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ETR Entergy

Filed: 2 Nov 17, 8:00pm

__________________________________________________________________________________________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One) 
X
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
  
 For the Quarterly Period Ended September 30, 2017
 OR
 
TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
  
 For the transition period from ____________ to ____________

Commission
File Number
Registrant, State of Incorporation or Organization, Address of Principal Executive Offices, Telephone Number, and IRS Employer Identification No. 

Commission
File Number
Registrant, State of Incorporation or Organization, Address of Principal Executive Offices, Telephone Number, and IRS Employer Identification No.
1-11299
ENTERGY CORPORATION
(a Delaware corporation)
639 Loyola Avenue
New Orleans, Louisiana 70113
Telephone (504) 576-4000
72-1229752
 1-35747
ENTERGY NEW ORLEANS, INC.
(a Louisiana corporation)
1600 Perdido Street
New Orleans, Louisiana 70112
Telephone (504) 670-3700
72-0273040
     
     
1-10764
ENTERGY ARKANSAS, INC.
(an Arkansas corporation)
425 West Capitol Avenue
Little Rock, Arkansas 72201
Telephone (501) 377-4000
71-0005900
 1-34360
ENTERGY TEXAS, INC.
(a Texas corporation)
10055 Grogans Mill Road
The Woodlands, Texas 77380
Telephone (409) 981-2000
61-1435798
     
     
1-32718
ENTERGY LOUISIANA, LLC
(a Texas limited liability company)
4809 Jefferson Highway
Jefferson, Louisiana 70121
Telephone (504) 576-4000
47-4469646
 1-09067
SYSTEM ENERGY RESOURCES, INC.
(an Arkansas corporation)
1340 Echelon Parkway
Jackson, Mississippi 39213
Telephone (601) 368-5000
72-0752777
     
     
1-31508
ENTERGY MISSISSIPPI, INC.
(a Mississippi corporation)
308 East Pearl Street
Jackson, Mississippi 39201
Telephone (601) 368-5000
64-0205830
   
     
__________________________________________________________________________________________







Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days.  Yes þ No o

Indicate by check mark whether the registrants have submitted electronically and posted on Entergy’s corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrants were required to submit and post such files).  Yes þ No o

Indicate by check mark whether each registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Securities Exchange Act of 1934.
 
Large
accelerated
filer
 
Accelerated
filer
 
Non-
accelerated
filer
 
Smaller
reporting
company
 
Emerging
growth
company
Entergy Corporationü        
Entergy Arkansas, Inc.    ü    
Entergy Louisiana, LLC    ü    
Entergy Mississippi, Inc.    ü    
Entergy New Orleans, Inc.    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
Common Stock Outstanding Outstanding at October 31, 2017
Entergy Corporation($0.01 par value)180,251,407

Entergy Corporation, Entergy Arkansas, Inc., Entergy Louisiana, LLC, Entergy Mississippi, Inc., Entergy New Orleans, Inc., 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, 2016 and the Quarterly Reports on Form 10-Q for the quarters ended March 31, 2017 and June 30, 2017, filed by the individual registrants with the SEC, and should be read in conjunction therewith.



TABLE OF CONTENTS

 Page Number
  
  
Part I. Financial Information
  
Entergy Corporation and Subsidiaries 
Notes to Financial Statements 
Entergy Arkansas, Inc. and Subsidiaries 
Entergy Louisiana, LLC and Subsidiaries 

i

TABLE OF CONTENTS


ii


FORWARD-LOOKING INFORMATION

In this combined report and from time to time, Entergy Corporation and the Registrant Subsidiaries each makes statements as a registrant concerning its expectations, beliefs, plans, objectives, goals, strategies, and future events or performance.  Such statements are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.  Words such as “may,” “will,” “could,” “project,” “believe,” “anticipate,” “intend,” “expect,” “estimate,” “continue,” “potential,” “plan,” “predict,” “forecast,” and other similar words or expressions are intended to identify forward-looking statements but are not the only means to identify these statements.  Although each of these registrants believes that these forward-looking statements and the underlying assumptions are reasonable, it cannot provide assurance that they will prove correct.  Any forward-looking statement is based on information current as of the date of this combined report and speaks only as of the date on which such statement is made.  Except to the extent required by the federal securities laws, these registrants undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
 
Forward-looking statements involve a number of risks and uncertainties.  There are factors that could cause actual results to differ materially from those expressed or implied in the forward-looking statements, including those factors discussed or incorporated by reference in (a) Item 1A. Risk Factors in the Form 10-K, (b) Management’s Financial Discussion and Analysis in the Form 10-K and in this report, and (c) the following factors (in addition to others described elsewhere in this combined report and in subsequent securities filings):

resolution of pending and future rate cases and negotiations, including various performance-based rate discussions, Entergy’s utility supply plan, and recovery of fuel and purchased power costs;
long-term risks and uncertainties associated with the termination of the System Agreement in 2016, including the potential absence of federal authority to resolve certain issues among the Utility operating companies and their retail regulators;
regulatory and operating challenges and uncertainties and economic risks associated with the Utility operating companies’ participation in MISO, including the effect of current or projected MISO market rules and market and system conditions in the MISO markets, the allocation of MISO system transmission upgrade costs, and the effect of planning decisions that MISO makes with respect to future transmission investments by the Utility operating companies;
changes in utility regulation, including the beginning or end of retail and wholesale competition, the ability to recover net utility assets and other potential stranded costs, and the application of more stringent transmission reliability requirements or market power criteria by the FERC or the U.S. Department of Justice;
changes in the regulation or regulatory oversight of Entergy’s nuclear generating facilities and nuclear materials and fuel, including with respect to the planned, potential, or actual shutdown of nuclear generating facilities owned or operated by Entergy Wholesale Commodities, and the effects of new or existing safety or environmental concerns regarding nuclear power plants and nuclear fuel;
resolution of pending or future applications, and related regulatory proceedings and litigation, for license renewals or modifications or other authorizations required of nuclear generating facilities and the effect of public and political opposition on these applications, regulatory proceedings, and litigation;
the performance of and deliverability of power from Entergy’s generation resources, including the capacity factors at its nuclear generating facilities;
the operation and maintenance of Entergy’s nuclear generating facilities require the commitment of substantial human and capital resources that can result in increased costs and capital expenditures;
Entergy’s ability to develop and execute on a point of view regarding future prices of electricity, natural gas, and other energy-related commodities;
prices for power generated by Entergy’s merchant generating facilities and the ability to hedge, meet credit support requirements for hedges, sell power forward or otherwise reduce the market price risk associated with those facilities, including the Entergy Wholesale Commodities nuclear plants;
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;

iii

FORWARD-LOOKING INFORMATION (Concluded)

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 or associated litigation, including requirements for reduced emissions of sulfur dioxide, nitrogen oxide, greenhouse gases, mercury, particulate matter, heat, and other regulated air and water emissions, and changes in costs of compliance with environmental laws and regulations;
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, or energy policies;
uncertainty regarding the establishment of interim or permanent sites for spent nuclear fuel and nuclear waste storage and disposal and the level of spent fuel and nuclear waste disposal fees charged by the U.S. government or other providers related to such sites;
variations in weather and the occurrence of hurricanes and other storms and disasters, including uncertainties associated with efforts to remediate the effects of hurricanes, ice storms, or other weather events and the recovery of costs associated with restoration, including accessing funded storm reserves, federal and local cost recovery mechanisms, securitization, and insurance;
effects of climate change, including the potential for increases in sea levels or coastal land and wetland loss;
changes in the quality and availability of water supplies and the related regulation of water use and diversion;
Entergy’s ability to manage its capital projects and operation and maintenance costs;
Entergy’s ability to purchase and sell assets at attractive prices and on other attractive terms;
the economic climate, and particularly economic conditions in Entergy’s Utility service area and the Northeast 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;
the effects of Entergy’s strategies to reduce tax 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;
the effect of litigation and government investigations or proceedings;
changes in technology, including with respect to new, developing, or alternative sources of generation;
the effects, including increased security costs, of threatened or actual terrorism, cyber-attacks or data security breaches, natural or man-made electromagnetic pulses that affect transmission or generation infrastructure, accidents, and war or a catastrophic event such as a nuclear accident or a natural gas pipeline explosion;
Entergy’s ability to attract and retain talented management and directors;
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 2022, including the implementation of the planned shutdown of Pilgrim, Indian Point 2, Indian Point 3, and Palisades;
the effectiveness of Entergy’s risk management policies and procedures and the ability and willingness of its counterparties to satisfy their financial and performance commitments;
factors that could lead to impairment of long-lived assets; and
the ability to successfully complete strategic transactions Entergy may undertake, including mergers, acquisitions, or divestitures, regulatory or other limitations imposed as a result of any such strategic transaction, and the success of the business following any such strategic transaction.


iv


DEFINITIONS

Certain abbreviations or acronyms used in the text and notes are defined below:
Abbreviation or AcronymTerm
  
ALJAdministrative Law Judge
ANO 1 and 2Units 1 and 2 of Arkansas Nuclear One (nuclear), owned by Entergy Arkansas
APSCArkansas Public Service Commission
ASUAccounting Standards Update issued by the FASB
BoardBoard of Directors of Entergy Corporation
CajunCajun Electric Power Cooperative, Inc.
capacity factorActual plant output divided by maximum potential plant output for the period
City CouncilCouncil of the City of New Orleans, Louisiana
D.C. CircuitU.S. Court of Appeals for the District of Columbia Circuit
DOEUnited States Department of Energy
EntergyEntergy Corporation and its direct and indirect subsidiaries
Entergy CorporationEntergy Corporation, a Delaware corporation
Entergy Gulf States LouisianaEntergy 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 LouisianaEntergy 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 TexasEntergy 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 CommoditiesEntergy’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
EPAUnited States Environmental Protection Agency
FASBFinancial Accounting Standards Board
FERCFederal Energy Regulatory Commission
FitzPatrickJames 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-KAnnual Report on Form 10-K for the calendar year ended December 31, 2016 filed with the SEC by Entergy Corporation and its Registrant Subsidiaries
Grand GulfUnit No. 1 of Grand Gulf Nuclear Station (nuclear), 90% owned or leased by System Energy
GWhGigawatt-hour(s), which equals one million kilowatt-hours
IndependenceIndependence Steam Electric Station (coal), owned 16% by Entergy Arkansas, 25% by Entergy Mississippi, and 7% by Entergy Power, LLC
Indian Point 2Unit 2 of Indian Point Energy Center (nuclear), owned by an Entergy subsidiary in the Entergy Wholesale Commodities business segment

v


DEFINITIONS (Continued)
Abbreviation or AcronymTerm
  
Indian Point 3Unit 3 of Indian Point Energy Center (nuclear), owned by an Entergy subsidiary in the Entergy Wholesale Commodities business segment
IRSInternal Revenue Service
ISOIndependent System Operator
kWKilowatt, which equals one thousand watts
kWhKilowatt-hour(s)
LPSCLouisiana Public Service Commission
MISOMidcontinent Independent System Operator, Inc., a regional transmission organization
MMBtuOne million British Thermal Units
MPSCMississippi Public Service Commission
MWMegawatt(s), which equals one thousand kilowatts
MWhMegawatt-hour(s)
Net debt to net capital ratioGross debt less cash and cash equivalents divided by total capitalization less cash and cash equivalents
Net MW in operationInstalled capacity owned and operated
NRCNuclear Regulatory Commission
NYPANew York Power Authority
PalisadesPalisades Nuclear Plant (nuclear), owned by an Entergy subsidiary in the Entergy Wholesale Commodities business segment
Parent & OtherThe portions of Entergy not included in the Utility or Entergy Wholesale Commodities segments, primarily consisting of the activities of the parent company, Entergy Corporation
PilgrimPilgrim Nuclear Power Station (nuclear), owned by an Entergy subsidiary in the Entergy Wholesale Commodities business segment
PPAPurchased power agreement or power purchase agreement
PUCTPublic Utility Commission of Texas
Registrant SubsidiariesEntergy Arkansas, Inc., Entergy Louisiana, LLC, Entergy Mississippi, Inc., Entergy New Orleans, Inc., Entergy Texas, Inc., and System Energy Resources, Inc.
River BendRiver Bend Station (nuclear), owned by Entergy Louisiana
SECSecurities and Exchange Commission
System AgreementAgreement, 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 EnergySystem Energy Resources, Inc.
TWhTerawatt-hour(s), which equals one billion kilowatt-hours
Unit Power Sales AgreementAgreement, dated as of June 10, 1982, as amended and approved by 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
UtilityEntergy’s business segment that generates, transmits, distributes, and sells electric power, with a small amount of natural gas distribution
Utility operating companiesEntergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and Entergy Texas

vi


DEFINITIONS (Concluded)
Abbreviation or AcronymTerm
  
Vermont YankeeVermont Yankee Nuclear Power Station (nuclear), owned by an Entergy subsidiary in the Entergy Wholesale Commodities business segment, which ceased power production in December 2014
Waterford 3Unit No. 3 (nuclear) of the Waterford Steam Electric Station, 100% owned or leased by Entergy Louisiana
weather-adjusted usageElectric usage excluding the effects of deviations from normal weather
White BluffWhite Bluff Steam Electric Generating Station, 57% owned by Entergy Arkansas


vii


ENTERGY CORPORATION AND SUBSIDIARIES

MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS

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

The Utility business segment includes the generation, transmission, distribution, and sale of electric power in portions of Arkansas, Mississippi, Texas, and Louisiana, including the City of New Orleans; and operation of a small natural gas distribution business.  
The Entergy Wholesale Commodities business segment includes the ownership, operation, and decommissioning of nuclear power plants located in the northern United States and the sale of the electric power produced by its operating plants to wholesale customers.  Entergy Wholesale Commodities also provides services to other nuclear power plant owners and owns interests in non-nuclear power plants that sell the electric power produced by those plants to wholesale customers. See “Entergy Wholesale Commodities Exit from the Merchant Power Business” below and in the Form 10-K for discussion of the operation and planned shutdown or sale of each of the Entergy Wholesale Commodities nuclear power plants.

See Note 7 to the financial statements herein for financial information regarding Entergy’s business segments.

Results of Operations

Third Quarter 2017 Compared to Third Quarter 2016

Following are income statement variances for Utility, Entergy Wholesale Commodities, Parent & Other, and Entergy comparing the third quarter 2017 to the third quarter 2016 showing how much the line item increased or (decreased) in comparison to the prior period:
  

Utility
 
Entergy
Wholesale
Commodities
 

Parent &
Other (a)
 

Entergy
  (In Thousands)
3rd Quarter 2016 Consolidated Net Income (Loss) 
$447,782
 
$8,221
 
($62,799) 
$393,204
         
Net revenue (operating revenue less fuel expense, purchased power, and other regulatory charges/credits) (47,749) (4,637) (4) (52,390)
Other operation and maintenance 6,617
 (37,089) 1,831
 (28,641)
Asset write-offs, impairments, and related charges 
 (2,620) 
 (2,620)
Taxes other than income taxes 16,064
 (5,694) 28
 10,398
Depreciation and amortization 14,849
 (751) 242
 14,340
Other income 19,674
 16,574
 (1,624) 34,624
Interest expense (2,184) (41) 1,929
 (296)
Other expenses 5,584
 (8,860) 
 (3,276)
Income taxes (24,956) 19,448
 (10,603) (16,111)
         
3rd Quarter 2017 Consolidated Net Income (Loss) 
$403,733
 
$55,765
 
($57,854) 
$401,644

(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.


1

Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis

Net Revenue

Utility

Following is an analysis of the change in net revenue comparing the third quarter 2017 to the third quarter 2016:
 Amount
 (In Millions)
2016 net revenue
$1,859
Volume/weather(68)
Retail electric price17
Other3
2017 net revenue
$1,811
    
The volume/weather variance is primarily due to the effect of less favorable weather, partially offset by an increase in industrial, residential, and commercial usage. The increase in industrial usage is primarily due to new customers in the primary metals industry, expansion projects in the chemicals industry, and an increase in demand for existing customers in the chemicals, petroleum refining, and industrial gases industries.

The retail electric price variance is primarily due to:

the implementation of formula rate plan rates at Entergy Arkansas, as approved by the APSC, effective with the first billing cycle of January 2017;
the implementation of the transmission cost recovery factor rider at Entergy Texas, effective September 2016, and an increase in the transmission cost recovery factor rider rate, effective March 2017, as approved by the PUCT; and
the timing of recovery of purchased power capacity costs at Entergy Louisiana through the formula rate plan mechanism.

The retail electric price variance was partially offset by:

lower storm damage rider revenues at Entergy Mississippi due to resetting the storm damage provision to zero beginning with the November 2016 billing cycle. Entergy Mississippi resumed billing the storm damage rider effective with the September 2017 billing cycle; and
a decrease in the purchased power and capacity acquisition cost recovery rider at Entergy New Orleans primarily due to credits to customers as part of the Entergy New Orleans internal restructuring agreement in principle, effective with the first billing cycle of June 2017.

See Note 2 to the financial statements herein and in the Form 10-K for further discussion of the rate proceedings.


2

Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis

Entergy Wholesale Commodities

Following is an analysis of the change in net revenue comparing the third quarter 2017 to the third quarter 2016:
 Amount
 (In Millions)
2016 net revenue
$396
FitzPatrick sale(50)
Nuclear fuel expenses40
Other6
2017 net revenue
$392

As shown in the table above, net revenue for Entergy Wholesale Commodities decreased by $4 million in the third quarter 2017 as compared to the third quarter 2016 primarily due to the absence of net revenue from the FitzPatrick plant after it was sold to Exelon in March 2017, partially offset by a decrease in nuclear fuel expenses primarily related to the impairments of the Indian Point 2, Indian Point 3, and Palisades plants and related assets. See Note 13 to the financial statements herein for discussion of the sale of FitzPatrick. See Note 14 to the financial statements in the Form 10-K for discussion of the impairments and related charges.

Following are key performance measures for Entergy Wholesale Commodities for the third quarter 2017 and 2016:
 2017 2016
Owned capacity (MW) (a)3,962 4,880
GWh billed8,234 9,372
    
Entergy Wholesale Commodities Nuclear Fleet (b)
   
Capacity factor98% 90%
GWh billed7,633 8,674
Average energy and capacity revenue per MWh$48.82 $47.41

(a)The reduction in owned capacity is due to Entergy’s sale of the 838 MW FitzPatrick plant to Exelon in March 2017 and Entergy’s sale of its 50% membership interest in Top Deer Wind Ventures, LLC in November 2016. See Note 13 to the financial statements herein for discussion of the sale of FitzPatrick and Note 14 to the financial statements in the Form 10-K for discussion of the Top Deer Wind Ventures, LLC sale.
(b)The Entergy Wholesale Commodities nuclear power plants had no refueling outage days in the third quarter 2017 and the third quarter 2016.

Other Income Statement Items

Utility

Other operation and maintenance expenses increased from $592 million for the third quarter 2016 to $599 million for the third quarter 2017 primarily due to:

the effects of recording in third quarter 2016 final court decisions in several lawsuits against the DOE related to spent nuclear fuel storage costs. The damages awarded included the reimbursement of approximately $14 million of spent nuclear fuel storage costs previously recorded as other operation and maintenance expense. See Note 8 to the financial statements in the Form 10-K for discussion of the spent nuclear fuel litigation; and
an increase of $11 million in nuclear generation expenses primarily due to higher nuclear labor costs, including contract labor, to position the nuclear fleet to meet its operational goals. See “MANAGEMENT’S

3

Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis

FINANCIAL DISCUSSION AND ANALYSIS – Nuclear Matters” in the Form 10-K for a discussion of the increased operating costs to position the nuclear fleet to meet its operational goals.

The increase was partially offset by a decrease of $13 million in fossil-fueled generation expenses primarily due to lower long-term service agreement costs and a decrease of $5 million in storm damage provisions. See Note 2 to the financial statements herein and in the Form 10-K for a discussion on storm cost recovery.

Taxes other than income taxes increased primarily due to increases in ad valorem taxes and local franchise taxes. Ad valorem taxes increased primarily due to higher assessments, including the assessment of ad valorem taxes on the Union Power Station beginning in 2017. Local franchise taxes increased primarily due to higher revenues in 2017 as compared to 2016.

Depreciation and amortization expenses increased primarily due to additions to plant in service and the effects of recording in the third quarter 2016 final court decisions in several lawsuits against the DOE related to spent nuclear fuel storage costs. The damages awarded included the reimbursement of approximately $8 million of spent nuclear fuel storage costs previously recorded as depreciation expense. See Note 8 to the financial statements in the Form 10-K for discussion of the spent nuclear fuel litigation.

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 2017, including the St. Charles Power Station project, and higher realized gains in the third quarter 2017 as compared to the third quarter 2016 on the decommissioning trust fund investments.

Entergy Wholesale Commodities

Other operation and maintenance expenses decreased from $236 million for the third quarter 2016 to $199 million for the third quarter 2017 primarily due to the absence of other operation and maintenance expenses from the FitzPatrick plant after it was sold to Exelon in March 2017. See Note 13 to the financial statements herein for discussion of the sale of FitzPatrick.

Other income increased primarily due to higher realized gains in the third quarter 2017 as compared to the third quarter 2016 on the decommissioning trust fund investments.

Income Taxes

The effective income tax rate was 37.6% for the third quarter 2017. The difference in the effective income tax rate for the third quarter 2017 versus the federal statutory rate of 35% was primarily due to state income taxes, partially offset by book and tax differences related to the allowance for equity funds used during construction.

The effective income tax rate was 39.6% for the third quarter 2016. The difference in the effective income tax rate for the third quarter 2016 versus the federal statutory rate of 35% was primarily due to state income taxes, a valuation allowance recorded on a deferred tax asset, and certain book and tax differences related to utility plant items, partially offset by flow-through tax accounting.


4

Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis

Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016
 
Following are income statement variances for Utility, Entergy Wholesale Commodities, Parent & Other, and Entergy comparing the nine months ended September 30, 2017 to the nine months ended September 30, 2016 showing how much the line item increased or (decreased) in comparison to the prior period:
  

Utility
 
Entergy
Wholesale
Commodities
 

Parent &
Other (a)
 

Entergy
  (In Thousands)
2016 Consolidated Net Income (Loss) 
$1,027,751
 
$338,651
 
($165,367) 
$1,201,035
         
Net revenue (operating revenue less fuel expense, purchased power, and other regulatory charges/credits) 6,657
 (19,524) (17) (12,884)
Other operation and maintenance 87,381
 78,114
 2,534
 168,029
Asset write-offs, impairments, and related charges 
 388,414
 
 388,414
Taxes other than income taxes 34,270
 (13,702) 419
 20,987
Depreciation and amortization 40,131
 1,837
 25
 41,993
Gain on sale of assets 
 16,270
 
 16,270
Other income 45,956
 73,341
 (971) 118,326
Interest expense (15,417) (81) 5,474
 (10,024)
Other expenses 15,924
 32,794
 
 48,718
Income taxes 100,337
 (331,093) (5,678) (236,434)
         
2017 Consolidated Net Income (Loss) 
$817,738
 
$252,455
 
($169,129) 
$901,064

(a)Parent & Other includes eliminations, which are primarily intersegment activity.

Refer to “ENTERGY CORPORATION AND SUBSIDIARIES - SELECTED OPERATING RESULTS” for further information with respect to operating statistics.

Results of operations for the nine months ended September 30, 2017 include $422 million ($274 million net-of-tax) of impairment charges due to costs being charged to expense as incurred as a result of the impaired value of the Entergy Wholesale Commodities nuclear plants’ long-lived assets due to the significantly reduced remaining estimated operating lives associated with management’s strategy to reduce the size of the Entergy Wholesale Commodities’ merchant fleet and a reduction of income tax expense, net of unrecognized tax benefits, of $373 million as a result of tax elections to treat as corporations for federal income tax purposes two subsidiaries that each own an Entergy Wholesale Commodities nuclear power plant. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Entergy Wholesale Commodities Exit from the Merchant Power Business” below and in the Form 10-K for a discussion of management’s strategy to reduce the size of the Entergy Wholesale Commodities’ merchant fleet and Note 10 to the financial statements herein for additional discussion of the tax elections.

Results of operations for the nine months ended September 30, 2016 include a reduction of income tax expense, net of unrecognized tax benefits, of $238 million as a result of a tax election to treat as a corporation for federal income tax purposes a subsidiary that owns an Entergy Wholesale Commodities nuclear power plant; income tax benefits as a result of the settlement of the 2010-2011 IRS audit, including a $75 million tax benefit recognized by Entergy Louisiana related to the treatment of the Vidalia purchased power agreement and a $54 million net benefit recognized by Entergy Louisiana related to the treatment of proceeds received in 2010 for the financing of Hurricane Gustav and Hurricane Ike storm costs pursuant to Louisiana Act 55; and a reduction in expenses of $70 million ($44 million net-of-tax) due to the effects of recording in 2016 the final court decisions in several lawsuits against the DOE related to spent nuclear fuel storage costs. See Note 3 to the financial statements in the Form 10-K for additional discussion of the income tax items and Note 8 to the financial statements in the Form 10-K for discussion of the DOE litigation.

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Management's Financial Discussion and Analysis

Net Revenue

Utility

Following is an analysis of the change in net revenue comparing the nine months ended September 30, 2017 to the nine months ended September 30, 2016:
 Amount
 (In Millions)
2016 net revenue
$4,758
Retail electric price62
Grand Gulf recovery38
Louisiana Act 55 financing savings obligation17
Volume/weather(99)
Other(11)
2017 net revenue
$4,765
    
The retail electric price variance is primarily due to:

an increase in base rates effective February 24, 2016 and the implementation of formula rate plan rates effective with the first billing cycle of January 2017 at Entergy Arkansas, each as approved by the APSC. A significant portion of the base rate increase was related to the purchase of Power Block 2 of the Union Power Station in March 2016;
the implementation of the transmission cost recovery factor rider at Entergy Texas, effective September 2016, and an increase in the transmission cost recovery factor rider rate, effective March 2017, as approved by the PUCT;
an increase in rates at Entergy Mississippi, as approved by the MPSC, effective with the first billing cycle of July 2016; and
the timing of recovery of purchased power capacity costs at Entergy Louisiana through the formula rate plan mechanism.

The retail electric price variance is partially offset by a decrease in formula rate plan revenues for Entergy Louisiana, implemented with the first billing cycle of September 2016, to reflect the effects of the termination of the System Agreement.

See Note 2 to the financial statements herein and in the Form 10-K for further discussion of the rate proceedings. See Note 14 to the financial statements in the Form 10-K for discussion of the Union Power Station purchase.

The Grand Gulf recovery variance is primarily due to increased recovery of higher operating costs.

The Louisiana Act 55 financing savings obligation variance results from a regulatory charge in 2016 for tax savings to be shared with customers per an agreement approved by the LPSC. The tax savings resulted from the 2010-2011 IRS audit settlement on the treatment of the Louisiana Act 55 financing of storm costs for Hurricane Gustav and Hurricane Ike. See Note 3 to the financial statements in the Form 10-K for additional discussion of the settlement and benefit sharing.

The volume/weather variance is primarily due to the effect of less favorable weather on residential and commercial sales, partially offset by an increase in industrial usage. The increase in industrial usage is primarily due to new customers in the primary metals and industrial gases industries, an increase in demand for existing customers in the chemicals industry, and expansion projects in the chemicals industry.


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Management's Financial Discussion and Analysis

Entergy Wholesale Commodities

Following is an analysis of the change in net revenue comparing the nine months ended September 30, 2017 to the nine months ended September 30, 2016:
 Amount
 (In Millions)
2016 net revenue
$1,155
FitzPatrick sale(122)
Nuclear volume(76)
Nuclear fuel expenses76
FitzPatrick reimbursement agreement98
Other5
2017 net revenue
$1,136

As shown in the table above, net revenue for Entergy Wholesale Commodities decreased by $19 million in the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016 primarily due to the absence of net revenue from the FitzPatrick plant after it was sold to Exelon in March 2017 and lower volume in the Entergy Wholesale Commodities nuclear fleet resulting from more outage days in the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016. See Note 13 to the financial statements herein for discussion of the sale of FitzPatrick. The decrease was partially offset by a decrease in nuclear fuel expenses primarily related to the impairments of the Indian Point 2, Indian Point 3, and Palisades plants and related assets and an increase resulting from the reimbursement agreement with Exelon pursuant to which Exelon reimbursed Entergy for specified out-of-pocket costs associated with preparing for the refueling and operation of FitzPatrick that otherwise would have been avoided had Entergy shut down FitzPatrick in January 2017. Revenues received from Exelon in 2017 under the reimbursement agreement were offset in other operation and maintenance expenses and taxes other than income taxes and had no effect on net income. See Note 14 to the financial statements in the Form 10-K for discussion of the impairments and related charges. See Note 13 to the financial statements herein and Note 14 to the financial statements in the Form 10-K for further discussion of the reimbursement agreement.

Following are key performance measures for Entergy Wholesale Commodities for the nine months ended September 30, 2017 and 2016:
 2017 2016
Owned capacity (MW) (a)3,962 4,880
GWh billed22,616 26,484
    
Entergy Wholesale Commodities Nuclear Fleet   
Capacity factor79% 85%
GWh billed20,861 24,670
Average energy and capacity revenue per MWh$51.82 $48.99
Refueling outage days:   
FitzPatrick42 
Indian Point 2 102
Indian Point 366 
Pilgrim43 
Palisades27 

(a)The reduction in owned capacity is due to Entergy’s sale of the 838 MW FitzPatrick plant to Exelon in March 2017 and Entergy’s sale of its 50% membership interest in Top Deer Wind Ventures, LLC in November 2016. See Note 13 to the financial statements herein for discussion of the sale of FitzPatrick and Note 14 to the financial statements in the Form 10-K for discussion of the Top Deer Wind Ventures, LLC sale.

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Management's Financial Discussion and Analysis

Other Income Statement Items

Utility

Other operation and maintenance expenses increased from $1,688 million for the nine months ended September 30, 2016 to $1,776 million for the nine months ended September 30, 2017 primarily due to:

an increase of $27 million in nuclear generation expenses primarily due to higher nuclear labor costs, including contract labor, to position the nuclear fleet to meet its operational goals and additional training and initiatives to support management’s operational goals at Grand Gulf, partially offset by a decrease in regulatory compliance costs. The decrease in regulatory compliance costs is primarily related to additional NRC inspection activities in 2016 as a result of the NRC’s March 2015 decision to move ANO into the “multiple/repetitive degraded cornerstone column” of the NRC’s reactor oversight process action matrix. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS – Nuclear Matters” in the Form 10-K for a discussion of the increased operating costs to position the nuclear fleet to meet its operational goals. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - ANO Damage, Outage, and NRC Reviews” in the Form 10-K for a discussion of the ANO stator incident and subsequent NRC reviews;
the deferral in the first quarter 2016 of $7.7 million of previously-incurred costs related to ANO post-Fukushima compliance and $9.9 million of previously-incurred costs related to ANO flood barrier compliance, as approved by the APSC in February 2016 as part of the Entergy Arkansas 2015 rate case settlement. These costs are being amortized over a ten-year period beginning March 2016. See Note 2 to the financial statements in the Form 10-K for further discussion of the rate case settlement;
the effects of recording in 2016 final court decisions in several lawsuits against the DOE related to spent nuclear fuel storage costs. The damages awarded included the reimbursement of approximately $16 million of spent nuclear fuel storage costs previously recorded as other operation and maintenance expense. See Note 8 to the financial statements in the Form 10-K for discussion of the spent nuclear fuel litigation;
an increase of $13 million in transmission and distribution expenses due to higher vegetation maintenance costs; and
an increase of $11 million in compensation and benefits costs primarily due to a downward revision to estimated incentive compensation expense in the first quarter 2016.

The increase was partially offset by a decrease of $11 million in fossil-fueled generation expenses primarily due to lower long-term service agreement costs.

Taxes other than income taxes increased primarily due to increases in ad valorem taxes and local franchise taxes. Ad valorem taxes increased primarily due to higher assessments, including the assessment of ad valorem taxes on the Union Power Station beginning in 2017. Local franchise taxes increased primarily due to higher revenues in 2017 as compared to 2016.

Depreciation and amortization expenses increased primarily due to additions to plant in service, including the Union Power Station purchased in March 2016. See Note 14 to the financial statements in the Form 10-K for discussion of the Union Power Station purchase.

Other income increased primarily due to higher realized gains in 2017 as compared to the same period in 2016 on the decommissioning trust fund investments, including portfolio rebalancing in second quarter 2017, and an increase in the allowance for equity funds used during construction due to higher construction work in progress in 2017, including the St. Charles Power Station project.


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Management's Financial Discussion and Analysis

Entergy Wholesale Commodities

Other operation and maintenance expenses increased from $621 million for the nine months ended September 30, 2016 to $698 million for the nine months ended September 30, 2017 primarily due to:

FitzPatrick’s nuclear refueling outage expenses and expenditures for capital assets being classified as other operation and maintenance expenses as a result of the sale and reimbursement agreements Entergy entered into with Exelon. These costs would have not been incurred absent the sale agreement with Exelon because Entergy planned to shut the plant down in January 2017. The expenses were offset by revenue realized pursuant to the reimbursement agreement and had no effect on net income. See Note 13 to the financial statements herein and Note 14 to the financial statements in the Form 10-K for discussion of the reimbursement agreement;
the effect of recording in 2016 final court decisions in litigation against the DOE for the reimbursement of spent nuclear fuel storage costs, which reduced other operation and maintenance expenses in 2016 by $42 million. See Note 8 to the financial statements in the Form 10-K for discussion of the DOE litigation; and
an increase of $36 million in severance and retention costs in 2017 as compared to the same period in 2016 due to management’s strategy to reduce the size of the Entergy Wholesale Commodities’ merchant fleet. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Entergy Wholesale Commodities Exit from the Merchant Power Business” below and in the Form 10-K for a discussion of management’s strategy to reduce the size of the Entergy Wholesale Commodities’ merchant fleet.

The increase was partially offset by a decrease due to the absence of other operation and maintenance expenses from the FitzPatrick plant after it was sold to Exelon in March 2017. See Note 13 to the financial statements herein for discussion of the sale of FitzPatrick.

The asset write-offs, impairments, and related charges variance is primarily due to $422 million ($274 million net-of-tax) of impairment charges in the nine months ended September 30, 2017 due to nuclear fuel spending, nuclear refueling outage spending, and expenditures for capital assets being charged to expense as incurred as a result of the impaired value of the Entergy Wholesale Commodities nuclear plants’ long-lived assets due to the significantly reduced remaining estimated operating lives associated with management’s strategy to reduce the size of the Entergy Wholesale Commodities’ merchant fleet. The increase in impairment charges in 2017 is primarily due to management’s decisions in the fourth quarter 2016 and the resulting impairments of the Indian Point 2, Indian Point 3, and Palisades plants and the timing of nuclear fuel spending and nuclear refueling outage spending for the impaired Pilgrim plant. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Entergy Wholesale Commodities Exit from the Merchant Power Business” below and in the Form 10-K for a discussion of management’s strategy to reduce the size of the Entergy Wholesale Commodities’ merchant fleet.

Taxes other than income taxes decreased primarily due to the absence of ad valorem taxes and employment taxes from the FitzPatrick plant after it was sold to Exelon in March 2017. See Note 13 to the financial statements herein for discussion of the sale of FitzPatrick.

The gain on sale of assets resulted from the sale in March 2017 of the 838 MW FitzPatrick plant to Exelon. Entergy sold the FitzPatrick plant for approximately $110 million, including the $10 million non-refundable signing fee paid in August 2016, in addition to the assumption by Exelon of certain liabilities related to the FitzPatrick plant, resulting in a pre-tax gain of $16 million on the sale. See Note 13 to the financial statements herein for a discussion of the sale of FitzPatrick.

Other income increased primarily due to higher realized gains in 2017 as compared to the same period in 2016 on the decommissioning trust fund investments, including the result of portfolio rebalancing in second quarter 2017, and the increase in value from year-end realized upon the receipt from NYPA of the decommissioning trust funds for the Indian Point 3 and FitzPatrick plants in January 2017. See Note 9 to the financial statements in the Form 10-K for discussion of the trust transfer agreement with NYPA.


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Management's Financial Discussion and Analysis

Other expenses increased primarily due to increases in decommissioning expenses primarily as a result of a trust transfer agreement Entergy entered into with NYPA in August 2016, which closed in January 2017, to transfer the decommissioning trusts and decommissioning liabilities for the Indian Point 3 and FitzPatrick plants to Entergy and revisions to the estimated decommissioning cost liabilities for the Entergy Wholesale Commodities’ Indian Point 2 and Palisades plants as a result of revised decommissioning cost studies in the fourth quarter 2016. See Note 9 to the financial statements in the Form 10-K for discussion of the trust transfer agreement with NYPA and the revised decommissioning cost studies. The increase was partially offset by a reduction in deferred refueling outage amortization costs related to the impairments of the Indian Point 2, Indian Point 3, and Palisades plants and related assets. See Note 14 to the financial statements in the Form 10-K for discussion of the impairments and related charges.

Income Taxes

The effective income tax rate was (10.8%) for the nine months ended September 30, 2017. The difference in the effective income tax rate for the nine months ended September 30, 2017 versus the federal statutory rate of 35% was primarily due to tax elections to treat as corporations for federal income tax purposes two subsidiaries that each own an Entergy Wholesale Commodities nuclear power plant, which resulted in both permanent and temporary differences under the income tax accounting standards, and the re-determined tax basis of the FitzPatrick plant as a result of its sale on March 31, 2017, partially offset by state income taxes. See Note 10 to the financial statements herein for further discussion of the tax elections and the tax benefit associated with the sale of FitzPatrick.

The effective income tax rate was 11% for the nine months ended September 30, 2016. The difference in the effective income tax rate for the nine months ended September 30, 2016 versus the federal statutory rate of 35% was primarily due to a tax election to treat as a corporation for federal income tax purposes a subsidiary that owns an Entergy Wholesale Commodities nuclear power plant, which resulted in reduced income tax expense and the reversal of a portion of the provision for uncertain tax positions as a result of the settlement of the 2010-2011 IRS audit in the second quarter 2016, partially offset by state income taxes. See Note 3 to the financial statements in the Form 10-K for additional discussion of the tax election and the tax settlements.

ANO Damage, Outage, and NRC Reviews
 
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - ANO Damage, Outage, and NRC Reviews” in the Form 10-K for a discussion of the ANO stator incident, subsequent NRC reviews, and the deferral of replacement power costs.
 
Entergy Wholesale Commodities Exit from the Merchant Power Business

See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Entergy Wholesale Commodities Exit from the Merchant Power Business” in the Form 10-K for a discussion of management’s strategy to reduce the size of the Entergy Wholesale Commodities’ merchant fleet.  Following are updates to that discussion.

Sale of FitzPatrick    

In March 2017 the NRC approved the sale of the FitzPatrick plant, an 838 MW nuclear power plant owned by Entergy in the Entergy Wholesale Commodities segment, to Exelon. The transaction closed in March 2017 for a purchase price of $110 million, including the $10 million non-refundable signing fee paid in August 2016, in addition to the assumption by Exelon of certain liabilities related to the FitzPatrick plant, resulting in a pre-tax gain on the sale of $16 million. At the transaction close, Exelon paid an additional $8 million for the proration of certain expenses prepaid by Entergy. See Note 13 to the financial statements herein for further discussion of the sale of FitzPatrick. As discussed in Note 10 to the financial statements herein, as a result of the sale of FitzPatrick, Entergy re-determined the plant’s tax basis, resulting in a $44 million income tax benefit in the first quarter 2017.


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Management's Financial Discussion and Analysis

Planned Shutdown of Palisades

As discussed in the Form 10-K, most of the Palisades plant output is sold under a power purchase agreement (PPA) with Consumers Energy, entered into when the plant was acquired in 2007, that is scheduled to expire in April 2022. The PPA prices currently exceed market prices and escalate each year, up to $61.50/MWh in 2022. In December 2016, Entergy reached an agreement with Consumers Energy to amend the existing PPA to terminate early, on May 31, 2018. Pursuant to the agreement to amend the PPA, Consumers Energy would pay Entergy $172 million for the early termination of the PPA. The PPA amendment agreement was subject to regulatory approvals, including approval by the Michigan Public Service Commission. Separately, Entergy intended to shut down the Palisades nuclear power plant permanently on October 1, 2018, after refueling in the spring of 2017 and operating through the end of that fuel cycle.

In September 2017 the Michigan Public Service Commission issued an order conditionally approving the PPA amendment transaction, but only granting Consumers Energy recovery of $136.6 million of the $172 million requested early termination payment. As a result, Entergy and Consumers Energy agreed to terminate the PPA amendment agreement. Entergy will continue to operate Palisades under the current PPA with Consumers Energy, instead of shutting down in the fall of 2018 as previously planned. Entergy intends to shut down the Palisades nuclear power plant permanently in the spring of 2022. As a result of the change in expected operating life of the plant, the expected probability-weighted undiscounted net cash flows as of September 30, 2017 exceed the carrying value of the plant and related assets. Accordingly, nuclear fuel spending, nuclear refueling outage spending, and expenditures for capital assets incurred at Palisades after September 30, 2017 will no longer be charged to expense as incurred, but will be recorded as assets and depreciated or amortized. See Note 13 to the financial statements herein for discussion of the updated calculation of the liability amortization associated with the PPA and see Note 14 to the financial statements herein for discussion of the associated asset retirement obligation revision.

Costs Associated with Entergy Wholesale Commodities Strategic Transactions

Entergy expects to incur employee retention and severance expenses associated with management’s strategy to reduce the size of the Entergy Wholesale Commodities’ merchant fleet of approximately $110 million in 2017, of which $89 million had been incurred as of September 30, 2017, and approximately $400 million from 2018 through the spring of 2022. In addition, Entergy Wholesale Commodities incurred impairment charges related to nuclear fuel spending, nuclear refueling outage spending, and expenditures for capital assets of $16 million for the three months ended September 30, 2017 and $422 million for the nine months ended September 30, 2017. These costs were charged to expense as incurred as a result of the impaired value of the Entergy Wholesale Commodities nuclear plants’ long-lived assets due to the significantly reduced remaining estimated operating lives associated with management’s strategy to reduce the size of the Entergy Wholesale Commodities’ merchant fleet. Entergy expects to continue to incur costs associated with nuclear fuel-related spending and expenditures for capital assets and, except for Palisades, expects to continue to charge these costs to expense as incurred because Entergy expects the value of the plants to continue to be impaired.

Entergy Wholesale Commodities Authorizations to Operate Its Nuclear Power Plants

See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Entergy Wholesale Commodities Authorizations to Operate Its Nuclear Power Plants” in the Form 10-K for a discussion of the NRC operating licensing proceedings for Indian Point 2 and Indian Point 3 and the settlement reached with New York State.  Following are updates to that discussion.

In accordance with the settlement with New York State, in March 2017 the New York State Department of State issued a concurrence with Indian Point’s new Coastal Zone Management Act (CZMA) consistency certification and, on Entergy’s motion, the U.S. District Court for the Northern District of New York dismissed Entergy’s appeal related to the initial Indian Point CZMA consistency certification. Also in March 2017 the Atomic Safety and Licensing Board of the NRC granted the motion of New York State and Riverkeeper to withdraw their pending contentions on

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Management's Financial Discussion and Analysis

the NRC license renewal application and terminated the proceedings.  Subsequent to the issuance of the water quality certification and water discharge permit in January 2017 by the New York State Department of Environmental Conservation (NYSDEC), in April 2017 the NYSDEC updated its environmental analysis to reflect the early shutdown per the settlement agreement. Both the water quality certification and the CZMA concurrence were filed with the NRC in April 2017.

In May 2017 a plaintiff filed two parallel state court appeals challenging New York State’s actions in signing and implementing the Indian Point settlement with Entergy on the basis that the State failed to perform sufficient environmental analysis of its actions. All signatories to the settlement agreement, including the Entergy affiliates that hold NRC licenses for Indian Point, were named.

Liquidity and Capital Resources

See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Liquidity and Capital Resources” in the Form 10-K for a discussion of Entergy’s capital structure, capital expenditure plans and other uses of capital, and sources of capital.  Following are updates to that discussion.
 
Capital Structure

Entergy’s capitalization is balanced between equity and debt, as shown in the following table.
 
September 30,
2017
 
December 31,
2016
Debt to capital64.6% 64.8%
Effect of excluding securitization bonds(0.8%) (1.0%)
Debt to capital, excluding securitization bonds (a)63.8% 63.8%
Effect of subtracting cash(0.9%) (2.0%)
Net debt to net capital, excluding securitization bonds (a)62.9% 61.8%

(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.

Net debt consists of debt less cash and cash equivalents.  Debt consists of notes payable and commercial paper, capital lease obligations, and long-term debt, including the currently maturing portion.  Capital consists of debt, common shareholders’ equity, and subsidiaries’ preferred stock without sinking fund.  Net capital consists of capital less cash and cash equivalents.  Entergy uses the debt to capital ratios excluding securitization bonds in analyzing its financial condition and believes they provide useful information to its investors and creditors in evaluating Entergy’s financial condition because the securitization bonds are non-recourse to Entergy, as more fully described in Note 5 to the financial statements in the Form 10-K.  Entergy also uses the net debt to net capital ratio excluding securitization bonds in analyzing its financial condition and believes it provides useful information to its investors and creditors in evaluating Entergy’s financial condition because net debt indicates Entergy’s outstanding debt position that could not be readily satisfied by cash and cash equivalents on hand.
    
Entergy Corporation has in place a credit facility that has a borrowing capacity of $3.5 billion and expires in August 2022.  The facility permits the issuance of letters of credit against 50% 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 nine months ended September 30, 2017 was 2.50% on the drawn portion of the facility. Following is a summary of the borrowings outstanding and capacity available under the facility as of September 30, 2017:

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Management's Financial Discussion and Analysis

Capacity Borrowings 
Letters
of Credit
 
Capacity
Available
(In Millions)
$3,500 $150 $6 $3,344

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.  Entergy is currently in compliance with the covenant and expects to remain in compliance with this covenant.  If Entergy fails to meet this ratio, or if Entergy or one of the Utility operating companies (except Entergy New Orleans) defaults on other indebtedness or is in bankruptcy or insolvency proceedings, an acceleration of the facility’s maturity date may occur.  See Note 4 to the financial statements herein for additional discussion of the Entergy Corporation credit facility and discussion of the Registrant Subsidiaries’ credit facilities.

Entergy Nuclear Vermont Yankee has a credit facility guaranteed by Entergy Corporation with a borrowing capacity of $100 million, which expires in January 2018. As of September 30, 2017, $80 million in cash borrowings were outstanding under the credit facility. The weighted average interest rate for the nine months ended September 30, 2017 was 2.56% on the drawn portion of the facility. Entergy Nuclear Vermont Yankee also has an uncommitted credit facility guaranteed by Entergy Corporation with a borrowing capacity of $85 million, which expires in January 2018. As of September 30, 2017, there were no cash borrowings outstanding under the uncommitted credit facility. See Note 4 to the financial statements herein for additional discussion of the Vermont Yankee facilities.

Entergy Corporation has a commercial paper program with a Board-approved program limit of up to $1.5 billion. As of September 30, 2017, Entergy Corporation had $1.3 billion of commercial paper outstanding. The weighted-average interest rate for the nine months ended September 30, 2017 was 1.45%.

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 2017 through 2019. Following are updates to the discussion.

Preliminary Capital Investment Plan Estimate for 2018-2020

Entergy is developing its capital investment plan for 2018 through 2020 and currently anticipates that the Utility will make approximately $10.7 billion in capital investments during that period and that Entergy Wholesale Commodities will make approximately $0.4 billion in capital investments, not including nuclear fuel, during that period. The preliminary Utility estimate includes amounts associated with specific investments such as the Lake Charles Power Station, New Orleans Power Station, and Montgomery County Power Station, each discussed below, and the St. Charles Power Station; transmission projects to enhance reliability, reduce congestion, and enable economic growth; distribution spending to enhance reliability and improve service to customers, including initial investment to support advanced metering; resource planning, including potential generation projects; system improvements; investments in the nuclear fleet; and other investments. The preliminary Entergy Wholesale Commodities estimate includes amounts associated with specific investments, such as the investments in the nuclear fleet, component replacement, software and security, and dry cask storage. Estimated capital expenditures are subject to periodic review and modification and may vary based on the ongoing effects of business restructuring, regulatory constraints and requirements, environmental regulations, business opportunities, market volatility, economic trends, changes in project plans, and the ability to access capital.
    

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Management's Financial Discussion and Analysis

Lake Charles Power Station

In November 2016, Entergy Louisiana filed an application with the LPSC seeking certification that the public convenience and necessity would be served by the construction of the Lake Charles Power Station, a nominal 994 MW combined-cycle generating unit in Westlake, Louisiana, on land adjacent to the existing Nelson plant in Calcasieu Parish. The current estimated cost of the Lake Charles Power Station is $872 million, including estimated costs of transmission interconnection and other related costs. In May 2017 the parties to the proceeding agreed to an uncontested stipulation finding that construction of the Lake Charles Power Station is in the public interest and authorizing an in-service rate recovery plan. In July 2017 the LPSC issued an order unanimously approving the stipulation. Subject to the timely receipt of other permits and approvals, commercial operation is estimated to occur by mid-2020.

New Orleans Power Station
 
In June 2016, Entergy New Orleans filed an application with the City Council seeking a public interest determination and authorization to construct the New Orleans Power Station, a 226 MW advanced combustion turbine in New Orleans, Louisiana, at the site of the existing Michoud generating facility, which was retired effective May 31, 2016. In January 2017 several intervenors filed testimony opposing the construction of the New Orleans Power Station on various grounds. In July 2017, Entergy New Orleans submitted a supplemental and amending application to the City Council seeking approval to construct either the originally proposed 226 MW advanced combustion turbine, or alternatively, a 128 MW unit composed of natural gas-fired reciprocating engines and a related cost recovery plan. The application included an updated cost estimate of $232 million for the 226 MW advanced combustion turbine. The cost estimate for the alternative 128 MW unit is $210 million. In addition, the application renewed the commitment to pursue up to 100 MW of renewable resources to serve New Orleans.  In August 2017 the City Council established a procedural schedule that provided for a hearing in December 2017 with a City Council decision expected in February 2018. In October 2017 several intervenors filed testimony opposing the New Orleans Power Station or, in one case, supporting a slightly smaller configuration of Entergy New Orleans’s alternative proposal. The commercial operation date is dependent on the alternative selected by the City Council and the receipt of other permits and approvals. 
   
Montgomery County Power Station

In October 2016, Entergy Texas filed an application with the PUCT seeking certification that the public convenience and necessity would be served by the construction of the Montgomery County Power Station, a nominal 993 MW combined-cycle generating unit in Montgomery County, Texas on land adjacent to the existing Lewis Creek plant. The current estimated cost of the Montgomery County Power Station is $937 million, including estimated costs of transmission interconnection and network upgrades and other related costs. The independent monitor, who oversaw the request for proposal process, filed testimony and a report affirming that the Montgomery County Power Station was selected through an objective and fair request for proposal process that showed no undue preference to any proposal. In June 2017, parties to the proceeding filed an unopposed stipulation and settlement agreement. The stipulation contemplates that Entergy Texas’s level of cost-recovery for generation construction costs for Montgomery County Power Station is capped at $831 million, subject to certain exclusions such as force majeure events. The costs of the transmission interconnection and network upgrades and other related costs included in the total current estimated cost of the Montgomery County Power Station are not subject to the $831 million cap. Also in June 2017, the ALJ issued a proposed order and remanded the proceeding to the PUCT for final decision. In July 2017 the PUCT approved the stipulation. Subject to the timely receipt of other permits and approvals, commercial operation is estimated to occur by mid-2021.

Washington Parish Energy Center

In April 2017, Entergy Louisiana signed a purchase and sale agreement with a subsidiary of Calpine Corporation for the acquisition of a peaking plant. Calpine will construct the plant, which will consist of two natural gas-fired combustion turbine units with a total nominal capacity of approximately 360 MW. The plant, named the Washington Parish Energy Center, will be located in Bogalusa, Louisiana and, subject to permits and approvals, is expected to be

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Management's Financial Discussion and Analysis

completed in 2021. Subject to regulatory approvals, Entergy Louisiana will purchase the plant once it is complete for an estimated total investment of approximately $261 million, including transmission and other related costs. In May 2017, Entergy Louisiana filed an application with the LPSC seeking certification of the plant. A procedural schedule has been established, with a hearing in April 2018.

Dividends

Declarations of dividends on Entergy’s common stock are made at the discretion of the Board.  Among other things, the Board evaluates the level of Entergy’s common stock dividends based upon earnings per share from the Utility operating segment and the Parent and Other portion of the business, financial strength, and future investment opportunities.  At its October 2017 meeting, the Board declared a dividend of $0.89 per share, an increase from the previous $0.87 quarterly dividend per share that Entergy has paid since the fourth quarter 2016.

Cash Flow Activity

As shown in Entergy’s Consolidated Statements of Cash Flows, cash flows for the nine months ended September 30, 2017 and 2016 were as follows:
 2017 2016
 (In Millions)
Cash and cash equivalents at beginning of period
$1,188
 
$1,351
    
Cash flow provided by (used in): 
  
Operating activities1,713
 2,252
Investing activities(2,828) (2,983)
Financing activities473
 687
Net decrease in cash and cash equivalents(642) (44)
    
Cash and cash equivalents at end of period
$546
 
$1,307

Operating Activities

Net cash flow provided by operating activities decreased by $539 million for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 primarily due to:

an increase of $182 million in spending on nuclear refueling outages in 2017 as compared to the same period in 2016;
lower Entergy Wholesale Commodities net revenue, excluding the effect of revenues resulting from the FitzPatrick reimbursement agreement with Exelon, in 2017 as compared to the same period in 2016, as discussed above. See Note 13 to the financial statements herein and Note 14 to the financial statements in the Form 10-K for discussion of the reimbursement agreement;
an increase of $95 million in severance and retention payments in 2017 as compared to the same period in 2016. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Entergy Wholesale Commodities Exit from the Merchant Power Business” above and in the Form 10-K for a discussion of management’s strategy to reduce the size of the Entergy Wholesale Commodities’ merchant fleet;
a refund to customers in January 2017 of approximately $71 million as a result of the settlement approved by the LPSC related to the Waterford 3 replacement steam generator project. See Note 2 to the financial statements herein and in the Form 10-K for discussion of the settlement and refund;
proceeds of $23 million received in 2017 compared to proceeds of $64 million received in 2016 from the DOE resulting from litigation regarding spent nuclear fuel storage costs that were previously expensed. See Note 8 to the financial statements in the Form 10-K for discussion of the DOE litigation; and

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Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis

a decrease due to the timing of recovery of fuel and purchased power costs in 2017 as compared to the same period in 2016. See Note 2 to the financial statements herein and in the Form 10-K for a discussion of fuel and purchased power cost recovery.

The decrease was partially offset by:

income tax refunds of $12 million in 2017 compared to income tax payments of $80 million in 2016. Entergy received income tax refunds in 2017 resulting from the carryback of net operating losses. Entergy made income tax payments in 2016 related to the effect of the 2006-2007 IRS audit and for jurisdictions that do not have net operating loss carryovers or jurisdictions in which the utilization of net operating loss carryovers are limited. See Note 3 to the financial statements in the Form 10-K for a discussion of the income tax audit; and
a decrease of $76 million in interest paid in 2017 as compared to the same period in 2016 primarily due to an interest payment of $60 million made in March 2016 related to the purchase of a beneficial interest in the Waterford 3 leased assets. See Note 10 to the financial statements in the Form 10-K for a discussion of Entergy Louisiana’s purchase of a beneficial interest in the Waterford 3 leased assets.

Investing Activities

Net cash flow used in investing activities decreased $155 million for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 primarily due to the purchase of the Union Power Station for approximately $949 million in March 2016 and proceeds of $100 million from the sale in March 2017 of the FitzPatrick plant to Exelon. See Note 14 to the financial statements in the Form 10-K for discussion of the Union Power Station purchase and Note 13 to the financial statements herein for a discussion of the sale of FitzPatrick.

The decrease was partially offset by:

an increase of $619 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 $363 million in fossil-fueled generation construction expenditures primarily due to higher spending in 2017 on the St. Charles Power Station project and the Lake Charles Power Station project and a higher scope of work performed on various other fossil projects in 2017, an increase of $107 million in nuclear construction expenditures primarily due to increased spending on various nuclear projects in 2017, an increase of $87 million in distribution construction expenditures primarily due to a higher scope of work performed in 2017 as compared to the same period in 2016, an increase of $44 million in transmission construction expenditures primarily due to a higher scope of work performed in 2017 as compared to the same period in 2016, and an increase of $42 million in information technology construction expenditures primarily due to increased spending on advanced metering infrastructure;
$113 million in funds held on deposit for principal and interest payments due October 1, 2017;
proceeds of $25 million received in 2017 compared to proceeds of $122 million received in 2016 from the DOE resulting from litigation regarding spent nuclear fuel storage costs that were previously capitalized. See Note 1 to the financial statements herein and Note 8 to the financial statements in the Form 10-K for discussion of the DOE litigation; and
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.


16

Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis

Financing Activities

Net cash flow provided by financing activities decreased $214 million for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 primarily due to:

long-term debt activity using approximately $309 thousand of cash in 2017 compared to providing approximately $1,279 million of cash in 2016. Included in the long-term debt activity is $550 million in 2017 and $655 million in 2016 for the repayment of borrowings on the Entergy Corporation long-term credit facility; and
a decrease of $87 million in 2017 in short-term borrowings by the nuclear fuel company variable interest entities.

The decrease was partially offset by:

Entergy’s net issuances of $928 million of commercial paper in 2017 compared to net repayments of $158 million of commercial paper in 2016; and
the redemptions of Entergy Arkansas’s $75 million of 6.45% Series preferred stock and $10 million of 6.08% Series preferred stock in 2016.

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.

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.  In addition to selling the energy produced by its plants, Entergy Wholesale Commodities 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

17

Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis

both.  In addition to its forward physical power contracts, Entergy Wholesale Commodities also uses a combination of financial contracts, including swaps, collars, and options, to manage forward commodity price risk.  Certain hedge volumes have price downside and upside relative to market price movement.  The contracted minimum, expected value, and sensitivities are provided in the table below to show potential variations.  The sensitivities may not reflect the total maximum upside potential from higher market prices.  The information contained in the following table represents projections at a point in time and will vary over time based on numerous factors, such as future market prices, contracting activities, and generation.  Following is a summary of Entergy Wholesale Commodities’ current forward capacity and generation contracts as well as total revenue projections based on market prices as of September 30, 2017 (2017 represents the remainder of the year):

Entergy Wholesale Commodities Nuclear Portfolio
  2017 2018 2019 2020 2021 2022
Energy            
Percent of planned generation under contract (a):            
Unit-contingent (b) 88% 98% 70% 38% 70% 67%
Firm LD (c) 9% 8% —% —% —% —%
Offsetting positions (d) (9%) (9%) —% —% —% —%
Total 88% 97% 70% 38% 70% 67%
Planned generation (TWh) (e) (f) 7.6 28.0 25.5 17.9 9.7 2.8
Average revenue per MWh on contracted volumes:            
Minimum $39.8 $38.9 $43.3 $55.3 $59.8 $58.8
Expected based on market prices as of September 30, 2017 $39.8 $38.9 $43.3 $55.3 $59.8 $58.8
Sensitivity: -/+ $10 per MWh market price change $39.8-$39.9 $38.9 $43.3 $55.3 $59.8 $58.8
             
Capacity            
Percent of capacity sold forward (g):            
Bundled capacity and energy contracts (h) 23% 22% 25% 36% 69% 99%
Capacity contracts (i) 38% 21% 10% —% —% —%
Total 61% 43% 35% 36% 69% 99%
Planned net MW in operation (average) (f) 3,568 3,568 3,167 2,195 1,158 338
Average revenue under contract per kW per month (applies to capacity contracts only) $8.3 $9.1 $10.5 $— $— $—
             
Total Nuclear Energy and Capacity Revenues (j)            
Expected sold and market total revenue per MWh $44.5 $46.7 $46.8 $49.1 $56.3 $47.7
Sensitivity: -/+ $10 per MWh market price change $43.3-$45.7 $46.6-$46.7 $43.8-$49.8 $43.3-$55.0 $53.3-$59.3 $44.3-$51.0

(a)Percent of planned generation output sold or purchased forward under contracts, forward physical contracts, forward financial contracts, or options that mitigate price uncertainty that may require regulatory approval or approval of transmission rights. Positions that are not classified as hedges are netted in the planned generation under contract.
(b)Transaction under which power is supplied from a specific generation asset; if the asset is not operating, the seller is generally not liable to buyer for any damages. Certain unit-contingent sales include a guarantee of

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Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis

availability. Availability guarantees provide for the payment to the power purchaser of contract damages, if incurred, in the event the seller fails to deliver power as a result of the failure of the specified generation unit to generate power at or above a specified availability threshold.  All of Entergy’s outstanding guarantees of availability provide for dollar limits on Entergy’s maximum liability under such guarantees.
(c)Transaction that requires receipt or delivery of energy at a specified delivery point (usually at a market hub not associated with a specific asset) or settles financially on notional quantities; if a party fails to deliver or receive energy, defaulting party must compensate the other party as specified in the contract, a portion of which may be capped through the use of risk management products. This also includes option transactions that may expire without being exercised.
(d)Transactions for the purchase of energy, generally to offset a Firm LD transaction.
(e)Amount of output expected to be generated by Entergy Wholesale Commodities resources considering plant operating characteristics, outage schedules, and expected market conditions that affect dispatch.
(f)
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 in the spring of 2022, and reflects the sale of FitzPatrick in March 2017. Assumes NRC license renewals for two units, as follows (with current license expirations in parentheses): Indian Point 2 (September 2013 and now operating under its period of extended operations while its application is pending) and Indian Point 3 (December 2015 and now operating under its period of extended operations while its application is pending). For a discussion regarding the planned shutdown of the Pilgrim, Indian Point 2, Indian Point 3, and Palisades plants, see “Entergy Wholesale Commodities Exit from the Merchant Power Business” above and in the Form 10-K. For a discussion regarding the license renewals for Indian Point 2 and Indian Point 3, see “Entergy Wholesale Commodities Authorizations to Operate Its Nuclear Power Plants” above and in the Form 10-K.
(g)Percent of planned qualified capacity sold to mitigate price uncertainty under physical or financial transactions.
(h)A contract for the sale of installed capacity and related energy, priced per megawatt-hour sold.
(i)A contract for the sale of an installed capacity product in a regional market.
(j)Includes assumptions on converting a portion of the portfolio to contracted with fixed price cost or discount and excludes non-cash revenue from the amortization of the Palisades below-market purchased power agreement, mark-to-market activity, and service revenues.

Entergy estimates that a positive $10 per MWh change in the annual average energy price in the markets in which the Entergy Wholesale Commodities nuclear business sells power, based on September 30, 2017 market conditions, planned generation volumes, and hedged positions, would have a corresponding effect on pre-tax net income of $9 million for the remainder of 2017. As of September 30, 2016, a positive $10 per MWh change would have had a corresponding effect on pre-tax income of $20 million for the remainder of 2016.  A negative $10 per MWh change in the annual average energy price in the markets based on September 30, 2017 market conditions, planned generation volumes, and hedged positions, would have a corresponding effect on pre-tax net income of ($9) million for the remainder of 2017. As of September 30, 2016, a negative $10 per MWh change would have had a corresponding effect on pre-tax income of ($10) million for the remainder of 2016.

Some of the agreements to sell the power produced by Entergy Wholesale Commodities’ power plants contain provisions that require an Entergy subsidiary to provide credit support to secure its obligations under the agreements.  The Entergy subsidiary is required to provide credit support based upon the difference between the current market prices and contracted power prices in the regions where Entergy Wholesale Commodities sells power.  The primary form of credit support to satisfy these requirements is an Entergy Corporation guaranty.  Cash and letters of credit are also acceptable forms of credit support.  At September 30, 2017, based on power prices at that time, Entergy had liquidity exposure of $105 million under the guarantees in place supporting Entergy Wholesale Commodities transactions and $9 million of posted cash collateral.  In the event of a decrease in Entergy Corporation’s credit rating to below investment grade, based on power prices as of September 30, 2017, Entergy would have been required to provide approximately $50 million of additional cash or letters of credit under some of the agreements. As of September 30, 2017, the liquidity exposure associated with Entergy Wholesale Commodities assurance requirements, including return of previously posted collateral from counterparties, would increase by $295 million for a $1 per MMBtu increase in gas prices in both the short-and long-term markets.  

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Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis

As of September 30, 2017, 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.

Indian Point

During the scheduled refueling and maintenance outage at Indian Point 2 in the first quarter 2016, comprehensive inspections were done as part of the aging management program that calls for an in-depth inspection of the reactor vessel.  Inspections of more than 2,000 bolts in the reactor’s removable insert liner identified issues with roughly 11% of the bolts that required further analysis.  Entergy replaced bolts as appropriate, and the unit returned to service in June 2016. In 2016, Entergy evaluated the scope and duration of Indian Point 3’s scheduled refueling outage planned for 2017, which began in March 2017. Based on the results of the 2016 evaluation and analysis, Entergy extended Indian Point 3’s planned 2017 outage duration. Entergy performed the same in-depth inspection of the reactor vessel at Indian Point 3 during Indian Point 3’s spring 2017 refueling and maintenance outage that it performed for Indian Point 2. Based on inspection data, Entergy replaced approximately the same number of bolts at Indian Point 3 that it replaced at Indian Point 2 before returning the plant to service in May 2017.

Critical Accounting Estimates

See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Critical Accounting Estimates” in the Form 10-K for a discussion of the estimates and judgments necessary in Entergy’s accounting for nuclear decommissioning costs, utility regulatory accounting, unbilled revenue, impairment of long-lived assets and trust fund investments, taxation and uncertain tax positions, qualified pension and other postretirement benefits, and other contingencies.

New Accounting Pronouncements

See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - New Accounting Pronouncements” in the Form 10-K for a discussion of new accounting pronouncements. Following are updates to that discussion.

As discussed in the Form 10-K, ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” is effective for Entergy for the first quarter 2018.  Entergy has selected the modified retrospective transition method. Entergy’s evaluation of ASU 2014-09 has not identified any effects that it expects will affect materially its results of operations, financial position, or cash flows, other than changes in required financial statement disclosures. Entergy continues to monitor the development and finalization of industry-specific application guidance that could have an effect on this assessment.

As discussed in the Form 10-K, ASU No. 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory” is effective for Entergy for the first quarter 2018. The ASU requires entities to recognize the income tax consequences of intra-entity asset transfers, other than inventory, at the time the transfer occurs.  Entergy is evaluating the ASU and currently expects to record a cumulative-effect adjustment to retained earnings as of January 1, 2018.

As discussed in the Form 10-K, ASU No. 2016-01 “Financial Instruments (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities” is effective for Entergy for the first quarter 2018. Unrealized gains and losses on investments in equity securities held by the nuclear decommissioning trust funds will be required

20

Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis

to be recorded in earnings rather than in other comprehensive income. In accordance with the regulatory treatment of the decommissioning trust funds of Entergy Arkansas, Entergy Louisiana, and System Energy, an offsetting amount of unrealized gains/losses will continue to be recorded in other regulatory liabilities/assets. Entergy expects to record an adjustment to retained earnings as of January 1, 2018 for the cumulative effect of the unrealized gains and losses on investments in equity securities held by the decommissioning trust funds that do not meet the criteria for regulatory accounting treatment.

In March 2017 the FASB issued ASU No. 2017-07, “Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” The ASU requires entities to report the service cost component of defined benefit pension cost and postretirement benefit cost (net benefit cost) in the same line item as other compensation costs arising from services rendered during the period.  The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations.  In addition, the ASU allows only the service cost component of net benefit cost to be eligible for capitalization.  ASU 2017-07 is effective for Entergy for the first quarter 2018.  Entergy does not expect ASU 2017-07 to affect materially its results of operations, financial position, or cash flows.

In August 2017 the FASB issued ASU No. 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.”  The ASU makes a number of amendments to hedge accounting, most significantly changing the recognition and presentation of highly effective hedges.  Upon adoption of the standard there will no longer be separate recognition or presentation of the ineffective portion of highly effective hedges.  In addition, the ASU allows entities to designate a contractually-specified component as the hedged risk, simplifies the process for assessing the effectiveness of hedges, and adds additional disclosure requirements for hedges.  ASU 2017-12 is effective for Entergy for the first quarter 2019, with early adoption permitted.  Entergy expects that ASU 2017-12 will affect its net income by eliminating volatility in earnings related to the ineffective portion of designated hedges on nuclear power sales.  Entergy is evaluating ASU 2017-12 for other effects on its results of operations, financial position, or cash flows.



21


ENTERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
For the Three and Nine Months Ended September 30, 2017 and 2016
(Unaudited)
    
 Three Months Ended Nine Months Ended
 2017 2016 2017 2016
 (In Thousands, Except Share Data)
OPERATING REVENUES       
Electric
$2,793,798
 
$2,624,562
 
$7,056,758
 
$6,760,054
Natural gas26,585
 24,796
 100,011
 95,530
Competitive businesses423,245
 475,345
 1,293,867
 1,341,534
TOTAL3,243,628
 3,124,703
 8,450,636
 8,197,118
        
OPERATING EXPENSES       
Operation and Maintenance:       
Fuel, fuel-related expenses, and gas purchased for resale612,950
 460,990
 1,426,462
 1,347,422
Purchased power408,140
 375,107
 1,182,404
 880,102
Nuclear refueling outage expenses43,273
 56,675
 124,126
 154,951
Other operation and maintenance804,535
 833,176
 2,492,379
 2,324,350
Asset write-offs, impairments, and related charges16,221
 18,841
 421,584
 33,170
Decommissioning95,392
 85,266
 310,062
 230,519
Taxes other than income taxes159,474
 149,076
 469,090
 448,103
Depreciation and amortization354,739
 340,399
 1,052,332
 1,010,339
Other regulatory charges (credits)19,435
 33,113
 (59,314) 55,626
TOTAL2,514,159
 2,352,643
 7,419,125
 6,484,582
        
Gain on sale of assets
 
 16,270
 
        
OPERATING INCOME729,469
 772,060
 1,047,781
 1,712,536
        
OTHER INCOME       
Allowance for equity funds used during construction24,338
 15,451
 65,722
 48,242
Interest and investment income58,332
 37,534
 194,978
 116,662
Miscellaneous - net(1,801) (6,740) (3,172) (25,702)
TOTAL80,869
 46,245
 257,528
 139,202
        
INTEREST EXPENSE       
Interest expense178,391
 174,902
 522,857
 526,344
Allowance for borrowed funds used during construction(11,492) (7,707) (31,057) (24,520)
TOTAL166,899
 167,195
 491,800
 501,824
        
INCOME BEFORE INCOME TAXES643,439
 651,110
 813,509
 1,349,914
        
Income taxes241,795
 257,906
 (87,555) 148,879
        
CONSOLIDATED NET INCOME401,644
 393,204
 901,064
 1,201,035
        
Preferred dividend requirements of subsidiaries3,446
 5,034
 10,338
 15,586
        
NET INCOME ATTRIBUTABLE TO ENTERGY CORPORATION
$398,198
 
$388,170
 
$890,726
 
$1,185,449
        
Earnings per average common share:       
Basic
$2.22
 
$2.17
 
$4.96
 
$6.63
Diluted
$2.21
 
$2.16
 
$4.94
 
$6.60
Dividends declared per common share
$0.87
 
$0.85
 
$2.61
 
$2.55
        
Basic average number of common shares outstanding179,563,819
 179,023,351
 179,458,914
 178,804,148
Diluted average number of common shares outstanding180,464,069
 179,990,888
 180,163,074
 179,490,060
        
See Notes to Financial Statements.       

22


ENTERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Three and Nine Months Ended September 30, 2017 and 2016
(Unaudited)
    
 Three Months Ended Nine Months Ended
 2017 2016 2017 2016
 (In Thousands)
        
Net Income
$401,644
 
$393,204
 
$901,064
 
$1,201,035

       
Other comprehensive income (loss)       
Cash flow hedges net unrealized gain (loss) (net of tax expense (benefit) of $7,062, $11,172, $17,387, and ($28,605))13,213
 20,972
 32,634
 (52,575)
Pension and other postretirement liabilities (net of tax expense of $6,818, $4,064, $19,034, and $7,101)12,297
 5,044
 31,845
 17,649
Net unrealized investment gains (net of tax expense of $30,644, $20,635, $72,808, and $58,508)33,395
 21,367
 82,918
 65,391
Foreign currency translation (net of tax benefit of $-, $48, $403, and $688)
 (92) (748) (1,280)
Other comprehensive income58,905
 47,291
 146,649
 29,185

       
Comprehensive Income460,549
 440,495
 1,047,713
 1,230,220
Preferred dividend requirements of subsidiaries3,446
 5,034
 10,338
 15,586
Comprehensive Income Attributable to Entergy Corporation
$457,103
 
$435,461
 
$1,037,375
 
$1,214,634
        
See Notes to Financial Statements.       



23


ENTERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2017 and 2016
(Unaudited)
  2017 2016
  (In Thousands)
OPERATING ACTIVITIES    
Consolidated net income 
$901,064
 
$1,201,035
Adjustments to reconcile consolidated net income to net cash flow provided by operating activities:    
Depreciation, amortization, and decommissioning, including nuclear fuel amortization 1,561,565
 1,548,872
Deferred income taxes, investment tax credits, and non-current taxes accrued (90,607) 119,603
Asset write-offs, impairments, and related charges 241,838
 33,170
Gain on sale of assets (16,270) 
Changes in working capital:    
Receivables (198,029) (270,847)
Fuel inventory 20,746
 28,900
Accounts payable (75,962) 99,933
Taxes accrued 66,895
 29,429
Interest accrued (6,111) (13,487)
Deferred fuel costs (117,636) (159,592)
Other working capital accounts (81,779) (78,553)
Changes in provisions for estimated losses (10,073) 2,760
Changes in other regulatory assets 117,430
 164,716
Changes in other regulatory liabilities 22,124
 110,999
Changes in pensions and other postretirement liabilities (354,297) (305,200)
Other (268,147) (259,343)
Net cash flow provided by operating activities 1,712,751
 2,252,395
     
INVESTING ACTIVITIES    
Construction/capital expenditures (2,622,104) (2,003,427)
Allowance for equity funds used during construction 66,437
 48,807
Nuclear fuel purchases (226,054) (160,343)
Payment for purchase of plant 
 (949,329)
Proceeds from sale of assets 100,000
 
Insurance proceeds received for property damages 26,157
 
Changes in securitization account (6,494) (3,911)
Payments to storm reserve escrow account (1,925) (1,203)
Receipts from storm reserve escrow account 8,836
 
Decreases (increases) in other investments (112,217) 12,374
Litigation proceeds for reimbursement of spent nuclear fuel storage costs 25,493
 122,488
Proceeds from nuclear decommissioning trust fund sales 1,902,783
 1,796,566
Investment in nuclear decommissioning trust funds (1,988,634) (1,844,514)
Net cash flow used in investing activities (2,827,722) (2,982,492)
     
See Notes to Financial Statements.    

24


ENTERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2017 and 2016
(Unaudited)
  2017 2016
  (In Thousands)
FINANCING ACTIVITIES    
Proceeds from the issuance of:    
Long-term debt 1,222,606
 5,508,461
Treasury stock 15,121
 33,120
Retirement of long-term debt (1,222,915) (4,229,599)
Repurchase/redemption of preferred stock 
 (85,283)
Changes in credit borrowings and commercial paper - net 937,677
 (60,985)
Other (337) (6,204)
Dividends paid:    
Common stock (468,396) (455,993)
Preferred stock (10,338) (16,947)
Net cash flow provided by financing activities 473,418
 686,570

    
Net decrease in cash and cash equivalents (641,553) (43,527)

    
Cash and cash equivalents at beginning of period 1,187,844
 1,350,961

    
Cash and cash equivalents at end of period 
$546,291
 
$1,307,434
     
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:    
Cash paid (received) during the period for:    
Interest - net of amount capitalized 
$507,912
 
$584,362
Income taxes 
($11,883) 
$79,988
     
See Notes to Financial Statements.    


25


ENTERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, 2017 and December 31, 2016
(Unaudited)
  2017 2016
  (In Thousands)
CURRENT ASSETS    
Cash and cash equivalents:    
Cash 
$87,297
 
$129,579
Temporary cash investments 458,994
 1,058,265
Total cash and cash equivalents 546,291
 1,187,844
Accounts receivable:    
Customer 754,484
 654,995
Allowance for doubtful accounts (13,569) (11,924)
Other 152,329
 158,419
Accrued unbilled revenues 420,099
 368,677
Total accounts receivable 1,313,343
 1,170,167
Deferred fuel costs 185,066
 108,465
Fuel inventory - at average cost 158,854
 179,600
Materials and supplies - at average cost 719,782
 698,523
Deferred nuclear refueling outage costs 181,571
 146,221
Prepayments and other 366,324
 193,448
TOTAL 3,471,231
 3,684,268
     
OTHER PROPERTY AND INVESTMENTS    
Investment in affiliates - at equity 198
 198
Decommissioning trust funds 6,982,928
 5,723,897
Non-utility property - at cost (less accumulated depreciation) 252,621
 233,641
Other 447,349
 469,664
TOTAL 7,683,096
 6,427,400
     
PROPERTY, PLANT, AND EQUIPMENT    
Electric 46,190,075
 45,191,216
Property under capital lease 618,321
 619,527
Natural gas 435,313
 413,224
Construction work in progress 2,191,320
 1,378,180
Nuclear fuel 905,837
 1,037,899
TOTAL PROPERTY, PLANT, AND EQUIPMENT 50,340,866
 48,640,046
Less - accumulated depreciation and amortization 21,380,100
 20,718,639
PROPERTY, PLANT, AND EQUIPMENT - NET 28,960,766
 27,921,407
     
DEFERRED DEBITS AND OTHER ASSETS    
Regulatory assets:    
Regulatory asset for income taxes - net 775,148
 761,280
Other regulatory assets (includes securitization property of $513,223 as of September 30, 2017 and $600,996 as of December 31, 2016) 4,638,615
 4,769,913
Deferred fuel costs 239,248
 239,100
Goodwill 377,172
 377,172
Accumulated deferred income taxes 123,953
 117,885
Other 129,213
 1,606,009
TOTAL 6,283,349
 7,871,359
     
TOTAL ASSETS 
$46,398,442
 
$45,904,434
     
See Notes to Financial Statements.    

26


ENTERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND EQUITY
September 30, 2017 and December 31, 2016
(Unaudited)
  2017 2016
  (In Thousands)
CURRENT LIABILITIES    
Currently maturing long-term debt 
$869,207
 
$364,900
Notes payable and commercial paper 1,352,688
 415,011
Accounts payable 1,105,038
 1,285,577
Customer deposits 403,262
 403,311
Taxes accrued 248,009
 181,114
Interest accrued 181,118
 187,229
Deferred fuel costs 61,867
 102,753
Obligations under capital leases 2,043
 2,423
Pension and other postretirement liabilities 64,904
 76,942
Other 172,735
 180,836
TOTAL 4,460,871
 3,200,096
     
NON-CURRENT LIABILITIES    
Accumulated deferred income taxes and taxes accrued 7,538,630
 7,495,290
Accumulated deferred investment tax credits 219,892
 227,147
Obligations under capital leases 22,783
 24,582
Other regulatory liabilities 1,595,053
 1,572,929
Decommissioning and asset retirement cost liabilities 6,116,010
 5,992,476
Accumulated provisions 471,383
 481,636
Pension and other postretirement liabilities 2,693,751
 3,036,010
Long-term debt (includes securitization bonds of $582,274 as of September 30, 2017 and $661,175 as of December 31, 2016) 13,977,522
 14,467,655
Other 409,125
 1,121,619
TOTAL 33,044,149
 34,419,344
     
Commitments and Contingencies    
     
Subsidiaries' preferred stock without sinking fund 203,185
 203,185
     
SHAREHOLDERS' EQUITY    
Common stock, $.01 par value, authorized 500,000,000 shares; issued 254,752,788 shares in 2017 and in 2016 2,548
 2,548
Paid-in capital 5,420,608
 5,417,245
Retained earnings 8,617,901
 8,195,571
Accumulated other comprehensive income (loss) 111,678
 (34,971)
Less - treasury stock, at cost (75,127,186 shares in 2017 and 75,623,363 shares in 2016) 5,462,498
 5,498,584
TOTAL 8,690,237
 8,081,809
     
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 
$46,398,442
 
$45,904,434
     
See Notes to Financial Statements.    


27


ENTERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the Nine Months Ended September 30, 2017 and 2016
(Unaudited)
      



Common Shareholders’ Equity

 Subsidiaries’ Preferred Stock 
Common
Stock
 
Treasury
Stock
 
Paid-in
Capital
 Retained Earnings Accumulated Other Comprehensive Income (Loss) Total
 (In Thousands)
              
Balance at December 31, 2015
$—
 
$2,548
 
($5,552,379) 
$5,403,758
 
$9,393,913
 
$8,951
 
$9,256,791
              
Consolidated net income (a)15,586
 
 
 
 1,185,449
 
 1,201,035
Other comprehensive income
 
 
 
 
 29,185
 29,185
Preferred stock repurchases / redemptions
 
 
 
 (283) 
 (283)
Common stock issuances related to stock plans
 
 53,684
 229
 
 
 53,913
Common stock dividends declared
 
 
 
 (455,993) 
 (455,993)
Preferred dividend requirements of subsidiaries (a)(15,586) 
 
 
 
 
 (15,586)
              
Balance at September 30, 2016
$—
 
$2,548
 
($5,498,695) 
$5,403,987
 
$10,123,086
 
$38,136
 
$10,069,062
              
              
Balance at December 31, 2016
$—
 
$2,548
 
($5,498,584) 
$5,417,245
 
$8,195,571
 
($34,971) 
$8,081,809
              
Consolidated net income (a)10,338
 
 
 
 890,726
 
 901,064
Other comprehensive income
 
 
 
 
 146,649
 146,649
Common stock issuances related to stock plans
 
 36,086
 3,363
 
 
 39,449
Common stock dividends declared
 
 
 
 (468,396) 
 (468,396)
Preferred dividend requirements of subsidiaries (a)(10,338) 
 
 
 
 
 (10,338)
              
Balance at September 30, 2017
$—
 
$2,548
 
($5,462,498) 
$5,420,608
 
$8,617,901
 
$111,678
 
$8,690,237
              
See Notes to Financial Statements.            
 
(a) Consolidated net income and preferred dividend requirements of subsidiaries for 2017 and 2016 include $10.3 million and $15.6 million, respectively, of preferred dividends on subsidiaries’ preferred stock without sinking fund that is not presented within equity.


28


ENTERGY CORPORATION AND SUBSIDIARIES
SELECTED OPERATING RESULTS
For the Three and Nine Months Ended September 30, 2017 and 2016
(Unaudited)
       
  Three Months Ended Increase/  
Description 2017 2016 (Decrease) %

 (Dollars in Millions)  
Utility electric operating revenues:        
Residential 
$1,107
 
$1,106
 
$1
 
Commercial 721
 678
 43
 6
Industrial 721
 616
 105
 17
Governmental 62
 58
 4
 7
Total retail 2,611
 2,458
 153
 6
Sales for resale 78
 67
 11
 16
Other 105
 100
 5
 5
Total 
$2,794
 
$2,625
 
$169
 6

        
Utility billed electric energy sales (GWh):        
Residential 10,833
 11,817
 (984) (8)
Commercial 8,271
 8,650
 (379) (4)
Industrial 12,503
 12,017
 486
 4
Governmental 682
 703
 (21) (3)
Total retail 32,289
 33,187
 (898) (3)
Sales for resale 3,387
 2,733
 654
 24
Total 35,676
 35,920
 (244) (1)

        
Entergy Wholesale Commodities:        
Operating Revenues 
$423
 
$475
 
($52) (11)
Billed Electric Energy Sales (GWh) 8,234
 9,372
 (1,138) (12)
         
         
  Nine Months Ended Increase/  
Description 2017 2016 (Decrease) %

 (Dollars in Millions)  
Utility electric operating revenues:        
Residential 
$2,560
 
$2,517
 
$43
 2
Commercial 1,861
 1,759
 102
 6
Industrial 1,937
 1,727
 210
 12
Governmental 172
 161
 11
 7
Total retail 6,530
 6,164
 366
 6
Sales for resale 202
 194
 8
 4
Other 325
 402
 (77) (19)
Total 
$7,057
 
$6,760
 
$297
 4

        
Utility billed electric energy sales (GWh):        
Residential 25,810
 27,035
 (1,225) (5)
Commercial 21,595
 21,938
 (343) (2)
Industrial 35,829
 34,581
 1,248
 4
Governmental 1,885
 1,912
 (27) (1)
Total retail 85,119
 85,466
 (347) 
Sales for resale 8,255
 9,452
 (1,197) (13)
Total 93,374
 94,918
 (1,544) (2)

        
Entergy Wholesale Commodities:        
Operating revenues 
$1,294
 
$1,342
 
($48) (4)
Billed electric energy sales (GWh) 22,616
 26,484
 (3,868) (15)


29


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 no later than June 1, 2019.

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.

As discussed in the Form 10-K, in April 2016 the U.S. Court of Federal Claims issued a partial judgment in the amount of $42 million in favor of Entergy Louisiana and against the DOE in the first round River Bend damages case, reserving the issue of cask loading costs pending resolution of the appeal on the same issues in the Entergy Arkansas and System Energy cases. Entergy Louisiana received payment from the U.S. Treasury in August 2016. In September 2016 the U.S. Court of Federal Claims issued a further judgment in the River Bend case in the amount of $5 million. Entergy Louisiana received payment from the U.S. Treasury in January 2017. The River Bend damages awarded included $2 million related to costs previously recorded as nuclear fuel expense and $3 million related to costs previously recorded as other operation and maintenance expense.

As discussed in the Form 10-K, in September 2016 the U.S. Court of Federal Claims issued a judgment in the Entergy Nuclear Palisades case in the amount of $14 million, including $11 million related to costs previously capitalized and $3 million related to costs previously recorded as other operation and maintenance expense. Entergy Nuclear Palisades recorded a receivable for that amount, and subsequently received payment from the U.S. Treasury in January 2017.

As discussed in the Form 10-K, in October 2016 the U.S. Court of Federal Claims issued a judgment in the second round Entergy Nuclear Indian Point 2 case in the amount of $34 million, including $14 million related to costs previously capitalized, $15 million related to costs previously recorded as other operation and maintenance expense,

30

Entergy Corporation and Subsidiaries
Notes to Financial Statements

$3 million related to previously recorded decommissioning expense, and $2 million related to costs previously recorded as taxes other than income taxes. Entergy Nuclear Indian Point 2 recorded a receivable for that amount, and subsequently received payment from the U.S. Treasury in January 2017.

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.
 
Conventional 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.

Asbestos Litigation (Entergy Arkansas, Entergy Louisiana, Entergy New Orleans, and Entergy Texas)

See Note 8 to the financial statements in the Form 10-K for information regarding asbestos litigation.


NOTE 2.  RATE AND REGULATORY MATTERS (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)
  
Regulatory Assets and Regulatory Liabilities

See Note 2 to the financial statements in the Form 10-K for information regarding regulatory assets and regulatory liabilities in the Utility business presented on the balance sheets of Entergy and the Registrant Subsidiaries.  The following are updates to that discussion.

Fuel and purchased power cost recovery

Entergy Arkansas

Energy Cost Recovery Rider

In March 2017, Entergy Arkansas filed its annual redetermination of its energy cost rate pursuant to the energy cost recovery rider, which reflected an increase in the rate from $0.01164 per kWh to $0.01547 per kWh. The APSC staff filed testimony in March 2017 recommending that the redetermined rate should be implemented with the first billing cycle of April 2017 under the normal operation of the tariff. Accordingly, the redetermined rate went into effect on March 31, 2017 pursuant to the tariff. In July 2017 the Arkansas Attorney General requested additional information to support certain of the costs included in Entergy Arkansas’s 2017 energy cost rate redetermination.

Entergy Louisiana

As discussed in the Form 10-K, in June 2016 the LPSC staff provided notice of audits of Entergy Louisiana’s fuel adjustment clause filings and purchased gas adjustment clause filings. The audit included a review of the reasonableness of charges flowed through Entergy Louisiana’s fuel adjustment clause for the period from 2014 through

31

Entergy Corporation and Subsidiaries
Notes to Financial Statements

2015 and charges flowed through Entergy Louisiana’s purchased gas adjustment clause for the period from 2012 through 2015. Discovery commenced in March 2017.

As discussed in the Form 10-K, in April 2010 the LPSC authorized its staff to initiate an audit of Entergy Louisiana’s fuel adjustment clause filings. The audit included a review of the reasonableness of the charges flowed through the fuel adjustment clause by Entergy Louisiana for the period from 2005 through 2009. In December 2016 the LPSC opened a new docket in order to resolve an issue regarding the proper methodology for the recovery of nuclear dry fuel storage costs. In October 2017 the LPSC approved the continued recovery of the nuclear dry fuel storage costs through the fuel adjustment clause, resolving the open issue in the audit.

Entergy Mississippi

Mississippi Attorney General Complaint

As discussed in the Form 10-K, the Mississippi attorney general filed a complaint in state court in December 2008 against Entergy Corporation, Entergy Mississippi, Entergy Services, and Entergy Power alleging, among other things, violations of Mississippi statutes, fraud, breach of good faith and fair dealing, and requesting an accounting and restitution. The complaint is wide ranging and relates to tariffs and procedures under which Entergy Mississippi purchases power not generated in Mississippi to meet electricity demand. The defendants have denied the allegations. In June 2017 the District Court issued a case management order setting a trial date in November 2018. Discovery is currently in progress.

Entergy Texas

As discussed in the Form 10-K, in July 2016, Entergy Texas filed an application to reconcile its fuel and purchased power costs for the period April 1, 2013 through March 31, 2016. In December 2016, Entergy Texas entered into a stipulation and settlement agreement resulting in a $6 million disallowance not associated with any particular issue raised and a refund of the over-recovery balance of $21 million as of November 30, 2016, to most customers beginning April 2017 through June 2017. The fuel reconciliation settlement was approved by the PUCT in March 2017 and the refunds were made.

In June 2017, Entergy Texas filed an application for a fuel refund of approximately $30.7 million for the months of December 2016 through April 2017. For most customers, the refunds flowed through bills for the months of July 2017 through September 2017. The fuel refund was approved by the PUCT in August 2017.

Retail Rate Proceedings

See Note 2 to the financial statements in the Form 10-K for detailed information regarding retail rate proceedings involving the Utility operating companies.  The following are updates to that information.

Filings with the APSC

2016 Formula Rate Plan Filing
    
As discussed in the Form 10-K, Entergy Arkansas is required to make a supplemental filing supporting the recovery of certain nuclear costs. In April 2017, Entergy Arkansas filed a motion consented to by all parties requesting that it be permitted to submit its supplemental filing in conjunction with its 2017 formula rate plan filing, which was subsequently made in July 2017 and is discussed below. In May 2017 the APSC approved the joint motion and proposal to review Entergy Arkansas’s supplemental filing on a concurrent schedule with the 2017 formula rate plan filing. In doing so, however, the APSC noted that a determination of whether the supplemental information supporting certain nuclear expenditures will be considered in the hearing for the 2017 formula rate plan filing or a separate hearing will be made at a later time. In October 2017, Entergy Arkansas and the parties to the proceeding filed a joint motion to

32

Entergy Corporation and Subsidiaries
Notes to Financial Statements

approve a unanimous settlement agreement resolving all issues in the docket and providing for recovery of the 2017 and 2018 nuclear costs.

2017 Formula Rate Plan Filing

In July 2017, Entergy Arkansas filed with the APSC its 2017 formula rate plan filing showing Entergy Arkansas’s projected earned return on common equity for the twelve months ended December 31, 2018 test period to be below the formula rate plan bandwidth.  The filing projected a $129.7 million revenue requirement increase to achieve Entergy Arkansas’s target earned return on common equity of 9.75%.  Entergy Arkansas’s formula rate plan is subject to a four percent annual revenue constraint and the projected annual revenue requirement increase exceeds the four percent, resulting in a proposed increase for the 2017 formula rate plan of $70.9 million. In October 2017, Entergy Arkansas filed with the APSC revised formula rate plan attachments that projected a $126.2 million revenue requirement increase based on acceptance of certain adjustments and recommendations made by the APSC staff and other intervenors. The revised formula rate plan filing included a proposed $71.1 million revenue requirement increase based on a revision to the four percent cap calculation. In October 2017, Entergy Arkansas and the parties to the proceeding filed a joint motion to approve a unanimous settlement agreement resolving all issues in the docket and providing for recovery of the 2017 and 2018 nuclear costs. The settlement agreement does not affect Entergy Arkansas’s proposed $71.1 million revenue requirement increase. If a final order is not issued by December 13, 2017, the proposed formula rate plan adjustment will become effective January 2, 2018, subject to refund.

Advanced Metering Infrastructure (AMI) Filing

As discussed in the Form 10-K, in September 2016, Entergy Arkansas filed an application seeking a finding from the APSC that Entergy Arkansas’s deployment of advanced metering infrastructure is in the public interest. In June 2017 the APSC staff and Arkansas Attorney General filed direct testimony. The APSC staff generally supported Entergy Arkansas’s AMI deployment conditioned on various recommendations. The Arkansas Attorney General’s consultant primarily recommended denial of Entergy Arkansas’s application but alternatively suggested recommendations in the event the APSC approves Entergy Arkansas’s proposal. Entergy Arkansas filed rebuttal testimony in June 2017, substantially accepting the APSC staff’s recommendations. In August 2017, Entergy Arkansas and the parties to the proceeding filed a joint motion to approve a unanimous settlement agreement. Also in August 2017 supplemental testimony was filed and a settlement hearing was held. In October 2017 the APSC issued an order finding that Entergy Arkansas’s AMI deployment is in the public interest and approving the settlement agreement subject to a minor modification. Entergy Arkansas expects to recover the undepreciated balance of its existing meters through a regulatory asset to be amortized over 15 years.

Filings with the LPSC

Retail Rates - Electric

2014 Formula Rate Plan Filing

As discussed in the Form 10-K, in September 2015, Entergy Louisiana filed its formula rate plan evaluation report for Entergy Gulf States Louisiana’s and Entergy Louisiana’s 2014 calendar year operations. In June 2017 the LPSC staff and Entergy Louisiana filed an unopposed joint report of proceedings, which was accepted by the LPSC in June 2017, finalizing the results of this proceeding with no changes to rates already implemented.

2015 Formula Rate Plan Filing

As discussed in the Form 10-K, in May 2016, Entergy Louisiana filed its formula rate plan evaluation report for its 2015 calendar year operations. In June 2017 the LPSC staff and Entergy Louisiana filed a joint report of proceedings, which was accepted by the LPSC in June 2017, finalizing the results of the May 2016 evaluation report, interim updates, and corresponding proceedings with no changes to rates already implemented.

33

Entergy Corporation and Subsidiaries
Notes to Financial Statements

In November 2016, Entergy Louisiana filed with the LPSC a request to extend the MISO cost recovery mechanism rider provision of its formula rate plan. In March 2017 the LPSC staff submitted direct testimony generally supportive of a one-year extension of the MISO cost recovery mechanism and the intervenor in the proceeding did not oppose an extension for this period of time. In June 2017 an uncontested joint stipulation authorizing a one-year extension of the MISO cost recovery mechanism rider was filed and the LPSC approved the stipulation in July 2017.

2016 Formula Rate Plan Filing

In May 2017, Entergy Louisiana filed its formula rate plan evaluation report for its 2016 calendar year operations. The evaluation report reflects an earned return on common equity of 9.84%. As such, no adjustment to base formula rate plan revenue is required. The following adjustments, however, are required under the formula rate plan. The 2016 formula rate plan evaluation report shows a decrease in formula rate plan revenue of approximately $16.9 million, comprised of a decrease in legacy Entergy Louisiana formula rate plan revenue of $3.5 million, a decrease in legacy Entergy Gulf States Louisiana formula rate plan revenue of $9.7 million, and a decrease in incremental formula rate plan revenue of $3.7 million. Additionally, the formula rate plan evaluation report calls for a decrease of $40.5 million in the MISO cost recovery revenue requirement from the current level of $46.8 million to $6.3 million. Rates reflecting these adjustments were implemented with the first billing cycle of September 2017, subject to refund, pending the review proceedings. Parties have intervened in the proceedings. No procedural schedule has been established. In September 2017 the LPSC issued its report indicating that no changes to Entergy Louisiana’s original formula rate plan evaluation report are required but reserved for several issues, including Entergy Louisiana’s September 2017 update to its formula rate plan evaluation report.

Formula Rate Plan Extension Request

In August 2017, Entergy Louisiana filed a request with the LPSC seeking to extend its formula rate plan for three years (2017-2019) with limited modifications of its terms.  Those modifications include: a one-time resetting of base rates to the midpoint of the band at Entergy Louisiana’s authorized return on equity of 9.95% for the 2017 test year; narrowing of the formula rate plan bandwidth from a total of 160 basis points to 80 basis points; and a forward-looking mechanism that would allow Entergy Louisiana to recover certain transmission-related costs contemporaneously with when those projects begin delivering benefits to customers.  Entergy Louisiana has requested that the LPSC consider its request on an expedited basis and render a decision by December 2017, in an effort to maintain Entergy Louisiana’s current cycle for implementing rate adjustments, i.e., September 2018, without the need for filing a full base rate case proceeding.

Waterford 3 Replacement Steam Generator Project

See Note 2 to the financial statements in the Form 10-K for discussion of the Waterford 3 replacement steam generator project prudence review proceeding. The refund to customers of approximately $71 million as a result of the settlement approved by the LPSC was made in January 2017. Following a review by the parties, an unopposed joint report of proceedings was filed by the LPSC staff and Entergy Louisiana in May 2017. In May 2017 the LPSC accepted the joint report of proceedings resolving the matter.

Deactivation or Retirement Decisions for Entergy Louisiana Plants

As a term of the LPSC-approved settlement authorizing the purchase of Power Blocks 3 and 4 of the Union Power Station, Entergy Louisiana agreed to make a filing with the LPSC to review its decisions to deactivate Ninemile 3 and Willow Glen 2 and 4 and its decision to retire Little Gypsy 1.  In January 2016, Entergy Louisiana made its compliance filing with the LPSC. Entergy Louisiana, LPSC staff, and intervenors participated in a technical conference in March 2016 where Entergy Louisiana presented information on its deactivation/retirement decisions for these four units in addition to information on the current deactivation decisions for the ten-year planning horizon. Parties have requested further proceedings on the prudence of the decision to deactivate Willow Glen 2 and 4. No party contests the prudence of the decision to deactivate Willow Glen 2 and 4 or suggests reactivation of these units; however, issues

34

Entergy Corporation and Subsidiaries
Notes to Financial Statements

have been raised related to Entergy Louisiana’s decision to give up its transmission service rights in MISO for Willow Glen 2 and 4 rather than placing the units into suspended status for the three-year term permitted by MISO.  An evidentiary hearing was held in August 2017 and post-hearing briefs were submitted in October 2017. A decision is expected in 2018.

Retail Rates - Gas

2016 Rate Stabilization Plan Filing

In January 2017, Entergy Louisiana filed with the LPSC its gas rate stabilization plan for the test year ended September 30, 2016. The filing of the evaluation report for test year 2016 reflected an earned return on common equity of 6.37%. As part of the original filing, pursuant to the extraordinary cost provision of the rate stabilization plan, Entergy Louisiana sought to recover approximately $1.5 million in deferred operation and maintenance expenses incurred to restore service and repair damage resulting from flooding and widespread rainfall in southeast Louisiana that occurred in August 2016. Entergy Louisiana requested to recover the prudently incurred August 2016 storm restoration costs over ten years, outside of the rate stabilization plan sharing provisions. As a result, Entergy Louisiana’s filing sought an annual increase in revenue of $1.4 million. Following review of the filing, except for the proposed extraordinary cost recovery, the LPSC staff confirmed Entergy Louisiana’s filing was consistent with the principles and requirements of the rate stabilization plan. The extraordinary cost recovery request associated with the 2016 flood-related deferred operation and maintenance expenses incurred for gas operations was removed from the rate stabilization plan pending LPSC consideration in a separate docket. In April 2017 the LPSC approved a joint report of proceedings and Entergy Louisiana submitted a revised evaluation report reflecting a $1.2 million annual increase in revenue with rates implemented with the first billing cycle of May 2017.

In connection with the joint report of proceedings accepted by the LPSC, in May 2017, Entergy Louisiana filed an application to initiate a separate proceeding to recover the deferred operation and maintenance expenses of $1.4 million incurred to restore service and repair damage resulting from flooding and widespread rainfall in southeast Louisiana that occurred in August 2016 through the extraordinary cost provision of the gas rate stabilization plan. The LPSC staff submitted its direct testimony in the proceeding recommending recovery of $0.9 million. The procedural schedule includes a hearing in February 2018.

Advanced Metering Infrastructure (AMI) Filing

As discussed in the Form 10-K, in November 2016, Entergy Louisiana filed an application seeking a finding from the LPSC that Entergy Louisiana’s deployment of advanced electric and gas metering infrastructure is in the public interest. The parties reached an uncontested stipulation permitting implementation of Entergy Louisiana’s proposed AMI system, with modifications to the proposed customer charge. The stipulation also confirmed that Entergy Louisiana shall continue to include in rate base the remaining book value of the existing electric meters and also to depreciate those assets using current depreciation rates. In July 2017 the LPSC approved the stipulation.

Filings with the MPSC

Formula Rate Plan

In March 2017, Entergy Mississippi submitted its formula rate plan 2017 test year filing and 2016 look-back filing showing Entergy Mississippi’s earned return for the historical 2016 calendar year and projected earned return for the 2017 calendar year to be within the formula rate plan bandwidth, resulting in no change in rates. In June 2017, Entergy Mississippi and the Mississippi Public Utilities Staff entered into a stipulation that confirmed that Entergy Mississippi’s earned returns for both the 2016 look-back filing and 2017 test year were within the respective formula rate plan bandwidths. In June 2017 the MPSC approved the stipulation, which resulted in no change in rates.


35

Entergy Corporation and Subsidiaries
Notes to Financial Statements

Advanced Metering Infrastructure (AMI) Filing

As discussed in the Form 10-K, in November 2016, Entergy Mississippi filed an application seeking a finding from the MPSC that Entergy Mississippi’s deployment of advanced metering infrastructure is in the public interest. In May 2017 the Mississippi Public Utilities Staff and Entergy Mississippi entered into and filed a joint stipulation supporting Entergy Mississippi’s filing, and the MPSC issued an order approving the filing without any material changes, finding that Entergy Mississippi’s deployment of AMI is in the public interest and granting a certificate of public convenience and necessity. The MPSC order also confirmed that Entergy Mississippi shall continue to include in rate base the remaining book value of existing meters that will be retired as part of the AMI deployment and also to depreciate those assets using current depreciation rates.

Filings with the City Council

Retail Rates

As discussed in the Form 10-K, in February 2017, Entergy New Orleans filed a proposed implementation plan for the Energy Smart program from April 2017 through March 2020. As part of the proposal, Entergy New Orleans requested that the City Council identify its desired level of funding for the program during this time period and approve a cost recovery mechanism. In April 2017 the City Council approved an implementation plan for the Energy Smart program from April 2017 through December 2019. The City Council directed that the $11.8 million balance reported for Energy Smart funds be used to continue funding the program for Entergy New Orleans’s legacy customers and that the Energy Smart Algiers program continue to be funded through the Algiers fuel adjustment clause, until additional customer funding is required for the legacy customers. In September 2017, Entergy New Orleans filed a supplemental plan and proposed several options for an interim cost recovery mechanism necessary to recover program costs during the period between when existing funds directed to Energy Smart programs are depleted (estimated to be June 2018) and when new rates from the anticipated 2018 combined rate case, which will include a cost recovery mechanism for Energy Smart funding, take effect (estimated to be August 2019).  Entergy New Orleans requested that the City Council approve a cost recovery mechanism prior to June 2018.

Internal Restructuring
    
As discussed in the Form 10-K, in July 2016, Entergy New Orleans filed an application with the City Council seeking authorization to undertake a restructuring that would result in the transfer of substantially all of the assets and operations of Entergy New Orleans to a new entity, which would ultimately be owned by an existing Entergy subsidiary holding company. In May 2017 the City Council adopted a resolution approving the proposed internal restructuring pursuant to an agreement in principle with the City Council advisors and certain intervenors. Pursuant to the agreement in principle, Entergy New Orleans will credit retail customers $10 million in 2017, $1.4 million in the first quarter of the year after the transaction closes, and $117,500 each month in the second year after the transaction closes until such time as new base rates go into effect as a result of the anticipated 2018 base rate case. Entergy New Orleans began crediting retail customers in June 2017. In June 2017 the FERC approved the transaction and, pursuant to the agreement in principle, Entergy New Orleans will provide additional credits to retail customers of $5 million in each of the years 2018, 2019, and 2020. Entergy New Orleans expects to complete the internal restructuring in fourth quarter 2017.

Advanced Metering Infrastructure (AMI) Filing

As discussed in the Form 10-K, in October 2016, Entergy New Orleans filed an application seeking a finding from the City Council that Entergy New Orleans’s deployment of advanced electric and gas metering infrastructure is in the public interest. In April 2017, Entergy New Orleans received intervenor testimony that was generally supportive of AMI deployment. The City Council’s advisors filed testimony in May 2017 recommending the adoption of AMI subject to certain modifications, including the denial of Entergy New Orleans’s proposed customer charge as a cost recovery mechanism. In June 2017 the procedural schedule was suspended to allow for settlement discussions. A

36

Entergy Corporation and Subsidiaries
Notes to Financial Statements

status conference was held in October 2017, and the parties set another status conference for February 2018 with the intent to continue to pursue settlement in the interim.
    
Filings with the PUCT

Retail Rates

2011 Rate Case

See Note 2 to the financial statements in the Form 10-K for discussion of Entergy Texas’s 2011 rate case. As discussed in the Form 10-K, several parties, including Entergy Texas, appealed various aspects of the PUCT’s order to the Travis County District Court. In October 2014 the Travis County District Court issued an order upholding the PUCT’s decision except as to the line-loss factor issue referenced in the Form 10-K, which was found in favor of Entergy Texas. In November 2014, Entergy Texas and other parties, including the PUCT, appealed the Travis County District Court decision to the Third Court of Appeals. Oral argument before the court panel was held in September 2015. In April 2016 the Third Court of Appeals issued its opinion affirming the District Court’s decision on all points. Entergy Texas and other parties petitioned the Texas Supreme Court to hear its appeal of the Third Court’s ruling. In September 2017 the Texas Supreme Court denied the petitions for review. Entergy Texas filed a motion for rehearing of the Texas Supreme Court’s denial of the petition for review. That motion is pending.

Other Filings

In September 2016, Entergy Texas filed with the PUCT a request to amend its transmission cost recovery factor (TCRF) rider. The proposed amended TCRF rider is designed to collect approximately $29.5 million annually from Entergy Texas’s retail customers. This amount includes the approximately $10.5 million annually that Entergy Texas is currently authorized to collect through the TCRF rider. In December 2016, Entergy Texas and the PUCT reached a settlement agreeing to the amended TCRF annual revenue requirement of $29.5 million. The PUCT approved the settlement and issued a final order in March 2017. Entergy Texas implemented the amended TCRF rider beginning with bills covering usage on and after March 20, 2017.

In June 2017, Entergy Texas filed an application to amend its distribution cost recovery factor (DCRF) rider by increasing the total collection from $8.65 million to approximately $19 million. In July 2017, Entergy Texas, the PUCT, and the parties in the proceeding entered into an unopposed stipulation and settlement agreement resulting in an amended DCRF annual revenue requirement of $18.3 million, with the resulting rates effective for usage no later than October 1, 2017. In September 2017 the PUCT issued its final order approving the unopposed stipulation and settlement agreement. The amended DCRF rider rates became effective for usage on and after September 1, 2017.

Advanced Metering Infrastructure (AMI) Filing

In April 2017 the Texas legislature enacted legislation that extends statutory support for AMI deployment to Entergy Texas and directs that if Entergy Texas elects to deploy AMI, it shall do so as rapidly as practicable. In July 2017, Entergy Texas filed an application seeking an order from the PUCT approving Entergy Texas’s deployment of AMI. Entergy Texas proposed to replace existing meters with advanced meters that enable two-way data communication; design and build a secure and reliable network to support such communications; and implement support systems. AMI is intended to serve as the foundation of Entergy Texas’s modernized power grid. The filing identified a number of quantified and unquantified benefits, with Entergy Texas showing that its AMI deployment is expected to produce nominal net operational cost savings to customers of $33 million. Entergy Texas also sought to continue to include in rate base the remaining book value, approximately $41 million at December 31, 2016, of existing meters that will be retired as part of the AMI deployment and also to depreciate those assets using current depreciation rates. Entergy Texas proposed a seven-year depreciable life for the new advanced meters, the three-year deployment of which is expected to begin in 2019. Entergy Texas also proposed a surcharge tariff to recover the reasonable and necessary costs it has and will incur under the deployment plan for the full deployment of advanced meters. Further, Entergy

37

Entergy Corporation and Subsidiaries
Notes to Financial Statements

Texas is seeking approval of fees that would be charged to customers who choose to opt out of receiving service through an advanced meter and instead receive electric service with a non-standard meter. Subject to approval by the PUCT, deployment of the communications network is expected to begin in 2018. In October 2017, Entergy Texas and other parties entered into and filed an unopposed stipulation and settlement agreement. PUCT action on the stipulation and settlement agreement remains pending. Entergy Texas expects a decision from the PUCT by December 2017.

Storm Cost Recovery

Entergy Mississippi

See Note 2 to the financial statements in the Form 10-K for discussion of Entergy Mississippi’s storm damage provision. As of July 31, 2017, the balance in Entergy Mississippi’s accumulated storm damage provision was less than $10 million, therefore Entergy Mississippi resumed billing the monthly storm damage provision effective with September 2017 bills.

System Agreement Cost Equalization Proceedings

See Note 2 to the financial statements in the Form 10-K for a discussion of the proceedings regarding the System Agreement, including the LPSC’s petition for review of the FERC’s October 2011 and February 2014 orders with the U.S. Court of Appeals for the D.C. Circuit. In August 2017 the D.C. Circuit issued a decision addressing the LPSC’s appeal of the FERC’s October 2011 and February 2014 orders. On the issue of the FERC’s implementation of the prospective remedy as of June 2005 and whether the bandwidth remedy should be extended for an additional 17 months in years 2004-2005, the D.C. Circuit affirmed the FERC’s implementation of the remedy and denied the LPSC’s appeal. On the issue of whether the operating companies should be required to issue refunds for the 20-month period from September 2001 to May 2003, the D.C. Circuit granted the FERC’s request for agency reconsideration and remanded that issue back to the FERC for further proceedings as requested by all parties to the appeal.

Entergy Arkansas Opportunity Sales Proceedings

As discussed in the Form 10-K, in June 2009 the LPSC filed a complaint requesting that the FERC determine that certain of Entergy Arkansas’s sales of electric energy to third parties: (a) violated the provisions of the System Agreement that allocated the energy generated by Entergy System resources, (b) imprudently denied the Entergy System and its ultimate consumers the benefits of low-cost Entergy System generating capacity, and (c) violated the provision of the System Agreement that prohibited sales to third parties by individual companies absent an offer of a right-of-first-refusal to other Utility operating companies.  The LPSC’s complaint challenges sales made beginning in 2002 and requests refunds.

In April 2016 the FERC issued orders addressing requests for rehearing filed in July 2012 and an ALJ’s August 2013 initial decision. The first order denies Entergy’s request for rehearing and affirms FERC’s earlier rulings that Entergy’s original methodology for allocating energy costs to the opportunity sales was incorrect and, as a result, Entergy Arkansas must make payments to the other Utility operating companies to put them in the same position that they would have been in absent the incorrect allocation. The FERC clarified that interest should be included with the payments. The second order affirmed in part, and reversed in part, the rulings in the ALJ’s August 2013 initial decision regarding the methodology that should be used to calculate the payments Entergy Arkansas is to make to the other Utility operating companies. The FERC affirmed the ALJ’s ruling that a full re-run of intra-system bills should be performed, but required that methodology be modified so that the sales have the same priority for purposes of energy allocation as joint account sales. The FERC reversed the ALJ’s decision that any payments by Entergy Arkansas should be reduced by 20%. The FERC also reversed the ALJ’s decision that adjustments to other System Agreement service schedules and excess bandwidth payments should not be taken into account when calculating the payments to be made by Entergy Arkansas. The FERC held that such adjustments and excess bandwidth payments should be taken into account, but ordered further proceedings before an ALJ to address whether a cap on any reduction due to bandwidth payments was necessary and to implement the other adjustments to the calculation methodology.

38

Entergy Corporation and Subsidiaries
Notes to Financial Statements

In May 2016, Entergy Services filed a request for rehearing of the FERC’s April 2016 order arguing that payments made by Entergy Arkansas should be reduced as a result of the timing of the LPSC’s approval of certain contracts. Entergy Services also filed a request for clarification and/or rehearing of the FERC’s April 2016 order addressing the ALJ’s August 2013 initial decision. The APSC and the LPSC also filed requests for rehearing of the FERC’s April 2016 order. In September 2017 the FERC issued an order denying the request for rehearing on the issue of whether any payments by Entergy Arkansas to the other Utility operating companies should be reduced due to the timing of the LPSC’s approval of Entergy Arkansas’s wholesale baseload contract with Entergy Louisiana.

Pursuant to the procedural schedule established in the case, Entergy Services re-ran intra-system bills for the ten-year period 2000-2009 to quantify the effects of the FERC's ruling. In November 2016 the LPSC submitted testimony disputing certain aspects of the calculations, and Entergy Services submitted answering testimony in January 2017. In February 2017 the FERC staff filed testimony and Entergy Services filed responsive testimony. In March 2017 the LPSC filed rebuttal testimony. A hearing was held in May 2017. In July 2017 the ALJ issued an initial decision concluding that Entergy Arkansas should pay $86 million plus interest to the other Utility operating companies. In August 2017 the Utility operating companies, the LPSC, the APSC, and FERC staff filed individual briefs on exceptions challenging various aspects of the initial decision. In September 2017 the Utility operating companies, the LPSC, the APSC, the MPSC, the City Council, and FERC staff filed separate briefs opposing exceptions taken by various parties. The case is pending before the FERC. No payments will be made or received by the Utility operating companies until the FERC issues an order reviewing the initial decision and Entergy submits a subsequent filing to comply with that order.

The effect of the FERC’s decisions thus far in the case would be that Entergy Arkansas will make payments to some or all of the other Utility operating companies.  Because further proceedings will still occur in the case, the amount and recipients of payments by Entergy Arkansas are unknown at this time.  Based on testimony previously submitted in the case and its assessment of the April 2016 FERC orders, in the first quarter 2016, Entergy Arkansas recorded a liability of $87 million, which includes interest, for its estimated increased costs and payment to the other Utility operating companies.  This estimate is subject to change depending on how the FERC resolves the issues that are still outstanding in the case, including its review of the July 2017 initial decision.  Entergy Arkansas’s increased costs will be attributed to Entergy Arkansas’s retail and wholesale businesses, and it is not probable that Entergy Arkansas will recover the wholesale portion.  Entergy Arkansas, therefore, recorded a regulatory asset in the first quarter 2016 of approximately $75 million, which represents its estimate of the retail portion of the costs.

Complaint Against System Energy

In January 2017 the APSC and MPSC filed a complaint with the FERC against System Energy. The complaint seeks a reduction in the return on equity component of the Unit Power Sales Agreement pursuant to which System Energy sells its Grand Gulf capacity and energy to Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans. Entergy Arkansas also sells some of its Grand Gulf capacity and energy to Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans under separate agreements. The current return on equity under the Unit Power Sales Agreement is 10.94%. The complaint alleges that the return on equity is unjust and unreasonable because current capital market and other considerations indicate that it is excessive. The complaint requests the FERC to institute proceedings to investigate the return on equity and establish a lower return on equity, and also requests that the FERC establish January 23, 2017 as a refund effective date. The complaint includes return on equity analysis that purports to establish that the range of reasonable return on equity for System Energy is between 8.37% and 8.67%. System Energy answered the complaint in February 2017 and disputes that a return on equity of 8.37% to 8.67% is just and reasonable. The LPSC and the City Council intervened in the proceeding expressing support for the complaint. System Energy is recording a provision against revenue for the potential outcome of this proceeding. In September 2017 the FERC established a refund effective date of January 23, 2017, consolidated the return on equity complaint proceeding with the proceeding related to System Energy’s Unit Power Sales Agreement amendments, discussed below, and directed the parties to engage in settlement proceedings before an ALJ. If the parties fail to come to an agreement during settlement proceedings, a prehearing conference will be held to establish a procedural schedule for hearing proceedings.

39

Entergy Corporation and Subsidiaries
Notes to Financial Statements

Unit Power Sales Agreement

In August 2017, System Energy submitted to the FERC proposed amendments to the Unit Power Sales Agreement pursuant to which System Energy sells its Grand Gulf capacity and energy to Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans. The filing proposes limited amendments to the Unit Power Sales Agreement to adopt (1) updated rates for use in calculating Grand Gulf plant depreciation and amortization expenses and (2) updated nuclear decommissioning cost annual revenue requirements, both of which are recovered through the Unit Power Sales Agreement rate formula. The proposed amendments would result in lower charges to the Utility operating companies that buy capacity and energy from System Energy under the Unit Power Sales Agreement. The proposed changes are based on updated depreciation and nuclear decommissioning studies that take into account the renewal of Grand Gulf’s operating license for a term through November 1, 2044. System Energy requested that the FERC accept the amendments effective October 1, 2017.

In September 2017 the FERC accepted System Energy’s proposed Unit Power Sales Agreement amendments, subject to further proceedings to consider the justness and reasonableness of the amendments. Because the amendments propose a rate decrease, the FERC also initiated an investigation under Section 206 of the Federal Power Act to determine if the rate decrease should be lower than proposed. The FERC accepted the proposed amendments effective October 1, 2017, subject to refund pending the outcome of the further settlement and/or hearing proceedings, and established a refund effective date of October 11, 2017 with respect to the rate decrease. The FERC also consolidated the Unit Power Sales Agreement amendment proceeding with the proceeding related to the complaint filed by the APSC and MPSC, discussed above, and directed the parties to engage in settlement proceedings before an ALJ. If the parties fail to come to an agreement during settlement proceedings, a prehearing conference will be held to establish a procedural schedule for hearing proceedings.


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 September 30,
 2017 2016
 (In Millions, Except Per Share Data)
Basic earnings per shareIncome Shares $/share Income Shares $/share
Net income attributable to Entergy Corporation
$398.2
 179.6
 
$2.22
 
$388.2
 179.0
 
$2.17
Average dilutive effect of:           
Stock options  0.2
 
   0.3
 
Other equity plans  0.7
 (0.01)   0.7
 (0.01)
Diluted earnings per share
$398.2
 180.5
 
$2.21
 
$388.2
 180.0
 
$2.16

The number of stock options not included in the calculation of diluted common shares outstanding due to their antidilutive effect was approximately 2.5 million for the three months ended September 30, 2017 and approximately 3.5 million for the three months ended September 30, 2016.

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Entergy Corporation and Subsidiaries
Notes to Financial Statements

 For the Nine Months Ended September 30,
 2017 2016
 (In Millions, Except Per Share Data)
Basic earnings per shareIncome Shares $/share Income Shares $/share
Net income attributable to Entergy Corporation
$890.7
 179.5
 
$4.96
 
$1,185.4
 178.8
 
$6.63
Average dilutive effect of:           
Stock options  0.2
 (0.01)   0.2
 (0.01)
Other equity plans  0.5
 (0.01)   0.5
 (0.02)
Diluted earnings per share
$890.7
 180.2
 
$4.94
 
$1,185.4
 179.5
 
$6.60
    
The number of stock options not included in the calculation of diluted common shares outstanding due to their antidilutive effect was approximately 3.3 million for the nine months ended September 30, 2017 and approximately 4.6 million for the nine months ended September 30, 2016.

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.

Treasury Stock

During the nine months ended September 30, 2017, Entergy Corporation issued 496,177 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 nine months ended September 30, 2017.

Retained Earnings

On October 27, 2017, Entergy Corporation’s Board of Directors declared a common stock dividend of $0.89 per share, payable on December 1, 2017, to holders of record as of November 9, 2017.

Comprehensive Income

Accumulated other comprehensive income (loss) is included in the equity section of the balance sheets of Entergy and Entergy Louisiana. The following table presents changes in accumulated other comprehensive income (loss) for Entergy for the three months ended September 30, 2017 by component:
 
Cash flow
hedges
net
unrealized
gain (loss)
 
Pension
and
other
postretirement
liabilities
 
Net
unrealized
investment
gain (loss)
 
Foreign
currency
translation
 
Total
Accumulated
Other
Comprehensive
Income (Loss)
 (In Thousands)
Beginning balance, July 1, 2017
$23,414
 
($449,898) 
$479,257
 
$—
 
$52,773
Other comprehensive income (loss) before reclassifications27,884
 
 35,630
 
 63,514
Amounts reclassified from accumulated other comprehensive income (loss)(14,671) 12,297
 (2,235) 
 (4,609)
Net other comprehensive income (loss) for the period13,213
 12,297
 33,395
 
 58,905
Ending balance, September 30, 2017
$36,627
 
($437,601) 
$512,652
 
$—
 
$111,678

41

Entergy Corporation and Subsidiaries
Notes to Financial Statements

The following table presents changes in accumulated other comprehensive income (loss) for Entergy for the three months ended September 30, 2016 by component:
 
Cash flow
hedges
net
unrealized
gain (loss)
 
Pension
and
other
postretirement
liabilities
 
Net
unrealized
investment
gain (loss)
 
Foreign
currency
translation
 
Total
Accumulated
Other
Comprehensive
Income (Loss)
 (In Thousands)
Beginning balance, July 1, 2016
$32,423
 
($453,999) 
$411,581
 
$840
 
($9,155)
Other comprehensive income (loss) before reclassifications45,162
 
 23,039
 (92) 68,109
Amounts reclassified from accumulated other comprehensive income (loss)(24,190) 5,044
 (1,672) 
 (20,818)
Net other comprehensive income (loss) for the period20,972
 5,044
 21,367
 (92) 47,291
Ending balance, September 30, 2016
$53,395
 
($448,955) 
$432,948
 
$748
 
$38,136

The following table presents changes in accumulated other comprehensive income (loss) for Entergy for the nine months ended September 30, 2017 by component:
 
Cash flow
hedges
net
unrealized
gain (loss)
 
Pension
and
other
postretirement
liabilities
 
Net
unrealized
investment
gain (loss)
 
Foreign
currency
translation
 
Total
Accumulated
Other
Comprehensive
Income (Loss)
 (In Thousands)
Beginning balance, January 1, 2017
$3,993
 
($469,446) 
$429,734
 
$748
 
($34,971)
Other comprehensive income (loss) before reclassifications88,550
 
 109,372
 (748) 197,174
Amounts reclassified from accumulated other comprehensive income (loss)(55,916) 31,845
 (26,454) 
 (50,525)
Net other comprehensive income (loss) for the period32,634
 31,845
 82,918
 (748) 146,649
Ending balance, September 30, 2017
$36,627
 
($437,601) 
$512,652
 
$—
 
$111,678


42

Entergy Corporation and Subsidiaries
Notes to Financial Statements

The following table presents changes in accumulated other comprehensive income (loss) for Entergy for the nine months ended September 30, 2016 by component:
 
Cash flow
hedges
net
unrealized
gain (loss)
 
Pension
and
other
postretirement
liabilities
 
Net
unrealized
investment
gain (loss)
 
Foreign
currency
translation
 
Total
Accumulated
Other
Comprehensive
Income (Loss)
 (In Thousands)
Beginning balance, January 1, 2016
$105,970
 
($466,604) 
$367,557
 
$2,028
 
$8,951
Other comprehensive income (loss) before reclassifications101,071
 
 72,087
 (1,280) 171,878
Amounts reclassified from accumulated other comprehensive income (loss)(153,646) 17,649
 (6,696) 
 (142,693)
Net other comprehensive income (loss) for the period(52,575) 17,649
 65,391
 (1,280) 29,185
Ending balance, September 30, 2016
$53,395
 
($448,955) 
$432,948
 
$748
 
$38,136

The following table presents changes in accumulated other comprehensive income (loss) for Entergy Louisiana for the three months ended September 30, 2017 and 2016:
  Pension and Other
Postretirement Liabilities
  2017 2016
  (In Thousands)
Beginning balance, July 1, 
($49,122) 
($56,905)
Amounts reclassified from accumulated other
comprehensive income (loss)
 (370) (232)
Net other comprehensive income (loss) for the period (370) (232)
Ending balance, September 30, 
($49,492) 
($57,137)

The following table presents changes in accumulated other comprehensive income (loss) for Entergy Louisiana for the nine months ended September 30, 2017 and 2016:
  Pension and Other
Postretirement Liabilities
  2017 2016
  (In Thousands)
Beginning balance, January 1, 
($48,442) 
($56,412)
Amounts reclassified from accumulated other
comprehensive income (loss)
 (1,050) (725)
Net other comprehensive income (loss) for the period (1,050) (725)
Ending balance, September 30, 
($49,492) 
($57,137)


43

Entergy Corporation and Subsidiaries
Notes to Financial Statements

Total reclassifications out of accumulated other comprehensive income (loss) (AOCI) for Entergy for the three months ended September 30, 2017 and 2016 are as follows:

Amounts reclassified
from AOCI

Income Statement Location
 2017 2016  

(In Thousands)

Cash flow hedges net unrealized gain (loss)
  

   Power contracts
$22,756
 
$37,550

Competitive business operating revenues
   Interest rate swaps(185) (334)
Miscellaneous - net
Total realized gain (loss) on cash flow hedges22,571
 37,216



(7,900) (13,026)
Income taxes
Total realized gain (loss) on cash flow hedges (net of tax)
$14,671
 
$24,190





  

Pension and other postretirement liabilities

  

   Amortization of prior-service credit
$6,565
 
$7,354

(a)
   Amortization of loss(21,480) (15,183)
(a)
   Settlement loss(4,200) (1,279)
(a)
Total amortization(19,115) (9,108)


6,818
 4,064

Income taxes
Total amortization (net of tax)
($12,297) 
($5,044)



  

Net unrealized investment gain (loss)
  

Realized gain (loss)
$4,382
 
$3,279

Interest and investment income

(2,147) (1,607)
Income taxes
Total realized investment gain (loss) (net of tax)
$2,235
 
$1,672





  

Total reclassifications for the period (net of tax)
$4,609
 
$20,818



(a)These accumulated other comprehensive income (loss) components are included in the computation of net periodic pension and other postretirement cost.  See Note 6 to the financial statements herein for additional details.


44

Entergy Corporation and Subsidiaries
Notes to Financial Statements

Total reclassifications out of accumulated other comprehensive income (loss) (AOCI) for Entergy for the nine months ended September 30, 2017 and 2016 are as follows:
 
Amounts reclassified
from AOCI
 Income Statement Location
 2017 2016  
 (In Thousands)  
Cash flow hedges net unrealized gain (loss)     
   Power contracts
$86,678
 
$237,483
 Competitive business operating revenues
   Interest rate swaps(654) (1,104) Miscellaneous - net
Total realized gain (loss) on cash flow hedges86,024
 236,379
  
 (30,108) (82,733) Income taxes
Total realized gain (loss) on cash flow hedges (net of tax)
$55,916
 
$153,646
  
      
Pension and other postretirement liabilities     
   Amortization of prior-service credit
$19,691
 
$22,064
 (a)
   Amortization of loss(64,605) (45,535) (a)
   Settlement loss(5,965) (1,279) (a)
Total amortization(50,879) (24,750)  
 19,034
 7,101
 Income taxes
Total amortization (net of tax)
($31,845) 
($17,649)  
      
Net unrealized investment gain (loss)     
Realized gain (loss)
$51,871
 
$13,129
 Interest and investment income
 (25,417) (6,433) Income taxes
Total realized investment gain (loss) (net of tax)
$26,454
 
$6,696
  
      
Total reclassifications for the period (net of tax)
$50,525
 
$142,693
  

(a)These accumulated other comprehensive income (loss) components are included in the computation of net periodic pension and other postretirement cost.  See Note 6 to the financial statements herein for additional details.


45

Entergy Corporation and Subsidiaries
Notes to Financial Statements

Total reclassifications out of accumulated other comprehensive income (loss) (AOCI) for Entergy Louisiana for the three months ended September 30, 2017 and 2016 are as follows:
  Amounts reclassified
from AOCI
 Income Statement Location
  2017 2016  
  (In Thousands)  
Pension and other postretirement liabilities      
   Amortization of prior-service credit 
$1,934
 
$1,947
 (a)
   Amortization of loss (1,332) (1,570) (a)
Total amortization 602
 377
  
  (232) (145) Income taxes
Total amortization (net of tax) 370
 232
  
       
Total reclassifications for the period (net of tax) 
$370
 
$232
  

(a)These accumulated other comprehensive income (loss) components are included in the computation of net periodic pension and other postretirement cost.  See Note 6 to the financial statements herein for additional details.

Total reclassifications out of accumulated other comprehensive income (loss) (AOCI) for Entergy Louisiana for the nine months ended September 30, 2017 and 2016 are as follows:
  Amounts reclassified
from AOCI
 Income Statement Location
  2017 2016  
  (In Thousands)  
Pension and other postretirement liabilities      
   Amortization of prior-service credit 
$5,802
 
$5,841
 (a)
   Amortization of loss (3,996) (4,712) (a)
Total amortization 1,806
 1,129
  
  (756) (404) Income taxes
Total amortization (net of tax) 1,050
 725
  
       
Total reclassifications for the period (net of tax) 
$1,050
 
$725
  

(a)These accumulated other comprehensive income (loss) components are included in the computation of net periodic pension and other postretirement cost.  See Note 6 to the financial statements herein for additional details.


NOTE 4.  REVOLVING CREDIT FACILITIES, LINES OF CREDIT, SHORT-TERM BORROWINGS, AND LONG-TERM DEBT (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)

Entergy Corporation has in place a credit facility that has a borrowing capacity of $3.5 billion and expires in August 2022.  The facility permits the issuance of letters of credit against 50% 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 nine months ended September 30, 2017 was 2.50% on the

46

Entergy Corporation and Subsidiaries
Notes to Financial Statements

drawn portion of the facility.  Following is a summary of the borrowings outstanding and capacity available under the facility as of September 30, 2017.
Capacity Borrowings 
Letters
of Credit
 
Capacity
Available
(In Millions)
$3,500 $150 $6 $3,344

Entergy Corporation’s credit facility requires Entergy to maintain a consolidated debt ratio, as defined, of 65% or less of its total capitalization.  Entergy is in compliance with this covenant.  If Entergy fails to meet this ratio, or if Entergy Corporation or one of the Utility operating companies (except Entergy New Orleans) defaults on other indebtedness or is in bankruptcy or insolvency proceedings, an acceleration of the facility maturity date may occur.

Entergy Corporation has a commercial paper program with a Board-approved program limit of up to $1.5 billion.  At September 30, 2017, Entergy Corporation had $1.3 billion of commercial paper outstanding.  The weighted-average interest rate for the nine months ended September 30, 2017 was 1.45%.

Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and Entergy Texas each had credit facilities available as of September 30, 2017 as follows:
Company 
Expiration
Date
 
Amount of
Facility
 Interest Rate (a) 
Amount Drawn
as of
September 30, 2017
 
Letters of Credit
Outstanding as of September 30, 2017
Entergy Arkansas April 2018 $20 million (b) 2.49% $— $—
Entergy Arkansas August 2022 $150 million (c) 2.49% $— $—
Entergy Louisiana August 2022 $350 million (d) 2.49% $— $9.1 million
Entergy Mississippi May 2018 $37.5 million (e) 2.74% $— $—
Entergy Mississippi May 2018 $35 million (e) 2.74% $— $—
Entergy Mississippi May 2018 $20 million (e) 2.74% $— $—
Entergy Mississippi May 2018 $10 million (e) 2.74% $— $—
Entergy New Orleans November 2018 $25 million (f) 2.71% $— $0.8 million
Entergy Texas August 2022 $150 million (g) 2.74% $— $24.4 million

(a)The interest rate is the rate as of September 30, 2017 that would most likely apply 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 permits the issuance of letters of credit against 50% of the borrowing capacity of the facility.  
(d)The credit facility permits the issuance of letters of credit against 50% of the borrowing capacity of the facility.  
(e)Borrowings under the Entergy Mississippi credit facilities may be secured by a security interest in its accounts receivable at Entergy Mississippi’s option.
(f)The credit facility permits the issuance of letters of credit against $10 million of the borrowing capacity of the facility.  
(g)The credit facility permits the issuance of letters of credit against 50% of the borrowing capacity of the facility.  

The commitment fees on the credit facilities range from 0.075% to 0.275% 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.


47

Entergy Corporation and Subsidiaries
Notes to Financial Statements

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 September 30, 2017:
Company 
Amount of
Uncommitted Facility
 Letter of Credit Fee 
Letters of Credit
Issued as of
September 30, 2017 (a)
Entergy Arkansas $25 million 0.70% $2 million
Entergy Louisiana $125 million 0.70% $38.5 million
Entergy Mississippi $40 million 0.70% $12.8 million
Entergy New Orleans $15 million 0.75% $7.1 million
Entergy Texas $50 million 0.70% $19.6 million

(a)As of September 30, 2017, letters of credit posted with MISO covered financial transmission rights exposure of $0.2 million for Entergy Arkansas and $0.1 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 are effective through October 31, 2019. In addition to borrowings from commercial banks, these companies may also borrow from the Entergy System money pool and from other internal short-term borrowing arrangements.  The money pool and the other internal borrowing arrangements are inter-company borrowing arrangements designed to reduce the Utility subsidiaries’ dependence on external short-term borrowings.  Borrowings from internal and external short term borrowings combined may not exceed the FERC-authorized limits.  The following are the FERC-authorized limits for short-term borrowings and the outstanding short-term borrowings as of September 30, 2017 (aggregating both internal and external short-term borrowings) for the Registrant Subsidiaries:
 Authorized Borrowings
 (In Millions)
Entergy Arkansas$250 $95
Entergy Louisiana$450 $—
Entergy Mississippi$175 $106
Entergy New Orleans$100 $—
Entergy Texas$200 $89
System Energy$200 $—

Entergy Nuclear Vermont Yankee Credit Facilities

Entergy Nuclear Vermont Yankee has a credit facility guaranteed by Entergy Corporation with a borrowing capacity of $100 million, which expires in January 2018.  Entergy Nuclear Vermont Yankee does not have the ability to issue letters of credit against the credit facility. This facility provides working capital to Entergy Nuclear Vermont Yankee for general business purposes including, without limitation, the decommissioning of Vermont Yankee. The commitment fee is currently 0.20% of the undrawn commitment amount.  As of September 30, 2017, $80 million in cash borrowings were outstanding under the credit facility.  The weighted average interest rate for the nine months ended September 30, 2017 was 2.56% on the drawn portion of the facility.

Entergy Nuclear Vermont Yankee also has an uncommitted credit facility guaranteed by Entergy Corporation with a borrowing capacity of $85 million, which expires in January 2018.  Entergy Nuclear Vermont Yankee does not have the ability to issue letters of credit against the credit facility. This facility provides an additional funding source to Entergy Nuclear Vermont Yankee for general business purposes including, without limitation, the decommissioning of Vermont Yankee.  As of September 30, 2017, there were no cash borrowings outstanding under the credit facility.

48

Entergy Corporation and Subsidiaries
Notes to Financial Statements

The rate as of September 30, 2017 that would most likely apply to outstanding borrowings under the facility was 2.73%.

Variable Interest Entities (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, and System Energy)

See Note 17 to the financial statements in the Form 10-K for a discussion of the consolidation of the nuclear fuel company variable interest entities (VIEs).  To finance the acquisition and ownership of nuclear fuel, the nuclear fuel company VIEs have credit facilities and three of the four VIEs also issue commercial paper as of September 30, 2017 as follows:
Company 
Expiration
Date
 
Amount
of
Facility
 Weighted Average Interest Rate on Borrowings (a) 
Amount
Outstanding as of
September 30, 2017
  
 (Dollars in Millions)
Entergy Arkansas VIE May 2019 $80 2.49% $23.3 (b)
Entergy Louisiana River Bend VIE May 2019 $105 2.33% $78.8
Entergy Louisiana Waterford VIE May 2019 $85 2.55% $76.9 (c)
System Energy VIE May 2019 $120 2.44% $81.8 (d)

(a)Includes letter of credit fees and bank fronting fees on commercial paper issuances by the nuclear fuel company variable interest entities for Entergy Arkansas, Entergy Louisiana, and System Energy. The nuclear fuel company variable interest entity for Entergy Louisiana River Bend does not issue commercial paper, but borrows directly on its bank credit facility.
(b)Includes borrowings on the credit facility and commercial paper. Commercial paper is classified as a current liability and the amount outstanding for Entergy Arkansas VIE as of September 30, 2017 was $8.3 million.
(c)Includes borrowings on the credit facility and commercial paper. Commercial paper is classified as a current liability and the amount outstanding for Entergy Louisiana Waterford VIE as of September 30, 2017 was $40.6 million.
(d)Includes borrowings on the credit facility and commercial paper. Commercial paper is classified as a current liability and the amount outstanding for System Energy VIE as of September 30, 2017 was $31.8 million.

The commitment fees on the credit facilities are 0.10% of the undrawn commitment amount for the Entergy Arkansas, Entergy Louisiana, and System Energy VIEs.  Each credit facility requires the respective lessee of nuclear fuel (Entergy Arkansas, Entergy Louisiana, or Entergy Corporation as guarantor for System Energy) to maintain a consolidated debt ratio, as defined, of 70% or less of its total capitalization.

The nuclear fuel company variable interest entities had notes payable that are included in debt on the respective balance sheets as of September 30, 2017 as follows:
Company Description Amount
Entergy Arkansas VIE 2.62% Series K due December 2017 $60 million
Entergy Arkansas VIE
 3.65% Series L due July 2021
 $90 million
Entergy Arkansas VIE 3.17% Series M due December 2023 $40 million
Entergy Louisiana River Bend VIE 3.38% Series R due August 2020 $70 million
Entergy Louisiana Waterford VIE 3.92% Series H due February 2021 $40 million
Entergy Louisiana Waterford VIE 3.22% Series I due December 2023 $20 million
System Energy VIE 3.78% Series I due October 2018 $85 million

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.

49

Entergy Corporation and Subsidiaries
Notes to Financial Statements

Debt Issuances and Retirements

(Entergy Arkansas)

In May 2017, Entergy Arkansas issued $220 million of 3.5% Series first mortgage bonds due April 2026. These bonds were a further issuance of the 3.5% Series first mortgage bonds issued in January 2016 and June 2016. Entergy Arkansas used a portion of the proceeds from the May 2017 issuance for general corporate purposes and used the remainder of the proceeds to pay, at maturity, its $54.7 million of 1.55% pollution control revenue refunding bonds due October 2017.

(Entergy Louisiana)

In May 2017, Entergy Louisiana issued $450 million of 3.12% collateral trust mortgage bonds due September 2027. Entergy Louisiana used the proceeds to finance the construction of the St. Charles Power Station, to pay, at maturity, its $45.3 million of Waterford Series collateral trust mortgage notes, and for general corporate purposes.

In July 2017 the Entergy Louisiana River Bend nuclear fuel company variable interest entity paid, at maturity, its $75 million of 3.25% Series Q notes.

In July 2017 the Entergy Louisiana Waterford nuclear fuel company variable interest entity paid, at maturity, its $25 million of 3.25% Series G notes.

(System Energy)

In February 2017 the System Energy nuclear fuel company variable interest entity paid, at maturity, its $50 million of 4.02% Series H notes.

Fair Value

The book value and the fair value of long-term debt for Entergy Corporation and the Registrant Subsidiaries as of September 30, 2017 are as follows:
 
Book Value
of Long-Term Debt
 
Fair Value
of Long-Term Debt (a) (b)
 (In Thousands)
Entergy
$14,846,729
 
$15,216,502
Entergy Arkansas
$3,063,310
 
$2,979,162
Entergy Louisiana
$6,167,496
 
$6,454,620
Entergy Mississippi
$1,121,606
 
$1,142,048
Entergy New Orleans
$444,310
 
$468,770
Entergy Texas
$1,451,643
 
$1,533,790
System Energy
$551,391
 
$533,855

(a)The values exclude lease obligations of $34 million at System Energy and long-term DOE obligations of $183 million at Entergy Arkansas, and include debt due within one year.
(b)Fair values are classified as Level 2 in the fair value hierarchy discussed in Note 8 to the financial statements herein and are based on prices derived from inputs such as benchmark yields and reported trades.


50

Entergy Corporation and Subsidiaries
Notes to Financial Statements

The book value and the fair value of long-term debt for Entergy Corporation and the Registrant Subsidiaries as of December 31, 2016 were as follows:
 
Book Value
of Long-Term Debt
 
Fair Value
of Long-Term Debt (a) (b)
 (In Thousands)
Entergy
$14,832,555
 
$14,815,535
Entergy Arkansas
$2,829,785
 
$2,623,910
Entergy Louisiana
$5,812,791
 
$5,929,488
Entergy Mississippi
$1,120,916
 
$1,086,203
Entergy New Orleans
$448,994
 
$455,459
Entergy Texas
$1,508,407
 
$1,600,156
System Energy
$551,132
 
$529,520

(a)The values exclude lease obligations of $57 million at Entergy Louisiana and $34 million at System Energy and long-term DOE obligations of $182 million at Entergy Arkansas, and include debt due within one year.
(b)Fair values are classified as Level 2 in the fair value hierarchy discussed in Note 8 to the financial statements herein and are based on prices derived from inputs such as benchmark yields and reported trades.


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.

Effective January 1, 2017, Entergy adopted ASU 2016-09, which permits the election of an accounting policy change to the method of recognizing forfeitures of stock-based compensation. Previously, Entergy recorded an estimate of the number of forfeitures expected to occur each period. Entergy elected to change this policy to account for forfeitures when they occur. This accounting change was applied retrospectively, but did not result in an adjustment to retained earnings as of January 1, 2017.

Stock Options

Entergy granted options on 791,900 shares of its common stock under the 2015 Equity Ownership Plan during the first quarter 2017 with a weighted-average fair value of $6.54 per option.  As of September 30, 2017, there were options on 6,055,226 shares of common stock outstanding with a weighted-average exercise price of $81.85.  The intrinsic value, which has no effect on net income, of the outstanding stock options is calculated by the positive difference between the weighted average exercise price of the stock options granted and Entergy Corporation’s common stock price as of September 30, 2017.  Because Entergy’s common stock price at September 30, 2017 was less than the weighted average exercise price, the aggregate intrinsic value of the stock options outstanding as of September 30, 2017 was zero. The intrinsic value of all “in the money” stock options was $19.7 million as of September 30, 2017.    


51

Entergy Corporation and Subsidiaries
Notes to Financial Statements

The following table includes financial information for outstanding stock options for the three months ended September 30, 2017 and 2016:
 2017 2016
 (In Millions)
Compensation expense included in Entergy’s net income
$1.1
 
$1.1
Tax benefit recognized in Entergy’s net income
$0.5
 
$0.5
Compensation cost capitalized as part of fixed assets and inventory
$0.2
 
$0.2
    
The following table includes financial information for outstanding stock options for the nine months ended September 30, 2017 and 2016:
 2017 2016
 (In Millions)
Compensation expense included in Entergy’s net income
$3.3
 
$3.3
Tax benefit recognized in Entergy’s net income
$1.3
 
$1.3
Compensation cost capitalized as part of fixed assets and inventory
$0.6
 
$0.6

Other Equity Awards

In January 2017 the Board approved and Entergy granted 379,850 restricted stock awards and 220,450 long-term incentive awards under the 2015 Equity Ownership Plan.  The restricted stock awards were made effective as of January 26, 2017 and were valued at $70.53 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.  In addition, long-term incentive awards were 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.  The performance units were granted effective as of January 26, 2017 and were valued at $71.40 per share.  Entergy considers various factors, primarily market conditions, in determining the value of the performance units.  Shares of restricted stock have the same dividend and voting rights as other common stock, are considered issued and outstanding shares of Entergy upon vesting, and are expensed ratably over the 3-year vesting period.  Performance units have the same dividend rights as shares of Entergy common stock, are considered issued and outstanding shares of Entergy upon vesting, and are expensed ratably over the 3-year vesting period.

The following table includes financial information for other outstanding equity awards for the three months ended September 30, 2017 and 2016:
 2017 2016
 (In Millions)
Compensation expense included in Entergy’s net income
$7.6
 
$8.5
Tax benefit recognized in Entergy’s net income
$3.0
 
$3.3
Compensation cost capitalized as part of fixed assets and inventory
$2.1
 
$2.0

The following table includes financial information for other outstanding equity awards for the nine months ended September 30, 2017 and 2016:
 2017 2016
 (In Millions)
Compensation expense included in Entergy’s net income
$24.1
 
$25.4
Tax benefit recognized in Entergy’s net income
$9.3
 
$9.8
Compensation cost capitalized as part of fixed assets and inventory
$6.3
 
$5.7


52

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 third quarters of 2017 and 2016, included the following components:
 2017 2016
 (In Thousands)
Service cost - benefits earned during the period
$33,410
 
$35,811
Interest cost on projected benefit obligation65,206
 65,403
Expected return on assets(102,056) (97,366)
Amortization of prior service cost65
 270
Amortization of loss56,930
 48,824
Net pension costs
$53,555
 
$52,942

Entergy’s qualified pension cost, including amounts capitalized, for the nine months ended September 30, 2017 and 2016, included the following components:
 2017 2016
 (In Thousands)
Service cost - benefits earned during the period
$100,230
 
$107,433
Interest cost on projected benefit obligation195,618
 196,209
Expected return on assets(306,168) (292,098)
Amortization of prior service cost195
 810
Amortization of loss170,790
 146,472
Net pension costs
$160,665
 
$158,826

The Registrant Subsidiaries’ qualified pension cost, including amounts capitalized, for their employees for the third quarters of 2017 and 2016, included the following components:
2017 Entergy
Arkansas
 Entergy
Louisiana
 Entergy
 Mississippi
 Entergy
New Orleans
 Entergy
Texas
 System
Energy
  (In Thousands)
Service cost - benefits earned during the period 
$5,090
 
$6,925
 
$1,472
 
$625
 
$1,364
 
$1,536
Interest cost on projected benefit obligation 12,944
 14,809
 3,732
 1,791
 3,392
 3,091
Expected return on assets (20,427) (23,017) (6,131) (2,800) (6,180) (4,663)
Amortization of loss 11,640
 12,354
 3,053
 1,658
 2,310
 2,964
Net pension cost 
$9,247
 
$11,071
 
$2,126
 
$1,274
 
$886
 
$2,928

53

Entergy Corporation and Subsidiaries
Notes to Financial Statements

2016 
Entergy
Arkansas
 
Entergy
Louisiana
 
Entergy
 Mississippi
 
Entergy
New Orleans
 
Entergy
Texas
 
System
Energy
  (In Thousands)
Service cost - benefits earned during the period 
$5,181
 
$7,049
 
$1,562
 
$656
 
$1,416
 
$1,566
Interest cost on projected benefit obligation 13,055
 14,870
 3,811
 1,814
 3,557
 2,992
Expected return on assets (19,772) (22,096) (5,981) (2,687) (6,062) (4,459)
Amortization of loss 10,936
 11,946
 2,985
 1,615
 2,340
 2,604
Net pension cost 
$9,400
 
$11,769
 
$2,377
 
$1,398
 
$1,251
 
$2,703

The Registrant Subsidiaries’ qualified pension cost, including amounts capitalized, for their employees for the nine months ended September 30, 2017 and 2016, included the following components:
2017 
Entergy
Arkansas
 
Entergy
Louisiana
 
Entergy
 Mississippi
 
Entergy
New Orleans
 
Entergy
Texas
 
System
Energy
  (In Thousands)
Service cost - benefits earned during the period 
$15,270
 
$20,775
 
$4,416
 
$1,875
 
$4,092
 
$4,608
Interest cost on projects benefit obligation 38,832
 44,427
 11,196
 5,373
 10,176
 9,273
Expected return on assets (61,281) (69,051) (18,393) (8,400) (18,540) (13,989)
Amortization of loss 34,920
 37,062
 9,159
 4,974
 6,930
 8,892
Net pension cost 
$27,741
 
$33,213
 
$6,378
 
$3,822
 
$2,658
 
$8,784
2016 
Entergy
Arkansas
 
Entergy
Louisiana
 
Entergy
 Mississippi
 
Entergy
New Orleans
 
Entergy
Texas
 
System
Energy
  (In Thousands)
Service cost - benefits earned during the period 
$15,543
 
$21,147
 
$4,686
 
$1,968
 
$4,248
 
$4,698
Interest cost on projected benefit obligation 39,165
 44,610
 11,433
 5,442
 10,671
 8,976
Expected return on assets (59,316) (66,288) (17,943) (8,061) (18,186) (13,377)
Amortization of loss 32,808
 35,838
 8,955
 4,845
 7,020
 7,812
Net pension cost 
$28,200
 
$35,307
 
$7,131
 
$4,194
 
$3,753
 
$8,109

Non-Qualified Net Pension Cost

Entergy recognized $15.8 million and $8 million in pension cost for its non-qualified pension plans in the third quarters of 2017 and 2016, respectively. Reflected in the pension cost for non-qualified pension plans in the third quarters of 2017 and 2016, respectively, is a $11.6 million and $3.7 million settlement charge related to the payment of lump sum benefits out of the plan. Entergy recognized $28.9 million and $16.5 million in pensions costs for its non-qualified pension plans for the nine months ended September 30, 2017 and 2016, respectively. Reflected in the pension cost for non-qualified pension plans for the nine months ended September 30, 2017 and 2016, respectively, is a $15.5 million and $3.7 million settlement charge related to the payment of lump sum benefits out of this plan.


54

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 in the third quarters of 2017 and 2016:
 
Entergy
Arkansas
 
Entergy
Louisiana
 
Entergy
Mississippi
 
Entergy
New Orleans
 
Entergy
Texas
 (In Thousands)
2017
$111
 
$46
 
$62
 
$18
 
$124
2016
$105
 
$58
 
$60
 
$16
 
$126

Reflected in Entergy Arkansas’s non-qualified pension costs in the third quarter of 2017 is $10 thousand in settlement charges related to the payment of lump sum benefits out of the plan.

The Registrant Subsidiaries recognized the following pension cost for their employees for their non-qualified pension plans for the nine months ended September 30, 2017 and 2016:
 
Entergy
Arkansas
 
Entergy
Louisiana
 
Entergy
Mississippi
 
Entergy
New Orleans
 
Entergy
Texas
 (In Thousands)
2017
$483
 
$141
 
$189
 
$55
 
$377
2016
$317
 
$176
 
$179
 
$48
 
$380

Reflected in Entergy Arkansas’s non-qualified pension costs for the nine months ended September 30, 2017 is $173 thousand in settlement charges related to the payment of lump sum benefits out of this plan.

Components of Net Other Postretirement Benefit Cost

Entergy’s other postretirement benefit cost, including amounts capitalized, for the third quarters of 2017 and 2016, included the following components:
 2017 2016
 (In Thousands)
Service cost - benefits earned during the period
$6,729
 
$8,073
Interest cost on accumulated postretirement benefit obligation (APBO)13,960
 14,083
Expected return on assets(9,408) (10,455)
Amortization of prior service credit(10,356) (11,373)
Amortization of loss5,476
 4,554
Net other postretirement benefit cost
$6,401
 
$4,882

Entergy’s other postretirement benefit cost, including amounts capitalized, for the nine months ended September 30, 2017 and 2016, included the following components:
 2017 2016
 (In Thousands)
Service cost - benefits earned during the period
$20,187
 
$24,219
Interest cost on accumulated postretirement benefit obligation (APBO)41,880
 42,249
Expected return on assets(28,224) (31,365)
Amortization of prior service credit(31,068) (34,119)
Amortization of loss16,428
 13,662
Net other postretirement benefit cost
$19,203
 
$14,646


55

Entergy Corporation and Subsidiaries
Notes to Financial Statements

The Registrant Subsidiaries’ other postretirement benefit cost, including amounts capitalized, for their employees for the third quarters of 2017 and 2016, included the following components:
2017 Entergy
Arkansas
 Entergy
Louisiana
 Entergy
Mississippi
 Entergy
New Orleans
 Entergy
Texas
 System
Energy
  (In Thousands)
Service cost - benefits earned during the period 
$863
 
$1,593
 
$290
 
$142
 
$372
 
$320
Interest cost on APBO 2,255
 3,025
 690
 469
 1,124
 559
Expected return on assets (3,959) 
 (1,200) (1,159) (2,180) (717)
Amortization of prior service credit (1,278) (1,934) (456) (186) (579) (378)
Amortization of loss 1,115
 465
 419
 105
 826
 390
Net other postretirement benefit cost 
($1,004) 
$3,149
 
($257) 
($629) 
($437) 
$174
2016 
Entergy
Arkansas
 
Entergy
Louisiana
 
Entergy
Mississippi
 
Entergy
New Orleans
 
Entergy
Texas
 
System
Energy
  (In Thousands)
Service cost - benefits earned during the period 
$978
 
$1,869
 
$386
 
$156
 
$398
 
$334
Interest cost on APBO 2,324
 3,260
 709
 448
 1,039
 529
Expected return on assets (4,464) 
 (1,379) (1,154) (2,394) (814)
Amortization of prior service credit (1,368) (1,947) (234) (186) (681) (393)
Amortization of loss 1,064
 732
 223
 37
 537
 287
Net other postretirement benefit cost 
($1,466) 
$3,914
 
($295) 
($699) 
($1,101) 
($57)

The Registrant Subsidiaries’ other postretirement benefit cost, including amounts capitalized, for their employees for the nine months ended September 30, 2017 and 2016, included the following components:
2017 
Entergy
Arkansas
 
Entergy
Louisiana
 
Entergy
Mississippi
 
Entergy
New Orleans
 
Entergy
Texas
 
System
Energy
  (In Thousands)
Service cost - benefits earned during the period 
$2,589
 
$4,779
 
$870
 
$426
 
$1,116
 
$960
Interest cost on APBO 6,765
 9,075
 2,070
 1,407
 3,372
 1,677
Expected return on assets (11,877) 
 (3,600) (3,477) (6,540) (2,151)
Amortization of prior service credit (3,834) (5,802) (1,368) (558) (1,737) (1,134)
Amortization of loss 3,345
 1,395
 1,257
 315
 2,478
 1,170
Net other postretirement benefit cost 
($3,012) 
$9,447
 
($771) 
($1,887) 
($1,311) 
$522


56

Entergy Corporation and Subsidiaries
Notes to Financial Statements

2016 
Entergy
Arkansas
 
Entergy
Louisiana
 
Entergy
Mississippi
 
Entergy
New Orleans
 
Entergy
Texas
 
System
Energy
  (In Thousands)
Service cost - benefits earned during the period 
$2,934
 
$5,607
 
$1,158
 
$468
 
$1,194
 
$1,002
Interest cost on APBO 6,972
 9,780
 2,127
 1,344
 3,117
 1,587
Expected return on assets (13,392) 
 (4,137) (3,462) (7,182) (2,442)
Amortization of prior service credit (4,104) (5,841) (702) (558) (2,043) (1,179)
Amortization of loss 3,192
 2,196
 669
 111
 1,611
 861
Net other postretirement benefit cost 
($4,398) 
$11,742
 
($885) 
($2,097) 
($3,303) 
($171)

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 third quarters of 2017 and 2016:
2017 Qualified
Pension
Costs
 Other
Postretirement
Costs
 Non-Qualified
Pension Costs
 Total
  (In Thousands)  
Entergy        
Amortization of prior service (cost)/credit 
($65) 
$6,718
 
($88) 
$6,565
Amortization of loss (18,451) (2,202) (827) (21,480)
Settlement loss 
 
 (4,200) (4,200)
  
($18,516) 
$4,516
 
($5,115) 
($19,115)
Entergy Louisiana        
Amortization of prior service credit 
$—
 
$1,934
 
$—
 
$1,934
Amortization of loss (865) (465) (2) (1,332)
  
($865) 
$1,469
 
($2) 
$602
2016
Qualified
Pension
Costs

Other
Postretirement
Costs

Non-Qualified
Pension Costs

Total


(In Thousands)

Entergy







Amortization of prior service (cost)/credit

($270)

$7,738


($114)

$7,354
Amortization of loss
(12,482)
(2,063)
(638)
(15,183)
Settlement loss




(1,279)
(1,279)



($12,752)

$5,675


($2,031)

($9,108)
Entergy Louisiana







Amortization of prior service credit

$—


$1,947


$—


$1,947
Amortization of loss
(836)
(732)
(2)
(1,570)



($836)

$1,215


($2)

$377


57

Entergy Corporation and Subsidiaries
Notes to Financial Statements

Entergy and Entergy Louisiana reclassified the following costs out of accumulated other comprehensive income (loss) (before taxes and including amounts capitalized) for the nine months ended September 30, 2017 and 2016:
2017
Qualified
Pension
Costs

Other
Postretirement
Costs

Non-Qualified
Pension Costs

Total


(In Thousands)

Entergy







Amortization of prior service (cost)/credit

($195)

$20,152


($266)

$19,691
Amortization of loss
(55,351)
(6,606)
(2,648)
(64,605)
Settlement loss




(5,965)
(5,965)



($55,546)

$13,546


($8,879)

($50,879)
Entergy Louisiana







Amortization of prior service credit

$—


$5,802


$—


$5,802
Amortization of loss
(2,594)
(1,395)
(7)
(3,996)



($2,594)

$4,407


($7)

$1,806
2016 Qualified
Pension
Costs
 Other
Postretirement
Costs
 Non-Qualified
Pension Costs
 Total
  (In Thousands)  
Entergy        
Amortization of prior service (cost)/credit 
($810) 
$23,214
 
($340) 
$22,064
Amortization of loss (37,446) (6,189) (1,900) (45,535)
Settlement loss 
 
 (1,279) (1,279)
  
($38,256) 
$17,025
 
($3,519) 
($24,750)
Entergy Louisiana        
Amortization of prior service credit 
$—
 
$5,841
 
$—
 
$5,841
Amortization of loss (2,508) (2,196) (8) (4,712)
  
($2,508) 
$3,645
 
($8) 
$1,129

Employer Contributions

Based on current assumptions, Entergy expects to contribute $409.9 million to its qualified pension plans in 2017.  As of September 30, 2017, Entergy had contributed $318 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 2017:
 
Entergy
Arkansas
 
Entergy
Louisiana
 
Entergy
Mississippi
 
Entergy
New Orleans
 
Entergy
Texas
 
System
Energy
 (In Thousands)
Expected 2017 pension contributions
$79,725
 
$86,728
 
$19,063
 
$9,842
 
$16,908
 
$18,307
Pension contributions made through September 2017
$62,252
 
$67,993
 
$14,922
 
$7,832
 
$13,131
 
$14,498
Remaining estimated pension contributions to be made in 2017
$17,473
 
$18,735
 
$4,141
 
$2,010
 
$3,777
 
$3,809

58

Entergy Corporation and Subsidiaries
Notes to Financial Statements

NOTE 7.  BUSINESS SEGMENT INFORMATION (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)

Entergy Corporation

Entergy’s reportable segments as of September 30, 2017 are Utility and Entergy Wholesale Commodities.  Utility 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.  Entergy Wholesale Commodities includes the ownership, operation, and decommissioning of nuclear power plants located in the northern United States and the sale of the electric power produced by its operating plants to wholesale customers.  Entergy Wholesale Commodities also provides services to other nuclear power plant owners and owns interests in non-nuclear power plants that sell the electric power produced by those plants to wholesale customers.  “All Other” includes the parent company, Entergy Corporation, and other business activity.

Entergy’s segment financial information for the third quarters of 2017 and 2016 is as follows:    
  Utility 
Entergy
Wholesale
Commodities
 All Other Eliminations Entergy
  (In Thousands)
2017          
Operating revenues 
$2,820,421
 
$423,245
 
$—
 
($38) 
$3,243,628
Income taxes 
$230,647
 
$25,563
 
($14,415) 
$—
 
$241,795
Consolidated net income (loss) 
$403,733
 
$55,765
 
($25,956) 
($31,898) 
$401,644
2016          
Operating revenues 
$2,649,392
 
$475,345
 
$—
 
($34) 
$3,124,703
Income taxes 
$255,603
 
$6,115
 
($3,812) 
$—
 
$257,906
Consolidated net income (loss) 
$447,782
 
$8,221
 
($30,901) 
($31,898) 
$393,204
           

Entergy’s segment financial information for the nine months ended September 30, 2017 and 2016 is as follows:
  Utility 
Entergy
Wholesale
Commodities
 All Other Eliminations Entergy
  (In Thousands)
2017          
Operating revenues 
$7,156,865
 
$1,293,867
 
$—
 
($96) 
$8,450,636
Income taxes 
$459,990
 
($507,719) 
($39,826) 
$—
 
($87,555)
Consolidated net income (loss) 
$817,738
 
$252,455
 
($73,434) 
($95,695) 
$901,064
Total assets as of September 30, 2017 
$42,669,606
 
$5,630,207
 
$985,466
 
($2,886,837) 
$46,398,442
2016          
Operating revenues 
$6,855,664
 
$1,341,534
 
$—
 
($80) 
$8,197,118
Income taxes 
$359,653
 
($176,626) 
($34,148) 
$—
 
$148,879
Consolidated net income (loss) 
$1,027,751
 
$338,651
 
($69,672) 
($95,695) 
$1,201,035
Total assets as of December 31, 2016 
$41,098,751
 
$6,696,038
 
$1,283,816
 
($3,174,171) 
$45,904,434

The Entergy Wholesale Commodities business is sometimes referred to as the “competitive businesses.”  Eliminations are primarily intersegment activity. Almost all of Entergy’s goodwill is related to the Utility segment.

59

Entergy Corporation and Subsidiaries
Notes to Financial Statements

As discussed in Note 13 to the financial statements in the Form 10-K, Entergy management has undertaken a strategy to manage and reduce the risk of the Entergy Wholesale Commodities business, which includes taking actions to reduce the size of the merchant fleet. These decisions and transactions resulted in asset impairments; employee retention and severance expenses and other benefits-related costs; and contracted economic development contributions in 2016.

Additional restructuring charges for the third quarter 2017 were comprised of the following:
 
Employee retention and severance
expenses and other benefits-related costs
 Contracted economic development costs Total
 (In Millions)
Balance as of July 1, 2017
$36
 
$21
 
$57
Restructuring costs accrued23
 
 23
Non-cash portion
 (7) (7)
Balance as of September 30, 2017
$59
 
$14
 
$73

In addition, Entergy incurred $16 million of impairment charges in the third quarter 2017 related to nuclear fuel spending, nuclear refueling outage spending, and expenditures for capital assets. These costs are charged to expense as incurred as a result of the impaired value of the Entergy Wholesale Commodities nuclear plants’ long-lived assets due to the significantly reduced remaining estimated operating lives associated with management’s strategy to reduce the size of the Entergy Wholesale Commodities’ merchant fleet.
    
Additional restructuring charges for the nine months ended September 30, 2017 were comprised of the following:
 Employee retention and severance
expenses and other benefits-related costs
 Contracted economic development costs Total
 (In Millions)
Balance as of January 1, 2017
$70
 
$21
 
$91
Restructuring costs accrued89
 
 89
Non-cash portion
 (7) (7)
Cash paid out100
 
 100
Balance as of September 30, 2017
$59
 
$14
 
$73

In addition, Entergy incurred $422 million of impairment charges in the nine months ended September 30, 2017 related to nuclear fuel spending, nuclear refueling outage spending, and expenditures for capital assets.

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.



60

Entergy Corporation and Subsidiaries
Notes to Financial Statements

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 also uses a combination of financial contracts, including swaps, collars, and options, to mitigate commodity price risk.  When the market price falls, the combination of instruments is expected to settle in gains that offset lower revenue from generation, which results in a more predictable cash flow.

Entergy’s exposure to market risk is determined by a number of factors, including the size, term, composition, and diversification of positions held, as well as market volatility and liquidity.  For instruments such as options, the time period during which the option may be exercised and the relationship between the current market price of the underlying instrument and the option’s contractual strike or exercise price also affects the level of market risk.  A significant factor influencing the overall level of market risk to which Entergy is exposed is its use of hedging techniques to mitigate such risk.  Hedging instruments and volumes are chosen based on ability to mitigate risk associated with future energy and capacity prices; however, other considerations are factored into hedge product and volume decisions including corporate liquidity, corporate credit ratings, counterparty credit risk, hedging costs, firm settlement risk, and product availability in the marketplace.  Entergy manages market risk by actively monitoring compliance with stated risk management policies as well as monitoring the effectiveness of its hedging policies and strategies.  Entergy’s risk management policies limit the amount of total net exposure and rolling net exposure during the stated periods.  These policies, including related risk limits, are regularly assessed to ensure their appropriateness given Entergy’s objectives.

Derivatives

Some derivative instruments are classified as cash flow hedges due to their financial settlement provisions while others are classified as normal purchase/normal sale transactions due to their physical settlement provisions.  Normal purchase/normal sale risk management tools include power purchase and sales agreements, fuel purchase agreements, capacity contracts, and tolling agreements.  Financially-settled cash flow hedges can include natural gas and electricity swaps and options and interest rate swaps.  Entergy may enter into financially-settled swap and option contracts to manage market risk that may or may not be designated as hedging instruments.

Entergy enters into derivatives to manage natural risks inherent in its physical or financial assets or liabilities.  Electricity over-the-counter instruments and futures contracts that financially settle against day-ahead power pool prices are used to manage price exposure for Entergy Wholesale Commodities generation.  The maximum length of time over which Entergy Wholesale Commodities is currently hedging the variability in future cash flows with derivatives for forecasted power transactions at September 30, 2017 is approximately 3.5 years.  Planned generation currently under contract from Entergy Wholesale Commodities nuclear power plants is 88% for the remainder of 2017,

61

Entergy Corporation and Subsidiaries
Notes to Financial Statements

of which approximately 31% is sold under financial derivatives and the remainder under normal purchase/normal sale contracts.  Total planned generation for the remainder of 2017 is 7.6 TWh.

Entergy may use standardized master netting agreements to help mitigate the credit risk of derivative instruments. These master agreements facilitate the netting of cash flows associated with a single counterparty and may include collateral requirements. Cash, letters of credit, and parental/affiliate guarantees may be obtained as security from counterparties in order to mitigate credit risk. The collateral agreements require a counterparty to post cash or letters of credit in the event an exposure exceeds an established threshold. The threshold represents an unsecured credit limit, which may be supported by a parental/affiliate guaranty, 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 September 30, 2017, there were no derivative contracts with counterparties in a liability position. In addition to the corporate guarantee, $1 million in cash collateral was required to be posted by the Entergy subsidiary to its counterparties and $4 million in cash collateral and $28 million in letters of credit were required to be posted by its counterparties to the Entergy subsidiary. As of December 31, 2016, derivative contracts with three counterparties were in a liability position (approximately $8 million total). In addition to the corporate guarantee, $2 million in cash collateral was required to be posted by the Entergy subsidiary to its counterparties. If the Entergy Corporation credit rating falls below investment grade, Entergy would have to post collateral equal to the estimated outstanding liability under the contract at the applicable date.

Entergy manages fuel price volatility for its Louisiana jurisdictions (Entergy Louisiana and Entergy New Orleans) and Entergy Mississippi through the purchase of short-term natural gas swaps that financially settle against NYMEX futures.  These swaps 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 for electric generation at Entergy Louisiana and Entergy Mississippi and projected winter purchases for gas distribution at Entergy Louisiana and Entergy New Orleans.  The total volume of natural gas swaps outstanding as of September 30, 2017 is 27,702,900 MMBtu for Entergy, including 21,673,200 MMBtu for Entergy Louisiana, 5,042,700 MMBtu for Entergy Mississippi, and 987,000 MMBtu for Entergy New Orleans. Credit support for these natural gas swaps is covered by master agreements that do not require collateral based on mark-to-market value, but do carry adequate assurance language that may lead to requests for collateral.

During the second quarter 2017, Entergy participated in the annual financial transmission rights auction process for the MISO planning year of June 1, 2017 through May 31, 2018. Financial transmission rights are derivative instruments which represent economic hedges of future congestion charges that will be incurred in serving Entergy’s customer load. They are not designated as hedging instruments. Entergy initially records financial transmission rights at their estimated fair value and subsequently adjusts the carrying value to their estimated fair value at the end of each accounting period prior to settlement. Unrealized gains or losses on financial transmission rights held by Entergy Wholesale Commodities are included in operating revenues. The Utility operating companies recognize regulatory liabilities or assets for unrealized gains or losses on financial transmission rights. The total volume of financial transmission rights outstanding as of September 30, 2017 is 75,621 GWh for Entergy, including 17,014 GWh for Entergy Arkansas, 33,700 GWh for Entergy Louisiana, 10,214 GWh for Entergy Mississippi, 3,839 GWh for Entergy New Orleans, and 10,326 GWh for Entergy Texas. Credit support for financial transmission rights held by the Utility operating companies is covered by cash and/or letters of credit issued by each Utility operating company as required by MISO. Credit support for financial transmission rights held by Entergy Wholesale Commodities is covered by cash. No cash or letters of credit were required to be posted for financial transmission rights exposure for Entergy Wholesale Commodities as of September 30, 2017 and December 31, 2016. Letters of credit posted with MISO covered the financial transmission rights exposure for Entergy Arkansas and Entergy Mississippi as of September 30, 2017 and December 31, 2016.

62

Entergy Corporation and Subsidiaries
Notes to Financial Statements

The fair values of Entergy’s derivative instruments in the consolidated balance sheet as of September 30, 2017 are shown in the table below.  Certain investments, including those not designated as hedging instruments, are subject to master netting agreements and are presented in the balance sheet on a net basis in accordance with accounting guidance for derivatives and hedging.
Instrument Balance Sheet Location 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) $52 ($22) $30 Entergy Wholesale Commodities
Electricity swaps and options Other deferred debits and other assets (non-current portion) $29 ($7) $22 Entergy Wholesale Commodities
Liabilities:          
Electricity swaps and options Other current liabilities
(current portion)
 $17 ($17) $— Entergy Wholesale Commodities
Electricity swaps and options Other non-current liabilities (non-current portion) $7 ($7) $— Entergy Wholesale Commodities
Derivatives not designated as hedging instruments          
Assets:          
Electricity swaps and options Prepayments and other (current portion) $11 ($3) $8 Entergy Wholesale Commodities
Electricity swaps and options Other deferred debits and other assets (non-current portion) $1 ($1) $— Entergy Wholesale Commodities
Financial transmission rights Prepayments and other $39 ($2) $37 Utility and Entergy Wholesale Commodities
Liabilities:          
Electricity swaps and options Other current liabilities(current portion) $8 ($8) $— Entergy Wholesale Commodities
Electricity swaps and options Other non-current liabilities (non-current portion) $1 ($1) $— Entergy Wholesale Commodities
Natural gas swaps Other current liabilities $1 $— $1 Utility


63

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, 2016 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) $25 ($14) $11 Entergy Wholesale Commodities
Electricity swaps and options Other deferred debits and other assets (non-current portion) $6 ($6) $— Entergy Wholesale Commodities
Liabilities:          
Electricity swaps and options Other current liabilities (current portion) $11 ($10) $1 Entergy Wholesale Commodities
Electricity swaps and options Other non-current liabilities (non-current portion) $16 ($7) $9 Entergy Wholesale Commodities
Derivatives not designated as hedging instruments          
Assets:          
Electricity swaps and options Prepayments and other (current portion) $18 ($13) $5 Entergy Wholesale Commodities
Electricity swaps and options Other deferred debits and other assets (non-current portion) $5 ($5) $— Entergy Wholesale Commodities
Natural gas swaps Prepayments and other $13 $— $13 Utility
Financial transmission rights Prepayments and other $22 ($1) $21 Utility and Entergy Wholesale Commodities
Liabilities:          
Electricity swaps and options Other current liabilities (current portion) $18 ($17) $1 Entergy Wholesale Commodities
Electricity swaps and options Other non-current liabilities (non-current portion) $4 ($4) $— Entergy Wholesale Commodities

(a)Represents the gross amounts of recognized assets/liabilities
(b)Represents the netting of fair value balances with the same counterparty
(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 posted and $4 million held as of September 30, 2017 and $2 million posted as of December 31, 2016. Also excludes $28 million in letters of credit held as of September 30, 2017.



64

Entergy Corporation and Subsidiaries
Notes to Financial Statements

The effects of Entergy’s derivative instruments designated as cash flow hedges on the consolidated income statements for the three months ended September 30, 2017 and 2016 are as follows:
Instrument 
Amount of gain
recognized in other
comprehensive income
 Income Statement location 
Amount of gain
reclassified from
accumulated other comprehensive income into income (a)
  (In Millions)   (In Millions)
2017      
Electricity swaps and options $43 Competitive businesses operating revenues $23
       
2016      
Electricity swaps and options $70 Competitive businesses operating revenues $37

(a)Before taxes of $8 million and $13 million for the three months ended September 30, 2017 and 2016, respectively

The effects of Entergy’s derivative instruments designated as cash flow hedges on the consolidated income statements for the nine months ended September 30, 2017 and 2016 are as follows:
Instrument Amount of gain
recognized in other
comprehensive income
 Income Statement location Amount of gain
reclassified from
accumulated other comprehensive income into income (a)

 (In Millions)   (In Millions)
2017      
Electricity swaps and options $136 Competitive businesses operating revenues $87
       
2016      
Electricity swaps and options $156 Competitive businesses operating revenues $237
    
(a)Before taxes of $30 million and $83 million for the nine months ended September 30, 2017 and 2016, respectively

At each reporting period, Entergy measures its hedges for ineffectiveness. Any ineffectiveness is recognized in earnings during the period. The ineffective portion of cash flow hedges is recorded in competitive business operating revenues. The change in fair value of Entergy’s cash flow hedges due to ineffectiveness during the three months ended September 30, 2017 and 2016 was $2.4 million and $6.4 million, respectively. The change in fair value of Entergy’s cash flow hedges due to ineffectiveness during the nine months ended September 30, 2017 and 2016 was $6.4 million and $6.1 million, respectively.

Based on market prices as of September 30, 2017, unrealized gains recorded in accumulated other comprehensive income on cash flow hedges relating to power sales totaled $59 million of net unrealized gains.  Approximately $37 million is expected to be reclassified from accumulated other comprehensive income to

65

Entergy Corporation and Subsidiaries
Notes to Financial Statements

operating revenues in the next twelve months.  The actual amount reclassified from accumulated other comprehensive income, however, could vary due to future changes in market prices.    

Entergy may effectively liquidate a cash flow hedge instrument by entering into a contract offsetting the original hedge, and then de-designating the original hedge in this situation.  Gains or losses accumulated in other comprehensive income prior to de-designation continue to be deferred in other comprehensive income until they are included in income as the original hedged transaction occurs. From the point of de-designation, the gains or losses on the original hedge and the offsetting contract are recorded as assets or liabilities on the balance sheet and offset as they flow through to earnings.

The effects of Entergy’s derivative instruments not designated as hedging instruments on the consolidated income statements for the three months ended September 30, 2017 and 2016 are as follows:
Instrument Amount of loss recognized in accumulated other comprehensive income Income Statement
location
 Amount of gain (loss)
recorded in the income statement
  (In Millions)   (In Millions)
2017      
Natural gas swaps $— Fuel, fuel-related expenses, and gas purchased for resale(a)($3)
Financial transmission rights $— Purchased power expense(b)$28
Electricity swaps and options ($2)(c)Competitive business operating revenues $—
       
2016      
Natural gas swaps $— Fuel, fuel-related expenses, and gas purchased for resale(a)$25
Financial transmission rights $— Purchased power expense(b)$37
Electricity swaps and options ($9)(c)Competitive business operating revenues $—


66

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 nine months ended September 30, 2017 and 2016 are as follows:
Instrument
Amount of gain recognized in accumulated other comprehensive income
Income Statement
location

Amount of gain (loss)
recorded in the income statement
  (In Millions)   (In Millions)
2017 
    
Natural gas swaps $— Fuel, fuel-related expenses, and gas purchased for resale(a)($20)
Financial transmission rights
$—
Purchased power expense(b)$103
Electricity swaps and options $2(c)Competitive business operating revenues $—
       
2016      
Natural gas swaps $— Fuel, fuel-related expenses, and gas purchased for resale(a)($5)
Financial transmission rights $— Purchased power expense(b)$96
Electricity swaps and options $6(c)Competitive business operating revenues ($9)

(a)Due to regulatory treatment, the natural gas swaps are marked-to-market through fuel, fuel-related expenses, and gas purchased for resale and then such amounts are simultaneously reversed and recorded as an offsetting regulatory asset or liability.  The gains or losses recorded as fuel expenses when the swaps are settled are recovered or refunded through fuel cost recovery mechanisms.
(b)Due to regulatory treatment, the changes in the estimated fair value of financial transmission rights for the Utility operating companies are recorded through purchased power expense and then such amounts are simultaneously reversed and recorded as an offsetting regulatory asset or liability.  The gains or losses recorded as purchased power expense when the financial transmission rights for the Utility operating companies are settled are recovered or refunded through fuel cost recovery mechanisms.
(c)Amount of gain (loss) recognized in accumulated other comprehensive income from electricity swaps and options de-designated as hedged items.


67

Entergy Corporation and Subsidiaries
Notes to Financial Statements

The fair values of the Registrant Subsidiaries’ derivative instruments not designated as hedging instruments on their balance sheets as of September 30, 2017 are as follows:
Instrument Balance Sheet Location Fair Value (a) Registrant
    (In Millions)  
Assets:      
Financial transmission rights Prepayments and other $4.4 Entergy Arkansas
Financial transmission rights Prepayments and other $18.8 Entergy Louisiana
Financial transmission rights Prepayments and other $5.5 Entergy Mississippi
Financial transmission rights Prepayments and other $3.5 Entergy New Orleans
Financial transmission rights Prepayments and other $5.0 Entergy Texas
       
Liabilities:      
Natural gas swaps Other current liabilities $0.7 Entergy Louisiana
Natural gas swaps Other current liabilities $0.2 Entergy Mississippi

The fair values of the Registrant Subsidiaries’ derivative instruments not designated as hedging instruments on their balance sheets as of December 31, 2016 are as follows:
Instrument Balance Sheet Location Fair Value (a) Registrant
    (In Millions)  
Assets:      
Natural gas swaps Prepayments and other $10.9 Entergy Louisiana
Natural gas swaps Prepayments and other $2.3 Entergy Mississippi
Natural gas swaps Prepayments and other $0.2 Entergy New Orleans
       
Financial transmission rights Prepayments and other $5.4 Entergy Arkansas
Financial transmission rights Prepayments and other $8.5 Entergy Louisiana
Financial transmission rights Prepayments and other $3.2 Entergy Mississippi
Financial transmission rights Prepayments and other $1.1 Entergy New Orleans
Financial transmission rights Prepayments and other $3.1 Entergy Texas

(a)As of September 30, 2017, letters of credit posted with MISO covered financial transmission rights exposure of $0.2 million for Entergy Arkansas and $0.1 million for Entergy Mississippi. As of December 31, 2016, letters of credit posted with MISO covered financial transmission rights exposure of $0.3 million for Entergy Arkansas and $0.1 million for Entergy Mississippi.

68

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 September 30, 2017 and 2016 are as follows:
Instrument Income Statement Location Amount of gain
(loss) recorded
in the income statement
 Registrant
    (In Millions)  
2017      
Natural gas swaps Fuel, fuel-related expenses, and gas purchased for resale ($2.6)(a)Entergy Louisiana
Natural gas swaps Fuel, fuel-related expenses, and gas purchased for resale ($0.6)(a)Entergy Mississippi
       
Financial transmission rights Purchased power expense $4.2(b)Entergy Arkansas
Financial transmission rights Purchased power expense $9.4(b)Entergy Louisiana
Financial transmission rights Purchased power expense $4.7(b)Entergy Mississippi
Financial transmission rights Purchased power expense $1.9(b)Entergy New Orleans
Financial transmission rights Purchased power expense $7.0(b)Entergy Texas
       
2016      
Natural gas swaps Fuel, fuel-related expenses, and gas purchased for resale $19.5(a)Entergy Louisiana
Natural gas swaps Fuel, fuel-related expenses, and gas purchased for resale $5.3(a)Entergy Mississippi
       
Financial transmission rights Purchased power expense $7.1(b)Entergy Arkansas
Financial transmission rights Purchased power expense $20.4(b)Entergy Louisiana
Financial transmission rights Purchased power expense $6.7(b)Entergy Mississippi
Financial transmission rights Purchased power expense $0.9(b)Entergy New Orleans
Financial transmission rights Purchased power expense $1.8(b)Entergy Texas




69

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 nine months ended September 30, 2017 and 2016 are as follows:
Instrument
Income Statement Location
Amount of gain
(loss) recorded
in the income statement

Registrant
    (In Millions)  
2017   
  
Natural gas swaps Fuel, fuel-related expenses, and gas purchased for resale ($16.3)(a)Entergy Louisiana
Natural gas swaps Fuel, fuel-related expenses, and gas purchased for resale ($3.1)(a)Entergy Mississippi
Natural gas swaps Fuel, fuel-related expenses, and gas purchased for resale ($0.1)(a)Entergy New Orleans
       
Financial transmission rights Purchased power expense $19.3(b)Entergy Arkansas
Financial transmission rights Purchased power expense $38.9(b)Entergy Louisiana
Financial transmission rights Purchased power expense $16.3(b)Entergy Mississippi
Financial transmission rights Purchased power expense $7.7(b)Entergy New Orleans
Financial transmission rights Purchased power expense $19.2(b)Entergy Texas
       
2016      
Natural gas swaps Fuel, fuel-related expenses, and gas purchased for resale ($4.6)(a)Entergy Louisiana
Natural gas swaps Fuel, fuel-related expenses, and gas purchased for resale $0.3(a)Entergy Mississippi
Natural gas swaps Fuel, fuel-related expenses, and gas purchased for resale ($0.5)(a)Entergy New Orleans
       
Financial transmission rights Purchased power expense $20.3(b)Entergy Arkansas
Financial transmission rights Purchased power expense $52.5(b)Entergy Louisiana
Financial transmission rights Purchased power expense $11.1(b)Entergy Mississippi
Financial transmission rights Purchased power expense $2.8(b)Entergy New Orleans
Financial transmission rights Purchased power expense $8.7(b)Entergy Texas

(a)Due to regulatory treatment, the natural gas swaps are marked-to-market through fuel, fuel-related expenses, and gas purchased for resale and then such amounts are simultaneously reversed and recorded as an offsetting regulatory asset or liability.  The gains or losses recorded as fuel expenses when the swaps are settled are recovered or refunded through fuel cost recovery mechanisms.
(b)Due to regulatory treatment, the changes in the estimated fair value of financial transmission rights for the Utility operating companies are recorded through purchased power expense and then such amounts are simultaneously reversed and recorded as an offsetting regulatory asset or liability.  The gains or losses recorded as purchased power expense when the financial transmission rights for the Utility operating companies are settled are recovered or refunded through fuel cost recovery mechanisms.

Fair Values

The estimated fair values of Entergy’s financial instruments and derivatives are determined using historical prices, bid prices, market quotes, and financial modeling.  Considerable judgment is required in developing the estimates

70

Entergy Corporation and Subsidiaries
Notes to Financial Statements

of fair value.  Therefore, estimates are not necessarily indicative of the amounts that Entergy could realize in a current market exchange.  Gains or losses realized on financial instruments other than those instruments held by the Entergy Wholesale Commodities business are reflected in future rates and therefore do not affect net income. Entergy considers the carrying amounts of most financial instruments classified as current assets and liabilities to be a reasonable estimate of their fair value because of the short maturity of these instruments.

Accounting standards define fair value as an exit price, or the price that would be received to sell an asset or the amount that would be paid to transfer a liability in an orderly transaction between knowledgeable market participants at the date of measurement.  Entergy and the Registrant Subsidiaries use assumptions or market input data that market participants would use in pricing assets or liabilities at fair value.  The inputs can be readily observable, corroborated by market data, or generally unobservable.  Entergy and the Registrant Subsidiaries endeavor to use the best available information to determine fair value.

Accounting standards establish a fair value hierarchy that prioritizes the inputs used to measure fair value.  The hierarchy establishes the highest priority for unadjusted market quotes in an active market for the identical asset or liability and the lowest priority for unobservable inputs.  

The three levels of the fair value hierarchy are:

Level 1 - Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the entity has the ability to access at the measurement date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.  Level 1 primarily consists of individually owned common stocks, cash equivalents (temporary cash investments, securitization recovery trust account, and escrow accounts), debt instruments, and gas hedge contracts.  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.

Level 3 - Level 3 inputs are pricing inputs that are generally less observable or unobservable from objective sources.  These inputs are used with internally developed methodologies to produce management’s best estimate of fair value for the asset or liability.  Level 3 consists primarily of financial transmission rights and derivative power contracts used as cash flow hedges of power sales at merchant power plants.

The values for power contract assets or liabilities are based on both observable inputs including public market prices and interest rates, and unobservable inputs such as implied volatilities, unit contingent discounts, expected basis differences, and credit adjusted counterparty interest rates.  They are classified as Level 3 assets and liabilities.  The valuations of these assets and liabilities are performed by the Business Unit Risk Control group and the Accounting Policy and Entergy Wholesale Commodities Accounting group.  The primary functions of the Business Unit Risk

71

Entergy Corporation and Subsidiaries
Notes to Financial Statements

Control group include: gathering, validating and reporting market data, providing market risk analyses and valuations in support of Entergy Wholesale Commodities’ commercial transactions, developing and administering protocols for the management of market risks, and implementing and maintaining controls around changes to market data in the energy trading and risk management system.  The Business Unit Risk Control group is also responsible for managing the energy trading and risk management system, forecasting revenues, forward positions and analysis.  The Accounting Policy and Entergy Wholesale Commodities Accounting group performs functions related to market and counterparty settlements, revenue reporting and analysis and financial accounting. The Business Unit Risk Control group reports to the Vice President and Treasurer while the Accounting Policy and Entergy Wholesale Commodities Accounting group reports to the Chief Accounting Officer.

The amounts reflected as the fair value of electricity swaps are based on the estimated amount that the contracts are in-the-money at the balance sheet date (treated as an asset) or out-of-the-money at the balance sheet date (treated as a liability) and would equal the estimated amount receivable to or payable by Entergy if the contracts were settled at that date.  These derivative contracts include cash flow hedges that swap fixed for floating cash flows for sales of the output from the Entergy Wholesale Commodities business.  The fair values are based on the mark-to-market comparison between the fixed contract prices and the floating prices determined each period from quoted forward power market prices.  The differences between the fixed price in the swap contract and these market-related prices multiplied by the volume specified in the contract and discounted at the counterparties’ credit adjusted risk free rate are recorded as derivative contract assets or liabilities.  For contracts that have unit contingent terms, a further discount is applied based on the historical relationship between contract and market prices for similar contract terms.

The amounts reflected as the fair values of electricity options are valued based on a Black Scholes model, and are calculated at the end of each month for accounting purposes.  Inputs to the valuation include end of day forward market prices for the period when the transactions will settle, implied volatilities based on market volatilities provided by a third party data aggregator, and U.S. Treasury rates for a risk-free return rate.  As described further below, prices and implied volatilities are reviewed and can be adjusted if it is determined that there is a better representation of fair value.  

On a daily basis, the Business Unit Risk Control group calculates the mark-to-market for electricity swaps and options.  The Business Unit Risk Control group also validates forward market prices by comparing them to other sources of forward market prices or to settlement prices of actual market transactions.  Significant differences are analyzed and potentially adjusted based on these other sources of forward market prices or settlement prices of actual market transactions.  Implied volatilities used to value options are also validated using actual counterparty quotes for Entergy Wholesale Commodities transactions when available and compared with other sources of market implied volatilities.  Moreover, on at least a monthly basis, the Office of Corporate Risk Oversight confirms the mark-to-market calculations and prepares price scenarios and credit downgrade scenario analysis.  The scenario analysis is communicated to senior management within Entergy and within Entergy Wholesale Commodities.  Finally, for all proposed derivative transactions, an analysis is completed to assess the risk of adding the proposed derivative to Entergy Wholesale Commodities’ portfolio.  In particular, the credit and liquidity effects are calculated for this analysis.  This analysis is communicated to senior management within Entergy and Entergy Wholesale Commodities.

The values of financial transmission rights are based on unobservable inputs, including estimates of congestion costs in MISO between applicable generation and load pricing nodes based on the 50th percentile of historical prices.  They are classified as Level 3 assets and liabilities.  The valuations of these assets and liabilities are performed by the Business Unit Risk Control group.  The values are calculated internally and verified against the data published by MISO. Entergy’s Accounting Policy and Entergy Wholesale Commodities Accounting group reviews these valuations for reasonableness, with the assistance of others within the organization with knowledge of the various inputs and assumptions used in the valuation. The Business Unit Risk Control groups report to the Vice President and Treasurer.  The Accounting Policy and Entergy Wholesale Commodities Accounting group reports to the Chief Accounting Officer.


72

Entergy Corporation and Subsidiaries
Notes to Financial Statements

The following tables set forth, by level within the fair value hierarchy, Entergy’s assets and liabilities that are accounted for at fair value on a recurring basis as of September 30, 2017 and December 31, 2016.  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.
2017 Level 1 Level 2 Level 3 Total
  (In Millions)
Assets:        
Temporary cash investments 
$459
 
$—
 
$—
 
$459
Decommissioning trust funds (a):        
Equity securities 487
 
 
 487
Debt securities 1,035
 1,394
 
 2,429
Common trusts (b)       4,067
Power contracts 
 
 60
 60
Securitization recovery trust account 53
 
 
 53
Escrow accounts 407
 
 
 407
Financial transmission rights 
 
 37
 37
  
$2,441
 
$1,394
 
$97
 
$7,999
Liabilities:        
Gas hedge contracts 
$1
 
$—
 
$—
 
$1

2016 Level 1 Level 2 Level 3 Total
  (In Millions)
Assets:        
Temporary cash investments 
$1,058
 
$—
 
$—
 
$1,058
Decommissioning trust funds (a):        
Equity securities 480
 
 
 480
Debt securities 985
 1,228
 
 2,213
Common trusts (b)       3,031
Power contracts 
 
 16
 16
Securitization recovery trust account 46
 
 
 46
Escrow accounts 433
 
 
 433
Gas hedge contracts 13
 
 
 13
Financial transmission rights 
 
 21
 21
  
$3,015
 
$1,228
 
$37
 
$7,311
Liabilities:        
Power contracts 
$—
 
$—
 
$11
 
$11

(a)The decommissioning trust funds hold equity and fixed income securities. Equity securities are invested to approximate the returns of major market indices.  Fixed income securities are held in various governmental and corporate securities.  See Note 9 to the financial statements for additional information on the investment portfolios.
(b)Common trust funds are not publicly quoted, and are valued by the fund administrators using net asset value as a practical expedient. Accordingly, these funds are not assigned a level in the fair value table. The fund administrator of these investments allows daily trading at the net asset value and trades settle at a later date.


73

Entergy Corporation and Subsidiaries
Notes to Financial Statements

The following table sets forth a reconciliation of changes in the net assets (liabilities) for the fair value of derivatives classified as Level 3 in the fair value hierarchy for the three months ended September 30, 2017 and 2016:
 2017 2016
 Power Contracts Financial transmission rights Power Contracts Financial transmission rights
 (In Millions)
Balance as of July 1,
$38
 
$57
 
$66
 
$46
Total gains (losses) for the period (a)       
Included in earnings2
 
 6
 
Included in other comprehensive income43
 
 70
 
Included as a regulatory liability/asset
 8
 
 22
Settlements(23) (28) (47) (37)
Balance as of September 30,
$60
 
$37
 
$95
 
$31

(a)Change in unrealized gains or losses for the period included in earnings for derivatives held at the end of the reporting period is $0.4 million for the three months ended September 30, 2017 and $1 million for the three months ended September 30, 2016.

The following table sets forth a reconciliation of changes in the net assets (liabilities) for the fair value of derivatives classified as Level 3 in the fair value hierarchy for the nine months ended September 30, 2017 and 2016:
 2017 2016
 Power Contracts Financial transmission rights Power Contracts Financial transmission rights

(In Millions)
Balance as of January 1,
$5
 
$21
 
$189
 
$23
Total gains (losses) for the period (a)       
Included in earnings6
 1
 (3) 
Included in other comprehensive income136
 
 156
 
Included as a regulatory liability/asset
 56
 
 49
Issuances of financial transmission rights
 62
 
 55
Settlements(87) (103) (247) (96)
Balance as of September 30,
$60
 
$37
 
$95
 
$31

(a)Change in unrealized gains or losses for the period included in earnings for derivatives held at the end of the reporting period is $1 million for the nine months ended September 30, 2017 and $1 million for the nine months ended September 30, 2016.

The following table sets forth a description of the types of transactions classified as Level 3 in the fair value hierarchy and significant unobservable inputs to each which cause that classification as of September 30, 2017:
Transaction Type 
Fair Value
as of
September 30, 2017
 
Significant
Unobservable Inputs
 
Range
from
Average
%
 
Effect on
Fair Value
  (In Millions)      (In Millions)
Power contracts - electricity swaps $60 Unit contingent discount +/-4% $5

74

Entergy Corporation and Subsidiaries
Notes to Financial Statements

The following table sets forth an analysis of each of the types of unobservable inputs impacting the fair value of items classified as Level 3 within the fair value hierarchy, and the sensitivity to changes to those inputs:
Significant
Unobservable
Input
 Transaction Type Position Change to Input 
Effect on
Fair Value
Unit contingent discount Electricity swaps Sell Increase (Decrease) Decrease (Increase)

The following table sets forth, by level within the fair value hierarchy, the Registrant Subsidiaries’ assets and liabilities that are accounted for at fair value on a recurring basis as of September 30, 2017 and December 31, 2016.  The assessment of the significance of a particular input to a fair value measurement requires judgment and may affect its placement within the fair value hierarchy levels.

Entergy Arkansas
2017 Level 1 Level 2 Level 3 Total
  (In Millions)
Assets:        
Decommissioning trust funds (a):        
Equity securities 
$6.7
 
$—
 
$—
 
$6.7
Debt securities 128.4
 205.7
 
 334.1
Common trusts (b)       569.6
Securitization recovery trust account 7.8
 
 
 7.8
Escrow accounts 2.4
 
 
 2.4
Financial transmission rights 
 
 4.4
 4.4
  
$145.3
 
$205.7
 
$4.4
 
$925.0

2016 Level 1 Level 2 Level 3 Total
  (In Millions)
Assets:        
Decommissioning trust funds (a):        
Equity securities 
$3.6
 
$—
 
$—
 
$3.6
Debt securities 112.5
 196.8
 
 309.3
Common trusts (b)       521.8
Securitization recovery trust account 4.1
 
 
 4.1
Escrow accounts 7.1
 
 
 7.1
Financial transmission rights 
 
 5.4
 5.4
  
$127.3
 
$196.8
 
$5.4
 
$851.3


75

Entergy Corporation and Subsidiaries
Notes to Financial Statements

Entergy Louisiana
2017 Level 1 Level 2 Level 3 Total
  (In Millions)
Assets:        
Temporary cash investments 
$45.4
 
$—
 
$—
 
$45.4
Decommissioning trust funds (a):        
Equity securities 10.8
 
 
 10.8
Debt securities 145.5
 333.3
 
 478.8
Common trusts (b)       770.4
Escrow accounts 288.8
 
 
 288.8
Securitization recovery trust account 9.4
 
 
 9.4
Financial transmission rights 
 
 18.8
 18.8
  
$499.9
 
$333.3
 
$18.8
 
$1,622.4
         
Liabilities:        
Gas hedge contracts 
$0.7
 
$—
 
$—
 
$0.7

2016 Level 1 Level 2 Level 3 Total
  (In Millions)
Assets:        
Temporary cash investments 
$163.9
 
$—
 
$—
 
$163.9
Decommissioning trust funds (a):  
  
  
  
Equity securities 13.9
 
 
 13.9
Debt securities 132.3
 292.5
 
 424.8
Common trusts (b)       702.0
Escrow accounts 305.7
 
 
 305.7
Securitization recovery trust account 2.8
 
 
 2.8
Gas hedge contracts 10.9
 
 
 10.9
Financial transmission rights 
 
 8.5
 8.5
  
$629.5
 
$292.5
 
$8.5
 
$1,632.5

Entergy Mississippi
2017 Level 1 Level 2 Level 3 Total
  (In Millions)
Assets:        
Escrow accounts 
$31.9
 
$—
 
$—
 
$31.9
Financial transmission rights 
 
 5.5
 5.5
  
$31.9
 
$—
 
$5.5
 
$37.4
         
Liabilities:        
Gas hedge contracts 
$0.2
 
$—
 
$—
 
$0.2


76

Entergy Corporation and Subsidiaries
Notes to Financial Statements

2016 Level 1 Level 2 Level 3 Total
  (In Millions)
Assets:        
Temporary cash investments 
$76.8
 
$—
 
$—
 
$76.8
Escrow accounts 31.8
 
 
 31.8
Gas hedge contracts 2.3
 
 
 2.3
Financial transmission rights 
 
 3.2
 3.2
  
$110.9
 
$—
 
$3.2
 
$114.1

Entergy New Orleans
2017 Level 1 Level 2 Level 3 Total
  (In Millions)
Assets:        
Temporary cash investments 
$28.4
 
$—
 
$—
 
$28.4
Securitization recovery trust account 4.7
 
 
 4.7
Escrow accounts 84.2
 
 
 84.2
Financial transmission rights 
 
 3.5
 3.5
  
$117.3
 
$—
 
$3.5
 
$120.8

2016 Level 1 Level 2 Level 3 Total
  (In Millions)
Assets:        
Temporary cash investments 
$103.0
 
$—
 
$—
 
$103.0
Securitization recovery trust account 1.7
 
 
 1.7
Escrow accounts 88.6
 
 
 88.6
Gas hedge contracts 0.2
 
 
 0.2
Financial transmission rights 
 
 1.1
 1.1
  
$193.5
 
$—
 
$1.1
 
$194.6

Entergy Texas
2017 Level 1 Level 2 Level 3 Total
  (In Millions)
Assets:
        
Securitization recovery trust account 
$30.8
 
$—
 
$—
 
$30.8
Financial transmission rights 
 
 5.0
 5.0
  
$30.8
 
$—
 
$5.0
 
$35.8

2016 Level 1 Level 2 Level 3 Total
  (In Millions)
Assets:
        
Temporary cash investments 
$5.0
 
$—
 
$—
 
$5.0
Securitization recovery trust account 37.5
 
 
 37.5
Financial transmission rights 
 
 3.1
 3.1
  
$42.5
 
$—
 
$3.1
 
$45.6


77

Entergy Corporation and Subsidiaries
Notes to Financial Statements

System Energy
2017 Level 1 Level 2 Level 3 Total
  (In Millions)
Assets:        
Temporary cash investments 
$144.9
 
$—
 
$—
 
$144.9
Decommissioning trust funds (a):        
Equity securities 2.6
 
 
 2.6
Debt securities 198.2
 131.4
 
 329.6
Common trusts (b)       538.4
  
$345.7
 
$131.4
 
$—
 
$1,015.5

2016 Level 1 Level 2 Level 3 Total
  (In Millions)
Assets:        
Temporary cash investments 
$245.1
 
$—
 
$—
 
$245.1
Decommissioning trust funds (a):        
Equity securities 0.3
 
 
 0.3
Debt securities 248.3
 58.3
 
 306.6
Common trusts (b)       473.6
  
$493.7
 
$58.3
 
$—
 
$1,025.6

(a)The decommissioning trust funds hold equity and fixed income securities. Equity securities are invested to approximate the returns of major market indices.  Fixed income securities are held in various governmental and corporate securities.  See Note 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 September 30, 2017.
    
 Entergy
Arkansas
 Entergy
Louisiana
 Entergy
Mississippi
 Entergy
New
Orleans
 Entergy
Texas
 (In Millions)
Balance as of July 1,
$8.3
 
$28.3
 
$9.1
 
$5.2
 
$5.5
Gains included as a regulatory liability/asset0.3
 (0.1) 1.1
 0.2
 6.5
Settlements(4.2) (9.4) (4.7) (1.9) (7.0)
Balance as of September 30,
$4.4
 
$18.8
 
$5.5
 
$3.5
 
$5.0


78

Entergy Corporation and Subsidiaries
Notes to Financial Statements

The following table sets forth a reconciliation of changes in the net assets (liabilities) for the fair value of derivatives classified as Level 3 in the fair value hierarchy for the three months ended September 30, 2016.
    
 Entergy
Arkansas
 Entergy
Louisiana
 Entergy
Mississippi
 Entergy
New
Orleans
 Entergy
Texas
 (In Millions)
Balance as of July 1,
$14.0
 
$16.2
 
$5.6
 
$2.0
 
$8.0
Gains included as a regulatory liability/asset1.2
 16.6
 5.1
 0.5
 (1.1)
Settlements(7.1) (20.4) (6.7) (0.9) (1.8)
Balance as of September 30,
$8.1
 
$12.4
 
$4.0
 
$1.6
 
$5.1

The following table sets forth a reconciliation of changes in the net assets (liabilities) for the fair value of derivatives classified as Level 3 in the fair value hierarchy for the nine months ended September 30, 2017.
 
Entergy
Arkansas
 
Entergy
Louisiana
 
Entergy
Mississippi
 
Entergy
New
Orleans
 
Entergy
Texas
 (In Millions)
Balance as of January 1,
$5.4
 
$8.5
 
$3.2
 
$1.1
 
$3.1
Issuances of financial transmission rights8.9
 31.0
 9.6
 5.0
 7.1
Gains included as a regulatory liability/asset9.4
 18.2
 9.0
 5.1
 14.0
Settlements(19.3) (38.9) (16.3) (7.7) (19.2)
Balance as of September 30,
$4.4
 
$18.8
 
$5.5
 
$3.5
 
$5.0

The following table sets forth a reconciliation of changes in the net assets (liabilities) for the fair value of derivatives classified as Level 3 in the fair value hierarchy for the nine months ended September 30, 2016.
 
Entergy
Arkansas
 
Entergy
Louisiana
 
Entergy
Mississippi
 
Entergy
New
Orleans
 
Entergy
Texas
 (In Millions)
Balance as of January 1,
$7.9
 
$8.5
 
$2.4
 
$1.5
 
$2.2
Issuances of financial transmission rights18.8
 18.1
 5.9
 2.8
 9.3
Gains (losses) included as a regulatory liability/asset1.7
 38.3
 6.8
 0.1
 2.3
Settlements(20.3) (52.5) (11.1) (2.8) (8.7)
Balance as of September 30,
$8.1
 
$12.4
 
$4.0
 
$1.6
 
$5.1


NOTE 9.  DECOMMISSIONING TRUST FUNDS (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, and System Energy)

Entergy holds debt and equity securities, classified as available-for-sale, in nuclear decommissioning trust accounts.  The NRC requires Entergy subsidiaries to maintain trusts to fund the costs of decommissioning ANO 1, ANO 2, River Bend, Waterford 3, Grand Gulf, Pilgrim, Indian Point 1, Indian Point 2, Indian Point 3, Vermont Yankee,

79

Entergy Corporation and Subsidiaries
Notes to Financial Statements

and Palisades.  The funds are invested primarily in equity securities, fixed-rate debt securities, and cash and cash equivalents.

See Note 16 to the financial statements in the Form 10-K for discussion of the trust transfer agreement with NYPA to transfer the decommissioning trust funds and decommissioning liabilities for the Indian Point 3 and FitzPatrick plants to Entergy. In January 2017, NYPA transferred to Entergy the Indian Point 3 decommissioning trust fund with a fair value of $726 million and the FitzPatrick decommissioning trust fund with a fair value of $793 million.

As discussed in Note 13 to the financial statements herein, in March 2017, Entergy closed on the sale of the FitzPatrick plant to Exelon. As part of the transaction, Entergy transferred the FitzPatrick decommissioning trust fund to Exelon. The FitzPatrick decommissioning trust fund had a disposition-date fair value of $805 million and was classified as held for sale within other deferred debits as of December 31, 2016.

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 has recorded an offsetting amount of unrealized gains/(losses) in other deferred credits.  Decommissioning trust funds for Pilgrim, Indian Point 1, Indian Point 2, Indian Point 3, Vermont Yankee, and Palisades do not meet the criteria for regulatory accounting treatment.  Accordingly, unrealized gains recorded on the assets in these trust funds are recognized in the accumulated other comprehensive income component of shareholders’ equity because these assets are classified as available-for-sale.  Unrealized losses (where cost exceeds fair market value) on the assets in these trust funds are also recorded in the accumulated other comprehensive income component of shareholders’ equity unless the unrealized loss is other-than-temporary and therefore recorded in earnings.  Generally, Entergy records realized gains and losses on its debt and equity securities using the specific identification method to determine the cost basis of its securities.

The securities held as of September 30, 2017 and December 31, 2016 are summarized as follows:
  
Fair
Value
 
Total
Unrealized
Gains
 
Total
Unrealized
Losses
  (In Millions)
2017      
Equity Securities 
$4,554
 
$1,983
 
$—
Debt Securities 2,429
 45
 14
Total 
$6,983
 
$2,028
 
$14
  
Fair
Value
 
Total
Unrealized
Gains
 
Total
Unrealized
Losses
  (In Millions)
2016      
Equity Securities 
$3,511
 
$1,673
 
$1
Debt Securities 2,213
 34
 27
Total 
$5,724
 
$1,707
 
$28

The fair values of the decommissioning trust funds related to the Entergy Wholesale Commodities nuclear plants as of September 30, 2017 are $478 million for Indian Point 1, $607 million for Indian Point 2, $774 million for Indian Point 3, $445 million for Palisades, $1,037 million for Pilgrim, and $601 million for Vermont Yankee. The fair values of the decommissioning trust funds for the Registrant Subsidiaries’ nuclear plants are detailed below.

80

Entergy Corporation and Subsidiaries
Notes to Financial Statements

Deferred taxes on unrealized gains/(losses) are recorded in other comprehensive income for the decommissioning trusts which do not meet the criteria for regulatory accounting treatment as described above. Unrealized gains/(losses) above are reported before deferred taxes of $472 million and $399 million as of September 30, 2017 and December 31, 2016, respectively.  The amortized cost of debt securities was $2,398 million as of September 30, 2017 and $2,212 million as of December 31, 2016.  As of September 30, 2017, the debt securities have an average coupon rate of approximately 3.21%, an average duration of approximately 6.17 years, and an average maturity of approximately 10.07 years.  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 fair value and gross unrealized losses of available-for-sale equity and debt securities, summarized by investment type and length of time that the securities have been in a continuous loss position, are as follows as of September 30, 2017:
 Equity Securities Debt Securities
 
Fair
Value
 
Gross
Unrealized
Losses
 
Fair
Value
 
Gross
Unrealized
Losses
 (In Millions)
Less than 12 months
$5
 
$—
 
$732
 
$5
More than 12 months
 
 267
 9
Total
$5
 
$—
 
$999
 
$14

The fair value and gross unrealized losses of available-for-sale equity and debt securities, summarized by investment type and length of time that the securities have been in a continuous loss position, are as follows as of December 31, 2016:
 Equity Securities Debt Securities
 
Fair
Value
 
Gross
Unrealized
Losses
 
Fair
Value
 
Gross
Unrealized
Losses
 (In Millions)
Less than 12 months
$23
 
$1
 
$1,169
 
$26
More than 12 months1
 
 20
 1
Total
$24
 
$1
 
$1,189
 
$27

The fair value of debt securities, summarized by contractual maturities, as of September 30, 2017 and December 31, 2016 are as follows:
 2017 2016
 (In Millions)
less than 1 year
$91
 
$125
1 year - 5 years801
 763
5 years - 10 years789
 719
10 years - 15 years130
 109
15 years - 20 years87
 73
20 years+531
 424
Total
$2,429
 
$2,213

During the three months ended September 30, 2017 and 2016, proceeds from the dispositions of securities amounted to $440 million and $564 million, respectively.  During the three months ended September 30, 2017 and

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Entergy Corporation and Subsidiaries
Notes to Financial Statements

2016, gross gains of $9 million and $6 million, respectively, and gross losses of $2 million and $1 million, respectively, were reclassified out of other comprehensive income or other regulatory liabilities/assets into earnings.

During the nine months ended September 30, 2017 and 2016, proceeds from the dispositions of securities amounted to $1,903 million and $1,797 million, respectively.  During the nine months ended September 30, 2017 and 2016, gross gains of $79 million and $26 million, respectively, and gross losses of $9 million and $6 million, respectively, were reclassified out of other comprehensive income or other regulatory liabilities/assets into earnings.

Entergy Arkansas

Entergy Arkansas holds debt and equity securities, classified as available-for-sale, in nuclear decommissioning trust accounts.  The securities held as of September 30, 2017 and December 31, 2016 are summarized as follows:
  
Fair
Value
 
Total
Unrealized
Gains
 
Total
Unrealized
Losses
  (In Millions)
2017      
Equity Securities 
$576.3
 
$327.2
 
$—
Debt Securities 334.1
 3.1
 2.3
Total 
$910.4
 
$330.3
 
$2.3
       
2016      
Equity Securities 
$525.4
 
$281.5
 
$—
Debt Securities 309.3
 3.4
 4.2
Total 
$834.7
 
$284.9
 
$4.2

The amortized cost of debt securities was $333.3 million as of September 30, 2017 and $310.1 million as of December 31, 2016.  As of September 30, 2017, the debt securities have an average coupon rate of approximately 2.53%, an average duration of approximately 5.83 years, and an average maturity of approximately 6.78 years.  The equity securities are generally held in funds that are designed to approximate the return of the Standard & Poor’s 500 Index.  A relatively small percentage of the equity securities are held in funds intended to replicate the return of the Wilshire 4500 Index.

The fair value and gross unrealized losses of available-for-sale equity and debt securities, summarized by investment type and length of time that the securities have been in a continuous loss position, are as follows as of September 30, 2017:
 Equity Securities Debt Securities
 
Fair
Value
 
Gross
Unrealized
Losses
 
Fair
Value
 
Gross
Unrealized
Losses
 (In Millions)
Less than 12 months
$—
 
$—
 
$114.4
 
$0.6
More than 12 months
 
 37.3
 1.7
Total
$—
 
$—
 
$151.7
 
$2.3


82

Entergy Corporation and Subsidiaries
Notes to Financial Statements

The fair value and gross unrealized losses of available-for-sale equity and debt securities, summarized by investment type and length of time that the securities have been in a continuous loss position, are as follows as of December 31, 2016:
 Equity Securities Debt Securities
 
Fair
Value
 
Gross
Unrealized
Losses
 
Fair
Value
 
Gross
Unrealized
Losses
 (In Millions)
Less than 12 months
$—
 
$—
 
$146.7
 
$4.2
More than 12 months
 
 
 
Total
$—
 
$—
 
$146.7
 
$4.2

The fair value of debt securities, summarized by contractual maturities, as of September 30, 2017 and December 31, 2016 are as follows:
 2017 2016
 (In Millions)
less than 1 year
$11.8
 
$16.7
1 year - 5 years107.9
 106.2
5 years - 10 years194.4
 161.2
10 years - 15 years2.6
 7.7
15 years - 20 years1.4
 1.0
20 years+16.0
 16.5
Total
$334.1
 
$309.3

During the three months ended September 30, 2017 and 2016, proceeds from the dispositions of securities amounted to $51.9 million and $61.2 million, respectively.  During the three months ended September 30, 2017 and 2016, gross gains of $0.04 million and $0.4 million, respectively, and gross losses of $0.5 thousand and $0.04 million, respectively were reclassified out of other regulatory liabilities/assets into earnings.

During the nine months ended September 30, 2017 and 2016, proceeds from the dispositions of securities amounted to $219.2 million and $165 million, respectively.  During the nine months ended September 30, 2017 and 2016, gross gains of $11.7 million and $1.6 million, respectively, and gross losses of $0.2 million and $0.3 million, respectively were reclassified out of other regulatory liabilities/assets into earnings.


83

Entergy Corporation and Subsidiaries
Notes to Financial Statements

Entergy Louisiana

Entergy Louisiana holds debt and equity securities, classified as available-for-sale, in nuclear decommissioning trust accounts.  The securities held as of September 30, 2017 and December 31, 2016 are summarized as follows:
  
Fair
Value
 
Total
Unrealized
Gains
 
Total
Unrealized
Losses
  (In Millions)
2017      
Equity Securities 
$781.2
 
$420.3
 
$—
Debt Securities 478.8
 10.9
 2.8
Total 
$1,260.0
 
$431.2
 
$2.8
       
2016      
Equity Securities 
$715.9
 
$346.6
 
$—
Debt Securities 424.8
 8.0
 5.0
Total 
$1,140.7
 
$354.6
 
$5.0

The amortized cost of debt securities was $470.7 million as of September 30, 2017 and $421.9 million as of December 31, 2016.  As of September 30, 2017, the debt securities have an average coupon rate of approximately 3.84%, an average duration of approximately 5.76 years, and an average maturity of approximately 11.6 years.  The equity securities are generally held in funds that are designed to approximate the return of the Standard & Poor’s 500 Index.  A relatively small percentage of the equity securities are held in funds intended to replicate the return of the Wilshire 4500 Index.

The fair value and gross unrealized losses of available-for-sale equity and debt securities, summarized by investment type and length of time that the securities have been in a continuous loss position, are as follows as of September 30, 2017:
 Equity Securities Debt Securities
 
Fair
Value
 
Gross
Unrealized
Losses
 
Fair
Value
 
Gross
Unrealized
Losses
 (In Millions)
Less than 12 months
$—
 
$—
 
$127.3
 
$1.1
More than 12 months
 
 51.5
 1.7
Total
$—
 
$—
 
$178.8
 
$2.8

The fair value and gross unrealized losses of available-for-sale equity and debt securities, summarized by investment type and length of time that the securities have been in a continuous loss position, are as follows as of December 31, 2016:
 Equity Securities Debt Securities
 
Fair
Value
 
Gross
Unrealized
Losses
 
Fair
Value
 
Gross
Unrealized
Losses
 (In Millions)
Less than 12 months
$—
 
$—
 
$198.8
 
$4.8
More than 12 months
 
 4.8
 0.2
Total
$—
 
$—
 
$203.6
 
$5.0

84

Entergy Corporation and Subsidiaries
Notes to Financial Statements

The fair value of debt securities, summarized by contractual maturities, as of September 30, 2017 and December 31, 2016 are as follows:
 2017 2016
 (In Millions)
less than 1 year
$27.7
 
$31.4
1 year - 5 years113.2
 99.1
5 years - 10 years117.1
 122.8
10 years - 15 years50.7
 41.4
15 years - 20 years43.4
 30.9
20 years+126.7
 99.2
Total
$478.8
 
$424.8

During the three months ended September 30, 2017 and 2016, proceeds from the dispositions of securities amounted to $50.5 million and $54.7 million, respectively.  During the three months ended September 30, 2017 and 2016, gross gains of $2.9 million and $0.4 million, respectively, and gross losses of $0.1 million and $0.1 million, respectively, were reclassified out of other regulatory liabilities/assets into earnings.

During the nine months ended September 30, 2017 and 2016, proceeds from the dispositions of securities amounted to $176.1 million and $178.2 million, respectively.  During the nine months ended September 30, 2017 and 2016, gross gains of $7.9 million and $3 million, respectively, and gross losses of $0.4 million and $0.2 million, respectively, were reclassified out of other regulatory liabilities/assets into earnings.

System Energy

System Energy holds debt and equity securities, classified as available-for-sale, in nuclear decommissioning trust accounts.  The securities held as of September 30, 2017 and December 31, 2016 are summarized as follows:
  
Fair
Value
 
Total
Unrealized
Gains
 
Total
Unrealized
Losses
  (In Millions)
2017      
Equity Securities 
$541.0
 
$276.2
 
$—
Debt Securities 329.6
 3.7
 1.9
Total 
$870.6
 
$279.9
 
$1.9
       
2016      
Equity Securities 
$473.9
 
$221.9
 
$0.1
Debt Securities 306.6
 2.0
 4.5
Total 
$780.5
 
$223.9
 
$4.6

The amortized cost of debt securities was $327.8 million as of September 30, 2017 and $309.1 million as of December 31, 2016.  As of September 30, 2017, the debt securities have an average coupon rate of approximately 2.44%, an average duration of approximately 6.37 years, and an average maturity of approximately 8.88 years.  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.


85

Entergy Corporation and Subsidiaries
Notes to Financial Statements

The fair value and gross unrealized losses of available-for-sale equity and debt securities, summarized by investment type and length of time that the securities have been in a continuous loss position, are as follows as of September 30, 2017:
 Equity Securities Debt Securities
 
Fair
Value
 
Gross
Unrealized
Losses
 
Fair
Value
 
Gross
Unrealized
Losses
 (In Millions)
Less than 12 months
$—
 
$—
 
$135.6
 
$1.0
More than 12 months
 
 57.5
 0.9
Total
$—
 
$—
 
$193.1
 
$1.9

The fair value and gross unrealized losses of available-for-sale equity and debt securities, summarized by investment type and length of time that the securities have been in a continuous loss position, are as follows as of December 31, 2016:
 Equity Securities Debt Securities
 
Fair
Value
 
Gross
Unrealized
Losses
 
Fair
Value
 
Gross
Unrealized
Losses
 (In Millions)
Less than 12 months
$—
 
$—
 
$220.9
 
$4.4
More than 12 months
 0.1
 0.8
 0.1
Total
$—
 
$0.1
 
$221.7
 
$4.5

The fair value of debt securities, summarized by contractual maturities, as of September 30, 2017 and December 31, 2016 are as follows:
 2017 2016
 (In Millions)
less than 1 year
$8.7
 
$6.6
1 year - 5 years170.7
 188.2
5 years - 10 years79.1
 78.5
10 years - 15 years4.4
 1.3
15 years - 20 years6.5
 7.8
20 years+60.2
 24.2
Total
$329.6
 
$306.6

During the three months ended September 30, 2017 and 2016, proceeds from the dispositions of securities amounted to $54.6 million and $103.5 million, respectively.  During the three months ended September 30, 2017 and 2016, gross gains of $0.2 million and $0.7 million, respectively, and gross losses of $0.2 million and $0.1 million, respectively, were reclassified out of other regulatory liabilities/assets into earnings.

During the nine months ended September 30, 2017 and 2016, proceeds from the dispositions of securities amounted to $308.1 million and $392.9 million, respectively.  During the nine months ended September 30, 2017 and 2016, gross gains of $0.7 million and $3.2 million, respectively, and gross losses of $1.5 million and $0.4 million, respectively, were reclassified out of other regulatory liabilities/assets into earnings.


86

Entergy Corporation and Subsidiaries
Notes to Financial Statements

Other-than-temporary impairments and unrealized gains and losses

Entergy evaluates investment securities in the Entergy Wholesale Commodities’ nuclear decommissioning trust funds with unrealized losses at the end of each period to determine whether an other-than-temporary impairment has occurred.  The assessment of whether an investment in a debt security has suffered an other-than-temporary impairment is based on whether Entergy has the intent to sell or more likely than not will be required to sell the debt security before recovery of its amortized costs.  Further, if Entergy does not expect to recover the entire amortized cost basis of the debt security, an other-than-temporary impairment is considered to have occurred and it is measured by the present value of cash flows expected to be collected less the amortized cost basis (credit loss).  Entergy did not have any material other-than-temporary impairments relating to credit losses on debt securities for the three and nine months ended September 30, 2017 and 2016.  The assessment of whether an investment in an equity security has suffered an other-than-temporary impairment is based on a number of factors including, first, whether Entergy has the ability and intent to hold the investment to recover its value, the duration and severity of any losses, and, then, whether it is expected that the investment will recover its value within a reasonable period of time.  Entergy’s trusts are managed by third parties who operate in accordance with agreements that define investment guidelines and place restrictions on the purchases and sales of investments.  Entergy did not record material charges to other income for the three and nine months ended September 30, 2017 and 2016, resulting from the recognition of the other-than-temporary impairment of certain equity securities held in its decommissioning trust funds.


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 and other income tax matters involving Entergy. The following are updates to that discussion.

As discussed in the Form 10-K, in the second quarter 2016, Entergy made a tax election to treat as a corporation for federal income tax purposes its subsidiary that owned the FitzPatrick nuclear power plant.  The effect of the election was that the plant and associated assets were deemed to be contributed to a new corporation for federal income tax purposes, which created permanent and temporary differences, as discussed in the Form 10-K.  One permanent difference, which increased tax expense in 2016 under the applicable accounting standards, was the reduction to the plant’s tax basis to the extent that it exceeded its fair market value.  Entergy sold the FitzPatrick plant on March 31, 2017.  The removal of the contingencies regarding the sale of the plant and the receipt of NRC approval for the sale allowed Entergy to re-determine the plant’s tax basis, using the closing price as indicative of a higher fair market value for the plant.  The re-determined basis resulted in a $44 million income tax benefit in the first quarter 2017.

In the second quarter 2017, Entergy made tax elections to treat as corporations for federal income tax purposes two subsidiaries that each own an Entergy Wholesale Commodities nuclear power plant. This resulted in a constructive contribution of all the assets and liabilities associated with the plants to new subsidiary corporations for federal income tax purposes, and generated both permanent and temporary differences under the income tax accounting standards. The constructive contributions required the Entergy subsidiary that constructively contributed the assets and liabilities to recognize the plants’ nuclear decommissioning liabilities for income tax purposes resulting in permanent differences. The accrual of the nuclear decommissioning liabilities required Entergy to recognize a gain for income tax purposes, a portion of which resulted in an increase in tax basis of the assets constructively contributed to the subsidiaries. Recognition of the gain and the increase in tax basis of the assets represents a temporary difference. The permanent differences reduced income tax expense, net of unrecognized tax benefits, by $373 million.

In the first quarter 2017, Entergy implemented ASU No. 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” Entergy will now prospectively recognize all income tax effects related to share-based payments through the income statement. In the first quarter 2017, stock option expirations, along with other stock compensation activity, resulted in the write-off of $11.5 million of deferred

87

Entergy Corporation and Subsidiaries
Notes to Financial Statements

tax assets. Entergy’s stock-based compensation plans are discussed in Note 12 to the financial statements in the Form 10-K.


NOTE 11.  PROPERTY, PLANT, AND EQUIPMENT (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)

Construction Expenditures in Accounts Payable

Construction expenditures included in accounts payable at September 30, 2017 are $219 million for Entergy, $28.6 million for Entergy Arkansas, $95.5 million for Entergy Louisiana, $7.2 million for Entergy Mississippi, $0.6 million for Entergy New Orleans, $18.9 million for Entergy Texas, and $26.9 million for System Energy.  Construction expenditures included in accounts payable at December 31, 2016 are $253 million for Entergy, $40.9 million for Entergy Arkansas, $114.8 million for Entergy Louisiana, $11.5 million for Entergy Mississippi, $2.3 million for Entergy New Orleans, $9.3 million for Entergy Texas, and $6.2 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.
    
Entergy Louisiana was considered to hold a variable interest in the lessor from which it leased an undivided interest representing approximately 9.3% of the Waterford 3 nuclear plant. After Entergy Louisiana acquired a beneficial interest in the leased assets in March 2016, however, the lessor was no longer considered a variable interest entity. Entergy Louisiana made payments on its lease, including interest, of $9.2 million through March 2016. See Note 10 to the financial statements in the Form 10-K for a discussion of Entergy Louisiana’s purchase of the Waterford 3 leased assets.

System Energy is considered to hold a variable interest in the lessor from which it leases an undivided interest representing approximately 11.5% of the Grand Gulf nuclear plant. System Energy is the lessee under this arrangement, which is described in more detail in Note 10 to the financial statements in the Form 10-K. System Energy made payments on its lease, including interest, of $8.6 million in the three months ended September 30, 2017 and $8.6 million in the three months ended September 30, 2016. System Energy made payments on its lease, including interest, of $17.2 million in the nine months ended September 30, 2017 and $17.2 million in the nine months ended September 30, 2016.


NOTE 13.  ACQUISITIONS AND DISPOSITIONS (Entergy Corporation)

Acquisitions

Palisades Purchase Power Agreement

As discussed in the Form 10-K, Entergy’s purchase of the Palisades plant in 2007 included a unit-contingent, 15-year purchased power agreement (PPA) with Consumers Energy for 100% of the plant’s output, excluding any future uprates. Prices under the PPA range from $43.50/MWh in 2007 to $61.50/MWh in 2022, and the average price under the PPA is $51/MWh. For the PPA, which was at below-market prices at the time of the acquisition, Entergy will amortize a liability to revenue over the life of the agreement. The amount that will be amortized each period is based upon the present value, calculated at the date of acquisition, of each year’s difference between revenue under the agreement and revenue based on estimated market prices.

88

Entergy Corporation and Subsidiaries
Notes to Financial Statements

In December 2016, Entergy announced that it had reached an agreement with Consumers Energy to amend the existing PPA to terminate early, on May 31, 2018, subject to regulatory approvals. Entergy updated the liability amortization calculation to reflect the expected early termination of the PPA. In September 2017, Entergy and Consumers Energy terminated the PPA amendment agreement, and Entergy announced the decision to continue to operate the plant through the end of the PPA. Based on that decision, the amounts to be amortized to revenue for the next five years will be approximately $2 million for the remainder of 2017, $6 million in 2018, $10 million in 2019, $11 million in 2020, and $12 million in 2021.

Dispositions

FitzPatrick

In March 2017 the NRC approved the sale of the FitzPatrick plant, an 838 MW nuclear power plant owned by Entergy in the Entergy Wholesale Commodities segment, to Exelon. The transaction closed in March 2017 for a purchase price of $110 million, including the $10 million non-refundable signing fee paid in August 2016, in addition to the assumption by Exelon of certain liabilities related to the FitzPatrick plant, resulting in a pre-tax gain on the sale of $16 million. At the transaction close, Exelon paid an additional $8 million for the proration of certain expenses prepaid by Entergy.

As discussed in Note 10 to the financial statements herein, as a result of the sale of FitzPatrick on March 31, 2017, Entergy re-determined the plant’s tax basis, resulting in a $44 million income tax benefit in the first quarter 2017.

The assets and liabilities associated with the sale of FitzPatrick to Exelon were classified as held for sale on Entergy Corporation and Subsidiaries’ Consolidated Balance Sheet as of December 31, 2016. The disposition-date fair value of the decommissioning trust fund was $805 million, classified within other deferred debits, and the disposition-date fair value of the asset retirement obligation was $727 million, classified within other non-current liabilities. The transaction also included property, plant, and equipment with a net book value of zero, materials and supplies, and prepaid assets.

As discussed in Note 14 to the financial statements in the Form 10-K, Entergy entered into a reimbursement agreement with Exelon pursuant to which Exelon reimbursed Entergy for specified out-of-pocket costs associated with Entergy’s operation of FitzPatrick. In the first quarter 2017, Entergy billed Exelon for reimbursement of $98 million of other operation and maintenance expenses, $7 million in lost operating revenues, and $3 million in taxes other than income taxes, partially offset by a $10 million defueling credit to Exelon.


NOTE 14.  ASSET RETIREMENT OBLIGATIONS (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)

See Note 9 to the financial statements in the Form 10-K for a discussion of asset retirement obligations. Following are updates to that discussion.

In the second quarter 2017, System Energy recorded a revision to its estimated decommissioning cost liability for Grand Gulf as a result of a revised decommissioning cost study. The revised estimate resulted in a $35.9 million reduction in its decommissioning cost liability, along with a corresponding reduction in the related asset retirement cost asset that will be depreciated over the remaining life of the unit.

In the third quarter 2017, Entergy Wholesale Commodities recorded a revision to its estimated decommissioning cost liability for Palisades. The revised estimate resulted in a $68.7 million reduction in its decommissioning cost liability, along with a corresponding reduction in the plant asset. The reduction in its estimated decommissioning cost liability resulted from the change in expectation regarding the timing of decommissioning cash flows due to the decision to continue to operate the plant until the spring of 2022.

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Notes to Financial Statements

________________

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.



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Part I, Item 3. Quantitative and Qualitative Disclosures About Market Risk

See “Market and Credit Risk Sensitive Instruments” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis.

Part I, Item 4. Controls and Procedures

Disclosure Controls and Procedures

As of September 30, 2017, evaluations were performed under the supervision and with the participation of Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy (individually “Registrant” and collectively the “Registrants”) management, including their respective Principal Executive Officers (PEO) and Principal Financial Officers (PFO). The evaluations assessed the effectiveness of the Registrants’ disclosure controls and procedures. Based on the evaluations, each PEO and PFO has concluded that, as to the Registrant or Registrants for which they serve as PEO or PFO, the Registrant’s or Registrants’ disclosure controls and procedures are effective to ensure that information required to be disclosed by each Registrant in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms; and that the Registrant’s or Registrants’ disclosure controls and procedures are also effective in reasonably assuring that such information is accumulated and communicated to the Registrant’s or Registrants’ management, including their respective PEOs and PFOs, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Controls over Financial Reporting

Under the supervision and with the participation of each Registrants’ management, including its respective PEO and PFO, each Registrant evaluated changes in internal control over financial reporting that occurred during the quarter ended September 30, 2017 and found no change that has materially affected, or is reasonably likely to materially affect, internal control over financial reporting.


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ENTERGY ARKANSAS, INC. AND SUBSIDIARIES

MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS

Results of Operations

Net Income

Third Quarter 2017 Compared to Third Quarter 2016
    
Net income decreased $17.5 million primarily due to lower net revenue, higher nuclear refueling outage expenses, a higher effective income tax rate, and higher taxes other than income taxes, partially offset by lower other operation and maintenance expenses.

Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016

Net income decreased $17.8 million primarily due to higher nuclear refueling outage expenses, higher depreciation and amortization expenses, a higher effective income tax rate, higher taxes other than income taxes, and lower net revenue, partially offset by higher other income.

Net Revenue

Third Quarter 2017 Compared to Third Quarter 2016

Net revenue consists of operating revenues net of: 1) fuel, fuel-related expenses, and gas purchased for resale, 2) purchased power expenses, and 3) other regulatory charges (credits). Following is an analysis of the change in net revenue comparing the third quarter 2017 to the third quarter 2016:

 Amount
 (In Millions)
2016 net revenue
$496.3
Volume/weather(24.6)
Retail electric price9.7
Other0.4
2017 net revenue
$481.8
    
The volume/weather variance is primarily due to the effect of less favorable weather on residential and commercial sales. The decrease was partially offset by an increase of 168 GWh, or 9%, in industrial usage primarily due to a new customer in the primary metals industry.

The retail electric price variance is primarily due to the implementation of formula rate plan rates, as approved by the APSC, effective with the first billing cycle of January 2017. The increase was partially offset by a decrease in the energy efficiency rider, as approved by the APSC, effective January 2017. See Note 2 to the financial statements in the Form 10-K for further discussion of the formula rate plan filing.

    


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Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016
    
Net revenue consists of operating revenues net of: 1) fuel, fuel-related expenses, and gas purchased for resale, 2) purchased power expenses, and 3) other regulatory charges (credits). Following is an analysis of the change in net revenue comparing the nine months ended September 30, 2017 to the nine months ended September 30, 2016:

 Amount
 (In Millions)
2016 net revenue
$1,183.7
Volume/weather(40.0)
Asset retirement obligation(11.1)
Opportunity sales7.5
Retail electric price34.1
Other4.4
2017 net revenue
$1,178.6
    
The volume/weather variance is primarily due to the effect of less favorable weather on residential and commercial sales during the billed and unbilled sales periods. The decrease was partially offset by an increase of 520 GWh, or 10%, in industrial usage primarily due to a new customer in the primary metals industry.
    
The asset retirement obligation affects net revenue because Entergy Arkansas records a regulatory charge or credit for the difference between asset retirement obligation-related expenses and trust earnings plus asset retirement obligation-related costs collected in revenue. The variance is primarily caused by a decrease in regulatory credits because of an increase in decommissioning trust earnings, including portfolio rebalancing for the ANO 1 decommissioning trust fund.

The opportunity sales variance results from the estimated net revenue effect recorded in the first quarter 2016 in connection with the FERC orders issued in April 2016 in the opportunity sales proceeding. See Note 2 to the financial statements herein and in the Form 10-K for further discussion of the opportunity sales proceeding.

The retail electric price variance is primarily due to the implementation of formula rate plan rates effective with the first billing cycle of January 2017 and an increase in base rates effective February 24, 2016, each as approved by the APSC. A significant portion of the base rate increase was related to the purchase of Power Block 2 of the Union Power Station in March 2016. The increase was partially offset by decreases in the energy efficiency rider, as approved by the APSC, effective April 2016 and January 2017. See Note 2 to the financial statements in the Form 10-K for further discussion of the rate case and formula rate plan filings. See Note 14 to the financial statements in the Form 10-K for discussion of the Union Power Station purchase.

Other Income Statement Variances

Third Quarter 2017 Compared to Third Quarter 2016

Nuclear refueling outage expenses increased primarily due to the amortization of higher costs associated with the most recent outages compared to previous outages.

Other operation and maintenance expenses decreased primarily due to:

a decrease of $8.8 million in nuclear generation expenses primarily due to a lower scope of work, including a lower scope of work performed during plant outages, in the third quarter 2017 compared to the third quarter 2016, partially offset by higher nuclear labor costs to position the nuclear fleet to meet its operational goals.

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See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS – Nuclear Matters” in the Form 10-K for a discussion of the increased operating costs to position the nuclear fleet to meet its operational goals;
a decrease of $5.2 million in fossil-fueled generation expenses primarily due to lower long-term service agreement costs; and
a decrease of $4.2 million in energy efficiency costs, including $4.6 million in credits received in the third quarter 2017 related to incentives recognized as a result of participation in energy efficiency programs, and the effects of true ups to the energy efficiency filings in September 2017 for fixed costs to be collected from customers.

The decrease was partially offset by:

the effect of recording in July 2016 the final court decision in a lawsuit against the DOE related to spent nuclear fuel storage costs. The damages awarded included the reimbursement of $5.5 million of spent nuclear fuel storage costs previously recorded as other operation and maintenance expense. See Note 8 to the financial statements in the Form 10-K for discussion of Entergy Arkansas’s spent nuclear fuel litigation; and
an increase of $2.1 million in transmission and distribution expenses primarily due to higher vegetation maintenance costs.

Taxes other than income taxes increased primarily due to an increase in ad valorem taxes primarily due to higher assessments and higher millage rates.

Depreciation and amortization expenses increased primarily due to additions to plant in service.

Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016

Nuclear refueling outage expenses increased primarily due to the amortization of higher costs associated with the most recent outages compared to previous outages.

Other operation and maintenance expenses decreased primarily due to:

a decrease of $24.9 million in nuclear generation expenses primarily due to a decrease in regulatory compliance costs as compared to the prior year, partially offset by higher nuclear labor costs, including contract labor,to position the nuclear fleet to meet its operational goals. The decrease in regulatory compliance costs is primarily related to additional NRC inspection activities in 2016 as a result of the NRC’s March 2015 decision to move ANO into the “multiple/repetitive degraded cornerstone column” of the NRC’s reactor oversight process action matrix. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - ANO Damage, Outage, and NRC Reviews” in the Form 10-K for a discussion of the ANO stator incident and subsequent NRC reviews. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS – Nuclear Matters” in the Form 10-K for a discussion of the increased operating costs to position the nuclear fleet to meet its operational goals;
a decrease of $7.6 million in fossil-fueled generation expenses primarily due to lower long-term service agreement costs; and
a decrease of $7 million in energy efficiency costs, including $4.6 million in credits received in the third quarter 2017 related to incentives recognized as a result of participation in energy efficiency programs, and the effects of true ups to the energy efficiency filings in September 2017 for fixed costs to be collected from customers.

The decrease was partially offset by:

the deferral in the first quarter 2016 of $7.7 million of previously-incurred costs related to ANO post-Fukushima compliance and $9.9 million of previously-incurred costs related to ANO flood barrier compliance, as approved by the APSC as part of the 2015 rate case settlement. These costs are being amortized over a ten-year period beginning March 2016. See Note 2 to the financial statements in the Form 10-K for further discussion of the rate case settlement;

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an increase of $11 million in transmission and distribution expenses primarily due to higher vegetation maintenance costs and higher labor costs, including contract labor;
the effect of recording in July 2016 the final court decision in a lawsuit against the DOE related to spent nuclear fuel storage costs. The damages awarded included the reimbursement of $5.5 million of spent nuclear fuel storage costs previously recorded as other operation and maintenance expense. See Note 8 to the financial statements in the Form 10-K for discussion of Entergy Arkansas’s spent nuclear fuel litigation; and
an increase of $3.2 million in compensation and benefits costs primarily due to a downward revision to estimated incentive compensation expense in the first quarter 2016.

Taxes other than income taxes increased primarily due to an increase in ad valorem taxes primarily due to higher assessments and higher millage rates.

Depreciation and amortization expenses increased primarily due to additions to plant in service, including Power Block 2 of the Union Power Station purchased in March 2016. See Note 14 to the financial statements in the Form 10-K for discussion of the Union Power Station purchase.

Other income increased primarily due to higher realized gains in 2017 as compared to the same period in 2016 on the decommissioning trust fund investments, including portfolio rebalancing for the ANO 1 decommissioning trust fund.

Income Taxes

The effective income tax rate was 39% for the third quarter 2017. The difference in the effective income tax rate for the third quarter 2017 versus the federal statutory rate of 35% was primarily due to state income taxes.

The effective income tax rate was 39.4% for the nine months ended September 30, 2017. The difference in the effective income tax rate for the nine months ended September 30, 2017 versus the federal statutory rate of 35% was primarily due to state income taxes and certain book and tax differences related to utility plant items, partially offset by book and tax differences related to the allowance for equity funds used during construction.

The effective income tax rate was 36.1% for the third quarter 2016. The difference in the effective income tax rate for the third quarter 2016 versus the federal statutory rate of 35% was primarily due to state income taxes, partially offset by flow-through tax accounting.

The effective income tax rate was 37.4% for the nine months ended September 30, 2016. The difference in the effective income tax rate for the nine months ended September 30, 2016 versus the federal statutory rate of 35% was primarily due to state income taxes and certain book and tax differences related to utility plant items, partially offset by flow-through tax accounting and book and tax differences related to the allowance for equity funds used during construction.
    
ANO Damage, Outage, and NRC Reviews
 
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - ANO Damage, Outage, and NRC Reviews” in the Form 10-K for a discussion of the ANO stator incident, subsequent NRC reviews, and the deferral of replacement power costs.
 

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Management's Financial Discussion and Analysis

Liquidity and Capital Resources

Cash Flow

Cash flows for the nine months ended September 30, 2017 and 2016 were as follows:
 2017 2016
 (In Thousands)
Cash and cash equivalents at beginning of period
$20,509
 
$9,135
    
Cash flow provided by (used in):

  
Operating activities367,551
 473,800
Investing activities(667,841) (774,210)
Financing activities280,245
 294,686
Net decrease in cash and cash equivalents(20,045) (5,724)
    
Cash and cash equivalents at end of period
$464
 
$3,411

Operating Activities

Net cash flow provided by operating activities decreased $106.2 million for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 primarily due to an increase of $46.1 million in spending on nuclear refueling outages in 2017, the timing of payments to vendors, and a decrease in net income.

Investing Activities

Net cash flow used in investing activities decreased $106.4 million for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 primarily due to the purchase of Power Block 2 of the Union Power Station in March 2016 for approximately $237 million and a decrease of $36.9 million in transmission construction expenditures primarily due to a lower scope of work performed in 2017. See Note 14 to the financial statements in the Form 10-K for discussion of the Union Power Station purchase.

The decrease was partially offset by:

$66 million in funds held on deposit for principal and interest payments due October 1, 2017;
an increase of $61.6 million in nuclear construction expenditures primarily due to a higher scope of work performed on various nuclear projects in 2017;
an increase of $22.9 million in fossil-fueled generation construction expenditures primarily due to a higher scope of work performed on various projects in 2017;
an increase of $21 million in distribution construction expenditures primarily due to a higher scope of work performed on various projects in 2017; and
an increase of $18.6 million in information technology construction expenditures primarily due to increased spending on substation circuit replacement.

Financing Activities

Net cash flow provided by financing activities decreased $14.4 million for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 primarily due to:

a $200 million capital contribution received from Entergy Corporation in March 2016 primarily in anticipation of Entergy Arkansas’s purchase of Power Block 2 of the Union Power Station; and

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Entergy Arkansas, Inc. and Subsidiaries
Management's Financial Discussion and Analysis

net borrowings of $23.3 million on the Entergy Arkansas nuclear fuel company variable interest entity credit facility in 2017 compared to net borrowings of $35.7 million in 2016.

The decrease was partially offset by:

the net issuance of $215.9 million of long-term debt in 2017 as compared to the net issuance of $156.1 million of long-term debt in 2016;
the redemptions of $75 million of 6.45% Series preferred stock and $10 million of 6.08% Series preferred stock in 2016; and
money pool activity.

Increases in Entergy Arkansas’s payable to the money pool are a source of cash flow, and Entergy Arkansas’s payable to the money pool increased by $43.9 million in 2017 compared to decreasing by $3.7 million in 2016. The money pool is an inter-company borrowing arrangement designed to reduce the Utility subsidiaries’ need for external short-term borrowings.

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 capitalization is balanced between equity and debt, as shown in the following table.

 
September 30,
2017
 
December 31,
2016
Debt to capital55.8% 55.3%
Effect of excluding the securitization bonds(0.3%) (0.4%)
Debt to capital, excluding securitization bonds (a)55.5% 54.9%
Effect of subtracting cash% (0.2%)
Net debt to net capital, excluding securitization bonds (a)55.5% 54.7%

(a)Calculation excludes the securitization bonds, which are non-recourse to Entergy Arkansas.

Net debt consists of debt less cash and cash equivalents.  Debt consists of short-term borrowings and long-term debt, including the currently maturing portion.  Capital consists of debt, preferred stock without sinking fund, and common equity.  Net capital consists of capital less cash and cash equivalents.  Entergy Arkansas uses the debt to capital ratios excluding securitization bonds in analyzing its financial condition and believes they provide useful information to its investors and creditors in evaluating Entergy Arkansas’s financial condition because the securitization bonds are non-recourse to Entergy Arkansas, as more fully described in Note 5 to the financial statements in the Form 10-K.  Entergy Arkansas also uses the net debt to net capital ratio excluding securitization bonds in analyzing its financial condition and believes it provides useful information to its investors and creditors in evaluating Entergy Arkansas’s financial 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.


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Management's Financial Discussion and Analysis

Entergy Arkansas is developing its capital investment plan for 2018 through 2020 and currently anticipates making $2.1 billion in capital investments during that period. The preliminary estimate includes amounts associated with specific investments such as transmission projects to enhance reliability, reduce congestion, and enable economic growth; distribution spending to enhance reliability and improve service to customers, including initial investment to support advanced metering; resource planning, including potential generation projects; system improvements; investments in ANO 1 and 2; and other investments. Estimated capital expenditures are subject to periodic review and modification and may vary based on the ongoing effects of regulatory constraints and requirements, environmental compliance, business opportunities, market volatility, economic trends, business restructuring, changes in project plans, and the ability to access capital.

Entergy Arkansas’s payables to the money pool were as follows:
September 30,
2017
 
December 31,
2016
 
September 30,
2016
 
December 31,
2015
(In Thousands)
$95,114 $51,232 $49,073 $52,742

See Note 4 to the financial statements in the Form 10-K for a description of the money pool.

Entergy Arkansas has a credit facility in the amount of $150 million scheduled to expire in August 2022. Entergy Arkansas also has a $20 million credit facility scheduled to expire in April 2018. The $150 million credit facility permits the issuance of letters of credit against 50% of the borrowing capacity of the facility. As of September 30, 2017, there were no cash borrowings and no letters of credit outstanding under the credit facilities. In addition, Entergy Arkansas is a party to an uncommitted letter of credit facility as a means to post collateral to support its obligations to MISO. As of September 30, 2017, a $2 million letter of credit was outstanding under Entergy Arkansas’s uncommitted letter of credit facility. See Note 4 to the financial statements herein for additional discussion of the credit facilities.

The Entergy Arkansas nuclear fuel company variable interest entity has a credit facility in the amount of $80 million scheduled to expire in May 2019.  As of September 30, 2017, $8.3 million in letters of credit to support a like amount of commercial paper issued and $15 million in loans were outstanding under the Entergy Arkansas nuclear fuel company variable interest entity credit facility. See Note 4 to the financial statements herein for additional discussion of the nuclear fuel company variable interest entity credit facility.
    
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

2016 Formula Rate Plan Filing
    
As discussed in the Form 10-K, Entergy Arkansas is required to make a supplemental filing supporting the recovery of certain nuclear costs. In April 2017, Entergy Arkansas filed a motion consented to by all parties requesting that it be permitted to submit its supplemental filing in conjunction with its 2017 formula rate plan filing, which was subsequently made in July 2017 and is discussed below. In May 2017 the APSC approved the joint motion and proposal to review Entergy Arkansas’s supplemental filing on a concurrent schedule with the 2017 formula rate plan filing. In doing so, however, the APSC noted that a determination of whether the supplemental information supporting certain nuclear expenditures will be considered in the hearing for the 2017 formula rate plan filing or a separate hearing will be made at a later time. In October 2017, Entergy Arkansas and the parties to the proceeding filed a joint motion to

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approve a unanimous settlement agreement resolving all issues in the docket and providing for recovery of the 2017 and 2018 nuclear costs.

2017 Formula Rate Plan Filing

In July 2017, Entergy Arkansas filed with the APSC its 2017 formula rate plan filing showing Entergy Arkansas’s projected earned return on common equity for the twelve months ended December 31, 2018 test period to be below the formula rate plan bandwidth.  The filing projected a $129.7 million revenue requirement increase to achieve Entergy Arkansas’s target earned return on common equity of 9.75%.  Entergy Arkansas’s formula rate plan is subject to a four percent annual revenue constraint and the projected annual revenue requirement increase exceeds the four percent, resulting in a proposed increase for the 2017 formula rate plan of $70.9 million. In October 2017, Entergy Arkansas filed with the APSC revised formula rate plan attachments that projected a $126.2 million revenue requirement increase based on acceptance of certain adjustments and recommendations made by the APSC staff and other intervenors. The revised formula rate plan filing included a proposed $71.1 million revenue requirement increase based on a revision to the four percent cap calculation. In October 2017, Entergy Arkansas and the parties to the proceeding filed a joint motion to approve a unanimous settlement agreement resolving all issues in the docket and providing for recovery of the 2017 and 2018 nuclear costs. The settlement agreement does not affect Entergy Arkansas’s proposed $71.1 million revenue requirement increase. If a final order is not issued by December 13, 2017, the proposed formula rate plan adjustment will become effective January 2, 2018, subject to refund.

Advanced Metering Infrastructure (AMI) Filing

As discussed in the Form 10-K, in September 2016, Entergy Arkansas filed an application seeking a finding from the APSC that Entergy Arkansas’s deployment of advanced metering infrastructure is in the public interest. In June 2017 the APSC staff and Arkansas Attorney General filed direct testimony. The APSC staff generally supported Entergy Arkansas’s AMI deployment conditioned on various recommendations. The Arkansas Attorney General’s consultant primarily recommended denial of Entergy Arkansas’s application but alternatively suggested recommendations in the event the APSC approves Entergy Arkansas’s proposal. Entergy Arkansas filed rebuttal testimony in June 2017, substantially accepting the APSC staff’s recommendations. In August 2017, Entergy Arkansas and the parties to the proceeding filed a joint motion to approve a unanimous settlement agreement. Also in August 2017 supplemental testimony was filed and a settlement hearing was held. In October 2017 the APSC issued an order finding that Entergy Arkansas’s AMI deployment is in the public interest and approving the settlement agreement subject to a minor modification. Entergy Arkansas expects to recover the undepreciated balance of its existing meters through a regulatory asset to be amortized over 15 years.
 
Energy Cost Recovery Rider

In March 2017, Entergy Arkansas filed its annual redetermination of its energy cost rate pursuant to the energy cost recovery rider, which reflected an increase in the rate from $0.01164 per kWh to $0.01547 per kWh. The APSC staff filed testimony in March 2017 recommending that the redetermined rate should be implemented with the first billing cycle of April 2017 under the normal operation of the tariff. Accordingly, the redetermined rate went into effect on March 31, 2017 pursuant to the tariff. In July 2017 the Arkansas Attorney General requested additional information to support certain of the costs included in Entergy Arkansas’s 2017 energy cost rate redetermination.

Opportunity Sales Proceedings

As discussed in the Form 10-K, in June 2009 the LPSC filed a complaint requesting that the FERC determine that certain of Entergy Arkansas’s sales of electric energy to third parties: (a) violated the provisions of the System Agreement that allocated the energy generated by Entergy System resources, (b) imprudently denied the Entergy System and its ultimate consumers the benefits of low-cost Entergy System generating capacity, and (c) violated the provision of the System Agreement that prohibited sales to third parties by individual companies absent an offer of a right-of-

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first-refusal to other Utility operating companies.  The LPSC’s complaint challenges sales made beginning in 2002 and requests refunds.

In April 2016 the FERC issued orders addressing requests for rehearing filed in July 2012 and an ALJ’s August 2013 initial decision. The first order denies Entergy’s request for rehearing and affirms FERC’s earlier rulings that Entergy’s original methodology for allocating energy costs to the opportunity sales was incorrect and, as a result, Entergy Arkansas must make payments to the other Utility operating companies to put them in the same position that they would have been in absent the incorrect allocation. The FERC clarified that interest should be included with the payments. The second order affirmed in part, and reversed in part, the rulings in the ALJ’s August 2013 initial decision regarding the methodology that should be used to calculate the payments Entergy Arkansas is to make to the other Utility operating companies. The FERC affirmed the ALJ’s ruling that a full re-run of intra-system bills should be performed, but required that methodology be modified so that the sales have the same priority for purposes of energy allocation as joint account sales. The FERC reversed the ALJ’s decision that any payments by Entergy Arkansas should be reduced by 20%. The FERC also reversed the ALJ’s decision that adjustments to other System Agreement service schedules and excess bandwidth payments should not be taken into account when calculating the payments to be made by Entergy Arkansas. The FERC held that such adjustments and excess bandwidth payments should be taken into account, but ordered further proceedings before an ALJ to address whether a cap on any reduction due to bandwidth payments was necessary and to implement the other adjustments to the calculation methodology.

In May 2016, Entergy Services filed a request for rehearing of the FERC’s April 2016 order arguing that payments made by Entergy Arkansas should be reduced as a result of the timing of the LPSC’s approval of certain contracts. Entergy Services also filed a request for clarification and/or rehearing of the FERC’s April 2016 order addressing the ALJ’s August 2013 initial decision. The APSC and the LPSC also filed requests for rehearing of the FERC’s April 2016 order. In September 2017 the FERC issued an order denying the request for rehearing on the issue of whether any payments by Entergy Arkansas to the other Utility operating companies should be reduced due to the timing of the LPSC’s approval of Entergy Arkansas’s wholesale baseload contract with Entergy Louisiana.

Pursuant to the procedural schedule established in the case, Entergy Services re-ran intra-system bills for the ten-year period 2000-2009 to quantify the effects of the FERC's ruling. In November 2016 the LPSC submitted testimony disputing certain aspects of the calculations, and Entergy Services submitted answering testimony in January 2017. In February 2017 the FERC staff filed testimony and Entergy Services filed responsive testimony. In March 2017 the LPSC filed rebuttal testimony. A hearing was held in May 2017. In July 2017 the ALJ issued an initial decision concluding that Entergy Arkansas should pay $86 million plus interest to the other Utility operating companies. In August 2017 the Utility operating companies, the LPSC, the APSC, and FERC staff filed individual briefs on exceptions challenging various aspects of the initial decision. In September 2017 the Utility operating companies, the LPSC, the APSC, the MPSC, the City Council, and FERC staff filed separate briefs opposing exceptions taken by various parties. The case is pending before the FERC. No payments will be made or received by the Utility operating companies until the FERC issues an order reviewing the initial decision and Entergy submits a subsequent filing to comply with that order.

The effect of the FERC’s decisions thus far in the case would be that Entergy Arkansas will make payments to some or all of the other Utility operating companies.  Because further proceedings will still occur in the case, the amount and recipients of payments by Entergy Arkansas are unknown at this time.  Based on testimony previously submitted in the case and its assessment of the April 2016 FERC orders, in the first quarter 2016, Entergy Arkansas recorded a liability of $87 million, which includes interest, for its estimated increased costs and payment to the other Utility operating companies.  This estimate is subject to change depending on how the FERC resolves the issues that are still outstanding in the case, including its review of the July 2017 initial decision.  Entergy Arkansas’s increased costs will be attributed to Entergy Arkansas’s retail and wholesale businesses, and it is not probable that Entergy Arkansas will recover the wholesale portion.  Entergy Arkansas, therefore, recorded a regulatory asset in the first quarter 2016 of approximately $75 million, which represents its estimate of the retail portion of the costs.


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Management's Financial Discussion and Analysis

Federal Regulation

See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS – Federal Regulation in the Form 10-K for a discussion of federal regulation. 

Nuclear Matters

See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Nuclear Matters” in the Form 10-K for a discussion of nuclear matters.

Environmental Risks

See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Environmental Risks” in the Form 10-K for a discussion of environmental risks.

Critical Accounting Estimates

See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Critical Accounting Estimates” in the Form 10-K for a discussion of the estimates and judgments necessary in Entergy Arkansas’s accounting for nuclear decommissioning costs, utility regulatory accounting, unbilled revenue, impairment of long-lived assets and trust fund investments, taxation and uncertain tax positions, qualified pension and other postretirement benefits, and other contingencies.

New Accounting Pronouncements

See “New Accounting Pronouncements” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for further discussion.

101


ENTERGY ARKANSAS, INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
For the Three and Nine Months Ended September 30, 2017 and 2016
(Unaudited)
     
  Three Months Ended Nine Months Ended
  2017 2016 2017 2016
  (In Thousands) (In Thousands)
OPERATING REVENUES        
Electric 
$673,226
 
$654,599
 
$1,644,239
 
$1,624,224
         
OPERATING EXPENSES        
Operation and Maintenance:        
Fuel, fuel-related expenses, and gas purchased for resale 133,254
 105,147
 283,354
 274,106
Purchased power 63,423
 52,023
 193,108
 163,541
Nuclear refueling outage expenses 22,988
 14,554
 59,942
 44,604
Other operation and maintenance 175,013
 187,294
 512,691
 514,109
Decommissioning 14,320
 13,504
 42,321
 39,908
Taxes other than income taxes 29,259
 24,931
 78,438
 70,978
Depreciation and amortization 70,433
 67,309
 206,586
 197,597
Other regulatory charges (credits) - net (5,219) 1,177
 (10,797) 2,896
TOTAL 503,471
 465,939
 1,365,643
 1,307,739
         
OPERATING INCOME 169,755
 188,660
 278,596
 316,485
         
OTHER INCOME        
Allowance for equity funds used during construction 4,140
 3,734
 13,922
 12,661
Interest and investment income 6,738
 5,410
 27,865
 14,774
Miscellaneous - net 183
 812
 19
 (983)
TOTAL 11,061
 9,956
 41,806
 26,452
         
INTEREST EXPENSE        
Interest expense 31,010
 28,152
 86,776
 88,726
Allowance for borrowed funds used during construction (1,944) (2,000) (6,458) (6,851)
TOTAL 29,066
 26,152
 80,318
 81,875
         
INCOME BEFORE INCOME TAXES 151,750
 172,464
 240,084
 261,062
         
Income taxes 59,112
 62,316
 94,592
 97,729
         
NET INCOME 92,638
 110,148
 145,492
 163,333
         
Preferred dividend requirements 357
 1,476
 1,071
 4,913
         
EARNINGS APPLICABLE TO COMMON STOCK 
$92,281
 
$108,672
 
$144,421
 
$158,420
         
See Notes to Financial Statements.        


102


ENTERGY ARKANSAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2017 and 2016
(Unaudited)
  2017 2016
  (In Thousands)
OPERATING ACTIVITIES    
Net income 
$145,492
 
$163,333
Adjustments to reconcile net income to net cash flow provided by operating activities:    
Depreciation, amortization, and decommissioning, including nuclear fuel amortization 311,725
 319,845
Deferred income taxes, investment tax credits, and non-current taxes accrued 78,390
 163,202
Changes in assets and liabilities:    
Receivables (45,180) (116,584)
Fuel inventory 10,089
 28,968
Accounts payable (78,396) 95,116
Prepaid taxes and taxes accrued 15,367
 (78,879)
Interest accrued 12,436
 5,909
Deferred fuel costs (53,664) (50,687)
Other working capital accounts (6,762) 4,259
Provisions for estimated losses 10,094
 130
Other regulatory assets (4,680) (5,680)
Pension and other postretirement liabilities (73,107) (77,823)
Other assets and liabilities 45,747
 22,691
Net cash flow provided by operating activities 367,551
 473,800
     
INVESTING ACTIVITIES    
Construction expenditures (558,985) (494,071)
Allowance for equity funds used during construction 14,521
 13,134
Payment for purchase of plant 
 (237,324)
Nuclear fuel purchases (95,289) (80,716)
Proceeds from sale of nuclear fuel 51,029
 40,336
Proceeds from nuclear decommissioning trust fund sales 219,223
 165,038
Investment in nuclear decommissioning trust funds (228,740) (176,981)
Changes in securitization account (3,619) (3,524)
Change in other investments (65,981) 
Other 
 (102)
Net cash flow used in investing activities (667,841) (774,210)
     
FINANCING ACTIVITIES    
Proceeds from the issuance of long-term debt 222,717
 777,671
Retirement of long-term debt (6,803) (621,608)
Capital contribution from parent
 
 200,000
Redemption of preferred stock 
 (85,283)
Changes in short-term borrowings - net 23,257
 35,717
Changes in money pool payable - net 43,882
 (3,669)
Dividends paid:    
Preferred stock (1,071) (6,274)
Other (1,737) (1,868)
Net cash flow provided by financing activities 280,245
 294,686
     
Net decrease in cash and cash equivalents (20,045) (5,724)
Cash and cash equivalents at beginning of period 20,509
 9,135
Cash and cash equivalents at end of period 
$464
 
$3,411
     
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:    
Cash paid during the period for:    
Interest - net of amount capitalized 
$70,321
 
$78,500
Income taxes 
$—
 
$7,242
     
See Notes to Financial Statements.    

103


ENTERGY ARKANSAS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, 2017 and December 31, 2016
(Unaudited)
  2017 2016
  (In Thousands)
CURRENT ASSETS    
Cash and cash equivalents:    
Cash 
$127
 
$20,174
Temporary cash investments 337
 335
Total cash and cash equivalents 464
 20,509
Securitization recovery trust account 7,759
 4,140
Accounts receivable:    
Customer 140,147
 102,229
Allowance for doubtful accounts (1,531) (1,211)
Associated companies 35,455
 35,286
Other 52,109
 58,153
Accrued unbilled revenues 113,650
 100,193
Total accounts receivable 339,830
 294,650
Deferred fuel costs 150,206
 96,690
Fuel inventory - at average cost 22,671
 32,760
Materials and supplies - at average cost 191,199
 182,600
Deferred nuclear refueling outage costs 80,769
 81,313
Prepayments and other 81,322
 14,293
TOTAL 874,220
 726,955
     
OTHER PROPERTY AND INVESTMENTS    
Decommissioning trust funds 910,369
 834,735
Other 3,162
 7,912
TOTAL 913,531
 842,647
     
UTILITY PLANT    
Electric 10,823,675
 10,488,060
Property under capital lease 598
 716
Construction work in progress 365,938
 304,073
Nuclear fuel 236,447
 307,352
TOTAL UTILITY PLANT 11,426,658
 11,100,201
Less - accumulated depreciation and amortization 4,721,860
 4,635,885
UTILITY PLANT - NET 6,704,798
 6,464,316
     
DEFERRED DEBITS AND OTHER ASSETS    
Regulatory assets:    
Regulatory asset for income taxes - net 67,228
 62,646
Other regulatory assets (includes securitization property of $31,448 as of September 30, 2017 and $41,164 as of December 31, 2016) 1,428,127
 1,428,029
Deferred fuel costs 67,046
 66,898
Other 16,126
 14,626
TOTAL 1,578,527
 1,572,199
     
TOTAL ASSETS 
$10,071,076
 
$9,606,117
     
See Notes to Financial Statements.    

104


ENTERGY ARKANSAS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND EQUITY
September 30, 2017 and December 31, 2016
(Unaudited)
  2017 2016
  (In Thousands)
CURRENT LIABILITIES    
Currently maturing long-term debt 
$114,700
 
$114,700
Short-term borrowings 8,257
 
Accounts payable:    
Associated companies 237,246
 239,711
Other 142,160
 185,153
Customer deposits 97,432
 97,512
Taxes accrued 22,561
 7,194
Interest accrued 29,016
 16,580
Other 34,329
 36,557
TOTAL 685,701
 697,407
     
NON-CURRENT LIABILITIES    
Accumulated deferred income taxes and taxes accrued 2,265,375
 2,186,623
Accumulated deferred investment tax credits 34,404
 35,305
Other regulatory liabilities 349,380
 305,907
Decommissioning 966,674
 924,353
Accumulated provisions 28,776
 18,682
Pension and other postretirement liabilities 351,046
 424,234
Long-term debt (includes securitization bonds of $41,578 as of September 30, 2017 and $48,139 as of December 31, 2016) 2,948,610
 2,715,085
Other 12,022
 13,854
TOTAL 6,956,287
 6,624,043
     
Commitments and Contingencies    
     
Preferred stock without sinking fund 31,350
 31,350
     
COMMON EQUITY    
Common stock, $0.01 par value, authorized 325,000,000 shares; issued and outstanding 46,980,196 shares in 2017 and 2016 470
 470
Paid-in capital 790,243
 790,243
Retained earnings 1,607,025
 1,462,604
TOTAL 2,397,738
 2,253,317
     
TOTAL LIABILITIES AND EQUITY 
$10,071,076
 
$9,606,117
     
See Notes to Financial Statements.    


105