | $4.5 | | Entergy Louisiana |
| Financial transmission rights | | Prepayments and other | | $8.4 | | ($0.1) | | $8.3 | | Entergy Louisiana | | Prepayments and other | | $0.8 | | $— | | $0.8 | | Entergy Mississippi |
| Financial transmission rights | | Prepayments and other | | $2.2 | | $— | | $2.2 | | Entergy Mississippi | | Prepayments and other | | $0.3 | | $— | | $0.3 | | Entergy New Orleans |
| Financial transmission rights | | Prepayments and other | | $1.3 | | $— | | $1.3 | | Entergy New Orleans | | Prepayments and other | | $1.0 | | ($0.1) | | $0.9 | | Entergy Texas |
| | | |
| Liabilities: | | |
| Financial transmission rights | | Other current liabilities | | $0.9 | | ($1.4) | | ($0.5) | | Entergy Texas | |
| | | |
| Natural gas swaps and options | | | Other current liabilities | | $2.4 | | $— | | $2.4 | | Entergy Louisiana |
| Natural gas swaps and options | | Other current liabilities | | $1.1 | | $— | | $1.1 | | Entergy Louisiana | | Other non-current liabilities | | $2.2 | | $— | | $2.2 | | Entergy Louisiana |
| Natural gas swaps | | Other current liabilities | | $0.1 | | $— | | $0.1 | | Entergy New Orleans | | Other current liabilities | | $2.3 | | $— | | $2.3 | | 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 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, 2018,2020, letters of credit posted with MISO covered financial transmission rights exposure of $0.2 million for Entergy Mississippi, and $4.1Mississippi. As of December 31, 2019, letters of credit posted with MISO covered financial transmission rights exposure of $0.2 million for Entergy Texas.Mississippi. |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The effects of the Registrant Subsidiaries’ derivative instruments not designated as hedging instruments on their income statements for the three months ended March 31, 2020 and 2019 and 2018 arewere as follows:
|
| | | | | | |
| Instrument |
| Income Statement Location |
| Amount of gain
(loss) recorded
in the income statement |
| Registrant |
| | | | | (In Millions) | | |
| 2020 | | | |
| | |
| Natural gas swaps and options | | Fuel, fuel-related expenses, and gas purchased for resale | | ($1.3) | (a) | Entergy Louisiana |
| Natural gas swaps | | Fuel, fuel-related expenses, and gas purchased for resale | | ($5.2) | (a) | Entergy Mississippi |
| Natural gas swaps | | Fuel, fuel-related expenses, and gas purchased for resale | | ($0.4) | (a) | Entergy New Orleans |
| | | | | | |
| Financial transmission rights | | Purchased power expense | | $4.6 | (b) | Entergy Arkansas |
| Financial transmission rights | | Purchased power expense | | $5.3 | (b) | Entergy Louisiana |
| Financial transmission rights | | Purchased power expense | | ($0.1) | (b) | Entergy Mississippi |
| Financial transmission rights | | Purchased power expense | | $0.4 | (b) | Entergy New Orleans |
| Financial transmission rights | | Purchased power expense | | $2.4 | (b) | Entergy Texas |
| | | | | | |
| 2019 | | | |
| | |
| Natural gas swaps and options | | Fuel, fuel-related expenses, and gas purchased for resale | | $0.8 | (a) | Entergy Louisiana |
| Natural gas swaps | | Fuel, fuel-related expenses, and gas purchased for resale | | ($1.8) | (a) | Entergy Mississippi |
| Natural gas swaps | | Fuel, fuel-related expenses, and gas purchased for resale | | $0.2 | (a) | Entergy New Orleans |
| | | | | | | |
| Financial transmission rights | | Purchased power expense | | $8.4 | (b) | Entergy Arkansas |
| Financial transmission rights | | Purchased power expense | | $8.8 | (b) | Entergy Louisiana |
| Financial transmission rights | | Purchased power expense | | $1.1 | (b) | Entergy Mississippi |
| Financial transmission rights | | Purchased power expense | | $1.9 | (b) | Entergy New Orleans |
| Financial transmission rights | | Purchased power expense | | $0.3 | (b) | Entergy Texas |
| | | | | | |
2018 | | | | | | |
Natural gas swaps | | Fuel, fuel-related expenses, and gas purchased for resale | | ($0.2) | (a) | Entergy Mississippi |
Natural gas swaps | | Fuel, fuel-related expenses, and gas purchased for resale | | ($0.1) | (a) | Entergy New Orleans |
| | | | | | |
Financial transmission rights | | Purchased power expense | | $8.0 | (b) | Entergy Arkansas |
Financial transmission rights | | Purchased power expense | | $17.6 | (b) | Entergy Louisiana |
Financial transmission rights | | Purchased power expense | | $7.8 | (b) | Entergy Mississippi |
Financial transmission rights | | Purchased power expense | | $3.3 | (b) | Entergy New Orleans |
Financial transmission rights | | Purchased power expense | | ($3.5) | (b) | Entergy Texas |
| |
| (a) | Due to regulatory treatment, the natural gas swaps and options are marked-to-market through fuel, fuel-related expenses, and gas purchased for resale and then such amounts are simultaneously reversed and recorded as an offsetting regulatory asset or liability. The gains or losses recorded as fuel expenses when the swaps and options are settled are recovered or refunded through fuel cost recovery mechanisms. |
| |
| (b) | Due to regulatory treatment, the changes in the estimated fair value of financial transmission rights for the Utility operating companies are recorded through purchased power expense and then such amounts are simultaneously reversed and recorded as an offsetting regulatory asset or liability. The gains or losses recorded as purchased power expense when the financial transmission rights for the Utility operating companies are settled are recovered or refunded through fuel cost recovery mechanisms. |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Fair ValuesEntergy Arkansas
Energy Cost Recovery Rider
In March 2020, Entergy Arkansas filed its annual redetermination of its energy cost rate pursuant to the energy cost recovery rider, which reflected a decrease from $0.01462 per kWh to $0.01052 per kWh. 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 requiredredetermined rate became effective with the first billing cycle in developingApril 2020 through the estimates of fair value. Therefore, estimates are not necessarily indicativenormal operation of the amountstariff.
Entergy Louisiana
In March 2020 the LPSC staff provided notice of an audit of Entergy Louisiana’s fuel adjustment clause filings. The audit includes a review of the reasonableness of charges flowed through Entergy Louisiana’s fuel adjustment clause for the period from 2016 through 2019. Discovery has not yet commenced.
Entergy Texas
In September 2019, Entergy Texas filed an application to reconcile its fuel and purchased power costs for the period from April 2016 through March 2019. During the reconciliation period, Entergy Texas incurred approximately $1.6 billion in Texas jurisdictional eligible fuel and purchased power expenses, net of certain revenues credited to such expenses and other adjustments. Entergy Texas estimated an under-recovery balance of approximately $25.8 million, including interest, which Entergy Texas requested authority to carry over as the beginning balance for the subsequent reconciliation period beginning April 2019. In March 2020 an intervenor filed testimony proposing that the PUCT disallow: (1) $2 million in replacement power costs associated with generation outages during the reconciliation period; and (2) $24.4 million associated with the operation of the Spindletop natural gas storage facility during the reconciliation period. In April 2020, Entergy could realize in a current market exchange. Gains or losses realized on financial instruments other than those instruments heldTexas filed rebuttal testimony refuting all points raised by the Entergyintervenor. A hearing on the merits is currently set for May 2020.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Wholesale Commodities business
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 reflectedupdates to that discussion.
Filings with the LPSC (Entergy Louisiana)
Retail Rates - Electric
2018 Formula Rate Plan Filing
Commercial operation at Lake Charles Power Station commenced in futureMarch 2020. In March 2020, Entergy Louisiana filed an update to its 2018 formula rate plan evaluation report to include the estimated first-year revenue requirement of $108 million associated with the Lake Charles Power Station. The resulting interim adjustment to rates became effective with the first billing cycle of April 2020.
Filings with the MPSC (Entergy Mississippi)
Formula Rate Plan Filing
In March 2020, Entergy Mississippi submitted its formula rate plan 2020 test year filing and therefore do not affect net income.2019 look-back filing showing Entergy considersMississippi’s earned return for the carrying amounts of most financial instruments classified as current assets and liabilitieshistorical 2019 calendar year to be below the formula rate plan bandwidth and projected earned return for the 2020 calendar year to be below the formula rate plan bandwidth. The 2020 test year filing shows a reasonable estimate$24.6 million rate increase is necessary to reset Entergy Mississippi’s earned return on common equity to the specified point of their fair value becauseadjustment of 6.51% return on rate base, within the formula rate plan bandwidth. The 2019 look-back filing compares actual 2019 results to the approved benchmark return on rate base and reflects the need for a $7.3 million interim increase in formula rate plan revenues. In accordance with the MPSC-approved revisions to the formula rate plan, Entergy Mississippi implemented a $24.3 million interim rate increase, reflecting a cap equal to 2% of 2019 retail revenues, effective with the April 2020 billing cycle, subject to refund, pending a final MPSC order. A final order is expected in the second quarter 2020, with the resulting final rates, including amounts above the 2% cap of 2019 retail revenues, effective July 2020.
Filings with the City Council (Entergy New Orleans)
Energy Efficiency
As discussed in the Form 10-K, in December 2019, Entergy New Orleans filed an application with the City Council seeking approval of an implementation plan for the Energy Smart energy efficiency program from April 2020 through December 2022. Entergy New Orleans proposed to recover the costs of the short maturity of these instruments.program through mechanisms previously approved by the City Council or through the energy efficiency cost recovery rider, which was approved in the 2018 combined rate case resolution. In February 2020 the City Council approved Entergy New Orleans’s application.
Accounting standards define fair value as an exit price, or2018 Base Rate Case Filing
See 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 priorityForm 10-K for unadjusted market quotes in an active market for the identical asset or liability and the lowest priority for unobservable inputs.
The three levelsdiscussion of the fair value hierarchy are:
Level 1 - Level 1 inputs are unadjusted quoted priceselectric and gas base rate case filed in active marketsSeptember 2018. In response to the City Council’s November 2019 resolution in the rate case, Entergy New Orleans made a compliance filing in December 2019 and also filed timely a petition for identical assetsappeal and judicial review and for stay of or liabilitiesinjunctive relief alleging that the entity has the ability to access at the measurement date. Active markets are thoseresolution is unlawful 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 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 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 methodologiesfailing to produce management’s best estimatejust and reasonable rates. A hearing on the requested injunction was scheduled in Civil District Court for February 2020, but by joint motion 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 PolicyCity Council and Entergy Wholesale Commodities Accounting group. The primary functions ofNew Orleans, the Business Unit Risk Control group include: gathering, validating and reporting market data, providing market risk analyses and valuationsCivil District Court issued an order for a limited remand to the City Council to consider a potential agreement in principle/stipulation at its February 20, 2020 meeting. On February 17, 2020, Entergy New Orleans filed
Entergy Corporation and Subsidiaries
Notes to Financial Statements
with the City Council an agreement in supportprinciple between Entergy New Orleans and the City Council’s advisors. On February 20, 2020, the City Council voted to approve the proposed agreement in principle and issued a resolution modifying the required treatment of certain accumulated deferred income taxes. As a result of the agreement in principle, the total annual revenue requirement reduction will be approximately $45 million ($42 million electric, including $29 million in rider reductions; and $3 million gas). As a result, Entergy Wholesale Commodities’ commercial transactions, developingNew Orleans fully implemented the new rates in April 2020. The merits of the appeal will be subject to a separate procedural schedule issued by the Civil District Court.
2020 Formula Rate Plan Filing
In April 2020, Entergy New Orleans filed a motion with the City Council to delay its formula rate plan filing until June 2020. In May 2020 the City Council issued an order extending the filing deadline for Entergy New Orleans’s formula rate plan filing to June 29, 2020.
Filings with the PUCT (Entergy Texas)
Distribution Cost Recovery Factor (DCRF) Rider
In March 2020, Entergy Texas filed with the PUCT a request to amend its DCRF rider. The proposed rider is designed to collect approximately $23.6 million annually, or $20.4 million in incremental annual DCRF revenue beyond Entergy Texas’s currently effective DCRF rider from Entergy Texas’s retail customers based on its capital invested in distribution between January 1, 2019 and administering protocolsDecember 31, 2019.
Transmission Cost Recovery Factor (TCRF) Rider
As discussed in the Form 10-K, in August 2019, Entergy Texas filed with the PUCT a request to amend its TCRF rider. The new TCRF rider is designed to collect approximately $19.4 million annually from Entergy Texas’s retail customers based on its capital invested in transmission between January 1, 2018 and June 30, 2019. In January 2020 the PUCT issued an order approving an unopposed settlement providing for recovery of the requested revenue requirement. Entergy Texas implemented the amended rider beginning with bills covering usage on and after January 23, 2020.
System Agreement Cost Equalization Proceedings
Rough Production Cost Equalization Rates
Consolidated 2011, 2012, 2013, and 2014 Rate Filing Proceedings
As discussed in the Form 10-K, in April 2018 the LPSC requested rehearing of the FERC’s March 2018 order affirming the ALJ’s initial decision in the consolidated proceedings. Entergy filed in May 2018 the bandwidth true-up payments and receipts for the management2011-2014 rate filings and the payments were made in May 2018. In April 2020 the FERC issued an order partially granting the LPSC’s rehearing request. In the order the FERC reversed its prior finding and determined that the tax gain portion of market risks, and implementing and maintaining controls around changes to market datathe Waterford 3 financing accumulated deferred income tax should be included in the energy tradingbandwidth calculation. The order requires Entergy Services to redetermine bandwidth true-up payments and risk management system. The Business Unit Risk Control group is also responsiblereceipts for managing the energy trading and risk management system, forecasting revenues, forward positions and analysis. The Accounting Policy and 2010-2012 test years.
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 reportsArkansas Opportunity Sales Proceeding
As discussed in the Form 10-K, the FERC’s opportunity sales orders have been appealed 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 payableD.C. Circuit 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 salesLPSC, and the APSC. In February 2020 all of the output fromappeals were consolidated and in April 2020 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 priceD.C. Circuit established a briefing schedule. Briefing will occur 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.May 2020 through September 2020.
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 groups 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 groups report to the Chief Accounting Officer.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Also as discussed in the Form 10-K, in May 2019, Entergy Arkansas filed an application with the APSC requesting approval of a special rider tariff to recover the costs of its opportunity sales payments from its retail customers over a 24-month period. In January 2020 the Attorney General and Arkansas Electric Energy Consumers, Inc. filed testimony opposing the recovery by Entergy Arkansas of the opportunity sales payment but also claiming that certain components of the payment should be segregated and refunded to customers. In March 2020, Entergy Arkansas filed rebuttal testimony. Also in March 2020, Entergy Arkansas, the APSC staff, and the Arkansas Electric Energy Consumers, Inc. filed a joint motion asking the APSC to issue a final decision based on the record in the proceeding and cancel the April 2020 evidentiary hearing. The Arkansas Attorney General did not oppose the request, which was granted by the APSC in March 2020. A final decision is expected in July 2020.
Complaints Against System Energy
Return on Equity and Capital Structure Complaints
As discussed in the Form 10-K, in November 2019, in a proceeding that did not involve Entergy, the FERC issued an order addressing the methodology for determining the return on equity applicable to transmission owners in MISO. Thereafter, the participants in the System Energy proceeding agreed to amend the procedural schedule to allow the participants to file supplemental testimony addressing the order in the MISO transmission owner proceeding (Opinion No. 569).
In February 2020 the LPSC, the MPSC and APSC, and the FERC trial staff filed supplemental testimony addressing Opinion No. 569 and how it would affect the return on equity evaluation for the two complaint periods concerning System Energy. For the first refund period, based on their respective interpretations and applications of the Opinion No. 569 methodology, the LPSC argues for an authorized return on equity for System Energy of 8.44%; the MPSC and APSC argue for an authorized return on equity of 8.41%; and the FERC trial staff argues for an authorized return on equity of 9.22%. For the second refund period and on a prospective basis, based on their respective interpretations and applications of the Opinion No. 569 methodology, the LPSC argues for an authorized return on equity for System Energy of 7.89%; the MPSC and APSC argue that an authorized return on equity of 8.01% may be appropriate; and the FERC trial staff argues for an authorized return on equity of 8.66%.
In April 2020, System Energy filed supplemental answering testimony addressing Opinion No. 569. System Energy argues that the Opinion No. 569 methodology is conceptually and analytically defective for purposes of establishing just and reasonable authorized return on equity determinations and proposes an alternative approach. As its primary recommendation, System Energy continues to support the return on equity determinations in its March 2019 testimony for the first refund period and its June 2019 testimony for the second refund period. Under the Opinion No. 569 methodology, System Energy calculates a “presumptively just and reasonable range” for the authorized return on equity for the first refund period of 8.57% to 9.52%, and for the second refund period of 8.28% to 9.11%. System Energy argues that these ranges are not just and reasonable results. Under its proposed alternative methodology, System Energy calculates an authorized return on equity of 10.26% for the first refund period, which also falls within the presumptively just and reasonable range calculated for the second refund period and prospectively.
The following tables set forth, by level withinschedule was further revised in March 2020, and rebuttal testimony addressing Opinion No. 569 is due in June 2020; the fair value hierarchy, Entergy’s assetshearing in the System Energy proceeding will commence in August 2020; and liabilities that are accounted for at fair value onthe initial decision will be due in December 2020.
Grand Gulf Sale-leaseback Renewal Complaint
As discussed in the Form 10-K, in May 2018 the LPSC filed a recurring basis as of March 31, 2019complaint against System Energy and December 31, 2018. The assessment of the significanceEntergy Services related to System Energy’s renewal of a particular input to a fair value measurement requires judgmentsale-leaseback transaction originally entered into in December 1988 for an 11.5% undivided interest in Grand Gulf Unit 1. In February 2019 the presiding ALJ ruled that the hearing ordered by the FERC includes the issue of whether specific subcategories of accumulated deferred income tax should be included in, or excluded from, System Energy’s formula rate. In March 2019 the LPSC, MPSC, APSC, and may affect its placement within the fair value hierarchy levels.City
|
| | | | | | | | | | | | | | | | |
| 2019 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | | (In Millions) |
| Assets: | | | | | | | | |
| Temporary cash investments | |
| $865 |
| |
| $— |
| |
| $— |
| |
| $865 |
|
| Decommissioning trust funds (a): | | | | | | | | |
| Equity securities | | 1,357 |
| | — |
| | — |
| | 1,357 |
|
| Debt securities | | 1,320 |
| | 1,672 |
| | — |
| | 2,992 |
|
| Common trusts (b) | | | | | | | | 2,529 |
|
| Power contracts | | — |
| | — |
| | 3 |
| | 3 |
|
| Securitization recovery trust account | | 52 |
| | — |
| | — |
| | 52 |
|
| Escrow accounts | | 405 |
| | — |
| | — |
| | 405 |
|
| Gas hedge contracts | | 1 |
| | — |
| | — |
| | 1 |
|
| Financial transmission rights | | — |
| | — |
| | 5 |
| | 5 |
|
| | |
| $4,000 |
| |
| $1,672 |
| |
| $8 |
| |
| $8,209 |
|
| | | | | | | | | |
| Liabilities: | | | | | | | | |
| Power contracts | |
| $— |
| |
| $— |
| |
| $49 |
| |
| $49 |
|
| Gas hedge contracts | | 1 |
| | — |
| | — |
| | 1 |
|
| | |
| $1 |
| |
| $— |
| |
| $49 |
| |
| $50 |
|
|
| | | | | | | | | | | | | | | | |
| 2018 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | | (In Millions) |
| Assets: | | | | | | | | |
| Temporary cash investments | |
| $424 |
| |
| $— |
| |
| $— |
| |
| $424 |
|
| Decommissioning trust funds (a): | | | | | | | | |
| Equity securities | | 1,686 |
| | — |
| | — |
| | 1,686 |
|
| Debt securities | | 1,259 |
| | 1,625 |
| | — |
| | 2,884 |
|
| Common trusts (b) | | | | | | | | 2,350 |
|
| Power contracts | | — |
| | — |
| | 3 |
| | 3 |
|
| Securitization recovery trust account | | 51 |
| | — |
| | — |
| | 51 |
|
| Escrow accounts | | 403 |
| | — |
| | — |
| | 403 |
|
| Gas hedge contracts | | — |
| | 2 |
| | — |
| | 2 |
|
| Financial transmission rights | | — |
| | — |
| | 15 |
| | 15 |
|
| | |
| $3,823 |
| |
| $1,627 |
| |
| $18 |
| |
| $7,818 |
|
| Liabilities: | | | | | | | | |
| Power contracts | |
| $— |
| |
| $— |
| |
| $34 |
| |
| $34 |
|
| Gas hedge contracts | | 1 |
| | — |
| | — |
| | 1 |
|
| | |
| $1 |
| |
| $— |
| |
| $34 |
| |
| $35 |
|
| |
(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. |
Council filed direct testimony. The LPSC testimony sought 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, and the cost of capital additions associated with the sale-leaseback interest, as well as interest on those amounts.
In June 2019 System Energy filed answering testimony arguing that the FERC should reject all claims for refunds. Among other things, System Energy argued that claims for refunds of the costs of lease renewal payments and capital additions should be rejected because those costs were recovered consistent with the Unit Power Sales Agreement formula rate, System Energy was not over or double recovering any costs, and customers will save costs over the initial and renewal terms of the leases. System Energy argued that claims for refunds associated with liabilities arising from uncertain tax positions should be rejected because the liabilities do not provide cost-free capital, the repayment timing of the liabilities is uncertain, and the outcome of the underlying tax positions is uncertain. System Energy’s testimony also challenged the refund calculations supplied by the other parties.
In August 2019 the FERC trial staff filed direct and answering testimony seeking refunds for rate base reductions for the liabilities associated with uncertain tax positions. The FERC trial staff also argued that System Energy recovered $32 million more than it should have in depreciation expense for capital additions. In September 2019, System Energy filed cross-answering testimony disputing the FERC trial staff’s arguments for refunds, stating that the FERC trial staff’s position regarding depreciation rates for capital additions is not unreasonable, but explaining that any change in depreciation expense is only one element of a Unit Power Sales Agreement re-billing calculation. Adjustments to depreciation expense in any re-billing under the Unit Power Sales Agreement formula rate will also involve changes to accumulated depreciation, accumulated deferred income taxes, and other formula elements as needed. In October 2019 the LPSC filed rebuttal testimony increasing the amount of refunds sought for the liabilities associated with uncertain tax positions. The LPSC now seeks approximately $512 million, plus interest, which is approximately $170 million through March 31, 2020. The FERC trial staff also filed rebuttal testimony in which it seeks refunds of a similar amount as the LPSC for the liabilities associated with uncertain tax positions. The LPSC testimony also argued that adjustments to depreciation rates should affect rate base on a prospective basis only.
A hearing was held before a FERC ALJ in November 2019. In April 2020 the ALJ issued the initial decision. Among other things, the ALJ determined that refunds were due on three main issues. First, with regard to the lease renewal payments, the ALJ determined that System Energy is recovering an unjust acquisition premium through the lease renewal payments, and that System Energy’s recovery from customers through rates should be limited to the cost of service based on the remaining net book value of the leased assets, which is approximately $70 million. The ALJ found that the remedy for this issue should be the refund of lease payments (approximately $17.2 million per year since July 2015) with interest determined at the FERC quarterly interest rate, which would be offset by the addition of the net book value of the leased assets in the cost of service. The ALJ did not calculate a value for the refund expected as a result of this remedy. In addition, System Energy would no longer recover the lease payments in rates prospectively. Second, with regard to the liabilities associated with uncertain tax positions, the ALJ determined that the liabilities are accumulated deferred income taxes and System Energy’s rate base should have been reduced for those liabilities. If the ALJ’s initial decision is upheld, the estimated refund for this issue through March 31, 2020, is approximately $397 million, plus interest, which is approximately $96 million through March 31, 2020. The ALJ also found that System Energy should include liabilities associated with uncertain tax positions as a rate base reduction going forward. Third, with regard to the depreciation expense adjustments, the ALJ found that System Energy should correct for the error in re-billings retroactively and prospectively, but that System Energy should not be permitted to recover interest on any retroactive return on enhanced rate base resulting from such corrections. If the initial decision is affirmed on this issue, System Energy estimates refunds of approximately $18 million, which includes interest through March 31, 2020.
The ALJ initial decision is an interim step in the FERC litigation process, and an ALJ’s determinations made in an initial decision are not controlling on the FERC. System Energy plans to file briefs on exceptions to the FERC, re-urging its positions and requesting the reversal of many of the findings in the ALJ’s initial decision, including the lease renewal and uncertain tax position issues. The ALJ in the initial decision acknowledges that these are issues of first impression before the FERC. Briefs on exceptions from all parties are scheduled for June 2020, and briefs opposing
Entergy Corporation and Subsidiaries
Notes to Financial Statements
exceptions are scheduled for September 2020. The FERC will then review the case and issue an order on the proceeding, and the FERC may accept, reject, or modify the ALJ’s initial decision in whole or in part. Refunds, if any, that might be required will only become due after the FERC issues its order reviewing the initial decision.
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, |
| | 2020 | | 2019 |
| | (In Millions, Except Per Share Data) |
| | Income | | Shares | | $/share | | Income | | Shares | | $/share |
| Basic earnings per share | | | | | | | | | | | |
| Net income attributable to Entergy Corporation |
| $118.7 |
| | 199.8 |
| |
| $0.59 |
| |
| $254.5 |
| | 189.6 |
| |
| $1.34 |
|
| Average dilutive effect of: | | | | | | | | | | | |
| Stock options | | | 0.7 |
| | — |
| | | | 0.4 |
| | — |
|
| Other equity plans | | | 0.4 |
| | — |
| | | | 0.5 |
| | (0.01 | ) |
| Equity forwards | | | — |
| | — |
| | | | 1.7 |
| | (0.01 | ) |
| Diluted earnings per share |
| $118.7 |
| | 200.9 |
| |
| $0.59 |
| |
| $254.5 |
| | 192.2 |
| |
| $1.32 |
|
The number of stock options not included in the calculation of diluted common shares outstanding due to their antidilutive effect was approximately 0.5 million for the three months ended March 31, 2020 and approximately 0.7 million for the three months ended March 31, 2019.
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 $0.93 for the three months ended March 31, 2020 and $0.91 for the three months ended March 31, 2019.
Treasury Stock
During the three months ended March 31, 2020, Entergy Corporation issued 1,011,970 shares of its previously repurchased common stock to satisfy stock option exercises, vesting of shares of restricted stock, and other stock-based awards. Entergy Corporation did not repurchase any of its common stock during the three months ended March 31, 2020.
Retained Earnings
On April 8, 2020, Entergy Corporation’s Board of Directors declared a common stock dividend of $0.93 per share, payable on June 1, 2020, to holders of record as of May 7, 2020.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
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 sets forth a reconciliation ofpresents changes in the net assets (liabilities)accumulated other comprehensive income (loss) for Entergy for the fair value of derivatives classified as Level 3three months ended March 31, 2020 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, December 31, 2019 |
| $84,206 |
| |
| ($557,072 | ) | |
| $25,946 |
| |
| ($446,920 | ) |
| | | | | | | | |
| Other comprehensive income (loss) before reclassifications | 52,846 |
| | 34,349 |
| | 17,713 |
| | 104,908 |
|
| Amounts reclassified from accumulated other comprehensive income (loss) | (74,556 | ) | | 19,550 |
| | (1,969 | ) | | (56,975 | ) |
| Net other comprehensive income (loss) for the period | (21,710 | ) | | 53,899 |
| | 15,744 |
| | 47,933 |
|
| | | | | | | | |
| Ending balance, March 31, 2020 |
| $62,496 |
| |
| ($503,173 | ) | |
| $41,690 |
| |
| ($398,987 | ) |
The following table presents changes in the fair value hierarchyaccumulated other comprehensive income (loss) for Entergy for the three months ended March 31, 2019 and 2018:by component:
|
| | | | | | | | | | | | | | | |
| | 2019 | | 2018 |
| | Power Contracts | | Financial transmission rights | | Power Contracts | | Financial transmission rights |
| (In Millions) |
| Balance as of January 1, |
| ($31 | ) | |
| $15 |
| |
| ($65 | ) | |
| $21 |
|
| Total gains (losses) for the period (a) | | | | | | | |
| Included in earnings | 5 |
| | — |
| | 14 |
| | (1 | ) |
| Included in other comprehensive income | 26 |
| | — |
| | 91 |
| | — |
|
| Included as a regulatory liability/asset | — |
| | 11 |
| | — |
| | 20 |
|
| Settlements | (46 | ) | | (21 | ) | | 35 |
| | (32 | ) |
| Balance as of March 31, |
| ($46 | ) | |
| $5 |
| |
| $75 |
| |
| $8 |
|
|
| | | | | | | | | | | | | | | |
| | Cash flow hedges net unrealized gain (loss) | | Pension and other postretirement liabilities | | Net unrealized investment gain (loss) | | Total Accumulated Other Comprehensive Income (Loss) |
| | (In Thousands) |
| Ending balance, December 31, 2018 |
| ($23,135 | ) | |
| ($531,922 | ) | |
| ($2,116 | ) | |
| ($557,173 | ) |
| Implementation of accounting standards | (7,685 | ) | | — |
| | 879 |
| | (6,806 | ) |
| Beginning balance, January 1, 2019 |
| ($30,820 | ) | |
| ($531,922 | ) | |
| ($1,237 | ) | |
| ($563,979 | ) |
| | | | | | | | |
| Other comprehensive income (loss) before reclassifications | 28,312 |
| | — |
| | 13,539 |
| | 41,851 |
|
| Amounts reclassified from accumulated other comprehensive income (loss) | (40,738 | ) | | 11,550 |
| | 164 |
| | (29,024 | ) |
| Net other comprehensive income (loss) for the period | (12,426 | ) | | 11,550 |
| | 13,703 |
| | 12,827 |
|
| | | | | | | | |
| Ending balance, March 31, 2019 |
| ($43,246 | ) | |
| ($520,372 | ) | |
| $12,466 |
| |
| ($551,152 | ) |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The following table presents changes in accumulated other comprehensive income (loss) for Entergy Louisiana for the three months ended March 31, 2020 and 2019:
|
| | | | | | | | |
| | | Pension and Other
Postretirement Liabilities |
| | | 2020 | | 2019 |
| | | (In Thousands) |
| Beginning balance, January 1, | |
| $4,562 |
| |
| ($6,153 | ) |
| | | | | |
| Other comprehensive income (loss) before reclassifications | | 10,050 |
| | — |
|
Amounts reclassified from accumulated other
comprehensive income (loss) | | (583 | ) | | (969 | ) |
| Net other comprehensive income (loss) for the period | | 9,467 |
| | (969 | ) |
| | | | | |
| Ending balance, March 31, | |
| $14,029 |
| |
| ($7,122 | ) |
Total reclassifications out of accumulated other comprehensive income (loss) (AOCI) into income for Entergy for the three months ended March 31, 2020 and 2019 were as follows:
|
| | | | | | | | | |
| | Amounts reclassified from AOCI | | Income Statement Location |
| | 2020 | | 2019 | | |
| | (In Thousands) | | |
| Cash flow hedges net unrealized gain (loss) | | | | | |
| Power contracts |
| $94,423 |
| |
| $51,615 |
| | Competitive business operating revenues |
| Interest rate swaps | (48 | ) | | (48 | ) | | Miscellaneous - net |
| Total realized gain (loss) on cash flow hedges | 94,375 |
| | 51,567 |
| | |
| Income taxes | (19,819 | ) | | (10,829 | ) | | Income taxes |
| Total realized gain (loss) on cash flow hedges (net of tax) |
| $74,556 |
| |
| $40,738 |
| | |
| | | | | | |
| Pension and other postretirement liabilities | | | | | |
| Amortization of prior-service credit |
| $3,719 |
| |
| $5,326 |
| | (a) |
| Amortization of loss | (27,318 | ) | | (18,988 | ) | | (a) |
| Settlement loss | — |
| | (1,137 | ) | | (a) |
| Total amortization | (23,599 | ) | | (14,799 | ) | | |
| Income taxes | 4,049 |
| | 3,249 |
| | Income taxes |
| Total amortization (net of tax) |
| ($19,550 | ) | |
| ($11,550 | ) | | |
| | | | | | |
| Net unrealized investment gain (loss) | | | | | |
| Realized gain (loss) |
| $3,116 |
| |
| ($259 | ) | | Interest and investment income |
| Income taxes | (1,147 | ) | | 95 |
| | Income taxes |
| Total realized investment gain (loss) (net of tax) |
| $1,969 |
| |
| ($164 | ) | | |
| | | | | | |
| Total reclassifications for the period (net of tax) |
| $56,975 |
| |
| $29,024 |
| | |
| |
| (a) | ChangeThese accumulated other comprehensive income (loss) components were included in unrealized gains or lossesthe computation of net periodic pension and other postretirement cost. See Note 6 to the financial statements herein for additional details. |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Total reclassifications out of accumulated other comprehensive income (loss) (AOCI) into income for Entergy Louisiana for the three months ended March 31, 2020 and 2019 were as follows:
|
| | | | | | | | | | |
| | | Amounts reclassified
from AOCI | | Income Statement Location |
| | | 2020 | | 2019 | | |
| | | (In Thousands) | | |
| Pension and other postretirement liabilities | | | | | | |
| Amortization of prior-service credit | |
| $1,089 |
| |
| $1,838 |
| | (a) |
| Amortization of loss | | (301 | ) | | (527 | ) | | (a) |
| Total amortization | | 788 |
| | 1,311 |
| | |
| Income taxes | | (205 | ) | | (342 | ) | | Income taxes |
| Total amortization (net of tax) | | 583 |
| | 969 |
| | |
| | | | | | | |
| Total reclassifications for the period (net of tax) | |
| $583 |
| |
| $969 |
| | |
| |
| (a) | These accumulated other comprehensive income (loss) components were 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 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 three months ended March 31, 2020 was 2.99% 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, 2020.
|
| | | | | | |
| Capacity | | Borrowings | | Letters of Credit | | Capacity Available |
| (In Millions) |
| $3,500 | | $922 | | $6 | | $2,572 |
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 Registrant Subsidiaries (except Entergy New Orleans) defaults on other indebtedness or is in bankruptcy or insolvency proceedings, an acceleration of the facility maturity date may occur.
Entergy Corporation has a commercial paper program with a Board-approved program limit of up to $2 billion. At March 31, 2020, Entergy Corporation had approximately $1,942 million of commercial paper outstanding. The weighted-average interest rate for the three months ended March 31, 2020 was 2.02%.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and Entergy Texas each had credit facilities available as of March 31, 2020 as follows:
|
| | | | | | | | | | |
| Company | | Expiration Date | | Amount of Facility | | Interest Rate (a) | | Amount Drawn as of March 31, 2020 | | Letters of Credit Outstanding as of March 31, 2020 |
| Entergy Arkansas | | April 2021 | | $20 million (b) | | 2.11% | | $— | | $— |
| Entergy Arkansas | | September 2024 | | $150 million (c) | | 2.11% | | $— | | $— |
| Entergy Louisiana | | September 2024 | | $350 million (c) | | 2.11% | | $— | | $— |
| Entergy Mississippi | | April 2021 | | $37.5 million (d) | | 2.49% | | $— | | $— |
| Entergy Mississippi | | April 2021 | | $35 million (d) | | 2.49% | | $— | | $— |
| Entergy Mississippi | | April 2021 | | $10 million (d) | | 2.49% | | $— | | $— |
| Entergy New Orleans | | November 2021 | | $25 million (c) | | 2.26% | | $— | | $0.8 million |
| Entergy Texas | | September 2024 | | $150 million (c) | | 2.49% | | $— | | $1.3 million |
| |
| (a) | The interest rate is the estimated interest rate as of March 31, 2020 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 period included in earnings for derivatives held at the endissuance of letters of credit against a portion of the reporting period is ($4.9)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 three months ended Entergy Mississippi credit facilities may be secured by a security interest in its accounts receivable at Entergy Mississippi’s option. |
The commitment fees on the credit facilities range from 0.075% to 0.225% of the undrawn commitment amount. Each of the credit facilities requires the Registrant Subsidiary borrower to maintain a debt ratio, as defined, of 65% or less of its total capitalization. Each Registrant Subsidiary is in compliance with this covenant.
In addition, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and Entergy Texas each entered into one or more uncommitted standby letter of credit facilities as a means to post collateral to support its obligations to MISO. Following is a summary of the uncommitted standby letter of credit facilities as of March 31, 2020:
|
| | | | | | |
| Company | | Amount of Uncommitted Facility | | Letter of Credit Fee | | Letters of Credit Issued as of March 31, 2019 and2020 (a) |
| Entergy Arkansas | | $25 million | | 0.70% | | $1 million |
| Entergy Louisiana | | $125 million | | 0.70% | | $25.6 million |
| Entergy Mississippi | | $64 million | | 0.70% | | $1.8 million |
| Entergy New Orleans | | $15 million | | 1.00% | | $1 million |
| Entergy Texas | | $50 million | | 0.70% | | $10.4 million |
| |
| (a) | As of March 31, 2020, letters of credit posted with MISO covered financial transmission rights exposure of $0.2 million for Entergy Mississippi. See Note 8 to the three months ended March 31, 2018.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, 2021. The current FERC-authorized limits for Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy Texas, and System Energy are effective through November 8, 2020. In addition to borrowings from commercial banks, these companies may
Entergy Corporation and Subsidiaries
Notes to Financial Statements
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 were the FERC-authorized limits for short-term borrowings and the outstanding short-term borrowings as of March 31, 2020 (aggregating both internal and external short-term borrowings) for the Registrant Subsidiaries:
|
| | | |
| | Authorized | | Borrowings |
| | (In Millions) |
| Entergy Arkansas | $250 | | $— |
| Entergy Louisiana | $450 | | $— |
| Entergy Mississippi | $175 | | $19 |
| Entergy New Orleans | $150 | | $— |
| Entergy Texas | $200 | | $— |
| System Energy | $200 | | $— |
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 have commercial paper programs in place. Following is a summary as of March 31, 2020:
|
| | | | | | | | |
| Company | | Expiration Date | | Amount of Facility | | Weighted Average Interest Rate on Borrowings (a) | | Amount Outstanding as of March 31, 2020 |
| | |
| | (Dollars in Millions) |
| Entergy Arkansas VIE | | September 2021 | | $80 | | 2.59% | | $43.8 |
| Entergy Louisiana River Bend VIE | | September 2021 | | $105 | | 2.69% | | $58.4 |
| Entergy Louisiana Waterford VIE | | September 2021 | | $105 | | 2.69% | | $33.3 |
| System Energy VIE | | September 2021 | | $120 | | 2.59% | | $88.3 |
| |
| (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. |
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.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The nuclear fuel company variable interest entities had notes payable that were included in debt on the respective balance sheets as of March 31, 2020 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 | | 3.42% Series J due April 2021 | | $100 million |
In accordance with regulatory treatment, interest on the nuclear fuel company variable interest entities’ credit facilities, commercial paper, and long-term notes payable is reported in fuel expense.
Debt Issuances and Retirements
(Entergy Arkansas)
In March 2020, Entergy Arkansas issued $100 million of 4.00% Series mortgage bonds due June 2028. Entergy Arkansas is using the proceeds for general corporate purposes.
(Entergy Louisiana)
In March 2020, Entergy Louisiana issued $350 million of 2.90% Series mortgage bonds due March 2051. Entergy Louisiana is using the proceeds, together with other funds, to repay borrowings of $100 million on its $350 million credit facility and for general corporate purposes.
In March 2020, Entergy Louisiana issued $300 million of 4.20% Series mortgage bonds due September 2048. Entergy Louisiana expects to use the proceeds, together with other funds, to repay, at maturity, its $250 million of 3.95% Series mortgage bonds due October 2020 and for general corporate purposes.
(Entergy New Orleans)
In March 2020, Entergy New Orleans issued $62 million of 3.75% Series mortgage bonds due March 2040 and $78 million of 3.00% Series mortgage bonds due March 2025. Entergy New Orleans is using the proceeds to repay short-term debt, to finance a portion of the construction of the New Orleans Power Station, and for general corporate purposes.
(Entergy Texas)
In March 2020, Entergy Texas issued $175 million of 3.55% Series mortgage bonds due September 2049. Entergy Texas is using the proceeds, together with other funds, to finance a portion of the construction of the Montgomery County Power Station, to repay borrowings of $100 million on its $150 million credit facility, and for general corporate purposes.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Fair Value
The book value and the fair value of long-term debt for Entergy Corporation and the Registrant Subsidiaries as of March 31, 2020 were as follows:
|
| | | | | | | |
| | Book Value of Long-Term Debt | | Fair Value of Long-Term Debt (a) |
| | (In Thousands) |
| Entergy |
| $19,458,543 |
| |
| $20,426,604 |
|
| Entergy Arkansas |
| $3,655,723 |
| |
| $3,831,058 |
|
| Entergy Louisiana |
| $7,923,381 |
| |
| $8,496,243 |
|
| Entergy Mississippi |
| $1,614,156 |
| |
| $1,692,495 |
|
| Entergy New Orleans |
| $680,188 |
| |
| $652,690 |
|
| Entergy Texas |
| $2,091,130 |
| |
| $2,239,980 |
|
| System Energy |
| $604,925 |
| |
| $615,747 |
|
| |
| (a) | Fair values were classified as Level 2 in the fair value hierarchy discussed in Note 8 to the financial statements herein. |
The book value and the fair value of long-term debt for Entergy Corporation and the Registrant Subsidiaries as of December 31, 2019 were as follows:
|
| | | | | | | |
| | Book Value of Long-Term Debt | | Fair Value of Long-Term Debt (a) |
| | (In Thousands) |
| Entergy |
| $17,873,655 |
| |
| $19,059,950 |
|
| Entergy Arkansas |
| $3,517,208 |
| |
| $3,747,914 |
|
| Entergy Louisiana |
| $7,303,669 |
| |
| $7,961,168 |
|
| Entergy Mississippi |
| $1,614,129 |
| |
| $1,709,505 |
|
| Entergy New Orleans |
| $560,906 |
| |
| $523,846 |
|
| Entergy Texas |
| $1,922,956 |
| |
| $2,090,215 |
|
| System Energy |
| $548,107 |
| |
| $565,209 |
|
| |
| (a) | Fair values were 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 530,716 shares of its common stock under the 2019 Omnibus Incentive Plan during the first quarter 2020 with a fair value of $11.45 per option. As of March 31, 2020, there were options on 2,474,280 shares of common stock outstanding with a weighted-average exercise price of $89.74. The intrinsic value, which has no effect on net income, of the outstanding stock options is calculated by the positive difference between the weighted average exercise price of the stock options granted and Entergy Corporation’s common stock price as of March 31, 2020. The aggregate intrinsic value of the stock options outstanding as of March 31, 2020 was $30.5 million.
The following table sets forthincludes financial information for outstanding stock options for the three months ended March 31, 2020 and 2019:
|
| | | | | | | |
| | 2020 | | 2019 |
| | (In Millions) |
| Compensation expense included in Entergy’s net income |
| $1.0 |
| |
| $1.0 |
|
| Tax benefit recognized in Entergy’s net income |
| $0.3 |
| |
| $0.2 |
|
| Compensation cost capitalized as part of fixed assets and materials and supplies |
| $0.4 |
| |
| $0.3 |
|
Other Equity Awards
In January 2020 the Board approved and Entergy granted 313,805 restricted stock awards and 134,853 long-term incentive awards under the 2019 Omnibus Incentive Plan. The restricted stock awards were made effective as of January 30, 2020 and were valued at $131.72 per share, which was the closing price of Entergy’s common stock on that 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. One-third of the restricted stock awards and accrued dividends will vest upon each anniversary of the grant date.
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 2020-2022 performance period, performance will be measured based 80 percent on relative total shareholder return and 20 percent on a cumulative adjusted earnings per share metric. The performance units were granted as of January 30, 2020 and 80 percent were valued at $169.74 per share based on various factors, primarily market conditions; and 20 percent were valued at $131.72 per share, the closing price of Entergy’s common stock on that date. Performance units have the same dividend rights as shares of Entergy common stock and are 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 the number of units that ultimately vest. See Note 12 to the financial statements in the Form 10-K for a description of the typesLong-Term Performance Unit Program.
The following table includes financial information for other outstanding equity awards for the three months ended March 31, 2020 and 2019:
|
| | | | | | | |
| | 2020 | | 2019 |
| | (In Millions) |
| Compensation expense included in Entergy’s net income |
| $9.4 |
| |
| $8.8 |
|
| Tax benefit recognized in Entergy’s net income |
| $2.4 |
| |
| $2.2 |
|
| Compensation cost capitalized as part of fixed assets and materials and supplies |
| $3.4 |
| |
| $2.9 |
|
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)
Components of Qualified Net Pension Cost
Entergy’s qualified pension cost, including amounts capitalized, for the first quarters of 2020 and 2019, included the following components:
|
| | | | | | | |
| | 2020 | | 2019 |
| | (In Thousands) |
| Service cost - benefits earned during the period |
| $40,379 |
| |
| $33,607 |
|
| Interest cost on projected benefit obligation | 60,799 |
| | 73,941 |
|
| Expected return on assets | (103,565 | ) | | (103,884 | ) |
| Amortization of net loss | 87,259 |
| | 58,418 |
|
| Settlement charges | — |
| | 1,137 |
|
| Net pension costs |
| $84,872 |
| |
| $63,219 |
|
The Registrant Subsidiaries’ qualified pension cost, including amounts capitalized, for their employees for the first quarters of 2020 and 2019, included the following components:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| 2020 | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy |
| | | (In Thousands) |
| Service cost - benefits earned during the period | |
| $6,566 |
| |
| $8,794 |
| |
| $2,023 |
| |
| $663 |
| |
| $1,546 |
| |
| $1,965 |
|
| Interest cost on projected benefit obligation | | 11,433 |
| | 12,841 |
| | 3,340 |
| | 1,456 |
| | 2,782 |
| | 2,814 |
|
| Expected return on assets | | (19,622 | ) | | (22,402 | ) | | (5,757 | ) | | (2,627 | ) | | (5,486 | ) | | (4,663 | ) |
| Amortization of net loss | | 16,897 |
| | 16,627 |
| | 4,748 |
| | 2,005 |
| | 3,265 |
| | 4,279 |
|
| Net pension cost | |
| $15,274 |
| |
| $15,860 |
| |
| $4,354 |
| |
| $1,497 |
| |
| $2,107 |
| |
| $4,395 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| 2019 | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy |
| | | (In Thousands) |
| Service cost - benefits earned during the period | |
| $5,261 |
| |
| $7,284 |
| |
| $1,629 |
| |
| $569 |
| |
| $1,350 |
| |
| $1,550 |
|
| Interest cost on projected benefit obligation | | 14,175 |
| | 15,882 |
| | 4,068 |
| | 1,874 |
| | 3,613 |
| | 3,364 |
|
| Expected return on assets | | (20,176 | ) | | (22,652 | ) | | (5,968 | ) | | (2,696 | ) | | (5,862 | ) | | (4,678 | ) |
| Amortization of net loss | | 11,840 |
| | 11,643 |
| | 3,104 |
| | 1,529 |
| | 2,334 |
| | 2,850 |
|
| Net pension cost | |
| $11,100 |
| |
| $12,157 |
| |
| $2,833 |
| |
| $1,276 |
| |
| $1,435 |
| |
| $3,086 |
|
Non-Qualified Net Pension Cost
Entergy recognized $4.5 million and $4 million in pension cost for its non-qualified pension plans in the fair value hierarchyfirst quarters of 2020 and significant unobservable inputs to each which cause that classification as of March 31, 2019:2019, respectively.
|
| | | | | | | | | |
Transaction Type | | Fair Value
as of
March 31, 2019
| | Significant
Unobservable Inputs
| | Range
from
Average
%
| | Effect on
Fair Value
|
| | (In Millions) | | | | | | | (In Millions) |
Power contracts - electricity swaps | | ($46) |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The Registrant Subsidiaries recognized the following pension cost for their employees for their non-qualified pension plans for the first quarters of 2020 and 2019:
|
| | | | | | | | | | | | | | | | | | | |
| | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas |
| | (In Thousands) |
| 2020 |
| $83 |
| |
| $37 |
| |
| $90 |
| |
| $8 |
| |
| $117 |
|
| 2019 |
| $73 |
| |
| $43 |
| |
| $75 |
| |
| $5 |
| |
| $124 |
|
Components of Net Other Postretirement Benefit Cost (Income)
Entergy’s other postretirement benefit cost (income), including amounts capitalized, for the first quarters of 2020 and 2019, included the following components:
|
| | | | | | | |
| | 2020 | | 2019 |
| | (In Thousands) |
| Service cost - benefits earned during the period |
| $5,801 |
| |
| $4,675 |
|
| Interest cost on accumulated postretirement benefit obligation (APBO) | 7,932 |
| | 11,975 |
|
| Expected return on assets | (10,328 | ) | | (9,562 | ) |
| Amortization of prior service credit | (5,922 | ) | | (8,844 | ) |
| Amortization of net loss | 468 |
| | 358 |
|
| Net other postretirement benefit cost (income) |
| ($2,049 | ) | |
| ($1,398 | ) |
|
| | | | | | | | | | | | |
| | +/- | 4% - 4.75% | | ($5) - ($6) | | | | | | | | |
The Registrant Subsidiaries’ other postretirement benefit cost (income), including amounts capitalized, for their employees for the first quarters of 2020 and 2019, included the following table sets forth an analysiscomponents:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| 2020 | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy |
| | | (In Thousands) |
| Service cost - benefits earned during the period | |
| $828 |
| |
| $1,423 |
| |
| $351 |
| |
| $105 |
| |
| $303 |
| |
| $294 |
|
| Interest cost on APBO | | 1,217 |
| | 1,723 |
| | 422 |
| | 227 |
| | 582 |
| | 307 |
|
| Expected return on assets | | (4,326 | ) | | — |
| | (1,307 | ) | | (1,355 | ) | | (2,435 | ) | | (748 | ) |
| Amortization of prior service credit | | (661 | ) | | (1,089 | ) | | (321 | ) | | (76 | ) | | (550 | ) | | (219 | ) |
| Amortization of net (gain) loss | | 55 |
| | (199 | ) | | 29 |
| | (38 | ) | | 212 |
| | 20 |
|
| Net other postretirement benefit cost (income) | |
| ($2,887 | ) | |
| $1,858 |
| |
| ($826 | ) | |
| ($1,137 | ) | |
| ($1,888 | ) | |
| ($346 | ) |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| 2019 | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy |
| | | (In Thousands) |
| Service cost - benefits earned during the period | |
| $591 |
| |
| $1,160 |
| |
| $262 |
| |
| $92 |
| |
| $236 |
| |
| $243 |
|
| Interest cost on APBO | | 1,807 |
| | 2,666 |
| | 670 |
| | 395 |
| | 854 |
| | 476 |
|
| Expected return on assets | | (3,991 | ) | | — |
| | (1,199 | ) | | (1,237 | ) | | (2,276 | ) | | (697 | ) |
| Amortization of prior service credit | | (1,238 | ) | | (1,837 | ) | | (439 | ) | | (171 | ) | | (561 | ) | | (363 | ) |
| Amortization of net (gain) loss | | 144 |
| | (174 | ) | | 181 |
| | 58 |
| | 121 |
| | 89 |
|
| Net other postretirement benefit cost (income) | |
| ($2,687 | ) | |
| $1,815 |
| |
| ($525 | ) | |
| ($863 | ) | |
| ($1,626 | ) | |
| ($252 | ) |
Reclassification out 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:Accumulated Other Comprehensive Income (Loss)
|
| | | | | | | | |
Significant
Unobservable
Input
| | Transaction Type | | Position | | Change to Input | | Effect on
|
Fair Value
|
Unit contingent discount | | | | | | | | |
| | Electricity swaps | | Sell | | Increase (Decrease) | | Decrease (Increase) |
TheEntergy and Entergy Louisiana reclassified the following table sets forth, by level withincosts out of accumulated other comprehensive income (loss) (before taxes and including amounts capitalized) for the fair value hierarchy, the Registrant Subsidiaries’ assetsfirst quarters of 2020 and liabilities that are accounted for at fair value on a recurring basis as of March 31, 2019 and December 31, 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.
2019:
|
| | | | | | | | | | | | | | | | |
| 2020 |
| Qualified
Pension
Costs |
| Other
Postretirement
Costs |
| Non-Qualified
Pension Costs |
| Total |
|
| (In Thousands) |
|
|
| Entergy |
|
|
|
|
|
|
|
|
| Amortization of prior service (cost) credit |
|
| $— |
|
|
| $3,776 |
|
|
| ($57 | ) |
|
| $3,719 |
|
| Amortization of net loss |
| (26,462 | ) |
| (25 | ) |
| (831 | ) |
| (27,318 | ) |
|
|
| ($26,462 | ) |
|
| $3,751 |
|
|
| ($888 | ) |
|
| ($23,599 | ) |
| Entergy Louisiana |
|
|
|
|
|
|
|
|
| Amortization of prior service credit |
|
| $— |
|
|
| $1,089 |
|
|
| $— |
|
|
| $1,089 |
|
| Amortization of net gain (loss) |
| (499 | ) |
| 199 |
|
| (1 | ) |
| (301 | ) |
|
|
| ($499 | ) |
|
| $1,288 |
|
|
| ($1 | ) |
|
| $788 |
|
|
| | | | | | | | | | | | | | | | |
| 2019 | | Qualified
Pension
Costs | | Other
Postretirement
Costs | | Non-Qualified
Pension Costs | | Total |
| | | (In Thousands) | | |
| Entergy | | | | | | | | |
| Amortization of prior service (cost) credit | |
| $— |
| |
| $5,375 |
| |
| ($49 | ) | |
| $5,326 |
|
| Amortization of net gain (loss) | | (18,735 | ) | | 308 |
| | (561 | ) | | (18,988 | ) |
| Settlement loss | | (1,137 | ) | | — |
| | — |
| | (1,137 | ) |
| | |
| ($19,872 | ) | |
| $5,683 |
| |
| ($610 | ) | |
| ($14,799 | ) |
| Entergy Louisiana | | | | | | | | |
| Amortization of prior service credit | |
| $— |
| |
| $1,838 |
| |
| $— |
| |
| $1,838 |
|
| Amortization of net gain (loss) | | (699 | ) | | 174 |
| | (2 | ) | | (527 | ) |
| | |
| ($699 | ) | |
| $2,012 |
| |
| ($2 | ) | |
| $1,311 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Accounting for Pension and Other Postretirement Benefits
In accordance with ASU No. 2017-07, “Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost”, the other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations and are presented by Entergy in miscellaneous - net in other income.
Other Postretirement Benefits
In March 2020, Entergy announced changes to its other postretirement benefits. Effective January 1, 2021, certain retired, former non-bargaining employees age 65 and older who are eligible for Entergy-sponsored retiree welfare benefits, and their eligible spouses who are age 65 and older (collectively, Medicare-eligible participants), will be eligible to participate in a new Entergy-sponsored retiree health plan, and will no longer be eligible for retiree coverage under the Entergy Corporation Companies’ Benefits Plus Medical, Dental and Vision Plans. Under the new Entergy retiree health plan, Medicare-eligible participants will be eligible to participate in a health reimbursement arrangement which they may use towards the purchase of various types of qualified insurance offered through a Medicare exchange provider and for other qualified medical expenses. In accordance with accounting standards, the effects of this change have been reflected in the March 31, 2020 other postretirement obligation. The changes affecting active bargaining unit employees will be negotiated with the unions prior to implementation, where necessary, and to the extent required by law.
Employer Contributions
Based on current assumptions, Entergy expects to contribute $216.3 million to its qualified pension plans in 2020. As of March 31, 2020, Entergy had contributed $59.8 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 2020:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy |
| | (In Thousands) |
| Expected 2020 pension contributions |
| $32,512 |
| |
| $38,766 |
| |
| $7,768 |
| |
| $3,248 |
| |
| $3,549 |
| |
| $10,544 |
|
| Pension contributions made through March 2020 |
| $10,120 |
| |
| $8,676 |
| |
| $2,560 |
| |
| $563 |
| |
| $453 |
| |
| $3,299 |
|
| Remaining estimated pension contributions to be made in 2020 |
| $22,392 |
| |
| $30,090 |
| |
| $5,208 |
| |
| $2,685 |
| |
| $3,096 |
| |
| $7,245 |
|
NOTE 7. BUSINESS SEGMENT INFORMATION (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)
Entergy Corporation
Entergy’s reportable segments as of March 31, 2020 were Utility and Entergy Wholesale Commodities. Utility includes the generation, transmission, distribution, and sale of electric power in portions of Arkansas, Louisiana, Mississippi, and Texas, and natural gas utility service in portions of Louisiana. Entergy Wholesale Commodities includes the ownership, operation, and decommissioning of nuclear power plants located in the northern United States and the sale of the electric power produced by its operating plants to wholesale customers. Entergy Wholesale Commodities also includes the ownership of interests in non-nuclear power plants that sell the electric power produced by those plants to wholesale customers. “All Other” includes the parent company, Entergy Corporation, and other business activity.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Entergy’s segment financial information for the first quarters of 2020 and 2019 was as follows: |
| | | | | | | | | | | | | | | | | | | | |
| | | Utility | | Entergy Wholesale Commodities | | All Other | | Eliminations | | Entergy |
| | | (In Thousands) |
| 2020 | | | | | | | | | | |
| Operating revenues | | $2,094,629 | | $332,549 | | $11 | |
| ($10 | ) | | $2,427,179 |
| Income taxes | | ($52,949) | | ($30,540) | |
| $12,295 |
| |
| $— |
| | ($71,194) |
| Consolidated net income (loss) | | $323,849 | |
| ($110,428 | ) | |
| ($58,228 | ) | |
| ($31,899 | ) | | $123,294 |
| Total assets as of March 31, 2020 | | $50,421,661 | | $3,921,539 | | $697,784 | |
| ($2,485,955 | ) | | $52,555,029 |
| 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 December 31, 2019 | | $49,557,664 | | $4,154,961 | | $514,020 | |
| ($2,502,733 | ) | | $51,723,912 |
The Entergy Wholesale Commodities business is sometimes referred to as the “competitive businesses.” Eliminations were primarily intersegment activity. Almost all of Entergy’s goodwill was related to the Utility segment.
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 shut down and sell all of the remaining plants in the merchant nuclear fleet. These decisions and transactions resulted in asset impairments; employee retention and severance expenses and other benefits-related costs; and contracted economic development contributions.
Total restructuring charges for the first quarters of 2020 and 2019 were comprised of the following:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | 2020 | | 2019 |
| | 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, |
| $129 |
| |
| $14 |
| |
| $143 |
| |
| $179 |
| |
| $14 |
| |
| $193 |
|
| Restructuring costs accrued | 21 |
| | — |
| | 21 |
| | 34 |
| | — |
| | 34 |
|
| Balance as of March 31, |
| $150 |
| |
| $14 |
| |
| $164 |
| |
| $213 |
| |
| $14 |
| |
| $227 |
|
In addition, Entergy Wholesale Commodities incurred $5 million in the first quarter 2020 and $74 million in the first quarter 2019 of impairment and other related charges associated with these strategic decisions and transactions.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Going forward, Entergy Wholesale Commodities expects to incur employee retention and severance expenses associated with management’s strategy to exit the merchant power business of approximately $75 million in 2020, of which $21 million has been incurred as of March 31, 2020, and a total of approximately $55 million from 2021 through 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.
The Utility has limited exposure to the effects of market risk because it operates primarily under cost-based rate regulation. To the extent approved by their retail regulators, the Utility operating companies use derivative instruments to hedge the exposure to price volatility inherent in their purchased power, fuel, and gas purchased for resale costs that are recovered from customers.
As a wholesale generator, Entergy Wholesale Commodities’ core business is selling energy, measured in MWh, to its customers. Entergy Wholesale Commodities enters into forward contracts with its customers and also sells energy and capacity in the day ahead or spot markets. In addition to its forward physical power and gas contracts, Entergy Wholesale Commodities may also use 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 March 31, 2020 is approximately 1 year. Planned generation currently under contract from Entergy Wholesale Commodities nuclear power plants is 97% for the remainder of 2020, of which approximately 61% is sold under financial derivatives and the remainder under normal purchase/normal sale contracts. Total planned generation for the remainder of 2020 is 11.6 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 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.
Certain of the agreements to sell the power produced by Entergy Wholesale Commodities power plants contain provisions that require an Entergy subsidiary to provide credit support to secure its obligations depending on the mark-to-market values of the contracts. The primary form of credit support to satisfy these requirements is an Entergy Corporation guarantee. As of March 31, 2020, there were no derivative contracts with counterparties in a liability position. In addition to the corporate guarantee, $9 million in cash collateral was required to be posted by the Entergy subsidiary to its counterparties and $95 million in letters of credit were required to be posted by its counterparties to the Entergy subsidiary. As of December 31, 2019, there were no derivative contracts with counterparties in a liability position. In addition to the corporate guarantee, $11 million in cash collateral was required to be posted by the Entergy subsidiary to its counterparties and $1 million in cash collateral and $98 million in letters of credit were required to be posted by it counterparties to the Entergy subsidiary. 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 natural gas swaps and options that financially settle against either the average Henry Hub Gas Daily prices or the NYMEX 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 had executed natural gas swaps and options as of March 31, 2020 was 4 years for Entergy Louisiana and the maximum length of time over which Entergy had executed natural gas swaps as of March 31, 2020 was 7 months for Entergy Mississippi. The total volume of natural gas swaps and options outstanding as of March 31, 2020 was 42,371,000 MMBtu for Entergy, including 29,220,000 MMBtu for Entergy Louisiana and 13,151,000 MMBtu for Entergy Mississippi. Credit support for these natural gas swaps and options is covered by master agreements that do not require Entergy to provide collateral based on mark-to-market value, but do carry adequate assurance language that may lead to requests for collateral.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
During the second quarter 2019, Entergy participated in the annual financial transmission rights auction process for the MISO planning year of June 1, 2019 through May 31, 2020. Financial transmission rights are derivative instruments that represent economic hedges of future congestion charges that will be incurred in serving Entergy’s customer load. They are not designated as hedging instruments. Entergy initially records financial transmission rights at their estimated fair value and subsequently adjusts the carrying value to their estimated fair value at the end of each accounting period prior to settlement. Unrealized gains or losses on financial transmission rights held by Entergy Wholesale Commodities are included in operating revenues. The Utility operating companies recognize regulatory liabilities or assets for unrealized gains or losses on financial transmission rights. The total volume of financial transmission rights outstanding as of March 31, 2020 was 18,987 GWh for Entergy, including 4,368 GWh for Entergy Arkansas, 8,517 GWh for Entergy Louisiana, 2,427 GWh for Entergy Mississippi, 934 GWh for Entergy New Orleans, and 2,662 GWh for Entergy Texas. Credit support for financial transmission rights held by the Utility operating companies is covered by cash and/or letters of credit issued by each Utility operating company as required by MISO. Credit support for financial transmission rights held by Entergy Wholesale Commodities is covered by cash. No cash or letters of credit were required to be posted for financial transmission rights exposure for Entergy Wholesale Commodities as of March 31, 2020 and December 31, 2019. Letters of credit posted with MISO covered the financial transmission rights exposure for Entergy Mississippi as of March 31, 2020 and December 31, 2019.
The fair values of Entergy’s derivative instruments in the consolidated balance sheet as of March 31, 2020 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) | | $81 | | $— | | $81 | | Entergy Wholesale Commodities |
| Derivatives not designated as hedging instruments | | | | | | | | | | |
| Assets: | | | | | | | | | | |
| Electricity swaps and options | | Prepayments and other (current portion) | | $8 | | ($4) | | $4 | | 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 | | $4 | | $— | | $4 | | Utility and Entergy Wholesale Commodities |
| Liabilities: | | | | | | | | | | |
| Electricity swaps and options | | Other current liabilities
(current portion) | | $3 | | ($3) | | $— | | Entergy Wholesale Commodities |
| Natural gas swaps and options | | Other current liabilities
(current portion) | | $7 | | $— | | $7 | | Utility |
| Natural gas swaps and options | | Other non-current liabilities (non-current portion) | | $2 | | $— | | $2 | | Utility |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The fair values of Entergy’s derivative instruments in the consolidated balance sheet as of December 31, 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.
|
| | | | | | | | | | |
| 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) | | $92 | | ($1) | | $91 | | Entergy Wholesale Commodities |
| Electricity swaps and options | | Other deferred debits and other assets (non-current portion) | | $17 | | $— | | $17 | | Entergy Wholesale Commodities |
| Liabilities: | | | | | | | | | | |
| Electricity swaps and options | | Other current liabilities (current portion) | | $1 | | ($1) | | $— | | Entergy Wholesale Commodities |
| Derivatives not designated as hedging instruments | | | | | | | | | | |
| Assets: | | | | | | | | | | |
| Electricity swaps and options | | Prepayments and other (current portion) | | $11 | | ($1) | | $10 | | Entergy Wholesale Commodities |
| Natural gas swaps and options | | Other deferred debits and other assets (non-current portion) | | $1 | | $— | | $1 | | Utility |
| Financial transmission rights | | Prepayments and other | | $10 | | $— | | $10 | | Utility and Entergy Wholesale Commodities |
| Liabilities: | | | | | | | | | | |
| Electricity swaps and options | | Other current liabilities (current portion) | | $2 | | ($2) | | $— | | Entergy Wholesale Commodities |
| Natural gas swaps and options | | Other current liabilities (current portion) | | $5 | | $— | | $5 | | Utility |
| Natural gas swaps and options | | Other non-current liabilities (non-current portion) | | $2 | | $— | | $2 | | Utility |
| |
| (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 $9 million posted as of March 31, 2020 and $11 million posted and $1 million held as of December 31, 2019. Also excludes letters of credit in the amount of $95 million held as of March 31, 2020 and $98 million held as of December 31, 2019. |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The effects of Entergy’s derivative instruments designated as cash flow hedges on the consolidated income statements for the three months ended March 31, 2020 and 2019 were 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) |
| 2020 | | | | | | |
| Electricity swaps and options | | $67 | | Competitive businesses operating revenues | | $94 |
| | | | | | | |
| 2019 | | | | | | |
| Electricity swaps and options | | $26 | | Competitive businesses operating revenues | | $52 |
| |
| (a) | Before taxes of $20 million and $11 million for the three months ended March 31, 2020 and 2019, respectively |
Based on market prices as of March 31, 2020, unrealized gains (losses) recorded in accumulated other comprehensive income on cash flow hedges relating to power sales totaled $81 million of net unrealized losses. Approximately $80 million is expected to be reclassified from accumulated other comprehensive income to operating revenues in the next twelve months. The actual amount reclassified from accumulated other comprehensive income, however, could vary due to future changes in market prices.
Entergy may effectively liquidate a cash flow hedge instrument by entering into a contract offsetting the original hedge, and then de-designating the original hedge in this situation. Gains or losses accumulated in other comprehensive income prior to de-designation continue to be deferred in other comprehensive income until they are included in income as the original hedged transaction occurs. From the point of de-designation, the gains or losses on the original hedge and the offsetting contract are recorded as assets or liabilities on the balance sheet and offset as they flow through to earnings.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The effects of Entergy’s derivative instruments not designated as hedging instruments on the consolidated income statements for the three months ended March 31, 2020 and 2019 were as follows:
|
| | | | |
| Instrument |
| Income Statement
location |
| Amount of gain (loss)
recorded in the income statement |
| | | | (In Millions) |
| 2020 | | | | |
| Natural gas swaps and options | | Fuel, fuel-related expenses, and gas purchased for resale | (a) | ($7) |
| Financial transmission rights |
| Purchased power expense | (b) | $13 |
| Electricity swaps and options (c) | | Competitive business operating revenues | | $— |
| | | | |
| 2019 | | | | |
| Natural gas swaps | | Fuel, fuel-related expenses, and gas purchased for resale | (a) | ($1) |
| Financial transmission rights | | Purchased power expense | (b) | $21 |
| Electricity swaps and options (c) | | Competitive business operating revenues | | $5 |
| |
| (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) | There were no gains (losses) recognized in accumulated other comprehensive income from electricity swaps and options. |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The fair values of the Registrant Subsidiaries’ derivative instruments not designated as hedging instruments on their balance sheets as of March 31, 2020 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) | | Registrant |
| | | | | (In Millions) | | |
| Assets: | | | | | | | | | | |
| Natural gas swaps and options | | Prepayments and other | | $0.2 | | $— | | $0.2 | | Entergy Louisiana |
| Natural gas swaps and options | | Other deferred debits and other assets (non-current portion) | | $0.9 | | $— | | $0.9 | | Entergy Louisiana |
| | | | | | | | | | | |
| Financial transmission rights | | Prepayments and other | | $1.1 | | $— | | $1.1 | | Entergy Arkansas |
| Financial transmission rights | | Prepayments and other | | $2.0 | | ($0.1) | | $1.9 | | Entergy Louisiana |
| Financial transmission rights | | Prepayments and other | | $0.3 | | $— | | $0.3 | | Entergy Mississippi |
| Financial transmission rights | | Prepayments and other | | $0.3 | | $— | | $0.3 | | Entergy Texas |
| | | | | | | | | | | |
| Liabilities: | | | | | | | | | | |
| Natural gas swaps and options | | Other current liabilities | | $2.5 | | $— | | $2.5 | | Entergy Louisiana |
| Natural gas swaps and options | | Other non-current liabilities | | $2.3 | | $— | | $2.3 | | Entergy Louisiana |
| Natural gas swaps | | Other current liabilities | | $4.4 | | $— | | $4.4 | | 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, 2019 were as follows:
|
| | | | | | | | | | |
| Instrument | | Balance Sheet Location | | Gross Fair Value (a) | | Offsetting Position (b) | | Net Fair Value (c) (d) | | Registrant |
| | | | | (In Millions) | | |
| Assets: | | | | | | | | | | |
| Natural gas swaps and options | | Other deferred debits and other assets | | $0.8 | | $— | | $0.8 | | Entergy Louisiana |
| Financial transmission rights | | Prepayments and other | | $3.4 | | ($0.1) | | $3.3 | | Entergy Arkansas |
| Financial transmission rights | | Prepayments and other | | $4.5 | | $— | | $4.5 | | Entergy Louisiana |
| Financial transmission rights | | Prepayments and other | | $0.8 | | $— | | $0.8 | | Entergy Mississippi |
| Financial transmission rights | | Prepayments and other | | $0.3 | | $— | | $0.3 | | Entergy New Orleans |
| Financial transmission rights | | Prepayments and other | | $1.0 | | ($0.1) | | $0.9 | | Entergy Texas |
| | | | | | | | | | | |
| Liabilities: | | | | | | | | | | |
| Natural gas swaps and options | | Other current liabilities | | $2.4 | | $— | | $2.4 | | Entergy Louisiana |
| Natural gas swaps and options | | Other non-current liabilities | | $2.2 | | $— | | $2.2 | | Entergy Louisiana |
| Natural gas swaps | | Other current liabilities | | $2.3 | | $— | | $2.3 | | Entergy Mississippi |
| Natural gas swaps | | Other current liabilities | | $0.2 | | $— | | $0.2 | | Entergy New Orleans |
| |
| (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 March 31, 2020, letters of credit posted with MISO covered financial transmission rights exposure of $0.2 million for Entergy Mississippi. As of December 31, 2019, letters of credit posted with MISO covered financial transmission rights exposure of $0.2 million for Entergy Mississippi. |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The effects of the Registrant Subsidiaries’ derivative instruments not designated as hedging instruments on their income statements for the three months ended March 31, 2020 and 2019 were as follows:
|
| | | | | | |
| Instrument |
| Income Statement Location |
| Amount of gain
(loss) recorded
in the income statement |
| Registrant |
| | | | (In Millions) | | |
| 2020 | | | |
| | |
| Natural gas swaps and options | | Fuel, fuel-related expenses, and gas purchased for resale | | ($1.3) | (a) | Entergy Louisiana |
| Natural gas swaps | | Fuel, fuel-related expenses, and gas purchased for resale | | ($5.2) | (a) | Entergy Mississippi |
| Natural gas swaps | | Fuel, fuel-related expenses, and gas purchased for resale | | ($0.4) | (a) | Entergy New Orleans |
| | | | | | |
| Financial transmission rights | | Purchased power expense | | $4.6 | (b) | Entergy Arkansas |
| Financial transmission rights | | Purchased power expense | | $5.3 | (b) | Entergy Louisiana |
| Financial transmission rights | | Purchased power expense | | ($0.1) | (b) | Entergy Mississippi |
| Financial transmission rights | | Purchased power expense | | $0.4 | (b) | Entergy New Orleans |
| Financial transmission rights | | Purchased power expense | | $2.4 | (b) | Entergy Texas |
| | | | | | |
| 2019 | | | | | | |
| Natural gas swaps and options | | Fuel, fuel-related expenses, and gas purchased for resale | | $0.8 | (a) | Entergy Louisiana |
| Natural gas swaps | | Fuel, fuel-related expenses, and gas purchased for resale | | ($1.8) | (a) | Entergy Mississippi |
| Natural gas swaps | | Fuel, fuel-related expenses, and gas purchased for resale | | $0.2 | (a) | Entergy New Orleans |
| | | | | | |
| Financial transmission rights | | Purchased power expense | | $8.4 | (b) | Entergy Arkansas |
| Financial transmission rights | | Purchased power expense | | $8.8 | (b) | Entergy Louisiana |
| Financial transmission rights | | Purchased power expense | | $1.1 | (b) | Entergy Mississippi |
| Financial transmission rights | | Purchased power expense | | $1.9 | (b) | Entergy New Orleans |
| Financial transmission rights | | Purchased power expense | | $0.3 | (b) | Entergy Texas |
| |
| (a) | Due to regulatory treatment, the natural gas swaps and options are marked-to-market through fuel, fuel-related expenses, and gas purchased for resale and then such amounts are simultaneously reversed and recorded as an offsetting regulatory asset or liability. The gains or losses recorded as fuel expenses when the swaps and options are settled are recovered or refunded through fuel cost recovery mechanisms. |
| |
| (b) | Due to regulatory treatment, the changes in the estimated fair value of financial transmission rights for the Utility operating companies are recorded through purchased power expense and then such amounts are simultaneously reversed and recorded as an offsetting regulatory asset or liability. The gains or losses recorded as purchased power expense when the financial transmission rights for the Utility operating companies are settled are recovered or refunded through fuel cost recovery mechanisms. |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Entergy Arkansas
|
| | | | | | | | | | | | | | | | |
| 2019 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | | (In Millions) |
| Assets: | | | | | | | | |
| Temporary cash investments | |
| $189.5 |
| |
| $— |
| |
| $— |
| |
| $189.5 |
|
| Decommissioning trust funds (a): | | | | | | | | |
| Equity securities | | 5.5 |
| | — |
| | — |
| | 5.5 |
|
| Debt securities | | 99.2 |
| | 291.8 |
| | — |
| | 391.0 |
|
| Common trusts (b) | | | | | | | | 600.8 |
|
| Securitization recovery trust account | | 8.2 |
| | — |
| | — |
| | 8.2 |
|
| Financial transmission rights | | — |
| | — |
| | 1.1 |
| | 1.1 |
|
| | |
| $302.4 |
| |
| $291.8 |
| |
| $1.1 |
| |
| $1,196.1 |
|
In March 2020, Entergy Arkansas filed its annual redetermination of its energy cost rate pursuant to the energy cost recovery rider, which reflected a decrease from $0.01462 per kWh to $0.01052 per kWh. The redetermined rate became effective with the first billing cycle in April 2020 through the normal operation of the tariff. |
| | | | | | | | | | | | | | | | |
| 2018 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | | (In Millions) |
| Assets: | | | | | | | | |
| Decommissioning trust funds (a): | | | | | | | | |
| Equity securities | |
| $4.0 |
| |
| $— |
| |
| $— |
| |
| $4.0 |
|
| Debt securities | | 94.8 |
| | 286.5 |
| | — |
| | 381.3 |
|
| Common trusts (b) | | | | | | | | 526.7 |
|
| Securitization recovery trust account | | 4.7 |
| | — |
| | — |
| | 4.7 |
|
| Financial transmission rights | | — |
| | — |
| | 3.4 |
| | 3.4 |
|
| | |
| $103.5 |
| |
| $286.5 |
| |
| $3.4 |
| |
| $920.1 |
|
Entergy Louisiana
|
| | | | | | | | | | | | | | | | |
| 2019 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | | (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 | | 291.2 |
| | — |
| | — |
| | 291.2 |
|
| Securitization recovery trust account | | 9.0 |
| | — |
| | — |
| | 9.0 |
|
| Gas hedge contracts | | 1.5 |
| | — |
| | — |
| | 1.5 |
|
| Financial transmission rights | | — |
| | — |
| | 2.8 |
| | 2.8 |
|
| | |
| $733.7 |
| |
| $371.1 |
| |
| $2.8 |
| |
| $1,949.5 |
|
| | | | | | | | | |
| Liabilities: | | | | | | | | |
| Gas hedge contracts | |
| $0.3 |
| |
| $— |
| |
| $— |
| |
| $0.3 |
|
Entergy Texas
In September 2019, Entergy Texas filed an application to reconcile its fuel and purchased power costs for the period from April 2016 through March 2019. During the reconciliation period, Entergy Texas incurred approximately $1.6 billion in Texas jurisdictional eligible fuel and purchased power expenses, net of certain revenues credited to such expenses and other adjustments. Entergy Texas estimated an under-recovery balance of approximately $25.8 million, including interest, which Entergy Texas requested authority to carry over as the beginning balance for the subsequent reconciliation period beginning April 2019. In March 2020 an intervenor filed testimony proposing that the PUCT disallow: (1) $2 million in replacement power costs associated with generation outages during the reconciliation period; and (2) $24.4 million associated with the operation of the Spindletop natural gas storage facility during the reconciliation period. In April 2020, Entergy Texas filed rebuttal testimony refuting all points raised by the intervenor. A hearing on the merits is currently set for May 2020.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
|
| | | | | | | | | | | | | | | | |
| 2018 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | | (In Millions) |
| Assets: | | | | | | | | |
| Temporary cash investments | |
| $43.1 |
| |
| $— |
| |
| $— |
| |
| $43.1 |
|
| Decommissioning trust funds (a): | | |
| | |
| | |
| | |
|
| Equity securities | | 13.3 |
| | — |
| | — |
| | 13.3 |
|
| Debt securities | | 162.0 |
| | 370.9 |
| | — |
| | 532.9 |
|
| Common trusts (b) | | | | | | | | 738.8 |
|
| Escrow accounts | | 289.5 |
| | — |
| | — |
| | 289.5 |
|
| Securitization recovery trust account | | 3.6 |
| | — |
| | — |
| | 3.6 |
|
| Gas hedge contracts | | — |
| | 1.9 |
| | — |
| | 1.9 |
|
| Financial transmission rights | | — |
| | — |
| | 8.3 |
| | 8.3 |
|
| | |
| $511.5 |
| |
| $372.8 |
| |
| $8.3 |
| |
| $1,631.4 |
|
| | | | | | | | | |
| Liabilities: | | | | | | | | |
| Gas hedge contracts | |
| $0.7 |
| |
| $0.4 |
| |
| $— |
| |
| $1.1 |
|
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 discussion.
Filings with the LPSC (Entergy Louisiana)
Retail Rates - Electric
2018 Formula Rate Plan Filing
Commercial operation at Lake Charles Power Station commenced in March 2020. In March 2020, Entergy Louisiana filed an update to its 2018 formula rate plan evaluation report to include the estimated first-year revenue requirement of $108 million associated with the Lake Charles Power Station. The resulting interim adjustment to rates became effective with the first billing cycle of April 2020.
Filings with the MPSC (Entergy Mississippi)
Formula Rate Plan Filing
In March 2020, Entergy Mississippi submitted its formula rate plan 2020 test year filing and 2019 look-back filing showing Entergy Mississippi’s earned return for the historical 2019 calendar year to be below the formula rate plan bandwidth and projected earned return for the 2020 calendar year to be below the formula rate plan bandwidth. The 2020 test year filing shows a $24.6 million rate increase is necessary to reset Entergy Mississippi’s earned return on common equity to the specified point of adjustment of 6.51% return on rate base, within the formula rate plan bandwidth. The 2019 look-back filing compares actual 2019 results to the approved benchmark return on rate base and reflects the need for a $7.3 million interim increase in formula rate plan revenues. In accordance with the MPSC-approved revisions to the formula rate plan, Entergy Mississippi implemented a $24.3 million interim rate increase, reflecting a cap equal to 2% of 2019 retail revenues, effective with the April 2020 billing cycle, subject to refund, pending a final MPSC order. A final order is expected in the second quarter 2020, with the resulting final rates, including amounts above the 2% cap of 2019 retail revenues, effective July 2020.
|
| | | | | | | | | | | | | | | | |
| 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 |
|
As discussed in the Form 10-K, in December 2019, Entergy New Orleans filed an application with the City Council seeking approval of an implementation plan for the Energy Smart energy efficiency program from April 2020 through December 2022. Entergy New Orleans proposed to recover the costs of the program through mechanisms previously approved by the City Council or through the energy efficiency cost recovery rider, which was approved in the 2018 combined rate case resolution. In February 2020 the City Council approved Entergy New Orleans’s application.
2018 Base Rate Case Filing
See the Form 10-K for discussion of the electric and gas base rate case filed in September 2018. In response to the City Council’s November 2019 resolution in the rate case, Entergy New Orleans made a compliance filing in December 2019 and also filed timely a petition for appeal and judicial review and for stay of or injunctive relief alleging that the resolution is unlawful in failing to produce just and reasonable rates. A hearing on the requested injunction was scheduled in Civil District Court for February 2020, but by joint motion of the City Council and Entergy New Orleans, the Civil District Court issued an order for a limited remand to the City Council to consider a potential agreement in principle/stipulation at its February 20, 2020 meeting. On February 17, 2020, Entergy New Orleans filed
|
| | | | | | | | | | | | | | | | |
| 2019 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | | (In Millions) |
| Assets: | | | | | | | | |
| Securitization recovery trust account | |
| $5.1 |
| |
| $— |
| |
| $— |
| |
| $5.1 |
|
| Escrow accounts | | 81.3 |
| | — |
| | — |
| | 81.3 |
|
| Financial transmission rights | | — |
| | — |
| | 0.5 |
| | 0.5 |
|
| | |
| $86.4 |
| |
| $— |
| |
| $0.5 |
| |
| $86.9 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
with the City Council an agreement in principle between Entergy New Orleans and the City Council’s advisors. On February 20, 2020, the City Council voted to approve the proposed agreement in principle and issued a resolution modifying the required treatment of certain accumulated deferred income taxes. As a result of the agreement in principle, the total annual revenue requirement reduction will be approximately $45 million ($42 million electric, including $29 million in rider reductions; and $3 million gas). As a result, Entergy New Orleans fully implemented the new rates in April 2020. The merits of the appeal will be subject to a separate procedural schedule issued by the Civil District Court. |
| | | | | | | | | | | | | | | | |
| 2018 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | | (In Millions) |
| Assets: | | | | | | | | |
| Temporary cash investments | |
| $19.7 |
| |
| $— |
| |
| $— |
| |
| $19.7 |
|
| Securitization recovery trust account | | 2.2 |
| | — |
| | — |
| | 2.2 |
|
| Escrow accounts | | 80.9 |
| | — |
| | — |
| | 80.9 |
|
| Financial transmission rights | | — |
| | — |
| | 1.3 |
| | 1.3 |
|
| | |
| $102.8 |
| |
| $— |
| |
| $1.3 |
| |
| $104.1 |
|
| | | | | | | | | |
| Liabilities: | | | | | | | | |
| Gas hedge contracts | |
| $0.1 |
| |
| $— |
| |
| $— |
| |
| $0.1 |
|
2020 Formula Rate Plan Filing
In April 2020, Entergy New Orleans filed a motion with the City Council to delay its formula rate plan filing until June 2020. In May 2020 the City Council issued an order extending the filing deadline for Entergy New Orleans’s formula rate plan filing to June 29, 2020.
Filings with the PUCT (Entergy Texas)
Distribution Cost Recovery Factor (DCRF) Rider
In March 2020, Entergy Texas filed with the PUCT a request to amend its DCRF rider. The proposed rider is designed to collect approximately $23.6 million annually, or $20.4 million in incremental annual DCRF revenue beyond Entergy Texas’s currently effective DCRF rider from Entergy Texas’s retail customers based on its capital invested in distribution between January 1, 2019 and December 31, 2019.
Transmission Cost Recovery Factor (TCRF) Rider
As discussed in the Form 10-K, in August 2019, Entergy Texas filed with the PUCT a request to amend its TCRF rider. The new TCRF rider is designed to collect approximately $19.4 million annually from Entergy Texas’s retail customers based on its capital invested in transmission between January 1, 2018 and June 30, 2019. In January 2020 the PUCT issued an order approving an unopposed settlement providing for recovery of the requested revenue requirement. Entergy Texas implemented the amended rider beginning with bills covering usage on and after January 23, 2020.
System Agreement Cost Equalization Proceedings
Rough Production Cost Equalization Rates
Consolidated 2011, 2012, 2013, and 2014 Rate Filing Proceedings
As discussed in the Form 10-K, in April 2018 the LPSC requested rehearing of the FERC’s March 2018 order affirming the ALJ’s initial decision in the consolidated proceedings. Entergy filed in May 2018 the bandwidth true-up payments and receipts for the 2011-2014 rate filings and the payments were made in May 2018. In April 2020 the FERC issued an order partially granting the LPSC’s rehearing request. In the order the FERC reversed its prior finding and determined that the tax gain portion of the Waterford 3 financing accumulated deferred income tax should be included in the bandwidth calculation. The order requires Entergy Services to redetermine bandwidth true-up payments and receipts for the 2010-2012 test years.
Entergy TexasArkansas Opportunity Sales Proceeding
As discussed in the Form 10-K, the FERC’s opportunity sales orders have been appealed to the D.C. Circuit by Entergy, the LPSC, and the APSC. In February 2020 all of the appeals were consolidated and in April 2020 the D.C. Circuit established a briefing schedule. Briefing will occur in May 2020 through September 2020.
|
| | | | | | | | | | | | | | | | |
| 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 |
|
|
| | | | | | | | | | | | | | | | |
| 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 |
|
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
Also as discussed in the Form 10-K, in May 2019, Entergy Arkansas filed an application with the APSC requesting approval of a special rider tariff to recover the costs of its opportunity sales payments from its retail customers over a 24-month period. In January 2020 the Attorney General and Arkansas Electric Energy Consumers, Inc. filed testimony opposing the recovery by Entergy Arkansas of the opportunity sales payment but also claiming that certain components of the payment should be segregated and refunded to customers. In March 2020, Entergy Arkansas filed rebuttal testimony. Also in March 2020, Entergy Arkansas, the APSC staff, and the Arkansas Electric Energy Consumers, Inc. filed a joint motion asking the APSC to issue a final decision based on the record in the proceeding and cancel the April 2020 evidentiary hearing. The Arkansas Attorney General did not oppose the request, which was granted by the APSC in March 2020. A final decision is expected in July 2020.
Complaints Against System Energy
Return on Equity and Capital Structure Complaints
As discussed in the Form 10-K, in November 2019, in a proceeding that did not involve Entergy, the FERC issued an order addressing the methodology for determining the return on equity applicable to transmission owners in MISO. Thereafter, the participants in the System Energy proceeding agreed to amend the procedural schedule to allow the participants to file supplemental testimony addressing the order in the MISO transmission owner proceeding (Opinion No. 569).
In February 2020 the LPSC, the MPSC and APSC, and the FERC trial staff filed supplemental testimony addressing Opinion No. 569 and how it would affect the return on equity evaluation for the two complaint periods concerning System Energy. For the first refund period, based on their respective interpretations and applications of the Opinion No. 569 methodology, the LPSC argues for an authorized return on equity for System Energy of 8.44%; the MPSC and APSC argue for an authorized return on equity of 8.41%; and the FERC trial staff argues for an authorized return on equity of 9.22%. For the second refund period and on a prospective basis, based on their respective interpretations and applications of the Opinion No. 569 methodology, the LPSC argues for an authorized return on equity for System Energy of 7.89%; the MPSC and APSC argue that an authorized return on equity of 8.01% may be appropriate; and the FERC trial staff argues for an authorized return on equity of 8.66%.
In April 2020, System Energy filed supplemental answering testimony addressing Opinion No. 569. System Energy argues that the Opinion No. 569 methodology is conceptually and analytically defective for purposes of establishing just and reasonable authorized return on equity determinations and proposes an alternative approach. As its primary recommendation, System Energy continues to support the return on equity determinations in its March 2019 testimony for the first refund period and its June 2019 testimony for the second refund period. Under the Opinion No. 569 methodology, System Energy calculates a “presumptively just and reasonable range” for the authorized return on equity for the first refund period of 8.57% to 9.52%, and for the second refund period of 8.28% to 9.11%. System Energy argues that these ranges are not just and reasonable results. Under its proposed alternative methodology, System Energy calculates an authorized return on equity of 10.26% for the first refund period, which also falls within the presumptively just and reasonable range calculated for the second refund period and prospectively.
The schedule was further revised in March 2020, and rebuttal testimony addressing Opinion No. 569 is due in June 2020; the hearing in the System Energy proceeding will commence in August 2020; and the initial decision will be due in December 2020.
Grand Gulf Sale-leaseback Renewal Complaint
As discussed in the Form 10-K, in May 2018 the LPSC filed a complaint against System Energy and Entergy Services related to System Energy’s renewal of a sale-leaseback transaction originally entered into in December 1988 for an 11.5% undivided interest in Grand Gulf Unit 1. In February 2019 the presiding ALJ ruled that the hearing ordered by the FERC includes the issue of whether specific subcategories of accumulated deferred income tax should be included in, or excluded from, System Energy’s formula rate. In March 2019 the LPSC, MPSC, APSC, and City
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Council filed direct testimony. The LPSC testimony sought 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, and the cost of capital additions associated with the sale-leaseback interest, as well as interest on those amounts.
In June 2019 System Energy filed answering testimony arguing that the FERC should reject all claims for refunds. Among other things, System Energy argued that claims for refunds of the costs of lease renewal payments and capital additions should be rejected because those costs were recovered consistent with the Unit Power Sales Agreement formula rate, System Energy was not over or double recovering any costs, and customers will save costs over the initial and renewal terms of the leases. System Energy argued that claims for refunds associated with liabilities arising from uncertain tax positions should be rejected because the liabilities do not provide cost-free capital, the repayment timing of the liabilities is uncertain, and the outcome of the underlying tax positions is uncertain. System Energy’s testimony also challenged the refund calculations supplied by the other parties.
In August 2019 the FERC trial staff filed direct and answering testimony seeking refunds for rate base reductions for the liabilities associated with uncertain tax positions. The FERC trial staff also argued that System Energy recovered $32 million more than it should have in depreciation expense for capital additions. In September 2019, System Energy filed cross-answering testimony disputing the FERC trial staff’s arguments for refunds, stating that the FERC trial staff’s position regarding depreciation rates for capital additions is not unreasonable, but explaining that any change in depreciation expense is only one element of a Unit Power Sales Agreement re-billing calculation. Adjustments to depreciation expense in any re-billing under the Unit Power Sales Agreement formula rate will also involve changes to accumulated depreciation, accumulated deferred income taxes, and other formula elements as needed. In October 2019 the LPSC filed rebuttal testimony increasing the amount of refunds sought for the liabilities associated with uncertain tax positions. The LPSC now seeks approximately $512 million, plus interest, which is approximately $170 million through March 31, 2020. The FERC trial staff also filed rebuttal testimony in which it seeks refunds of a similar amount as the LPSC for the liabilities associated with uncertain tax positions. The LPSC testimony also argued that adjustments to depreciation rates should affect rate base on a prospective basis only.
A hearing was held before a FERC ALJ in November 2019. In April 2020 the ALJ issued the initial decision. Among other things, the ALJ determined that refunds were due on three main issues. First, with regard to the lease renewal payments, the ALJ determined that System Energy is recovering an unjust acquisition premium through the lease renewal payments, and that System Energy’s recovery from customers through rates should be limited to the cost of service based on the remaining net book value of the leased assets, which is approximately $70 million. The ALJ found that the remedy for this issue should be the refund of lease payments (approximately $17.2 million per year since July 2015) with interest determined at the FERC quarterly interest rate, which would be offset by the addition of the net book value of the leased assets in the cost of service. The ALJ did not calculate a value for the refund expected as a result of this remedy. In addition, System Energy would no longer recover the lease payments in rates prospectively. Second, with regard to the liabilities associated with uncertain tax positions, the ALJ determined that the liabilities are accumulated deferred income taxes and System Energy’s rate base should have been reduced for those liabilities. If the ALJ’s initial decision is upheld, the estimated refund for this issue through March 31, 2020, is approximately $397 million, plus interest, which is approximately $96 million through March 31, 2020. The ALJ also found that System Energy should include liabilities associated with uncertain tax positions as a rate base reduction going forward. Third, with regard to the depreciation expense adjustments, the ALJ found that System Energy should correct for the error in re-billings retroactively and prospectively, but that System Energy should not be permitted to recover interest on any retroactive return on enhanced rate base resulting from such corrections. If the initial decision is affirmed on this issue, System Energy estimates refunds of approximately $18 million, which includes interest through March 31, 2020.
The ALJ initial decision is an interim step in the FERC litigation process, and an ALJ’s determinations made in an initial decision are not controlling on the FERC. System Energy plans to file briefs on exceptions to the FERC, re-urging its positions and requesting the reversal of many of the findings in the ALJ’s initial decision, including the lease renewal and uncertain tax position issues. The ALJ in the initial decision acknowledges that these are issues of first impression before the FERC. Briefs on exceptions from all parties are scheduled for June 2020, and briefs opposing
Entergy Corporation and Subsidiaries
Notes to Financial Statements
exceptions are scheduled for September 2020. The FERC will then review the case and issue an order on the proceeding, and the FERC may accept, reject, or modify the ALJ’s initial decision in whole or in part. Refunds, if any, that might be required will only become due after the FERC issues its order reviewing the initial decision.
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, |
| | 2020 | | 2019 |
| | (In Millions, Except Per Share Data) |
| | Income | | Shares | | $/share | | Income | | Shares | | $/share |
| Basic earnings per share | | | | | | | | | | | |
| Net income attributable to Entergy Corporation |
| $118.7 |
| | 199.8 |
| |
| $0.59 |
| |
| $254.5 |
| | 189.6 |
| |
| $1.34 |
|
| Average dilutive effect of: | | | | | | | | | | | |
| Stock options | | | 0.7 |
| | — |
| | | | 0.4 |
| | — |
|
| Other equity plans | | | 0.4 |
| | — |
| | | | 0.5 |
| | (0.01 | ) |
| Equity forwards | | | — |
| | — |
| | | | 1.7 |
| | (0.01 | ) |
| Diluted earnings per share |
| $118.7 |
| | 200.9 |
| |
| $0.59 |
| |
| $254.5 |
| | 192.2 |
| |
| $1.32 |
|
The number of stock options not included in the calculation of diluted common shares outstanding due to their antidilutive effect was approximately 0.5 million for the three months ended March 31, 2020 and approximately 0.7 million for the three months ended March 31, 2019.
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 $0.93 for the three months ended March 31, 2020 and $0.91 for the three months ended March 31, 2019.
Treasury Stock
During the three months ended March 31, 2020, Entergy Corporation issued 1,011,970 shares of its previously repurchased common stock to satisfy stock option exercises, vesting of shares of restricted stock, and other stock-based awards. Entergy Corporation did not repurchase any of its common stock during the three months ended March 31, 2020.
Retained Earnings
On April 8, 2020, Entergy Corporation’s Board of Directors declared a common stock dividend of $0.93 per share, payable on June 1, 2020, to holders of record as of May 7, 2020.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Comprehensive Income
|
| | | | | | | | | | | | | | | | |
| 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 |
|
Accumulated other comprehensive income (loss) is included in the equity section of the balance sheets of Entergy and Entergy Louisiana. The following table presents changes in accumulated other comprehensive income (loss) for Entergy for the three months ended March 31, 2020 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, December 31, 2019 |
| $84,206 |
| |
| ($557,072 | ) | |
| $25,946 |
| |
| ($446,920 | ) |
| | | | | | | | |
| Other comprehensive income (loss) before reclassifications | 52,846 |
| | 34,349 |
| | 17,713 |
| | 104,908 |
|
| Amounts reclassified from accumulated other comprehensive income (loss) | (74,556 | ) | | 19,550 |
| | (1,969 | ) | | (56,975 | ) |
| Net other comprehensive income (loss) for the period | (21,710 | ) | | 53,899 |
| | 15,744 |
| | 47,933 |
|
| | | | | | | | |
| Ending balance, March 31, 2020 |
| $62,496 |
| |
| ($503,173 | ) | |
| $41,690 |
| |
| ($398,987 | ) |
The following table presents changes in accumulated other comprehensive income (loss) for Entergy for the three months ended March 31, 2019 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, 2018 |
| ($23,135 | ) | |
| ($531,922 | ) | |
| ($2,116 | ) | |
| ($557,173 | ) |
| Implementation of accounting standards | (7,685 | ) | | — |
| | 879 |
| | (6,806 | ) |
| Beginning balance, January 1, 2019 |
| ($30,820 | ) | |
| ($531,922 | ) | |
| ($1,237 | ) | |
| ($563,979 | ) |
| | | | | | | | |
| Other comprehensive income (loss) before reclassifications | 28,312 |
| | — |
| | 13,539 |
| | 41,851 |
|
| Amounts reclassified from accumulated other comprehensive income (loss) | (40,738 | ) | | 11,550 |
| | 164 |
| | (29,024 | ) |
| Net other comprehensive income (loss) for the period | (12,426 | ) | | 11,550 |
| | 13,703 |
| | 12,827 |
|
| | | | | | | | |
| Ending balance, March 31, 2019 |
| ($43,246 | ) | |
| ($520,372 | ) | |
| $12,466 |
| |
| ($551,152 | ) |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The following table presents changes in accumulated other comprehensive income (loss) for Entergy Louisiana for the three months ended March 31, 2020 and 2019:
|
| | | | | | | | |
| | | Pension and Other
Postretirement Liabilities |
| | | 2020 | | 2019 |
| | | (In Thousands) |
| Beginning balance, January 1, | |
| $4,562 |
| |
| ($6,153 | ) |
| | | | | |
| Other comprehensive income (loss) before reclassifications | | 10,050 |
| | — |
|
Amounts reclassified from accumulated other
comprehensive income (loss) | | (583 | ) | | (969 | ) |
| Net other comprehensive income (loss) for the period | | 9,467 |
| | (969 | ) |
| | | | | |
| Ending balance, March 31, | |
| $14,029 |
| |
| ($7,122 | ) |
Total reclassifications out of accumulated other comprehensive income (loss) (AOCI) into income for Entergy for the three months ended March 31, 2020 and 2019 were as follows:
|
| | | | | | | | | |
| | Amounts reclassified from AOCI | | Income Statement Location |
| | 2020 | | 2019 | | |
| | (In Thousands) | | |
| Cash flow hedges net unrealized gain (loss) | | | | | |
| Power contracts |
| $94,423 |
| |
| $51,615 |
| | Competitive business operating revenues |
| Interest rate swaps | (48 | ) | | (48 | ) | | Miscellaneous - net |
| Total realized gain (loss) on cash flow hedges | 94,375 |
| | 51,567 |
| | |
| Income taxes | (19,819 | ) | | (10,829 | ) | | Income taxes |
| Total realized gain (loss) on cash flow hedges (net of tax) |
| $74,556 |
| |
| $40,738 |
| | |
| | | | | | |
| Pension and other postretirement liabilities | | | | | |
| Amortization of prior-service credit |
| $3,719 |
| |
| $5,326 |
| | (a) |
| Amortization of loss | (27,318 | ) | | (18,988 | ) | | (a) |
| Settlement loss | — |
| | (1,137 | ) | | (a) |
| Total amortization | (23,599 | ) | | (14,799 | ) | | |
| Income taxes | 4,049 |
| | 3,249 |
| | Income taxes |
| Total amortization (net of tax) |
| ($19,550 | ) | |
| ($11,550 | ) | | |
| | | | | | |
| Net unrealized investment gain (loss) | | | | | |
| Realized gain (loss) |
| $3,116 |
| |
| ($259 | ) | | Interest and investment income |
| Income taxes | (1,147 | ) | | 95 |
| | Income taxes |
| Total realized investment gain (loss) (net of tax) |
| $1,969 |
| |
| ($164 | ) | | |
| | | | | | |
| Total reclassifications for the period (net of tax) |
| $56,975 |
| |
| $29,024 |
| | |
| |
| (a) | These accumulated other comprehensive income (loss) components were included in the computation of net periodic pension and other postretirement cost. See Note 6 to the financial statements herein for additional details. |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Total reclassifications out of accumulated other comprehensive income (loss) (AOCI) into income for Entergy Louisiana for the three months ended March 31, 2020 and 2019 were as follows:
|
| | | | | | | | | | |
| | | Amounts reclassified
from AOCI | | Income Statement Location |
| | | 2020 | | 2019 | | |
| | | (In Thousands) | | |
| Pension and other postretirement liabilities | | | | | | |
| Amortization of prior-service credit | |
| $1,089 |
| |
| $1,838 |
| | (a) |
| Amortization of loss | | (301 | ) | | (527 | ) | | (a) |
| Total amortization | | 788 |
| | 1,311 |
| | |
| Income taxes | | (205 | ) | | (342 | ) | | Income taxes |
| Total amortization (net of tax) | | 583 |
| | 969 |
| | |
| | | | | | | |
| Total reclassifications for the period (net of tax) | |
| $583 |
| |
| $969 |
| | |
| |
| (a) | These accumulated other comprehensive income (loss) components were 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 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 three months ended March 31, 2020 was 2.99% 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, 2020.
|
| | | | | | |
| Capacity | | Borrowings | | Letters of Credit | | Capacity Available |
| (In Millions) |
| $3,500 | | $922 | | $6 | | $2,572 |
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 Registrant Subsidiaries (except Entergy New Orleans) defaults on other indebtedness or is in bankruptcy or insolvency proceedings, an acceleration of the facility maturity date may occur.
Entergy Corporation has a commercial paper program with a Board-approved program limit of up to $2 billion. At March 31, 2020, Entergy Corporation had approximately $1,942 million of commercial paper outstanding. The weighted-average interest rate for the three months ended March 31, 2020 was 2.02%.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and Entergy Texas each had credit facilities available as of March 31, 2020 as follows:
|
| | | | | | | | | | |
| Company | | Expiration Date | | Amount of Facility | | Interest Rate (a) | | Amount Drawn as of March 31, 2020 | | Letters of Credit Outstanding as of March 31, 2020 |
| Entergy Arkansas | | April 2021 | | $20 million (b) | | 2.11% | | $— | | $— |
| Entergy Arkansas | | September 2024 | | $150 million (c) | | 2.11% | | $— | | $— |
| Entergy Louisiana | | September 2024 | | $350 million (c) | | 2.11% | | $— | | $— |
| Entergy Mississippi | | April 2021 | | $37.5 million (d) | | 2.49% | | $— | | $— |
| Entergy Mississippi | | April 2021 | | $35 million (d) | | 2.49% | | $— | | $— |
| Entergy Mississippi | | April 2021 | | $10 million (d) | | 2.49% | | $— | | $— |
| Entergy New Orleans | | November 2021 | | $25 million (c) | | 2.26% | | $— | | $0.8 million |
| Entergy Texas | | September 2024 | | $150 million (c) | | 2.49% | | $— | | $1.3 million |
| |
| (a) | The interest rate is the estimated interest rate as of March 31, 2020 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. |
The commitment fees on the credit facilities range from 0.075% to 0.225% of the undrawn commitment amount. Each of the credit facilities requires the Registrant Subsidiary borrower to maintain a debt ratio, as defined, of 65% or less of its total capitalization. Each Registrant Subsidiary is in compliance with this covenant.
In addition, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and Entergy Texas each entered into one or more uncommitted standby letter of credit facilities as a means to post collateral to support its obligations to MISO. Following is a summary of the uncommitted standby letter of credit facilities as of March 31, 2020:
|
| | | | | | |
| Company | | Amount of Uncommitted Facility | | Letter of Credit Fee | | Letters of Credit Issued as of March 31, 2020 (a) |
| Entergy Arkansas | | $25 million | | 0.70% | | $1 million |
| Entergy Louisiana | | $125 million | | 0.70% | | $25.6 million |
| Entergy Mississippi | | $64 million | | 0.70% | | $1.8 million |
| Entergy New Orleans | | $15 million | | 1.00% | | $1 million |
| Entergy Texas | | $50 million | | 0.70% | | $10.4 million |
| |
| (a) | As of March 31, 2020, letters of credit posted with MISO covered financial transmission rights exposure of $0.2 million for Entergy Mississippi. 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, 2021. The current FERC-authorized limits for Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy Texas, and System Energy are effective through November 8, 2020. In addition to borrowings from commercial banks, these companies may
Entergy Corporation and Subsidiaries
Notes to Financial Statements
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 were the FERC-authorized limits for short-term borrowings and the outstanding short-term borrowings as of March 31, 2020 (aggregating both internal and external short-term borrowings) for the Registrant Subsidiaries:
|
| | | |
| | Authorized | | Borrowings |
| | (In Millions) |
| Entergy Arkansas | $250 | | $— |
| Entergy Louisiana | $450 | | $— |
| Entergy Mississippi | $175 | | $19 |
| Entergy New Orleans | $150 | | $— |
| Entergy Texas | $200 | | $— |
| System Energy | $200 | | $— |
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 have commercial paper programs in place. Following is a summary as of March 31, 2020:
|
| | | | | | | | |
| Company | | Expiration Date | | Amount of Facility | | Weighted Average Interest Rate on Borrowings (a) | | Amount Outstanding as of March 31, 2020 |
| | |
| | (Dollars in Millions) |
| Entergy Arkansas VIE | | September 2021 | | $80 | | 2.59% | | $43.8 |
| Entergy Louisiana River Bend VIE | | September 2021 | | $105 | | 2.69% | | $58.4 |
| Entergy Louisiana Waterford VIE | | September 2021 | | $105 | | 2.69% | | $33.3 |
| System Energy VIE | | September 2021 | | $120 | | 2.59% | | $88.3 |
| |
| (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. |
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.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The nuclear fuel company variable interest entities had notes payable that were included in debt on the respective balance sheets as of March 31, 2020 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 | | 3.42% Series J due April 2021 | | $100 million |
In accordance with regulatory treatment, interest on the nuclear fuel company variable interest entities’ credit facilities, commercial paper, and long-term notes payable is reported in fuel expense.
Debt Issuances and Retirements
(Entergy Arkansas)
In March 2020, Entergy Arkansas issued $100 million of 4.00% Series mortgage bonds due June 2028. Entergy Arkansas is using the proceeds for general corporate purposes.
(Entergy Louisiana)
In March 2020, Entergy Louisiana issued $350 million of 2.90% Series mortgage bonds due March 2051. Entergy Louisiana is using the proceeds, together with other funds, to repay borrowings of $100 million on its $350 million credit facility and for general corporate purposes.
In March 2020, Entergy Louisiana issued $300 million of 4.20% Series mortgage bonds due September 2048. Entergy Louisiana expects to use the proceeds, together with other funds, to repay, at maturity, its $250 million of 3.95% Series mortgage bonds due October 2020 and for general corporate purposes.
(Entergy New Orleans)
In March 2020, Entergy New Orleans issued $62 million of 3.75% Series mortgage bonds due March 2040 and $78 million of 3.00% Series mortgage bonds due March 2025. Entergy New Orleans is using the proceeds to repay short-term debt, to finance a portion of the construction of the New Orleans Power Station, and for general corporate purposes.
(Entergy Texas)
In March 2020, Entergy Texas issued $175 million of 3.55% Series mortgage bonds due September 2049. Entergy Texas is using the proceeds, together with other funds, to finance a portion of the construction of the Montgomery County Power Station, to repay borrowings of $100 million on its $150 million credit facility, and for general corporate purposes.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Fair Value
The book value and the fair value of long-term debt for Entergy Corporation and the Registrant Subsidiaries as of March 31, 2020 were as follows:
|
| | | | | | | |
| | Book Value of Long-Term Debt | | Fair Value of Long-Term Debt (a) |
| | (In Thousands) |
| Entergy |
| $19,458,543 |
| |
| $20,426,604 |
|
| Entergy Arkansas |
| $3,655,723 |
| |
| $3,831,058 |
|
| Entergy Louisiana |
| $7,923,381 |
| |
| $8,496,243 |
|
| Entergy Mississippi |
| $1,614,156 |
| |
| $1,692,495 |
|
| Entergy New Orleans |
| $680,188 |
| |
| $652,690 |
|
| Entergy Texas |
| $2,091,130 |
| |
| $2,239,980 |
|
| System Energy |
| $604,925 |
| |
| $615,747 |
|
| |
| (a) | Fair values were classified as Level 2 in the fair value hierarchy discussed in Note 8 to the financial statements herein. |
The book value and the fair value of long-term debt for Entergy Corporation and the Registrant Subsidiaries as of December 31, 2019 were as follows:
|
| | | | | | | |
| | Book Value of Long-Term Debt | | Fair Value of Long-Term Debt (a) |
| | (In Thousands) |
| Entergy |
| $17,873,655 |
| |
| $19,059,950 |
|
| Entergy Arkansas |
| $3,517,208 |
| |
| $3,747,914 |
|
| Entergy Louisiana |
| $7,303,669 |
| |
| $7,961,168 |
|
| Entergy Mississippi |
| $1,614,129 |
| |
| $1,709,505 |
|
| Entergy New Orleans |
| $560,906 |
| |
| $523,846 |
|
| Entergy Texas |
| $1,922,956 |
| |
| $2,090,215 |
|
| System Energy |
| $548,107 |
| |
| $565,209 |
|
| |
| (a) | Fair values were 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 530,716 shares of its common stock under the 2019 Omnibus Incentive Plan during the first quarter 2020 with a fair value of $11.45 per option. As of March 31, 2020, there were options on 2,474,280 shares of common stock outstanding with a weighted-average exercise price of $89.74. The intrinsic value, which has no effect on net income, of the outstanding stock options is calculated by the positive difference between the weighted average exercise price of the stock options granted and Entergy Corporation’s common stock price as of March 31, 2020. The aggregate intrinsic value of the stock options outstanding as of March 31, 2020 was $30.5 million.
The following table includes financial information for outstanding stock options for the three months ended March 31, 2020 and 2019:
|
| | | | | | | |
| | 2020 | | 2019 |
| | (In Millions) |
| Compensation expense included in Entergy’s net income |
| $1.0 |
| |
| $1.0 |
|
| Tax benefit recognized in Entergy’s net income |
| $0.3 |
| |
| $0.2 |
|
| Compensation cost capitalized as part of fixed assets and materials and supplies |
| $0.4 |
| |
| $0.3 |
|
Other Equity Awards
In January 2020 the Board approved and Entergy granted 313,805 restricted stock awards and 134,853 long-term incentive awards under the 2019 Omnibus Incentive Plan. The restricted stock awards were made effective as of January 30, 2020 and were valued at $131.72 per share, which was the closing price of Entergy’s common stock on that 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. One-third of the restricted stock awards and accrued dividends will vest upon each anniversary of the grant date.
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 2020-2022 performance period, performance will be measured based 80 percent on relative total shareholder return and 20 percent on a cumulative adjusted earnings per share metric. The performance units were granted as of January 30, 2020 and 80 percent were valued at $169.74 per share based on various factors, primarily market conditions; and 20 percent were valued at $131.72 per share, the closing price of Entergy’s common stock on that date. Performance units have the same dividend rights as shares of Entergy common stock and are 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 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.
The following table includes financial information for other outstanding equity awards for the three months ended March 31, 2020 and 2019:
|
| | | | | | | |
| | 2020 | | 2019 |
| | (In Millions) |
| Compensation expense included in Entergy’s net income |
| $9.4 |
| |
| $8.8 |
|
| Tax benefit recognized in Entergy’s net income |
| $2.4 |
| |
| $2.2 |
|
| Compensation cost capitalized as part of fixed assets and materials and supplies |
| $3.4 |
| |
| $2.9 |
|
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)
Components of Qualified Net Pension Cost
Entergy’s qualified pension cost, including amounts capitalized, for the first quarters of 2020 and 2019, included the following components:
|
| | | | | | | |
| | 2020 | | 2019 |
| | (In Thousands) |
| Service cost - benefits earned during the period |
| $40,379 |
| |
| $33,607 |
|
| Interest cost on projected benefit obligation | 60,799 |
| | 73,941 |
|
| Expected return on assets | (103,565 | ) | | (103,884 | ) |
| Amortization of net loss | 87,259 |
| | 58,418 |
|
| Settlement charges | — |
| | 1,137 |
|
| Net pension costs |
| $84,872 |
| |
| $63,219 |
|
The Registrant Subsidiaries’ qualified pension cost, including amounts capitalized, for their employees for the first quarters of 2020 and 2019, included the following components:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| 2020 | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy |
| | | (In Thousands) |
| Service cost - benefits earned during the period | |
| $6,566 |
| |
| $8,794 |
| |
| $2,023 |
| |
| $663 |
| |
| $1,546 |
| |
| $1,965 |
|
| Interest cost on projected benefit obligation | | 11,433 |
| | 12,841 |
| | 3,340 |
| | 1,456 |
| | 2,782 |
| | 2,814 |
|
| Expected return on assets | | (19,622 | ) | | (22,402 | ) | | (5,757 | ) | | (2,627 | ) | | (5,486 | ) | | (4,663 | ) |
| Amortization of net loss | | 16,897 |
| | 16,627 |
| | 4,748 |
| | 2,005 |
| | 3,265 |
| | 4,279 |
|
| Net pension cost | |
| $15,274 |
| |
| $15,860 |
| |
| $4,354 |
| |
| $1,497 |
| |
| $2,107 |
| |
| $4,395 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| 2019 | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy |
| | | (In Thousands) |
| Service cost - benefits earned during the period | |
| $5,261 |
| |
| $7,284 |
| |
| $1,629 |
| |
| $569 |
| |
| $1,350 |
| |
| $1,550 |
|
| Interest cost on projected benefit obligation | | 14,175 |
| | 15,882 |
| | 4,068 |
| | 1,874 |
| | 3,613 |
| | 3,364 |
|
| Expected return on assets | | (20,176 | ) | | (22,652 | ) | | (5,968 | ) | | (2,696 | ) | | (5,862 | ) | | (4,678 | ) |
| Amortization of net loss | | 11,840 |
| | 11,643 |
| | 3,104 |
| | 1,529 |
| | 2,334 |
| | 2,850 |
|
| Net pension cost | |
| $11,100 |
| |
| $12,157 |
| |
| $2,833 |
| |
| $1,276 |
| |
| $1,435 |
| |
| $3,086 |
|
Non-Qualified Net Pension Cost
Entergy recognized $4.5 million and $4 million in pension cost for its non-qualified pension plans in the first quarters of 2020 and 2019, respectively.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The Registrant Subsidiaries recognized the following pension cost for their employees for their non-qualified pension plans for the first quarters of 2020 and 2019:
|
| | | | | | | | | | | | | | | | | | | |
| | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas |
| | (In Thousands) |
| 2020 |
| $83 |
| |
| $37 |
| |
| $90 |
| |
| $8 |
| |
| $117 |
|
| 2019 |
| $73 |
| |
| $43 |
| |
| $75 |
| |
| $5 |
| |
| $124 |
|
Components of Net Other Postretirement Benefit Cost (Income)
Entergy’s other postretirement benefit cost (income), including amounts capitalized, for the first quarters of 2020 and 2019, included the following components:
|
| | | | | | | |
| | 2020 | | 2019 |
| | (In Thousands) |
| Service cost - benefits earned during the period |
| $5,801 |
| |
| $4,675 |
|
| Interest cost on accumulated postretirement benefit obligation (APBO) | 7,932 |
| | 11,975 |
|
| Expected return on assets | (10,328 | ) | | (9,562 | ) |
| Amortization of prior service credit | (5,922 | ) | | (8,844 | ) |
| Amortization of net loss | 468 |
| | 358 |
|
| Net other postretirement benefit cost (income) |
| ($2,049 | ) | |
| ($1,398 | ) |
The Registrant Subsidiaries’ other postretirement benefit cost (income), including amounts capitalized, for their employees for the first quarters of 2020 and 2019, included the following components:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| 2020 | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy |
| | | (In Thousands) |
| Service cost - benefits earned during the period | |
| $828 |
| |
| $1,423 |
| |
| $351 |
| |
| $105 |
| |
| $303 |
| |
| $294 |
|
| Interest cost on APBO | | 1,217 |
| | 1,723 |
| | 422 |
| | 227 |
| | 582 |
| | 307 |
|
| Expected return on assets | | (4,326 | ) | | — |
| | (1,307 | ) | | (1,355 | ) | | (2,435 | ) | | (748 | ) |
| Amortization of prior service credit | | (661 | ) | | (1,089 | ) | | (321 | ) | | (76 | ) | | (550 | ) | | (219 | ) |
| Amortization of net (gain) loss | | 55 |
| | (199 | ) | | 29 |
| | (38 | ) | | 212 |
| | 20 |
|
| Net other postretirement benefit cost (income) | |
| ($2,887 | ) | |
| $1,858 |
| |
| ($826 | ) | |
| ($1,137 | ) | |
| ($1,888 | ) | |
| ($346 | ) |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| 2019 | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy |
| | | (In Thousands) |
| Service cost - benefits earned during the period | |
| $591 |
| |
| $1,160 |
| |
| $262 |
| |
| $92 |
| |
| $236 |
| |
| $243 |
|
| Interest cost on APBO | | 1,807 |
| | 2,666 |
| | 670 |
| | 395 |
| | 854 |
| | 476 |
|
| Expected return on assets | | (3,991 | ) | | — |
| | (1,199 | ) | | (1,237 | ) | | (2,276 | ) | | (697 | ) |
| Amortization of prior service credit | | (1,238 | ) | | (1,837 | ) | | (439 | ) | | (171 | ) | | (561 | ) | | (363 | ) |
| Amortization of net (gain) loss | | 144 |
| | (174 | ) | | 181 |
| | 58 |
| | 121 |
| | 89 |
|
| Net other postretirement benefit cost (income) | |
| ($2,687 | ) | |
| $1,815 |
| |
| ($525 | ) | |
| ($863 | ) | |
| ($1,626 | ) | |
| ($252 | ) |
Reclassification out of Accumulated Other Comprehensive Income (Loss)
Entergy and Entergy Louisiana reclassified the following costs out of accumulated other comprehensive income (loss) (before taxes and including amounts capitalized) for the first quarters of 2020 and 2019:
|
| | | | | | | | | | | | | | | | |
| 2020 |
| Qualified
Pension
Costs |
| Other
Postretirement
Costs |
| Non-Qualified
Pension Costs |
| Total |
|
| (In Thousands) |
|
|
| Entergy |
|
|
|
|
|
|
|
|
| Amortization of prior service (cost) credit |
|
| $— |
|
|
| $3,776 |
|
|
| ($57 | ) |
|
| $3,719 |
|
| Amortization of net loss |
| (26,462 | ) |
| (25 | ) |
| (831 | ) |
| (27,318 | ) |
|
|
| ($26,462 | ) |
|
| $3,751 |
|
|
| ($888 | ) |
|
| ($23,599 | ) |
| Entergy Louisiana |
|
|
|
|
|
|
|
|
| Amortization of prior service credit |
|
| $— |
|
|
| $1,089 |
|
|
| $— |
|
|
| $1,089 |
|
| Amortization of net gain (loss) |
| (499 | ) |
| 199 |
|
| (1 | ) |
| (301 | ) |
|
|
| ($499 | ) |
|
| $1,288 |
|
|
| ($1 | ) |
|
| $788 |
|
|
| | | | | | | | | | | | | | | | |
| 2019 | | Qualified
Pension
Costs | | Other
Postretirement
Costs | | Non-Qualified
Pension Costs | | Total |
| | | (In Thousands) | | |
| Entergy | | | | | | | | |
| Amortization of prior service (cost) credit | |
| $— |
| |
| $5,375 |
| |
| ($49 | ) | |
| $5,326 |
|
| Amortization of net gain (loss) | | (18,735 | ) | | 308 |
| | (561 | ) | | (18,988 | ) |
| Settlement loss | | (1,137 | ) | | — |
| | — |
| | (1,137 | ) |
| | |
| ($19,872 | ) | |
| $5,683 |
| |
| ($610 | ) | |
| ($14,799 | ) |
| Entergy Louisiana | | | | | | | | |
| Amortization of prior service credit | |
| $— |
| |
| $1,838 |
| |
| $— |
| |
| $1,838 |
|
| Amortization of net gain (loss) | | (699 | ) | | 174 |
| | (2 | ) | | (527 | ) |
| | |
| ($699 | ) | |
| $2,012 |
| |
| ($2 | ) | |
| $1,311 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Accounting for Pension and Other Postretirement Benefits
In accordance with ASU No. 2017-07, “Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost”, the other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations and are presented by Entergy in miscellaneous - net in other income.
Other Postretirement Benefits
In March 2020, Entergy announced changes to its other postretirement benefits. Effective January 1, 2021, certain retired, former non-bargaining employees age 65 and older who are eligible for Entergy-sponsored retiree welfare benefits, and their eligible spouses who are age 65 and older (collectively, Medicare-eligible participants), will be eligible to participate in a new Entergy-sponsored retiree health plan, and will no longer be eligible for retiree coverage under the Entergy Corporation Companies’ Benefits Plus Medical, Dental and Vision Plans. Under the new Entergy retiree health plan, Medicare-eligible participants will be eligible to participate in a health reimbursement arrangement which they may use towards the purchase of various types of qualified insurance offered through a Medicare exchange provider and for other qualified medical expenses. In accordance with accounting standards, the effects of this change have been reflected in the March 31, 2020 other postretirement obligation. The changes affecting active bargaining unit employees will be negotiated with the unions prior to implementation, where necessary, and to the extent required by law.
Employer Contributions
Based on current assumptions, Entergy expects to contribute $216.3 million to its qualified pension plans in 2020. As of March 31, 2020, Entergy had contributed $59.8 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 2020:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | | System Energy |
| | (In Thousands) |
| Expected 2020 pension contributions |
| $32,512 |
| |
| $38,766 |
| |
| $7,768 |
| |
| $3,248 |
| |
| $3,549 |
| |
| $10,544 |
|
| Pension contributions made through March 2020 |
| $10,120 |
| |
| $8,676 |
| |
| $2,560 |
| |
| $563 |
| |
| $453 |
| |
| $3,299 |
|
| Remaining estimated pension contributions to be made in 2020 |
| $22,392 |
| |
| $30,090 |
| |
| $5,208 |
| |
| $2,685 |
| |
| $3,096 |
| |
| $7,245 |
|
NOTE 7. BUSINESS SEGMENT INFORMATION (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)
Entergy Corporation
Entergy’s reportable segments as of March 31, 2020 were Utility and Entergy Wholesale Commodities. Utility includes the generation, transmission, distribution, and sale of electric power in portions of Arkansas, Louisiana, Mississippi, and Texas, and natural gas utility service in portions of Louisiana. Entergy Wholesale Commodities includes the ownership, operation, and decommissioning of nuclear power plants located in the northern United States and the sale of the electric power produced by its operating plants to wholesale customers. Entergy Wholesale Commodities also includes the ownership of interests in non-nuclear power plants that sell the electric power produced by those plants to wholesale customers. “All Other” includes the parent company, Entergy Corporation, and other business activity.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Entergy’s segment financial information for the first quarters of 2020 and 2019 was as follows: |
| | | | | | | | | | | | | | | | | | | | |
| | | Utility | | Entergy Wholesale Commodities | | All Other | | Eliminations | | Entergy |
| | | (In Thousands) |
| 2020 | | | | | | | | | | |
| Operating revenues | | $2,094,629 | | $332,549 | | $11 | |
| ($10 | ) | | $2,427,179 |
| Income taxes | | ($52,949) | | ($30,540) | |
| $12,295 |
| |
| $— |
| | ($71,194) |
| Consolidated net income (loss) | | $323,849 | |
| ($110,428 | ) | |
| ($58,228 | ) | |
| ($31,899 | ) | | $123,294 |
| Total assets as of March 31, 2020 | | $50,421,661 | | $3,921,539 | | $697,784 | |
| ($2,485,955 | ) | | $52,555,029 |
| 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 December 31, 2019 | | $49,557,664 | | $4,154,961 | | $514,020 | |
| ($2,502,733 | ) | | $51,723,912 |
The Entergy Wholesale Commodities business is sometimes referred to as the “competitive businesses.” Eliminations were primarily intersegment activity. Almost all of Entergy’s goodwill was related to the Utility segment.
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 shut down and sell all of the remaining plants in the merchant nuclear fleet. These decisions and transactions resulted in asset impairments; employee retention and severance expenses and other benefits-related costs; and contracted economic development contributions.
Total restructuring charges for the first quarters of 2020 and 2019 were comprised of the following:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | 2020 | | 2019 |
| | 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, |
| $129 |
| |
| $14 |
| |
| $143 |
| |
| $179 |
| |
| $14 |
| |
| $193 |
|
| Restructuring costs accrued | 21 |
| | — |
| | 21 |
| | 34 |
| | — |
| | 34 |
|
| Balance as of March 31, |
| $150 |
| |
| $14 |
| |
| $164 |
| |
| $213 |
| |
| $14 |
| |
| $227 |
|
In addition, Entergy Wholesale Commodities incurred $5 million in the first quarter 2020 and $74 million in the first quarter 2019 of impairment and other related charges associated with these strategic decisions and transactions.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Going forward, Entergy Wholesale Commodities expects to incur employee retention and severance expenses associated with management’s strategy to exit the merchant power business of approximately $75 million in 2020, of which $21 million has been incurred as of March 31, 2020, and a total of approximately $55 million from 2021 through 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.
The Utility has limited exposure to the effects of market risk because it operates primarily under cost-based rate regulation. To the extent approved by their retail regulators, the Utility operating companies use derivative instruments to hedge the exposure to price volatility inherent in their purchased power, fuel, and gas purchased for resale costs that are recovered from customers.
As a wholesale generator, Entergy Wholesale Commodities’ core business is selling energy, measured in MWh, to its customers. Entergy Wholesale Commodities enters into forward contracts with its customers and also sells energy and capacity in the day ahead or spot markets. In addition to its forward physical power and gas contracts, Entergy Wholesale Commodities may also use 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 March 31, 2020 is approximately 1 year. Planned generation currently under contract from Entergy Wholesale Commodities nuclear power plants is 97% for the remainder of 2020, of which approximately 61% is sold under financial derivatives and the remainder under normal purchase/normal sale contracts. Total planned generation for the remainder of 2020 is 11.6 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 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.
Certain of the agreements to sell the power produced by Entergy Wholesale Commodities power plants contain provisions that require an Entergy subsidiary to provide credit support to secure its obligations depending on the mark-to-market values of the contracts. The primary form of credit support to satisfy these requirements is an Entergy Corporation guarantee. As of March 31, 2020, there were no derivative contracts with counterparties in a liability position. In addition to the corporate guarantee, $9 million in cash collateral was required to be posted by the Entergy subsidiary to its counterparties and $95 million in letters of credit were required to be posted by its counterparties to the Entergy subsidiary. As of December 31, 2019, there were no derivative contracts with counterparties in a liability position. In addition to the corporate guarantee, $11 million in cash collateral was required to be posted by the Entergy subsidiary to its counterparties and $1 million in cash collateral and $98 million in letters of credit were required to be posted by it counterparties to the Entergy subsidiary. 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 natural gas swaps and options that financially settle against either the average Henry Hub Gas Daily prices or the NYMEX 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 had executed natural gas swaps and options as of March 31, 2020 was 4 years for Entergy Louisiana and the maximum length of time over which Entergy had executed natural gas swaps as of March 31, 2020 was 7 months for Entergy Mississippi. The total volume of natural gas swaps and options outstanding as of March 31, 2020 was 42,371,000 MMBtu for Entergy, including 29,220,000 MMBtu for Entergy Louisiana and 13,151,000 MMBtu for Entergy Mississippi. Credit support for these natural gas swaps and options is covered by master agreements that do not require Entergy to provide collateral based on mark-to-market value, but do carry adequate assurance language that may lead to requests for collateral.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
During the second quarter 2019, Entergy participated in the annual financial transmission rights auction process for the MISO planning year of June 1, 2019 through May 31, 2020. Financial transmission rights are derivative instruments that represent economic hedges of future congestion charges that will be incurred in serving Entergy’s customer load. They are not designated as hedging instruments. Entergy initially records financial transmission rights at their estimated fair value and subsequently adjusts the carrying value to their estimated fair value at the end of each accounting period prior to settlement. Unrealized gains or losses on financial transmission rights held by Entergy Wholesale Commodities are included in operating revenues. The Utility operating companies recognize regulatory liabilities or assets for unrealized gains or losses on financial transmission rights. The total volume of financial transmission rights outstanding as of March 31, 2020 was 18,987 GWh for Entergy, including 4,368 GWh for Entergy Arkansas, 8,517 GWh for Entergy Louisiana, 2,427 GWh for Entergy Mississippi, 934 GWh for Entergy New Orleans, and 2,662 GWh for Entergy Texas. Credit support for financial transmission rights held by the Utility operating companies is covered by cash and/or letters of credit issued by each Utility operating company as required by MISO. Credit support for financial transmission rights held by Entergy Wholesale Commodities is covered by cash. No cash or letters of credit were required to be posted for financial transmission rights exposure for Entergy Wholesale Commodities as of March 31, 2020 and December 31, 2019. Letters of credit posted with MISO covered the financial transmission rights exposure for Entergy Mississippi as of March 31, 2020 and December 31, 2019.
The fair values of Entergy’s derivative instruments in the consolidated balance sheet as of March 31, 2020 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) | | $81 | | $— | | $81 | | Entergy Wholesale Commodities |
| Derivatives not designated as hedging instruments | | | | | | | | | | |
| Assets: | | | | | | | | | | |
| Electricity swaps and options | | Prepayments and other (current portion) | | $8 | | ($4) | | $4 | | 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 | | $4 | | $— | | $4 | | Utility and Entergy Wholesale Commodities |
| Liabilities: | | | | | | | | | | |
| Electricity swaps and options | | Other current liabilities
(current portion) | | $3 | | ($3) | | $— | | Entergy Wholesale Commodities |
| Natural gas swaps and options | | Other current liabilities
(current portion) | | $7 | | $— | | $7 | | Utility |
| Natural gas swaps and options | | Other non-current liabilities (non-current portion) | | $2 | | $— | | $2 | | Utility |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The fair values of Entergy’s derivative instruments in the consolidated balance sheet as of December 31, 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.
|
| | | | | | | | | | |
| 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) | | $92 | | ($1) | | $91 | | Entergy Wholesale Commodities |
| Electricity swaps and options | | Other deferred debits and other assets (non-current portion) | | $17 | | $— | | $17 | | Entergy Wholesale Commodities |
| Liabilities: | | | | | | | | | | |
| Electricity swaps and options | | Other current liabilities (current portion) | | $1 | | ($1) | | $— | | Entergy Wholesale Commodities |
| Derivatives not designated as hedging instruments | | | | | | | | | | |
| Assets: | | | | | | | | | | |
| Electricity swaps and options | | Prepayments and other (current portion) | | $11 | | ($1) | | $10 | | Entergy Wholesale Commodities |
| Natural gas swaps and options | | Other deferred debits and other assets (non-current portion) | | $1 | | $— | | $1 | | Utility |
| Financial transmission rights | | Prepayments and other | | $10 | | $— | | $10 | | Utility and Entergy Wholesale Commodities |
| Liabilities: | | | | | | | | | | |
| Electricity swaps and options | | Other current liabilities (current portion) | | $2 | | ($2) | | $— | | Entergy Wholesale Commodities |
| Natural gas swaps and options | | Other current liabilities (current portion) | | $5 | | $— | | $5 | | Utility |
| Natural gas swaps and options | | Other non-current liabilities (non-current portion) | | $2 | | $— | | $2 | | Utility |
| |
| (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 $9 million posted as of March 31, 2020 and $11 million posted and $1 million held as of December 31, 2019. Also excludes letters of credit in the amount of $95 million held as of March 31, 2020 and $98 million held as of December 31, 2019. |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The effects of Entergy’s derivative instruments designated as cash flow hedges on the consolidated income statements for the three months ended March 31, 2020 and 2019 were 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) |
| 2020 | | | | | | |
| Electricity swaps and options | | $67 | | Competitive businesses operating revenues | | $94 |
| | | | | | | |
| 2019 | | | | | | |
| Electricity swaps and options | | $26 | | Competitive businesses operating revenues | | $52 |
| |
| (a) | Before taxes of $20 million and $11 million for the three months ended March 31, 2020 and 2019, respectively |
Based on market prices as of March 31, 2020, unrealized gains (losses) recorded in accumulated other comprehensive income on cash flow hedges relating to power sales totaled $81 million of net unrealized losses. Approximately $80 million is expected to be reclassified from accumulated other comprehensive income to operating revenues in the next twelve months. The actual amount reclassified from accumulated other comprehensive income, however, could vary due to future changes in market prices.
Entergy may effectively liquidate a cash flow hedge instrument by entering into a contract offsetting the original hedge, and then de-designating the original hedge in this situation. Gains or losses accumulated in other comprehensive income prior to de-designation continue to be deferred in other comprehensive income until they are included in income as the original hedged transaction occurs. From the point of de-designation, the gains or losses on the original hedge and the offsetting contract are recorded as assets or liabilities on the balance sheet and offset as they flow through to earnings.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The effects of Entergy’s derivative instruments not designated as hedging instruments on the consolidated income statements for the three months ended March 31, 2020 and 2019 were as follows:
|
| | | | |
| Instrument |
| Income Statement
location |
| Amount of gain (loss)
recorded in the income statement |
| | | | (In Millions) |
| 2020 | | | | |
| Natural gas swaps and options | | Fuel, fuel-related expenses, and gas purchased for resale | (a) | ($7) |
| Financial transmission rights |
| Purchased power expense | (b) | $13 |
| Electricity swaps and options (c) | | Competitive business operating revenues | | $— |
| | | | |
| 2019 | | | | |
| Natural gas swaps | | Fuel, fuel-related expenses, and gas purchased for resale | (a) | ($1) |
| Financial transmission rights | | Purchased power expense | (b) | $21 |
| Electricity swaps and options (c) | | Competitive business operating revenues | | $5 |
| |
| (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) | There were no gains (losses) recognized in accumulated other comprehensive income from electricity swaps and options. |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The fair values of the Registrant Subsidiaries’ derivative instruments not designated as hedging instruments on their balance sheets as of March 31, 2020 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) | | Registrant |
| | | | | (In Millions) | | |
| Assets: | | | | | | | | | | |
| Natural gas swaps and options | | Prepayments and other | | $0.2 | | $— | | $0.2 | | Entergy Louisiana |
| Natural gas swaps and options | | Other deferred debits and other assets (non-current portion) | | $0.9 | | $— | | $0.9 | | Entergy Louisiana |
| | | | | | | | | | | |
| Financial transmission rights | | Prepayments and other | | $1.1 | | $— | | $1.1 | | Entergy Arkansas |
| Financial transmission rights | | Prepayments and other | | $2.0 | | ($0.1) | | $1.9 | | Entergy Louisiana |
| Financial transmission rights | | Prepayments and other | | $0.3 | | $— | | $0.3 | | Entergy Mississippi |
| Financial transmission rights | | Prepayments and other | | $0.3 | | $— | | $0.3 | | Entergy Texas |
| | | | | | | | | | | |
| Liabilities: | | | | | | | | | | |
| Natural gas swaps and options | | Other current liabilities | | $2.5 | | $— | | $2.5 | | Entergy Louisiana |
| Natural gas swaps and options | | Other non-current liabilities | | $2.3 | | $— | | $2.3 | | Entergy Louisiana |
| Natural gas swaps | | Other current liabilities | | $4.4 | | $— | | $4.4 | | 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, 2019 were as follows:
|
| | | | | | | | | | |
| Instrument | | Balance Sheet Location | | Gross Fair Value (a) | | Offsetting Position (b) | | Net Fair Value (c) (d) | | Registrant |
| | | | | (In Millions) | | |
| Assets: | | | | | | | | | | |
| Natural gas swaps and options | | Other deferred debits and other assets | | $0.8 | | $— | | $0.8 | | Entergy Louisiana |
| Financial transmission rights | | Prepayments and other | | $3.4 | | ($0.1) | | $3.3 | | Entergy Arkansas |
| Financial transmission rights | | Prepayments and other | | $4.5 | | $— | | $4.5 | | Entergy Louisiana |
| Financial transmission rights | | Prepayments and other | | $0.8 | | $— | | $0.8 | | Entergy Mississippi |
| Financial transmission rights | | Prepayments and other | | $0.3 | | $— | | $0.3 | | Entergy New Orleans |
| Financial transmission rights | | Prepayments and other | | $1.0 | | ($0.1) | | $0.9 | | Entergy Texas |
| | | | | | | | | | | |
| Liabilities: | | | | | | | | | | |
| Natural gas swaps and options | | Other current liabilities | | $2.4 | | $— | | $2.4 | | Entergy Louisiana |
| Natural gas swaps and options | | Other non-current liabilities | | $2.2 | | $— | | $2.2 | | Entergy Louisiana |
| Natural gas swaps | | Other current liabilities | | $2.3 | | $— | | $2.3 | | Entergy Mississippi |
| Natural gas swaps | | Other current liabilities | | $0.2 | | $— | | $0.2 | | Entergy New Orleans |
| |
| (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 March 31, 2020, letters of credit posted with MISO covered financial transmission rights exposure of $0.2 million for Entergy Mississippi. As of December 31, 2019, letters of credit posted with MISO covered financial transmission rights exposure of $0.2 million for Entergy Mississippi. |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The effects of the Registrant Subsidiaries’ derivative instruments not designated as hedging instruments on their income statements for the three months ended March 31, 2020 and 2019 were as follows:
|
| | | | | | |
| Instrument |
| Income Statement Location |
| Amount of gain
(loss) recorded
in the income statement |
| Registrant |
| | | | (In Millions) | | |
| 2020 | | | |
| | |
| Natural gas swaps and options | | Fuel, fuel-related expenses, and gas purchased for resale | | ($1.3) | (a) | Entergy Louisiana |
| Natural gas swaps | | Fuel, fuel-related expenses, and gas purchased for resale | | ($5.2) | (a) | Entergy Mississippi |
| Natural gas swaps | | Fuel, fuel-related expenses, and gas purchased for resale | | ($0.4) | (a) | Entergy New Orleans |
| | | | | | |
| Financial transmission rights | | Purchased power expense | | $4.6 | (b) | Entergy Arkansas |
| Financial transmission rights | | Purchased power expense | | $5.3 | (b) | Entergy Louisiana |
| Financial transmission rights | | Purchased power expense | | ($0.1) | (b) | Entergy Mississippi |
| Financial transmission rights | | Purchased power expense | | $0.4 | (b) | Entergy New Orleans |
| Financial transmission rights | | Purchased power expense | | $2.4 | (b) | Entergy Texas |
| | | | | | |
| 2019 | | | | | | |
| Natural gas swaps and options | | Fuel, fuel-related expenses, and gas purchased for resale | | $0.8 | (a) | Entergy Louisiana |
| Natural gas swaps | | Fuel, fuel-related expenses, and gas purchased for resale | | ($1.8) | (a) | Entergy Mississippi |
| Natural gas swaps | | Fuel, fuel-related expenses, and gas purchased for resale | | $0.2 | (a) | Entergy New Orleans |
| | | | | | |
| Financial transmission rights | | Purchased power expense | | $8.4 | (b) | Entergy Arkansas |
| Financial transmission rights | | Purchased power expense | | $8.8 | (b) | Entergy Louisiana |
| Financial transmission rights | | Purchased power expense | | $1.1 | (b) | Entergy Mississippi |
| Financial transmission rights | | Purchased power expense | | $1.9 | (b) | Entergy New Orleans |
| Financial transmission rights | | Purchased power expense | | $0.3 | (b) | Entergy Texas |
| |
| (a) | Due to regulatory treatment, the natural gas swaps and options are marked-to-market through fuel, fuel-related expenses, and gas purchased for resale and then such amounts are simultaneously reversed and recorded as an offsetting regulatory asset or liability. The gains or losses recorded as fuel expenses when the swaps and options are settled are recovered or refunded through fuel cost recovery mechanisms. |
| |
| (b) | Due to regulatory treatment, the changes in the estimated fair value of financial transmission rights for the Utility operating companies are recorded through purchased power expense and then such amounts are simultaneously reversed and recorded as an offsetting regulatory asset or liability. The gains or losses recorded as purchased power expense when the financial transmission rights for the Utility operating companies are settled are recovered or refunded through fuel cost recovery mechanisms. |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Fair Values
The estimated fair values of Entergy’s financial instruments and derivatives are determined using historical prices, bid prices, market quotes, and financial modeling. Considerable judgment is required in developing the estimates of fair value. Therefore, estimates are not necessarily indicative of the amounts that Entergy could realize in a current market exchange. Gains or losses realized on financial instruments other than those instruments held by the Entergy 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 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 and gas swaps and options valued using observable inputs.
Level 3 - Level 3 inputs are pricing inputs that are generally less observable or unobservable from objective sources. These inputs are used with internally developed methodologies to produce management’s best estimate of fair value for the asset or liability. Level 3 consists primarily of financial transmission rights and derivative power contracts used as cash flow hedges of power sales at merchant power plants.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The values for power contract assets or liabilities are based on both observable inputs including public market prices and interest rates, and unobservable inputs such as implied volatilities, unit contingent discounts, expected basis differences, and credit adjusted counterparty interest rates. They are classified as Level 3 assets and liabilities. The valuations of these assets and liabilities are performed by the Office of Corporate Risk Oversight and the Entergy Wholesale Commodities Accounting group. The primary related functions of the Office of Corporate Risk Oversight 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 Office of Corporate Risk Oversight is also responsible for managing the energy trading and risk management system, forecasting revenues, forward positions and analysis. The Entergy Wholesale Commodities Accounting group performs functions related to market and counterparty settlements, revenue reporting and analysis, and financial accounting. The Office of Corporate Risk Oversight reports to the Vice President and Treasurer while the 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 Office of Corporate Risk Oversight 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 a quarterly 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 Office of Corporate Risk Oversight. The values are calculated internally and verified against the data published by MISO. Entergy’s Entergy Wholesale Commodities Accounting group review these valuations for reasonableness, with the assistance of others within the organization with knowledge of the various inputs and assumptions used in the
Entergy Corporation and Subsidiaries
Notes to Financial Statements
valuation. The Office of Corporate Risk Oversight reports to the Vice President and Treasurer. The Entergy Wholesale Commodities Accounting group reports to the Chief Accounting Officer.
The following tables set forth, by level within the fair value hierarchy, Entergy’s assets and liabilities that were accounted for at fair value on a recurring basis as of March 31, 2020 and December 31, 2019. 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.
|
| | | | | | | | | | | | | | | | |
| 2020 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | | (In Millions) |
| Assets: | | | | | | | | |
| Temporary cash investments | |
| $1,180 |
| |
| $— |
| |
| $— |
| |
| $1,180 |
|
| Decommissioning trust funds (a): | | | | | | | | |
| Equity securities | | 745 |
| | — |
| | — |
| | 745 |
|
| Debt securities (b) | | 1,151 |
| | 1,893 |
| | — |
| | 3,044 |
|
| Common trusts (c) | | | | | | | | 1,992 |
|
| Power contracts | | — |
| | — |
| | 85 |
| | 85 |
|
| Securitization recovery trust account | | 47 |
| | — |
| | — |
| | 47 |
|
| Escrow accounts | | 420 |
| | — |
| | — |
| | 420 |
|
| Gas hedge contracts | | — |
| | 1 |
| | — |
| | 1 |
|
| Financial transmission rights | | — |
| | — |
| | 4 |
| | 4 |
|
| | |
| $3,543 |
| |
| $1,894 |
| |
| $89 |
| |
| $7,518 |
|
| | | | | | | | | |
| Liabilities: | | | | | | | | |
| Gas hedge contracts | |
| $7 |
| |
| $2 |
| |
| $— |
| |
| $9 |
|
|
| | | | | | | | | | | | | | | | |
| 2019 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | | (In Millions) |
| Assets: | | | | | | | | |
| Temporary cash investments | |
| $391 |
| |
| $— |
| |
| $— |
| |
| $391 |
|
| Decommissioning trust funds (a): | | | | | | | | |
| Equity securities | | 905 |
| | — |
| | — |
| | 905 |
|
| Debt securities | | 1,139 |
| | 1,824 |
| | — |
| | 2,963 |
|
| Common trusts (c) | | | | | | | | 2,536 |
|
| Power contracts | | — |
| | — |
| | 118 |
| | 118 |
|
| Securitization recovery trust account | | 47 |
| | — |
| | — |
| | 47 |
|
| Escrow accounts | | 459 |
| | — |
| | — |
| | 459 |
|
| Gas hedge contracts | | — |
| | 1 |
| | — |
| | 1 |
|
| Financial transmission rights | | — |
| | — |
| | 10 |
| | 10 |
|
| | |
| $2,941 |
| |
| $1,825 |
| |
| $128 |
| |
| $7,430 |
|
| Liabilities: | | | | | | | | |
| Gas hedge contracts | |
| $5 |
| |
| $2 |
| |
| $— |
| |
| $7 |
|
| |
| (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) | The decommissioning trust funds fair value presented herein does not include the recognition of a credit loss valuation allowance of $3 million on debt securities due to the adoption of ASU 2016-13. See Note 9 to the financial statements herein for additional information on the allowance for expected credit losses. |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
| |
| (c) | 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, 2020 and 2019:
|
| | | | | | | | | | | | | | | |
| | 2020 | | 2019 |
| | Power Contracts | | Financial transmission rights | | Power Contracts | | Financial transmission rights |
| (In Millions) |
| Balance as of January 1, |
| $118 |
| |
| $10 |
| |
| ($31 | ) | |
| $15 |
|
| Total gains (losses) for the period (a) | | | | | | | |
| Included in earnings | (18 | ) | | — |
| | 5 |
| | — |
|
| Included in other comprehensive income | 67 |
| | — |
| | 26 |
| | — |
|
| Included as a regulatory liability/asset | — |
| | 7 |
| | — |
| | 11 |
|
| Settlements | (82 | ) | | (13 | ) | | (46 | ) | | (21 | ) |
| Balance as of March 31, |
| $85 |
| |
| $4 |
| |
| ($46 | ) | |
| $5 |
|
| |
| (a) | Change in unrealized gains or losses for the period included in earnings for derivatives held at the end of the reporting period was $1 million for the three months ended March 31, 2020 and ($4.9) million for the three months ended March 31, 2019. |
The following table sets forth a description of the types of transactions classified as Level 3 in the fair value hierarchy and significant unobservable inputs to each which cause that classification as of March 31, 2020:
|
| | | | | | | | | |
| Transaction Type | | Fair Value | | Significant Unobservable Inputs | | Range from Average % | | Effect on Fair Value |
| | | (In Millions) | | | | | | | (In Millions) |
| Power contracts - electricity swaps | | $85 | | Unit contingent discount | | +/- | 4.75% | | $9 |
The values of financial transmission rights are based on unobservable inputs calculated internally and verified against historical pricing data published by MISO.
The following table sets forth an analysis of each of the types of unobservable inputs impacting the fair value of items classified as Level 3 within the fair value hierarchy, and the sensitivity to changes to those inputs:
|
| | | | | | | | |
Significant Unobservable Input | | Transaction Type | | Position | | Change to Input | | Effect on Fair Value |
| Unit contingent discount | | Electricity swaps | | Sell | | Increase (Decrease) | | Decrease (Increase) |
The following table sets forth, by level within the fair value hierarchy, the Registrant Subsidiaries’ assets and liabilities that were accounted for at fair value on a recurring basis as of March 31, 2020 and December 31, 2019. The assessment of the significance of a particular input to a fair value measurement requires judgment and may affect its placement within the fair value hierarchy levels.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Entergy Arkansas
|
| | | | | | | | | | | | | | | | |
| 2020 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | | (In Millions) |
| Assets: | | | | | | | | |
| Temporary cash investments | |
| $136.9 |
| |
| $— |
| |
| $— |
| |
| $136.9 |
|
| Decommissioning trust funds (a): | | | | | | | | |
| Equity securities | | 14.4 |
| | — |
| | — |
| | 14.4 |
|
| Debt securities | | 107.2 |
| | 310.6 |
| | — |
| | 417.8 |
|
| Common trusts (b) | | | | | | | | 541.8 |
|
| Securitization recovery trust account | | 7.5 |
| | — |
| | — |
| | 7.5 |
|
| Financial transmission rights | | — |
| | — |
| | 1.1 |
| | 1.1 |
|
| | |
| $266.0 |
| |
| $310.6 |
| |
| $1.1 |
| |
| $1,119.5 |
|
|
| | | | | | | | | | | | | | | | |
| 2019 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | | (In Millions) |
| Assets: | | | | | | | | |
| Decommissioning trust funds (a): | | | | | | | | |
| Equity securities | |
| $0.6 |
| |
| $— |
| |
| $— |
| |
| $0.6 |
|
| Debt securities | | 108.7 |
| | 304.1 |
| | — |
| | 412.8 |
|
| Common trusts (b) | | | | | | | | 687.9 |
|
| Securitization recovery trust account | | 4.0 |
| | — |
| | — |
| | 4.0 |
|
| Financial transmission rights | | — |
| | — |
| | 3.3 |
| | 3.3 |
|
| | |
| $113.3 |
| |
| $304.1 |
| |
| $3.3 |
| |
| $1,108.6 |
|
Entergy Louisiana
|
| | | | | | | | | | | | | | | | |
| 2020 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | | (In Millions) |
| Assets: | | | | | | | | |
| Temporary cash investments | |
| $465.2 |
| |
| $— |
| |
| $— |
| |
| $465.2 |
|
| Decommissioning trust funds (a): | | | | | | | | |
| Equity securities | | 15.7 |
| | — |
| | — |
| | 15.7 |
|
| Debt securities | | 171.1 |
| | 431.9 |
| | — |
| | 603.0 |
|
| Common trusts (b) | | | | | | | | 759.2 |
|
| Escrow accounts | | 256.4 |
| | — |
| | — |
| | 256.4 |
|
| Securitization recovery trust account | | 9.0 |
| | — |
| | — |
| | 9.0 |
|
| Gas hedge contracts | | 0.2 |
| | 0.9 |
| | — |
| | 1.1 |
|
| Financial transmission rights | | — |
| | — |
| | 1.9 |
| | 1.9 |
|
| | |
| $917.6 |
| |
| $432.8 |
| |
| $1.9 |
| |
| $2,111.5 |
|
| | | | | | | | | |
| Liabilities: | | | | | | | | |
| Gas hedge contracts | |
| $2.5 |
| |
| $2.3 |
| |
| $— |
| |
| $4.8 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
|
| | | | | | | | | | | | | | | | |
| 2019 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | | (In Millions) |
| Assets: | | | | | | | | |
| Temporary cash investments | |
| $1.5 |
| |
| $— |
| |
| $— |
| |
| $1.5 |
|
| Decommissioning trust funds (a): | | |
| | |
| | |
| | |
|
| Equity securities | | 4.3 |
| | — |
| | — |
| | 4.3 |
|
| Debt securities | | 180.8 |
| | 420.7 |
| | — |
| | 601.5 |
|
| Common trusts (b) | | | | | | | | 958.0 |
|
| Escrow accounts | | 295.9 |
| | — |
| | — |
| | 295.9 |
|
| Securitization recovery trust account | | 3.7 |
| | — |
| | — |
| | 3.7 |
|
| Gas hedge contracts | | — |
| | 0.8 |
| | — |
| | 0.8 |
|
| Financial transmission rights | | — |
| | — |
| | 4.5 |
| | 4.5 |
|
| | |
| $486.2 |
| |
| $421.5 |
| |
| $4.5 |
| |
| $1,870.2 |
|
| | | | | | | | | |
| Liabilities: | | | | | | | | |
| Gas hedge contracts | |
| $2.4 |
| |
| $2.2 |
| |
| $— |
| |
| $4.6 |
|
Entergy Mississippi
|
| | | | | | | | | | | | | | | | |
| 2020 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | | (In Millions) |
| Assets: | | | | | | | | |
| Escrow accounts | |
| $80.3 |
| |
| $— |
| |
| $— |
| |
| $80.3 |
|
| Financial transmission rights | | — |
| | — |
| | 0.3 |
| | 0.3 |
|
| | |
| $80.3 |
| |
| $— |
| |
| $0.3 |
| |
| $80.6 |
|
| | | | | | | | | |
| Liabilities: | | | | | | | | |
| Gas hedge contracts | |
| $4.4 |
| |
| $— |
| |
| $— |
| |
| $4.4 |
|
|
| | | | | | | | | | | | | | | | |
| 2019 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | | (In Millions) |
| Assets: | | | | | | | | |
| Temporary cash investments | |
| $51.6 |
| |
| $— |
| |
| $— |
| |
| $51.6 |
|
| Escrow accounts | | 80.2 |
| | — |
| | — |
| | 80.2 |
|
| Financial transmission rights | | — |
| | — |
| | 0.8 |
| | 0.8 |
|
| | |
| $131.8 |
| |
| $— |
| |
| $0.8 |
| |
| $132.6 |
|
| | | | | | | | | |
| Liabilities: | | | | | | | | |
| Gas hedge contracts | |
| $2.3 |
| |
| $— |
| |
| $— |
| |
| $2.3 |
|
Entergy New Orleans
|
| | | | | | | | | | | | | | | | |
| 2020 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | | (In Millions) |
| Assets: | | | | | | | | |
| Temporary cash investments | |
| $72.3 |
| |
| $— |
| |
| $— |
| |
| $72.3 |
|
| Securitization recovery trust account | | 4.9 |
| | — |
| | — |
| | 4.9 |
|
| Escrow accounts | | 82.9 |
| | — |
| | — |
| | 82.9 |
|
| | |
| $160.1 |
| |
| $— |
| |
| $— |
| |
| $160.1 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
|
| | | | | | | | | | | | | | | | |
| 2019 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | | (In Millions) |
| Assets: | | | | | | | | |
| Temporary cash investments | |
| $6.0 |
| |
| $— |
| |
| $— |
| |
| $6.0 |
|
| Securitization recovery trust account | | 2.0 |
| | — |
| | — |
| | 2.0 |
|
| Escrow accounts | | 82.6 |
| | — |
| | — |
| | 82.6 |
|
| Financial transmission rights | | — |
| | — |
| | 0.3 |
| | 0.3 |
|
| | |
| $90.6 |
| |
| $— |
| |
| $0.3 |
| |
| $90.9 |
|
| | | | | | | | | |
| Liabilities: | | | | | | | | |
| Gas hedge contracts | |
| $0.2 |
| |
| $— |
| |
| $— |
| |
| $0.2 |
|
Entergy Texas
|
| | | | | | | | | | | | | | | | |
| 2020 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | | (In Millions) |
Assets: | | | | | | | | |
| Temporary cash investments | |
| $159.7 |
| |
| $— |
| |
| $— |
| |
| $159.7 |
|
| Securitization recovery trust account | | 26.1 |
| | — |
| | — |
| | 26.1 |
|
| Financial transmission rights | | — |
| | — |
| | 0.3 |
| | 0.3 |
|
| | |
| $185.8 |
| |
| $— |
| |
| $0.3 |
| |
| $186.1 |
|
|
| | | | | | | | | | | | | | | | |
| 2019 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | | (In Millions) |
Assets: | | | | | | | | |
| Temporary cash investments | |
| $12.9 |
| |
| $— |
| |
| $— |
| |
| $12.9 |
|
| Securitization recovery trust account | | 37.7 |
| | — |
| | — |
| | 37.7 |
|
| Financial transmission rights | | — |
| | — |
| | 0.9 |
| | 0.9 |
|
| | |
| $50.6 |
| |
| $— |
| |
| $0.9 |
| |
| $51.5 |
|
System Energy
|
| | | | | | | | | | | | | | | | |
| 2020 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | | (In Millions) |
| Assets: | | | | | | | | |
| Temporary cash investments | |
| $92.3 |
| |
| $— |
| |
| $— |
| |
| $92.3 |
|
| Decommissioning trust funds (a): | | | | | | | | |
| Equity securities | | 4.9 |
| | — |
| | — |
| | 4.9 |
|
| Debt Securities | | 185.1 |
| | 222.9 |
| | — |
| | 408.0 |
|
| Common trusts (b) | | | | | | | | 515.5 |
|
| | |
| $282.3 |
| |
| $222.9 |
| |
| $— |
| |
| $1,020.7 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
|
| | | | | | | | | | | | | | | | |
| 2019 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | | (In Millions) |
| Assets: | | | | | | | | |
| Temporary cash investments | |
| $68.4 |
| |
| $— |
| |
| $— |
| |
| $68.4 |
|
| Decommissioning trust funds (a): | | | | | | | | |
| Equity securities | | 13.3 |
| | — |
| | — |
| | 13.3 |
|
| Debt securities | | 176.3 |
| | 209.9 |
| | — |
| | 386.2 |
|
| Common trusts (b) | | | | | | | | 654.6 |
|
| | |
| $258.0 |
| |
| $209.9 |
| |
| $— |
| |
| $1,122.5 |
|
| |
| (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. |
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, 2019.2020.
| | | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas |
| | (In Millions) | (In Millions) |
| Balance as of January 1, |
| $3.4 |
| |
| $8.3 |
| |
| $2.2 |
| |
| $1.3 |
| |
| ($0.5 | ) |
| $3.3 |
| |
| $4.5 |
| |
| $0.8 |
| |
| $0.3 |
| |
| $0.9 |
|
| Gains (losses) included as a regulatory liability/asset | 6.1 |
| | 3.3 |
| | (0.4 | ) | | 1.1 |
| | 0.5 |
| 2.4 |
| | 2.7 |
| | (0.6 | ) | | 0.1 |
| | 1.8 |
|
| Settlements | (8.4 | ) | | (8.8 | ) | | (1.1 | ) | | (1.9 | ) | | (0.3 | ) | (4.6 | ) | | (5.3 | ) | | 0.1 |
| | (0.4 | ) | | (2.4 | ) |
| Balance as of March 31, |
| $1.1 |
| |
| $2.8 |
| |
| $0.7 |
| |
| $0.5 |
| |
| ($0.3 | ) |
| $1.1 |
| |
| $1.9 |
| |
| $0.3 |
| |
| $— |
| |
| $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, 2018.2019.
|
| | | | | | | | | | | | | | | | | | | |
| | 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 | ) |
|
| | | | | | | | | | | | | | | | | | | |
| | 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 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, 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 Palisadesthe Entergy Wholesale Commodities nuclear plants do not meet the criteria for regulatory accounting treatment. Accordingly, unrealized gains/(losses) recorded on the equity securities in the trust funds are recognized in earnings. Unrealized gains recorded on the 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, 20192020 on equity securities still held as of March 31, 20192020 were $340($636) 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, 20192020 and December 31, 20182019 are summarized as follows:
| | | | | Fair Value | | Total Unrealized Gains | | Total Unrealized Losses | | Fair Value | | Total Unrealized Gains | | Total Unrealized Losses |
| | | (In Millions) | | (In Millions) |
| 2020 | | | | | | | |
| Debt Securities (a) | | |
| $2,523 |
| |
| $158 |
| |
| $16 |
|
| | | | | | | | |
| 2019 | | | | | | | | | | | | |
| Debt Securities (a) | |
| $2,562 |
| |
| $51 |
| |
| $9 |
| |
| $2,456 |
| |
| $96 |
| |
| $6 |
|
| | | | | | | | |
| 2018 | | | | | | | |
| Debt Securities (a) | |
| $2,495 |
| |
| $19 |
| |
| $35 |
| |
| |
| (a) | Debt securities presented herein do not include the $430$521 million and $389$507 million of debt securities held in the wholly-owned registered investment company as of March 31, 20192020 and December 31, 2018,2019, 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$22 million as of March 31, 20192020 and ($1)$13 million as of December 31, 20182019 for debt securities. The amortized cost of available-for-sale debt securities was $2,520$2,382 million as of March 31, 20192020 and $2,511$2,366 million as of December 31, 2018.2019. As of March 31, 2019, available-for-sale2020, available-
Entergy Corporation and Subsidiaries
Notes to Financial Statements
for-sale debt securities havehad an average coupon rate of approximately 3.28%3.23%, an average duration of approximately 5.426.73 years, and an average maturity of approximately 9.1310.47 years.
The fair value and gross unrealized losses of available-for-sale debt securities, summarized by length of time that the securities havehad been in a continuous loss position, arewere as follows as of March 31, 2020 and December 31, 2019:
| | | | | | | | | | | | March 31, 2020 | | December 31, 2019 |
| | | Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses |
| | | (In Millions) | | (In Millions) |
| Less than 12 months | |
| $197 |
| |
| $1 |
| |
| $411 |
| |
| $16 |
| |
| $404 |
| |
| $5 |
|
| More than 12 months | | 588 |
| | 8 |
| | 5 |
| | — |
| | 38 |
| | 1 |
|
| Total | |
| $785 |
| |
| $9 |
| |
| $416 |
| |
| $16 |
| |
| $442 |
| |
| $6 |
|
The fair value and gross unrealized losses of available-for-sale debt securities, summarized by length of time that the securities have been in a continuous loss position, are as follows as of December 31, 2018:
|
| | | | | | | |
| | Fair Value | | Gross Unrealized Losses |
| | (In Millions) |
| Less than 12 months |
| $652 |
| |
| $9 |
|
| More than 12 months | 782 |
| | 26 |
|
| Total |
| $1,434 |
| |
| $35 |
|
The fair value of available-for-sale debt securities, summarized by contractual maturities, as of March 31, 20192020 and December 31, 2018 are2019 were as follows:
|
| | | | | | | |
| | 2020 | | 2019 |
| | (In Millions) |
| Less than 1 year |
| $84 |
| |
| $128 |
|
| 1 year - 5 years | 798 |
| | 807 |
|
| 5 years - 10 years | 686 |
| | 666 |
|
| 10 years - 15 years | 226 |
| | 125 |
|
| 15 years - 20 years | 129 |
| | 126 |
|
| 20 years+ | 600 |
| | 604 |
|
| Total |
| $2,523 |
| |
| $2,456 |
|
|
| | | | | | | |
| | 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, 20192020 and 2018,2019, proceeds from the dispositions of available-for-sale securities amounted to $365$400 million and $1,091$365 million, respectively. During the three months ended March 31, 20192020 and 2018,2019, gross gains of $2$14 million and $1$2 million, respectively, and gross losses of $2$3 million and $7$2 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 $5102020 were $506 million for Indian Point 1, $645$644 million for Indian Point 2, $845$858 million for Indian Point 3, $481and $493 million for Palisades, and $1,040 million for Pilgrim.Palisades. The fair values of the decommissioning trust funds related to the Entergy Wholesale Commodities nuclear plants as of December 31, 2018 are $4712019 were $556 million
Entergy Corporation and Subsidiaries
Notes to Financial Statements
for Indian Point 1, $598$701 million for Indian Point 2, $781$930 million for Indian Point 3, $444and $498 million for Palisades, $1,028 million for Pilgrim, and $532 million for Vermont Yankee.Palisades. The fair values of the decommissioning trust funds for the Registrant Subsidiaries’ nuclear plants are detailed below.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Entergy Arkansas
Entergy Arkansas holds equity securities and available-for-sale debt securities in nuclear decommissioning trust accounts. The available-for-sale securities held as of March 31, 20192020 and December 31, 20182019 are summarized as follows:
|
| | | | | | | | | | | | |
| | | Fair Value | | Total Unrealized Gains | | Total Unrealized Losses |
| | | (In Millions) |
| 2020 | | | | | | |
| Debt Securities | |
| $417.8 |
| |
| $20.4 |
| |
| $1.4 |
|
| | | | | | | |
| 2019 | | | | | | |
| Debt Securities | |
| $412.8 |
| |
| $9.9 |
| |
| $2.6 |
|
|
| | | | | | | | | | | | |
| | | Fair Value | | Total Unrealized Gains | | Total Unrealized Losses |
| | | (In Millions) |
| 2019 | | | | | | |
| Debt Securities | |
| $391.0 |
| |
| $2.9 |
| |
| $2.3 |
|
| | | | | | | |
| 2018 | | | | | | |
| Debt Securities | |
| $381.3 |
| |
| $0.6 |
| |
| $8.2 |
|
The amortized cost of available-for-sale debt securities was $390.4$398.9 million as of March 31, 20192020 and $389$405.4 million as of December 31, 2018.2019. As of March 31, 2019,2020, available-for-sale debt securities havehad an average coupon rate of approximately 2.85%2.73%, an average duration of approximately 4.816.87 years, and an average maturity of approximately 7.348.36 years.
The unrealized gains/(losses) recognized during the three months ended March 31, 20192020 on equity securities still held as of March 31, 20192020 were $70.7($147.1) million. The equity securities are generally held in funds that are designed to approximate the return of the Standard & Poor’s 500 Index. A relatively small percentage of the equity securities are held in funds intended to replicate the return of the Wilshire 4500 Index.
The fair value and gross unrealized losses of available-for-sale debt securities, summarized by length of time that the securities havehad been in a continuous loss position, arewere as follows as of March 31, 2020 and December 31, 2019:
| | | | | | | | | | | | March 31, 2020 | | December 31, 2019 |
| | | Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses |
| | | (In Millions) | | (In Millions) |
| Less than 12 months | |
| $3.6 |
| |
| $— |
| |
| $60.2 |
| |
| $1.4 |
| |
| $104.8 |
| |
| $2.5 |
|
| More than 12 months | | 182.7 |
| | 2.3 |
| | — |
| | — |
| | 7.7 |
| | 0.1 |
|
| Total | |
| $186.3 |
| |
| $2.3 |
| |
| $60.2 |
| |
| $1.4 |
| |
| $112.5 |
| |
| $2.6 |
|
The fair value and gross unrealized losses of available-for-sale debt securities, summarized by length of time that the securities have been in a continuous loss position, are as follows as of December 31, 2018:
|
| | | | | | | |
| | Fair Value | | Gross Unrealized Losses |
| | (In Millions) |
| Less than 12 months |
| $65.8 |
| |
| $0.5 |
|
| More than 12 months | 231.1 |
| | 7.7 |
|
| Total |
| $296.9 |
| |
| $8.2 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The fair value of available-for-sale debt securities, summarized by contractual maturities, as of March 31, 20192020 and December 31, 2018 are2019 were as follows:
|
| | | | | | | |
| | 2020 | | 2019 |
| | (In Millions) |
| Less than 1 year |
| $34.4 |
| |
| $44.1 |
|
| 1 year - 5 years | 108.2 |
| | 109.1 |
|
| 5 years - 10 years | 163.0 |
| | 156.0 |
|
| 10 years - 15 years | 43.8 |
| | 31.3 |
|
| 15 years - 20 years | 27.7 |
| | 23.8 |
|
| 20 years+ | 40.7 |
| | 48.5 |
|
| Total |
| $417.8 |
| |
| $412.8 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
|
| | | | | | | |
| | 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, 20192020 and 2018,2019, proceeds from the dispositions of available-for-sale securities amounted to $10.9$48.6 million and $34.9$10.9 million, respectively. During the three months ended March 31, 20192020 and 2018,2019, gross gains of $0.02$4.5 million and $0.1$0.02 million, respectively, and gross losses of $0.1$0.2 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, 20192020 and December 31, 20182019 are summarized as follows:
|
| | | | | | | | | | | | |
| | | Fair Value | | Total Unrealized Gains | | Total Unrealized Losses |
| | | (In Millions) |
| 2020 | | | | | | |
| Debt Securities | |
| $603.0 |
| |
| $38.5 |
| |
| $3.9 |
|
| | | | | | | |
| 2019 | | | | | | |
| Debt Securities | |
| $601.5 |
| |
| $29.3 |
| |
| $0.8 |
|
|
| | | | | | | | | | | | |
| | | 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$568.4 million as of March 31, 20192020 and $534.8$573 million as of December 31, 2018.2019. As of March 31, 2019,2020, the available-for-sale debt securities havehad an average coupon rate of approximately 3.92%3.87%, an average duration of approximately 6.626.85 years, and an average maturity of approximately 13.2613.38 years.
The unrealized gains/(losses) recognized during the three months ended March 31, 20192020 on equity securities still held as of March 31, 20192020 were $98.5($200.8) million. The equity securities are generally held in funds that are designed to approximate the return of the Standard & Poor’s 500 Index. A relatively small percentage of the equity securities are held in funds intended to replicate the return of the Wilshire 4500 Index.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The fair value and gross unrealized losses of available-for-sale debt securities, summarized by length of time that the securities havehad been in a continuous loss position, arewere as follows as of March 31, 2020 and December 31, 2019:
| | | | | | | | | | | | March 31, 2020 | | December 31, 2019 |
| | | Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses |
| | | (In Millions) | | (In Millions) |
| Less than 12 months | |
| $26.5 |
| |
| $0.2 |
| |
| $95.2 |
| |
| $3.9 |
| |
| $71.2 |
| |
| $0.8 |
|
| More than 12 months | | 87.4 |
| | 1.2 |
| | 0.8 |
| | — |
| | 7.9 |
| | — |
|
| Total | |
| $113.9 |
| |
| $1.4 |
| |
| $96.0 |
| |
| $3.9 |
| |
| $79.1 |
| |
| $0.8 |
|
The fair value and gross unrealized losses of available-for-sale debt securities, summarized by length of time that the securities have been in a continuous loss position, are as follows as of December 31, 2018:
Entergy Corporation and Subsidiaries
Notes to Financial Statements
|
| | | | | | | |
| | Fair Value | | Gross Unrealized Losses |
| | (In Millions) |
| Less than 12 months |
| $170.1 |
| |
| $2.1 |
|
| More than 12 months | 145.8 |
| | 3.9 |
|
| Total |
| $315.9 |
| |
| $6.0 |
|
The fair value of available-for-sale debt securities, summarized by contractual maturities, as of March 31, 20192020 and December 31, 2018 are2019 were as follows:
| | | | 2019 | | 2018 | 2020 | | 2019 |
| | (In Millions) | (In Millions) |
| Less than 1 year |
| $42.4 |
| |
| $31.1 |
|
| $10.4 |
| |
| $40.7 |
|
| 1 year - 5 years | 119.3 |
| | 130.5 |
| 143.3 |
| | 142.0 |
|
| 5 years - 10 years | 135.7 |
| | 111.0 |
| 133.8 |
| | 132.4 |
|
| 10 years - 15 years | 26.8 |
| | 29.0 |
| 62.2 |
| | 39.8 |
|
| 15 years - 20 years | 44.5 |
| | 37.1 |
| 54.6 |
| | 49.2 |
|
| 20 years+ | 187.0 |
| | 194.2 |
| 198.7 |
| | 197.4 |
|
| Total |
| $555.7 |
| |
| $532.9 |
|
| $603.0 |
| |
| $601.5 |
|
During the three months ended March 31, 20192020 and 2018,2019, proceeds from the dispositions of available-for-sale securities amounted to $56.2$67.4 million and $125.5$56.2 million, respectively. During the three months ended March 31, 20192020 and 2018,2019, gross gains of $0.3$2.9 million and $0.5$0.3 million, respectively, and gross losses of $0.2$0.6 million and $0.8$0.2 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, 20192020 and December 31, 20182019 are summarized as follows:
| | | | | Fair Value | | Total Unrealized Gains | | Total Unrealized Losses | | Fair Value | | Total Unrealized Gains | | Total Unrealized Losses |
| | | (In Millions) | | (In Millions) |
| 2020 | | | | | | | |
| Debt Securities | | |
| $408.0 |
| |
| $26.9 |
| |
| $2.7 |
|
| | | | | | | | |
| 2019 | | | | | | | | | | | | |
| Debt Securities | |
| $375.2 |
| |
| $6.9 |
| |
| $1.2 |
| |
| $386.2 |
| |
| $15.1 |
| |
| $0.3 |
|
| | | | | | | | |
| 2018 | | | | | | | |
| Debt Securities | |
| $364.2 |
| |
| $2.9 |
| |
| $5.8 |
| |
The amortized cost of available-for-sale debt securities was $369.5$383.8 million as of March 31, 20192020 and $367.1$371.4 million as of December 31, 2018.2019. As of March 31, 2019,2020, available-for-sale debt securities havehad an average coupon rate of approximately 3.08%2.91%, an average duration of approximately 6.347.03 years, and an average maturity of approximately 9.0610.70 years.
The unrealized gains/(losses) recognized during the three months ended March 31, 20192020 on equity securities still held as of March 31, 20192020 were $67.3($140) 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 available-for-sale debt securities, summarized by length of time that the securities havehad been in a continuous loss position, arewere as follows as of March 31, 2020 and December 31, 2019:
| | | | | | | | | | | | March 31, 2020 | | December 31, 2019 |
| | | Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses |
| | (In Millions) | (In Millions) |
| Less than 12 months | |
| $44.2 |
| |
| $— |
| |
| $52.3 |
| |
| $2.7 |
| |
| $56.9 |
| |
| $0.3 |
|
| More than 12 months | | 77.4 |
| | 1.2 |
| | — |
| | — |
| | 0.3 |
| | — |
|
| Total | |
| $121.6 |
| |
| $1.2 |
| |
| $52.3 |
| |
| $2.7 |
| |
| $57.2 |
| |
| $0.3 |
|
The fair value and gross unrealized losses of available-for-sale debt securities, summarized by length of time that the securities have been in a continuous loss position, are as follows as of December 31, 2018:
|
| | | | | | | |
| | Fair Value | | Gross Unrealized Losses |
| | (In Millions) |
| Less than 12 months |
| $89.7 |
| |
| $2.4 |
|
| More than 12 months | 79.8 |
| | 3.4 |
|
| Total |
| $169.5 |
| |
| $5.8 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The fair value of available-for-sale debt securities, summarized by contractual maturities, as of March 31, 20192020 and December 31, 2018 are2019 were as follows:
| | | | 2019 | | 2018 | 2020 | | 2019 |
| | (In Millions) | (In Millions) |
| Less than 1 year |
| $14.5 |
| |
| $22.8 |
|
| $17.4 |
| |
| $8.5 |
|
| 1 year - 5 years | 195.0 |
| | 188.0 |
| 163.9 |
| | 154.6 |
|
| 5 years - 10 years | 80.1 |
| | 73.4 |
| 96.0 |
| | 92.3 |
|
| 10 years - 15 years | 4.1 |
| | 5.2 |
| 20.8 |
| | 13.4 |
|
| 15 years - 20 years | 10.2 |
| | 10.2 |
| 6.7 |
| | 14.4 |
|
| 20 years+ | 71.3 |
| | 64.6 |
| 103.2 |
| | 103.0 |
|
| Total |
| $375.2 |
| |
| $364.2 |
|
| $408.0 |
| |
| $386.2 |
|
During the three months ended March 31, 20192020 and 2018,2019, proceeds from the dispositions of available-for-sale securities amounted to $42.1$92 million and $54.2$42.1 million, respectively. During the three months ended March 31, 20192020 and 2018,2019, gross gains of $0.4$1.7 million and $0.1$0.4 million, respectively, and gross losses of $0.1$0.2 million and $0.6$0.1 million, respectively, related to available-for-sale securities were reclassified out of other regulatory liabilities/assets into earnings.
Allowance for expected credit losses
Entergy implemented ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, effective January 1, 2020. In accordance with the new standard, Entergy estimates the expected credit losses for its available for sale securities based on the current credit rating and remaining life of the securities. To the extent an individual security is determined to be uncollectible it is written off against this allowance. Entergy’s available-for-sale securities are held in trusts managed by third parties who operate in accordance with agreements that define investment guidelines and place restrictions on the purchases and sales of investments. Specifically, available-for-sale securities are subject to credit worthiness restrictions, with requirements for both the average credit rating of the portfolio and minimum credit ratings for individual debt securities. As of March 31, 2020, Entergy’s allowance for expected credit losses related to available-for-sale securities was $3 million. Entergy did not record any impairments of available-for-sale debt securities for the three months ended March 31, 2020.
Other-than-temporary impairments and unrealized gains and losses
Prior to the implementation of ASU 2016-13 on January 1, 2020, Entergy evaluatesevaluated the available-for-sale debt securities in the Entergy Wholesale Commodities’Commodities nuclear decommissioning trust funds with unrealized losses at the end of each period to determine whether an other-than-temporary impairment hashad occurred. The assessment of whether an investment in a debt security has suffered an other-than-temporary impairment iswas based on whether Entergy hashad the
Entergy Corporation and Subsidiaries
Notes to Financial Statements
intent to sell or more likely than not will bewould have been required to sell the debt security before recovery of its amortized costs. Further, if Entergy doesdid not expect to recover the entire amortized cost basis of the debt security, an other-than-temporary impairment iswas considered to have occurred and it iswas 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 months ended March 31, 2019 and 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.2019.
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.
Tax Cuts and Jobs Act
During the three months ended March 31, 2019, Entergy Arkansas, Entergy Louisiana, and Entergy Texas returnedsecond quarter 2018, Registrant Subsidiaries began returning 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 their respective regulatory 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 manner of regulatory accounting has a significant effect on the effective tax rate for the period as compared to the statutory tax rate. For the three months ended March 31, 2019 theThe return of unprotected excess accumulated deferred income taxes reduced Entergy’s and the Registrant Subsidiaries’ regulatory liability for income taxes as follows:
|
| | | | | | | |
| | Three Months Ended March 31, |
| | 2020 | | 2019 |
| | (In Millions) |
| Entergy |
| $30 |
| |
| $61 |
|
| Entergy Arkansas |
| $13 |
| |
| $32 |
|
| Entergy Louisiana |
| $8 |
| |
| $7 |
|
| Entergy New Orleans |
| $3 |
| |
| $— |
|
| Entergy Texas |
| $6 |
| |
| $22 |
|
Other Tax Matters
In accordance with ASC 718, “Compensation - Stock Compensation,” Entergy and the Registrant Subsidiaries recognized excess tax deductions as a reduction of income tax expense in the first quarter 2020. Due to the vesting and exercise of certain Entergy stock-based awards, Entergy recorded a permanent tax reduction of approximately $24.7 million, including $4.8 million for Entergy Arkansas, $32 million;$8.6 million for Entergy Louisiana, $7 million;$2.7 million for Entergy Mississippi, $1.5 million for Entergy New Orleans, $2.7 million for Entergy Texas, and $1.3 million for System Energy.
In the first quarter 2020, Entergy and the IRS agreed upon and settled on the treatment of funds received by Entergy Louisiana in conjunction with the Act 55 financing of Hurricane Isaac storm costs, which resulted in a reduction of income tax expense of approximately $32 million. As a result of the settlement, the position was partially sustained and Entergy Texas, $22 million.Louisiana recorded a reduction of income tax expense of approximately $58 million primarily due to the reversal of liabilities for uncertain tax positions in excess of the agreed-upon settlement. Entergy recorded an increase to income tax expense of $26 million primarily resulting from the reduction of the deferred tax asset, associated with utilization of the net operating loss as a result of the settlement. This adjustment recorded by Entergy also accounted for the tax rate change of the Tax Cuts and Jobs Act. As a result of the IRS settlement, Entergy Louisiana recorded a
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Other Tax Matters$29 million ($21 million net-of-tax) regulatory charge and a corresponding regulatory liability to reflect its obligation to customers pursuant to the LPSC Hurricane Isaac Act 55 financing order.
Coronavirus Aid, Relief, and Economic Security Act
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 increaseresponse to the economic impacts of the COVID-19 pandemic, President Trump signed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) into law on March 27, 2020. The CARES Act provisions that result in the most significant opportunities for tax relief to Entergy and the Registrant Subsidiaries are permitting a five year carryback of 2018-2020 net operating loss carryover period from five to ten years. The adoptionlosses, removing the 80 percent limitation on the carryback of 2018-2020 net operating losses, increasing the limitation on interest expense deductibility for 2019 and 2020, accelerating available refunds for minimum tax credit carryforwards, modifying limitations on charitable contributions during 2020, and delaying the payment of employer payroll taxes. Based on current estimates, Entergy could defer approximately $64 million of 2020 payroll tax payments, which would be payable in two installments of $32 million on December 31, 2021 and December 31, 2022. Currently, these tax law changes throughout the phase-in period isprovisions do not expected to have a significant effect on Entergy’s or the financial position, results of operations, or cash flows of Entergy Arkansas, the Utility, or Entergy.Registrant Subsidiaries’ balance sheets.
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 16 to the financial statements herein for discussion of the Vermont Yankee transaction.
NOTE 11. PROPERTY, PLANT, AND EQUIPMENT (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)
Construction Expenditures in Accounts Payable
Construction expenditures included in accounts payable at March 31, 2019 are $3242020 were $367 million for Entergy, $29.9$57.5 million for Entergy Arkansas, $118$106.7 million for Entergy Louisiana, $13.8$24.2 million for Entergy Mississippi, $8.2$8.1 million for Entergy New Orleans, $72.3$78.2 million for Entergy Texas, and $20.2$52.6 million for System Energy. Construction expenditures included in accounts payable at December 31, 2018 are $3112019 were $406 million for Entergy, $35.7$67.9 million for Entergy Arkansas, $104.6$115.1 million for Entergy Louisiana, $13.6$34.2 million for Entergy Mississippi, $5.8$18.4 million for Entergy New Orleans, $55.6$88.1 million for Entergy Texas, and $26.3$23.2 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 105 to the financial statements in the Form 10-K. System Energy made payments on its lease,under this arrangement, including interest, of $8.6 million in each of the three months ended March 31, 20192020 and in the three months ended March 31, 2018.2019.
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)
Operating Revenues
See Note 19 to the financial statements in the Form 10-K for a discussion of revenue recognition. Entergy’s total revenues for the three months ended March 31, 2020 and 2019 and 2018 arewere as follows:
| | | | | 2019 | | 2018 | | 2020 | | 2019 |
| | | (In Thousands) | | (In Thousands) |
| Utility: | | | | | | | | |
| Residential | |
| $802,539 |
| |
| $892,085 |
| |
| $798,028 |
| |
| $802,539 |
|
| Commercial | | 554,058 |
| | 595,720 |
| | 538,940 |
| | 554,058 |
|
| Industrial | | 601,000 |
| | 597,186 |
| | 557,515 |
| | 601,000 |
|
| Governmental | | 52,960 |
| | 56,478 |
| | 52,582 |
| | 52,960 |
|
| Total billed retail | | 2,010,557 |
| | 2,141,469 |
| | 1,947,065 |
| | 2,010,557 |
|
| | | | | | | | | |
| Sales for resale (a) | | 84,435 |
| | 69,526 |
| | 53,725 |
| | 84,435 |
|
| Other electric revenues (b) | | 15,470 |
| | 27,433 |
| | 50,166 |
| | 15,470 |
|
| Non-customer revenues (c) | | 10,562 |
| | 9,834 |
| |
| Revenues from contracts with customers | | | 2,050,956 |
| | 2,110,462 |
|
| Other revenues (c) | | | (318 | ) | | 10,562 |
|
| Total electric revenues | | 2,121,024 |
| | 2,248,262 |
| | 2,050,638 |
| | 2,121,024 |
|
| | | | | | | | | |
| Natural gas | | 54,948 |
| | 56,695 |
| | 43,976 |
| | 54,948 |
|
| | | | | | | | | |
| Entergy Wholesale Commodities: | | | | | | | | |
| Competitive businesses sales (a) | | 360,471 |
| | 409,135 |
| |
| Non-customer revenues (c) | | 73,141 |
| | 9,789 |
| |
| Total competitive businesses | | 433,612 |
| | 418,924 |
| |
| Competitive businesses sales from contracts with customers (a) | | | 216,002 |
| | 360,471 |
|
| Other revenues (c) | | | 116,563 |
| | 73,141 |
|
| Total competitive businesses revenues | | | 332,565 |
| | 433,612 |
|
| | | | | | | | | |
| Total operating revenues | |
| $2,609,584 |
| |
| $2,723,881 |
| |
| $2,427,179 |
| |
| $2,609,584 |
|
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The Registrant Subsidiaries’ total revenues for the three months ended March 31, 2020 and 2019 were as follows:
|
| | | | | | | | | | | | | | | | | | | | |
| 2020 | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas |
| | | (In Thousands) |
| | | | | | | | | | | |
| Residential | |
| $219,688 |
| |
| $259,860 |
| |
| $127,102 |
| |
| $50,899 |
| |
| $140,480 |
|
| Commercial | | 111,245 |
| | 202,246 |
| | 96,798 |
| | 45,505 |
| | 83,146 |
|
| Industrial | | 101,088 |
| | 322,342 |
| | 36,390 |
| | 7,347 |
| | 90,348 |
|
| Governmental | | 4,030 |
| | 16,754 |
| | 10,327 |
| | 15,851 |
| | 5,620 |
|
| Total billed retail | | 436,051 |
|
| 801,202 |
|
| 270,617 |
|
| 119,602 |
|
| 319,594 |
|
| Sales for resale (a) | | 41,140 |
| | 78,530 |
| | 14,422 |
| | 10,170 |
| | 8,629 |
|
| Other electric revenues (b) | | 1,596 |
| | 32,008 |
| | 6,443 |
| | 763 |
| | 10,702 |
|
| Revenues from contracts with customers | | 478,787 |
| | 911,740 |
| | 291,482 |
| | 130,535 |
| | 338,925 |
|
| Other revenues (c) | | 3,125 |
| | 801 |
| | 2,440 |
| | (7,104 | ) | | 411 |
|
| Total electric revenues | | 481,912 |
|
| 912,541 |
|
| 293,922 |
|
| 123,431 |
|
| 339,336 |
|
| Natural gas | | — |
| | 18,106 |
| | — |
| | 25,871 |
| | — |
|
| Total operating revenues | |
| $481,912 |
|
|
| $930,647 |
|
|
| $293,922 |
|
|
| $149,302 |
|
|
| $339,336 |
|
|
| | | | | | | | | | | | | | | | | | | | |
| 2019 | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas |
| | | (In Thousands) |
| | | | | | | | | | | |
| Residential | |
| $209,867 |
| |
| $264,065 |
| |
| $128,809 |
| |
| $52,076 |
| |
| $147,722 |
|
| Commercial | | 124,578 |
| | 206,779 |
| | 97,914 |
| | 45,741 |
| | 79,046 |
|
| Industrial | | 121,577 |
| | 346,678 |
| | 37,697 |
| | 7,250 |
| | 87,798 |
|
| Governmental | | 4,899 |
| | 16,891 |
| | 10,036 |
| | 15,901 |
| | 5,233 |
|
| Total billed retail | | 460,921 |
|
| 834,413 |
|
| 274,456 |
|
| 120,968 |
|
| 319,799 |
|
| | | | | | | | | | | |
| Sales for resale (a) | | 79,584 |
| | 83,955 |
| | 4,814 |
| | 10,224 |
| | 16,775 |
|
| Other electric revenues (b) | | 2,304 |
| | 12,441 |
| | 405 |
| | (1,706 | ) | | 3,496 |
|
| Non-customer revenues (c) | | 3,003 |
| | 5,884 |
| | 2,569 |
| | 1,397 |
| | 404 |
|
| Total electric revenues | | 545,812 |
|
| 936,693 |
|
| 282,244 |
|
| 130,883 |
|
| 340,474 |
|
| | | | | | | | | | | |
| Natural gas | | — |
| | 22,637 |
| | — |
| | 32,311 |
| | — |
|
| | | | | | | | | | | |
| Total operating revenues | |
| $545,812 |
|
|
| $959,330 |
|
|
| $282,244 |
|
|
| $163,194 |
|
|
| $340,474 |
|
|
| | | | | | | | | | | | | | | | | | | | |
| 2019 | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas |
| | | (In Thousands) |
| | | | | | | | | | | |
| Residential | |
| $209,867 |
| |
| $264,065 |
| |
| $128,809 |
| |
| $52,076 |
| |
| $147,722 |
|
| Commercial | | 124,578 |
| | 206,779 |
| | 97,914 |
| | 45,741 |
| | 79,046 |
|
| Industrial | | 121,577 |
| | 346,678 |
| | 37,697 |
| | 7,250 |
| | 87,798 |
|
| Governmental | | 4,899 |
| | 16,891 |
| | 10,036 |
| | 15,901 |
| | 5,233 |
|
| Total billed retail | | 460,921 |
| | 834,413 |
| | 274,456 |
| | 120,968 |
| | 319,799 |
|
| Sales for resale (a) | | 79,584 |
| | 83,955 |
| | 4,814 |
| | 10,224 |
| | 16,775 |
|
| Other electric revenues (b) | | 2,304 |
| | 12,441 |
| | 405 |
| | (1,706 | ) | | 3,496 |
|
| Revenues from contracts with customers | | 542,809 |
| | 930,809 |
| | 279,675 |
| | 129,486 |
| | 340,070 |
|
| Other revenues (c) | | 3,003 |
| | 5,884 |
| | 2,569 |
| | 1,397 |
| | 404 |
|
| Total electric revenues | | 545,812 |
| | 936,693 |
| | 282,244 |
| | 130,883 |
| | 340,474 |
|
| Natural gas | | — |
| | 22,637 |
| | — |
| | 32,311 |
| | — |
|
| Total operating revenues | |
| $545,812 |
| |
| $959,330 |
| |
| $282,244 |
| |
| $163,194 |
| |
| $340,474 |
|
The Registrant Subsidiaries’ total revenues for the three months ended March 31, 2018 were as follows:
|
| | | | | | | | | | | | | | | | | | | | |
| 2018 | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas |
| | | (In Thousands) |
| | | | | | | | | | | |
| Residential | |
| $235,524 |
| |
| $295,517 |
| |
| $148,342 |
| |
| $64,575 |
| |
| $148,126 |
|
| Commercial | | 120,634 |
| | 224,928 |
| | 110,460 |
| | 54,272 |
| | 85,427 |
|
| Industrial | | 111,477 |
| | 352,336 |
| | 42,501 |
| | 7,570 |
| | 83,302 |
|
| Governmental | | 4,648 |
| | 17,310 |
| | 10,848 |
| | 17,691 |
| | 5,981 |
|
| Total billed retail | | 472,283 |
| | 890,091 |
| | 312,151 |
| | 144,108 |
| | 322,836 |
|
| | | | | | | | | | | |
| Sales for resale (a) | | 66,103 |
| | 89,255 |
| | 1,993 |
| | 13,337 |
| | 23,361 |
|
| Other electric revenues (b) | | 10,024 |
| | 20,503 |
| | (719 | ) | | (3,111 | ) | | 2,264 |
|
| Non-customer revenues (c) | | 2,614 |
| | 5,257 |
| | 2,318 |
| | 1,484 |
| | 479 |
|
| Total electric revenues | | 551,024 |
| | 1,005,106 |
| | 315,743 |
| | 155,818 |
| | 348,940 |
|
| | | | | | | | | | | |
| Natural gas | | — |
| | 24,238 |
| | — |
| | 32,457 |
| | — |
|
| | | | | | | | | | | |
| Total operating revenues | |
| $551,024 |
| |
| $1,029,344 |
| |
| $315,743 |
| |
| $188,275 |
| |
| $348,940 |
|
| |
| (a) | Sales for resale and competitive businesses sales include day-ahead sales of energy in a market administered by an ISO. These sales represent financially binding commitments for the sale of physical energy the next day. These sales are adjusted to actual power generated and delivered in the real time market. Given the short |
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.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
| |
| (b) | Other electric revenues consist primarily of transmission and ancillary services provided to participants of an ISO-administered market and unbilled revenue. |
| |
| (c) | Non-customerOther revenues include the settlement of financial hedges, occasional sales of inventory, alternative revenue programs, provisions for revenue subject to refund, and late fees. |
Allowance for doubtful accounts
NOTE 14. ASSET RETIREMENT OBLIGATIONS (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)
See Note 9The allowance for doubtful accounts reflects Entergy’s best estimate of expected losses on the accounts receivable balances. Due to the financial statements in the Form 10-K foressential nature of utility services, Entergy has historically experienced a discussionlow rate of asset retirement obligations. 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.
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 liabilitiesdefault 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
accounts receivables, as shown below:
68 |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Entergy | | Entergy Arkansas | | Entergy Louisiana | | Entergy Mississippi | | Entergy New Orleans | | Entergy Texas |
| | (In Millions) |
| Balance as of December 31, 2019 |
| $7.4 |
| |
| $1.2 |
| |
| $1.9 |
| |
| $0.6 |
| |
| $3.2 |
| |
| $0.5 |
|
| Provisions | 6.6 |
| | 1.2 |
| | 3.0 |
| | 0.9 |
| | 0.8 |
| | 0.7 |
|
| Write-offs | (8.4 | ) | | (1.8 | ) | | (3.5 | ) | | (1.2 | ) | | (0.8 | ) | | (1.1 | ) |
| Recoveries | 2.9 |
| | 0.9 |
| | 1.1 |
| | 0.3 |
| | 0.2 |
| | 0.5 |
|
| Balance as of March 31, 2020 |
| $8.5 |
| |
| $1.5 |
| |
| $2.5 |
| |
| $0.6 |
| |
| $3.4 |
| |
| $0.6 |
|
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 approximateallowance for currently expected credit losses is calculated as the cash flows used by Entergy for leases with all costs included within operating activities on the Consolidated Statementshistorical rate 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 usedcustomer write-offs multiplied by the Registrant Subsidiaries for leases with all costs included within operating activities oncurrent accounts receivable balance. Although this balance has historically experienced minimal variation over time, management monitors the respective Statementscurrent condition of Cash Flows, except for the financing lease costs which are included in financing activities.
Entergy has electedindividual customer accounts 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,manage collections 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 paymentsensure write-offs are recorded in fuel expense in accordance with regulatory treatment. Railcar operating lease payments were $2.8 million in 2018, $4 million in 2017, and $3.4 million in 2016 for Entergy Arkansas and $0.4 million in 2018, $0.3 million in 2017, and $0.3 million in 2016 for Entergy Louisiana. Oil tank facilities lease payments for Entergy Mississippi were $0.1 million in 2018, $1.6 million in 2017, and $1.6 million in 2016.
On January 1, 2019, Entergy implemented ASU No. 2016-02, “Leases (Topic 842)” along with the practical expedients provided by ASU No. 2018-01, “Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842,” and ASU No. 2018-11, “Leases (Topic 842): Targeted Improvements.” See Note 1 to the financial statements in the Form 10-K for further discussion of ASU No. 2016-02.
Power Purchase Agreements
As of December 31, 2018, Entergy Texas had a power purchase agreement that is accounted for as an operating lease under the accounting standards. The lease payments are recovered in fuel expense in accordance with regulatory treatment. The minimum lease payments under the power purchase agreement are as follows:
|
| | | | | | | | |
| Year | | Entergy Texas (a) | | Entergy |
| | | (In Thousands) |
| 2019 | |
| $31,159 |
| |
| $31,159 |
|
| 2020 | | 31,876 |
| | 31,876 |
|
| 2021 | | 32,609 |
| | 32,609 |
|
| 2022 | | 10,180 |
| | 10,180 |
|
| Minimum lease payments | |
| $105,824 |
| |
| $105,824 |
|
| |
(a) | Amounts reflect 100% of minimum payments. Under a separate contract, which expires May 31, 2022, Entergy Louisiana purchases 50% of the capacity and energy from the power purchase agreement from Entergy Texas. |
Total capacity expense under the power purchase agreement accounted for as an operating lease at Entergy Texas was $30.5 million in 2018, $34.1 million in 2017, and $26.1 million in 2016.
Sales and Leaseback Transactions
Waterford 3 Lease Obligation
In 1989, in three separate but substantially identical transactions, Entergy Louisiana sold and leased back undivided interests in Waterford 3 for the aggregate sum of $353.6 million. The leases were scheduled to expire in July 2017. Entergy Louisiana was required to report the sale-leaseback as a financing transaction in its financial statements.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
In December 2015, Entergy Louisiana agreed to purchase the undivided interests in Waterford 3 that were previously being leased. The purchase was accomplished in a two-step transaction in which Entergy Louisiana first acquired the equity participant’s beneficial interest in the leased assets, followed by a termination of the leases and transfer of the leased assets to Entergy Louisiana when the outstanding lessor debt is paid.
In March 2016, Entergy Louisiana completed the first step in the two-step transaction by acquiring the equity participant’s beneficial interest in the leased assets. Entergy Louisiana paid $60 million in cash and $52 million through the issuance of a non-interest bearing collateral trust mortgage note, payable in installments through July 2017. Entergy Louisiana continued to make payments on the lessor debt that remained outstanding and which matured in January 2017. The combination of payments on the $52 million collateral trust mortgage note issued and the debt service on the lessor debt was equal in timing and amount to the remaining lease payments due from the closing of the transaction through the end of the lease term in July 2017.
Throughout the term of the lease, Entergy Louisiana had accrued a liability for the amount it expected to pay to retain the use of the undivided interests in Waterford 3 at the end of the lease term. Since the sale-leaseback transaction was accounted for as a financing transaction, the accrual of this liability was accounted for as additional interest expense. As of December 2015, the balance of this liability was $62.7 million. Upon entering into the agreement to purchase the equity participant’s beneficial interest in the undivided interests, Entergy Louisiana reduced the balance of the liability to $60 million, and recorded the $2.7 million difference as a credit to interest expense. The $60 million remaining liability was eliminated upon payment of the cash portion of the purchase price in 2016.
As of December 31, 2016, Entergy Louisiana, in connection with the Waterford 3 lease obligation, had a future minimum lease payment (reflecting an interest rate of 8.09%) of $57.5 million, including $2.3 million in interest, due January 2017 that was recorded as long-term debt.
In February 2017 the leases were terminated and the leased assets were conveyed to Entergy Louisiana.
Grand Gulf Lease Obligations
In 1988, in two separate but substantially identical transactions, System Energy sold and leased back undivided ownership interests in Grand Gulf for the aggregate sum of $500 million. The initial term of the leases expired in July 2015. System Energy renewed the leases in December 2013 for fair market value with renewal terms expiring in July 2036. At the end of the new lease renewal terms, System Energy has the option to repurchase the leased interests in Grand Gulf or renew the leases at fair market value. In the event that System Energy does not renew or purchase the interests, System Energy would surrender such interests and their associated entitlement of Grand Gulf’s capacity and energy.
System Energy is required to report the sale-leaseback as a financing transaction in its financial statements. For financial reporting purposes, System Energy expenses the interest portion of the lease obligation and the plant depreciation. However, operating revenues include the recovery of the lease payments because the transactions are accounted for as a sale and leaseback for ratemaking purposes. Consistent with a recommendation contained in a FERC audit report, System Energy initially recorded as a net regulatory asset the difference between the recovery of the lease payments and the amounts expensed for interest and depreciation and continues to record this difference as a regulatory asset or liability on an ongoing basis, resulting in a zero net balance for the regulatory asset at the end of the lease term. The amount was a net regulatory liability of $55.6 million as of December 31, 2018 and 2017.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
As of December 31, 2018, System Energy, in connection with the Grand Gulf sale and leaseback transactions, had future minimum lease payments that are recorded as long-term debt, as follows, which reflects the effect of the December 2013 renewal:
|
| | | |
| | Amount |
| | (In Thousands) |
| | |
| 2019 |
| $17,188 |
|
| 2020 | 17,188 |
|
| 2021 | 17,188 |
|
| 2022 | 17,188 |
|
| 2023 | 17,188 |
|
| Years thereafter | 223,437 |
|
| Total | 309,377 |
|
| Less: Amount representing interest | 275,025 |
|
| Present value of net minimum lease payments |
| $34,352 |
|
NOTE 16. DISPOSITIONS (Entergy Corporation)
Vermont Yankee
As discussed in Note 14 to the financial statements in the Form 10-K, in January 2019, Entergy transferred 100% of the membership interests in Entergy Nuclear Vermont Yankee, LLC, the owner of the Vermont Yankee plant, to a subsidiary of NorthStar.
Entergy Nuclear Vermont Yankee had an outstanding credit facility that was used to pay for dry fuel storage costs. This credit facility was guaranteed by Entergy Corporation. Vermont Yankee Asset Retirement Management, LLC, a subsidiary of Entergy, assumed the obligations under the credit facility. At the closing of the transaction, NorthStar caused Entergy Nuclear Vermont Yankee, renamed NorthStar Vermont Yankee, to issue a $139 million promissory note to Vermont Yankee Asset Retirement Management. The amount of the note included the balance outstanding on the credit facility, as well as borrowing fees and costs incurred by Entergy in connection with the credit facility.
Upon closing of the transaction in January 2019, the Vermont Yankee decommissioning trust, along with the decommissioning obligation for the plant, was transferred to NorthStar. The Vermont Yankee spent fuel disposal contract was assigned to NorthStar as part of the transaction. The Vermont Yankee transaction resulted in Entergy generating a net deferred tax asset in January 2019. The deferred tax asset could not be fully realized by Entergy in the first quarter of 2019; accordingly, Entergy accrued a net tax expense of $29 million on the disposition of Vermont Yankee. The transaction also resulted in other charges of $5.4 million ($4.2 million after-tax) in the first quarter 2019.timely manner.
________________
In the opinion of the management of Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy, the accompanying unaudited financial statements contain all adjustments (consisting primarily of normal recurring accruals and reclassification of previously reported amounts to conform to current classifications) necessary for a fair statement of the results for the interim periods presented. Entergy’s business is subject to seasonal fluctuations, however, with peak periods occurring typically during the first and third quarters. The results for the interim periods presented should not be used as a basis for estimating results of operations for a full year.
Part I, Item 3. Quantitative and Qualitative Disclosures About Market Risk
See “Market and Credit Risk Sensitive Instruments” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis.
Part I, Item 4. Controls and Procedures
Disclosure Controls and Procedures
As of March 31, 2019,2020, evaluations were performed under the supervision and with the participation of Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy (individually “Registrant” and collectively the “Registrants”) management, including their respective Principal Executive Officers (PEO) and Principal Financial Officers (PFO). The evaluations assessed the effectiveness of the Registrants’ disclosure controls and procedures. Based on the evaluations, each PEO and PFO has concluded that, as to the Registrant or Registrants for which they serve as PEO or PFO, the Registrant’s or Registrants’ disclosure controls and procedures are effective to ensure that information required to be disclosed by each Registrant in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms; and that the Registrant’s or Registrants’ disclosure controls and procedures are also effective in reasonably assuring that such information is accumulated and communicated to the Registrant’s or Registrants’ management, including their respective PEOs and PFOs, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Controls over Financial Reporting
Under the supervision and with the participation of each Registrants’ management, including its respective PEO and PFO, each Registrant evaluated changes in internal control over financial reporting that occurred during the quarter ended March 31, 20192020 and found no change that has materially affected, or is reasonably likely to materially affect, internal control over financial reporting.
ENTERGY ARKANSAS, LLC AND SUBSIDIARIES
MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS
The COVID-19 Pandemic
See “The COVID-19 Pandemic” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for a discussion of the COVID-19 pandemic.
Results of Operations
Net Income
Net income increased $2.9$5.5 million primarily due to lower nuclear refueling outage expenses, higher net revenue, after excluding the effect of the return of unprotected excess accumulated deferred income taxes to customers which is offset in income taxes, and lower other operation and maintenance expenses, partiallyhigher retail electric price, and a formula rate plan regulatory provision recorded in the first quarter 2019 to reflect the historical year netting adjustment, substantially offset by higher interest expense and higher depreciation and amortization expenses.lower volume/weather.
Net RevenueOperating Revenues
Net revenue consists of operating revenues net of: 1) fuel, fuel-related expenses, and gas purchased for resale, 2) purchased power expenses, and 3) other regulatory charges (credits). Following is an analysis of the change in net revenueoperating revenues comparing the first quarter 20192020 to the first quarter 2018:
2019:
|
| | | |
| | Amount |
| | (In Millions) |
20182019 operating revenues |
| $545.8 |
|
Fuel, rider, and other revenues that do not significantly affect net revenueincome |
(68.2 | $374.1) |
| Volume/weather |
(19.1 | ) |
| Retail electric price | 4.7 |
|
| Return of unprotected excess accumulated deferred income taxes to customers | (31.818.7 | )
|
Formula rate plan regulatory provision2020 operating revenues | (10.5 | ) |
Retail electric price | 10.6 |
|
Other | 3.8 |
|
2019 net revenue |
| $346.2481.9 |
|
Entergy Arkansas’s results include revenues from rate mechanisms designed to recover fuel, purchased power, and other costs such that the revenues and expenses associated with these items generally offset and do not affect net income. “Fuel, rider, and other revenues that do not significantly affect net income” includes the revenue variance associated with these items.
The volume/weather variance is primarily due to a decrease of 209 GWh, or 4%, in billed electricity usage, including the effect of less favorable weather on residential sales and a decrease in commercial and industrial usage. The decrease in industrial usage is primarily due to a decrease in small industrial sales.
The retail electric price variance is primarily due to an increase in formula rate plan rates effective with the first billing cycle of January 2020, 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 return of unprotected excess accumulated deferred income taxes to customers resulted from the return of unprotected excess accumulated deferred income taxes through a tax adjustment rider beginning in April 2018. In first quarter 2020, $13.1 million was returned to customers as compared to $31.8 million in first quarter 2019. There is no effect on net income as the reduction in net revenueoperating revenues in each period was offset by a reduction in income tax
Entergy Arkansas, LLC and Subsidiaries
Management's Financial Discussion and Analysis
expense. See Note 2 to the financial statements in the Form 10-K for further discussion of regulatory activity regarding the Tax Cuts and Jobs Act.
The formula rate plan regulatory provision is due to an additional provision recordedAlthough the effect in the first quarter 20192020 was minimal, Entergy Arkansas expects a decline in sales volume during 2020 due to reflect the current estimate of the historical year netting adjustment to be includedCOVID-19 pandemic, especially in the 2019 formula rate plan filing that will be made in July 2019.commercial and industrial customer classes. See Note 2 to the financial statements herein“The COVID-19 Pandemic” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for a discussion of the upcoming formula rate plan filing.COVID-19 pandemic.
Other Income Statement Variances
Other operation and maintenance expenses decreased primarily due to:
higher nuclear insurance refunds of $7.6 million;
a decrease of $5 million in fossil-fueled generation expenses primarily due to lower long-term service agreement expenses and a lower scope of work performed in 2020 as compared to the same period in 2019; and
a decrease of $2.7 million in nuclear generation expenses primarily due to lower nuclear labor costs, including contract labor.
The retail electric price variance isdecrease was partially offset by an increase of $3.2 million in compensation and benefits costs primarily due to an increase in formulanet periodic pension and other postretirement benefits costs as a result of a decrease in the discount rate plan rates effective withused to value the first billing cycle of January 2019 as approved bybenefit liabilities and an increase in employee health benefits costs. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Critical Accounting Estimates” in the APSC. SeeForm 10-K, Note 26 to the financial statements herein, and Note 11 to the financial statements in the Form 10-K for further discussion of the formula rate plan filing.pension and other postretirement benefit costs.
Other Income Statement Variances
Nuclear refueling outage expenses decreased primarily due to the amortization of lower costs associated with the most recent outages as compared to previous outages.
Entergy Arkansas, LLC and Subsidiaries
Management's Financial Discussion and Analysis
Other operation and maintenance expenses decreased primarily due to a decrease of $8.9 million in nuclear generation expenses primarily due to a lower scope of work performed in the first quarter 2019 as compared to the first quarter 2018 and lower nuclear labor costs, including contract labor.
The decrease was partially offset by:
an increase of $1.8 million in information technology costs primarily due to higher software maintenance costs and higher labor costs;
an increase of $1.1 million in outside legal costs primarily due to a settlement received in 2018 which reduced legal costs in the first quarter 2018;
an increase of $1 million in advanced metering costs, including customer education costs; and
several individually insignificant items.
Depreciation and amortization expenses increased primarily due to additions to plant in service.
Interest expense increasedOther regulatory charges (credits) in the first quarter 2020 included $11.7 million in amortization of the 2018 historical year netting adjustment reflected in the 2019 formula rate plan filing. Other regulatory charges (credits) in the first quarter 2019 included an additional provision of $10.5 million to reflect the current estimate of the historical year netting adjustment that was to be included in the 2019 formula rate plan filing. See Note 2 to the financial statements in the Form 10-K for discussion of the 2019 formula rate plan filing.
Income Taxes
The effective income tax rate was (17.6%) for the first quarter 2020. The difference in the effective income tax rate for the first quarter 2020 versus the federal statutory rate of 21% was primarily due to the issuanceamortization of $250 millionexcess accumulated deferred income taxes, permanent differences related to income tax deductions for stock-based compensation, and certain book and tax differences related to utility plant items, partially offset by state income taxes. See Note 10 to the financial statements herein and Notes 2 and 3 to the financial statements in the Form 10-K for a discussion of 4.00% Series first mortgage bonds in May 2018the effects and regulatory activity regarding the issuanceTax Cuts and Jobs Act. See Note 10 to the financial statements herein for discussion of $350 million of 4.20% Series first mortgage bonds in March 2019.the income tax deductions for stock-based compensation.
Income Taxes
The effective income tax rate was (138.2%) for the first quarter 2019. The difference in the effective income tax rate for the first quarter 2019 versus the federal statutory rate of 21% was primarily due to the amortization of excess accumulated deferred income taxes and certain book and tax differences related to utility plant items and book and tax differences related to the allowance for equity funds used during construction, partially offset by state income taxes. See Note 10 to the financial statements herein and Notes 2 and 3 to the financial statements in the Form 10-K for a discussion of the effects and regulatory activity regarding the Tax Cuts and Jobs Act. See Note 10 to the financial statements herein for discussion
Entergy Arkansas, tax rate reduction.LLC and Subsidiaries
Management's Financial Discussion and Analysis
The effective income tax rate was 20.7% for the first quarter 2018. The difference in the effective income tax rate for the first quarter 2018 versus the federal statutory rate of 21% was primarily due to certain book and tax differences related to utility plant items and book and tax differences related to the allowance for equity funds used during construction, partially offset by state income taxes and a write-off of a stock-based compensation deferred tax asset.
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 2019, 2018, and 2017 results of operations and financial position, the provisions of the Tax Act, and the uncertainties associated with accounting for the Tax Act, and Note 10 to the financial statements herein contains updates to that discussion. Note 2 to the financial statements in the Form 10-K contains a discussion of the regulatory proceedings that have considered the effects of the Tax Act.
Entergy Arkansas, LLC and Subsidiaries
Management's Financial Discussion and Analysis
Liquidity and Capital Resources
Cash Flow
Cash flows for the three months ended March 31, 20192020 and 20182019 were as follows:
| | | | 2019 | | 2018 | 2020 | | 2019 |
| | (In Thousands) | (In Thousands) |
| Cash and cash equivalents at beginning of period |
| $119 |
| |
| $6,216 |
|
| $3,519 |
| |
| $119 |
|
| | | | | | | |
| Cash flow provided by (used in): |
|
| | |
|
|
| | |
| Operating activities | 206,467 |
| | 179,890 |
| 209,674 |
| | 206,467 |
|
| Investing activities | (160,961 | ) | | (161,344 | ) | (190,551 | ) | | (160,961 | ) |
| Financing activities | 144,616 |
| | (23,839 | ) | 114,850 |
| | 144,616 |
|
| Net increase (decrease) in cash and cash equivalents | 190,122 |
| | (5,293 | ) | |
| Net increase in cash and cash equivalents | | 133,973 |
| | 190,122 |
|
| | | | | | | |
| Cash and cash equivalents at end of period |
| $190,241 |
| |
| $923 |
|
| $137,492 |
| |
| $190,241 |
|
Operating Activities
Net cash flow provided by operating activities increased $26.6$3.2 million for the three months ended March 31, 20192020 compared to the three months ended March 31, 20182019 primarily due to:
$13 million in proceeds received from the DOE in 2020 resulting from litigation regarding spent nuclear fuel storage costs that were previously expensed. See Note 8 to the financial statements in the Form 10-K for discussion of the spent nuclear fuel litigation; and
a decrease in the return of unprotected excess accumulated deferred income taxes to customers in 2020 as compared to the same period in 2019. 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 increase was partially offset by:
the timing of recovery of fuel and purchased power costscosts; and a decrease
| |
| • | an increase of $9.7 million in pension contributions in 2020. 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. |
Entergy Arkansas, LLC and Note 6 to the financial statements herein for a discussion of qualified pensionSubsidiaries
Management's Financial Discussion and other postretirement benefits funding.Analysis
Investing Activities
Net cash flow used in investing activities decreased $0.4increased $29.6 million for the three months ended March 31, 20192020 compared to the three months ended March 31, 20182019 primarily due to a decreaseto:
an increase of $18.8 million in nuclear construction expenditures primarily due to a lower scope of work performed on various nuclear projects in 2019 as compared to the same period in 2018 and a decrease of $11.1$57.6 million as a result of fluctuations in nuclear fuel activity because of variations from year to year in the timing and pricing of fuel reload requirements in the Utility business, material and service deliveries, and the timing of cash payments during the nuclear fuel cycle.cycle;
an increase of $18.9 million in nuclear construction expenditures primarily as a result of work performed in 2020 on various ANO 2 outage projects;
an increase of $12.2 million in storm spending; and
an increase of $8.4 million in distribution construction expenditures primarily due to investment in the reliability and infrastructure of Entergy Arkansas’s distribution system, including increased spending on advanced metering infrastructure.
The increase was partially offset by $55 million in proceeds received from the DOE in 2020 resulting from litigation regarding spent nuclear fuel storage costs that were previously capitalized and a decrease of $17.8 million in transmission construction expenditures primarily due to a lower scope of work performed in 2020 on various projects. See Note 8 to the financial statements in the Form 10-K for discussion of the spent nuclear fuel litigation.
Financing Activities
Net cash flow provided by financing activities decreased $29.8 million for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 primarily due to the issuance of $350 million of 4.20% Series mortgage bonds in March 2019. The decrease was substantiallypartially offset by by:
money pool activity.activity;
the issuance of $100 million of 4.00% Series mortgage bonds in March 2020; and
Increasesnet long-term borrowings of $28.7 million in 2020 compared to net repayments of long-term borrowings of $17 million in 2019 on the Entergy Arkansas nuclear fuel company variable interest entity credit facility.
Decreases in Entergy Arkansas’s receivable frompayable to the money pool are a use of cash flow, and Entergy Arkansas’s receivable frompayable to the money pool increaseddecreased by $30.5$21.6 million for the three months ended March 31, 2020 compared to decreasing by $182.7 million for the three months ended March 31, 2019. The money pool is an inter-company borrowing arrangement designed to reduce the Utility subsidiaries’ need for external short-term borrowings.
Financing Activities
Entergy Arkansas’s financing activities provided $144.6 million of cash for the three months ended March 31, 2019 compared to using $23.8 million of cash for the three months ended March 31, 2018 primarily due to the following activity:
the issuance of $350 million of 4.20% Series first mortgage bonds in March 2019;
money pool activity; and
borrowings of $50 million in 2018 on the Entergy Arkansas long-term credit facility.
Entergy Arkansas, 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 $182.7 million in 2019 compared to decreasing by $42.3 million in 2018.
See Note 4 to the financial statements herein and Note 5 to the financial statements in the Form 10-K for more details on long-term debt.
Capital Structure
Entergy Arkansas’s debt to capital ratio is shown in the following table. The increase in the debt to capital ratio is primarily due to the issuance of $350 million of first mortgage bonds in March 2019.
table:
| | | | March 31, 2019 | | December 31, 2018 | March 31, 2020 | | December 31, 2019 |
| Debt to capital | 54.1 | % | | 52.0 | % | 53.6 | % | | 53.0 | % |
| Effect of excluding the securitization bonds | (0.1 | %) | | (0.2 | %) | — | % | | — | % |
| Debt to capital, excluding securitization bonds (a) | 54.0 | % | | 51.8 | % | 53.6 | % | | 53.0 | % |
| Effect of subtracting cash | (1.4 | %) | | — | % | (1.0 | %) | | — | % |
| Net debt to net capital, excluding securitization bonds (a) | 52.6 | % | | 51.8 | % | 52.6 | % | | 53.0 | % |
| |
| (a) | Calculation excludes the securitization bonds, which are non-recourse to Entergy Arkansas. |
Entergy Arkansas, 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, financingfinance lease obligations, and long-term debt, including the currently maturing portion. Capital consists of debt and equity. Net capital consists of capital less cash and cash equivalents. Entergy Arkansas uses the debt to capital ratios excluding securitization bonds in analyzing its financial condition and believes they provide useful information to its investors and creditors in evaluating Entergy Arkansas’s financial condition because the securitization bonds are non-recourse to Entergy Arkansas, as more fully described in Note 5 to the financial statements in the Form 10-K. Entergy Arkansas also uses the net debt to net capital ratio excluding securitization bonds in analyzing its financial condition and believes it provides useful information to its investors and creditors in evaluating Entergy Arkansas’s financial condition because net debt indicates Entergy Arkansas’s outstanding debt position that could not be readily satisfied by cash and cash equivalents on hand.
Uses and Sources of Capital
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Liquidity and Capital Resources”in the Form 10-K for a discussion of Entergy Arkansas’s uses and sources of capital. Following are updates to the information provided in the Form 10-K.
Although the effect in the first quarter 2020 was minimal, Entergy Arkansas expects negative changes during 2020 to its customer payment patterns and its cash flow activity due to the COVID-19 pandemic. See “The COVID-19 Pandemic” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for discussion of the COVID-19 pandemic. Despite the effects of the pandemic on financial markets Entergy Arkansas issued $100 million of long-term mortgage bonds in March 2020 and renewed its short-term credit facility. Additional discussion of Entergy Arkansas’s liquidity and capital resources follows.
Entergy Arkansas’s receivables from or (payables to) the money pool were as follows:
|
| | | | | | |
March 31, 2019 | | December 31, 2018 | | March 31, 2018 | | December 31, 2017 |
| (In Thousands) |
| $30,521 | | ($182,738) | | ($123,858) | | ($166,137) |
|
| | | | | | |
March 31, 2020 | | December 31, 2019 | | March 31, 2019 | | December 31, 2018 |
| (In Thousands) |
| $24,935 | | ($21,634) | | $30,521 | | ($182,738) |
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 2023.2024. Entergy Arkansas also has a $20 million credit facility scheduled to expire in April 2020.2021. The $150 million credit facility includes fronting commitments for the issuance of letters of credit against $5 million of the borrowing capacity of the facility. As of March 31, 2019,2020, 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 March 31, 2019,2020, 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 March 31, 2019, $42.62020, $43.8 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.
Entergy Arkansas, LLC and Subsidiaries
Management's Financial Discussion and Analysis
Searcy Solar Facility
In MarchAs discussed in the Form 10-K, in May 2019, Entergy Arkansas announcedfiled a petition with the APSC seeking a finding that it signed an agreement for the purchase of the Searcy Solar Facility was in the public interest. In April 2020 the APSC issued an approximately 100 MW to-be-constructed solar energyorder approving Entergy Arkansas’s acquisition of the Searcy Solar facility as being in the public interest, but declined to approve Entergy Arkansas’s preferred cost recovery rider mechanism, finding instead, based on the particular facts and circumstances presented, 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 bythe formula rate plan rider was 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.sufficient recovery mechanism.
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.
Energy Cost Recovery Rider
In March 2020, Entergy Arkansas filed its annual redetermination of its energy cost rate pursuant to the energy cost recovery rider, which reflected a decrease from $0.01462 per kWh to $0.01052 per kWh. The redetermined rate became effective with the first billing cycle in April 2020 through the normal operation of the tariff.
Opportunity Sales Proceeding
As discussed in the Form 10-K, the FERC’s opportunity sales orders have been appealed to the D.C. Circuit by Entergy, the LPSC, and the APSC. In February 2020 all of the appeals were consolidated and in April 2020 the D.C. Circuit established a briefing schedule. Briefing will occur in May 2020 through September 2020.
Also as discussed in the Form 10-K, in May 2019, Entergy Arkansas filed an application with the APSC requesting approval of a special rider tariff to recover the costs of its opportunity sales payments from its retail customers over a 24-month period. In January 2020 the Attorney General and Arkansas Electric Energy Consumers, Inc. filed testimony opposing the recovery by Entergy Arkansas of the opportunity sales payment but also claiming that certain components of the payment should be segregated and refunded to customers. In March 2020, Entergy Arkansas filed rebuttal testimony. Also in March 2020, Entergy Arkansas, the APSC staff, and the Arkansas Electric Energy Consumers, Inc. filed a joint motion asking the APSC to issue a final decision based on the record in the proceeding and cancel the April 2020 evidentiary hearing. The Arkansas Attorney General did not oppose the request, which was granted by the APSC in March 2020. A final decision is expected in July 2020.
COVID-19 Order
In April 2020, in light of the COVID-19 public health emergency, the APSC issued an order requiring utilities, to the extent they had not already done so, to suspend service disconnections during the remaining pendency of the Arkansas Governor’s emergency declaration or until the APSC rescinds the directive. The order also authorizes utilities to establish a regulatory asset to record costs resulting from the suspension of service disconnections, directs that in future proceedings the APSC will consider whether the request for recovery of these regulatory assets is reasonable and necessary, and requires utilities to track and report the costs and any savings directly attributable to suspension of disconnects. In May 2020, Entergy Arkansas filed a request with the APSC requesting the same regulatory asset treatment for additional initiatives such as waiving late payment charges and expanding delayed payment arrangements, which are intended to assist customers during the public health emergency.
Federal Regulation
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS –Federal Regulation”in the Form 10-K for a discussion of federal regulation.
Entergy Arkansas, LLC and Subsidiaries
Management's Financial Discussion and Analysis
Nuclear Matters
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS –Nuclear Matters” in the Form 10-K for a discussion of nuclear matters.
Environmental Risks
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS -Environmental Risks” in the Form 10-K for a discussion of environmental risks.
Critical Accounting Estimates
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS -Critical Accounting Estimates” in the Form 10-K for a discussion of the estimates and judgments necessary in Entergy Arkansas’s accounting for nuclear decommissioning costs, utility regulatory accounting, impairment of long-lived assets and trust fund investments, taxation and uncertain tax positions, qualified pension and other postretirement benefits, and other contingencies. The following is an update to that discussion.
Other Postretirement Benefits
As described in Note 6 to the financial statements herein, in March 2020, Entergy announced changes to its other postretirement benefits. As a result, Entergy Arkansas now expects 2020 other postretirement health care and life insurance benefit income, including amounts capitalized, of $10.1 million.
New Accounting Pronouncements
See “New Accounting Pronouncements” section of Note 1 to the financial statements in the Form 10-K for a discussion of new accounting pronouncements.
|
| | | | | | | | |
| ENTERGY ARKANSAS, LLC AND SUBSIDIARIES |
| CONSOLIDATED INCOME STATEMENTS |
| For the Three Months Ended March 31, 2020 and 2019 |
| (Unaudited) |
| | | |
| | | 2020 | | 2019 |
| | | (In Thousands) |
| OPERATING REVENUES | | | | |
| Electric | |
| $481,912 |
| |
| $545,812 |
|
| | | | | |
| OPERATING EXPENSES | | | | |
| Operation and Maintenance: | | | | |
| Fuel, fuel-related expenses, and gas purchased for resale | | 87,411 |
| | 152,159 |
|
| Purchased power | | 46,041 |
| | 47,058 |
|
| Nuclear refueling outage expenses | | 16,247 |
| | 17,248 |
|
| Other operation and maintenance | | 151,857 |
| | 166,460 |
|
| Decommissioning | | 17,941 |
| | 15,761 |
|
| Taxes other than income taxes | | 31,060 |
| | 28,363 |
|
| Depreciation and amortization | | 83,521 |
| | 75,847 |
|
| Other regulatory charges (credits) - net | | (20,001 | ) | | 445 |
|
| TOTAL | | 414,077 |
| | 503,341 |
|
| | | | | |
| OPERATING INCOME | | 67,835 |
| | 42,471 |
|
| | | | | |
| OTHER INCOME | | | | |
| Allowance for equity funds used during construction | | 2,917 |
| | 3,428 |
|
| Interest and investment income | | 7,938 |
| | 6,183 |
|
| Miscellaneous - net | | (6,436 | ) | | (3,690 | ) |
| TOTAL | | 4,419 |
| | 5,921 |
|
| | | | | |
| INTEREST EXPENSE | | | | |
| Interest expense | | 35,623 |
| | 33,383 |
|
| Allowance for borrowed funds used during construction | | (1,281 | ) | | (1,414 | ) |
| TOTAL | | 34,342 |
| | 31,969 |
|
| | | | | |
| INCOME BEFORE INCOME TAXES | | 37,912 |
| | 16,423 |
|
| | | | | |
| Income taxes | | (6,683 | ) | | (22,698 | ) |
| | | | | |
| NET INCOME | |
| $44,595 |
| |
| $39,121 |
|
| | | | | |
| See Notes to Financial Statements. | | | | |
|
| | | | | | | | |
| ENTERGY ARKANSAS, LLC AND SUBSIDIARIES |
| CONSOLIDATED STATEMENTS OF CASH FLOWS |
| For the Three Months Ended March 31, 2020 and 2019 |
| (Unaudited) |
| | | 2020 | | 2019 |
| | | (In Thousands) |
| OPERATING ACTIVITIES | | | | |
| Net income | |
| $44,595 |
| |
| $39,121 |
|
| Adjustments to reconcile net income to net cash flow provided by operating activities: | | | | |
| Depreciation, amortization, and decommissioning, including nuclear fuel amortization | | 123,160 |
| | 117,255 |
|
| Deferred income taxes, investment tax credits, and non-current taxes accrued | | 8,251 |
| | 30,756 |
|
| Changes in assets and liabilities: | | | | |
| Receivables | | 32,820 |
| | 22,194 |
|
| Fuel inventory | | (9,419 | ) | | 260 |
|
| Accounts payable | | (42,694 | ) | | (56,432 | ) |
| Taxes accrued | | 9,302 |
| | (10,616 | ) |
| Interest accrued | | 16,839 |
| | 12,661 |
|
| Deferred fuel costs | | 23,594 |
| | 44,926 |
|
| Other working capital accounts | | (2,691 | ) | | 1,599 |
|
| Provisions for estimated losses | | 4,695 |
| | 9,930 |
|
| Other regulatory assets | | (13,187 | ) | | (56,263 | ) |
| Other regulatory liabilities | | (161,989 | ) | | 53,386 |
|
| Pension and other postretirement liabilities | | 11,704 |
| | (910 | ) |
| Other assets and liabilities | | 164,694 |
| | (1,400 | ) |
| Net cash flow provided by operating activities | | 209,674 |
| | 206,467 |
|
| | | | | |
| INVESTING ACTIVITIES | | | | |
| Construction expenditures | | (179,117 | ) | | (147,214 | ) |
| Allowance for equity funds used during construction | | 2,917 |
| | 3,506 |
|
| Nuclear fuel purchases | | (52,211 | ) | | (214 | ) |
| Proceeds from sale of nuclear fuel | | 17,210 |
| | 22,834 |
|
| Proceeds from nuclear decommissioning trust fund sales | | 115,030 |
| | 34,423 |
|
| Investment in nuclear decommissioning trust funds | | (121,003 | ) | | (40,223 | ) |
| Change in money pool receivable - net | | (24,935 | ) | | (30,521 | ) |
| Changes in securitization account | | (3,443 | ) | | (3,553 | ) |
| Litigation proceeds for reimbursement of spent nuclear fuel storage costs | | 55,001 |
| | — |
|
| Other | | — |
| | 1 |
|
| Net cash flow used in investing activities | | (190,551 | ) | | (160,961 | ) |
| | | | | |
| FINANCING ACTIVITIES | | | | |
| Proceeds from the issuance of long-term debt | | 264,505 |
| | 603,655 |
|
| Retirement of long-term debt | | (127,203 | ) | | (275,904 | ) |
| Changes in money pool payable - net | | (21,634 | ) | | (182,738 | ) |
| Other | | (818 | ) | | (397 | ) |
| Net cash flow provided by financing activities | | 114,850 |
| | 144,616 |
|
| | | | | |
| Net increase in cash and cash equivalents | | 133,973 |
| | 190,122 |
|
| Cash and cash equivalents at beginning of period | | 3,519 |
| | 119 |
|
| Cash and cash equivalents at end of period | |
| $137,492 |
| |
| $190,241 |
|
| | | | | |
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | | | | |
|
| Cash paid during the period for: | | | | |
| Interest - net of amount capitalized | |
| $17,578 |
| |
| $19,458 |
|
| | | | | |
| See Notes to Financial Statements. | | | | |
|
| | | | | | | | |
| ENTERGY ARKANSAS, LLC AND SUBSIDIARIES |
| CONSOLIDATED BALANCE SHEETS |
| ASSETS |
| March 31, 2020 and December 31, 2019 |
| (Unaudited) |
| | | 2020 | | 2019 |
| | | (In Thousands) |
| CURRENT ASSETS | | | | |
| Cash and cash equivalents: | | | | |
| Cash | |
| $628 |
| |
| $3,519 |
|
| Temporary cash investments | | 136,864 |
| | — |
|
| Total cash and cash equivalents | | 137,492 |
| | 3,519 |
|
| Securitization recovery trust account | | 7,480 |
| | 4,036 |
|
| Accounts receivable: | | | | |
| Customer | | 134,111 |
| | 117,679 |
|
| Allowance for doubtful accounts | | (1,515 | ) | | (1,169 | ) |
| Associated companies | | 56,787 |
| | 29,178 |
|
| Other | | 35,171 |
| | 117,653 |
|
| Accrued unbilled revenues | | 84,390 |
| | 108,489 |
|
| Total accounts receivable | | 308,944 |
| | 371,830 |
|
| Fuel inventory - at average cost | | 43,164 |
| | 33,745 |
|
| Materials and supplies - at average cost | | 211,165 |
| | 211,320 |
|
| Deferred nuclear refueling outage costs | | 54,837 |
| | 48,875 |
|
| Prepayments and other | | 11,809 |
| | 14,096 |
|
| TOTAL | | 774,891 |
| | 687,421 |
|
| | | | | |
| OTHER PROPERTY AND INVESTMENTS | | | | |
| Decommissioning trust funds | | 974,026 |
| | 1,101,283 |
|
| Other | | 344 |
| | 345 |
|
| TOTAL | | 974,370 |
| | 1,101,628 |
|
| | | | | |
| UTILITY PLANT | | | | |
| Electric | | 12,357,569 |
| | 12,293,483 |
|
| Construction work in progress | | 283,324 |
| | 197,775 |
|
| Nuclear fuel | | 175,884 |
| | 195,547 |
|
| TOTAL UTILITY PLANT | | 12,816,777 |
| | 12,686,805 |
|
| Less - accumulated depreciation and amortization | | 5,079,545 |
| | 5,019,826 |
|
| UTILITY PLANT - NET | | 7,737,232 |
| | 7,666,979 |
|
| | | | | |
| DEFERRED DEBITS AND OTHER ASSETS | | | | |
| Regulatory assets: | | | | |
| Other regulatory assets (includes securitization property of $- as of March 31, 2020 and $1,706 as of December 31, 2019) | | 1,680,037 |
| | 1,666,850 |
|
| Deferred fuel costs | | 67,822 |
| | 67,690 |
|
| Other | | 21,451 |
| | 15,065 |
|
| TOTAL | | 1,769,310 |
| | 1,749,605 |
|
| | | | | |
| TOTAL ASSETS | |
| $11,255,803 |
| |
| $11,205,633 |
|
| | | | | |
| See Notes to Financial Statements. | | | | |
|
| | | | | | | | |
| ENTERGY ARKANSAS, LLC AND SUBSIDIARIES |
| CONSOLIDATED BALANCE SHEETS |
| LIABILITIES AND EQUITY |
| March 31, 2020 and December 31, 2019 |
| (Unaudited) |
| | | 2020 | | 2019 |
| | | (In Thousands) |
| CURRENT LIABILITIES | | | | |
| Currently maturing long-term debt | |
| $395,000 |
| |
| $— |
|
| Accounts payable: | | | | |
| Associated companies | | 38,534 |
| | 111,785 |
|
| Other | | 199,451 |
| | 202,201 |
|
| Customer deposits | | 101,371 |
| | 101,411 |
|
| Taxes accrued | | 91,133 |
| | 81,831 |
|
| Interest accrued | | 39,627 |
| | 22,788 |
|
| Deferred fuel costs | | 77,447 |
| | 53,721 |
|
| Current portion of unprotected excess accumulated deferred income taxes | | — |
| | 9,296 |
|
| Other | | 40,049 |
| | 38,760 |
|
| TOTAL | | 982,612 |
| | 621,793 |
|
| | | | | |
| NON-CURRENT LIABILITIES | | | | |
| Accumulated deferred income taxes and taxes accrued | | 1,200,932 |
| | 1,183,126 |
|
| Accumulated deferred investment tax credits | | 31,401 |
| | 31,701 |
|
| Regulatory liability for income taxes - net | | 469,439 |
| | 478,174 |
|
| Other regulatory liabilities | | 415,597 |
| | 559,555 |
|
| Decommissioning | | 1,260,556 |
| | 1,242,616 |
|
| Accumulated provisions | | 68,575 |
| | 63,880 |
|
| Pension and other postretirement liabilities | | 330,772 |
| | 319,075 |
|
| Long-term debt (includes securitization bonds of $6,849 as of March 31, 2020 and $6,772 as of December 31, 2019) | | 3,260,723 |
| | 3,517,208 |
|
| Other | | 64,664 |
| | 62,568 |
|
| TOTAL | | 7,102,659 |
| | 7,457,903 |
|
| | | | | |
| EQUITY | | | | |
| Member's equity | | 3,170,532 |
| | 3,125,937 |
|
| TOTAL | | 3,170,532 |
| | 3,125,937 |
|
| | | | | |
| TOTAL LIABILITIES AND EQUITY | |
| $11,255,803 |
| |
| $11,205,633 |
|
| | | | | |
| 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, 2020 and 2019 |
| (Unaudited) |
| | |
| | |
| | Member's Equity |
| | (In Thousands) |
| | |
| Balance at December 31, 2018 | |
| $2,983,103 |
|
| | |
| Net income | | 39,121 |
|
| Balance at March 31, 2019 | |
| $3,022,224 |
|
| | |
| | |
| Balance at December 31, 2019 | |
| $3,125,937 |
|
| | |
| Net income | | 44,595 |
|
| Balance at March 31, 2020 | |
| $3,170,532 |
|
| | |
| See Notes to Financial Statements. | | |
|
| | | | | | | | | | | | | | | |
| ENTERGY ARKANSAS, LLC AND SUBSIDIARIES |
| SELECTED OPERATING RESULTS |
| For the Three Months Ended March 31, 2020 and 2019 |
| (Unaudited) |
| | | | | | | |
| | | Nine Months Ended | | Increase/ | | |
| | 2020 | | 2019 | | (Decrease) | | % |
| | | (Dollars In Millions) | | |
| Electric Operating Revenues: | | | | | | |
| Residential | |
| $220 |
| |
| $210 |
| |
| $10 |
| | 5 |
|
| Commercial | | 111 |
| | 125 |
| | (14 | ) | | (11 | ) |
| Industrial | | 101 |
| | 122 |
| | (21 | ) | | (17 | ) |
| Governmental | | 4 |
| | 5 |
| | (1 | ) | | (20 | ) |
| Total billed retail | | 436 |
| | 462 |
| | (26 | ) | | (6 | ) |
| Sales for resale: | | | | | | | | |
| Associated companies | | 25 |
| | 29 |
| | (4 | ) | | (14 | ) |
| Non-associated companies | | 16 |
| | 50 |
| | (34 | ) | | (68 | ) |
| Other | | 5 |
| | 5 |
| | — |
| | — |
|
| Total | |
| $482 |
| |
| $546 |
| |
| ($64 | ) | | (12 | ) |
| | | | | | | | | |
| Billed Electric Energy Sales (GWh): | | | | | | | | |
| Residential | | 2,075 |
| | 2,205 |
| | (130 | ) | | (6 | ) |
| Commercial | | 1,284 |
| | 1,326 |
| | (42 | ) | | (3 | ) |
| Industrial | | 1,811 |
| | 1,845 |
| | (34 | ) | | (2 | ) |
| Governmental | | 54 |
| | 57 |
| | (3 | ) | | (5 | ) |
| Total retail | | 5,224 |
| | 5,433 |
| | (209 | ) | | (4 | ) |
| Sales for resale: | | | | | | | | |
| Associated companies | | 403 |
| | 597 |
| | (194 | ) | | (32 | ) |
| Non-associated companies | | 1,146 |
| | 2,519 |
| | (1,373 | ) | | (55 | ) |
| Total | | 6,773 |
| | 8,549 |
| | (1,776 | ) | | (21 | ) |
ENTERGY LOUISIANA, LLC AND SUBSIDIARIES
MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS
The COVID-19 Pandemic
See “The COVID-19 Pandemic” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for a discussion of the COVID-19 pandemic.
Results of Operations
Net Income
Net income increased $61.8 million primarily due to the $58 million reduction in income tax expense resulting from an IRS settlement in the first quarter 2020 related to the uncertain tax position regarding the Hurricane Isaac Louisiana Act 55 financing, which also resulted in a $29 million ($21 million net-of-tax) regulatory charge to reflect Entergy Louisiana’s agreement to share the savings with customers. Also contributing to the increase was higher retail electric price and a lower effective income tax rate. The increase was partially offset by higher depreciation and amortization expenses, higher interest expense, and lower other income. See Note 10 to the financial statements herein for further discussion of the tax settlement.
Operating Revenues
Following is an analysis of the change in operating revenues comparing the first quarter 2020 to the first quarter 2019:
|
| | | |
| Amount |
| (In Millions) |
| 2019 operating revenues |
| $959.3 |
|
| Fuel, rider, and other revenues that do not significantly affect net income | (67.4 | ) |
| Return of unprotected excess accumulated deferred income taxes to customers | (0.8 | ) |
| Volume/weather | 4.1 |
|
| Retail electric price | 35.4 |
|
| 2020 operating revenues |
| $930.6 |
|
Entergy Louisiana’s results include revenues from rate mechanisms designed to recover fuel, purchased power, and other costs such that the revenues and expenses associated with these items generally offset and do not affect net income. “Fuel, rider, and other revenues that do not significantly affect net income” includes the revenue variance associated with these items.
The return of unprotected excess accumulated deferred income taxes to customers resulted from the return of unprotected excess accumulated deferred income taxes through changes in the formula rate plan effective May 2018. In first quarter 2020, $7.8 million was returned to customers as compared to $7 million in first quarter 2019. There is no effect on net income as the reduction in operating revenues was offset by a reduction in income tax expense. See Note 2 to the financial statements in the Form 10-K for further discussion of regulatory activity regarding the Tax Cuts and Jobs Act.
Entergy Louisiana, LLC and Subsidiaries
Management's Financial Discussion and Analysis
The volume/weather variance is primarily due to an increase in usage during the unbilled sales period, partially offset by a decrease of 165 GWh, or 3%, in billed electricity usage for residential and commercial customers, including the effect of less favorable weather on residential sales.
The retail electric price variance is primarily due to an interim increase in formula rate plan revenues effective June 2019 due to the inclusion of the first-year revenue requirement for the J. Wayne Leonard Power Station (formerly St. Charles Power Station), as approved by the LPSC. See Note 2 to the financial statements herein and in the Form 10-K for further discussion of the formula rate plan proceedings.
Although the effect in the first quarter 2020 was minimal, Entergy Louisiana expects a decline in sales volume during 2020 due to the COVID-19 pandemic, especially in the commercial and industrial customer classes. See “The COVID-19 Pandemic” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for discussion of the COVID-19 pandemic.
Other Income Statement Variances
Other operation and maintenance expenses decreased primarily due to:
a decrease of $5.9 million in nuclear generation expenses primarily due to a lower scope of work performed in 2020 as compared to the same period in 2019;
higher nuclear insurance refunds of $5.7 million; and
a decrease of $3.7 million in fossil-fueled generation expenses primarily due to a lower scope of work performed during plant outages in 2020 as compared to the same period in 2019.
The decrease was partially offset by an increase of $3.6 million in compensation and benefits costs primarily due to an increase in net periodic pension and other postretirement benefits costs as a result of a decrease in the discount rate used to value the benefit liabilities and an increase in employee health benefits costs and an increase of $2.6 million in energy efficiency costs due to the timing of recovery from customers. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Critical Accounting Estimates” in the Form 10-K, Note 6 to the financial statements herein, and Note 11 to the financial statements in the Form 10-K for further discussion of pension and other postretirement benefit costs.
Depreciation and amortization expenses increased primarily due to additions to plant in service, including the J. Wayne Leonard Power Station (formerly St. Charles Power Station), which was placed in service in May 2019.
Other income decreased primarily due to a decrease in the allowance for equity funds used during construction due to higher construction work in progress in 2019, including the J. Wayne Leonard Power Station (formerly St. Charles Power Station) project.
Other regulatory charges (credits) include regulatory charges of $29 million recorded in first quarter 2020 due to a settlement with the IRS related to the uncertain tax position regarding Hurricane Isaac Louisiana Act 55 financing because the savings will be shared with customers. See Note 10 to the financial statements herein for further discussion of the settlement and savings obligation.
Interest expense increased primarily due to the issuance of $525 million of 4.20% Series mortgage bonds in March 2019.
Income Taxes
The effective income tax rate was (36.0%) for the first quarter 2020. The difference in the effective income tax rate for the first quarter 2020 versus the federal statutory rate of 21% was primarily due to the settlement with the IRS on the treatment of funds received in conjunction with the Act 55 financing of Hurricane Isaac storm costs,
Entergy Louisiana, LLC and Subsidiaries
Management's Financial Discussion and Analysis
permanent differences related to income tax deductions for stock-based compensation, 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, book and tax differences related to the allowance for equity funds used during construction, and the amortization of excess accumulated deferred income taxes, partially offset by state income taxes. See Note 10 to the financial statements herein for discussion of the IRS settlement and the income tax deductions for stock-based compensation. 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 11.5% for the first quarter 2019. The difference in the effective income tax rate for the first quarter 2019 versus the federal statutory rate of 21% was primarily due to book and tax differences related to the non-taxable income distributions earned on preferred membership interests, the amortization of excess accumulated deferred income taxes, and book and tax differences related to the allowance for equity funds used during construction, partially offset by state income taxes. See Note 10 to the financial statements herein and Notes 2 and 3 to the financial statements in the Form 10-K for a discussion of the effects and regulatory activity regarding the Tax Cuts and Jobs Act.
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 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 2019, 2018, and 2017 results of operations and financial position, the provisions of the Tax Act, and the uncertainties associated with accounting for the Tax Act, and Note 10 to the financial statements herein contains updates to that discussion. Note 2 to the financial statements in the Form 10-K contains a discussion of the regulatory proceedings that have considered the effects of the Tax Act.
Liquidity and Capital Resources
Cash Flow
Cash flows for the three months ended March 31, 2020 and 2019 were as follows:
|
| | | | | | | |
| | 2020 | | 2019 |
| | (In Thousands) |
| Cash and cash equivalents at beginning of period |
| $2,006 |
| |
| $43,364 |
|
| | | | |
| Cash flow provided by (used in): | | | |
| Operating activities | 313,799 |
| | 179,583 |
|
| Investing activities | (373,239 | ) | | (441,392 | ) |
| Financing activities | 522,828 |
| | 523,608 |
|
| Net increase in cash and cash equivalents | 463,388 |
| | 261,799 |
|
| | | | |
| Cash and cash equivalents at end of period |
| $465,394 |
| |
| $305,163 |
|
Operating Activities
Net cash flow provided by operating activities increased $134.2 million for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 primarily due to:
the timing of recovery of fuel and purchased power costs;
a decrease of $28.8 million in spending on nuclear refueling outages;
the timing of collection of receivables from customers; and
Entergy Louisiana, LLC and Subsidiaries
Management's Financial Discussion and Analysis
income tax refunds of $20.7 million in 2020. Entergy Louisiana had income tax receipts in 2020 as a result of a refund of an overpayment on a prior year state income tax return.
The increase was partially offset by the timing of payments to vendors.
Investing Activities
Net cash flow used in investing activities decreased $68.2 million for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 primarily due to:
a decrease of $75.3 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;
a decrease of $63.3 million in nuclear construction expenditures primarily due to decreased spending on various projects in 2020;
a decrease of $33.7 million in construction expenditures due to higher spending in 2019 on the Lake Charles Power Station and J. Wayne Leonard Power Station (formerly St. Charles Power Station) projects; and
an increase of $41.1 million in net receipts from storm reserve escrow accounts.
The decrease was partially offset by:
money pool activity;
an increase of $16.3 million in storm spending in 2020;
an increase of $12.5 million in distribution construction expenditures primarily due to investment in the reliability and infrastructure of Entergy Louisiana’s distribution system, including increased spending on advanced metering infrastructure; and
several individually insignificant items.
Increases in Entergy Louisiana’s receivable from the money pool are a use of cash flow, and Entergy Louisiana’s receivable from the money pool increased by $84.5 million for the three months ended March 31, 2020 compared to decreasing by $8.9 million for the three months ended March 31, 2019. 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 $0.1 million for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 primarily due to:
the issuance of $525 million of 4.20% Series mortgage bonds in March 2019;
money pool activity; and
net repayments of long-term borrowings of $28.5 million in 2020 compared to net long-term borrowings of $54.3 million in 2019 on the nuclear fuel company variable interest entities’ credit facilities.
The decrease was substantially offset by the issuance of $350 million of 2.90% Series mortgage bonds and $300 million of 4.20% Series mortgage bonds in March 2020 and a decrease of $37.5 million in common equity distributions in 2020 primarily to maintain Entergy Louisiana’s capital structure.
Decreases in Entergy Louisiana’s payable to the money pool are a use of cash flow, and Entergy Louisiana’s payable to the money pool decreased by $82.8 million for the three months ended March 31, 2020.
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.
Entergy Louisiana, LLC and Subsidiaries
Management's Financial Discussion and Analysis
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 $650 million of mortgage bonds in March 2020.
|
| | | | | |
| | March 31, 2020 | | December 31, 2019 |
| Debt to capital | 54.7 | % | | 53.4 | % |
| Effect of excluding securitization bonds | (0.1 | %) | | (0.1 | %) |
| Debt to capital, excluding securitization bonds (a) | 54.6 | % | | 53.3 | % |
| Effect of subtracting cash | (1.5 | %) | | (0.1 | %) |
| Net debt to net capital, excluding securitization bonds (a) | 53.1 | % | | 53.2 | % |
| |
| (a) | Calculation excludes the securitization bonds, which are non-recourse to Entergy Louisiana. |
Net debt consists of debt less cash and cash equivalents. Debt consists of short-term borrowings, finance lease obligations, and long-term debt, including the currently maturing portion. Capital consists of debt and common equity. Net capital consists of capital less cash and cash equivalents. Entergy Louisiana uses the debt to capital ratios excluding securitization bonds in analyzing its financial condition and believes they provide useful information to its investors and creditors in evaluating Entergy Louisiana’s financial condition because the securitization bonds are non-recourse to Entergy Louisiana, as more fully described in Note 5 to the financial statements in the Form 10-K. Entergy Louisiana also uses the net debt to net capital ratio excluding securitization bonds in analyzing its financial condition and believes it provides useful information to its investors and creditors in evaluating Entergy Louisiana’s financial condition because net debt indicates Entergy Louisiana’s outstanding debt position that could not be readily satisfied by cash and cash equivalents on hand.
Uses and Sources of Capital
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Liquidity and Capital Resources” in the Form 10-K for a discussion of Entergy Louisiana’s uses and sources of capital. Following are updates to the information provided in the Form 10-K.
Although the effect in the first quarter 2020 was minimal, Entergy Louisiana expects negative changes during 2020 to its customer payment patterns and its cash flow activity due to the COVID-19 pandemic. See “The COVID-19 Pandemic” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for discussion of the COVID-19 pandemic. Despite the effects of the pandemic on financial markets Entergy Louisiana issued $650 million of long-term mortgage bonds in March 2020. Additional discussion of Entergy Louisiana’s liquidity and capital resources follows.
Entergy Louisiana’s receivables from or (payables to) the money pool were as follows:
|
| | | | | | |
March 31, 2020 | | December 31, 2019 | | March 31, 2019 | | December 31, 2018 |
| (In Thousands) |
| $84,466 | | ($82,826) | | $37,965 | | $46,843 |
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 2024. The credit facility includes fronting commitments for the issuance of letters of credit against $15 million of the borrowing capacity of the facility. As of March 31, 2020, 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 March 31, 2020, a $25.6 million letter of credit
Entergy Louisiana, LLC and Subsidiaries
Management's Financial Discussion and Analysis
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 March 31, 2020, $58.4 million in loans were outstanding under the credit facility for the Entergy Louisiana River Bend nuclear fuel company variable interest entity. As of March 31, 2020, $33.3 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.
Entergy Louisiana has $256 million in its storm reserve escrow account at March 31, 2020.
Lake Charles Power Station
As discussed in the Form 10-K, the LPSC issued an order in July 2017 approving certification that the public necessity and convenience would be served by the construction of the Lake Charles Power Station. The plant commenced commercial operation in March 2020.
State and Local Rate Regulation and Fuel-Cost Recovery
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS –State and Local Rate Regulation and Fuel Cost Recovery”in the Form 10-K for a discussion of state and local rate regulation and fuel cost recovery. The following are updates to that discussion.
Retail Rates - Electric
2018 Formula Rate Plan Filing
Commercial operation at Lake Charles Power Station commenced in March 2020. In March 2020, Entergy Louisiana filed an update to its 2018 formula rate plan evaluation report to include the estimated first-year revenue requirement of $108 million associated with the Lake Charles Power Station. The resulting interim adjustment to rates became effective with the first billing cycle of April 2020.
Fuel and purchased power recovery
In March 2020 the LPSC staff provided notice of an audit of Entergy Louisiana’s fuel adjustment clause filings. The audit includes a review of the reasonableness of charges flowed through Entergy Louisiana’s fuel adjustment clause for the period from 2016 through 2019. Discovery has not yet commenced.
COVID-19 Order
In April 2020 the LPSC issued an order authorizing utilities to record as a regulatory asset expenses incurred from the suspension of disconnections and collection of late fees imposed by LPSC orders associated with the COVID-19 pandemic. In addition, utilities may seek future recovery, subject to LPSC review and approval, of losses and expenses incurred due to compliance with the LPSC’s COVID-19 orders.
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, 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.
Other Postretirement Benefits
As described in Note 6 to the financial statements herein, in March 2020, Entergy announced changes to its other postretirement benefits. As a result, Entergy Louisiana now expects 2020 other postretirement health care and life insurance benefit cost, including amounts capitalized, of $5.6 million.
New Accounting Pronouncements
See “New Accounting Pronouncements” section of Note 1 to the financial statements in the Form 10-K for a discussion of new accounting pronouncements.
|
| | | | | | | | |
| ENTERGY LOUISIANA, LLC AND SUBSIDIARIES |
| CONSOLIDATED INCOME STATEMENTS |
| For the Three Months Ended March 31, 2020 and 2019 |
| (Unaudited) |
| | | |
| | | 2020 | | 2019 |
| | | (In Thousands) |
| OPERATING REVENUES | | | | |
| Electric | |
| $912,541 |
| |
| $936,693 |
|
| Natural gas | | 18,106 |
| | 22,637 |
|
| TOTAL | | 930,647 |
| | 959,330 |
|
| | | | | |
| OPERATING EXPENSES | | | | |
| Operation and Maintenance: | | | | |
| Fuel, fuel-related expenses, and gas purchased for resale | | 144,492 |
| | 147,349 |
|
| Purchased power | | 160,743 |
| | 257,306 |
|
| Nuclear refueling outage expenses | | 13,630 |
| | 12,808 |
|
| Other operation and maintenance | | 222,658 |
| | 225,888 |
|
| Decommissioning | | 16,001 |
| | 13,879 |
|
| Taxes other than income taxes | | 50,077 |
| | 49,682 |
|
| Depreciation and amortization | | 145,135 |
| | 126,134 |
|
| Other regulatory charges (credits) - net | | 11,132 |
| | (27,660 | ) |
| TOTAL | | 763,868 |
| | 805,386 |
|
| | | | | |
| OPERATING INCOME | | 166,779 |
| | 153,944 |
|
| | | | | |
| OTHER INCOME | | | | |
| Allowance for equity funds used during construction | | 14,887 |
| | 23,914 |
|
| Interest and investment income (loss) | | (19,669 | ) | | 71,986 |
|
| Miscellaneous - net | | 49,601 |
| | (42,344 | ) |
| TOTAL | | 44,819 |
| | 53,556 |
|
| | | | | |
| INTEREST EXPENSE | | | | |
| Interest expense | | 79,517 |
| | 74,703 |
|
| Allowance for borrowed funds used during construction | | (7,132 | ) | | (11,367 | ) |
| TOTAL | | 72,385 |
| | 63,336 |
|
| | | | | |
| INCOME BEFORE INCOME TAXES | | 139,213 |
| | 144,164 |
|
| | | | | |
| Income taxes | | (50,183 | ) | | 16,531 |
|
| | | | | |
| NET INCOME | |
| $189,396 |
| |
| $127,633 |
|
| | | | | |
| See Notes to Financial Statements. | | | | |
|
| | | | | | | |
| ENTERGY LOUISIANA, LLC AND SUBSIDIARIES |
| CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME |
| For the Three Months Ended March 31, 2020 and 2019 |
| (Unaudited) |
| | |
| | 2020 | | 2019 |
| | (In Thousands) |
| | | | |
| Net Income |
| $189,396 |
| |
| $127,633 |
|
| Other comprehensive income (loss) | | | |
| Pension and other postretirement liabilities (net of tax expense (benefit) of $3,340 and ($342)) | 9,467 |
| | (969 | ) |
| Other comprehensive income (loss) | 9,467 |
| | (969 | ) |
| Comprehensive Income |
| $198,863 |
| |
| $126,664 |
|
| | | | |
| See Notes to Financial Statements. | | | |
|
| | | | | | | | |
| ENTERGY LOUISIANA, LLC AND SUBSIDIARIES |
| CONSOLIDATED STATEMENTS OF CASH FLOWS |
| For the Three Months Ended March 31, 2020 and 2019 |
| (Unaudited) |
| | | | | |
| | | 2020 | | 2019 |
| | | (In Thousands) |
| OPERATING ACTIVITIES | | | | |
| Net income | |
| $189,396 |
| |
| $127,633 |
|
| Adjustments to reconcile net income to net cash flow provided by operating activities: | | | | |
| Depreciation, amortization, and decommissioning, including nuclear fuel amortization | | 191,447 |
| | 153,368 |
|
| Deferred income taxes, investment tax credits, and non-current taxes accrued | | (39,681 | ) | | 49,041 |
|
| Changes in working capital: | | | | |
| Receivables | | 23,004 |
| | (849 | ) |
| Fuel inventory | | (456 | ) | | 31 |
|
| Accounts payable | | (86,317 | ) | | (26,475 | ) |
| Prepaid taxes and taxes accrued | | 48,840 |
| | 16,311 |
|
| Interest accrued | | (2,384 | ) | | (9,300 | ) |
| Deferred fuel costs | | (18,280 | ) | | (50,620 | ) |
| Other working capital accounts | | (3,156 | ) | | (41,481 | ) |
| Changes in provisions for estimated losses | | (41,113 | ) | | 2,962 |
|
| Changes in other regulatory assets | | 55,539 |
| | (91,490 | ) |
| Changes in other regulatory liabilities | | (129,370 | ) | | 49,352 |
|
| Changes in pension and other postretirement liabilities | | (22,806 | ) | | (1,954 | ) |
| Other | | 149,136 |
| | 3,054 |
|
| Net cash flow provided by operating activities | | 313,799 |
| | 179,583 |
|
| | | | | |
| INVESTING ACTIVITIES | | | | |
| Construction expenditures | | (344,522 | ) | | (401,573 | ) |
| Allowance for equity funds used during construction | | 14,887 |
| | 23,914 |
|
| Nuclear fuel purchases | | (18,052 | ) | | (59,422 | ) |
| Proceeds from the sale of nuclear fuel | | 33,889 |
| | — |
|
| Receipts from storm reserve escrow account | | 40,589 |
| | — |
|
| Payments to storm reserve escrow account | | (1,113 | ) | | (1,651 | ) |
| Changes to securitization account | | (5,348 | ) | | (5,405 | ) |
| Proceeds from nuclear decommissioning trust fund sales | | 144,962 |
| | 101,555 |
|
| Investment in nuclear decommissioning trust funds | | (154,065 | ) | | (107,690 | ) |
| Changes in money pool receivable - net | | (84,466 | ) | | 8,880 |
|
| Net cash flow used in investing activities | | (373,239 | ) | | (441,392 | ) |
| | | | | |
| FINANCING ACTIVITIES | | | | |
| Proceeds from the issuance of long-term debt | | 1,221,900 |
| | 1,212,989 |
|
| Retirement of long-term debt | | (603,607 | ) | | (642,307 | ) |
| Change in money pool payable - net | | (82,826 | ) | | — |
|
| Distributions paid: | | | | |
| Common equity | | (11,500 | ) | | (49,000 | ) |
| Other | | (1,139 | ) | | 1,926 |
|
| Net cash flow provided by financing activities | | 522,828 |
| | 523,608 |
|
| | | | | |
| Net increase in cash and cash equivalents | | 463,388 |
| | 261,799 |
|
| Cash and cash equivalents at beginning of period | | 2,006 |
| | 43,364 |
|
| Cash and cash equivalents at end of period | |
| $465,394 |
| |
| $305,163 |
|
| | | | | |
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | | | | |
| Cash paid (received) during the period for: | | | | |
| Interest - net of amount capitalized | |
| $79,794 |
| |
| $81,940 |
|
| Income taxes | |
| ($20,684 | ) | |
| $— |
|
| | | | | |
| See Notes to Financial Statements. | | | | |
|
| | | | | | | | |
| ENTERGY LOUISIANA, LLC AND SUBSIDIARIES |
| CONSOLIDATED BALANCE SHEETS |
| ASSETS |
| March 31, 2020 and December 31, 2019 |
| (Unaudited) |
| | | | | |
| | | 2020 | | 2019 |
| | | (In Thousands) |
| CURRENT ASSETS | | | | |
| Cash and cash equivalents: | | | | |
| Cash | |
| $188 |
| |
| $488 |
|
| Temporary cash investments | | 465,206 |
| | 1,518 |
|
| Total cash and cash equivalents | | 465,394 |
| | 2,006 |
|
| Accounts receivable: | | | | |
| Customer | | 200,410 |
| | 194,869 |
|
| Allowance for doubtful accounts | | (2,452 | ) | | (1,902 | ) |
| Associated companies | | 142,549 |
| | 77,212 |
|
| Other | | 36,989 |
| | 42,179 |
|
| Accrued unbilled revenues | | 165,525 |
| | 169,201 |
|
| Total accounts receivable | | 543,021 |
| | 481,559 |
|
| Fuel inventory | | 42,069 |
| | 41,613 |
|
| Materials and supplies - at average cost | | 371,123 |
| | 354,020 |
|
| Deferred nuclear refueling outage costs | | 43,960 |
| | 56,743 |
|
| Prepaid taxes | | — |
| | 7,959 |
|
| Prepayments and other | | 37,778 |
| | 37,837 |
|
| TOTAL | | 1,503,345 |
| | 981,737 |
|
| | | | | |
| OTHER PROPERTY AND INVESTMENTS | | | | |
| Investment in affiliate preferred membership interests | | 1,390,587 |
| | 1,390,587 |
|
| Decommissioning trust funds | | 1,377,881 |
| | 1,563,812 |
|
| Storm reserve escrow account | | 256,402 |
| | 295,875 |
|
| Non-utility property - at cost (less accumulated depreciation) | | 315,027 |
| | 312,896 |
|
| Other | | 12,944 |
| | 13,476 |
|
| TOTAL | | 3,352,841 |
| | 3,576,646 |
|
| | | | | |
| UTILITY PLANT | | | | |
| Electric | | 23,617,789 |
| | 22,620,365 |
|
| Natural gas | | 239,779 |
| | 235,678 |
|
| Construction work in progress | | 689,399 |
| | 1,383,603 |
|
| Nuclear fuel | | 221,397 |
| | 267,779 |
|
| TOTAL UTILITY PLANT | | 24,768,364 |
| | 24,507,425 |
|
| Less - accumulated depreciation and amortization | | 9,226,377 |
| | 9,118,524 |
|
| UTILITY PLANT - NET | | 15,541,987 |
| | 15,388,901 |
|
| | | | | |
| DEFERRED DEBITS AND OTHER ASSETS | | | | |
| Regulatory assets: | | | | |
| Other regulatory assets (includes securitization property of $22,545 as of March 31, 2020 and $27,596 as of December 31, 2019) | | 1,259,672 |
| | 1,315,211 |
|
| Deferred fuel costs | | 168,122 |
| | 168,122 |
|
| Other | | 37,122 |
| | 33,491 |
|
| TOTAL | | 1,464,916 |
| | 1,516,824 |
|
| | | | | |
| TOTAL ASSETS | |
| $21,863,089 |
| |
| $21,464,108 |
|
| | | | | |
| See Notes to Financial Statements. | | | | |
|
| | | | | | | | |
| ENTERGY LOUISIANA, LLC AND SUBSIDIARIES |
| CONSOLIDATED BALANCE SHEETS |
| LIABILITIES AND EQUITY |
| March 31, 2020 and December 31, 2019 |
| (Unaudited) |
| | | | | |
| | | 2020 | | 2019 |
| | | (In Thousands) |
| CURRENT LIABILITIES | | | | |
| Currently maturing long-term debt | |
| $360,002 |
| |
| $320,002 |
|
| Accounts payable: | | | | |
| Associated companies | | 49,566 |
| | 187,615 |
|
| Other | | 486,241 |
| | 357,206 |
|
| Customer deposits | | 153,051 |
| | 153,097 |
|
| Taxes accrued | | 40,881 |
| | — |
|
| Interest accrued | | 85,360 |
| | 87,744 |
|
| Deferred fuel costs | | 37,365 |
| | 55,645 |
|
| Current portion of unprotected excess accumulated deferred income taxes | | 31,138 |
| | 31,138 |
|
| Other | | 60,365 |
| | 64,668 |
|
| TOTAL | | 1,303,969 |
| | 1,257,115 |
|
| | | | | |
| NON-CURRENT LIABILITIES | | | | |
| Accumulated deferred income taxes and taxes accrued | | 2,440,159 |
| | 2,464,513 |
|
| Accumulated deferred investment tax credits | | 110,926 |
| | 112,128 |
|
| Regulatory liability for income taxes - net | | 491,694 |
| | 500,083 |
|
| Other regulatory liabilities | | 673,159 |
| | 794,140 |
|
| Decommissioning | | 1,515,981 |
| | 1,497,349 |
|
| Accumulated provisions | | 279,306 |
| | 320,419 |
|
| Pension and other postretirement liabilities | | 655,324 |
| | 677,619 |
|
| Long-term debt (includes securitization bonds of $33,286 as of March 31, 2020 and $33,220 as of December 31, 2019) | | 7,563,379 |
| | 6,983,667 |
|
| Other | | 244,721 |
| | 459,957 |
|
| TOTAL | | 13,974,649 |
| | 13,809,875 |
|
| | | | | |
| Commitments and Contingencies | | | | |
| | | | | |
| EQUITY | | | | |
| Member's equity | | 6,570,442 |
| | 6,392,556 |
|
| Accumulated other comprehensive loss | | 14,029 |
| | 4,562 |
|
| TOTAL | | 6,584,471 |
| | 6,397,118 |
|
| | | | | |
| TOTAL LIABILITIES AND EQUITY | |
| $21,863,089 |
| |
| $21,464,108 |
|
| | | | | |
| See Notes to Financial Statements. | | | | |
|
| | | | | | | | | | | |
| ENTERGY LOUISIANA, LLC AND SUBSIDIARIES |
| CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY |
| For the Three Months Ended March 31, 2020 and 2019 |
| (Unaudited) |
| | | | |
| | Common Equity | | |
| | Member’s
Equity | | Accumulated Other Comprehensive Loss | | Total |
| | (In Thousands) |
| | | | | | |
| 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 |
|
| | | | | | |
| Balance at December 31, 2019 |
| $6,392,556 |
| |
| $4,562 |
| |
| $6,397,118 |
|
| | | | | | |
| Net income | 189,396 |
| | — |
| | 189,396 |
|
| Other comprehensive income | — |
| | 9,467 |
| | 9,467 |
|
| Distributions declared on common equity | (11,500 | ) | | — |
| | (11,500 | ) |
| Other | (10 | ) | | — |
| | (10 | ) |
| Balance at March 31, 2020 |
| $6,570,442 |
| |
| $14,029 |
| |
| $6,584,471 |
|
| | | | | | |
| See Notes to Financial Statements. | | | | | |
|
| | | | | | | | | | | | | | | |
| ENTERGY LOUISIANA, LLC AND SUBSIDIARIES |
| SELECTED OPERATING RESULTS |
| For the Three Months Ended March 31, 2020 and 2019 |
| (Unaudited) |
| | | | | | | |
| | | Nine Months Ended | | Increase/ | | |
| | | 2020 | | 2019 | | (Decrease) | | % |
| | | (Dollars In Millions) | | |
| Electric Operating Revenues: | | | | | | | | |
| Residential | |
| $260 |
| |
| $264 |
| |
| ($4 | ) | | (2 | ) |
| Commercial | | 202 |
| | 207 |
| | (5 | ) | | (2 | ) |
| Industrial | | 322 |
| | 347 |
| | (25 | ) | | (7 | ) |
| Governmental | | 17 |
| | 17 |
| | — |
| | — |
|
| Total billed retail | | 801 |
| | 835 |
| | (34 | ) | | (4 | ) |
| Sales for resale: | | | | | | | | |
| Associated companies | | 66 |
| | 68 |
| | (2 | ) | | (3 | ) |
| Non-associated companies | | 13 |
| | 16 |
| | (3 | ) | | (19 | ) |
| Other | | 33 |
| | 18 |
| | 15 |
| | 83 |
|
| Total | |
| $913 |
| |
| $937 |
| |
| ($24 | ) | | (3 | ) |
| | | | | | | | | |
| Billed Electric Energy Sales (GWh): | | | | | | | | |
| Residential | | 2,975 |
| | 3,080 |
| | (105 | ) | | (3 | ) |
| Commercial | | 2,459 |
| | 2,519 |
| | (60 | ) | | (2 | ) |
| Industrial | | 7,450 |
| | 7,343 |
| | 107 |
| | 1 |
|
| Governmental | | 199 |
| | 203 |
| | (4 | ) | | (2 | ) |
| Total retail | | 13,083 |
| | 13,145 |
| | (62 | ) | | — |
|
| Sales for resale: | | | | | | | | |
| Associated companies | | 1,341 |
| | 1,080 |
| | 261 |
| | 24 |
|
| Non-associated companies | | 457 |
| | 505 |
| | (48 | ) | | (10 | ) |
| Total | | 14,881 |
| | 14,730 |
| | 151 |
| | 1 |
|
| | | | | | | | | |
ENTERGY MISSISSIPPI, LLC
MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS
The COVID-19 Pandemic
See “The COVID-19 Pandemic” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for a discussion of the COVID-19 pandemic.
Results of Operations
Net Income
Net income increased $7.1 million primarily due to higher retail electric price and a lower effective income tax rate, partially offset by higher depreciation and amortization expenses.
Operating Revenues
Following is an analysis of the change in operating revenues comparing the first quarter 2020 to the first quarter 2019:
|
| | | |
| Amount |
| (In Millions) |
| 2019 operating revenues |
| $282.2 |
|
| Fuel, rider, and other revenues that do not significantly affect net income | (7.6 | ) |
| Retail electric price | 19.4 |
|
| Volume/weather | (0.1 | ) |
| 2020 operating revenues |
| $293.9 |
|
Entergy Mississippi’s results include revenues from rate mechanisms designed to recover fuel, purchased power, and other costs such that the revenues and expenses associated with these items generally offset and do not affect net income. “Fuel, rider, and other revenues that do not significantly affect net income” includes the revenue variance associated with these items.
The retail electric price variance is primarily due to an interim capacity rate adjustment to the formula rate plan to recover non-fuel related costs of acquiring and operating the Choctaw Generating Station and an increase in formula rate plan rates effective with the first billing cycle of July 2019, each as approved by the MPSC. 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 a decrease of 113 GWh, or 4%, in billed electricity usage, including the effect of less favorable weather on residential sales. The decrease was substantially offset by increased usage during the unbilled sales period.
Although the effect in the first quarter 2020 was minimal, Entergy Mississippi expects a decline in sales volume during 2020 due to the COVID-19 pandemic, especially in the commercial and industrial customer classes. See “The COVID-19 Pandemic” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for discussion of the COVID-19 pandemic.
Entergy Mississippi, LLC
Management's Financial Discussion and Analysis
Other Income Statement Variances
Other operation and maintenance expenses increased primarily due to:
an increase of $4.5 million in storm damage provisions. See Note 2 to the financial statements in the Form 10-K for a discussion of storm cost recovery; and
| |
| • | an increase of $1.2 million in compensation and benefits costs primarily due to an increase in net periodic pension and other postretirement benefits costs as a result of a decrease in the discount rate used to value the benefit liabilities and an increase in employee health benefits costs. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Critical Accounting Estimates” in the Form 10-K, Note 6 to the financial statements herein, and Note 11 to the financial statements in the Form 10-K for further discussion of pension and other postretirement benefit costs. |
The increase was partially offset by:
a decrease of $1.8 million in vegetation maintenance costs; and
a decrease of $1.8 million in fossil-fueled generation expenses primarily due to a lower scope of work done during plant outages in 2020 as compared to the same period in 2019 and lower long-term service agreement expenses.
Depreciation and amortization expenses increased primarily as a result of higher depreciation rates, as approved by the MPSC, and additions to plant in service.
Interest expense increased primarily due to the issuances of $300 million in June 2019 and $135 million in November 2019 of 3.85% Series mortgage bonds, partially offset by the repayment, at maturity, of $150 million of 6.64% Series mortgage bonds in July 2019. See Note 4 to the financial statements herein and Note 5 to the financial statements in the Form 10-K for details on long-term debt.
Income Taxes
The effective income tax rate was 7.7% for the first quarter 2020. The difference in the effective income tax rate for the first quarter 2020 versus the federal statutory rate of 21% was primarily due to certain book and tax differences related to utility plant items and permanent differences related to income tax deductions for stock-based compensation, partially offset by state income taxes. See Note 10 to the financial statements herein for discussion of the income tax deductions for stock-based compensation.
The effective income tax rate was 18.3% for the first quarter 2019. The difference in the effective income tax rate for the first quarter 2019 versus the federal statutory rate of 21% was primarily due to book and tax differences related to utility plant items and book and tax differences related to the allowance for equity funds during construction, partially offset by state income taxes and the provision for uncertain tax positions.
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 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 2019, 2018, and 2017 results of operations and financial position, the provisions of the Tax Act, and the uncertainties associated with accounting for the Tax Act, and Note 10 to the financial statements herein contains updates to that discussion. Note 2 to the financial statements in the Form 10-K contains a discussion of the regulatory proceedings that have considered the effects of the Tax Act.
Entergy Mississippi, LLC
Management's Financial Discussion and Analysis
Liquidity and Capital Resources
Cash Flow
Cash flows for the three months ended March 31, 2020 and 2019 were as follows:
|
| | | | | | | |
| | 2020 | | 2019 |
| | (In Thousands) |
| Cash and cash equivalents at beginning of period |
| $51,601 |
| |
| $36,954 |
|
| | | | |
| Cash flow provided by (used in): | | | |
| Operating activities | 33,261 |
| | 9,992 |
|
| Investing activities | (103,615 | ) | | (54,376 | ) |
| Financing activities | 18,772 |
| | 8,315 |
|
| Net decrease in cash and cash equivalents | (51,582 | ) | | (36,069 | ) |
| | | | |
| Cash and cash equivalents at end of period |
| $19 |
| |
| $885 |
|
Operating Activities
Net cash flow provided by operating activities increased $23.3 million for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 primarily due to the timing of collections of receivables from customers and payments to vendors and an increase of $4.4 million in interest payments. The increase was partially offset by the timing of recovery of fuel and purchased power costs and an increase of $4 million in storm spending in 2020.
Investing Activities
Net cash flow used in investing activities increased $49.2 million for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 primarily due to $24.6 million in plant upgrades for the Choctaw Generating Station in March 2020 and an increase of $20.2 million in storm spending in 2020.
Financing Activities
Net cash flow provided by financing activities increased $10.5 million for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 primarily due to money pool activity.
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 $19 million for the three months ended March 31, 2020 compared to increasing by $10.9 million for the three months ended March 31, 2019. The money pool is an inter-company borrowing arrangement designed to reduce the Utility subsidiaries’ need for external short-term borrowings.
Capital Structure
Entergy Mississippi’s debt to capital ratio is shown in the following table.
|
| | | | | |
| | March 31, 2020 | | December 31, 2019 |
| Debt to capital | 50.9 | % | | 51.2 | % |
| Effect of subtracting cash | — | % | | (0.8 | %) |
| Net debt to net capital | 50.9 | % | | 50.4 | % |
Entergy Mississippi, LLC
Management's Financial Discussion and Analysis
Net debt consists of debt less cash and cash equivalents. Debt consists of short-term borrowings, finance lease obligations, and long-term debt, including the currently maturing portion. Capital consists of debt and equity. Net capital consists of capital less cash and cash equivalents. Entergy Mississippi uses the debt to capital ratio in analyzing its financial condition and believes it provides useful information to its investors and creditors in evaluating Entergy Mississippi’s financial condition. Entergy Mississippi uses the net debt to net capital ratio in analyzing its financial condition and believes it provides useful information to its investors and creditors in evaluating Entergy Mississippi’s financial condition because net debt indicates Entergy Mississippi’s outstanding debt position that could not be readily satisfied by cash and cash equivalents on hand.
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.
Although the effect in the first quarter 2020 was minimal, Entergy Mississippi expects negative changes during 2020 to its customer payment patterns and its cash flow activity due to the COVID-19 pandemic. See “The COVID-19 Pandemic” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for discussion of the COVID-19 pandemic. Despite the effects of the pandemic on financial markets Entergy Mississippi renewed its short-term credit facilities in April 2020. Additional discussion of Entergy Mississippi’s liquidity and capital resources follows.
Entergy Mississippi’s receivables from or (payables to) the money pool were as follows:
|
| | | | | | |
March 31, 2020 | | December 31, 2019 | | March 31, 2019 | | December 31, 2018 |
| (In Thousands) |
| ($19,006) | | $44,693 | | ($10,925) | | $41,380 |
See Note 4 to the financial statements in the Form 10-K for a description of the money pool.
Entergy Mississippi has three separate credit facilities in the aggregate amount of $82.5 million scheduled to expire in April 2021. No borrowings were outstanding under the credit facilities as of March 31, 2020. In addition, Entergy Mississippi is a party to an uncommitted letter of credit facility as a means to post collateral to support its obligations to MISO. As of March 31, 2020, $1.8 million of letters of credit were outstanding under Entergy Mississippi’s uncommitted letter of credit facility. See Note 4 to the financial statements herein for additional discussion of the credit facilities.
Entergy Mississippi has $33 million in its storm reserve escrow account at March 31, 2020.
Sunflower Solar Facility
In November 2018, Entergy Mississippi announced that it signed an agreement for the purchase of an approximately 100 MW to-be-constructed solar photovoltaic facility that will be sited on approximately 1,000 acres in Sunflower County, Mississippi. The estimated base purchase price is approximately $138.4 million. The estimated total investment, including the base purchase price and other related costs, for Entergy Mississippi to acquire the Sunflower Solar Facility is approximately $153.2 million. The purchase is contingent upon, among other things, obtaining necessary approvals, including full cost recovery, from applicable federal and state regulatory and permitting agencies. The project will be built by Sunflower County Solar Project, LLC, an indirect subsidiary of Recurrent Energy, LLC. Entergy Mississippi will purchase the facility upon mechanical completion and after the other purchase contingencies have been met. In December 2018, Entergy Mississippi filed a joint petition with Sunflower Solar Project at the MPSC for Sunflower Solar Project to construct and for Entergy Mississippi to acquire and thereafter own, operate,
Entergy Mississippi, LLC
Management's Financial Discussion and Analysis
improve, and maintain the solar facility. Entergy Mississippi has proposed revisions to its formula rate plan that would provide for a mechanism, the interim capacity rate adjustment mechanism, in the formula rate plan to recover the non-fuel related costs of additional owned capacity acquired by Entergy Mississippi, including the annual ownership costs of the Sunflower Solar Facility. In December 2019 the MPSC approved Entergy Mississippi’s proposed revisions to its formula rate plan to provide for an interim capacity rate adjustment mechanism. Recovery through the interim capacity rate adjustment requires MPSC approval for each new resource. In August 2019 consultants retained by the Mississippi Public Utilities Staff filed a report expressing concerns regarding the project economics. In March 2020, Entergy Mississippi filed supplemental testimony addressing questions and observations raised by the consultants retained by the Mississippi Public Utilities Staff. A hearing before the MPSC was held in March 2020. In April 2020 the MPSC issued an order approving certification of the Sunflower Solar Facility and its recovery through the interim capacity rate adjustment mechanism, subject to certain conditions including: (i) that Entergy Mississippi pursue a partnership structure through which the partnership would acquire and own the facility under the build-own-transfer agreement and (ii) that if Entergy Mississippi does not consummate the partnership structure under the terms of the order, there will be a cap on the level of recoverable costs. Closing is targeted 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 the formula rate plan and fuel and purchased power cost recovery. The following is an update to that discussion.
Formula Rate Plan Filing
In March 2020, Entergy Mississippi submitted its formula rate plan 2020 test year filing and 2019 look-back filing showing Entergy Mississippi’s earned return for the historical 2019 calendar year to be below the formula rate plan bandwidth and projected earned return for the 2020 calendar year to be below the formula rate plan bandwidth. The 2020 test year filing shows a $24.6 million rate increase is necessary to reset Entergy Mississippi’s earned return on common equity to the specified point of adjustment of 6.51% return on rate base, within the formula rate plan bandwidth. The 2019 look-back filing compares actual 2019 results to the approved benchmark return on rate base and reflects the need for a $7.3 million interim increase in formula rate plan revenues. In accordance with the MPSC-approved revisions to the formula rate plan, Entergy Mississippi implemented a $24.3 million interim rate increase, reflecting a cap equal to 2% of 2019 retail revenues, effective with the April 2020 billing cycle, subject to refund, pending a final MPSC order. A final order is expected in the second quarter 2020, with the resulting final rates, including amounts above the 2% cap of 2019 retail revenues, effective July 2020.
COVID-19 Order
In April 2020 the MPSC issued an order authorizing utilities to defer incremental costs and expenses associated with COVID-19 compliance and to seek future recovery through rates of the prudently incurred incremental costs and expenses.
Federal Regulation
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS –Federal Regulation”in the Form 10-K for a discussion of federal regulation.
Nuclear Matters
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS -Nuclear Matters” in the Form 10-K for a discussion of nuclear matters.
Entergy Mississippi, LLC
Management's Financial Discussion and Analysis
Environmental Risks
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS –Environmental Risks” in the Form 10-K for a discussion of environmental risks.
Critical Accounting Estimates
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS -Critical Accounting Estimates” in the Form 10-K for a discussion of the estimates and judgments necessary in Entergy Mississippi’s accounting for utility regulatory accounting, 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.
Other Postretirement Benefits
As described in Note 6 to the financial statements herein, in March 2020, Entergy announced changes to its other postretirement benefits. As a result, Entergy Mississippi now expects 2020 other postretirement health care and life insurance benefit income, including amounts capitalized, of $3.6 million.
New Accounting Pronouncements
See “New Accounting Pronouncements” section of Note 1 to the financial statements in the Form 10-K for a discussion of new accounting pronouncements.
|
| | | | | | | | |
| ENTERGY MISSISSIPPI, LLC |
| INCOME STATEMENTS |
| For the Three Months Ended March 31, 2020 and 2019 |
| (Unaudited) |
| | | |
| | | 2020 | | 2019 |
| | | (In Thousands) |
| OPERATING REVENUES | | | | |
| Electric | |
| $293,922 |
| |
| $282,244 |
|
| | | | | |
| OPERATING EXPENSES | | | | |
| Operation and Maintenance: | | | | |
| Fuel, fuel-related expenses, and gas purchased for resale | | 63,297 |
| | 53,229 |
|
| Purchased power | | 52,643 |
| | 71,455 |
|
| Other operation and maintenance | | 62,337 |
| | 59,183 |
|
| Taxes other than income taxes | | 27,190 |
| | 26,127 |
|
| Depreciation and amortization | | 51,155 |
| | 39,088 |
|
| Other regulatory charges (credits) - net | | (3,881 | ) | | 2,370 |
|
| TOTAL | | 252,741 |
| | 251,452 |
|
| | | | | |
| OPERATING INCOME | | 41,181 |
| | 30,792 |
|
| | | | | |
| OTHER INCOME (DEDUCTIONS) | | | | |
| Allowance for equity funds used during construction | | 1,439 |
| | 1,913 |
|
| Interest and investment income | | 120 |
| | 152 |
|
| Miscellaneous - net | | (2,296 | ) | | (263 | ) |
| TOTAL | | (737 | ) | | 1,802 |
|
| | | | | |
| INTEREST EXPENSE | | | | |
| Interest expense | | 16,583 |
| | 14,540 |
|
| Allowance for borrowed funds used during construction | | (551 | ) | | (785 | ) |
| TOTAL | | 16,032 |
| | 13,755 |
|
| | | | | |
| INCOME BEFORE INCOME TAXES | | 24,412 |
| | 18,839 |
|
| | | | | |
| Income taxes | | 1,886 |
| | 3,441 |
|
| | | | | |
| NET INCOME | |
| $22,526 |
| |
| $15,398 |
|
| | | | | |
| See Notes to Financial Statements. | | | | |
|
| | | | | | | | |
| ENTERGY MISSISSIPPI, LLC |
| STATEMENTS OF CASH FLOWS |
| For the Three Months Ended March 31, 2020 and 2019 |
| (Unaudited) |
| | | 2020 | | 2019 |
| | | (In Thousands) |
| OPERATING ACTIVITIES | | | | |
| Net income | |
| $22,526 |
| |
| $15,398 |
|
| Adjustments to reconcile net income to net cash flow provided by operating activities: | | | | |
| Depreciation and amortization | | 51,155 |
| | 39,088 |
|
| Deferred income taxes, investment tax credits, and non-current taxes accrued | | 2,762 |
| | 12,072 |
|
| Changes in assets and liabilities: | | | | |
| Receivables | | 17,971 |
| | 18,364 |
|
| Fuel inventory | | (3,266 | ) | | (4,267 | ) |
| Accounts payable | | (8,125 | ) | | (5,722 | ) |
| Taxes accrued | | (58,651 | ) | | (66,445 | ) |
| Interest accrued | | 6,201 |
| | (293 | ) |
| Deferred fuel costs | | 13,406 |
| | 17,635 |
|
| Other working capital accounts | | 7,849 |
| | 3,444 |
|
| Provisions for estimated losses | | (47 | ) | | (846 | ) |
| Other regulatory assets | | (8,484 | ) | | (3,478 | ) |
| Other regulatory liabilities | | (5,532 | ) | | (9,301 | ) |
| Pension and other postretirement liabilities | | (2,482 | ) | | 269 |
|
| Other assets and liabilities | | (2,022 | ) | | (5,926 | ) |
| Net cash flow provided by operating activities | | 33,261 |
| | 9,992 |
|
| | | | | |
| INVESTING ACTIVITIES | | | | |
| Construction expenditures | | (124,986 | ) | | (97,487 | ) |
| Allowance for equity funds used during construction | | 1,439 |
| | 1,913 |
|
| Changes in money pool receivable - net | | 44,693 |
| | 41,380 |
|
| Payment for purchase of plant | | (24,633 | ) | | — |
|
| Other | | (128 | ) | | (182 | ) |
| Net cash flow used in investing activities | | (103,615 | ) | | (54,376 | ) |
| | | | | |
| FINANCING ACTIVITIES | | | | |
| Changes in money pool payable - net | | 19,006 |
| | 10,925 |
|
| Distributions paid: | | | | |
| Common equity | | (2,500 | ) | | — |
|
| Other | | 2,266 |
| | (2,610 | ) |
| Net cash flow provided by financing activities | | 18,772 |
| | 8,315 |
|
| | | | | |
| Net decrease in cash and cash equivalents | | (51,582 | ) | | (36,069 | ) |
| Cash and cash equivalents at beginning of period | | 51,601 |
| | 36,954 |
|
| Cash and cash equivalents at end of period | |
| $19 |
| |
| $885 |
|
| | | | | |
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | | | | |
| Cash paid during the period for: | | | | |
| Interest - net of amount capitalized | |
| $9,800 |
| |
| $14,193 |
|
| | | | | |
| See Notes to Financial Statements. | | | | |
|
| | | | | | | | |
| ENTERGY MISSISSIPPI, LLC |
| BALANCE SHEETS |
| ASSETS |
| March 31, 2020 and December 31, 2019 |
| (Unaudited) |
| | | 2020 | | 2019 |
| | | (In Thousands) |
| CURRENT ASSETS | | | | |
| Cash and cash equivalents: | | | | |
| Cash | |
| $12 |
| |
| $11 |
|
| Temporary cash investments | | 7 |
| | 51,590 |
|
| Total cash and cash equivalents | | 19 |
| | 51,601 |
|
| Accounts receivable: | | |
| | |
|
| Customer | | 84,644 |
| | 92,050 |
|
| Allowance for doubtful accounts | | (554 | ) | | (636 | ) |
| Associated companies | | 4,415 |
| | 49,257 |
|
| Other | | 7,951 |
| | 14,986 |
|
| Accrued unbilled revenues | | 43,964 |
| | 47,426 |
|
| Total accounts receivable | | 140,420 |
| | 203,083 |
|
| Fuel inventory - at average cost | | 18,405 |
| | 15,139 |
|
| Materials and supplies - at average cost | | 52,563 |
| | 57,972 |
|
| Prepayments and other | | 6,147 |
| | 7,149 |
|
| TOTAL | | 217,554 |
| | 334,944 |
|
| | | | | |
| OTHER PROPERTY AND INVESTMENTS | | |
| | |
|
| Non-utility property - at cost (less accumulated depreciation) | | 4,556 |
| | 4,560 |
|
| Escrow accounts | | 80,328 |
| | 80,201 |
|
| TOTAL | | 84,884 |
| | 84,761 |
|
| | | | | |
| UTILITY PLANT | | |
| | |
|
| Electric | | 5,751,292 |
| | 5,672,589 |
|
| Construction work in progress | | 113,864 |
| | 88,373 |
|
| TOTAL UTILITY PLANT | | 5,865,156 |
| | 5,760,962 |
|
| Less - accumulated depreciation and amortization | | 1,911,652 |
| | 1,894,000 |
|
| UTILITY PLANT - NET | | 3,953,504 |
| | 3,866,962 |
|
| | | | | |
| DEFERRED DEBITS AND OTHER ASSETS | | |
| | |
|
| Regulatory assets: | | |
| | |
|
| Other regulatory assets | | 386,456 |
| | 377,972 |
|
| Other | | 15,615 |
| | 10,105 |
|
| TOTAL | | 402,071 |
| | 388,077 |
|
| | | | | |
| TOTAL ASSETS | |
| $4,658,013 |
| |
| $4,674,744 |
|
| | | | | |
| See Notes to Financial Statements. | | |
| | |
|
|
| | | | | | | | |
| ENTERGY MISSISSIPPI, LLC |
| BALANCE SHEETS |
| LIABILITIES AND EQUITY |
| March 31, 2020 and December 31, 2019 |
| (Unaudited) |
| | | 2020 | | 2019 |
| | | (In Thousands) |
| CURRENT LIABILITIES | | |
| | |
|
| Accounts payable: | | |
| | |
|
| Associated companies | |
| $52,735 |
| |
| $48,090 |
|
| Other | | 90,853 |
| | 94,729 |
|
| Customer deposits | | 85,976 |
| | 85,938 |
|
| Taxes accrued | | 32,010 |
| | 90,661 |
|
| Interest accrued | | 25,101 |
| | 18,900 |
|
| Deferred fuel costs | | 83,807 |
| | 70,402 |
|
| Other | | 33,976 |
| | 32,667 |
|
| TOTAL | | 404,458 |
| | 441,387 |
|
| | | | | |
| NON-CURRENT LIABILITIES | | |
| | |
|
| Accumulated deferred income taxes and taxes accrued | | 602,881 |
| | 594,832 |
|
| Accumulated deferred investment tax credits | | 9,562 |
| | 9,602 |
|
| Regulatory liability for income taxes - net | | 234,557 |
| | 236,988 |
|
| Other regulatory liabilities | | 18,411 |
| | 21,512 |
|
| Asset retirement cost liabilities | | 9,862 |
| | 9,727 |
|
| Accumulated provisions | | 49,974 |
| | 50,021 |
|
| Pension and other postretirement liabilities | | 96,930 |
| | 99,406 |
|
| Long-term debt | | 1,614,156 |
| | 1,614,129 |
|
| Other | | 55,045 |
| | 54,989 |
|
| TOTAL | | 2,691,378 |
| | 2,691,206 |
|
| | | | | |
| Commitments and Contingencies | | |
| | |
|
| | | | | |
| EQUITY | | |
| | |
|
| Member's equity | | 1,562,177 |
| | 1,542,151 |
|
| TOTAL | | 1,562,177 |
| | 1,542,151 |
|
| | | | | |
| TOTAL LIABILITIES AND EQUITY | |
| $4,658,013 |
| |
| $4,674,744 |
|
| | | | | |
| See Notes to Financial Statements. | | |
| | |
|
|
| | | | |
| ENTERGY MISSISSIPPI, LLC |
| STATEMENTS OF CHANGES IN MEMBER'S EQUITY |
| For the Three Months Ended March 31, 2020 and 2019 |
| (Unaudited) |
| | |
| | |
| | Member's Equity |
| | (In Thousands) |
| | |
| Balance at December 31, 2018 | |
| $1,292,226 |
|
| | |
| Net income | | 15,398 |
|
| Balance at March 31, 2019 | |
| $1,307,624 |
|
| | |
| Balance at December 31, 2019 | |
| $1,542,151 |
|
| | |
| Net income | | 22,526 |
|
| Common equity distributions | | (2,500 | ) |
| Balance at March 31, 2020 | |
| $1,562,177 |
|
| | |
| See Notes to Financial Statements. | | |
|
| | | | | | | | | | | | | | | |
| ENTERGY MISSISSIPPI, LLC |
| SELECTED OPERATING RESULTS |
| For the Three Months Ended March 31, 2020 and 2019 |
| (Unaudited) |
| | | | | | | |
| | | Three Months Ended | | Increase/ | | |
|
| | 2020 | | 2019 | | (Decrease) | | % |
| | | (Dollars In Millions) | | |
|
| Electric Operating Revenues: | | |
| | |
| | |
| | |
|
| Residential | |
| $127 |
| |
| $129 |
| |
| ($2 | ) | | (2 | ) |
| Commercial | | 97 |
| | 98 |
| | (1 | ) | | (1 | ) |
| Industrial | | 36 |
| | 38 |
| | (2 | ) | | (5 | ) |
| Governmental | | 10 |
| | 10 |
| | — |
| | — |
|
| Total billed retail | | 270 |
| | 275 |
| | (5 | ) | | (2 | ) |
| Sales for resale: | | |
| | |
| | |
| | |
|
| Non-associated companies | | 14 |
| | 5 |
| | 9 |
| | 180 |
|
| Other | | 10 |
| | 2 |
| | 8 |
| | 400 |
|
| Total | |
| $294 |
| |
| $282 |
| |
| $12 |
| | 4 |
|
| | | |
| | |
| | |
| | |
|
| Billed Electric Energy Sales (GWh): | | | | | | | | |
| Residential | | 1,250 |
| | 1,315 |
| | (65 | ) | | (5 | ) |
| Commercial | | 1,006 |
| | 1,040 |
| | (34 | ) | | (3 | ) |
| Industrial | | 556 |
| | 566 |
| | (10 | ) | | (2 | ) |
| Governmental | | 94 |
| | 98 |
| | (4 | ) | | (4 | ) |
| Total retail | | 2,906 |
| | 3,019 |
| | (113 | ) | | (4 | ) |
| Sales for resale: | | |
| | |
| | |
| | |
|
| Non-associated companies | | 827 |
| | 166 |
| | 661 |
| | 398 |
|
| Total | | 3,733 |
| | 3,185 |
| | 548 |
| | 17 |
|
ENTERGY NEW ORLEANS, LLC AND SUBSIDIARIES
MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS
The COVID-19 Pandemic
See “The COVID-19 Pandemic” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for a discussion of the COVID-19 pandemic.
Results of Operations
Net Income
Net income increased $2.2 million primarily due to a lower effective income tax rate, partially offset by lower retail electric price.
Operating Revenues
Following is an analysis of the change in operating revenues comparing the first quarter 2020 to the first quarter 2019:
|
| | | |
| Amount |
| (In Millions) |
| 2019 operating revenues |
| $163.2 |
|
| Fuel, rider, and other revenues that do not significantly affect net income | (7.2 | ) |
| Retail electric price | (6.6 | ) |
| Volume/weather | (0.1 | ) |
| 2020 operating revenues |
| $149.3 |
|
Entergy New Orleans’s results include revenues from rate mechanisms designed to recover fuel, purchased power, and other costs such that the revenues and expenses associated with these items generally offset and do not affect net income. “Fuel, rider, and other revenues that do not significantly affect net income” includes the revenue variance associated with these items.
The retail electric price variance is primarily due to provisions recorded in first quarter 2020 for the revenue collected in 2020 that will be refunded to customers through new rates implemented in April 2020 based on an August 2019 effective date for the rate decrease. See Note 2 to the financial statements herein and in the Form 10-K for discussion of the rate case resolution.
The volume/weather variance for first quarter 2020 as compared to first quarter 2019 is insignificant.
Although the effect in the first quarter 2020 was minimal, Entergy New Orleans expects a decline in sales volume during 2020 due to the COVID-19 pandemic, especially in the commercial and industrial customer classes. See “The COVID-19 Pandemic” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for discussion of the COVID-19 pandemic.
Entergy New Orleans, LLC and Subsidiaries
Management's Financial Discussion and Analysis
Other Income Statement Variances
Other regulatory credits include regulatory credits recorded in first quarter 2020 to reflect compliance with terms of the 2018 combined rate case resolution approved by the City Council in February 2020. See Note 2 to the financial statements herein and in the Form 10-K for discussion of the rate case resolution.
Income Taxes
The effective income tax rate was (32.4%) for the first quarter 2020. The difference in the effective income tax rate for the first quarter 2020 versus the federal statutory rate of 21% was primarily due to the amortization of excess accumulated deferred income taxes, permanent differences related to income tax deductions for stock-based compensation, 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 the provision for uncertain tax positions. See Note 10 to the financial statements herein and Notes 2 and 3 to the financial statements in the Form 10-K for a discussion of the effects and regulatory activity regarding the Tax Cuts and Jobs Act. See Note 10 to the financial statements herein for discussion of the income tax deductions for stock-based compensation.
The effective income tax rate was 25.3% for the first quarter 2019. The difference in the effective income tax rate for the first quarter 2019 versus the federal statutory rate of 21% was primarily due to permanent book and tax differences, state income taxes, and the provision for uncertain tax positions, partially offset by flow-through tax accounting, certain book and tax differences related to utility plant items, and book and tax differences related to the allowance for equity funds used during construction.
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 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 2019, 2018, and 2017 results of operations and financial position, the provisions of the Tax Act, and the uncertainties associated with accounting for the Tax Act, and Note 10 to the financial statements herein contains updates to that discussion. Note 2 to the financial statements in the Form 10-K contains a discussion of the regulatory proceedings that have considered the effects of the Tax Act.
Liquidity and Capital Resources
Cash Flow
Cash flows for the three months ended March 31, 2020 and 2019 were as follows:
|
| | | | | | | |
| | 2020 | | 2019 |
| | (In Thousands) |
| Cash and cash equivalents at beginning of period |
| $6,017 |
| |
| $19,677 |
|
| | | | |
| Cash flow provided by (used in): | | | |
| Operating activities | 17,318 |
| | 16,522 |
|
| Investing activities | (68,691 | ) | | (36,783 | ) |
| Financing activities | 118,671 |
| | 1,378 |
|
| Net increase (decrease) in cash and cash equivalents | 67,298 |
| | (18,883 | ) |
| | | | |
| Cash and cash equivalents at end of period |
| $73,315 |
| |
| $794 |
|
Entergy New Orleans, LLC and Subsidiaries
Management's Financial Discussion and Analysis
Operating Activities
Net cash flow provided by operating activities remained relatively unchanged, increasing by $0.8 million, for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 primarily due to the timing of recovery of fuel and purchased power costs, partially offset by an increase of $2.2 million in interest paid in 2020.
Investing Activities
Net cash flow used in investing activities increased $31.9 million for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 primarily due to money pool activity and an increase of $7.2 million in distribution construction expenditures primarily due to investment in the reliability and infrastructure of Entergy New Orleans’s distribution system, including increased spending on advanced metering infrastructure. The increase was partially offset by a decrease of $6.2 million in construction expenditures primarily due to lower spending on the New Orleans Power Station project in 2020 as compared to the same period in 2019.
Increases in Entergy New Orleans’s receivable from the money pool are a use of cash flow, and Entergy New Orleans’s receivable from the money pool increased $8 million for the three months ended March 31, 2020 compared to decreasing $22 million for the three months ended March 31, 2019. 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 $117.3 million for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 primarily due to the issuance of $78 million of 3.00% Series mortgage bonds and the issuance of $62 million of 3.75% Series mortgage bonds, each in March 2020, partially offset by repayments of $20 million on long-term credit borrowings in 2020.
Capital Structure
Entergy New Orleans’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 $140 million of mortgage bonds in March 2020.
|
| | | | | |
| | March 31, 2020 | | December 31, 2019 |
| Debt to capital | 57.3 | % | | 53.1 | % |
| Effect of excluding securitization bonds | (1.9 | %) | | (2.4 | %) |
| Debt to capital, excluding securitization bonds (a) | 55.4 | % | | 50.7 | % |
| Effect of subtracting cash | (3.1 | %) | | (0.3 | %) |
| Net debt to net capital, excluding securitization bonds (a) | 52.3 | % | | 50.4 | % |
| |
| (a) | Calculation excludes the securitization bonds, which are non-recourse to Entergy New Orleans. |
Net debt consists of debt less cash and cash equivalents. Debt consists of short-term borrowings, finance lease obligations, long-term debt, including the currently maturing portion, and the long-term payable due to an associated company. Capital consists of debt and 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
Entergy New Orleans, LLC and Subsidiaries
Management's Financial Discussion and Analysis
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.
Although the effect in the first quarter 2020 was minimal, Entergy New Orleans expects negative changes during 2020 to its customer payment patterns and its cash flow activity due to the COVID-19 pandemic. See “The COVID-19 Pandemic” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for discussion of the COVID-19 pandemic. Despite the effects of the pandemic on financial markets Entergy New Orleans issued $140 million of long-term mortgage bonds in March 2020. Additional discussion of Entergy New Orleans’s liquidity and capital resources follows.
Entergy New Orleans’s receivables from or (payables to) the money pool were as follows:
|
| | | | | | |
March 31, 2020 | | December 31, 2019 | | March 31, 2019 | | December 31, 2018 |
| (In Thousands) |
| $13,170 | | $5,191 | | ($1,877) | | $22,016 |
See Note 4 to the financial statements in the Form 10-K for a description of the money pool.
Entergy New Orleans has a credit facility in the amount of $25 million scheduled to expire in November 2021. The credit facility includes fronting commitments for the issuance of letters of credit against $10 million of the borrowing capacity of the facility. As of March 31, 2020, there were no cash borrowings and an $0.8 million letter of credit outstanding under the facility. In addition, Entergy New Orleans is a party to an uncommitted letter of credit facility as a means to post collateral to support its obligations to MISO. As of March 31, 2020, a $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.
Entergy New Orleans has $83 million in its storm reserve escrow account at March 31, 2020.
New Orleans Power Station
As discussed in the Form 10-K, in June 2019, a state court judge in New Orleans affirmed the City Council’s approval of the New Orleans Power Station and dismissed the petition for judicial review of that decision that had been filed in April 2018. The petitioners have filed an appeal of that ruling. Also in June 2019, with regard to the lawsuit challenging the City Council’s decision on the basis of a violation of the open meetings law, the same state court judge in New Orleans ruled that there was a violation of the open meetings law at the February 2018 meeting of the City Council’s Utility Committee at which that Committee considered the New Orleans Power Station approval, and further ruled that, although there was no violation of the open meetings law at the March 2018 full City Council meeting at which the New Orleans Power Station was approved, both the approval of the Utility Committee and the approval of the full City Council were void. The City Council and Entergy New Orleans each filed a suspensive appeal of the open meetings law ruling. A suspensive appeal suspends the effect of the judgment in the open meetings law proceeding while the appeal is being taken. The petitioners sought in the state appellate court, and then at the Louisiana Supreme Court, to terminate the suspension of the effect of the judgment, but both courts declined to do so. Appellate briefing on the merits both in the open meetings law appeal and in the judicial review appeal occurred in November and December 2019 and oral argument in both cases was heard in January 2020. In February 2020 the state appellate court reversed the lower court’s ruling that the City Council’s approval of the New Orleans Power Station was void due to a violation of the open meetings law at the City Council’s Utility Committee meeting in February 2018. The
Entergy New Orleans, LLC and Subsidiaries
Management's Financial Discussion and Analysis
state appellate court ruled that there was no violation of the open meetings law at the City Council meeting in March 2018 and that the lower court erred in voiding the City Council resolution approving the New Orleans Power Station. In March 2020, the appellees in that proceeding filed a writ application with the Louisiana Supreme Court seeking review of the appellate court’s decision and several New Orleans-based organizations filed an amicus brief in support of the appellees’ writ application. Briefs from Entergy New Orleans and the City Council in opposition to the writ application are due in May 2020. In April 2020 the state appellate court affirmed the district court’s judicial review decision that affirmed the City Council’s approval of the New Orleans Power Station as in the public interest. Construction of the plant is on schedule, with commercial operation expected in mid-2020.
Gas Infrastructure Rebuild Plan
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, which would replace all of Entergy New Orleans’s low pressure cast iron, steel, and vintage plastic pipe over a ten-year period commencing in 2017. Entergy New Orleans also proposed that recovery of the investment to fund its gas infrastructure replacement plan be determined in connection with its next base rate case. As a result of the rate case, the City Council approved the planned gas rebuild expenditures through 2019, but rejected Entergy New Orleans’s proposed gas infrastructure rider. In April 2020, Entergy New Orleans submitted its gas infrastructure rebuild plan to the City Council, which maintained the previously proposed timeline and cost estimates, but included measures to spread out the cost impact to customers of the program.
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 updates to that discussion.
Retail Rates
As discussed in the Form 10-K, the formula rate plan filing that will be made in July 2019 to set the formula rates for the 2020 calendar year will include a netting adjustment that will compare projected costsState and sales for 2018 that were approved in the 2017 formula rate plan filing to actual 2018 costs and sales data. In the fourth quarter 2018 Entergy Arkansas recorded a provision of $35.1 million that reflected the estimate of the historical year netting adjustment that will be included in the 2019 filing to reflect the change in formula rate plan revenues associated with actual 2018 results when compared to the allowed rate of return on equity. In the first quarter 2019, Entergy Arkansas recorded an additional $10.5 million provision to reflect the current estimate of the historical year netting adjustment to be included in the 2019 filing.
Energy Cost Recovery Rider
In March 2019, Entergy Arkansas filed its annual redetermination of its energy cost rate pursuant to the energy cost recovery rider, which reflected a decrease from $0.01882 per kWh to $0.01462 per kWh and became effective with the first billing cycle in April 2019. In March 2019 the Arkansas Attorney General filed a response to Entergy Arkansas’s annual adjustment and included with its filing a motion for investigation of alleged overcharges to customers in connection with the FERC’s October 2018 order in the opportunity sales proceeding. Entergy Arkansas filed its response to the Attorney General’s motion in April 2019 in which Entergy Arkansas stated its intent to initiate a proceeding to address recovery issues related to the October 2018 FERC order.
Entergy Arkansas, LLC and Subsidiaries
Management's Financial Discussion and Analysis
Opportunity Sales Proceeding
As discussed in the Form 10-K, in December 2018, Entergy made a compliance filing in response to the FERC’s October 2018 order in the opportunity sales proceeding. The compliance filing provided a final calculation of Entergy Arkansas’s payments to the other Utility operating companies, including interest. No protests were filed in response to the December 2018 compliance filing. The December 2018 compliance filing is pending FERC action.
In February 2019 the LPSC filed a new complaint relating to two issues that were raised in the opportunity sales proceeding, but that in its October 2018 order, the FERC held were outside the scope of the proceeding. In March 2019, Entergy Services filed an answer and motion to dismiss the new complaint.
FederalLocal Rate Regulation
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS –Federal Regulation”in the Form 10-K for a discussion of federal regulation.
Nuclear Matters
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS –Nuclear Matters” in the Form 10-K for a discussion of nuclear matters.
Environmental Risks
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS -Environmental Risks” in the Form 10-K for a discussion of environmental risks.
Critical Accounting Estimates
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS -Critical Accounting Estimates” in the Form 10-K for a discussion of the estimates and judgments necessary in Entergy Arkansas’s accounting for nuclear decommissioning costs, utility regulatory accounting, impairment of long-lived assets and trust fund investments, taxation and uncertain tax positions, qualified pension and other postretirement benefits, and other contingencies. The following is an update to 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 Note 1 to the financial statements in the Form 10-K for a discussion of new accounting pronouncements.
|
| | | | | | | | |
| ENTERGY ARKANSAS, LLC AND SUBSIDIARIES |
| CONSOLIDATED INCOME STATEMENTS |
| For the Three Months Ended March 31, 2019 and 2018 |
| (Unaudited) |
| | | |
| | | 2019 | | 2018 |
| | | (In Thousands) |
| OPERATING REVENUES | | | | |
| Electric | |
| $545,812 |
| |
| $551,024 |
|
| | | | | |
| OPERATING EXPENSES | | | | |
| Operation and Maintenance: | | | | |
| Fuel, fuel-related expenses, and gas purchased for resale | | 152,159 |
| | 108,306 |
|
| Purchased power | | 47,058 |
| | 71,972 |
|
| Nuclear refueling outage expenses | | 17,248 |
| | 23,402 |
|
| Other operation and maintenance | | 166,460 |
| | 169,358 |
|
| Decommissioning | | 15,761 |
| | 14,760 |
|
| Taxes other than income taxes | | 28,363 |
| | 27,905 |
|
| Depreciation and amortization | | 75,847 |
| | 71,981 |
|
| Other regulatory charges (credits) - net | | 445 |
| | (3,307 | ) |
| TOTAL | | 503,341 |
| | 484,377 |
|
| | | | | |
| OPERATING INCOME | | 42,471 |
| | 66,647 |
|
| | | | | |
| OTHER INCOME | | | | |
| Allowance for equity funds used during construction | | 3,428 |
| | 4,008 |
|
| Interest and investment income | | 6,183 |
| | 6,814 |
|
| Miscellaneous - net | | (3,690 | ) | | (3,871 | ) |
| TOTAL | | 5,921 |
| | 6,951 |
|
| | | | | |
| INTEREST EXPENSE | | | | |
| Interest expense | | 33,383 |
| | 29,766 |
|
| Allowance for borrowed funds used during construction | | (1,414 | ) | | (1,890 | ) |
| TOTAL | | 31,969 |
| | 27,876 |
|
| | | | | |
| INCOME BEFORE INCOME TAXES | | 16,423 |
| | 45,722 |
|
| | | | | |
| Income taxes | | (22,698 | ) | | 9,467 |
|
| | | | | |
| NET INCOME | | 39,121 |
| | 36,255 |
|
| | | | | |
| Preferred dividend requirements | | — |
| | 357 |
|
| | | | | |
| EARNINGS APPLICABLE TO COMMON EQUITY | |
| $39,121 |
| |
| $35,898 |
|
| | | | | |
| See Notes to Financial Statements. | | | | |
|
| | | | | | | | |
| ENTERGY ARKANSAS, LLC AND SUBSIDIARIES |
| CONSOLIDATED STATEMENTS OF CASH FLOWS |
| For the Three Months Ended March 31, 2019 and 2018 |
| (Unaudited) |
| | | 2019 | | 2018 |
| | | (In Thousands) |
| OPERATING ACTIVITIES | | | | |
| Net income | |
| $39,121 |
| |
| $36,255 |
|
| Adjustments to reconcile net income to net cash flow provided by operating activities: | | | | |
| Depreciation, amortization, and decommissioning, including nuclear fuel amortization | | 117,255 |
| | 115,976 |
|
| Deferred income taxes, investment tax credits, and non-current taxes accrued | | 30,756 |
| | 11,877 |
|
| Changes in assets and liabilities: | | | | |
| Receivables | | 22,194 |
| | 31,033 |
|
| Fuel inventory | | 260 |
| | (13,868 | ) |
| Accounts payable | | (56,432 | ) | | (26,924 | ) |
| Taxes accrued | | (10,616 | ) | | 10,072 |
|
| Interest accrued | | 12,661 |
| | 9,748 |
|
| Deferred fuel costs | | 44,926 |
| | 1,971 |
|
| Other working capital accounts | | 1,599 |
| | 5,591 |
|
| Provisions for estimated losses | | 9,930 |
| | 6,520 |
|
| Other regulatory assets | | (56,263 | ) | | 13,835 |
|
| Other regulatory liabilities | | 53,386 |
| | (13,546 | ) |
| Pension and other postretirement liabilities | | (910 | ) | | (19,277 | ) |
| Other assets and liabilities | | (1,400 | ) | | 10,627 |
|
| Net cash flow provided by operating activities | | 206,467 |
| | 179,890 |
|
| | | | | |
| INVESTING ACTIVITIES | | | | |
| Construction expenditures | | (147,214 | ) | | (167,485 | ) |
| Allowance for equity funds used during construction | | 3,506 |
| | 4,143 |
|
| Nuclear fuel purchases | | (214 | ) | | (19,391 | ) |
| Proceeds from sale of nuclear fuel | | 22,834 |
| | 30,907 |
|
| Proceeds from nuclear decommissioning trust fund sales | | 34,423 |
| | 34,865 |
|
| Investment in nuclear decommissioning trust funds | | (40,223 | ) | | (40,238 | ) |
| Change in money pool receivable - net | | (30,521 | ) | | — |
|
| Changes in securitization account | | (3,553 | ) | | (4,145 | ) |
| Other | | 1 |
| | — |
|
| Net cash flow used in investing activities | | (160,961 | ) | | (161,344 | ) |
| | | | | |
| FINANCING ACTIVITIES | | | | |
| Proceeds from the issuance of long-term debt | | 603,655 |
| | 175,000 |
|
| Retirement of long-term debt | | (275,904 | ) | | (149,904 | ) |
| Changes in short-term borrowings - net | | — |
| | (6,087 | ) |
| Changes in money pool payable - net | | (182,738 | ) | | (42,279 | ) |
| Dividends paid: | | | | |
| Preferred stock | | — |
| | (357 | ) |
| Other | | (397 | ) | | (212 | ) |
| Net cash flow provided by (used in) financing activities | | 144,616 |
| | (23,839 | ) |
| | | | | |
| Net increase (decrease) in cash and cash equivalents | | 190,122 |
| | (5,293 | ) |
| Cash and cash equivalents at beginning of period | | 119 |
| | 6,216 |
|
| Cash and cash equivalents at end of period | |
| $190,241 |
| |
| $923 |
|
| | | | | |
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | | | | |
|
| Cash paid during the period for: | | | | |
| Interest - net of amount capitalized | |
| $19,458 |
| |
| $18,761 |
|
| | | | | |
| See Notes to Financial Statements. | | | | |
|
| | | | | | | | |
| ENTERGY ARKANSAS, LLC AND SUBSIDIARIES |
| CONSOLIDATED BALANCE SHEETS |
| ASSETS |
| March 31, 2019 and December 31, 2018 |
| (Unaudited) |
| | | 2019 | | 2018 |
| | | (In Thousands) |
| CURRENT ASSETS | | | | |
| Cash and cash equivalents: | | | | |
| Cash | |
| $746 |
| |
| $118 |
|
| Temporary cash investments | | 189,495 |
| | 1 |
|
| Total cash and cash equivalents | | 190,241 |
| | 119 |
|
| Securitization recovery trust account | | 8,218 |
| | 4,666 |
|
| Accounts receivable: | | | | |
| Customer | | 130,054 |
| | 94,348 |
|
| Allowance for doubtful accounts | | (1,455 | ) | | (1,264 | ) |
| Associated companies | | 63,023 |
| | 48,184 |
|
| Other | | 43,548 |
| | 64,393 |
|
| Accrued unbilled revenues | | 86,910 |
| | 108,092 |
|
| Total accounts receivable | | 322,080 |
| | 313,753 |
|
| Deferred fuel costs | | — |
| | 19,235 |
|
| Fuel inventory - at average cost | | 22,888 |
| | 23,148 |
|
| Materials and supplies - at average cost | | 205,601 |
| | 196,314 |
|
| Deferred nuclear refueling outage costs | | 60,689 |
| | 78,966 |
|
| Prepayments and other | | 10,073 |
| | 14,553 |
|
| TOTAL | | 819,790 |
| | 650,754 |
|
| | | | | |
| OTHER PROPERTY AND INVESTMENTS | | | | |
| Decommissioning trust funds | | 997,263 |
| | 912,049 |
|
| Other | | 5,478 |
| | 5,480 |
|
| TOTAL | | 1,002,741 |
| | 917,529 |
|
| | | | | |
| UTILITY PLANT | | | | |
| Electric | | 11,744,151 |
| | 11,611,041 |
|
| Construction work in progress | | 304,981 |
| | 243,731 |
|
| Nuclear fuel | | 171,038 |
| | 220,602 |
|
| TOTAL UTILITY PLANT | | 12,220,170 |
| | 12,075,374 |
|
| Less - accumulated depreciation and amortization | | 4,865,283 |
| | 4,864,818 |
|
| UTILITY PLANT - NET | | 7,354,887 |
| | 7,210,556 |
|
| | | | | |
| DEFERRED DEBITS AND OTHER ASSETS | | | | |
| Regulatory assets: | | | | |
| Other regulatory assets (includes securitization property of $11,096 as of March 31, 2019 and $14,329 as of December 31, 2018) | | 1,591,240 |
| | 1,534,977 |
|
| Deferred fuel costs | | 67,393 |
| | 67,294 |
|
| Other | | 26,292 |
| | 20,486 |
|
| TOTAL | | 1,684,925 |
| | 1,622,757 |
|
| | | | | |
| TOTAL ASSETS | |
| $10,862,343 |
| |
| $10,401,596 |
|
| | | | | |
| See Notes to Financial Statements. | | | | |
|
| | | | | | | | |
| ENTERGY ARKANSAS, LLC AND SUBSIDIARIES |
| CONSOLIDATED BALANCE SHEETS |
| LIABILITIES AND EQUITY |
| March 31, 2019 and December 31, 2018 |
| (Unaudited) |
| | | 2019 | | 2018 |
| | | (In Thousands) |
| CURRENT LIABILITIES | | | | |
| Accounts payable: | | | | |
| Associated companies | |
| $47,717 |
| |
| $251,768 |
|
| Other | | 140,708 |
| | 187,387 |
|
| Customer deposits | | 99,380 |
| | 99,053 |
|
| Taxes accrued | | 46,273 |
| | 56,889 |
|
| Interest accrued | | 31,554 |
| | 18,893 |
|
| Deferred fuel costs | | 25,790 |
| | — |
|
| Current portion of unprotected excess accumulated deferred income taxes | | 100,594 |
| | 99,316 |
|
| Other | | 39,020 |
| | 23,943 |
|
| TOTAL | | 531,036 |
| | 737,249 |
|
| | | | | |
| NON-CURRENT LIABILITIES | | | | |
| Accumulated deferred income taxes and taxes accrued | | 1,131,314 |
| | 1,085,545 |
|
| Accumulated deferred investment tax credits | | 32,602 |
| | 32,903 |
|
| Regulatory liability for income taxes - net | | 467,198 |
| | 505,748 |
|
| Other regulatory liabilities | | 493,326 |
| | 402,668 |
|
| Decommissioning | | 1,190,346 |
| | 1,048,428 |
|
| Accumulated provisions | | 58,909 |
| | 48,979 |
|
| Pension and other postretirement liabilities | | 312,361 |
| | 313,295 |
|
| Long-term debt (includes securitization bonds of $20,975 as of March 31, 2019 and $20,898 as of December 31, 2018) | | 3,555,152 |
| | 3,225,759 |
|
| Other | | 67,875 |
| | 17,919 |
|
| TOTAL | | 7,309,083 |
| | 6,681,244 |
|
| | | | | |
| EQUITY | | | | |
| Member's equity | | 3,022,224 |
| | 2,983,103 |
|
| TOTAL | | 3,022,224 |
| | 2,983,103 |
|
| | | | | |
| TOTAL LIABILITIES AND EQUITY | |
| $10,862,343 |
| |
| $10,401,596 |
|
| | | | | |
| See Notes to Financial Statements. | | | | |
|
| | | | |
ENTERGY ARKANSAS, LLC AND SUBSIDIARIES |
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBER'S EQUITY |
For the Three Months Ended March 31, 2019 and 2018 |
(Unaudited) |
| | |
| | |
| | Member's Equity |
| | (In Thousands) |
| | |
Balance at December 31, 2017 | |
| $2,376,754 |
|
| | |
Net income | | 36,255 |
|
Preferred stock dividends | | (357 | ) |
| | |
Balance at March 31, 2018 | |
| $2,412,652 |
|
| | |
| | |
Balance at December 31, 2018 | |
| $2,983,103 |
|
| | |
Net income | | 39,121 |
|
| | |
Balance at March 31, 2019 | |
| $3,022,224 |
|
| | |
See Notes to Financial Statements. | | |
|
| | | | | | | | | | | | | | | |
| ENTERGY ARKANSAS, LLC AND SUBSIDIARIES |
| SELECTED OPERATING RESULTS |
| For the Three Months Ended March 31, 2019 and 2018 |
| (Unaudited) |
| | | | | | | |
| | | Nine Months Ended | | Increase/ | | |
| Description | | 2019 | | 2018 | | (Decrease) | | % |
| | | (Dollars In Millions) | | |
| Electric Operating Revenues: | | | | | | |
| Residential | |
| $210 |
| |
| $236 |
| |
| ($26 | ) | | (11 | ) |
| Commercial | | 125 |
| | 121 |
| | 4 |
| | 3 |
|
| Industrial | | 122 |
| | 111 |
| | 11 |
| | 10 |
|
| Governmental | | 5 |
| | 5 |
| | — |
| | — |
|
| Total billed retail | | 462 |
| | 473 |
| | (11 | ) | | (2 | ) |
| Sales for resale: | | | | | | | | |
| Associated companies | | 29 |
| | 30 |
| | (1 | ) | | (3 | ) |
| Non-associated companies | | 50 |
| | 36 |
| | 14 |
| | 39 |
|
| Other | | 5 |
| | 12 |
| | (7 | ) | | (58 | ) |
| Total | |
| $546 |
| |
| $551 |
| |
| ($5 | ) | | (1 | ) |
| | | | | | | | | |
| Billed Electric Energy Sales (GWh): | | | | | | | | |
| Residential | | 2,205 |
| | 2,329 |
| | (124 | ) | | (5 | ) |
| Commercial | | 1,326 |
| | 1,365 |
| | (39 | ) | | (3 | ) |
| Industrial | | 1,845 |
| | 1,828 |
| | 17 |
| | 1 |
|
| Governmental | | 57 |
| | 56 |
| | 1 |
| | 2 |
|
| Total retail | | 5,433 |
| | 5,578 |
| | (145 | ) | | (3 | ) |
| Sales for resale: | | | | | | | | |
| Associated companies | | 597 |
| | 487 |
| | 110 |
| | 23 |
|
| Non-associated companies | | 2,519 |
| | 1,717 |
| | 802 |
| | 47 |
|
| Total | | 8,549 |
| | 7,782 |
| | 767 |
| | 10 |
|
ENTERGY LOUISIANA, LLC AND SUBSIDIARIES
MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS
Results of Operations
Net Income
Net income increased $16 million primarily due to higher net revenue and lower other operation and maintenance expenses, partially offset by higher depreciation and amortization expenses.
Net Revenue
Net revenue consists of operating revenues net of: 1) fuel, fuel-related expenses, and gas purchased for resale, 2) purchased power expenses, and 3) other regulatory charges (credits). Following is an analysis of the change in net revenue comparing the first quarter 2019 to the first quarter 2018:
|
| | | |
| Amount |
| (In Millions) |
2018 net revenue |
| $573.7 |
|
Retail electric price | 46.0 |
|
Return of unprotected excess accumulated deferred income taxes to customers | (7.0 | ) |
Volume/weather | (29.6 | ) |
Other | (0.8 | ) |
2019 net revenue |
| $582.3 |
|
The retail electric price variance is primarily due to regulatory charges of $27 million recorded in the first quarter 2018 to reflect the effects of a provision in the settlement reached in the formula rate plan extension proceeding to return the benefits of the lower federal income tax rate in 2018 to customers, an increase in formula rate plan revenues, as approved by the LPSC, implemented with the first billing cycle of September 2018, and the implementation of an advanced metering system customer charge, as approved by the LPSC, effective January 2019. See Note 2 to the financial statements in the Form 10-K for further discussion of the formula rate plan proceedings and advanced metering system customer charge.
The return of unprotected excess accumulated deferred income taxes to customers resulted from the return of unprotected excess accumulated deferred income taxes through changes in the formula rate plan effective May 2018. There is no effect on net income as the reduction in net revenue was offset by a reduction in income tax expense. See Note 2 to the financial statements in the Form 10-K for further discussion of regulatory activity regarding the Tax Cuts and Jobs Act.
The volume/weather variance is primarily due to a decrease of 225 GWh, or 2%, in billed electricity usage, including the effect of less favorable weather on residential and commercial sales. The decrease was partially offset by an increase in industrial usage primarily due to an increase in demand from existing customers.
Entergy Louisiana, LLC and Subsidiaries
Management's Financial Discussion and Analysis
Other Income Statement Variances
Other operation and maintenance expenses decreased primarily due to:
a decrease of $9.7 million in nuclear generation expenses primarily due to a lower scope of work performed during non-refueling plant outages in the first quarter 2019 as compared to the first quarter 2018 and lower nuclear labor costs; and
a decrease of $4.1 million in energy efficiency costs due to the timing of recovery from customers.
The decrease was partially offset by:
an increase of $2.2 million in information technology costs primarily due to higher software maintenance costs and higher contract costs; and
an increase of $2.1 million in loss provisions primarily due to a litigation provision recorded in first quarter 2019.
Depreciation and amortization expenses increased primarily due to additions to plant in service.
Other income increased primarily due to an increase in the allowance for borrowed funds used during construction due to higher construction work in progress in 2019, including the Lake Charles Power Station and St. Charles Power Station projects. The increase was substantially offset by a change in decommissioning trust fund investment activity.
Income Taxes
The effective income tax rate was 11.5% for the first quarter 2019. The difference in the effective income tax rate for the first quarter 2019 versus the federal statutory rate of 21% was primarily due to book and tax differences related to the non-taxable income distributions earned on preferred membership interests, the amortization of excess accumulated deferred income taxes, and book and tax differences related to the allowance for equity funds used during construction, partially offset by state income taxes. See Note 10 to the financial statements herein and Notes 2 and 3 to the financial statements in the Form 10-K for a discussion of the effects and regulatory activity regarding the Tax Cuts and Jobs Act.
The effective income tax rate was 16.3% for the first quarter 2018. The difference in the effective income tax rate for the first quarter 2018 versus the federal statutory rate of 21% was primarily due to book and tax differences related to the non-taxable income distributions earned on preferred membership interests, certain book and tax differences related to utility plant items, and book and tax differences related to the allowance for equity funds used during construction, partially offset by state income taxes and a write-off of a stock-based compensation deferred tax asset.
Income Tax Legislation
See the “Income Tax Legislation” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis in the Form 10-K for a discussion of the Tax Cuts and Jobs Act, 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 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 in the Form 10-K contains a discussion of the regulatory proceedings that have considered the effects of the Tax Act.
Entergy Louisiana, LLC and Subsidiaries
Management's Financial Discussion and Analysis
Liquidity and Capital Resources
Cash Flow
Cash flows for the three months ended March 31, 2019 and 2018 were as follows:
|
| | | | | | | |
| | 2019 | | 2018 |
| | (In Thousands) |
| Cash and cash equivalents at beginning of period |
| $43,364 |
| |
| $35,907 |
|
| | | | |
| Cash flow provided by (used in): | | | |
| Operating activities | 179,583 |
| | 328,040 |
|
| Investing activities | (441,392 | ) | | (613,950 | ) |
| Financing activities | 523,608 |
| | 812,289 |
|
| Net increase in cash and cash equivalents | 261,799 |
| | 526,379 |
|
| | | | |
| Cash and cash equivalents at end of period |
| $305,163 |
| |
| $562,286 |
|
Operating Activities
Net cash flow provided by operating activities decreased $148.5 million for the three months ended March 31, 2019 compared to the three months ended March 31, 2018 primarily due to:
the timing of collection of receivables from customers;
an increase of $28.7 million in spending on nuclear refueling outages;
an increase of $20.3 million in interest payments in the first quarter 2019 as compared to the first quarter 2018; and
the return of unprotected excess accumulated deferred income taxes to customers. See Note 2 to the financial statements in the Form 10-K for a discussion of the regulatory activity regarding the Tax Cuts and 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 $172.6 million for the three months ended March 31, 2019 compared to the three months ended March 31, 2018 primarily due to:
money pool activity;
a decrease of $90.3 million in fossil-fueled generation construction expenditures primarily due to lower spending on the St. Charles Power Station and Lake Charles Power Station projects in 2019; and
a decrease of $22 million in transmission construction expenditures primarily due to a lower scope of work performed in 2019 as compared to the same period in 2018.
The decrease was partially offset by:
an increase of $85.7 million as a result of fluctuations in nuclear fuel activity because of variations from year to year in the timing and pricing of fuel reload requirements in the Utility business, material and service deliveries, and the timing of cash payments during the nuclear fuel cycle; and
Entergy Louisiana, LLC and Subsidiaries
Management's Financial Discussion and Analysis
an increase of $42.6 million in nuclear construction expenditures primarily due to increased spending on various nuclear projects in 2019.
Decreases in Entergy Louisiana’s receivable from the money pool are a source of cash flow, and Entergy Louisiana’s receivable from the money pool decreased by $8.9 million for the three months ended March 31, 2019 compared to increasing by $170.2 million for the three months ended March 31, 2018. The money pool is an inter-company borrowing arrangement designed to reduce the Utility subsidiaries’ need for external short-term borrowings.
Financing Activities
Net cash flow provided by financing activities decreased $288.7 million for the three months ended March 31, 2019 compared to the three months ended March 31, 2018 primarily due to:
the issuance of $750 million of 4.00% Series first mortgage bonds in March 2018;
net borrowings of $100 million on the Entergy Louisiana long-term credit facility in 2018;
$49 million in common equity distributions in the first quarter 2019 primarily to maintain Entergy Louisiana’s targeted capital structure; and
net short-term borrowings of $19.4 million in 2018 on the nuclear fuel company variable interest entities’ credit facilities.
The decrease was partially offset by the issuance of $525 million of 4.20% Series first mortgage bonds in March 2019 and net long-term borrowings of $54.3 million on the nuclear fuel company variable interest entities’ credit facilities in 2019 compared to net repayments of long-term borrowings of $49.7 million on the nuclear fuel company variable interest entities’ credit facilities in 2018.
See Note 4 to the financial statements herein and Note 5 to the financial statements in the Form 10-K for more details on long-term debt.
Capital Structure
Entergy Louisiana’s debt to capital ratio is shown in the following table. The increase in the debt to capital ratio is primarily due to the issuance of $525 million of first mortgage bonds in March 2019.
|
| | | | | |
| | March 31, 2019 | | December 31, 2018 |
| Debt to capital | 55.3 | % | | 53.6 | % |
| Effect of excluding securitization bonds | (0.2 | %) | | (0.3 | %) |
| Debt to capital, excluding securitization bonds (a) | 55.1 | % | | 53.3 | % |
| Effect of subtracting cash | (1.1 | %) | | (0.1 | %) |
| Net debt to net capital, excluding securitization bonds (a) | 54.0 | % | | 53.2 | % |
| |
(a) | Calculation excludes the securitization bonds, which are non-recourse to Entergy Louisiana. |
Debt consists of short-term borrowings, financing lease obligations, and long-term debt, including the currently maturing portion. Capital consists of debt and equity. Net capital consists of capital less cash and cash equivalents. Entergy Louisiana uses the debt to capital ratios excluding securitization bonds in analyzing its financial condition and believes they provide useful information to its investors and creditors in evaluating Entergy Louisiana’s financial condition because the securitization bonds are non-recourse to Entergy Louisiana, as more fully described in Note 5 to the financial statements in the Form 10-K. Entergy Louisiana also uses the net debt to net capital ratio excluding securitization bonds in analyzing its financial condition and believes it provides useful information to its investors and creditors in evaluating Entergy Louisiana’s financial condition because net debt indicates Entergy Louisiana’s outstanding debt position that could not be readily satisfied by cash and cash equivalents on hand.
Entergy Louisiana, LLC and Subsidiaries
Management's Financial Discussion and Analysis
Uses and Sources of Capital
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Liquidity and Capital Resources” in the Form 10-K for a discussion of Entergy Louisiana’s uses and sources of capital. Following are updates to the information provided in the Form 10-K.
Entergy Louisiana’s receivables from the money pool were as follows:
|
| | | | | | |
March 31, 2019 | | December 31, 2018 | | March 31, 2018 | | December 31, 2017 |
| (In Thousands) |
| $37,965 | | $46,845 | | $181,336 | | $11,173 |
See Note 4 to the financial statements in the Form 10-K for a description of the 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 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 March 31, 2019, a $43 million letter of credit was outstanding under Entergy Louisiana’s uncommitted letter of credit facility. See Note 4 to the 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 March 31, 2019, $95.4 million in loans were outstanding under the credit facility for the Entergy Louisiana River Bend nuclear fuel company variable interest entity. As of March 31, 2019, $79.5 million in loans were outstanding under the credit facility for the Entergy Louisiana Waterford nuclear fuel company variable interest entity. See Note 4 to the financial statements herein for additional discussion of the nuclear fuel company variable interest entity credit facilities.
State and Local Rate Regulation and Fuel-Cost Recovery
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS –State and Local Rate Regulation and Fuel Cost Recovery”in the Form 10-K for a discussion of state and local rate regulation and fuel cost recovery. The following is an update to that discussion.
Fuel and purchased power recovery
In July 2014 the LPSC authorized its staff to initiate an audit of Entergy Louisiana’s fuel adjustment clause filings. The audit includes a review of the reasonableness of charges flowed by Entergy Louisiana through its fuel adjustment clause for the period from 2010 through 2013. In January 2019, the LPSC staff consultant issued its audit report. In its report, the LPSC staff consultant recommended that Entergy Louisiana refund approximately $7.3 million, plus interest, to customers based upon the imputation of a claim of vendor fault in servicing its nuclear plant. Entergy Louisiana recorded a provision in first quarter 2019 for the potential outcome of the 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, 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 Note 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 Months Ended March 31, 2019 and 2018 |
| (Unaudited) |
| | | |
| | | 2019 | | 2018 |
| | | (In Thousands) |
| OPERATING REVENUES | | | | |
| Electric | |
| $936,693 |
| |
| $1,005,106 |
|
| Natural gas | | 22,637 |
| | 24,238 |
|
| TOTAL | | 959,330 |
| | 1,029,344 |
|
| | | | | |
| OPERATING EXPENSES | | | | |
| Operation and Maintenance: | | | | |
| Fuel, fuel-related expenses, and gas purchased for resale | | 147,349 |
| | 180,781 |
|
| Purchased power | | 257,306 |
| | 251,772 |
|
| Nuclear refueling outage expenses | | 12,808 |
| | 13,099 |
|
| Other operation and maintenance | | 225,888 |
| | 234,380 |
|
| Decommissioning | | 13,879 |
| | 12,772 |
|
| Taxes other than income taxes | | 49,682 |
| | 51,280 |
|
| Depreciation and amortization | | 126,134 |
| | 120,822 |
|
| Other regulatory charges (credits) - net | | (27,660 | ) | | 23,119 |
|
| TOTAL | | 805,386 |
| | 888,025 |
|
| | | | | |
| OPERATING INCOME | | 153,944 |
| | 141,319 |
|
| | | | | |
| OTHER INCOME | | | | |
| Allowance for equity funds used during construction | | 23,914 |
| | 17,745 |
|
| Interest and investment income | | 71,986 |
| | 43,275 |
|
| Miscellaneous - net | | (42,344 | ) | | (7,665 | ) |
| TOTAL | | 53,556 |
| | 53,355 |
|
| | | | | |
| INTEREST EXPENSE | | | | |
| Interest expense | | 74,703 |
| | 70,096 |
|
| Allowance for borrowed funds used during construction | | (11,367 | ) | | (8,763 | ) |
| TOTAL | | 63,336 |
| | 61,333 |
|
| | | | | |
| INCOME BEFORE INCOME TAXES | | 144,164 |
| | 133,341 |
|
| | | | | |
| Income taxes | | 16,531 |
| | 21,748 |
|
| | | | | |
| NET INCOME | |
| $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 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 CHANGES IN EQUITY |
| For the Three Months Ended March 31, 2019 and 2018 |
| (Unaudited) |
| | | | |
| | Common Equity | | |
| | Member’s
Equity | | Accumulated Other Comprehensive Loss | | Total |
| | (In Thousands) |
| | | | | | |
| Balance at December 31, 2017 |
| $5,355,204 |
| |
| ($46,400 | ) | |
| $5,308,804 |
|
| | | | | | |
| Net income | 111,593 |
| | — |
| | 111,593 |
|
| Other comprehensive loss | — |
| | (501 | ) | | (501 | ) |
| Reclassification pursuant to ASU 2018-02 | 6,262 |
| | (10,049 | ) | | (3,787 | ) |
| Other | 24 |
| | — |
| | 24 |
|
| | | | | | |
| Balance at March 31, 2018 |
| $5,473,083 |
| |
| ($56,950 | ) | |
| $5,416,133 |
|
| | | | | | |
| | | | | | |
| Balance at December 31, 2018 |
| $5,909,071 |
| |
| ($6,153 | ) | |
| $5,902,918 |
|
| | | | | | |
| Net income | 127,633 |
| | — |
| | 127,633 |
|
| Other comprehensive loss | — |
| | (969 | ) | | (969 | ) |
| Distributions declared on common equity | (49,000 | ) | | — |
| | (49,000 | ) |
| Other | (11 | ) | | — |
| | (11 | ) |
| | | | | | |
| Balance at March 31, 2019 |
| $5,987,693 |
| |
| ($7,122 | ) | |
| $5,980,571 |
|
| | | | | | |
| See Notes to Financial Statements. | | | | | |
|
| | | | | | | | | | | | | | | |
| ENTERGY LOUISIANA, LLC AND SUBSIDIARIES |
| SELECTED OPERATING RESULTS |
| For the Three Months Ended March 31, 2019 and 2018 |
| (Unaudited) |
| | | | | | | |
| | | | | | | | | |
| | | Nine Months Ended | | Increase/ | | |
| Description | | 2019 | | 2018 | | (Decrease) | | % |
| | | (Dollars In Millions) | | |
| Electric Operating Revenues: | | | | | | | | |
| Residential | |
| $264 |
| |
| $296 |
| |
| ($32 | ) | | (11 | ) |
| Commercial | | 207 |
| | 225 |
| | (18 | ) | | (8 | ) |
| Industrial | | 347 |
| | 352 |
| | (5 | ) | | (1 | ) |
| Governmental | | 17 |
| | 17 |
| | — |
| | — |
|
| Total billed retail | | 835 |
| | 890 |
| | (55 | ) | | (6 | ) |
| Sales for resale: | | | | | | | | |
| Associated companies | | 68 |
| | 74 |
| | (6 | ) | | (8 | ) |
| Non-associated companies | | 16 |
| | 15 |
| | 1 |
| | 7 |
|
| Other | | 18 |
| | 26 |
| | (8 | ) | | (31 | ) |
| Total | |
| $937 |
| |
| $1,005 |
| |
| ($68 | ) | | (7 | ) |
| | | | | | | | | |
| Billed Electric Energy Sales (GWh): | | | | | | | | |
| Residential | | 3,080 |
| | 3,459 |
| | (379 | ) | | (11 | ) |
| Commercial | | 2,519 |
| | 2,661 |
| | (142 | ) | | (5 | ) |
| Industrial | | 7,343 |
| | 7,049 |
| | 294 |
| | 4 |
|
| Governmental | | 203 |
| | 201 |
| | 2 |
| | 1 |
|
| Total retail | | 13,145 |
| | 13,370 |
| | (225 | ) | | (2 | ) |
| Sales for resale: | | | | | | | | |
| Associated companies | | 1,080 |
| | 1,014 |
| | 66 |
| | 7 |
|
| Non-associated companies | | 505 |
| | 513 |
| | (8 | ) | | (2 | ) |
| Total | | 14,730 |
| | 14,897 |
| | (167 | ) | | (1 | ) |
| | | | | | | | | |
ENTERGY MISSISSIPPI, LLC
MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS
Results of Operations
Net Income
Net income decreased $7.4 million primarily due to lower net revenue.
Net Revenue
Net revenue consists of operating revenues net of: 1) fuel, fuel-related expenses, and gas purchased for resale, 2) purchased power expenses, and 3) other regulatory charges. Following is an analysis of the change in net revenue comparing the first quarter 2019 to the first quarter 2018:
|
| | | |
| Amount |
| (In Millions) |
2018 net revenue |
| $164.5 |
|
Volume/weather | (5.1 | ) |
Retail electric price | (3.3 | ) |
Other | (0.9 | ) |
2019 net revenue |
| $155.2 |
|
The volume/weather variance is primarily due to a decrease of 226 GWh, or 7%, in billed electricity usage, including the effect of less favorable weather on residential sales.
The retail electric price variance is primarily due to lower storm damage rider revenues. Entergy Mississippi resumed billing the storm damage rider effective with the September 2017 billing cycle and ceased billing the storm damage rider effective with the August 2018 billing cycle. The decrease was partially offset by higher ad valorem tax adjustment rider revenues resulting from a rate increase effective October 2018. See Note 2 to the financial statements in the Form 10-K for further discussion of the storm damage rider.
Other Income Statement Variances
Other operation and maintenance expenses decreased primarily due to a decrease of $5.1 million in storm damage provisions, offset by several individually insignificant items. See Note 2 to the financial statements in the Form 10-K for a discussion of storm cost recovery.
Income Taxes
The effective income tax rate was 18.3% for the first quarter 2019. The difference in the effective income tax rate for the first quarter 2019 versus the federal statutory rate of 21% was primarily due to 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.
The effective income tax rate was 23.3% for the first quarter 2018. The difference in the effective income tax rate for the first quarter 2018 versus the federal statutory rate of 21% was primarily due to state income taxes and a write-off of a stock-based compensation deferred tax asset, partially offset by certain book and tax differences related to utility plant items.
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 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 in the Form 10-K contains a discussion of the regulatory proceedings that 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 |
| $36,954 |
| |
| $6,096 |
|
| | | | |
| Cash flow provided by (used in): | | | |
| Operating activities | 9,992 |
| | (8,841 | ) |
| Investing activities | (54,376 | ) | | (76,268 | ) |
| Financing activities | 8,315 |
| | 79,316 |
|
| Net decrease in cash and cash equivalents | (36,069 | ) | | (5,793 | ) |
| | | | |
| Cash and cash equivalents at end of period |
| $885 |
| |
| $303 |
|
Operating Activities
Entergy Mississippi’s operating activities provided $10 million in cash for the three months ended March 31, 2019 compared to using $8.8 million in cash for the three months ended March 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 in 2019 as compared to 2018.
Investing Activities
Net cash flow used in investing activities decreased $21.9 million for the three months ended March 31, 2019 compared to the three months ended March 31, 2018 primarily due to money pool activity. The decrease was partially offset by an increase of $9.6 million in fossil-fueled generation construction expenditures, an increase of $7.5 million in transmission construction expenditures, and an increase of $5.6 million in distribution construction expenditures, each primarily due to a higher scope of work performed in 2019 as compared to 2018.
Entergy Mississippi, LLC
Management's Financial Discussion and Analysis
Decreases in Entergy Mississippi’s receivable from the money pool are a source of cash flow, and Entergy Mississippi’s receivable from the money pool decreased by $41.4 million for the three months ended March 31, 2019 compared to decreasing by $1.6 million for the three months ended March 31, 2018. 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 $71 million for the three months ended March 31, 2019 compared to the three months ended March 31, 2018 primarily due to money pool activity.
Increases in Entergy Mississippi’s payable to the money pool are a source of cash flow, and Entergy Mississippi’s payable to the money pool increased by $10.9 million for the three months ended March 31, 2019 compared to increasing by $74.9 million for the three months ended March 31, 2018.
Capital Structure
Entergy Mississippi’s debt to capital ratio is shown in the following table.
|
| | | | | |
| | March 31, 2019 | | December 31, 2018 |
| Debt to capital | 50.5 | % | | 50.6 | % |
| Effect of subtracting cash | — | % | | (0.7 | %) |
| Net debt to net capital | 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 and equity. Net capital consists of capital less cash and cash equivalents. Entergy Mississippi uses the debt to capital ratio in analyzing its financial condition and believes it provides useful information to its investors and creditors in evaluating Entergy Mississippi’s financial condition. Entergy Mississippi uses the net debt to net capital ratio in analyzing its financial condition and believes it provides useful information to its investors and creditors in evaluating Entergy Mississippi’s financial condition because net debt indicates Entergy Mississippi’s outstanding debt position that could not be readily satisfied by cash and cash equivalents on hand.
Uses and Sources of Capital
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Liquidity and Capital Resources”in the Form 10-K for a discussion of Entergy Mississippi’s uses and sources of capital. Following are updates to the information provided in the Form 10-K.
Entergy Mississippi’s receivables from or (payables to) the money pool were as follows:
|
| | | | | | |
March 31, 2019 | | December 31, 2018 | | March 31, 2018 | | December 31, 2017 |
| (In Thousands) |
| ($10,925) | | $41,380 | | ($74,892) | | $1,633 |
See Note 4 to the financial statements in the Form 10-K for a description of the money pool.
Entergy Mississippi, LLC
Management's Financial Discussion and Analysis
Entergy Mississippi has three separate credit facilities in the aggregate amount of $82.5 million scheduled to expire in May 2019. Entergy Mississippi expects to renew its credit facilities prior to expiration. No borrowings were outstanding under the credit facilities as of 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 March 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. Clearance under the Hart-Scott-Rodino Antitrust Improvements Act has occurred. In October 2018, Entergy Mississippi filed an application with the MPSC seeking approval of the acquisition and cost recovery. In a separate filing in October 2018, Entergy Mississippi proposed revisions to its formula rate plan that would provide for a mechanism, the interim capacity rate adjustment mechanism, in the formula rate plan to recover the non-fuel related costs of additional owned capacity acquired by Entergy Mississippi, including the non-fuel annual ownership costs of the Choctaw Generating Station, as well as to allow similar cost recovery treatment for other future capacity additions approved by the MPSC. Closing is expected to occur by the end of 2019. Due diligence performed on the plant indicates that there exists a potential mechanical issue that must be addressed prior to closing. There is some possibility that closing may be delayed to allow time for this issue to be resolved.
State and Local Rate Regulation and Fuel-Cost Recovery
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS -State and Local Rate Regulation and Fuel-Cost Recovery” in the Form 10-K for a discussion of the formula rate plan and fuel and purchased power cost recovery. The following are updates to that discussion.
Mississippi Attorney General Complaint
As discussed in the Form 10-K, the Mississippi Attorney General filed a complaint in state court in December 2008 against Entergy Corporation, Entergy Mississippi, Entergy Services, and Entergy Power alleging, among other things, violations of Mississippi statutes, fraud, and breach of good faith and fair dealing, and requesting an accounting and restitution. The defendants have denied the allegations. In December 2008 the Attorney General’s lawsuit was removed to U.S. District Court in Jackson, Mississippi. Pre-trial and settlement conferences were held in October 2018. In October 2018 the District Court rescheduled the trial to April 2019. In April 2019 the District Court remanded the Attorney General’s lawsuit to the Hinds County Chancery Court in Jackson, Mississippi.
Entergy Mississippi, LLC
Management's Financial Discussion and Analysis
Formula Rate Plan
In March 2019, Entergy Mississippi submitted its formula rate plan 2019 test year filing and 2018 look-back filing showing Entergy Mississippi’s earned return for the historical 2018 calendar year to be above the formula rate plan bandwidth and projected earned return for the 2019 calendar year to be below the formula rate plan bandwidth. The 2019 test year filing shows a $36.8 million rate increase is necessary to reset Entergy Mississippi’s earned return on common equity to the specified point of adjustment of 6.94% return on rate base, within the formula rate plan bandwidth. The 2018 look-back filing compares actual 2018 results to the approved benchmark return on rate base and shows a $10.1 million interim decrease in formula rate plan revenues is necessary. In the fourth quarter 2018, Entergy Mississippi recorded a provision of $9.3 million that reflected the estimate of the difference between the 2018 expected earned rate of return on rate base and an established performance-adjusted benchmark rate of return under the formula rate plan performance-adjusted bandwidth mechanism. In the first quarter 2019, Entergy Mississippi recorded a $0.8 million increase in the provision to reflect the amount shown in the look-back filing. The filing is currently subject to MPSC review. A final order is expected in the second quarter 2019, with the resulting rates effective for the first billing cycle of July 2019.
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, 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 Note 1 to the financial statements in the Form 10-K for a discussion of new accounting pronouncements.
|
| | | | | | | | |
| ENTERGY MISSISSIPPI, LLC |
| INCOME STATEMENTS |
| For the Three Months Ended March 31, 2019 and 2018 |
| (Unaudited) |
| | | |
| | | |
| | | 2019 | | 2018 |
| | | (In Thousands) |
| OPERATING REVENUES | | | | |
| Electric | |
| $282,244 |
| |
| $315,743 |
|
| | | | | |
| OPERATING EXPENSES | | | | |
| Operation and Maintenance: | | | | |
| Fuel, fuel-related expenses, and gas purchased for resale | | 53,229 |
| | 63,528 |
|
| Purchased power | | 71,455 |
| | 87,456 |
|
| Other operation and maintenance | | 59,183 |
| | 59,458 |
|
| Taxes other than income taxes | | 26,127 |
| | 25,394 |
|
| Depreciation and amortization | | 39,088 |
| | 38,182 |
|
| Other regulatory charges - net | | 2,370 |
| | 293 |
|
| TOTAL | | 251,452 |
| | 274,311 |
|
| | | | | |
| OPERATING INCOME | | 30,792 |
| | 41,432 |
|
| | | | | |
| OTHER INCOME | | | | |
| Allowance for equity funds used during construction | | 1,913 |
| | 1,978 |
|
| Interest and investment income | | 152 |
| | 25 |
|
| Miscellaneous - net | | (263 | ) | | (571 | ) |
| TOTAL | | 1,802 |
| | 1,432 |
|
| | | | | |
| INTEREST EXPENSE | | | | |
| Interest expense | | 14,540 |
| | 13,905 |
|
| Allowance for borrowed funds used during construction | | (785 | ) | | (828 | ) |
| TOTAL | | 13,755 |
| | 13,077 |
|
| | | | | |
| INCOME BEFORE INCOME TAXES | | 18,839 |
| | 29,787 |
|
| | | | | |
| Income taxes | | 3,441 |
| | 6,944 |
|
| | | | | |
| NET INCOME | | 15,398 |
| | 22,843 |
|
| | | | | |
| Preferred dividend requirements and other | | — |
| | 238 |
|
| | | | | |
| EARNINGS APPLICABLE TO COMMON EQUITY | |
| $15,398 |
| |
| $22,605 |
|
| | | | | |
| See Notes to Financial Statements. | | | | |
(Page left blank intentionally)
|
| | | | | | | | |
| ENTERGY MISSISSIPPI, LLC |
| STATEMENTS OF CASH FLOWS |
| For the Three Months Ended March 31, 2019 and 2018 |
| (Unaudited) |
| | | 2019 | | 2018 |
| | | (In Thousands) |
| OPERATING ACTIVITIES | | | | |
| Net income | |
| $15,398 |
| |
| $22,843 |
|
| Adjustments to reconcile net income to net cash flow provided by (used in) operating activities: | | | | |
| Depreciation and amortization | | 39,088 |
| | 38,182 |
|
| Deferred income taxes, investment tax credits, and non-current taxes accrued | | 12,072 |
| | 7,787 |
|
| Changes in assets and liabilities: | | | | |
| Receivables | | 18,364 |
| | 1,018 |
|
| Fuel inventory | | (4,267 | ) | | (767 | ) |
| Accounts payable | | (5,722 | ) | | (24,818 | ) |
| Taxes accrued | | (66,445 | ) | | (56,244 | ) |
| Interest accrued | | (293 | ) | | (5,548 | ) |
| Deferred fuel costs | | 17,635 |
| | 13,817 |
|
| Other working capital accounts | | 3,444 |
| | (4,856 | ) |
| Provisions for estimated losses | | (846 | ) | | 4,754 |
|
| Other regulatory assets | | (3,478 | ) | | 4,586 |
|
| Other regulatory liabilities | | (9,301 | ) | | 766 |
|
| Pension and other postretirement liabilities | | 269 |
| | (4,604 | ) |
| Other assets and liabilities | | (5,926 | ) | | (5,757 | ) |
| Net cash flow provided by (used in) operating activities | | 9,992 |
| | (8,841 | ) |
| | | | | |
| INVESTING ACTIVITIES | | | | |
| Construction expenditures | | (97,487 | ) | | (79,141 | ) |
| Allowance for equity funds used during construction | | 1,913 |
| | 1,978 |
|
| Changes in money pool receivable - net | | 41,380 |
| | 1,633 |
|
| Other | | (182 | ) | | (738 | ) |
| Net cash flow used in investing activities | | (54,376 | ) | | (76,268 | ) |
| | | | | |
| FINANCING ACTIVITIES | | | | |
| Changes in money pool payable - net | | 10,925 |
| | 74,892 |
|
| Distributions/dividends paid: | | | | |
| Preferred stock | | — |
| | (238 | ) |
| Other | | (2,610 | ) | | 4,662 |
|
| Net cash flow provided by financing activities | | 8,315 |
| | 79,316 |
|
| | | | | |
| Net decrease in cash and cash equivalents | | (36,069 | ) | | (5,793 | ) |
| Cash and cash equivalents at beginning of period | | 36,954 |
| | 6,096 |
|
| Cash and cash equivalents at end of period | |
| $885 |
| |
| $303 |
|
| | | | | |
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | | | | |
| Cash paid during the period for: | | | | |
| Interest - net of amount capitalized | |
| $14,193 |
| |
| $18,820 |
|
| | | | | |
| See Notes to Financial Statements. | | | | |
|
| | | | | | | | |
| ENTERGY MISSISSIPPI, LLC |
| BALANCE SHEETS |
| ASSETS |
| March 31, 2019 and December 31, 2018 |
| (Unaudited) |
| | | 2019 | | 2018 |
| | | (In Thousands) |
| CURRENT ASSETS | | | | |
| Cash and cash equivalents: | | | | |
| Cash | |
| $878 |
| |
| $11 |
|
| Temporary cash investments | | 7 |
| | 36,943 |
|
| Total cash and cash equivalents | | 885 |
| | 36,954 |
|
| Accounts receivable: | | |
| | |
|
| Customer | | 71,621 |
| | 73,205 |
|
| Allowance for doubtful accounts | | (647 | ) | | (563 | ) |
| Associated companies | | 3,641 |
| | 51,065 |
|
| Other | | 7,678 |
| | 8,647 |
|
| Accrued unbilled revenues | | 40,488 |
| | 50,171 |
|
| Total accounts receivable | | 122,781 |
| | 182,525 |
|
| Deferred fuel costs | | — |
| | 8,016 |
|
| Fuel inventory - at average cost | | 16,198 |
| | 11,931 |
|
| Materials and supplies - at average cost | | 49,576 |
| | 47,255 |
|
| Prepayments and other | | 4,043 |
| | 9,365 |
|
| TOTAL | | 193,483 |
| | 296,046 |
|
| | | | | |
| OTHER PROPERTY AND INVESTMENTS | | |
| | |
|
| Non-utility property - at cost (less accumulated depreciation) | | 4,572 |
| | 4,576 |
|
| Storm reserve escrow account | | 32,629 |
| | 32,447 |
|
| TOTAL | | 37,201 |
| | 37,023 |
|
| | | | | |
| UTILITY PLANT | | |
| | |
|
| Electric | | 4,834,942 |
| | 4,780,720 |
|
| Construction work in progress | | 182,618 |
| | 128,149 |
|
| TOTAL UTILITY PLANT | | 5,017,560 |
| | 4,908,869 |
|
| Less - accumulated depreciation and amortization | | 1,667,543 |
| | 1,641,821 |
|
| UTILITY PLANT - NET | | 3,350,017 |
| | 3,267,048 |
|
| | | | | |
| DEFERRED DEBITS AND OTHER ASSETS | | |
| | |
|
| Regulatory assets: | | |
| | |
|
| Other regulatory assets | | 346,527 |
| | 343,049 |
|
| Other | | 9,878 |
| | 3,638 |
|
| TOTAL | | 356,405 |
| | 346,687 |
|
| | | | | |
| TOTAL ASSETS | |
| $3,937,106 |
| |
| $3,946,804 |
|
| | | | | |
| See Notes to Financial Statements. | | |
| | |
|
|
| | | | | | | | |
| ENTERGY MISSISSIPPI, LLC |
| BALANCE SHEETS |
| LIABILITIES AND EQUITY |
| March 31, 2019 and December 31, 2018 |
| (Unaudited) |
| | | 2019 | | 2018 |
| | | (In Thousands) |
| CURRENT LIABILITIES | | |
| | |
|
| Currently maturing long-term debt | |
| $150,000 |
| |
| $150,000 |
|
| Accounts payable: | | |
| | |
|
| Associated companies | | 53,027 |
| | 42,928 |
|
| Other | | 74,694 |
| | 79,117 |
|
| Customer deposits | | 85,830 |
| | 85,085 |
|
| Taxes accrued | | 11,107 |
| | 77,552 |
|
| Interest accrued | | 19,938 |
| | 20,231 |
|
| Deferred fuel costs | | 9,619 |
| | — |
|
| Other | | 15,111 |
| | 7,526 |
|
| TOTAL | | 419,326 |
| | 462,439 |
|
| | | | | |
| NON-CURRENT LIABILITIES | | |
| | |
|
| Accumulated deferred income taxes and taxes accrued | | 566,047 |
| | 551,869 |
|
| Accumulated deferred investment tax credits | | 10,146 |
| | 10,186 |
|
| Regulatory liability for income taxes - net | | 244,123 |
| | 246,402 |
|
| Other regulatory liabilities | | 26,600 |
| | 33,622 |
|
| Asset retirement cost liabilities | | 9,333 |
| | 9,206 |
|
| Accumulated provisions | | 50,296 |
| | 51,142 |
|
| Pension and other postretirement liabilities | | 93,324 |
| | 93,100 |
|
| Long-term debt | | 1,175,915 |
| | 1,175,750 |
|
| Other | | 34,372 |
| | 20,862 |
|
| TOTAL | | 2,210,156 |
| | 2,192,139 |
|
| | | | | |
| Commitments and Contingencies | | |
| | |
|
| | | | | |
| EQUITY | | |
| | |
|
| Member's equity | | 1,307,624 |
| | 1,292,226 |
|
| TOTAL | | 1,307,624 |
| | 1,292,226 |
|
| | | | | |
| TOTAL LIABILITIES AND EQUITY | |
| $3,937,106 |
| |
| $3,946,804 |
|
| | | | | |
| 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, LLC |
| SELECTED OPERATING RESULTS |
| For the Three Months Ended March 31, 2019 and 2018 |
| (Unaudited) |
| | | | | | | |
| | | Three Months Ended | | Increase/ | | |
|
| Description | | 2019 | | 2018 | | (Decrease) | | % |
| | | (Dollars In Millions) | | |
|
| Electric Operating Revenues: | | |
| | |
| | |
| | |
|
| Residential | |
| $129 |
| |
| $148 |
| |
| ($19 | ) | | (13 | ) |
| Commercial | | 98 |
| | 110 |
| | (12 | ) | | (11 | ) |
| Industrial | | 38 |
| | 43 |
| | (5 | ) | | (12 | ) |
| Governmental | | 10 |
| | 11 |
| | (1 | ) | | (9 | ) |
| Total billed retail | | 275 |
| | 312 |
| | (37 | ) | | (12 | ) |
| Sales for resale: | | |
| | |
| | |
| | |
|
| Non-associated companies | | 5 |
| | 2 |
| | 3 |
| | 150 |
|
| Other | | 2 |
| | 2 |
| | — |
| | — |
|
| Total | |
| $282 |
| |
| $316 |
| |
| ($34 | ) | | (11 | ) |
| | | |
| | |
| | |
| | |
|
| Billed Electric Energy Sales (GWh): | | | | | | | | |
| Residential | | 1,315 |
| | 1,449 |
| | (134 | ) | | (9 | ) |
| Commercial | | 1,040 |
| | 1,100 |
| | (60 | ) | | (5 | ) |
| Industrial | | 566 |
| | 597 |
| | (31 | ) | | (5 | ) |
| Governmental | | 98 |
| | 99 |
| | (1 | ) | | (1 | ) |
| Total retail | | 3,019 |
| | 3,245 |
| | (226 | ) | | (7 | ) |
| Sales for resale: | | |
| | |
| | |
| | |
|
| Non-associated companies | | 166 |
| | 193 |
| | (27 | ) | | (14 | ) |
| Total | | 3,185 |
| | 3,438 |
| | (253 | ) | | (7 | ) |
ENTERGY NEW ORLEANS, LLC AND SUBSIDIARIES
MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS
Results of Operations
Net Income
Net income decreased $1.9 million primarily due to higher other operation and maintenance expenses, a higher effective income tax rate, and lower net revenue, partially offset by lower taxes other than income taxes.
Net Revenue
Net revenue consists of operating revenues net of: 1) fuel, fuel-related expenses, and gas purchased for resale, 2) purchased power expenses, and 3) other regulatory charges (credits). Following is an analysis of the change in net revenue comparing the first quarter 2019 to the first quarter 2018:
|
| | | |
| Amount |
| (In Millions) |
2018 net revenue |
| $75.0 |
|
Rough production cost equalization | (1.5 | ) |
Volume/weather | (1.3 | ) |
Amortization of income tax rate change liability | 3.1 |
|
Other | (1.2 | ) |
2019 net revenue |
| $74.1 |
|
The rough production cost equalization variance is due to the use in the first quarter of 2018 of prior rough production cost equalization proceeds to offset investments in Energy Smart energy efficiency programs. The rough production cost equalization variance is offset in other operation and maintenance expenses and has no effect on net income. See Note 2 to the financial statements in the Form 10-K for discussion of Energy Smart program funding.
The volume/weather variance is primarily due to a decrease of 100 GWh, or 7%, in billed electricity usage, including the effect of less favorable weather on residential and commercial sales.
The amortization of income tax rate change liability variance is primarily due to the amortization of the regulatory liability that Entergy New Orleans began recording in 2018 for the lower income tax rate. This portion of the benefits of the lower income tax rate are being given to customers through investments in 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 in the Form 10-K for further discussion of regulatory activity regarding the Tax Cuts and Jobs Act.
Other Income Statement Variances
Other operation and maintenance expenses increased primarily due to:
an increase of $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 $0.9 million in costs related to customer initiatives to explore new technologies and services.
Entergy New Orleans, LLC and Subsidiaries
Management's Financial Discussion and Analysis
The increase was partially offset by:
a decrease of $1.2 million in distribution expenses primarily due to lower contract labor costs; and
a decrease of $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 same period in 2018.
Income Taxes
The effective income tax rate was 25.3% for the first quarter 2019. The difference in the effective income tax rate for the first quarter 2019 versus the federal statutory rate of 21% was primarily due to permanent book and tax differences, state income taxes, and the provision for uncertain tax positions, partially offset by flow-through tax accounting, certain book and tax differences related to utility plant items, and book and tax differences related to the allowance for equity funds used during construction.
The effective income tax rate was 19.5% for the first quarter 2018. The difference in the effective income tax rate for the first quarter 2018 versus the federal statutory rate of 21% was primarily due to flow-through tax accounting and certain book and tax differences related to utility plant items, partially offset by state income taxes, the provision for uncertain tax positions, and a write-off of a stock-based compensation deferred tax asset.
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 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 in the Form 10-K contains a discussion of the regulatory proceedings that 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
Operating Activities
Net cash flow provided by operating activities increased $9.5 million for the three months ended March 31, 2019 compared to the three months ended March 31, 2018 primarily due to:
the timing of payments to vendors;
the timing of recovery of fuel and purchased power costs; and
a decrease of $2 million in pension contributions in 2019 as compared to 2018. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Critical Accounting Estimates” in the Form 10-K and Note 6 to the financial statements herein for a discussion of qualified pension and other postretirement benefits funding.
Investing Activities
Net cash flow used in investing activities increased $5.2 million for the three months ended March 31, 2019 compared to the three months ended March 31, 2018 primarily due to:
an increase of $9.5 million in fossil-fueled generation construction expenditures primarily due to higher spending on the New Orleans Power Station and New Orleans Solar projects in 2019 as compared to the same period in 2018; and
an increase of $5.8 million in transmission construction expenditures primarily due to a higher scope of work performed in 2019 as compared to the same period in 2018, including investment in Entergy New Orleans’s system reliability and infrastructure.
The increase was partially offset by money pool activity.
Decreases in Entergy New Orleans’s receivable from the money pool are a source of cash flow, and Entergy New Orleans’s receivable from the money pool decreased $22 million for the three months ended March 31, 2019 compared to decreasing $12.3 million for the three months ended March 31, 2018. The money pool is an inter-company borrowing arrangement designed to reduce the Utility subsidiaries’ need for external short-term borrowings.
Financing Activities
Entergy New Orleans’s financing activities provided $1.4 million of cash for the three months ended March 31, 2019 compared to using $6.9 million of cash for the three months ended March 31, 2018 primarily due to $6.3 million in common equity distributions in 2018. Common equity distributions were lower in 2019 primarily as a result of the increase in planned capital investments.
Capital Structure
Entergy New Orleans’s debt to capital ratio is shown in the following table. The decrease in the debt to capital ratio is primarily due to an increase in member’s equity in 2019.
|
| | | | | |
| | March 31, 2019 | | December 31, 2018 |
| Debt to capital | 51.7 | % | | 52.1 | % |
| Effect of excluding securitization bonds | (3.5 | %) | | (3.5 | %) |
| Debt to capital, excluding securitization bonds (a) | 48.2 | % | | 48.6 | % |
| Effect of subtracting cash | — | % | | (1.2 | %) |
| Net debt to net capital, excluding securitization bonds (a) | 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 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’s receivables from or (payables to) the money pool were as follows:
|
| | | | | | |
March 31, 2019 | | December 31, 2018 | | March 31, 2018 | | December 31, 2017 |
| (In Thousands) |
| ($1,877) | | $22,016 | | $432 | | $12,723 |
See Note 4 to the financial statements in the Form 10-K for a description of the money pool.
Entergy New Orleans has a credit facility in the amount of $25 million scheduled to expire in November 2021. The credit facility includes fronting commitments for the issuance of letters of credit against $10 million of the borrowing capacity of the facility. As of March 31, 2019, there were no cash borrowings and a $0.8 million letter of credit was outstanding under the facility. In addition, Entergy New Orleans is a party to an uncommitted letter of credit facility as a means to post collateral to support its obligations to MISO. As of March 31, 2019, a $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.
Renewables
As discussed in the Form 10-K, in July 2018, Entergy New Orleans filed an application with the City Council requesting approval of three utility-scale solar projects totaling 90 MW. In December 2018 the City Council advisors requested that Entergy New Orleans pursue alternative deal structures for the Washington Parish project and attempt to reduce costs for the 20 MW Orleans Parish project. As a result of settlement discussions, in March 2019, Entergy New Orleans revised its application to convert the build-own transfer acquisition of the 50 MW facility in Washington Parish to a power purchase agreement. Also in March 2019 the City Council approved a motion to allow settlement discussions to continue until June 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 is an updateare updates to that discussion.
Retail Rates
Energy Efficiency
As discussed in the Form 10-K, in December 2019, Entergy New Orleans filed an application with the City Council seeking approval of an implementation plan for the Energy Smart energy efficiency program from April 2020 through December 2022. Entergy New Orleans proposed to recover the costs of the program through mechanisms previously approved by the City Council or through the energy efficiency cost recovery rider, which was approved in the 2018 combined rate case resolution. In February 2020 the City Council approved Entergy New Orleans’s application.
2018 Base Rate Case Filing
See the Form 10-K for discussion of the electric and gas base rate case filed in September 2018. In response to the City Council’s November 2019 resolution in the rate case, Entergy New Orleans made a compliance filing in December 2019 and also filed timely a petition for appeal and judicial review and for stay of or injunctive relief alleging that the resolution is unlawful in failing to produce just and reasonable rates. A hearing on the requested injunction was scheduled in Civil District Court for February 2020, but by joint motion of the City Council and Entergy New Orleans, the Civil District Court issued an order for a limited remand to the City Council to consider a potential agreement in principle/stipulation at its February 20, 2020 meeting. On February 17, 2020, Entergy New Orleans filed with the City Council an agreement in principle between Entergy New Orleans and the City Council’s advisors. On February 20, 2020, the City Council voted to approve the proposed agreement in principle and issued a resolution modifying the required treatment of certain accumulated deferred income taxes. As a result of the agreement in principle, the total annual revenue requirement reduction will be approximately $45 million ($42 million electric, including $29 million in rider reductions; and $3 million gas). As a result, Entergy New Orleans fully implemented the new rates
Entergy New Orleans, LLC and Subsidiaries
Management's Financial Discussion and Analysis
Reliability Investigationin April 2020. The merits of the appeal will be subject to a separate procedural schedule issued by the Civil District Court.
2020 Formula Rate Plan Filing
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 2018,2020, 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 filedmotion with the City Council in October 2018. Theto delay its formula rate plan filing until June 2020. In May 2020 the City Council also approved a resolution that opens a prudence investigation into whetherissued an order extending the filing deadline for Entergy New Orleans was imprudent for not acting soonerOrleans’s formula rate plan filing to address outagesJune 29, 2020.
Renewable Portfolio Standard Rulemaking
As discussed in New Orleans and whether fines should be imposed. In January 2019, Entergy New Orleans filed testimonythe Form 10-K, in response to the prudence investigation and asserting that it had been prudent in managing system reliability. In AprilMarch 2019 the City Council initiated a rulemaking proceeding to consider whether to establish a renewable portfolio standard. In March 2020 the City Council’s Utility Committee recommended a resolution for approval by the City Council that directed the City Council advisors filed commentsto work toward development of a rule for enacting a Renewable and testimony assertingClean Portfolio Standard. The four components of the Renewable and Clean Portfolio Standard that the City Council expressed a desire to implement are: (1) a mandatory requirement that Entergy New Orleans did not act prudently in maintaining and improving its distribution system reliability in recent years and recommending that a financial penaltyachieve 100% net zero carbon emissions by 2040; (2) reliance on renewable energy credits purchased without the associated energy for compliance with the standard being phased out over the ten-year period from 2040 to 2050; (3) no carbon-emitting resources in the rangeportfolio of $1.5 million to $2 million should be assessed.resources Entergy New Orleans disagrees withuses to serve New Orleans by 2050; and (4) a mechanism to limit costs in any one plan year to no more than one percent of plan year total utility retail sales revenues. The City Council adopted the recommendationUtility Committee resolution in April 2020. The first technical meeting of the parties will occur in June 2020 followed by the City Council advisors’ publication of a draft rule in July 2020, which draft will be the subject of written comments and plans to submit rebuttal testimony in May 2019.further technical meetings before final rules are proposed for consideration by the parties and the City Council.
Federal Regulation
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS –Federal Regulation”in the Form 10-K for a discussion of federal regulation.
Nuclear Matters
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS -Nuclear Matters” in the Form 10-K for further discussion of nuclear matters.
Environmental Risks
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS -Environmental Risks” in the Form 10-K for a discussion of environmental risks.
Critical Accounting Estimates
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS -Critical Accounting Estimates” in the Form 10-K for a discussion of the estimates and judgments necessary in Entergy New Orleans’s accounting for utility regulatory accounting, 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.
Entergy New Orleans, LLC and Subsidiaries
Management's Financial Discussion and Analysis
Other Postretirement Benefits
As described in Note 6 to the financial statements herein, Entergy announced changes to its other postretirement benefits. As a result, Entergy New Orleans now expects 2020 other postretirement health care and life insurance benefit income, including amounts capitalized, of $4.9 million.
New Accounting Pronouncements
See “New Accounting Pronouncements” section of Note 1 to the financial statements in the Form 10-K for a discussion of new accounting pronouncements.
| | ENTERGY NEW ORLEANS, LLC AND SUBSIDIARIES | CONSOLIDATED INCOME STATEMENTS | | For the Three Months Ended March 31, 2019 and 2018 | |
| For the Three Months Ended March 31, 2020 and 2019 | | For the Three Months Ended March 31, 2020 and 2019 |
(Unaudited) | | | | | | |
| | | 2019 | | 2018 | | 2020 | | 2019 |
| | | (In Thousands) | | (In Thousands) |
| OPERATING REVENUES | | | | | | | | |
| Electric | |
| $130,883 |
| |
| $155,818 |
| |
| $123,431 |
| |
| $130,883 |
|
| Natural gas | | 32,311 |
| | 32,457 |
| | 25,871 |
| | 32,311 |
|
| TOTAL | | 163,194 |
| | 188,275 |
| | 149,302 |
| | 163,194 |
|
| | | | | | | | | |
| OPERATING EXPENSES | | | | | | | | |
| Operation and Maintenance: | | | | | | | | |
| Fuel, fuel-related expenses, and gas purchased for resale | | 30,760 |
| | 23,739 |
| | 27,495 |
| | 30,760 |
|
| Purchased power | | 60,649 |
| | 83,156 |
| | 56,467 |
| | 60,649 |
|
| Other operation and maintenance | | 30,298 |
| | 28,299 |
| | 30,704 |
| | 30,298 |
|
| Taxes other than income taxes | | 13,542 |
| | 15,132 |
| | 13,206 |
| | 13,542 |
|
| Depreciation and amortization | | 14,164 |
| | 13,747 |
| | 15,075 |
| | 14,164 |
|
| Other regulatory charges (credits) - net | | (2,355 | ) | | 6,333 |
| |
| Other regulatory credits - net | | | (5,736 | ) | | (2,355 | ) |
| TOTAL | | 147,058 |
| | 170,406 |
| | 137,211 |
| | 147,058 |
|
| | | | | | | | | |
| OPERATING INCOME | | 16,136 |
| | 17,869 |
| | 12,091 |
| | 16,136 |
|
| | | | | | | | | |
| OTHER INCOME | | | | | | | | |
| Allowance for equity funds used during construction | | 2,290 |
| | 851 |
| | 2,485 |
| | 2,290 |
|
| Interest and investment income | | 179 |
| | 93 |
| | 53 |
| | 179 |
|
| Miscellaneous - net | | (1,506 | ) | | (337 | ) | | (738 | ) | | (1,506 | ) |
| TOTAL | | 963 |
| | 607 |
| | 1,800 |
| | 963 |
|
| | | | | | | | | |
| INTEREST EXPENSE | | | | | | | | |
| Interest expense | | 5,936 |
| | 5,279 |
| | 6,640 |
| | 5,936 |
|
| Allowance for borrowed funds used during construction | | (914 | ) | | (314 | ) | | (1,195 | ) | | (914 | ) |
| TOTAL | | 5,022 |
| | 4,965 |
| | 5,445 |
| | 5,022 |
|
| | | | | | | | | |
| INCOME BEFORE INCOME TAXES | | 12,077 |
| | 13,511 |
| | 8,446 |
| | 12,077 |
|
| | | | | | | | | |
| Income taxes | | 3,054 |
| | 2,629 |
| | (2,740 | ) | | 3,054 |
|
| | | | | | | | | |
| NET INCOME | |
| $9,023 |
| |
| $10,882 |
| |
| $11,186 |
| |
| $9,023 |
|
| | | | | | | | | |
| See Notes to Financial Statements. | | | | | | | | |
(Page left blank intentionally)
| | ENTERGY NEW ORLEANS, LLC AND SUBSIDIARIES | CONSOLIDATED STATEMENTS OF CASH FLOWS | | For the Three Months Ended March 31, 2019 and 2018 | |
| For the Three Months Ended March 31, 2020 and 2019 | | For the Three Months Ended March 31, 2020 and 2019 |
(Unaudited) | | | | 2019 | | 2018 | | 2020 | | 2019 |
| | | (In Thousands) | | (In Thousands) |
| OPERATING ACTIVITIES | | | | | | | | |
| Net income | |
| $9,023 |
| |
| $10,882 |
| |
| $11,186 |
| |
| $9,023 |
|
| Adjustments to reconcile net income to net cash flow provided by operating activities: | | | | | | | | |
| Depreciation and amortization | | 14,164 |
| | 13,747 |
| | 15,075 |
| | 14,164 |
|
| Deferred income taxes, investment tax credits, and non-current taxes accrued | | 9,743 |
| | 17,909 |
| | 1,339 |
| | 9,743 |
|
| Changes in assets and liabilities: | | | | | | | | |
| Receivables | | (20 | ) | | 3,378 |
| | 4,039 |
| | (20 | ) |
| Fuel inventory | | 1,529 |
| | 951 |
| | (25 | ) | | 1,529 |
|
| Accounts payable | | 8,298 |
| | (7,973 | ) | | (5,291 | ) | | 8,298 |
|
| Prepaid taxes and taxes accrued | | (4,443 | ) | | (13,351 | ) | |
| Taxes accrued | | | 122 |
| | (4,443 | ) |
| Interest accrued | | 650 |
| | (81 | ) | | (929 | ) | | 650 |
|
| Deferred fuel costs | | (71 | ) | | (11,309 | ) | | 3,702 |
| | (71 | ) |
| Other working capital accounts | | (15,144 | ) | | (12,082 | ) | | (10,795 | ) | | (15,144 | ) |
| Provisions for estimated losses | | 454 |
| | 196 |
| | 923 |
| | 454 |
|
| Other regulatory assets | | (16,528 | ) | | 7,226 |
| | 1,867 |
| | (16,528 | ) |
| Other regulatory liabilities | | (8,634 | ) | | 1,331 |
| | (9,599 | ) | | (8,634 | ) |
| Pension and other postretirement liabilities | | (1,706 | ) | | (3,686 | ) | | (4,878 | ) | | (1,706 | ) |
| Other assets and liabilities | | 19,207 |
| | (89 | ) | | 10,582 |
| | 19,207 |
|
| Net cash flow provided by operating activities | | 16,522 |
| | 7,049 |
| | 17,318 |
| | 16,522 |
|
| | | | | | | | | |
| INVESTING ACTIVITIES | | | | | | | | |
| Construction expenditures | | (57,788 | ) | | (41,105 | ) | | (60,001 | ) | | (57,788 | ) |
| Allowance for equity funds used during construction | | 2,290 |
| | 851 |
| | 2,485 |
| | 2,290 |
|
| Changes in money pool receivable - net | | 22,016 |
| | 12,291 |
| | (7,979 | ) | | 22,016 |
|
| Receipts from storm reserve escrow account | | — |
| | 3 |
| |
| Payments to storm reserve escrow account | | (451 | ) | | (232 | ) | | (314 | ) | | (451 | ) |
| Changes in securitization account | | (2,850 | ) | | (3,381 | ) | | (2,882 | ) | | (2,850 | ) |
| Net cash flow used in investing activities | | (36,783 | ) | | (31,573 | ) | | (68,691 | ) | | (36,783 | ) |
| | | | | | | | | |
| FINANCING ACTIVITIES | | | | | | | | |
| Proceeds from the issuance of long-term debt | | | 139,116 |
| | — |
|
| Retirement of long-term debt | | | (20,000 | ) | | — |
|
| Change in money pool payable - net | | 1,877 |
| | — |
| | — |
| | 1,877 |
|
| Distributions/dividends paid: | | | | | |
| Common equity | | — |
| | (6,250 | ) | |
| Other | | (499 | ) | | (607 | ) | | (445 | ) | | (499 | ) |
| Net cash flow provided by (used in) financing activities | | 1,378 |
| | (6,857 | ) | |
| Net cash flow provided by financing activities | | | 118,671 |
| | 1,378 |
|
| | | | | | | | | |
| Net decrease in cash and cash equivalents | | (18,883 | ) | | (31,381 | ) | |
| Net increase (decrease) in cash and cash equivalents | | | 67,298 |
| | (18,883 | ) |
| Cash and cash equivalents at beginning of period | | 19,677 |
| | 32,741 |
| | 6,017 |
| | 19,677 |
|
| Cash and cash equivalents at end of period | |
| $794 |
| |
| $1,360 |
| |
| $73,315 |
| |
| $794 |
|
| | | | | | | | | |
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | | | | | | | | |
| Cash paid during the period for: | | | | | | | | |
| Interest - net of amount capitalized | |
| $5,027 |
| |
| $5,098 |
| |
| $7,275 |
| |
| $5,027 |
|
| | | | | | | | | |
| See Notes to Financial Statements. | | | | | | | | |
| | ENTERGY NEW ORLEANS, LLC AND SUBSIDIARIES | CONSOLIDATED BALANCE SHEETS | ASSETS | | March 31, 2019 and December 31, 2018 | |
| March 31, 2020 and December 31, 2019 | | March 31, 2020 and December 31, 2019 |
(Unaudited) | | | | 2019 | | 2018 | | 2020 | | 2019 |
| | | (In Thousands) | | (In Thousands) |
| CURRENT ASSETS | | | | | | | | |
| Cash and cash equivalents | | | | | | | | |
| Cash | |
| $794 |
| |
| $26 |
| |
| $1,026 |
| |
| $26 |
|
| Temporary cash investments | | — |
| | 19,651 |
| | 72,289 |
| | 5,991 |
|
| Total cash and cash equivalents | | 794 |
| | 19,677 |
| | 73,315 |
| | 6,017 |
|
| Securitization recovery trust account | | 5,075 |
| | 2,224 |
| | 4,871 |
| | 1,989 |
|
| Accounts receivable: | | | | |
| | | | |
|
| Customer | | 47,422 |
| | 43,890 |
| | 48,544 |
| | 48,265 |
|
| Allowance for doubtful accounts | | (3,033 | ) | | (3,222 | ) | | (3,387 | ) | | (3,226 | ) |
| Associated companies | | 2,054 |
| | 27,938 |
| | 14,876 |
| | 6,280 |
|
| Other | | 7,115 |
| | 4,090 |
| | 4,982 |
| | 7,378 |
|
| Accrued unbilled revenues | | 16,049 |
| | 18,907 |
| | 23,075 |
| | 25,453 |
|
| Total accounts receivable | | 69,607 |
| | 91,603 |
| | 88,090 |
| | 84,150 |
|
| Fuel inventory - at average cost | | 4 |
| | 1,533 |
| | 1,945 |
| | 1,920 |
|
| Materials and supplies - at average cost | | 11,989 |
| | 12,133 |
| | 13,861 |
| | 13,522 |
|
| Prepayments and other | | 17,250 |
| | 6,905 |
| | 15,167 |
| | 4,846 |
|
| TOTAL | | 104,719 |
| | 134,075 |
| | 197,249 |
| | 112,444 |
|
| | | | | | | | | |
| OTHER PROPERTY AND INVESTMENTS | | | | | | | | |
| Non-utility property at cost (less accumulated depreciation) | | 1,016 |
| | 1,016 |
| | 1,016 |
| | 1,016 |
|
| Storm reserve escrow account | | 81,305 |
| | 80,853 |
| | 82,919 |
| | 82,605 |
|
| TOTAL | | 82,321 |
| | 81,869 |
| | 83,935 |
| | 83,621 |
|
| | | | | | | | | |
| UTILITY PLANT | | | | | | | | |
| Electric | | 1,358,401 |
| | 1,364,091 |
| | 1,475,260 |
| | 1,467,215 |
|
| Natural gas | | 291,484 |
| | 284,728 |
| | 313,544 |
| | 311,432 |
|
| Construction work in progress | | 184,527 |
| | 146,668 |
| | 226,714 |
| | 201,829 |
|
| TOTAL UTILITY PLANT | | 1,834,412 |
| | 1,795,487 |
| | 2,015,518 |
| | 1,980,476 |
|
| Less - accumulated depreciation and amortization | | 675,943 |
| | 670,135 |
| | 718,461 |
| | 715,406 |
|
| UTILITY PLANT - NET | | 1,158,469 |
| | 1,125,352 |
| | 1,297,057 |
| | 1,265,070 |
|
| | | | | | | | | |
| 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 $58,089 as of March 31, 2019 and $60,453 as of December 31, 2018) | | 246,324 |
| | 229,796 |
| |
| Other regulatory assets (includes securitization property of $46,980 as of March 31, 2020 and $49,542 as of December 31, 2019) | | | 257,496 |
| | 259,363 |
|
| Other | | 1,991 |
| | 1,416 |
| | 16,063 |
| | 10,720 |
|
| TOTAL | | 252,395 |
| | 235,292 |
| | 277,639 |
| | 274,163 |
|
| | | | | | | | | |
| TOTAL ASSETS | |
| $1,597,904 |
| |
| $1,576,588 |
| |
| $1,855,880 |
| |
| $1,735,298 |
|
| | | | | | | | | |
| See Notes to Financial Statements. | | | | | | | | |
| | ENTERGY NEW ORLEANS, LLC AND SUBSIDIARIES | CONSOLIDATED BALANCE SHEETS | LIABILITIES AND EQUITY | | March 31, 2019 and December 31, 2018 | |
| March 31, 2020 and December 31, 2019 | | March 31, 2020 and December 31, 2019 |
(Unaudited) | | | | 2019 | | 2018 | | 2020 | | 2019 |
| | | (In Thousands) | | (In Thousands) |
| CURRENT LIABILITIES | | | | | | | | |
| Currently maturing long-term debt | | |
| $25,000 |
| |
| $25,000 |
|
| Payable due to associated company | |
| $1,979 |
| |
| $1,979 |
| | 1,838 |
| | 1,838 |
|
| Accounts payable: | | | | | | | | |
| Associated companies | | 44,433 |
| | 43,416 |
| | 34,787 |
| | 43,222 |
|
| Other | | 48,308 |
| | 36,686 |
| | 36,811 |
| | 43,963 |
|
| Customer deposits | | 28,683 |
| | 28,667 |
| | 28,631 |
| | 28,493 |
|
| Taxes accrued | | — |
| | 4,068 |
| | 4,424 |
| | 4,302 |
|
| Interest accrued | | 7,016 |
| | 6,366 |
| | 5,987 |
| | 6,916 |
|
| Deferred fuel costs | | 1,217 |
| | 1,288 |
| | 8,620 |
| | 4,918 |
|
| Current portion of unprotected excess accumulated deferred income taxes | | 25,220 |
| | 25,301 |
| | 5,957 |
| | 9,470 |
|
| Other | | 6,611 |
| | 9,521 |
| | 15,494 |
| | 15,827 |
|
| TOTAL CURRENT LIABILITIES | | 163,467 |
| | 157,292 |
| | 167,549 |
| | 183,949 |
|
| | | | | | | | | |
| NON-CURRENT LIABILITIES | | | | | | | | |
| Accumulated deferred income taxes and taxes accrued | | 334,694 |
| | 323,595 |
| | 357,097 |
| | 354,536 |
|
| Accumulated deferred investment tax credits | | 2,197 |
| | 2,219 |
| | 2,110 |
| | 2,131 |
|
| Regulatory liability for income taxes - net | | 57,233 |
| | 60,249 |
| | 49,419 |
| | 49,090 |
|
| Asset retirement cost liabilities | | 3,347 |
| | 3,291 |
| | 3,582 |
| | 3,522 |
|
| Accumulated provisions | | 87,048 |
| | 86,594 |
| | 89,465 |
| | 88,542 |
|
| Pension and other postretirement liabilities | | 3,920 |
| | 5,626 |
| |
| Long-term debt (includes securitization bonds of $63,681 as of March 31, 2019 and $63,620 as of December 31, 2018) | | 467,498 |
| | 467,358 |
| |
| Long-term debt (includes securitization bonds of $52,702 as of March 31, 2020 and $52,641 as of December 31, 2019) | | | 640,821 |
| | 521,539 |
|
| Long-term payable due to associated company | | 14,367 |
| | 14,367 |
| | 12,529 |
| | 12,529 |
|
| Other | | 10,160 |
| | 11,047 |
| | 24,543 |
| | 21,881 |
|
| TOTAL NON-CURRENT LIABILITIES | | 980,464 |
| | 974,346 |
| | 1,179,566 |
| | 1,053,770 |
|
| | | | | | | | | |
| Commitments and Contingencies | | | | | | | | |
| | | | | | | | | |
| EQUITY | | | | | | | | |
| Member's equity | | 453,973 |
| | 444,950 |
| | 508,765 |
| | 497,579 |
|
| TOTAL | | 453,973 |
| | 444,950 |
| | 508,765 |
| | 497,579 |
|
| | | | | | | | | |
| TOTAL LIABILITIES AND EQUITY | |
| $1,597,904 |
| |
| $1,576,588 |
| |
| $1,855,880 |
| |
| $1,735,298 |
|
| | | | | | | | | |
| See Notes to Financial Statements. | | | | | | | | |
|
| | | |
| ENTERGY NEW ORLEANS, LLC AND SUBSIDIARIES |
| CONSOLIDATED STATEMENTS OF CHANGES IN MEMBER'S EQUITY |
For the Three Months Ended March 31, 20192020 and 20182019 |
| (Unaudited) |
| | |
| | |
| | Member’sMember's Equity |
| | (In Thousands) |
| | |
Balance at December 31, 20172018 |
| $415,548444,950 |
|
| | |
| Net income | 10,8829,023 |
|
Common equity distributions | (6,250 | ) |
|
|
Balance at March 31, 20182019 |
| $420,180453,973 |
|
| | |
| | |
Balance at December 31, 20182019 |
| $444,950497,579 |
|
| | |
| Net income | 9,02311,186 |
|
|
|
Balance at March 31, 20192020 |
| $453,973508,765 |
|
| | |
| See Notes to Financial Statements. | |
|
| | ENTERGY NEW ORLEANS, LLC AND SUBSIDIARIES | SELECTED OPERATING RESULTS | | For the Three Months Ended March 31, 2019 and 2018 | |
| For the Three Months Ended March 31, 2020 and 2019 | | For the Three Months Ended March 31, 2020 and 2019 |
(Unaudited) | | | | | | | | | | | | | | |
| | | Three Months Ended | | Increase/ | | |
| | Three Months Ended | | Increase/ | | |
|
| Description | | 2019 | | 2018 | | (Decrease) | | % | |
| | | | 2020 | | 2019 | | (Decrease) | | % |
| | | (Dollars In Millions) | | |
| | (Dollars In Millions) | | |
|
| Electric Operating Revenues: | | | | |
| | |
| | |
| | | | |
| | |
| | |
|
| Residential | |
| $52 |
| |
| $65 |
| |
| ($13 | ) | | (20 | ) | |
| $51 |
| |
| $52 |
| |
| ($1 | ) | | (2 | ) |
| Commercial | | 46 |
| | 54 |
| | (8 | ) | | (15 | ) | | 45 |
| | 46 |
| | (1 | ) | | (2 | ) |
| Industrial | | 7 |
| | 8 |
| | (1 | ) | | (13 | ) | | 7 |
| | 7 |
| | — |
| | — |
|
| Governmental | | 16 |
| | 18 |
| | (2 | ) | | (11 | ) | | 16 |
| | 16 |
| | — |
| | — |
|
| Total billed retail | | 121 |
| | 145 |
| | (24 | ) | | (17 | ) | | 119 |
| | 121 |
| | (2 | ) | | (2 | ) |
| Sales for resale: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Non-associated companies | | 10 |
| | 13 |
| | (3 | ) | | (23 | ) | | 10 |
| | 10 |
| | — |
| | — |
|
| Other | | — |
| | (2 | ) | | 2 |
| | (100 | ) | | (6 | ) | | — |
| | (6 | ) | | — |
|
| Total | |
| $131 |
| |
| $156 |
| |
| ($25 | ) | | (16 | ) | |
| $123 |
| |
| $131 |
| |
| ($8 | ) | | (6 | ) |
| | | | | | | | | | | | | | | | | |
| Billed Electric Energy Sales (GWh): | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Residential | | 511 |
| | 577 |
| | (66 | ) | | (11 | ) | | 501 |
| | 511 |
| | (10 | ) | | (2 | ) |
| Commercial | | 492 |
| | 524 |
| | (32 | ) | | (6 | ) | | 496 |
| | 492 |
| | 4 |
| | 1 |
|
| Industrial | | 97 |
| | 99 |
| | (2 | ) | | (2 | ) | | 102 |
| | 97 |
| | 5 |
| | 5 |
|
| Governmental | | 181 |
| | 181 |
| | — |
| | — |
| | 184 |
| | 181 |
| | 3 |
| | 2 |
|
| Total retail | | 1,281 |
| | 1,381 |
| | (100 | ) | | (7 | ) | | 1,283 |
| | 1,281 |
| | 2 |
| | — |
|
| Sales for resale: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Non-associated companies | | 528 |
| | 627 |
| | (99 | ) | | (16 | ) | | 601 |
| | 528 |
| | 73 |
| | 14 |
|
| Total | | 1,809 |
| | 2,008 |
| | (199 | ) | | (10 | ) | | 1,884 |
| | 1,809 |
| | 75 |
| | 4 |
|
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
ENTERGY TEXAS, INC. AND SUBSIDIARIES
MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS
The COVID-19 Pandemic
See “The COVID-19 Pandemic” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for a discussion of the COVID-19 pandemic.
Results of Operations
Net Income
Net income increased $4$11.4 million primarily due to higher net revenue,retail electric price, higher volume/weather, higher other income, and a lower effective income tax rate, after excluding the effect of the return of unprotected excess accumulated deferred income taxes which is offset in income taxes, and higher other income,operating revenues, partially offset by higher other operation and maintenance expenses and higher depreciation and amortization expenses.
Net RevenueOperating Revenues
Net revenue consists of operating revenues net of: 1) fuel, fuel-related expenses, and gas purchased for resale, 2) purchased power expenses, and 3) other regulatory charges. Following is an analysis of the change in net revenueoperating revenues comparing the first quarter 20192020 to the first quarter 2018:
2019:
|
| | | |
| | Amount |
| | (In Millions) |
20182019 operating revenues |
| $340.5 |
|
Fuel, rider, and other revenues that do not significantly affect net revenueincome |
(28.7 | $144.9) |
| Volume/weather |
5.4 |
|
| Retail electric price | 5.5 |
|
| Return of unprotected excess accumulated deferred income taxes to customers | (22.316.6 | )
|
Volume/weather2020 operating revenues | (3.5 | ) |
Retail electric price | 10.6 |
|
Other | 2.3 |
|
2019 net revenue |
| $132.0339.3 |
|
Entergy Texas’s results include revenues from rate mechanisms designed to recover fuel, purchased power, and other costs such that the revenues and expenses associated with these items generally offset and do not affect net income. “Fuel, rider, and other revenues that do not significantly affect net income” includes the revenue variance associated with these items.
The volume/weather variance is primarily due to an increase in usage during the unbilled sales period, partially offset by the effect of less favorable weather on billed residential sales.
The retail electric price variance is primarily due to an increase in the transmission cost recovery factor rider effective January 2020, as approved by the PUCT. See Note 2 to the financial statements herein and in the Form 10-K for further discussion of the transmission cost recovery factor rider filing.
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. In 2020, $5.7 million was returned to customers as compared to $22.3 million in 2019. There is no effect on net income as the reduction in net revenue wasoperating revenues is offset by a reduction in income tax expense. See Note 2 to the financial statements in the Form 10-K for further discussion of regulatory activity regarding the Tax Cuts and Jobs Act.
The volume/weather variance is primarily due to a decrease of 160 GWh, or 4%, in billed electricity usage, including the effect of less favorable weather on residential and commercial sales.
The retail electric price variance is primarily due to an annual base rate increase 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 rate case filing.
Other Income Statement Variances
Other operation and maintenance expenses increased primarily due to an increase of $4.3 million in fossil-fueled generation expenses primarily due to a higher scope of work performed during plant outages in 2019 as compared to 2018 and an increase of $1 million in information technology costs primarily due to higher labor costs and higher software maintenance costs in 2019 as compared to 2018.
Depreciation and amortization expenses increased primarily 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
Although the effect in the first quarter 2020 was minimal, Entergy Texas expects a decline in sales volume during 2020 due to the COVID-19 pandemic, especially in the commercial and industrial customer classes. See “The COVID-19 Pandemic” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for discussion of the COVID-19 pandemic.
Other Income Statement Variances
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 2019 primarily due to2020, including the Montgomery County Power Station project.
Income Taxes
The effective income tax rate was (14.8%) for the first quarter 2020. The difference in the effective income tax rate for the first quarter 2020 versus the federal statutory rate of 21% was primarily due to the amortization of excess accumulated deferred income taxes, permanent differences related to income tax deductions for stock-based compensation, 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. See Note 10 to the financial statements herein and Notes 2 and 3 to the financial statements in the Form 10-K for a discussion of the effects and regulatory activity regarding the Tax Cuts and Jobs Act. See Note 10 to the financial statements herein for discussion of the income tax deductions for stock-based compensation.
The effective income tax rate was (554.5%) for the first quarter 2019. The difference in the effective income tax rate for the first quarter 2019 versus the federal statutory rate of 21% was primarily due to the amortization of excess accumulated deferred income taxes. See Note 10 to the financial statements herein and Notes 2 and 3 to the financial statements in the Form 10-K for a discussion of the effects and regulatory activity regarding the Tax Cuts and Jobs Act.
The effective income tax rate was 22.2% for the first quarter 2018. The difference in the effective income tax rate for the first quarter 2018 versus the federal statutory rate of 21% was primarily due to a write-off of a stock-based
compensation deferred tax asset in 2018 and state income taxes, partially offset by certain book and tax differences related to utility plant items and book and tax differences related to the allowance for equity funds used during construction.
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 2019, 2018, and 2017 results of operations and financial position, the provisions of the Tax Act, and the uncertainties associated with accounting for the Tax Act, and Note 10 to the financial statements herein contains updates to that discussion. Note 2 to the financial statements in the Form 10-K contains a discussion of the regulatory proceedings that have considered the effects of the Tax Act.
Entergy Texas, Inc. and Subsidiaries
Management's Financial Discussion and Analysis
Liquidity and Capital Resources
Cash Flow
Cash flows for the three months ended March 31, 20192020 and 20182019 were as follows:
| | | | 2019 | | 2018 | 2020 | | 2019 |
| | (In Thousands) | (In Thousands) |
| Cash and cash equivalents at beginning of period |
| $56 |
| |
| $115,513 |
|
| $12,929 |
| |
| $56 |
|
| | | | | | | |
| Cash flow provided by (used in): | | | | | | |
| Operating activities | 42,651 |
| | 1,048 |
| 37,114 |
| | 42,651 |
|
| Investing activities | (163,922 | ) | | (52,129 | ) | (232,650 | ) | | (163,922 | ) |
| Financing activities | 143,444 |
| | (25,456 | ) | 342,320 |
| | 143,444 |
|
| Net increase (decrease) in cash and cash equivalents | 22,173 |
| | (76,537 | ) | |
| Net increase in cash and cash equivalents | | 146,784 |
| | 22,173 |
|
| | | | | | | |
| Cash and cash equivalents at end of period |
| $22,229 |
| |
| $38,976 |
|
| $159,713 |
| |
| $22,229 |
|
Operating Activities
Net cash flow provided by operating activities increased $41.6decreased $5.5 million for the three months ended March 31, 20192020 compared to the three months ended March 31, 20182019 primarily due to the timing of recoverycollection of fuel and purchased power costs,receivables from customers. The decrease was partially offset by a decrease in the return of unprotected excess accumulated deferred income taxes to customers. See Note 2 to the financial statements in the Form 10-K and Note 10 to the financial statements herein for furthera discussion of the effects and the regulatory activity regarding the Tax Cuts and Jobs Act.
Entergy Texas, Inc. and Subsidiaries
Management's Financial Discussion and Analysis
Investing Activities
Net cash flow used in investing activities increased $111.8$68.7 million for the three months ended March 31, 20192020 compared to the three months ended March 31, 20182019 primarily due to:
an increase of $43.1$26.2 million in fossil-fueled generationdistribution construction expenditures primarily due to investment in the reliability and infrastructure of Entergy Texas’s distribution system, including increased spending on the Montgomery County Power Station;advanced metering infrastructure;
an increase of $37$25.4 million in transmission construction expenditures primarily duerelated to a higher scope of work performed in 2019 as compared to 2018;the Port Arthur project and Montgomery County Power Station project; and
money pool activity.
Increases in Entergy Texas’s receivable from the money pool are a use of cash flow, and Entergy Texas’s receivable from the money pool increased by $17.9 million for the three months ended March 31, 2020 compared to increasing $3.6 million for the three months ended March 31, 2019 compared to decreasing by $32.3 million for the three months ended March 31, 2018.2019. The money pool is an inter-company borrowing arrangement designed to reduce the Utility subsidiaries’ need for external short-term borrowings.
Entergy Texas, Inc. and Subsidiaries
Management's Financial Discussion and Analysis
Financing Activities
Entergy Texas’sNet cash flow provided by financing activities provided $143.4increased $198.9 million of cash for the three months ended March 31, 20192020 compared to using $25.5 million of cash for the three months ended March 31, 20182019 primarily due toto:
a capital contribution of $175 million received from Entergy Corporation in March 2020 in anticipation of upcoming expenditures, including Montgomery County Power Station;
the repayment, at maturity, of $500 million of 7.125% Series mortgage bonds in February 2019;
the issuance of $175 million of 3.55% Series mortgage bonds in 2020; and
money pool activity.
The increase was partially offset by 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 by2019. See Note 4 to the repayment, at maturity, of $500 million of 7.125% Series first mortgage bondsfinancial statements herein and Note 5 to the financial statements in February 2019 and money pool activity.the Form 10-K for more details on long-term debt.
Decreases in Entergy Texas’s payable to the money pool are a use of cash flow, and Entergy Texas’s payable to the money pool decreased by $22.4 million for the three months ended March 31, 2019.
Capital Structure
Entergy Texas’s debt to capital ratio is shown in the following table. The increasedecrease in the debt to capital ratio for Entergy Texas is primarily due to the net issuance of $200$175 million of first mortgage bondscapital contribution from received in 2019.
2020.
| | | | March 31,
2019 | | December 31, 2018 | March 31,
2020 | | December 31, 2019 |
| Debt to capital | 53.9 | % | | 51.6 | % | 50.7 | % | | 51.7 | % |
| Effect of excluding the securitization bonds | (4.2 | %) | | (5.2 | %) | (2.3 | %) | | (2.8 | %) |
| Debt to capital, excluding securitization bonds (a) | 49.7 | % | | 46.4 | % | 48.4 | % | | 48.9 | % |
| Effect of subtracting cash | (0.4 | %) | | — | % | (2.1 | %) | | (0.2 | %) |
| Net debt to net capital, excluding securitization bonds (a) | 49.3 | % | | 46.4 | % | 46.3 | % | | 48.7 | % |
| |
| (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 financingfinance 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, Inc. and Subsidiaries
Management's Financial Discussion and Analysis
Although the effect in the first quarter 2020 was minimal, Entergy Texas expects negative changes during 2020 to its customer payment patterns and its cash flow activity due to the COVID-19 pandemic. See “The COVID-19 Pandemic” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for discussion of the COVID-19 pandemic. Despite the effects of the pandemic on financial markets Entergy Texas issued $175 million of long-term mortgage bonds in March 2020. Additional discussion of Entergy Texas’s liquidity and capital resources follows.
Entergy Texas’s receivables from or (payables to) the money pool were as follows:
|
| | | | | | |
March 31,
2019 | | December 31, 2018 | | March 31, 2018 | | December 31, 2017 |
| (In Thousands) |
| $3,571 | | ($22,389) | | $12,590 | | $44,903 |
|
| | | | | | |
March 31,
2020 | | December 31, 2019 | | March 31, 2019 | | December 31, 2018 |
| (In Thousands) |
| $29,092 | | $11,181 | | $3,571 | | ($22,389) |
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 2023.2024. The credit facility includes fronting commitments for the issuance of letters of credit against $30 million of the borrowing capacity of the facility. As of March 31, 2019,2020, 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 March 31, 2019, an $11.72020, a $10.4 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.
2018 Base Rate Case
In January 2019, Entergy Texas filed for recovery of rate case expenses totaling $7.2 million. The amounts requested primarily include internal and external expenses related to litigating the 2018 base rate case. Parties filed testimony in April 2019 recommending a disallowance ranging from $3.2 million to $4.2 million of the $7.2 million requested. Entergy Texas is evaluating its response to the parties’ positions. A hearing is scheduled for June 2019.
Distribution Cost Recovery Factor (DCRF) Rider
In March 2019,2020, Entergy Texas filed with the PUCT a request to set a newamend its DCRF rider. The proposed new DCRF rider is designed to collect approximately $3.2$23.6 million annually, or $20.4 million in incremental annual DCRF revenue beyond Entergy Texas’s currently effective DCRF rider from Entergy Texas’s retail customers based on its capital invested in distribution between January 1, 20182019 and December 31, 2018. A procedural schedule has been established, with a hearing in June 2019.
Entergy Texas, Inc. and Subsidiaries
Management's Financial Discussion and Analysis
Transmission Cost Recovery Factor (TCRF) Rider
In December 2018,As discussed in the Form 10-K, in August 2019, Entergy Texas filed with the PUCT a request to set a newamend its TCRF rider. The proposed new TCRF rider is designed to collect approximately $2.7$19.4 million annually from Entergy Texas’s retail customers based on its capital invested in transmission between January 1, 2018 and June 30, 2019. In January 2020 the PUCT issued an order approving an unopposed settlement providing for recovery of the requested revenue requirement. Entergy Texas implemented the amended rider beginning with bills covering usage on and after January 23, 2020.
Fuel and purchased power recovery
In September 30, 2018.2019, Entergy Texas filed an application to reconcile its fuel and purchased power costs for the period from April 2016 through March 2019. During the reconciliation period, Entergy Texas incurred approximately $1.6 billion in Texas jurisdictional eligible fuel and purchased power expenses, net of certain revenues credited to such expenses and other adjustments. Entergy Texas estimated an under-recovery balance of approximately $25.8 million,
Entergy Texas, Inc. and Subsidiaries
Management's Financial Discussion and Analysis
including interest, which Entergy Texas requested authority to carry over as the beginning balance for the subsequent reconciliation period beginning April 2019. In April 2019 partiesMarch 2020 an intervenor filed testimony proposing a load growth adjustment, which would fully offset Entergy Texas’s proposed TCRF revenue requirement. Thethat the PUCT has previously ruled that load growth adjustments should not be includeddisallow: (1) $2 million in a TCRF.replacement power costs associated with generation outages during the reconciliation period; and (2) $24.4 million associated with the operation of the Spindletop natural gas storage facility during the reconciliation period. In April 2020, Entergy Texas filed a motion for interim rates to be effective April 2019. In April 2019rebuttal testimony refuting all points raised by the hearing on Entergy Texas’s motion and theintervenor. A hearing on the merits were held, and the ALJ suspended the date on which the TCRF would be put into permanent effect until July 2019, unless an earlier decision is issued by the PUCT. This matter is currently awaitingset for May 2020.
COVID-19 Order
In March 2020 the ALJ’s proposalPUCT authorized electric utilities to record as a regulatory asset expenses resulting from the effects of COVID-19. In future proceedings the PUCT will consider whether each utility's request for decision.recovery of these regulatory assets is reasonable and necessary, the appropriate period of recovery, and any amount of carrying costs thereon.
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, 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.
Other Postretirement Benefits
As described in Note 6 to the financial statements herein, in March 2020, Entergy announced changes to its other postretirement benefits. As a result, Entergy Texas now expects 2020 other postretirement health care and life insurance benefit income, including amounts capitalized, of $8.9 million.
New Accounting Pronouncements
See “New Accounting Pronouncements” section of Note 1 to the financial statements in the Form 10-K for a discussion of new accounting pronouncements.
| | ENTERGY TEXAS, INC. AND SUBSIDIARIES | CONSOLIDATED INCOME STATEMENTS | | For the Three Months Ended March 31, 2019 and 2018 | |
| For the Three Months Ended March 31, 2020 and 2019 | | For the Three Months Ended March 31, 2020 and 2019 |
(Unaudited) | | | | | | |
| | | 2019 | | 2018 | | 2020 | | 2019 |
| | | (In Thousands) | | (In Thousands) |
| OPERATING REVENUES | | | | | | | | |
| Electric | |
| $340,474 |
| |
| $348,940 |
| |
| $339,336 |
| |
| $340,474 |
|
| | | | | | | | | |
| OPERATING EXPENSES | | | | | | | | |
| Operation and Maintenance: | | | | | | | | |
| Fuel, fuel-related expenses, and gas purchased for resale | | 48,103 |
| | 18,706 |
| | 41,346 |
| | 48,103 |
|
| Purchased power | | 140,868 |
| | 159,692 |
| | 119,791 |
| | 140,868 |
|
| Other operation and maintenance | | 59,626 |
| | 52,674 |
| | 58,933 |
| | 59,626 |
|
| Taxes other than income taxes | | 18,640 |
| | 20,403 |
| | 19,272 |
| | 18,640 |
|
| Depreciation and amortization | | 37,037 |
| | 30,766 |
| | 42,566 |
| | 37,037 |
|
| Other regulatory charges - net | | 19,459 |
| | 25,617 |
| | 21,368 |
| | 19,459 |
|
| TOTAL | | 323,733 |
| | 307,858 |
| | 303,276 |
| | 323,733 |
|
| | | | | | | | | |
| OPERATING INCOME | | 16,741 |
| | 41,082 |
| | 36,060 |
| | 16,741 |
|
| | | | | | | | | |
| OTHER INCOME | | | | | | | | |
| Allowance for equity funds used during construction | | 5,081 |
| | 1,661 |
| | 10,641 |
| | 5,081 |
|
| Interest and investment income | | 1,682 |
| | 555 |
| | 429 |
| | 1,682 |
|
| Miscellaneous - net | | (363 | ) | | 113 |
| | (346 | ) | | (363 | ) |
| TOTAL | | 6,400 |
| | 2,329 |
| | 10,724 |
| | 6,400 |
|
| | | | | | | | | |
| INTEREST EXPENSE | | | | | | | | |
| Interest expense | | 22,460 |
| | 22,051 |
| | 22,858 |
| | 22,460 |
|
| Allowance for borrowed funds used during construction | | (2,580 | ) | | (938 | ) | | (4,573 | ) | | (2,580 | ) |
| TOTAL | | 19,880 |
| | 21,113 |
| | 18,285 |
| | 19,880 |
|
| | | | | | | | | |
| INCOME BEFORE INCOME TAXES | | 3,261 |
| | 22,298 |
| | 28,499 |
| | 3,261 |
|
| | | | | | | | | |
| Income taxes | | (18,081 | ) | | 4,948 |
| | (4,208 | ) | | (18,081 | ) |
| | | | | | | | | |
| NET INCOME | |
| $21,342 |
| |
| $17,350 |
| | 32,707 |
| | 21,342 |
|
| | | | | | | | | |
| Preferred dividend requirements | | | 470 |
| | — |
|
| | | | | | |
| EARNINGS APPLICABLE TO COMMON STOCK | | |
| $32,237 |
| |
| $21,342 |
|
| | | | | | |
| See Notes to Financial Statements. | | | | | | | | |
(Page left blank intentionally)
| | ENTERGY TEXAS, INC. AND SUBSIDIARIES | CONSOLIDATED STATEMENTS OF CASH FLOWS | | For the Three Months Ended March 31, 2019 and 2018 | |
| For the Three Months Ended March 31, 2020 and 2019 | | For the Three Months Ended March 31, 2020 and 2019 |
(Unaudited) | | | | 2019 | | 2018 | | 2020 | | 2019 |
| | | (In Thousands) | | (In Thousands) |
| OPERATING ACTIVITIES | | | | | | | | |
| Net income | |
| $21,342 |
| |
| $17,350 |
| |
| $32,707 |
| |
| $21,342 |
|
| Adjustments to reconcile net income to net cash flow provided by operating activities: | | | | | | | | |
| Depreciation and amortization | | 37,037 |
| | 30,766 |
| | 42,566 |
| | 37,037 |
|
| Deferred income taxes, investment tax credits, and non-current taxes accrued | | (10,123 | ) | | (21,607 | ) | | 3,921 |
| | (10,123 | ) |
| Changes in assets and liabilities: | | | | | | | | |
| Receivables | | 65,394 |
| | 9,190 |
| | 1,221 |
| | 65,394 |
|
| Fuel inventory | | (173 | ) | | (134 | ) | | (1,127 | ) | | (173 | ) |
| Accounts payable | | (57,447 | ) | | (24,653 | ) | | (35,288 | ) | | (57,447 | ) |
| Taxes accrued | | (9,465 | ) | | 3,981 |
| | (20,597 | ) | | (9,465 | ) |
| Interest accrued | | (4,638 | ) | | (5,575 | ) | | (7,380 | ) | | (4,638 | ) |
| Deferred fuel costs | | 8,331 |
| | (28,626 | ) | | 8,138 |
| | 8,331 |
|
| Other working capital accounts | | (913 | ) | | 4,788 |
| | 5,004 |
| | (913 | ) |
| Provisions for estimated losses | | 1,074 |
| | (208 | ) | | 5 |
| | 1,074 |
|
| Other regulatory assets | | 1,358 |
| | 20,497 |
| | 34,309 |
| | 1,358 |
|
| Other regulatory liabilities | | (24,365 | ) | | 5,145 |
| | (8,854 | ) | | (24,365 | ) |
| Pension and other postretirement liabilities | | (1,120 | ) | | (6,851 | ) | | (9,086 | ) | | (1,120 | ) |
| Other assets and liabilities | | 16,359 |
| | (3,015 | ) | | (8,425 | ) | | 16,359 |
|
| Net cash flow provided by operating activities | | 42,651 |
| | 1,048 |
| | 37,114 |
| | 42,651 |
|
| | | | | | | | | |
| INVESTING ACTIVITIES | | | | | | | | |
| Construction expenditures | | (176,186 | ) | | (94,123 | ) | | (236,984 | ) | | (176,186 | ) |
| Allowance for equity funds used during construction | | 5,111 |
| | 1,696 |
| | 10,641 |
| | 5,111 |
|
| Changes in money pool receivable - net | | (3,571 | ) | | 32,313 |
| | (17,911 | ) | | (3,571 | ) |
| Changes in securitization account | | 10,724 |
| | 7,985 |
| | 11,604 |
| | 10,724 |
|
| Net cash flow used in investing activities | | (163,922 | ) | | (52,129 | ) | | (232,650 | ) | | (163,922 | ) |
| | | | | | | | | |
| FINANCING ACTIVITIES | | | | | | | | |
| Proceeds from the issuance of long-term debt | | 692,633 |
| | — |
| | 194,631 |
| | 692,633 |
|
| Retirement of long-term debt | | (525,841 | ) | | (24,977 | ) | | (26,864 | ) | | (525,841 | ) |
| Capital contribution from parent | | | 175,000 |
| | — |
|
| Change in money pool payable - net | | (22,389 | ) | | — |
| | — |
| | (22,389 | ) |
| Dividends paid: | | | | | |
| Preferred stock | | | (653 | ) | | — |
|
| Other | | (959 | ) | | (479 | ) | | 206 |
| | (959 | ) |
| Net cash flow provided by (used in) financing activities | | 143,444 |
| | (25,456 | ) | |
| Net cash flow provided by financing activities | | | 342,320 |
| | 143,444 |
|
| | | | | | | | | |
| Net increase (decrease) in cash and cash equivalents | | 22,173 |
| | (76,537 | ) | |
| Net increase in cash and cash equivalents | | | 146,784 |
| | 22,173 |
|
| Cash and cash equivalents at beginning of period | | 56 |
| | 115,513 |
| | 12,929 |
| | 56 |
|
| Cash and cash equivalents at end of period | |
| $22,229 |
| |
| $38,976 |
| |
| $159,713 |
| |
| $22,229 |
|
| | | | | | | | | |
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | | | | | | | | |
| Cash paid (received) during the period for: | | | | | | | | |
| Interest - net of amount capitalized | |
| $26,002 |
| |
| $26,939 |
| |
| $29,699 |
| |
| $26,002 |
|
| Income taxes | |
| $— |
| |
| ($1,624 | ) | |
| ($2,358 | ) | |
| $— |
|
| | | | | | | | | |
| See Notes to Financial Statements. | | | | | | | | |
| | ENTERGY TEXAS, INC. AND SUBSIDIARIES | CONSOLIDATED BALANCE SHEETS | ASSETS | | March 31, 2019 and December 31, 2018 | |
| March 31, 2020 and December 31, 2019 | | March 31, 2020 and December 31, 2019 |
(Unaudited) | | | | 2019 | | 2018 | | 2020 | | 2019 |
| | | (In Thousands) | | (In Thousands) |
| CURRENT ASSETS | | | | | | | | |
| Cash and cash equivalents: | | | | | | | | |
| Cash | |
| $26 |
| |
| $26 |
| |
| $30 |
| |
| $25 |
|
| Temporary cash investments | | 22,203 |
| | 30 |
| | 159,683 |
| | 12,904 |
|
| Total cash and cash equivalents | | 22,229 |
| | 56 |
| | 159,713 |
| | 12,929 |
|
| Securitization recovery trust account | | 29,461 |
| | 40,185 |
| | 26,116 |
| | 37,720 |
|
| Accounts receivable: | | | | | | | | |
| Customer | | 63,194 |
| | 69,714 |
| | 64,497 |
| | 59,365 |
|
| Allowance for doubtful accounts | | (412 | ) | | (461 | ) | | (613 | ) | | (471 | ) |
| Associated companies | | 16,273 |
| | 64,441 |
| | 42,628 |
| | 24,001 |
|
| Other | | 9,964 |
| | 12,275 |
| | 7,177 |
| | 17,050 |
|
| Accrued unbilled revenues | | 46,415 |
| | 51,288 |
| | 52,994 |
| | 50,048 |
|
| Total accounts receivable | | 135,434 |
| | 197,257 |
| | 166,683 |
| | 149,993 |
|
| Fuel inventory - at average cost | | 42,840 |
| | 42,667 |
| | 48,720 |
| | 47,593 |
|
| Materials and supplies - at average cost | | 43,560 |
| | 41,883 |
| | 45,647 |
| | 46,056 |
|
| Prepayments and other | | 11,231 |
| | 15,903 |
| | 15,481 |
| | 21,012 |
|
| TOTAL | | 284,755 |
| | 337,951 |
| | 462,360 |
| | 315,303 |
|
| | | | | | | | | |
| OTHER PROPERTY AND INVESTMENTS | | | | | | | | |
| Investments in affiliates - at equity | | 436 |
| | 448 |
| | 384 |
| | 396 |
|
| Non-utility property - at cost (less accumulated depreciation) | | 376 |
| | 376 |
| | 376 |
| | 376 |
|
| Other | | 19,433 |
| | 19,218 |
| | 20,299 |
| | 20,077 |
|
| TOTAL | | 20,245 |
| | 20,042 |
| | 21,059 |
| | 20,849 |
|
| | | | | | | | | |
| UTILITY PLANT | | | | | | | | |
| Electric | | 4,804,948 |
| | 4,773,984 |
| | 5,274,289 |
| | 5,199,027 |
|
| Construction work in progress | | 450,207 |
| | 325,193 |
| | 897,690 |
| | 760,354 |
|
| TOTAL UTILITY PLANT | | 5,255,155 |
| | 5,099,177 |
| | 6,171,979 |
| | 5,959,381 |
|
| Less - accumulated depreciation and amortization | | 1,694,292 |
| | 1,684,569 |
| | 1,796,382 |
| | 1,770,852 |
|
| UTILITY PLANT - NET | | 3,560,863 |
| | 3,414,608 |
| | 4,375,597 |
| | 4,188,529 |
|
| | | | | | | | | |
| DEFERRED DEBITS AND OTHER ASSETS | | | | | | | | |
| Regulatory assets: | | | | | | | | |
| 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 regulatory assets (includes securitization property of $143,883 as of March 31, 2020 and $160,375 as of December 31, 2019) | | | 478,339 |
| | 512,648 |
|
| Other | | 31,171 |
| | 29,371 |
| | 45,926 |
| | 33,393 |
|
| TOTAL | | 627,861 |
| | 627,419 |
| | 524,265 |
| | 546,041 |
|
| | | | | | | | | |
| TOTAL ASSETS | |
| $4,493,724 |
| |
| $4,400,020 |
| |
| $5,383,281 |
| |
| $5,070,722 |
|
| | | | | | | | | |
| See Notes to Financial Statements. | | |
| | |
| | |
| | |
|
| | ENTERGY TEXAS, INC. AND SUBSIDIARIES | CONSOLIDATED BALANCE SHEETS | LIABILITIES AND EQUITY | | March 31, 2019 and December 31, 2018 | |
| March 31, 2020 and December 31, 2019 | | March 31, 2020 and December 31, 2019 |
(Unaudited) | | | | 2019 | | 2018 | | 2020 | | 2019 |
| | | (In Thousands) | | (In Thousands) |
| CURRENT LIABILITIES | | | | | | | | |
| Currently maturing long-term debt | |
| $— |
| |
| $500,000 |
| |
| Accounts payable: | | | | | | | | |
| Associated companies | | 48,588 |
| | 119,371 |
| |
| $44,446 |
| |
| $58,055 |
|
| Other | | 158,286 |
| | 150,679 |
| | 156,817 |
| | 188,460 |
|
| Customer deposits | | 40,967 |
| | 43,387 |
| | 39,774 |
| | 40,232 |
|
| Taxes accrued | | 44,048 |
| | 53,513 |
| | 29,111 |
| | 49,708 |
|
| Interest accrued | | 19,717 |
| | 24,355 |
| | 11,612 |
| | 18,992 |
|
| Current portion of unprotected excess accumulated deferred income taxes | | 73,112 |
| | 87,627 |
| | 27,244 |
| | 26,552 |
|
| Deferred fuel costs | | 28,028 |
| | 19,697 |
| | 21,139 |
| | 13,001 |
|
| Other | | 9,233 |
| | 6,353 |
| | 10,223 |
| | 10,521 |
|
| TOTAL | | 421,979 |
| | 1,004,982 |
| | 340,366 |
| | 405,521 |
|
| | | | | | | | | |
| NON-CURRENT LIABILITIES | | | | | | | | |
| Accumulated deferred income taxes and taxes accrued | | 543,550 |
| | 552,535 |
| | 594,102 |
| | 585,413 |
|
| Accumulated deferred investment tax credits | | 11,021 |
| | 11,176 |
| | 10,405 |
| | 10,559 |
|
| Regulatory liability for income taxes - net | | 254,771 |
| | 264,623 |
| | 215,551 |
| | 225,980 |
|
| Other regulatory liabilities | | 47,886 |
| | 47,884 |
| | 42,968 |
| | 42,085 |
|
| Asset retirement cost liabilities | | 7,322 |
| | 7,222 |
| | 7,736 |
| | 7,631 |
|
| Accumulated provisions | | 14,930 |
| | 13,856 |
| | 8,113 |
| | 8,108 |
|
| Pension and other postretirement liabilities | | 3,699 |
| | 4,834 |
| |
| 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 |
| |
| Long-term debt (includes securitization bonds of $178,555 as of March 31, 2020 and $205,349 as of December 31, 2019) | | | 2,091,130 |
| | 1,922,956 |
|
| Other | | 63,856 |
| | 56,771 |
| | 66,266 |
| | 63,062 |
|
| TOTAL | | 2,628,001 |
| | 1,972,636 |
| | 3,036,271 |
| | 2,865,794 |
|
| | | | | | | | | |
| Commitments and Contingencies | | | | | | | | |
| | | | | | | | | |
| COMMON EQUITY | | | | | |
| Common stock, no par value, authorized 200,000,000 shares; issued and outstanding 46,525,000 shares in 2019 and 2018 | | 49,452 |
| | 49,452 |
| |
| EQUITY | | | | | |
| Common stock, no par value, authorized 200,000,000 shares; issued and outstanding 46,525,000 shares in 2020 and 2019 | | | 49,452 |
| | 49,452 |
|
| Paid-in capital | | 596,994 |
| | 596,994 |
| | 955,182 |
| | 780,182 |
|
| Retained earnings | | 797,298 |
| | 775,956 |
| | 967,010 |
| | 934,773 |
|
| Total common shareholder's equity | | | 1,971,644 |
| | 1,764,407 |
|
| Preferred stock without sinking fund | | | 35,000 |
| | 35,000 |
|
| TOTAL | | 1,443,744 |
| | 1,422,402 |
| | 2,006,644 |
| | 1,799,407 |
|
| | | | | | | | | |
| TOTAL LIABILITIES AND EQUITY | |
| $4,493,724 |
| |
| $4,400,020 |
| |
| $5,383,281 |
| |
| $5,070,722 |
|
| | | | | | | | | |
| See Notes to Financial Statements. | | | | | | | | |
| | ENTERGY TEXAS, INC. AND SUBSIDIARIES | | CONSOLIDATED STATEMENTS OF CHANGES IN COMMON EQUITY | |
| For the Three Months Ended March 31, 2019 and 2018 | |
| CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY | | CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY |
| For the Three Months Ended March 31, 2020 and 2019 | | For the Three Months Ended March 31, 2020 and 2019 |
(Unaudited) | | | | | | | | | | |
| | Common Equity | | | | | Common Equity | | |
| | Common Stock | | Paid-in Capital | | Retained Earnings | | Total | Preferred Stock | | Common Stock | | Paid-in Capital | | Retained Earnings | | Total |
| | (In Thousands) | (In Thousands) |
| | | | | | | | | | | | | | | | | |
| Balance at December 31, 2017 |
| $49,452 |
| |
| $596,994 |
| |
| $613,721 |
| |
| $1,260,167 |
| |
| | | | | | | | | |
| Net income | — |
| | — |
| | 17,350 |
| | 17,350 |
| |
| | | | | | | | | |
| 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 |
|
| $— |
| |
| $49,452 |
| |
| $596,994 |
| |
| $775,956 |
| |
| $1,422,402 |
|
| | | | | | | | | | | | | | | | | |
| Net income | — |
| | — |
| | 21,342 |
| | 21,342 |
| — |
| | — |
| | — |
| | 21,342 |
| | 21,342 |
|
| | | | | | | | | |
| Balance at March 31, 2019 |
| $49,452 |
| |
| $596,994 |
| |
| $797,298 |
| |
| $1,443,744 |
|
| $— |
| |
| $49,452 |
| |
| $596,994 |
| |
| $797,298 |
| |
| $1,443,744 |
|
| | | | | | | | | | | | | | | | | |
| |
|
| |
|
| |
|
| |
|
| |
|
|
| Balance at December 31, 2019 | |
| $35,000 |
| |
| $49,452 |
| |
| $780,182 |
| |
| $934,773 |
| |
| $1,799,407 |
|
| | | | | | | | | | | |
| Net income | | — |
| | — |
| | — |
| | 32,707 |
| | 32,707 |
|
| Capital contribution from parent | | — |
| | — |
| | 175,000 |
| | — |
| | 175,000 |
|
| Preferred stock dividends | | — |
| | — |
| | — |
| | (470 | ) | | (470 | ) |
| Balance at March 31, 2020 | |
| $35,000 |
| |
| $49,452 |
| |
| $955,182 |
| |
| $967,010 |
| |
| $2,006,644 |
|
| | | | | | | | | | | |
| See Notes to Financial Statements. | | | | | | | | | | | | | | | | |
| | ENTERGY TEXAS, INC. AND SUBSIDIARIES | SELECTED OPERATING RESULTS | | For the Three Months Ended March 31, 2019 and 2018 | |
| For the Three Months Ended March 31, 2020 and 2019 | | For the Three Months Ended March 31, 2020 and 2019 |
(Unaudited) | | | | | | | | | | | | | | |
| | | Three Months Ended | | Increase/ | | | | Three Months Ended | | Increase/ | | |
| Description | | 2019 | | 2018 | | (Decrease) | | % | |
| | | | 2020 | | 2019 | | (Decrease) | | % |
| | | (Dollars In Millions) | | | | (Dollars In Millions) | | |
| Electric Operating Revenues: | | | | | | | | | | | | | | | | |
| Residential | |
| $148 |
| |
| $148 |
| |
| $— |
| | — |
| |
| $140 |
| |
| $148 |
| |
| ($8 | ) | | (5 | ) |
| Commercial | | 79 |
| | 85 |
| | (6 | ) | | (7 | ) | | 83 |
| | 79 |
| | 4 |
| | 5 |
|
| Industrial | | 88 |
| | 83 |
| | 5 |
| | 6 |
| | 90 |
| | 88 |
| | 2 |
| | 2 |
|
| Governmental | | 5 |
| | 6 |
| | (1 | ) | | (17 | ) | | 6 |
| | 5 |
| | 1 |
| | 20 |
|
| Total billed retail | | 320 |
| | 322 |
| | (2 | ) | | (1 | ) | | 319 |
| | 320 |
| | (1 | ) | | — |
|
| Sales for resale: | | | | | | | | | | | | | | | | |
| Associated companies | | 14 |
| | 13 |
| | 1 |
| | 8 |
| | 7 |
| | 14 |
| | (7 | ) | | (50 | ) |
| Non-associated companies | | 3 |
| | 10 |
| | (7 | ) | | (70 | ) | | 1 |
| | 3 |
| | (2 | ) | | (67 | ) |
| Other | | 3 |
| | 4 |
| | (1 | ) | | (25 | ) | | 12 |
| | 3 |
| | 9 |
| | 300 |
|
| Total | |
| $340 |
| |
| $349 |
| |
| ($9 | ) | | (3 | ) | |
| $339 |
| |
| $340 |
| |
| ($1 | ) | | — |
|
| | | | | | | | | | | | | | | | | |
| Billed Electric Energy Sales (GWh): | | | | | | | | | | | | | | | | |
| Residential | | 1,360 |
| | 1,474 |
| | (114 | ) | | (8 | ) | | 1,326 |
| | 1,360 |
| | (34 | ) | | (3 | ) |
| Commercial | | 1,046 |
| | 1,083 |
| | (37 | ) | | (3 | ) | | 1,000 |
| | 1,046 |
| | (46 | ) | | (4 | ) |
| Industrial | | 1,831 |
| | 1,832 |
| | (1 | ) | | — |
| | 1,897 |
| | 1,831 |
| | 66 |
| | 4 |
|
| Governmental | | 62 |
| | 70 |
| | (8 | ) | | (11 | ) | | 64 |
| | 62 |
| | 2 |
| | 3 |
|
| Total retail | | 4,299 |
| | 4,459 |
| | (160 | ) | | (4 | ) | | 4,287 |
| | 4,299 |
| | (12 | ) | | — |
|
| Sales for resale: | | | | | | | | | | | | | | | | |
| Associated companies | | 402 |
| | 366 |
| | 36 |
| | 10 |
| | 244 |
| | 402 |
| | (158 | ) | | (39 | ) |
| Non-associated companies | | 96 |
| | 194 |
| | (98 | ) | | (51 | ) | | 85 |
| | 96 |
| | (11 | ) | | (11 | ) |
| Total | | 4,797 |
| | 5,019 |
| | (222 | ) | | (4 | ) | | 4,616 |
| | 4,797 |
| | (181 | ) | | (4 | ) |
SYSTEM ENERGY RESOURCES, INC.
MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS
Results of Operations
System Energy’s principal asset currently consists of an ownership interest and a leasehold interest in Grand Gulf. The capacity and energy from its 90% interest is sold under the Unit Power Sales Agreement to its only four customers, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans. System Energy’s operating revenues are derived from the allocation of the capacity, energy, and related costs associated with its 90% interest in Grand Gulf pursuant to the Unit Power Sales Agreement. Payments under the Unit Power Sales Agreement are System Energy’s only source of operating revenues.
Results of Operations
Net Income
Net income increased $1.3$4.9 million primarily due to provisions against revenue recorded in 2019 in connection with the complaint against System Energy’s return on equity. Also contributing to the increase was an increase in operating revenuesthe allowance for equity funds used during construction resulting from changesspending on Grand Gulf outages and upgrades in rate base as compared2020. See Note 2 to the prior yearfinancial statements herein and a lowerin the Form 10-K for further discussion of the return on equity complaint against System Energy.
Income Taxes
The effective income tax rate.rate was 16% for the first quarter 2020. The difference in the effective income tax rate for the first quarter 2020 versus the federal statutory rate of 21% was primarily due to certain book and tax differences related to utility plant items, permanent differences related to income tax deductions for stock-based compensation, and book and tax differences related to the allowance for equity funds used during construction, partially offset by state income taxes. See Note 10 to the financial statements herein for discussion of the income tax deductions for stock-based compensation.
The effective income tax rate was 20.6% for the first quarter 2019. The difference in the effective income tax rate for the first quarter 2019 versus the federal statutory rate of 21% was primarily due to 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.
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 2019, 2018, and 2017 results of operations and financial position, the provisions of the Tax Act, and the uncertainties associated with accounting for the Tax Act, and Note 10 to the financial statements herein contains updates to that discussion. Note 2 to the financial statements in the Form 10-K contains a discussion of the regulatory proceedings that 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 Resources
Cash Flow
Cash flows for the three months ended March 31, 2020 and 2019 were as follows:
|
| | | | | | | |
| | 2020 | | 2019 |
| | (In Thousands) |
| Cash and cash equivalents at beginning of period |
| $68,534 |
| |
| $95,685 |
|
| | | | |
| Cash flow provided by (used in): | | | |
| Operating activities | 60,442 |
| | 57,717 |
|
| Investing activities | (79,532 | ) | | 70,709 |
|
| Financing activities | 43,002 |
| | (65,810 | ) |
| Net increase in cash and cash equivalents | 23,912 |
| | 62,616 |
|
| | | | |
| Cash and cash equivalents at end of period |
| $92,446 |
| |
| $158,301 |
|
Operating Activities
Net cash flow provided by operating activities decreasedincreased by $7.7$2.7 million for the three months ended March 31, 20192020 compared to the three months ended March 31, 20182019 primarily due to the timing of collection of receivables,payments to vendors, partially offset by a decreasean increase in spending of $3.7$17.7 million on nuclear refueling outages in 20192020 as compared to the same period in 2018 and a decrease of $3.4 million in pension contributions in 2019. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Critical Accounting Estimates” in the Form 10-K and Note 6 to the financial statements herein for a discussion of qualified pension and other postretirement benefits funding.
Investing Activities
System Energy’s investing activities providedused $79.5 million of cash for the three months ended March 31, 2020 compared to providing $70.7 million of cash for the three months ended March 31, 2019 compared to using $86 million of cash for the three months ended March 31, 2018 primarily due to:to the following activity:
an increasea decrease of $92.5$77.8 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
money pool activity.activity; and
an increase of $35.5 million in nuclear construction expenditures as a result of spending in 2020 on Grand Gulf outage projects and upgrades.
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 $42.5 million for the three months ended March 31, 2020 compared to decreasing by $81.6 million for the three months ended March 31, 2019 compared to decreasing by $21.5 million for the three months ended March 31, 2018.2019. The money pool is an inter-company borrowing arrangement designed to reduce the Utility subsidiaries’ need for external short-term borrowings.
Financing Activities
System Energy’s financing activities usedprovided $43 million of cash for the three months ended March 31, 2020 compared to using $65.8 million of cash for the three months ended March 31, 2019 compared to providing $12.1 million of cash for the three months ended March 31, 2018 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$56.7 million of 3.42% Series J notes by the System Energy nuclear fuel company variable interest entity;
long-term borrowings in 2020 compared to net repayments of $19.8 million of long-term borrowings of $19.8 million in 2019 on the nuclear fuel company variable interest entity’s credit facility compared to net repayments of long-term borrowings of $50 million in 2018 on the nuclear fuel company variable interest entity’s credit facility; and
a decrease of $17.7 million in 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
a decrease of $31.8 million in common stock dividends and distributions in 2020 in order to maintain System Energy’s capital structure.
Capital Structure
System Energy’s debt to capital ratio is shown in the following table. The increase in the debt to capital ratio is primarily due to an increase in long-term debt outstanding.
| | | | March 31, 2019 | | December 31, 2018 | March 31, 2020 | | December 31, 2019 |
| Debt to capital | 46.1 | % | | 46.1 | % | 45.4 | % | | 43.5 | % |
| Effect of subtracting cash | (7.4 | %) | | (4.0 | %) | (4.1 | %) | | (3.3 | %) |
| Net debt to net capital | 38.7 | % | | 42.1 | % | 41.3 | % | | 40.2 | % |
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’s receivables from the money pool were as follows:
|
| | | | | | |
March 31, 2019 | | December 31, 2018 | | March 31, 2018 | | December 31, 2017 |
| (In Thousands) |
| $25,487 | | $107,122 | | $90,136 | | $111,667 |
|
| | | | | | |
March 31, 2020 | | December 31, 2019 | | March 31, 2019 | | December 31, 2018 |
| (In Thousands) |
| $16,819 | | $59,298 | | $25,487 | | $107,122 |
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 March 31, 2019, $94.12020, $88.3 million in letters of credit to support a like amount of commercial paper issuedloans were outstanding under the System Energy nuclear fuel company variable interest entity credit facility. See Note 4 to the financial statements herein for additional discussion of the variable interest entity credit facility.
Federal Regulation
See the “Rate, Cost-recovery, and Other Regulation - Federal Regulation” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis in the Form 10-K and Note 2 to the financial statements herein and in the Form 10-K for a discussion of federal regulation.
System Energy Resources, Inc.
Management's Financial Discussion and Analysis
Complaints Against System Energy
Return on Equity and Capital Structure Complaints
SeeAs discussed in the Form 10-K, forin November 2019, in a discussion of the return on equity complaints filed by the APSC and the MPSC and by the LPSC against System Energy. The LPSC’s complaint also includes a challenge to System Energy’s capital structure. In August 2018proceeding that did not involve Entergy, the FERC issued an order dismissingaddressing the LPSC’s request to investigate System Energy’s capital structure and settingmethodology for hearingdetermining the return on equity complaint, with a refund effective date of April 2018. The portion ofapplicable to transmission owners in MISO. Thereafter, the LPSC’s complaint dealing with return on equity was subsequently consolidated withparticipants in the System Energy proceeding agreed to amend the procedural schedule to allow the participants to file supplemental testimony addressing the order in the MISO transmission owner proceeding (Opinion No. 569).
In February 2020 the LPSC, the MPSC and APSC, and MPSC complaint for hearing. The consolidated hearing has been scheduled for September 2019, and the parties are required to address an order (issued in a separate proceeding involving New England transmission owners) that proposed modifying the FERC’s standard methodology for determining return on equity. In September 2018, System Energy filed a request for rehearing and the LPSC filed a request for rehearing or reconsideration of the FERC’s August 2018 order. The LPSC’s request referenced an amended complaint that it filed on the same day raising the same capital structure claim the FERC had earlier dismissed. The FERC initiated a new proceeding for the amended capital structure complaint,trial staff filed supplemental testimony addressing Opinion No. 569 and System Energy submitted a response in October 2018. In January 2019 the FERC set the amended capital structure complaint for settlement and hearing proceedings. Settlement procedures in the capital structure proceeding commenced in February 2019.
In January 2019 the LPSC and the APSC and MPSC filed direct testimony inhow it would affect the return on equity proceeding.evaluation for the two complaint periods concerning System Energy. For the first refund period, January 23, 2017 through April 23, 2018,based on their respective interpretations and applications of the Opinion No. 569 methodology, the LPSC argues for an authorized return on equity for System Energy of 7.81%8.44%; the MPSC and the APSC and MPSC argue for an authorized return on equity of 8.41%; and the FERC trial staff argues for System Energyan authorized return on equity of 8.24%9.22%. For the second refund period April 27, 2018 through July 27, 2019, and for application on a prospective basis, based on their respective interpretations and applications of the Opinion No. 569 methodology, the LPSC argues for an authorized return on equity for System Energy of 7.97%7.89%; the MPSC and APSC argue that an authorized return on equity of 8.01% may be appropriate; and the APSC and MPSC argueFERC trial staff argues for an authorized return on equity forof 8.66%.
In April 2020, System Energy of 8.41%. In March 2019,filed supplemental answering testimony addressing Opinion No. 569. System Energy submitted answering testimony inargues that the Opinion No. 569 methodology is conceptually and analytically defective for purposes of establishing just and reasonable authorized return on equity determinations and proposes an alternative approach. As its primary recommendation, System Energy continues to support the return on equity proceeding. Fordeterminations in its March 2019 testimony for the first refund period System Energy’sand its June 2019 testimony argues for a return on equity of 10.10% (median) or 10.70% (midpoint). For the second refund period,period. Under the Opinion No. 569 methodology, System Energy’s testimony shows thatEnergy calculates a “presumptively just and reasonable range” for the calculated returnsauthorized return on equity for the first refund period fallof 8.57% to 9.52%, and for the second refund period of 8.28% to 9.11%. System Energy argues that these ranges are not just and reasonable results. Under its proposed alternative methodology, System Energy calculates an authorized return on equity of 10.26% for the first refund period, which also falls 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 equityrange calculated for the second refund period (and going forward),and prospectively.
The schedule was further revised in March 2020, and rebuttal testimony addressing Opinion No. 569 is due in June 2020; the hearing in the System Energy arguesproceeding will commence in August 2020; and the return on equity shouldinitial decision will be either 10.32% (median) or 10.69% (midpoint).due in December 2020.
Grand Gulf Sale-leaseback Renewal Complaint
As discussed in the Form 10-K, in May 2018 the LPSC filed a complaint against System Energy and Entergy Services related to System Energy’s renewal of a sale-leaseback transaction originally entered into in December 1988 for an 11.5% undivided interest in Grand Gulf Unit 1.
In February 2019 the presiding ALJ ruled that the hearing ordered by the FERC includes the issue of whether specific subcategories of accumulated deferred income tax should be included in, or excluded from, System Energy’s formula rate. In March 2019 the LPSC, MPSC, APSC, and City Council filed direct testimony. The LPSC testimony seekssought 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
In June 2019 System Energy filed answering testimony arguing that the FERC should reject all claims for refunds. Among other things, System Energy argued that claims for refunds of the City Councilcosts of lease renewal payments and the APSC and MPSC address various issues raised by the LPSC. System Energy disputes that any refunds are owed for billings undercapital additions should be rejected because those costs were recovered consistent with the Unit Power Sales Agreement. A hearing has been scheduledAgreement formula rate, System Energy was not over or double recovering any costs, and customers will save costs over the initial and renewal terms of the leases. System Energy argued that claims for November 2019.refunds associated with liabilities
System Energy Resources, Inc.
Management's Financial Discussion and Analysis
arising from uncertain tax positions should be rejected because the liabilities do not provide cost-free capital, the repayment timing of the liabilities is uncertain, and the outcome of the underlying tax positions is uncertain. System Energy’s testimony also challenged the refund calculations supplied by the other parties.
In August 2019 the FERC trial staff filed direct and answering testimony seeking refunds for rate base reductions for the liabilities associated with uncertain tax positions. The FERC trial staff also argued that System Energy recovered $32 million more than it should have in depreciation expense for capital additions. In September 2019, System Energy filed cross-answering testimony disputing the FERC trial staff’s arguments for refunds, stating that the FERC trial staff’s position regarding depreciation rates for capital additions is not unreasonable, but explaining that any change in depreciation expense is only one element of a Unit Power Sales Agreement re-billing calculation. Adjustments to depreciation expense in any re-billing under the Unit Power Sales Agreement formula rate will also involve changes to accumulated depreciation, accumulated deferred income taxes, and other formula elements as needed. In October 2019 the LPSC filed rebuttal testimony increasing the amount of refunds sought for the liabilities associated with uncertain tax positions. The LPSC now seeks approximately $512 million, plus interest, which is approximately $170 million through March 31, 2020. The FERC trial staff also filed rebuttal testimony in which it seeks refunds of a similar amount as the LPSC for the liabilities associated with uncertain tax positions. The LPSC testimony also argued that adjustments to depreciation rates should affect rate base on a prospective basis only.
A hearing was held before a FERC ALJ in November 2019. In April 2020 the ALJ issued the initial decision. Among other things, the ALJ determined that refunds were due on three main issues. First, with regard to the lease renewal payments, the ALJ determined that System Energy is recovering an unjust acquisition premium through the lease renewal payments, and that System Energy’s recovery from customers through rates should be limited to the cost of service based on the remaining net book value of the leased assets, which is approximately $70 million. The ALJ found that the remedy for this issue should be the refund of lease payments (approximately $17.2 million per year since July 2015) with interest determined at the FERC quarterly interest rate, which would be offset by the addition of the net book value of the leased assets in the cost of service. The ALJ did not calculate a value for the refund expected as a result of this remedy. In addition, System Energy would no longer recover the lease payments in rates prospectively. Second, with regard to the liabilities associated with uncertain tax positions, the ALJ determined that the liabilities are accumulated deferred income taxes and System Energy’s rate base should have been reduced for those liabilities. If the ALJ’s initial decision is upheld, the estimated refund for this issue through March 31, 2020, is approximately $397 million, plus interest, which is approximately $96 million through March 31, 2020. The ALJ also found that System Energy should include liabilities associated with uncertain tax positions as a rate base reduction going forward. Third, with regard to the depreciation expense adjustments, the ALJ found that System Energy should correct for the error in re-billings retroactively and prospectively, but that System Energy should not be permitted to recover interest on any retroactive return on enhanced rate base resulting from such corrections. If the initial decision is affirmed on this issue, System Energy estimates refunds of approximately $18 million, which includes interest through March 31, 2020.
The ALJ initial decision is an interim step in the FERC litigation process, and an ALJ’s determinations made in an initial decision are not controlling on the FERC. System Energy plans to file briefs on exceptions to the FERC, re-urging its positions and requesting the reversal of many of the findings in the ALJ’s initial decision, including the lease renewal and uncertain tax position issues. The ALJ in the initial decision acknowledges that these are issues of first impression before the FERC. Briefs on exceptions from all parties are scheduled for June 2020, and briefs opposing exceptions are scheduled for September 2020. The FERC will then review the case and issue an order on the proceeding, and the FERC may accept, reject, or modify the ALJ’s initial decision in whole or in part. Refunds, if any, that might be required will only become due after the FERC issues its order reviewing the initial decision.
Nuclear Matters
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS –Nuclear Matters” in the Form 10-K for a discussion of nuclear matters.
System Energy Resources, Inc.
Management's Financial Discussion and Analysis
Environmental Risks
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS –Environmental Risks” in the Form 10-K for a discussion of environmental risks.
Critical Accounting Estimates
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS -Critical Accounting Estimates” in the Form 10-K for a discussion of the estimates and judgments necessary in 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. The following is an update to that discussion.
Other Postretirement Benefits
As described in Note 6 to the financial statements herein, in March 2020, Entergy announced changes to its other postretirement benefits. As a result, System Energy now expects 2020 other postretirement health care and life insurance benefit income, including amounts capitalized, of $1.5 million.
New Accounting Pronouncements
See “New Accounting Pronouncements” section of Note 1 to the financial statements in the Form 10-K for a discussion of new accounting pronouncements.
| | SYSTEM ENERGY RESOURCES, INC. | INCOME STATEMENTS | | For the Three Months Ended March 31, 2019 and 2018 | |
| For the Three Months Ended March 31, 2020 and 2019 | | For the Three Months Ended March 31, 2020 and 2019 |
(Unaudited) | | | | | | |
| | | 2019 | | 2018 | | 2020 | | 2019 |
| | | (In Thousands) | | (In Thousands) |
| OPERATING REVENUES | | | | | | | | |
| Electric | |
| $140,104 |
| |
| $148,443 |
| |
| $130,664 |
| |
| $140,104 |
|
| | | | | | | | | |
| OPERATING EXPENSES | | | | | | | | |
| Operation and Maintenance: | | | | | | | | |
| Fuel, fuel-related expenses, and gas purchased for resale | | 21,561 |
| | 28,425 |
| | 13,143 |
| | 21,561 |
|
| Nuclear refueling outage expenses | | 8,186 |
| | 3,972 |
| | 8,272 |
| | 8,186 |
|
| Other operation and maintenance | | 45,282 |
| | 45,339 |
| | 40,471 |
| | 45,282 |
|
| Decommissioning | | 8,799 |
| | 8,457 |
| | 9,157 |
| | 8,799 |
|
| Taxes other than income taxes | | 7,539 |
| | 7,097 |
| | 7,973 |
| | 7,539 |
|
| Depreciation and amortization | | 26,574 |
| | 33,321 |
| | 26,899 |
| | 26,574 |
|
| Other regulatory credits - net | | (9,205 | ) | | (9,109 | ) | | (10,560 | ) | | (9,205 | ) |
| TOTAL | | 108,736 |
| | 117,502 |
| | 95,355 |
| | 108,736 |
|
| | | | | | | | | |
| OPERATING INCOME | | 31,368 |
| | 30,941 |
| | 35,309 |
| | 31,368 |
|
| | | | | | | | | |
| OTHER INCOME | | | | | | | | |
| Allowance for equity funds used during construction | | 1,589 |
| | 2,100 |
| | 3,584 |
| | 1,589 |
|
| Interest and investment income | | 6,991 |
| | 6,886 |
| | 5,338 |
| | 6,991 |
|
| Miscellaneous - net | | (1,228 | ) | | (1,176 | ) | | (2,460 | ) | | (1,228 | ) |
| TOTAL | | 7,352 |
| | 7,810 |
| | 6,462 |
| | 7,352 |
|
| | | | | | | | | |
| INTEREST EXPENSE | | | | | | | | |
| Interest expense | | 9,397 |
| | 9,325 |
| | 8,540 |
| | 9,397 |
|
| Allowance for borrowed funds used during construction | | (389 | ) | | (532 | ) | | (711 | ) | | (389 | ) |
| TOTAL | | 9,008 |
| | 8,793 |
| | 7,829 |
| | 9,008 |
|
| | | | | | | | | |
| INCOME BEFORE INCOME TAXES | | 29,712 |
| | 29,958 |
| | 33,942 |
| | 29,712 |
|
| | | | | | | | | |
| Income taxes | | 6,134 |
| | 7,650 |
| | 5,429 |
| | 6,134 |
|
| | | | | | | | | |
| NET INCOME | |
| $23,578 |
| |
| $22,308 |
| |
| $28,513 |
| |
| $23,578 |
|
| | | | | | | | | |
| See Notes to Financial Statements. | | | | | | | | |
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| | SYSTEM ENERGY RESOURCES, INC. | STATEMENTS OF CASH FLOWS | | For the Three Months Ended March 31, 2019 and 2018 | |
| For the Three Months Ended March 31, 2020 and 2019 | | For the Three Months Ended March 31, 2020 and 2019 |
(Unaudited) | | | | 2019 | | 2018 | | 2020 | | 2019 |
| | | (In Thousands) | | (In Thousands) |
| OPERATING ACTIVITIES | | | | | | | | |
| Net income | |
| $23,578 |
| |
| $22,308 |
| |
| $28,513 |
| |
| $23,578 |
|
| Adjustments to reconcile net income to net cash flow provided by operating activities: | | | | | | | | |
| Depreciation, amortization, and decommissioning, including nuclear fuel amortization | | 53,731 |
| | 66,323 |
| | 47,041 |
| | 53,731 |
|
| Deferred income taxes, investment tax credits, and non-current taxes accrued | | 4,975 |
| | 7,929 |
| | (5,764 | ) | | 4,975 |
|
| Changes in assets and liabilities: | | | | | | | | |
| Receivables | | (7,613 | ) | | 5,883 |
| | 22,292 |
| | (7,613 | ) |
| Accounts payable | | (5,182 | ) | | (9,632 | ) | | 15,049 |
| | (5,182 | ) |
| Prepaid taxes and taxes accrued | | (13,575 | ) | | (15,033 | ) | | (3,590 | ) | | (13,575 | ) |
| Interest accrued | | (3,150 | ) | | 736 |
| | (201 | ) | | (3,150 | ) |
| Other working capital accounts | | 3,635 |
| | (5,874 | ) | | (30,385 | ) | | 3,635 |
|
| Other regulatory assets | | (3,730 | ) | | (1,960 | ) | | (3,893 | ) | | (3,730 | ) |
| Other regulatory liabilities | | 70,486 |
| | (18,988 | ) | | (135,561 | ) | | 70,486 |
|
| Pension and other postretirement liabilities | | 319 |
| | (3,537 | ) | | (2,587 | ) | | 319 |
|
| Other assets and liabilities | | (65,757 | ) | | 17,216 |
| | 129,528 |
| | (65,757 | ) |
| Net cash flow provided by operating activities | | 57,717 |
| | 65,371 |
| | 60,442 |
| | 57,717 |
|
| | | | | | | | | |
| INVESTING ACTIVITIES | | | | | | | | |
| Construction expenditures | | (25,557 | ) | | (30,707 | ) | | (60,551 | ) | | (25,557 | ) |
| Allowance for equity funds used during construction | | 1,589 |
| | 2,100 |
| | 3,584 |
| | 1,589 |
|
| Nuclear fuel purchases | | (3 | ) | | (74,257 | ) | | (69,022 | ) | | (3 | ) |
| Proceeds from the sale of nuclear fuel | | 18,280 |
| | — |
| | 9,503 |
| | 18,280 |
|
| Proceeds from nuclear decommissioning trust fund sales | | 56,988 |
| | 54,210 |
| | 132,661 |
| | 56,988 |
|
| Investment in nuclear decommissioning trust funds | | (62,223 | ) | | (58,833 | ) | | (138,186 | ) | | (62,223 | ) |
| Changes in money pool receivable - net | | 81,635 |
| | 21,531 |
| | 42,479 |
| | 81,635 |
|
| Net cash flow provided by (used in) investing activities | | 70,709 |
| | (85,956 | ) | | (79,532 | ) | | 70,709 |
|
| | | | | | | | | |
| FINANCING ACTIVITIES | | | | | | | | |
| Proceeds from the issuance of long-term debt | | 529,493 |
| | 100,000 |
| | 243,559 |
| | 529,493 |
|
| Retirement of long-term debt | | (549,803 | ) | | (50,002 | ) | | (186,904 | ) | | (549,803 | ) |
| Changes in short-term borrowings - net | | — |
| | 25,339 |
| |
| Common stock dividends and distributions | | (45,500 | ) | | (63,240 | ) | | (13,653 | ) | | (45,500 | ) |
| Net cash flow provided by (used in) financing activities | | (65,810 | ) | | 12,097 |
| | 43,002 |
| | (65,810 | ) |
| | | | | | | | | |
| Net increase (decrease) in cash and cash equivalents | | 62,616 |
| | (8,488 | ) | |
| Net increase in cash and cash equivalents | | | 23,912 |
| | 62,616 |
|
| Cash and cash equivalents at beginning of period | | 95,685 |
| | 287,187 |
| | 68,534 |
| | 95,685 |
|
| Cash and cash equivalents at end of period | |
| $158,301 |
| |
| $278,699 |
| |
| $92,446 |
| |
| $158,301 |
|
| | | | | | | | | |
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | | | | | | | | |
| Cash paid during the period for: | | | | | | | | |
| Interest - net of amount capitalized | |
| $12,461 |
| |
| $8,592 |
| |
| $8,598 |
| |
| $12,461 |
|
| | | | | | | | | |
| See Notes to Financial Statements. | | | | | | | | |
| | SYSTEM ENERGY RESOURCES, INC. | BALANCE SHEETS | ASSETS | | March 31, 2019 and December 31, 2018 | |
| March 31, 2020 and December 31, 2019 | | March 31, 2020 and December 31, 2019 |
(Unaudited) | | | | 2019 | | 2018 | | 2020 | | 2019 |
| | | (In Thousands) | | (In Thousands) |
| CURRENT ASSETS | | | | | | | | |
| Cash and cash equivalents: | | | | | | | | |
| Cash | |
| $57 |
| |
| $68 |
| |
| $124 |
| |
| $93 |
|
| Temporary cash investments | | 158,244 |
| | 95,617 |
| | 92,322 |
| | 68,441 |
|
| Total cash and cash equivalents | | 158,301 |
| | 95,685 |
| | 92,446 |
| | 68,534 |
|
| Accounts receivable: | | | | | | | | |
| Associated companies | | 74,667 |
| | 148,571 |
| | 54,693 |
| | 121,972 |
|
| Other | | 5,272 |
| | 5,390 |
| | 10,055 |
| | 7,547 |
|
| Total accounts receivable | | 79,939 |
| | 153,961 |
| | 64,748 |
| | 129,519 |
|
| Materials and supplies - at average cost | | 101,609 |
| | 97,225 |
| | 111,251 |
| | 108,766 |
|
| Deferred nuclear refueling outage costs | | 36,624 |
| | 44,424 |
| | 41,878 |
| | 14,493 |
|
| Prepaid taxes | | 18,990 |
| | 5,415 |
| |
| Prepayments and other | | 2,764 |
| | 2,985 |
| | 6,562 |
| | 6,045 |
|
| TOTAL | | 398,227 |
| | 399,695 |
| | 316,885 |
| | 327,357 |
|
| | | | | | | | | |
| OTHER PROPERTY AND INVESTMENTS | | | | | | | | |
| Decommissioning trust funds | | 951,334 |
| | 869,543 |
| | 928,434 |
| | 1,054,098 |
|
| TOTAL | | 951,334 |
| | 869,543 |
| | 928,434 |
| | 1,054,098 |
|
| | | | | | | | | |
| UTILITY PLANT | | | | | | | | |
| Electric | | 5,027,651 |
| | 5,036,116 |
| | 5,095,622 |
| | 5,070,859 |
|
| Construction work in progress | | 82,554 |
| | 70,156 |
| | 227,519 |
| | 164,996 |
|
| Nuclear fuel | | 195,023 |
| | 234,889 |
| | 197,955 |
| | 149,574 |
|
| TOTAL UTILITY PLANT | | 5,305,228 |
| | 5,341,161 |
| | 5,521,096 |
| | 5,385,429 |
|
| Less - accumulated depreciation and amortization | | 3,226,329 |
| | 3,212,080 |
| | 3,308,560 |
| | 3,285,487 |
|
| UTILITY PLANT - NET | | 2,078,899 |
| | 2,129,081 |
| | 2,212,536 |
| | 2,099,942 |
|
| | | | | | | | | |
| DEFERRED DEBITS AND OTHER ASSETS | | | | | | | | |
| Regulatory assets: | | | | | | | | |
| Other regulatory assets | | 450,101 |
| | 446,371 |
| | 493,976 |
| | 490,083 |
|
| Accumulated deferred income tax | | | — |
| | 8,023 |
|
| Other | | 3,992 |
| | 4,124 |
| | 3,170 |
| | 3,192 |
|
| TOTAL | | 454,093 |
| | 450,495 |
| | 497,146 |
| | 501,298 |
|
| | | | | | | | | |
| TOTAL ASSETS | |
| $3,882,553 |
| |
| $3,848,814 |
| |
| $3,955,001 |
| |
| $3,982,695 |
|
| | | | | | | | | |
| See Notes to Financial Statements. | | | | | | | | |
| | SYSTEM ENERGY RESOURCES, INC. | BALANCE SHEETS | LIABILITIES AND EQUITY | | March 31, 2019 and December 31, 2018 | |
| March 31, 2020 and December 31, 2019 | | March 31, 2020 and December 31, 2019 |
(Unaudited) | | | | 2019 | | 2018 | | 2020 | | 2019 |
| | | (In Thousands) | | (In Thousands) |
| CURRENT LIABILITIES | | | | | | | | |
| Currently maturing long-term debt | |
| $8 |
| |
| $6 |
| |
| $12 |
| |
| $10 |
|
| Accounts payable: | | | | | | | | |
| Associated companies | | 7,596 |
| | 11,031 |
| | 9,683 |
| | 14,619 |
|
| Other | | 39,660 |
| | 47,565 |
| | 112,284 |
| | 64,144 |
|
| Taxes accrued | | | 10,242 |
| | 13,832 |
|
| Interest accrued | | 10,145 |
| | 13,295 |
| | 11,792 |
| | 11,993 |
|
| Current portion of unprotected excess accumulated deferred income taxes | | 7,396 |
| | 4,426 |
| |
| Other | | 2,830 |
| | 2,832 |
| | 3,383 |
| | 3,381 |
|
| TOTAL | | 67,635 |
| | 79,155 |
| | 147,396 |
| | 107,979 |
|
| | | | | | | | | |
| NON-CURRENT LIABILITIES | | | | | | | | |
| Accumulated deferred income taxes and taxes accrued | | 813,026 |
| | 805,296 |
| | 812,055 |
| | 821,963 |
|
| Accumulated deferred investment tax credits | | 38,354 |
| | 38,673 |
| | 39,862 |
| | 40,181 |
|
| Regulatory liability for income taxes - net | | 152,289 |
| | 158,998 |
| | 139,529 |
| | 142,845 |
|
| Other regulatory liabilities | | 456,112 |
| | 381,887 |
| | 401,170 |
| | 533,415 |
|
| Decommissioning | | 904,800 |
| | 896,000 |
| | 940,886 |
| | 931,729 |
|
| Pension and other postretirement liabilities | | 98,958 |
| | 98,639 |
| | 107,229 |
| | 109,816 |
|
| Long-term debt | | 610,790 |
| | 630,744 |
| | 604,913 |
| | 548,097 |
|
| Other | | 25,313 |
| | 22,224 |
| | 35,033 |
| | 34,602 |
|
| TOTAL | | 3,099,642 |
| | 3,032,461 |
| | 3,080,677 |
| | 3,162,648 |
|
| | | | | | | | | |
| Commitments and Contingencies | | | | | | | | |
| | | | | | | | | |
| COMMON EQUITY | | | | | | | | |
| Common stock, no par value, authorized 1,000,000 shares; issued and outstanding 789,350 shares in 2019 and 2018 | | 601,850 |
| | 601,850 |
| |
| Common stock, no par value, authorized 1,000,000 shares; issued and outstanding 789,350 shares in 2020 and 2019 | | | 601,850 |
| | 601,850 |
|
| Retained earnings | | 113,426 |
| | 135,348 |
| | 125,078 |
| | 110,218 |
|
| TOTAL | | 715,276 |
| | 737,198 |
| | 726,928 |
| | 712,068 |
|
| | | | | | | | | |
| TOTAL LIABILITIES AND EQUITY | |
| $3,882,553 |
| |
| $3,848,814 |
| |
| $3,955,001 |
| |
| $3,982,695 |
|
| | | | | | | | | |
| See Notes to Financial Statements. | | | | | | | | |
| | SYSTEM ENERGY RESOURCES, INC. | STATEMENTS OF CHANGES IN COMMON EQUITY | | For the Three Months Ended March 31, 2019 and 2018 | |
| For the Three Months Ended March 31, 2020 and 2019 | | For the Three Months Ended March 31, 2020 and 2019 |
(Unaudited) | | | | | | | | |
| | Common Equity | | | Common Equity | | |
| | Common Stock | | Retained Earnings | | Total | Common Stock | | Retained Earnings | | Total |
| | (In Thousands) | (In Thousands) |
| | | | | | | | | | | |
| Balance at December 31, 2017 |
| $658,350 |
| |
| $52,459 |
| |
| $710,809 |
| |
| | | | | | | |
| Net income | — |
| | 22,308 |
| | 22,308 |
| |
| Common stock dividends and distributions | (56,500 | ) | | (6,740 | ) | | (63,240 | ) | |
| | | | | | | |
| Balance at March 31, 2018 |
| $601,850 |
| |
| $68,027 |
| |
| $669,877 |
| |
| | | | | | | |
| | | | | | | |
| Balance at December 31, 2018 |
| $601,850 |
| |
| $135,348 |
| |
| $737,198 |
|
| $601,850 |
| |
| $135,348 |
| |
| $737,198 |
|
| | | | | | | | | | | |
| Net income | — |
| | 23,578 |
| | 23,578 |
| — |
| | 23,578 |
| | 23,578 |
|
| Common stock dividends and distributions | — |
| | (45,500 | ) | | (45,500 | ) | — |
| | (45,500 | ) | | (45,500 | ) |
| | | | | | | |
| Balance at March 31, 2019 |
| $601,850 |
| |
| $113,426 |
| |
| $715,276 |
|
| $601,850 |
| |
| $113,426 |
| |
| $715,276 |
|
| | | | | | | | | | | |
| Balance at December 31, 2019 | |
| $601,850 |
| |
| $110,218 |
| |
| $712,068 |
|
| | | | | | | |
| Net income | | — |
| | 28,513 |
| | 28,513 |
|
| Common stock dividends and distributions | | — |
| | (13,653 | ) | | (13,653 | ) |
| Balance at March 31, 2020 | |
| $601,850 |
| |
| $125,078 |
| |
| $726,928 |
|
| | | | | | | |
| 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 NoteNotes 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 toSee the risk factors discussed in “PARTPart I, Item 1A,1A. Risk Factors”Factors” in the Form 10-K, which could materially affect Entergy’s and its Registrant Subsidiaries’ business, financial condition, or future results. The information set forth in this report, including the risk factor presented below, updates and should be read in conjunction with the risk factors and information disclosed in the Form 10-K. In addition, because Entergy cannot predict the ultimate impacts of COVID-19, the actual impacts may also exacerbate other risks discussed in “Item 1A. Risk Factors” in the Form 10-K, any of which could have a material effect on Entergy and its Registrant Subsidiaries. The situation remains fluid and while Entergy and its Utility operating companies have not incurred significant disruptions thus far from the COVID-19 global pandemic, the likelihood of an adverse impact could increase the longer the global pandemic persists.
(Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)
The impacts of the COVID-19 outbreak and responsive measures taken on Entergy’s and its Utility operating companies’ business, results of operations, and financial condition are highly uncertain and cannot be predicted.
In December 2019, a novel strain of coronavirus was reported to have surfaced in Wuhan, China. Since then, COVID-19 has spread throughout most countries in the world, including the United States. Public health officials in the United States have both recommended and mandated precautions to mitigate the spread of COVID-19, including prohibitions on congregating in heavily-populated areas, mandated closure of non-essential business, and shelter-in-place orders or similar measures, including throughout Entergy’s service areas. It is unclear how long these mitigation measures will remain in place, whether they will be reinstated in the future, and how they will impact the general economy, Entergy’s customers, and its operations.
Entergy and its Utility operating companies expect to experience a decline in commercial and industrial sales, the extent and duration of which management cannot predict. The Utility operating companies have temporarily suspended disconnecting customers for non-payment of bills and while they are working with regulators to ensure ultimate recovery for those and other COVID-19 related costs, such recovery cannot be guaranteed. Entergy and its Registrant Subsidiaries also could experience, among other challenges, supply chain, vendor, and contractor disruptions, delays in completion of capital or other construction projects, maintenance, and other operations activities, including prolonged outages, delays in regulatory proceedings, workforce availability, health or safety issues, increased cybersecurity risks as a result of many employees telecommuting, increased late or uncollectible customer payments, volatility in the credit or capital markets (and any related increased cost of capital or any inability to access the capital markets or draw on available credit facilities), or other adverse impacts on their ability to execute on business strategies and initiatives.
A sustained or further economic decline could adversely impact Entergy’s and the Utility operating companies’ liquidity and cash flows, including through declining sales, reduced revenues, delays in receipts of customer payments, or increased bad debt expense. In addition, if the pandemic continues to create disruptions or turmoil in the credit or financial markets, or adversely impacts Entergy’s credit metrics or ratings, such developments could adversely affect its ability to access capital on favorable terms and continue to meet its liquidity needs, or cause a decrease in the value of its defined benefit pension trust funds, as well as its nuclear decommissioning trust funds, all of which are highly uncertain and cannot be predicted.
The situation continues to rapidly evolve, and Entergy cannot predict the extent or duration of the outbreak, governmental responsive measures, or the extent of the effects or ultimate impacts on the global, national or local economy, the capital markets, or its customers, suppliers, operations, financial condition, results of operations, or cash flows.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities (a)
|
| | | | | | | | | | | | | | |
| Period | | Total Number of Shares Purchased | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of a Publicly Announced Plan | | Maximum $ Amount of Shares that May Yet be Purchased Under a Plan (b) |
| | | | | | | | | |
1/01/2019-1/2020-1/31/20192020 | | — |
| |
| $— |
| | — |
| |
| $350,052,918 |
|
2/01/2019-2/28/20192020-2/29/2020 | | — |
| |
| $— |
| | — |
| |
| $350,052,918 |
|
3/01/2019-3/2020-3/31/20192020 | | — |
| |
| $— |
| | — |
| |
| $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 2019,2020, Entergy withheld 76,735151,159 shares of its common stock at $86.03$126.31 per share, 82,55079,153 shares of its common stock at $129.55 per share, 41,167 shares of its common stock at $131.52 per share, 2,269 shares of its common stock at $124.28 per share, 1,331 shares of its common stock at $123.74 per share, 1,088 shares of its common stock at $102.93 per share, 441 shares of its common stock at $132.19 per share, 71 shares of its common stock at $86.51 per share, 38,32631 shares of its common stock at $87.10$115.90 per share, 932and 19 shares of its common stock at $89.19 per share, and 2,280 shares of its common stock at $93.25$86.74 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 is an update to the “Regulation of the Nuclear Power Industry” section of Part I, Item 1 of the Form 10-K.
Nuclear Waste Policy Act of 1982
Nuclear Plant Decommissioning
In March 20192020 filings with the NRC were made reporting on decommissioning funding for all of Entergy subsidiaries’ nuclear plants .plants. Those reports showed that decommissioning funding for each of the nuclear plants met the NRC’s financial assurance requirements.
Environmental Regulation
Following are updates to the “Environmental Regulation” section of Part I, Item 1 of the Form 10-K.
Clean Air Act and Subsequent AmendmentsRegional Haze
Potential 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 framework and recommendations of the 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 Utility’s emission rate by 50 percent from 2000 levels by 2030.
Groundwater at Certain Nuclear Sites
As discussed in the Form 10-K, in February 2016,Louisiana, Entergy disclosed that elevated tritium levelshas worked with the Louisiana Department of Environmental Quality (LDEQ) and the EPA to revise the Louisiana state implementation plan (SIP) for regional haze, which had been detecteddisapproved in samples from several monitoring wells that are part of Indian Point’s groundwater monitoring program. Investigationin 2012. The LDEQ submitted a revised SIP in February 2017. In May 2017 the EPA proposed to approve a majority of the source of elevated tritium determined thatrevisions. In September 2017 the source was related toEPA issued a temporary system to process water in preparationproposed SIP approval for the regularly scheduled refueling outage at Indian Point 2.Nelson plant, requiring an emission limitation consistent with the use of low-sulfur coal, with a compliance date of January 22, 2021. The NRC hadEPA issued a green notice of violation relatedfinal approval in December 2017. The EPA approval was appealed to the adequacyU.S. Court of Entergy’s controls to preventAppeals for the introduction of radioactivity into the site groundwater. Entergy completed corrective actions and, in FebruaryFifth Circuit. In October 2019 the NRC concludedFifth Circuit affirmed EPA’s SIP approval. A petition for rehearing filed by plaintiffs was denied by the Fifth Circuit. Plaintiffs did not petition for further review by the Supreme Court.
The second planning period (2018-2028) for the regional haze program requires states to examine sources for impacts on visibility and to prepare SIPs by 2021. Entergy has received information collection requests from Arkansas and Louisiana requesting an evaluation of technical and economic feasibility of various NOx and SO2 control technologies for Independence, Nelson 6, and Ninemile. Responses are due the second and third quarters of 2020.
New and Existing Source Performance Standards for Greenhouse Gas Emissions
In July 2019 the EPA released the Affordable Clean Energy Rule (ACE), which applies only to existing coal-fired electric generating units. The ACE determines that heat rate improvements are the best system of emission reductions and lists six candidate technologies for consideration by states at each coal unit. The rule and associated rulemakings by the EPA replace the Obama administration’s Clean Power Plan rule. The ACE rule provides states discretion in determining how the best system for emission reductions applies to individual units, including through the consideration of technical feasibility and the remaining useful life of the facility. Arkansas and Louisiana have issued information collection requests to Entergy had achieved full compliancefacilities to help the states collect the information needed to determine the best system of emission reductions for each facility. Entergy will respond as required and closedwill continue to monitor litigation challenging the violation.rule. The EPA also has proposed a revision to the new source performance standard on greenhouse gas emissions that primarily impacts new coal units and, therefore, should not impact Entergy.
Item 6. Exhibits
|
| | |
| | 4(a) - | |
| | |
| 4(b) - | |
| | |
| 4(b) - | |
| | | |
| | 4(c) - | |
| | |
| 4(d) - | |
| | | |
|
| | |
| | 4(e)4(d) - | Officer’s Certificate No. 14-B-10,16-B-11, dated March 6, 2019,3, 2020, supplemental to Entergy Louisiana Mortgage and Deed of Trust, of Entergy Louisiana, dated as of November 1, 2015 (4.40(4.50 to Form 8-K filed March 12, 20196, 2020 in 1-32718). |
| | | |
| | 4(f)4(e) - | |
| | | |
| | *31(a) - | |
| | | |
| | *31(b) - | |
| | | |
| | *31(c) - | |
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| | *31(d) - | |
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| | *31(e) - | |
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| | *31(f) - | |
| | | |
| | *31(g) - | |
| | | |
| | *31(h) - | |
| | | |
| | *31(i) - | |
| | | |
| | *31(j) - | |
| | | |
| | *31(k) - | |
| | | |
| | *31(l) - | |
| | | |
| | *31(m) - | |
| | | |
| | *31(n) - | |
| | | |
| | **32(a) - | |
| | | |
| | **32(b) - | |
| | | |
| | **32(c) - | |
| | | |
| | **32(d) - | |
| | | |
| | **32(e) - | |
| | | |
| | **32(f) - | |
| | | |
| | **32(g) - | |
| | | |
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| | *101 INS - | Inline XBRL Instance Document.Document - The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
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| | *101 SCH - | Inline XBRL Taxonomy Extension Schema Document. |
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| | *101 PRE - | Inline XBRL Taxonomy Presentation Linkbase Document. |
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| *101 LAB - | Inline XBRL Taxonomy Label Linkbase Document. |
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| | *101 CAL - | Inline XBRL Taxonomy Calculation Linkbase Document. |
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| | *101 DEF - | Inline XBRL Definition Linkbase Document. |
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| *104 - | Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibits 101). |
___________________________
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.
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| * | Filed herewith. |
| ** | Furnished, not filed, herewith. |
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, LLC ENTERGY LOUISIANA, LLC ENTERGY MISSISSIPPI, LLC ENTERGY NEW ORLEANS, LLC ENTERGY TEXAS, INC. SYSTEM ENERGY RESOURCES, INC. |
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/s/ Alyson M. MountKimberly A. Fontan |
Alyson M. Mount
Kimberly A. Fontan Senior Vice President and Chief Accounting Officer
(For each Registrant and for each as
Principal Accounting Officer) |
Date: May 3, 201911, 2020