10-Q 1 etr-09x30x2017x10q.htm 10-Q Document

__________________________________________________________________________________________
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 Corporation
ü
 
 
 
 
 
 
 
 
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

 
Page Number
 
 
Entergy Mississippi, Inc.
 
Entergy New Orleans, Inc. and Subsidiaries
 
Entergy Texas, Inc. and Subsidiaries
 
System Energy Resources, Inc.
 
 
 
Part II.   Other Information
 
 

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 Acronym
Term
 
 
ALJ
Administrative Law Judge
ANO 1 and 2
Units 1 and 2 of Arkansas Nuclear One (nuclear), owned by Entergy Arkansas
APSC
Arkansas Public Service Commission
ASU
Accounting Standards Update issued by the FASB
Board
Board of Directors of Entergy Corporation
Cajun
Cajun Electric Power Cooperative, Inc.
capacity factor
Actual plant output divided by maximum potential plant output for the period
City Council
Council of the City of New Orleans, Louisiana
D.C. Circuit
U.S. Court of Appeals for the District of Columbia Circuit
DOE
United States Department of Energy
Entergy
Entergy Corporation and its direct and indirect subsidiaries
Entergy Corporation
Entergy Corporation, a Delaware corporation
Entergy Gulf States Louisiana
Entergy Gulf States Louisiana, L.L.C., a Louisiana limited liability company formally created as part of the jurisdictional separation of Entergy Gulf States, Inc. and the successor company to Entergy Gulf States, Inc. for financial reporting purposes.  The term is also used to refer to the Louisiana jurisdictional business of Entergy Gulf States, Inc., as the context requires. Effective October 1, 2015, the business of Entergy Gulf States Louisiana was combined with Entergy Louisiana.
Entergy Louisiana
Entergy Louisiana, LLC, a Texas limited liability company formally created as part of the combination of Entergy Gulf States Louisiana and the company formerly known as Entergy Louisiana, LLC (Old Entergy Louisiana) into a single public utility company and the successor to Old Entergy Louisiana for financial reporting purposes.
Entergy Texas
Entergy Texas, Inc., a Texas corporation formally created as part of the jurisdictional separation of Entergy Gulf States, Inc.  The term is also used to refer to the Texas jurisdictional business of Entergy Gulf States, Inc., as the context requires.
Entergy Wholesale Commodities
Entergy’s non-utility business segment primarily comprised of the ownership, operation, and decommissioning of nuclear power plants, the ownership of interests in non-nuclear power plants, and the sale of the electric power produced by its operating power plants to wholesale customers
EPA
United States Environmental Protection Agency
FASB
Financial Accounting Standards Board
FERC
Federal Energy Regulatory Commission
FitzPatrick
James A. FitzPatrick Nuclear Power Plant (nuclear), previously owned by an Entergy subsidiary in the Entergy Wholesale Commodities business segment, which was sold in March 2017
Form 10-K
Annual Report on Form 10-K for the calendar year ended December 31, 2016 filed with the SEC by Entergy Corporation and its Registrant Subsidiaries
Grand Gulf
Unit No. 1 of Grand Gulf Nuclear Station (nuclear), 90% owned or leased by System Energy
GWh
Gigawatt-hour(s), which equals one million kilowatt-hours
Independence
Independence Steam Electric Station (coal), owned 16% by Entergy Arkansas, 25% by Entergy Mississippi, and 7% by Entergy Power, LLC
Indian Point 2
Unit 2 of Indian Point Energy Center (nuclear), owned by an Entergy subsidiary in the Entergy Wholesale Commodities business segment

v

DEFINITIONS (Continued)
Abbreviation or Acronym
Term
 
 
Indian Point 3
Unit 3 of Indian Point Energy Center (nuclear), owned by an Entergy subsidiary in the Entergy Wholesale Commodities business segment
IRS
Internal Revenue Service
ISO
Independent System Operator
kW
Kilowatt, which equals one thousand watts
kWh
Kilowatt-hour(s)
LPSC
Louisiana Public Service Commission
MISO
Midcontinent Independent System Operator, Inc., a regional transmission organization
MMBtu
One million British Thermal Units
MPSC
Mississippi Public Service Commission
MW
Megawatt(s), which equals one thousand kilowatts
MWh
Megawatt-hour(s)
Net debt to net capital ratio
Gross debt less cash and cash equivalents divided by total capitalization less cash and cash equivalents
Net MW in operation
Installed capacity owned and operated
NRC
Nuclear Regulatory Commission
NYPA
New York Power Authority
Palisades
Palisades Nuclear Plant (nuclear), owned by an Entergy subsidiary in the Entergy Wholesale Commodities business segment
Parent & Other
The portions of Entergy not included in the Utility or Entergy Wholesale Commodities segments, primarily consisting of the activities of the parent company, Entergy Corporation
Pilgrim
Pilgrim Nuclear Power Station (nuclear), owned by an Entergy subsidiary in the Entergy Wholesale Commodities business segment
PPA
Purchased power agreement or power purchase agreement
PUCT
Public Utility Commission of Texas
Registrant Subsidiaries
Entergy Arkansas, Inc., Entergy Louisiana, LLC, Entergy Mississippi, Inc., Entergy New Orleans, Inc., Entergy Texas, Inc., and System Energy Resources, Inc.
River Bend
River Bend Station (nuclear), owned by Entergy Louisiana
SEC
Securities and Exchange Commission
System Agreement
Agreement, effective January 1, 1983, as modified, among the Utility operating companies relating to the sharing of generating capacity and other power resources. The agreement terminated effective August 2016.
System Energy
System Energy Resources, Inc.
TWh
Terawatt-hour(s), which equals one billion kilowatt-hours
Unit Power Sales Agreement
Agreement, dated as of June 10, 1982, as amended and approved by FERC, among Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy, relating to the sale of capacity and energy from System Energy’s share of Grand Gulf
Utility
Entergy’s business segment that generates, transmits, distributes, and sells electric power, with a small amount of natural gas distribution
Utility operating companies
Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and Entergy Texas

vi

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


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 price
17

Other
3

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 expenses
40

Other
6

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 billed
8,234
 
9,372
 
 
 
 
Entergy Wholesale Commodities Nuclear Fleet (b)
 
 
 
Capacity factor
98%
 
90%
GWh billed
7,633
 
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.

5
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 nine months ended September 30, 2017 to the nine months ended September 30, 2016:
 
Amount
 
(In Millions)
2016 net revenue

$4,758

Retail electric price
62

Grand Gulf recovery
38

Louisiana Act 55 financing savings obligation
17

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.


6
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 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 expenses
76

FitzPatrick reimbursement agreement
98

Other
5

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 billed
22,616
 
26,484
 
 
 
 
Entergy Wholesale Commodities Nuclear Fleet
 
 
 
Capacity factor
79%
 
85%
GWh billed
20,861
 
24,670
Average energy and capacity revenue per MWh
$51.82
 
$48.99
Refueling outage days:
 
 
 
FitzPatrick
42
 
—
Indian Point 2
—
 
102
Indian Point 3
66
 
—
Pilgrim
43
 
—
Palisades
27
 
—

(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.

7
Entergy Corporation and Subsidiaries
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.


8
Entergy Corporation and Subsidiaries
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.


9
Entergy Corporation and Subsidiaries
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.


10
Entergy Corporation and Subsidiaries
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

11
Entergy Corporation and Subsidiaries
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 capital
64.6
%
 
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:

12
Entergy Corporation and Subsidiaries
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.
    

13
Entergy Corporation and Subsidiaries
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

14
Entergy Corporation and Subsidiaries
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 activities
1,713

 
2,252

Investing activities
(2,828
)
 
(2,983
)
Financing activities
473

 
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

15
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

18
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.  

19
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 gas
26,585

 
24,796

 
100,011

 
95,530

Competitive businesses
423,245

 
475,345

 
1,293,867

 
1,341,534

TOTAL
3,243,628

 
3,124,703

 
8,450,636

 
8,197,118

 
 
 
 
 
 
 
 
OPERATING EXPENSES
 
 
 
 
 
 
 
Operation and Maintenance:
 
 
 
 
 
 
 
Fuel, fuel-related expenses, and gas purchased for resale
612,950

 
460,990

 
1,426,462

 
1,347,422

Purchased power
408,140

 
375,107

 
1,182,404

 
880,102

Nuclear refueling outage expenses
43,273

 
56,675

 
124,126

 
154,951

Other operation and maintenance
804,535

 
833,176

 
2,492,379

 
2,324,350

Asset write-offs, impairments, and related charges
16,221

 
18,841

 
421,584

 
33,170

Decommissioning
95,392

 
85,266

 
310,062

 
230,519

Taxes other than income taxes
159,474

 
149,076

 
469,090

 
448,103

Depreciation and amortization
354,739

 
340,399

 
1,052,332

 
1,010,339

Other regulatory charges (credits)
19,435

 
33,113

 
(59,314
)
 
55,626

TOTAL
2,514,159

 
2,352,643

 
7,419,125

 
6,484,582

 
 
 
 
 
 
 
 
Gain on sale of assets
—

 
—

 
16,270

 
—

 
 
 
 
 
 
 
 
OPERATING INCOME
729,469

 
772,060

 
1,047,781

 
1,712,536

 
 
 
 
 
 
 
 
OTHER INCOME
 
 
 
 
 
 
 
Allowance for equity funds used during construction
24,338

 
15,451

 
65,722

 
48,242

Interest and investment income
58,332

 
37,534

 
194,978

 
116,662

Miscellaneous - net
(1,801
)
 
(6,740
)
 
(3,172
)
 
(25,702
)
TOTAL
80,869

 
46,245

 
257,528

 
139,202

 
 
 
 
 
 
 
 
INTEREST EXPENSE
 
 
 
 
 
 
 
Interest expense
178,391

 
174,902

 
522,857

 
526,344

Allowance for borrowed funds used during construction
(11,492
)
 
(7,707
)
 
(31,057
)
 
(24,520
)
TOTAL
166,899

 
167,195

 
491,800

 
501,824

 
 
 
 
 
 
 
 
INCOME BEFORE INCOME TAXES
643,439

 
651,110

 
813,509

 
1,349,914

 
 
 
 
 
 
 
 
Income taxes
241,795

 
257,906

 
(87,555
)
 
148,879

 
 
 
 
 
 
 
 
CONSOLIDATED NET INCOME
401,644

 
393,204

 
901,064

 
1,201,035

 
 
 
 
 
 
 
 
Preferred dividend requirements of subsidiaries
3,446

 
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 outstanding
179,563,819

 
179,023,351

 
179,458,914

 
178,804,148

Diluted average number of common shares outstanding
180,464,069

 
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 income
58,905

 
47,291

 
146,649

 
29,185


 
 
 
 
 
 
 
Comprehensive Income
460,549

 
440,495

 
1,047,713

 
1,230,220

Preferred dividend requirements of subsidiaries
3,446

 
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 share
Income
 
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 share
Income
 
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 reclassifications
27,884

 
—

 
35,630

 
—

 
63,514

Amounts reclassified from accumulated other comprehensive income (loss)
(14,671
)
 
12,297

 
(2,235
)
 
—

 
(4,609
)
Net other comprehensive income (loss) for the period
13,213

 
12,297

 
33,395

 
—

 
58,905

Ending balance, September 30, 2017

$36,627

 

($437,601
)
 

$512,652

 

$—

 

$111,678


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 reclassifications
45,162

 
—

 
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 period
20,972

 
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 reclassifications
88,550

 
—

 
109,372

 
(748
)
 
197,174

Amounts reclassified from accumulated other comprehensive income (loss)
(55,916
)
 
31,845

 
(26,454
)
 
—

 
(50,525
)
Net other comprehensive income (loss) for the period
32,634

 
31,845

 
82,918

 
(748
)
 
146,649

Ending balance, September 30, 2017

$36,627

 

($437,601
)
 

$512,652

 

$—

 

$111,678



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 reclassifications
101,071

 
—

 
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 hedges
22,571

 
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 hedges
86,024

 
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 obligation
65,206

 
65,403

Expected return on assets
(102,056
)
 
(97,366
)
Amortization of prior service cost
65

 
270

Amortization of loss
56,930

 
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 obligation
195,618

 
196,209

Expected return on assets
(306,168
)
 
(292,098
)
Amortization of prior service cost
195

 
810

Amortization of loss
170,790

 
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 loss
5,476

 
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 loss
16,428

 
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 accrued
23

 
—

 
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 accrued
89

 
—

 
89

Non-cash portion
—

 
(7
)
 
(7
)
Cash paid out
100

 
—

 
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 earnings
2

 
—

 
6

 
—

Included in other comprehensive income
43

 
—

 
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 earnings
6

 
1

 
(3
)
 
—

Included in other comprehensive income
136

 
—

 
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/asset
0.3

 
(0.1
)
 
1.1

 
0.2

 
6.5

Settlements
(4.2
)
 
(9.4
)
 
(4.7
)
 
(1.9
)
 
(7.0
)
Balance as of September 30,

$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/asset
1.2

 
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 rights
8.9

 
31.0

 
9.6

 
5.0

 
7.1

Gains included as a regulatory liability/asset
9.4

 
18.2

 
9.0

 
5.1

 
14.0

Settlements
(19.3
)
 
(38.9
)
 
(16.3
)
 
(7.7
)
 
(19.2
)
Balance as of September 30,

$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 rights
18.8

 
18.1

 
5.9

 
2.8

 
9.3

Gains (losses) included as a regulatory liability/asset
1.7

 
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 months
1

 
—

 
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 years
801

 
763

5 years - 10 years
789

 
719

10 years - 15 years
130

 
109

15 years - 20 years
87

 
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

81
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 years
107.9

 
106.2

5 years - 10 years
194.4

 
161.2

10 years - 15 years
2.6

 
7.7

15 years - 20 years
1.4

 
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 years
113.2

 
99.1

5 years - 10 years
117.1

 
122.8

10 years - 15 years
50.7

 
41.4

15 years - 20 years
43.4

 
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 years
170.7

 
188.2

5 years - 10 years
79.1

 
78.5

10 years - 15 years
4.4

 
1.3

15 years - 20 years
6.5

 
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.

89
Entergy Corporation and Subsidiaries
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.



90

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.


91


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 price
9.7

Other
0.4

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

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 sales
7.5

Retail electric price
34.1

Other
4.4

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

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;

94
Entergy Arkansas, Inc. and Subsidiaries
Management's Financial Discussion and Analysis

•
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.
 

95
Entergy Arkansas, Inc. and Subsidiaries
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 activities
367,551

 
473,800

Investing activities
(667,841
)
 
(774,210
)
Financing activities
280,245

 
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

96
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 capital
55.8
%
 
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.


97
Entergy Arkansas, Inc. and Subsidiaries
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

98
Entergy Arkansas, Inc. and Subsidiaries
Management's Financial Discussion and Analysis

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

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

Federal Regulation

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

Nuclear Matters

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

Environmental Risks

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

Critical Accounting Estimates

See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Critical Accounting Estimates” in the Form 10-K for a discussion of the estimates and judgments necessary in Entergy Arkansas’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

ENTERGY ARKANSAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON EQUITY
For the Nine Months Ended September 30, 2017 and 2016
(Unaudited)
 
 
 
 
 
 
 
Common Equity
 
 
 
 
Common
Stock
 
Paid-in
Capital
 
Retained
Earnings
 
Total
 
 
(In Thousands)
 
 
 
 
 
 
 
 
 
Balance at December 31, 2015
 

$470

 

$588,493

 

$1,302,695

 

$1,891,658

 
 
 
 
 
 
 
 
 
Net income
 
—

 
—

 
163,333

 
163,333

Capital contribution from parent
 
—

 
200,000

 
—

 
200,000

Capital stock redemption
 
—

 
1,750

 
(2,034
)
 
(284
)
Preferred stock dividends
 
—

 
—

 
(4,913
)
 
(4,913
)
 
 
 
 
 
 
 
 
 
Balance at September 30, 2016
 

$470

 

$790,243

 

$1,459,081

 

$2,249,794

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2016
 

$470

 

$790,243

 

$1,462,604

 

$2,253,317

 
 
 
 
 
 
 
 
 
Net income
 
—

 
—

 
145,492

 
145,492

Preferred stock dividends
 
—

 
—

 
(1,071
)
 
(1,071
)
 
 
 
 
 
 
 
 
 
Balance at September 30, 2017
 

$470

 

$790,243

 

$1,607,025

 

$2,397,738

 
 
 
 
 
 
 
 
 
See Notes to Financial Statements.
 
 
 
 
 
 
 
 


106

ENTERGY ARKANSAS, INC. 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)
 
 
Electric Operating Revenues:
 
 
 
 
 
 
Residential
 

$254

 

$275

 

($21
)
 
(8
)
Commercial
 
150

 
151

 
(1
)
 
(1
)
Industrial
 
145

 
137

 
8

 
6

Governmental
 
6

 
5

 
1

 
20

Total retail
 
555

 
568

 
(13
)
 
(2
)
Sales for resale:
 
 
 
 
 
 
 
 
Associated companies
 
33

 
26

 
7

 
27

Non-associated companies
 
45

 
30

 
15

 
50

Other
 
40

 
31

 
9

 
29

Total
 

$673

 

$655

 

$18

 
3

 
 
 
 
 
 
 
 
 
Billed Electric Energy Sales (GWh):
 
 
 
 
 
 
 
 
Residential
 
2,236

 
2,485

 
(249
)
 
(10
)
Commercial
 
1,723

 
1,822

 
(99
)
 
(5
)
Industrial
 
2,074

 
1,906

 
168

 
9

Governmental
 
67

 
68

 
(1
)
 
(1
)
Total retail
 
6,100

 
6,281

 
(181
)
 
(3
)
Sales for resale:
 
 
 
 
 
 
 
 
Associated companies
 
483

 
463

 
20

 
4

Non-associated companies
 
2,026

 
1,632

 
394

 
24

Total
 
8,609

 
8,376

 
233

 
3

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended
 
Increase/
 
 
Description
 
2017
 
2016
 
(Decrease)
 
%
 
 
(Dollars In Millions)
 
 
Electric Operating Revenues:
 
 
 
 
 
 
Residential
 

$597

 

$620

 

($23
)
 
(4
)
Commercial
 
375

 
376

 
(1
)
 
—

Industrial
 
355

 
337

 
18

 
5

Governmental
 
15

 
13

 
2

 
15

Total retail
 
1,342

 
1,346

 
(4
)
 
—

Sales for resale:
 
 
 
 
 
 
 
 
Associated companies
 
96

 
19

 
77

 
405

Non-associated companies
 
96

 
105

 
(9
)
 
(9
)
Other
 
110

 
154

 
(44
)
 
(29
)
Total
 

$1,644

 

$1,624

 

$20

 
1

 
 
 
 
 
 
 
 
 
Billed Electric Energy Sales (GWh):
 
 
 
 
 
 
 
 
Residential
 
5,625

 
5,918

 
(293
)
 
(5
)
Commercial
 
4,410

 
4,512

 
(102
)
 
(2
)
Industrial
 
5,584

 
5,064

 
520

 
10

Governmental
 
180

 
179

 
1

 
1

Total retail
 
15,799

 
15,673

 
126

 
1

Sales for resale:
 
 
 
 
 
 
 
 
Associated companies
 
1,316

 
1,427

 
(111
)
 
(8
)
Non-associated companies
 
4,374

 
6,440

 
(2,066
)
 
(32
)
Total
 
21,489

 
23,540

 
(2,051
)
 
(9
)

107


ENTERGY LOUISIANA, LLC AND SUBSIDIARIES

MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS

Results of Operations

Net Income

Third Quarter 2017 Compared to Third Quarter 2016

Net income decreased $3.2 million primarily due to higher other operation and maintenance expenses and higher taxes other than income taxes, partially offset by higher other income.

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

Net income decreased $149.3 million primarily due to the effect of a settlement with the IRS related to the 2010-2011 IRS audit which resulted in a $136.1 million reduction of income tax expense in 2016. See Note 3 to the financial statements in the Form 10-K for additional discussion of the settlement and benefit sharing.

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

$719.8

Volume/weather
(20.6
)
Retail electric price
13.8

Other
4.4

2017 net revenue

$717.4


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 282 GWh, or 4%, in industrial usage primarily due to an increase in demand for existing customers as well as expansion projects in the chemicals industry.

The retail electric price variance is primarily due to the timing of recovery of purchased power capacity costs through the formula rate plan mechanism.


108
Entergy Louisiana, LLC and Subsidiaries
Management's Financial Discussion and Analysis

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

$1,891.8

Retail electric price
23.1

Louisiana Act 55 financing savings obligation
17.2

Volume/weather
(31.6
)
Other
1.2

2017 net revenue

$1,901.7


The retail electric price variance is primarily due to an increase in formula rate plan revenues, implemented with the first billing cycle of March 2016, to collect the estimated first-year revenue requirement related to the purchase of Power Blocks 3 and 4 of the Union Power Station in March 2016 and the timing of recovery of purchased power costs through the formula rate plan mechanism. See Note 2 to the financial statements herein and in the Form 10-K for further discussion of formula rate plan revenues.

The Louisiana Act 55 financing savings obligation variance results from a regulatory charge recorded 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 and decreased usage during the unbilled sales period. This decrease was partially offset by an increase of 610 GWh, or 3%, in industrial usage primarily due to an increase in demand for existing customers, expansion projects in the chemicals industry, and an increase in demand for cogeneration customers, partially offset by an extended seasonal outage for an existing large refinery customer.
        
Other Income Statement Variances

Third Quarter 2017 Compared to Third Quarter 2016

Other operation and maintenance expenses increased primarily due to an increase of $10.4 million in nuclear generation expenses primarily due to higher nuclear labor costs, including contract labor, to position the nuclear fleet to meet its operational goals and a higher scope of work performed during plant outages in the third quarter 2017 as compared to the third quarter 2016. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS – Nuclear Matters” in the Form 10-K for a discussion of the increased operating costs to position the nuclear fleet to meet its operational goals.

Taxes other than income taxes increased primarily due to increases in ad valorem taxes, local franchise fees, and state franchise taxes. Ad valorem taxes increased primarily due to higher assessments, including the assessment of Arkansas ad valorem taxes on the Union Power Station beginning in 2017. Local franchise fees increased primarily due to higher revenues in the third quarter 2017 as compared to the third quarter 2016. State franchise taxes increased primarily due to a change in the Louisiana franchise tax law which became effective for 2017.

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 the third quarter 2017 as compared to the third quarter 2016, which

109
Entergy Louisiana, LLC and Subsidiaries
Management's Financial Discussion and Analysis

included the St. Charles Power Station project, and higher realized gains in the third quarter 2017 as compared to the third quarter 2016 on the River Bend and Waterford 3 decommissioning trust fund investments.

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

Other operation and maintenance expenses increased primarily due to:

•
an increase of $12.3 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, partially offset by a lower scope of work performed during plant outages in 2017 as compared to the same period in 2016. 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;
•
an increase of $4.3 million in compensation and benefits costs primarily due to a downward revision to estimated incentive compensation expense in first quarter 2016;
•
an increase of $3.6 million in fossil-fueled generation expenses primarily due to the purchase of Power Blocks 3 and 4 of the Union Power Station in March 2016, partially offset by asbestos loss provisions in 2016;
•
an increase of $3.5 million as a result of the amount of transmission costs allocated by MISO. See Note 2 to the financial statements herein and in the Form 10-K for further information on the recovery of these costs;
•
an increase of $3.4 million in other loss provisions; and
•
an increase of $2.1 million in transmission expenses primarily due to higher labor costs, including contract labor.

Taxes other than income taxes increased primarily due to increases in ad valorem taxes, local franchise fees, state franchise taxes, and payroll taxes. Ad valorem taxes increased primarily due to higher assessments, including the assessment of Arkansas ad valorem taxes on the Union Power Station beginning in 2017. Local franchise fees increased primarily due to higher revenues in 2017 as compared to 2016. State franchise taxes increased primarily due to a change in the Louisiana franchise tax law which became effective for 2017.

Depreciation and amortization expenses increased primarily due to additions to plant in service, including Power Blocks 3 and 4 of the Union Power Station purchased in March 2016 and the effects of recording in third quarter 2016 final court decisions in the River Bend and Waterford 3 lawsuits against the DOE related to spent nuclear fuel storage costs. The damages awarded include the reimbursement of approximately $6 million of spent nuclear fuel storage costs previously recorded as depreciation expense. See Note 14 to the financial statements in the Form 10-K for discussion of the Union Power Station purchase. 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 as compared to the same period in 2016, which included the St. Charles Power Station project, and higher realized gains in 2017 as compared to the same period in 2016 on the River Bend decommissioning trust fund investments, including portfolio rebalancing to the 30% interest in River Bend formerly owned by Cajun.

Interest expense decreased primarily due to an increase in the allowance for borrowed funds used during construction due to higher construction work in progress in 2017 as compared to the same period in 2016, which included the St. Charles Power Station project.

Income Taxes

The effective income tax rates were 33.6% for the third quarter 2017 and 32.4% for the nine months ended September 30, 2017. The differences in the effective income tax rates for the third quarter 2017 and the nine months ended September 30, 2017 versus the federal statutory rate of 35% were primarily due to book and tax differences

110
Entergy Louisiana, LLC and Subsidiaries
Management's Financial Discussion and Analysis

related to the non-taxable income distributions earned on preferred membership interests and book and tax differences related to the allowance for equity funds used during construction, partially offset by state income taxes.

The effective income tax rate was 34.4% 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 book and tax differences related to the non-taxable income distributions earned on preferred membership interests, partially offset by state income taxes.

The effective income tax rate was 10.4% 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 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 and book and tax differences related to the non-taxable income distributions earned on preferred membership interests, partially offset by state income taxes. See Note 3 to the financial statements in the Form 10-K for additional discussion of the 2010-2011 IRS audit settlement.

Louisiana Tax Legislation

See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS – Louisiana Tax Legislation” in the Form 10-K for a discussion of the Louisiana tax legislation.

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

$213,850

 

$35,102

 
 
 
 
Cash flow provided by (used in):
 
 
 
    Operating activities
927,176

 
877,945

    Investing activities
(1,379,365
)
 
(1,138,425
)
    Financing activities
293,862

 
320,457

Net increase (decrease) in cash and cash equivalents
(158,327
)
 
59,977

 
 
 
 
Cash and cash equivalents at end of period

$55,523

 

$95,079


Operating Activities

Net cash flow provided by operating activities increased $49.2 million for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 primarily due to:

•
income tax refunds of $116.9 million in 2017 compared to income tax payments of $62.7 million in 2016. Entergy Louisiana received income tax refunds in 2017 and made income tax payments in 2016 in accordance with an intercompany income tax allocation agreement. The income tax refunds in 2017 resulted from the utilization of Entergy Louisiana’s net operating losses. The income tax payments in 2016 related to the 2016 payments for state taxes resulting from the effect of the final settlement of the 2006-2007 IRS audit and the effect of net operating loss limitations. See Note 3 to the financial statements in the Form 10-K for a discussion of the audit. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Louisiana Tax Legislation” in the Form 10-K for a discussion on the net operating loss limitations; and

111
Entergy Louisiana, LLC and Subsidiaries
Management's Financial Discussion and Analysis

•
an interest payment of $60 million made in March 2016 related to the purchase of a beneficial interest in the Waterford 3 leased assets.

The increase was partially offset by:

•
a refund to customers in January 2017 of approximately $71 million as a result of the settlement approved by the LPSC related to the Waterford 3 replacement steam generator project. See Note 2 to the financial statements herein and in the Form 10-K for discussion of the settlement and refund;
•
an increase of $64 million in spending on nuclear refueling outages;
•
a decrease due to the timing of recovery of fuel and purchased power costs; and
•
proceeds of $25.1 million received in August 2016 from the DOE resulting from litigation regarding spent nuclear fuel storage costs that were previously expensed. See Note 1 to the financial statements herein and Note 8 to the financial statements in the Form 10-K for a discussion of the DOE litigation.

Investing Activities

Net cash flow used in investing activities increased $240.9 million for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 primarily due to:

•
an increase of $297.1 million in fossil-fueled generation construction expenditures primarily due to higher spending on the St. Charles Power Station and Lake Charles Power Station projects in 2017;
•
fluctuations in nuclear fuel activity because of variations from year to year in the timing and pricing of fuel reload requirements in the Utility business, material and service deliveries, and the timing of cash payments during the nuclear fuel cycle;
•
an increase of $95.3 million in transmission construction expenditures due to a higher scope of work performed in 2017 as compared to the same period in 2016;
•
an increase of $60.7 million in nuclear construction expenditures primarily due to increased spending on various nuclear projects in 2017;
•
money pool activity;
•
$33.3 million in funds held on deposit for interest payments due October 1, 2017;
•
an increase of $25.8 million in information technology construction expenditures due to increased spending on advanced metering infrastructure;
•
an increase of $17.3 million in distribution construction expenditures due to increased spending on digital technology improvements within the customer contact centers; and
•
proceeds of $17.3 million received in August 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.

The increase was partially offset by the purchase of Power Blocks 3 and 4 of the Union Power Station for an aggregate purchase price of approximately $475 million in March 2016. See Note 14 to the financial statements in the Form 10-K for discussion of the Union Power Station purchase.

Increases in Entergy Louisiana’s receivable from the money pool are a use of cash flow, and Entergy Louisiana‘s receivable from the money pool increased by $50.4 million for the nine months ended September 30, 2017 compared to increasing by $3.3 million for the nine months ended September 30, 2016. The money pool is an inter-company borrowing arrangement designed to reduce the Utility subsidiaries’ need for external short-term borrowings.

Financing Activities

Net cash flow provided by financing activities decreased $26.6 million for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 primarily due to the net issuance of $350.5 million of long-term debt in 2017 compared to the net issuance of $557.7 million in 2016.

112
Entergy Louisiana, LLC and Subsidiaries
Management's Financial Discussion and Analysis

The decrease was partially offset by:

•
a decrease of $123.8 million of common equity distributions primarily as a result of higher construction expenditures and higher nuclear fuel purchases in 2017 as compared to the same period in 2016; and
•
net borrowings of $36.8 million on the nuclear fuel company variable interest entities’ credit facilities in 2017 compared to net repayments of $18.4 million in 2016.
 
See Note 4 to the financial statements herein and Note 5 to the financial statements in the Form 10-K for more details on long-term debt.

Capital Structure

Entergy Louisiana’s capitalization is balanced between equity and debt, as shown in the following table.
 
 
September 30,
2017
 
December 31,
2016
Debt to capital
53.5
%
 
53.4
%
Effect of excluding securitization bonds
(0.4
%)
 
(0.5
%)
Debt to capital, excluding securitization bonds (a)
53.1
%
 
52.9
%
Effect of subtracting cash
(0.2
%)
 
(0.9
%)
Net debt to net capital, excluding securitization bonds (a)
52.9
%
 
52.0
%
(a)
Calculation excludes the securitization bonds, which are non-recourse to Entergy Louisiana.

Net debt consists of debt less cash and cash equivalents.  Debt consists of short-term borrowings and long-term debt, including the currently maturing portion.  Capital consists of debt and common equity.  Net capital consists of capital less cash and cash equivalents.  Entergy Louisiana uses the debt to capital ratios excluding securitization bonds in analyzing its financial condition and believes they provide useful information to its investors and creditors in evaluating Entergy Louisiana’s financial condition because the securitization bonds are non-recourse to Entergy Louisiana, as more fully described in Note 5 to the financial statements in the Form 10-K. Entergy Louisiana also uses the net debt to net capital ratio excluding securitization bonds in analyzing its financial condition and believes it provides useful information to its investors and creditors in evaluating Entergy Louisiana’s financial condition because net debt indicates Entergy Louisiana’s outstanding debt position that could not be readily satisfied by cash and cash equivalents on hand.

Uses and Sources of Capital

See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Liquidity and Capital Resources” in the Form 10-K for a discussion of Entergy Louisiana’s uses and sources of capital. Following are updates to the information provided in the Form 10-K.

Entergy Louisiana is developing its capital investment plan for 2018 through 2020 and currently anticipates making $4.1 billion in capital investments during that period. The preliminary estimate includes amounts associated with specific investments, such as the St. Charles Power Station and the Lake Charles Power Station, discussed below; transmission projects to enhance reliability, reduce congestion, and enable economic growth; distribution spending to enhance reliability and improve service to customers, including initial investment to support advanced metering; resource planning, including potential generation projects; system improvements; investments in River Bend and Waterford 3; 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.

    

113
Entergy Louisiana, LLC and Subsidiaries
Management's Financial Discussion and Analysis

Entergy Louisiana’s receivables from the money pool were as follows:
September 30,
2017
 
December 31,
2016
 
September 30,
2016
 
December 31,
2015
(In Thousands)
$72,899
 
$22,503
 
$9,428
 
$6,154

See Note 4 to the financial statements in the Form 10-K for a description of the money pool.
    
Entergy Louisiana has a credit facility in the amount of $350 million scheduled to expire in August 2022.  The credit facility 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 $9.1 million of letters of credit outstanding under the credit facility.  In addition, Entergy Louisiana is a party to an uncommitted letter of credit facility as a means to post collateral to support its obligations to MISO. As of September 30, 2017, a $38.5 million letter of credit was outstanding under Entergy Louisiana’s uncommitted letter of credit facility. See Note 4 to the financial statements herein for additional discussion of the credit facilities.

The Entergy Louisiana nuclear fuel company variable interest entities have two separate credit facilities, one in the amount of $105 million and one in the amount of $85 million, both scheduled to expire in May 2019.  As of September 30, 2017, $78.8 million in loans were outstanding under the credit facility for the Entergy Louisiana River Bend nuclear fuel company variable interest entity. As of September 30, 2017, $40.6 million in letters of credit to support a like amount of commercial paper issued and $36.3 million in loans were outstanding under the Entergy Louisiana Waterford nuclear fuel company variable interest entity credit facility. See Note 4 to the financial statements herein for additional discussion of the nuclear fuel company variable interest entity credit facilities.

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.

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 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.

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.


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Management's Financial Discussion and Analysis

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.

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.


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Entergy Louisiana, LLC and Subsidiaries
Management's Financial Discussion and Analysis

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 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.

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.

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.


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Entergy Louisiana, LLC and Subsidiaries
Management's Financial Discussion and Analysis

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.

Fuel and purchased power cost recovery
    
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 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 the 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.

Industrial and Commercial Customers

See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS – Industrial and Commercial Customers” in the Form 10-K for a discussion of industrial and commercial customers.

Federal Regulation

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

Nuclear Matters

See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Nuclear Matters” in the Form 10-K for a discussion of nuclear matters. The following is an update to that discussion.

River Bend’s operating license is currently due to expire in August 2025. In May 2017, Entergy Louisiana filed an application with the NRC for an extension of River Bend’s operating license to 2045. In October 2017 an intervenor filed with the NRC a petition to intervene and request for a hearing on the River Bend license renewal application. As provided by NRC procedure, a panel of the Atomic Safety and Licensing Board has been designated to determine whether the intervenor’s three proposed contentions, or allegations of errors or omissions in the license renewal application, are admissible and, if so, to rule on any admitted contentions.

Environmental Risks

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


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Entergy Louisiana, LLC and Subsidiaries
Management's Financial Discussion and Analysis

Critical Accounting Estimates

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

New Accounting Pronouncements

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


118

ENTERGY LOUISIANA, LLC 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
 
$1,280,475

 

$1,240,217

 
$3,216,677

 

$3,166,380

Natural gas
 
10,019

 
9,235

 
38,034

 
37,251

TOTAL
 
1,290,494

 
1,249,452

 
3,254,711

 
3,203,631

 
 
 
 
 
 
 
 
 
OPERATING EXPENSES
 
 
 
 
 
 
 
 
Operation and Maintenance:
 
 
 
 
 
 
 
 
Fuel, fuel-related expenses, and gas purchased for resale
 
301,584

 
261,979

 
635,684

 
616,402

Purchased power
 
273,325

 
261,212

 
795,825

 
677,309

Nuclear refueling outage expenses
 
13,616

 
12,894

 
38,565

 
38,648

Other operation and maintenance
 
238,249

 
229,717

 
704,696

 
668,738

Decommissioning
 
12,444

 
11,812

 
36,850

 
34,978

Taxes other than income taxes
 
45,059

 
38,129

 
135,418

 
124,857

Depreciation and amortization
 
117,923

 
114,251

 
349,660

 
336,294

Other regulatory charges (credits) - net
 
(1,795
)
 
6,507

 
(78,503
)
 
18,084

TOTAL
 
1,000,405

 
936,501

 
2,618,195

 
2,515,310

 
 
 
 
 
 
 
 
 
OPERATING INCOME
 
290,089

 
312,951

 
636,516

 
688,321

 
 
 
 
 
 
 
 
 
OTHER INCOME
 
 
 
 
 
 
 
 
Allowance for equity funds used during construction
 
13,393

 
6,735

 
34,492

 
18,479

Interest and investment income
 
42,662

 
38,731

 
124,411

 
116,398

Miscellaneous - net
 
(2,957
)
 
(4,429
)
 
(8,631
)
 
(10,044
)
TOTAL
 
53,098

 
41,037

 
150,272

 
124,833

 
 
 
 
 
 
 
 
 
INTEREST EXPENSE
 
 
 
 
 
 
 
 
Interest expense
 
69,518

 
68,396

 
205,316

 
204,259

Allowance for borrowed funds used during construction
 
(6,713
)
 
(3,455
)
 
(17,428
)
 
(9,735
)
TOTAL
 
62,805

 
64,941

 
187,888

 
194,524

 
 
 
 
 
 
 
 
 
INCOME BEFORE INCOME TAXES
 
280,382

 
289,047

 
598,900

 
618,630

 
 
 
 
 
 
 
 
 
Income taxes
 
94,098

 
99,541

 
193,759

 
64,193

 
 
 
 
 
 
 
 
 
NET INCOME
 

$186,284

 

$189,506

 

$405,141

 

$554,437

 
 
 
 
 
 
 
 
 
See Notes to Financial Statements.
 
 
 
 
 
 
 
 


119

ENTERGY LOUISIANA, LLC 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)
 
(In Thousands)
 
 
 
 
 
 
 
 
Net Income
$186,284

 

$189,506

 
$405,141

 

$554,437

Other comprehensive loss
 
 
 
 
 
 
 
Pension and other postretirement liabilities (net of tax benefit of $232, $145, $756, and $404)
(370
)
 
(232
)
 
(1,050
)
 
(725
)
Other comprehensive loss
(370
)
 
(232
)
 
(1,050
)
 
(725
)
Comprehensive Income

$185,914

 

$189,274

 

$404,091

 

$553,712

 
 
 
 
 
 
 
 
See Notes to Financial Statements.
 
 
 
 
 
 
 


120

ENTERGY LOUISIANA, LLC 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
 

$405,141

 

$554,437

Adjustments to reconcile net income to net cash flow provided by operating activities:
 
 
 
 
Depreciation, amortization, and decommissioning, including nuclear fuel amortization
 
458,963

 
462,007

Deferred income taxes, investment tax credits, and non-current taxes accrued
 
303,397

 
155,996

Changes in working capital:
 
 
 
 
Receivables
 
(92,610
)
 
(159,517
)
Fuel inventory
 
7,643

 
(1,578
)
Accounts payable
 
31,865

 
(18,420
)
Prepaid taxes and taxes accrued
 
97,138

 
(55,780
)
Interest accrued
 
9,149

 
7,531

Deferred fuel costs
 
(37,753
)
 
(6,091
)
Other working capital accounts
 
(49,266
)
 
(2,503
)
Changes in provisions for estimated losses
 
(6,331
)
 
1,658

Changes in other regulatory assets
 
60,014

 
73,920

Changes in other regulatory liabilities
 
(72,060
)
 
30,847

Changes in pension and other postretirement liabilities
 
(70,489
)
 
(63,735
)
Other
 
(117,625
)
 
(100,827
)
Net cash flow provided by operating activities
 
927,176

 
877,945

 
 
 
 
 
INVESTING ACTIVITIES
 
 
 
 
Construction expenditures
 
(1,177,121
)
 
(675,248
)
Allowance for equity funds used during construction
 
34,492

 
18,479

Payment for purchase of plant
 
—

 
(474,670
)
Nuclear fuel purchases
 
(159,637
)
 
(49,219
)
Proceeds from the sale of nuclear fuel
 
28,884

 
64,498

Receipts from storm reserve escrow account
 
8,836

 
—

Payments to storm reserve escrow account
 
(1,422
)
 
(823
)
Changes to securitization account
 
(6,538
)
 
(6,649
)
Proceeds from nuclear decommissioning trust fund sales
 
176,056

 
178,183

Investment in nuclear decommissioning trust funds
 
(204,500
)
 
(206,976
)
Changes in money pool receivable - net
 
(50,396
)
 
(3,274
)
Insurance proceeds
 
5,305

 
—

Litigation proceeds for reimbursement of spent nuclear fuel storage costs
 
—

 
17,274

Changes in other investments - net
 
(33,324
)
 
—

Net cash flow used in investing activities
 
(1,379,365
)
 
(1,138,425
)
 
 
 
 
 
FINANCING ACTIVITIES
 
 
 
 
Proceeds from the issuance of long-term debt
 
646,850

 
1,389,315

Retirement of long-term debt
 
(296,359
)
 
(831,632
)
Changes in credit borrowings - net
 
36,762

 
(18,385
)
Distributions paid:
 
 
 
 
Common equity
 
(91,250
)
 
(215,000
)
Other
 
(2,141
)
 
(3,841
)
Net cash flow provided by financing activities
 
293,862

 
320,457

 
 
 
 
 
Net increase (decrease) in cash and cash equivalents
 
(158,327
)
 
59,977

Cash and cash equivalents at beginning of period
 
213,850

 
35,102

Cash and cash equivalents at end of period
 

$55,523

 

$95,079

 
 
 
 
 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
 
 
 
 
Cash paid (received) during the period for:
 
 
 
 
Interest - net of amount capitalized
 

$189,896

 

$251,196

Income taxes
 

($116,937
)
 

$62,676

 
 
 
 
 
See Notes to Financial Statements.
 
 
 
 

121

ENTERGY LOUISIANA, LLC 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
 

$10,143

 

$49,972

Temporary cash investments
 
45,380

 
163,878

Total cash and cash equivalents
 
55,523

 
213,850

Accounts receivable:
 
 
 
 
Customer
 
288,237

 
213,517

Allowance for doubtful accounts
 
(7,677
)
 
(6,277
)
Associated companies
 
190,048

 
155,794

Other
 
58,933

 
54,186

Accrued unbilled revenues
 
174,379

 
159,176

Total accounts receivable
 
703,920

 
576,396

Fuel inventory
 
43,095

 
50,738

Materials and supplies - at average cost
 
297,545

 
294,421

Deferred nuclear refueling outage costs
 
83,207

 
22,535

Prepaid taxes
 
12,966

 
110,104

Prepayments and other
 
85,303

 
41,687

TOTAL
 
1,281,559

 
1,309,731

 
 
 
 
 
OTHER PROPERTY AND INVESTMENTS
 
 
 
 
Investment in affiliate preferred membership interests
 
1,390,587

 
1,390,587

Decommissioning trust funds
 
1,260,022

 
1,140,707

Storm reserve escrow account
 
284,071

 
291,485

Non-utility property - at cost (less accumulated depreciation)
 
236,802

 
217,494

Other
 
18,837

 
28,844

TOTAL
 
3,190,319

 
3,069,117

 
 
 
 
 
UTILITY PLANT
 
 
 
 
Electric
 
19,237,157

 
18,827,532

Natural gas
 
182,704

 
172,816

Construction work in progress
 
1,225,066

 
670,201

Nuclear fuel
 
339,749

 
249,807

TOTAL UTILITY PLANT
 
20,984,676

 
19,920,356

Less - accumulated depreciation and amortization
 
8,622,235

 
8,420,596

UTILITY PLANT - NET
 
12,362,441

 
11,499,760

 
 
 
 
 
DEFERRED DEBITS AND OTHER ASSETS
 
 
 
 
Regulatory assets:
 
 
 
 
Regulatory asset for income taxes - net
 
480,257

 
470,480

Other regulatory assets (includes securitization property of $76,520 as of September 30, 2017 and $92,951 as of December 31, 2016)
 
1,098,267

 
1,168,058

Deferred fuel costs
 
168,122

 
168,122

Other
 
17,374

 
16,003

TOTAL
 
1,764,020

 
1,822,663

 
 
 
 
 
TOTAL ASSETS
 

$18,598,339

 

$17,701,271

 
 
 
 
 
See Notes to Financial Statements.
 
 
 
 

122

ENTERGY LOUISIANA, LLC 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
 

$675,002

 

$200,198

Short-term borrowings
 
40,555

 
3,794

Accounts payable:
 
 
 
 
Associated companies
 
85,920

 
82,106

Other
 
347,338

 
358,741

Customer deposits
 
149,274

 
148,601

Interest accrued
 
84,747

 
75,598

Deferred fuel costs
 
10,458

 
48,211

Other
 
88,525

 
80,013

TOTAL
 
1,481,819

 
997,262

 
 
 
 
 
NON-CURRENT LIABILITIES
 
 
 
 
Accumulated deferred income taxes and taxes accrued
 
2,998,156

 
2,691,118

Accumulated deferred investment tax credits
 
123,088

 
126,741

Other regulatory liabilities
 
808,914

 
880,974

Decommissioning
 
1,125,732

 
1,082,685

Accumulated provisions
 
304,441

 
310,772

Pension and other postretirement liabilities
 
709,396

 
780,278

Long-term debt (includes securitization bonds of $89,430 as of September 30, 2017 and $99,217 as of December 31, 2016)
 
5,492,494

 
5,612,593

Other
 
159,711

 
137,039

TOTAL
 
11,721,932

 
11,622,200

 
 
 
 
 
Commitments and Contingencies
 
 
 
 
 
 
 
 
 
EQUITY
 
 
 
 
Member's equity
 
5,444,080

 
5,130,251

Accumulated other comprehensive loss
 
(49,492
)
 
(48,442
)
TOTAL
 
5,394,588

 
5,081,809

 
 
 
 
 
TOTAL LIABILITIES AND EQUITY
 

$18,598,339

 

$17,701,271

 
 
 
 
 
See Notes to Financial Statements.
 
 
 
 


123

ENTERGY LOUISIANA, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the Nine Months Ended September 30, 2017 and 2016
(Unaudited)
 
 
 
 
 
Common Equity
 
 
 
Member’s
Equity
 
Accumulated
Other
Comprehensive
Loss
 
Total
 
(In Thousands)
 
 
 
 
 
 
Balance at December 31, 2015

$4,793,724

 

($56,412
)
 

$4,737,312

 
 
 
 
 
 
Net income
554,437

 
—

 
554,437

Other comprehensive loss
—

 
(725
)
 
(725
)
Distributions declared on common equity
(215,000
)
 
—

 
(215,000
)
Other
(22
)
 
—

 
(22
)
 
 
 
 
 
 
Balance at September 30, 2016

$5,133,139

 

($57,137
)
 

$5,076,002

 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2016

$5,130,251

 

($48,442
)
 

$5,081,809

 
 
 
 
 
 
Net income
405,141

 
—

 
405,141

Other comprehensive loss
—

 
(1,050
)
 
(1,050
)
Distributions declared on common equity
(91,250
)
 
—

 
(91,250
)
Other
(62
)
 
—

 
(62
)
 
 
 
 
 
 
Balance at September 30, 2017

$5,444,080

 

($49,492
)
 

$5,394,588

 
 
 
 
 
 
See Notes to Financial Statements.
 
 
 
 
 


124

ENTERGY LOUISIANA, LLC 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)
 
 
Electric Operating Revenues:
 
 
 
 
 
 
 
 
Residential
 

$411

 

$413

 

($2
)
 
—

Commercial
 
285

 
273

 
12

 
4

Industrial
 
428

 
361

 
67

 
19

Governmental
 
19

 
18

 
1

 
6

Total retail
 
1,143

 
1,065

 
78

 
7

Sales for resale:
 
 
 
 
 
 
 
 
Associated companies
 
69

 
116

 
(47
)
 
(41
)
Non-associated companies
 
23

 
13

 
10

 
77

Other
 
45

 
46

 
(1
)
 
(2
)
Total
 

$1,280

 

$1,240

 

$40

 
3

 
 
 
 
 
 
 
 
 
Billed Electric Energy Sales (GWh):
 
 
 
 
 
 
 
 
Residential
 
4,301

 
4,635

 
(334
)
 
(7
)
Commercial
 
3,228

 
3,363

 
(135
)
 
(4
)
Industrial
 
7,627

 
7,345

 
282

 
4

Governmental
 
208

 
208

 
—

 
—

Total retail
 
15,364

 
15,551

 
(187
)
 
(1
)
Sales for resale:
 
 
 
 
 
 
 
 
Associated companies
 
1,164

 
2,360

 
(1,196
)
 
(51
)
Non-associated companies
 
616

 
335

 
281

 
84

Total
 
17,144

 
18,246

 
(1,102
)
 
(6
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended
 
Increase/
 
 
Description
 
2017
 
2016
 
(Decrease)
 
%
 
 
(Dollars In Millions)
 
 
Electric Operating Revenues:
 
 
 
 
 
 
 
 
Residential
 

$911

 

$913

 

($2
)
 
—

Commercial
 
716

 
694

 
22

 
3

Industrial
 
1,147

 
1,006

 
141

 
14

Governmental
 
51

 
50

 
1

 
2

Total retail
 
2,825

 
2,663

 
162

 
6

Sales for resale:
 
 
 
 
 
 
 
 
Associated companies
 
204

 
310

 
(106
)
 
(34
)
Non-associated companies
 
53

 
37

 
16

 
43

Other
 
135

 
156

 
(21
)
 
(13
)
Total
 

$3,217

 

$3,166

 

$51

 
2

 
 
 
 
 
 
 
 
 
Billed Electric Energy Sales (GWh):
 
 
 
 
 
 
 
 
Residential
 
10,154

 
10,608

 
(454
)
 
(4
)
Commercial
 
8,497

 
8,622

 
(125
)
 
(1
)
Industrial
 
22,272

 
21,662

 
610

 
3

Governmental
 
595

 
602

 
(7
)
 
(1
)
Total retail
 
41,518

 
41,494

 
24

 
—

Sales for resale:
 
 
 
 
 
 
 
 
Associated companies
 
3,399

 
6,104

 
(2,705
)
 
(44
)
Non-associated companies
 
1,280

 
1,321

 
(41
)
 
(3
)
Total
 
46,197

 
48,919

 
(2,722
)
 
(6
)
 
 
 
 
 
 
 
 
 

125


ENTERGY MISSISSIPPI, INC.

MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS

Results of Operations

Net Income

Third Quarter 2017 Compared to Third Quarter 2016

Net income remained relatively unchanged, decreasing by $0.1 million, because lower net revenue was substantially 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 $3.9 million primarily due to lower net revenue and higher depreciation and amortization expenses, partially offset by lower other operation and maintenance expenses and lower interest expense.

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

$214.7

Volume/weather
(9.3
)
Retail electric price
(5.0
)
Other
0.9

2017 net revenue

$201.3

    
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 residential and commercial usage resulting from a 1% increase in the average number of residential and commercial customers.
    
The retail electric price variance is primarily due to lower storm damage rider revenues 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. The decrease was partially offset by an increase in the energy efficiency rider.  See Note 2 to the financial statements herein and in the Form 10-K for further discussion on the storm damage rider.


126
Entergy Mississippi, Inc.
Management's Financial Discussion and Analysis

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 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

$541.2

Volume/weather
(19.6
)
Retail electric price
6.6

Other
1.4

2017 net revenue

$529.6

    
The volume/weather variance is primarily due to the effect of less favorable weather on residential and commercial sales, partially offset by an increase of 40 GWh, or 2%, in industrial usage. The increase in industrial usage is primarily due to expansion projects in the pulp and paper industry, an increase in usage by the mid to small industrial sector, and new customers in the wood products industry, partially offset by a decrease in demand for existing customers.
    
The retail electric price variance is primarily due to a $19.4 million net annual increase in rates, as approved by the MPSC, effective with the first billing cycle of July 2016 and an increase in the energy efficiency rider. The increase was partially offset by lower storm damage rider revenues 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. See Note 2 to the financial statements herein and in the Form 10-K for further discussion of the formula rate plan and the storm damage rider.
    
Other Income Statement Variances

Third Quarter 2017 Compared to Third Quarter 2016

Other operation and maintenance expenses decreased primarily due to a decrease of $6.1 million in fossil-fueled generation expenses primarily due to lower long-term service agreement costs and a decrease of $4.8 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.

The decrease was partially offset by an increase of $1.6 million in energy efficiency costs.
    
Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016

Other operation and maintenance expenses decreased primarily due to:

•
a decrease of $6.6 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; and
•
a decrease of $3.6 million in fossil-fueled generation expenses primarily due to lower long-term service agreement costs, partially offset by a higher scope of work done in 2017 as compared to the same period in 2016.

The decrease was partially offset by an increase of $3.5 million in energy efficiency costs.

127
Entergy Mississippi, Inc.
Management's Financial Discussion and Analysis

Depreciation and amortization expenses increased primarily due to additions to plants in service.
    
Interest expense decreased primarily due to the refinancing at lower interest rates of certain first mortgage bonds in 2016 and the retirement, at maturity, of $125 million of 3.25% Series first mortgage bonds in June 2016. See Note 5 to the financial statements in the Form 10-K for details of long-term debt.

Income Taxes

The effective income tax rate was 37.8% 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 38.4% 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, partially offset by book and tax differences related to the allowance for equity funds used during construction.
    
The effective income tax rates were 38.6% for the third quarter 2016 and 36.9% for the nine months ended September 30, 2016. The difference in the effective income tax rates for the third quarter 2016 and the nine months ended September 30, 2016 versus the federal statutory rate of 35% were primarily due to state income taxes and certain book and tax differences related to utility plant items.

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

$76,834

 

$145,605

 
 
 
 
Cash flow provided by (used in):
 
 
 
Operating activities
129,314

 
141,960

Investing activities
(300,966
)
 
(244,814
)
Financing activities
94,867

 
265,513

Net increase (decrease) in cash and cash equivalents
(76,785
)
 
162,659

 
 
 
 
Cash and cash equivalents at end of period

$49

 

$308,264


Operating Activities

Net cash flow provided by operating activities decreased $12.6 million for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 primarily due to the timing of recovery of fuel and purchased power costs in 2017 as compared to the same period in 2016 and the timing of payments to vendors. The decrease was partially offset by income tax refunds of $15.1 million in 2017 compared to income tax payments of $3.9 million in 2016. Entergy Mississippi received state income tax refunds of $15.1 million in 2017 in accordance with an intercompany income tax allocation agreement. The income tax refunds in 2017 resulted from the carryback of net operating losses.


128
Entergy Mississippi, Inc.
Management's Financial Discussion and Analysis

Investing Activities

Net cash flow used in investing activities increased $56.2 million for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 primarily due to:

•
an increase of $53.1 million in transmission construction expenditures primarily due to a higher scope of work performed in 2017 as compared to the same period in 2016;
•
an increase of $18.5 million in fossil-fueled generation construction expenditures primarily due to a higher scope of work performed in 2017 as compared to the same period in 2016;
•
an increase of $13.1 million in storm spending in 2017 as compared to the same period in 2016; and
•
an increase of $9.1 million in distribution construction expenditures primarily due to a higher scope of non-storm related work performed in 2017 as compared to the same period in 2016.

The increase was partially offset by money pool activity.

Decreases in Entergy Mississippi’s receivable from the money pool are a source of cash flow, and Entergy Mississippi’s receivable from the money pool decreased $10.6 million for the nine months ended September 30, 2017 compared to increasing $25 million for the nine months ended September 30, 2016. The money pool is an inter-company borrowing arrangement designed to reduce the Utility subsidiaries’ need for external short-term borrowings.

Financing Activities

Net cash flow provided by financing activities decreased $170.6 million for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 primarily due to the net issuance of $291.6 million of long-term debt in 2016, partially offset by money pool activity and a decrease of $13.5 million in common stock dividends paid in 2017 as compared to the same period in 2016. The decrease in dividends paid was primarily because of lower operating cash flow and higher capital expenditures, each discussed above. See Note 5 to the financial statements in the Form 10-K for details of long-term debt.

Increases in Entergy Mississippi’s payable to the money pool are a source of cash flow, and Entergy Mississippi’s payable to the money pool increased by $106.2 million for the nine months ended September 30, 2017.

Capital Structure

Entergy Mississippi’s capitalization is balanced between equity and debt, as shown in the following table.
 
September 30, 2017
 
December 31, 2016
Debt to capital
48.4
%
 
50.2
%
Effect of subtracting cash
—
%
 
(1.8
%)
Net debt to net capital
48.4
%
 
48.4
%

Net debt consists of debt less cash and cash equivalents.  Debt consists of short-term borrowings, capital lease obligations, and long-term debt, including the currently maturing portion.  Capital consists of debt, preferred stock without sinking fund, and common equity.  Net capital consists of capital less cash and cash equivalents.  Entergy Mississippi uses the debt to capital ratio in analyzing its financial condition and believes it provides useful information to its investors and creditors in evaluating Entergy Mississippi’s financial condition.  Entergy Mississippi uses the net debt to net capital ratio in analyzing its financial condition and believes it provides useful information to its investors and creditors in evaluating Entergy Mississippi’s financial condition because net debt indicates Entergy Mississippi’s outstanding debt position that could not be readily satisfied by cash and cash equivalents on hand.


129
Entergy Mississippi, Inc.
Management's Financial Discussion and Analysis

Uses and Sources of Capital

See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Liquidity and Capital Resources” in the Form 10-K for a discussion of Entergy Mississippi’s uses and sources of capital. Following are updates to the information provided in the Form 10-K.

Entergy Mississippi is developing its capital investment plan for 2018 through 2020 and currently anticipates making $1.3 billion in capital investments during that period. The preliminary estimate includes amounts associated with specific investments such as transmission projects to enhance reliability, reduce congestion, and enable economic growth; distribution spending to enhance reliability and improve service to customers, including initial investment to support advanced metering; resource planning, including potential generation projects; system improvements; and other investments. Estimated capital expenditures are subject to periodic review and modification and may vary based on the ongoing effects of regulatory constraints and requirements, environmental compliance, business opportunities, market volatility, economic trends, business restructuring, changes in project plans, and the ability to access capital.

Entergy Mississippi’s receivables from or (payables to) the money pool were as follows:
September 30, 2017
 
December 31, 2016
 
September 30, 2016
 
December 31, 2015
(In Thousands)
($106,180)
 
$10,595
 
$50,916
 
$25,930

See Note 4 to the financial statements in the Form 10-K for a description of the money pool.
    
Entergy Mississippi has four separate credit facilities in the aggregate amount of $102.5 million scheduled to expire in May 2018. No borrowings were outstanding under the credit facilities as of September 30, 2017.  In addition, Entergy Mississippi is a party to an uncommitted letter of credit facility as a means to post collateral to support its obligations to MISO. As of September 30, 2017, a $12.8 million letter of credit was outstanding under Entergy Mississippi’s uncommitted letter of credit facility. See Note 4 to the financial statements herein for additional discussion of the credit facilities.

State and Local Rate Regulation and Fuel-Cost Recovery

See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - State and Local Rate Regulation and Fuel-Cost Recovery” in the Form 10-K for a discussion of the formula rate plan and fuel and purchased power cost recovery. The following are updates to that discussion.

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.

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

130
Entergy Mississippi, Inc.
Management's Financial Discussion and Analysis

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.
    
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.

Storm Cost Recovery

See 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.
        
Federal Regulation

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

Nuclear Matters

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

Environmental Risks

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

Critical Accounting Estimates

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

New Accounting Pronouncements

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


131

ENTERGY MISSISSIPPI, INC.
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
 

$349,197

 

$309,739

 

$898,852

 

$820,923

 
 
 
 
 
 
 
 
 
OPERATING EXPENSES
 
 
 
 
 
 
 
 
Operation and Maintenance:
 
 
 
 
 
 
 
 
Fuel, fuel-related expenses, and gas purchased for resale
 
61,681

 
3,444

 
146,869

 
64,790

Purchased power
 
90,086

 
87,070

 
236,409

 
216,814

Other operation and maintenance
 
57,491

 
67,155

 
172,199

 
178,809

Taxes other than income taxes
 
23,568

 
24,837

 
71,518

 
68,821

Depreciation and amortization
 
36,176

 
34,438

 
106,935

 
101,746

Other regulatory charges (credits) - net
 
(3,840
)
 
4,483

 
(13,983
)
 
(1,832
)
TOTAL
 
265,162

 
221,427

 
719,947

 
629,148

 
 
 
 
 
 
 
 
 
OPERATING INCOME
 
84,035

 
88,312

 
178,905

 
191,775

 
 
 
 
 
 
 
 
 
OTHER INCOME
 
 
 
 
 
 
 
 
Allowance for equity funds used during construction
 
2,566

 
1,441

 
6,741

 
4,072

Interest and investment income
 
—

 
129

 
33

 
490

Miscellaneous - net
 
(54
)
 
(849
)
 
(1,032
)
 
(2,604
)
TOTAL
 
2,512

 
721

 
5,742

 
1,958

 
 
 
 
 
 
 
 
 
INTEREST EXPENSE
 
 
 
 
 
 
 
 
Interest expense
 
12,713

 
13,866

 
37,953

 
43,866

Allowance for borrowed funds used during construction
 
(1,048
)
 
(741
)
 
(2,681
)
 
(2,099
)
TOTAL
 
11,665

 
13,125

 
35,272

 
41,767

 
 
 
 
 
 
 
 
 
INCOME BEFORE INCOME TAXES
 
74,882

 
75,908

 
149,375

 
151,966

 
 
 
 
 
 
 
 
 
Income taxes
 
28,337

 
29,296

 
57,369

 
56,042

 
 
 
 
 
 
 
 
 
NET INCOME
 
46,545

 
46,612

 
92,006

 
95,924

 
 
 
 
 
 
 
 
 
Preferred dividend requirements and other
 
238

 
707

 
715

 
2,121

 
 
 
 
 
 
 
 
 
EARNINGS APPLICABLE TO COMMON STOCK
 

$46,307

 

$45,905

 

$91,291

 

$93,803

 
 
 
 
 
 
 
 
 
See Notes to Financial Statements.
 
 
 
 
 
 
 
 


132

ENTERGY MISSISSIPPI, INC.
STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2017 and 2016
(Unaudited)
 
 
2017
 
2016
 
 
(In Thousands)
OPERATING ACTIVITIES
 
 
 
 
Net income
 

$92,006

 

$95,924

Adjustments to reconcile net income to net cash flow provided by operating activities:
 
 
 
 
Depreciation and amortization
 
106,935

 
101,746

Deferred income taxes, investment tax credits, and non-current taxes accrued
 
65,204

 
43,201

Changes in assets and liabilities:
 
 
 
 
Receivables
 
(31,085
)
 
(39,253
)
Fuel inventory
 
8,059

 
412

Accounts payable
 
(2,644
)
 
25,200

Taxes accrued
 
(5,815
)
 
(765
)
Interest accrued
 
(2,366
)
 
(2,349
)
Deferred fuel costs
 
(27,344
)
 
(79,671
)
Other working capital accounts
 
(279
)
 
(1,910
)
Provisions for estimated losses
 
(10,274
)
 
5,221

Other regulatory assets
 
(33,323
)
 
18,851

Pension and other postretirement liabilities
 
(18,863
)
 
(18,871
)
Other assets and liabilities
 
(10,897
)
 
(5,776
)
Net cash flow provided by operating activities
 
129,314

 
141,960

 
 
 
 
 
INVESTING ACTIVITIES
 
 
 
 
Construction expenditures
 
(313,910
)
 
(223,643
)
Allowance for equity funds used during construction
 
6,741

 
4,072

Changes in money pool receivable - net
 
10,595

 
(24,986
)
Change in other investments
 
(3,185
)
 
—

Other
 
(1,207
)
 
(257
)
Net cash flow used in investing activities
 
(300,966
)
 
(244,814
)
 
 
 
 
 
FINANCING ACTIVITIES
 
 
 
 
Proceeds from the issuance of long-term debt
 
—

 
624,034

Retirement of long-term debt
 
—

 
(332,400
)
Change in money pool payable - net
 
106,180

 
—

Dividends paid:
 
 
 
 
Common stock
 
(10,500
)
 
(24,000
)
Preferred stock
 
(715
)
 
(2,121
)
Other
 
(98
)
 
—

Net cash flow provided by financing activities
 
94,867

 
265,513

 
 
 
 
 
Net increase (decrease) in cash and cash equivalents
 
(76,785
)
 
162,659

Cash and cash equivalents at beginning of period
 
76,834

 
145,605

Cash and cash equivalents at end of period
 

$49

 

$308,264

 
 
 
 
 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
 
 
 
 
Cash paid (received) during the period for:
 
 
 
 
Interest - net of amount capitalized
 

$38,549

 

$44,209

Income taxes
 

($15,087
)
 

$3,878

 
 
 
 
 
See Notes to Financial Statements.
 
 
 
 


133

ENTERGY MISSISSIPPI, INC.
BALANCE SHEETS
ASSETS
September 30, 2017 and December 31, 2016
(Unaudited)
 
 
2017
 
2016
 
 
(In Thousands)
CURRENT ASSETS
 
 
 
 
Cash and cash equivalents:
 
 
 
 
Cash
 

$42

 

$16

Temporary cash investments
 
7

 
76,818

Total cash and cash equivalents
 
49

 
76,834

Accounts receivable:
 
 

 
 

Customer
 
81,898

 
51,218

Allowance for doubtful accounts
 
(669
)
 
(549
)
Associated companies
 
34,417

 
45,973

Other
 
8,835

 
12,006

Accrued unbilled revenues
 
55,983

 
51,327

Total accounts receivable
 
180,464

 
159,975

Deferred fuel costs
 
34,301

 
6,957

Fuel inventory - at average cost
 
42,813

 
50,872

Materials and supplies - at average cost
 
44,100

 
41,146

Prepayments and other
 
14,555

 
8,873

TOTAL
 
316,282

 
344,657

 
 
 
 
 
OTHER PROPERTY AND INVESTMENTS
 
 

 
 

Non-utility property - at cost (less accumulated depreciation)
 
4,596

 
4,608

Escrow accounts
 
31,894

 
31,783

TOTAL
 
36,490

 
36,391

 
 
 
 
 
UTILITY PLANT
 
 

 
 

Electric
 
4,454,890

 
4,321,214

Property under capital lease
 
502

 
1,590

Construction work in progress
 
234,116

 
118,182

TOTAL UTILITY PLANT
 
4,689,508

 
4,440,986

Less - accumulated depreciation and amortization
 
1,651,270

 
1,602,711

UTILITY PLANT - NET
 
3,038,238

 
2,838,275

 
 
 
 
 
DEFERRED DEBITS AND OTHER ASSETS
 
 

 
 

Regulatory assets:
 
 

 
 

Regulatory asset for income taxes - net
 
40,367

 
38,284

Other regulatory assets
 
373,453

 
342,213

Other
 
3,710

 
2,320

TOTAL
 
417,530

 
382,817

 
 
 
 
 
TOTAL ASSETS
 

$3,808,540

 

$3,602,140

 
 
 
 
 
See Notes to Financial Statements.
 
 

 
 


134

ENTERGY MISSISSIPPI, INC.
BALANCE SHEETS
LIABILITIES AND EQUITY
September 30, 2017 and December 31, 2016
(Unaudited)
 
 
2017
 
2016
 
 
(In Thousands)
CURRENT LIABILITIES
 
 

 
 

Accounts payable:
 
 

 
 

Associated companies
 

$147,147

 

$43,647

Other
 
75,915

 
80,227

Customer deposits
 
83,682

 
84,112

Taxes accrued
 
58,225

 
64,040

Interest accrued
 
19,287

 
21,653

Other
 
13,589

 
9,554

TOTAL
 
397,845

 
303,233

 
 
 
 
 
NON-CURRENT LIABILITIES
 
 

 
 

Accumulated deferred income taxes and taxes accrued
 
926,123

 
861,331

Accumulated deferred investment tax credits
 
8,811

 
8,667

Asset retirement cost liabilities
 
9,092

 
8,722

Accumulated provisions
 
44,166

 
54,440

Pension and other postretirement liabilities
 
90,696

 
109,551

Long-term debt
 
1,121,606

 
1,120,916

Other
 
14,238

 
20,108

TOTAL
 
2,214,732

 
2,183,735

 
 
 
 
 
Commitments and Contingencies
 
 

 
 

 
 
 
 
 
Preferred stock without sinking fund
 
20,381

 
20,381

 
 
 
 
 
COMMON EQUITY
 
 

 
 

Common stock, no par value, authorized 12,000,000 shares; issued and outstanding 8,666,357 shares in 2017 and 2016
 
199,326

 
199,326

Capital stock expense and other
 
167

 
167

Retained earnings
 
976,089

 
895,298

TOTAL
 
1,175,582

 
1,094,791

 
 
 
 
 
TOTAL LIABILITIES AND EQUITY
 

$3,808,540

 

$3,602,140

 
 
 
 
 
See Notes to Financial Statements.
 
 

 
 



135

ENTERGY MISSISSIPPI, INC.
STATEMENTS OF CHANGES IN COMMON EQUITY
For the Nine Months Ended September 30, 2017 and 2016
(Unaudited)
 
 
 
 
 
Common Equity
 
 
 
Common
Stock
 
Capital Stock
Expense and
Other
 
Retained
Earnings
 
Total
 
(In Thousands)
 
 
 
 
 
 
 
 
Balance at December 31, 2015

$199,326

 

($690
)
 

$813,414

 

$1,012,050

 
 
 
 
 
 
 
 
Net income
—

 
—

 
95,924

 
95,924

Common stock dividends
—

 
—

 
(24,000
)
 
(24,000
)
Preferred stock dividends
—

 
—

 
(2,121
)
 
(2,121
)
 
 
 
 
 
 
 
 
Balance at September 30, 2016

$199,326

 

($690
)
 

$883,217

 

$1,081,853

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2016

$199,326

 

$167

 

$895,298

 

$1,094,791

 
 
 
 
 
 
 
 
Net income
—

 
—

 
92,006

 
92,006

Common stock dividends
—

 
—

 
(10,500
)
 
(10,500
)
Preferred stock dividends
—

 
—

 
(715
)
 
(715
)
 
 
 
 
 
 
 
 
Balance at September 30, 2017

$199,326

 

$167

 

$976,089

 

$1,175,582

 
 
 
 
 
 
 
 
See Notes to Financial Statements.
 

 
 

 
 

 
 



136

ENTERGY MISSISSIPPI, INC.
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)
 
 
Electric Operating Revenues:
 
 
 
 
 
 
 
 
Residential
 

$158

 

$141

 

$17

 
12

Commercial
 
121

 
102

 
19

 
19

Industrial
 
41

 
34

 
7

 
21

Governmental
 
11

 
10

 
1

 
10

Total retail
 
331

 
287

 
44

 
15

Sales for resale:
 
 

 
 

 
 

 
 

Non-associated companies
 
4

 
11

 
(7
)
 
(64
)
Other
 
14

 
12

 
2

 
17

Total
 

$349

 

$310

 

$39

 
13

 
 
 

 
 

 
 

 
 

Billed Electric Energy Sales (GWh):
 
 

 
 

 
 

 
 

Residential
 
1,747

 
1,955

 
(208
)
 
(11
)
Commercial
 
1,407

 
1,477

 
(70
)
 
(5
)
Industrial
 
665

 
693

 
(28
)
 
(4
)
Governmental
 
118

 
128

 
(10
)
 
(8
)
Total retail
 
3,937

 
4,253

 
(316
)
 
(7
)
Sales for resale:
 
 

 
 

 
 

 
 

Non-associated companies
 
251

 
384

 
(133
)
 
(35
)
Total
 
4,188

 
4,637

 
(449
)
 
(10
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended
 
Increase/
 
 

Description
 
2017
 
2016
 
(Decrease)
 
%
 
 
(Dollars In Millions)
 
 

Electric Operating Revenues:
 
 

 
 

 
 

 
 

Residential
 

$380

 

$345

 

$35

 
10

Commercial
 
314

 
275

 
39

 
14

Industrial
 
115

 
97

 
18

 
19

Governmental
 
30

 
29

 
1

 
3

Total retail
 
839

 
746

 
93

 
12

Sales for resale:
 
 

 
 

 
 

 
 

Non-associated companies
 
16

 
21

 
(5
)
 
(24
)
Other
 
44

 
54

 
(10
)
 
(19
)
Total
 

$899

 

$821

 

$78

 
10

 
 
 

 
 

 
 

 
 

Billed Electric Energy Sales (GWh):
 
 
 
 
 
 
 
 
Residential
 
4,072

 
4,325

 
(253
)
 
(6
)
Commercial
 
3,611

 
3,682

 
(71
)
 
(2
)
Industrial
 
1,869

 
1,829

 
40

 
2

Governmental
 
317

 
328

 
(11
)
 
(3
)
Total retail
 
9,869

 
10,164

 
(295
)
 
(3
)
Sales for resale:
 
 

 
 

 
 

 
 

Non-associated companies
 
744

 
759

 
(15
)
 
(2
)
Total
 
10,613

 
10,923

 
(310
)
 
(3
)


137


ENTERGY NEW ORLEANS, 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 $5.2 million primarily due to lower net revenue and higher taxes other than income taxes.
    
Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016

Net income decreased $2.3 million primarily due to lower net revenue and higher taxes other than income taxes, partially offset by lower other operation and maintenance expenses and a lower effective income tax rate.

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.  Following is an analysis of the changes in net revenue comparing the third quarter 2017 to the third quarter 2016:
 
Amount
 
(In Millions)
2016 net revenue

$96.0

Retail electric price
(4.8
)
Volume/weather
(3.3
)
Other
0.4

2017 net revenue

$88.3


The retail electric price variance is primarily due to a decrease in the purchased power and capacity acquisition cost recovery rider 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 credits associated with Entergy New Orleans’s internal restructuring.

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 residential and commercial usage resulting from a 1% increase in the average number of residential and commercial electric customers.


138
Entergy New Orleans, Inc. and Subsidiaries
Management's Financial Discussion and Analysis

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.  Following is an analysis of the changes 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

$244.4

Volume/weather
(6.4
)
Retail electric price
(1.7
)
Other
1.5

2017 net revenue

$237.8


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 residential and commercial usage resulting from a 1% increase in the average number of residential and commercial electric customers.

The retail electric price variance is primarily due to a decrease in the purchased power and capacity acquisition cost recovery rider 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. The decrease was partially offset by an increase in the purchased power and capacity acquisition cost recovery rider, as approved by the City Council, effective with the first billing cycle of March 2016, primarily related to the purchase of Power Block 1 of the Union Power Station in March 2016. See Note 2 to the financial statements in the Form 10-K for further discussion of the purchased power and capacity acquisition cost recovery rider and see Note 2 to the financial statements herein and in the Form 10-K for further discussion of the credits associated with Entergy New Orleans’s internal restructuring.

Other Income Statement Variances

Third Quarter 2017 Compared to Third Quarter 2016

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

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

Other operation and maintenance expenses decreased primarily due to:

•
a decrease of $2.9 million in fossil-fueled generation expenses primarily due to the deactivation of Michoud Units 2 and 3 effective May 2016 and higher outages costs at Power Block 1 of the Union Power Station in 2016 as compared to the same period in 2017;
•
a decrease of $2.1 million in loss provisions;
•
a decrease of $1.1 million due to lower write-offs of uncollectible customer accounts; and
•
a decrease of $1 million in energy efficiency costs.

The decrease was partially offset by an increase of $3.2 million in distribution expenses primarily due to higher labor costs, including contract labor, and higher vegetation maintenance.

Taxes other than income taxes increased primarily due to higher local franchise taxes and an increase in ad valorem taxes. Local franchise taxes increased primarily due to higher electric retail revenues in 2017 as compared

139
Entergy New Orleans, Inc. and Subsidiaries
Management's Financial Discussion and Analysis

to the same period in 2016. Ad valorem taxes increased primarily due to higher assessments, including the assessment of Arkansas ad valorem taxes on the Union Power Station beginning in 2017.

Income Taxes

The effective income tax rates were 36.6% for the third quarter 2017 and 36.3% for the nine months ended September 30, 2017. The differences in the effective income tax rates for the third quarter 2017 and the nine months ended June 30, 2017 versus the federal statutory rate of 35% were primarily due to state income taxes and certain book and tax differences related to utility plant items, partially offset by flow-through tax accounting.

The effective income tax rate was 36.5% for the third quarter 2016 and 38.9% for the nine months ended September 30, 2016. The differences in the effective income tax rates for the third quarter 2016 and the nine months ended September 30, 2016 versus the federal statutory rate of 35% were primarily due to state income taxes and certain book and tax differences related to utility plant items, partially offset by flow-through tax accounting.

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

$103,068

 

$88,876

 
 
 
 
Cash flow provided by (used in):
 
 
 
Operating activities
84,240

 
92,823

Investing activities
(116,704
)
 
(290,944
)
Financing activities
(41,722
)
 
147,134

Net decrease in cash and cash equivalents
(74,186
)
 
(50,987
)
 
 
 
 
Cash and cash equivalents at end of period

$28,882

 

$37,889


Operating Activities

Net cash flow provided by operating activities decreased $8.6 million for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 primarily due to the timing of payments to vendors and lower net revenue in 2017 as compared to the same period in 2016. The decrease was substantially offset by the timing of recovery of fuel and purchased power costs in 2017 as compared to the same period in 2016 and income tax payments of $8.5 million in 2016. Entergy New Orleans made income tax payments of $8.5 million in 2016 primarily due to state income taxes resulting from the effect of net operating loss limitations enacted by the state of Louisiana.

Investing Activities

Net cash flow used in investing activities decreased $174.2 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 1 of the Union Power Station for approximately $237 million in March 2016, partially offset by money pool activity. See Note 14 to the financial statements in the Form 10-K for discussion of the Union Power Station purchase.

Increases in Entergy New Orleans’s receivable from the money pool are a use of cash flow, and Entergy New Orleans’s receivable from the money pool increased $32.1 million in 2017 compared to decreasing $9.6 million in

140
Entergy New Orleans, Inc. and Subsidiaries
Management's Financial Discussion and Analysis

2016. The money pool is an inter-company borrowing arrangement designed to reduce the Utility subsidiaries’ need for external short-term borrowings.

Financing Activities

Entergy New Orleans’s financing activities used $41.7 million of cash for the nine months ended September 30, 2017 compared to providing $147.1 million of cash for the nine months ended September 30, 2016 primarily due to the following activity:

•
the issuance of $110 million of 5.50% Series first mortgage bonds in March 2016;
•
the issuance of $85 million of 4% Series first mortgage bonds in May 2016. Entergy New Orleans used the proceeds to pay, prior to maturity, its $33.271 million of 5.6% Series first mortgage bonds due September 2024 and to pay, prior to maturity, its $37.772 million of 5.65% Series first mortgage bonds due September 2029;
•
a $47.8 million capital contribution received from Entergy Corporation in March 2016 in anticipation of Entergy New Orleans’s purchase of Power Block 1 of the Union Power Station. See Note 14 to the financial statements in the Form 10-K for discussion of the Union Power Station purchase; and
•
$36.1 million in common stock dividends paid in 2017 as compared to $14 million in common stock dividends paid in 2016. There were no common stock dividends paid in first quarter 2016 in anticipation of the purchase of Power Block 1 of the Union Power Station in March 2016.

See Note 5 to the financial statements in the Form 10-K for more details on long-term debt.

Capital Structure

Entergy New Orleans’s capitalization is balanced between equity and debt, as shown in the following table.
 
September 30,
2017
 
December 31,
2016
Debt to capital
49.4
%
 
50.1
%
Effect of excluding securitization bonds
(4.9
%)
 
(5.2
%)
Debt to capital, excluding securitization bonds (a)
44.5
%
 
44.9
%
Effect of subtracting cash
(2.0
%)
 
(8.0
%)
Net debt to net capital, excluding securitization bonds (a)
42.5
%
 
36.9
%

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

Net debt consists of debt less cash and cash equivalents.  Debt consists of short-term borrowings, long-term debt, including the currently maturing portion, and the long-term payable to Entergy Louisiana.  Capital consists of debt, preferred stock without sinking fund, and common equity.  Net capital consists of capital less cash and cash equivalents.  Entergy New Orleans uses the debt to capital ratios excluding securitization bonds in analyzing its financial condition and believes they provide useful information to its investors and creditors in evaluating Entergy New Orleans’s financial condition because the securitization bonds are non-recourse to Entergy New Orleans, as more fully described in Note 5 to the financial statements in the Form 10-K. Entergy New Orleans also uses the net debt to net capital ratio excluding securitization bonds in analyzing its financial condition and believes it provides useful information to its investors and creditors in evaluating Entergy New Orleans’s financial condition because net debt indicates Entergy New Orleans’s outstanding debt position that could not be readily satisfied by cash and cash equivalents on hand.


141
Entergy New Orleans, Inc. and Subsidiaries
Management's Financial Discussion and Analysis

Uses and Sources of Capital

See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Liquidity and Capital Resources ” in the Form 10-K for a discussion of Entergy New Orleans’s uses and sources of capital. Following are updates to the information provided in the Form 10-K.  

Entergy New Orleans is developing its capital investment plan for 2018 through 2020 and currently anticipates making $585 million in capital investments during that period.  The estimate includes amounts associated with specific investments such as the New Orleans Power Station discussed below; transmission projects to enhance reliability, reduce congestion, and enable economic growth; distribution spending to enhance reliability and improve service to customers, including initial investment to support advanced metering; system improvements; and other investments. Estimated capital expenditures are subject to periodic review and modification and may vary based on the ongoing effects of regulatory constraints and requirements, environmental compliance, business opportunities, market volatility, economic trends, business restructuring, changes in project plans, and the ability to access capital.
    
Entergy New Orleans’s receivables from the money pool were as follows:
September 30,
2017
 
December 31,
2016
 
September 30,
2016
 
December 31,
2015
(In Thousands)
$46,282
 
$14,215
 
$6,172
 
$15,794

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

Entergy New Orleans has a credit facility in the amount of $25 million scheduled to expire in November 2018. The credit facility permits the issuance of letters of credit against $10 million of the borrowing capacity of the facility. As of September 30, 2017, there were no cash borrowings and a $0.8 million letter of credit was outstanding under the facility. In addition, Entergy New Orleans is a party to an uncommitted letter of credit facility as a means to post collateral to support its obligations to MISO. As of September 30, 2017, a $7.1 million letter of credit was outstanding under Entergy New Orleans’s uncommitted letter of credit facility. See Note 4 to the financial statements herein for additional discussion of the credit facilities.

New Orleans Power 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. 


142
Entergy New Orleans, Inc. and Subsidiaries
Management's Financial Discussion and Analysis

State and Local Rate Regulation

See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS – State and Local Rate Regulation” in the Form 10-K for a discussion of state and local rate regulation. The following are updates to that discussion.

Retail Rates

As discussed in the Form 10-K, 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 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.

Federal Regulation

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


143
Entergy New Orleans, Inc. and Subsidiaries
Management's Financial Discussion and Analysis

Nuclear Matters

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

Environmental Risks

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

Critical Accounting Estimates

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

New Accounting Pronouncements

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


144

ENTERGY NEW ORLEANS, 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
 

$182,451

 

$185,775

 

$482,251

 

$457,317

Natural gas
 
16,566

 
15,561

 
61,977

 
58,279

TOTAL
 
199,017

 
201,336

 
544,228

 
515,596

 
 
 
 
 
 
 
 
 
OPERATING EXPENSES
 
 
 
 
 
 
 
 
Operation and Maintenance:
 
 
 
 
 
 
 
 
Fuel, fuel-related expenses, and gas purchased for resale
 
26,082

 
19,231

 
79,118

 
42,706

Purchased power
 
79,137

 
82,581

 
220,601

 
221,689

Other operation and maintenance
 
26,448

 
27,251

 
74,256

 
78,752

Taxes other than income taxes
 
15,135

 
13,409

 
41,397

 
35,846

Depreciation and amortization
 
13,286

 
13,047

 
39,356

 
38,719

Other regulatory charges - net
 
5,514

 
3,538

 
6,717

 
6,812

TOTAL
 
165,602

 
159,057

 
461,445

 
424,524

 
 
 
 
 
 
 
 
 
OPERATING INCOME
 
33,415

 
42,279

 
82,783

 
91,072

 
 
 
 
 
 
 
 
 
OTHER INCOME
 
 
 
 
 
 
 
 
Allowance for equity funds used during construction
 
654

 
311

 
1,656

 
767

Interest and investment income
 
222

 
58

 
521

 
157

Miscellaneous - net
 
39

 
(92
)
 
177

 
(144
)
TOTAL
 
915

 
277

 
2,354

 
780

 
 
 
 
 
 
 
 
 
INTEREST EXPENSE
 
 
 
 
 
 
 
 
Interest expense
 
5,313

 
5,373

 
16,012

 
15,730

Allowance for borrowed funds used during construction
 
(229
)
 
(116
)
 
(580
)
 
(291
)
TOTAL
 
5,084

 
5,257

 
15,432

 
15,439

 
 
 
 
 
 
 
 
 
INCOME BEFORE INCOME TAXES
 
29,246

 
37,299

 
69,705

 
76,413

 
 
 
 
 
 
 
 
 
Income taxes
 
10,717

 
13,598

 
25,316

 
29,701

 
 
 
 
 
 
 
 
 
NET INCOME
 
18,529

 
23,701

 
44,389

 
46,712

 
 
 
 
 
 
 
 
 
Preferred dividend requirements and other
 
241

 
241

 
724

 
724

 
 
 
 
 
 
 
 
 
EARNINGS APPLICABLE TO COMMON STOCK
 

$18,288

 

$23,460

 

$43,665

 

$45,988

 
 
 
 
 
 
 
 
 
See Notes to Financial Statements.
 
 
 
 
 
 
 
 

145





























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146

ENTERGY NEW ORLEANS, 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
 

$44,389

 

$46,712

Adjustments to reconcile net income to net cash flow provided by operating activities:
 
 
 
 
Depreciation and amortization
 
39,356

 
38,719

Deferred income taxes, investment tax credits, and non-current taxes accrued
 
30,834

 
132,201

Changes in assets and liabilities:
 
 
 
 
Receivables
 
(17,030
)
 
(17,409
)
Fuel inventory
 
(490
)
 
(215
)
Accounts payable
 
(4,950
)
 
7,088

Prepaid taxes
 
(4,484
)
 
(87,763
)
Interest accrued
 
546

 
1,172

Deferred fuel costs
 
4,258

 
(16,671
)
Other working capital accounts
 
(6,750
)
 
735

Provisions for estimated losses
 
(1,702
)
 
678

Other regulatory assets
 
10,093

 
6,837

Pension and other postretirement liabilities
 
(13,793
)
 
(13,673
)
Other assets and liabilities
 
3,963

 
(5,588
)
Net cash flow provided by operating activities
 
84,240

 
92,823

 
 
 
 
 
INVESTING ACTIVITIES
 
 
 
 
Construction expenditures
 
(81,143
)
 
(63,161
)
Allowance for equity funds used during construction
 
1,656

 
767

Payment for purchase of plant
 
—

 
(237,335
)
Investment in affiliates
 
—

 
(38
)
Changes in money pool receivable - net
 
(32,067
)
 
9,622

Receipts from storm reserve escrow account
 
—

 
3

Payments to storm reserve escrow account
 
(406
)
 
(300
)
Changes in securitization account
 
(2,990
)
 
(502
)
Change in other investments
 
(1,754
)
 
—

Net cash flow used in investing activities
 
(116,704
)
 
(290,944
)
 
 
 
 
 
FINANCING ACTIVITIES
 
 
 
 
Proceeds from the issuance of long-term debt
 
—

 
190,697

Retirement of long-term debt
 
(5,114
)
 
(77,094
)
Capital contribution from parent
 
—

 
47,750

Dividends paid:
 
 
 
 
Common stock
 
(36,100
)
 
(14,000
)
Preferred stock
 
(724
)
 
(724
)
Other
 
216

 
505

Net cash flow provided by (used in) financing activities
 
(41,722
)
 
147,134

 
 
 
 
 
Net decrease in cash and cash equivalents
 
(74,186
)
 
(50,987
)
Cash and cash equivalents at beginning of period
 
103,068

 
88,876

Cash and cash equivalents at end of period
 

$28,882

 

$37,889

 
 
 
 
 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
 
 
 
 
Cash paid during the period for:
 
 
 
 
Interest - net of amount capitalized
 

$14,668

 

$13,613

Income taxes
 

$—

 

$8,500

 
 
 
 
 
See Notes to Financial Statements.
 
 
 
 


147

ENTERGY NEW ORLEANS, 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
 

$518

 

$28

Temporary cash investments
 
28,364

 
103,040

Total cash and cash equivalents
 
28,882

 
103,068

Securitization recovery trust account
 
4,728

 
1,738

Accounts receivable:
 
 
 
 
Customer
 
57,440

 
43,536

Allowance for doubtful accounts
 
(3,140
)
 
(3,059
)
Associated companies
 
49,213

 
16,811

Other
 
4,928

 
5,926

Accrued unbilled revenues
 
22,124

 
18,254

Total accounts receivable
 
130,565

 
81,468

Deferred fuel costs
 
560

 
4,818

Fuel inventory - at average cost
 
2,331

 
1,841

Materials and supplies - at average cost
 
10,682

 
8,416

Prepaid taxes
 
8,863

 
4,379

Prepayments and other
 
15,515

 
6,587

TOTAL
 
202,126

 
212,315

 
 
 
 
 
OTHER PROPERTY AND INVESTMENTS
 
 
 
 
Non-utility property at cost (less accumulated depreciation)
 
1,016

 
1,016

Storm reserve escrow account
 
81,843

 
81,437

Other
 
2,414

 
7,160

TOTAL
 
85,273

 
89,613

 
 
 
 
 
UTILITY PLANT
 
 
 
 
Electric
 
1,276,279

 
1,258,934

Natural gas
 
252,608

 
240,408

Construction work in progress
 
49,885

 
24,975

TOTAL UTILITY PLANT
 
1,578,772

 
1,524,317

Less - accumulated depreciation and amortization
 
621,488

 
604,825

UTILITY PLANT - NET
 
957,284

 
919,492

 
 
 
 
 
DEFERRED DEBITS AND OTHER ASSETS
 
 
 
 
Regulatory assets:
 
 
 
 
Deferred fuel costs
 
4,080

 
4,080

Other regulatory assets (includes securitization property of $74,586 as of September 30, 2017 and $82,272 as of December 31, 2016)
 
258,013

 
268,106

Other
 
890

 
963

TOTAL
 
262,983

 
273,149

 
 
 
 
 
TOTAL ASSETS
 

$1,507,666

 

$1,494,569

 
 
 
 
 
See Notes to Financial Statements.
 
 
 
 

148

ENTERGY NEW ORLEANS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND EQUITY
September 30, 2017 and December 31, 2016
(Unaudited)
 
 
2017
 
2016
 
 
(In Thousands)
CURRENT LIABILITIES
 
 
 
 
Payable due to Entergy Louisiana
 

$2,104

 

$2,104

Accounts payable:
 
 
 
 
Associated companies
 
42,408

 
39,260

Other
 
26,110

 
35,920

Customer deposits
 
28,734

 
28,667

Interest accrued
 
5,989

 
5,443

Other
 
9,291

 
11,415

TOTAL CURRENT LIABILITIES
 
114,636

 
122,809

 
 
 
 
 
NON-CURRENT LIABILITIES
 
 
 
 
Accumulated deferred income taxes and taxes accrued
 
369,688

 
334,953

Accumulated deferred investment tax credits
 
528

 
622

Regulatory liability for income taxes - net
 
4,133

 
9,074

Asset retirement cost liabilities
 
3,024

 
2,875

Accumulated provisions
 
86,811

 
88,513

Pension and other postretirement liabilities
 
22,957

 
36,750

Long-term debt (includes securitization bonds of $79,844 as of September 30, 2017 and $84,776 as of December 31, 2016)
 
423,783

 
428,467

Long-term payable due to Entergy Louisiana
 
18,423

 
18,423

Gas system rebuild insurance proceeds
 
—

 
447

Other
 
9,392

 
4,910

TOTAL NON-CURRENT LIABILITIES
 
938,739

 
925,034

 
 
 
 
 
Commitments and Contingencies
 
 
 
 
 
 
 
 
 
Preferred stock without sinking fund
 
19,780

 
19,780

 
 
 
 
 
COMMON EQUITY
 
 
 
 
Common stock, $4 par value, authorized 10,000,000 shares; issued and outstanding 8,435,900 shares in 2017 and 2016
 
33,744

 
33,744

Paid-in capital
 
171,544

 
171,544

Retained earnings
 
229,223

 
221,658

TOTAL
 
434,511

 
426,946

 
 
 
 
 
TOTAL LIABILITIES AND EQUITY
 

$1,507,666

 

$1,494,569

 
 
 
 
 
See Notes to Financial Statements.
 
 
 
 


149

ENTERGY NEW ORLEANS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON EQUITY
For the Nine Months Ended September 30, 2017 and 2016
(Unaudited)
 
 
 
 
 
Common Equity
 
 
 
Common
Stock
 
Paid-in
Capital
 
Retained
Earnings
 
Total
 
(In Thousands)
 
 
 
 
 
 
 
 
Balance at December 31, 2015

$33,744

 

$123,794

 

$192,494

 

$350,032

 
 
 
 
 
 
 
 
Net income
—

 
—

 
46,712

 
46,712

Capital contribution from parent
—

 
47,750

 
—

 
47,750

Common stock dividends
—

 
—

 
(14,000
)
 
(14,000
)
Preferred stock dividends
—

 
—

 
(724
)
 
(724
)
 
 
 
 
 
 
 
 
Balance at September 30, 2016

$33,744

 

$171,544

 

$224,482

 

$429,770

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2016

$33,744

 

$171,544

 

$221,658

 

$426,946

 
 
 
 
 
 
 
 
Net income
—

 
—

 
44,389

 
44,389

Common stock dividends
—

 
—

 
(36,100
)
 
(36,100
)
Preferred stock dividends
—

 
—

 
(724
)
 
(724
)
 
 
 
 
 
 
 
 
Balance at September 30, 2017

$33,744

 

$171,544

 

$229,223

 

$434,511

 
 
 
 
 
 
 
 
See Notes to Financial Statements.
 

 
 

 
 

 
 



150

ENTERGY NEW ORLEANS, INC. 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)
 
 
Electric Operating Revenues:
 
 
 
 
 
 
 
 
Residential
 

$82

 

$80

 

$2

 
3

Commercial
 
63

 
60

 
3

 
5

Industrial
 
9

 
9

 
—

 
—

Governmental
 
21

 
20

 
1

 
5

Total retail
 
175

 
169

 
6

 
4

Sales for resale:
 
 

 
 

 
 

 
 

Associated companies
 
—

 
11

 
(11
)
 
(100
)
Non-associated companies
 
3

 
1

 
2

 
200

Other
 
4

 
5

 
(1
)
 
(20
)
Total
 

$182

 

$186

 

($4
)
 
(2
)
 
 
 
 
 
 
 
 
 
Billed Electric Energy Sales (GWh):
 
 

 
 

 
 

 
 

Residential
 
711

 
752

 
(41
)
 
(5
)
Commercial
 
634

 
652

 
(18
)
 
(3
)
Industrial
 
119

 
125

 
(6
)
 
(5
)
Governmental
 
217

 
224

 
(7
)
 
(3
)
Total retail
 
1,681

 
1,753

 
(72
)
 
(4
)
Sales for resale:
 
 

 
 

 
 

 
 

Associated companies
 
—

 
272

 
(272
)
 
(100
)
Non-associated companies
 
255

 
28

 
227

 
811

Total
 
1,936

 
2,053

 
(117
)
 
(6
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended
 
Increase/
 
 

Description
 
2017
 
2016
 
(Decrease)
 
%
 
 
(Dollars In Millions)
 
 

Electric Operating Revenues:
 
 
 
 

 
 

 
 

Residential
 

$191

 

$177

 

$14

 
8

Commercial
 
173

 
155

 
18

 
12

Industrial
 
26

 
24

 
2

 
8

Governmental
 
58

 
52

 
6

 
12

Total retail
 
448

 
408

 
40

 
10

Sales for resale:
 
 

 
 

 
 

 
 

Associated companies
 
—

 
30

 
(30
)
 
(100
)
  Non associated companies
 
21

 
2

 
19

 
950

Other
 
13

 
17

 
(4
)
 
(24
)
Total
 

$482

 

$457

 

$25

 
5

 
 
 
 
 
 
 
 
 
Billed Electric Energy Sales (GWh):
 
 

 
 

 
 

 
 

Residential
 
1,635

 
1,710

 
(75
)
 
(4
)
Commercial
 
1,690

 
1,700

 
(10
)
 
(1
)
Industrial
 
322

 
333

 
(11
)
 
(3
)
Governmental
 
589

 
592

 
(3
)
 
(1
)
Total retail
 
4,236

 
4,335

 
(99
)
 
(2
)
Sales for resale:
 
 

 
 

 
 

 
 

Associated companies
 
—

 
1,070

 
(1,070
)
 
(100
)
Non-associated companies
 
1,270

 
83

 
1,187

 
1,430

Total
 
5,506

 
5,488

 
18

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

151


ENTERGY TEXAS, 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 $16.5 million primarily due to lower net revenue, higher taxes other than income taxes, and higher depreciation and amortization expenses.

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

Net income decreased $23.2 million primarily due to lower net revenue, higher depreciation and amortization expenses, higher taxes other than income taxes, and higher other operation and maintenance expenses, partially offset by a lower effective income tax rate.

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.  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

$203.4

Volume/weather
(10.1
)
Net wholesale revenue
(9.8
)
Purchased power capacity
(3.7
)
Transmission revenue
(3.3
)
Retail electric price
6.3

Other
(1.3
)
2017 net revenue

$181.5

    
The volume/weather variance is primarily due to the effect of less favorable weather on residential and commercial sales and the effects of the power outages caused by Hurricane Harvey, partially offset by an increase in residential usage resulting from a 1% increase in the average number of residential customers and an increase in industrial usage. The increase in industrial usage is primarily due to an increase in demand for mid to small customers and cogeneration customers.

The net wholesale revenue variance is primarily due to lower net capacity revenues resulting from the termination of the purchased power agreements between Entergy Louisiana and Entergy Texas in August 2016.

The purchased power capacity variance is primarily due to increased expenses due to capacity cost changes for ongoing purchased power capacity contracts.


152
Entergy Texas, Inc. and Subsidiaries
Management's Financial Discussion and Analysis

The transmission revenue variance is primarily due to a decrease in the amount of transmission revenues allocated by MISO.

The retail electric price variance is primarily due to the implementation of the transmission cost recovery factor rider in September 2016 and an increase in the transmission cost recovery factor rider rate in March 2017, each as approved by the PUCT. See Note 2 to the financial statements herein and in the Form 10-K for further discussion of the transmission cost recovery factor rider filings.

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.  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

$498.6

Net wholesale revenue
(30.7
)
Purchased power capacity
(5.5
)
Transmission revenue
(4.1
)
Retail electric
16.0

Other
0.5

2017 net revenue

$474.8

    
The net wholesale revenue variance is primarily due to lower net capacity revenues resulting from the termination of the purchased power agreements between Entergy Louisiana and Entergy Texas in August 2016.

The purchased power capacity variance is primarily due to increased expenses due to capacity cost changes for ongoing purchased power capacity contracts.

The transmission revenue variance is primarily due to a decrease in the amount of transmission revenues allocated by MISO.

The retail electric price variance is primarily due to the implementation of the transmission cost recovery factor rider in September 2016 and an increase in the transmission cost recovery factor rider rate in March 2017, each as approved by the PUCT. See Note 2 to the financial statements herein and in the Form 10-K for further discussion of the transmission cost recovery factor rider filings.
    
Other Income Statement Variances

Third Quarter 2017 Compared to Third Quarter 2016

Taxes other than income taxes increased primarily due to an increase in ad valorem taxes resulting from higher assessments and a true-up to the sales and use tax accruals recorded in 2016 resulting from an audit settlement.
    
Depreciation and amortization expenses increased primarily due to additions to plant in service.


153
Entergy Texas, Inc. and Subsidiaries
Management's Financial Discussion and Analysis

Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016
    
Other operation and maintenance expenses increased primarily due to:

•
an increase of $2.6 million in transmission and distribution expenses primarily due to higher vegetation maintenance costs;
•
an increase of $1.8 million in customer service costs primarily due to higher write-offs of uncollectible customer accounts;
•
an increase of $1.6 million in fossil-fueled generation expenses primarily due to a higher scope of work done during plant outages in 2017 as compared to the same period in 2016;
•
an increase of $1.2 million as a result of the amount of transmission costs allocated by MISO; and
•
an increase of $1.1 million in information technology expenses including software maintenance costs and upgrade projects.

The increase was partially offset by a decrease of $4.5 million due to the termination of transmission equalization expenses, as allocated under the System Agreement, as a result of Entergy Texas’s exit from the System Agreement in August 2016.

Taxes other than income taxes increased primarily due to an increase in ad valorem taxes resulting from higher assessments and a true-up to the sales and use tax accruals recorded in 2016 resulting from an audit settlement.

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

The effective income tax rate was 35.9% for the third quarter 2017. The difference in the effective income tax rate for the third quarter 2017 versus the federal statutory rate of 35% was primarily due to certain book and tax differences related to utility plant items, partially offset by book and tax differences related to the allowance for equity funds used during construction.

The effective income tax rate was 34.6% for the nine months ended September 30, 2017. The difference in the effective income tax rate for the nine months ended September 30, 2017 versus the federal statutory rate of 35% was primarily due to book and tax differences related to the allowance for equity funds used during construction and the reversal of a portion of the provision for uncertain tax positions, partially offset by certain book and tax differences related to utility plant items and a write-off of a stock-based compensation deferred tax asset.

The effective income tax rates were 36.2% for the third quarter 2016 and 37.4% for the nine months ended September 30, 2016. The differences in the effective income tax rates for the third quarter 2016 and for the nine months ended September 30, 2016 versus the federal statutory rate of 35% were primarily due to state income taxes and certain book and tax differences related to utility plant items, partially offset by book and tax differences related to the allowance for equity funds used during construction.


154
Entergy Texas, Inc. and Subsidiaries
Management's Financial Discussion and Analysis

Liquidity and Capital Resources

Cash Flow

Cash flows for the nine months ended September 30, 2017 and 2016 were as follows:
 
2017
 
2016
 
(In Thousands)
Cash and cash equivalents at beginning of period

$6,181

 

$2,182

 
 
 
 
Cash flow provided by (used in):
 
 
 
Operating activities
192,954

 
196,698

Investing activities
(228,582
)
 
(251,366
)
Financing activities
30,949

 
53,829

Net decrease in cash and cash equivalents
(4,679
)
 
(839
)
 
 
 
 
Cash and cash equivalents at end of period

$1,502

 

$1,343


Operating Activities

Net cash flow provided by operating activities decreased $3.7 million for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 primarily due to decreased net income.

The decrease was partially offset by:

•
the timing of recovery of fuel and purchased power costs in 2017 as compared to the same period in 2016;
•
income tax refunds of $1.4 million in 2017 compared to income tax payments of $3.4 million in 2016 in accordance with an intercompany income tax allocation agreement; and
•
a decrease of $3.3 million in interest paid in 2017 as compared to the same period in 2016.

Investing Activities

Net cash flow used in investing activities decreased $22.8 million for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 primarily due to a decrease of $55.7 million in transmission construction expenditures primarily due to a lower scope of work performed in 2017 as compared to the same period in 2016, partially offset by an increase in baseline work performed in 2017 as compared to the same period in 2016. The decrease was partially offset by an increase of $24.3 million in fossil-fueled generation 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 $9.4 million in distribution construction expenditures primarily due to increased spending on digital technology improvements within the customer contact centers.

Financing Activities

Net cash flow provided by financing activities decreased $22.9 million for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 primarily due to the issuance of $125 million of 2.55% Series first mortgage bonds in March 2016, partially offset by money pool activity. See Note 4 to the financial statements herein and Note 5 to the financial statements in the Form 10-K for more details on long-term debt.

Increases in Entergy Texas’s payable to the money pool are a source of cash flow, and Entergy Texas’s payable to the money pool increased by $89.3 million for the nine months ended September 30, 2017 compared to decreasing

155
Entergy Texas, Inc. and Subsidiaries
Management's Financial Discussion and Analysis

by $9.7 million for the nine months ended September 30, 2016. The money pool is an inter-company borrowing arrangement designed to reduce the Utility subsidiaries’ need for external short-term borrowings.

Capital Structure

Entergy Texas’s capitalization is balanced between equity and debt, as shown in the following table. The decrease in the debt to capital ratio for Entergy Texas is primarily due to the increase in retained earnings.

 
September 30,
2017
 
December 31, 2016
Debt to capital
56.0
%
 
58.5
%
Effect of excluding the securitization bonds
(7.4
%)
 
(8.3
%)
Debt to capital, excluding securitization bonds (a)
48.6
%
 
50.2
%
Effect of subtracting cash
—
%
 
(0.1
%)
Net debt to net capital, excluding securitization bonds (a)
48.6
%
 
50.1
%

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

Net debt consists of debt less cash and cash equivalents.  Debt consists of long-term debt, including the currently maturing portion.  Capital consists of debt and common equity.  Net capital consists of capital less cash and cash equivalents.  Entergy Texas uses the debt to capital ratios excluding securitization bonds in analyzing its financial condition and believes they provide useful information to its investors and creditors in evaluating Entergy Texas’s financial condition because the securitization bonds are non-recourse to Entergy Texas, as more fully described in Note 5 to the financial statements in the Form 10-K.  Entergy Texas also uses the net debt to net capital ratio excluding securitization bonds in analyzing its financial condition and believes it provides useful information to its investors and creditors in evaluating Entergy Texas’s financial condition because net debt indicates Entergy Texas’s outstanding debt position that could not be readily satisfied by cash and cash equivalents on hand.

Uses and Sources of Capital

See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Liquidity and Capital Resources” in the Form 10-K for a discussion of Entergy Texas’s uses and sources of capital. Following are updates to information provided in the Form 10-K.

Entergy Texas is developing its capital investment plan for 2018 through 2020 and currently anticipates making $1.9 billion in capital investments during that period.  The estimate includes amounts associated with specific investments such as the Montgomery County Power Station discussed below; transmission projects to enhance reliability, reduce congestion, and enable economic growth; distribution spending to enhance reliability and improve service to customers, including initial investment to support advanced metering; system improvements; and other investments. Estimated capital expenditures are subject to periodic review and modification and may vary based on the ongoing effects of regulatory constraints and requirements, environmental compliance, business opportunities, market volatility, economic trends, business restructuring, changes in project plans, and the ability to access capital.

Entergy Texas’s receivables from or (payables to) the money pool were as follows:

September 30,
2017
 
December 31,
2016
 
September 30,
2016
 
December 31,
2015
(In Thousands)
($89,312)
 
$681
 
($12,399)
 
($22,068)

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

156
Entergy Texas, Inc. and Subsidiaries
Management's Financial Discussion and Analysis

Entergy Texas has a credit facility in the amount of $150 million scheduled to expire in August 2022.  The 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 $24.4 million of letters of credit outstanding under the credit facility.  In addition, Entergy Texas is a party to an uncommitted letter of credit facility as a means to post collateral to support its obligations to MISO. As of September 30, 2017, a $19.6 million letter of credit was outstanding under Entergy Texas’s uncommitted letter of credit facility. See Note 4 to the financial statements herein for additional discussion of the credit facilities.

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.

Hurricane Harvey

In August 2017, Hurricane Harvey caused extensive damage to Entergy Texas’s service area. The storm resulted in widespread power outages and significant damage primarily to distribution infrastructure. Total restoration costs for the repair and/or replacement of Entergy Texas’s electric facilities damaged by Hurricane Harvey are currently estimated to be in the range of $75 million to $105 million. Based on current progress, management expects total restoration costs to be towards the lower end of the range. Entergy Texas is considering all reasonable avenues to recover storm-related costs from Hurricane Harvey, including, but not limited to, securitization or other alternative financing and traditional retail recovery on an interim and permanent basis. Storm cost recovery or financing will be subject to review by applicable regulatory authorities.

Entergy Texas has recorded accounts payable for the estimated costs incurred that were necessary to return customers to service. Entergy Texas recorded corresponding regulatory assets of approximately $13.1 million and construction work in progress of approximately $25.9 million. Entergy Texas recorded the regulatory assets in accordance with its accounting policies and based on the historic treatment of such costs in its service area because management believes that recovery through some form of regulatory mechanism is probable. Because Entergy Texas has not gone through the regulatory process regarding these storm costs, there is an element of risk, and Entergy Texas is unable to predict with certainty the degree of success it may have in its recovery initiatives, the amount of restoration costs that it may ultimately recover, or the timing of such recovery.

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.


157
Entergy Texas, Inc. and Subsidiaries
Management's Financial Discussion and Analysis

Retail Rates

2011 Rate Case

See 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.

Fuel and purchased power cost recovery

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.

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

158
Entergy Texas, Inc. and Subsidiaries
Management's Financial Discussion and Analysis

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 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.
    
Federal Regulation

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

Industrial and Commercial Customers

See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS – Industrial and Commercial Customers” in the Form 10-K for a discussion of industrial and commercial customers.

Nuclear Matters

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

Environmental Risks

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

Critical Accounting Estimates

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

New Accounting Pronouncements

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

159

ENTERGY TEXAS, 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
 

$432,909

 

$442,085

 

$1,175,324

 

$1,233,311

 
 
 
 
 
 
 
 
 
OPERATING EXPENSES
 
 
 
 
 
 
 
 
Operation and Maintenance:
 
 
 
 
 
 
 
 
Fuel, fuel-related expenses, and gas purchased for resale
 
60,292

 
21,919

 
164,447

 
185,801

Purchased power
 
163,532

 
189,213

 
474,241

 
486,696

Other operation and maintenance
 
51,917

 
50,536

 
162,400

 
157,706

Taxes other than income taxes
 
20,811

 
17,486

 
59,506

 
54,081

Depreciation and amortization
 
29,788

 
27,412

 
87,272

 
79,526

Other regulatory charges - net
 
27,619

 
27,555

 
61,879

 
62,229

TOTAL
 
353,959

 
334,121

 
1,009,745

 
1,026,039

 
 
 
 
 
 
 
 
 
OPERATING INCOME
 
78,950

 
107,964

 
165,579

 
207,272

 
 
 
 
 
 
 
 
 
OTHER INCOME
 
 
 
 
 
 
 
 
Allowance for equity funds used during construction
 
1,849

 
1,472

 
4,762

 
6,174

Interest and investment income
 
244

 
221

 
656

 
689

Miscellaneous - net
 
1,298

 
(256
)
 
485

 
(726
)
TOTAL
 
3,391

 
1,437

 
5,903

 
6,137

 
 
 
 
 
 
 
 
 
INTEREST EXPENSE
 
 
 
 
 
 
 
 
Interest expense
 
21,714

 
22,416

 
64,949

 
65,993

Allowance for borrowed funds used during construction
 
(1,134
)
 
(954
)
 
(2,896
)
 
(4,008
)
TOTAL
 
20,580

 
21,462

 
62,053

 
61,985

 
 
 
 
 
 
 
 
 
INCOME BEFORE INCOME TAXES
 
61,761

 
87,939

 
109,429

 
151,424

 
 
 
 
 
 
 
 
 
Income taxes
 
22,173

 
31,806

 
37,886

 
56,671

 
 
 
 
 
 
 
 
 
NET INCOME
 

$39,588

 

$56,133

 

$71,543

 

$94,753

 
 
 
 
 
 
 
 
 
See Notes to Financial Statements.
 
 
 
 
 
 
 
 


160

ENTERGY TEXAS, 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
 

$71,543

 

$94,753

Adjustments to reconcile net income to net cash flow provided by operating activities:
 
 
 
 
Depreciation and amortization
 
87,272

 
79,526

Deferred income taxes, investment tax credits, and non-current taxes accrued
 
36,252

 
(7,605
)
Changes in assets and liabilities:
 
 
 
 
Receivables
 
(30,030
)
 
(40,678
)
Fuel inventory
 
(7,371
)
 
268

Accounts payable
 
24,711

 
(74
)
Prepaid taxes and taxes accrued
 
1,122

 
55,121

Interest accrued
 
(7,207
)
 
(9,453
)
Deferred fuel costs
 
(3,134
)
 
(6,472
)
Other working capital accounts
 
(8,455
)
 
(9,786
)
Provisions for estimated losses
 
(1,460
)
 
(3,318
)
Other regulatory assets
 
59,549

 
69,324

Pension and other postretirement liabilities
 
(22,978
)
 
(21,092
)
Other assets and liabilities
 
(6,860
)
 
(3,816
)
Net cash flow provided by operating activities
 
192,954

 
196,698

 
 
 
 
 
INVESTING ACTIVITIES
 
 
 
 
Construction expenditures
 
(243,226
)
 
(264,394
)
Allowance for equity funds used during construction
 
4,879

 
6,266

Insurance proceeds received for property damages
 
2,431

 
—

Change in money pool receivable - net
 
681

 
—

Changes in securitization account
 
6,653

 
6,762

Net cash flow used in investing activities
 
(228,582
)
 
(251,366
)
 
 
 
 
 
FINANCING ACTIVITIES
 
 
 
 
Proceeds from the issuance of long-term debt
 
—

 
123,502

Retirement of long-term debt
 
(58,076
)
 
(55,764
)
Changes in money pool payable - net
 
89,312

 
(9,669
)
Other
 
(287
)
 
(4,240
)
Net cash flow provided by financing activities
 
30,949

 
53,829

 
 
 
 
 
Net decrease in cash and cash equivalents
 
(4,679
)
 
(839
)
Cash and cash equivalents at beginning of period
 
6,181

 
2,182

Cash and cash equivalents at end of period
 

$1,502

 

$1,343

 
 
 
 
 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
 
 
 
 
Cash paid (received) during the period for:
 
 
 
 
Interest - net of amount capitalized
 

$70,237

 

$73,570

Income taxes
 

($1,446
)
 

$3,443

 
 
 
 
 
See Notes to Financial Statements.
 
 
 
 


161

ENTERGY TEXAS, 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
 

$1,472

 

$1,216

Temporary cash investments
 
30

 
4,965

Total cash and cash equivalents
 
1,502

 
6,181

Securitization recovery trust account
 
30,798

 
37,451

Accounts receivable:
 
 
 
 
Customer
 
86,860

 
71,803

Allowance for doubtful accounts
 
(552
)
 
(828
)
Associated companies
 
41,002

 
39,447

Other
 
12,982

 
14,756

Accrued unbilled revenues
 
53,962

 
39,727

Total accounts receivable
 
194,254

 
164,905

Fuel inventory - at average cost
 
44,548

 
37,177

Materials and supplies - at average cost
 
40,294

 
36,631

Prepayments and other
 
24,194

 
18,599

TOTAL
 
335,590

 
300,944

 
 
 
 
 
OTHER PROPERTY AND INVESTMENTS
 
 
 
 
Investments in affiliates - at equity
 
538

 
600

Non-utility property - at cost (less accumulated depreciation)
 
376

 
376

Other
 
19,126

 
18,801

TOTAL
 
20,040

 
19,777

 
 
 
 
 
UTILITY PLANT
 
 
 
 
Electric
 
4,431,291

 
4,274,069

Construction work in progress
 
153,679

 
111,227

TOTAL UTILITY PLANT
 
4,584,970

 
4,385,296

Less - accumulated depreciation and amortization
 
1,566,743

 
1,526,057

UTILITY PLANT - NET
 
3,018,227

 
2,859,239

 
 
 
 
 
DEFERRED DEBITS AND OTHER ASSETS
 
 
 
 
Regulatory assets:
 
 
 
 
Regulatory asset for income taxes - net
 
104,915

 
105,816

Other regulatory assets (includes securitization property of $330,669 as of September 30, 2017 and $384,609 as of December 31, 2016)
 
681,508

 
740,156

Other
 
8,303

 
7,149

TOTAL
 
794,726

 
853,121

 
 
 
 
 
TOTAL ASSETS
 

$4,168,583

 

$4,033,081

 
 
 
 
 
See Notes to Financial Statements.
 
 

 
 


162

ENTERGY TEXAS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND EQUITY
September 30, 2017 and December 31, 2016
(Unaudited)
 
 
2017
 
2016
 
 
(In Thousands)
CURRENT LIABILITIES
 
 
 
 
Accounts payable:
 
 
 
 
Associated companies
 

$142,695

 

$47,867

Other
 
106,117

 
77,342

Customer deposits
 
44,141

 
44,419

Taxes accrued
 
16,473

 
15,351

Interest accrued
 
18,770

 
25,977

Deferred fuel costs
 
51,409

 
54,543

Other
 
10,445

 
9,388

TOTAL
 
390,050

 
274,887

 
 
 
 
 
NON-CURRENT LIABILITIES
 
 
 
 
Accumulated deferred income taxes and taxes accrued
 
1,061,320

 
1,027,647

Accumulated deferred investment tax credits
 
12,221

 
12,934

Other regulatory liabilities
 
7,002

 
8,502

Asset retirement cost liabilities
 
6,742

 
6,470

Accumulated provisions
 
6,124

 
7,584

Pension and other postretirement liabilities
 
44,359

 
67,313

Long-term debt (includes securitization bonds of $371,422 as of September 30, 2017 and $429,043 as of December 31, 2016)
 
1,451,643

 
1,508,407

Other
 
48,585

 
50,343

TOTAL
 
2,637,996

 
2,689,200

 
 
 
 
 
Commitments and Contingencies
 
 
 
 
 
 
 
 
 
COMMON EQUITY
 
 
 
 
Common stock, no par value, authorized 200,000,000 shares; issued and outstanding 46,525,000 shares in 2017 and 2016
 
49,452

 
49,452

Paid-in capital
 
481,994

 
481,994

Retained earnings
 
609,091

 
537,548

TOTAL
 
1,140,537

 
1,068,994

 
 
 
 
 
TOTAL LIABILITIES AND EQUITY
 

$4,168,583

 

$4,033,081

 
 
 
 
 
See Notes to Financial Statements.
 
 
 
 


163

ENTERGY TEXAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON EQUITY
For the Nine Months Ended September 30, 2017 and 2016
(Unaudited)
 
 
 
 
 
Common Equity
 
 
 
Common
Stock
 
Paid-in
Capital
 
Retained
Earnings
 
Total
 
(In Thousands)
 
 
 
 
 
 
 
 
Balance at December 31, 2015

$49,452

 

$481,994

 

$430,010

 

$961,456

 
 
 
 
 
 
 
 
Net income
—

 
—

 
94,753

 
94,753

 
 
 
 
 
 
 
 
Balance at September 30, 2016

$49,452

 

$481,994

 

$524,763

 

$1,056,209

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2016

$49,452

 

$481,994

 

$537,548

 

$1,068,994

 
 
 
 
 
 
 
 
Net income
—

 
—

 
71,543

 
71,543

 
 
 
 
 
 
 
 
Balance at September 30, 2017

$49,452

 

$481,994

 

$609,091

 

$1,140,537

 
 
 
 
 
 
 
 
See Notes to Financial Statements.
 
 
 
 
 
 
 


164

ENTERGY TEXAS, INC. 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)
 
 
Electric Operating Revenues:
 
 
 
 
 
 
 
 
Residential
 

$202

 

$196

 

$6

 
3

Commercial
 
101

 
91

 
10

 
11

Industrial
 
97

 
75

 
22

 
29

Governmental
 
6

 
6

 
—

 
—

Total retail
 
406

 
368

 
38

 
10

Sales for resale:
 
 
 
 
 
 
 
 
Associated companies
 
18

 
52

 
(34
)
 
(65
)
Non-associated companies
 
4

 
13

 
(9
)
 
(69
)
Other
 
5

 
9

 
(4
)
 
(44
)
Total
 

$433

 

$442

 

($9
)
 
(2
)
 
 
 
 
 
 
 
 
 
Billed Electric Energy Sales (GWh):
 
 
 
 
 
 
 
 
Residential
 
1,839

 
1,989

 
(150
)
 
(8
)
Commercial
 
1,279

 
1,336

 
(57
)
 
(4
)
Industrial
 
2,018

 
1,948

 
70

 
4

Governmental
 
73

 
75

 
(2
)
 
(3
)
Total retail
 
5,209

 
5,348

 
(139
)
 
(3
)
Sales for resale:
 
 
 
 
 
 
 
 
Associated companies
 
386

 
1,187

 
(801
)
 
(67
)
Non-associated companies
 
238

 
354

 
(116
)
 
(33
)
Total
 
5,833

 
6,889

 
(1,056
)
 
(15
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended
 
Increase/
 
 
Description
 
2017
 
2016
 
(Decrease)
 
%
 
 
(Dollars In Millions)
 
 
Electric Operating Revenues:
 
 
 
 
 
 
 
 
Residential
 

$482

 

$461

 

$21

 
5

Commercial
 
282

 
260

 
22

 
8

Industrial
 
292

 
263

 
29

 
11

Governmental
 
18

 
18

 
—

 
—

Total retail
 
1,074

 
1,002

 
72

 
7

Sales for resale:
 
 
 
 
 
 
 
 
Associated companies
 
47

 
169

 
(122
)
 
(72
)
Non-associated companies
 
18

 
31

 
(13
)
 
(42
)
Other
 
36

 
31

 
5

 
16

Total
 

$1,175

 

$1,233

 

($58
)
 
(5
)
 
 
 
 
 
 
 
 
 
Billed Electric Energy Sales (GWh):
 
 
 
 
 
 
 
 
Residential
 
4,326

 
4,473

 
(147
)
 
(3
)
Commercial
 
3,387

 
3,423

 
(36
)
 
(1
)
Industrial
 
5,781

 
5,693

 
88

 
2

Governmental
 
205

 
213

 
(8
)
 
(4
)
Total retail
 
13,699

 
13,802

 
(103
)
 
(1
)
Sales for resale:
 
 
 
 
 
 
 
 
Associated companies
 
1,149

 
4,292

 
(3,143
)
 
(73
)
Non-associated companies
 
586

 
848

 
(262
)
 
(31
)
Total
 
15,434

 
18,942

 
(3,508
)
 
(19
)

165


SYSTEM ENERGY RESOURCES, INC.

MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS

Results of Operations

System Energy’s principal asset currently consists of an ownership interest and a leasehold interest in Grand Gulf.  The capacity and energy from its 90% interest is sold under the Unit Power Sales Agreement to its only four customers, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans.  System Energy’s operating revenues are derived from the allocation of the capacity, energy, and related costs associated with its 90% interest in Grand Gulf pursuant to the Unit Power Sales Agreement.  Payments under the Unit Power Sales Agreement are System Energy’s only source of operating revenues.

Third Quarter 2017 Compared to Third Quarter 2016

Net income changed insignificantly, decreasing by $1.8 million, for the third quarter 2017 compared to the third quarter 2016.

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

Net income decreased $13.1 million primarily due to provisions against revenue being recorded in 2017 in connection with the complaint against System Energy’s return on equity, lower other regulatory credits, and a higher effective income tax rate in 2017. See “Federal Regulation - Complaint Against System Energy” below for further discussion of the complaint against System Energy. System Energy records a regulatory debit or credit for the difference between asset retirement obligation-related expenses and trust earnings plus asset retirement obligation-related costs collected in revenue. The decrease in regulatory credits is primarily caused by decreases in depreciation and accretion expenses.

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

$245,863

 

$230,661

 
 
 
 
Cash flow provided by (used in):
 
 
 
Operating activities
279,485

 
234,759

Investing activities
(259,598
)
 
(193,271
)
Financing activities
(120,783
)
 
(80,987
)
Net decrease in cash and cash equivalents
(100,896
)
 
(39,499
)
 
 
 
 
Cash and cash equivalents at end of period

$144,967

 

$191,162


Operating Activities

Net cash flow provided by operating activities increased $44.7 million for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 primarily due to a decrease in spending of $36.1 million on nuclear refueling outages in 2017 as compared to the same period in 2016 and the timing of collection of receivables,

166
System Energy Resources, Inc.
Management's Financial Discussion and Analysis

partially offset by proceeds of $28.4 million received in August 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 a discussion of the DOE litigation.

Investing Activities

Net cash flow used in investing activities increased $66.3 million for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 primarily due to:

•
money pool activity;
•
proceeds of $15.8 million received in August 2016 from the DOE resulting from litigation regarding spent nuclear fuel storage costs that were previously capitalized. See Note 8 to the financial statements in the Form 10-K for discussion of the DOE litigation; and
•
$9.1 million in funds held on deposit for interest payments due October 1, 2017.

The increase was partially offset by:

•
fluctuations in nuclear fuel activity because of variations from year to year in the timing and pricing of fuel reload requirements in the Utility business, material and services deliveries, and the timing of cash payments during the nuclear fuel cycle; and
•
a decrease of $15.9 million in nuclear construction expenditures primarily as a result of a higher scope of work performed in 2016 on Grand Gulf outage projects and lower spending in 2017 on compliance with NRC post-Fukushima requirements.

Increases in System Energy’s receivable from the money pool are a use of cash flow and System Energy’s receivable from the money pool increased by $202.7 million for the nine months ended September 30, 2017 compared to decreasing by $8.4 million for the nine months ended September 30, 2016.  The money pool is an inter-company borrowing arrangement designed to reduce the Utility subsidiaries’ need for external short-term borrowings.

Financing Activities

Net cash flow used in financing activities increased $39.8 million for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 primarily due to:

•
a decrease in net borrowings of $65.2 million on the nuclear fuel company variable interest entity’s credit facility in 2017 as compared to the same period in 2016; and
•
the payment in February 2017, at maturity, of $50 million of the System Energy nuclear fuel company variable interest entity’s 4.02% Series H notes.

The increase was partially offset by:

•
a decrease in common stock dividends and distributions of $53.4 million in 2017 compared to 2016 in order to maintain the targeted capital structure; and
•
the partial repayment caused by System Energy in May 2016 of $22 million of 5.875% pollution control revenue bonds due 2022 issued on behalf of System Energy.

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.


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System Energy Resources, Inc.
Management's Financial Discussion and Analysis

Capital Structure

System Energy’s capitalization is balanced between equity and debt, as shown in the following table.
 
September 30,
2017
 
December 31, 2016
Debt to capital
45.0
%
 
45.5
%
Effect of subtracting cash
(7.0
%)
 
(12.0
%)
Net debt to net capital
38.0
%
 
33.5
%

Net debt consists of debt less cash and cash equivalents.  Debt consists of short-term borrowings and long-term debt, including the currently maturing portion.  Capital consists of debt and common equity.  Net capital consists of capital less cash and cash equivalents.  System Energy uses the debt to capital ratio in analyzing its financial condition and believes it provides useful information to its investors and creditors in evaluating System Energy’s financial condition.  System Energy uses the net debt to net capital ratio in analyzing its financial condition and believes it provides useful information to its investors and creditors in evaluating System Energy’s financial condition because net debt indicates System Energy’s outstanding debt position that could not be readily satisfied by cash and cash equivalents on hand.

Uses and Sources of Capital

See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Liquidity and Capital Resources” in the Form 10-K for a discussion of System Energy’s uses and sources of capital. Following are updates to the information provided in the Form 10-K.

System Energy is developing its capital investment plan for 2018 through 2020 and currently anticipates making $515 million in capital investments during that period. The estimate includes amounts associated with specific investments and initiatives such as investments in Grand Gulf.

System Energy’s receivables from the money pool were as follows:
September 30,
2017
 
December 31,
2016
 
September 30,
2016
 
December 31,
2015
(In Thousands)
$236,467
 
$33,809
 
$31,511
 
$39,926

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

The System Energy nuclear fuel company variable interest entity has a credit facility in the amount of $120 million scheduled to expire in May 2019. As of September 30, 2017, $31.8 million in letters of credit to support a like amount of commercial paper issued and $50 million in loans were outstanding under the System Energy nuclear fuel company variable interest entity credit facility. See Note 4 to the financial statements herein for additional discussion of the variable interest entity credit facility.

Federal Regulation

See the “Rate, Cost-recovery, and Other Regulation - Federal Regulation” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis in the Form 10-K and Note 2 to the financial statements herein and in the Form 10-K for a discussion of federal regulation.


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System Energy Resources, Inc.
Management's Financial Discussion and Analysis

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.

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.

Nuclear Matters

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


169
System Energy Resources, Inc.
Management's Financial Discussion and Analysis

Environmental Risks

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

Critical Accounting Estimates

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

New Accounting Pronouncements

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


170

SYSTEM ENERGY RESOURCES, INC.
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
 

$156,106

 

$114,039

 

$475,849

 

$403,056

 
 
 
 
 
 
 
 
 
OPERATING EXPENSES
 
 
 
 
 
 
 
 
Operation and Maintenance:
 
 
 
 
 
 
 
 
Fuel, fuel-related expenses, and gas purchased for resale
 
16,170

 
(7,393
)
 
53,164

 
26,429

Nuclear refueling outage expenses
 
4,435

 
4,958

 
13,595

 
14,448

Other operation and maintenance
 
51,392

 
32,867

 
154,103

 
100,793

Decommissioning
 
8,290

 
12,802

 
34,974

 
37,782

Taxes other than income taxes
 
6,679

 
6,256

 
19,767

 
18,894

Depreciation and amortization
 
34,524

 
30,811

 
105,152

 
100,902

Other regulatory credits - net
 
(2,843
)
 
(10,148
)
 
(24,626
)
 
(32,564
)
TOTAL
 
118,647

 
70,153

 
356,129

 
266,684

 
 
 
 
 
 
 
 
 
OPERATING INCOME
 
37,459

 
43,886

 
119,720

 
136,372

 
 
 
 
 
 
 
 
 
OTHER INCOME
 
 
 
 
 
 
 
 
Allowance for equity funds used during construction
 
1,736

 
1,758

 
4,148

 
6,089

Interest and investment income
 
6,624

 
4,233

 
15,021

 
12,631

Miscellaneous - net
 
(130
)
 
(109
)
 
(361
)
 
(365
)
TOTAL
 
8,230

 
5,882

 
18,808

 
18,355

 
 
 
 
 
 
 
 
 
INTEREST EXPENSE
 
 
 
 
 
 
 
 
Interest expense
 
9,169

 
9,186

 
27,469

 
28,119

Allowance for borrowed funds used during construction
 
(425
)
 
(440
)
 
(1,014
)
 
(1,536
)
TOTAL
 
8,744

 
8,746

 
26,455

 
26,583

 
 
 
 
 
 
 
 
 
INCOME BEFORE INCOME TAXES
 
36,945

 
41,022

 
112,073

 
128,144

 
 
 
 
 
 
 
 
 
Income taxes
 
16,362

 
18,652

 
51,793

 
54,726

 
 
 
 
 
 
 
 
 
NET INCOME
 

$20,583

 

$22,370

 

$60,280

 

$73,418

 
 
 
 
 
 
 
 
 
See Notes to Financial Statements.
 
 
 
 
 
 
 
 

171





























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172

SYSTEM ENERGY RESOURCES, INC.
STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2017 and 2016
(Unaudited)
 
 
2017
 
2016
 
 
(In Thousands)
OPERATING ACTIVITIES
 
 
 
 
Net income
 

$60,280

 

$73,418

Adjustments to reconcile net income to net cash flow provided by operating activities:
 
 
 
 
Depreciation, amortization, and decommissioning, including nuclear fuel amortization
 
184,625

 
176,571

Deferred income taxes, investment tax credits, and non-current taxes accrued
 
44,017

 
73,829

Changes in assets and liabilities:
 
 
 
 
Receivables
 
21,147

 
9,084

Accounts payable
 
2,344

 
(2,217
)
Prepaid taxes and taxes accrued
 
2,956

 
(30,063
)
Interest accrued
 
401

 
406

Other working capital accounts
 
7,605

 
(22,051
)
Other regulatory assets
 
1,196

 
(12,392
)
Pension and other postretirement liabilities
 
(14,665
)
 
(15,789
)
Other assets and liabilities
 
(30,421
)
 
(16,037
)
Net cash flow provided by operating activities
 
279,485

 
234,759

 
 
 
 
 
INVESTING ACTIVITIES
 
 
 
 
Construction expenditures
 
(60,041
)
 
(71,471
)
Allowance for equity funds used during construction
 
4,148

 
6,089

Nuclear fuel purchases
 
(24,239
)
 
(137,248
)
Proceeds from the sale of nuclear fuel
 
60,188

 
11,467

Changes in other investments - net
 
(9,061
)
 
—

Proceeds from nuclear decommissioning trust fund sales
 
308,134

 
392,926

Investment in nuclear decommissioning trust funds
 
(336,069
)
 
(419,255
)
Changes in money pool receivable - net
 
(202,658
)
 
8,415

Litigation proceeds for reimbursement of spent nuclear fuel storage costs
 
—

 
15,806

Net cash flow used in investing activities
 
(259,598
)
 
(193,271
)
 
 
 
 
 
FINANCING ACTIVITIES
 
 
 
 
Retirement of long-term debt
 
(50,003
)
 
(22,002
)
Changes in credit borrowings - net
 
14,858

 
80,041

Common stock dividends and distributions
 
(85,610
)
 
(139,000
)
Other
 
(28
)
 
(26
)
Net cash flow used in financing activities
 
(120,783
)
 
(80,987
)
 
 
 
 
 
Net decrease in cash and cash equivalents
 
(100,896
)
 
(39,499
)
Cash and cash equivalents at beginning of period
 
245,863

 
230,661

Cash and cash equivalents at end of period
 

$144,967

 

$191,162

 
 
 
 
 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
 
 
 
 
Cash paid during the period for:
 
 
 
 
Interest - net of amount capitalized
 

$26,251

 

$27,087

Income taxes
 

$—

 

$3,402

 
 
 
 
 
See Notes to Financial Statements.
 
 
 
 


173

SYSTEM ENERGY RESOURCES, INC.
BALANCE SHEETS
ASSETS
September 30, 2017 and December 31, 2016
(Unaudited)
 
 
2017
 
2016
 
 
(In Thousands)
CURRENT ASSETS
 
 
 
 
Cash and cash equivalents:
 
 
 
 
Cash
 

$47

 

$786

Temporary cash investments
 
144,920

 
245,077

Total cash and cash equivalents
 
144,967

 
245,863

Accounts receivable:
 
 
 
 
Associated companies
 
284,724

 
104,390

Other
 
4,814

 
3,637

Total accounts receivable
 
289,538

 
108,027

Materials and supplies - at average cost
 
86,719

 
82,469

Deferred nuclear refueling outage costs
 
11,713

 
24,729

Prepaid taxes
 
12,926

 
15,882

Prepayments and other
 
14,450

 
4,229

TOTAL
 
560,313

 
481,199

 
 
 
 
 
OTHER PROPERTY AND INVESTMENTS
 
 
 
 
Decommissioning trust funds
 
870,610

 
780,496

TOTAL
 
870,610

 
780,496

 
 
 
 
 
UTILITY PLANT
 
 
 
 
Electric
 
4,308,864

 
4,331,668

Property under capital lease
 
585,084

 
585,084

Construction work in progress
 
80,343

 
43,888

Nuclear fuel
 
188,956

 
259,635

TOTAL UTILITY PLANT
 
5,163,247

 
5,220,275

Less - accumulated depreciation and amortization
 
3,155,691

 
3,063,249

UTILITY PLANT - NET
 
2,007,556

 
2,157,026

 
 
 
 
 
DEFERRED DEBITS AND OTHER ASSETS
 
 
 
 
Regulatory assets:
 
 
 
 
Regulatory asset for income taxes - net
 
86,515

 
93,127

Other regulatory assets
 
416,628

 
411,212

Other
 
4,421

 
4,652

TOTAL
 
507,564

 
508,991

 
 
 
 
 
TOTAL ASSETS
 

$3,946,043

 

$3,927,712

 
 
 
 
 
See Notes to Financial Statements.
 
 
 
 

174

SYSTEM ENERGY RESOURCES, INC.
BALANCE SHEETS
LIABILITIES AND EQUITY
September 30, 2017 and December 31, 2016
(Unaudited)
 
 
2017
 
2016
 
 
(In Thousands)
CURRENT LIABILITIES
 
 
 
 
Currently maturing long-term debt
 

$4

 

$50,003

Short-term borrowings
 
31,751

 
66,893

Accounts payable:
 
 
 
 
Associated companies
 
10,325

 
5,843

Other
 
44,958

 
50,558

Interest accrued
 
14,450

 
14,049

Other
 
2,958

 
2,957

TOTAL
 
104,446

 
190,303

 
 
 
 
 
NON-CURRENT LIABILITIES
 
 
 
 
Accumulated deferred income taxes and taxes accrued
 
1,147,913

 
1,112,865

Accumulated deferred investment tax credits
 
39,726

 
41,663

Other regulatory liabilities
 
424,381

 
370,862

Decommissioning
 
853,291

 
854,202

Pension and other postretirement liabilities
 
103,185

 
117,850

Long-term debt
 
551,387

 
501,129

Other
 
8,221

 
15

TOTAL
 
3,128,104

 
2,998,586

 
 
 
 
 
Commitments and Contingencies
 
 
 
 
 
 
 
 
 
COMMON EQUITY
 
 
 
 
Common stock, no par value, authorized 1,000,000 shares; issued and outstanding 789,350 shares in 2017 and 2016
 
679,350

 
679,350

Retained earnings
 
34,143

 
59,473

TOTAL
 
713,493

 
738,823

 
 
 
 
 
TOTAL LIABILITIES AND EQUITY
 

$3,946,043

 

$3,927,712

 
 
 
 
 
See Notes to Financial Statements.
 
 
 
 


175

SYSTEM ENERGY RESOURCES, INC.
STATEMENTS OF CHANGES IN COMMON EQUITY
For the Nine Months Ended September 30, 2017 and 2016
(Unaudited)
 
 
 
 
 
Common Equity
 
 
 
Common
Stock
 
Retained
Earnings
 
Total
 
(In Thousands)
 
 
 
 
 
 
Balance at December 31, 2015

$719,350

 

$61,729

 

$781,079

 
 
 
 
 
 
Net income
—

 
73,418

 
73,418

Common stock dividends and distributions
(40,000
)
 
(99,000
)
 
(139,000
)
 
 
 
 
 
 
Balance at September 30, 2016

$679,350

 

$36,147

 

$715,497

 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2016

$679,350

 

$59,473

 

$738,823

 
 
 
 
 
 
Net income
—

 
60,280

 
60,280

Common stock dividends
—

 
(85,610
)
 
(85,610
)
 
 
 
 
 
 
Balance at September 30, 2017

$679,350

 

$34,143

 

$713,493

 
 
 
 
 
 
See Notes to Financial Statements.
 
 
 
 
 



176

ENTERGY CORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION

Item 1.  Legal Proceedings

See “PART I, Item 1, Litigation” in the Form 10-K for a discussion of legal, administrative, and other regulatory proceedings affecting Entergy.  Also see Note 1 and Note 2 to the financial statements herein and “Item 5, Other Information, Environmental Regulation” below for updates regarding environmental proceedings and regulation.

Item 1A.  Risk Factors

There have been no material changes to the risk factors discussed in “PART I, Item 1A, Risk Factors” in the Form 10-K.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities (a)
Period
 
Total Number of
Shares Purchased
 
Average Price Paid
per Share
 
Total Number of
Shares Purchased
as Part of a
Publicly
Announced Plan
 
Maximum $
Amount
of Shares that May
Yet be Purchased
Under a Plan (b)
 
 
 
 
 
 
 
 
 
7/01/2017-7/31/2017
 
—

 

$—

 
—

 

$350,052,918

8/01/2017-8/31/2017
 
—

 

$—

 
—

 

$350,052,918

9/01/2017-9/30/2017
 
—

 

$—

 
—

 

$350,052,918

Total
 
—

 

$—

 
—

 
 

In accordance with Entergy’s stock-based compensation plans, Entergy periodically grants stock options to key employees, which may be exercised to obtain shares of Entergy’s common stock.  According to the plans, these shares can be newly issued shares, treasury stock, or shares purchased on the open market.  Entergy’s management has been authorized by the Board to repurchase on the open market shares up to an amount sufficient to fund the exercise of grants under the plans.  In addition to this authority, the Board has authorized share repurchase programs to enable opportunistic purchases in response to market conditions. In October 2010 the Board granted authority for a $500 million share repurchase program. The amount of share repurchases under these programs may vary as a result of material changes in business results or capital spending or new investment opportunities.  In addition, in the first quarter 2017, Entergy withheld 1,054 shares of its common stock at $70.58 per share, 122,148 shares of its common stock at $70.61 per share, and 31,243 shares of its common stock at $71.89 per share to pay income taxes due upon vesting of restricted stock granted and payout of performance units as part of its long-term incentive program.

(a)
See Note 12 to the financial statements in the Form 10-K for additional discussion of the stock-based compensation plans.
(b)
Maximum amount of shares that may yet be repurchased relates only to the $500 million plan and does not include an estimate of the amount of shares that may be purchased to fund the exercise of grants under the stock-based compensation plans.


177

Item 5.  Other Information

Regulation of the Nuclear Power Industry

Following are updates to the Regulation of the Nuclear Power Industry section of Part I, Item 1 of the Form 10-K.

Nuclear Waste Policy Act of 1982

Nuclear Plant Decommissioning

See the discussion in Part I, Item 1 in the Form 10-K for information regarding decommissioning funding for the nuclear plants.  Following are updates to that discussion.  

In March 2017 filings with the NRC were made for certain Entergy subsidiaries’ nuclear plants reporting on decommissioning funding.  Those reports showed that decommissioning funding for each of those nuclear plants met the NRC’s financial assurance requirements.

In March 2017, Entergy sold the FitzPatrick plant to Exelon, and as part of the transaction, the FitzPatrick decommissioning trust fund, along with the decommissioning obligation for that plant, was transferred to Exelon. The FitzPatrick spent fuel disposal contract was assigned to Exelon as part of the transaction.

Environmental Regulation

Following are updates to the Environmental Regulation section of Part I, Item 1 of the Form 10-K.

Clean Air Act and Subsequent Amendments

Regional Haze

In June 2005 the EPA issued its final Clean Air Visibility Rule (CAVR) regulations that potentially could result in a requirement to install SO2 and NOx pollution control technology as Best Available Retrofit Control Technology (BART) to continue operating certain of Entergy’s fossil generation units.  The rule leaves certain CAVR determinations to the states.

In Arkansas, the Arkansas Department of Environmental Quality prepared a state implementation plan (SIP) for Arkansas facilities to implement its obligations under the CAVR.   In April 2012 the EPA finalized a decision addressing the Arkansas Regional Haze SIP, in which it disapproved a large portion of the Arkansas Regional Haze SIP, including the emission limits for NOx and SO2 at White Bluff.    By Court order, the EPA had to issue a final federal implementation plan (FIP) for Arkansas Regional Haze by no later than August 31, 2016. In April 2015 the EPA published a proposed FIP for Arkansas, taking comment on requiring installation of scrubbers and low NOx burners to continue operating both units at the White Bluff plant and both units at the Independence plant and NOx controls to continue operating the Lake Catherine plant. Entergy filed comments by the deadline in August 2015. Among other comments, including opposition to the EPA’s proposed controls on the Independence units, Entergy proposed to meet more stringent SO2 and NOx limits at both White Bluff and Independence within three years of the effective date of the final FIP and to cease the use of coal at the White Bluff units at a later date.

In September 2016 the EPA published the final Arkansas Regional Haze FIP. In most respects, the EPA finalized its original proposal but shortened the time for compliance for installation of the NOx controls. The FIP requires an emission limitation consistent with SO2 scrubbers at both White Bluff and Independence by October 2021 and NOx controls by April 2018. The EPA declined to adopt Entergy’s proposals related to ceasing coal use as an alternative to SO2 scrubbers for White Bluff SO2 BART. For some or all of the FIP, Entergy anticipates that Arkansas will submit a SIP to replace the FIP. In November 2016, Entergy and other interested parties, such as the State of Arkansas, filed

178

petitions for administrative reconsideration and stay at the EPA as well as petitions for judicial review to the U.S. Court of Appeals for the Eighth Circuit. In February 2017, Entergy, the State of Arkansas, and other parties requested the Court to judicially stay the FIP.  In March 2017 the EPA granted in part the petitions for reconsideration and stated its intent to stay the FIP compliance deadlines by at least 90 days. Subsequently, the EPA granted a 90 day stay of the FIP effective dates and the EPA now has proposed approval of (i) an extension of these NOx limit deadlines to January 2020 and (ii) a state implementation for NOx controls that allows compliance with the provisions of the Cross-State Air Pollution Rule to satisfy the NOx regional haze provisions for White Bluff, Independence, and Lake Catherine. Arkansas published a proposed replacement state plan in October 2017. This plan is under review, and comments are due to the state in January 2018. The Eighth Circuit granted the government’s motion to hold the appeal litigation in abeyance and has directed the parties to file status reports in December 2017.

In Louisiana, Entergy is working with the Louisiana Department of Environmental Quality (LDEQ) and the EPA to revise the Louisiana SIP for regional haze, which was disapproved in part in 2012. The LDEQ submitted a revised SIP in February 2017. In May 2017 the EPA proposed to approve a majority of the revisions. In September 2017 the EPA issued a proposed SIP approval for the Nelson plant, requiring an emission limitation consistent with the use of low-sulfur coal, with a compliance date three years from the effective date of the final EPA approval. The EPA’s final approval decision is expected in the fourth quarter 2017. Entergy continues to monitor the submission and to file comments in the process as appropriate.

New and Existing Source Performance Standards for Greenhouse Gas Emissions

As a part of a climate plan announced in June 2013, the EPA was directed to (i) reissue proposed carbon pollution standards for new power plants by September 20, 2013, with finalization of the rules to occur in a timely manner; (ii) issue proposed carbon pollution standards, regulations, or guidelines, as appropriate, for modified, reconstructed, and existing power plants no later than June 1, 2014; (iii) finalize those rules by no later than June 1, 2015; and (iv) include in the guidelines addressing existing power plants a requirement that states submit to the EPA the implementation plans required under Section 111(d) of the Clean Air Act and its implementing regulations by no later than June 30, 2016. In January 2014 the EPA issued the proposed New Source Performance Standards rule for new sources. In June 2014 the EPA issued proposed standards for existing power plants.  Entergy has been actively engaged in the rulemaking process, having submitted comments to the EPA in December 2014. The EPA issued the final rules for both new and existing sources in August 2015, and they were published in the Federal Register in October 2015. The existing source rule, also called the Clean Power Plan, requires states to develop plans for compliance with the EPA’s emission standards. In February 2016 the U.S. Supreme Court issued a stay halting the effectiveness of the rule until the rule is reviewed by the D.C. Circuit and by the U.S. Supreme Court, if further review is granted. In March 2017 the current administration issued an executive order entitled “Promoting Energy Independence and Economic Growth” instructing the EPA to review and then to suspend, revise, or rescind the Clean Power Plan, if appropriate. The EPA subsequently asked the D.C. Circuit to hold the challenges to the Clean Power Plan and the greenhouse gas new source performance standards in abeyance and signed a notice of withdrawal of the proposed federal plan, model trading rules, and the Clean Energy Incentive Program. The court placed the litigation in abeyance in April 2017. The EPA Administrator also sent a letter to the affected governors explaining that states are not currently required to meet Clean Power Plan deadlines, some of which have passed. In October 2017 the EPA announced a proposed rule that would repeal the Clean Power Plan on the grounds that it exceeds the EPA’s statutory authority under the Clean Air Act. The EPA also asked the D.C. Circuit to continue to hold the litigation over the Clean Power Plan in abeyance “pending the conclusion of rulemaking” and stated to the court that the agency intends to issue “in the near future” an advance notice of proposed rulemaking seeking comments on replacing the Clean Power Plan. Also in October 2017, the EPA submitted its draft advance notice of proposed rulemaking to the Office of Management and Budget for review, which typically takes 60-90 days.

Clean Water Act

The 1972 amendments to the Federal Water Pollution Control Act (known as the Clean Water Act) provide the statutory basis for the National Pollutant Discharge Elimination System (NPDES) permit program and the basic structure for regulating the discharge of pollutants from point sources to waters of the United States.  The Clean Water Act requires virtually all discharges of pollutants to waters of the United States to be permitted.  Section 316(b) of the

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Clean Water Act regulates cooling water intake structures, section 401 of the Clean Water Act requires a water quality certification from the state in support of certain federal actions and approvals, and section 404 regulates the dredge and fill of waters of the United States, including jurisdictional wetlands.

NPDES Permits and Section 401 Water Quality Certifications

NPDES permits are subject to renewal every five years. Consequently, Entergy is currently in various stages of the data evaluation and discharge permitting process for its power plants.

For thirteen years, Entergy participated in an administrative permitting process with the New York State Department of Environmental Conservation (NYSDEC) for renewal of the Indian Point 2 and Indian Point 3 discharge permit. That proceeding recently was settled, along with other ongoing proceedings. 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. For a discussion of the recent Indian Point settlement, see “Entergy Wholesale Commodities Authorization to Operate Its Nuclear Power Plants” in Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis.

316(b) Cooling Water Intake Structures

The EPA finalized regulations in July 2004 governing the intake of water at large existing power plants employing cooling water intake structures. The rule sought to reduce perceived impacts on aquatic resources by requiring covered facilities to implement technology or other measures to meet EPA-targeted reductions in water use and corresponding perceived aquatic impacts. Entergy, other industry members and industry groups, environmental groups, and a coalition of northeastern and mid-Atlantic states challenged various aspects of the rule. After litigation, in May 2014, the EPA issued a new final 316(b) rule, followed by publication in the Federal Register in August 2014, with the final rule effective in October 2014. Entergy is developing a compliance plan for each affected facility in accordance with the requirements of the final rule.
    
Entergy filed a petition for review of the final rule as a co-petitioner with the Utility Water Act Group. The U.S. Court of Appeals for the Second Circuit heard oral argument in September 2017. No decision is expected before the first quarter 2018.

Federal Jurisdiction of Waters of the United States

In September 2013 the EPA and the U.S. Army Corps of Engineers announced the intention to propose a rule to clarify federal Clean Water Act jurisdiction over waters of the United States. The announcement was made in conjunction with the EPA’s release of a draft scientific report on the “connectivity” of waters that the agency said would inform the rulemaking. This report was finalized in January 2015. The final rule was published in the Federal Register in June 2015. The rule could significantly increase the number and types of waters included in the EPA’s and the U.S. Army Corps of Engineers’ jurisdiction, which in turn could pose additional permitting and pollutant management burdens on Entergy’s operations. The final rule has been challenged in federal court by several parties, including most states. In August 2015 the District Court for North Dakota issued a preliminary injunction staying the new rule in 13 states. In October 2015 the U.S. Court of Appeals for the Sixth Circuit issued a nationwide stay of the rule. Entergy will continue to monitor this rulemaking and ensure compliance with existing permitting processes. In response to the stay, the EPA and the U.S. Army Corps of Engineers resumed nationwide use of the agencies’ regulations as they existed prior to August 27, 2015. In February 2017 the current administration issued an executive order instructing the EPA and the U.S. Army Corps of Engineers to review the Waters of the United States rule and to revise or rescind, as appropriate. In June 2017 the EPA and the U.S. Army Corps of Engineers released a proposed rule that rescinds the June 2015 rule and recodifies the definition of “waters of the U.S.” that was in effect prior to the 2015 rule. The administration is expected to propose a definition of “waters of the U.S.” at a later date.


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Coal Combustion Residuals

See the Form 10-K for discussion of the coal combustion residuals rule (CCR rule) and the Water Infrastructure Improvements for the Nation Act (WIIN Act). In September 2017 the EPA agreed to reconsider certain provisions of the CCR rule in light of the WIIN Act. The EPA has not yet initiated a new round of rulemaking and has not extended the existing mid-October 2017 groundwater monitoring deadline. Entergy met the existing monitoring deadline, is monitoring state agency actions, and will participate in the regulatory development process.

Other Environmental Matters

Entergy Louisiana and Entergy Texas

Several class action and other lawsuits have been filed in state and federal courts seeking relief from Entergy Gulf States, Inc. and others for damages caused by the disposal of hazardous waste and for asbestos-related disease allegedly resulting from exposure on Entergy Gulf States, Inc.’s premises.

Entergy Louisiana, as successor in interest to Entergy Gulf States Louisiana, currently is involved in the second phase of the remedial investigation of the Lake Charles Service Center site, located in Lake Charles, Louisiana.  A manufactured gas plant (MGP) is believed to have operated at this site from approximately 1916 to 1931.  Coal tar, a by-product of the distillation process employed at MGPs, apparently was routed to a portion of the property for disposal.  The same area also has been used as a landfill.  In 1999, Entergy Gulf States, Inc. signed a second administrative consent order with the EPA to perform a removal action at the site.  In 2002 approximately 7,400 tons of contaminated soil and debris were excavated and disposed of from an area within the service center.  In 2003 a cap was constructed over the remedial area to prevent the migration of contamination to the surface.  In August 2005 an administrative order was issued by the EPA requiring that a 10-year groundwater study be conducted at this site.  The groundwater monitoring study commenced in January 2006 and is continuing.  The EPA released the second Five Year Review in 2015. The EPA indicated that the current remediation technique was insufficient and that Entergy would need to utilize other remediation technologies on the site. In July 2015, Entergy submitted a Focused Feasibility Study to the EPA outlining the potential remedies and suggesting installation of a waterloo barrier. The estimated cost for this remedy is approximately $2 million. Entergy is awaiting comments and direction from the EPA on the Focused Feasibility Study and potential remedy selection.  In early 2017 the EPA indicated that the new remedial method, a waterloo barrier, may not be necessary and requested revisions to the Focused Feasibility Study. The EPA plans to provide comments on the revised 2017 Focused Feasibility Study in the next Five Year Review in 2020. Entergy is continuing discussions with the EPA regarding the ongoing actions at the site.

Earnings Ratios (Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)

The Registrant Subsidiaries have calculated ratios of earnings to fixed charges and ratios of earnings to combined fixed charges and preferred dividends/distributions pursuant to Item 503 of Regulation S-K of the SEC as follows:
 
 
Ratios of Earnings to Fixed Charges
 
 
Twelve Months Ended
 
Nine Months Ended
 
 
December 31,
 
September 30,
 
 
2012
 
2013
 
2014
 
2015
 
2016
 
2017
Entergy Arkansas
 
3.79

 
3.62

 
3.08

 
2.04

 
3.32

 
3.70
Entergy Louisiana
 
2.61

 
3.30

 
3.44

 
3.36

 
3.57

 
3.86
Entergy Mississippi
 
2.79

 
3.19

 
3.23

 
3.59

 
3.96

 
4.82
Entergy New Orleans
 
2.91

 
1.85

 
3.55

 
4.90

 
4.61

 
5.17
Entergy Texas
 
1.76

 
1.94

 
2.39

 
2.22

 
2.92

 
2.66
System Energy
 
5.12

 
5.66

 
4.04

 
4.53

 
5.39

 
4.99

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Ratios of Earnings to Combined Fixed Charges
and Preferred Dividends/Distributions
 
 
Twelve Months Ended
 
Nine Months Ended
 
 
December 31,
 
September 30,
 
 
2012
 
2013
 
2014
 
2015
 
2016
 
2017
Entergy Arkansas
 
3.36

 
3.25

 
2.76

 
1.85

 
3.09

 
3.62
Entergy Louisiana
 
2.47

 
3.14

 
3.28

 
3.24

 
3.57

 
3.86
Entergy Mississippi
 
2.59

 
2.97

 
3.00

 
3.34

 
3.71

 
4.68
Entergy New Orleans
 
2.63

 
1.70

 
3.26

 
4.50

 
4.30

 
4.83

The Registrant Subsidiaries accrue interest expense related to unrecognized tax benefits in income tax expense and do not include it in fixed charges.

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Item 6.  Exhibits
 
*4(a) -
 
 
 
 
*4(b) -
 
 
 
 
*4(c) -
 
 
 
 
*4(d) -
 
 
 
 
*4(e) -
 
 
 
 
*4(f) -
 
 
 
 
*4(g) -
 
 
 
 
*4(h) -
 
 
 
 
*4(i) -
 
 
 
 
*4(j) -
 
 
 
 
*4(k) -
 
 
 
 
*4(l) -
 
 
 
 
*4(m) -

183

 
 
 
 
*12(a) -
 
 
 
 
*12(b) -
 
 
 
 
*12(c) -
 
 
 
 
*12(d) -
 
 
 
 
*12(e) -
 
 
 
 
*12(f) -
 
 
 
 
*31(a) -
 
 
 
 
*31(b) -
 
 
 
 
*31(c) -
 
 
 
 
*31(d) -
 
 
 
 
*31(e) -
 
 
 
 
*31(f) -
 
 
 
 
*31(g) -
 
 
 
 
*31(h) -
 
 
 
 
*31(i) -
 
 
 
 
*31(j) -
 
 
 
 
*31(k) -
 
 
 
 
*31(l) -
 
 
 
 
*31(m) -
 
 
 
 
*31(n) -
 
 
 
 
*32(a) -
 
 
 
 
*32(b) -
 
 
 
 
*32(c) -
 
 
 
 
*32(d) -
 
 
 
 
*32(e) -
 
 
 
 
*32(f) -
 
 
 
 
*32(g) -
 
 
 
 
*32(h) -
 
 
 
 
*32(i) -
 
 
 
 
*32(j) -
 
 
 
 
*32(k) -
 
 
 
 
*32(l) -
 
 
 

184

 
*32(m) -
 
 
 
 
*32(n) -
 
 
 
 
*101 INS -
XBRL Instance Document.
 
 
 
 
*101 SCH -
XBRL Taxonomy Extension Schema Document.
 
 
 
 
*101 PRE -
XBRL Taxonomy Presentation Linkbase Document.
 
 
 
 
*101 LAB -
XBRL Taxonomy Label Linkbase Document.
 
 
 
 
*101 CAL -
XBRL Taxonomy Calculation Linkbase Document.
 
 
 
 
*101 DEF -
XBRL Definition Linkbase Document.
___________________________

Pursuant to Item 601(b)(4)(iii) of Regulation S-K, Entergy Corporation agrees to furnish to the Commission upon request any instrument with respect to long-term debt that is not registered or listed herein as an Exhibit because the total amount of securities authorized under such agreement does not exceed ten percent of the total assets of Entergy Corporation and its subsidiaries on a consolidated basis.

*
Filed herewith.


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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, each registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.  The signature for each undersigned company shall be deemed to relate only to matters having reference to such company or its subsidiaries.

ENTERGY CORPORATION
ENTERGY ARKANSAS, INC.
ENTERGY LOUISIANA, LLC
ENTERGY MISSISSIPPI, INC.
ENTERGY NEW ORLEANS, INC.
ENTERGY TEXAS, INC.
SYSTEM ENERGY RESOURCES, INC.
 
 
/s/ Alyson M. Mount
Alyson M. Mount
Senior Vice President and Chief Accounting Officer
(For each Registrant and for each as
Principal Accounting Officer)


Date:    November 3, 2017


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