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Income Taxes
 12 Months Ended
Dec. 31, 2019
Income Taxes INCOME TAXES (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)

Income taxes for 2019, 2018, and 2017 for Entergy Corporation and Subsidiaries consist of the following:
 
2019
 
2018
 
2017
 
(In Thousands)
Current:
 
 
 
 
 
Federal

($14,416
)
 

$36,848

 

$29,595

State
6,535

 
7,274

 
15,478

Total
(7,881
)
 
44,122

 
45,073

Deferred and non-current - net
(155,956
)
 
(1,074,416
)
 
505,010

Investment tax credit adjustments - net
(5,988
)
 
(6,532
)
 
(7,513
)
Income taxes

($169,825
)
 

($1,036,826
)
 

$542,570


    
Income taxes for 2019, 2018, and 2017 for Entergy’s Registrant Subsidiaries consist of the following:
2019
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
System Energy
 
 
(In Thousands)
Current:
 
 
 
 
 
 
 
 
 
 
 
 
Federal
 

($14,549
)
 

($20,173
)
 

($8,939
)
 

($5,822
)
 

$16,035

 

$16,256

State
 
(714
)
 
(735
)
 
5,823

 
1,856

 
663

 
(2,831
)
Total
 
(15,263
)
 
(20,908
)
 
(3,116
)
 
(3,966
)
 
16,698

 
13,425

Deferred and non-current - net
 
(30,278
)
 
147,453

 
34,579

 
4,248

 
(69,963
)
 
422

Investment tax credit adjustments - net
 
(1,228
)
 
(4,922
)
 
(597
)
 
(96
)
 
(631
)
 
1,502

Income taxes
 

($46,769
)
 

$121,623

 

$30,866

 

$186

 

($53,896
)
 

$15,349


2018
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
System Energy
 
 
(In Thousands)
Current:
 
 
 
 
 
 
 
 
 
 
 
 
Federal
 

($23,638
)
 

($15,841
)
 

($11,275
)
 

($10,813
)
 

$16,190

 

($9,786
)
State
 
(1,617
)
 
(1,122
)
 
(1,066
)
 
545

 
3,205

 
(1,821
)
Total
 
(25,255
)
 
(16,963
)
 
(12,341
)
 
(10,268
)
 
19,395

 
(11,607
)
Deferred and non-current - net
 
(270,586
)
 
(32,725
)
 
(114,738
)
 
7,943

 
(44,817
)
 
(35,329
)
Investment tax credit adjustments - net
 
(1,226
)
 
(4,923
)
 
1,306

 
(111
)
 
(821
)
 
(739
)
Income taxes
 

($297,067
)
 

($54,611
)
 

($125,773
)
 

($2,436
)
 

($26,243
)
 

($47,675
)

2017
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
System Energy
 
 
(In Thousands)
Current:
 
 
 
 
 
 
 
 
 
 
 
 
Federal
 

$16,086

 

($84,250
)
 

($8,845
)
 

($30,635
)
 

$6,034

 

$47,674

State
 
9,191

 
1,480

 
(924
)
 
(728
)
 
310

 
5,314

Total
 
25,277

 
(82,770
)
 
(9,769
)
 
(31,363
)
 
6,344

 
52,988

Deferred and non-current - net
 
69,753

 
572,988

 
83,501

 
62,946

 
43,102

 
19,243

Investment tax credit adjustments - net
 
(1,226
)
 
(4,920
)
 
187

 
1,695

 
(965
)
 
(2,262
)
Income taxes
 

$93,804

 

$485,298

 

$73,919

 

$33,278

 

$48,481

 

$69,969



Total income taxes for Entergy Corporation and Subsidiaries differ from the amounts computed by applying the statutory income tax rate to income before income taxes.  The reasons for the differences for the years 2019, 2018, and 2017 are:
 
2019
 
2018
 
2017
 
(In Thousands)
Net income (loss) attributable to Entergy Corporation

$1,241,226

 

$848,661

 

$411,612

Preferred dividend requirements of subsidiaries
17,018

 
13,894

 
13,741

Consolidated net income (loss)
1,258,244

 
862,555

 
425,353

Income taxes
(169,825
)
 
(1,036,826
)
 
542,570

Income (loss) before income taxes

$1,088,419

 

($174,271
)
 

$967,923

Computed at statutory rate (21% for 2019 and 2018) (35% for 2017)

$228,568

 

($36,597
)
 

$338,773

Increases (reductions) in tax resulting from:
 

 
 

 
 

State income taxes net of federal income tax effect
61,791

 
21,398

 
44,179

Regulatory differences - utility plant items
(45,336
)
 
(37,507
)
 
39,825

Equity component of AFUDC
(30,444
)
 
(27,216
)
 
(33,282
)
Amortization of investment tax credits
(8,093
)
 
(8,304
)
 
(10,204
)
Flow-through / permanent differences
(2,059
)
 
439

 
8,727

Tax legislation enactment (a)
—

 
—

 
560,410

Amortization of excess ADIT (a)
(205,614
)
 
(577,082
)
 
—

Revisions of the 2017 tax legislation enactment regulatory liability accrual, including the effect of the Entergy Texas 2018 base rate proceeding
—

 
(40,494
)
 
—

Utility restructuring (b)
—

 
(169,918
)
 
—

Settlement on treatment of regulatory obligations (c)
—

 
(52,320
)
 
—

State income tax audit conclusion
—

 
(23,425
)
 
—

IRS audit adjustment
—

 
(8,404
)
 
—

Entergy Wholesale Commodities nuclear decommissioning trust restructuring (d)
—

 
(106,833
)
 
—

Entergy Wholesale Commodities restructuring (d)
(173,725
)
 
—

 
(373,277
)
FitzPatrick disposition
—

 
—

 
(44,344
)
Charitable contribution (d)
(19,101
)

—


—

Net operating loss recognition
(41,427
)

—


—

Provision for uncertain tax positions
7,332

 
24,569

 
8,756

Valuation allowance
59,345

 
2,211

 
—

Other - net
(1,062
)
 
2,657

 
3,007

Total income taxes as reported

($169,825
)
 

($1,036,826
)
 

$542,570

Effective Income Tax Rate
(15.6
%)
 
595.0
%
 
56.1
%


(a)
See “Other Tax Matters - Tax Cuts and Jobs Act” below for discussion of the amortization of excess ADIT in 2018 and 2019 and the tax legislation enactment in 2017.
(b)
See “Other Tax Matters - Entergy Arkansas and Entergy Mississippi Internal Restructuring” below for discussion of the Utility restructuring.
(c)
See “Income Tax Audits - 2012-2013 IRS Audit” below for discussion of the settlement.
(d)
See “Other Tax Matters - Entergy Wholesale Commodities Restructuring” below for discussion of the Entergy Wholesale Commodities nuclear decommissioning trust restructuring in 2018, the Entergy Wholesale Commodities restructurings in 2017 and 2019, and the charitable contribution in 2019.


Total income taxes for the Registrant Subsidiaries differ from the amounts computed by applying the statutory income tax rate to income before taxes.  The reasons for the differences for the years 2019, 2018, and 2017 are:
2019
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
System Energy
 
 
(In Thousands)
Net income
 

$262,964

 

$691,537

 

$119,925

 

$52,629

 

$159,397

 

$99,120

Income taxes
 
(46,769
)
 
121,623

 
30,866

 
186

 
(53,896
)
 
15,349

Pretax income
 

$216,195

 

$813,160

 

$150,791

 

$52,815

 

$105,501

 

$114,469

Computed at statutory rate (21%)
 

$45,401

 

$170,764

 

$31,666

 

$11,091

 

$22,155

 

$24,039

Increases (reductions) in tax resulting from:
 
 
 
 

 
 

 
 

 
 

 
 

State income taxes net of federal income tax effect
 
15,954

 
42,854

 
5,563

 
3,443

 
360

 
5,134

Regulatory differences - utility plant items
 
(10,627
)
 
(19,421
)
 
(5,556
)
 
(1,532
)
 
(1,987
)
 
(6,213
)
Equity component of AFUDC
 
(3,255
)
 
(15,545
)
 
(1,755
)
 
(2,088
)
 
(5,973
)
 
(1,829
)
Amortization of investment tax credits
 
(1,201
)
 
(4,871
)
 
(160
)
 
(88
)
 
(617
)
 
(1,155
)
Flow-through / permanent differences
 
696

 
439

 
160

 
(741
)
 
560

 
(500
)
Amortization of excess ADIT (b)
 
(90,921
)
 
(28,531
)
 
203

 
(11,724
)
 
(69,091
)
 
(5,550
)
Non-taxable dividend income
 
—

 
(26,795
)
 
—

 
—

 
—

 
—

Provision for uncertain tax positions
 
(3,517
)
 
1,519

 
500

 
1,672

 
430

 
1,300

Other - net
 
701

 
1,210

 
245

 
153

 
267

 
123

Total income taxes as reported
 

($46,769
)
 

$121,623

 

$30,866

 

$186

 

($53,896
)
 

$15,349

Effective Income Tax Rate
 
(21.6
%)
 
15.0
%
 
20.5
%
 
0.4
%
 
(51.1
%)
 
13.4
%


2018
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
System Energy
 
 
(In Thousands)
Net income
 

$252,707

 

$675,614

 

$126,078

 

$53,152

 

$162,235

 

$94,109

Income taxes
 
(297,067
)
 
(54,611
)
 
(125,773
)
 
(2,436
)
 
(26,243
)
 
(47,675
)
Pretax income
 

($44,360
)
 

$621,003

 

$305

 

$50,716

 

$135,992

 

$46,434

Computed at statutory rate (21%)
 

($9,316
)
 

$130,411

 

$64

 

$10,650

 

$28,558

 

$9,751

Increases (reductions) in tax resulting from:
 


 


 


 


 


 


State income taxes net of federal income tax effect
 
(794
)
 
26,031

 
(1,747
)
 
2,322

 
2,576

 
2,812

Regulatory differences - utility plant items
 
(14,916
)
 
(12,604
)
 
(4,103
)
 
(1,502
)
 
(1,872
)
 
(2,510
)
Equity component of AFUDC
 
(3,477
)
 
(16,784
)
 
(1,829
)
 
(1,248
)
 
(2,042
)
 
(1,837
)
Amortization of investment tax credits
 
(1,201
)
 
(4,871
)
 
(160
)
 
(109
)
 
(808
)
 
(1,155
)
Flow-through / permanent differences
 
570

 
3,203

 
1,893

 
(4,222
)
 
1,038

 
2,815

Revisions of the 2017 tax legislation enactment regulatory liability accrual, including the effect of the Entergy Texas 2018 base rate proceeding (a)
 
933

 
(2,810
)
 
(556
)
 
884

 
(43,799
)
 
(3,565
)
Amortization of excess ADIT (b)
 
(271,570
)
 
(104,313
)
 
(120,831
)
 
(9,878
)
 
(11,519
)
 
(58,971
)
Settlement on treatment of regulatory obligations (c)
 
—

 
(52,320
)
 
—

 
—

 
—

 
—

IRS audit adjustment
 
1,290

 
1,097

 
1,018

 
(96
)
 
524

 
(12
)
Non-taxable dividend income
 
—

 
(26,795
)
 
—

 
—

 
—

 
—

Provision for uncertain tax positions
 
724

 
3,949

 
240

 
613

 
839

 
4,876

Other - net
 
690

 
1,195

 
238

 
150

 
262

 
121

Total income taxes as reported
 

($297,067
)
 

($54,611
)
 

($125,773
)
 

($2,436
)
 

($26,243
)
 

($47,675
)
Effective Income Tax Rate
 
669.7
%
 
(8.8
%)
 
(41,237.0
%)
 
(4.8
%)
 
(19.3
%)
 
(102.7
%)


2017
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
System Energy
 
 
(In Thousands)
Net income
 

$139,844

 

$316,347

 

$110,032

 

$44,553

 

$76,173

 

$78,596

Income taxes
 
93,804

 
485,298

 
73,919

 
33,278

 
48,481

 
69,969

Pretax income
 

$233,648

 

$801,645

 

$183,951

 

$77,831

 

$124,654

 

$148,565

Computed at statutory rate (35%)
 

$81,777

 

$280,576

 

$64,383

 

$27,241

 

$43,629

 

$51,998

Increases (reductions) in tax resulting from:
 
 

 
 

 
 

 
 

 
 

 
 

State income taxes net of federal income tax effect
 
11,586

 
31,927

 
6,202

 
2,842

 
527

 
5,635

Regulatory differences - utility plant items
 
7,220

 
12,168

 
1,356

 
619

 
5,581

 
12,880

Equity component of AFUDC
 
(6,458
)
 
(18,020
)
 
(3,383
)
 
(847
)
 
(2,353
)
 
(2,221
)
Amortization of investment tax credits
 
(1,201
)
 
(4,871
)
 
(160
)
 
(124
)
 
(951
)
 
(2,896
)
Flow-through / permanent differences
 
3,098

 
3,774

 
1,567

 
(3,352
)
 
1,428

 
(276
)
Tax legislation enactment (b)
 
(3,090
)
 
217,258

 
3,492

 
6,153

 
2,981

 
(69
)
Non-taxable dividend income
 
—

 
(44,658
)
 
—

 
—

 
—

 
—

Provision for uncertain tax positions
 
200

 
5,700

 
228

 
600

 
(2,617
)
 
4,800

Other - net
 
672

 
1,444

 
234

 
146

 
256

 
118

Total income taxes as reported
 

$93,804

 

$485,298

 

$73,919

 

$33,278

 

$48,481

 

$69,969

Effective Income Tax Rate
 
40.1
%
 
60.5
%
 
40.2
%
 
42.8
%
 
38.9
%
 
47.1
%


(a)
See Note 2 to the financial statements for discussion of the Entergy Texas rate case settlement.
(b)
See “Other Tax Matters - Tax Cuts and Jobs Act” below for discussion of the amortization of excess ADIT in 2018 and 2019 and the tax legislation enactment in 2017.
(c)
See “Income Tax Audits - 2012-2013 IRS Audit” below for discussion of the settlement for Entergy Louisiana.


Significant components of accumulated deferred income taxes and taxes accrued for Entergy Corporation and Subsidiaries as of December 31, 2019 and 2018 are as follows:
 
 
2019
 
2018
 
(In Thousands)
Deferred tax liabilities:
 
 
 
Plant basis differences - net

($4,111,761
)
 

($3,835,211
)
Regulatory assets
(389,573
)
 
(370,484
)
Nuclear decommissioning trusts/receivables
(1,015,542
)
 
(1,128,140
)
Pension, net funding
(348,260
)
 
(307,626
)
Combined unitary state taxes
(11,519
)
 
(9,440
)
Power purchase agreements
—

 
(73,335
)
Deferred fuel
(8,360
)
 
(29,953
)
Other
(445,378
)
 
(248,997
)
Total
(6,330,393
)
 
(6,003,186
)
Deferred tax assets:
 

 
 

Nuclear decommissioning liabilities
929,251

 
1,070,583

Regulatory liabilities
806,777

 
895,756

Pension and other post-employment benefits
297,272

 
305,736

Sale and leaseback
102,420

 
121,473

Compensation
87,355

 
86,461

Accumulated deferred investment tax credit
56,013

 
57,643

Provision for allowances and contingencies
126,886

 
135,631

Power purchase agreements
231,502

 
—

Unbilled/deferred revenues
(10,218
)
 
43,762

Net operating loss carryforwards
1,133,197

 
628,165

Capital losses and miscellaneous tax credits
22,597

 
20,549

Valuation allowance
(303,307
)
 
(243,726
)
Other
289,557

 
125,522

Total
3,769,302

 
3,247,555

Non-current accrued taxes (including unrecognized tax benefits)
(1,775,638
)
 
(1,296,928
)
Accumulated deferred income taxes and taxes accrued

($4,336,729
)
 

($4,052,559
)


Entergy’s estimated tax attributes carryovers and their expiration dates as of December 31, 2019 are as follows:

Carryover Description
 
Carryover Amount
 
Year(s) of expiration
 
 
 
 
 
Federal net operating losses before 1/1/2018
 
$9.8 billion
 
2023-2037
Federal net operating losses - 1/1/2018 forward
 
$10.7 billion
 
N/A
State net operating losses
 
$20.8 billion
 
2020-2039
Federal and state charitable contributions
 
$395.8 million
 
2020-2024
Miscellaneous federal and state credits
 
$101.1 million
 
2020-2038


As a result of the accounting for uncertain tax positions, the amount of the deferred tax assets reflected in the financial statements is less than the amount of the tax effect of the federal and state net operating loss carryovers, tax credit carryovers, and other tax attributes reflected on income tax returns. Entergy evaluates the available positive and negative evidence to estimate whether sufficient future taxable income of the appropriate character will be generated to realize the benefits of existing deferred tax assets. When the evaluation indicates that Entergy will not be able to realize the existing benefits, a valuation allowance is recorded to reduce deferred tax assets to the realizable amount.

Because it is more likely than not that the benefit from certain state net operating loss and other deferred tax assets will not be utilized, valuation allowances totaling $303 million as of December 31, 2019 and $244 million as of December 31, 2018 have been provided on the deferred tax assets related to federal and state jurisdictions in which Entergy does not currently expect to be able to utilize certain separate company tax return attributes, preventing realization of such deferred tax assets.

Significant components of accumulated deferred income taxes and taxes accrued for the Registrant Subsidiaries as of December 31, 2019 and 2018 are as follows:
2019
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
System Energy
 
 
(In Thousands)
Deferred tax liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Plant basis differences - net
 

($979,033
)
 

($1,987,025
)
 

($565,202
)
 

($133,073
)
 

($551,365
)
 

($380,594
)
Regulatory assets
 
(170,949
)
 
(79,117
)
 
(10,528
)
 
(16,867
)
 
(59,745
)
 
(52,662
)
Nuclear decommissioning trusts/receivables
 
(120,306
)
 
(113,830
)
 
—

 
—

 
—

 
(100,621
)
Pension, net funding
 
(102,685
)
 
(98,743
)
 
(27,325
)
 
(11,859
)
 
(19,961
)
 
(21,609
)
Deferred fuel
 
—

 
(2,637
)
 
(609
)
 
(666
)
 
(4,380
)
 
(55
)
Other
 
(82,682
)
 
(94,139
)
 
(27,905
)
 
(25,909
)
 
2,059

 
(7,350
)
Total
 
(1,455,655
)
 
(2,375,491
)
 
(631,569
)
 
(188,374
)
 
(633,392
)
 
(562,891
)
Deferred tax assets:
 
 

 
 

 
 

 
 

 
 

 
 

Regulatory liabilities
 
250,410

 
283,507

 
53,421

 
33,258

 
65,602

 
121,011

Nuclear decommissioning liabilities
 
111,078

 
56,300

 
—

 
—

 
—

 
52,633

Pension and other post-employment benefits
 
(21,828
)
 
74,881

 
(5,844
)
 
(12,666
)
 
(15,406
)
 
(898
)
Sale and leaseback
 
—

 
—

 
—

 
—

 
—

 
102,480

Accumulated deferred investment tax credit
 
8,285

 
32,534

 
2,396

 
556

 
2,217

 
10,025

Provision for allowances and contingencies
 
5,365

 
77,298

 
12,963

 
24,022

 
4,024

 
—

Power purchase agreements
 
(15,087
)
 
18,004

 
1,147

 
7,961

 
26

 
—

Unbilled/deferred revenues
 
5,897

 
(28,081
)
 
4,715

 
1,428

 
5,544

 
—

Compensation
 
2,550

 
3,670

 
1,625

 
496

 
1,282

 
75

Net operating loss carryforwards
 
112,658

 
65,178

 
21,492

 
5,056

 
—

 
—

Capital losses and miscellaneous tax credits
 
—

 
—

 
45

 
—

 
—

 
7,857

Other
 
12,541

 
35,401

 
999

 
9,027

 
2,004

 
3

Total
 
471,869

 
618,692

 
92,959

 
69,138

 
65,293

 
293,186

Non-current accrued taxes (including unrecognized tax benefits)
 
(199,340
)
 
(707,714
)
 
(56,222
)
 
(235,300
)
 
(17,314
)
 
(544,235
)
Accumulated deferred income taxes and taxes accrued
 

($1,183,126
)
 

($2,464,513
)
 

($594,832
)
 

($354,536
)
 

($585,413
)
 

($813,940
)
2018
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
System Energy
 
 
(In Thousands)
Deferred tax liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Plant basis differences - net
 

($966,791
)
 

($1,893,831
)
 

($579,319
)
 

($135,143
)
 

($544,282
)
 

($403,809
)
Regulatory assets
 
(169,482
)
 
(74,917
)
 
(1,732
)
 
(20,009
)
 
(57,777
)
 
(46,627
)
Nuclear decommissioning trusts/receivables
 
(77,664
)
 
(71,470
)
 
—

 
—

 
—

 
(86,882
)
Pension, net funding
 
(91,962
)
 
(92,693
)
 
(24,398
)
 
(11,885
)
 
(20,331
)
 
(18,898
)
Deferred fuel
 
(5,801
)
 
(6,974
)
 
(11,819
)
 
(1,701
)
 
(2,835
)
 
(312
)
Other
 
(41,025
)
 
(34,700
)
 
(13,443
)
 
(7,640
)
 
(6,085
)
 
(4,544
)
Total
 
(1,352,725
)
 
(2,174,585
)
 
(630,711
)
 
(176,378
)
 
(631,310
)
 
(561,072
)
Deferred tax assets:
 
 

 
 

 
 

 
 

 
 

 
 

Regulatory liabilities
 
247,964

 
339,126

 
72,570

 
40,181

 
86,032

 
110,370

Nuclear decommissioning liabilities
 
99,479

 
48,738

 
—

 
—

 
—

 
46,643

Pension and other post-employment benefits
 
(19,068
)
 
80,102

 
(5,405
)
 
(11,371
)
 
(14,215
)
 
(632
)
Sale and leaseback
 
—

 
18,999

 
—

 
—

 
—

 
102,481

Accumulated deferred investment tax credit
 
8,599

 
33,928

 
2,541

 
579

 
2,347

 
9,649

Provision for allowances and contingencies
 
9,877

 
81,108

 
13,412

 
23,962

 
5,579

 
—

Power purchase agreements
 
(17,223
)
 
19,385

 
1,140

 
12,155

 
(18
)
 
—

Unbilled/deferred revenues
 
7,471

 
(17,345
)
 
5,527

 
636

 
7,016

 
—

Compensation
 
1,708

 
1,959

 
1,265

 
512

 
995

 
(260
)
Net operating loss carryforwards
 
6,338

 
20,118

 
4,896

 
480

 
261

 
—

Other
 
7,977

 
23,412

 
1,610

 
12,181

 
2,127

 
4

Total
 
353,122

 
649,530

 
97,556

 
79,315

 
90,124

 
268,255

Non-current accrued taxes (including unrecognized tax benefits)
 
(85,942
)
 
(701,666
)
 
(18,714
)
 
(226,532
)
 
(11,349
)
 
(512,479
)
Accumulated deferred income taxes and taxes accrued
 

($1,085,545
)
 

($2,226,721
)
 

($551,869
)
 

($323,595
)
 

($552,535
)
 

($805,296
)


The Registrant Subsidiaries’ estimated tax attributes carryovers and their expiration dates as of December 31, 2019 are as follows:
 
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
System Energy
 
 
 
 
 
 
 
 
 
 
 
 
 
Federal net operating losses
 
$4.4 billion
 
$4.3 billion
 
$2 billion
 
$1.1 billion
 
$—
 
$—
Year(s) of expiration
 
N/A
 
2035-2037
 
N/A
 
2037
 
N/A
 
N/A
 
 
 
 
 
 
 
 
 
 
 
 
 
State net operating losses
 
$4.5 billion
 
$5.2 billion
 
$2.1 billion
 
$1.2 billion
 
$—
 
$—
Year(s) of expiration
 
2024
 
2035-2039
 
2038-2039
 
2038-2039
 
N/A
 
N/A
 
 
 
 
 
 
 
 
 
 
 
 
 
Misc. federal credits
 
$—
 
$5.2 million
 
$—
 
$—
 
$1.9 million
 
$3.2 million
Year(s) of expiration
 
N/A
 
2035-2038
 
N/A
 
N/A
 
2029-2038
 
2029-2038
 
 
 
 
 
 
 
 
 
 
 
 
 
State credits
 
$—
 
$—
 
$—
 
$—
 
$2.9 million
 
$13.1 million
Year(s) of expiration
 
N/A
 
N/A
 
N/A
 
N/A
 
2026
 
2020-2023


As a result of the accounting for uncertain tax positions, the amount of the deferred tax assets reflected in the financial statements is less than the amount of the tax effect of the federal and state net operating loss carryovers and tax credit carryovers.

Unrecognized tax benefits

Accounting standards establish a “more-likely-than-not” recognition threshold that must be met before a tax benefit can be recognized in the financial statements.  If a tax deduction is taken on a tax return but does not meet the more-likely-than-not recognition threshold, an increase in income tax liability, above what is payable on the tax return, is required to be recorded.  A reconciliation of Entergy’s beginning and ending amount of unrecognized tax benefits is as follows:
 
2019
 
2018
 
2017
 
(In Thousands)
Gross balance at January 1

$7,181,482

 

$4,871,846

 

$3,909,855

Additions based on tax positions related to the current year
731,276

 
2,276,614

 
1,120,687

Additions for tax positions of prior years
151,628

 
506,142

 
283,683

Reductions for tax positions of prior years
(681,232
)
 
(274,600
)
 
(442,379
)
Settlements
—

 
(198,520
)
 
—

Gross balance at December 31
7,383,154

 
7,181,482

 
4,871,846

Offsets to gross unrecognized tax benefits:
 

 
 

 
 

Carryovers and refund claims
(5,831,587
)
 
(5,957,992
)
 
(3,945,524
)
Cash paid to taxing authorities
(10,000
)
 
(10,000
)
 
(10,000
)
Unrecognized tax benefits net of unused tax attributes, refund claims and payments (a)

$1,541,567

 

$1,213,490

 

$916,322



(a)
Potential tax liability above what is payable on tax returns

The balances of unrecognized tax benefits include $2,421 million, $2,161 million, and $1,462 million as of December 31, 2019, 2018, and 2017, respectively, which, if recognized, would lower the effective income tax rates.  Because of the effect of deferred tax accounting, the remaining balances of unrecognized tax benefits of $4,962
million, $5,020 million, and $3,410 million as of December 31, 2019, 2018, and 2017, respectively, if disallowed, would not affect the annual effective income tax rate but would accelerate the payment of cash to the taxing authority to an earlier period.

Entergy accrues interest expense, if any, related to unrecognized tax benefits in income tax expense.  Entergy’s December 31, 2019, 2018, and 2017 accrued balance for the possible payment of interest is approximately $48 million, $44 million, and $38 million, respectively. Interest (net-of-tax) of $4 million, $7 million, and $8 million was recorded in 2019, 2018, and 2017, respectively.

A reconciliation of the Registrant Subsidiaries’ beginning and ending amount of unrecognized tax benefits for 2019, 2018, and 2017 is as follows:
2019
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
System Energy
 
 
(In Thousands)
Gross balance at January 1, 2019
 

$1,298,662

 

$2,400,171

 

$508,765

 

$686,687

 

$17,802

 

$467,487

Additions based on tax positions related to the current year
 
84,335

 
28,705

 
68,594

 
40,676

 
2,312

 
5,496

Additions for tax positions of prior years
 
20,399

 
25,090

 
1,651

 
489

 
1,299

 
2,186

Reductions for tax positions of prior years
 
(62,154
)
 
(72,313
)
 
(12,723
)
 
(11,079
)
 
(7
)
 
(1,838
)
Gross balance at December 31, 2019
 
1,341,242

 
2,381,653

 
566,287

 
716,773

 
21,406

 
473,331

Offsets to gross unrecognized tax benefits:
 
 

 
 

 
 

 
 

 
 

 
 

Loss carryovers
 
(1,134,187
)
 
(1,573,257
)
 
(506,976
)
 
(445,430
)
 
(3,944
)
 
(8,392
)
Unrecognized tax benefits net of unused tax attributes and payments
 

$207,055

 

$808,396

 

$59,311

 

$271,343

 

$17,462

 

$464,939



2018
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
System Energy
 
 
(In Thousands)
Gross balance at January 1, 2018
 

($117,716
)
 

$2,518,457

 

$15,122

 

$679,544

 

$16,399

 

$445,511

Additions based on tax positions related to the current year (a)
 
1,430,828

 
30,577

 
493,039

 
2,261

 
1,978

 
18,271

Additions for tax positions of prior years
 
31,612

 
77,372

 
3,878

 
12,972

 
1,722

 
7,255

Reductions for tax positions of prior years
 
(21,619
)
 
(158,510
)
 
(3,253
)
 
(8,081
)
 
(2,262
)
 
(3,253
)
Settlements
 
(24,443
)
 
(67,725
)
 
(21
)
 
(9
)
 
(35
)
 
(297
)
Gross balance at December 31, 2018
 
1,298,662

 
2,400,171

 
508,765

 
686,687

 
17,802

 
467,487

Offsets to gross unrecognized tax benefits:
 
 

 
 

 
 

 
 

 
 

 
 

Loss carryovers
 
(1,173,839
)
 
(1,597,826
)
 
(478,268
)
 
(420,813
)
 
(3,199
)
 
(42,228
)
Unrecognized tax benefits net of unused tax attributes and payments
 

$124,823

 

$802,345

 

$30,497

 

$265,874

 

$14,603

 

$425,259


2017
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
System Energy
 
 
(In Thousands)
Gross balance at January 1, 2017
 

$2,503

 

$2,440,339

 

$12,206

 

$166,230

 

$15,946

 

$472,372

Additions based on tax positions related to the current year (a)
 
8,974

 
32,843

 
2,105

 
509,183

 
1,747

 
909

Additions for tax positions of prior years
 
3,682

 
235,331

 
1,267

 
13,364

 
3,115

 
1,432

Reductions for tax positions of prior years
 
(132,875
)
 
(190,056
)
 
(456
)
 
(9,233
)
 
(4,409
)
 
(29,202
)
Gross balance at December 31, 2017
 
(117,716
)
 
2,518,457

 
15,122

 
679,544

 
16,399

 
445,511

Offsets to gross unrecognized tax benefits:
 
 

 
 

 
 

 
 

 
 

 
 

Loss carryovers
 
—

 
(1,591,907
)
 
(15,122
)
 
(441,374
)
 
(638
)
 
(12,536
)
Unrecognized tax benefits net of unused tax attributes and payments
 

($117,716
)
 

$926,550

 

$—

 

$238,170

 

$15,761

 

$432,975



(a)
The primary additions for Entergy Mississippi in 2018, and Entergy New Orleans in 2017 are related to the mark-to-market treatment discussed in “Other Tax Matters - Tax Accounting Methods” below. The primary additions for Entergy Arkansas in 2018 are related to the nuclear decommissioning costs treatment and the mark-to-market treatment discussed in “Other Tax Matters - Tax Accounting Methods” below.

The Registrant Subsidiaries’ balances of unrecognized tax benefits included amounts which, if recognized, would have reduced income tax expense as follows:
 
December 31,
 
2019
 
2018
 
2017
 
(In Millions)
Entergy Arkansas

$203.3

 

$85.4

 

$2.6

Entergy Louisiana

$556.3

 

$594.0

 

$575.8

Entergy Mississippi

$1.9

 

$1.5

 

$—

Entergy New Orleans

$242.7

 

$246.2

 

$31.7

Entergy Texas

$5.7

 

$5.1

 

$4.4

System Energy

$—

 

$—

 

$—



Accrued balances for the possible payment of interest related to unrecognized tax benefits are as follows:
 
December 31,
 
2019
 
2018
 
2017
 
(In Millions)
Entergy Arkansas

$3.1

 

$1.7

 

$1.6

Entergy Louisiana

$14.2

 

$17.9

 

$14.1

Entergy Mississippi

$1.7

 

$1.2

 

$1.0

Entergy New Orleans

$4.7

 

$2.7

 

$2.1

Entergy Texas

$1.1

 

$0.9

 

$0.4

System Energy

$14.5

 

$13.2

 

$8.5



The Registrant Subsidiaries record interest and penalties related to unrecognized tax benefits in income tax expense.  No penalties were recorded in 2019, 2018, and 2017. Interest (net-of-tax) was recorded as follows:
 
2019
 
2018
 
2017
 
(In Millions)
Entergy Arkansas

$1.4

 

$0.2

 

$0.2

Entergy Louisiana

($3.7
)
 

$3.8

 

$5.7

Entergy Mississippi

$0.5

 

$0.2

 

$0.2

Entergy New Orleans

$2.0

 

$0.6

 

$0.6

Entergy Texas

$0.2

 

$0.5

 

($0.8
)
System Energy

$1.3

 

$4.7

 

$4.8



Income Tax Audits

Entergy and its subsidiaries file U.S. federal and various state and foreign income tax returns.  IRS examinations are complete for years before 2014. All state taxing authorities’ examinations are complete for years before 2015. Entergy regularly negotiates with the IRS to achieve settlements.  The resolution of audit issues could result in significant changes to the amounts of unrecognized tax benefits in the next twelve months.

2012-2013 IRS Audit

The IRS completed its examination of the 2012 and 2013 tax years and issued its 2012-2013 Revenue Agent Report (RAR) in June 2018. Entergy agreed to all proposed adjustments contained in the RAR. Entergy and the Registrant Subsidiaries recorded the effects of these adjustments in June 2018.

As a result of the issuance of the RAR, Entergy Louisiana was able to recognize previously unrecognized tax benefits of $52 million related to the Hurricane Katrina and Hurricane Rita contingent sharing obligation associated with the Louisiana Act 55 financing.

2014-2015 IRS Audit

The IRS is examining the 2014 and 2015 tax years. Entergy expects the IRS to complete this examination in 2020. As of December 31, 2019, Entergy has not received any proposed adjustments to taxable income from the IRS.

Other Tax Matters

Tax Cuts and Jobs Act

Deferred tax liabilities and assets have been adjusted for the effect of the enactment of the Tax Cuts and Jobs Act (the Act), signed by President Trump on December 22, 2017. The most significant effect of the Act for Entergy and the Registrant Subsidiaries was the change in the federal corporate income tax rate from 35% to 21%, effective January 1, 2018. Other significant provisions and their effect on Entergy and the Registrant Subsidiaries are summarized below.
The Act limits the deduction for net business interest expense to 30 percent of adjusted taxable income which is similar to earnings before interest, taxes, depreciation, and amortization. The limitation does not apply to interest expense that is properly allocable to a trade or business that furnishes or sells electrical energy, gas, or steam through a local distribution system, or transports gas or steam by pipeline if the rates for such furnishing or sale are subject to ratemaking by a government entity or instrumentality or by a public utility commission.
The IRS issued proposed regulations relating to this limitation in November 2018. The regulations are generally proposed to be effective for taxable years ending after the date Treasury adopts the regulations as final. Taxpayers may apply the rules of the proposed regulations to a taxable year beginning after December 31, 2017, so long as taxpayers consistently apply the rules of the proposed regulations. The proposed regulations provide guidance that if 90% of a tax group’s consolidated assets consist of utility property, the entire consolidated tax group will be treated as a regulated public utility and all of the consolidated group’s interest expense will be currently tax deductible.
As a result of the limitation under the Act, Entergy recorded limitations in 2018 and 2019 and recorded a deferred tax asset on the nondeductible portion, as it has an unlimited carryover period. Entergy recorded a valuation allowance of $24 million due to a lack of earnings from sources other than the Utility.
The Act limits the net operating loss (NOL) deduction for a given year to 80% of taxable income, effective with respect to losses arising in tax years beginning after December 31, 2017. Only NOLs generated after December 31, 2017 are subject to the 80% limitation. Prior law generally provided a two-year carryback and 20-year carryforward for NOLs. The Act does not allow a carryback period but does provide for the indefinite carryforward of NOLs arising in tax years ending after December 31, 2017. Because of the indefinite carryforward, the new limitations on NOL utilization are not expected to have a material effect on Entergy or the Registrant Subsidiaries.
The Act also modified Internal Revenue Code section 162(m), which limits the deduction for compensation with respect to certain covered employees to no more than $1 million per year.  The IRS issued proposed regulations relating to this limitation in December 2019. The significant provisions of the Act and associated proposed regulations require inclusion of performance-based compensation and an expanded definition of “covered employees” in the annual computation of the section 162 limitation. The Act amendments and associated proposed regulations resulted in an increase in disallowed compensation expense, but this limitation does not have a material effect on Entergy or the Registrant Subsidiaries.
With respect to the federal corporate income tax rate change from 35% to 21%, Entergy and the Registrant Subsidiaries recorded a regulatory liability associated with the decrease in the net accumulated deferred income tax liability, which is often referred to as “excess ADIT,” a significant portion of which has been paid to customers in 2018 and 2019 in the form of lower rates. Entergy’s December 31, 2019 and December 31, 2018 balance sheets reflect a regulatory liability of $1.7 billion and $2.1 billion, respectively, as a result of the re-measurement of deferred tax assets and liabilities from the income tax rate change, amortization of excess ADIT, and payments to customers during 2018 and 2019. Entergy’s regulatory liability for income taxes includes a gross-up at the applicable tax rate because of the effect that excess ADIT has on the ratemaking formula. The regulatory liability for income taxes includes the effect of a) the reduction of the net deferred tax liability resulting in excess ADIT, b) the tax gross-up of excess ADIT, and c) the effect of the new tax rate on the previous net regulatory asset for income taxes. For the same reasons, the Registrant Subsidiaries’ December 31, 2019 and December 31, 2018 balance sheets reflect net regulatory liabilities for income taxes as follows:
 
2019
 
2018
 
(In Millions)
Entergy Arkansas

$487

 

$605

Entergy Louisiana

$531

 

$612

Entergy Mississippi

$237

 

$246

Entergy New Orleans

$59

 

$86

Entergy Texas

$253

 

$352

System Energy

$143

 

$163

Excess ADIT is generally classified into two categories: 1) the portion that is subject to the normalization requirements of the Act, i.e., “protected”, and 2) the portion that is not subject to such normalization provisions, referred to as “unprotected”. The Act provides that the normalization method of accounting for income taxes is required for
excess ADIT associated with public utility property. The Act provides for the use of the average rate assumption method (ARAM) for the determination of the timing of the return of excess ADIT associated with such property. Under ARAM, the excess ADIT is reduced over the remaining life of the asset. Remaining asset lives vary for each Registrant Subsidiary, but the average life of public utility property is typically 30 years or longer. Entergy will amortize the protected portion of the excess ADIT in conformity with the normalization requirements. The Registrant Subsidiaries’ net regulatory liability for income taxes as of December 31, 2019 and December 31, 2018, includes protected excess ADIT as follows:
 
2019
 
2018
 
(In Millions)
Entergy Arkansas

$490

 

$521

Entergy Louisiana

$797

 

$812

Entergy Mississippi

$261

 

$271

Entergy New Orleans

$62

 

$59

Entergy Texas

$228

 

$237

System Energy

$186

 

$202


During the second quarter of 2018, the Registrant Subsidiaries began paying unprotected excess accumulated deferred income taxes, associated with the effects of the Act, to their customers through rate riders and other means approved by their respective regulatory commissions. Payment of the unprotected excess accumulated deferred income taxes results in a reduction in the regulatory liability for income taxes and a corresponding reduction in income tax expense. This has a significant effect on the effective tax rate for the period as compared to the statutory tax rate. The Registrant Subsidiaries’ net regulatory liability for income taxes as of December 31, 2019 and December 31, 2018, includes unprotected excess ADIT as follows:
 
2019
 
2018
 
(In Millions)
Entergy Arkansas

$9

 

$117

Entergy Louisiana

$242

 

$295

Entergy New Orleans

$9

 

$25

Entergy Texas

$83

 

$171

System Energy

$—

 

$4


The return of unprotected excess accumulated deferred income taxes reduced Entergy’s and the Registrant Subsidiaries’ regulatory liability for income taxes as follows for 2019 and 2018:
 
2019
 
2018
 
(In Millions)
Entergy

$273

 

$776

Entergy Arkansas

$126

 

$368

Entergy Louisiana

$39

 

$141

Entergy Mississippi

$—

 

$159

Entergy New Orleans

$14

 

$13

Entergy Texas

$87

 

$15

System Energy

$7

 

$80



In addition to the protected and unprotected excess ADIT amounts, the net regulatory liability for income taxes includes other regulatory assets and liabilities for income taxes associated with AFUDC, which is described in Note 1 to the financial statements.
For a discussion of the proceedings commenced or other responses by Entergy’s regulators to the Act, see Note 2 to the financial statements.
Not all of Entergy’s excess ADIT is included in ratemaking. Consequently, Entergy recorded a net decrease in deferred tax assets of $560 million for which there was a corresponding charge to income tax expense for the year ended December 31, 2017. The corresponding income tax expense (or benefit) recorded by the Registrant Subsidiaries was as follows: Entergy Arkansas, ($3 million); Entergy Louisiana, $217 million; Entergy Mississippi, $3 million; Entergy New Orleans, $6 million; Entergy Texas, $3 million; and System Energy, $0.
Included in the effect of the computation of the changes in deferred tax assets and liabilities is the recognition threshold and measurement of uncertain tax positions resulting in unrecognized tax benefits. The final economic outcome of such unrecognized tax benefits is generally the result of a negotiated settlement with the IRS that often differs from the amount that is recorded as realizable under GAAP. The intrinsic uncertainty with respect to all such tax positions means that the difference between current estimates of such amounts likely to be realized and actual amounts realized upon settlement may have an effect on income tax expense and the regulatory liability for income taxes in future periods.

Entergy anticipates that the Act, including the federal corporate income tax rate change, may continue to have ramifications that require adjustments in the future as certain events occur. These events include: 1) the evaluation by regulators in all of Entergy’s jurisdictions regarding the ratemaking treatment of the Act and excess ADIT; 2) IRS audit adjustments to or amendments of federal and state income tax returns that include modifications to the computation of taxable income resulting from the Act; and 3) additional guidance, interpretations, or rulings by the U.S. Department of the Treasury or the IRS. The potential exists for these types of events to result in future tax expense adjustments because of the difference in the federal corporate income tax rate between past and future periods and the effect of the tax rate change on ratemaking. In turn, these items also could potentially affect the regulatory liability for income taxes.
Entergy Wholesale Commodities Restructuring

The tax classification of the entity that owned FitzPatrick changed in the second quarter 2016.  The change in tax classification required Entergy to recognize the plant’s nuclear decommissioning liability for income tax purposes resulting in a tax accounting permanent difference that reduced income tax expense, net of unrecognized tax benefits, by $238 million. The accrual of the nuclear decommissioning liability also required Entergy to recognize a gain for income tax purposes, a significant portion of which resulted in an increase in tax basis of the assets. Recognition of the gain and the increase in tax basis of the assets represents a tax accounting temporary difference. Entergy sold FitzPatrick 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. The re-determined basis resulted in a $44 million income tax benefit in the first quarter 2017.

In the second quarter 2017, Entergy changed the tax classification of legal entities that own Entergy Wholesale Commodities nuclear power plants. The change in tax classification required Entergy to recognize the plants’ nuclear decommissioning liabilities for income tax purposes resulting in a tax accounting permanent difference that reduced income tax expense, net of unrecognized tax benefits, by $373 million. The accrual of the nuclear decommissioning liabilities also required Entergy to recognize a gain for income tax purposes, a portion of which resulted in an increase in tax basis of the assets. Recognition of the gain and the increase in tax basis of the assets represents a tax accounting temporary difference.

In the third quarter 2018, Entergy completed a restructuring of the investment holdings in one of the Entergy Wholesale Commodities nuclear plant decommissioning trusts that resulted in an adjustment to tax basis for the trust. The accounting standards provide that a taxable temporary difference does not exist if the tax law provides a means by which an amount can be recovered without incurrence of tax. The restructuring allows Entergy to recover assets from the trust without incurring tax. As such, the tax basis recognized resulted in the reversal of a deferred tax liability and reduction of income tax expense of approximately $107 million.

In the fourth quarter 2019, two separate events occurred resulting in a reduction of tax expense of $174 million. In November 2019 an Entergy Wholesale Commodities subsidiary recognized a reduction in income tax expense of $18 million in connection with the accounting method on power contracts associated with the Palisades nuclear power station. Additionally, Entergy’s ownership of Indian Point 2 and Indian Point 3 was restructured. The restructuring required Entergy to recognize Indian Point 2 and Indian Point 3 nuclear decommissioning liabilities for income tax purposes resulting in a tax accounting permanent difference that reduced income tax expense, net of unrecognized tax benefits, by $156 million. The accrual of the nuclear decommissioning liabilities also required Entergy to recognize a gain for income tax purposes, a portion of which resulted in an increase in the tax basis of the assets. Recognition of the gain and the increase in the tax basis of the assets represents a tax accounting temporary difference.

Immediately prior to the restructuring, through its ownership of Indian Point 2 and Indian Point 3, Entergy donated property to Stony Brook University and recognized an associated tax deduction resulting in a decrease to tax expense of $19 million.

Entergy Wholesale Commodities Tax Audit

A state income tax audit involving Entergy Wholesale Commodities was concluded during the third quarter 2018. Upon conclusion of the audit, subsidiaries within Entergy Wholesale Commodities reversed a portion of the provision for uncertain tax positions totaling approximately $23 million, net of tax and interest paid.

Tax Accounting Methods

In the fourth quarter 2015, System Energy and Entergy Louisiana adopted a new method of accounting for income tax return purposes in which their nuclear decommissioning costs will be treated as production costs of electricity includable in cost of goods sold. The new method resulted in a reduction of taxable income of $1.2 billion for System Energy and $2.2 billion for Energy Louisiana. In the fourth quarter 2018, Entergy Arkansas adopted the same method of accounting for its nuclear decommissioning costs which resulted in a $2.2 billion reduction in taxable income.

In 2016, Entergy Louisiana elected mark-to-market income tax treatment for various wholesale electric power purchase and sale agreements, including Entergy Louisiana’s contract to purchase electricity from the Vidalia hydroelectric facility and from System Energy under the Unit Power Sales Agreement. The election resulted in a $2.2 billion deductible temporary difference. In 2017, Entergy New Orleans also elected mark-to-market income tax treatment for wholesale electric contracts which resulted in a $1.1 billion deductible temporary difference. In 2018, Entergy Arkansas and Entergy Mississippi accrued deductible temporary differences related to mark-to-market tax accounting for wholesale electric contracts of $2.1 billion and $1.9 billion, respectively.

Entergy Arkansas and Entergy Mississippi Internal Restructuring

In the fourth quarter 2018, Entergy Arkansas and Entergy Mississippi became wholly-owned subsidiaries of Entergy Utility Holding Company, LLC. The change in ownership required Entergy to recognize Entergy Arkansas’s nuclear decommissioning liabilities for income tax purposes resulting in a tax accounting permanent difference that reduced income tax expense, net of unrecognized tax benefits, by $165 million. The accrual of the nuclear decommissioning liabilities also required Entergy to recognize a gain for income tax purposes, a portion of which resulted in an increase in the tax basis of the assets. Recognition of the gain and the increase in the tax basis of the assets represents a tax accounting temporary difference. Additionally, Entergy recorded a $5 million reduction of income tax expense associated with state income tax effects resulting in a total reduction of income tax expense of $170 million from the restructuring. Entergy recorded a regulatory liability of $40 million ($30 million net-of-tax) which partially offsets the reduction of income tax expense. Entergy Arkansas’s member’s equity increased by $94 million as a result of the restructuring. See Note 2 to the financial statements for further discussion of the internal restructuring.

Arkansas Corporate Income Tax Rate Reduction

In April 2019 the state of Arkansas enacted corporate income tax law changes that phase in an Arkansas tax rate reduction from the current rate of 6.5% to 6.2% in 2021 and 5.9% in 2022.  The rate reduction will eventually reduce Entergy Arkansas’s combined federal and state applicable tax rate by less than 0.5% once fully adopted.  As a result of the rate reduction, Entergy Arkansas recorded a regulatory liability for income taxes of approximately $25 million which includes a tax gross-up related to the treatment of income taxes in the ratemaking formula. The Arkansas tax law enactment also phases in an increase to the net operating loss carryover period from five to ten years.

Consolidated Income Tax Return of Entergy Corporation

In September 2019, Entergy Utility Holding Company, LLC and its regulated, wholly-owned subsidiaries including Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans, became eligible to and joined the Entergy Corporation consolidated federal income tax group.  As a result of these four Utility operating companies re-joining the Entergy Corporation consolidated tax return group, Entergy was able to recognize a $41 million deferred tax asset associated with a previously unrecognized Arkansas net operating loss carryover.

Additionally, in September 2019, Entergy Texas issued $35 million of 5.375% Series A preferred stock with a liquidation value of $25 per share resulting in the disaffiliation and de-consolidation of Entergy Texas from the consolidated federal income tax return of Entergy Corporation.  These changes will not affect the accrual or allocation of income taxes for the Registrant Subsidiaries. See Note 6 to the financial statements for discussion of the preferred stock issuance.

Vermont Yankee

The Vermont Yankee transaction resulted in Entergy generating a net deferred tax asset in January 2019.  The deferred tax asset could not be fully realized by Entergy in the first quarter of 2019; accordingly, Entergy accrued a net tax expense of $29 million on the disposition of Vermont Yankee. See Note 14 to the financial statements for discussion of the Vermont Yankee transaction.
Entergy Arkansas [Member]  
Income Taxes INCOME TAXES (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)

Income taxes for 2019, 2018, and 2017 for Entergy Corporation and Subsidiaries consist of the following:
 
2019
 
2018
 
2017
 
(In Thousands)
Current:
 
 
 
 
 
Federal

($14,416
)
 

$36,848

 

$29,595

State
6,535

 
7,274

 
15,478

Total
(7,881
)
 
44,122

 
45,073

Deferred and non-current - net
(155,956
)
 
(1,074,416
)
 
505,010

Investment tax credit adjustments - net
(5,988
)
 
(6,532
)
 
(7,513
)
Income taxes

($169,825
)
 

($1,036,826
)
 

$542,570


    
Income taxes for 2019, 2018, and 2017 for Entergy’s Registrant Subsidiaries consist of the following:
2019
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
System Energy
 
 
(In Thousands)
Current:
 
 
 
 
 
 
 
 
 
 
 
 
Federal
 

($14,549
)
 

($20,173
)
 

($8,939
)
 

($5,822
)
 

$16,035

 

$16,256

State
 
(714
)
 
(735
)
 
5,823

 
1,856

 
663

 
(2,831
)
Total
 
(15,263
)
 
(20,908
)
 
(3,116
)
 
(3,966
)
 
16,698

 
13,425

Deferred and non-current - net
 
(30,278
)
 
147,453

 
34,579

 
4,248

 
(69,963
)
 
422

Investment tax credit adjustments - net
 
(1,228
)
 
(4,922
)
 
(597
)
 
(96
)
 
(631
)
 
1,502

Income taxes
 

($46,769
)
 

$121,623

 

$30,866

 

$186

 

($53,896
)
 

$15,349


2018
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
System Energy
 
 
(In Thousands)
Current:
 
 
 
 
 
 
 
 
 
 
 
 
Federal
 

($23,638
)
 

($15,841
)
 

($11,275
)
 

($10,813
)
 

$16,190

 

($9,786
)
State
 
(1,617
)
 
(1,122
)
 
(1,066
)
 
545

 
3,205

 
(1,821
)
Total
 
(25,255
)
 
(16,963
)
 
(12,341
)
 
(10,268
)
 
19,395

 
(11,607
)
Deferred and non-current - net
 
(270,586
)
 
(32,725
)
 
(114,738
)
 
7,943

 
(44,817
)
 
(35,329
)
Investment tax credit adjustments - net
 
(1,226
)
 
(4,923
)
 
1,306

 
(111
)
 
(821
)
 
(739
)
Income taxes
 

($297,067
)
 

($54,611
)
 

($125,773
)
 

($2,436
)
 

($26,243
)
 

($47,675
)

2017
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
System Energy
 
 
(In Thousands)
Current:
 
 
 
 
 
 
 
 
 
 
 
 
Federal
 

$16,086

 

($84,250
)
 

($8,845
)
 

($30,635
)
 

$6,034

 

$47,674

State
 
9,191

 
1,480

 
(924
)
 
(728
)
 
310

 
5,314

Total
 
25,277

 
(82,770
)
 
(9,769
)
 
(31,363
)
 
6,344

 
52,988

Deferred and non-current - net
 
69,753

 
572,988

 
83,501

 
62,946

 
43,102

 
19,243

Investment tax credit adjustments - net
 
(1,226
)
 
(4,920
)
 
187

 
1,695

 
(965
)
 
(2,262
)
Income taxes
 

$93,804

 

$485,298

 

$73,919

 

$33,278

 

$48,481

 

$69,969



Total income taxes for Entergy Corporation and Subsidiaries differ from the amounts computed by applying the statutory income tax rate to income before income taxes.  The reasons for the differences for the years 2019, 2018, and 2017 are:
 
2019
 
2018
 
2017
 
(In Thousands)
Net income (loss) attributable to Entergy Corporation

$1,241,226

 

$848,661

 

$411,612

Preferred dividend requirements of subsidiaries
17,018

 
13,894

 
13,741

Consolidated net income (loss)
1,258,244

 
862,555

 
425,353

Income taxes
(169,825
)
 
(1,036,826
)
 
542,570

Income (loss) before income taxes

$1,088,419

 

($174,271
)
 

$967,923

Computed at statutory rate (21% for 2019 and 2018) (35% for 2017)

$228,568

 

($36,597
)
 

$338,773

Increases (reductions) in tax resulting from:
 

 
 

 
 

State income taxes net of federal income tax effect
61,791

 
21,398

 
44,179

Regulatory differences - utility plant items
(45,336
)
 
(37,507
)
 
39,825

Equity component of AFUDC
(30,444
)
 
(27,216
)
 
(33,282
)
Amortization of investment tax credits
(8,093
)
 
(8,304
)
 
(10,204
)
Flow-through / permanent differences
(2,059
)
 
439

 
8,727

Tax legislation enactment (a)
—

 
—

 
560,410

Amortization of excess ADIT (a)
(205,614
)
 
(577,082
)
 
—

Revisions of the 2017 tax legislation enactment regulatory liability accrual, including the effect of the Entergy Texas 2018 base rate proceeding
—

 
(40,494
)
 
—

Utility restructuring (b)
—

 
(169,918
)
 
—

Settlement on treatment of regulatory obligations (c)
—

 
(52,320
)
 
—

State income tax audit conclusion
—

 
(23,425
)
 
—

IRS audit adjustment
—

 
(8,404
)
 
—

Entergy Wholesale Commodities nuclear decommissioning trust restructuring (d)
—

 
(106,833
)
 
—

Entergy Wholesale Commodities restructuring (d)
(173,725
)
 
—

 
(373,277
)
FitzPatrick disposition
—

 
—

 
(44,344
)
Charitable contribution (d)
(19,101
)

—


—

Net operating loss recognition
(41,427
)

—


—

Provision for uncertain tax positions
7,332

 
24,569

 
8,756

Valuation allowance
59,345

 
2,211

 
—

Other - net
(1,062
)
 
2,657

 
3,007

Total income taxes as reported

($169,825
)
 

($1,036,826
)
 

$542,570

Effective Income Tax Rate
(15.6
%)
 
595.0
%
 
56.1
%


(a)
See “Other Tax Matters - Tax Cuts and Jobs Act” below for discussion of the amortization of excess ADIT in 2018 and 2019 and the tax legislation enactment in 2017.
(b)
See “Other Tax Matters - Entergy Arkansas and Entergy Mississippi Internal Restructuring” below for discussion of the Utility restructuring.
(c)
See “Income Tax Audits - 2012-2013 IRS Audit” below for discussion of the settlement.
(d)
See “Other Tax Matters - Entergy Wholesale Commodities Restructuring” below for discussion of the Entergy Wholesale Commodities nuclear decommissioning trust restructuring in 2018, the Entergy Wholesale Commodities restructurings in 2017 and 2019, and the charitable contribution in 2019.


Total income taxes for the Registrant Subsidiaries differ from the amounts computed by applying the statutory income tax rate to income before taxes.  The reasons for the differences for the years 2019, 2018, and 2017 are:
2019
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
System Energy
 
 
(In Thousands)
Net income
 

$262,964

 

$691,537

 

$119,925

 

$52,629

 

$159,397

 

$99,120

Income taxes
 
(46,769
)
 
121,623

 
30,866

 
186

 
(53,896
)
 
15,349

Pretax income
 

$216,195

 

$813,160

 

$150,791

 

$52,815

 

$105,501

 

$114,469

Computed at statutory rate (21%)
 

$45,401

 

$170,764

 

$31,666

 

$11,091

 

$22,155

 

$24,039

Increases (reductions) in tax resulting from:
 
 
 
 

 
 

 
 

 
 

 
 

State income taxes net of federal income tax effect
 
15,954

 
42,854

 
5,563

 
3,443

 
360

 
5,134

Regulatory differences - utility plant items
 
(10,627
)
 
(19,421
)
 
(5,556
)
 
(1,532
)
 
(1,987
)
 
(6,213
)
Equity component of AFUDC
 
(3,255
)
 
(15,545
)
 
(1,755
)
 
(2,088
)
 
(5,973
)
 
(1,829
)
Amortization of investment tax credits
 
(1,201
)
 
(4,871
)
 
(160
)
 
(88
)
 
(617
)
 
(1,155
)
Flow-through / permanent differences
 
696

 
439

 
160

 
(741
)
 
560

 
(500
)
Amortization of excess ADIT (b)
 
(90,921
)
 
(28,531
)
 
203

 
(11,724
)
 
(69,091
)
 
(5,550
)
Non-taxable dividend income
 
—

 
(26,795
)
 
—

 
—

 
—

 
—

Provision for uncertain tax positions
 
(3,517
)
 
1,519

 
500

 
1,672

 
430

 
1,300

Other - net
 
701

 
1,210

 
245

 
153

 
267

 
123

Total income taxes as reported
 

($46,769
)
 

$121,623

 

$30,866

 

$186

 

($53,896
)
 

$15,349

Effective Income Tax Rate
 
(21.6
%)
 
15.0
%
 
20.5
%
 
0.4
%
 
(51.1
%)
 
13.4
%


2018
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
System Energy
 
 
(In Thousands)
Net income
 

$252,707

 

$675,614

 

$126,078

 

$53,152

 

$162,235

 

$94,109

Income taxes
 
(297,067
)
 
(54,611
)
 
(125,773
)
 
(2,436
)
 
(26,243
)
 
(47,675
)
Pretax income
 

($44,360
)
 

$621,003

 

$305

 

$50,716

 

$135,992

 

$46,434

Computed at statutory rate (21%)
 

($9,316
)
 

$130,411

 

$64

 

$10,650

 

$28,558

 

$9,751

Increases (reductions) in tax resulting from:
 


 


 


 


 


 


State income taxes net of federal income tax effect
 
(794
)
 
26,031

 
(1,747
)
 
2,322

 
2,576

 
2,812

Regulatory differences - utility plant items
 
(14,916
)
 
(12,604
)
 
(4,103
)
 
(1,502
)
 
(1,872
)
 
(2,510
)
Equity component of AFUDC
 
(3,477
)
 
(16,784
)
 
(1,829
)
 
(1,248
)
 
(2,042
)
 
(1,837
)
Amortization of investment tax credits
 
(1,201
)
 
(4,871
)
 
(160
)
 
(109
)
 
(808
)
 
(1,155
)
Flow-through / permanent differences
 
570

 
3,203

 
1,893

 
(4,222
)
 
1,038

 
2,815

Revisions of the 2017 tax legislation enactment regulatory liability accrual, including the effect of the Entergy Texas 2018 base rate proceeding (a)
 
933

 
(2,810
)
 
(556
)
 
884

 
(43,799
)
 
(3,565
)
Amortization of excess ADIT (b)
 
(271,570
)
 
(104,313
)
 
(120,831
)
 
(9,878
)
 
(11,519
)
 
(58,971
)
Settlement on treatment of regulatory obligations (c)
 
—

 
(52,320
)
 
—

 
—

 
—

 
—

IRS audit adjustment
 
1,290

 
1,097

 
1,018

 
(96
)
 
524

 
(12
)
Non-taxable dividend income
 
—

 
(26,795
)
 
—

 
—

 
—

 
—

Provision for uncertain tax positions
 
724

 
3,949

 
240

 
613

 
839

 
4,876

Other - net
 
690

 
1,195

 
238

 
150

 
262

 
121

Total income taxes as reported
 

($297,067
)
 

($54,611
)
 

($125,773
)
 

($2,436
)
 

($26,243
)
 

($47,675
)
Effective Income Tax Rate
 
669.7
%
 
(8.8
%)
 
(41,237.0
%)
 
(4.8
%)
 
(19.3
%)
 
(102.7
%)


2017
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
System Energy
 
 
(In Thousands)
Net income
 

$139,844

 

$316,347

 

$110,032

 

$44,553

 

$76,173

 

$78,596

Income taxes
 
93,804

 
485,298

 
73,919

 
33,278

 
48,481

 
69,969

Pretax income
 

$233,648

 

$801,645

 

$183,951

 

$77,831

 

$124,654

 

$148,565

Computed at statutory rate (35%)
 

$81,777

 

$280,576

 

$64,383

 

$27,241

 

$43,629

 

$51,998

Increases (reductions) in tax resulting from:
 
 

 
 

 
 

 
 

 
 

 
 

State income taxes net of federal income tax effect
 
11,586

 
31,927

 
6,202

 
2,842

 
527

 
5,635

Regulatory differences - utility plant items
 
7,220

 
12,168

 
1,356

 
619

 
5,581

 
12,880

Equity component of AFUDC
 
(6,458
)
 
(18,020
)
 
(3,383
)
 
(847
)
 
(2,353
)
 
(2,221
)
Amortization of investment tax credits
 
(1,201
)
 
(4,871
)
 
(160
)
 
(124
)
 
(951
)
 
(2,896
)
Flow-through / permanent differences
 
3,098

 
3,774

 
1,567

 
(3,352
)
 
1,428

 
(276
)
Tax legislation enactment (b)
 
(3,090
)
 
217,258

 
3,492

 
6,153

 
2,981

 
(69
)
Non-taxable dividend income
 
—

 
(44,658
)
 
—

 
—

 
—

 
—

Provision for uncertain tax positions
 
200

 
5,700

 
228

 
600

 
(2,617
)
 
4,800

Other - net
 
672

 
1,444

 
234

 
146

 
256

 
118

Total income taxes as reported
 

$93,804

 

$485,298

 

$73,919

 

$33,278

 

$48,481

 

$69,969

Effective Income Tax Rate
 
40.1
%
 
60.5
%
 
40.2
%
 
42.8
%
 
38.9
%
 
47.1
%


(a)
See Note 2 to the financial statements for discussion of the Entergy Texas rate case settlement.
(b)
See “Other Tax Matters - Tax Cuts and Jobs Act” below for discussion of the amortization of excess ADIT in 2018 and 2019 and the tax legislation enactment in 2017.
(c)
See “Income Tax Audits - 2012-2013 IRS Audit” below for discussion of the settlement for Entergy Louisiana.


Significant components of accumulated deferred income taxes and taxes accrued for Entergy Corporation and Subsidiaries as of December 31, 2019 and 2018 are as follows:
 
 
2019
 
2018
 
(In Thousands)
Deferred tax liabilities:
 
 
 
Plant basis differences - net

($4,111,761
)
 

($3,835,211
)
Regulatory assets
(389,573
)
 
(370,484
)
Nuclear decommissioning trusts/receivables
(1,015,542
)
 
(1,128,140
)
Pension, net funding
(348,260
)
 
(307,626
)
Combined unitary state taxes
(11,519
)
 
(9,440
)
Power purchase agreements
—

 
(73,335
)
Deferred fuel
(8,360
)
 
(29,953
)
Other
(445,378
)
 
(248,997
)
Total
(6,330,393
)
 
(6,003,186
)
Deferred tax assets:
 

 
 

Nuclear decommissioning liabilities
929,251

 
1,070,583

Regulatory liabilities
806,777

 
895,756

Pension and other post-employment benefits
297,272

 
305,736

Sale and leaseback
102,420

 
121,473

Compensation
87,355

 
86,461

Accumulated deferred investment tax credit
56,013

 
57,643

Provision for allowances and contingencies
126,886

 
135,631

Power purchase agreements
231,502

 
—

Unbilled/deferred revenues
(10,218
)
 
43,762

Net operating loss carryforwards
1,133,197

 
628,165

Capital losses and miscellaneous tax credits
22,597

 
20,549

Valuation allowance
(303,307
)
 
(243,726
)
Other
289,557

 
125,522

Total
3,769,302

 
3,247,555

Non-current accrued taxes (including unrecognized tax benefits)
(1,775,638
)
 
(1,296,928
)
Accumulated deferred income taxes and taxes accrued

($4,336,729
)
 

($4,052,559
)


Entergy’s estimated tax attributes carryovers and their expiration dates as of December 31, 2019 are as follows:

Carryover Description
 
Carryover Amount
 
Year(s) of expiration
 
 
 
 
 
Federal net operating losses before 1/1/2018
 
$9.8 billion
 
2023-2037
Federal net operating losses - 1/1/2018 forward
 
$10.7 billion
 
N/A
State net operating losses
 
$20.8 billion
 
2020-2039
Federal and state charitable contributions
 
$395.8 million
 
2020-2024
Miscellaneous federal and state credits
 
$101.1 million
 
2020-2038


As a result of the accounting for uncertain tax positions, the amount of the deferred tax assets reflected in the financial statements is less than the amount of the tax effect of the federal and state net operating loss carryovers, tax credit carryovers, and other tax attributes reflected on income tax returns. Entergy evaluates the available positive and negative evidence to estimate whether sufficient future taxable income of the appropriate character will be generated to realize the benefits of existing deferred tax assets. When the evaluation indicates that Entergy will not be able to realize the existing benefits, a valuation allowance is recorded to reduce deferred tax assets to the realizable amount.

Because it is more likely than not that the benefit from certain state net operating loss and other deferred tax assets will not be utilized, valuation allowances totaling $303 million as of December 31, 2019 and $244 million as of December 31, 2018 have been provided on the deferred tax assets related to federal and state jurisdictions in which Entergy does not currently expect to be able to utilize certain separate company tax return attributes, preventing realization of such deferred tax assets.

Significant components of accumulated deferred income taxes and taxes accrued for the Registrant Subsidiaries as of December 31, 2019 and 2018 are as follows:
2019
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
System Energy
 
 
(In Thousands)
Deferred tax liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Plant basis differences - net
 

($979,033
)
 

($1,987,025
)
 

($565,202
)
 

($133,073
)
 

($551,365
)
 

($380,594
)
Regulatory assets
 
(170,949
)
 
(79,117
)
 
(10,528
)
 
(16,867
)
 
(59,745
)
 
(52,662
)
Nuclear decommissioning trusts/receivables
 
(120,306
)
 
(113,830
)
 
—

 
—

 
—

 
(100,621
)
Pension, net funding
 
(102,685
)
 
(98,743
)
 
(27,325
)
 
(11,859
)
 
(19,961
)
 
(21,609
)
Deferred fuel
 
—

 
(2,637
)
 
(609
)
 
(666
)
 
(4,380
)
 
(55
)
Other
 
(82,682
)
 
(94,139
)
 
(27,905
)
 
(25,909
)
 
2,059

 
(7,350
)
Total
 
(1,455,655
)
 
(2,375,491
)
 
(631,569
)
 
(188,374
)
 
(633,392
)
 
(562,891
)
Deferred tax assets:
 
 

 
 

 
 

 
 

 
 

 
 

Regulatory liabilities
 
250,410

 
283,507

 
53,421

 
33,258

 
65,602

 
121,011

Nuclear decommissioning liabilities
 
111,078

 
56,300

 
—

 
—

 
—

 
52,633

Pension and other post-employment benefits
 
(21,828
)
 
74,881

 
(5,844
)
 
(12,666
)
 
(15,406
)
 
(898
)
Sale and leaseback
 
—

 
—

 
—

 
—

 
—

 
102,480

Accumulated deferred investment tax credit
 
8,285

 
32,534

 
2,396

 
556

 
2,217

 
10,025

Provision for allowances and contingencies
 
5,365

 
77,298

 
12,963

 
24,022

 
4,024

 
—

Power purchase agreements
 
(15,087
)
 
18,004

 
1,147

 
7,961

 
26

 
—

Unbilled/deferred revenues
 
5,897

 
(28,081
)
 
4,715

 
1,428

 
5,544

 
—

Compensation
 
2,550

 
3,670

 
1,625

 
496

 
1,282

 
75

Net operating loss carryforwards
 
112,658

 
65,178

 
21,492

 
5,056

 
—

 
—

Capital losses and miscellaneous tax credits
 
—

 
—

 
45

 
—

 
—

 
7,857

Other
 
12,541

 
35,401

 
999

 
9,027

 
2,004

 
3

Total
 
471,869

 
618,692

 
92,959

 
69,138

 
65,293

 
293,186

Non-current accrued taxes (including unrecognized tax benefits)
 
(199,340
)
 
(707,714
)
 
(56,222
)
 
(235,300
)
 
(17,314
)
 
(544,235
)
Accumulated deferred income taxes and taxes accrued
 

($1,183,126
)
 

($2,464,513
)
 

($594,832
)
 

($354,536
)
 

($585,413
)
 

($813,940
)
2018
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
System Energy
 
 
(In Thousands)
Deferred tax liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Plant basis differences - net
 

($966,791
)
 

($1,893,831
)
 

($579,319
)
 

($135,143
)
 

($544,282
)
 

($403,809
)
Regulatory assets
 
(169,482
)
 
(74,917
)
 
(1,732
)
 
(20,009
)
 
(57,777
)
 
(46,627
)
Nuclear decommissioning trusts/receivables
 
(77,664
)
 
(71,470
)
 
—

 
—

 
—

 
(86,882
)
Pension, net funding
 
(91,962
)
 
(92,693
)
 
(24,398
)
 
(11,885
)
 
(20,331
)
 
(18,898
)
Deferred fuel
 
(5,801
)
 
(6,974
)
 
(11,819
)
 
(1,701
)
 
(2,835
)
 
(312
)
Other
 
(41,025
)
 
(34,700
)
 
(13,443
)
 
(7,640
)
 
(6,085
)
 
(4,544
)
Total
 
(1,352,725
)
 
(2,174,585
)
 
(630,711
)
 
(176,378
)
 
(631,310
)
 
(561,072
)
Deferred tax assets:
 
 

 
 

 
 

 
 

 
 

 
 

Regulatory liabilities
 
247,964

 
339,126

 
72,570

 
40,181

 
86,032

 
110,370

Nuclear decommissioning liabilities
 
99,479

 
48,738

 
—

 
—

 
—

 
46,643

Pension and other post-employment benefits
 
(19,068
)
 
80,102

 
(5,405
)
 
(11,371
)
 
(14,215
)
 
(632
)
Sale and leaseback
 
—

 
18,999

 
—

 
—

 
—

 
102,481

Accumulated deferred investment tax credit
 
8,599

 
33,928

 
2,541

 
579

 
2,347

 
9,649

Provision for allowances and contingencies
 
9,877

 
81,108

 
13,412

 
23,962

 
5,579

 
—

Power purchase agreements
 
(17,223
)
 
19,385

 
1,140

 
12,155

 
(18
)
 
—

Unbilled/deferred revenues
 
7,471

 
(17,345
)
 
5,527

 
636

 
7,016

 
—

Compensation
 
1,708

 
1,959

 
1,265

 
512

 
995

 
(260
)
Net operating loss carryforwards
 
6,338

 
20,118

 
4,896

 
480

 
261

 
—

Other
 
7,977

 
23,412

 
1,610

 
12,181

 
2,127

 
4

Total
 
353,122

 
649,530

 
97,556

 
79,315

 
90,124

 
268,255

Non-current accrued taxes (including unrecognized tax benefits)
 
(85,942
)
 
(701,666
)
 
(18,714
)
 
(226,532
)
 
(11,349
)
 
(512,479
)
Accumulated deferred income taxes and taxes accrued
 

($1,085,545
)
 

($2,226,721
)
 

($551,869
)
 

($323,595
)
 

($552,535
)
 

($805,296
)


The Registrant Subsidiaries’ estimated tax attributes carryovers and their expiration dates as of December 31, 2019 are as follows:
 
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
System Energy
 
 
 
 
 
 
 
 
 
 
 
 
 
Federal net operating losses
 
$4.4 billion
 
$4.3 billion
 
$2 billion
 
$1.1 billion
 
$—
 
$—
Year(s) of expiration
 
N/A
 
2035-2037
 
N/A
 
2037
 
N/A
 
N/A
 
 
 
 
 
 
 
 
 
 
 
 
 
State net operating losses
 
$4.5 billion
 
$5.2 billion
 
$2.1 billion
 
$1.2 billion
 
$—
 
$—
Year(s) of expiration
 
2024
 
2035-2039
 
2038-2039
 
2038-2039
 
N/A
 
N/A
 
 
 
 
 
 
 
 
 
 
 
 
 
Misc. federal credits
 
$—
 
$5.2 million
 
$—
 
$—
 
$1.9 million
 
$3.2 million
Year(s) of expiration
 
N/A
 
2035-2038
 
N/A
 
N/A
 
2029-2038
 
2029-2038
 
 
 
 
 
 
 
 
 
 
 
 
 
State credits
 
$—
 
$—
 
$—
 
$—
 
$2.9 million
 
$13.1 million
Year(s) of expiration
 
N/A
 
N/A
 
N/A
 
N/A
 
2026
 
2020-2023


As a result of the accounting for uncertain tax positions, the amount of the deferred tax assets reflected in the financial statements is less than the amount of the tax effect of the federal and state net operating loss carryovers and tax credit carryovers.

Unrecognized tax benefits

Accounting standards establish a “more-likely-than-not” recognition threshold that must be met before a tax benefit can be recognized in the financial statements.  If a tax deduction is taken on a tax return but does not meet the more-likely-than-not recognition threshold, an increase in income tax liability, above what is payable on the tax return, is required to be recorded.  A reconciliation of Entergy’s beginning and ending amount of unrecognized tax benefits is as follows:
 
2019
 
2018
 
2017
 
(In Thousands)
Gross balance at January 1

$7,181,482

 

$4,871,846

 

$3,909,855

Additions based on tax positions related to the current year
731,276

 
2,276,614

 
1,120,687

Additions for tax positions of prior years
151,628

 
506,142

 
283,683

Reductions for tax positions of prior years
(681,232
)
 
(274,600
)
 
(442,379
)
Settlements
—

 
(198,520
)
 
—

Gross balance at December 31
7,383,154

 
7,181,482

 
4,871,846

Offsets to gross unrecognized tax benefits:
 

 
 

 
 

Carryovers and refund claims
(5,831,587
)
 
(5,957,992
)
 
(3,945,524
)
Cash paid to taxing authorities
(10,000
)
 
(10,000
)
 
(10,000
)
Unrecognized tax benefits net of unused tax attributes, refund claims and payments (a)

$1,541,567

 

$1,213,490

 

$916,322



(a)
Potential tax liability above what is payable on tax returns

The balances of unrecognized tax benefits include $2,421 million, $2,161 million, and $1,462 million as of December 31, 2019, 2018, and 2017, respectively, which, if recognized, would lower the effective income tax rates.  Because of the effect of deferred tax accounting, the remaining balances of unrecognized tax benefits of $4,962
million, $5,020 million, and $3,410 million as of December 31, 2019, 2018, and 2017, respectively, if disallowed, would not affect the annual effective income tax rate but would accelerate the payment of cash to the taxing authority to an earlier period.

Entergy accrues interest expense, if any, related to unrecognized tax benefits in income tax expense.  Entergy’s December 31, 2019, 2018, and 2017 accrued balance for the possible payment of interest is approximately $48 million, $44 million, and $38 million, respectively. Interest (net-of-tax) of $4 million, $7 million, and $8 million was recorded in 2019, 2018, and 2017, respectively.

A reconciliation of the Registrant Subsidiaries’ beginning and ending amount of unrecognized tax benefits for 2019, 2018, and 2017 is as follows:
2019
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
System Energy
 
 
(In Thousands)
Gross balance at January 1, 2019
 

$1,298,662

 

$2,400,171

 

$508,765

 

$686,687

 

$17,802

 

$467,487

Additions based on tax positions related to the current year
 
84,335

 
28,705

 
68,594

 
40,676

 
2,312

 
5,496

Additions for tax positions of prior years
 
20,399

 
25,090

 
1,651

 
489

 
1,299

 
2,186

Reductions for tax positions of prior years
 
(62,154
)
 
(72,313
)
 
(12,723
)
 
(11,079
)
 
(7
)
 
(1,838
)
Gross balance at December 31, 2019
 
1,341,242

 
2,381,653

 
566,287

 
716,773

 
21,406

 
473,331

Offsets to gross unrecognized tax benefits:
 
 

 
 

 
 

 
 

 
 

 
 

Loss carryovers
 
(1,134,187
)
 
(1,573,257
)
 
(506,976
)
 
(445,430
)
 
(3,944
)
 
(8,392
)
Unrecognized tax benefits net of unused tax attributes and payments
 

$207,055

 

$808,396

 

$59,311

 

$271,343

 

$17,462

 

$464,939



2018
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
System Energy
 
 
(In Thousands)
Gross balance at January 1, 2018
 

($117,716
)
 

$2,518,457

 

$15,122

 

$679,544

 

$16,399

 

$445,511

Additions based on tax positions related to the current year (a)
 
1,430,828

 
30,577

 
493,039

 
2,261

 
1,978

 
18,271

Additions for tax positions of prior years
 
31,612

 
77,372

 
3,878

 
12,972

 
1,722

 
7,255

Reductions for tax positions of prior years
 
(21,619
)
 
(158,510
)
 
(3,253
)
 
(8,081
)
 
(2,262
)
 
(3,253
)
Settlements
 
(24,443
)
 
(67,725
)
 
(21
)
 
(9
)
 
(35
)
 
(297
)
Gross balance at December 31, 2018
 
1,298,662

 
2,400,171

 
508,765

 
686,687

 
17,802

 
467,487

Offsets to gross unrecognized tax benefits:
 
 

 
 

 
 

 
 

 
 

 
 

Loss carryovers
 
(1,173,839
)
 
(1,597,826
)
 
(478,268
)
 
(420,813
)
 
(3,199
)
 
(42,228
)
Unrecognized tax benefits net of unused tax attributes and payments
 

$124,823

 

$802,345

 

$30,497

 

$265,874

 

$14,603

 

$425,259


2017
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
System Energy
 
 
(In Thousands)
Gross balance at January 1, 2017
 

$2,503

 

$2,440,339

 

$12,206

 

$166,230

 

$15,946

 

$472,372

Additions based on tax positions related to the current year (a)
 
8,974

 
32,843

 
2,105

 
509,183

 
1,747

 
909

Additions for tax positions of prior years
 
3,682

 
235,331

 
1,267

 
13,364

 
3,115

 
1,432

Reductions for tax positions of prior years
 
(132,875
)
 
(190,056
)
 
(456
)
 
(9,233
)
 
(4,409
)
 
(29,202
)
Gross balance at December 31, 2017
 
(117,716
)
 
2,518,457

 
15,122

 
679,544

 
16,399

 
445,511

Offsets to gross unrecognized tax benefits:
 
 

 
 

 
 

 
 

 
 

 
 

Loss carryovers
 
—

 
(1,591,907
)
 
(15,122
)
 
(441,374
)
 
(638
)
 
(12,536
)
Unrecognized tax benefits net of unused tax attributes and payments
 

($117,716
)
 

$926,550

 

$—

 

$238,170

 

$15,761

 

$432,975



(a)
The primary additions for Entergy Mississippi in 2018, and Entergy New Orleans in 2017 are related to the mark-to-market treatment discussed in “Other Tax Matters - Tax Accounting Methods” below. The primary additions for Entergy Arkansas in 2018 are related to the nuclear decommissioning costs treatment and the mark-to-market treatment discussed in “Other Tax Matters - Tax Accounting Methods” below.

The Registrant Subsidiaries’ balances of unrecognized tax benefits included amounts which, if recognized, would have reduced income tax expense as follows:
 
December 31,
 
2019
 
2018
 
2017
 
(In Millions)
Entergy Arkansas

$203.3

 

$85.4

 

$2.6

Entergy Louisiana

$556.3

 

$594.0

 

$575.8

Entergy Mississippi

$1.9

 

$1.5

 

$—

Entergy New Orleans

$242.7

 

$246.2

 

$31.7

Entergy Texas

$5.7

 

$5.1

 

$4.4

System Energy

$—

 

$—

 

$—



Accrued balances for the possible payment of interest related to unrecognized tax benefits are as follows:
 
December 31,
 
2019
 
2018
 
2017
 
(In Millions)
Entergy Arkansas

$3.1

 

$1.7

 

$1.6

Entergy Louisiana

$14.2

 

$17.9

 

$14.1

Entergy Mississippi

$1.7

 

$1.2

 

$1.0

Entergy New Orleans

$4.7

 

$2.7

 

$2.1

Entergy Texas

$1.1

 

$0.9

 

$0.4

System Energy

$14.5

 

$13.2

 

$8.5



The Registrant Subsidiaries record interest and penalties related to unrecognized tax benefits in income tax expense.  No penalties were recorded in 2019, 2018, and 2017. Interest (net-of-tax) was recorded as follows:
 
2019
 
2018
 
2017
 
(In Millions)
Entergy Arkansas

$1.4

 

$0.2

 

$0.2

Entergy Louisiana

($3.7
)
 

$3.8

 

$5.7

Entergy Mississippi

$0.5

 

$0.2

 

$0.2

Entergy New Orleans

$2.0

 

$0.6

 

$0.6

Entergy Texas

$0.2

 

$0.5

 

($0.8
)
System Energy

$1.3

 

$4.7

 

$4.8



Income Tax Audits

Entergy and its subsidiaries file U.S. federal and various state and foreign income tax returns.  IRS examinations are complete for years before 2014. All state taxing authorities’ examinations are complete for years before 2015. Entergy regularly negotiates with the IRS to achieve settlements.  The resolution of audit issues could result in significant changes to the amounts of unrecognized tax benefits in the next twelve months.

2012-2013 IRS Audit

The IRS completed its examination of the 2012 and 2013 tax years and issued its 2012-2013 Revenue Agent Report (RAR) in June 2018. Entergy agreed to all proposed adjustments contained in the RAR. Entergy and the Registrant Subsidiaries recorded the effects of these adjustments in June 2018.

As a result of the issuance of the RAR, Entergy Louisiana was able to recognize previously unrecognized tax benefits of $52 million related to the Hurricane Katrina and Hurricane Rita contingent sharing obligation associated with the Louisiana Act 55 financing.

2014-2015 IRS Audit

The IRS is examining the 2014 and 2015 tax years. Entergy expects the IRS to complete this examination in 2020. As of December 31, 2019, Entergy has not received any proposed adjustments to taxable income from the IRS.

Other Tax Matters

Tax Cuts and Jobs Act

Deferred tax liabilities and assets have been adjusted for the effect of the enactment of the Tax Cuts and Jobs Act (the Act), signed by President Trump on December 22, 2017. The most significant effect of the Act for Entergy and the Registrant Subsidiaries was the change in the federal corporate income tax rate from 35% to 21%, effective January 1, 2018. Other significant provisions and their effect on Entergy and the Registrant Subsidiaries are summarized below.
The Act limits the deduction for net business interest expense to 30 percent of adjusted taxable income which is similar to earnings before interest, taxes, depreciation, and amortization. The limitation does not apply to interest expense that is properly allocable to a trade or business that furnishes or sells electrical energy, gas, or steam through a local distribution system, or transports gas or steam by pipeline if the rates for such furnishing or sale are subject to ratemaking by a government entity or instrumentality or by a public utility commission.
The IRS issued proposed regulations relating to this limitation in November 2018. The regulations are generally proposed to be effective for taxable years ending after the date Treasury adopts the regulations as final. Taxpayers may apply the rules of the proposed regulations to a taxable year beginning after December 31, 2017, so long as taxpayers consistently apply the rules of the proposed regulations. The proposed regulations provide guidance that if 90% of a tax group’s consolidated assets consist of utility property, the entire consolidated tax group will be treated as a regulated public utility and all of the consolidated group’s interest expense will be currently tax deductible.
As a result of the limitation under the Act, Entergy recorded limitations in 2018 and 2019 and recorded a deferred tax asset on the nondeductible portion, as it has an unlimited carryover period. Entergy recorded a valuation allowance of $24 million due to a lack of earnings from sources other than the Utility.
The Act limits the net operating loss (NOL) deduction for a given year to 80% of taxable income, effective with respect to losses arising in tax years beginning after December 31, 2017. Only NOLs generated after December 31, 2017 are subject to the 80% limitation. Prior law generally provided a two-year carryback and 20-year carryforward for NOLs. The Act does not allow a carryback period but does provide for the indefinite carryforward of NOLs arising in tax years ending after December 31, 2017. Because of the indefinite carryforward, the new limitations on NOL utilization are not expected to have a material effect on Entergy or the Registrant Subsidiaries.
The Act also modified Internal Revenue Code section 162(m), which limits the deduction for compensation with respect to certain covered employees to no more than $1 million per year.  The IRS issued proposed regulations relating to this limitation in December 2019. The significant provisions of the Act and associated proposed regulations require inclusion of performance-based compensation and an expanded definition of “covered employees” in the annual computation of the section 162 limitation. The Act amendments and associated proposed regulations resulted in an increase in disallowed compensation expense, but this limitation does not have a material effect on Entergy or the Registrant Subsidiaries.
With respect to the federal corporate income tax rate change from 35% to 21%, Entergy and the Registrant Subsidiaries recorded a regulatory liability associated with the decrease in the net accumulated deferred income tax liability, which is often referred to as “excess ADIT,” a significant portion of which has been paid to customers in 2018 and 2019 in the form of lower rates. Entergy’s December 31, 2019 and December 31, 2018 balance sheets reflect a regulatory liability of $1.7 billion and $2.1 billion, respectively, as a result of the re-measurement of deferred tax assets and liabilities from the income tax rate change, amortization of excess ADIT, and payments to customers during 2018 and 2019. Entergy’s regulatory liability for income taxes includes a gross-up at the applicable tax rate because of the effect that excess ADIT has on the ratemaking formula. The regulatory liability for income taxes includes the effect of a) the reduction of the net deferred tax liability resulting in excess ADIT, b) the tax gross-up of excess ADIT, and c) the effect of the new tax rate on the previous net regulatory asset for income taxes. For the same reasons, the Registrant Subsidiaries’ December 31, 2019 and December 31, 2018 balance sheets reflect net regulatory liabilities for income taxes as follows:
 
2019
 
2018
 
(In Millions)
Entergy Arkansas

$487

 

$605

Entergy Louisiana

$531

 

$612

Entergy Mississippi

$237

 

$246

Entergy New Orleans

$59

 

$86

Entergy Texas

$253

 

$352

System Energy

$143

 

$163

Excess ADIT is generally classified into two categories: 1) the portion that is subject to the normalization requirements of the Act, i.e., “protected”, and 2) the portion that is not subject to such normalization provisions, referred to as “unprotected”. The Act provides that the normalization method of accounting for income taxes is required for
excess ADIT associated with public utility property. The Act provides for the use of the average rate assumption method (ARAM) for the determination of the timing of the return of excess ADIT associated with such property. Under ARAM, the excess ADIT is reduced over the remaining life of the asset. Remaining asset lives vary for each Registrant Subsidiary, but the average life of public utility property is typically 30 years or longer. Entergy will amortize the protected portion of the excess ADIT in conformity with the normalization requirements. The Registrant Subsidiaries’ net regulatory liability for income taxes as of December 31, 2019 and December 31, 2018, includes protected excess ADIT as follows:
 
2019
 
2018
 
(In Millions)
Entergy Arkansas

$490

 

$521

Entergy Louisiana

$797

 

$812

Entergy Mississippi

$261

 

$271

Entergy New Orleans

$62

 

$59

Entergy Texas

$228

 

$237

System Energy

$186

 

$202


During the second quarter of 2018, the Registrant Subsidiaries began paying unprotected excess accumulated deferred income taxes, associated with the effects of the Act, to their customers through rate riders and other means approved by their respective regulatory commissions. Payment of the unprotected excess accumulated deferred income taxes results in a reduction in the regulatory liability for income taxes and a corresponding reduction in income tax expense. This has a significant effect on the effective tax rate for the period as compared to the statutory tax rate. The Registrant Subsidiaries’ net regulatory liability for income taxes as of December 31, 2019 and December 31, 2018, includes unprotected excess ADIT as follows:
 
2019
 
2018
 
(In Millions)
Entergy Arkansas

$9

 

$117

Entergy Louisiana

$242

 

$295

Entergy New Orleans

$9

 

$25

Entergy Texas

$83

 

$171

System Energy

$—

 

$4


The return of unprotected excess accumulated deferred income taxes reduced Entergy’s and the Registrant Subsidiaries’ regulatory liability for income taxes as follows for 2019 and 2018:
 
2019
 
2018
 
(In Millions)
Entergy

$273

 

$776

Entergy Arkansas

$126

 

$368

Entergy Louisiana

$39

 

$141

Entergy Mississippi

$—

 

$159

Entergy New Orleans

$14

 

$13

Entergy Texas

$87

 

$15

System Energy

$7

 

$80



In addition to the protected and unprotected excess ADIT amounts, the net regulatory liability for income taxes includes other regulatory assets and liabilities for income taxes associated with AFUDC, which is described in Note 1 to the financial statements.
For a discussion of the proceedings commenced or other responses by Entergy’s regulators to the Act, see Note 2 to the financial statements.
Not all of Entergy’s excess ADIT is included in ratemaking. Consequently, Entergy recorded a net decrease in deferred tax assets of $560 million for which there was a corresponding charge to income tax expense for the year ended December 31, 2017. The corresponding income tax expense (or benefit) recorded by the Registrant Subsidiaries was as follows: Entergy Arkansas, ($3 million); Entergy Louisiana, $217 million; Entergy Mississippi, $3 million; Entergy New Orleans, $6 million; Entergy Texas, $3 million; and System Energy, $0.
Included in the effect of the computation of the changes in deferred tax assets and liabilities is the recognition threshold and measurement of uncertain tax positions resulting in unrecognized tax benefits. The final economic outcome of such unrecognized tax benefits is generally the result of a negotiated settlement with the IRS that often differs from the amount that is recorded as realizable under GAAP. The intrinsic uncertainty with respect to all such tax positions means that the difference between current estimates of such amounts likely to be realized and actual amounts realized upon settlement may have an effect on income tax expense and the regulatory liability for income taxes in future periods.

Entergy anticipates that the Act, including the federal corporate income tax rate change, may continue to have ramifications that require adjustments in the future as certain events occur. These events include: 1) the evaluation by regulators in all of Entergy’s jurisdictions regarding the ratemaking treatment of the Act and excess ADIT; 2) IRS audit adjustments to or amendments of federal and state income tax returns that include modifications to the computation of taxable income resulting from the Act; and 3) additional guidance, interpretations, or rulings by the U.S. Department of the Treasury or the IRS. The potential exists for these types of events to result in future tax expense adjustments because of the difference in the federal corporate income tax rate between past and future periods and the effect of the tax rate change on ratemaking. In turn, these items also could potentially affect the regulatory liability for income taxes.
Entergy Wholesale Commodities Restructuring

The tax classification of the entity that owned FitzPatrick changed in the second quarter 2016.  The change in tax classification required Entergy to recognize the plant’s nuclear decommissioning liability for income tax purposes resulting in a tax accounting permanent difference that reduced income tax expense, net of unrecognized tax benefits, by $238 million. The accrual of the nuclear decommissioning liability also required Entergy to recognize a gain for income tax purposes, a significant portion of which resulted in an increase in tax basis of the assets. Recognition of the gain and the increase in tax basis of the assets represents a tax accounting temporary difference. Entergy sold FitzPatrick 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. The re-determined basis resulted in a $44 million income tax benefit in the first quarter 2017.

In the second quarter 2017, Entergy changed the tax classification of legal entities that own Entergy Wholesale Commodities nuclear power plants. The change in tax classification required Entergy to recognize the plants’ nuclear decommissioning liabilities for income tax purposes resulting in a tax accounting permanent difference that reduced income tax expense, net of unrecognized tax benefits, by $373 million. The accrual of the nuclear decommissioning liabilities also required Entergy to recognize a gain for income tax purposes, a portion of which resulted in an increase in tax basis of the assets. Recognition of the gain and the increase in tax basis of the assets represents a tax accounting temporary difference.

In the third quarter 2018, Entergy completed a restructuring of the investment holdings in one of the Entergy Wholesale Commodities nuclear plant decommissioning trusts that resulted in an adjustment to tax basis for the trust. The accounting standards provide that a taxable temporary difference does not exist if the tax law provides a means by which an amount can be recovered without incurrence of tax. The restructuring allows Entergy to recover assets from the trust without incurring tax. As such, the tax basis recognized resulted in the reversal of a deferred tax liability and reduction of income tax expense of approximately $107 million.

In the fourth quarter 2019, two separate events occurred resulting in a reduction of tax expense of $174 million. In November 2019 an Entergy Wholesale Commodities subsidiary recognized a reduction in income tax expense of $18 million in connection with the accounting method on power contracts associated with the Palisades nuclear power station. Additionally, Entergy’s ownership of Indian Point 2 and Indian Point 3 was restructured. The restructuring required Entergy to recognize Indian Point 2 and Indian Point 3 nuclear decommissioning liabilities for income tax purposes resulting in a tax accounting permanent difference that reduced income tax expense, net of unrecognized tax benefits, by $156 million. The accrual of the nuclear decommissioning liabilities also required Entergy to recognize a gain for income tax purposes, a portion of which resulted in an increase in the tax basis of the assets. Recognition of the gain and the increase in the tax basis of the assets represents a tax accounting temporary difference.

Immediately prior to the restructuring, through its ownership of Indian Point 2 and Indian Point 3, Entergy donated property to Stony Brook University and recognized an associated tax deduction resulting in a decrease to tax expense of $19 million.

Entergy Wholesale Commodities Tax Audit

A state income tax audit involving Entergy Wholesale Commodities was concluded during the third quarter 2018. Upon conclusion of the audit, subsidiaries within Entergy Wholesale Commodities reversed a portion of the provision for uncertain tax positions totaling approximately $23 million, net of tax and interest paid.

Tax Accounting Methods

In the fourth quarter 2015, System Energy and Entergy Louisiana adopted a new method of accounting for income tax return purposes in which their nuclear decommissioning costs will be treated as production costs of electricity includable in cost of goods sold. The new method resulted in a reduction of taxable income of $1.2 billion for System Energy and $2.2 billion for Energy Louisiana. In the fourth quarter 2018, Entergy Arkansas adopted the same method of accounting for its nuclear decommissioning costs which resulted in a $2.2 billion reduction in taxable income.

In 2016, Entergy Louisiana elected mark-to-market income tax treatment for various wholesale electric power purchase and sale agreements, including Entergy Louisiana’s contract to purchase electricity from the Vidalia hydroelectric facility and from System Energy under the Unit Power Sales Agreement. The election resulted in a $2.2 billion deductible temporary difference. In 2017, Entergy New Orleans also elected mark-to-market income tax treatment for wholesale electric contracts which resulted in a $1.1 billion deductible temporary difference. In 2018, Entergy Arkansas and Entergy Mississippi accrued deductible temporary differences related to mark-to-market tax accounting for wholesale electric contracts of $2.1 billion and $1.9 billion, respectively.

Entergy Arkansas and Entergy Mississippi Internal Restructuring

In the fourth quarter 2018, Entergy Arkansas and Entergy Mississippi became wholly-owned subsidiaries of Entergy Utility Holding Company, LLC. The change in ownership required Entergy to recognize Entergy Arkansas’s nuclear decommissioning liabilities for income tax purposes resulting in a tax accounting permanent difference that reduced income tax expense, net of unrecognized tax benefits, by $165 million. The accrual of the nuclear decommissioning liabilities also required Entergy to recognize a gain for income tax purposes, a portion of which resulted in an increase in the tax basis of the assets. Recognition of the gain and the increase in the tax basis of the assets represents a tax accounting temporary difference. Additionally, Entergy recorded a $5 million reduction of income tax expense associated with state income tax effects resulting in a total reduction of income tax expense of $170 million from the restructuring. Entergy recorded a regulatory liability of $40 million ($30 million net-of-tax) which partially offsets the reduction of income tax expense. Entergy Arkansas’s member’s equity increased by $94 million as a result of the restructuring. See Note 2 to the financial statements for further discussion of the internal restructuring.

Arkansas Corporate Income Tax Rate Reduction

In April 2019 the state of Arkansas enacted corporate income tax law changes that phase in an Arkansas tax rate reduction from the current rate of 6.5% to 6.2% in 2021 and 5.9% in 2022.  The rate reduction will eventually reduce Entergy Arkansas’s combined federal and state applicable tax rate by less than 0.5% once fully adopted.  As a result of the rate reduction, Entergy Arkansas recorded a regulatory liability for income taxes of approximately $25 million which includes a tax gross-up related to the treatment of income taxes in the ratemaking formula. The Arkansas tax law enactment also phases in an increase to the net operating loss carryover period from five to ten years.

Consolidated Income Tax Return of Entergy Corporation

In September 2019, Entergy Utility Holding Company, LLC and its regulated, wholly-owned subsidiaries including Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans, became eligible to and joined the Entergy Corporation consolidated federal income tax group.  As a result of these four Utility operating companies re-joining the Entergy Corporation consolidated tax return group, Entergy was able to recognize a $41 million deferred tax asset associated with a previously unrecognized Arkansas net operating loss carryover.

Additionally, in September 2019, Entergy Texas issued $35 million of 5.375% Series A preferred stock with a liquidation value of $25 per share resulting in the disaffiliation and de-consolidation of Entergy Texas from the consolidated federal income tax return of Entergy Corporation.  These changes will not affect the accrual or allocation of income taxes for the Registrant Subsidiaries. See Note 6 to the financial statements for discussion of the preferred stock issuance.

Vermont Yankee

The Vermont Yankee transaction resulted in Entergy generating a net deferred tax asset in January 2019.  The deferred tax asset could not be fully realized by Entergy in the first quarter of 2019; accordingly, Entergy accrued a net tax expense of $29 million on the disposition of Vermont Yankee. See Note 14 to the financial statements for discussion of the Vermont Yankee transaction.
Entergy Louisiana [Member]  
Income Taxes INCOME TAXES (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)

Income taxes for 2019, 2018, and 2017 for Entergy Corporation and Subsidiaries consist of the following:
 
2019
 
2018
 
2017
 
(In Thousands)
Current:
 
 
 
 
 
Federal

($14,416
)
 

$36,848

 

$29,595

State
6,535

 
7,274

 
15,478

Total
(7,881
)
 
44,122

 
45,073

Deferred and non-current - net
(155,956
)
 
(1,074,416
)
 
505,010

Investment tax credit adjustments - net
(5,988
)
 
(6,532
)
 
(7,513
)
Income taxes

($169,825
)
 

($1,036,826
)
 

$542,570


    
Income taxes for 2019, 2018, and 2017 for Entergy’s Registrant Subsidiaries consist of the following:
2019
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
System Energy
 
 
(In Thousands)
Current:
 
 
 
 
 
 
 
 
 
 
 
 
Federal
 

($14,549
)
 

($20,173
)
 

($8,939
)
 

($5,822
)
 

$16,035

 

$16,256

State
 
(714
)
 
(735
)
 
5,823

 
1,856

 
663

 
(2,831
)
Total
 
(15,263
)
 
(20,908
)
 
(3,116
)
 
(3,966
)
 
16,698

 
13,425

Deferred and non-current - net
 
(30,278
)
 
147,453

 
34,579

 
4,248

 
(69,963
)
 
422

Investment tax credit adjustments - net
 
(1,228
)
 
(4,922
)
 
(597
)
 
(96
)
 
(631
)
 
1,502

Income taxes
 

($46,769
)
 

$121,623

 

$30,866

 

$186

 

($53,896
)
 

$15,349


2018
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
System Energy
 
 
(In Thousands)
Current:
 
 
 
 
 
 
 
 
 
 
 
 
Federal
 

($23,638
)
 

($15,841
)
 

($11,275
)
 

($10,813
)
 

$16,190

 

($9,786
)
State
 
(1,617
)
 
(1,122
)
 
(1,066
)
 
545

 
3,205

 
(1,821
)
Total
 
(25,255
)
 
(16,963
)
 
(12,341
)
 
(10,268
)
 
19,395

 
(11,607
)
Deferred and non-current - net
 
(270,586
)
 
(32,725
)
 
(114,738
)
 
7,943

 
(44,817
)
 
(35,329
)
Investment tax credit adjustments - net
 
(1,226
)
 
(4,923
)
 
1,306

 
(111
)
 
(821
)
 
(739
)
Income taxes
 

($297,067
)
 

($54,611
)
 

($125,773
)
 

($2,436
)
 

($26,243
)
 

($47,675
)

2017
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
System Energy
 
 
(In Thousands)
Current:
 
 
 
 
 
 
 
 
 
 
 
 
Federal
 

$16,086

 

($84,250
)
 

($8,845
)
 

($30,635
)
 

$6,034

 

$47,674

State
 
9,191

 
1,480

 
(924
)
 
(728
)
 
310

 
5,314

Total
 
25,277

 
(82,770
)
 
(9,769
)
 
(31,363
)
 
6,344

 
52,988

Deferred and non-current - net
 
69,753

 
572,988

 
83,501

 
62,946

 
43,102

 
19,243

Investment tax credit adjustments - net
 
(1,226
)
 
(4,920
)
 
187

 
1,695

 
(965
)
 
(2,262
)
Income taxes
 

$93,804

 

$485,298

 

$73,919

 

$33,278

 

$48,481

 

$69,969



Total income taxes for Entergy Corporation and Subsidiaries differ from the amounts computed by applying the statutory income tax rate to income before income taxes.  The reasons for the differences for the years 2019, 2018, and 2017 are:
 
2019
 
2018
 
2017
 
(In Thousands)
Net income (loss) attributable to Entergy Corporation

$1,241,226

 

$848,661

 

$411,612

Preferred dividend requirements of subsidiaries
17,018

 
13,894

 
13,741

Consolidated net income (loss)
1,258,244

 
862,555

 
425,353

Income taxes
(169,825
)
 
(1,036,826
)
 
542,570

Income (loss) before income taxes

$1,088,419

 

($174,271
)
 

$967,923

Computed at statutory rate (21% for 2019 and 2018) (35% for 2017)

$228,568

 

($36,597
)
 

$338,773

Increases (reductions) in tax resulting from:
 

 
 

 
 

State income taxes net of federal income tax effect
61,791

 
21,398

 
44,179

Regulatory differences - utility plant items
(45,336
)
 
(37,507
)
 
39,825

Equity component of AFUDC
(30,444
)
 
(27,216
)
 
(33,282
)
Amortization of investment tax credits
(8,093
)
 
(8,304
)
 
(10,204
)
Flow-through / permanent differences
(2,059
)
 
439

 
8,727

Tax legislation enactment (a)
—

 
—

 
560,410

Amortization of excess ADIT (a)
(205,614
)
 
(577,082
)
 
—

Revisions of the 2017 tax legislation enactment regulatory liability accrual, including the effect of the Entergy Texas 2018 base rate proceeding
—

 
(40,494
)
 
—

Utility restructuring (b)
—

 
(169,918
)
 
—

Settlement on treatment of regulatory obligations (c)
—

 
(52,320
)
 
—

State income tax audit conclusion
—

 
(23,425
)
 
—

IRS audit adjustment
—

 
(8,404
)
 
—

Entergy Wholesale Commodities nuclear decommissioning trust restructuring (d)
—

 
(106,833
)
 
—

Entergy Wholesale Commodities restructuring (d)
(173,725
)
 
—

 
(373,277
)
FitzPatrick disposition
—

 
—

 
(44,344
)
Charitable contribution (d)
(19,101
)

—


—

Net operating loss recognition
(41,427
)

—


—

Provision for uncertain tax positions
7,332

 
24,569

 
8,756

Valuation allowance
59,345

 
2,211

 
—

Other - net
(1,062
)
 
2,657

 
3,007

Total income taxes as reported

($169,825
)
 

($1,036,826
)
 

$542,570

Effective Income Tax Rate
(15.6
%)
 
595.0
%
 
56.1
%


(a)
See “Other Tax Matters - Tax Cuts and Jobs Act” below for discussion of the amortization of excess ADIT in 2018 and 2019 and the tax legislation enactment in 2017.
(b)
See “Other Tax Matters - Entergy Arkansas and Entergy Mississippi Internal Restructuring” below for discussion of the Utility restructuring.
(c)
See “Income Tax Audits - 2012-2013 IRS Audit” below for discussion of the settlement.
(d)
See “Other Tax Matters - Entergy Wholesale Commodities Restructuring” below for discussion of the Entergy Wholesale Commodities nuclear decommissioning trust restructuring in 2018, the Entergy Wholesale Commodities restructurings in 2017 and 2019, and the charitable contribution in 2019.


Total income taxes for the Registrant Subsidiaries differ from the amounts computed by applying the statutory income tax rate to income before taxes.  The reasons for the differences for the years 2019, 2018, and 2017 are:
2019
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
System Energy
 
 
(In Thousands)
Net income
 

$262,964

 

$691,537

 

$119,925

 

$52,629

 

$159,397

 

$99,120

Income taxes
 
(46,769
)
 
121,623

 
30,866

 
186

 
(53,896
)
 
15,349

Pretax income
 

$216,195

 

$813,160

 

$150,791

 

$52,815

 

$105,501

 

$114,469

Computed at statutory rate (21%)
 

$45,401

 

$170,764

 

$31,666

 

$11,091

 

$22,155

 

$24,039

Increases (reductions) in tax resulting from:
 
 
 
 

 
 

 
 

 
 

 
 

State income taxes net of federal income tax effect
 
15,954

 
42,854

 
5,563

 
3,443

 
360

 
5,134

Regulatory differences - utility plant items
 
(10,627
)
 
(19,421
)
 
(5,556
)
 
(1,532
)
 
(1,987
)
 
(6,213
)
Equity component of AFUDC
 
(3,255
)
 
(15,545
)
 
(1,755
)
 
(2,088
)
 
(5,973
)
 
(1,829
)
Amortization of investment tax credits
 
(1,201
)
 
(4,871
)
 
(160
)
 
(88
)
 
(617
)
 
(1,155
)
Flow-through / permanent differences
 
696

 
439

 
160

 
(741
)
 
560

 
(500
)
Amortization of excess ADIT (b)
 
(90,921
)
 
(28,531
)
 
203

 
(11,724
)
 
(69,091
)
 
(5,550
)
Non-taxable dividend income
 
—

 
(26,795
)
 
—

 
—

 
—

 
—

Provision for uncertain tax positions
 
(3,517
)
 
1,519

 
500

 
1,672

 
430

 
1,300

Other - net
 
701

 
1,210

 
245

 
153

 
267

 
123

Total income taxes as reported
 

($46,769
)
 

$121,623

 

$30,866

 

$186

 

($53,896
)
 

$15,349

Effective Income Tax Rate
 
(21.6
%)
 
15.0
%
 
20.5
%
 
0.4
%
 
(51.1
%)
 
13.4
%


2018
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
System Energy
 
 
(In Thousands)
Net income
 

$252,707

 

$675,614

 

$126,078

 

$53,152

 

$162,235

 

$94,109

Income taxes
 
(297,067
)
 
(54,611
)
 
(125,773
)
 
(2,436
)
 
(26,243
)
 
(47,675
)
Pretax income
 

($44,360
)
 

$621,003

 

$305

 

$50,716

 

$135,992

 

$46,434

Computed at statutory rate (21%)
 

($9,316
)
 

$130,411

 

$64

 

$10,650

 

$28,558

 

$9,751

Increases (reductions) in tax resulting from:
 


 


 


 


 


 


State income taxes net of federal income tax effect
 
(794
)
 
26,031

 
(1,747
)
 
2,322

 
2,576

 
2,812

Regulatory differences - utility plant items
 
(14,916
)
 
(12,604
)
 
(4,103
)
 
(1,502
)
 
(1,872
)
 
(2,510
)
Equity component of AFUDC
 
(3,477
)
 
(16,784
)
 
(1,829
)
 
(1,248
)
 
(2,042
)
 
(1,837
)
Amortization of investment tax credits
 
(1,201
)
 
(4,871
)
 
(160
)
 
(109
)
 
(808
)
 
(1,155
)
Flow-through / permanent differences
 
570

 
3,203

 
1,893

 
(4,222
)
 
1,038

 
2,815

Revisions of the 2017 tax legislation enactment regulatory liability accrual, including the effect of the Entergy Texas 2018 base rate proceeding (a)
 
933

 
(2,810
)
 
(556
)
 
884

 
(43,799
)
 
(3,565
)
Amortization of excess ADIT (b)
 
(271,570
)
 
(104,313
)
 
(120,831
)
 
(9,878
)
 
(11,519
)
 
(58,971
)
Settlement on treatment of regulatory obligations (c)
 
—

 
(52,320
)
 
—

 
—

 
—

 
—

IRS audit adjustment
 
1,290

 
1,097

 
1,018

 
(96
)
 
524

 
(12
)
Non-taxable dividend income
 
—

 
(26,795
)
 
—

 
—

 
—

 
—

Provision for uncertain tax positions
 
724

 
3,949

 
240

 
613

 
839

 
4,876

Other - net
 
690

 
1,195

 
238

 
150

 
262

 
121

Total income taxes as reported
 

($297,067
)
 

($54,611
)
 

($125,773
)
 

($2,436
)
 

($26,243
)
 

($47,675
)
Effective Income Tax Rate
 
669.7
%
 
(8.8
%)
 
(41,237.0
%)
 
(4.8
%)
 
(19.3
%)
 
(102.7
%)


2017
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
System Energy
 
 
(In Thousands)
Net income
 

$139,844

 

$316,347

 

$110,032

 

$44,553

 

$76,173

 

$78,596

Income taxes
 
93,804

 
485,298

 
73,919

 
33,278

 
48,481

 
69,969

Pretax income
 

$233,648

 

$801,645

 

$183,951

 

$77,831

 

$124,654

 

$148,565

Computed at statutory rate (35%)
 

$81,777

 

$280,576

 

$64,383

 

$27,241

 

$43,629

 

$51,998

Increases (reductions) in tax resulting from:
 
 

 
 

 
 

 
 

 
 

 
 

State income taxes net of federal income tax effect
 
11,586

 
31,927

 
6,202

 
2,842

 
527

 
5,635

Regulatory differences - utility plant items
 
7,220

 
12,168

 
1,356

 
619

 
5,581

 
12,880

Equity component of AFUDC
 
(6,458
)
 
(18,020
)
 
(3,383
)
 
(847
)
 
(2,353
)
 
(2,221
)
Amortization of investment tax credits
 
(1,201
)
 
(4,871
)
 
(160
)
 
(124
)
 
(951
)
 
(2,896
)
Flow-through / permanent differences
 
3,098

 
3,774

 
1,567

 
(3,352
)
 
1,428

 
(276
)
Tax legislation enactment (b)
 
(3,090
)
 
217,258

 
3,492

 
6,153

 
2,981

 
(69
)
Non-taxable dividend income
 
—

 
(44,658
)
 
—

 
—

 
—

 
—

Provision for uncertain tax positions
 
200

 
5,700

 
228

 
600

 
(2,617
)
 
4,800

Other - net
 
672

 
1,444

 
234

 
146

 
256

 
118

Total income taxes as reported
 

$93,804

 

$485,298

 

$73,919

 

$33,278

 

$48,481

 

$69,969

Effective Income Tax Rate
 
40.1
%
 
60.5
%
 
40.2
%
 
42.8
%
 
38.9
%
 
47.1
%


(a)
See Note 2 to the financial statements for discussion of the Entergy Texas rate case settlement.
(b)
See “Other Tax Matters - Tax Cuts and Jobs Act” below for discussion of the amortization of excess ADIT in 2018 and 2019 and the tax legislation enactment in 2017.
(c)
See “Income Tax Audits - 2012-2013 IRS Audit” below for discussion of the settlement for Entergy Louisiana.


Significant components of accumulated deferred income taxes and taxes accrued for Entergy Corporation and Subsidiaries as of December 31, 2019 and 2018 are as follows:
 
 
2019
 
2018
 
(In Thousands)
Deferred tax liabilities:
 
 
 
Plant basis differences - net

($4,111,761
)
 

($3,835,211
)
Regulatory assets
(389,573
)
 
(370,484
)
Nuclear decommissioning trusts/receivables
(1,015,542
)
 
(1,128,140
)
Pension, net funding
(348,260
)
 
(307,626
)
Combined unitary state taxes
(11,519
)
 
(9,440
)
Power purchase agreements
—

 
(73,335
)
Deferred fuel
(8,360
)
 
(29,953
)
Other
(445,378
)
 
(248,997
)
Total
(6,330,393
)
 
(6,003,186
)
Deferred tax assets:
 

 
 

Nuclear decommissioning liabilities
929,251

 
1,070,583

Regulatory liabilities
806,777

 
895,756

Pension and other post-employment benefits
297,272

 
305,736

Sale and leaseback
102,420

 
121,473

Compensation
87,355

 
86,461

Accumulated deferred investment tax credit
56,013

 
57,643

Provision for allowances and contingencies
126,886

 
135,631

Power purchase agreements
231,502

 
—

Unbilled/deferred revenues
(10,218
)
 
43,762

Net operating loss carryforwards
1,133,197

 
628,165

Capital losses and miscellaneous tax credits
22,597

 
20,549

Valuation allowance
(303,307
)
 
(243,726
)
Other
289,557

 
125,522

Total
3,769,302

 
3,247,555

Non-current accrued taxes (including unrecognized tax benefits)
(1,775,638
)
 
(1,296,928
)
Accumulated deferred income taxes and taxes accrued

($4,336,729
)
 

($4,052,559
)


Entergy’s estimated tax attributes carryovers and their expiration dates as of December 31, 2019 are as follows:

Carryover Description
 
Carryover Amount
 
Year(s) of expiration
 
 
 
 
 
Federal net operating losses before 1/1/2018
 
$9.8 billion
 
2023-2037
Federal net operating losses - 1/1/2018 forward
 
$10.7 billion
 
N/A
State net operating losses
 
$20.8 billion
 
2020-2039
Federal and state charitable contributions
 
$395.8 million
 
2020-2024
Miscellaneous federal and state credits
 
$101.1 million
 
2020-2038


As a result of the accounting for uncertain tax positions, the amount of the deferred tax assets reflected in the financial statements is less than the amount of the tax effect of the federal and state net operating loss carryovers, tax credit carryovers, and other tax attributes reflected on income tax returns. Entergy evaluates the available positive and negative evidence to estimate whether sufficient future taxable income of the appropriate character will be generated to realize the benefits of existing deferred tax assets. When the evaluation indicates that Entergy will not be able to realize the existing benefits, a valuation allowance is recorded to reduce deferred tax assets to the realizable amount.

Because it is more likely than not that the benefit from certain state net operating loss and other deferred tax assets will not be utilized, valuation allowances totaling $303 million as of December 31, 2019 and $244 million as of December 31, 2018 have been provided on the deferred tax assets related to federal and state jurisdictions in which Entergy does not currently expect to be able to utilize certain separate company tax return attributes, preventing realization of such deferred tax assets.

Significant components of accumulated deferred income taxes and taxes accrued for the Registrant Subsidiaries as of December 31, 2019 and 2018 are as follows:
2019
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
System Energy
 
 
(In Thousands)
Deferred tax liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Plant basis differences - net
 

($979,033
)
 

($1,987,025
)
 

($565,202
)
 

($133,073
)
 

($551,365
)
 

($380,594
)
Regulatory assets
 
(170,949
)
 
(79,117
)
 
(10,528
)
 
(16,867
)
 
(59,745
)
 
(52,662
)
Nuclear decommissioning trusts/receivables
 
(120,306
)
 
(113,830
)
 
—

 
—

 
—

 
(100,621
)
Pension, net funding
 
(102,685
)
 
(98,743
)
 
(27,325
)
 
(11,859
)
 
(19,961
)
 
(21,609
)
Deferred fuel
 
—

 
(2,637
)
 
(609
)
 
(666
)
 
(4,380
)
 
(55
)
Other
 
(82,682
)
 
(94,139
)
 
(27,905
)
 
(25,909
)
 
2,059

 
(7,350
)
Total
 
(1,455,655
)
 
(2,375,491
)
 
(631,569
)
 
(188,374
)
 
(633,392
)
 
(562,891
)
Deferred tax assets:
 
 

 
 

 
 

 
 

 
 

 
 

Regulatory liabilities
 
250,410

 
283,507

 
53,421

 
33,258

 
65,602

 
121,011

Nuclear decommissioning liabilities
 
111,078

 
56,300

 
—

 
—

 
—

 
52,633

Pension and other post-employment benefits
 
(21,828
)
 
74,881

 
(5,844
)
 
(12,666
)
 
(15,406
)
 
(898
)
Sale and leaseback
 
—

 
—

 
—

 
—

 
—

 
102,480

Accumulated deferred investment tax credit
 
8,285

 
32,534

 
2,396

 
556

 
2,217

 
10,025

Provision for allowances and contingencies
 
5,365

 
77,298

 
12,963

 
24,022

 
4,024

 
—

Power purchase agreements
 
(15,087
)
 
18,004

 
1,147

 
7,961

 
26

 
—

Unbilled/deferred revenues
 
5,897

 
(28,081
)
 
4,715

 
1,428

 
5,544

 
—

Compensation
 
2,550

 
3,670

 
1,625

 
496

 
1,282

 
75

Net operating loss carryforwards
 
112,658

 
65,178

 
21,492

 
5,056

 
—

 
—

Capital losses and miscellaneous tax credits
 
—

 
—

 
45

 
—

 
—

 
7,857

Other
 
12,541

 
35,401

 
999

 
9,027

 
2,004

 
3

Total
 
471,869

 
618,692

 
92,959

 
69,138

 
65,293

 
293,186

Non-current accrued taxes (including unrecognized tax benefits)
 
(199,340
)
 
(707,714
)
 
(56,222
)
 
(235,300
)
 
(17,314
)
 
(544,235
)
Accumulated deferred income taxes and taxes accrued
 

($1,183,126
)
 

($2,464,513
)
 

($594,832
)
 

($354,536
)
 

($585,413
)
 

($813,940
)
2018
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
System Energy
 
 
(In Thousands)
Deferred tax liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Plant basis differences - net
 

($966,791
)
 

($1,893,831
)
 

($579,319
)
 

($135,143
)
 

($544,282
)
 

($403,809
)
Regulatory assets
 
(169,482
)
 
(74,917
)
 
(1,732
)
 
(20,009
)
 
(57,777
)
 
(46,627
)
Nuclear decommissioning trusts/receivables
 
(77,664
)
 
(71,470
)
 
—

 
—

 
—

 
(86,882
)
Pension, net funding
 
(91,962
)
 
(92,693
)
 
(24,398
)
 
(11,885
)
 
(20,331
)
 
(18,898
)
Deferred fuel
 
(5,801
)
 
(6,974
)
 
(11,819
)
 
(1,701
)
 
(2,835
)
 
(312
)
Other
 
(41,025
)
 
(34,700
)
 
(13,443
)
 
(7,640
)
 
(6,085
)
 
(4,544
)
Total
 
(1,352,725
)
 
(2,174,585
)
 
(630,711
)
 
(176,378
)
 
(631,310
)
 
(561,072
)
Deferred tax assets:
 
 

 
 

 
 

 
 

 
 

 
 

Regulatory liabilities
 
247,964

 
339,126

 
72,570

 
40,181

 
86,032

 
110,370

Nuclear decommissioning liabilities
 
99,479

 
48,738

 
—

 
—

 
—

 
46,643

Pension and other post-employment benefits
 
(19,068
)
 
80,102

 
(5,405
)
 
(11,371
)
 
(14,215
)
 
(632
)
Sale and leaseback
 
—

 
18,999

 
—

 
—

 
—

 
102,481

Accumulated deferred investment tax credit
 
8,599

 
33,928

 
2,541

 
579

 
2,347

 
9,649

Provision for allowances and contingencies
 
9,877

 
81,108

 
13,412

 
23,962

 
5,579

 
—

Power purchase agreements
 
(17,223
)
 
19,385

 
1,140

 
12,155

 
(18
)
 
—

Unbilled/deferred revenues
 
7,471

 
(17,345
)
 
5,527

 
636

 
7,016

 
—

Compensation
 
1,708

 
1,959

 
1,265

 
512

 
995

 
(260
)
Net operating loss carryforwards
 
6,338

 
20,118

 
4,896

 
480

 
261

 
—

Other
 
7,977

 
23,412

 
1,610

 
12,181

 
2,127

 
4

Total
 
353,122

 
649,530

 
97,556

 
79,315

 
90,124

 
268,255

Non-current accrued taxes (including unrecognized tax benefits)
 
(85,942
)
 
(701,666
)
 
(18,714
)
 
(226,532
)
 
(11,349
)
 
(512,479
)
Accumulated deferred income taxes and taxes accrued
 

($1,085,545
)
 

($2,226,721
)
 

($551,869
)
 

($323,595
)
 

($552,535
)
 

($805,296
)


The Registrant Subsidiaries’ estimated tax attributes carryovers and their expiration dates as of December 31, 2019 are as follows:
 
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
System Energy
 
 
 
 
 
 
 
 
 
 
 
 
 
Federal net operating losses
 
$4.4 billion
 
$4.3 billion
 
$2 billion
 
$1.1 billion
 
$—
 
$—
Year(s) of expiration
 
N/A
 
2035-2037
 
N/A
 
2037
 
N/A
 
N/A
 
 
 
 
 
 
 
 
 
 
 
 
 
State net operating losses
 
$4.5 billion
 
$5.2 billion
 
$2.1 billion
 
$1.2 billion
 
$—
 
$—
Year(s) of expiration
 
2024
 
2035-2039
 
2038-2039
 
2038-2039
 
N/A
 
N/A
 
 
 
 
 
 
 
 
 
 
 
 
 
Misc. federal credits
 
$—
 
$5.2 million
 
$—
 
$—
 
$1.9 million
 
$3.2 million
Year(s) of expiration
 
N/A
 
2035-2038
 
N/A
 
N/A
 
2029-2038
 
2029-2038
 
 
 
 
 
 
 
 
 
 
 
 
 
State credits
 
$—
 
$—
 
$—
 
$—
 
$2.9 million
 
$13.1 million
Year(s) of expiration
 
N/A
 
N/A
 
N/A
 
N/A
 
2026
 
2020-2023


As a result of the accounting for uncertain tax positions, the amount of the deferred tax assets reflected in the financial statements is less than the amount of the tax effect of the federal and state net operating loss carryovers and tax credit carryovers.

Unrecognized tax benefits

Accounting standards establish a “more-likely-than-not” recognition threshold that must be met before a tax benefit can be recognized in the financial statements.  If a tax deduction is taken on a tax return but does not meet the more-likely-than-not recognition threshold, an increase in income tax liability, above what is payable on the tax return, is required to be recorded.  A reconciliation of Entergy’s beginning and ending amount of unrecognized tax benefits is as follows:
 
2019
 
2018
 
2017
 
(In Thousands)
Gross balance at January 1

$7,181,482

 

$4,871,846

 

$3,909,855

Additions based on tax positions related to the current year
731,276

 
2,276,614

 
1,120,687

Additions for tax positions of prior years
151,628

 
506,142

 
283,683

Reductions for tax positions of prior years
(681,232
)
 
(274,600
)
 
(442,379
)
Settlements
—

 
(198,520
)
 
—

Gross balance at December 31
7,383,154

 
7,181,482

 
4,871,846

Offsets to gross unrecognized tax benefits:
 

 
 

 
 

Carryovers and refund claims
(5,831,587
)
 
(5,957,992
)
 
(3,945,524
)
Cash paid to taxing authorities
(10,000
)
 
(10,000
)
 
(10,000
)
Unrecognized tax benefits net of unused tax attributes, refund claims and payments (a)

$1,541,567

 

$1,213,490

 

$916,322



(a)
Potential tax liability above what is payable on tax returns

The balances of unrecognized tax benefits include $2,421 million, $2,161 million, and $1,462 million as of December 31, 2019, 2018, and 2017, respectively, which, if recognized, would lower the effective income tax rates.  Because of the effect of deferred tax accounting, the remaining balances of unrecognized tax benefits of $4,962
million, $5,020 million, and $3,410 million as of December 31, 2019, 2018, and 2017, respectively, if disallowed, would not affect the annual effective income tax rate but would accelerate the payment of cash to the taxing authority to an earlier period.

Entergy accrues interest expense, if any, related to unrecognized tax benefits in income tax expense.  Entergy’s December 31, 2019, 2018, and 2017 accrued balance for the possible payment of interest is approximately $48 million, $44 million, and $38 million, respectively. Interest (net-of-tax) of $4 million, $7 million, and $8 million was recorded in 2019, 2018, and 2017, respectively.

A reconciliation of the Registrant Subsidiaries’ beginning and ending amount of unrecognized tax benefits for 2019, 2018, and 2017 is as follows:
2019
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
System Energy
 
 
(In Thousands)
Gross balance at January 1, 2019
 

$1,298,662

 

$2,400,171

 

$508,765

 

$686,687

 

$17,802

 

$467,487

Additions based on tax positions related to the current year
 
84,335

 
28,705

 
68,594

 
40,676

 
2,312

 
5,496

Additions for tax positions of prior years
 
20,399

 
25,090

 
1,651

 
489

 
1,299

 
2,186

Reductions for tax positions of prior years
 
(62,154
)
 
(72,313
)
 
(12,723
)
 
(11,079
)
 
(7
)
 
(1,838
)
Gross balance at December 31, 2019
 
1,341,242

 
2,381,653

 
566,287

 
716,773

 
21,406

 
473,331

Offsets to gross unrecognized tax benefits:
 
 

 
 

 
 

 
 

 
 

 
 

Loss carryovers
 
(1,134,187
)
 
(1,573,257
)
 
(506,976
)
 
(445,430
)
 
(3,944
)
 
(8,392
)
Unrecognized tax benefits net of unused tax attributes and payments
 

$207,055

 

$808,396

 

$59,311

 

$271,343

 

$17,462

 

$464,939



2018
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
System Energy
 
 
(In Thousands)
Gross balance at January 1, 2018
 

($117,716
)
 

$2,518,457

 

$15,122

 

$679,544

 

$16,399

 

$445,511

Additions based on tax positions related to the current year (a)
 
1,430,828

 
30,577

 
493,039

 
2,261

 
1,978

 
18,271

Additions for tax positions of prior years
 
31,612

 
77,372

 
3,878

 
12,972

 
1,722

 
7,255

Reductions for tax positions of prior years
 
(21,619
)
 
(158,510
)
 
(3,253
)
 
(8,081
)
 
(2,262
)
 
(3,253
)
Settlements
 
(24,443
)
 
(67,725
)
 
(21
)
 
(9
)
 
(35
)
 
(297
)
Gross balance at December 31, 2018
 
1,298,662

 
2,400,171

 
508,765

 
686,687

 
17,802

 
467,487

Offsets to gross unrecognized tax benefits:
 
 

 
 

 
 

 
 

 
 

 
 

Loss carryovers
 
(1,173,839
)
 
(1,597,826
)
 
(478,268
)
 
(420,813
)
 
(3,199
)
 
(42,228
)
Unrecognized tax benefits net of unused tax attributes and payments
 

$124,823

 

$802,345

 

$30,497

 

$265,874

 

$14,603

 

$425,259


2017
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
System Energy
 
 
(In Thousands)
Gross balance at January 1, 2017
 

$2,503

 

$2,440,339

 

$12,206

 

$166,230

 

$15,946

 

$472,372

Additions based on tax positions related to the current year (a)
 
8,974

 
32,843

 
2,105

 
509,183

 
1,747

 
909

Additions for tax positions of prior years
 
3,682

 
235,331

 
1,267

 
13,364

 
3,115

 
1,432

Reductions for tax positions of prior years
 
(132,875
)
 
(190,056
)
 
(456
)
 
(9,233
)
 
(4,409
)
 
(29,202
)
Gross balance at December 31, 2017
 
(117,716
)
 
2,518,457

 
15,122

 
679,544

 
16,399

 
445,511

Offsets to gross unrecognized tax benefits:
 
 

 
 

 
 

 
 

 
 

 
 

Loss carryovers
 
—

 
(1,591,907
)
 
(15,122
)
 
(441,374
)
 
(638
)
 
(12,536
)
Unrecognized tax benefits net of unused tax attributes and payments
 

($117,716
)
 

$926,550

 

$—

 

$238,170

 

$15,761

 

$432,975



(a)
The primary additions for Entergy Mississippi in 2018, and Entergy New Orleans in 2017 are related to the mark-to-market treatment discussed in “Other Tax Matters - Tax Accounting Methods” below. The primary additions for Entergy Arkansas in 2018 are related to the nuclear decommissioning costs treatment and the mark-to-market treatment discussed in “Other Tax Matters - Tax Accounting Methods” below.

The Registrant Subsidiaries’ balances of unrecognized tax benefits included amounts which, if recognized, would have reduced income tax expense as follows:
 
December 31,
 
2019
 
2018
 
2017
 
(In Millions)
Entergy Arkansas

$203.3

 

$85.4

 

$2.6

Entergy Louisiana

$556.3

 

$594.0

 

$575.8

Entergy Mississippi

$1.9

 

$1.5

 

$—

Entergy New Orleans

$242.7

 

$246.2

 

$31.7

Entergy Texas

$5.7

 

$5.1

 

$4.4

System Energy

$—

 

$—

 

$—



Accrued balances for the possible payment of interest related to unrecognized tax benefits are as follows:
 
December 31,
 
2019
 
2018
 
2017
 
(In Millions)
Entergy Arkansas

$3.1

 

$1.7

 

$1.6

Entergy Louisiana

$14.2

 

$17.9

 

$14.1

Entergy Mississippi

$1.7

 

$1.2

 

$1.0

Entergy New Orleans

$4.7

 

$2.7

 

$2.1

Entergy Texas

$1.1

 

$0.9

 

$0.4

System Energy

$14.5

 

$13.2

 

$8.5



The Registrant Subsidiaries record interest and penalties related to unrecognized tax benefits in income tax expense.  No penalties were recorded in 2019, 2018, and 2017. Interest (net-of-tax) was recorded as follows:
 
2019
 
2018
 
2017
 
(In Millions)
Entergy Arkansas

$1.4

 

$0.2

 

$0.2

Entergy Louisiana

($3.7
)
 

$3.8

 

$5.7

Entergy Mississippi

$0.5

 

$0.2

 

$0.2

Entergy New Orleans

$2.0

 

$0.6

 

$0.6

Entergy Texas

$0.2

 

$0.5

 

($0.8
)
System Energy

$1.3

 

$4.7

 

$4.8



Income Tax Audits

Entergy and its subsidiaries file U.S. federal and various state and foreign income tax returns.  IRS examinations are complete for years before 2014. All state taxing authorities’ examinations are complete for years before 2015. Entergy regularly negotiates with the IRS to achieve settlements.  The resolution of audit issues could result in significant changes to the amounts of unrecognized tax benefits in the next twelve months.

2012-2013 IRS Audit

The IRS completed its examination of the 2012 and 2013 tax years and issued its 2012-2013 Revenue Agent Report (RAR) in June 2018. Entergy agreed to all proposed adjustments contained in the RAR. Entergy and the Registrant Subsidiaries recorded the effects of these adjustments in June 2018.

As a result of the issuance of the RAR, Entergy Louisiana was able to recognize previously unrecognized tax benefits of $52 million related to the Hurricane Katrina and Hurricane Rita contingent sharing obligation associated with the Louisiana Act 55 financing.

2014-2015 IRS Audit

The IRS is examining the 2014 and 2015 tax years. Entergy expects the IRS to complete this examination in 2020. As of December 31, 2019, Entergy has not received any proposed adjustments to taxable income from the IRS.

Other Tax Matters

Tax Cuts and Jobs Act

Deferred tax liabilities and assets have been adjusted for the effect of the enactment of the Tax Cuts and Jobs Act (the Act), signed by President Trump on December 22, 2017. The most significant effect of the Act for Entergy and the Registrant Subsidiaries was the change in the federal corporate income tax rate from 35% to 21%, effective January 1, 2018. Other significant provisions and their effect on Entergy and the Registrant Subsidiaries are summarized below.
The Act limits the deduction for net business interest expense to 30 percent of adjusted taxable income which is similar to earnings before interest, taxes, depreciation, and amortization. The limitation does not apply to interest expense that is properly allocable to a trade or business that furnishes or sells electrical energy, gas, or steam through a local distribution system, or transports gas or steam by pipeline if the rates for such furnishing or sale are subject to ratemaking by a government entity or instrumentality or by a public utility commission.
The IRS issued proposed regulations relating to this limitation in November 2018. The regulations are generally proposed to be effective for taxable years ending after the date Treasury adopts the regulations as final. Taxpayers may apply the rules of the proposed regulations to a taxable year beginning after December 31, 2017, so long as taxpayers consistently apply the rules of the proposed regulations. The proposed regulations provide guidance that if 90% of a tax group’s consolidated assets consist of utility property, the entire consolidated tax group will be treated as a regulated public utility and all of the consolidated group’s interest expense will be currently tax deductible.
As a result of the limitation under the Act, Entergy recorded limitations in 2018 and 2019 and recorded a deferred tax asset on the nondeductible portion, as it has an unlimited carryover period. Entergy recorded a valuation allowance of $24 million due to a lack of earnings from sources other than the Utility.
The Act limits the net operating loss (NOL) deduction for a given year to 80% of taxable income, effective with respect to losses arising in tax years beginning after December 31, 2017. Only NOLs generated after December 31, 2017 are subject to the 80% limitation. Prior law generally provided a two-year carryback and 20-year carryforward for NOLs. The Act does not allow a carryback period but does provide for the indefinite carryforward of NOLs arising in tax years ending after December 31, 2017. Because of the indefinite carryforward, the new limitations on NOL utilization are not expected to have a material effect on Entergy or the Registrant Subsidiaries.
The Act also modified Internal Revenue Code section 162(m), which limits the deduction for compensation with respect to certain covered employees to no more than $1 million per year.  The IRS issued proposed regulations relating to this limitation in December 2019. The significant provisions of the Act and associated proposed regulations require inclusion of performance-based compensation and an expanded definition of “covered employees” in the annual computation of the section 162 limitation. The Act amendments and associated proposed regulations resulted in an increase in disallowed compensation expense, but this limitation does not have a material effect on Entergy or the Registrant Subsidiaries.
With respect to the federal corporate income tax rate change from 35% to 21%, Entergy and the Registrant Subsidiaries recorded a regulatory liability associated with the decrease in the net accumulated deferred income tax liability, which is often referred to as “excess ADIT,” a significant portion of which has been paid to customers in 2018 and 2019 in the form of lower rates. Entergy’s December 31, 2019 and December 31, 2018 balance sheets reflect a regulatory liability of $1.7 billion and $2.1 billion, respectively, as a result of the re-measurement of deferred tax assets and liabilities from the income tax rate change, amortization of excess ADIT, and payments to customers during 2018 and 2019. Entergy’s regulatory liability for income taxes includes a gross-up at the applicable tax rate because of the effect that excess ADIT has on the ratemaking formula. The regulatory liability for income taxes includes the effect of a) the reduction of the net deferred tax liability resulting in excess ADIT, b) the tax gross-up of excess ADIT, and c) the effect of the new tax rate on the previous net regulatory asset for income taxes. For the same reasons, the Registrant Subsidiaries’ December 31, 2019 and December 31, 2018 balance sheets reflect net regulatory liabilities for income taxes as follows:
 
2019
 
2018
 
(In Millions)
Entergy Arkansas

$487

 

$605

Entergy Louisiana

$531

 

$612

Entergy Mississippi

$237

 

$246

Entergy New Orleans

$59

 

$86

Entergy Texas

$253

 

$352

System Energy

$143

 

$163

Excess ADIT is generally classified into two categories: 1) the portion that is subject to the normalization requirements of the Act, i.e., “protected”, and 2) the portion that is not subject to such normalization provisions, referred to as “unprotected”. The Act provides that the normalization method of accounting for income taxes is required for
excess ADIT associated with public utility property. The Act provides for the use of the average rate assumption method (ARAM) for the determination of the timing of the return of excess ADIT associated with such property. Under ARAM, the excess ADIT is reduced over the remaining life of the asset. Remaining asset lives vary for each Registrant Subsidiary, but the average life of public utility property is typically 30 years or longer. Entergy will amortize the protected portion of the excess ADIT in conformity with the normalization requirements. The Registrant Subsidiaries’ net regulatory liability for income taxes as of December 31, 2019 and December 31, 2018, includes protected excess ADIT as follows:
 
2019
 
2018
 
(In Millions)
Entergy Arkansas

$490

 

$521

Entergy Louisiana

$797

 

$812

Entergy Mississippi

$261

 

$271

Entergy New Orleans

$62

 

$59

Entergy Texas

$228

 

$237

System Energy

$186

 

$202


During the second quarter of 2018, the Registrant Subsidiaries began paying unprotected excess accumulated deferred income taxes, associated with the effects of the Act, to their customers through rate riders and other means approved by their respective regulatory commissions. Payment of the unprotected excess accumulated deferred income taxes results in a reduction in the regulatory liability for income taxes and a corresponding reduction in income tax expense. This has a significant effect on the effective tax rate for the period as compared to the statutory tax rate. The Registrant Subsidiaries’ net regulatory liability for income taxes as of December 31, 2019 and December 31, 2018, includes unprotected excess ADIT as follows:
 
2019
 
2018
 
(In Millions)
Entergy Arkansas

$9

 

$117

Entergy Louisiana

$242

 

$295

Entergy New Orleans

$9

 

$25

Entergy Texas

$83

 

$171

System Energy

$—

 

$4


The return of unprotected excess accumulated deferred income taxes reduced Entergy’s and the Registrant Subsidiaries’ regulatory liability for income taxes as follows for 2019 and 2018:
 
2019
 
2018
 
(In Millions)
Entergy

$273

 

$776

Entergy Arkansas

$126

 

$368

Entergy Louisiana

$39

 

$141

Entergy Mississippi

$—

 

$159

Entergy New Orleans

$14

 

$13

Entergy Texas

$87

 

$15

System Energy

$7

 

$80



In addition to the protected and unprotected excess ADIT amounts, the net regulatory liability for income taxes includes other regulatory assets and liabilities for income taxes associated with AFUDC, which is described in Note 1 to the financial statements.
For a discussion of the proceedings commenced or other responses by Entergy’s regulators to the Act, see Note 2 to the financial statements.
Not all of Entergy’s excess ADIT is included in ratemaking. Consequently, Entergy recorded a net decrease in deferred tax assets of $560 million for which there was a corresponding charge to income tax expense for the year ended December 31, 2017. The corresponding income tax expense (or benefit) recorded by the Registrant Subsidiaries was as follows: Entergy Arkansas, ($3 million); Entergy Louisiana, $217 million; Entergy Mississippi, $3 million; Entergy New Orleans, $6 million; Entergy Texas, $3 million; and System Energy, $0.
Included in the effect of the computation of the changes in deferred tax assets and liabilities is the recognition threshold and measurement of uncertain tax positions resulting in unrecognized tax benefits. The final economic outcome of such unrecognized tax benefits is generally the result of a negotiated settlement with the IRS that often differs from the amount that is recorded as realizable under GAAP. The intrinsic uncertainty with respect to all such tax positions means that the difference between current estimates of such amounts likely to be realized and actual amounts realized upon settlement may have an effect on income tax expense and the regulatory liability for income taxes in future periods.

Entergy anticipates that the Act, including the federal corporate income tax rate change, may continue to have ramifications that require adjustments in the future as certain events occur. These events include: 1) the evaluation by regulators in all of Entergy’s jurisdictions regarding the ratemaking treatment of the Act and excess ADIT; 2) IRS audit adjustments to or amendments of federal and state income tax returns that include modifications to the computation of taxable income resulting from the Act; and 3) additional guidance, interpretations, or rulings by the U.S. Department of the Treasury or the IRS. The potential exists for these types of events to result in future tax expense adjustments because of the difference in the federal corporate income tax rate between past and future periods and the effect of the tax rate change on ratemaking. In turn, these items also could potentially affect the regulatory liability for income taxes.
Entergy Wholesale Commodities Restructuring

The tax classification of the entity that owned FitzPatrick changed in the second quarter 2016.  The change in tax classification required Entergy to recognize the plant’s nuclear decommissioning liability for income tax purposes resulting in a tax accounting permanent difference that reduced income tax expense, net of unrecognized tax benefits, by $238 million. The accrual of the nuclear decommissioning liability also required Entergy to recognize a gain for income tax purposes, a significant portion of which resulted in an increase in tax basis of the assets. Recognition of the gain and the increase in tax basis of the assets represents a tax accounting temporary difference. Entergy sold FitzPatrick 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. The re-determined basis resulted in a $44 million income tax benefit in the first quarter 2017.

In the second quarter 2017, Entergy changed the tax classification of legal entities that own Entergy Wholesale Commodities nuclear power plants. The change in tax classification required Entergy to recognize the plants’ nuclear decommissioning liabilities for income tax purposes resulting in a tax accounting permanent difference that reduced income tax expense, net of unrecognized tax benefits, by $373 million. The accrual of the nuclear decommissioning liabilities also required Entergy to recognize a gain for income tax purposes, a portion of which resulted in an increase in tax basis of the assets. Recognition of the gain and the increase in tax basis of the assets represents a tax accounting temporary difference.

In the third quarter 2018, Entergy completed a restructuring of the investment holdings in one of the Entergy Wholesale Commodities nuclear plant decommissioning trusts that resulted in an adjustment to tax basis for the trust. The accounting standards provide that a taxable temporary difference does not exist if the tax law provides a means by which an amount can be recovered without incurrence of tax. The restructuring allows Entergy to recover assets from the trust without incurring tax. As such, the tax basis recognized resulted in the reversal of a deferred tax liability and reduction of income tax expense of approximately $107 million.

In the fourth quarter 2019, two separate events occurred resulting in a reduction of tax expense of $174 million. In November 2019 an Entergy Wholesale Commodities subsidiary recognized a reduction in income tax expense of $18 million in connection with the accounting method on power contracts associated with the Palisades nuclear power station. Additionally, Entergy’s ownership of Indian Point 2 and Indian Point 3 was restructured. The restructuring required Entergy to recognize Indian Point 2 and Indian Point 3 nuclear decommissioning liabilities for income tax purposes resulting in a tax accounting permanent difference that reduced income tax expense, net of unrecognized tax benefits, by $156 million. The accrual of the nuclear decommissioning liabilities also required Entergy to recognize a gain for income tax purposes, a portion of which resulted in an increase in the tax basis of the assets. Recognition of the gain and the increase in the tax basis of the assets represents a tax accounting temporary difference.

Immediately prior to the restructuring, through its ownership of Indian Point 2 and Indian Point 3, Entergy donated property to Stony Brook University and recognized an associated tax deduction resulting in a decrease to tax expense of $19 million.

Entergy Wholesale Commodities Tax Audit

A state income tax audit involving Entergy Wholesale Commodities was concluded during the third quarter 2018. Upon conclusion of the audit, subsidiaries within Entergy Wholesale Commodities reversed a portion of the provision for uncertain tax positions totaling approximately $23 million, net of tax and interest paid.

Tax Accounting Methods

In the fourth quarter 2015, System Energy and Entergy Louisiana adopted a new method of accounting for income tax return purposes in which their nuclear decommissioning costs will be treated as production costs of electricity includable in cost of goods sold. The new method resulted in a reduction of taxable income of $1.2 billion for System Energy and $2.2 billion for Energy Louisiana. In the fourth quarter 2018, Entergy Arkansas adopted the same method of accounting for its nuclear decommissioning costs which resulted in a $2.2 billion reduction in taxable income.

In 2016, Entergy Louisiana elected mark-to-market income tax treatment for various wholesale electric power purchase and sale agreements, including Entergy Louisiana’s contract to purchase electricity from the Vidalia hydroelectric facility and from System Energy under the Unit Power Sales Agreement. The election resulted in a $2.2 billion deductible temporary difference. In 2017, Entergy New Orleans also elected mark-to-market income tax treatment for wholesale electric contracts which resulted in a $1.1 billion deductible temporary difference. In 2018, Entergy Arkansas and Entergy Mississippi accrued deductible temporary differences related to mark-to-market tax accounting for wholesale electric contracts of $2.1 billion and $1.9 billion, respectively.

Entergy Arkansas and Entergy Mississippi Internal Restructuring

In the fourth quarter 2018, Entergy Arkansas and Entergy Mississippi became wholly-owned subsidiaries of Entergy Utility Holding Company, LLC. The change in ownership required Entergy to recognize Entergy Arkansas’s nuclear decommissioning liabilities for income tax purposes resulting in a tax accounting permanent difference that reduced income tax expense, net of unrecognized tax benefits, by $165 million. The accrual of the nuclear decommissioning liabilities also required Entergy to recognize a gain for income tax purposes, a portion of which resulted in an increase in the tax basis of the assets. Recognition of the gain and the increase in the tax basis of the assets represents a tax accounting temporary difference. Additionally, Entergy recorded a $5 million reduction of income tax expense associated with state income tax effects resulting in a total reduction of income tax expense of $170 million from the restructuring. Entergy recorded a regulatory liability of $40 million ($30 million net-of-tax) which partially offsets the reduction of income tax expense. Entergy Arkansas’s member’s equity increased by $94 million as a result of the restructuring. See Note 2 to the financial statements for further discussion of the internal restructuring.

Arkansas Corporate Income Tax Rate Reduction

In April 2019 the state of Arkansas enacted corporate income tax law changes that phase in an Arkansas tax rate reduction from the current rate of 6.5% to 6.2% in 2021 and 5.9% in 2022.  The rate reduction will eventually reduce Entergy Arkansas’s combined federal and state applicable tax rate by less than 0.5% once fully adopted.  As a result of the rate reduction, Entergy Arkansas recorded a regulatory liability for income taxes of approximately $25 million which includes a tax gross-up related to the treatment of income taxes in the ratemaking formula. The Arkansas tax law enactment also phases in an increase to the net operating loss carryover period from five to ten years.

Consolidated Income Tax Return of Entergy Corporation

In September 2019, Entergy Utility Holding Company, LLC and its regulated, wholly-owned subsidiaries including Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans, became eligible to and joined the Entergy Corporation consolidated federal income tax group.  As a result of these four Utility operating companies re-joining the Entergy Corporation consolidated tax return group, Entergy was able to recognize a $41 million deferred tax asset associated with a previously unrecognized Arkansas net operating loss carryover.

Additionally, in September 2019, Entergy Texas issued $35 million of 5.375% Series A preferred stock with a liquidation value of $25 per share resulting in the disaffiliation and de-consolidation of Entergy Texas from the consolidated federal income tax return of Entergy Corporation.  These changes will not affect the accrual or allocation of income taxes for the Registrant Subsidiaries. See Note 6 to the financial statements for discussion of the preferred stock issuance.

Vermont Yankee

The Vermont Yankee transaction resulted in Entergy generating a net deferred tax asset in January 2019.  The deferred tax asset could not be fully realized by Entergy in the first quarter of 2019; accordingly, Entergy accrued a net tax expense of $29 million on the disposition of Vermont Yankee. See Note 14 to the financial statements for discussion of the Vermont Yankee transaction.
Entergy Mississippi [Member]  
Income Taxes INCOME TAXES (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)

Income taxes for 2019, 2018, and 2017 for Entergy Corporation and Subsidiaries consist of the following:
 
2019
 
2018
 
2017
 
(In Thousands)
Current:
 
 
 
 
 
Federal

($14,416
)
 

$36,848

 

$29,595

State
6,535

 
7,274

 
15,478

Total
(7,881
)
 
44,122

 
45,073

Deferred and non-current - net
(155,956
)
 
(1,074,416
)
 
505,010

Investment tax credit adjustments - net
(5,988
)
 
(6,532
)
 
(7,513
)
Income taxes

($169,825
)
 

($1,036,826
)
 

$542,570


    
Income taxes for 2019, 2018, and 2017 for Entergy’s Registrant Subsidiaries consist of the following:
2019
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
System Energy
 
 
(In Thousands)
Current:
 
 
 
 
 
 
 
 
 
 
 
 
Federal
 

($14,549
)
 

($20,173
)
 

($8,939
)
 

($5,822
)
 

$16,035

 

$16,256

State
 
(714
)
 
(735
)
 
5,823

 
1,856

 
663

 
(2,831
)
Total
 
(15,263
)
 
(20,908
)
 
(3,116
)
 
(3,966
)
 
16,698

 
13,425

Deferred and non-current - net
 
(30,278
)
 
147,453

 
34,579

 
4,248

 
(69,963
)
 
422

Investment tax credit adjustments - net
 
(1,228
)
 
(4,922
)
 
(597
)
 
(96
)
 
(631
)
 
1,502

Income taxes
 

($46,769
)
 

$121,623

 

$30,866

 

$186

 

($53,896
)
 

$15,349


2018
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
System Energy
 
 
(In Thousands)
Current:
 
 
 
 
 
 
 
 
 
 
 
 
Federal
 

($23,638
)
 

($15,841
)
 

($11,275
)
 

($10,813
)
 

$16,190

 

($9,786
)
State
 
(1,617
)
 
(1,122
)
 
(1,066
)
 
545

 
3,205

 
(1,821
)
Total
 
(25,255
)
 
(16,963
)
 
(12,341
)
 
(10,268
)
 
19,395

 
(11,607
)
Deferred and non-current - net
 
(270,586
)
 
(32,725
)
 
(114,738
)
 
7,943

 
(44,817
)
 
(35,329
)
Investment tax credit adjustments - net
 
(1,226
)
 
(4,923
)
 
1,306

 
(111
)
 
(821
)
 
(739
)
Income taxes
 

($297,067
)
 

($54,611
)
 

($125,773
)
 

($2,436
)
 

($26,243
)
 

($47,675
)

2017
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
System Energy
 
 
(In Thousands)
Current:
 
 
 
 
 
 
 
 
 
 
 
 
Federal
 

$16,086

 

($84,250
)
 

($8,845
)
 

($30,635
)
 

$6,034

 

$47,674

State
 
9,191

 
1,480

 
(924
)
 
(728
)
 
310

 
5,314

Total
 
25,277

 
(82,770
)
 
(9,769
)
 
(31,363
)
 
6,344

 
52,988

Deferred and non-current - net
 
69,753

 
572,988

 
83,501

 
62,946

 
43,102

 
19,243

Investment tax credit adjustments - net
 
(1,226
)
 
(4,920
)
 
187

 
1,695

 
(965
)
 
(2,262
)
Income taxes
 

$93,804

 

$485,298

 

$73,919

 

$33,278

 

$48,481

 

$69,969



Total income taxes for Entergy Corporation and Subsidiaries differ from the amounts computed by applying the statutory income tax rate to income before income taxes.  The reasons for the differences for the years 2019, 2018, and 2017 are:
 
2019
 
2018
 
2017
 
(In Thousands)
Net income (loss) attributable to Entergy Corporation

$1,241,226

 

$848,661

 

$411,612

Preferred dividend requirements of subsidiaries
17,018

 
13,894

 
13,741

Consolidated net income (loss)
1,258,244

 
862,555

 
425,353

Income taxes
(169,825
)
 
(1,036,826
)
 
542,570

Income (loss) before income taxes

$1,088,419

 

($174,271
)
 

$967,923

Computed at statutory rate (21% for 2019 and 2018) (35% for 2017)

$228,568

 

($36,597
)
 

$338,773

Increases (reductions) in tax resulting from:
 

 
 

 
 

State income taxes net of federal income tax effect
61,791

 
21,398

 
44,179

Regulatory differences - utility plant items
(45,336
)
 
(37,507
)
 
39,825

Equity component of AFUDC
(30,444
)
 
(27,216
)
 
(33,282
)
Amortization of investment tax credits
(8,093
)
 
(8,304
)
 
(10,204
)
Flow-through / permanent differences
(2,059
)
 
439

 
8,727

Tax legislation enactment (a)
—

 
—

 
560,410

Amortization of excess ADIT (a)
(205,614
)
 
(577,082
)
 
—

Revisions of the 2017 tax legislation enactment regulatory liability accrual, including the effect of the Entergy Texas 2018 base rate proceeding
—

 
(40,494
)
 
—

Utility restructuring (b)
—

 
(169,918
)
 
—

Settlement on treatment of regulatory obligations (c)
—

 
(52,320
)
 
—

State income tax audit conclusion
—

 
(23,425
)
 
—

IRS audit adjustment
—

 
(8,404
)
 
—

Entergy Wholesale Commodities nuclear decommissioning trust restructuring (d)
—

 
(106,833
)
 
—

Entergy Wholesale Commodities restructuring (d)
(173,725
)
 
—

 
(373,277
)
FitzPatrick disposition
—

 
—

 
(44,344
)
Charitable contribution (d)
(19,101
)

—


—

Net operating loss recognition
(41,427
)

—


—

Provision for uncertain tax positions
7,332

 
24,569

 
8,756

Valuation allowance
59,345

 
2,211

 
—

Other - net
(1,062
)
 
2,657

 
3,007

Total income taxes as reported

($169,825
)
 

($1,036,826
)
 

$542,570

Effective Income Tax Rate
(15.6
%)
 
595.0
%
 
56.1
%


(a)
See “Other Tax Matters - Tax Cuts and Jobs Act” below for discussion of the amortization of excess ADIT in 2018 and 2019 and the tax legislation enactment in 2017.
(b)
See “Other Tax Matters - Entergy Arkansas and Entergy Mississippi Internal Restructuring” below for discussion of the Utility restructuring.
(c)
See “Income Tax Audits - 2012-2013 IRS Audit” below for discussion of the settlement.
(d)
See “Other Tax Matters - Entergy Wholesale Commodities Restructuring” below for discussion of the Entergy Wholesale Commodities nuclear decommissioning trust restructuring in 2018, the Entergy Wholesale Commodities restructurings in 2017 and 2019, and the charitable contribution in 2019.


Total income taxes for the Registrant Subsidiaries differ from the amounts computed by applying the statutory income tax rate to income before taxes.  The reasons for the differences for the years 2019, 2018, and 2017 are:
2019
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
System Energy
 
 
(In Thousands)
Net income
 

$262,964

 

$691,537

 

$119,925

 

$52,629

 

$159,397

 

$99,120

Income taxes
 
(46,769
)
 
121,623

 
30,866

 
186

 
(53,896
)
 
15,349

Pretax income
 

$216,195

 

$813,160

 

$150,791

 

$52,815

 

$105,501

 

$114,469

Computed at statutory rate (21%)
 

$45,401

 

$170,764

 

$31,666

 

$11,091

 

$22,155

 

$24,039

Increases (reductions) in tax resulting from:
 
 
 
 

 
 

 
 

 
 

 
 

State income taxes net of federal income tax effect
 
15,954

 
42,854

 
5,563

 
3,443

 
360

 
5,134

Regulatory differences - utility plant items
 
(10,627
)
 
(19,421
)
 
(5,556
)
 
(1,532
)
 
(1,987
)
 
(6,213
)
Equity component of AFUDC
 
(3,255
)
 
(15,545
)
 
(1,755
)
 
(2,088
)
 
(5,973
)
 
(1,829
)
Amortization of investment tax credits
 
(1,201
)
 
(4,871
)
 
(160
)
 
(88
)
 
(617
)
 
(1,155
)
Flow-through / permanent differences
 
696

 
439

 
160

 
(741
)
 
560

 
(500
)
Amortization of excess ADIT (b)
 
(90,921
)
 
(28,531
)
 
203

 
(11,724
)
 
(69,091
)
 
(5,550
)
Non-taxable dividend income
 
—

 
(26,795
)
 
—

 
—

 
—

 
—

Provision for uncertain tax positions
 
(3,517
)
 
1,519

 
500

 
1,672

 
430

 
1,300

Other - net
 
701

 
1,210

 
245

 
153

 
267

 
123

Total income taxes as reported
 

($46,769
)
 

$121,623

 

$30,866

 

$186

 

($53,896
)
 

$15,349

Effective Income Tax Rate
 
(21.6
%)
 
15.0
%
 
20.5
%
 
0.4
%
 
(51.1
%)
 
13.4
%


2018
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
System Energy
 
 
(In Thousands)
Net income
 

$252,707

 

$675,614

 

$126,078

 

$53,152

 

$162,235

 

$94,109

Income taxes
 
(297,067
)
 
(54,611
)
 
(125,773
)
 
(2,436
)
 
(26,243
)
 
(47,675
)
Pretax income
 

($44,360
)
 

$621,003

 

$305

 

$50,716

 

$135,992

 

$46,434

Computed at statutory rate (21%)
 

($9,316
)
 

$130,411

 

$64

 

$10,650

 

$28,558

 

$9,751

Increases (reductions) in tax resulting from:
 


 


 


 


 


 


State income taxes net of federal income tax effect
 
(794
)
 
26,031

 
(1,747
)
 
2,322

 
2,576

 
2,812

Regulatory differences - utility plant items
 
(14,916
)
 
(12,604
)
 
(4,103
)
 
(1,502
)
 
(1,872
)
 
(2,510
)
Equity component of AFUDC
 
(3,477
)
 
(16,784
)
 
(1,829
)
 
(1,248
)
 
(2,042
)
 
(1,837
)
Amortization of investment tax credits
 
(1,201
)
 
(4,871
)
 
(160
)
 
(109
)
 
(808
)
 
(1,155
)
Flow-through / permanent differences
 
570

 
3,203

 
1,893

 
(4,222
)
 
1,038

 
2,815

Revisions of the 2017 tax legislation enactment regulatory liability accrual, including the effect of the Entergy Texas 2018 base rate proceeding (a)
 
933

 
(2,810
)
 
(556
)
 
884

 
(43,799
)
 
(3,565
)
Amortization of excess ADIT (b)
 
(271,570
)
 
(104,313
)
 
(120,831
)
 
(9,878
)
 
(11,519
)
 
(58,971
)
Settlement on treatment of regulatory obligations (c)
 
—

 
(52,320
)
 
—

 
—

 
—

 
—

IRS audit adjustment
 
1,290

 
1,097

 
1,018

 
(96
)
 
524

 
(12
)
Non-taxable dividend income
 
—

 
(26,795
)
 
—

 
—

 
—

 
—

Provision for uncertain tax positions
 
724

 
3,949

 
240

 
613

 
839

 
4,876

Other - net
 
690

 
1,195

 
238

 
150

 
262

 
121

Total income taxes as reported
 

($297,067
)
 

($54,611
)
 

($125,773
)
 

($2,436
)
 

($26,243
)
 

($47,675
)
Effective Income Tax Rate
 
669.7
%
 
(8.8
%)
 
(41,237.0
%)
 
(4.8
%)
 
(19.3
%)
 
(102.7
%)


2017
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
System Energy
 
 
(In Thousands)
Net income
 

$139,844

 

$316,347

 

$110,032

 

$44,553

 

$76,173

 

$78,596

Income taxes
 
93,804

 
485,298

 
73,919

 
33,278

 
48,481

 
69,969

Pretax income
 

$233,648

 

$801,645

 

$183,951

 

$77,831

 

$124,654

 

$148,565

Computed at statutory rate (35%)
 

$81,777

 

$280,576

 

$64,383

 

$27,241

 

$43,629

 

$51,998

Increases (reductions) in tax resulting from:
 
 

 
 

 
 

 
 

 
 

 
 

State income taxes net of federal income tax effect
 
11,586

 
31,927

 
6,202

 
2,842

 
527

 
5,635

Regulatory differences - utility plant items
 
7,220

 
12,168

 
1,356

 
619

 
5,581

 
12,880

Equity component of AFUDC
 
(6,458
)
 
(18,020
)
 
(3,383
)
 
(847
)
 
(2,353
)
 
(2,221
)
Amortization of investment tax credits
 
(1,201
)
 
(4,871
)
 
(160
)
 
(124
)
 
(951
)
 
(2,896
)
Flow-through / permanent differences
 
3,098

 
3,774

 
1,567

 
(3,352
)
 
1,428

 
(276
)
Tax legislation enactment (b)
 
(3,090
)
 
217,258

 
3,492

 
6,153

 
2,981

 
(69
)
Non-taxable dividend income
 
—

 
(44,658
)
 
—

 
—

 
—

 
—

Provision for uncertain tax positions
 
200

 
5,700

 
228

 
600

 
(2,617
)
 
4,800

Other - net
 
672

 
1,444

 
234

 
146

 
256

 
118

Total income taxes as reported
 

$93,804

 

$485,298

 

$73,919

 

$33,278

 

$48,481

 

$69,969

Effective Income Tax Rate
 
40.1
%
 
60.5
%
 
40.2
%
 
42.8
%
 
38.9
%
 
47.1
%


(a)
See Note 2 to the financial statements for discussion of the Entergy Texas rate case settlement.
(b)
See “Other Tax Matters - Tax Cuts and Jobs Act” below for discussion of the amortization of excess ADIT in 2018 and 2019 and the tax legislation enactment in 2017.
(c)
See “Income Tax Audits - 2012-2013 IRS Audit” below for discussion of the settlement for Entergy Louisiana.


Significant components of accumulated deferred income taxes and taxes accrued for Entergy Corporation and Subsidiaries as of December 31, 2019 and 2018 are as follows:
 
 
2019
 
2018
 
(In Thousands)
Deferred tax liabilities:
 
 
 
Plant basis differences - net

($4,111,761
)
 

($3,835,211
)
Regulatory assets
(389,573
)
 
(370,484
)
Nuclear decommissioning trusts/receivables
(1,015,542
)
 
(1,128,140
)
Pension, net funding
(348,260
)
 
(307,626
)
Combined unitary state taxes
(11,519
)
 
(9,440
)
Power purchase agreements
—

 
(73,335
)
Deferred fuel
(8,360
)
 
(29,953
)
Other
(445,378
)
 
(248,997
)
Total
(6,330,393
)
 
(6,003,186
)
Deferred tax assets:
 

 
 

Nuclear decommissioning liabilities
929,251

 
1,070,583

Regulatory liabilities
806,777

 
895,756

Pension and other post-employment benefits
297,272

 
305,736

Sale and leaseback
102,420

 
121,473

Compensation
87,355

 
86,461

Accumulated deferred investment tax credit
56,013

 
57,643

Provision for allowances and contingencies
126,886

 
135,631

Power purchase agreements
231,502

 
—

Unbilled/deferred revenues
(10,218
)
 
43,762

Net operating loss carryforwards
1,133,197

 
628,165

Capital losses and miscellaneous tax credits
22,597

 
20,549

Valuation allowance
(303,307
)
 
(243,726
)
Other
289,557

 
125,522

Total
3,769,302

 
3,247,555

Non-current accrued taxes (including unrecognized tax benefits)
(1,775,638
)
 
(1,296,928
)
Accumulated deferred income taxes and taxes accrued

($4,336,729
)
 

($4,052,559
)


Entergy’s estimated tax attributes carryovers and their expiration dates as of December 31, 2019 are as follows:

Carryover Description
 
Carryover Amount
 
Year(s) of expiration
 
 
 
 
 
Federal net operating losses before 1/1/2018
 
$9.8 billion
 
2023-2037
Federal net operating losses - 1/1/2018 forward
 
$10.7 billion
 
N/A
State net operating losses
 
$20.8 billion
 
2020-2039
Federal and state charitable contributions
 
$395.8 million
 
2020-2024
Miscellaneous federal and state credits
 
$101.1 million
 
2020-2038


As a result of the accounting for uncertain tax positions, the amount of the deferred tax assets reflected in the financial statements is less than the amount of the tax effect of the federal and state net operating loss carryovers, tax credit carryovers, and other tax attributes reflected on income tax returns. Entergy evaluates the available positive and negative evidence to estimate whether sufficient future taxable income of the appropriate character will be generated to realize the benefits of existing deferred tax assets. When the evaluation indicates that Entergy will not be able to realize the existing benefits, a valuation allowance is recorded to reduce deferred tax assets to the realizable amount.

Because it is more likely than not that the benefit from certain state net operating loss and other deferred tax assets will not be utilized, valuation allowances totaling $303 million as of December 31, 2019 and $244 million as of December 31, 2018 have been provided on the deferred tax assets related to federal and state jurisdictions in which Entergy does not currently expect to be able to utilize certain separate company tax return attributes, preventing realization of such deferred tax assets.

Significant components of accumulated deferred income taxes and taxes accrued for the Registrant Subsidiaries as of December 31, 2019 and 2018 are as follows:
2019
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
System Energy
 
 
(In Thousands)
Deferred tax liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Plant basis differences - net
 

($979,033
)
 

($1,987,025
)
 

($565,202
)
 

($133,073
)
 

($551,365
)
 

($380,594
)
Regulatory assets
 
(170,949
)
 
(79,117
)
 
(10,528
)
 
(16,867
)
 
(59,745
)
 
(52,662
)
Nuclear decommissioning trusts/receivables
 
(120,306
)
 
(113,830
)
 
—

 
—

 
—

 
(100,621
)
Pension, net funding
 
(102,685
)
 
(98,743
)
 
(27,325
)
 
(11,859
)
 
(19,961
)
 
(21,609
)
Deferred fuel
 
—

 
(2,637
)
 
(609
)
 
(666
)
 
(4,380
)
 
(55
)
Other
 
(82,682
)
 
(94,139
)
 
(27,905
)
 
(25,909
)
 
2,059

 
(7,350
)
Total
 
(1,455,655
)
 
(2,375,491
)
 
(631,569
)
 
(188,374
)
 
(633,392
)
 
(562,891
)
Deferred tax assets:
 
 

 
 

 
 

 
 

 
 

 
 

Regulatory liabilities
 
250,410

 
283,507

 
53,421

 
33,258

 
65,602

 
121,011

Nuclear decommissioning liabilities
 
111,078

 
56,300

 
—

 
—

 
—

 
52,633

Pension and other post-employment benefits
 
(21,828
)
 
74,881

 
(5,844
)
 
(12,666
)
 
(15,406
)
 
(898
)
Sale and leaseback
 
—

 
—

 
—

 
—

 
—

 
102,480

Accumulated deferred investment tax credit
 
8,285

 
32,534

 
2,396

 
556

 
2,217

 
10,025

Provision for allowances and contingencies
 
5,365

 
77,298

 
12,963

 
24,022

 
4,024

 
—

Power purchase agreements
 
(15,087
)
 
18,004

 
1,147

 
7,961

 
26

 
—

Unbilled/deferred revenues
 
5,897

 
(28,081
)
 
4,715

 
1,428

 
5,544

 
—

Compensation
 
2,550

 
3,670

 
1,625

 
496

 
1,282

 
75

Net operating loss carryforwards
 
112,658

 
65,178

 
21,492

 
5,056

 
—

 
—

Capital losses and miscellaneous tax credits
 
—

 
—

 
45

 
—

 
—

 
7,857

Other
 
12,541

 
35,401

 
999

 
9,027

 
2,004

 
3

Total
 
471,869

 
618,692

 
92,959

 
69,138

 
65,293

 
293,186

Non-current accrued taxes (including unrecognized tax benefits)
 
(199,340
)
 
(707,714
)
 
(56,222
)
 
(235,300
)
 
(17,314
)
 
(544,235
)
Accumulated deferred income taxes and taxes accrued
 

($1,183,126
)
 

($2,464,513
)
 

($594,832
)
 

($354,536
)
 

($585,413
)
 

($813,940
)
2018
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
System Energy
 
 
(In Thousands)
Deferred tax liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Plant basis differences - net
 

($966,791
)
 

($1,893,831
)
 

($579,319
)
 

($135,143
)
 

($544,282
)
 

($403,809
)
Regulatory assets
 
(169,482
)
 
(74,917
)
 
(1,732
)
 
(20,009
)
 
(57,777
)
 
(46,627
)
Nuclear decommissioning trusts/receivables
 
(77,664
)
 
(71,470
)
 
—

 
—

 
—

 
(86,882
)
Pension, net funding
 
(91,962
)
 
(92,693
)
 
(24,398
)
 
(11,885
)
 
(20,331
)
 
(18,898
)
Deferred fuel
 
(5,801
)
 
(6,974
)
 
(11,819
)
 
(1,701
)
 
(2,835
)
 
(312
)
Other
 
(41,025
)
 
(34,700
)
 
(13,443
)
 
(7,640
)
 
(6,085
)
 
(4,544
)
Total
 
(1,352,725
)
 
(2,174,585
)
 
(630,711
)
 
(176,378
)
 
(631,310
)
 
(561,072
)
Deferred tax assets:
 
 

 
 

 
 

 
 

 
 

 
 

Regulatory liabilities
 
247,964

 
339,126

 
72,570

 
40,181

 
86,032

 
110,370

Nuclear decommissioning liabilities
 
99,479

 
48,738

 
—

 
—

 
—

 
46,643

Pension and other post-employment benefits
 
(19,068
)
 
80,102

 
(5,405
)
 
(11,371
)
 
(14,215
)
 
(632
)
Sale and leaseback
 
—

 
18,999

 
—

 
—

 
—

 
102,481

Accumulated deferred investment tax credit
 
8,599

 
33,928

 
2,541

 
579

 
2,347

 
9,649

Provision for allowances and contingencies
 
9,877

 
81,108

 
13,412

 
23,962

 
5,579

 
—

Power purchase agreements
 
(17,223
)
 
19,385

 
1,140

 
12,155

 
(18
)
 
—

Unbilled/deferred revenues
 
7,471

 
(17,345
)
 
5,527

 
636

 
7,016

 
—

Compensation
 
1,708

 
1,959

 
1,265

 
512

 
995

 
(260
)
Net operating loss carryforwards
 
6,338

 
20,118

 
4,896

 
480

 
261

 
—

Other
 
7,977

 
23,412

 
1,610

 
12,181

 
2,127

 
4

Total
 
353,122

 
649,530

 
97,556

 
79,315

 
90,124

 
268,255

Non-current accrued taxes (including unrecognized tax benefits)
 
(85,942
)
 
(701,666
)
 
(18,714
)
 
(226,532
)
 
(11,349
)
 
(512,479
)
Accumulated deferred income taxes and taxes accrued
 

($1,085,545
)
 

($2,226,721
)
 

($551,869
)
 

($323,595
)
 

($552,535
)
 

($805,296
)


The Registrant Subsidiaries’ estimated tax attributes carryovers and their expiration dates as of December 31, 2019 are as follows:
 
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
System Energy
 
 
 
 
 
 
 
 
 
 
 
 
 
Federal net operating losses
 
$4.4 billion
 
$4.3 billion
 
$2 billion
 
$1.1 billion
 
$—
 
$—
Year(s) of expiration
 
N/A
 
2035-2037
 
N/A
 
2037
 
N/A
 
N/A
 
 
 
 
 
 
 
 
 
 
 
 
 
State net operating losses
 
$4.5 billion
 
$5.2 billion
 
$2.1 billion
 
$1.2 billion
 
$—
 
$—
Year(s) of expiration
 
2024
 
2035-2039
 
2038-2039
 
2038-2039
 
N/A
 
N/A
 
 
 
 
 
 
 
 
 
 
 
 
 
Misc. federal credits
 
$—
 
$5.2 million
 
$—
 
$—
 
$1.9 million
 
$3.2 million
Year(s) of expiration
 
N/A
 
2035-2038
 
N/A
 
N/A
 
2029-2038
 
2029-2038
 
 
 
 
 
 
 
 
 
 
 
 
 
State credits
 
$—
 
$—
 
$—
 
$—
 
$2.9 million
 
$13.1 million
Year(s) of expiration
 
N/A
 
N/A
 
N/A
 
N/A
 
2026
 
2020-2023


As a result of the accounting for uncertain tax positions, the amount of the deferred tax assets reflected in the financial statements is less than the amount of the tax effect of the federal and state net operating loss carryovers and tax credit carryovers.

Unrecognized tax benefits

Accounting standards establish a “more-likely-than-not” recognition threshold that must be met before a tax benefit can be recognized in the financial statements.  If a tax deduction is taken on a tax return but does not meet the more-likely-than-not recognition threshold, an increase in income tax liability, above what is payable on the tax return, is required to be recorded.  A reconciliation of Entergy’s beginning and ending amount of unrecognized tax benefits is as follows:
 
2019
 
2018
 
2017
 
(In Thousands)
Gross balance at January 1

$7,181,482

 

$4,871,846

 

$3,909,855

Additions based on tax positions related to the current year
731,276

 
2,276,614

 
1,120,687

Additions for tax positions of prior years
151,628

 
506,142

 
283,683

Reductions for tax positions of prior years
(681,232
)
 
(274,600
)
 
(442,379
)
Settlements
—

 
(198,520
)
 
—

Gross balance at December 31
7,383,154

 
7,181,482

 
4,871,846

Offsets to gross unrecognized tax benefits:
 

 
 

 
 

Carryovers and refund claims
(5,831,587
)
 
(5,957,992
)
 
(3,945,524
)
Cash paid to taxing authorities
(10,000
)
 
(10,000
)
 
(10,000
)
Unrecognized tax benefits net of unused tax attributes, refund claims and payments (a)

$1,541,567

 

$1,213,490

 

$916,322



(a)
Potential tax liability above what is payable on tax returns

The balances of unrecognized tax benefits include $2,421 million, $2,161 million, and $1,462 million as of December 31, 2019, 2018, and 2017, respectively, which, if recognized, would lower the effective income tax rates.  Because of the effect of deferred tax accounting, the remaining balances of unrecognized tax benefits of $4,962
million, $5,020 million, and $3,410 million as of December 31, 2019, 2018, and 2017, respectively, if disallowed, would not affect the annual effective income tax rate but would accelerate the payment of cash to the taxing authority to an earlier period.

Entergy accrues interest expense, if any, related to unrecognized tax benefits in income tax expense.  Entergy’s December 31, 2019, 2018, and 2017 accrued balance for the possible payment of interest is approximately $48 million, $44 million, and $38 million, respectively. Interest (net-of-tax) of $4 million, $7 million, and $8 million was recorded in 2019, 2018, and 2017, respectively.

A reconciliation of the Registrant Subsidiaries’ beginning and ending amount of unrecognized tax benefits for 2019, 2018, and 2017 is as follows:
2019
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
System Energy
 
 
(In Thousands)
Gross balance at January 1, 2019
 

$1,298,662

 

$2,400,171

 

$508,765

 

$686,687

 

$17,802

 

$467,487

Additions based on tax positions related to the current year
 
84,335

 
28,705

 
68,594

 
40,676

 
2,312

 
5,496

Additions for tax positions of prior years
 
20,399

 
25,090

 
1,651

 
489

 
1,299

 
2,186

Reductions for tax positions of prior years
 
(62,154
)
 
(72,313
)
 
(12,723
)
 
(11,079
)
 
(7
)
 
(1,838
)
Gross balance at December 31, 2019
 
1,341,242

 
2,381,653

 
566,287

 
716,773

 
21,406

 
473,331

Offsets to gross unrecognized tax benefits:
 
 

 
 

 
 

 
 

 
 

 
 

Loss carryovers
 
(1,134,187
)
 
(1,573,257
)
 
(506,976
)
 
(445,430
)
 
(3,944
)
 
(8,392
)
Unrecognized tax benefits net of unused tax attributes and payments
 

$207,055

 

$808,396

 

$59,311

 

$271,343

 

$17,462

 

$464,939



2018
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
System Energy
 
 
(In Thousands)
Gross balance at January 1, 2018
 

($117,716
)
 

$2,518,457

 

$15,122

 

$679,544

 

$16,399

 

$445,511

Additions based on tax positions related to the current year (a)
 
1,430,828

 
30,577

 
493,039

 
2,261

 
1,978

 
18,271

Additions for tax positions of prior years
 
31,612

 
77,372

 
3,878

 
12,972

 
1,722

 
7,255

Reductions for tax positions of prior years
 
(21,619
)
 
(158,510
)
 
(3,253
)
 
(8,081
)
 
(2,262
)
 
(3,253
)
Settlements
 
(24,443
)
 
(67,725
)
 
(21
)
 
(9
)
 
(35
)
 
(297
)
Gross balance at December 31, 2018
 
1,298,662

 
2,400,171

 
508,765

 
686,687

 
17,802

 
467,487

Offsets to gross unrecognized tax benefits:
 
 

 
 

 
 

 
 

 
 

 
 

Loss carryovers
 
(1,173,839
)
 
(1,597,826
)
 
(478,268
)
 
(420,813
)
 
(3,199
)
 
(42,228
)
Unrecognized tax benefits net of unused tax attributes and payments
 

$124,823

 

$802,345

 

$30,497

 

$265,874

 

$14,603

 

$425,259


2017
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
System Energy
 
 
(In Thousands)
Gross balance at January 1, 2017
 

$2,503

 

$2,440,339

 

$12,206

 

$166,230

 

$15,946

 

$472,372

Additions based on tax positions related to the current year (a)
 
8,974

 
32,843

 
2,105

 
509,183

 
1,747

 
909

Additions for tax positions of prior years
 
3,682

 
235,331

 
1,267

 
13,364

 
3,115

 
1,432

Reductions for tax positions of prior years
 
(132,875
)
 
(190,056
)
 
(456
)
 
(9,233
)
 
(4,409
)
 
(29,202
)
Gross balance at December 31, 2017
 
(117,716
)
 
2,518,457

 
15,122

 
679,544

 
16,399

 
445,511

Offsets to gross unrecognized tax benefits:
 
 

 
 

 
 

 
 

 
 

 
 

Loss carryovers
 
—

 
(1,591,907
)
 
(15,122
)
 
(441,374
)
 
(638
)
 
(12,536
)
Unrecognized tax benefits net of unused tax attributes and payments
 

($117,716
)
 

$926,550

 

$—

 

$238,170

 

$15,761

 

$432,975



(a)
The primary additions for Entergy Mississippi in 2018, and Entergy New Orleans in 2017 are related to the mark-to-market treatment discussed in “Other Tax Matters - Tax Accounting Methods” below. The primary additions for Entergy Arkansas in 2018 are related to the nuclear decommissioning costs treatment and the mark-to-market treatment discussed in “Other Tax Matters - Tax Accounting Methods” below.

The Registrant Subsidiaries’ balances of unrecognized tax benefits included amounts which, if recognized, would have reduced income tax expense as follows:
 
December 31,
 
2019
 
2018
 
2017
 
(In Millions)
Entergy Arkansas

$203.3

 

$85.4

 

$2.6

Entergy Louisiana

$556.3

 

$594.0

 

$575.8

Entergy Mississippi

$1.9

 

$1.5

 

$—

Entergy New Orleans

$242.7

 

$246.2

 

$31.7

Entergy Texas

$5.7

 

$5.1

 

$4.4

System Energy

$—

 

$—

 

$—



Accrued balances for the possible payment of interest related to unrecognized tax benefits are as follows:
 
December 31,
 
2019
 
2018
 
2017
 
(In Millions)
Entergy Arkansas

$3.1

 

$1.7

 

$1.6

Entergy Louisiana

$14.2

 

$17.9

 

$14.1

Entergy Mississippi

$1.7

 

$1.2

 

$1.0

Entergy New Orleans

$4.7

 

$2.7

 

$2.1

Entergy Texas

$1.1

 

$0.9

 

$0.4

System Energy

$14.5

 

$13.2

 

$8.5



The Registrant Subsidiaries record interest and penalties related to unrecognized tax benefits in income tax expense.  No penalties were recorded in 2019, 2018, and 2017. Interest (net-of-tax) was recorded as follows:
 
2019
 
2018
 
2017
 
(In Millions)
Entergy Arkansas

$1.4

 

$0.2

 

$0.2

Entergy Louisiana

($3.7
)
 

$3.8

 

$5.7

Entergy Mississippi

$0.5

 

$0.2

 

$0.2

Entergy New Orleans

$2.0

 

$0.6

 

$0.6

Entergy Texas

$0.2

 

$0.5

 

($0.8
)
System Energy

$1.3

 

$4.7

 

$4.8



Income Tax Audits

Entergy and its subsidiaries file U.S. federal and various state and foreign income tax returns.  IRS examinations are complete for years before 2014. All state taxing authorities’ examinations are complete for years before 2015. Entergy regularly negotiates with the IRS to achieve settlements.  The resolution of audit issues could result in significant changes to the amounts of unrecognized tax benefits in the next twelve months.

2012-2013 IRS Audit

The IRS completed its examination of the 2012 and 2013 tax years and issued its 2012-2013 Revenue Agent Report (RAR) in June 2018. Entergy agreed to all proposed adjustments contained in the RAR. Entergy and the Registrant Subsidiaries recorded the effects of these adjustments in June 2018.

As a result of the issuance of the RAR, Entergy Louisiana was able to recognize previously unrecognized tax benefits of $52 million related to the Hurricane Katrina and Hurricane Rita contingent sharing obligation associated with the Louisiana Act 55 financing.

2014-2015 IRS Audit

The IRS is examining the 2014 and 2015 tax years. Entergy expects the IRS to complete this examination in 2020. As of December 31, 2019, Entergy has not received any proposed adjustments to taxable income from the IRS.

Other Tax Matters

Tax Cuts and Jobs Act

Deferred tax liabilities and assets have been adjusted for the effect of the enactment of the Tax Cuts and Jobs Act (the Act), signed by President Trump on December 22, 2017. The most significant effect of the Act for Entergy and the Registrant Subsidiaries was the change in the federal corporate income tax rate from 35% to 21%, effective January 1, 2018. Other significant provisions and their effect on Entergy and the Registrant Subsidiaries are summarized below.
The Act limits the deduction for net business interest expense to 30 percent of adjusted taxable income which is similar to earnings before interest, taxes, depreciation, and amortization. The limitation does not apply to interest expense that is properly allocable to a trade or business that furnishes or sells electrical energy, gas, or steam through a local distribution system, or transports gas or steam by pipeline if the rates for such furnishing or sale are subject to ratemaking by a government entity or instrumentality or by a public utility commission.
The IRS issued proposed regulations relating to this limitation in November 2018. The regulations are generally proposed to be effective for taxable years ending after the date Treasury adopts the regulations as final. Taxpayers may apply the rules of the proposed regulations to a taxable year beginning after December 31, 2017, so long as taxpayers consistently apply the rules of the proposed regulations. The proposed regulations provide guidance that if 90% of a tax group’s consolidated assets consist of utility property, the entire consolidated tax group will be treated as a regulated public utility and all of the consolidated group’s interest expense will be currently tax deductible.
As a result of the limitation under the Act, Entergy recorded limitations in 2018 and 2019 and recorded a deferred tax asset on the nondeductible portion, as it has an unlimited carryover period. Entergy recorded a valuation allowance of $24 million due to a lack of earnings from sources other than the Utility.
The Act limits the net operating loss (NOL) deduction for a given year to 80% of taxable income, effective with respect to losses arising in tax years beginning after December 31, 2017. Only NOLs generated after December 31, 2017 are subject to the 80% limitation. Prior law generally provided a two-year carryback and 20-year carryforward for NOLs. The Act does not allow a carryback period but does provide for the indefinite carryforward of NOLs arising in tax years ending after December 31, 2017. Because of the indefinite carryforward, the new limitations on NOL utilization are not expected to have a material effect on Entergy or the Registrant Subsidiaries.
The Act also modified Internal Revenue Code section 162(m), which limits the deduction for compensation with respect to certain covered employees to no more than $1 million per year.  The IRS issued proposed regulations relating to this limitation in December 2019. The significant provisions of the Act and associated proposed regulations require inclusion of performance-based compensation and an expanded definition of “covered employees” in the annual computation of the section 162 limitation. The Act amendments and associated proposed regulations resulted in an increase in disallowed compensation expense, but this limitation does not have a material effect on Entergy or the Registrant Subsidiaries.
With respect to the federal corporate income tax rate change from 35% to 21%, Entergy and the Registrant Subsidiaries recorded a regulatory liability associated with the decrease in the net accumulated deferred income tax liability, which is often referred to as “excess ADIT,” a significant portion of which has been paid to customers in 2018 and 2019 in the form of lower rates. Entergy’s December 31, 2019 and December 31, 2018 balance sheets reflect a regulatory liability of $1.7 billion and $2.1 billion, respectively, as a result of the re-measurement of deferred tax assets and liabilities from the income tax rate change, amortization of excess ADIT, and payments to customers during 2018 and 2019. Entergy’s regulatory liability for income taxes includes a gross-up at the applicable tax rate because of the effect that excess ADIT has on the ratemaking formula. The regulatory liability for income taxes includes the effect of a) the reduction of the net deferred tax liability resulting in excess ADIT, b) the tax gross-up of excess ADIT, and c) the effect of the new tax rate on the previous net regulatory asset for income taxes. For the same reasons, the Registrant Subsidiaries’ December 31, 2019 and December 31, 2018 balance sheets reflect net regulatory liabilities for income taxes as follows:
 
2019
 
2018
 
(In Millions)
Entergy Arkansas

$487

 

$605

Entergy Louisiana

$531

 

$612

Entergy Mississippi

$237

 

$246

Entergy New Orleans

$59

 

$86

Entergy Texas

$253

 

$352

System Energy

$143

 

$163

Excess ADIT is generally classified into two categories: 1) the portion that is subject to the normalization requirements of the Act, i.e., “protected”, and 2) the portion that is not subject to such normalization provisions, referred to as “unprotected”. The Act provides that the normalization method of accounting for income taxes is required for
excess ADIT associated with public utility property. The Act provides for the use of the average rate assumption method (ARAM) for the determination of the timing of the return of excess ADIT associated with such property. Under ARAM, the excess ADIT is reduced over the remaining life of the asset. Remaining asset lives vary for each Registrant Subsidiary, but the average life of public utility property is typically 30 years or longer. Entergy will amortize the protected portion of the excess ADIT in conformity with the normalization requirements. The Registrant Subsidiaries’ net regulatory liability for income taxes as of December 31, 2019 and December 31, 2018, includes protected excess ADIT as follows:
 
2019
 
2018
 
(In Millions)
Entergy Arkansas

$490

 

$521

Entergy Louisiana

$797

 

$812

Entergy Mississippi

$261

 

$271

Entergy New Orleans

$62

 

$59

Entergy Texas

$228

 

$237

System Energy

$186

 

$202


During the second quarter of 2018, the Registrant Subsidiaries began paying unprotected excess accumulated deferred income taxes, associated with the effects of the Act, to their customers through rate riders and other means approved by their respective regulatory commissions. Payment of the unprotected excess accumulated deferred income taxes results in a reduction in the regulatory liability for income taxes and a corresponding reduction in income tax expense. This has a significant effect on the effective tax rate for the period as compared to the statutory tax rate. The Registrant Subsidiaries’ net regulatory liability for income taxes as of December 31, 2019 and December 31, 2018, includes unprotected excess ADIT as follows:
 
2019
 
2018
 
(In Millions)
Entergy Arkansas

$9

 

$117

Entergy Louisiana

$242

 

$295

Entergy New Orleans

$9

 

$25

Entergy Texas

$83

 

$171

System Energy

$—

 

$4


The return of unprotected excess accumulated deferred income taxes reduced Entergy’s and the Registrant Subsidiaries’ regulatory liability for income taxes as follows for 2019 and 2018:
 
2019
 
2018
 
(In Millions)
Entergy

$273

 

$776

Entergy Arkansas

$126

 

$368

Entergy Louisiana

$39

 

$141

Entergy Mississippi

$—

 

$159

Entergy New Orleans

$14

 

$13

Entergy Texas

$87

 

$15

System Energy

$7

 

$80



In addition to the protected and unprotected excess ADIT amounts, the net regulatory liability for income taxes includes other regulatory assets and liabilities for income taxes associated with AFUDC, which is described in Note 1 to the financial statements.
For a discussion of the proceedings commenced or other responses by Entergy’s regulators to the Act, see Note 2 to the financial statements.
Not all of Entergy’s excess ADIT is included in ratemaking. Consequently, Entergy recorded a net decrease in deferred tax assets of $560 million for which there was a corresponding charge to income tax expense for the year ended December 31, 2017. The corresponding income tax expense (or benefit) recorded by the Registrant Subsidiaries was as follows: Entergy Arkansas, ($3 million); Entergy Louisiana, $217 million; Entergy Mississippi, $3 million; Entergy New Orleans, $6 million; Entergy Texas, $3 million; and System Energy, $0.
Included in the effect of the computation of the changes in deferred tax assets and liabilities is the recognition threshold and measurement of uncertain tax positions resulting in unrecognized tax benefits. The final economic outcome of such unrecognized tax benefits is generally the result of a negotiated settlement with the IRS that often differs from the amount that is recorded as realizable under GAAP. The intrinsic uncertainty with respect to all such tax positions means that the difference between current estimates of such amounts likely to be realized and actual amounts realized upon settlement may have an effect on income tax expense and the regulatory liability for income taxes in future periods.

Entergy anticipates that the Act, including the federal corporate income tax rate change, may continue to have ramifications that require adjustments in the future as certain events occur. These events include: 1) the evaluation by regulators in all of Entergy’s jurisdictions regarding the ratemaking treatment of the Act and excess ADIT; 2) IRS audit adjustments to or amendments of federal and state income tax returns that include modifications to the computation of taxable income resulting from the Act; and 3) additional guidance, interpretations, or rulings by the U.S. Department of the Treasury or the IRS. The potential exists for these types of events to result in future tax expense adjustments because of the difference in the federal corporate income tax rate between past and future periods and the effect of the tax rate change on ratemaking. In turn, these items also could potentially affect the regulatory liability for income taxes.
Entergy Wholesale Commodities Restructuring

The tax classification of the entity that owned FitzPatrick changed in the second quarter 2016.  The change in tax classification required Entergy to recognize the plant’s nuclear decommissioning liability for income tax purposes resulting in a tax accounting permanent difference that reduced income tax expense, net of unrecognized tax benefits, by $238 million. The accrual of the nuclear decommissioning liability also required Entergy to recognize a gain for income tax purposes, a significant portion of which resulted in an increase in tax basis of the assets. Recognition of the gain and the increase in tax basis of the assets represents a tax accounting temporary difference. Entergy sold FitzPatrick 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. The re-determined basis resulted in a $44 million income tax benefit in the first quarter 2017.

In the second quarter 2017, Entergy changed the tax classification of legal entities that own Entergy Wholesale Commodities nuclear power plants. The change in tax classification required Entergy to recognize the plants’ nuclear decommissioning liabilities for income tax purposes resulting in a tax accounting permanent difference that reduced income tax expense, net of unrecognized tax benefits, by $373 million. The accrual of the nuclear decommissioning liabilities also required Entergy to recognize a gain for income tax purposes, a portion of which resulted in an increase in tax basis of the assets. Recognition of the gain and the increase in tax basis of the assets represents a tax accounting temporary difference.

In the third quarter 2018, Entergy completed a restructuring of the investment holdings in one of the Entergy Wholesale Commodities nuclear plant decommissioning trusts that resulted in an adjustment to tax basis for the trust. The accounting standards provide that a taxable temporary difference does not exist if the tax law provides a means by which an amount can be recovered without incurrence of tax. The restructuring allows Entergy to recover assets from the trust without incurring tax. As such, the tax basis recognized resulted in the reversal of a deferred tax liability and reduction of income tax expense of approximately $107 million.

In the fourth quarter 2019, two separate events occurred resulting in a reduction of tax expense of $174 million. In November 2019 an Entergy Wholesale Commodities subsidiary recognized a reduction in income tax expense of $18 million in connection with the accounting method on power contracts associated with the Palisades nuclear power station. Additionally, Entergy’s ownership of Indian Point 2 and Indian Point 3 was restructured. The restructuring required Entergy to recognize Indian Point 2 and Indian Point 3 nuclear decommissioning liabilities for income tax purposes resulting in a tax accounting permanent difference that reduced income tax expense, net of unrecognized tax benefits, by $156 million. The accrual of the nuclear decommissioning liabilities also required Entergy to recognize a gain for income tax purposes, a portion of which resulted in an increase in the tax basis of the assets. Recognition of the gain and the increase in the tax basis of the assets represents a tax accounting temporary difference.

Immediately prior to the restructuring, through its ownership of Indian Point 2 and Indian Point 3, Entergy donated property to Stony Brook University and recognized an associated tax deduction resulting in a decrease to tax expense of $19 million.

Entergy Wholesale Commodities Tax Audit

A state income tax audit involving Entergy Wholesale Commodities was concluded during the third quarter 2018. Upon conclusion of the audit, subsidiaries within Entergy Wholesale Commodities reversed a portion of the provision for uncertain tax positions totaling approximately $23 million, net of tax and interest paid.

Tax Accounting Methods

In the fourth quarter 2015, System Energy and Entergy Louisiana adopted a new method of accounting for income tax return purposes in which their nuclear decommissioning costs will be treated as production costs of electricity includable in cost of goods sold. The new method resulted in a reduction of taxable income of $1.2 billion for System Energy and $2.2 billion for Energy Louisiana. In the fourth quarter 2018, Entergy Arkansas adopted the same method of accounting for its nuclear decommissioning costs which resulted in a $2.2 billion reduction in taxable income.

In 2016, Entergy Louisiana elected mark-to-market income tax treatment for various wholesale electric power purchase and sale agreements, including Entergy Louisiana’s contract to purchase electricity from the Vidalia hydroelectric facility and from System Energy under the Unit Power Sales Agreement. The election resulted in a $2.2 billion deductible temporary difference. In 2017, Entergy New Orleans also elected mark-to-market income tax treatment for wholesale electric contracts which resulted in a $1.1 billion deductible temporary difference. In 2018, Entergy Arkansas and Entergy Mississippi accrued deductible temporary differences related to mark-to-market tax accounting for wholesale electric contracts of $2.1 billion and $1.9 billion, respectively.

Entergy Arkansas and Entergy Mississippi Internal Restructuring

In the fourth quarter 2018, Entergy Arkansas and Entergy Mississippi became wholly-owned subsidiaries of Entergy Utility Holding Company, LLC. The change in ownership required Entergy to recognize Entergy Arkansas’s nuclear decommissioning liabilities for income tax purposes resulting in a tax accounting permanent difference that reduced income tax expense, net of unrecognized tax benefits, by $165 million. The accrual of the nuclear decommissioning liabilities also required Entergy to recognize a gain for income tax purposes, a portion of which resulted in an increase in the tax basis of the assets. Recognition of the gain and the increase in the tax basis of the assets represents a tax accounting temporary difference. Additionally, Entergy recorded a $5 million reduction of income tax expense associated with state income tax effects resulting in a total reduction of income tax expense of $170 million from the restructuring. Entergy recorded a regulatory liability of $40 million ($30 million net-of-tax) which partially offsets the reduction of income tax expense. Entergy Arkansas’s member’s equity increased by $94 million as a result of the restructuring. See Note 2 to the financial statements for further discussion of the internal restructuring.

Arkansas Corporate Income Tax Rate Reduction

In April 2019 the state of Arkansas enacted corporate income tax law changes that phase in an Arkansas tax rate reduction from the current rate of 6.5% to 6.2% in 2021 and 5.9% in 2022.  The rate reduction will eventually reduce Entergy Arkansas’s combined federal and state applicable tax rate by less than 0.5% once fully adopted.  As a result of the rate reduction, Entergy Arkansas recorded a regulatory liability for income taxes of approximately $25 million which includes a tax gross-up related to the treatment of income taxes in the ratemaking formula. The Arkansas tax law enactment also phases in an increase to the net operating loss carryover period from five to ten years.

Consolidated Income Tax Return of Entergy Corporation

In September 2019, Entergy Utility Holding Company, LLC and its regulated, wholly-owned subsidiaries including Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans, became eligible to and joined the Entergy Corporation consolidated federal income tax group.  As a result of these four Utility operating companies re-joining the Entergy Corporation consolidated tax return group, Entergy was able to recognize a $41 million deferred tax asset associated with a previously unrecognized Arkansas net operating loss carryover.

Additionally, in September 2019, Entergy Texas issued $35 million of 5.375% Series A preferred stock with a liquidation value of $25 per share resulting in the disaffiliation and de-consolidation of Entergy Texas from the consolidated federal income tax return of Entergy Corporation.  These changes will not affect the accrual or allocation of income taxes for the Registrant Subsidiaries. See Note 6 to the financial statements for discussion of the preferred stock issuance.

Vermont Yankee

The Vermont Yankee transaction resulted in Entergy generating a net deferred tax asset in January 2019.  The deferred tax asset could not be fully realized by Entergy in the first quarter of 2019; accordingly, Entergy accrued a net tax expense of $29 million on the disposition of Vermont Yankee. See Note 14 to the financial statements for discussion of the Vermont Yankee transaction.
Entergy New Orleans [Member]  
Income Taxes INCOME TAXES (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)

Income taxes for 2019, 2018, and 2017 for Entergy Corporation and Subsidiaries consist of the following:
 
2019
 
2018
 
2017
 
(In Thousands)
Current:
 
 
 
 
 
Federal

($14,416
)
 

$36,848

 

$29,595

State
6,535

 
7,274

 
15,478

Total
(7,881
)
 
44,122

 
45,073

Deferred and non-current - net
(155,956
)
 
(1,074,416
)
 
505,010

Investment tax credit adjustments - net
(5,988
)
 
(6,532
)
 
(7,513
)
Income taxes

($169,825
)
 

($1,036,826
)
 

$542,570


    
Income taxes for 2019, 2018, and 2017 for Entergy’s Registrant Subsidiaries consist of the following:
2019
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
System Energy
 
 
(In Thousands)
Current:
 
 
 
 
 
 
 
 
 
 
 
 
Federal
 

($14,549
)
 

($20,173
)
 

($8,939
)
 

($5,822
)
 

$16,035

 

$16,256

State
 
(714
)
 
(735
)
 
5,823

 
1,856

 
663

 
(2,831
)
Total
 
(15,263
)
 
(20,908
)
 
(3,116
)
 
(3,966
)
 
16,698

 
13,425

Deferred and non-current - net
 
(30,278
)
 
147,453

 
34,579

 
4,248

 
(69,963
)
 
422

Investment tax credit adjustments - net
 
(1,228
)
 
(4,922
)
 
(597
)
 
(96
)
 
(631
)
 
1,502

Income taxes
 

($46,769
)
 

$121,623

 

$30,866

 

$186

 

($53,896
)
 

$15,349


2018
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
System Energy
 
 
(In Thousands)
Current:
 
 
 
 
 
 
 
 
 
 
 
 
Federal
 

($23,638
)
 

($15,841
)
 

($11,275
)
 

($10,813
)
 

$16,190

 

($9,786
)
State
 
(1,617
)
 
(1,122
)
 
(1,066
)
 
545

 
3,205

 
(1,821
)
Total
 
(25,255
)
 
(16,963
)
 
(12,341
)
 
(10,268
)
 
19,395

 
(11,607
)
Deferred and non-current - net
 
(270,586
)
 
(32,725
)
 
(114,738
)
 
7,943

 
(44,817
)
 
(35,329
)
Investment tax credit adjustments - net
 
(1,226
)
 
(4,923
)
 
1,306

 
(111
)
 
(821
)
 
(739
)
Income taxes
 

($297,067
)
 

($54,611
)
 

($125,773
)
 

($2,436
)
 

($26,243
)
 

($47,675
)

2017
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
System Energy
 
 
(In Thousands)
Current:
 
 
 
 
 
 
 
 
 
 
 
 
Federal
 

$16,086

 

($84,250
)
 

($8,845
)
 

($30,635
)
 

$6,034

 

$47,674

State
 
9,191

 
1,480

 
(924
)
 
(728
)
 
310

 
5,314

Total
 
25,277

 
(82,770
)
 
(9,769
)
 
(31,363
)
 
6,344

 
52,988

Deferred and non-current - net
 
69,753

 
572,988

 
83,501

 
62,946

 
43,102

 
19,243

Investment tax credit adjustments - net
 
(1,226
)
 
(4,920
)
 
187

 
1,695

 
(965
)
 
(2,262
)
Income taxes
 

$93,804

 

$485,298

 

$73,919

 

$33,278

 

$48,481

 

$69,969



Total income taxes for Entergy Corporation and Subsidiaries differ from the amounts computed by applying the statutory income tax rate to income before income taxes.  The reasons for the differences for the years 2019, 2018, and 2017 are:
 
2019
 
2018
 
2017
 
(In Thousands)
Net income (loss) attributable to Entergy Corporation

$1,241,226

 

$848,661

 

$411,612

Preferred dividend requirements of subsidiaries
17,018

 
13,894

 
13,741

Consolidated net income (loss)
1,258,244

 
862,555

 
425,353

Income taxes
(169,825
)
 
(1,036,826
)
 
542,570

Income (loss) before income taxes

$1,088,419

 

($174,271
)
 

$967,923

Computed at statutory rate (21% for 2019 and 2018) (35% for 2017)

$228,568

 

($36,597
)
 

$338,773

Increases (reductions) in tax resulting from:
 

 
 

 
 

State income taxes net of federal income tax effect
61,791

 
21,398

 
44,179

Regulatory differences - utility plant items
(45,336
)
 
(37,507
)
 
39,825

Equity component of AFUDC
(30,444
)
 
(27,216
)
 
(33,282
)
Amortization of investment tax credits
(8,093
)
 
(8,304
)
 
(10,204
)
Flow-through / permanent differences
(2,059
)
 
439

 
8,727

Tax legislation enactment (a)
—

 
—

 
560,410

Amortization of excess ADIT (a)
(205,614
)
 
(577,082
)
 
—

Revisions of the 2017 tax legislation enactment regulatory liability accrual, including the effect of the Entergy Texas 2018 base rate proceeding
—

 
(40,494
)
 
—

Utility restructuring (b)
—

 
(169,918
)
 
—

Settlement on treatment of regulatory obligations (c)
—

 
(52,320
)
 
—

State income tax audit conclusion
—

 
(23,425
)
 
—

IRS audit adjustment
—

 
(8,404
)
 
—

Entergy Wholesale Commodities nuclear decommissioning trust restructuring (d)
—

 
(106,833
)
 
—

Entergy Wholesale Commodities restructuring (d)
(173,725
)
 
—

 
(373,277
)
FitzPatrick disposition
—

 
—

 
(44,344
)
Charitable contribution (d)
(19,101
)

—


—

Net operating loss recognition
(41,427
)

—


—

Provision for uncertain tax positions
7,332

 
24,569

 
8,756

Valuation allowance
59,345

 
2,211

 
—

Other - net
(1,062
)
 
2,657

 
3,007

Total income taxes as reported

($169,825
)
 

($1,036,826
)
 

$542,570

Effective Income Tax Rate
(15.6
%)
 
595.0
%
 
56.1
%


(a)
See “Other Tax Matters - Tax Cuts and Jobs Act” below for discussion of the amortization of excess ADIT in 2018 and 2019 and the tax legislation enactment in 2017.
(b)
See “Other Tax Matters - Entergy Arkansas and Entergy Mississippi Internal Restructuring” below for discussion of the Utility restructuring.
(c)
See “Income Tax Audits - 2012-2013 IRS Audit” below for discussion of the settlement.
(d)
See “Other Tax Matters - Entergy Wholesale Commodities Restructuring” below for discussion of the Entergy Wholesale Commodities nuclear decommissioning trust restructuring in 2018, the Entergy Wholesale Commodities restructurings in 2017 and 2019, and the charitable contribution in 2019.


Total income taxes for the Registrant Subsidiaries differ from the amounts computed by applying the statutory income tax rate to income before taxes.  The reasons for the differences for the years 2019, 2018, and 2017 are:
2019
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
System Energy
 
 
(In Thousands)
Net income
 

$262,964

 

$691,537

 

$119,925

 

$52,629

 

$159,397

 

$99,120

Income taxes
 
(46,769
)
 
121,623

 
30,866

 
186

 
(53,896
)
 
15,349

Pretax income
 

$216,195

 

$813,160

 

$150,791

 

$52,815

 

$105,501

 

$114,469

Computed at statutory rate (21%)
 

$45,401

 

$170,764

 

$31,666

 

$11,091

 

$22,155

 

$24,039

Increases (reductions) in tax resulting from:
 
 
 
 

 
 

 
 

 
 

 
 

State income taxes net of federal income tax effect
 
15,954

 
42,854

 
5,563

 
3,443

 
360

 
5,134

Regulatory differences - utility plant items
 
(10,627
)
 
(19,421
)
 
(5,556
)
 
(1,532
)
 
(1,987
)
 
(6,213
)
Equity component of AFUDC
 
(3,255
)
 
(15,545
)
 
(1,755
)
 
(2,088
)
 
(5,973
)
 
(1,829
)
Amortization of investment tax credits
 
(1,201
)
 
(4,871
)
 
(160
)
 
(88
)
 
(617
)
 
(1,155
)
Flow-through / permanent differences
 
696

 
439

 
160

 
(741
)
 
560

 
(500
)
Amortization of excess ADIT (b)
 
(90,921
)
 
(28,531
)
 
203

 
(11,724
)
 
(69,091
)
 
(5,550
)
Non-taxable dividend income
 
—

 
(26,795
)
 
—

 
—

 
—

 
—

Provision for uncertain tax positions
 
(3,517
)
 
1,519

 
500

 
1,672

 
430

 
1,300

Other - net
 
701

 
1,210

 
245

 
153

 
267

 
123

Total income taxes as reported
 

($46,769
)
 

$121,623

 

$30,866

 

$186

 

($53,896
)
 

$15,349

Effective Income Tax Rate
 
(21.6
%)
 
15.0
%
 
20.5
%
 
0.4
%
 
(51.1
%)
 
13.4
%


2018
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
System Energy
 
 
(In Thousands)
Net income
 

$252,707

 

$675,614

 

$126,078

 

$53,152

 

$162,235

 

$94,109

Income taxes
 
(297,067
)
 
(54,611
)
 
(125,773
)
 
(2,436
)
 
(26,243
)
 
(47,675
)
Pretax income
 

($44,360
)
 

$621,003

 

$305

 

$50,716

 

$135,992

 

$46,434

Computed at statutory rate (21%)
 

($9,316
)
 

$130,411

 

$64

 

$10,650

 

$28,558

 

$9,751

Increases (reductions) in tax resulting from:
 


 


 


 


 


 


State income taxes net of federal income tax effect
 
(794
)
 
26,031

 
(1,747
)
 
2,322

 
2,576

 
2,812

Regulatory differences - utility plant items
 
(14,916
)
 
(12,604
)
 
(4,103
)
 
(1,502
)
 
(1,872
)
 
(2,510
)
Equity component of AFUDC
 
(3,477
)
 
(16,784
)
 
(1,829
)
 
(1,248
)
 
(2,042
)
 
(1,837
)
Amortization of investment tax credits
 
(1,201
)
 
(4,871
)
 
(160
)
 
(109
)
 
(808
)
 
(1,155
)
Flow-through / permanent differences
 
570

 
3,203

 
1,893

 
(4,222
)
 
1,038

 
2,815

Revisions of the 2017 tax legislation enactment regulatory liability accrual, including the effect of the Entergy Texas 2018 base rate proceeding (a)
 
933

 
(2,810
)
 
(556
)
 
884

 
(43,799
)
 
(3,565
)
Amortization of excess ADIT (b)
 
(271,570
)
 
(104,313
)
 
(120,831
)
 
(9,878
)
 
(11,519
)
 
(58,971
)
Settlement on treatment of regulatory obligations (c)
 
—

 
(52,320
)
 
—

 
—

 
—

 
—

IRS audit adjustment
 
1,290

 
1,097

 
1,018

 
(96
)
 
524

 
(12
)
Non-taxable dividend income
 
—

 
(26,795
)
 
—

 
—

 
—

 
—

Provision for uncertain tax positions
 
724

 
3,949

 
240

 
613

 
839

 
4,876

Other - net
 
690

 
1,195

 
238

 
150

 
262

 
121

Total income taxes as reported
 

($297,067
)
 

($54,611
)
 

($125,773
)
 

($2,436
)
 

($26,243
)
 

($47,675
)
Effective Income Tax Rate
 
669.7
%
 
(8.8
%)
 
(41,237.0
%)
 
(4.8
%)
 
(19.3
%)
 
(102.7
%)


2017
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
System Energy
 
 
(In Thousands)
Net income
 

$139,844

 

$316,347

 

$110,032

 

$44,553

 

$76,173

 

$78,596

Income taxes
 
93,804

 
485,298

 
73,919

 
33,278

 
48,481

 
69,969

Pretax income
 

$233,648

 

$801,645

 

$183,951

 

$77,831

 

$124,654

 

$148,565

Computed at statutory rate (35%)
 

$81,777

 

$280,576

 

$64,383

 

$27,241

 

$43,629

 

$51,998

Increases (reductions) in tax resulting from:
 
 

 
 

 
 

 
 

 
 

 
 

State income taxes net of federal income tax effect
 
11,586

 
31,927

 
6,202

 
2,842

 
527

 
5,635

Regulatory differences - utility plant items
 
7,220

 
12,168

 
1,356

 
619

 
5,581

 
12,880

Equity component of AFUDC
 
(6,458
)
 
(18,020
)
 
(3,383
)
 
(847
)
 
(2,353
)
 
(2,221
)
Amortization of investment tax credits
 
(1,201
)
 
(4,871
)
 
(160
)
 
(124
)
 
(951
)
 
(2,896
)
Flow-through / permanent differences
 
3,098

 
3,774

 
1,567

 
(3,352
)
 
1,428

 
(276
)
Tax legislation enactment (b)
 
(3,090
)
 
217,258

 
3,492

 
6,153

 
2,981

 
(69
)
Non-taxable dividend income
 
—

 
(44,658
)
 
—

 
—

 
—

 
—

Provision for uncertain tax positions
 
200

 
5,700

 
228

 
600

 
(2,617
)
 
4,800

Other - net
 
672

 
1,444

 
234

 
146

 
256

 
118

Total income taxes as reported
 

$93,804

 

$485,298

 

$73,919

 

$33,278

 

$48,481

 

$69,969

Effective Income Tax Rate
 
40.1
%
 
60.5
%
 
40.2
%
 
42.8
%
 
38.9
%
 
47.1
%


(a)
See Note 2 to the financial statements for discussion of the Entergy Texas rate case settlement.
(b)
See “Other Tax Matters - Tax Cuts and Jobs Act” below for discussion of the amortization of excess ADIT in 2018 and 2019 and the tax legislation enactment in 2017.
(c)
See “Income Tax Audits - 2012-2013 IRS Audit” below for discussion of the settlement for Entergy Louisiana.


Significant components of accumulated deferred income taxes and taxes accrued for Entergy Corporation and Subsidiaries as of December 31, 2019 and 2018 are as follows:
 
 
2019
 
2018
 
(In Thousands)
Deferred tax liabilities:
 
 
 
Plant basis differences - net

($4,111,761
)
 

($3,835,211
)
Regulatory assets
(389,573
)
 
(370,484
)
Nuclear decommissioning trusts/receivables
(1,015,542
)
 
(1,128,140
)
Pension, net funding
(348,260
)
 
(307,626
)
Combined unitary state taxes
(11,519
)
 
(9,440
)
Power purchase agreements
—

 
(73,335
)
Deferred fuel
(8,360
)
 
(29,953
)
Other
(445,378
)
 
(248,997
)
Total
(6,330,393
)
 
(6,003,186
)
Deferred tax assets:
 

 
 

Nuclear decommissioning liabilities
929,251

 
1,070,583

Regulatory liabilities
806,777

 
895,756

Pension and other post-employment benefits
297,272

 
305,736

Sale and leaseback
102,420

 
121,473

Compensation
87,355

 
86,461

Accumulated deferred investment tax credit
56,013

 
57,643

Provision for allowances and contingencies
126,886

 
135,631

Power purchase agreements
231,502

 
—

Unbilled/deferred revenues
(10,218
)
 
43,762

Net operating loss carryforwards
1,133,197

 
628,165

Capital losses and miscellaneous tax credits
22,597

 
20,549

Valuation allowance
(303,307
)
 
(243,726
)
Other
289,557

 
125,522

Total
3,769,302

 
3,247,555

Non-current accrued taxes (including unrecognized tax benefits)
(1,775,638
)
 
(1,296,928
)
Accumulated deferred income taxes and taxes accrued

($4,336,729
)
 

($4,052,559
)


Entergy’s estimated tax attributes carryovers and their expiration dates as of December 31, 2019 are as follows:

Carryover Description
 
Carryover Amount
 
Year(s) of expiration
 
 
 
 
 
Federal net operating losses before 1/1/2018
 
$9.8 billion
 
2023-2037
Federal net operating losses - 1/1/2018 forward
 
$10.7 billion
 
N/A
State net operating losses
 
$20.8 billion
 
2020-2039
Federal and state charitable contributions
 
$395.8 million
 
2020-2024
Miscellaneous federal and state credits
 
$101.1 million
 
2020-2038


As a result of the accounting for uncertain tax positions, the amount of the deferred tax assets reflected in the financial statements is less than the amount of the tax effect of the federal and state net operating loss carryovers, tax credit carryovers, and other tax attributes reflected on income tax returns. Entergy evaluates the available positive and negative evidence to estimate whether sufficient future taxable income of the appropriate character will be generated to realize the benefits of existing deferred tax assets. When the evaluation indicates that Entergy will not be able to realize the existing benefits, a valuation allowance is recorded to reduce deferred tax assets to the realizable amount.

Because it is more likely than not that the benefit from certain state net operating loss and other deferred tax assets will not be utilized, valuation allowances totaling $303 million as of December 31, 2019 and $244 million as of December 31, 2018 have been provided on the deferred tax assets related to federal and state jurisdictions in which Entergy does not currently expect to be able to utilize certain separate company tax return attributes, preventing realization of such deferred tax assets.

Significant components of accumulated deferred income taxes and taxes accrued for the Registrant Subsidiaries as of December 31, 2019 and 2018 are as follows:
2019
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
System Energy
 
 
(In Thousands)
Deferred tax liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Plant basis differences - net
 

($979,033
)
 

($1,987,025
)
 

($565,202
)
 

($133,073
)
 

($551,365
)
 

($380,594
)
Regulatory assets
 
(170,949
)
 
(79,117
)
 
(10,528
)
 
(16,867
)
 
(59,745
)
 
(52,662
)
Nuclear decommissioning trusts/receivables
 
(120,306
)
 
(113,830
)
 
—

 
—

 
—

 
(100,621
)
Pension, net funding
 
(102,685
)
 
(98,743
)
 
(27,325
)
 
(11,859
)
 
(19,961
)
 
(21,609
)
Deferred fuel
 
—

 
(2,637
)
 
(609
)
 
(666
)
 
(4,380
)
 
(55
)
Other
 
(82,682
)
 
(94,139
)
 
(27,905
)
 
(25,909
)
 
2,059

 
(7,350
)
Total
 
(1,455,655
)
 
(2,375,491
)
 
(631,569
)
 
(188,374
)
 
(633,392
)
 
(562,891
)
Deferred tax assets:
 
 

 
 

 
 

 
 

 
 

 
 

Regulatory liabilities
 
250,410

 
283,507

 
53,421

 
33,258

 
65,602

 
121,011

Nuclear decommissioning liabilities
 
111,078

 
56,300

 
—

 
—

 
—

 
52,633

Pension and other post-employment benefits
 
(21,828
)
 
74,881

 
(5,844
)
 
(12,666
)
 
(15,406
)
 
(898
)
Sale and leaseback
 
—

 
—

 
—

 
—

 
—

 
102,480

Accumulated deferred investment tax credit
 
8,285

 
32,534

 
2,396

 
556

 
2,217

 
10,025

Provision for allowances and contingencies
 
5,365

 
77,298

 
12,963

 
24,022

 
4,024

 
—

Power purchase agreements
 
(15,087
)
 
18,004

 
1,147

 
7,961

 
26

 
—

Unbilled/deferred revenues
 
5,897

 
(28,081
)
 
4,715

 
1,428

 
5,544

 
—

Compensation
 
2,550

 
3,670

 
1,625

 
496

 
1,282

 
75

Net operating loss carryforwards
 
112,658

 
65,178

 
21,492

 
5,056

 
—

 
—

Capital losses and miscellaneous tax credits
 
—

 
—

 
45

 
—

 
—

 
7,857

Other
 
12,541

 
35,401

 
999

 
9,027

 
2,004

 
3

Total
 
471,869

 
618,692

 
92,959

 
69,138

 
65,293

 
293,186

Non-current accrued taxes (including unrecognized tax benefits)
 
(199,340
)
 
(707,714
)
 
(56,222
)
 
(235,300
)
 
(17,314
)
 
(544,235
)
Accumulated deferred income taxes and taxes accrued
 

($1,183,126
)
 

($2,464,513
)
 

($594,832
)
 

($354,536
)
 

($585,413
)
 

($813,940
)
2018
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
System Energy
 
 
(In Thousands)
Deferred tax liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Plant basis differences - net
 

($966,791
)
 

($1,893,831
)
 

($579,319
)
 

($135,143
)
 

($544,282
)
 

($403,809
)
Regulatory assets
 
(169,482
)
 
(74,917
)
 
(1,732
)
 
(20,009
)
 
(57,777
)
 
(46,627
)
Nuclear decommissioning trusts/receivables
 
(77,664
)
 
(71,470
)
 
—

 
—

 
—

 
(86,882
)
Pension, net funding
 
(91,962
)
 
(92,693
)
 
(24,398
)
 
(11,885
)
 
(20,331
)
 
(18,898
)
Deferred fuel
 
(5,801
)
 
(6,974
)
 
(11,819
)
 
(1,701
)
 
(2,835
)
 
(312
)
Other
 
(41,025
)
 
(34,700
)
 
(13,443
)
 
(7,640
)
 
(6,085
)
 
(4,544
)
Total
 
(1,352,725
)
 
(2,174,585
)
 
(630,711
)
 
(176,378
)
 
(631,310
)
 
(561,072
)
Deferred tax assets:
 
 

 
 

 
 

 
 

 
 

 
 

Regulatory liabilities
 
247,964

 
339,126

 
72,570

 
40,181

 
86,032

 
110,370

Nuclear decommissioning liabilities
 
99,479

 
48,738

 
—

 
—

 
—

 
46,643

Pension and other post-employment benefits
 
(19,068
)
 
80,102

 
(5,405
)
 
(11,371
)
 
(14,215
)
 
(632
)
Sale and leaseback
 
—

 
18,999

 
—

 
—

 
—

 
102,481

Accumulated deferred investment tax credit
 
8,599

 
33,928

 
2,541

 
579

 
2,347

 
9,649

Provision for allowances and contingencies
 
9,877

 
81,108

 
13,412

 
23,962

 
5,579

 
—

Power purchase agreements
 
(17,223
)
 
19,385

 
1,140

 
12,155

 
(18
)
 
—

Unbilled/deferred revenues
 
7,471

 
(17,345
)
 
5,527

 
636

 
7,016

 
—

Compensation
 
1,708

 
1,959

 
1,265

 
512

 
995

 
(260
)
Net operating loss carryforwards
 
6,338

 
20,118

 
4,896

 
480

 
261

 
—

Other
 
7,977

 
23,412

 
1,610

 
12,181

 
2,127

 
4

Total
 
353,122

 
649,530

 
97,556

 
79,315

 
90,124

 
268,255

Non-current accrued taxes (including unrecognized tax benefits)
 
(85,942
)
 
(701,666
)
 
(18,714
)
 
(226,532
)
 
(11,349
)
 
(512,479
)
Accumulated deferred income taxes and taxes accrued
 

($1,085,545
)
 

($2,226,721
)
 

($551,869
)
 

($323,595
)
 

($552,535
)
 

($805,296
)


The Registrant Subsidiaries’ estimated tax attributes carryovers and their expiration dates as of December 31, 2019 are as follows:
 
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
System Energy
 
 
 
 
 
 
 
 
 
 
 
 
 
Federal net operating losses
 
$4.4 billion
 
$4.3 billion
 
$2 billion
 
$1.1 billion
 
$—
 
$—
Year(s) of expiration
 
N/A
 
2035-2037
 
N/A
 
2037
 
N/A
 
N/A
 
 
 
 
 
 
 
 
 
 
 
 
 
State net operating losses
 
$4.5 billion
 
$5.2 billion
 
$2.1 billion
 
$1.2 billion
 
$—
 
$—
Year(s) of expiration
 
2024
 
2035-2039
 
2038-2039
 
2038-2039
 
N/A
 
N/A
 
 
 
 
 
 
 
 
 
 
 
 
 
Misc. federal credits
 
$—
 
$5.2 million
 
$—
 
$—
 
$1.9 million
 
$3.2 million
Year(s) of expiration
 
N/A
 
2035-2038
 
N/A
 
N/A
 
2029-2038
 
2029-2038
 
 
 
 
 
 
 
 
 
 
 
 
 
State credits
 
$—
 
$—
 
$—
 
$—
 
$2.9 million
 
$13.1 million
Year(s) of expiration
 
N/A
 
N/A
 
N/A
 
N/A
 
2026
 
2020-2023


As a result of the accounting for uncertain tax positions, the amount of the deferred tax assets reflected in the financial statements is less than the amount of the tax effect of the federal and state net operating loss carryovers and tax credit carryovers.

Unrecognized tax benefits

Accounting standards establish a “more-likely-than-not” recognition threshold that must be met before a tax benefit can be recognized in the financial statements.  If a tax deduction is taken on a tax return but does not meet the more-likely-than-not recognition threshold, an increase in income tax liability, above what is payable on the tax return, is required to be recorded.  A reconciliation of Entergy’s beginning and ending amount of unrecognized tax benefits is as follows:
 
2019
 
2018
 
2017
 
(In Thousands)
Gross balance at January 1

$7,181,482

 

$4,871,846

 

$3,909,855

Additions based on tax positions related to the current year
731,276

 
2,276,614

 
1,120,687

Additions for tax positions of prior years
151,628

 
506,142

 
283,683

Reductions for tax positions of prior years
(681,232
)
 
(274,600
)
 
(442,379
)
Settlements
—

 
(198,520
)
 
—

Gross balance at December 31
7,383,154

 
7,181,482

 
4,871,846

Offsets to gross unrecognized tax benefits:
 

 
 

 
 

Carryovers and refund claims
(5,831,587
)
 
(5,957,992
)
 
(3,945,524
)
Cash paid to taxing authorities
(10,000
)
 
(10,000
)
 
(10,000
)
Unrecognized tax benefits net of unused tax attributes, refund claims and payments (a)

$1,541,567

 

$1,213,490

 

$916,322



(a)
Potential tax liability above what is payable on tax returns

The balances of unrecognized tax benefits include $2,421 million, $2,161 million, and $1,462 million as of December 31, 2019, 2018, and 2017, respectively, which, if recognized, would lower the effective income tax rates.  Because of the effect of deferred tax accounting, the remaining balances of unrecognized tax benefits of $4,962
million, $5,020 million, and $3,410 million as of December 31, 2019, 2018, and 2017, respectively, if disallowed, would not affect the annual effective income tax rate but would accelerate the payment of cash to the taxing authority to an earlier period.

Entergy accrues interest expense, if any, related to unrecognized tax benefits in income tax expense.  Entergy’s December 31, 2019, 2018, and 2017 accrued balance for the possible payment of interest is approximately $48 million, $44 million, and $38 million, respectively. Interest (net-of-tax) of $4 million, $7 million, and $8 million was recorded in 2019, 2018, and 2017, respectively.

A reconciliation of the Registrant Subsidiaries’ beginning and ending amount of unrecognized tax benefits for 2019, 2018, and 2017 is as follows:
2019
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
System Energy
 
 
(In Thousands)
Gross balance at January 1, 2019
 

$1,298,662

 

$2,400,171

 

$508,765

 

$686,687

 

$17,802

 

$467,487

Additions based on tax positions related to the current year
 
84,335

 
28,705

 
68,594

 
40,676

 
2,312

 
5,496

Additions for tax positions of prior years
 
20,399

 
25,090

 
1,651

 
489

 
1,299

 
2,186

Reductions for tax positions of prior years
 
(62,154
)
 
(72,313
)
 
(12,723
)
 
(11,079
)
 
(7
)
 
(1,838
)
Gross balance at December 31, 2019
 
1,341,242

 
2,381,653

 
566,287

 
716,773

 
21,406

 
473,331

Offsets to gross unrecognized tax benefits:
 
 

 
 

 
 

 
 

 
 

 
 

Loss carryovers
 
(1,134,187
)
 
(1,573,257
)
 
(506,976
)
 
(445,430
)
 
(3,944
)
 
(8,392
)
Unrecognized tax benefits net of unused tax attributes and payments
 

$207,055

 

$808,396

 

$59,311

 

$271,343

 

$17,462

 

$464,939



2018
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
System Energy
 
 
(In Thousands)
Gross balance at January 1, 2018
 

($117,716
)
 

$2,518,457

 

$15,122

 

$679,544

 

$16,399

 

$445,511

Additions based on tax positions related to the current year (a)
 
1,430,828

 
30,577

 
493,039

 
2,261

 
1,978

 
18,271

Additions for tax positions of prior years
 
31,612

 
77,372

 
3,878

 
12,972

 
1,722

 
7,255

Reductions for tax positions of prior years
 
(21,619
)
 
(158,510
)
 
(3,253
)
 
(8,081
)
 
(2,262
)
 
(3,253
)
Settlements
 
(24,443
)
 
(67,725
)
 
(21
)
 
(9
)
 
(35
)
 
(297
)
Gross balance at December 31, 2018
 
1,298,662

 
2,400,171

 
508,765

 
686,687

 
17,802

 
467,487

Offsets to gross unrecognized tax benefits:
 
 

 
 

 
 

 
 

 
 

 
 

Loss carryovers
 
(1,173,839
)
 
(1,597,826
)
 
(478,268
)
 
(420,813
)
 
(3,199
)
 
(42,228
)
Unrecognized tax benefits net of unused tax attributes and payments
 

$124,823

 

$802,345

 

$30,497

 

$265,874

 

$14,603

 

$425,259


2017
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
System Energy
 
 
(In Thousands)
Gross balance at January 1, 2017
 

$2,503

 

$2,440,339

 

$12,206

 

$166,230

 

$15,946

 

$472,372

Additions based on tax positions related to the current year (a)
 
8,974

 
32,843

 
2,105

 
509,183

 
1,747

 
909

Additions for tax positions of prior years
 
3,682

 
235,331

 
1,267

 
13,364

 
3,115

 
1,432

Reductions for tax positions of prior years
 
(132,875
)
 
(190,056
)
 
(456
)
 
(9,233
)
 
(4,409
)
 
(29,202
)
Gross balance at December 31, 2017
 
(117,716
)
 
2,518,457

 
15,122

 
679,544

 
16,399

 
445,511

Offsets to gross unrecognized tax benefits:
 
 

 
 

 
 

 
 

 
 

 
 

Loss carryovers
 
—

 
(1,591,907
)
 
(15,122
)
 
(441,374
)
 
(638
)
 
(12,536
)
Unrecognized tax benefits net of unused tax attributes and payments
 

($117,716
)
 

$926,550

 

$—

 

$238,170

 

$15,761

 

$432,975



(a)
The primary additions for Entergy Mississippi in 2018, and Entergy New Orleans in 2017 are related to the mark-to-market treatment discussed in “Other Tax Matters - Tax Accounting Methods” below. The primary additions for Entergy Arkansas in 2018 are related to the nuclear decommissioning costs treatment and the mark-to-market treatment discussed in “Other Tax Matters - Tax Accounting Methods” below.

The Registrant Subsidiaries’ balances of unrecognized tax benefits included amounts which, if recognized, would have reduced income tax expense as follows:
 
December 31,
 
2019
 
2018
 
2017
 
(In Millions)
Entergy Arkansas

$203.3

 

$85.4

 

$2.6

Entergy Louisiana

$556.3

 

$594.0

 

$575.8

Entergy Mississippi

$1.9

 

$1.5

 

$—

Entergy New Orleans

$242.7

 

$246.2

 

$31.7

Entergy Texas

$5.7

 

$5.1

 

$4.4

System Energy

$—

 

$—

 

$—



Accrued balances for the possible payment of interest related to unrecognized tax benefits are as follows:
 
December 31,
 
2019
 
2018
 
2017
 
(In Millions)
Entergy Arkansas

$3.1

 

$1.7

 

$1.6

Entergy Louisiana

$14.2

 

$17.9

 

$14.1

Entergy Mississippi

$1.7

 

$1.2

 

$1.0

Entergy New Orleans

$4.7

 

$2.7

 

$2.1

Entergy Texas

$1.1

 

$0.9

 

$0.4

System Energy

$14.5

 

$13.2

 

$8.5



The Registrant Subsidiaries record interest and penalties related to unrecognized tax benefits in income tax expense.  No penalties were recorded in 2019, 2018, and 2017. Interest (net-of-tax) was recorded as follows:
 
2019
 
2018
 
2017
 
(In Millions)
Entergy Arkansas

$1.4

 

$0.2

 

$0.2

Entergy Louisiana

($3.7
)
 

$3.8

 

$5.7

Entergy Mississippi

$0.5

 

$0.2

 

$0.2

Entergy New Orleans

$2.0

 

$0.6

 

$0.6

Entergy Texas

$0.2

 

$0.5

 

($0.8
)
System Energy

$1.3

 

$4.7

 

$4.8



Income Tax Audits

Entergy and its subsidiaries file U.S. federal and various state and foreign income tax returns.  IRS examinations are complete for years before 2014. All state taxing authorities’ examinations are complete for years before 2015. Entergy regularly negotiates with the IRS to achieve settlements.  The resolution of audit issues could result in significant changes to the amounts of unrecognized tax benefits in the next twelve months.

2012-2013 IRS Audit

The IRS completed its examination of the 2012 and 2013 tax years and issued its 2012-2013 Revenue Agent Report (RAR) in June 2018. Entergy agreed to all proposed adjustments contained in the RAR. Entergy and the Registrant Subsidiaries recorded the effects of these adjustments in June 2018.

As a result of the issuance of the RAR, Entergy Louisiana was able to recognize previously unrecognized tax benefits of $52 million related to the Hurricane Katrina and Hurricane Rita contingent sharing obligation associated with the Louisiana Act 55 financing.

2014-2015 IRS Audit

The IRS is examining the 2014 and 2015 tax years. Entergy expects the IRS to complete this examination in 2020. As of December 31, 2019, Entergy has not received any proposed adjustments to taxable income from the IRS.

Other Tax Matters

Tax Cuts and Jobs Act

Deferred tax liabilities and assets have been adjusted for the effect of the enactment of the Tax Cuts and Jobs Act (the Act), signed by President Trump on December 22, 2017. The most significant effect of the Act for Entergy and the Registrant Subsidiaries was the change in the federal corporate income tax rate from 35% to 21%, effective January 1, 2018. Other significant provisions and their effect on Entergy and the Registrant Subsidiaries are summarized below.
The Act limits the deduction for net business interest expense to 30 percent of adjusted taxable income which is similar to earnings before interest, taxes, depreciation, and amortization. The limitation does not apply to interest expense that is properly allocable to a trade or business that furnishes or sells electrical energy, gas, or steam through a local distribution system, or transports gas or steam by pipeline if the rates for such furnishing or sale are subject to ratemaking by a government entity or instrumentality or by a public utility commission.
The IRS issued proposed regulations relating to this limitation in November 2018. The regulations are generally proposed to be effective for taxable years ending after the date Treasury adopts the regulations as final. Taxpayers may apply the rules of the proposed regulations to a taxable year beginning after December 31, 2017, so long as taxpayers consistently apply the rules of the proposed regulations. The proposed regulations provide guidance that if 90% of a tax group’s consolidated assets consist of utility property, the entire consolidated tax group will be treated as a regulated public utility and all of the consolidated group’s interest expense will be currently tax deductible.
As a result of the limitation under the Act, Entergy recorded limitations in 2018 and 2019 and recorded a deferred tax asset on the nondeductible portion, as it has an unlimited carryover period. Entergy recorded a valuation allowance of $24 million due to a lack of earnings from sources other than the Utility.
The Act limits the net operating loss (NOL) deduction for a given year to 80% of taxable income, effective with respect to losses arising in tax years beginning after December 31, 2017. Only NOLs generated after December 31, 2017 are subject to the 80% limitation. Prior law generally provided a two-year carryback and 20-year carryforward for NOLs. The Act does not allow a carryback period but does provide for the indefinite carryforward of NOLs arising in tax years ending after December 31, 2017. Because of the indefinite carryforward, the new limitations on NOL utilization are not expected to have a material effect on Entergy or the Registrant Subsidiaries.
The Act also modified Internal Revenue Code section 162(m), which limits the deduction for compensation with respect to certain covered employees to no more than $1 million per year.  The IRS issued proposed regulations relating to this limitation in December 2019. The significant provisions of the Act and associated proposed regulations require inclusion of performance-based compensation and an expanded definition of “covered employees” in the annual computation of the section 162 limitation. The Act amendments and associated proposed regulations resulted in an increase in disallowed compensation expense, but this limitation does not have a material effect on Entergy or the Registrant Subsidiaries.
With respect to the federal corporate income tax rate change from 35% to 21%, Entergy and the Registrant Subsidiaries recorded a regulatory liability associated with the decrease in the net accumulated deferred income tax liability, which is often referred to as “excess ADIT,” a significant portion of which has been paid to customers in 2018 and 2019 in the form of lower rates. Entergy’s December 31, 2019 and December 31, 2018 balance sheets reflect a regulatory liability of $1.7 billion and $2.1 billion, respectively, as a result of the re-measurement of deferred tax assets and liabilities from the income tax rate change, amortization of excess ADIT, and payments to customers during 2018 and 2019. Entergy’s regulatory liability for income taxes includes a gross-up at the applicable tax rate because of the effect that excess ADIT has on the ratemaking formula. The regulatory liability for income taxes includes the effect of a) the reduction of the net deferred tax liability resulting in excess ADIT, b) the tax gross-up of excess ADIT, and c) the effect of the new tax rate on the previous net regulatory asset for income taxes. For the same reasons, the Registrant Subsidiaries’ December 31, 2019 and December 31, 2018 balance sheets reflect net regulatory liabilities for income taxes as follows:
 
2019
 
2018
 
(In Millions)
Entergy Arkansas

$487

 

$605

Entergy Louisiana

$531

 

$612

Entergy Mississippi

$237

 

$246

Entergy New Orleans

$59

 

$86

Entergy Texas

$253

 

$352

System Energy

$143

 

$163

Excess ADIT is generally classified into two categories: 1) the portion that is subject to the normalization requirements of the Act, i.e., “protected”, and 2) the portion that is not subject to such normalization provisions, referred to as “unprotected”. The Act provides that the normalization method of accounting for income taxes is required for
excess ADIT associated with public utility property. The Act provides for the use of the average rate assumption method (ARAM) for the determination of the timing of the return of excess ADIT associated with such property. Under ARAM, the excess ADIT is reduced over the remaining life of the asset. Remaining asset lives vary for each Registrant Subsidiary, but the average life of public utility property is typically 30 years or longer. Entergy will amortize the protected portion of the excess ADIT in conformity with the normalization requirements. The Registrant Subsidiaries’ net regulatory liability for income taxes as of December 31, 2019 and December 31, 2018, includes protected excess ADIT as follows:
 
2019
 
2018
 
(In Millions)
Entergy Arkansas

$490

 

$521

Entergy Louisiana

$797

 

$812

Entergy Mississippi

$261

 

$271

Entergy New Orleans

$62

 

$59

Entergy Texas

$228

 

$237

System Energy

$186

 

$202


During the second quarter of 2018, the Registrant Subsidiaries began paying unprotected excess accumulated deferred income taxes, associated with the effects of the Act, to their customers through rate riders and other means approved by their respective regulatory commissions. Payment of the unprotected excess accumulated deferred income taxes results in a reduction in the regulatory liability for income taxes and a corresponding reduction in income tax expense. This has a significant effect on the effective tax rate for the period as compared to the statutory tax rate. The Registrant Subsidiaries’ net regulatory liability for income taxes as of December 31, 2019 and December 31, 2018, includes unprotected excess ADIT as follows:
 
2019
 
2018
 
(In Millions)
Entergy Arkansas

$9

 

$117

Entergy Louisiana

$242

 

$295

Entergy New Orleans

$9

 

$25

Entergy Texas

$83

 

$171

System Energy

$—

 

$4


The return of unprotected excess accumulated deferred income taxes reduced Entergy’s and the Registrant Subsidiaries’ regulatory liability for income taxes as follows for 2019 and 2018:
 
2019
 
2018
 
(In Millions)
Entergy

$273

 

$776

Entergy Arkansas

$126

 

$368

Entergy Louisiana

$39

 

$141

Entergy Mississippi

$—

 

$159

Entergy New Orleans

$14

 

$13

Entergy Texas

$87

 

$15

System Energy

$7

 

$80



In addition to the protected and unprotected excess ADIT amounts, the net regulatory liability for income taxes includes other regulatory assets and liabilities for income taxes associated with AFUDC, which is described in Note 1 to the financial statements.
For a discussion of the proceedings commenced or other responses by Entergy’s regulators to the Act, see Note 2 to the financial statements.
Not all of Entergy’s excess ADIT is included in ratemaking. Consequently, Entergy recorded a net decrease in deferred tax assets of $560 million for which there was a corresponding charge to income tax expense for the year ended December 31, 2017. The corresponding income tax expense (or benefit) recorded by the Registrant Subsidiaries was as follows: Entergy Arkansas, ($3 million); Entergy Louisiana, $217 million; Entergy Mississippi, $3 million; Entergy New Orleans, $6 million; Entergy Texas, $3 million; and System Energy, $0.
Included in the effect of the computation of the changes in deferred tax assets and liabilities is the recognition threshold and measurement of uncertain tax positions resulting in unrecognized tax benefits. The final economic outcome of such unrecognized tax benefits is generally the result of a negotiated settlement with the IRS that often differs from the amount that is recorded as realizable under GAAP. The intrinsic uncertainty with respect to all such tax positions means that the difference between current estimates of such amounts likely to be realized and actual amounts realized upon settlement may have an effect on income tax expense and the regulatory liability for income taxes in future periods.

Entergy anticipates that the Act, including the federal corporate income tax rate change, may continue to have ramifications that require adjustments in the future as certain events occur. These events include: 1) the evaluation by regulators in all of Entergy’s jurisdictions regarding the ratemaking treatment of the Act and excess ADIT; 2) IRS audit adjustments to or amendments of federal and state income tax returns that include modifications to the computation of taxable income resulting from the Act; and 3) additional guidance, interpretations, or rulings by the U.S. Department of the Treasury or the IRS. The potential exists for these types of events to result in future tax expense adjustments because of the difference in the federal corporate income tax rate between past and future periods and the effect of the tax rate change on ratemaking. In turn, these items also could potentially affect the regulatory liability for income taxes.
Entergy Wholesale Commodities Restructuring

The tax classification of the entity that owned FitzPatrick changed in the second quarter 2016.  The change in tax classification required Entergy to recognize the plant’s nuclear decommissioning liability for income tax purposes resulting in a tax accounting permanent difference that reduced income tax expense, net of unrecognized tax benefits, by $238 million. The accrual of the nuclear decommissioning liability also required Entergy to recognize a gain for income tax purposes, a significant portion of which resulted in an increase in tax basis of the assets. Recognition of the gain and the increase in tax basis of the assets represents a tax accounting temporary difference. Entergy sold FitzPatrick 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. The re-determined basis resulted in a $44 million income tax benefit in the first quarter 2017.

In the second quarter 2017, Entergy changed the tax classification of legal entities that own Entergy Wholesale Commodities nuclear power plants. The change in tax classification required Entergy to recognize the plants’ nuclear decommissioning liabilities for income tax purposes resulting in a tax accounting permanent difference that reduced income tax expense, net of unrecognized tax benefits, by $373 million. The accrual of the nuclear decommissioning liabilities also required Entergy to recognize a gain for income tax purposes, a portion of which resulted in an increase in tax basis of the assets. Recognition of the gain and the increase in tax basis of the assets represents a tax accounting temporary difference.

In the third quarter 2018, Entergy completed a restructuring of the investment holdings in one of the Entergy Wholesale Commodities nuclear plant decommissioning trusts that resulted in an adjustment to tax basis for the trust. The accounting standards provide that a taxable temporary difference does not exist if the tax law provides a means by which an amount can be recovered without incurrence of tax. The restructuring allows Entergy to recover assets from the trust without incurring tax. As such, the tax basis recognized resulted in the reversal of a deferred tax liability and reduction of income tax expense of approximately $107 million.

In the fourth quarter 2019, two separate events occurred resulting in a reduction of tax expense of $174 million. In November 2019 an Entergy Wholesale Commodities subsidiary recognized a reduction in income tax expense of $18 million in connection with the accounting method on power contracts associated with the Palisades nuclear power station. Additionally, Entergy’s ownership of Indian Point 2 and Indian Point 3 was restructured. The restructuring required Entergy to recognize Indian Point 2 and Indian Point 3 nuclear decommissioning liabilities for income tax purposes resulting in a tax accounting permanent difference that reduced income tax expense, net of unrecognized tax benefits, by $156 million. The accrual of the nuclear decommissioning liabilities also required Entergy to recognize a gain for income tax purposes, a portion of which resulted in an increase in the tax basis of the assets. Recognition of the gain and the increase in the tax basis of the assets represents a tax accounting temporary difference.

Immediately prior to the restructuring, through its ownership of Indian Point 2 and Indian Point 3, Entergy donated property to Stony Brook University and recognized an associated tax deduction resulting in a decrease to tax expense of $19 million.

Entergy Wholesale Commodities Tax Audit

A state income tax audit involving Entergy Wholesale Commodities was concluded during the third quarter 2018. Upon conclusion of the audit, subsidiaries within Entergy Wholesale Commodities reversed a portion of the provision for uncertain tax positions totaling approximately $23 million, net of tax and interest paid.

Tax Accounting Methods

In the fourth quarter 2015, System Energy and Entergy Louisiana adopted a new method of accounting for income tax return purposes in which their nuclear decommissioning costs will be treated as production costs of electricity includable in cost of goods sold. The new method resulted in a reduction of taxable income of $1.2 billion for System Energy and $2.2 billion for Energy Louisiana. In the fourth quarter 2018, Entergy Arkansas adopted the same method of accounting for its nuclear decommissioning costs which resulted in a $2.2 billion reduction in taxable income.

In 2016, Entergy Louisiana elected mark-to-market income tax treatment for various wholesale electric power purchase and sale agreements, including Entergy Louisiana’s contract to purchase electricity from the Vidalia hydroelectric facility and from System Energy under the Unit Power Sales Agreement. The election resulted in a $2.2 billion deductible temporary difference. In 2017, Entergy New Orleans also elected mark-to-market income tax treatment for wholesale electric contracts which resulted in a $1.1 billion deductible temporary difference. In 2018, Entergy Arkansas and Entergy Mississippi accrued deductible temporary differences related to mark-to-market tax accounting for wholesale electric contracts of $2.1 billion and $1.9 billion, respectively.

Entergy Arkansas and Entergy Mississippi Internal Restructuring

In the fourth quarter 2018, Entergy Arkansas and Entergy Mississippi became wholly-owned subsidiaries of Entergy Utility Holding Company, LLC. The change in ownership required Entergy to recognize Entergy Arkansas’s nuclear decommissioning liabilities for income tax purposes resulting in a tax accounting permanent difference that reduced income tax expense, net of unrecognized tax benefits, by $165 million. The accrual of the nuclear decommissioning liabilities also required Entergy to recognize a gain for income tax purposes, a portion of which resulted in an increase in the tax basis of the assets. Recognition of the gain and the increase in the tax basis of the assets represents a tax accounting temporary difference. Additionally, Entergy recorded a $5 million reduction of income tax expense associated with state income tax effects resulting in a total reduction of income tax expense of $170 million from the restructuring. Entergy recorded a regulatory liability of $40 million ($30 million net-of-tax) which partially offsets the reduction of income tax expense. Entergy Arkansas’s member’s equity increased by $94 million as a result of the restructuring. See Note 2 to the financial statements for further discussion of the internal restructuring.

Arkansas Corporate Income Tax Rate Reduction

In April 2019 the state of Arkansas enacted corporate income tax law changes that phase in an Arkansas tax rate reduction from the current rate of 6.5% to 6.2% in 2021 and 5.9% in 2022.  The rate reduction will eventually reduce Entergy Arkansas’s combined federal and state applicable tax rate by less than 0.5% once fully adopted.  As a result of the rate reduction, Entergy Arkansas recorded a regulatory liability for income taxes of approximately $25 million which includes a tax gross-up related to the treatment of income taxes in the ratemaking formula. The Arkansas tax law enactment also phases in an increase to the net operating loss carryover period from five to ten years.

Consolidated Income Tax Return of Entergy Corporation

In September 2019, Entergy Utility Holding Company, LLC and its regulated, wholly-owned subsidiaries including Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans, became eligible to and joined the Entergy Corporation consolidated federal income tax group.  As a result of these four Utility operating companies re-joining the Entergy Corporation consolidated tax return group, Entergy was able to recognize a $41 million deferred tax asset associated with a previously unrecognized Arkansas net operating loss carryover.

Additionally, in September 2019, Entergy Texas issued $35 million of 5.375% Series A preferred stock with a liquidation value of $25 per share resulting in the disaffiliation and de-consolidation of Entergy Texas from the consolidated federal income tax return of Entergy Corporation.  These changes will not affect the accrual or allocation of income taxes for the Registrant Subsidiaries. See Note 6 to the financial statements for discussion of the preferred stock issuance.

Vermont Yankee

The Vermont Yankee transaction resulted in Entergy generating a net deferred tax asset in January 2019.  The deferred tax asset could not be fully realized by Entergy in the first quarter of 2019; accordingly, Entergy accrued a net tax expense of $29 million on the disposition of Vermont Yankee. See Note 14 to the financial statements for discussion of the Vermont Yankee transaction.
Entergy Texas [Member]  
Income Taxes INCOME TAXES (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)

Income taxes for 2019, 2018, and 2017 for Entergy Corporation and Subsidiaries consist of the following:
 
2019
 
2018
 
2017
 
(In Thousands)
Current:
 
 
 
 
 
Federal

($14,416
)
 

$36,848

 

$29,595

State
6,535

 
7,274

 
15,478

Total
(7,881
)
 
44,122

 
45,073

Deferred and non-current - net
(155,956
)
 
(1,074,416
)
 
505,010

Investment tax credit adjustments - net
(5,988
)
 
(6,532
)
 
(7,513
)
Income taxes

($169,825
)
 

($1,036,826
)
 

$542,570


    
Income taxes for 2019, 2018, and 2017 for Entergy’s Registrant Subsidiaries consist of the following:
2019
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
System Energy
 
 
(In Thousands)
Current:
 
 
 
 
 
 
 
 
 
 
 
 
Federal
 

($14,549
)
 

($20,173
)
 

($8,939
)
 

($5,822
)
 

$16,035

 

$16,256

State
 
(714
)
 
(735
)
 
5,823

 
1,856

 
663

 
(2,831
)
Total
 
(15,263
)
 
(20,908
)
 
(3,116
)
 
(3,966
)
 
16,698

 
13,425

Deferred and non-current - net
 
(30,278
)
 
147,453

 
34,579

 
4,248

 
(69,963
)
 
422

Investment tax credit adjustments - net
 
(1,228
)
 
(4,922
)
 
(597
)
 
(96
)
 
(631
)
 
1,502

Income taxes
 

($46,769
)
 

$121,623

 

$30,866

 

$186

 

($53,896
)
 

$15,349


2018
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
System Energy
 
 
(In Thousands)
Current:
 
 
 
 
 
 
 
 
 
 
 
 
Federal
 

($23,638
)
 

($15,841
)
 

($11,275
)
 

($10,813
)
 

$16,190

 

($9,786
)
State
 
(1,617
)
 
(1,122
)
 
(1,066
)
 
545

 
3,205

 
(1,821
)
Total
 
(25,255
)
 
(16,963
)
 
(12,341
)
 
(10,268
)
 
19,395

 
(11,607
)
Deferred and non-current - net
 
(270,586
)
 
(32,725
)
 
(114,738
)
 
7,943

 
(44,817
)
 
(35,329
)
Investment tax credit adjustments - net
 
(1,226
)
 
(4,923
)
 
1,306

 
(111
)
 
(821
)
 
(739
)
Income taxes
 

($297,067
)
 

($54,611
)
 

($125,773
)
 

($2,436
)
 

($26,243
)
 

($47,675
)

2017
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
System Energy
 
 
(In Thousands)
Current:
 
 
 
 
 
 
 
 
 
 
 
 
Federal
 

$16,086

 

($84,250
)
 

($8,845
)
 

($30,635
)
 

$6,034

 

$47,674

State
 
9,191

 
1,480

 
(924
)
 
(728
)
 
310

 
5,314

Total
 
25,277

 
(82,770
)
 
(9,769
)
 
(31,363
)
 
6,344

 
52,988

Deferred and non-current - net
 
69,753

 
572,988

 
83,501

 
62,946

 
43,102

 
19,243

Investment tax credit adjustments - net
 
(1,226
)
 
(4,920
)
 
187

 
1,695

 
(965
)
 
(2,262
)
Income taxes
 

$93,804

 

$485,298

 

$73,919

 

$33,278

 

$48,481

 

$69,969



Total income taxes for Entergy Corporation and Subsidiaries differ from the amounts computed by applying the statutory income tax rate to income before income taxes.  The reasons for the differences for the years 2019, 2018, and 2017 are:
 
2019
 
2018
 
2017
 
(In Thousands)
Net income (loss) attributable to Entergy Corporation

$1,241,226

 

$848,661

 

$411,612

Preferred dividend requirements of subsidiaries
17,018

 
13,894

 
13,741

Consolidated net income (loss)
1,258,244

 
862,555

 
425,353

Income taxes
(169,825
)
 
(1,036,826
)
 
542,570

Income (loss) before income taxes

$1,088,419

 

($174,271
)
 

$967,923

Computed at statutory rate (21% for 2019 and 2018) (35% for 2017)

$228,568

 

($36,597
)
 

$338,773

Increases (reductions) in tax resulting from:
 

 
 

 
 

State income taxes net of federal income tax effect
61,791

 
21,398

 
44,179

Regulatory differences - utility plant items
(45,336
)
 
(37,507
)
 
39,825

Equity component of AFUDC
(30,444
)
 
(27,216
)
 
(33,282
)
Amortization of investment tax credits
(8,093
)
 
(8,304
)
 
(10,204
)
Flow-through / permanent differences
(2,059
)
 
439

 
8,727

Tax legislation enactment (a)
—

 
—

 
560,410

Amortization of excess ADIT (a)
(205,614
)
 
(577,082
)
 
—

Revisions of the 2017 tax legislation enactment regulatory liability accrual, including the effect of the Entergy Texas 2018 base rate proceeding
—

 
(40,494
)
 
—

Utility restructuring (b)
—

 
(169,918
)
 
—

Settlement on treatment of regulatory obligations (c)
—

 
(52,320
)
 
—

State income tax audit conclusion
—

 
(23,425
)
 
—

IRS audit adjustment
—

 
(8,404
)
 
—

Entergy Wholesale Commodities nuclear decommissioning trust restructuring (d)
—

 
(106,833
)
 
—

Entergy Wholesale Commodities restructuring (d)
(173,725
)
 
—

 
(373,277
)
FitzPatrick disposition
—

 
—

 
(44,344
)
Charitable contribution (d)
(19,101
)

—


—

Net operating loss recognition
(41,427
)

—


—

Provision for uncertain tax positions
7,332

 
24,569

 
8,756

Valuation allowance
59,345

 
2,211

 
—

Other - net
(1,062
)
 
2,657

 
3,007

Total income taxes as reported

($169,825
)
 

($1,036,826
)
 

$542,570

Effective Income Tax Rate
(15.6
%)
 
595.0
%
 
56.1
%


(a)
See “Other Tax Matters - Tax Cuts and Jobs Act” below for discussion of the amortization of excess ADIT in 2018 and 2019 and the tax legislation enactment in 2017.
(b)
See “Other Tax Matters - Entergy Arkansas and Entergy Mississippi Internal Restructuring” below for discussion of the Utility restructuring.
(c)
See “Income Tax Audits - 2012-2013 IRS Audit” below for discussion of the settlement.
(d)
See “Other Tax Matters - Entergy Wholesale Commodities Restructuring” below for discussion of the Entergy Wholesale Commodities nuclear decommissioning trust restructuring in 2018, the Entergy Wholesale Commodities restructurings in 2017 and 2019, and the charitable contribution in 2019.


Total income taxes for the Registrant Subsidiaries differ from the amounts computed by applying the statutory income tax rate to income before taxes.  The reasons for the differences for the years 2019, 2018, and 2017 are:
2019
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
System Energy
 
 
(In Thousands)
Net income
 

$262,964

 

$691,537

 

$119,925

 

$52,629

 

$159,397

 

$99,120

Income taxes
 
(46,769
)
 
121,623

 
30,866

 
186

 
(53,896
)
 
15,349

Pretax income
 

$216,195

 

$813,160

 

$150,791

 

$52,815

 

$105,501

 

$114,469

Computed at statutory rate (21%)
 

$45,401

 

$170,764

 

$31,666

 

$11,091

 

$22,155

 

$24,039

Increases (reductions) in tax resulting from:
 
 
 
 

 
 

 
 

 
 

 
 

State income taxes net of federal income tax effect
 
15,954

 
42,854

 
5,563

 
3,443

 
360

 
5,134

Regulatory differences - utility plant items
 
(10,627
)
 
(19,421
)
 
(5,556
)
 
(1,532
)
 
(1,987
)
 
(6,213
)
Equity component of AFUDC
 
(3,255
)
 
(15,545
)
 
(1,755
)
 
(2,088
)
 
(5,973
)
 
(1,829
)
Amortization of investment tax credits
 
(1,201
)
 
(4,871
)
 
(160
)
 
(88
)
 
(617
)
 
(1,155
)
Flow-through / permanent differences
 
696

 
439

 
160

 
(741
)
 
560

 
(500
)
Amortization of excess ADIT (b)
 
(90,921
)
 
(28,531
)
 
203

 
(11,724
)
 
(69,091
)
 
(5,550
)
Non-taxable dividend income
 
—

 
(26,795
)
 
—

 
—

 
—

 
—

Provision for uncertain tax positions
 
(3,517
)
 
1,519

 
500

 
1,672

 
430

 
1,300

Other - net
 
701

 
1,210

 
245

 
153

 
267

 
123

Total income taxes as reported
 

($46,769
)
 

$121,623

 

$30,866

 

$186

 

($53,896
)
 

$15,349

Effective Income Tax Rate
 
(21.6
%)
 
15.0
%
 
20.5
%
 
0.4
%
 
(51.1
%)
 
13.4
%


2018
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
System Energy
 
 
(In Thousands)
Net income
 

$252,707

 

$675,614

 

$126,078

 

$53,152

 

$162,235

 

$94,109

Income taxes
 
(297,067
)
 
(54,611
)
 
(125,773
)
 
(2,436
)
 
(26,243
)
 
(47,675
)
Pretax income
 

($44,360
)
 

$621,003

 

$305

 

$50,716

 

$135,992

 

$46,434

Computed at statutory rate (21%)
 

($9,316
)
 

$130,411

 

$64

 

$10,650

 

$28,558

 

$9,751

Increases (reductions) in tax resulting from:
 


 


 


 


 


 


State income taxes net of federal income tax effect
 
(794
)
 
26,031

 
(1,747
)
 
2,322

 
2,576

 
2,812

Regulatory differences - utility plant items
 
(14,916
)
 
(12,604
)
 
(4,103
)
 
(1,502
)
 
(1,872
)
 
(2,510
)
Equity component of AFUDC
 
(3,477
)
 
(16,784
)
 
(1,829
)
 
(1,248
)
 
(2,042
)
 
(1,837
)
Amortization of investment tax credits
 
(1,201
)
 
(4,871
)
 
(160
)
 
(109
)
 
(808
)
 
(1,155
)
Flow-through / permanent differences
 
570

 
3,203

 
1,893

 
(4,222
)
 
1,038

 
2,815

Revisions of the 2017 tax legislation enactment regulatory liability accrual, including the effect of the Entergy Texas 2018 base rate proceeding (a)
 
933

 
(2,810
)
 
(556
)
 
884

 
(43,799
)
 
(3,565
)
Amortization of excess ADIT (b)
 
(271,570
)
 
(104,313
)
 
(120,831
)
 
(9,878
)
 
(11,519
)
 
(58,971
)
Settlement on treatment of regulatory obligations (c)
 
—

 
(52,320
)
 
—

 
—

 
—

 
—

IRS audit adjustment
 
1,290

 
1,097

 
1,018

 
(96
)
 
524

 
(12
)
Non-taxable dividend income
 
—

 
(26,795
)
 
—

 
—

 
—

 
—

Provision for uncertain tax positions
 
724

 
3,949

 
240

 
613

 
839

 
4,876

Other - net
 
690

 
1,195

 
238

 
150

 
262

 
121

Total income taxes as reported
 

($297,067
)
 

($54,611
)
 

($125,773
)
 

($2,436
)
 

($26,243
)
 

($47,675
)
Effective Income Tax Rate
 
669.7
%
 
(8.8
%)
 
(41,237.0
%)
 
(4.8
%)
 
(19.3
%)
 
(102.7
%)


2017
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
System Energy
 
 
(In Thousands)
Net income
 

$139,844

 

$316,347

 

$110,032

 

$44,553

 

$76,173

 

$78,596

Income taxes
 
93,804

 
485,298

 
73,919

 
33,278

 
48,481

 
69,969

Pretax income
 

$233,648

 

$801,645

 

$183,951

 

$77,831

 

$124,654

 

$148,565

Computed at statutory rate (35%)
 

$81,777

 

$280,576

 

$64,383

 

$27,241

 

$43,629

 

$51,998

Increases (reductions) in tax resulting from:
 
 

 
 

 
 

 
 

 
 

 
 

State income taxes net of federal income tax effect
 
11,586

 
31,927

 
6,202

 
2,842

 
527

 
5,635

Regulatory differences - utility plant items
 
7,220

 
12,168

 
1,356

 
619

 
5,581

 
12,880

Equity component of AFUDC
 
(6,458
)
 
(18,020
)
 
(3,383
)
 
(847
)
 
(2,353
)
 
(2,221
)
Amortization of investment tax credits
 
(1,201
)
 
(4,871
)
 
(160
)
 
(124
)
 
(951
)
 
(2,896
)
Flow-through / permanent differences
 
3,098

 
3,774

 
1,567

 
(3,352
)
 
1,428

 
(276
)
Tax legislation enactment (b)
 
(3,090
)
 
217,258

 
3,492

 
6,153

 
2,981

 
(69
)
Non-taxable dividend income
 
—

 
(44,658
)
 
—

 
—

 
—

 
—

Provision for uncertain tax positions
 
200

 
5,700

 
228

 
600

 
(2,617
)
 
4,800

Other - net
 
672

 
1,444

 
234

 
146

 
256

 
118

Total income taxes as reported
 

$93,804

 

$485,298

 

$73,919

 

$33,278

 

$48,481

 

$69,969

Effective Income Tax Rate
 
40.1
%
 
60.5
%
 
40.2
%
 
42.8
%
 
38.9
%
 
47.1
%


(a)
See Note 2 to the financial statements for discussion of the Entergy Texas rate case settlement.
(b)
See “Other Tax Matters - Tax Cuts and Jobs Act” below for discussion of the amortization of excess ADIT in 2018 and 2019 and the tax legislation enactment in 2017.
(c)
See “Income Tax Audits - 2012-2013 IRS Audit” below for discussion of the settlement for Entergy Louisiana.


Significant components of accumulated deferred income taxes and taxes accrued for Entergy Corporation and Subsidiaries as of December 31, 2019 and 2018 are as follows:
 
 
2019
 
2018
 
(In Thousands)
Deferred tax liabilities:
 
 
 
Plant basis differences - net

($4,111,761
)
 

($3,835,211
)
Regulatory assets
(389,573
)
 
(370,484
)
Nuclear decommissioning trusts/receivables
(1,015,542
)
 
(1,128,140
)
Pension, net funding
(348,260
)
 
(307,626
)
Combined unitary state taxes
(11,519
)
 
(9,440
)
Power purchase agreements
—

 
(73,335
)
Deferred fuel
(8,360
)
 
(29,953
)
Other
(445,378
)
 
(248,997
)
Total
(6,330,393
)
 
(6,003,186
)
Deferred tax assets:
 

 
 

Nuclear decommissioning liabilities
929,251

 
1,070,583

Regulatory liabilities
806,777

 
895,756

Pension and other post-employment benefits
297,272

 
305,736

Sale and leaseback
102,420

 
121,473

Compensation
87,355

 
86,461

Accumulated deferred investment tax credit
56,013

 
57,643

Provision for allowances and contingencies
126,886

 
135,631

Power purchase agreements
231,502

 
—

Unbilled/deferred revenues
(10,218
)
 
43,762

Net operating loss carryforwards
1,133,197

 
628,165

Capital losses and miscellaneous tax credits
22,597

 
20,549

Valuation allowance
(303,307
)
 
(243,726
)
Other
289,557

 
125,522

Total
3,769,302

 
3,247,555

Non-current accrued taxes (including unrecognized tax benefits)
(1,775,638
)
 
(1,296,928
)
Accumulated deferred income taxes and taxes accrued

($4,336,729
)
 

($4,052,559
)


Entergy’s estimated tax attributes carryovers and their expiration dates as of December 31, 2019 are as follows:

Carryover Description
 
Carryover Amount
 
Year(s) of expiration
 
 
 
 
 
Federal net operating losses before 1/1/2018
 
$9.8 billion
 
2023-2037
Federal net operating losses - 1/1/2018 forward
 
$10.7 billion
 
N/A
State net operating losses
 
$20.8 billion
 
2020-2039
Federal and state charitable contributions
 
$395.8 million
 
2020-2024
Miscellaneous federal and state credits
 
$101.1 million
 
2020-2038


As a result of the accounting for uncertain tax positions, the amount of the deferred tax assets reflected in the financial statements is less than the amount of the tax effect of the federal and state net operating loss carryovers, tax credit carryovers, and other tax attributes reflected on income tax returns. Entergy evaluates the available positive and negative evidence to estimate whether sufficient future taxable income of the appropriate character will be generated to realize the benefits of existing deferred tax assets. When the evaluation indicates that Entergy will not be able to realize the existing benefits, a valuation allowance is recorded to reduce deferred tax assets to the realizable amount.

Because it is more likely than not that the benefit from certain state net operating loss and other deferred tax assets will not be utilized, valuation allowances totaling $303 million as of December 31, 2019 and $244 million as of December 31, 2018 have been provided on the deferred tax assets related to federal and state jurisdictions in which Entergy does not currently expect to be able to utilize certain separate company tax return attributes, preventing realization of such deferred tax assets.

Significant components of accumulated deferred income taxes and taxes accrued for the Registrant Subsidiaries as of December 31, 2019 and 2018 are as follows:
2019
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
System Energy
 
 
(In Thousands)
Deferred tax liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Plant basis differences - net
 

($979,033
)
 

($1,987,025
)
 

($565,202
)
 

($133,073
)
 

($551,365
)
 

($380,594
)
Regulatory assets
 
(170,949
)
 
(79,117
)
 
(10,528
)
 
(16,867
)
 
(59,745
)
 
(52,662
)
Nuclear decommissioning trusts/receivables
 
(120,306
)
 
(113,830
)
 
—

 
—

 
—

 
(100,621
)
Pension, net funding
 
(102,685
)
 
(98,743
)
 
(27,325
)
 
(11,859
)
 
(19,961
)
 
(21,609
)
Deferred fuel
 
—

 
(2,637
)
 
(609
)
 
(666
)
 
(4,380
)
 
(55
)
Other
 
(82,682
)
 
(94,139
)
 
(27,905
)
 
(25,909
)
 
2,059

 
(7,350
)
Total
 
(1,455,655
)
 
(2,375,491
)
 
(631,569
)
 
(188,374
)
 
(633,392
)
 
(562,891
)
Deferred tax assets:
 
 

 
 

 
 

 
 

 
 

 
 

Regulatory liabilities
 
250,410

 
283,507

 
53,421

 
33,258

 
65,602

 
121,011

Nuclear decommissioning liabilities
 
111,078

 
56,300

 
—

 
—

 
—

 
52,633

Pension and other post-employment benefits
 
(21,828
)
 
74,881

 
(5,844
)
 
(12,666
)
 
(15,406
)
 
(898
)
Sale and leaseback
 
—

 
—

 
—

 
—

 
—

 
102,480

Accumulated deferred investment tax credit
 
8,285

 
32,534

 
2,396

 
556

 
2,217

 
10,025

Provision for allowances and contingencies
 
5,365

 
77,298

 
12,963

 
24,022

 
4,024

 
—

Power purchase agreements
 
(15,087
)
 
18,004

 
1,147

 
7,961

 
26

 
—

Unbilled/deferred revenues
 
5,897

 
(28,081
)
 
4,715

 
1,428

 
5,544

 
—

Compensation
 
2,550

 
3,670

 
1,625

 
496

 
1,282

 
75

Net operating loss carryforwards
 
112,658

 
65,178

 
21,492

 
5,056

 
—

 
—

Capital losses and miscellaneous tax credits
 
—

 
—

 
45

 
—

 
—

 
7,857

Other
 
12,541

 
35,401

 
999

 
9,027

 
2,004

 
3

Total
 
471,869

 
618,692

 
92,959

 
69,138

 
65,293

 
293,186

Non-current accrued taxes (including unrecognized tax benefits)
 
(199,340
)
 
(707,714
)
 
(56,222
)
 
(235,300
)
 
(17,314
)
 
(544,235
)
Accumulated deferred income taxes and taxes accrued
 

($1,183,126
)
 

($2,464,513
)
 

($594,832
)
 

($354,536
)
 

($585,413
)
 

($813,940
)
2018
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
System Energy
 
 
(In Thousands)
Deferred tax liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Plant basis differences - net
 

($966,791
)
 

($1,893,831
)
 

($579,319
)
 

($135,143
)
 

($544,282
)
 

($403,809
)
Regulatory assets
 
(169,482
)
 
(74,917
)
 
(1,732
)
 
(20,009
)
 
(57,777
)
 
(46,627
)
Nuclear decommissioning trusts/receivables
 
(77,664
)
 
(71,470
)
 
—

 
—

 
—

 
(86,882
)
Pension, net funding
 
(91,962
)
 
(92,693
)
 
(24,398
)
 
(11,885
)
 
(20,331
)
 
(18,898
)
Deferred fuel
 
(5,801
)
 
(6,974
)
 
(11,819
)
 
(1,701
)
 
(2,835
)
 
(312
)
Other
 
(41,025
)
 
(34,700
)
 
(13,443
)
 
(7,640
)
 
(6,085
)
 
(4,544
)
Total
 
(1,352,725
)
 
(2,174,585
)
 
(630,711
)
 
(176,378
)
 
(631,310
)
 
(561,072
)
Deferred tax assets:
 
 

 
 

 
 

 
 

 
 

 
 

Regulatory liabilities
 
247,964

 
339,126

 
72,570

 
40,181

 
86,032

 
110,370

Nuclear decommissioning liabilities
 
99,479

 
48,738

 
—

 
—

 
—

 
46,643

Pension and other post-employment benefits
 
(19,068
)
 
80,102

 
(5,405
)
 
(11,371
)
 
(14,215
)
 
(632
)
Sale and leaseback
 
—

 
18,999

 
—

 
—

 
—

 
102,481

Accumulated deferred investment tax credit
 
8,599

 
33,928

 
2,541

 
579

 
2,347

 
9,649

Provision for allowances and contingencies
 
9,877

 
81,108

 
13,412

 
23,962

 
5,579

 
—

Power purchase agreements
 
(17,223
)
 
19,385

 
1,140

 
12,155

 
(18
)
 
—

Unbilled/deferred revenues
 
7,471

 
(17,345
)
 
5,527

 
636

 
7,016

 
—

Compensation
 
1,708

 
1,959

 
1,265

 
512

 
995

 
(260
)
Net operating loss carryforwards
 
6,338

 
20,118

 
4,896

 
480

 
261

 
—

Other
 
7,977

 
23,412

 
1,610

 
12,181

 
2,127

 
4

Total
 
353,122

 
649,530

 
97,556

 
79,315

 
90,124

 
268,255

Non-current accrued taxes (including unrecognized tax benefits)
 
(85,942
)
 
(701,666
)
 
(18,714
)
 
(226,532
)
 
(11,349
)
 
(512,479
)
Accumulated deferred income taxes and taxes accrued
 

($1,085,545
)
 

($2,226,721
)
 

($551,869
)
 

($323,595
)
 

($552,535
)
 

($805,296
)


The Registrant Subsidiaries’ estimated tax attributes carryovers and their expiration dates as of December 31, 2019 are as follows:
 
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
System Energy
 
 
 
 
 
 
 
 
 
 
 
 
 
Federal net operating losses
 
$4.4 billion
 
$4.3 billion
 
$2 billion
 
$1.1 billion
 
$—
 
$—
Year(s) of expiration
 
N/A
 
2035-2037
 
N/A
 
2037
 
N/A
 
N/A
 
 
 
 
 
 
 
 
 
 
 
 
 
State net operating losses
 
$4.5 billion
 
$5.2 billion
 
$2.1 billion
 
$1.2 billion
 
$—
 
$—
Year(s) of expiration
 
2024
 
2035-2039
 
2038-2039
 
2038-2039
 
N/A
 
N/A
 
 
 
 
 
 
 
 
 
 
 
 
 
Misc. federal credits
 
$—
 
$5.2 million
 
$—
 
$—
 
$1.9 million
 
$3.2 million
Year(s) of expiration
 
N/A
 
2035-2038
 
N/A
 
N/A
 
2029-2038
 
2029-2038
 
 
 
 
 
 
 
 
 
 
 
 
 
State credits
 
$—
 
$—
 
$—
 
$—
 
$2.9 million
 
$13.1 million
Year(s) of expiration
 
N/A
 
N/A
 
N/A
 
N/A
 
2026
 
2020-2023


As a result of the accounting for uncertain tax positions, the amount of the deferred tax assets reflected in the financial statements is less than the amount of the tax effect of the federal and state net operating loss carryovers and tax credit carryovers.

Unrecognized tax benefits

Accounting standards establish a “more-likely-than-not” recognition threshold that must be met before a tax benefit can be recognized in the financial statements.  If a tax deduction is taken on a tax return but does not meet the more-likely-than-not recognition threshold, an increase in income tax liability, above what is payable on the tax return, is required to be recorded.  A reconciliation of Entergy’s beginning and ending amount of unrecognized tax benefits is as follows:
 
2019
 
2018
 
2017
 
(In Thousands)
Gross balance at January 1

$7,181,482

 

$4,871,846

 

$3,909,855

Additions based on tax positions related to the current year
731,276

 
2,276,614

 
1,120,687

Additions for tax positions of prior years
151,628

 
506,142

 
283,683

Reductions for tax positions of prior years
(681,232
)
 
(274,600
)
 
(442,379
)
Settlements
—

 
(198,520
)
 
—

Gross balance at December 31
7,383,154

 
7,181,482

 
4,871,846

Offsets to gross unrecognized tax benefits:
 

 
 

 
 

Carryovers and refund claims
(5,831,587
)
 
(5,957,992
)
 
(3,945,524
)
Cash paid to taxing authorities
(10,000
)
 
(10,000
)
 
(10,000
)
Unrecognized tax benefits net of unused tax attributes, refund claims and payments (a)

$1,541,567

 

$1,213,490

 

$916,322



(a)
Potential tax liability above what is payable on tax returns

The balances of unrecognized tax benefits include $2,421 million, $2,161 million, and $1,462 million as of December 31, 2019, 2018, and 2017, respectively, which, if recognized, would lower the effective income tax rates.  Because of the effect of deferred tax accounting, the remaining balances of unrecognized tax benefits of $4,962
million, $5,020 million, and $3,410 million as of December 31, 2019, 2018, and 2017, respectively, if disallowed, would not affect the annual effective income tax rate but would accelerate the payment of cash to the taxing authority to an earlier period.

Entergy accrues interest expense, if any, related to unrecognized tax benefits in income tax expense.  Entergy’s December 31, 2019, 2018, and 2017 accrued balance for the possible payment of interest is approximately $48 million, $44 million, and $38 million, respectively. Interest (net-of-tax) of $4 million, $7 million, and $8 million was recorded in 2019, 2018, and 2017, respectively.

A reconciliation of the Registrant Subsidiaries’ beginning and ending amount of unrecognized tax benefits for 2019, 2018, and 2017 is as follows:
2019
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
System Energy
 
 
(In Thousands)
Gross balance at January 1, 2019
 

$1,298,662

 

$2,400,171

 

$508,765

 

$686,687

 

$17,802

 

$467,487

Additions based on tax positions related to the current year
 
84,335

 
28,705

 
68,594

 
40,676

 
2,312

 
5,496

Additions for tax positions of prior years
 
20,399

 
25,090

 
1,651

 
489

 
1,299

 
2,186

Reductions for tax positions of prior years
 
(62,154
)
 
(72,313
)
 
(12,723
)
 
(11,079
)
 
(7
)
 
(1,838
)
Gross balance at December 31, 2019
 
1,341,242

 
2,381,653

 
566,287

 
716,773

 
21,406

 
473,331

Offsets to gross unrecognized tax benefits:
 
 

 
 

 
 

 
 

 
 

 
 

Loss carryovers
 
(1,134,187
)
 
(1,573,257
)
 
(506,976
)
 
(445,430
)
 
(3,944
)
 
(8,392
)
Unrecognized tax benefits net of unused tax attributes and payments
 

$207,055

 

$808,396

 

$59,311

 

$271,343

 

$17,462

 

$464,939



2018
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
System Energy
 
 
(In Thousands)
Gross balance at January 1, 2018
 

($117,716
)
 

$2,518,457

 

$15,122

 

$679,544

 

$16,399

 

$445,511

Additions based on tax positions related to the current year (a)
 
1,430,828

 
30,577

 
493,039

 
2,261

 
1,978

 
18,271

Additions for tax positions of prior years
 
31,612

 
77,372

 
3,878

 
12,972

 
1,722

 
7,255

Reductions for tax positions of prior years
 
(21,619
)
 
(158,510
)
 
(3,253
)
 
(8,081
)
 
(2,262
)
 
(3,253
)
Settlements
 
(24,443
)
 
(67,725
)
 
(21
)
 
(9
)
 
(35
)
 
(297
)
Gross balance at December 31, 2018
 
1,298,662

 
2,400,171

 
508,765

 
686,687

 
17,802

 
467,487

Offsets to gross unrecognized tax benefits:
 
 

 
 

 
 

 
 

 
 

 
 

Loss carryovers
 
(1,173,839
)
 
(1,597,826
)
 
(478,268
)
 
(420,813
)
 
(3,199
)
 
(42,228
)
Unrecognized tax benefits net of unused tax attributes and payments
 

$124,823

 

$802,345

 

$30,497

 

$265,874

 

$14,603

 

$425,259


2017
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
System Energy
 
 
(In Thousands)
Gross balance at January 1, 2017
 

$2,503

 

$2,440,339

 

$12,206

 

$166,230

 

$15,946

 

$472,372

Additions based on tax positions related to the current year (a)
 
8,974

 
32,843

 
2,105

 
509,183

 
1,747

 
909

Additions for tax positions of prior years
 
3,682

 
235,331

 
1,267

 
13,364

 
3,115

 
1,432

Reductions for tax positions of prior years
 
(132,875
)
 
(190,056
)
 
(456
)
 
(9,233
)
 
(4,409
)
 
(29,202
)
Gross balance at December 31, 2017
 
(117,716
)
 
2,518,457

 
15,122

 
679,544

 
16,399

 
445,511

Offsets to gross unrecognized tax benefits:
 
 

 
 

 
 

 
 

 
 

 
 

Loss carryovers
 
—

 
(1,591,907
)
 
(15,122
)
 
(441,374
)
 
(638
)
 
(12,536
)
Unrecognized tax benefits net of unused tax attributes and payments
 

($117,716
)
 

$926,550

 

$—

 

$238,170

 

$15,761

 

$432,975



(a)
The primary additions for Entergy Mississippi in 2018, and Entergy New Orleans in 2017 are related to the mark-to-market treatment discussed in “Other Tax Matters - Tax Accounting Methods” below. The primary additions for Entergy Arkansas in 2018 are related to the nuclear decommissioning costs treatment and the mark-to-market treatment discussed in “Other Tax Matters - Tax Accounting Methods” below.

The Registrant Subsidiaries’ balances of unrecognized tax benefits included amounts which, if recognized, would have reduced income tax expense as follows:
 
December 31,
 
2019
 
2018
 
2017
 
(In Millions)
Entergy Arkansas

$203.3

 

$85.4

 

$2.6

Entergy Louisiana

$556.3

 

$594.0

 

$575.8

Entergy Mississippi

$1.9

 

$1.5

 

$—

Entergy New Orleans

$242.7

 

$246.2

 

$31.7

Entergy Texas

$5.7

 

$5.1

 

$4.4

System Energy

$—

 

$—

 

$—



Accrued balances for the possible payment of interest related to unrecognized tax benefits are as follows:
 
December 31,
 
2019
 
2018
 
2017
 
(In Millions)
Entergy Arkansas

$3.1

 

$1.7

 

$1.6

Entergy Louisiana

$14.2

 

$17.9

 

$14.1

Entergy Mississippi

$1.7

 

$1.2

 

$1.0

Entergy New Orleans

$4.7

 

$2.7

 

$2.1

Entergy Texas

$1.1

 

$0.9

 

$0.4

System Energy

$14.5

 

$13.2

 

$8.5



The Registrant Subsidiaries record interest and penalties related to unrecognized tax benefits in income tax expense.  No penalties were recorded in 2019, 2018, and 2017. Interest (net-of-tax) was recorded as follows:
 
2019
 
2018
 
2017
 
(In Millions)
Entergy Arkansas

$1.4

 

$0.2

 

$0.2

Entergy Louisiana

($3.7
)
 

$3.8

 

$5.7

Entergy Mississippi

$0.5

 

$0.2

 

$0.2

Entergy New Orleans

$2.0

 

$0.6

 

$0.6

Entergy Texas

$0.2

 

$0.5

 

($0.8
)
System Energy

$1.3

 

$4.7

 

$4.8



Income Tax Audits

Entergy and its subsidiaries file U.S. federal and various state and foreign income tax returns.  IRS examinations are complete for years before 2014. All state taxing authorities’ examinations are complete for years before 2015. Entergy regularly negotiates with the IRS to achieve settlements.  The resolution of audit issues could result in significant changes to the amounts of unrecognized tax benefits in the next twelve months.

2012-2013 IRS Audit

The IRS completed its examination of the 2012 and 2013 tax years and issued its 2012-2013 Revenue Agent Report (RAR) in June 2018. Entergy agreed to all proposed adjustments contained in the RAR. Entergy and the Registrant Subsidiaries recorded the effects of these adjustments in June 2018.

As a result of the issuance of the RAR, Entergy Louisiana was able to recognize previously unrecognized tax benefits of $52 million related to the Hurricane Katrina and Hurricane Rita contingent sharing obligation associated with the Louisiana Act 55 financing.

2014-2015 IRS Audit

The IRS is examining the 2014 and 2015 tax years. Entergy expects the IRS to complete this examination in 2020. As of December 31, 2019, Entergy has not received any proposed adjustments to taxable income from the IRS.

Other Tax Matters

Tax Cuts and Jobs Act

Deferred tax liabilities and assets have been adjusted for the effect of the enactment of the Tax Cuts and Jobs Act (the Act), signed by President Trump on December 22, 2017. The most significant effect of the Act for Entergy and the Registrant Subsidiaries was the change in the federal corporate income tax rate from 35% to 21%, effective January 1, 2018. Other significant provisions and their effect on Entergy and the Registrant Subsidiaries are summarized below.
The Act limits the deduction for net business interest expense to 30 percent of adjusted taxable income which is similar to earnings before interest, taxes, depreciation, and amortization. The limitation does not apply to interest expense that is properly allocable to a trade or business that furnishes or sells electrical energy, gas, or steam through a local distribution system, or transports gas or steam by pipeline if the rates for such furnishing or sale are subject to ratemaking by a government entity or instrumentality or by a public utility commission.
The IRS issued proposed regulations relating to this limitation in November 2018. The regulations are generally proposed to be effective for taxable years ending after the date Treasury adopts the regulations as final. Taxpayers may apply the rules of the proposed regulations to a taxable year beginning after December 31, 2017, so long as taxpayers consistently apply the rules of the proposed regulations. The proposed regulations provide guidance that if 90% of a tax group’s consolidated assets consist of utility property, the entire consolidated tax group will be treated as a regulated public utility and all of the consolidated group’s interest expense will be currently tax deductible.
As a result of the limitation under the Act, Entergy recorded limitations in 2018 and 2019 and recorded a deferred tax asset on the nondeductible portion, as it has an unlimited carryover period. Entergy recorded a valuation allowance of $24 million due to a lack of earnings from sources other than the Utility.
The Act limits the net operating loss (NOL) deduction for a given year to 80% of taxable income, effective with respect to losses arising in tax years beginning after December 31, 2017. Only NOLs generated after December 31, 2017 are subject to the 80% limitation. Prior law generally provided a two-year carryback and 20-year carryforward for NOLs. The Act does not allow a carryback period but does provide for the indefinite carryforward of NOLs arising in tax years ending after December 31, 2017. Because of the indefinite carryforward, the new limitations on NOL utilization are not expected to have a material effect on Entergy or the Registrant Subsidiaries.
The Act also modified Internal Revenue Code section 162(m), which limits the deduction for compensation with respect to certain covered employees to no more than $1 million per year.  The IRS issued proposed regulations relating to this limitation in December 2019. The significant provisions of the Act and associated proposed regulations require inclusion of performance-based compensation and an expanded definition of “covered employees” in the annual computation of the section 162 limitation. The Act amendments and associated proposed regulations resulted in an increase in disallowed compensation expense, but this limitation does not have a material effect on Entergy or the Registrant Subsidiaries.
With respect to the federal corporate income tax rate change from 35% to 21%, Entergy and the Registrant Subsidiaries recorded a regulatory liability associated with the decrease in the net accumulated deferred income tax liability, which is often referred to as “excess ADIT,” a significant portion of which has been paid to customers in 2018 and 2019 in the form of lower rates. Entergy’s December 31, 2019 and December 31, 2018 balance sheets reflect a regulatory liability of $1.7 billion and $2.1 billion, respectively, as a result of the re-measurement of deferred tax assets and liabilities from the income tax rate change, amortization of excess ADIT, and payments to customers during 2018 and 2019. Entergy’s regulatory liability for income taxes includes a gross-up at the applicable tax rate because of the effect that excess ADIT has on the ratemaking formula. The regulatory liability for income taxes includes the effect of a) the reduction of the net deferred tax liability resulting in excess ADIT, b) the tax gross-up of excess ADIT, and c) the effect of the new tax rate on the previous net regulatory asset for income taxes. For the same reasons, the Registrant Subsidiaries’ December 31, 2019 and December 31, 2018 balance sheets reflect net regulatory liabilities for income taxes as follows:
 
2019
 
2018
 
(In Millions)
Entergy Arkansas

$487

 

$605

Entergy Louisiana

$531

 

$612

Entergy Mississippi

$237

 

$246

Entergy New Orleans

$59

 

$86

Entergy Texas

$253

 

$352

System Energy

$143

 

$163

Excess ADIT is generally classified into two categories: 1) the portion that is subject to the normalization requirements of the Act, i.e., “protected”, and 2) the portion that is not subject to such normalization provisions, referred to as “unprotected”. The Act provides that the normalization method of accounting for income taxes is required for
excess ADIT associated with public utility property. The Act provides for the use of the average rate assumption method (ARAM) for the determination of the timing of the return of excess ADIT associated with such property. Under ARAM, the excess ADIT is reduced over the remaining life of the asset. Remaining asset lives vary for each Registrant Subsidiary, but the average life of public utility property is typically 30 years or longer. Entergy will amortize the protected portion of the excess ADIT in conformity with the normalization requirements. The Registrant Subsidiaries’ net regulatory liability for income taxes as of December 31, 2019 and December 31, 2018, includes protected excess ADIT as follows:
 
2019
 
2018
 
(In Millions)
Entergy Arkansas

$490

 

$521

Entergy Louisiana

$797

 

$812

Entergy Mississippi

$261

 

$271

Entergy New Orleans

$62

 

$59

Entergy Texas

$228

 

$237

System Energy

$186

 

$202


During the second quarter of 2018, the Registrant Subsidiaries began paying unprotected excess accumulated deferred income taxes, associated with the effects of the Act, to their customers through rate riders and other means approved by their respective regulatory commissions. Payment of the unprotected excess accumulated deferred income taxes results in a reduction in the regulatory liability for income taxes and a corresponding reduction in income tax expense. This has a significant effect on the effective tax rate for the period as compared to the statutory tax rate. The Registrant Subsidiaries’ net regulatory liability for income taxes as of December 31, 2019 and December 31, 2018, includes unprotected excess ADIT as follows:
 
2019
 
2018
 
(In Millions)
Entergy Arkansas

$9

 

$117

Entergy Louisiana

$242

 

$295

Entergy New Orleans

$9

 

$25

Entergy Texas

$83

 

$171

System Energy

$—

 

$4


The return of unprotected excess accumulated deferred income taxes reduced Entergy’s and the Registrant Subsidiaries’ regulatory liability for income taxes as follows for 2019 and 2018:
 
2019
 
2018
 
(In Millions)
Entergy

$273

 

$776

Entergy Arkansas

$126

 

$368

Entergy Louisiana

$39

 

$141

Entergy Mississippi

$—

 

$159

Entergy New Orleans

$14

 

$13

Entergy Texas

$87

 

$15

System Energy

$7

 

$80



In addition to the protected and unprotected excess ADIT amounts, the net regulatory liability for income taxes includes other regulatory assets and liabilities for income taxes associated with AFUDC, which is described in Note 1 to the financial statements.
For a discussion of the proceedings commenced or other responses by Entergy’s regulators to the Act, see Note 2 to the financial statements.
Not all of Entergy’s excess ADIT is included in ratemaking. Consequently, Entergy recorded a net decrease in deferred tax assets of $560 million for which there was a corresponding charge to income tax expense for the year ended December 31, 2017. The corresponding income tax expense (or benefit) recorded by the Registrant Subsidiaries was as follows: Entergy Arkansas, ($3 million); Entergy Louisiana, $217 million; Entergy Mississippi, $3 million; Entergy New Orleans, $6 million; Entergy Texas, $3 million; and System Energy, $0.
Included in the effect of the computation of the changes in deferred tax assets and liabilities is the recognition threshold and measurement of uncertain tax positions resulting in unrecognized tax benefits. The final economic outcome of such unrecognized tax benefits is generally the result of a negotiated settlement with the IRS that often differs from the amount that is recorded as realizable under GAAP. The intrinsic uncertainty with respect to all such tax positions means that the difference between current estimates of such amounts likely to be realized and actual amounts realized upon settlement may have an effect on income tax expense and the regulatory liability for income taxes in future periods.

Entergy anticipates that the Act, including the federal corporate income tax rate change, may continue to have ramifications that require adjustments in the future as certain events occur. These events include: 1) the evaluation by regulators in all of Entergy’s jurisdictions regarding the ratemaking treatment of the Act and excess ADIT; 2) IRS audit adjustments to or amendments of federal and state income tax returns that include modifications to the computation of taxable income resulting from the Act; and 3) additional guidance, interpretations, or rulings by the U.S. Department of the Treasury or the IRS. The potential exists for these types of events to result in future tax expense adjustments because of the difference in the federal corporate income tax rate between past and future periods and the effect of the tax rate change on ratemaking. In turn, these items also could potentially affect the regulatory liability for income taxes.
Entergy Wholesale Commodities Restructuring

The tax classification of the entity that owned FitzPatrick changed in the second quarter 2016.  The change in tax classification required Entergy to recognize the plant’s nuclear decommissioning liability for income tax purposes resulting in a tax accounting permanent difference that reduced income tax expense, net of unrecognized tax benefits, by $238 million. The accrual of the nuclear decommissioning liability also required Entergy to recognize a gain for income tax purposes, a significant portion of which resulted in an increase in tax basis of the assets. Recognition of the gain and the increase in tax basis of the assets represents a tax accounting temporary difference. Entergy sold FitzPatrick 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. The re-determined basis resulted in a $44 million income tax benefit in the first quarter 2017.

In the second quarter 2017, Entergy changed the tax classification of legal entities that own Entergy Wholesale Commodities nuclear power plants. The change in tax classification required Entergy to recognize the plants’ nuclear decommissioning liabilities for income tax purposes resulting in a tax accounting permanent difference that reduced income tax expense, net of unrecognized tax benefits, by $373 million. The accrual of the nuclear decommissioning liabilities also required Entergy to recognize a gain for income tax purposes, a portion of which resulted in an increase in tax basis of the assets. Recognition of the gain and the increase in tax basis of the assets represents a tax accounting temporary difference.

In the third quarter 2018, Entergy completed a restructuring of the investment holdings in one of the Entergy Wholesale Commodities nuclear plant decommissioning trusts that resulted in an adjustment to tax basis for the trust. The accounting standards provide that a taxable temporary difference does not exist if the tax law provides a means by which an amount can be recovered without incurrence of tax. The restructuring allows Entergy to recover assets from the trust without incurring tax. As such, the tax basis recognized resulted in the reversal of a deferred tax liability and reduction of income tax expense of approximately $107 million.

In the fourth quarter 2019, two separate events occurred resulting in a reduction of tax expense of $174 million. In November 2019 an Entergy Wholesale Commodities subsidiary recognized a reduction in income tax expense of $18 million in connection with the accounting method on power contracts associated with the Palisades nuclear power station. Additionally, Entergy’s ownership of Indian Point 2 and Indian Point 3 was restructured. The restructuring required Entergy to recognize Indian Point 2 and Indian Point 3 nuclear decommissioning liabilities for income tax purposes resulting in a tax accounting permanent difference that reduced income tax expense, net of unrecognized tax benefits, by $156 million. The accrual of the nuclear decommissioning liabilities also required Entergy to recognize a gain for income tax purposes, a portion of which resulted in an increase in the tax basis of the assets. Recognition of the gain and the increase in the tax basis of the assets represents a tax accounting temporary difference.

Immediately prior to the restructuring, through its ownership of Indian Point 2 and Indian Point 3, Entergy donated property to Stony Brook University and recognized an associated tax deduction resulting in a decrease to tax expense of $19 million.

Entergy Wholesale Commodities Tax Audit

A state income tax audit involving Entergy Wholesale Commodities was concluded during the third quarter 2018. Upon conclusion of the audit, subsidiaries within Entergy Wholesale Commodities reversed a portion of the provision for uncertain tax positions totaling approximately $23 million, net of tax and interest paid.

Tax Accounting Methods

In the fourth quarter 2015, System Energy and Entergy Louisiana adopted a new method of accounting for income tax return purposes in which their nuclear decommissioning costs will be treated as production costs of electricity includable in cost of goods sold. The new method resulted in a reduction of taxable income of $1.2 billion for System Energy and $2.2 billion for Energy Louisiana. In the fourth quarter 2018, Entergy Arkansas adopted the same method of accounting for its nuclear decommissioning costs which resulted in a $2.2 billion reduction in taxable income.

In 2016, Entergy Louisiana elected mark-to-market income tax treatment for various wholesale electric power purchase and sale agreements, including Entergy Louisiana’s contract to purchase electricity from the Vidalia hydroelectric facility and from System Energy under the Unit Power Sales Agreement. The election resulted in a $2.2 billion deductible temporary difference. In 2017, Entergy New Orleans also elected mark-to-market income tax treatment for wholesale electric contracts which resulted in a $1.1 billion deductible temporary difference. In 2018, Entergy Arkansas and Entergy Mississippi accrued deductible temporary differences related to mark-to-market tax accounting for wholesale electric contracts of $2.1 billion and $1.9 billion, respectively.

Entergy Arkansas and Entergy Mississippi Internal Restructuring

In the fourth quarter 2018, Entergy Arkansas and Entergy Mississippi became wholly-owned subsidiaries of Entergy Utility Holding Company, LLC. The change in ownership required Entergy to recognize Entergy Arkansas’s nuclear decommissioning liabilities for income tax purposes resulting in a tax accounting permanent difference that reduced income tax expense, net of unrecognized tax benefits, by $165 million. The accrual of the nuclear decommissioning liabilities also required Entergy to recognize a gain for income tax purposes, a portion of which resulted in an increase in the tax basis of the assets. Recognition of the gain and the increase in the tax basis of the assets represents a tax accounting temporary difference. Additionally, Entergy recorded a $5 million reduction of income tax expense associated with state income tax effects resulting in a total reduction of income tax expense of $170 million from the restructuring. Entergy recorded a regulatory liability of $40 million ($30 million net-of-tax) which partially offsets the reduction of income tax expense. Entergy Arkansas’s member’s equity increased by $94 million as a result of the restructuring. See Note 2 to the financial statements for further discussion of the internal restructuring.

Arkansas Corporate Income Tax Rate Reduction

In April 2019 the state of Arkansas enacted corporate income tax law changes that phase in an Arkansas tax rate reduction from the current rate of 6.5% to 6.2% in 2021 and 5.9% in 2022.  The rate reduction will eventually reduce Entergy Arkansas’s combined federal and state applicable tax rate by less than 0.5% once fully adopted.  As a result of the rate reduction, Entergy Arkansas recorded a regulatory liability for income taxes of approximately $25 million which includes a tax gross-up related to the treatment of income taxes in the ratemaking formula. The Arkansas tax law enactment also phases in an increase to the net operating loss carryover period from five to ten years.

Consolidated Income Tax Return of Entergy Corporation

In September 2019, Entergy Utility Holding Company, LLC and its regulated, wholly-owned subsidiaries including Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans, became eligible to and joined the Entergy Corporation consolidated federal income tax group.  As a result of these four Utility operating companies re-joining the Entergy Corporation consolidated tax return group, Entergy was able to recognize a $41 million deferred tax asset associated with a previously unrecognized Arkansas net operating loss carryover.

Additionally, in September 2019, Entergy Texas issued $35 million of 5.375% Series A preferred stock with a liquidation value of $25 per share resulting in the disaffiliation and de-consolidation of Entergy Texas from the consolidated federal income tax return of Entergy Corporation.  These changes will not affect the accrual or allocation of income taxes for the Registrant Subsidiaries. See Note 6 to the financial statements for discussion of the preferred stock issuance.

Vermont Yankee

The Vermont Yankee transaction resulted in Entergy generating a net deferred tax asset in January 2019.  The deferred tax asset could not be fully realized by Entergy in the first quarter of 2019; accordingly, Entergy accrued a net tax expense of $29 million on the disposition of Vermont Yankee. See Note 14 to the financial statements for discussion of the Vermont Yankee transaction.
System Energy [Member]  
Income Taxes INCOME TAXES (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)

Income taxes for 2019, 2018, and 2017 for Entergy Corporation and Subsidiaries consist of the following:
 
2019
 
2018
 
2017
 
(In Thousands)
Current:
 
 
 
 
 
Federal

($14,416
)
 

$36,848

 

$29,595

State
6,535

 
7,274

 
15,478

Total
(7,881
)
 
44,122

 
45,073

Deferred and non-current - net
(155,956
)
 
(1,074,416
)
 
505,010

Investment tax credit adjustments - net
(5,988
)
 
(6,532
)
 
(7,513
)
Income taxes

($169,825
)
 

($1,036,826
)
 

$542,570


    
Income taxes for 2019, 2018, and 2017 for Entergy’s Registrant Subsidiaries consist of the following:
2019
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
System Energy
 
 
(In Thousands)
Current:
 
 
 
 
 
 
 
 
 
 
 
 
Federal
 

($14,549
)
 

($20,173
)
 

($8,939
)
 

($5,822
)
 

$16,035

 

$16,256

State
 
(714
)
 
(735
)
 
5,823

 
1,856

 
663

 
(2,831
)
Total
 
(15,263
)
 
(20,908
)
 
(3,116
)
 
(3,966
)
 
16,698

 
13,425

Deferred and non-current - net
 
(30,278
)
 
147,453

 
34,579

 
4,248

 
(69,963
)
 
422

Investment tax credit adjustments - net
 
(1,228
)
 
(4,922
)
 
(597
)
 
(96
)
 
(631
)
 
1,502

Income taxes
 

($46,769
)
 

$121,623

 

$30,866

 

$186

 

($53,896
)
 

$15,349


2018
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
System Energy
 
 
(In Thousands)
Current:
 
 
 
 
 
 
 
 
 
 
 
 
Federal
 

($23,638
)
 

($15,841
)
 

($11,275
)
 

($10,813
)
 

$16,190

 

($9,786
)
State
 
(1,617
)
 
(1,122
)
 
(1,066
)
 
545

 
3,205

 
(1,821
)
Total
 
(25,255
)
 
(16,963
)
 
(12,341
)
 
(10,268
)
 
19,395

 
(11,607
)
Deferred and non-current - net
 
(270,586
)
 
(32,725
)
 
(114,738
)
 
7,943

 
(44,817
)
 
(35,329
)
Investment tax credit adjustments - net
 
(1,226
)
 
(4,923
)
 
1,306

 
(111
)
 
(821
)
 
(739
)
Income taxes
 

($297,067
)
 

($54,611
)
 

($125,773
)
 

($2,436
)
 

($26,243
)
 

($47,675
)

2017
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
System Energy
 
 
(In Thousands)
Current:
 
 
 
 
 
 
 
 
 
 
 
 
Federal
 

$16,086

 

($84,250
)
 

($8,845
)
 

($30,635
)
 

$6,034

 

$47,674

State
 
9,191

 
1,480

 
(924
)
 
(728
)
 
310

 
5,314

Total
 
25,277

 
(82,770
)
 
(9,769
)
 
(31,363
)
 
6,344

 
52,988

Deferred and non-current - net
 
69,753

 
572,988

 
83,501

 
62,946

 
43,102

 
19,243

Investment tax credit adjustments - net
 
(1,226
)
 
(4,920
)
 
187

 
1,695

 
(965
)
 
(2,262
)
Income taxes
 

$93,804

 

$485,298

 

$73,919

 

$33,278

 

$48,481

 

$69,969



Total income taxes for Entergy Corporation and Subsidiaries differ from the amounts computed by applying the statutory income tax rate to income before income taxes.  The reasons for the differences for the years 2019, 2018, and 2017 are:
 
2019
 
2018
 
2017
 
(In Thousands)
Net income (loss) attributable to Entergy Corporation

$1,241,226

 

$848,661

 

$411,612

Preferred dividend requirements of subsidiaries
17,018

 
13,894

 
13,741

Consolidated net income (loss)
1,258,244

 
862,555

 
425,353

Income taxes
(169,825
)
 
(1,036,826
)
 
542,570

Income (loss) before income taxes

$1,088,419

 

($174,271
)
 

$967,923

Computed at statutory rate (21% for 2019 and 2018) (35% for 2017)

$228,568

 

($36,597
)
 

$338,773

Increases (reductions) in tax resulting from:
 

 
 

 
 

State income taxes net of federal income tax effect
61,791

 
21,398

 
44,179

Regulatory differences - utility plant items
(45,336
)
 
(37,507
)
 
39,825

Equity component of AFUDC
(30,444
)
 
(27,216
)
 
(33,282
)
Amortization of investment tax credits
(8,093
)
 
(8,304
)
 
(10,204
)
Flow-through / permanent differences
(2,059
)
 
439

 
8,727

Tax legislation enactment (a)
—

 
—

 
560,410

Amortization of excess ADIT (a)
(205,614
)
 
(577,082
)
 
—

Revisions of the 2017 tax legislation enactment regulatory liability accrual, including the effect of the Entergy Texas 2018 base rate proceeding
—

 
(40,494
)
 
—

Utility restructuring (b)
—

 
(169,918
)
 
—

Settlement on treatment of regulatory obligations (c)
—

 
(52,320
)
 
—

State income tax audit conclusion
—

 
(23,425
)
 
—

IRS audit adjustment
—

 
(8,404
)
 
—

Entergy Wholesale Commodities nuclear decommissioning trust restructuring (d)
—

 
(106,833
)
 
—

Entergy Wholesale Commodities restructuring (d)
(173,725
)
 
—

 
(373,277
)
FitzPatrick disposition
—

 
—

 
(44,344
)
Charitable contribution (d)
(19,101
)

—


—

Net operating loss recognition
(41,427
)

—


—

Provision for uncertain tax positions
7,332

 
24,569

 
8,756

Valuation allowance
59,345

 
2,211

 
—

Other - net
(1,062
)
 
2,657

 
3,007

Total income taxes as reported

($169,825
)
 

($1,036,826
)
 

$542,570

Effective Income Tax Rate
(15.6
%)
 
595.0
%
 
56.1
%


(a)
See “Other Tax Matters - Tax Cuts and Jobs Act” below for discussion of the amortization of excess ADIT in 2018 and 2019 and the tax legislation enactment in 2017.
(b)
See “Other Tax Matters - Entergy Arkansas and Entergy Mississippi Internal Restructuring” below for discussion of the Utility restructuring.
(c)
See “Income Tax Audits - 2012-2013 IRS Audit” below for discussion of the settlement.
(d)
See “Other Tax Matters - Entergy Wholesale Commodities Restructuring” below for discussion of the Entergy Wholesale Commodities nuclear decommissioning trust restructuring in 2018, the Entergy Wholesale Commodities restructurings in 2017 and 2019, and the charitable contribution in 2019.


Total income taxes for the Registrant Subsidiaries differ from the amounts computed by applying the statutory income tax rate to income before taxes.  The reasons for the differences for the years 2019, 2018, and 2017 are:
2019
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
System Energy
 
 
(In Thousands)
Net income
 

$262,964

 

$691,537

 

$119,925

 

$52,629

 

$159,397

 

$99,120

Income taxes
 
(46,769
)
 
121,623

 
30,866

 
186

 
(53,896
)
 
15,349

Pretax income
 

$216,195

 

$813,160

 

$150,791

 

$52,815

 

$105,501

 

$114,469

Computed at statutory rate (21%)
 

$45,401

 

$170,764

 

$31,666

 

$11,091

 

$22,155

 

$24,039

Increases (reductions) in tax resulting from:
 
 
 
 

 
 

 
 

 
 

 
 

State income taxes net of federal income tax effect
 
15,954

 
42,854

 
5,563

 
3,443

 
360

 
5,134

Regulatory differences - utility plant items
 
(10,627
)
 
(19,421
)
 
(5,556
)
 
(1,532
)
 
(1,987
)
 
(6,213
)
Equity component of AFUDC
 
(3,255
)
 
(15,545
)
 
(1,755
)
 
(2,088
)
 
(5,973
)
 
(1,829
)
Amortization of investment tax credits
 
(1,201
)
 
(4,871
)
 
(160
)
 
(88
)
 
(617
)
 
(1,155
)
Flow-through / permanent differences
 
696

 
439

 
160

 
(741
)
 
560

 
(500
)
Amortization of excess ADIT (b)
 
(90,921
)
 
(28,531
)
 
203

 
(11,724
)
 
(69,091
)
 
(5,550
)
Non-taxable dividend income
 
—

 
(26,795
)
 
—

 
—

 
—

 
—

Provision for uncertain tax positions
 
(3,517
)
 
1,519

 
500

 
1,672

 
430

 
1,300

Other - net
 
701

 
1,210

 
245

 
153

 
267

 
123

Total income taxes as reported
 

($46,769
)
 

$121,623

 

$30,866

 

$186

 

($53,896
)
 

$15,349

Effective Income Tax Rate
 
(21.6
%)
 
15.0
%
 
20.5
%
 
0.4
%
 
(51.1
%)
 
13.4
%


2018
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
System Energy
 
 
(In Thousands)
Net income
 

$252,707

 

$675,614

 

$126,078

 

$53,152

 

$162,235

 

$94,109

Income taxes
 
(297,067
)
 
(54,611
)
 
(125,773
)
 
(2,436
)
 
(26,243
)
 
(47,675
)
Pretax income
 

($44,360
)
 

$621,003

 

$305

 

$50,716

 

$135,992

 

$46,434

Computed at statutory rate (21%)
 

($9,316
)
 

$130,411

 

$64

 

$10,650

 

$28,558

 

$9,751

Increases (reductions) in tax resulting from:
 


 


 


 


 


 


State income taxes net of federal income tax effect
 
(794
)
 
26,031

 
(1,747
)
 
2,322

 
2,576

 
2,812

Regulatory differences - utility plant items
 
(14,916
)
 
(12,604
)
 
(4,103
)
 
(1,502
)
 
(1,872
)
 
(2,510
)
Equity component of AFUDC
 
(3,477
)
 
(16,784
)
 
(1,829
)
 
(1,248
)
 
(2,042
)
 
(1,837
)
Amortization of investment tax credits
 
(1,201
)
 
(4,871
)
 
(160
)
 
(109
)
 
(808
)
 
(1,155
)
Flow-through / permanent differences
 
570

 
3,203

 
1,893

 
(4,222
)
 
1,038

 
2,815

Revisions of the 2017 tax legislation enactment regulatory liability accrual, including the effect of the Entergy Texas 2018 base rate proceeding (a)
 
933

 
(2,810
)
 
(556
)
 
884

 
(43,799
)
 
(3,565
)
Amortization of excess ADIT (b)
 
(271,570
)
 
(104,313
)
 
(120,831
)
 
(9,878
)
 
(11,519
)
 
(58,971
)
Settlement on treatment of regulatory obligations (c)
 
—

 
(52,320
)
 
—

 
—

 
—

 
—

IRS audit adjustment
 
1,290

 
1,097

 
1,018

 
(96
)
 
524

 
(12
)
Non-taxable dividend income
 
—

 
(26,795
)
 
—

 
—

 
—

 
—

Provision for uncertain tax positions
 
724

 
3,949

 
240

 
613

 
839

 
4,876

Other - net
 
690

 
1,195

 
238

 
150

 
262

 
121

Total income taxes as reported
 

($297,067
)
 

($54,611
)
 

($125,773
)
 

($2,436
)
 

($26,243
)
 

($47,675
)
Effective Income Tax Rate
 
669.7
%
 
(8.8
%)
 
(41,237.0
%)
 
(4.8
%)
 
(19.3
%)
 
(102.7
%)


2017
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
System Energy
 
 
(In Thousands)
Net income
 

$139,844

 

$316,347

 

$110,032

 

$44,553

 

$76,173

 

$78,596

Income taxes
 
93,804

 
485,298

 
73,919

 
33,278

 
48,481

 
69,969

Pretax income
 

$233,648

 

$801,645

 

$183,951

 

$77,831

 

$124,654

 

$148,565

Computed at statutory rate (35%)
 

$81,777

 

$280,576

 

$64,383

 

$27,241

 

$43,629

 

$51,998

Increases (reductions) in tax resulting from:
 
 

 
 

 
 

 
 

 
 

 
 

State income taxes net of federal income tax effect
 
11,586

 
31,927

 
6,202

 
2,842

 
527

 
5,635

Regulatory differences - utility plant items
 
7,220

 
12,168

 
1,356

 
619

 
5,581

 
12,880

Equity component of AFUDC
 
(6,458
)
 
(18,020
)
 
(3,383
)
 
(847
)
 
(2,353
)
 
(2,221
)
Amortization of investment tax credits
 
(1,201
)
 
(4,871
)
 
(160
)
 
(124
)
 
(951
)
 
(2,896
)
Flow-through / permanent differences
 
3,098

 
3,774

 
1,567

 
(3,352
)
 
1,428

 
(276
)
Tax legislation enactment (b)
 
(3,090
)
 
217,258

 
3,492

 
6,153

 
2,981

 
(69
)
Non-taxable dividend income
 
—

 
(44,658
)
 
—

 
—

 
—

 
—

Provision for uncertain tax positions
 
200

 
5,700

 
228

 
600

 
(2,617
)
 
4,800

Other - net
 
672

 
1,444

 
234

 
146

 
256

 
118

Total income taxes as reported
 

$93,804

 

$485,298

 

$73,919

 

$33,278

 

$48,481

 

$69,969

Effective Income Tax Rate
 
40.1
%
 
60.5
%
 
40.2
%
 
42.8
%
 
38.9
%
 
47.1
%


(a)
See Note 2 to the financial statements for discussion of the Entergy Texas rate case settlement.
(b)
See “Other Tax Matters - Tax Cuts and Jobs Act” below for discussion of the amortization of excess ADIT in 2018 and 2019 and the tax legislation enactment in 2017.
(c)
See “Income Tax Audits - 2012-2013 IRS Audit” below for discussion of the settlement for Entergy Louisiana.


Significant components of accumulated deferred income taxes and taxes accrued for Entergy Corporation and Subsidiaries as of December 31, 2019 and 2018 are as follows:
 
 
2019
 
2018
 
(In Thousands)
Deferred tax liabilities:
 
 
 
Plant basis differences - net

($4,111,761
)
 

($3,835,211
)
Regulatory assets
(389,573
)
 
(370,484
)
Nuclear decommissioning trusts/receivables
(1,015,542
)
 
(1,128,140
)
Pension, net funding
(348,260
)
 
(307,626
)
Combined unitary state taxes
(11,519
)
 
(9,440
)
Power purchase agreements
—

 
(73,335
)
Deferred fuel
(8,360
)
 
(29,953
)
Other
(445,378
)
 
(248,997
)
Total
(6,330,393
)
 
(6,003,186
)
Deferred tax assets:
 

 
 

Nuclear decommissioning liabilities
929,251

 
1,070,583

Regulatory liabilities
806,777

 
895,756

Pension and other post-employment benefits
297,272

 
305,736

Sale and leaseback
102,420

 
121,473

Compensation
87,355

 
86,461

Accumulated deferred investment tax credit
56,013

 
57,643

Provision for allowances and contingencies
126,886

 
135,631

Power purchase agreements
231,502

 
—

Unbilled/deferred revenues
(10,218
)
 
43,762

Net operating loss carryforwards
1,133,197

 
628,165

Capital losses and miscellaneous tax credits
22,597

 
20,549

Valuation allowance
(303,307
)
 
(243,726
)
Other
289,557

 
125,522

Total
3,769,302

 
3,247,555

Non-current accrued taxes (including unrecognized tax benefits)
(1,775,638
)
 
(1,296,928
)
Accumulated deferred income taxes and taxes accrued

($4,336,729
)
 

($4,052,559
)


Entergy’s estimated tax attributes carryovers and their expiration dates as of December 31, 2019 are as follows:

Carryover Description
 
Carryover Amount
 
Year(s) of expiration
 
 
 
 
 
Federal net operating losses before 1/1/2018
 
$9.8 billion
 
2023-2037
Federal net operating losses - 1/1/2018 forward
 
$10.7 billion
 
N/A
State net operating losses
 
$20.8 billion
 
2020-2039
Federal and state charitable contributions
 
$395.8 million
 
2020-2024
Miscellaneous federal and state credits
 
$101.1 million
 
2020-2038


As a result of the accounting for uncertain tax positions, the amount of the deferred tax assets reflected in the financial statements is less than the amount of the tax effect of the federal and state net operating loss carryovers, tax credit carryovers, and other tax attributes reflected on income tax returns. Entergy evaluates the available positive and negative evidence to estimate whether sufficient future taxable income of the appropriate character will be generated to realize the benefits of existing deferred tax assets. When the evaluation indicates that Entergy will not be able to realize the existing benefits, a valuation allowance is recorded to reduce deferred tax assets to the realizable amount.

Because it is more likely than not that the benefit from certain state net operating loss and other deferred tax assets will not be utilized, valuation allowances totaling $303 million as of December 31, 2019 and $244 million as of December 31, 2018 have been provided on the deferred tax assets related to federal and state jurisdictions in which Entergy does not currently expect to be able to utilize certain separate company tax return attributes, preventing realization of such deferred tax assets.

Significant components of accumulated deferred income taxes and taxes accrued for the Registrant Subsidiaries as of December 31, 2019 and 2018 are as follows:
2019
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
System Energy
 
 
(In Thousands)
Deferred tax liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Plant basis differences - net
 

($979,033
)
 

($1,987,025
)
 

($565,202
)
 

($133,073
)
 

($551,365
)
 

($380,594
)
Regulatory assets
 
(170,949
)
 
(79,117
)
 
(10,528
)
 
(16,867
)
 
(59,745
)
 
(52,662
)
Nuclear decommissioning trusts/receivables
 
(120,306
)
 
(113,830
)
 
—

 
—

 
—

 
(100,621
)
Pension, net funding
 
(102,685
)
 
(98,743
)
 
(27,325
)
 
(11,859
)
 
(19,961
)
 
(21,609
)
Deferred fuel
 
—

 
(2,637
)
 
(609
)
 
(666
)
 
(4,380
)
 
(55
)
Other
 
(82,682
)
 
(94,139
)
 
(27,905
)
 
(25,909
)
 
2,059

 
(7,350
)
Total
 
(1,455,655
)
 
(2,375,491
)
 
(631,569
)
 
(188,374
)
 
(633,392
)
 
(562,891
)
Deferred tax assets:
 
 

 
 

 
 

 
 

 
 

 
 

Regulatory liabilities
 
250,410

 
283,507

 
53,421

 
33,258

 
65,602

 
121,011

Nuclear decommissioning liabilities
 
111,078

 
56,300

 
—

 
—

 
—

 
52,633

Pension and other post-employment benefits
 
(21,828
)
 
74,881

 
(5,844
)
 
(12,666
)
 
(15,406
)
 
(898
)
Sale and leaseback
 
—

 
—

 
—

 
—

 
—

 
102,480

Accumulated deferred investment tax credit
 
8,285

 
32,534

 
2,396

 
556

 
2,217

 
10,025

Provision for allowances and contingencies
 
5,365

 
77,298

 
12,963

 
24,022

 
4,024

 
—

Power purchase agreements
 
(15,087
)
 
18,004

 
1,147

 
7,961

 
26

 
—

Unbilled/deferred revenues
 
5,897

 
(28,081
)
 
4,715

 
1,428

 
5,544

 
—

Compensation
 
2,550

 
3,670

 
1,625

 
496

 
1,282

 
75

Net operating loss carryforwards
 
112,658

 
65,178

 
21,492

 
5,056

 
—

 
—

Capital losses and miscellaneous tax credits
 
—

 
—

 
45

 
—

 
—

 
7,857

Other
 
12,541

 
35,401

 
999

 
9,027

 
2,004

 
3

Total
 
471,869

 
618,692

 
92,959

 
69,138

 
65,293

 
293,186

Non-current accrued taxes (including unrecognized tax benefits)
 
(199,340
)
 
(707,714
)
 
(56,222
)
 
(235,300
)
 
(17,314
)
 
(544,235
)
Accumulated deferred income taxes and taxes accrued
 

($1,183,126
)
 

($2,464,513
)
 

($594,832
)
 

($354,536
)
 

($585,413
)
 

($813,940
)
2018
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
System Energy
 
 
(In Thousands)
Deferred tax liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Plant basis differences - net
 

($966,791
)
 

($1,893,831
)
 

($579,319
)
 

($135,143
)
 

($544,282
)
 

($403,809
)
Regulatory assets
 
(169,482
)
 
(74,917
)
 
(1,732
)
 
(20,009
)
 
(57,777
)
 
(46,627
)
Nuclear decommissioning trusts/receivables
 
(77,664
)
 
(71,470
)
 
—

 
—

 
—

 
(86,882
)
Pension, net funding
 
(91,962
)
 
(92,693
)
 
(24,398
)
 
(11,885
)
 
(20,331
)
 
(18,898
)
Deferred fuel
 
(5,801
)
 
(6,974
)
 
(11,819
)
 
(1,701
)
 
(2,835
)
 
(312
)
Other
 
(41,025
)
 
(34,700
)
 
(13,443
)
 
(7,640
)
 
(6,085
)
 
(4,544
)
Total
 
(1,352,725
)
 
(2,174,585
)
 
(630,711
)
 
(176,378
)
 
(631,310
)
 
(561,072
)
Deferred tax assets:
 
 

 
 

 
 

 
 

 
 

 
 

Regulatory liabilities
 
247,964

 
339,126

 
72,570

 
40,181

 
86,032

 
110,370

Nuclear decommissioning liabilities
 
99,479

 
48,738

 
—

 
—

 
—

 
46,643

Pension and other post-employment benefits
 
(19,068
)
 
80,102

 
(5,405
)
 
(11,371
)
 
(14,215
)
 
(632
)
Sale and leaseback
 
—

 
18,999

 
—

 
—

 
—

 
102,481

Accumulated deferred investment tax credit
 
8,599

 
33,928

 
2,541

 
579

 
2,347

 
9,649

Provision for allowances and contingencies
 
9,877

 
81,108

 
13,412

 
23,962

 
5,579

 
—

Power purchase agreements
 
(17,223
)
 
19,385

 
1,140

 
12,155

 
(18
)
 
—

Unbilled/deferred revenues
 
7,471

 
(17,345
)
 
5,527

 
636

 
7,016

 
—

Compensation
 
1,708

 
1,959

 
1,265

 
512

 
995

 
(260
)
Net operating loss carryforwards
 
6,338

 
20,118

 
4,896

 
480

 
261

 
—

Other
 
7,977

 
23,412

 
1,610

 
12,181

 
2,127

 
4

Total
 
353,122

 
649,530

 
97,556

 
79,315

 
90,124

 
268,255

Non-current accrued taxes (including unrecognized tax benefits)
 
(85,942
)
 
(701,666
)
 
(18,714
)
 
(226,532
)
 
(11,349
)
 
(512,479
)
Accumulated deferred income taxes and taxes accrued
 

($1,085,545
)
 

($2,226,721
)
 

($551,869
)
 

($323,595
)
 

($552,535
)
 

($805,296
)


The Registrant Subsidiaries’ estimated tax attributes carryovers and their expiration dates as of December 31, 2019 are as follows:
 
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
System Energy
 
 
 
 
 
 
 
 
 
 
 
 
 
Federal net operating losses
 
$4.4 billion
 
$4.3 billion
 
$2 billion
 
$1.1 billion
 
$—
 
$—
Year(s) of expiration
 
N/A
 
2035-2037
 
N/A
 
2037
 
N/A
 
N/A
 
 
 
 
 
 
 
 
 
 
 
 
 
State net operating losses
 
$4.5 billion
 
$5.2 billion
 
$2.1 billion
 
$1.2 billion
 
$—
 
$—
Year(s) of expiration
 
2024
 
2035-2039
 
2038-2039
 
2038-2039
 
N/A
 
N/A
 
 
 
 
 
 
 
 
 
 
 
 
 
Misc. federal credits
 
$—
 
$5.2 million
 
$—
 
$—
 
$1.9 million
 
$3.2 million
Year(s) of expiration
 
N/A
 
2035-2038
 
N/A
 
N/A
 
2029-2038
 
2029-2038
 
 
 
 
 
 
 
 
 
 
 
 
 
State credits
 
$—
 
$—
 
$—
 
$—
 
$2.9 million
 
$13.1 million
Year(s) of expiration
 
N/A
 
N/A
 
N/A
 
N/A
 
2026
 
2020-2023


As a result of the accounting for uncertain tax positions, the amount of the deferred tax assets reflected in the financial statements is less than the amount of the tax effect of the federal and state net operating loss carryovers and tax credit carryovers.

Unrecognized tax benefits

Accounting standards establish a “more-likely-than-not” recognition threshold that must be met before a tax benefit can be recognized in the financial statements.  If a tax deduction is taken on a tax return but does not meet the more-likely-than-not recognition threshold, an increase in income tax liability, above what is payable on the tax return, is required to be recorded.  A reconciliation of Entergy’s beginning and ending amount of unrecognized tax benefits is as follows:
 
2019
 
2018
 
2017
 
(In Thousands)
Gross balance at January 1

$7,181,482

 

$4,871,846

 

$3,909,855

Additions based on tax positions related to the current year
731,276

 
2,276,614

 
1,120,687

Additions for tax positions of prior years
151,628

 
506,142

 
283,683

Reductions for tax positions of prior years
(681,232
)
 
(274,600
)
 
(442,379
)
Settlements
—

 
(198,520
)
 
—

Gross balance at December 31
7,383,154

 
7,181,482

 
4,871,846

Offsets to gross unrecognized tax benefits:
 

 
 

 
 

Carryovers and refund claims
(5,831,587
)
 
(5,957,992
)
 
(3,945,524
)
Cash paid to taxing authorities
(10,000
)
 
(10,000
)
 
(10,000
)
Unrecognized tax benefits net of unused tax attributes, refund claims and payments (a)

$1,541,567

 

$1,213,490

 

$916,322



(a)
Potential tax liability above what is payable on tax returns

The balances of unrecognized tax benefits include $2,421 million, $2,161 million, and $1,462 million as of December 31, 2019, 2018, and 2017, respectively, which, if recognized, would lower the effective income tax rates.  Because of the effect of deferred tax accounting, the remaining balances of unrecognized tax benefits of $4,962
million, $5,020 million, and $3,410 million as of December 31, 2019, 2018, and 2017, respectively, if disallowed, would not affect the annual effective income tax rate but would accelerate the payment of cash to the taxing authority to an earlier period.

Entergy accrues interest expense, if any, related to unrecognized tax benefits in income tax expense.  Entergy’s December 31, 2019, 2018, and 2017 accrued balance for the possible payment of interest is approximately $48 million, $44 million, and $38 million, respectively. Interest (net-of-tax) of $4 million, $7 million, and $8 million was recorded in 2019, 2018, and 2017, respectively.

A reconciliation of the Registrant Subsidiaries’ beginning and ending amount of unrecognized tax benefits for 2019, 2018, and 2017 is as follows:
2019
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
System Energy
 
 
(In Thousands)
Gross balance at January 1, 2019
 

$1,298,662

 

$2,400,171

 

$508,765

 

$686,687

 

$17,802

 

$467,487

Additions based on tax positions related to the current year
 
84,335

 
28,705

 
68,594

 
40,676

 
2,312

 
5,496

Additions for tax positions of prior years
 
20,399

 
25,090

 
1,651

 
489

 
1,299

 
2,186

Reductions for tax positions of prior years
 
(62,154
)
 
(72,313
)
 
(12,723
)
 
(11,079
)
 
(7
)
 
(1,838
)
Gross balance at December 31, 2019
 
1,341,242

 
2,381,653

 
566,287

 
716,773

 
21,406

 
473,331

Offsets to gross unrecognized tax benefits:
 
 

 
 

 
 

 
 

 
 

 
 

Loss carryovers
 
(1,134,187
)
 
(1,573,257
)
 
(506,976
)
 
(445,430
)
 
(3,944
)
 
(8,392
)
Unrecognized tax benefits net of unused tax attributes and payments
 

$207,055

 

$808,396

 

$59,311

 

$271,343

 

$17,462

 

$464,939



2018
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
System Energy
 
 
(In Thousands)
Gross balance at January 1, 2018
 

($117,716
)
 

$2,518,457

 

$15,122

 

$679,544

 

$16,399

 

$445,511

Additions based on tax positions related to the current year (a)
 
1,430,828

 
30,577

 
493,039

 
2,261

 
1,978

 
18,271

Additions for tax positions of prior years
 
31,612

 
77,372

 
3,878

 
12,972

 
1,722

 
7,255

Reductions for tax positions of prior years
 
(21,619
)
 
(158,510
)
 
(3,253
)
 
(8,081
)
 
(2,262
)
 
(3,253
)
Settlements
 
(24,443
)
 
(67,725
)
 
(21
)
 
(9
)
 
(35
)
 
(297
)
Gross balance at December 31, 2018
 
1,298,662

 
2,400,171

 
508,765

 
686,687

 
17,802

 
467,487

Offsets to gross unrecognized tax benefits:
 
 

 
 

 
 

 
 

 
 

 
 

Loss carryovers
 
(1,173,839
)
 
(1,597,826
)
 
(478,268
)
 
(420,813
)
 
(3,199
)
 
(42,228
)
Unrecognized tax benefits net of unused tax attributes and payments
 

$124,823

 

$802,345

 

$30,497

 

$265,874

 

$14,603

 

$425,259


2017
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
System Energy
 
 
(In Thousands)
Gross balance at January 1, 2017
 

$2,503

 

$2,440,339

 

$12,206

 

$166,230

 

$15,946

 

$472,372

Additions based on tax positions related to the current year (a)
 
8,974

 
32,843

 
2,105

 
509,183

 
1,747

 
909

Additions for tax positions of prior years
 
3,682

 
235,331

 
1,267

 
13,364

 
3,115

 
1,432

Reductions for tax positions of prior years
 
(132,875
)
 
(190,056
)
 
(456
)
 
(9,233
)
 
(4,409
)
 
(29,202
)
Gross balance at December 31, 2017
 
(117,716
)
 
2,518,457

 
15,122

 
679,544

 
16,399

 
445,511

Offsets to gross unrecognized tax benefits:
 
 

 
 

 
 

 
 

 
 

 
 

Loss carryovers
 
—

 
(1,591,907
)
 
(15,122
)
 
(441,374
)
 
(638
)
 
(12,536
)
Unrecognized tax benefits net of unused tax attributes and payments
 

($117,716
)
 

$926,550

 

$—

 

$238,170

 

$15,761

 

$432,975



(a)
The primary additions for Entergy Mississippi in 2018, and Entergy New Orleans in 2017 are related to the mark-to-market treatment discussed in “Other Tax Matters - Tax Accounting Methods” below. The primary additions for Entergy Arkansas in 2018 are related to the nuclear decommissioning costs treatment and the mark-to-market treatment discussed in “Other Tax Matters - Tax Accounting Methods” below.

The Registrant Subsidiaries’ balances of unrecognized tax benefits included amounts which, if recognized, would have reduced income tax expense as follows:
 
December 31,
 
2019
 
2018
 
2017
 
(In Millions)
Entergy Arkansas

$203.3

 

$85.4

 

$2.6

Entergy Louisiana

$556.3

 

$594.0

 

$575.8

Entergy Mississippi

$1.9

 

$1.5

 

$—

Entergy New Orleans

$242.7

 

$246.2

 

$31.7

Entergy Texas

$5.7

 

$5.1

 

$4.4

System Energy

$—

 

$—

 

$—



Accrued balances for the possible payment of interest related to unrecognized tax benefits are as follows:
 
December 31,
 
2019
 
2018
 
2017
 
(In Millions)
Entergy Arkansas

$3.1

 

$1.7

 

$1.6

Entergy Louisiana

$14.2

 

$17.9

 

$14.1

Entergy Mississippi

$1.7

 

$1.2

 

$1.0

Entergy New Orleans

$4.7

 

$2.7

 

$2.1

Entergy Texas

$1.1

 

$0.9

 

$0.4

System Energy

$14.5

 

$13.2

 

$8.5



The Registrant Subsidiaries record interest and penalties related to unrecognized tax benefits in income tax expense.  No penalties were recorded in 2019, 2018, and 2017. Interest (net-of-tax) was recorded as follows:
 
2019
 
2018
 
2017
 
(In Millions)
Entergy Arkansas

$1.4

 

$0.2

 

$0.2

Entergy Louisiana

($3.7
)
 

$3.8

 

$5.7

Entergy Mississippi

$0.5

 

$0.2

 

$0.2

Entergy New Orleans

$2.0

 

$0.6

 

$0.6

Entergy Texas

$0.2

 

$0.5

 

($0.8
)
System Energy

$1.3

 

$4.7

 

$4.8



Income Tax Audits

Entergy and its subsidiaries file U.S. federal and various state and foreign income tax returns.  IRS examinations are complete for years before 2014. All state taxing authorities’ examinations are complete for years before 2015. Entergy regularly negotiates with the IRS to achieve settlements.  The resolution of audit issues could result in significant changes to the amounts of unrecognized tax benefits in the next twelve months.

2012-2013 IRS Audit

The IRS completed its examination of the 2012 and 2013 tax years and issued its 2012-2013 Revenue Agent Report (RAR) in June 2018. Entergy agreed to all proposed adjustments contained in the RAR. Entergy and the Registrant Subsidiaries recorded the effects of these adjustments in June 2018.

As a result of the issuance of the RAR, Entergy Louisiana was able to recognize previously unrecognized tax benefits of $52 million related to the Hurricane Katrina and Hurricane Rita contingent sharing obligation associated with the Louisiana Act 55 financing.

2014-2015 IRS Audit

The IRS is examining the 2014 and 2015 tax years. Entergy expects the IRS to complete this examination in 2020. As of December 31, 2019, Entergy has not received any proposed adjustments to taxable income from the IRS.

Other Tax Matters

Tax Cuts and Jobs Act

Deferred tax liabilities and assets have been adjusted for the effect of the enactment of the Tax Cuts and Jobs Act (the Act), signed by President Trump on December 22, 2017. The most significant effect of the Act for Entergy and the Registrant Subsidiaries was the change in the federal corporate income tax rate from 35% to 21%, effective January 1, 2018. Other significant provisions and their effect on Entergy and the Registrant Subsidiaries are summarized below.
The Act limits the deduction for net business interest expense to 30 percent of adjusted taxable income which is similar to earnings before interest, taxes, depreciation, and amortization. The limitation does not apply to interest expense that is properly allocable to a trade or business that furnishes or sells electrical energy, gas, or steam through a local distribution system, or transports gas or steam by pipeline if the rates for such furnishing or sale are subject to ratemaking by a government entity or instrumentality or by a public utility commission.
The IRS issued proposed regulations relating to this limitation in November 2018. The regulations are generally proposed to be effective for taxable years ending after the date Treasury adopts the regulations as final. Taxpayers may apply the rules of the proposed regulations to a taxable year beginning after December 31, 2017, so long as taxpayers consistently apply the rules of the proposed regulations. The proposed regulations provide guidance that if 90% of a tax group’s consolidated assets consist of utility property, the entire consolidated tax group will be treated as a regulated public utility and all of the consolidated group’s interest expense will be currently tax deductible.
As a result of the limitation under the Act, Entergy recorded limitations in 2018 and 2019 and recorded a deferred tax asset on the nondeductible portion, as it has an unlimited carryover period. Entergy recorded a valuation allowance of $24 million due to a lack of earnings from sources other than the Utility.
The Act limits the net operating loss (NOL) deduction for a given year to 80% of taxable income, effective with respect to losses arising in tax years beginning after December 31, 2017. Only NOLs generated after December 31, 2017 are subject to the 80% limitation. Prior law generally provided a two-year carryback and 20-year carryforward for NOLs. The Act does not allow a carryback period but does provide for the indefinite carryforward of NOLs arising in tax years ending after December 31, 2017. Because of the indefinite carryforward, the new limitations on NOL utilization are not expected to have a material effect on Entergy or the Registrant Subsidiaries.
The Act also modified Internal Revenue Code section 162(m), which limits the deduction for compensation with respect to certain covered employees to no more than $1 million per year.  The IRS issued proposed regulations relating to this limitation in December 2019. The significant provisions of the Act and associated proposed regulations require inclusion of performance-based compensation and an expanded definition of “covered employees” in the annual computation of the section 162 limitation. The Act amendments and associated proposed regulations resulted in an increase in disallowed compensation expense, but this limitation does not have a material effect on Entergy or the Registrant Subsidiaries.
With respect to the federal corporate income tax rate change from 35% to 21%, Entergy and the Registrant Subsidiaries recorded a regulatory liability associated with the decrease in the net accumulated deferred income tax liability, which is often referred to as “excess ADIT,” a significant portion of which has been paid to customers in 2018 and 2019 in the form of lower rates. Entergy’s December 31, 2019 and December 31, 2018 balance sheets reflect a regulatory liability of $1.7 billion and $2.1 billion, respectively, as a result of the re-measurement of deferred tax assets and liabilities from the income tax rate change, amortization of excess ADIT, and payments to customers during 2018 and 2019. Entergy’s regulatory liability for income taxes includes a gross-up at the applicable tax rate because of the effect that excess ADIT has on the ratemaking formula. The regulatory liability for income taxes includes the effect of a) the reduction of the net deferred tax liability resulting in excess ADIT, b) the tax gross-up of excess ADIT, and c) the effect of the new tax rate on the previous net regulatory asset for income taxes. For the same reasons, the Registrant Subsidiaries’ December 31, 2019 and December 31, 2018 balance sheets reflect net regulatory liabilities for income taxes as follows:
 
2019
 
2018
 
(In Millions)
Entergy Arkansas

$487

 

$605

Entergy Louisiana

$531

 

$612

Entergy Mississippi

$237

 

$246

Entergy New Orleans

$59

 

$86

Entergy Texas

$253

 

$352

System Energy

$143

 

$163

Excess ADIT is generally classified into two categories: 1) the portion that is subject to the normalization requirements of the Act, i.e., “protected”, and 2) the portion that is not subject to such normalization provisions, referred to as “unprotected”. The Act provides that the normalization method of accounting for income taxes is required for
excess ADIT associated with public utility property. The Act provides for the use of the average rate assumption method (ARAM) for the determination of the timing of the return of excess ADIT associated with such property. Under ARAM, the excess ADIT is reduced over the remaining life of the asset. Remaining asset lives vary for each Registrant Subsidiary, but the average life of public utility property is typically 30 years or longer. Entergy will amortize the protected portion of the excess ADIT in conformity with the normalization requirements. The Registrant Subsidiaries’ net regulatory liability for income taxes as of December 31, 2019 and December 31, 2018, includes protected excess ADIT as follows:
 
2019
 
2018
 
(In Millions)
Entergy Arkansas

$490

 

$521

Entergy Louisiana

$797

 

$812

Entergy Mississippi

$261

 

$271

Entergy New Orleans

$62

 

$59

Entergy Texas

$228

 

$237

System Energy

$186

 

$202


During the second quarter of 2018, the Registrant Subsidiaries began paying unprotected excess accumulated deferred income taxes, associated with the effects of the Act, to their customers through rate riders and other means approved by their respective regulatory commissions. Payment of the unprotected excess accumulated deferred income taxes results in a reduction in the regulatory liability for income taxes and a corresponding reduction in income tax expense. This has a significant effect on the effective tax rate for the period as compared to the statutory tax rate. The Registrant Subsidiaries’ net regulatory liability for income taxes as of December 31, 2019 and December 31, 2018, includes unprotected excess ADIT as follows:
 
2019
 
2018
 
(In Millions)
Entergy Arkansas

$9

 

$117

Entergy Louisiana

$242

 

$295

Entergy New Orleans

$9

 

$25

Entergy Texas

$83

 

$171

System Energy

$—

 

$4


The return of unprotected excess accumulated deferred income taxes reduced Entergy’s and the Registrant Subsidiaries’ regulatory liability for income taxes as follows for 2019 and 2018:
 
2019
 
2018
 
(In Millions)
Entergy

$273

 

$776

Entergy Arkansas

$126

 

$368

Entergy Louisiana

$39

 

$141

Entergy Mississippi

$—

 

$159

Entergy New Orleans

$14

 

$13

Entergy Texas

$87

 

$15

System Energy

$7

 

$80



In addition to the protected and unprotected excess ADIT amounts, the net regulatory liability for income taxes includes other regulatory assets and liabilities for income taxes associated with AFUDC, which is described in Note 1 to the financial statements.
For a discussion of the proceedings commenced or other responses by Entergy’s regulators to the Act, see Note 2 to the financial statements.
Not all of Entergy’s excess ADIT is included in ratemaking. Consequently, Entergy recorded a net decrease in deferred tax assets of $560 million for which there was a corresponding charge to income tax expense for the year ended December 31, 2017. The corresponding income tax expense (or benefit) recorded by the Registrant Subsidiaries was as follows: Entergy Arkansas, ($3 million); Entergy Louisiana, $217 million; Entergy Mississippi, $3 million; Entergy New Orleans, $6 million; Entergy Texas, $3 million; and System Energy, $0.
Included in the effect of the computation of the changes in deferred tax assets and liabilities is the recognition threshold and measurement of uncertain tax positions resulting in unrecognized tax benefits. The final economic outcome of such unrecognized tax benefits is generally the result of a negotiated settlement with the IRS that often differs from the amount that is recorded as realizable under GAAP. The intrinsic uncertainty with respect to all such tax positions means that the difference between current estimates of such amounts likely to be realized and actual amounts realized upon settlement may have an effect on income tax expense and the regulatory liability for income taxes in future periods.

Entergy anticipates that the Act, including the federal corporate income tax rate change, may continue to have ramifications that require adjustments in the future as certain events occur. These events include: 1) the evaluation by regulators in all of Entergy’s jurisdictions regarding the ratemaking treatment of the Act and excess ADIT; 2) IRS audit adjustments to or amendments of federal and state income tax returns that include modifications to the computation of taxable income resulting from the Act; and 3) additional guidance, interpretations, or rulings by the U.S. Department of the Treasury or the IRS. The potential exists for these types of events to result in future tax expense adjustments because of the difference in the federal corporate income tax rate between past and future periods and the effect of the tax rate change on ratemaking. In turn, these items also could potentially affect the regulatory liability for income taxes.
Entergy Wholesale Commodities Restructuring

The tax classification of the entity that owned FitzPatrick changed in the second quarter 2016.  The change in tax classification required Entergy to recognize the plant’s nuclear decommissioning liability for income tax purposes resulting in a tax accounting permanent difference that reduced income tax expense, net of unrecognized tax benefits, by $238 million. The accrual of the nuclear decommissioning liability also required Entergy to recognize a gain for income tax purposes, a significant portion of which resulted in an increase in tax basis of the assets. Recognition of the gain and the increase in tax basis of the assets represents a tax accounting temporary difference. Entergy sold FitzPatrick 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. The re-determined basis resulted in a $44 million income tax benefit in the first quarter 2017.

In the second quarter 2017, Entergy changed the tax classification of legal entities that own Entergy Wholesale Commodities nuclear power plants. The change in tax classification required Entergy to recognize the plants’ nuclear decommissioning liabilities for income tax purposes resulting in a tax accounting permanent difference that reduced income tax expense, net of unrecognized tax benefits, by $373 million. The accrual of the nuclear decommissioning liabilities also required Entergy to recognize a gain for income tax purposes, a portion of which resulted in an increase in tax basis of the assets. Recognition of the gain and the increase in tax basis of the assets represents a tax accounting temporary difference.

In the third quarter 2018, Entergy completed a restructuring of the investment holdings in one of the Entergy Wholesale Commodities nuclear plant decommissioning trusts that resulted in an adjustment to tax basis for the trust. The accounting standards provide that a taxable temporary difference does not exist if the tax law provides a means by which an amount can be recovered without incurrence of tax. The restructuring allows Entergy to recover assets from the trust without incurring tax. As such, the tax basis recognized resulted in the reversal of a deferred tax liability and reduction of income tax expense of approximately $107 million.

In the fourth quarter 2019, two separate events occurred resulting in a reduction of tax expense of $174 million. In November 2019 an Entergy Wholesale Commodities subsidiary recognized a reduction in income tax expense of $18 million in connection with the accounting method on power contracts associated with the Palisades nuclear power station. Additionally, Entergy’s ownership of Indian Point 2 and Indian Point 3 was restructured. The restructuring required Entergy to recognize Indian Point 2 and Indian Point 3 nuclear decommissioning liabilities for income tax purposes resulting in a tax accounting permanent difference that reduced income tax expense, net of unrecognized tax benefits, by $156 million. The accrual of the nuclear decommissioning liabilities also required Entergy to recognize a gain for income tax purposes, a portion of which resulted in an increase in the tax basis of the assets. Recognition of the gain and the increase in the tax basis of the assets represents a tax accounting temporary difference.

Immediately prior to the restructuring, through its ownership of Indian Point 2 and Indian Point 3, Entergy donated property to Stony Brook University and recognized an associated tax deduction resulting in a decrease to tax expense of $19 million.

Entergy Wholesale Commodities Tax Audit

A state income tax audit involving Entergy Wholesale Commodities was concluded during the third quarter 2018. Upon conclusion of the audit, subsidiaries within Entergy Wholesale Commodities reversed a portion of the provision for uncertain tax positions totaling approximately $23 million, net of tax and interest paid.

Tax Accounting Methods

In the fourth quarter 2015, System Energy and Entergy Louisiana adopted a new method of accounting for income tax return purposes in which their nuclear decommissioning costs will be treated as production costs of electricity includable in cost of goods sold. The new method resulted in a reduction of taxable income of $1.2 billion for System Energy and $2.2 billion for Energy Louisiana. In the fourth quarter 2018, Entergy Arkansas adopted the same method of accounting for its nuclear decommissioning costs which resulted in a $2.2 billion reduction in taxable income.

In 2016, Entergy Louisiana elected mark-to-market income tax treatment for various wholesale electric power purchase and sale agreements, including Entergy Louisiana’s contract to purchase electricity from the Vidalia hydroelectric facility and from System Energy under the Unit Power Sales Agreement. The election resulted in a $2.2 billion deductible temporary difference. In 2017, Entergy New Orleans also elected mark-to-market income tax treatment for wholesale electric contracts which resulted in a $1.1 billion deductible temporary difference. In 2018, Entergy Arkansas and Entergy Mississippi accrued deductible temporary differences related to mark-to-market tax accounting for wholesale electric contracts of $2.1 billion and $1.9 billion, respectively.

Entergy Arkansas and Entergy Mississippi Internal Restructuring

In the fourth quarter 2018, Entergy Arkansas and Entergy Mississippi became wholly-owned subsidiaries of Entergy Utility Holding Company, LLC. The change in ownership required Entergy to recognize Entergy Arkansas’s nuclear decommissioning liabilities for income tax purposes resulting in a tax accounting permanent difference that reduced income tax expense, net of unrecognized tax benefits, by $165 million. The accrual of the nuclear decommissioning liabilities also required Entergy to recognize a gain for income tax purposes, a portion of which resulted in an increase in the tax basis of the assets. Recognition of the gain and the increase in the tax basis of the assets represents a tax accounting temporary difference. Additionally, Entergy recorded a $5 million reduction of income tax expense associated with state income tax effects resulting in a total reduction of income tax expense of $170 million from the restructuring. Entergy recorded a regulatory liability of $40 million ($30 million net-of-tax) which partially offsets the reduction of income tax expense. Entergy Arkansas’s member’s equity increased by $94 million as a result of the restructuring. See Note 2 to the financial statements for further discussion of the internal restructuring.

Arkansas Corporate Income Tax Rate Reduction

In April 2019 the state of Arkansas enacted corporate income tax law changes that phase in an Arkansas tax rate reduction from the current rate of 6.5% to 6.2% in 2021 and 5.9% in 2022.  The rate reduction will eventually reduce Entergy Arkansas’s combined federal and state applicable tax rate by less than 0.5% once fully adopted.  As a result of the rate reduction, Entergy Arkansas recorded a regulatory liability for income taxes of approximately $25 million which includes a tax gross-up related to the treatment of income taxes in the ratemaking formula. The Arkansas tax law enactment also phases in an increase to the net operating loss carryover period from five to ten years.

Consolidated Income Tax Return of Entergy Corporation

In September 2019, Entergy Utility Holding Company, LLC and its regulated, wholly-owned subsidiaries including Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans, became eligible to and joined the Entergy Corporation consolidated federal income tax group.  As a result of these four Utility operating companies re-joining the Entergy Corporation consolidated tax return group, Entergy was able to recognize a $41 million deferred tax asset associated with a previously unrecognized Arkansas net operating loss carryover.

Additionally, in September 2019, Entergy Texas issued $35 million of 5.375% Series A preferred stock with a liquidation value of $25 per share resulting in the disaffiliation and de-consolidation of Entergy Texas from the consolidated federal income tax return of Entergy Corporation.  These changes will not affect the accrual or allocation of income taxes for the Registrant Subsidiaries. See Note 6 to the financial statements for discussion of the preferred stock issuance.

Vermont Yankee

The Vermont Yankee transaction resulted in Entergy generating a net deferred tax asset in January 2019.  The deferred tax asset could not be fully realized by Entergy in the first quarter of 2019; accordingly, Entergy accrued a net tax expense of $29 million on the disposition of Vermont Yankee. See Note 14 to the financial statements for discussion of the Vermont Yankee transaction.