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

FORM 10-Q
(Mark One)
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
For the transition period from ____________ to ____________

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

Commission
File Number
Registrant, State of Incorporation or Organization, Address of Principal Executive Offices, Telephone Number, and IRS Employer Identification No.
 
 
 
 
 
1-11299
ENTERGY CORPORATION
 
1-35747
ENTERGY NEW ORLEANS, LLC
 
(a Delaware corporation)
639 Loyola Avenue
New Orleans, Louisiana 70113
Telephone (504) 576-4000
 
 
(a Texas limited liability company)
1600 Perdido Street
New Orleans, Louisiana 70112
Telephone (504) 670-3700
 
72-1229752
 
 
82-2212934
 
 
 
 
 
 
 
 
 
 
1-10764
ENTERGY ARKANSAS, LLC
 
1-34360
ENTERGY TEXAS, INC.
 
(a Texas limited liability company)
425 West Capitol Avenue
Little Rock, Arkansas 72201
Telephone (501) 377-4000
 
 
(a Texas corporation)
10055 Grogans Mill Road
The Woodlands, Texas 77380
Telephone (409) 981-2000
 
83-1918668
 
 
61-1435798
 
 
 
 
 
 
 
 
 
 
1-32718
ENTERGY LOUISIANA, LLC
 
1-09067
SYSTEM ENERGY RESOURCES, INC.
 
(a Texas limited liability company)
4809 Jefferson Highway
Jefferson, Louisiana 70121
Telephone (504) 576-4000
 
 
(an Arkansas corporation)
1340 Echelon Parkway
Jackson, Mississippi 39213
Telephone (601) 368-5000
 
47-4469646
 
 
72-0752777
 
 
 
 
 
 
 
 
 
 
1-31508
ENTERGY MISSISSIPPI, LLC
 
 
 
 
(a Texas limited liability company)
308 East Pearl Street
Jackson, Mississippi 39201
Telephone (601) 368-5000
 
 
 
 
83-1950019
 
 
 
 
 
 
 
 
__________________________________________________________________________________________


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Securities registered pursuant to Section 12(b) of the Act:
Registrant
Title of Class
Trading
Symbol
Name of Each Exchange
on Which Registered
 
 
 
 
Entergy Corporation
Common Stock, $0.01 Par Value
ETR
New York Stock Exchange
 
Common Stock, $0.01 Par Value
ETR
NYSE Chicago, Inc.
 
 
 
 
Entergy Arkansas, LLC
Mortgage Bonds, 4.90% Series due December 2052
EAB
New York Stock Exchange
 
Mortgage Bonds, 4.75% Series due June 2063
EAE
New York Stock Exchange
 
Mortgage Bonds, 4.875% Series due September 2066
EAI
New York Stock Exchange
 
 
 
 
Entergy Louisiana, LLC
Mortgage Bonds, 5.25% Series due July 2052
ELJ
New York Stock Exchange
 
Mortgage Bonds, 4.70% Series due June 2063
ELU
New York Stock Exchange
 
Mortgage Bonds, 4.875% Series due September 2066
ELC
New York Stock Exchange
 
 
 
 
Entergy Mississippi, LLC
Mortgage Bonds, 4.90% Series due October 2066
EMP
New York Stock Exchange
 
 
 
 
Entergy New Orleans, LLC
Mortgage Bonds, 5.0% Series due December 2052
ENJ
New York Stock Exchange
 
Mortgage Bonds, 5.50% Series due April 2066
ENO
New York Stock Exchange
 
 
 
 
Entergy Texas, Inc.
Mortgage Bonds, 5.625% Series due June 2064
EZT
New York Stock Exchange
 
5.375% Series A Preferred Stock, Cumulative, No Par Value (Liquidation Value $25 Per Share)
ETI/PR
New York Stock Exchange



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

Indicate by check mark whether the registrants have submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrants were required to submit such files).  Yes No

Indicate by check mark whether each registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Securities Exchange Act of 1934.
 
Large accelerated filer
 
Accelerated
filer
 
Non-accelerated filer
 
Smaller
reporting
company
 
Emerging
growth
company
Entergy Corporation
ü
 
 
 
 
 
 
 
 
Entergy Arkansas, LLC
 
 
 
 
ü
 
 
 
 
Entergy Louisiana, LLC
 
 
 
 
ü
 
 
 
 
Entergy Mississippi, LLC
 
 
 
 
ü
 
 
 
 
Entergy New Orleans, LLC
 
 
 
 
ü
 
 
 
 
Entergy Texas, Inc.
 
 
 
 
ü
 
 
 
 
System Energy Resources, Inc.
 
 
 
 
ü
 
 
 
 

If an emerging growth company, indicate by check mark if the registrants have elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrants are shell companies (as defined in Rule 12b-2 of the Exchange Act). Yes No

Common Stock Outstanding
 
Outstanding at April 30, 2020
Entergy Corporation
($0.01 par value)
200,161,934

Entergy Corporation, Entergy Arkansas, LLC, Entergy Louisiana, LLC, Entergy Mississippi, LLC, Entergy New Orleans, LLC, Entergy Texas, Inc., and System Energy Resources, Inc. separately file this combined Quarterly Report on Form 10-Q.  Information contained herein relating to any individual company is filed by such company on its own behalf.  Each company reports herein only as to itself and makes no other representations whatsoever as to any other company.  This combined Quarterly Report on Form 10-Q supplements and updates the Annual Report on Form 10‑K for the calendar year ended December 31, 2019, filed by the individual registrants with the SEC, and should be read in conjunction therewith.



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TABLE OF CONTENTS

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


i

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


ii

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FORWARD-LOOKING INFORMATION

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

resolution of pending and future rate cases, formula rate proceedings and related negotiations, including various performance-based rate discussions, Entergy’s utility supply plan, and recovery of fuel and purchased power costs;
continuing long-term risks and uncertainties associated with the termination of the System Agreement in 2016, including the potential absence of federal authority to resolve certain issues among the Utility operating companies and their retail regulators;
regulatory and operating challenges and uncertainties and economic risks associated with the Utility operating companies’ participation in MISO, including the benefits of continued MISO participation, the effect of current or projected MISO market rules and market and system conditions in the MISO markets, the allocation of MISO system transmission upgrade costs, the MISO-wide base rate of return on equity allowed or any MISO-related charges and credits required by the FERC, and the effect of planning decisions that MISO makes with respect to future transmission investments by the Utility operating companies;
changes in utility regulation, including with respect to retail and wholesale competition, the ability to recover net utility assets and other potential stranded costs, and the application of more stringent return on equity criteria, transmission reliability requirements or market power criteria by the FERC or the U.S. Department of Justice;
changes in the regulation or regulatory oversight of Entergy’s nuclear generating facilities and nuclear materials and fuel, including with respect to the planned or actual shutdown and sale of each of the nuclear generating facilities owned or operated by Entergy Wholesale Commodities, and the effects of new or existing safety or environmental concerns regarding nuclear power plants and nuclear fuel;
resolution of pending or future applications, and related regulatory proceedings and litigation, for license modifications or other authorizations required of nuclear generating facilities and the effect of public and political opposition on these applications, regulatory proceedings, and litigation;
the performance of and deliverability of power from Entergy’s generation resources, including the capacity factors at Entergy’s nuclear generating facilities;
increases in costs and capital expenditures that could result from changing regulatory requirements, emerging operating and industry issues, and the commitment of substantial human and capital resources required for the safe and reliable operation and maintenance of Entergy’s nuclear generating facilities;
Entergy’s ability to develop and execute on a point of view regarding future prices of electricity, natural gas, and other energy-related commodities;


iii

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FORWARD-LOOKING INFORMATION (Continued)

prices for power generated by Entergy’s merchant generating facilities and the ability to hedge, meet credit support requirements for hedges, sell power forward or otherwise reduce the market price risk associated with those facilities, including the Entergy Wholesale Commodities nuclear plants, especially in light of the planned shutdown and sale of each of these nuclear plants;
the prices and availability of fuel and power Entergy must purchase for its Utility customers, and Entergy’s ability to meet credit support requirements for fuel and power supply contracts;
volatility and changes in markets for electricity, natural gas, uranium, emissions allowances, and other energy-related commodities, and the effect of those changes on Entergy and its customers;
changes in law resulting from federal or state energy legislation or legislation subjecting energy derivatives used in hedging and risk management transactions to governmental regulation;
changes in environmental laws and regulations, agency positions or associated litigation, including requirements for reduced emissions of sulfur dioxide, nitrogen oxide, greenhouse gases, mercury, particulate matter and other regulated air emissions, heat and other regulated discharges to water, requirements for waste management and disposal and for the remediation of contaminated sites, wetlands protection and permitting, and changes in costs of compliance with environmental laws and regulations;
changes in laws and regulations, agency positions, or associated litigation related to protected species and associated critical habitat designations;
the effects of changes in federal, state, or local laws and regulations, and other governmental actions or policies, including changes in monetary, fiscal, tax, environmental, trade/tariff, domestic purchase requirements, or energy policies;
the effects of full or partial shutdowns of the federal government or delays in obtaining government or regulatory actions or decisions;
uncertainty regarding the establishment of interim or permanent sites for spent nuclear fuel and nuclear waste storage and disposal and the level of spent fuel and nuclear waste disposal fees charged by the U.S. government or other providers related to such sites;
variations in weather and the occurrence of hurricanes and other storms and disasters, including uncertainties associated with efforts to remediate the effects of hurricanes, ice storms, or other weather events and the recovery of costs associated with restoration, including accessing funded storm reserves, federal and local cost recovery mechanisms, securitization, and insurance, as well as any related unplanned outages;
the risk that an incident at any nuclear generation facility in the U.S. could lead to the assessment of significant retrospective assessments and/or retrospective insurance premiums as a result of Entergy’s participation in a secondary financial protection system, a utility industry mutual insurance company, and industry self-insurance programs;
effects of climate change, including the potential for increases in extreme weather events and sea levels or coastal land and wetland loss;
changes in the quality and availability of water supplies and the related regulation of water use and diversion;
Entergy’s ability to manage its capital projects, including completion of projects timely and within budget and to obtain the anticipated performance or other benefits, and its operation and maintenance costs;
Entergy’s ability to purchase and sell assets at attractive prices and on other attractive terms;
the economic climate, and particularly economic conditions in Entergy’s Utility service area and the northern United States and events and circumstances that could influence economic conditions in those areas, including power prices, and the risk that anticipated load growth may not materialize;
federal income tax reform, including the Tax Cuts and Jobs Act and its intended and unintended consequences on financial results and future cash flows;
the effects of Entergy’s strategies to reduce tax payments;
changes in the financial markets and regulatory requirements for the issuance of securities, particularly as they affect access to capital and Entergy’s ability to refinance existing securities, execute share repurchase programs, and fund investments and acquisitions;
actions of rating agencies, including changes in the ratings of debt and preferred stock, changes in general corporate ratings, and changes in the rating agencies’ ratings criteria;
changes in inflation and interest rates;

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FORWARD-LOOKING INFORMATION (Concluded)

the effects of litigation and government investigations or proceedings;
changes in technology, including (i) Entergy’s ability to implement new or emerging technologies, (ii) the impact of changes relating to new, developing, or alternative sources of generation such as distributed energy and energy storage, renewable energy, energy efficiency, demand side management and other measures that reduce load and government policies incentivizing development of the foregoing, and (iii) competition from other companies offering products and services to Entergy’s customers based on new or emerging technologies or alternative sources of generation;
the effects, including increased security costs, of threatened or actual terrorism, cyber-attacks or data security breaches, natural or man-made electromagnetic pulses that affect transmission or generation infrastructure, accidents, and war or a catastrophic event such as a nuclear accident or a natural gas pipeline explosion;
the effects of a global event or pandemic, such as the COVID-19 global pandemic, including economic and societal disruptions; volatility in the capital markets (and any related increased cost of capital or any inability to access the capital markets or draw on available bank credit facilities); reduced demand for electricity, particularly from commercial and industrial customers; increased or unrecoverable costs; supply chain, vendor, and contractor disruptions; delays in completion of capital or other construction projects, maintenance, and other operations activities, including prolonged outages; impacts to Entergy’s workforce availability, health, or safety; increased cybersecurity risks as a result of many employees telecommuting; increased late or uncollectible customer payments; regulatory delays; executive orders affecting, or increased regulation of, our business; changes in credit ratings or outlooks as a result of any of the foregoing; or other adverse impacts on Entergy’s ability to execute on its business strategies and initiatives or, more generally, on Entergy’s results of operations, financial condition, and liquidity;
Entergy’s ability to attract and retain talented management, directors, and employees with specialized skills;
Entergy’s ability to attract, retain and manage an appropriately qualified workforce;
changes in accounting standards and corporate governance;
declines in the market prices of marketable securities and resulting funding requirements and the effects on benefits costs for Entergy’s defined benefit pension and other postretirement benefit plans;
future wage and employee benefit costs, including changes in discount rates and returns on benefit plan assets;
changes in decommissioning trust fund values or earnings or in the timing of, requirements for, or cost to decommission Entergy’s nuclear plant sites and the implementation of decommissioning of such sites following shutdown;
the decision to cease merchant power generation at all Entergy Wholesale Commodities nuclear power plants by mid-2022, including the implementation of the planned shutdowns and sales of Indian Point 2, Indian Point 3, and Palisades;
the effectiveness of Entergy’s risk management policies and procedures and the ability and willingness of its counterparties to satisfy their financial and performance commitments;
the potential for the factors listed herein to lead to the impairment of long-lived assets; and
Entergy and its subsidiaries’ ability to successfully execute on their business strategies, including their ability to complete strategic transactions that Entergy may undertake.


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DEFINITIONS

Certain abbreviations or acronyms used in the text and notes are defined below:
Abbreviation or Acronym
Term
 
 
ALJ
Administrative Law Judge
ANO 1 and 2
Units 1 and 2 of Arkansas Nuclear One (nuclear), owned by Entergy Arkansas
APSC
Arkansas Public Service Commission
ASU
Accounting Standards Update issued by the FASB
Board
Board of Directors of Entergy Corporation
Cajun
Cajun Electric Power Cooperative, Inc.
capacity factor
Actual plant output divided by maximum potential plant output for the period
City Council
Council of the City of New Orleans, Louisiana
COVID-19
The novel coronavirus disease declared a pandemic by the World Health Organization and the Centers for Disease Control and Prevention in March 2020
D.C. Circuit
U.S. Court of Appeals for the District of Columbia Circuit
DOE
United States Department of Energy
Entergy
Entergy Corporation and its direct and indirect subsidiaries
Entergy Corporation
Entergy Corporation, a Delaware corporation
Entergy Gulf States, Inc.
Predecessor company for financial reporting purposes to Entergy Gulf States Louisiana that included the assets and business operations of both Entergy Gulf States Louisiana and Entergy Texas
Entergy Gulf States Louisiana
Entergy Gulf States Louisiana, L.L.C., a Louisiana limited liability company formally created as part of the jurisdictional separation of Entergy Gulf States, Inc. and the successor company to Entergy Gulf States, Inc. for financial reporting purposes.  The term is also used to refer to the Louisiana jurisdictional business of Entergy Gulf States, Inc., as the context requires. Effective October 1, 2015, the business of Entergy Gulf States Louisiana was combined with Entergy Louisiana.
Entergy Louisiana
Entergy Louisiana, LLC, a Texas limited liability company formally created as part of the combination of Entergy Gulf States Louisiana and the company formerly known as Entergy Louisiana, LLC (Old Entergy Louisiana) into a single public utility company and the successor to Old Entergy Louisiana for financial reporting purposes.
Entergy Texas
Entergy Texas, Inc., a Texas corporation formally created as part of the jurisdictional separation of Entergy Gulf States, Inc.  The term is also used to refer to the Texas jurisdictional business of Entergy Gulf States, Inc., as the context requires.
Entergy Wholesale Commodities
Entergy’s non-utility business segment primarily comprised of the ownership, operation, and decommissioning of nuclear power plants, the ownership of interests in non-nuclear power plants, and the sale of the electric power produced by its operating power plants to wholesale customers
EPA
United States Environmental Protection Agency
FASB
Financial Accounting Standards Board
FERC
Federal Energy Regulatory Commission
Form 10-K
Annual Report on Form 10-K for the calendar year ended December 31, 2019 filed with the SEC by Entergy Corporation and its Registrant Subsidiaries
Grand Gulf
Unit No. 1 of Grand Gulf Nuclear Station (nuclear), 90% owned or leased by System Energy
GWh
Gigawatt-hour(s), which equals one million kilowatt-hours
Independence
Independence Steam Electric Station (coal), owned 16% by Entergy Arkansas, 25% by Entergy Mississippi, and 7% by Entergy Power, LLC

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DEFINITIONS (Continued)
Abbreviation or Acronym
Term
 
 
Indian Point 2
Unit 2 of Indian Point Energy Center (nuclear), owned by an Entergy subsidiary in the Entergy Wholesale Commodities business segment
Indian Point 3
Unit 3 of Indian Point Energy Center (nuclear), owned by an Entergy subsidiary in the Entergy Wholesale Commodities business segment
IRS
Internal Revenue Service
ISO
Independent System Operator
kW
Kilowatt, which equals one thousand watts
kWh
Kilowatt-hour(s)
LPSC
Louisiana Public Service Commission
MISO
Midcontinent Independent System Operator, Inc., a regional transmission organization
MMBtu
One million British Thermal Units
MPSC
Mississippi Public Service Commission
MW
Megawatt(s), which equals one thousand kilowatts
MWh
Megawatt-hour(s)
Nelson Unit 6
Unit No. 6 (coal) of the Nelson Steam Electric Generating Station, 70% of which is co-owned by Entergy Louisiana (57.5%) and Entergy Texas (42.5%) and 10.9% of which is owned by an Entergy subsidiary in the Entergy Wholesale Commodities business segment
Net debt to net capital ratio
Gross debt less cash and cash equivalents divided by total capitalization less cash and cash equivalents
Net MW in operation
Installed capacity owned and operated
NRC
Nuclear Regulatory Commission
Palisades
Palisades Nuclear Plant (nuclear), owned by an Entergy subsidiary in the Entergy Wholesale Commodities business segment
Parent & Other
The portions of Entergy not included in the Utility or Entergy Wholesale Commodities segments, primarily consisting of the activities of the parent company, Entergy Corporation
Pilgrim
Pilgrim Nuclear Power Station (nuclear), previously owned by an Entergy subsidiary in the Entergy Wholesale Commodities business segment, which ceased power production in May 2019 and was sold in August 2019
PPA
Purchased power agreement or power purchase agreement
PUCT
Public Utility Commission of Texas
Registrant Subsidiaries
Entergy Arkansas, LLC, Entergy Louisiana, LLC, Entergy Mississippi, LLC, Entergy New Orleans, LLC, Entergy Texas, Inc., and System Energy Resources, Inc.
River Bend
River Bend Station (nuclear), owned by Entergy Louisiana
SEC
Securities and Exchange Commission
System Agreement
Agreement, effective January 1, 1983, as modified, among the Utility operating companies relating to the sharing of generating capacity and other power resources. The agreement terminated effective August 2016.
System Energy
System Energy Resources, Inc.
TWh
Terawatt-hour(s), which equals one billion kilowatt-hours
Unit Power Sales Agreement
Agreement, dated as of June 10, 1982, as amended and approved by the FERC, among Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy, relating to the sale of capacity and energy from System Energy’s share of Grand Gulf

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DEFINITIONS (Concluded)
Abbreviation or Acronym
Term
 
 
Utility
Entergy’s business segment that generates, transmits, distributes, and sells electric power, with a small amount of natural gas distribution
Utility operating companies
Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and Entergy Texas
Vermont Yankee
Vermont Yankee Nuclear Power Station (nuclear), previously owned by an Entergy subsidiary in the Entergy Wholesale Commodities business segment, which ceased power production in December 2014 and was disposed of in January 2019
Waterford 3
Unit No. 3 (nuclear) of the Waterford Steam Electric Station, owned by Entergy Louisiana
weather-adjusted usage
Electric usage excluding the effects of deviations from normal weather
White Bluff
White Bluff Steam Electric Generating Station, 57% owned by Entergy Arkansas


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ENTERGY CORPORATION AND SUBSIDIARIES

MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS

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

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

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

The COVID-19 Pandemic

The COVID-19 pandemic and the measures to control it have adversely affected economic activity and conditions worldwide and have affected the demand for the products and services of many businesses in Entergy’s service area. Entergy expects a decline in sales volume during 2020 due to the COVID-19 pandemic, especially in the commercial and industrial sectors, although the effect in the first quarter 2020 was minimal. In addition, although the effect in the first quarter 2020 was also minimal, Entergy expects negative changes during 2020 to its customers’ payment patterns and its operating cash flow activity due to the COVID-19 pandemic. These negative changes are likely to include an increase in uncollectible accounts expense.

Entergy provides critical services to its customers and has implemented its comprehensive incident response plan, which contemplates major events such as storms or pandemics. Entergy’s focus has been on the safety and wellness of its employees; providing safe, reliable service for its customers; analyzing and addressing the financial effects of the COVID-19 pandemic; and continuing its plans for the future. Entergy implemented precautionary measures for safety on and off the job for employees working at plants and in the field and implemented telecommuting practices for employees who can work from home. Entergy suspended service disconnections for customers and is working with regulators to address routine and non-routine matters and allow continuation of capital spending plans. Most of the Utility operating companies have received accounting orders to defer costs associated with COVID-19. To date, Entergy has not had material effects to its major projects or capital spending plans. Entergy is working with suppliers and contractors for continued availability of resources, equipment, and supplies to keep operations and major projects going forward and on schedule. Entergy plans to implement expense-related spending reductions in 2020, which it does not expect to affect safety or service reliability, in order to offset some of the financial effects of the COVID-19 pandemic. Despite the negative effects of the pandemic on financial markets, certain of the Utility operating companies issued a total of $1.065 billion of long-term mortgage bonds in March 2020, and Entergy Arkansas and Entergy Mississippi renewed their short-term credit facilities. In addition to cash on hand, Entergy’s sources of liquidity are outlined in “Capital Structure and Resources” and in Note 4 to the financial statements herein.

Despite Entergy’s actions in response to the COVID-19 pandemic, uncertainty exists regarding the full depth and length of the effects of COVID-19 on Entergy’s sales volume, revenue, collections and cash flows, expenses, liquidity, and capital needs. Entergy will continue to monitor actively the COVID-19 pandemic and related developments affecting its workforce, customers, suppliers, operations, and financial condition.


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Management's Financial Discussion and Analysis


Results of Operations

First Quarter 2020 Compared to First Quarter 2019

Following are income statement variances for Utility, Entergy Wholesale Commodities, Parent & Other, and Entergy comparing the first quarter 2020 to the first quarter 2019 showing how much the line item increased or (decreased) in comparison to the prior period:
 
 

Utility
 
Entergy
Wholesale
Commodities
 

Parent &
Other (a)
 

Entergy
 
 
(In Thousands)
2019 Net Income (Loss) Attributable to Entergy Corporation
 

$230,585

 

$96,532

 

($72,580
)
 

$254,537

 
 
 
 
 
 
 
 
 
Operating revenues
 
(81,353
)
 
(101,063
)
 
11

 
(182,405
)
Fuel, fuel-related expenses, and gas purchased for resale
 
(75,964
)
 
(4,963
)
 

 
(80,927
)
Purchased power
 
(117,810
)
 
(5,083
)
 

 
(122,893
)
Other regulatory charges (credits)
 
9,267

 

 

 
9,267

Other operation and maintenance
 
(19,649
)
 
(57,650
)
 
(3,668
)
 
(80,967
)
Asset write-offs, impairments, and related charges
 

 
(68,884
)
 

 
(68,884
)
Taxes other than income taxes
 
4,466

 
7,341

 
(88
)
 
11,719

Depreciation and amortization
 
45,485

 
(3,126
)
 
77

 
42,436

Other income (deductions)
 
(7,967
)
 
(352,243
)
 
992

 
(359,218
)
Interest expense
 
11,986

 
(3,746
)
 
(1,639
)
 
6,601

Other expenses
 
4,582

 
(13,240
)
 

 
(8,658
)
Income taxes
 
(41,385
)
 
(96,448
)
 
23,868

 
(113,965
)
Preferred dividend requirements of subsidiaries
 
471

 

 

 
471

 
 
 
 
 
 
 
 
 
2020 Net Income (Loss) Attributable to Entergy Corporation
 

$319,816

 

($110,975
)
 

($90,127
)
 

$118,714


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

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

First quarter 2020 results of operations include losses of $211 million (pre-tax) on Entergy Wholesale Commodities’ nuclear decommissioning trust fund investments reflecting the equity market decline in March 2020 associated with the COVID-19 pandemic. See Notes 8 and 9 to the financial statements herein for a discussion of decommissioning trust fund investments. First quarter 2020 results of operations also include impairment charges of $5 million ($4 million net-of-tax) as a result of expenditures for capital assets being charged directly to expense as incurred as a result of the impaired value of the Entergy Wholesale Commodities nuclear plants’ long-lived assets due to the significantly reduced remaining estimated operating lives associated with management’s strategy to exit the Entergy Wholesale Commodities merchant power business. See “Entergy Wholesale Commodities Exit from the Merchant Power Business” below and in the Form 10-K for discussion of management’s strategy to shut down and sell all of the remaining plants in the Entergy Wholesale Commodities merchant nuclear fleet.


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Management's Financial Discussion and Analysis

First quarter 2019 results of operations include impairment charges of $74 million ($58 million net-of-tax) due to costs being charged directly to expense as incurred as a result of the impaired value of the Entergy Wholesale Commodities nuclear plants’ long-lived assets due to the significantly reduced remaining estimated operating lives associated with management’s strategy to exit the Entergy Wholesale Commodities merchant power business. See “Entergy Wholesale Commodities Exit from the Merchant Power Business” below and in the Form 10-K for discussion of management’s strategy to shut down and sell all of the remaining plants in the Entergy Wholesale Commodities merchant nuclear fleet.

Operating Revenues

Utility

Following is an analysis of the change in operating revenues comparing the first quarter 2020 to the first quarter 2019:
 
Amount
 
(In Millions)
2019 operating revenues

$2,176

Fuel, rider, and other revenues that do not significantly affect net income
(164
)
Volume/weather
(10
)
Return of unprotected excess accumulated deferred income taxes to customers
34

Retail electric price
59

2020 operating revenues

$2,095


The Utility operating companies’ results include revenues from rate mechanisms designed to recover fuel, purchased power, and other costs such that the revenues and expenses associated with these items generally offset and do not affect net income. “Fuel, rider, and other revenues that do not significantly affect net income” includes the revenue variance associated with these items.

The volume/weather variance is primarily due to the effect of less favorable weather on residential sales and decreased commercial usage, partially offset by an increase in industrial usage and increased usage during the unbilled sales period. The increase in industrial usage is primarily due to growth from new customers, partially offset by decreased demand from existing customers and co-generation and decreased small industrial sales.

The return of unprotected excess accumulated deferred income taxes to customers resulted from activity at the Utility operating companies in response to the enactment of the Tax Cuts and Jobs Act. The return of unprotected excess accumulated deferred income taxes began in second quarter 2018. In first quarter 2020, $27 million was returned to customers through reductions in operating revenues as compared to $61 million in first quarter 2019. There is no effect on net income as the reductions in operating revenues were offset by reductions in income tax expense. See Note 2 to the financial statements in the Form 10-K for further discussion of regulatory activity regarding the Tax Cuts and Jobs Act.     

The retail electric price variance is primarily due to:

an interim increase in formula rate plan revenues effective June 2019 due to the inclusion of the first-year revenue requirement for the J. Wayne Leonard Power Station (formerly St. Charles Power Station) at Entergy Louisiana, as approved by the LPSC;
an interim capacity rate adjustment to the formula rate plan to recover non-fuel related costs of acquiring and operating the Choctaw Generating Station effective January 2020 and an increase in formula rate plan revenues

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Management's Financial Discussion and Analysis


effective with the first billing cycle of July 2019, each at Entergy Mississippi, as approved by the MPSC;
an increase in the transmission cost recovery factor rider in January 2020 at Entergy Texas, as approved by the PUCT; and
an increase in formula rate plan rates effective with the first billing cycle of January 2020 at Entergy Arkansas, as approved by the APSC.

The increase was partially offset by provisions recorded in the first quarter 2020 at Entergy New Orleans for the revenue collected in 2020 that will be refunded to customers through new rates implemented in April 2020 based on an August 2019 effective date for the rate decrease.

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

Although the effect in the first quarter 2020 was minimal, Entergy expects a decline in sales volume during 2020 due to the COVID-19 pandemic, especially in the commercial and industrial customer classes. See “The COVID-19 Pandemic” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for discussion of the COVID-19 pandemic.
 
Entergy Wholesale Commodities

Operating revenues for Entergy Wholesale Commodities decreased from $434 million for the first quarter 2019 to $333 million for the first quarter 2020 primarily due to the shutdown of Pilgrim in May 2019 and lower realized wholesale energy and capacity prices, partially offset by higher volume in the remaining Entergy Wholesale Commodities nuclear fleet resulting from fewer outage days in the first quarter 2020 as compared to the first quarter 2019.

Following are key performance measures for Entergy Wholesale Commodities for the first quarters 2020 and 2019:
 
2020
 
2019
Owned capacity (MW) (a)
3,274
 
3,962
GWh billed
6,757
 
7,203
 
 
 
 
Entergy Wholesale Commodities Nuclear Fleet
 
 
 
Capacity factor
99%
 
85%
GWh billed
6,259
 
6,690
Average energy price ($/MWh)
$47.42
 
$51.43
Average capacity price ($/kW-month)
$1.07
 
$4.71
Refueling outage days:
 
 
 
Indian Point 3
 
21

(a)
The reduction in owned capacity is due to the shutdown of the 688 MW Pilgrim plant in May 2019, which was subsequently sold in August 2019.

Other Income Statement Items

Utility

Other operation and maintenance expenses decreased from $585 million for the first quarter 2019 to $566 million for the first quarter 2020 primarily due to:

higher nuclear insurance refunds of $18 million;

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Management's Financial Discussion and Analysis

a decrease of $15 million in fossil-fueled generation expenses due to a lower scope of work performed during plant outages in 2020 as compared to 2019; and
a decrease of $11 million in nuclear generation expenses primarily due to a lower scope of work performed in 2020 as compared to 2019 and lower nuclear labor costs, including contract labor.

The decrease was partially offset by:

an increase of $11 million in compensation and benefits costs primarily due to an increase in net periodic pension and other postretirement benefits costs as a result of a decrease in the discount rate used to value the benefit liabilities and an increase in employee health benefits costs. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Critical Accounting Estimates” in the Form 10-K, Note 6 to the financial statements herein, and Note 11 to the financial statements in the Form 10-K for further discussion of pension and other postretirement benefit costs; and
an increase of $5 million in storm damage provisions at Entergy Mississippi. See Note 2 to the financial statements in the Form 10-K for discussion of storm cost recovery.

Depreciation and amortization expenses increased primarily due to additions to plant in service, including the J. Wayne Leonard Power Station (formerly St. Charles Power Station) and the Choctaw Generating Station, and new depreciation rates at Entergy Mississippi, as approved by the MPSC.

Interest expense increased primarily due to the issuance in March 2019 of $525 million of 4.20% Series mortgage bonds by Entergy Louisiana and the issuance in March 2019 of $350 million of 4.20% Series mortgage bonds by Entergy Arkansas.

Entergy Wholesale Commodities

Other operation and maintenance expenses decreased from $189 million for the first quarter 2019 to $131 million for the first quarter 2020 primarily due to:

a decrease of $31 million in nuclear generation expenditures primarily due to the absence of other operation and maintenance expenses from the Pilgrim plant, after it was shut down in May 2019 and subsequently sold. See Note 14 to the financial statements in the Form 10-K for further discussion of the sale of the Pilgrim plant; and
a decrease of $16 million in severance and retention expenses. Severance and retention expenses were incurred in 2020 and 2019 due to management’s strategy to exit the Entergy Wholesale Commodities merchant power business. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Entergy Wholesale Commodities Exit from the Merchant Power Business” below and in the Form 10-K for a discussion of management’s strategy to shut down and sell all of the remaining plants in the Entergy Wholesale Commodities merchant nuclear fleet. See Note 7 to the financial statements herein for further discussion of severance and retention expenses resulting from management’s strategy to shut down and sell all of the remaining plants in the Entergy Wholesale Commodities merchant nuclear fleet.

Asset write-offs, impairments, and related charges for the first quarter 2020 include impairment charges of $5 million ($4 million net-of-tax) as a result of expenditures for capital assets. Asset write-offs, impairments, and related charges for the first quarter 2019 include impairment charges of $74 million ($58 million net-of-tax) as a result of nuclear refueling outage spending and expenditures for capital assets. These costs were charged to expense as incurred as a result of the impaired fair value of the Entergy Wholesale Commodities nuclear plants’ long-lived assets due to the significantly reduced remaining estimated operating lives associated with management’s strategy to exit the Entergy Wholesale Commodities merchant power business. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Entergy Wholesale Commodities Exit from the Merchant Power Business” below and in the Form 10-K for a discussion of management’s strategy to shut down and sell all of the remaining plants in the Entergy

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Wholesale Commodities merchant nuclear fleet. See Note 14 to the financial statements in the Form 10-K for a discussion of impairment of long-lived assets.

Other income decreased because of losses on decommissioning trust fund investments in the first quarter 2020 compared to the first quarter 2019. These losses reflect the equity market decline in March 2020 associated with the COVID-19 pandemic. See Notes 8 and 9 to the financial statements herein for a discussion of decommissioning trust fund investments.

Other expenses decreased primarily due to the absence of decommissioning expense from the Pilgrim plant, after it was sold in August 2019. See Note 14 to the financial statements in the Form 10-K for further discussion of the sale of the Pilgrim plant.

Income Taxes

The effective income tax rate was (136.6%) for the first quarter 2020. The difference in the effective income tax rate for the first quarter 2020 versus the federal statutory rate of 21% was primarily due to the settlement with the IRS on the treatment of funds received in conjunction with the Act 55 financing of Hurricane Isaac storm costs, permanent differences related to income tax deductions for stock-based compensation, amortization of excess accumulated deferred income taxes, certain book and tax differences related to utility plant items, and tax differences related to the allowance for equity funds used during construction, partially offset by state income taxes. See Note 10 to the financial statements herein for discussion of the IRS settlement and the income tax deductions for stock-based compensation. See Note 10 to the financial statements herein and Notes 2 and 3 to the financial statements in the Form 10-K for a discussion of the effects and regulatory activity regarding the Tax Cuts and Jobs Act.

The effective income tax rate was 14.2% for the first quarter 2019. The difference in the effective income tax rate for the first quarter 2019 versus the federal statutory rate of 21% was primarily due to amortization of excess accumulated deferred income taxes, partially offset by the tax effects of the disposition of Vermont Yankee. See Note 10 to the financial statements herein and Notes 2 and 3 to the financial statements in the Form 10-K for a discussion of the effects and regulatory activity regarding the Tax Cuts and Jobs Act. See Note 3 to the financial statements in the Form 10-K for a discussion of the tax effects of the Vermont Yankee disposition.

Income Tax Legislation

See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Income Tax Legislation” in the Form 10-K for a discussion of the Tax Cuts and Jobs Act, the federal income tax legislation enacted in December 2017.  Note 3 to the financial statements in the Form 10-K contains additional discussion of the effect of the Tax Act on 2019, 2018, and 2017 results of operations and financial position, the provisions of the Tax Act, and the uncertainties associated with accounting for the Tax Act, and Note 10 to the financial statements herein contains updates to that discussion. Note 2 to the financial statements in the Form 10-K contains a discussion of the regulatory proceedings that have considered the effects of the Tax Act.

Entergy Wholesale Commodities Exit from the Merchant Power Business

See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Entergy Wholesale Commodities Exit from the Merchant Power Business” in the Form 10-K for a discussion of management’s strategy to shut down and sell all remaining plants in the Entergy Wholesale Commodities merchant nuclear fleet.  Following are updates to that discussion.
 
Shutdown and Sale of Pilgrim
 
As discussed in the Form 10-K, Pilgrim ceased operations in May 2019. In August 2019 the NRC approved the transfer of Pilgrim’s facility licenses to Holtec International. At that time, hearing requests filed by the

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Management's Financial Discussion and Analysis

Commonwealth of Massachusetts and Pilgrim Watch challenging Holtec’s financial qualifications and the sufficiency of the NRC’s review of the associated environmental impacts of the license transfer were pending with the NRC Commissioners. The NRC approval order included a condition acknowledging the NRC’s longstanding authority to modify, condition, or rescind the license transfer order as a result of any hearing that may be conducted.  On August 26, 2019, as permitted by the August 22 order, Entergy and Holtec closed the transaction. The NRC has not yet ruled on the Pilgrim Watch and Massachusetts hearing requests. In addition, on September 25, 2019, Massachusetts filed a petition with the U.S. Court of Appeals for the District of Columbia Circuit, asking the court to vacate the NRC’s August 22 license transfer approval order and related approvals. On November 6, 2019, the court granted Entergy and Holtec intervenor status in the U.S. Court of Appeals proceeding. On November 22, 2019, Entergy and Holtec filed a motion to dismiss Massachusetts’s petition; the NRC also filed a motion to dismiss on the same date. On January 17, 2020, the States of New York, Connecticut, Illinois, Iowa, Maryland, Michigan, Minnesota, New Jersey, New Mexico, Oregon, Pennsylvania, and Vermont filed a brief as amici curiae in support of Massachusetts’s petition. The court of appeals has not yet ruled on Massachusetts’s initial petition or on the NRC or Entergy/Holtec motions to dismiss. On January 22, 2020, Massachusetts filed a second petition with the D.C. Circuit asking the court to review the NRC’s December 17 order denying its stay motion. On February 12, 2020, the court granted Entergy and Holtec intervenor status in the proceeding on the second petition and consolidated the proceedings for Massachusetts’ two petitions. On February 26, 2020, Massachusetts filed its preliminary procedural filings. The court has not yet issued a scheduling order for the remainder of the proceeding.

Planned Shutdown and Sale of Indian Point 2 and Indian Point 3

As discussed in the Form 10-K, in April 2019, Entergy entered into an agreement to sell, directly or indirectly, 100% of the equity interests in the subsidiaries that own Indian Point 1, Indian Point 2, and Indian Point 3, after Indian Point 3 has been shut down and defueled, to a Holtec subsidiary for decommissioning. The sale will include the transfer of the licenses, spent fuel, decommissioning liabilities, and nuclear decommissioning trusts for the three units. Subject to the conditions discussed in the Form 10-K, the transaction is targeted to close in May 2021, following the defueling of Indian Point 3. As consideration for the transfer to Holtec of its interest in Indian Point, Entergy will receive nominal cash consideration. The terms of the transaction do not require a minimum level of funding in the nuclear decommissioning trusts as a condition to closing. The Indian Point transaction is expected to result in a loss based on the difference between Entergy’s adjusted net investment in the subsidiaries at closing and the sale price net of any agreed adjustments. As of March 31, 2020, Entergy’s adjusted net investment in the Indian Point units was $55 million. The primary variables in the ultimate loss that Entergy will incur are the values of the nuclear decommissioning trusts and the asset retirement obligations at closing, the financial results from plant operations until the closing, and the level of any unrealized deferred tax balances at closing. Indian Point 2 ceased operations on April 30, 2020.

Planned Shutdown and Sale of Palisades

As discussed in the Form 10-K, in July 2018, Entergy entered into a purchase and sale agreement to sell 100% of the equity interests in Entergy Nuclear Palisades, LLC, the owner of Palisades and the Big Rock Point Site, for $1,000 (subject to adjustment for net liabilities and other amounts). The sale of Entergy Nuclear Palisades will include the transfer of the nuclear decommissioning trust and obligation for spent fuel management and plant decommissioning. In February 2020 the parties signed an amendment to the purchase and sale agreement to remove the closing condition that the nuclear decommissioning trust fund must have a specified amount and Entergy agreed to contribute $20 million to the nuclear decommissioning trust fund at closing, among other amendments. Subject to the conditions discussed in the Form 10-K, the transaction is expected to close by the end of 2022. As of March 31, 2020, Entergy’s adjusted net investment in Palisades was $15 million. The primary variables in the ultimate loss or gain that Entergy will incur on the transaction are the values of the nuclear decommissioning trust and the asset retirement obligations at closing, the financial results from plant operations until the closing, and the level of any unrealized deferred tax balances at closing.


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Management's Financial Discussion and Analysis


Costs Associated with Entergy Wholesale Commodities Strategic Transactions

Entergy expects to incur employee retention and severance expenses associated with management’s strategy to exit the Entergy Wholesale Commodities merchant power business of approximately $75 million in 2020, of which $21 million has been incurred as of March 31, 2020, and a total of approximately $55 million from 2021 through 2022. In addition, Entergy Wholesale Commodities incurred impairment charges related to nuclear fuel spending, nuclear refueling outage spending, and expenditures for capital assets of $5 million for the three months ended March 31, 2020. These costs were charged to expense as incurred as a result of the impaired value of certain of the Entergy Wholesale Commodities nuclear plants’ long-lived assets due to the significantly reduced remaining estimated operating lives associated with management’s strategy to exit the Entergy Wholesale Commodities merchant power business. Entergy expects to continue to incur costs associated with nuclear fuel-related spending and expenditures for capital assets and, except for Palisades, expects to continue to charge these costs to expense as incurred because Entergy expects the value of the plants to continue to be impaired.

Liquidity and Capital Resources

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

Although the effect in the first quarter 2020 was minimal, Entergy expects negative changes during 2020 to its customer payment patterns and its cash flow activity due to the COVID-19 pandemic. See “The COVID-19 Pandemic” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for discussion of the COVID-19 pandemic. Additional discussion of Entergy’s liquidity and capital resources follows.

Capital Structure and Resources

Entergy’s debt to capital ratio is shown in the following table. The increase in the debt to capital ratio for Entergy as of March 31, 2020 is primarily due to the net issuance of debt in 2020.
 
March 31,
2020
 
December 31,
2019
Debt to capital
67.2
%
 
65.5
%
Effect of excluding securitization bonds
(0.3
%)
 
(0.4
%)
Debt to capital, excluding securitization bonds (a)
66.9
%
 
65.1
%
Effect of subtracting cash
(1.6
%)
 
(0.5
%)
Net debt to net capital, excluding securitization bonds (a)
65.3
%
 
64.6
%

(a)
Calculation excludes the Arkansas, Louisiana, New Orleans, and Texas securitization bonds, which are non-recourse to Entergy Arkansas, Entergy Louisiana, Entergy New Orleans, and Entergy Texas, respectively.

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


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Management's Financial Discussion and Analysis

Entergy Corporation has in place a credit facility that has a borrowing capacity of $3.5 billion and expires in September 2024.  The facility includes fronting commitments for the issuance of letters of credit against $20 million of the total borrowing capacity of the credit facility.  The commitment fee is currently 0.225% of the undrawn commitment amount.  Commitment fees and interest rates on loans under the credit facility can fluctuate depending on the senior unsecured debt ratings of Entergy Corporation.  The weighted average interest rate for the three months ended March 31, 2020 was 2.99% on the drawn portion of the facility. Following is a summary of the borrowings outstanding and capacity available under the facility as of March 31, 2020:
Capacity
 
Borrowings
 
Letters
of Credit
 
Capacity
Available
(In Millions)
$3,500
 
$922
 
$6
 
$2,572

A covenant in Entergy Corporation’s credit facility requires Entergy to maintain a consolidated debt ratio, as defined, of 65% or less of its total capitalization.  The calculation of this debt ratio under Entergy Corporation’s credit facility is different than the calculation of the debt to capital ratio above. One such difference is that it excludes the effects, among other things, of certain impairments related to the Entergy Wholesale Commodities nuclear generation assets.  Entergy is currently in compliance with the covenant and expects to remain in compliance with this covenant.  If Entergy fails to meet this ratio, or if Entergy or one of the Registrant Subsidiaries (except Entergy New Orleans) defaults on other indebtedness or is in bankruptcy or insolvency proceedings, an acceleration of the facility’s maturity date may occur.  See Note 4 to the financial statements herein for additional discussion of the Entergy Corporation credit facility and discussion of the Registrant Subsidiaries’ credit facilities.

Entergy Corporation has a commercial paper program with a Board-approved program limit of up to $2 billion. As of March 31, 2020, Entergy Corporation had approximately $1,942 million of commercial paper outstanding. The weighted-average interest rate for the three months ended March 31, 2020 was 2.02%.

Certain of the Utility operating companies have a total of $373 million in storm reserve escrow accounts at March 31, 2020.

Capital Expenditure Plans and Other Uses of Capital

See the table and discussion in the Form 10-K under “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Liquidity and Capital Resources - Capital Expenditure Plans and Other Uses of Capital,” that sets forth the amounts of planned construction and other capital investments by operating segment for 2020 through 2022. Following are updates to that discussion.

Lake Charles Power Station

As discussed in the Form 10-K, the LPSC issued an order in July 2017 approving certification that the public necessity and convenience would be served by the construction of the Lake Charles Power Station. The plant commenced commercial operation in March 2020.

New Orleans Power Station

As discussed in the Form 10-K, in June 2019, a state court judge in New Orleans affirmed the City Council’s approval of the New Orleans Power Station and dismissed the petition for judicial review of that decision that had been filed in April 2018. The petitioners have filed an appeal of that ruling. Also in June 2019, with regard to the lawsuit challenging the City Council’s decision on the basis of a violation of the open meetings law, the same state court judge in New Orleans ruled that there was a violation of the open meetings law at the February 2018 meeting of the City Council’s Utility Committee at which that Committee considered the New Orleans Power Station approval, and further ruled that, although there was no violation of the open meetings law at the March 2018 full City Council

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meeting at which the New Orleans Power Station was approved, both the approval of the Utility Committee and the approval of the full City Council were void. The City Council and Entergy New Orleans each filed a suspensive appeal of the open meetings law ruling. A suspensive appeal suspends the effect of the judgment in the open meetings law proceeding while the appeal is being taken. The petitioners sought in the state appellate court, and then at the Louisiana Supreme Court, to terminate the suspension of the effect of the judgment, but both courts declined to do so. Appellate briefing on the merits both in the open meetings law appeal and in the judicial review appeal occurred in November and December 2019 and oral argument in both cases was heard in January 2020. In February 2020 the state appellate court reversed the lower court’s ruling that the City Council’s approval of the New Orleans Power Station was void due to a violation of the open meetings law at the City Council’s Utility Committee meeting in February 2018.  The state appellate court ruled that there was no violation of the open meetings law at the City Council meeting in March 2018 and that the lower court erred in voiding the City Council resolution approving the New Orleans Power Station.  In March 2020, the appellees in that proceeding filed a writ application with the Louisiana Supreme Court seeking review of the appellate court’s decision and several New Orleans-based organizations filed an amicus brief in support of the appellees’ writ application. Briefs from Entergy New Orleans and the City Council in opposition to the writ application are due in May 2020. In April 2020 the state appellate court affirmed the district court’s judicial review decision that affirmed the City Council’s approval of the New Orleans Power Station as in the public interest. Construction of the plant is on schedule, with commercial operation expected in mid-2020.

Sunflower Solar Facility

    In November 2018, Entergy Mississippi announced that it signed an agreement for the purchase of an approximately 100 MW to-be-constructed solar photovoltaic facility that will be sited on approximately 1,000 acres in Sunflower County, Mississippi.  The estimated base purchase price is approximately $138.4 million.  The estimated total investment, including the base purchase price and other related costs, for Entergy Mississippi to acquire the Sunflower Solar Facility is approximately $153.2 million. The purchase is contingent upon, among other things, obtaining necessary approvals, including full cost recovery, from applicable federal and state regulatory and permitting agencies.  The project will be built by Sunflower County Solar Project, LLC, an indirect subsidiary of Recurrent Energy, LLC. Entergy Mississippi will purchase the facility upon mechanical completion and after the other purchase contingencies have been met.  In December 2018, Entergy Mississippi filed a joint petition with Sunflower Solar Project at the MPSC for Sunflower Solar Project to construct and for Entergy Mississippi to acquire and thereafter own, operate, improve, and maintain the solar facility.  Entergy Mississippi has proposed revisions to its formula rate plan that would provide for a mechanism, the interim capacity rate adjustment mechanism, in the formula rate plan to recover the non-fuel related costs of additional owned capacity acquired by Entergy Mississippi, including the annual ownership costs of the Sunflower Solar Facility. In December 2019 the MPSC approved Entergy Mississippi’s proposed revisions to its formula rate plan to provide for an interim capacity rate adjustment mechanism. Recovery through the interim capacity rate adjustment requires MPSC approval for each new resource. In August 2019 consultants retained by the Mississippi Public Utilities Staff filed a report expressing concerns regarding the project economics. In March 2020, Entergy Mississippi filed supplemental testimony addressing questions and observations raised by the consultants retained by the Mississippi Public Utilities Staff. A hearing before the MPSC was held in March 2020. In April 2020 the MPSC issued an order approving certification of the Sunflower Solar Facility and its recovery through the interim capacity rate adjustment mechanism, subject to certain conditions including: (i) that Entergy Mississippi pursue a partnership structure through which the partnership would acquire and own the facility under the build-own-transfer agreement and (ii) that if Entergy Mississippi does not consummate the partnership structure under the terms of the order, there will be a cap on the level of recoverable costs. Closing is targeted to occur by the end of 2021.

Searcy Solar Facility

As discussed in the Form 10-K, in May 2019, Entergy Arkansas filed a petition with the APSC seeking a finding that the purchase of the Searcy Solar Facility was in the public interest. In April 2020 the APSC issued an order approving Entergy Arkansas’s acquisition of the Searcy Solar facility as being in the public interest, but declined to approve Entergy Arkansas’s preferred cost recovery rider mechanism, finding instead, based on the particular facts and circumstances presented, that the formula rate plan rider was a sufficient recovery mechanism.

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Management's Financial Discussion and Analysis


Dividends

Declarations of dividends on Entergy’s common stock are made at the discretion of the Board.  Among other things, the Board evaluates the level of Entergy’s common stock dividends based upon earnings per share from the Utility operating segment and the Parent and Other portion of the business, financial strength, and future investment opportunities.  At its April 2020 meeting, the Board declared a dividend of $0.93 per share, which is the same quarterly dividend per share that Entergy has paid since the third quarter 2019.

Cash Flow Activity

As shown in Entergy’s Consolidated Statements of Cash Flows, cash flows for the three months ended March 31, 2020 and 2019 were as follows:
 
2020
 
2019
 
(In Millions)
Cash and cash equivalents at beginning of period

$426

 

$481

 
 
 
 
Cash flow provided by (used in):
 

 
 

Operating activities
659

 
501

Investing activities
(1,045
)
 
(951
)
Financing activities
1,424

 
952

Net increase in cash and cash equivalents
1,038

 
502

 
 
 
 
Cash and cash equivalents at end of period

$1,464

 

$983


Operating Activities

Net cash flow provided by operating activities increased $158 million for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 primarily due to:

the decrease in the return of unprotected excess accumulated deferred income taxes to Utility customers. See Note 2 to the financial statements in the Form 10-K for a discussion of the regulatory activity regarding the Tax Cuts and Jobs Act;
an increase due to the timing of recovery of fuel and purchased power costs;
a decrease of $38 million in spending on nuclear refueling outage expenses;
timing of collections from customers;
an increase of $17 million of nuclear insurance refunds; and
$13 million in proceeds received from the DOE in 2020 resulting from litigation regarding spent nuclear fuel storage costs that were previously expensed. See Note 8 to the financial statements in the Form 10-K for discussion of the spent nuclear fuel litigation.

The increase was partially offset by:

an increase of $48 million in pension contributions in 2020 as compared to the same period in 2019. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Critical Accounting Estimates” in the Form 10-K and Note 6 to the financial statements herein for a discussion of qualified pension and other postretirement benefits funding;
the effect of less favorable weather on billed Utility sales in 2020; and
an increase of $32 million in incentive-based compensation payments in 2020.


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Investing Activities

Net cash flow used in investing activities increased $95 million for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 primarily due to:

an increase of $108 million in construction expenditures in the Utility business primarily due to an increase of $53 million largely resulting from investment in the infrastructure of the distribution system, including increased spending on advanced metering infrastructure, and an increase of $49 million in storm spending in 2020;
an increase of $47 million in nuclear fuel purchases due to variations from year to year in the timing and pricing of fuel reload requirements, materials and services deliveries, and the timing of cash payments during the nuclear fuel cycle;
an increase of $37 million primarily due to changes in collateral posted to provide credit support to secure its obligations under agreements to sell power produced by Entergy Wholesale Commodities’ power plants; and
$25 million in plant upgrades for the Choctaw Generating Station in March 2020. See Note 14 to the financial statements in the Form 10-K for further discussion of the Choctaw Generating Station purchase.

The increase was partially offset by:

$62 million in proceeds received from the DOE in 2020 resulting from litigation regarding spent nuclear fuel storage costs that were previously capitalized. See Note 8 to the financial statements in the Form 10-K for discussion of the spent nuclear fuel litigation; and
an increase of $41 million in net receipts from storm reserve escrow accounts.

Financing Activities

Net cash flow provided by financing activities increased $472 million for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 primarily due to:

long-term debt activity providing approximately $1,581 million of cash in 2020 compared to providing approximately $1,145 million of cash in 2019; and
the repurchase in first quarter 2019 of $50 million of Class A mandatorily redeemable preferred membership units in Entergy Holdings Company LLC, a wholly-owned Entergy subsidiary, that were held by a third party.

For details of Entergy’s long-term debt, see Note 4 to the financial statements herein and Note 5 to the financial statements in the Form 10-K.

Rate, Cost-recovery, and Other Regulation

See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Rate, Cost-recovery, and Other Regulation” in the Form 10-K for discussions of rate regulation, federal regulation, and related regulatory proceedings.

State and Local Rate Regulation and Fuel-Cost Recovery

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

Federal Regulation

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


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Management's Financial Discussion and Analysis

Market and Credit Risk Sensitive Instruments

Commodity Price Risk

Power Generation

As a wholesale generator, Entergy Wholesale Commodities’ core business is selling energy, measured in MWh, to its customers.  Entergy Wholesale Commodities enters into forward contracts with its customers and also sells energy in the day ahead or spot markets.  Entergy Wholesale Commodities also sells unforced capacity, which allows load-serving entities to meet specified reserve and related requirements placed on them by the ISOs in their respective areas.  Entergy Wholesale Commodities’ forward physical power contracts consist of contracts to sell energy only, contracts to sell capacity only, and bundled contracts in which it sells both capacity and energy.  While the terminology and payment mechanics vary in these contracts, each of these types of contracts requires Entergy Wholesale Commodities to deliver MWh of energy, make capacity available, or both. In addition to its forward physical power contracts, Entergy Wholesale Commodities may also use a combination of financial contracts, including swaps, collars, and options, to manage forward commodity price risk. The sensitivities may not reflect the total maximum upside potential from higher market prices. The information contained in the following table represents projections at a point in time and will vary over time based on numerous factors, such as future market prices, contracting activities, and generation. Following is a summary of Entergy Wholesale Commodities’ current forward capacity and generation contracts as well as total revenue projections based on market prices as of March 31, 2020 (2020 represents the remainder of the year):

Entergy Wholesale Commodities Nuclear Portfolio
 
 
2020
 
2021
 
2022
Energy
 
 
 
 
 
 
Percent of planned generation under contract (a):
 
 
 
 
 
 
Unit-contingent (b)
 
97%
 
94%
 
99%
Planned generation (TWh) (c) (d)
 
11.6
 
9.6
 
2.8
Average revenue per MWh on contracted volumes:
 
 
 
 
 
 
Expected based on market prices as of March 31, 2020
 
$38.1
 
$55.8
 
$47.1
 
 
 
 
 
 
 
Capacity
 
 
 
 
 
 
Percent of capacity sold forward (e):
 
 
 
 
 
 
Bundled capacity and energy contracts (f)
 
40%
 
68%
 
97%
Capacity contracts (g)
 
45%
 
—%
 
—%
Total
 
85%
 
68%
 
97%
Planned net MW in operation (average) (d)
 
2,195
 
1,158
 
338
Average revenue under contract per kW per month (applies to capacity contracts only)
 
$3.1
 
$—
 
$—
 
 
 
 
 
 
 
Total Energy and Capacity Revenues (h)
 
 
 
 
 
 
Expected sold and market total revenue per MWh
 
$42.2
 
$54.1
 
$46.8
Sensitivity: -/+ $10 per MWh market price change
 
$42.0-$42.3
 
$53.5-$54.6
 
$46.7-$47.0

(a)
Percent of planned generation output sold or purchased forward under contracts, forward physical contracts, forward financial contracts, or options that mitigate price uncertainty. Positions that are not classified as hedges are netted in the planned generation under contract.

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(b)
Transaction under which power is supplied from a specific generation asset; if the asset is not operating, the seller is generally not liable to the buyer for any damages. Certain unit-contingent sales include a guarantee of availability. Availability guarantees provide for the payment to the power purchaser of contract damages, if incurred, in the event the seller fails to deliver power as a result of the failure of the specified generation unit to generate power at or above a specified availability threshold. All of Entergy’s outstanding guarantees of availability provide for dollar limits on Entergy’s maximum liability under such guarantees.
(c)
Amount of output expected to be generated by Entergy Wholesale Commodities nuclear resources considering plant operating characteristics and outage schedules.
(d)
Assumes the shutdown of Indian Point 2 on April 30, 2020, planned shutdown of Indian Point 3 on April 30, 2021, and planned shutdown of Palisades on May 31, 2022. For a discussion regarding the planned shutdown of the Indian Point 2, Indian Point 3, and Palisades plants, see “Entergy Wholesale Commodities Exit from the Merchant Power Business” above.
(e)
Percent of planned qualified capacity sold to mitigate price uncertainty under physical or financial transactions.
(f)
A contract for the sale of installed capacity and related energy, priced per megawatt-hour sold.
(g)
A contract for the sale of an installed capacity product in a regional market.
(h)
Includes assumptions on converting a portion of the portfolio to contracted with fixed price and excludes non-cash revenue from the amortization of the Palisades below-market purchased power agreement, mark-to-market activity, and service revenues.

Entergy estimates that a positive $10 per MWh change in the annual average energy price in the markets in which the Entergy Wholesale Commodities nuclear business sells power, based on March 31, 2020 market conditions, planned generation volumes, and hedged positions, would have a corresponding effect on pre-tax income of $2 million for the remainder of 2020. As of March 31, 2019, a positive $10 per MW change would have had a corresponding effect on pre-tax income of $4 million for the remainder of 2019. A negative $10 per MWh change in the annual average energy price in the markets based on March 31, 2020 market conditions, planned generation volumes, and hedged positions, would have a corresponding effect on pre-tax income of ($2) million for the remainder of 2020. As of March 31, 2019, a negative $10 per MW change would have had a corresponding effect on pre-tax income of ($4) million for the remainder of 2019.

Some of the agreements to sell the power produced by Entergy Wholesale Commodities’ power plants contain provisions that require an Entergy subsidiary to provide credit support to secure its obligations under the agreements. The Entergy subsidiary is required to provide credit support based upon the difference between the current market prices and contracted power prices in the regions where Entergy Wholesale Commodities sells power. The primary form of credit support to satisfy these requirements is an Entergy Corporation guarantee.  Cash and letters of credit are also acceptable forms of credit support. At March 31, 2020, based on power prices at that time, Entergy had liquidity exposure of $77 million under the guarantees in place supporting Entergy Wholesale Commodities transactions and $14 million of posted cash collateral. In the event of a decrease in Entergy Corporation’s credit rating to below investment grade, based on power prices as of March 31, 2020, Entergy would have been required to provide approximately $30 million of additional cash or letters of credit under some of the agreements. As of March 31, 2020, the liquidity exposure associated with Entergy Wholesale Commodities assurance requirements, including return of previously posted collateral from counterparties, would increase by $66 million for a $1 per MMBtu increase in gas prices in both the short- and long-term markets.

As of March 31, 2020, substantially all of the credit exposure associated with the planned energy output under contract for Entergy Wholesale Commodities nuclear plants through 2022 is with counterparties or their guarantors that have public investment grade credit ratings.

Nuclear Matters

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


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Critical Accounting Estimates

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

Qualified Pension and Other Postretirement Benefits

As discussed in the Form 10-K, Entergy sponsors qualified, defined benefit pension plans that cover substantially all employees, including cash balance plans and final average pay plans. Entergy’s reported costs of providing these benefits, as described in Note 11 to the financial statements in the Form 10-K, are affected by numerous factors. Key actuarial assumptions utilized in determining qualified pension and other postretirement health care and life insurance costs include the expected long-term rate of return on plan assets. For 2020, Entergy assumed a long-term rate of return on its qualified pension plan assets of 7.00%. Through March 31, 2020, due to the decline in the equity markets associated with the COVID-19 pandemic, Entergy experienced a 12% loss on its qualified pension plan assets, which have declined in fair value from $6.3 billion at December 31, 2019 to $5.4 billion at March 31, 2020.
As described more fully in the Form 10-K, in accordance with pension accounting standards, Entergy utilizes a number of accounting mechanisms that reduce the volatility of reported pension costs. Differences between actuarial assumptions and actual plan results are deferred and are amortized into expense when the accumulated differences exceed 10% of the greater of the projected benefit obligation or the market-related value of plan assets. The excess is amortized over the average remaining service period of active employees.
Minimum required funding calculations as determined under Pension Protection Act guidance are performed annually as of January 1 of each year and are based on measurements of the assets and funding liabilities as measured at that date, and Entergy’s expected contributions for 2020 are reported in Note 6 to the financial statements herein. Any excess of the funding liability over the calculated fair market value of assets results in a funding shortfall that, under the Pension Protection Act, must be funded over a seven-year rolling period. The Pension Protection Act also imposes certain plan limitations if the funded percentage, which is based on calculated fair market values of assets divided by funding liabilities, does not meet certain thresholds. For funding purposes, asset gains and losses are smoothed in to the calculated fair market value of assets. The funding liability is based upon a weighted average 24-month corporate bond rate published by the U.S. Treasury which is generally subject to a corridor of the 25-year average of prior segment rates. Periodic changes in asset returns and interest rates can affect funding shortfalls and future cash contributions.

As described in Note 6 to the financial statements herein, in March 2020, Entergy announced changes to its other postretirement benefits. As a result, Entergy now expects 2020 other postretirement health care and life insurance benefit income, including amounts capitalized, of $17.2 million.

New Accounting Pronouncements

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


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ENTERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
For the Three Months Ended March 31, 2020 and 2019
(Unaudited)
 
 
 
2020
 
2019
 
(In Thousands, Except Share Data)
OPERATING REVENUES
 
 
 
Electric

$2,050,638

 

$2,121,024

Natural gas
43,976

 
54,948

Competitive businesses
332,565

 
433,612

TOTAL
2,427,179

 
2,609,584

 
 
 
 
OPERATING EXPENSES
 
 
 
Operation and Maintenance:
 
 
 
Fuel, fuel-related expenses, and gas purchased for resale
397,403

 
478,330

Purchased power
216,614

 
339,507

Nuclear refueling outage expenses
50,218

 
50,441

Other operation and maintenance
702,084

 
783,051

Asset write-offs, impairments, and related charges
5,095

 
73,979

Decommissioning
93,684

 
102,119

Taxes other than income taxes
170,294

 
158,575

Depreciation and amortization
399,710

 
357,274

Other regulatory credits
(7,679
)
 
(16,946
)
TOTAL
2,027,423

 
2,326,330

 
 
 
 
OPERATING INCOME
399,756

 
283,254

 
 
 
 
OTHER INCOME (DEDUCTIONS)
 
 
 
Allowance for equity funds used during construction
35,953

 
38,216

Interest and investment income (loss)
(216,853
)
 
228,149

Miscellaneous - net
23,389

 
(64,658
)
TOTAL
(157,511
)
 
201,707

 
 
 
 
INTEREST EXPENSE
 
 
 
Interest expense
205,589

 
200,993

Allowance for borrowed funds used during construction
(15,444
)
 
(17,449
)
TOTAL
190,145

 
183,544

 
 
 
 
INCOME BEFORE INCOME TAXES
52,100

 
301,417

 
 
 
 
Income taxes
(71,194
)
 
42,771

 
 
 
 
CONSOLIDATED NET INCOME
123,294

 
258,646

 
 
 
 
Preferred dividend requirements of subsidiaries
4,580

 
4,109

 
 
 
 
NET INCOME ATTRIBUTABLE TO ENTERGY CORPORATION

$118,714

 

$254,537

 
 
 
 
Earnings per average common share:
 
 
 
Basic

$0.59

 

$1.34

Diluted

$0.59

 

$1.32

 
 
 
 
Basic average number of common shares outstanding
199,790,016

 
189,575,187

Diluted average number of common shares outstanding
200,901,349

 
192,234,191

 
 
 
 
See Notes to Financial Statements.
 
 
 


16

Table of Contents

ENTERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Three Months Ended March 31, 2020 and 2019
(Unaudited)
 
 
 
2020
 
2019
 
(In Thousands)
 
 
 
 
Net Income

$123,294

 

$258,646


 
 
 
Other comprehensive income
 
 
 
Cash flow hedges net unrealized loss (net of tax benefit of $5,777 and $5,352)
(21,710
)
 
(12,426
)
Pension and other postretirement liabilities (net of tax expense of $15,076 and $3,249)
53,899

 
11,550

Net unrealized investment gain (net of tax expense of $8,743 and $8,073)
15,744

 
13,703

Other comprehensive income
47,933

 
12,827


 
 
 
Comprehensive Income
171,227

 
271,473

Preferred dividend requirements of subsidiaries
4,580

 
4,109

Comprehensive Income Attributable to Entergy Corporation

$166,647

 

$267,364

 
 
 
 
See Notes to Financial Statements.
 
 
 

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Table of Contents

ENTERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2020 and 2019
(Unaudited)
 
 
2020
 
2019
 
 
(In Thousands)
OPERATING ACTIVITIES
 
 
 
 
Consolidated net income
 

$123,294

 

$258,646

Adjustments to reconcile consolidated net income to net cash flow provided by operating activities:
 
 
 
 
Depreciation, amortization, and decommissioning, including nuclear fuel amortization
 
568,596

 
530,224

Deferred income taxes, investment tax credits, and non-current taxes accrued
 
(31,405
)
 
104,884

Asset write-offs, impairments, and related charges
 
4,962

 
25,462

Changes in working capital:
 
 
 
 
Receivables
 
70,357

 
39,697

Fuel inventory
 
(15,389
)
 
(4,401
)
Accounts payable
 
(127,727
)
 
(63,613
)
Taxes accrued
 
(44,241
)
 
(44,083
)
Interest accrued
 
(4,791
)
 
(20,546
)
Deferred fuel costs
 
30,560

 
20,201

Other working capital accounts
 
(21,758
)
 
(42,016
)
Changes in provisions for estimated losses
 
(35,829
)
 
13,720

Changes in other regulatory assets
 
99,275

 
(162,192
)
Changes in other regulatory liabilities
 
(450,905
)
 
130,924

Changes in pension and other postretirement liabilities
 
(113,071
)
 
(7,713
)
Other
 
607,132

 
(278,005
)
Net cash flow provided by operating activities
 
659,060

 
501,189

 
 
 
 
 
INVESTING ACTIVITIES
 
 
 
 
Construction/capital expenditures
 
(1,043,608
)
 
(951,629
)
Allowance for equity funds used during construction
 
35,953

 
38,322

Nuclear fuel purchases
 
(85,334
)
 
(38,445
)
Payment for purchase of plant
 
(24,633
)
 

Changes in securitization account
 
(70
)
 
(1,084
)
Payments to storm reserve escrow account
 
(1,557
)
 
(2,285
)
Receipts from storm reserve escrow account
 
40,589

 

Decrease in other investments
 
2,265

 
39,045

Litigation proceeds for reimbursement of spent nuclear fuel storage costs
 
62,162

 

Proceeds from nuclear decommissioning trust fund sales
 
687,487

 
1,307,547

Investment in nuclear decommissioning trust funds
 
(718,741
)
 
(1,342,429
)
Net cash flow used in investing activities
 
(1,045,487
)
 
(950,958
)
 
 
 
 
 
See Notes to Financial Statements.
 
 
 
 

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ENTERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2020 and 2019
(Unaudited)
 
 
2020
 
2019
 
 
(In Thousands)
FINANCING ACTIVITIES
 
 
 
 
Proceeds from the issuance of:
 
 
 
 
Long-term debt
 
3,195,345

 
3,444,230

Treasury stock
 
39,964

 
35,577

Retirement of long-term debt
 
(1,614,578
)
 
(2,298,855
)
Repurchase of preferred membership units
 

 
(50,000
)
Changes in credit borrowings and commercial paper - net
 
(4,911
)
 
(17
)
Other
 
(756
)
 
(1,945
)
Dividends paid:
 
 
 
 
Common stock
 
(185,763
)
 
(172,591
)
Preferred stock
 
(4,763
)
 
(4,109
)
Net cash flow provided by financing activities
 
1,424,538

 
952,290


 
 
 
 
Net increase in cash and cash equivalents
 
1,038,111

 
502,521


 
 
 
 
Cash and cash equivalents at beginning of period
 
425,722

 
480,975


 
 
 
 
Cash and cash equivalents at end of period
 

$1,463,833

 

$983,496

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

$203,466

 

$214,935

Income taxes
 

($23,063
)
 

($13,844
)
 
 
 
 
 
See Notes to Financial Statements.
 
 
 
 


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Table of Contents

ENTERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, 2020 and December 31, 2019
(Unaudited)
 
 
2020
 
2019
 
 
(In Thousands)
CURRENT ASSETS
 
 
 
 
Cash and cash equivalents:
 
 
 
 
Cash
 

$283,491

 

$34,242

Temporary cash investments
 
1,180,342

 
391,480

Total cash and cash equivalents
 
1,463,833

 
425,722

Accounts receivable:
 
 
 
 
Customer
 
602,278

 
595,509

Allowance for doubtful accounts
 
(8,521
)
 
(7,404
)
Other
 
112,368

 
219,870

Accrued unbilled revenues
 
369,948

 
400,617

Total accounts receivable
 
1,076,073

 
1,208,592

Fuel inventory - at average cost
 
160,865

 
145,476

Materials and supplies - at average cost
 
837,855

 
824,989

Deferred nuclear refueling outage costs
 
167,124

 
157,568

Prepayments and other
 
268,201

 
283,645

TOTAL
 
3,973,951

 
3,045,992

 
 
 
 
 
OTHER PROPERTY AND INVESTMENTS
 
 
 
 
Decommissioning trust funds
 
5,778,285

 
6,404,030

Non-utility property - at cost (less accumulated depreciation)
 
335,314

 
332,864

Other
 
460,569

 
496,452

TOTAL
 
6,574,168

 
7,233,346

 
 
 
 
 
PROPERTY, PLANT, AND EQUIPMENT
 
 
 
 
Electric
 
55,524,303

 
54,271,467

Natural gas
 
553,323

 
547,110

Construction work in progress
 
2,469,130

 
2,823,291

Nuclear fuel
 
657,216

 
677,181

TOTAL PROPERTY, PLANT, AND EQUIPMENT
 
59,203,972

 
58,319,049

Less - accumulated depreciation and amortization
 
23,422,851

 
23,136,356

PROPERTY, PLANT, AND EQUIPMENT - NET
 
35,781,121

 
35,182,693

 
 
 
 
 
DEFERRED DEBITS AND OTHER ASSETS
 
 
 
 
Regulatory assets:
 
 
 
 
Other regulatory assets (includes securitization property of $212,163 as of March 31, 2020 and $239,219 as of December 31, 2019)
 
5,192,780

 
5,292,055

Deferred fuel costs
 
240,024

 
239,892

Goodwill
 
377,172

 
377,172

Accumulated deferred income taxes
 
76,680

 
64,461

Other
 
339,133

 
288,301

TOTAL
 
6,225,789

 
6,261,881

 
 
 
 
 
TOTAL ASSETS
 

$52,555,029

 

$51,723,912

 
 
 
 
 
See Notes to Financial Statements.
 
 
 
 

20

Table of Contents

ENTERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND EQUITY
March 31, 2020 and December 31, 2019
(Unaudited)
 
 
2020
 
2019
 
 
(In Thousands)
CURRENT LIABILITIES
 
 
 
 
Currently maturing long-term debt
 

$1,230,015

 

$795,012

Notes payable and commercial paper
 
1,941,816

 
1,946,727

Accounts payable
 
1,502,392

 
1,499,861

Customer deposits
 
408,803

 
409,171

Taxes accrued
 
189,214

 
233,455

Interest accrued
 
189,338

 
194,129

Deferred fuel costs
 
228,379

 
197,687

Pension and other postretirement liabilities
 
62,129

 
66,184

Current portion of unprotected excess accumulated deferred income taxes
 
64,339

 
76,457

Other
 
201,514

 
201,780

TOTAL
 
6,017,939

 
5,620,463

 
 
 
 
 
NON-CURRENT LIABILITIES
 
 
 
 
Accumulated deferred income taxes and taxes accrued
 
4,384,494

 
4,401,190

Accumulated deferred investment tax credits
 
205,041

 
207,113

Regulatory liability for income taxes-net
 
1,600,189

 
1,633,159

Other regulatory liabilities
 
1,555,188

 
1,961,005

Decommissioning and asset retirement cost liabilities
 
6,250,951

 
6,159,212

Accumulated provisions
 
498,199

 
534,028

Pension and other postretirement liabilities
 
2,689,249

 
2,798,265

Long-term debt (includes securitization bonds of $271,391 as of March 31, 2020 and $297,981 as of December 31, 2019)
 
18,228,528

 
17,078,643

Other
 
646,899

 
852,749

TOTAL
 
36,058,738

 
35,625,364

 
 
 
 
 
Commitments and Contingencies
 
 
 
 
 
 
 
 
 
Subsidiaries' preferred stock without sinking fund
 
219,385

 
219,410

 
 
 
 
 
EQUITY
 
 
 
 
Common stock, $.01 par value, authorized 500,000,000 shares; issued 270,035,180 shares in 2020 and 2019
 
2,700

 
2,700

Paid-in capital
 
6,510,683

 
6,564,436

Retained earnings
 
9,190,141

 
9,257,609

Accumulated other comprehensive loss
 
(398,987
)
 
(446,920
)
Less - treasury stock, at cost (69,874,430 shares in 2020 and 70,886,400 shares in 2019)
 
5,080,570

 
5,154,150

Total common shareholders' equity
 
10,223,967

 
10,223,675

Subsidiaries' preferred stock without sinking fund
 
35,000

 
35,000

TOTAL
 
10,258,967

 
10,258,675

 
 
 
 
 
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
 

$52,555,029

 

$51,723,912

 
 
 
 
 
See Notes to Financial Statements.
 
 
 
 


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Table of Contents

ENTERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the Three Months Ended March 31, 2020 and 2019
(Unaudited)
 
 
 
 
 
 



Common Shareholders’ Equity


 
Subsidiaries’ Preferred Stock
 
Common
Stock
 
Treasury
Stock
 
Paid-in
Capital
 
Retained Earnings
 
Accumulated Other Comprehensive Loss
 
Total
 
(In Thousands)
Balance at December 31, 2018

$

 

$2,616

 

($5,273,719
)
 

$5,951,431

 

$8,721,150

 

($557,173
)
 

$8,844,305

Implementation of accounting standards

 

 

 

 
6,806

 
(6,806
)
 

Balance at January 1, 2019

 
2,616

 
(5,273,719
)
 
5,951,431

 
8,727,956

 
(563,979
)
 
8,844,305

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated net income
4,109

 

 

 

 
254,537

 

 
258,646

Other comprehensive income

 

 

 

 

 
12,827

 
12,827

Common stock issuances related to stock plans

 

 
62,537

 
(31,248
)
 

 

 
31,289

Common stock dividends declared

 

 

 

 
(172,591
)
 

 
(172,591
)
Preferred dividend requirements of subsidiaries (a)
(4,109
)
 

 

 

 

 

 
(4,109
)
Balance at March 31, 2019

$

 

$2,616

 

($5,211,182
)
 

$5,920,183

 

$8,809,902

 

($551,152
)
 

$8,970,367


Balance at December 31, 2019

$35,000

 

$2,700

 

($5,154,150
)
 

$6,564,436

 

$9,257,609

 

($446,920
)
 

$10,258,675

Implementation of accounting standards

 

 

 

 
(419
)
 

 
(419
)
Balance at January 1, 2020
35,000

 
2,700

 
(5,154,150
)
 
6,564,436

 
9,257,190

 
(446,920
)
 
10,258,256

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated net income
4,580

 

 

 

 
118,714

 

 
123,294

Other comprehensive income

 

 

 

 

 
47,933

 
47,933

Common stock issuances related to stock plans

 

 
73,580

 
(53,753
)
 

 

 
19,827

Common stock dividends declared

 

 

 

 
(185,763
)
 

 
(185,763
)
Preferred dividend requirements of subsidiaries (a)
(4,580
)
 

 

 

 

 

 
(4,580
)
Balance at March 31, 2020

$35,000

 

$2,700

 

($5,080,570
)
 

$6,510,683

 

$9,190,141

 

($398,987
)
 

$10,258,967

 
 
 
 
 
 
 
 
 
 
 
 
 
 
See Notes to Financial Statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(a) Consolidated net income and preferred dividend requirements of subsidiaries include $4.1 million for 2020 and 2019 of preferred dividends on subsidiaries’ preferred stock without sinking fund that is not presented as equity.


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ENTERGY CORPORATION AND SUBSIDIARIES
SELECTED OPERATING RESULTS
For the Three Months Ended March 31, 2020 and 2019
(Unaudited)
 
 
 
 
 
 
 
 
 
Nine Months Ended
 
Increase/
 
 

 
2020
 
2019
 
(Decrease)
 
%

 
(Dollars in Millions)
 
 
Utility electric operating revenues:
 
 
 
 
 
 
 
 
Residential
 

$798

 

$803

 

($5
)
 
(1
)
Commercial
 
539

 
554

 
(15
)
 
(3
)
Industrial
 
557

 
601

 
(44
)
 
(7
)
Governmental
 
53

 
53

 

 

Total billed retail
 
1,947

 
2,011

 
(64
)
 
(3
)
Sales for resale
 
54

 
84

 
(30
)
 
(36
)
Other
 
50

 
26

 
24

 
92

Total
 

$2,051

 

$2,121

 

($70
)
 
(3
)

 
 
 
 
 
 
 
 
Utility billed electric energy sales (GWh):
 
 
 
 
 
 
 
 
Residential
 
8,126

 
8,471

 
(345
)
 
(4
)
Commercial
 
6,244

 
6,423

 
(179
)
 
(3
)
Industrial
 
11,815

 
11,683

 
132

 
1

Governmental
 
595

 
601

 
(6
)
 
(1
)
Total retail
 
26,780

 
27,178

 
(398
)
 
(1
)
Sales for resale
 
3,117

 
3,814

 
(697
)
 
(18
)
Total
 
29,897

 
30,992

 
(1,095
)
 
(4
)

 
 
 
 
 
 
 
 
Entergy Wholesale Commodities:
 
 
 
 
 
 
 
 
Operating revenues
 

$333

 

$434

 

($101
)
 
(23
)
Billed electric energy sales (GWh)
 
6,757

 
7,203

 
(446
)
 
(6
)


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ENTERGY CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS
(Unaudited)

NOTE 1.  COMMITMENTS AND CONTINGENCIES (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)

Entergy and the Registrant Subsidiaries are involved in a number of legal, regulatory, and tax proceedings before various courts, regulatory commissions, and governmental agencies in the ordinary course of business.  While management is unable to predict with certainty the outcome of such proceedings, management does not believe that the ultimate resolution of these matters will have a material adverse effect on Entergy’s results of operations, cash flows, or financial condition, except as otherwise discussed in the Form 10-K or in this report.  Entergy discusses regulatory proceedings in Note 2 to the financial statements in the Form 10-K and herein and discusses tax proceedings in Note 3 to the financial statements in the Form 10-K and Note 10 to the financial statements herein.

Vidalia Purchased Power Agreement

See Note 8 to the financial statements in the Form 10-K for information on Entergy Louisiana’s Vidalia purchased power agreement.

ANO Damage, Outage, and NRC Reviews

See Note 8 to the financial statements in the Form 10-K for a discussion of the ANO stator incident, subsequent NRC reviews, and the deferral of replacement power costs.

Spent Nuclear Fuel Litigation

See Note 8 to the financial statements in the Form 10-K for information on Entergy’s spent nuclear fuel litigation.

Nuclear Insurance

See Note 8 to the financial statements in the Form 10-K for information on nuclear liability and property insurance associated with Entergy’s nuclear power plants.
 
Non-Nuclear Property Insurance

See Note 8 to the financial statements in the Form 10-K for information on Entergy’s non-nuclear property insurance program.

Employment and Labor-related Proceedings

See Note 8 to the financial statements in the Form 10-K for information on Entergy’s employment and labor-related proceedings.

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

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

Grand Gulf-Related Agreements

See Note 8 to the financial statements in the Form 10-K for information regarding Grand Gulf-related agreements.

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Entergy Corporation and Subsidiaries
Notes to Financial Statements



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

Regulatory Assets and Regulatory Liabilities

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

Regulatory activity regarding the Tax Cuts and Jobs Act

System Energy

In a filing made with the FERC in March 2018, Entergy proposed revisions to the Unit Power Sales Agreement, among other agreements, to reflect the effects of the Tax Act. In the filing System Energy proposed to return all of its unprotected excess accumulated deferred income taxes to its customers by the end of 2018. In May 2018 the FERC accepted System Energy’s proposed tax revisions with an effective date of June 1, 2018, subject to refund and the outcome of settlement and hearing procedures.  Settlement discussions were terminated in April 2019, and the hearing was held in March 2020. The retail regulators of the Utility operating companies that are parties to the Unit Power Sales Agreement are challenging the treatment and amount of excess tax liabilities associated with uncertain tax positions related to nuclear decommissioning. The initial decision is due in July 2020.

Fuel and purchased power cost recovery

Entergy Arkansas

Energy Cost Recovery Rider

In March 2020, Entergy Arkansas filed its annual redetermination of its energy cost rate pursuant to the energy cost recovery rider, which reflected a decrease from $0.01462 per kWh to $0.01052 per kWh. The redetermined rate became effective with the first billing cycle in April 2020 through the normal operation of the tariff.

Entergy Louisiana

In March 2020 the LPSC staff provided notice of an audit of Entergy Louisiana’s fuel adjustment clause filings. The audit includes a review of the reasonableness of charges flowed through Entergy Louisiana’s fuel adjustment clause for the period from 2016 through 2019. Discovery has not yet commenced.

Entergy Texas

In September 2019, Entergy Texas filed an application to reconcile its fuel and purchased power costs for the period from April 2016 through March 2019. During the reconciliation period, Entergy Texas incurred approximately $1.6 billion in Texas jurisdictional eligible fuel and purchased power expenses, net of certain revenues credited to such expenses and other adjustments. Entergy Texas estimated an under-recovery balance of approximately $25.8 million, including interest, which Entergy Texas requested authority to carry over as the beginning balance for the subsequent reconciliation period beginning April 2019. In March 2020 an intervenor filed testimony proposing that the PUCT disallow: (1) $2 million in replacement power costs associated with generation outages during the reconciliation period; and (2) $24.4 million associated with the operation of the Spindletop natural gas storage facility during the reconciliation period.  In April 2020, Entergy Texas filed rebuttal testimony refuting all points raised by the intervenor.  A hearing on the merits is currently set for May 2020.

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Entergy Corporation and Subsidiaries
Notes to Financial Statements


Retail Rate Proceedings

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

Filings with the LPSC (Entergy Louisiana)

Retail Rates - Electric

2018 Formula Rate Plan Filing

Commercial operation at Lake Charles Power Station commenced in March 2020. In March 2020, Entergy Louisiana filed an update to its 2018 formula rate plan evaluation report to include the estimated first-year revenue requirement of $108 million associated with the Lake Charles Power Station. The resulting interim adjustment to rates became effective with the first billing cycle of April 2020.

Filings with the MPSC (Entergy Mississippi)

Formula Rate Plan Filing

In March 2020, Entergy Mississippi submitted its formula rate plan 2020 test year filing and 2019 look-back filing showing Entergy Mississippi’s earned return for the historical 2019 calendar year to be below the formula rate plan bandwidth and projected earned return for the 2020 calendar year to be below the formula rate plan bandwidth. The 2020 test year filing shows a $24.6 million rate increase is necessary to reset Entergy Mississippi’s earned return on common equity to the specified point of adjustment of 6.51% return on rate base, within the formula rate plan bandwidth. The 2019 look-back filing compares actual 2019 results to the approved benchmark return on rate base and reflects the need for a $7.3 million interim increase in formula rate plan revenues. In accordance with the MPSC-approved revisions to the formula rate plan, Entergy Mississippi implemented a $24.3 million interim rate increase, reflecting a cap equal to 2% of 2019 retail revenues, effective with the April 2020 billing cycle, subject to refund, pending a final MPSC order. A final order is expected in the second quarter 2020, with the resulting final rates, including amounts above the 2% cap of 2019 retail revenues, effective July 2020.

Filings with the City Council (Entergy New Orleans)

Energy Efficiency

As discussed in the Form 10-K, in December 2019, Entergy New Orleans filed an application with the City Council seeking approval of an implementation plan for the Energy Smart energy efficiency program from April 2020 through December 2022. Entergy New Orleans proposed to recover the costs of the program through mechanisms previously approved by the City Council or through the energy efficiency cost recovery rider, which was approved in the 2018 combined rate case resolution. In February 2020 the City Council approved Entergy New Orleans’s application.

2018 Base Rate Case Filing

See the Form 10-K for discussion of the electric and gas base rate case filed in September 2018. In response to the City Council’s November 2019 resolution in the rate case, Entergy New Orleans made a compliance filing in December 2019 and also filed timely a petition for appeal and judicial review and for stay of or injunctive relief alleging that the resolution is unlawful in failing to produce just and reasonable rates. A hearing on the requested injunction was scheduled in Civil District Court for February 2020, but by joint motion of the City Council and Entergy New Orleans, the Civil District Court issued an order for a limited remand to the City Council to consider a potential agreement in principle/stipulation at its February 20, 2020 meeting. On February 17, 2020, Entergy New Orleans filed

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Entergy Corporation and Subsidiaries
Notes to Financial Statements

with the City Council an agreement in principle between Entergy New Orleans and the City Council’s advisors. On February 20, 2020, the City Council voted to approve the proposed agreement in principle and issued a resolution modifying the required treatment of certain accumulated deferred income taxes. As a result of the agreement in principle, the total annual revenue requirement reduction will be approximately $45 million ($42 million electric, including $29 million in rider reductions; and $3 million gas). As a result, Entergy New Orleans fully implemented the new rates in April 2020. The merits of the appeal will be subject to a separate procedural schedule issued by the Civil District Court.

2020 Formula Rate Plan Filing

In April 2020, Entergy New Orleans filed a motion with the City Council to delay its formula rate plan filing until June 2020. In May 2020 the City Council issued an order extending the filing deadline for Entergy New Orleans’s formula rate plan filing to June 29, 2020.

Filings with the PUCT (Entergy Texas)

Distribution Cost Recovery Factor (DCRF) Rider

In March 2020, Entergy Texas filed with the PUCT a request to amend its DCRF rider. The proposed rider is designed to collect approximately $23.6 million annually, or $20.4 million in incremental annual DCRF revenue beyond Entergy Texas’s currently effective DCRF rider from Entergy Texas’s retail customers based on its capital invested in distribution between January 1, 2019 and December 31, 2019.

Transmission Cost Recovery Factor (TCRF) Rider

As discussed in the Form 10-K, in August 2019, Entergy Texas filed with the PUCT a request to amend its TCRF rider. The new TCRF rider is designed to collect approximately $19.4 million annually from Entergy Texas’s retail customers based on its capital invested in transmission between January 1, 2018 and June 30, 2019. In January 2020 the PUCT issued an order approving an unopposed settlement providing for recovery of the requested revenue requirement. Entergy Texas implemented the amended rider beginning with bills covering usage on and after January 23, 2020.

System Agreement Cost Equalization Proceedings

Rough Production Cost Equalization Rates

Consolidated 2011, 2012, 2013, and 2014 Rate Filing Proceedings

As discussed in the Form 10-K, in April 2018 the LPSC requested rehearing of the FERC’s March 2018 order affirming the ALJ’s initial decision in the consolidated proceedings. Entergy filed in May 2018 the bandwidth true-up payments and receipts for the 2011-2014 rate filings and the payments were made in May 2018. In April 2020 the FERC issued an order partially granting the LPSC’s rehearing request.  In the order the FERC reversed its prior finding and determined that the tax gain portion of the Waterford 3 financing accumulated deferred income tax should be included in the bandwidth calculation.  The order requires Entergy Services to redetermine bandwidth true-up payments and receipts for the 2010-2012 test years.

Entergy Arkansas Opportunity Sales Proceeding

As discussed in the Form 10-K, the FERC’s opportunity sales orders have been appealed to the D.C. Circuit by Entergy, the LPSC, and the APSC. In February 2020 all of the appeals were consolidated and in April 2020 the D.C. Circuit established a briefing schedule. Briefing will occur in May 2020 through September 2020.    


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Also as discussed in the Form 10-K, in May 2019, Entergy Arkansas filed an application with the APSC requesting approval of a special rider tariff to recover the costs of its opportunity sales payments from its retail customers over a 24-month period. In January 2020 the Attorney General and Arkansas Electric Energy Consumers, Inc. filed testimony opposing the recovery by Entergy Arkansas of the opportunity sales payment but also claiming that certain components of the payment should be segregated and refunded to customers. In March 2020, Entergy Arkansas filed rebuttal testimony. Also in March 2020, Entergy Arkansas, the APSC staff, and the Arkansas Electric Energy Consumers, Inc. filed a joint motion asking the APSC to issue a final decision based on the record in the proceeding and cancel the April 2020 evidentiary hearing. The Arkansas Attorney General did not oppose the request, which was granted by the APSC in March 2020. A final decision is expected in July 2020.

Complaints Against System Energy

Return on Equity and Capital Structure Complaints

As discussed in the Form 10-K, in November 2019, in a proceeding that did not involve Entergy, the FERC issued an order addressing the methodology for determining the return on equity applicable to transmission owners in MISO. Thereafter, the participants in the System Energy proceeding agreed to amend the procedural schedule to allow the participants to file supplemental testimony addressing the order in the MISO transmission owner proceeding (Opinion No. 569).

In February 2020 the LPSC, the MPSC and APSC, and the FERC trial staff filed supplemental testimony addressing Opinion No. 569 and how it would affect the return on equity evaluation for the two complaint periods concerning System Energy. For the first refund period, based on their respective interpretations and applications of the Opinion No. 569 methodology, the LPSC argues for an authorized return on equity for System Energy of 8.44%; the MPSC and APSC argue for an authorized return on equity of 8.41%; and the FERC trial staff argues for an authorized return on equity of 9.22%. For the second refund period and on a prospective basis, based on their respective interpretations and applications of the Opinion No. 569 methodology, the LPSC argues for an authorized return on equity for System Energy of 7.89%; the MPSC and APSC argue that an authorized return on equity of 8.01% may be appropriate; and the FERC trial staff argues for an authorized return on equity of 8.66%.

In April 2020, System Energy filed supplemental answering testimony addressing Opinion No. 569. System Energy argues that the Opinion No. 569 methodology is conceptually and analytically defective for purposes of establishing just and reasonable authorized return on equity determinations and proposes an alternative approach. As its primary recommendation, System Energy continues to support the return on equity determinations in its March 2019 testimony for the first refund period and its June 2019 testimony for the second refund period. Under the Opinion No. 569 methodology, System Energy calculates a “presumptively just and reasonable range” for the authorized return on equity for the first refund period of 8.57% to 9.52%, and for the second refund period of 8.28% to 9.11%. System Energy argues that these ranges are not just and reasonable results. Under its proposed alternative methodology, System Energy calculates an authorized return on equity of 10.26% for the first refund period, which also falls within the presumptively just and reasonable range calculated for the second refund period and prospectively.

The schedule was further revised in March 2020, and rebuttal testimony addressing Opinion No. 569 is due in June 2020; the hearing in the System Energy proceeding will commence in August 2020; and the initial decision will be due in December 2020.

Grand Gulf Sale-leaseback Renewal Complaint

As discussed in the Form 10-K, in May 2018 the LPSC filed a complaint against System Energy and Entergy Services related to System Energy’s renewal of a sale-leaseback transaction originally entered into in December 1988 for an 11.5% undivided interest in Grand Gulf Unit 1. In February 2019 the presiding ALJ ruled that the hearing ordered by the FERC includes the issue of whether specific subcategories of accumulated deferred income tax should be included in, or excluded from, System Energy’s formula rate. In March 2019 the LPSC, MPSC, APSC, and City

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Council filed direct testimony. The LPSC testimony sought refunds that include the renewal lease payments (approximately $17.2 million per year since July 2015), rate base reductions for accumulated deferred income taxes associated with uncertain tax positions, and the cost of capital additions associated with the sale-leaseback interest, as well as interest on those amounts.

In June 2019 System Energy filed answering testimony arguing that the FERC should reject all claims for refunds.  Among other things, System Energy argued that claims for refunds of the costs of lease renewal payments and capital additions should be rejected because those costs were recovered consistent with the Unit Power Sales Agreement formula rate, System Energy was not over or double recovering any costs, and customers will save costs over the initial and renewal terms of the leases.  System Energy argued that claims for refunds associated with liabilities arising from uncertain tax positions should be rejected because the liabilities do not provide cost-free capital, the repayment timing of the liabilities is uncertain, and the outcome of the underlying tax positions is uncertain.  System Energy’s testimony also challenged the refund calculations supplied by the other parties.

In August 2019 the FERC trial staff filed direct and answering testimony seeking refunds for rate base reductions for the liabilities associated with uncertain tax positions. The FERC trial staff also argued that System Energy recovered $32 million more than it should have in depreciation expense for capital additions. In September 2019, System Energy filed cross-answering testimony disputing the FERC trial staff’s arguments for refunds, stating that the FERC trial staff’s position regarding depreciation rates for capital additions is not unreasonable, but explaining that any change in depreciation expense is only one element of a Unit Power Sales Agreement re-billing calculation. Adjustments to depreciation expense in any re-billing under the Unit Power Sales Agreement formula rate will also involve changes to accumulated depreciation, accumulated deferred income taxes, and other formula elements as needed. In October 2019 the LPSC filed rebuttal testimony increasing the amount of refunds sought for the liabilities associated with uncertain tax positions.  The LPSC now seeks approximately $512 million, plus interest, which is approximately $170 million through March 31, 2020.  The FERC trial staff also filed rebuttal testimony in which it seeks refunds of a similar amount as the LPSC for the liabilities associated with uncertain tax positions.  The LPSC testimony also argued that adjustments to depreciation rates should affect rate base on a prospective basis only.

A hearing was held before a FERC ALJ in November 2019. In April 2020 the ALJ issued the initial decision. Among other things, the ALJ determined that refunds were due on three main issues. First, with regard to the lease renewal payments, the ALJ determined that System Energy is recovering an unjust acquisition premium through the lease renewal payments, and that System Energy’s recovery from customers through rates should be limited to the cost of service based on the remaining net book value of the leased assets, which is approximately $70 million. The ALJ found that the remedy for this issue should be the refund of lease payments (approximately $17.2 million per year since July 2015) with interest determined at the FERC quarterly interest rate, which would be offset by the addition of the net book value of the leased assets in the cost of service. The ALJ did not calculate a value for the refund expected as a result of this remedy. In addition, System Energy would no longer recover the lease payments in rates prospectively. Second, with regard to the liabilities associated with uncertain tax positions, the ALJ determined that the liabilities are accumulated deferred income taxes and System Energy’s rate base should have been reduced for those liabilities. If the ALJ’s initial decision is upheld, the estimated refund for this issue through March 31, 2020, is approximately $397 million, plus interest, which is approximately $96 million through March 31, 2020. The ALJ also found that System Energy should include liabilities associated with uncertain tax positions as a rate base reduction going forward. Third, with regard to the depreciation expense adjustments, the ALJ found that System Energy should correct for the error in re-billings retroactively and prospectively, but that System Energy should not be permitted to recover interest on any retroactive return on enhanced rate base resulting from such corrections. If the initial decision is affirmed on this issue, System Energy estimates refunds of approximately $18 million, which includes interest through March 31, 2020.

The ALJ initial decision is an interim step in the FERC litigation process, and an ALJ’s determinations made in an initial decision are not controlling on the FERC. System Energy plans to file briefs on exceptions to the FERC, re-urging its positions and requesting the reversal of many of the findings in the ALJ’s initial decision, including the lease renewal and uncertain tax position issues. The ALJ in the initial decision acknowledges that these are issues of first impression before the FERC. Briefs on exceptions from all parties are scheduled for June 2020, and briefs opposing

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exceptions are scheduled for September 2020. The FERC will then review the case and issue an order on the proceeding, and the FERC may accept, reject, or modify the ALJ’s initial decision in whole or in part. Refunds, if any, that might be required will only become due after the FERC issues its order reviewing the initial decision.


NOTE 3.  EQUITY (Entergy Corporation and Entergy Louisiana)

Common Stock

Earnings per Share

The following table presents Entergy’s basic and diluted earnings per share calculations included on the consolidated income statements:

 
For the Three Months Ended March 31,
 
2020
 
2019
 
(In Millions, Except Per Share Data)
 
Income
 
Shares
 
$/share
 
Income
 
Shares
 
$/share
Basic earnings per share
 
 
 
 
 
 
 
 
 
 
 
Net income attributable to Entergy Corporation

$118.7

 
199.8

 

$0.59

 

$254.5

 
189.6

 

$1.34

Average dilutive effect of:
 
 
 
 
 
 
 
 
 
 
 
Stock options
 
 
0.7

 

 
 
 
0.4

 

Other equity plans
 
 
0.4

 

 
 
 
0.5

 
(0.01
)
Equity forwards
 
 

 

 
 
 
1.7

 
(0.01
)
Diluted earnings per share

$118.7

 
200.9

 

$0.59

 

$254.5

 
192.2

 

$1.32



The number of stock options not included in the calculation of diluted common shares outstanding due to their antidilutive effect was approximately 0.5 million for the three months ended March 31, 2020 and approximately 0.7 million for the three months ended March 31, 2019.

Entergy’s stock options and other equity compensation plans are discussed in Note 5 to the financial statements herein and in Note 12 to the financial statements in the Form 10-K.

Dividends declared per common share were $0.93 for the three months ended March 31, 2020 and $0.91 for the three months ended March 31, 2019.

Treasury Stock

During the three months ended March 31, 2020, Entergy Corporation issued 1,011,970 shares of its previously repurchased common stock to satisfy stock option exercises, vesting of shares of restricted stock, and other stock-based awards.  Entergy Corporation did not repurchase any of its common stock during the three months ended March 31, 2020.

Retained Earnings

On April 8, 2020, Entergy Corporation’s Board of Directors declared a common stock dividend of $0.93 per share, payable on June 1, 2020, to holders of record as of May 7, 2020.


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Comprehensive Income
 
 
 
 
 
 
 
 
Accumulated other comprehensive income (loss) is included in the equity section of the balance sheets of Entergy and Entergy Louisiana. The following table presents changes in accumulated other comprehensive income (loss) for Entergy for the three months ended March 31, 2020 by component:
 
Cash flow
hedges
net
unrealized
gain (loss)
 
Pension
and
other
postretirement
liabilities
 
Net
unrealized
investment
gain (loss)
 
Total
Accumulated
Other
Comprehensive
Income (Loss)
 
(In Thousands)
Beginning balance, December 31, 2019

$84,206

 

($557,072
)
 

$25,946

 

($446,920
)
 
 
 
 
 
 
 
 
Other comprehensive income (loss) before reclassifications
52,846

 
34,349

 
17,713

 
104,908

Amounts reclassified from accumulated other comprehensive income (loss)
(74,556
)
 
19,550

 
(1,969
)
 
(56,975
)
Net other comprehensive income (loss) for the period
(21,710
)
 
53,899

 
15,744

 
47,933

 
 
 
 
 
 
 
 
Ending balance, March 31, 2020

$62,496

 

($503,173
)
 

$41,690

 

($398,987
)

The following table presents changes in accumulated other comprehensive income (loss) for Entergy for the three months ended March 31, 2019 by component:
 
Cash flow
hedges
net
unrealized
gain (loss)
 
Pension
and
other
postretirement
liabilities
 
Net
unrealized
investment
gain (loss)
 
Total
Accumulated
Other
Comprehensive
Income (Loss)
 
(In Thousands)
Ending balance, December 31, 2018

($23,135
)
 

($531,922
)
 

($2,116
)
 

($557,173
)
Implementation of accounting standards
(7,685
)
 

 
879

 
(6,806
)
Beginning balance, January 1, 2019

($30,820
)
 

($531,922
)
 

($1,237
)
 

($563,979
)
 
 
 
 
 
 
 
 
Other comprehensive income (loss) before reclassifications
28,312

 

 
13,539

 
41,851

Amounts reclassified from accumulated other comprehensive income (loss)
(40,738
)
 
11,550

 
164

 
(29,024
)
Net other comprehensive income (loss) for the period
(12,426
)
 
11,550

 
13,703

 
12,827

 
 
 
 
 
 
 
 
Ending balance, March 31, 2019

($43,246
)
 

($520,372
)
 

$12,466

 

($551,152
)
 
 
 
 
 
 
 
 


 
 
 
 
 


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The following table presents changes in accumulated other comprehensive income (loss) for Entergy Louisiana for the three months ended March 31, 2020 and 2019:
 
 
Pension and Other
Postretirement Liabilities
 
 
2020
 
2019
 
 
(In Thousands)
Beginning balance, January 1,
 

$4,562

 

($6,153
)
 
 
 
 
 
Other comprehensive income (loss) before reclassifications
 
10,050

 

Amounts reclassified from accumulated other
comprehensive income (loss)
 
(583
)
 
(969
)
Net other comprehensive income (loss) for the period
 
9,467

 
(969
)
 
 
 
 
 
Ending balance, March 31,
 

$14,029

 

($7,122
)

 
 
 
 
 
 

Total reclassifications out of accumulated other comprehensive income (loss) (AOCI) into income for Entergy for the three months ended March 31, 2020 and 2019 were as follows:
 
Amounts reclassified
from AOCI
 
Income Statement Location
 
2020
 
2019
 
 
 
(In Thousands)
 
 
Cash flow hedges net unrealized gain (loss)
 
 
 
 
 
   Power contracts

$94,423

 

$51,615

 
Competitive business operating revenues
   Interest rate swaps
(48
)
 
(48
)
 
Miscellaneous - net
Total realized gain (loss) on cash flow hedges
94,375

 
51,567

 
 
Income taxes
(19,819
)
 
(10,829
)
 
Income taxes
Total realized gain (loss) on cash flow hedges (net of tax)

$74,556

 

$40,738

 
 
 
 
 
 
 
 
Pension and other postretirement liabilities
 
 
 
 
 
   Amortization of prior-service credit

$3,719

 

$5,326

 
(a)
   Amortization of loss
(27,318
)
 
(18,988
)
 
(a)
   Settlement loss

 
(1,137
)
 
(a)
Total amortization
(23,599
)
 
(14,799
)
 
 
Income taxes
4,049

 
3,249

 
Income taxes
Total amortization (net of tax)

($19,550
)
 

($11,550
)
 
 
 
 
 
 
 
 
Net unrealized investment gain (loss)
 
 
 
 
 
Realized gain (loss)

$3,116

 

($259
)
 
Interest and investment income
Income taxes
(1,147
)
 
95

 
Income taxes
Total realized investment gain (loss) (net of tax)

$1,969

 

($164
)
 
 
 
 
 
 
 
 
Total reclassifications for the period (net of tax)

$56,975

 

$29,024

 
 

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

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Total reclassifications out of accumulated other comprehensive income (loss) (AOCI) into income for Entergy Louisiana for the three months ended March 31, 2020 and 2019 were as follows:
 
 
Amounts reclassified
from AOCI
 
Income Statement Location
 
 
2020
 
2019
 
 
 
 
(In Thousands)
 
 
Pension and other postretirement liabilities
 
 
 
 
 
 
   Amortization of prior-service credit
 

$1,089

 

$1,838

 
(a)
   Amortization of loss
 
(301
)
 
(527
)
 
(a)
Total amortization
 
788

 
1,311

 
 
Income taxes
 
(205
)
 
(342
)
 
Income taxes
Total amortization (net of tax)
 
583

 
969

 
 
 
 
 
 
 
 
 
Total reclassifications for the period (net of tax)
 

$583

 

$969

 
 


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


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

Entergy Corporation has in place a credit facility that has a borrowing capacity of $3.5 billion and expires in September 2024.  The facility includes fronting commitments for the issuance of letters of credit against $20 million of the total borrowing capacity of the credit facility.  The commitment fee is currently 0.225% of the undrawn commitment amount.  Commitment fees and interest rates on loans under the credit facility can fluctuate depending on the senior unsecured debt ratings of Entergy Corporation.  The weighted average interest rate for the three months ended March 31, 2020 was 2.99% on the drawn portion of the facility.  Following is a summary of the borrowings outstanding and capacity available under the facility as of March 31, 2020.
Capacity
 
Borrowings
 
Letters
of Credit
 
Capacity
Available
(In Millions)
$3,500
 
$922
 
$6
 
$2,572


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

Entergy Corporation has a commercial paper program with a Board-approved program limit of up to $2 billion.  At March 31, 2020, Entergy Corporation had approximately $1,942 million of commercial paper outstanding.  The weighted-average interest rate for the three months ended March 31, 2020 was 2.02%.


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Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and Entergy Texas each had credit facilities available as of March 31, 2020 as follows:
Company
 
Expiration
Date
 
Amount of
Facility
 
Interest Rate (a)
 
Amount Drawn
as of
March 31, 2020
 
Letters of Credit
Outstanding as of
March 31, 2020
Entergy Arkansas
 
April 2021
 
$20 million (b)
 
2.11%
 
$
 
$
Entergy Arkansas
 
September 2024
 
$150 million (c)
 
2.11%
 
$
 
$
Entergy Louisiana
 
September 2024
 
$350 million (c)
 
2.11%
 
$
 
$
Entergy Mississippi
 
April 2021
 
$37.5 million (d)
 
2.49%
 
$
 
$
Entergy Mississippi
 
April 2021
 
$35 million (d)
 
2.49%
 
$
 
$
Entergy Mississippi
 
April 2021
 
$10 million (d)
 
2.49%
 
$
 
$
Entergy New Orleans
 
November 2021
 
$25 million (c)
 
2.26%
 
$
 
$0.8 million
Entergy Texas
 
September 2024
 
$150 million (c)
 
2.49%
 
$
 
$1.3 million

(a)
The interest rate is the estimated interest rate as of March 31, 2020 that would have been applied to outstanding borrowings under the facility.
(b)
Borrowings under the Entergy Arkansas credit facility may be secured by a security interest in its accounts receivable at Entergy Arkansas’s option.
(c)
The credit facility includes fronting commitments for the issuance of letters of credit against a portion of the borrowing capacity of the facility as follows: $5 million for Entergy Arkansas; $15 million for Entergy Louisiana; $10 million for Entergy New Orleans; and $30 million for Entergy Texas.
(d)
Borrowings under the Entergy Mississippi credit facilities may be secured by a security interest in its accounts receivable at Entergy Mississippi’s option.

The commitment fees on the credit facilities range from 0.075% to 0.225% of the undrawn commitment amount. Each of the credit facilities requires the Registrant Subsidiary borrower to maintain a debt ratio, as defined, of 65% or less of its total capitalization.  Each Registrant Subsidiary is in compliance with this covenant.

In addition, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and Entergy Texas each entered into one or more uncommitted standby letter of credit facilities as a means to post collateral to support its obligations to MISO. Following is a summary of the uncommitted standby letter of credit facilities as of March 31, 2020:
Company
 
Amount of
Uncommitted Facility
 
Letter of Credit Fee
 
Letters of Credit
Issued as of
March 31, 2020 (a)
Entergy Arkansas
 
$25 million
 
0.70%
 
$1 million
Entergy Louisiana
 
$125 million
 
0.70%
 
$25.6 million
Entergy Mississippi
 
$64 million
 
0.70%
 
$1.8 million
Entergy New Orleans
 
$15 million
 
1.00%
 
$1 million
Entergy Texas
 
$50 million
 
0.70%
 
$10.4 million


(a)
As of March 31, 2020, letters of credit posted with MISO covered financial transmission rights exposure of $0.2 million for Entergy Mississippi. See Note 8 to the financial statements herein for discussion of financial transmission rights.

The short-term borrowings of the Registrant Subsidiaries are limited to amounts authorized by the FERC.  The current FERC-authorized limits for Entergy New Orleans are effective through October 31, 2021. The current FERC-authorized limits for Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy Texas, and System Energy are effective through November 8, 2020. In addition to borrowings from commercial banks, these companies may

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also borrow from the Entergy System money pool and from other internal short-term borrowing arrangements.  The money pool and the other internal borrowing arrangements are inter-company borrowing arrangements designed to reduce the Utility subsidiaries’ dependence on external short-term borrowings.  Borrowings from internal and external short-term borrowings combined may not exceed the FERC-authorized limits.  The following were the FERC-authorized limits for short-term borrowings and the outstanding short-term borrowings as of March 31, 2020 (aggregating both internal and external short-term borrowings) for the Registrant Subsidiaries:
 
Authorized
 
Borrowings
 
(In Millions)
Entergy Arkansas
$250
 
$
Entergy Louisiana
$450
 
$
Entergy Mississippi
$175
 
$19
Entergy New Orleans
$150
 
$
Entergy Texas
$200
 
$
System Energy
$200
 
$


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

See Note 17 to the financial statements in the Form 10-K for a discussion of the consolidation of the nuclear fuel company variable interest entities (VIEs).  To finance the acquisition and ownership of nuclear fuel, the nuclear fuel company VIEs have credit facilities and three of the four VIEs have commercial paper programs in place. Following is a summary as of March 31, 2020:
Company
 
Expiration
Date
 
Amount
of
Facility
 
Weighted Average Interest Rate on Borrowings (a)
 
Amount
Outstanding as of
March 31, 2020
 
 

 
(Dollars in Millions)
Entergy Arkansas VIE
 
September 2021
 
$80
 
2.59%
 
$43.8
Entergy Louisiana River Bend VIE
 
September 2021
 
$105
 
2.69%
 
$58.4
Entergy Louisiana Waterford VIE
 
September 2021
 
$105
 
2.69%
 
$33.3
System Energy VIE
 
September 2021
 
$120
 
2.59%
 
$88.3


(a)
Includes letter of credit fees and bank fronting fees on commercial paper issuances, if any, by the nuclear fuel company variable interest entities for Entergy Arkansas, Entergy Louisiana, and System Energy. The nuclear fuel company variable interest entity for Entergy Louisiana River Bend does not issue commercial paper, but borrows directly on its bank credit facility.

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


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The nuclear fuel company variable interest entities had notes payable that were included in debt on the respective balance sheets as of March 31, 2020 as follows:
Company
 
Description
 
Amount
Entergy Arkansas VIE
 
3.65% Series L due July 2021
 
$90 million
Entergy Arkansas VIE
 
3.17% Series M due December 2023
 
$40 million
Entergy Louisiana River Bend VIE
 
3.38% Series R due August 2020
 
$70 million
Entergy Louisiana Waterford VIE
 
3.92% Series H due February 2021
 
$40 million
Entergy Louisiana Waterford VIE
 
3.22% Series I due December 2023
 
$20 million
System Energy VIE
 
3.42% Series J due April 2021
 
$100 million


In accordance with regulatory treatment, interest on the nuclear fuel company variable interest entities’ credit facilities, commercial paper, and long-term notes payable is reported in fuel expense.

Debt Issuances and Retirements

(Entergy Arkansas)

In March 2020, Entergy Arkansas issued $100 million of 4.00% Series mortgage bonds due June 2028. Entergy Arkansas is using the proceeds for general corporate purposes.

(Entergy Louisiana)

In March 2020, Entergy Louisiana issued $350 million of 2.90% Series mortgage bonds due March 2051. Entergy Louisiana is using the proceeds, together with other funds, to repay borrowings of $100 million on its $350 million credit facility and for general corporate purposes.

In March 2020, Entergy Louisiana issued $300 million of 4.20% Series mortgage bonds due September 2048. Entergy Louisiana expects to use the proceeds, together with other funds, to repay, at maturity, its $250 million of 3.95% Series mortgage bonds due October 2020 and for general corporate purposes.

(Entergy New Orleans)

In March 2020, Entergy New Orleans issued $62 million of 3.75% Series mortgage bonds due March 2040 and $78 million of 3.00% Series mortgage bonds due March 2025. Entergy New Orleans is using the proceeds to repay short-term debt, to finance a portion of the construction of the New Orleans Power Station, and for general corporate purposes.

(Entergy Texas)

In March 2020, Entergy Texas issued $175 million of 3.55% Series mortgage bonds due September 2049. Entergy Texas is using the proceeds, together with other funds, to finance a portion of the construction of the Montgomery County Power Station, to repay borrowings of $100 million on its $150 million credit facility, and for general corporate purposes.

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Notes to Financial Statements


Fair Value

The book value and the fair value of long-term debt for Entergy Corporation and the Registrant Subsidiaries as of March 31, 2020 were as follows:
 
Book Value
of Long-Term Debt
 
Fair Value
of Long-Term Debt (a)
 
(In Thousands)
Entergy

$19,458,543

 

$20,426,604

Entergy Arkansas

$3,655,723

 

$3,831,058

Entergy Louisiana

$7,923,381

 

$8,496,243

Entergy Mississippi

$1,614,156

 

$1,692,495

Entergy New Orleans

$680,188

 

$652,690

Entergy Texas

$2,091,130

 

$2,239,980

System Energy

$604,925

 

$615,747



(a)
Fair values were classified as Level 2 in the fair value hierarchy discussed in Note 8 to the financial statements herein.

The book value and the fair value of long-term debt for Entergy Corporation and the Registrant Subsidiaries as of December 31, 2019 were as follows:
 
Book Value
of Long-Term Debt
 
Fair Value
of Long-Term Debt (a)
 
(In Thousands)
Entergy

$17,873,655

 

$19,059,950

Entergy Arkansas

$3,517,208

 

$3,747,914

Entergy Louisiana

$7,303,669

 

$7,961,168

Entergy Mississippi

$1,614,129

 

$1,709,505

Entergy New Orleans

$560,906

 

$523,846

Entergy Texas

$1,922,956

 

$2,090,215

System Energy

$548,107

 

$565,209



(a)
Fair values were classified as Level 2 in the fair value hierarchy discussed in Note 8 to the financial statements herein.


NOTE 5.  STOCK-BASED COMPENSATION (Entergy Corporation)

Entergy grants stock and stock-based awards, which are described more fully in Note 12 to the financial statements in the Form 10-K.  Awards under Entergy’s plans generally vest over three years.


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Notes to Financial Statements

Stock Options

Entergy granted options on 530,716 shares of its common stock under the 2019 Omnibus Incentive Plan during the first quarter 2020 with a fair value of $11.45 per option.  As of March 31, 2020, there were options on 2,474,280 shares of common stock outstanding with a weighted-average exercise price of $89.74.  The intrinsic value, which has no effect on net income, of the outstanding stock options is calculated by the positive difference between the weighted average exercise price of the stock options granted and Entergy Corporation’s common stock price as of March 31, 2020.  The aggregate intrinsic value of the stock options outstanding as of March 31, 2020 was $30.5 million.

The following table includes financial information for outstanding stock options for the three months ended March 31, 2020 and 2019:
 
2020
 
2019
 
(In Millions)
Compensation expense included in Entergy’s net income

$1.0

 

$1.0

Tax benefit recognized in Entergy’s net income

$0.3

 

$0.2

Compensation cost capitalized as part of fixed assets and materials and supplies

$0.4

 

$0.3



Other Equity Awards

In January 2020 the Board approved and Entergy granted 313,805 restricted stock awards and 134,853 long-term incentive awards under the 2019 Omnibus Incentive Plan.  The restricted stock awards were made effective as of January 30, 2020 and were valued at $131.72 per share, which was the closing price of Entergy’s common stock on that date.  Shares of restricted stock have the same dividend and voting rights as other common stock, are considered issued and outstanding shares of Entergy upon vesting, and are expensed ratably over the three-year vesting period. One-third of the restricted stock awards and accrued dividends will vest upon each anniversary of the grant date.  

In addition, long-term incentive awards were also granted in the form of performance units that represent the value of, and are settled with, one share of Entergy Corporation common stock at the end of the three-year performance period, plus dividends accrued during the performance period on the number of performance units earned. For the 2020-2022 performance period, performance will be measured based eighty percent on relative total shareholder return and twenty percent on a cumulative adjusted earnings per share metric.  The performance units were granted as of January 30, 2020 and eighty percent were valued at $169.74 per share based on various factors, primarily market conditions; and twenty percent were valued at $131.72 per share, the closing price of Entergy’s common stock on that date.  Performance units have the same dividend rights as shares of Entergy common stock and are considered issued and outstanding shares of Entergy upon vesting. Performance units are expensed ratably over the three-year vesting period and compensation cost for the portion of the award based on cumulative adjusted earnings per share will be adjusted based on the number of units that ultimately vest. See Note 12 to the financial statements in the Form 10-K for a description of the Long-Term Performance Unit Program.

The following table includes financial information for other outstanding equity awards for the three months ended March 31, 2020 and 2019:
 
2020
 
2019
 
(In Millions)
Compensation expense included in Entergy’s net income

$9.4

 

$8.8

Tax benefit recognized in Entergy’s net income

$2.4

 

$2.2

Compensation cost capitalized as part of fixed assets and materials and supplies

$3.4

 

$2.9





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Notes to Financial Statements

NOTE 6.  RETIREMENT AND OTHER POSTRETIREMENT BENEFITS (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)

Components of Qualified Net Pension Cost    
 
 
 
 
Entergy’s qualified pension cost, including amounts capitalized, for the first quarters of 2020 and 2019, included the following components:
 
2020
 
2019
 
(In Thousands)
Service cost - benefits earned during the period

$40,379

 

$33,607

Interest cost on projected benefit obligation
60,799

 
73,941

Expected return on assets
(103,565
)
 
(103,884
)
Amortization of net loss
87,259

 
58,418

Settlement charges

 
1,137

Net pension costs

$84,872

 

$63,219


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The Registrant Subsidiaries’ qualified pension cost, including amounts capitalized, for their employees for the first quarters of 2020 and 2019, included the following components:
2020
 
Entergy
Arkansas
 
Entergy
Louisiana
 
Entergy
 Mississippi
 
Entergy
New Orleans
 
Entergy
Texas
 
System
Energy
 
 
(In Thousands)
Service cost - benefits earned during the period
 

$6,566

 

$8,794

 

$2,023

 

$663

 

$1,546

 

$1,965

Interest cost on projected benefit obligation
 
11,433

 
12,841

 
3,340

 
1,456

 
2,782

 
2,814

Expected return on assets
 
(19,622
)
 
(22,402
)
 
(5,757
)
 
(2,627
)
 
(5,486
)
 
(4,663
)
Amortization of net loss
 
16,897

 
16,627

 
4,748

 
2,005

 
3,265

 
4,279

Net pension cost
 

$15,274

 

$15,860

 

$4,354

 

$1,497

 

$2,107

 

$4,395

2019
 
Entergy
Arkansas
 
Entergy
Louisiana
 
Entergy
 Mississippi
 
Entergy
New Orleans
 
Entergy
Texas
 
System
Energy
 
 
(In Thousands)
Service cost - benefits earned during the period
 

$5,261

 

$7,284

 

$1,629

 

$569

 

$1,350

 

$1,550

Interest cost on projected benefit obligation
 
14,175

 
15,882

 
4,068

 
1,874

 
3,613

 
3,364

Expected return on assets
 
(20,176
)
 
(22,652
)
 
(5,968
)
 
(2,696
)
 
(5,862
)
 
(4,678
)
Amortization of net loss
 
11,840

 
11,643

 
3,104

 
1,529

 
2,334

 
2,850

Net pension cost
 

$11,100

 

$12,157

 

$2,833

 

$1,276

 

$1,435

 

$3,086



Non-Qualified Net Pension Cost

Entergy recognized $4.5 million and $4 million in pension cost for its non-qualified pension plans in the first quarters of 2020 and 2019, respectively.
 
 
 
 
 
 
 
 
 
 

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Notes to Financial Statements

The Registrant Subsidiaries recognized the following pension cost for their employees for their non-qualified pension plans for the first quarters of 2020 and 2019:
 
Entergy
Arkansas
 
Entergy
Louisiana
 
Entergy
Mississippi
 
Entergy
New Orleans
 
Entergy
Texas
 
(In Thousands)
2020

$83

 

$37

 

$90

 

$8

 

$117

2019

$73

 

$43

 

$75

 

$5

 

$124


Components of Net Other Postretirement Benefit Cost (Income)
 
 
 
 
Entergy’s other postretirement benefit cost (income), including amounts capitalized, for the first quarters of 2020 and 2019, included the following components:
 
2020
 
2019
 
(In Thousands)
Service cost - benefits earned during the period

$5,801

 

$4,675

Interest cost on accumulated postretirement benefit obligation (APBO)
7,932

 
11,975

Expected return on assets
(10,328
)
 
(9,562
)
Amortization of prior service credit
(5,922
)
 
(8,844
)
Amortization of net loss
468

 
358

Net other postretirement benefit cost (income)

($2,049
)
 

($1,398
)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The Registrant Subsidiaries’ other postretirement benefit cost (income), including amounts capitalized, for their employees for the first quarters of 2020 and 2019, included the following components:
2020
 
Entergy
Arkansas
 
Entergy
Louisiana
 
Entergy
Mississippi
 
Entergy
New Orleans
 
Entergy
Texas
 
System
Energy
 
 
(In Thousands)
Service cost - benefits earned during the period
 

$828

 

$1,423

 

$351

 

$105

 

$303

 

$294

Interest cost on APBO
 
1,217

 
1,723

 
422

 
227

 
582

 
307

Expected return on assets
 
(4,326
)
 

 
(1,307
)
 
(1,355
)
 
(2,435
)
 
(748
)
Amortization of prior service credit
 
(661
)
 
(1,089
)
 
(321
)
 
(76
)
 
(550
)
 
(219
)
Amortization of net (gain) loss
 
55

 
(199
)
 
29

 
(38
)
 
212

 
20

Net other postretirement benefit cost (income)
 

($2,887
)
 

$1,858

 

($826
)
 

($1,137
)
 

($1,888
)
 

($346
)


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Notes to Financial Statements

2019
 
Entergy
Arkansas
 
Entergy
Louisiana
 
Entergy
Mississippi
 
Entergy
New Orleans
 
Entergy
Texas
 
System
Energy
 
 
(In Thousands)
Service cost - benefits earned during the period
 

$591

 

$1,160

 

$262

 

$92

 

$236

 

$243

Interest cost on APBO
 
1,807

 
2,666

 
670

 
395

 
854

 
476

Expected return on assets
 
(3,991
)
 

 
(1,199
)
 
(1,237
)
 
(2,276
)
 
(697
)
Amortization of prior service credit
 
(1,238
)
 
(1,837
)
 
(439
)
 
(171
)
 
(561
)
 
(363
)
Amortization of net (gain) loss
 
144

 
(174
)
 
181

 
58

 
121

 
89

Net other postretirement benefit cost (income)
 

($2,687
)
 

$1,815

 

($525
)
 

($863
)
 

($1,626
)
 

($252
)


Reclassification out of Accumulated Other Comprehensive Income (Loss)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Entergy and Entergy Louisiana reclassified the following costs out of accumulated other comprehensive income (loss) (before taxes and including amounts capitalized) for the first quarters of 2020 and 2019:
2020

Qualified
Pension
Costs

Other
Postretirement
Costs

Non-Qualified
Pension Costs

Total


(In Thousands)


Entergy








Amortization of prior service (cost) credit


$



$3,776



($57
)


$3,719

Amortization of net loss

(26,462
)

(25
)

(831
)

(27,318
)



($26,462
)


$3,751



($888
)


($23,599
)
Entergy Louisiana








Amortization of prior service credit


$



$1,089



$



$1,089

Amortization of net gain (loss)

(499
)

199


(1
)

(301
)



($499
)


$1,288



($1
)


$788

2019
 
Qualified
Pension
Costs
 
Other
Postretirement
Costs
 
Non-Qualified
Pension Costs
 
Total
 
 
(In Thousands)
 
 
Entergy
 
 
 
 
 
 
 
 
Amortization of prior service (cost) credit
 

$

 

$5,375

 

($49
)
 

$5,326

Amortization of net gain (loss)
 
(18,735
)
 
308

 
(561
)
 
(18,988
)
Settlement loss
 
(1,137
)
 

 

 
(1,137
)
 
 

($19,872
)
 

$5,683

 

($610
)
 

($14,799
)
Entergy Louisiana
 
 
 
 
 
 
 
 
Amortization of prior service credit
 

$

 

$1,838

 

$

 

$1,838

Amortization of net gain (loss)
 
(699
)
 
174

 
(2
)
 
(527
)
 
 

($699
)
 

$2,012

 

($2
)
 

$1,311




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Notes to Financial Statements

Accounting for Pension and Other Postretirement Benefits

In accordance with ASU No. 2017-07, “Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost”, the other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations and are presented by Entergy in miscellaneous - net in other income.

Other Postretirement Benefits

In March 2020, Entergy announced changes to its other postretirement benefits. Effective January 1, 2021, certain retired, former non-bargaining employees age 65 and older who are eligible for Entergy-sponsored retiree welfare benefits, and their eligible spouses who are age 65 and older (collectively, Medicare-eligible participants), will be eligible to participate in a new Entergy-sponsored retiree health plan, and will no longer be eligible for retiree coverage under the Entergy Corporation Companies’ Benefits Plus Medical, Dental and Vision Plans. Under the new Entergy retiree health plan, Medicare-eligible participants will be eligible to participate in a health reimbursement arrangement which they may use towards the purchase of various types of qualified insurance offered through a Medicare exchange provider and for other qualified medical expenses. In accordance with accounting standards, the effects of this change have been reflected in the March 31, 2020 other postretirement obligation. The changes affecting active bargaining unit employees will be negotiated with the unions prior to implementation, where necessary, and to the extent required by law.

Employer Contributions

Based on current assumptions, Entergy expects to contribute $216.3 million to its qualified pension plans in 2020.  As of March 31, 2020, Entergy had contributed $59.8 million to its pension plans.  Based on current assumptions, the Registrant Subsidiaries expect to contribute the following to qualified pension plans for their employees in 2020:
 
Entergy
Arkansas
 
Entergy
Louisiana
 
Entergy
Mississippi
 
Entergy
New Orleans
 
Entergy
Texas
 
System
Energy
 
(In Thousands)
Expected 2020 pension contributions

$32,512

 

$38,766

 

$7,768

 

$3,248

 

$3,549

 

$10,544

Pension contributions made through March 2020

$10,120

 

$8,676

 

$2,560

 

$563

 

$453

 

$3,299

Remaining estimated pension contributions to be made in 2020

$22,392

 

$30,090

 

$5,208

 

$2,685

 

$3,096

 

$7,245




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

Entergy Corporation

Entergy’s reportable segments as of March 31, 2020 were Utility and Entergy Wholesale Commodities.  Utility includes the generation, transmission, distribution, and sale of electric power in portions of Arkansas, Louisiana, Mississippi, and Texas, and natural gas utility service in portions of Louisiana.  Entergy Wholesale Commodities includes the ownership, operation, and decommissioning of nuclear power plants located in the northern United States and the sale of the electric power produced by its operating plants to wholesale customers.  Entergy Wholesale Commodities also includes the ownership of interests in non-nuclear power plants that sell the electric power produced by those plants to wholesale customers.  “All Other” includes the parent company, Entergy Corporation, and other business activity.


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Notes to Financial Statements

Entergy’s segment financial information for the first quarters of 2020 and 2019 was as follows:
 
 
 
 
 
 
 
 
 
 
 
 
 
Utility
 
Entergy
Wholesale
Commodities
 
All Other
 
Eliminations
 
Entergy
 
 
(In Thousands)
2020
 
 
 
 
 
 
 
 
 
 
Operating revenues
 
$2,094,629
 
$332,549
 
$11
 

($10
)
 
$2,427,179
Income taxes
 
($52,949)
 
($30,540)
 

$12,295

 

$

 
($71,194)
Consolidated net income (loss)
 
$323,849
 

($110,428
)
 

($58,228
)
 

($31,899
)
 
$123,294
Total assets as of March 31, 2020
 
$50,421,661
 
$3,921,539
 
$697,784
 

($2,485,955
)
 
$52,555,029
2019
 
 
 
 
 
 
 
 
 
 
Operating revenues
 
$2,175,982
 
$433,612
 

$

 

($10
)
 
$2,609,584
Income taxes
 

($11,564
)
 

$65,908

 

($11,573
)
 

$

 

$42,771

Consolidated net income (loss)
 
$234,147
 
$97,079
 

($40,682
)
 

($31,898
)
 
$258,646
Total assets as of December 31, 2019
 
$49,557,664
 
$4,154,961
 
$514,020
 

($2,502,733
)
 
$51,723,912

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

As discussed in Note 13 to the financial statements in the Form 10-K, Entergy management has undertaken a strategy to manage and reduce the risk of the Entergy Wholesale Commodities business, which includes taking actions to shut down and sell all of the remaining plants in the merchant nuclear fleet. These decisions and transactions resulted in asset impairments; employee retention and severance expenses and other benefits-related costs; and contracted economic development contributions.
 
 
 
 
 
 
 
 
 
 
 
 
Total restructuring charges for the first quarters of 2020 and 2019 were comprised of the following:
 
2020
 
2019
 
Employee retention and severance
expenses and other benefits-related costs
 
Contracted economic development costs
 
Total
 
Employee retention and severance
expenses and other benefits-related costs
 
Contracted economic development costs
 
Total
 
(In Millions)
Balance as of January 1,

$129

 

$14

 

$143

 

$179

 

$14

 

$193

Restructuring costs accrued
21

 

 
21

 
34

 

 
34

Balance as of March 31,

$150

 

$14

 

$164

 

$213

 

$14

 

$227


In addition, Entergy Wholesale Commodities incurred $5 million in the first quarter 2020 and $74 million in the first quarter 2019 of impairment and other related charges associated with these strategic decisions and transactions.


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Going forward, Entergy Wholesale Commodities expects to incur employee retention and severance expenses associated with management’s strategy to exit the merchant power business of approximately $75 million in 2020, of which $21 million has been incurred as of March 31, 2020, and a total of approximately $55 million from 2021 through 2022.

Registrant Subsidiaries

Each of the Registrant Subsidiaries has one reportable segment, which is an integrated utility business, except for System Energy, which is an electricity generation business.  Each of the Registrant Subsidiaries’ operations is managed on an integrated basis by that company because of the substantial effect of cost-based rates and regulatory oversight on the business process, cost structures, and operating results.


NOTE 8.  RISK MANAGEMENT AND FAIR VALUES (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)

Market Risk

In the normal course of business, Entergy is exposed to a number of market risks.  Market risk is the potential loss that Entergy may incur as a result of changes in the market or fair value of a particular commodity or instrument.  All financial and commodity-related instruments, including derivatives, are subject to market risk including commodity price risk, equity price, and interest rate risk.  Entergy uses derivatives primarily to mitigate commodity price risk, particularly power price and fuel price risk.

The Utility has limited exposure to the effects of market risk because it operates primarily under cost-based rate regulation.  To the extent approved by their retail regulators, the Utility operating companies use derivative instruments to hedge the exposure to price volatility inherent in their purchased power, fuel, and gas purchased for resale costs that are recovered from customers.

As a wholesale generator, Entergy Wholesale Commodities’ core business is selling energy, measured in MWh, to its customers.  Entergy Wholesale Commodities enters into forward contracts with its customers and also sells energy and capacity in the day ahead or spot markets.  In addition to its forward physical power and gas contracts, Entergy Wholesale Commodities may also use a combination of financial contracts, including swaps, collars, and options, to mitigate commodity price risk.  When the market price falls, the combination of instruments is expected to settle in gains that offset lower revenue from generation, which results in a more predictable cash flow.

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

Derivatives

Some derivative instruments are classified as cash flow hedges due to their financial settlement provisions

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Notes to Financial Statements

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

Entergy enters into derivatives to manage natural risks inherent in its physical or financial assets or liabilities.  Electricity over-the-counter instruments and futures contracts that financially settle against day-ahead power pool prices are used to manage price exposure for Entergy Wholesale Commodities generation.  The maximum length of time over which Entergy Wholesale Commodities is currently hedging the variability in future cash flows with derivatives for forecasted power transactions at March 31, 2020 is approximately 1 year.  Planned generation currently under contract from Entergy Wholesale Commodities nuclear power plants is 97% for the remainder of 2020, of which approximately 61% is sold under financial derivatives and the remainder under normal purchase/normal sale contracts.  Total planned generation for the remainder of 2020 is 11.6 TWh.

Entergy may use standardized master netting agreements to help mitigate the credit risk of derivative instruments. These master agreements facilitate the netting of cash flows associated with a single counterparty and may include collateral requirements. Cash, letters of credit, and parental/affiliate guarantees may be obtained as security from counterparties in order to mitigate credit risk. The collateral agreements require a counterparty to post cash or letters of credit in the event an exposure exceeds an established threshold. The threshold represents an unsecured credit limit, which may be supported by a parental/affiliate guarantee, as determined in accordance with Entergy’s credit policy. In addition, collateral agreements allow for termination and liquidation of all positions in the event of a failure or inability to post collateral.

Certain of the agreements to sell the power produced by Entergy Wholesale Commodities power plants contain provisions that require an Entergy subsidiary to provide credit support to secure its obligations depending on the mark-to-market values of the contracts. The primary form of credit support to satisfy these requirements is an Entergy Corporation guarantee.  As of March 31, 2020, there were no derivative contracts with counterparties in a liability position. In addition to the corporate guarantee, $9 million in cash collateral was required to be posted by the Entergy subsidiary to its counterparties and $95 million in letters of credit were required to be posted by its counterparties to the Entergy subsidiary. As of December 31, 2019, there were no derivative contracts with counterparties in a liability position. In addition to the corporate guarantee, $11 million in cash collateral was required to be posted by the Entergy subsidiary to its counterparties and $1 million in cash collateral and $98 million in letters of credit were required to be posted by it counterparties to the Entergy subsidiary. If the Entergy Corporation credit rating falls below investment grade, Entergy would have to post collateral equal to the estimated outstanding liability under the contract at the applicable date.   

Entergy manages fuel price volatility for its Louisiana jurisdictions (Entergy Louisiana and Entergy New Orleans) and Entergy Mississippi through the purchase of natural gas swaps and options that financially settle against either the average Henry Hub Gas Daily prices or the NYMEX Henry Hub. These swaps and options are marked-to-market through fuel expense with offsetting regulatory assets or liabilities. All benefits or costs of the program are recorded in fuel costs. The notional volumes of these swaps are based on a portion of projected annual exposure to gas price volatility for electric generation at Entergy Louisiana and Entergy Mississippi and projected winter purchases for gas distribution at Entergy New Orleans. The maximum length of time over which Entergy had executed natural gas swaps and options as of March 31, 2020 was 4 years for Entergy Louisiana and the maximum length of time over which Entergy had executed natural gas swaps as of March 31, 2020 was 7 months for Entergy Mississippi. The total volume of natural gas swaps and options outstanding as of March 31, 2020 was 42,371,000 MMBtu for Entergy, including 29,220,000 MMBtu for Entergy Louisiana and 13,151,000 MMBtu for Entergy Mississippi. Credit support for these natural gas swaps and options is covered by master agreements that do not require Entergy to provide collateral based on mark-to-market value, but do carry adequate assurance language that may lead to requests for collateral.


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Entergy Corporation and Subsidiaries
Notes to Financial Statements

During the second quarter 2019, Entergy participated in the annual financial transmission rights auction process for the MISO planning year of June 1, 2019 through May 31, 2020. Financial transmission rights are derivative instruments that represent economic hedges of future congestion charges that will be incurred in serving Entergy’s customer load. They are not designated as hedging instruments. Entergy initially records financial transmission rights at their estimated fair value and subsequently adjusts the carrying value to their estimated fair value at the end of each accounting period prior to settlement. Unrealized gains or losses on financial transmission rights held by Entergy Wholesale Commodities are included in operating revenues. The Utility operating companies recognize regulatory liabilities or assets for unrealized gains or losses on financial transmission rights. The total volume of financial transmission rights outstanding as of March 31, 2020 was 18,987 GWh for Entergy, including 4,368 GWh for Entergy Arkansas, 8,517 GWh for Entergy Louisiana, 2,427 GWh for Entergy Mississippi, 934 GWh for Entergy New Orleans, and 2,662 GWh for Entergy Texas. Credit support for financial transmission rights held by the Utility operating companies is covered by cash and/or letters of credit issued by each Utility operating company as required by MISO. Credit support for financial transmission rights held by Entergy Wholesale Commodities is covered by cash. No cash or letters of credit were required to be posted for financial transmission rights exposure for Entergy Wholesale Commodities as of March 31, 2020 and December 31, 2019. Letters of credit posted with MISO covered the financial transmission rights exposure for Entergy Mississippi as of March 31, 2020 and December 31, 2019.

The fair values of Entergy’s derivative instruments in the consolidated balance sheet as of March 31, 2020 are shown in the table below.  Certain investments, including those not designated as hedging instruments, are subject to master netting agreements and are presented in the balance sheet on a net basis in accordance with accounting guidance for derivatives and hedging.
Instrument
 
Balance Sheet Location
 
Gross
Fair Value (a)
 
Offsetting Position (b)
 
Net Fair Value (c) (d)
 
Business
 
 
 
 
(In Millions)
 
 
Derivatives designated as hedging instruments
 
 
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
 
 
Electricity swaps and options
 
Prepayments and other (current portion)
 
$81
 
$
 
$81
 
Entergy Wholesale Commodities
Derivatives not designated as hedging instruments
 
 
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
 
 
Electricity swaps and options
 
Prepayments and other (current portion)
 
$8
 
($4)
 
$4
 
Entergy Wholesale Commodities
Natural gas swaps and options
 
Other deferred debits and other assets (non-current portion)
 
$1
 
$—
 
$1
 
Utility
Financial transmission rights
 
Prepayments and other
 
$4
 
$—
 
$4
 
Utility and Entergy Wholesale Commodities
Liabilities:
 
 
 
 
 
 
 
 
 
 
Electricity swaps and options
 
Other current liabilities
(current portion)
 
$3
 
($3)
 
$
 
Entergy Wholesale Commodities
Natural gas swaps and options
 
Other current liabilities
(current portion)
 
$7
 
$
 
$7
 
Utility
Natural gas swaps and options
 
Other non-current liabilities (non-current portion)
 
$2
 
$
 
$2
 
Utility

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Notes to Financial Statements

The fair values of Entergy’s derivative instruments in the consolidated balance sheet as of December 31, 2019 are shown in the table below.  Certain investments, including those not designated as hedging instruments, are subject to master netting agreements and are presented in the balance sheet on a net basis in accordance with accounting guidance for derivatives and hedging.
Instrument
 
Balance Sheet Location
 
Gross Fair Value (a)
 
Offsetting Position (b)
 
Net Fair Value (c) (d)
 
Business
 
 
 
 
(In Millions)
 
 
Derivatives designated as hedging instruments
 
 
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
 
 
Electricity swaps and options
 
Prepayments and other (current portion)
 
$92
 
($1)
 
$91
 
Entergy Wholesale Commodities
Electricity swaps and options
 
Other deferred debits and other assets (non-current portion)
 
$17
 
$
 
$17
 
Entergy Wholesale Commodities
Liabilities:
 
 
 
 
 
 
 
 
 
 
Electricity swaps and options
 
Other current liabilities (current portion)
 
$1
 
($1)
 
$
 
Entergy Wholesale Commodities
Derivatives not designated as hedging instruments
 
 
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
 
 
Electricity swaps and options
 
Prepayments and other (current portion)
 
$11
 
($1)
 
$10
 
Entergy Wholesale Commodities
Natural gas swaps and options
 
Other deferred debits and other assets (non-current portion)
 
$1
 
$
 
$1
 
Utility
Financial transmission rights
 
Prepayments and other
 
$10
 
$
 
$10
 
Utility and Entergy Wholesale Commodities
Liabilities:
 
 
 
 
 
 
 
 
 
 
Electricity swaps and options
 
Other current liabilities (current portion)
 
$2
 
($2)
 
$
 
Entergy Wholesale Commodities
Natural gas swaps and options
 
Other current liabilities (current portion)
 
$5
 
$
 
$5
 
Utility
Natural gas swaps and options
 
Other non-current liabilities (non-current portion)
 
$2
 
$
 
$2
 
Utility


(a)
Represents the gross amounts of recognized assets/liabilities
(b)
Represents the netting of fair value balances with the same counterparty
(c)
Represents the net amounts of assets/liabilities presented on the Entergy Corporation and Subsidiaries’ Consolidated Balance Sheet
(d)
Excludes cash collateral in the amount of $9 million posted as of March 31, 2020 and $11 million posted and $1 million held as of December 31, 2019. Also excludes letters of credit in the amount of $95 million held as of March 31, 2020 and $98 million held as of December 31, 2019.

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Notes to Financial Statements

 
 
 
 
 
 
 
The effects of Entergy’s derivative instruments designated as cash flow hedges on the consolidated income statements for the three months ended March 31, 2020 and 2019 were as follows:
Instrument
 
Amount of gain (loss) recognized in other
comprehensive income
 
Income Statement location
 
Amount of gain (loss)
reclassified from
accumulated other comprehensive income into income (a)

 
(In Millions)
 
 
 
(In Millions)
2020
 
 
 
 
 
 
Electricity swaps and options
 
$67
 
Competitive businesses operating revenues
 
$94
 
 
 
 
 
 
 
2019
 
 
 
 
 
 
Electricity swaps and options
 
$26
 
Competitive businesses operating revenues
 
$52

    
(a)
Before taxes of $20 million and $11 million for the three months ended March 31, 2020 and 2019, respectively

Based on market prices as of March 31, 2020, unrealized gains (losses) recorded in accumulated other comprehensive income on cash flow hedges relating to power sales totaled $81 million of net unrealized losses.  Approximately $80 million is expected to be reclassified from accumulated other comprehensive income to operating revenues in the next twelve months.  The actual amount reclassified from accumulated other comprehensive income, however, could vary due to future changes in market prices.    

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


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Notes to Financial Statements

The effects of Entergy’s derivative instruments not designated as hedging instruments on the consolidated income statements for the three months ended March 31, 2020 and 2019 were as follows:
 
 
 
 
 
 
 
Instrument

Income Statement
location

Amount of gain (loss)
recorded in the income statement
 
 
 
 
(In Millions)
2020
 
 
 
 
Natural gas swaps and options
 
Fuel, fuel-related expenses, and gas purchased for resale
(a)
($7)
Financial transmission rights

Purchased power expense
(b)
$13
Electricity swaps and options (c)
 
Competitive business operating revenues
 
$
 
 
 
 
 
2019
 
 
 
 
Natural gas swaps
 
Fuel, fuel-related expenses, and gas purchased for resale
(a)
($1)
Financial transmission rights
 
Purchased power expense
(b)
$21
Electricity swaps and options (c)
 
Competitive business operating revenues
 
$5


(a)
Due to regulatory treatment, the natural gas swaps and options are marked-to-market through fuel, fuel-related expenses, and gas purchased for resale and then such amounts are simultaneously reversed and recorded as an offsetting regulatory asset or liability.  The gains or losses recorded as fuel expenses when the swaps and options are settled are recovered or refunded through fuel cost recovery mechanisms.
(b)
Due to regulatory treatment, the changes in the estimated fair value of financial transmission rights for the Utility operating companies are recorded through purchased power expense and then such amounts are simultaneously reversed and recorded as an offsetting regulatory asset or liability.  The gains or losses recorded as purchased power expense when the financial transmission rights for the Utility operating companies are settled are recovered or refunded through fuel cost recovery mechanisms.
(c)
There were no gains (losses) recognized in accumulated other comprehensive income from electricity swaps and options.


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Notes to Financial Statements

The fair values of the Registrant Subsidiaries’ derivative instruments not designated as hedging instruments on their balance sheets as of March 31, 2020 are shown in the table below. Certain investments, including those not designated as hedging instruments, are subject to master netting agreements and are presented in the balance sheet on a net basis in accordance with accounting guidance for derivatives and hedging.
Instrument
 
Balance Sheet Location
 
Gross Fair Value (a)
 
Offsetting Position (b)
 
Net Fair Value (c) (d)
 
Registrant
 
 
 
 
(In Millions)
 
 
Assets:
 
 
 
 
 
 
 
 
 
 
Natural gas swaps and options
 
Prepayments and other
 
$0.2
 
$
 
$0.2
 
Entergy Louisiana
Natural gas swaps and options
 
Other deferred debits and other assets (non-current portion)
 
$0.9
 
$
 
$0.9
 
Entergy Louisiana
 
 
 
 
 
 
 
 
 
 
 
Financial transmission rights
 
Prepayments and other
 
$1.1
 
$
 
$1.1
 
Entergy Arkansas
Financial transmission rights
 
Prepayments and other
 
$2.0
 
($0.1)
 
$1.9
 
Entergy Louisiana
Financial transmission rights
 
Prepayments and other
 
$0.3
 
$
 
$0.3
 
Entergy Mississippi
Financial transmission rights
 
Prepayments and other
 
$0.3
 
$
 
$0.3
 
Entergy Texas
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
Natural gas swaps and options
 
Other current liabilities
 
$2.5
 
$
 
$2.5
 
Entergy Louisiana
Natural gas swaps and options
 
Other non-current liabilities
 
$2.3
 
$
 
$2.3
 
Entergy Louisiana
Natural gas swaps
 
Other current liabilities
 
$4.4
 
$
 
$4.4
 
Entergy Mississippi


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Notes to Financial Statements

The fair values of the Registrant Subsidiaries’ derivative instruments not designated as hedging instruments on their balance sheets as of December 31, 2019 were as follows:
Instrument
 
Balance Sheet Location
 
Gross Fair Value (a)
 
Offsetting Position (b)
 
Net Fair Value (c) (d)
 
Registrant
 
 
 
 
(In Millions)
 
 
Assets:
 
 
 
 
 
 
 
 
 
 
Natural gas swaps and options
 
Other deferred debits and other assets
 
$0.8
 
$
 
$0.8
 
Entergy Louisiana
Financial transmission rights
 
Prepayments and other
 
$3.4
 
($0.1)
 
$3.3
 
Entergy Arkansas
Financial transmission rights
 
Prepayments and other
 
$4.5
 
$
 
$4.5
 
Entergy Louisiana
Financial transmission rights
 
Prepayments and other
 
$0.8
 
$
 
$0.8
 
Entergy Mississippi
Financial transmission rights
 
Prepayments and other
 
$0.3
 
$
 
$0.3
 
Entergy New Orleans
Financial transmission rights
 
Prepayments and other
 
$1.0
 
($0.1)
 
$0.9
 
Entergy Texas
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
Natural gas swaps and options
 
Other current liabilities
 
$2.4
 
$
 
$2.4
 
Entergy Louisiana
Natural gas swaps and options
 
Other non-current liabilities
 
$2.2
 
$
 
$2.2
 
Entergy Louisiana
Natural gas swaps
 
Other current liabilities
 
$2.3
 
$
 
$2.3
 
Entergy Mississippi
Natural gas swaps
 
Other current liabilities
 
$0.2
 
$
 
$0.2
 
Entergy New Orleans

(a)
Represents the gross amounts of recognized assets/liabilities
(b)
Represents the netting of fair value balances with the same counterparty
(c)
Represents the net amounts of assets/liabilities presented on the Registrant Subsidiaries’ balance sheets
(d)
As of March 31, 2020, letters of credit posted with MISO covered financial transmission rights exposure of $0.2 million for Entergy Mississippi. As of December 31, 2019, letters of credit posted with MISO covered financial transmission rights exposure of $0.2 million for Entergy Mississippi.



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Notes to Financial Statements

The effects of the Registrant Subsidiaries’ derivative instruments not designated as hedging instruments on their income statements for the three months ended March 31, 2020 and 2019 were as follows:
 
 
 
 
 
 
 

Instrument

Income Statement Location

Amount of gain
(loss) recorded
in the income statement

Registrant
 
 
 
 
(In Millions)
 
 
2020
 
 
 

 
 
Natural gas swaps and options
 
Fuel, fuel-related expenses, and gas purchased for resale
 
($1.3)
(a)
Entergy Louisiana
Natural gas swaps
 
Fuel, fuel-related expenses, and gas purchased for resale
 
($5.2)
(a)
Entergy Mississippi
Natural gas swaps
 
Fuel, fuel-related expenses, and gas purchased for resale
 
($0.4)
(a)
Entergy New Orleans
 
 
 
 
 
 
 
Financial transmission rights
 
Purchased power expense
 
$4.6
(b)
Entergy Arkansas
Financial transmission rights
 
Purchased power expense
 
$5.3
(b)
Entergy Louisiana
Financial transmission rights
 
Purchased power expense
 
($0.1)
(b)
Entergy Mississippi
Financial transmission rights
 
Purchased power expense
 
$0.4
(b)
Entergy New Orleans
Financial transmission rights
 
Purchased power expense
 
$2.4
(b)
Entergy Texas
 
 
 
 
 
 
 
2019
 
 
 
 
 
 
Natural gas swaps and options
 
Fuel, fuel-related expenses, and gas purchased for resale
 
$0.8
(a)
Entergy Louisiana
Natural gas swaps
 
Fuel, fuel-related expenses, and gas purchased for resale
 
($1.8)
(a)
Entergy Mississippi
Natural gas swaps
 
Fuel, fuel-related expenses, and gas purchased for resale
 
$0.2
(a)
Entergy New Orleans
 
 
 
 
 
 
 
Financial transmission rights
 
Purchased power expense
 
$8.4
(b)
Entergy Arkansas
Financial transmission rights
 
Purchased power expense
 
$8.8
(b)
Entergy Louisiana
Financial transmission rights
 
Purchased power expense
 
$1.1
(b)
Entergy Mississippi
Financial transmission rights
 
Purchased power expense
 
$1.9
(b)
Entergy New Orleans
Financial transmission rights
 
Purchased power expense
 
$0.3
(b)
Entergy Texas


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



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Notes to Financial Statements

Fair Values

The estimated fair values of Entergy’s financial instruments and derivatives are determined using historical prices, bid prices, market quotes, and financial modeling.  Considerable judgment is required in developing the estimates of fair value.  Therefore, estimates are not necessarily indicative of the amounts that Entergy could realize in a current market exchange.  Gains or losses realized on financial instruments other than those instruments held by the Entergy Wholesale Commodities business are reflected in future rates and therefore do not affect net income. Entergy considers the carrying amounts of most financial instruments classified as current assets and liabilities to be a reasonable estimate of their fair value because of the short maturity of these instruments.

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

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

The three levels of the fair value hierarchy are:

Level 1 - Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the entity has the ability to access at the measurement date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.  Level 1 primarily consists of individually owned common stocks, cash equivalents (temporary cash investments, securitization recovery trust account, and escrow accounts), debt instruments, and gas swaps traded on exchanges with active markets.  Cash equivalents includes all unrestricted highly liquid debt instruments with an original or remaining maturity of three months or less at the date of purchase.

Level 2 - Level 2 inputs are inputs other than quoted prices included in Level 1 that are, either directly or indirectly, observable for the asset or liability at the measurement date.  Assets are valued based on prices derived by independent third parties that use inputs such as benchmark yields, reported trades, broker/dealer quotes, and issuer spreads.  Prices are reviewed and can be challenged with the independent parties and/or overridden by Entergy if it is believed such would be more reflective of fair value.  Level 2 inputs include the following:

quoted prices for similar assets or liabilities in active markets;
quoted prices for identical assets or liabilities in inactive markets;
inputs other than quoted prices that are observable for the asset or liability; or
inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Level 2 consists primarily of individually-owned debt instruments and gas swaps and options valued using observable inputs.

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


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Notes to Financial Statements

The values for power contract assets or liabilities are based on both observable inputs including public market prices and interest rates, and unobservable inputs such as implied volatilities, unit contingent discounts, expected basis differences, and credit adjusted counterparty interest rates.  They are classified as Level 3 assets and liabilities.  The valuations of these assets and liabilities are performed by the Office of Corporate Risk Oversight and the Entergy Wholesale Commodities Accounting group.  The primary related functions of the Office of Corporate Risk Oversight include: gathering, validating and reporting market data, providing market risk analyses and valuations in support of Entergy Wholesale Commodities’ commercial transactions, developing and administering protocols for the management of market risks, and implementing and maintaining controls around changes to market data in the energy trading and risk management system.  The Office of Corporate Risk Oversight is also responsible for managing the energy trading and risk management system, forecasting revenues, forward positions and analysis.  The Entergy Wholesale Commodities Accounting group performs functions related to market and counterparty settlements, revenue reporting and analysis, and financial accounting. The Office of Corporate Risk Oversight reports to the Vice President and Treasurer while the Entergy Wholesale Commodities Accounting group reports to the Chief Accounting Officer.

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

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

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

The values of financial transmission rights are based on unobservable inputs, including estimates of congestion costs in MISO between applicable generation and load pricing nodes based on the 50th percentile of historical prices.  They are classified as Level 3 assets and liabilities.  The valuations of these assets and liabilities are performed by the Office of Corporate Risk Oversight.  The values are calculated internally and verified against the data published by MISO. Entergy’s Entergy Wholesale Commodities Accounting group review these valuations for reasonableness, with the assistance of others within the organization with knowledge of the various inputs and assumptions used in the

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Notes to Financial Statements

valuation. The Office of Corporate Risk Oversight reports to the Vice President and Treasurer.  The Entergy Wholesale Commodities Accounting group reports to the Chief Accounting Officer.

The following tables set forth, by level within the fair value hierarchy, Entergy’s assets and liabilities that were accounted for at fair value on a recurring basis as of March 31, 2020 and December 31, 2019.  The assessment of the significance of a particular input to a fair value measurement requires judgment and may affect its placement within the fair value hierarchy levels.
2020
 
Level 1
 
Level 2
 
Level 3
 
Total
 
 
(In Millions)
Assets:
 
 
 
 
 
 
 
 
Temporary cash investments
 

$1,180

 

$

 

$

 

$1,180

Decommissioning trust funds (a):
 
 
 
 
 
 
 
 
Equity securities
 
745

 

 

 
745

Debt securities (b)
 
1,151

 
1,893

 

 
3,044

Common trusts (c)
 
 
 
 
 
 
 
1,992

Power contracts
 

 

 
85

 
85

Securitization recovery trust account
 
47

 

 

 
47

Escrow accounts
 
420

 

 

 
420

Gas hedge contracts
 

 
1

 

 
1

Financial transmission rights
 

 

 
4

 
4

 
 

$3,543

 

$1,894

 

$89

 

$7,518

 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
Gas hedge contracts
 

$7

 

$2

 

$

 

$9


2019
 
Level 1
 
Level 2
 
Level 3
 
Total
 
 
(In Millions)
Assets:
 
 
 
 
 
 
 
 
Temporary cash investments
 

$391

 

$

 

$

 

$391

Decommissioning trust funds (a):
 
 
 
 
 
 
 
 
Equity securities
 
905

 

 

 
905

Debt securities
 
1,139

 
1,824

 

 
2,963

Common trusts (c)
 
 
 
 
 
 
 
2,536

Power contracts
 

 

 
118

 
118

Securitization recovery trust account
 
47

 

 

 
47

Escrow accounts
 
459

 

 

 
459

Gas hedge contracts
 

 
1

 

 
1

Financial transmission rights
 

 

 
10

 
10

 
 

$2,941

 

$1,825

 

$128

 

$7,430

Liabilities:
 
 
 
 
 
 
 
 
Gas hedge contracts
 

$5

 

$2

 

$

 

$7



(a)
The decommissioning trust funds hold equity and fixed income securities. Equity securities are invested to approximate the returns of major market indices.  Fixed income securities are held in various governmental and corporate securities.  See Note 9 to the financial statements herein for additional information on the investment portfolios.
(b)
The decommissioning trust funds fair value presented herein does not include the recognition of a credit loss valuation allowance of $3 million on debt securities due to the adoption of ASU 2016-13. See Note 9 to the financial statements herein for additional information on the allowance for expected credit losses.

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Notes to Financial Statements

(c)
Common trust funds are not publicly quoted and are valued by the fund administrators using net asset value as a practical expedient. Accordingly, these funds are not assigned a level in the fair value table. The fund administrator of these investments allows daily trading at the net asset value and trades settle at a later date.

The following table sets forth a reconciliation of changes in the net assets (liabilities) for the fair value of derivatives classified as Level 3 in the fair value hierarchy for the three months ended March 31, 2020 and 2019:
 
 
 
 
 
 
 
 

 
2020
 
2019
 
Power Contracts
 
Financial transmission rights
 
Power Contracts
 
Financial transmission rights

(In Millions)
Balance as of January 1,

$118

 

$10

 

($31
)
 

$15

Total gains (losses) for the period (a)
 
 
 
 
 
 
 
Included in earnings
(18
)
 

 
5

 

Included in other comprehensive income
67

 

 
26

 

Included as a regulatory liability/asset

 
7

 

 
11

Settlements
(82
)
 
(13
)
 
(46
)
 
(21
)
Balance as of March 31,

$85

 

$4

 

($46
)
 

$5



(a)
Change in unrealized gains or losses for the period included in earnings for derivatives held at the end of the reporting period was $1 million for the three months ended March 31, 2020 and ($4.9) million for the three months ended March 31, 2019.
The following table sets forth a description of the types of transactions classified as Level 3 in the fair value hierarchy and significant unobservable inputs to each which cause that classification as of March 31, 2020:
Transaction Type
 
Fair Value
 
Significant
Unobservable Inputs
 
Range
from
Average
%
 
Effect on
Fair Value
 
 
(In Millions)
 
 
 
 
 
 
(In Millions)
Power contracts - electricity swaps
 
$85
 
Unit contingent discount
 
+/-
4.75%
 
$9


The values of financial transmission rights are based on unobservable inputs calculated internally and verified against historical pricing data published by MISO.

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

The following table sets forth, by level within the fair value hierarchy, the Registrant Subsidiaries’ assets and liabilities that were accounted for at fair value on a recurring basis as of March 31, 2020 and December 31, 2019.  The assessment of the significance of a particular input to a fair value measurement requires judgment and may affect its placement within the fair value hierarchy levels.

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Notes to Financial Statements


Entergy Arkansas
2020
 
Level 1
 
Level 2
 
Level 3
 
Total
 
 
(In Millions)
Assets:
 
 
 
 
 
 
 
 
Temporary cash investments
 

$136.9

 

$

 

$

 

$136.9

Decommissioning trust funds (a):
 
 
 
 
 
 
 
 
Equity securities
 
14.4

 

 

 
14.4

Debt securities
 
107.2

 
310.6

 

 
417.8

Common trusts (b)
 
 
 
 
 
 
 
541.8

Securitization recovery trust account
 
7.5

 

 

 
7.5

Financial transmission rights
 

 

 
1.1

 
1.1

 
 

$266.0

 

$310.6

 

$1.1

 

$1,119.5


2019
 
Level 1
 
Level 2
 
Level 3
 
Total
 
 
(In Millions)
Assets:
 
 
 
 
 
 
 
 
Decommissioning trust funds (a):
 
 
 
 
 
 
 
 
Equity securities
 

$0.6

 

$

 

$

 

$0.6

Debt securities
 
108.7

 
304.1

 

 
412.8

Common trusts (b)
 
 
 
 
 
 
 
687.9

Securitization recovery trust account
 
4.0

 

 

 
4.0

Financial transmission rights
 

 

 
3.3

 
3.3

 
 

$113.3

 

$304.1

 

$3.3

 

$1,108.6



Entergy Louisiana
2020
 
Level 1
 
Level 2
 
Level 3
 
Total
 
 
(In Millions)
Assets:
 
 
 
 
 
 
 
 
Temporary cash investments
 

$465.2

 

$

 

$

 

$465.2

Decommissioning trust funds (a):
 
 
 
 
 
 
 
 
Equity securities
 
15.7

 

 

 
15.7

Debt securities
 
171.1

 
431.9

 

 
603.0

Common trusts (b)
 
 
 
 
 
 
 
759.2

Escrow accounts
 
256.4

 

 

 
256.4

Securitization recovery trust account
 
9.0

 

 

 
9.0

Gas hedge contracts
 
0.2

 
0.9

 

 
1.1

Financial transmission rights
 

 

 
1.9

 
1.9

 
 

$917.6

 

$432.8

 

$1.9

 

$2,111.5

 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
Gas hedge contracts
 

$2.5

 

$2.3

 

$

 

$4.8



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Notes to Financial Statements

2019
 
Level 1
 
Level 2
 
Level 3
 
Total
 
 
(In Millions)
Assets:
 
 
 
 
 
 
 
 
Temporary cash investments
 

$1.5

 

$

 

$

 

$1.5

Decommissioning trust funds (a):
 
 

 
 

 
 

 
 

Equity securities
 
4.3

 

 

 
4.3

Debt securities
 
180.8

 
420.7

 

 
601.5

Common trusts (b)
 
 
 
 
 
 
 
958.0

Escrow accounts
 
295.9

 

 

 
295.9

Securitization recovery trust account
 
3.7

 

 

 
3.7

Gas hedge contracts
 

 
0.8

 

 
0.8

Financial transmission rights
 

 

 
4.5

 
4.5

 
 

$486.2

 

$421.5

 

$4.5

 

$1,870.2

 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
Gas hedge contracts
 

$2.4

 

$2.2

 

$

 

$4.6



Entergy Mississippi
2020
 
Level 1
 
Level 2
 
Level 3
 
Total
 
 
(In Millions)
Assets:
 
 
 
 
 
 
 
 
Escrow accounts
 

$80.3

 

$

 

$

 

$80.3

Financial transmission rights
 

 

 
0.3

 
0.3

 
 

$80.3

 

$

 

$0.3

 

$80.6

 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
Gas hedge contracts
 

$4.4

 

$

 

$

 

$4.4


2019
 
Level 1
 
Level 2
 
Level 3
 
Total
 
 
(In Millions)
Assets:
 
 
 
 
 
 
 
 
Temporary cash investments
 

$51.6

 

$

 

$

 

$51.6

Escrow accounts
 
80.2

 

 

 
80.2

Financial transmission rights
 

 

 
0.8

 
0.8

 
 

$131.8

 

$

 

$0.8

 

$132.6

 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
Gas hedge contracts
 

$2.3

 

$

 

$

 

$2.3



Entergy New Orleans
2020
 
Level 1
 
Level 2
 
Level 3
 
Total
 
 
(In Millions)
Assets:
 
 
 
 
 
 
 
 
Temporary cash investments
 

$72.3

 

$

 

$

 

$72.3

Securitization recovery trust account
 
4.9

 

 

 
4.9

Escrow accounts
 
82.9

 

 

 
82.9

 
 

$160.1

 

$

 

$

 

$160.1


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Notes to Financial Statements


2019
 
Level 1
 
Level 2
 
Level 3
 
Total
 
 
(In Millions)
Assets:
 
 
 
 
 
 
 
 
Temporary cash investments
 

$6.0

 

$

 

$

 

$6.0

Securitization recovery trust account
 
2.0

 

 

 
2.0

Escrow accounts
 
82.6

 

 

 
82.6

Financial transmission rights
 

 

 
0.3

 
0.3

 
 

$90.6

 

$

 

$0.3

 

$90.9

 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
Gas hedge contracts
 

$0.2

 

$

 

$

 

$0.2



Entergy Texas
2020
 
Level 1
 
Level 2
 
Level 3
 
Total
 
 
(In Millions)
Assets:
 
 
 
 
 
 
 
 
Temporary cash investments
 

$159.7

 

$

 

$

 

$159.7

Securitization recovery trust account
 
26.1

 

 

 
26.1

Financial transmission rights
 

 

 
0.3

 
0.3

 
 

$185.8

 

$

 

$0.3

 

$186.1


2019
 
Level 1
 
Level 2
 
Level 3
 
Total
 
 
(In Millions)
Assets:
 
 
 
 
 
 
 
 
Temporary cash investments
 

$12.9

 

$

 

$

 

$12.9

Securitization recovery trust account
 
37.7

 

 

 
37.7

Financial transmission rights
 

 

 
0.9

 
0.9

 
 

$50.6

 

$

 

$0.9

 

$51.5



System Energy
2020
 
Level 1
 
Level 2
 
Level 3
 
Total
 
 
(In Millions)
Assets:
 
 
 
 
 
 
 
 
Temporary cash investments
 

$92.3

 

$

 

$

 

$92.3

Decommissioning trust funds (a):
 
 
 
 
 
 
 
 
Equity securities
 
4.9

 

 

 
4.9

Debt Securities
 
185.1

 
222.9

 

 
408.0

Common trusts (b)
 
 
 
 
 
 
 
515.5

 
 

$282.3

 

$222.9

 

$

 

$1,020.7



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Notes to Financial Statements

2019
 
Level 1
 
Level 2
 
Level 3
 
Total
 
 
(In Millions)
Assets:
 
 
 
 
 
 
 
 
Temporary cash investments
 

$68.4

 

$

 

$

 

$68.4

Decommissioning trust funds (a):
 
 
 
 
 
 
 
 
Equity securities
 
13.3

 

 

 
13.3

Debt securities
 
176.3

 
209.9

 

 
386.2

Common trusts (b)
 
 
 
 
 
 
 
654.6

 
 

$258.0

 

$209.9

 

$

 

$1,122.5



(a)
The decommissioning trust funds hold equity and fixed income securities. Equity securities are invested to approximate the returns of major market indices.  Fixed income securities are held in various governmental and corporate securities.  See Note 9 to the financial statements herein for additional information on the investment portfolios.
(b)
Common trust funds are not publicly quoted and are valued by the fund administrators using net asset value as a practical expedient. Accordingly, these funds are not assigned a level in the fair value table. The fund administrator of these investments allows daily trading at the net asset value and trades settle at a later date.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The following table sets forth a reconciliation of changes in the net assets (liabilities) for the fair value of derivatives classified as Level 3 in the fair value hierarchy for the three months ended March 31, 2020.
 
Entergy
Arkansas
 
Entergy
Louisiana
 
Entergy
Mississippi
 
Entergy
New
Orleans
 
Entergy
Texas
 
(In Millions)
Balance as of January 1,

$3.3

 

$4.5

 

$0.8

 

$0.3

 

$0.9

Gains (losses) included as a regulatory liability/asset
2.4

 
2.7

 
(0.6
)
 
0.1

 
1.8

Settlements
(4.6
)
 
(5.3
)
 
0.1

 
(0.4
)
 
(2.4
)
Balance as of March 31,

$1.1

 

$1.9

 

$0.3

 

$

 

$0.3


The following table sets forth a reconciliation of changes in the net assets (liabilities) for the fair value of derivatives classified as Level 3 in the fair value hierarchy for the three months ended March 31, 2019.
 
Entergy
Arkansas
 
Entergy
Louisiana
 
Entergy
Mississippi
 
Entergy
New
Orleans
 
Entergy
Texas
 
(In Millions)
Balance as of January 1,

$3.4

 

$8.3

 

$2.2

 

$1.3

 

($0.5
)
Gains (losses) included as a regulatory liability/asset
6.1

 
3.3

 
(0.4
)
 
1.1

 
0.5

Settlements
(8.4
)
 
(8.8
)
 
(1.1
)
 
(1.9
)
 
(0.3
)
Balance as of March 31,

$1.1

 

$2.8

 

$0.7

 

$0.5

 

($0.3
)




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Notes to Financial Statements

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

The NRC requires Entergy subsidiaries to maintain nuclear decommissioning trusts to fund the costs of decommissioning ANO 1, ANO 2, River Bend, Waterford 3, Grand Gulf, Indian Point 1, Indian Point 2, Indian Point 3, and Palisades. Entergy’s nuclear decommissioning trust funds invest in equity securities, fixed-rate debt securities, and cash and cash equivalents.

Entergy records decommissioning trust funds on the balance sheet at their fair value.  Because of the ability of the Registrant Subsidiaries to recover decommissioning costs in rates and in accordance with the regulatory treatment for decommissioning trust funds, the Registrant Subsidiaries have recorded an offsetting amount of unrealized gains/(losses) on investment securities in other regulatory liabilities/assets.  For the 30% interest in River Bend formerly owned by Cajun, Entergy Louisiana records an offsetting amount in other deferred credits for the unrealized trust earnings not currently expected to be needed to decommission the plant.  Decommissioning trust funds for the Entergy Wholesale Commodities nuclear plants do not meet the criteria for regulatory accounting treatment.  Accordingly, unrealized gains/(losses) recorded on the equity securities in the trust funds are recognized in earnings. Unrealized gains recorded on the available-for-sale debt securities in the trust funds are recognized in the accumulated other comprehensive income component of shareholders’ equity.  Unrealized losses (where cost exceeds fair market value) on the available-for-sale debt securities in the trust funds are also recorded in the accumulated other comprehensive income component of shareholders’ equity unless the unrealized loss is other than temporary and therefore recorded in earnings. A portion of Entergy’s decommissioning trust funds are held in a wholly-owned registered investment company, and unrealized gains and losses on both the equity and debt securities held in the registered investment company are recognized in earnings. Generally, Entergy records gains and losses on its debt and equity securities using the specific identification method to determine the cost basis of its securities.

The unrealized gains/(losses) recognized during the three months ended March 31, 2020 on equity securities still held as of March 31, 2020 were ($636) million. The equity securities are generally held in funds that are designed to approximate or somewhat exceed the return of the Standard & Poor’s 500 Index.  A relatively small percentage of the equity securities are held in funds intended to replicate the return of the Wilshire 4500 Index or the Russell 3000 Index. The debt securities are generally held in individual government and credit issuances.

The available-for-sale securities held as of March 31, 2020 and December 31, 2019 are summarized as follows:
 
 
Fair
Value
 
Total
Unrealized
Gains
 
Total
Unrealized
Losses
 
 
(In Millions)
2020
 
 
 
 
 
 
Debt Securities (a)
 

$2,523

 

$158

 

$16

 
 
 
 
 
 
 
2019
 
 
 
 
 
 
Debt Securities (a)
 

$2,456

 

$96

 

$6


(a)
Debt securities presented herein do not include the $521 million and $507 million of debt securities held in the wholly-owned registered investment company as of March 31, 2020 and December 31, 2019, respectively, which are not accounted for as available-for-sale.

The unrealized gains/(losses) above are reported before deferred taxes of $22 million as of March 31, 2020 and $13 million as of December 31, 2019 for debt securities. The amortized cost of available-for-sale debt securities was $2,382 million as of March 31, 2020 and $2,366 million as of December 31, 2019.  As of March 31, 2020, available-

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Notes to Financial Statements

for-sale debt securities had an average coupon rate of approximately 3.23%, an average duration of approximately 6.73 years, and an average maturity of approximately 10.47 years.

The fair value and gross unrealized losses of available-for-sale debt securities, summarized by length of time that the securities had been in a continuous loss position, were as follows as of March 31, 2020 and December 31, 2019:
 
 
March 31, 2020
 
December 31, 2019
 
 
Fair
Value
 
Gross
Unrealized
Losses
 
Fair
Value
 
Gross
Unrealized
Losses
 
 
(In Millions)
Less than 12 months
 

$411

 

$16

 

$404

 

$5

More than 12 months
 
5

 

 
38

 
1

Total
 

$416

 

$16

 

$442

 

$6


The fair value of available-for-sale debt securities, summarized by contractual maturities, as of March 31, 2020 and December 31, 2019 were as follows:
 
2020
 
2019
 
(In Millions)
Less than 1 year

$84

 

$128

1 year - 5 years
798

 
807

5 years - 10 years
686

 
666

10 years - 15 years
226

 
125

15 years - 20 years
129

 
126

20 years+
600

 
604

Total

$2,523

 

$2,456



During the three months ended March 31, 2020 and 2019, proceeds from the dispositions of available-for-sale securities amounted to $400 million and $365 million, respectively.  During the three months ended March 31, 2020 and 2019, gross gains of $14 million and $2 million, respectively, and gross losses of $3 million and $2 million, respectively, related to available-for-sale securities were reclassified out of other comprehensive income or other regulatory liabilities/assets into earnings.

The fair values of the decommissioning trust funds related to the Entergy Wholesale Commodities nuclear plants as of March 31, 2020 were $506 million for Indian Point 1, $644 million for Indian Point 2, $858 million for Indian Point 3, and $493 million for Palisades. The fair values of the decommissioning trust funds related to the Entergy Wholesale Commodities nuclear plants as of December 31, 2019 were $556 million for Indian Point 1, $701 million for Indian Point 2, $930 million for Indian Point 3, and $498 million for Palisades. The fair values of the decommissioning trust funds for the Registrant Subsidiaries’ nuclear plants are detailed below.


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Notes to Financial Statements

Entergy Arkansas

Entergy Arkansas holds equity securities and available-for-sale debt securities in nuclear decommissioning trust accounts.  The available-for-sale securities held as of March 31, 2020 and December 31, 2019 are summarized as follows:
 
 
Fair
Value
 
Total
Unrealized
Gains
 
Total
Unrealized
Losses
 
 
(In Millions)
2020
 
 
 
 
 
 
Debt Securities
 

$417.8

 

$20.4

 

$1.4

 
 
 
 
 
 
 
2019
 
 
 
 
 
 
Debt Securities
 

$412.8

 

$9.9

 

$2.6



The amortized cost of available-for-sale debt securities was $398.9 million as of March 31, 2020 and $405.4 million as of December 31, 2019.  As of March 31, 2020, available-for-sale debt securities had an average coupon rate of approximately 2.73%, an average duration of approximately 6.87 years, and an average maturity of approximately 8.36 years.

The unrealized gains/(losses) recognized during the three months ended March 31, 2020 on equity securities still held as of March 31, 2020 were ($147.1) million. The equity securities are generally held in funds that are designed to approximate the return of the Standard & Poor’s 500 Index.  A relatively small percentage of the equity securities are held in funds intended to replicate the return of the Wilshire 4500 Index.

The fair value and gross unrealized losses of available-for-sale debt securities, summarized by length of time that the securities had been in a continuous loss position, were as follows as of March 31, 2020 and December 31, 2019:
 
 
March 31, 2020
 
December 31, 2019
 
 
Fair
Value
 
Gross
Unrealized
Losses
 
Fair
Value
 
Gross
Unrealized
Losses
 
 
(In Millions)
Less than 12 months
 

$60.2

 

$1.4

 

$104.8

 

$2.5

More than 12 months
 

 

 
7.7

 
0.1

Total
 

$60.2

 

$1.4

 

$112.5

 

$2.6


The fair value of available-for-sale debt securities, summarized by contractual maturities, as of March 31, 2020 and December 31, 2019 were as follows:
 
2020
 
2019
 
(In Millions)
Less than 1 year

$34.4

 

$44.1

1 year - 5 years
108.2

 
109.1

5 years - 10 years
163.0

 
156.0

10 years - 15 years
43.8

 
31.3

15 years - 20 years
27.7

 
23.8

20 years+
40.7

 
48.5

Total

$417.8

 

$412.8



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Notes to Financial Statements


During the three months ended March 31, 2020 and 2019, proceeds from the dispositions of available-for-sale securities amounted to $48.6 million and $10.9 million, respectively.  During the three months ended March 31, 2020 and 2019, gross gains of $4.5 million and $0.02 million, respectively, and gross losses of $0.2 million and $0.1 million, respectively, related to available-for-sale securities were reclassified out of other regulatory liabilities/assets into earnings.

Entergy Louisiana

Entergy Louisiana holds equity securities and available-for-sale debt securities in nuclear decommissioning trust accounts.  The available-for-sale securities held as of March 31, 2020 and December 31, 2019 are summarized as follows:
 
 
Fair
Value
 
Total
Unrealized
Gains
 
Total
Unrealized
Losses
 
 
(In Millions)
2020
 
 
 
 
 
 
Debt Securities
 

$603.0

 

$38.5

 

$3.9

 
 
 
 
 
 
 
2019
 
 
 
 
 
 
Debt Securities
 

$601.5

 

$29.3

 

$0.8



The amortized cost of available-for-sale debt securities was $568.4 million as of March 31, 2020 and $573 million as of December 31, 2019.  As of March 31, 2020, the available-for-sale debt securities had an average coupon rate of approximately 3.87%, an average duration of approximately 6.85 years, and an average maturity of approximately 13.38 years.

The unrealized gains/(losses) recognized during the three months ended March 31, 2020 on equity securities still held as of March 31, 2020 were ($200.8) million. The equity securities are generally held in funds that are designed to approximate the return of the Standard & Poor’s 500 Index.  A relatively small percentage of the equity securities are held in funds intended to replicate the return of the Wilshire 4500 Index.

The fair value and gross unrealized losses of available-for-sale debt securities, summarized by length of time that the securities had been in a continuous loss position, were as follows as of March 31, 2020 and December 31, 2019:
 
 
March 31, 2020
 
December 31, 2019
 
 
Fair
Value
 
Gross
Unrealized
Losses
 
Fair
Value
 
Gross
Unrealized
Losses
 
 
(In Millions)
Less than 12 months
 

$95.2

 

$3.9

 

$71.2

 

$0.8

More than 12 months
 
0.8

 

 
7.9

 

Total
 

$96.0

 

$3.9

 

$79.1

 

$0.8



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Notes to Financial Statements

The fair value of available-for-sale debt securities, summarized by contractual maturities, as of March 31, 2020 and December 31, 2019 were as follows:
 
2020
 
2019
 
(In Millions)
Less than 1 year

$10.4

 

$40.7

1 year - 5 years
143.3

 
142.0

5 years - 10 years
133.8

 
132.4

10 years - 15 years
62.2

 
39.8

15 years - 20 years
54.6

 
49.2

20 years+
198.7

 
197.4

Total

$603.0

 

$601.5


During the three months ended March 31, 2020 and 2019, proceeds from the dispositions of available-for-sale securities amounted to $67.4 million and $56.2 million, respectively.  During the three months ended March 31, 2020 and 2019, gross gains of $2.9 million and $0.3 million, respectively, and gross losses of $0.6 million and $0.2 million, respectively, related to available-for-sale securities were reclassified out of other regulatory liabilities/assets into earnings.

System Energy

System Energy holds equity securities and available-for-sale debt securities in nuclear decommissioning trust accounts.  The available-for-sale securities held as of March 31, 2020 and December 31, 2019 are summarized as follows:
 
 
Fair
Value
 
Total
Unrealized
Gains
 
Total
Unrealized
Losses
 
 
(In Millions)
2020
 
 
 
 
 
 
Debt Securities
 

$408.0

 

$26.9

 

$2.7

 
 
 
 
 
 
 
2019
 
 
 
 
 
 
Debt Securities
 

$386.2

 

$15.1

 

$0.3


The amortized cost of available-for-sale debt securities was $383.8 million as of March 31, 2020 and $371.4 million as of December 31, 2019.  As of March 31, 2020, available-for-sale debt securities had an average coupon rate of approximately 2.91%, an average duration of approximately 7.03 years, and an average maturity of approximately 10.70 years.

The unrealized gains/(losses) recognized during the three months ended March 31, 2020 on equity securities still held as of March 31, 2020 were ($140) million. The equity securities are generally held in funds that are designed to approximate the return of the Standard & Poor’s 500 Index.  A relatively small percentage of the equity securities are held in funds intended to replicate the return of the Wilshire 4500 Index.


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Notes to Financial Statements

The fair value and gross unrealized losses of available-for-sale debt securities, summarized by length of time that the securities had been in a continuous loss position, were as follows as of March 31, 2020 and December 31, 2019:
 
 
March 31, 2020
 
December 31, 2019
 
 
Fair
Value
 
Gross
Unrealized
Losses
 
Fair
Value
 
Gross
Unrealized
Losses
 
(In Millions)
Less than 12 months
 

$52.3

 

$2.7

 

$56.9

 

$0.3

More than 12 months
 

 

 
0.3

 

Total
 

$52.3

 

$2.7

 

$57.2

 

$0.3


The fair value of available-for-sale debt securities, summarized by contractual maturities, as of March 31, 2020 and December 31, 2019 were as follows:
 
2020
 
2019
 
(In Millions)
Less than 1 year

$17.4

 

$8.5

1 year - 5 years
163.9

 
154.6

5 years - 10 years
96.0

 
92.3

10 years - 15 years
20.8

 
13.4

15 years - 20 years
6.7

 
14.4

20 years+
103.2

 
103.0

Total

$408.0

 

$386.2


During the three months ended March 31, 2020 and 2019, proceeds from the dispositions of available-for-sale securities amounted to $92 million and $42.1 million, respectively.  During the three months ended March 31, 2020 and 2019, gross gains of $1.7 million and $0.4 million, respectively, and gross losses of $0.2 million and $0.1 million, respectively, related to available-for-sale securities were reclassified out of other regulatory liabilities/assets into earnings.

Allowance for expected credit losses

Entergy implemented ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, effective January 1, 2020. In accordance with the new standard, Entergy estimates the expected credit losses for its available for sale securities based on the current credit rating and remaining life of the securities.  To the extent an individual security is determined to be uncollectible it is written off against this allowance.  Entergy’s available-for-sale securities are held in trusts managed by third parties who operate in accordance with agreements that define investment guidelines and place restrictions on the purchases and sales of investments.  Specifically, available-for-sale securities are subject to credit worthiness restrictions, with requirements for both the average credit rating of the portfolio and minimum credit ratings for individual debt securities.  As of March 31, 2020, Entergy’s allowance for expected credit losses related to available-for-sale securities was $3 million. Entergy did not record any impairments of available-for-sale debt securities for the three months ended March 31, 2020.

Other-than-temporary impairments and unrealized gains and losses

Prior to the implementation of ASU 2016-13 on January 1, 2020, Entergy evaluated the available-for-sale debt securities in the Entergy Wholesale Commodities nuclear decommissioning trust funds with unrealized losses at the end of each period to determine whether an other-than-temporary impairment had occurred.  The assessment of whether an investment in a debt security suffered an other-than-temporary impairment was based on whether Entergy had the

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Notes to Financial Statements

intent to sell or more likely than not would have been required to sell the debt security before recovery of its amortized costs.  Further, if Entergy did not expect to recover the entire amortized cost basis of the debt security, an other-than-temporary impairment was considered to have occurred and it was measured by the present value of cash flows expected to be collected less the amortized cost basis (credit loss).  Entergy did not have any material other-than-temporary impairments relating to credit losses on debt securities for the three months ended March 31, 2019. 


NOTE 10.  INCOME TAXES (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)

See “Income Tax Audits” and “Other Tax Matters” in Note 3 to the financial statements in the Form 10-K for a discussion of income tax audits, the Tax Cuts and Jobs Act, and other income tax matters involving Entergy. The following are updates to that discussion.

Tax Cuts and Jobs Act

During the second quarter 2018, Registrant Subsidiaries began returning unprotected excess accumulated deferred income taxes, associated with the effects of the Tax Cuts and Jobs Act, to their customers through rate riders and other means approved by their respective regulatory commissions. Return of the unprotected excess accumulated deferred income taxes results in a reduction in the regulatory liability for income taxes and a corresponding reduction in income tax expense. This manner of regulatory accounting has a significant effect on the effective tax rate for the period as compared to the statutory tax rate. The return of unprotected excess accumulated deferred income taxes reduced Entergy’s and the Registrant Subsidiaries’ regulatory liability for income taxes as follows:
 
Three Months
Ended March 31,
 
2020
 
2019
 
(In Millions)
Entergy

$30

 

$61

Entergy Arkansas

$13

 

$32

Entergy Louisiana

$8

 

$7

Entergy New Orleans

$3

 

$

Entergy Texas

$6

 

$22



Other Tax Matters    

In accordance with ASC 718, “Compensation - Stock Compensation,” Entergy and the Registrant Subsidiaries recognized excess tax deductions as a reduction of income tax expense in the first quarter 2020. Due to the vesting and exercise of certain Entergy stock-based awards, Entergy recorded a permanent tax reduction of approximately $24.7 million, including $4.8 million for Entergy Arkansas, $8.6 million for Entergy Louisiana, $2.7 million for Entergy Mississippi, $1.5 million for Entergy New Orleans, $2.7 million for Entergy Texas, and $1.3 million for System Energy.

In the first quarter 2020, Entergy and the IRS agreed upon and settled on the treatment of funds received by Entergy Louisiana in conjunction with the Act 55 financing of Hurricane Isaac storm costs, which resulted in a reduction of income tax expense of approximately $32 million.  As a result of the settlement, the position was partially sustained and Entergy Louisiana recorded a reduction of income tax expense of approximately $58 million primarily due to the reversal of liabilities for uncertain tax positions in excess of the agreed-upon settlement.  Entergy recorded an increase to income tax expense of $26 million primarily resulting from the reduction of the deferred tax asset, associated with utilization of the net operating loss as a result of the settlement. This adjustment recorded by Entergy also accounted for the tax rate change of the Tax Cuts and Jobs Act.  As a result of the IRS settlement, Entergy Louisiana recorded a

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$29 million ($21 million net-of-tax) regulatory charge and a corresponding regulatory liability to reflect its obligation to customers pursuant to the LPSC Hurricane Isaac Act 55 financing order.

Coronavirus Aid, Relief, and Economic Security Act

In response to the economic impacts of the COVID-19 pandemic, President Trump signed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) into law on March 27, 2020. The CARES Act provisions that result in the most significant opportunities for tax relief to Entergy and the Registrant Subsidiaries are permitting a five year carryback of 2018-2020 net operating losses, removing the 80 percent limitation on the carryback of 2018-2020 net operating losses, increasing the limitation on interest expense deductibility for 2019 and 2020, accelerating available refunds for minimum tax credit carryforwards, modifying limitations on charitable contributions during 2020, and delaying the payment of employer payroll taxes. Based on current estimates, Entergy could defer approximately $64 million of 2020 payroll tax payments, which would be payable in two installments of $32 million on December 31, 2021 and December 31, 2022. Currently, these provisions do not have a significant effect on Entergy’s or the Registrant Subsidiaries’ balance sheets.


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

Construction Expenditures in Accounts Payable

Construction expenditures included in accounts payable at March 31, 2020 were $367 million for Entergy, $57.5 million for Entergy Arkansas, $106.7 million for Entergy Louisiana, $24.2 million for Entergy Mississippi, $8.1 million for Entergy New Orleans, $78.2 million for Entergy Texas, and $52.6 million for System Energy.  Construction expenditures included in accounts payable at December 31, 2019 were $406 million for Entergy, $67.9 million for Entergy Arkansas, $115.1 million for Entergy Louisiana, $34.2 million for Entergy Mississippi, $18.4 million for Entergy New Orleans, $88.1 million for Entergy Texas, and $23.2 million for System Energy.


NOTE 12.  VARIABLE INTEREST ENTITIES (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)

See Note 17 to the financial statements in the Form 10-K for a discussion of variable interest entities.  See Note 4 to the financial statements herein for details of the nuclear fuel companies’ credit facilities, commercial paper borrowings, and long-term debt.

System Energy is considered to hold a variable interest in the lessor from which it leases an undivided interest representing approximately 11.5% of the Grand Gulf nuclear plant. System Energy is the lessee under this arrangement, which is described in more detail in Note 5 to the financial statements in the Form 10-K. System Energy made payments under this arrangement, including interest, of $8.6 million in each of the three months ended March 31, 2020 and the three months ended March 31, 2019.



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Notes to Financial Statements

NOTE 13.  REVENUE (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)

Operating Revenues

See Note 19 to the financial statements in the Form 10-K for a discussion of revenue recognition.  Entergy’s total revenues for the three months ended March 31, 2020 and 2019 were as follows:
 
 
2020
 
2019
 
 
(In Thousands)
Utility:
 
 
 
 
Residential
 

$798,028

 

$802,539

Commercial
 
538,940

 
554,058

Industrial
 
557,515

 
601,000

Governmental
 
52,582

 
52,960

    Total billed retail
 
1,947,065

 
2,010,557

 
 
 
 
 
Sales for resale (a)
 
53,725

 
84,435

Other electric revenues (b)
 
50,166

 
15,470

    Revenues from contracts with customers
 
2,050,956

 
2,110,462

Other revenues (c)
 
(318
)
 
10,562

    Total electric revenues
 
2,050,638

 
2,121,024

 
 
 
 
 
Natural gas
 
43,976

 
54,948

 
 
 
 
 
Entergy Wholesale Commodities:
 
 
 
 
Competitive businesses sales from contracts with customers (a)
 
216,002

 
360,471

Other revenues (c)
 
116,563

 
73,141

    Total competitive businesses revenues
 
332,565

 
433,612

 
 
 
 
 
    Total operating revenues
 

$2,427,179

 

$2,609,584

 
 
 
 
 



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Notes to Financial Statements

The Registrant Subsidiaries’ total revenues for the three months ended March 31, 2020 and 2019 were as follows:
2020
 
Entergy
Arkansas
 
Entergy
Louisiana
 
Entergy
Mississippi
 
Entergy
New
Orleans
 
Entergy
Texas
 
 
(In Thousands)
 
 
 
 
 
 
 
 
 
 
 
Residential
 

$219,688

 

$259,860

 

$127,102

 

$50,899

 

$140,480

Commercial
 
111,245

 
202,246

 
96,798

 
45,505

 
83,146

Industrial
 
101,088

 
322,342

 
36,390

 
7,347

 
90,348

Governmental
 
4,030

 
16,754

 
10,327

 
15,851

 
5,620

    Total billed retail
 
436,051


801,202


270,617


119,602


319,594

Sales for resale (a)
 
41,140

 
78,530

 
14,422

 
10,170

 
8,629

Other electric revenues (b)
 
1,596

 
32,008

 
6,443

 
763

 
10,702

Revenues from contracts with customers
 
478,787

 
911,740

 
291,482

 
130,535

 
338,925

Other revenues (c)
 
3,125

 
801

 
2,440

 
(7,104
)
 
411

    Total electric revenues
 
481,912


912,541


293,922


123,431


339,336

Natural gas
 

 
18,106

 

 
25,871

 

    Total operating revenues
 

$481,912



$930,647



$293,922



$149,302



$339,336



2019
 
Entergy
Arkansas
 
Entergy
Louisiana
 
Entergy
Mississippi
 
Entergy
New
Orleans
 
Entergy
Texas
 
 
(In Thousands)
 
 
 
 
 
 
 
 
 
 
 
Residential
 

$209,867

 

$264,065

 

$128,809

 

$52,076

 

$147,722

Commercial
 
124,578

 
206,779

 
97,914

 
45,741

 
79,046

Industrial
 
121,577

 
346,678

 
37,697

 
7,250

 
87,798

Governmental
 
4,899

 
16,891

 
10,036

 
15,901

 
5,233

    Total billed retail
 
460,921

 
834,413

 
274,456

 
120,968

 
319,799

Sales for resale (a)
 
79,584

 
83,955

 
4,814

 
10,224

 
16,775

Other electric revenues (b)
 
2,304

 
12,441

 
405

 
(1,706
)
 
3,496

Revenues from contracts with customers
 
542,809

 
930,809

 
279,675

 
129,486

 
340,070

Other revenues (c)
 
3,003

 
5,884

 
2,569

 
1,397

 
404

    Total electric revenues
 
545,812

 
936,693

 
282,244

 
130,883

 
340,474

Natural gas
 

 
22,637

 

 
32,311

 

    Total operating revenues
 

$545,812

 

$959,330

 

$282,244

 

$163,194

 

$340,474


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(a)
Sales for resale and competitive businesses sales include day-ahead sales of energy in a market administered by an ISO. These sales represent financially binding commitments for the sale of physical energy the next day. These sales are adjusted to actual power generated and delivered in the real time market. Given the short duration of these transactions, Entergy does not consider them to be derivatives subject to fair value adjustments, and includes them as part of customer revenues.

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(b)
Other electric revenues consist primarily of transmission and ancillary services provided to participants of an ISO-administered market and unbilled revenue.
(c)
Other revenues include the settlement of financial hedges, occasional sales of inventory, alternative revenue programs, provisions for revenue subject to refund, and late fees.

Allowance for doubtful accounts

The allowance for doubtful accounts reflects Entergy’s best estimate of expected losses on the accounts receivable balances. Due to the essential nature of utility services, Entergy has historically experienced a low rate of default on its accounts receivables, as shown below:
 
Entergy
 
Entergy
Arkansas
 
Entergy
Louisiana
 
Entergy
Mississippi
 
Entergy
New
Orleans
 
Entergy
Texas
 
(In Millions)
Balance as of December 31, 2019

$7.4

 

$1.2

 

$1.9

 

$0.6

 

$3.2

 

$0.5

Provisions
6.6

 
1.2

 
3.0

 
0.9

 
0.8

 
0.7

Write-offs
(8.4
)
 
(1.8
)
 
(3.5
)
 
(1.2
)
 
(0.8
)
 
(1.1
)
Recoveries
2.9

 
0.9

 
1.1

 
0.3

 
0.2

 
0.5

Balance as of March 31, 2020

$8.5

 

$1.5

 

$2.5

 

$0.6

 

$3.4

 

$0.6


The allowance for currently expected credit losses is calculated as the historical rate of customer write-offs multiplied by the current accounts receivable balance. Although this balance has historically experienced minimal variation over time, management monitors the current condition of individual customer accounts to manage collections and ensure write-offs are recorded in a timely manner.
________________

In the opinion of the management of Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy, the accompanying unaudited financial statements contain all adjustments (consisting primarily of normal recurring accruals and reclassification of previously reported amounts to conform to current classifications) necessary for a fair statement of the results for the interim periods presented.  Entergy’s business is subject to seasonal fluctuations, however, with peak periods occurring typically during the first and third quarters.  The results for the interim periods presented should not be used as a basis for estimating results of operations for a full year.


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

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

Part I, Item 4. Controls and Procedures

Disclosure Controls and Procedures

As of March 31, 2020, evaluations were performed under the supervision and with the participation of Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy (individually “Registrant” and collectively the “Registrants”) management, including their respective Principal Executive Officers (PEO) and Principal Financial Officers (PFO). The evaluations assessed the effectiveness of the Registrants’ disclosure controls and procedures. Based on the evaluations, each PEO and PFO has concluded that, as to the Registrant or Registrants for which they serve as PEO or PFO, the Registrant’s or Registrants’ disclosure controls and procedures are effective to ensure that information required to be disclosed by each Registrant in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms; and that the Registrant’s or Registrants’ disclosure controls and procedures are also effective in reasonably assuring that such information is accumulated and communicated to the Registrant’s or Registrants’ management, including their respective PEOs and PFOs, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Controls over Financial Reporting

Under the supervision and with the participation of each Registrants’ management, including its respective PEO and PFO, each Registrant evaluated changes in internal control over financial reporting that occurred during the quarter ended March 31, 2020 and found no change that has materially affected, or is reasonably likely to materially affect, internal control over financial reporting.




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ENTERGY ARKANSAS, LLC AND SUBSIDIARIES

MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS

The COVID-19 Pandemic

See “The COVID-19 Pandemic” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for a discussion of the COVID-19 pandemic.

Results of Operations

Net Income

Net income increased $5.5 million primarily due to lower other operation and maintenance expenses, higher retail electric price, and a formula rate plan regulatory provision recorded in the first quarter 2019 to reflect the historical year netting adjustment, substantially offset by lower volume/weather.

Operating Revenues

Following is an analysis of the change in operating revenues comparing the first quarter 2020 to the first quarter 2019:
 
Amount
 
(In Millions)
2019 operating revenues

$545.8

Fuel, rider, and other revenues that do not significantly affect net income
(68.2
)
Volume/weather
(19.1
)
Retail electric price
4.7

Return of unprotected excess accumulated deferred income taxes to customers
18.7

2020 operating revenues

$481.9


Entergy Arkansas’s results include revenues from rate mechanisms designed to recover fuel, purchased power, and other costs such that the revenues and expenses associated with these items generally offset and do not affect net income. “Fuel, rider, and other revenues that do not significantly affect net income” includes the revenue variance associated with these items.

The volume/weather variance is primarily due to a decrease of 209 GWh, or 4%, in billed electricity usage, including the effect of less favorable weather on residential sales and a decrease in commercial and industrial usage. The decrease in industrial usage is primarily due to a decrease in small industrial sales.

The retail electric price variance is primarily due to an increase in formula rate plan rates effective with the first billing cycle of January 2020, as approved by the APSC. See Note 2 to the financial statements in the Form 10-K for further discussion of the formula rate plan filing.

The return of unprotected excess accumulated deferred income taxes to customers resulted from the return of unprotected excess accumulated deferred income taxes through a tax adjustment rider beginning in April 2018. In first quarter 2020, $13.1 million was returned to customers as compared to $31.8 million in first quarter 2019. There is no effect on net income as the reduction in operating revenues in each period was offset by a reduction in income tax

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expense. See Note 2 to the financial statements in the Form 10-K for further discussion of regulatory activity regarding the Tax Cuts and Jobs Act.

Although the effect in the first quarter 2020 was minimal, Entergy Arkansas expects a decline in sales volume during 2020 due to the COVID-19 pandemic, especially in the commercial and industrial customer classes. See “The COVID-19 Pandemic” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for discussion of the COVID-19 pandemic.

Other Income Statement Variances

Other operation and maintenance expenses decreased primarily due to:

higher nuclear insurance refunds of $7.6 million;
a decrease of $5 million in fossil-fueled generation expenses primarily due to lower long-term service agreement expenses and a lower scope of work performed in 2020 as compared to the same period in 2019; and
a decrease of $2.7 million in nuclear generation expenses primarily due to lower nuclear labor costs, including contract labor.

The decrease was partially offset by an increase of $3.2 million in compensation and benefits costs primarily due to an increase in net periodic pension and other postretirement benefits costs as a result of a decrease in the discount rate used to value the benefit liabilities and an increase in employee health benefits costs. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Critical Accounting Estimates” in the Form 10-K, Note 6 to the financial statements herein, and Note 11 to the financial statements in the Form 10-K for further discussion of pension and other postretirement benefit costs.

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

Other regulatory charges (credits) in the first quarter 2020 included $11.7 million in amortization of the 2018 historical year netting adjustment reflected in the 2019 formula rate plan filing. Other regulatory charges (credits) in the first quarter 2019 included an additional provision of $10.5 million to reflect the current estimate of the historical year netting adjustment that was to be included in the 2019 formula rate plan filing. See Note 2 to the financial statements in the Form 10-K for discussion of the 2019 formula rate plan filing.

Income Taxes

The effective income tax rate was (17.6%) for the first quarter 2020. The difference in the effective income tax rate for the first quarter 2020 versus the federal statutory rate of 21% was primarily due to the amortization of excess accumulated deferred income taxes, permanent differences related to income tax deductions for stock-based compensation, and certain book and tax differences related to utility plant items, partially offset by state income taxes. See Note 10 to the financial statements herein and Notes 2 and 3 to the financial statements in the Form 10-K for a discussion of the effects and regulatory activity regarding the Tax Cuts and Jobs Act. See Note 10 to the financial statements herein for discussion of the income tax deductions for stock-based compensation.

The effective income tax rate was (138.2%) for the first quarter 2019. The difference in the effective income tax rate for the first quarter 2019 versus the federal statutory rate of 21% was primarily due to the amortization of excess accumulated deferred income taxes and certain book and tax differences related to utility plant items and book and tax differences related to the allowance for equity funds used during construction, partially offset by state income taxes. See Note 10 to the financial statements herein and Notes 2 and 3 to the financial statements in the Form 10-K for a discussion of the effects and regulatory activity regarding the Tax Cuts and Jobs Act.


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Management's Financial Discussion and Analysis

Income Tax Legislation

See the “Income Tax Legislation” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis in the Form 10-K for discussion of the Tax Cuts and Jobs Act, the federal income tax legislation enacted in December 2017.  Note 3 to the financial statements in the Form 10-K contains additional discussion of the effect of the Tax Act on 2019, 2018, and 2017 results of operations and financial position, the provisions of the Tax Act, and the uncertainties associated with accounting for the Tax Act, and Note 10 to the financial statements herein contains updates to that discussion.  Note 2 to the financial statements in the Form 10-K contains a discussion of the regulatory proceedings that have considered the effects of the Tax Act.

Liquidity and Capital Resources

Cash Flow

Cash flows for the three months ended March 31, 2020 and 2019 were as follows:
 
2020
 
2019
 
(In Thousands)
Cash and cash equivalents at beginning of period

$3,519

 

$119

 
 
 
 
Cash flow provided by (used in):


 
 
Operating activities
209,674

 
206,467

Investing activities
(190,551
)
 
(160,961
)
Financing activities
114,850

 
144,616

Net increase in cash and cash equivalents
133,973

 
190,122

 
 
 
 
Cash and cash equivalents at end of period

$137,492

 

$190,241


Operating Activities

Net cash flow provided by operating activities increased $3.2 million for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 primarily due to:

$13 million in proceeds received from the DOE in 2020 resulting from litigation regarding spent nuclear fuel storage costs that were previously expensed. See Note 8 to the financial statements in the Form 10-K for discussion of the spent nuclear fuel litigation; and
a decrease in the return of unprotected excess accumulated deferred income taxes to customers in 2020 as compared to the same period in 2019. See Note 2 to the financial statements in the Form 10-K for further discussion of regulatory activity regarding the Tax Cuts and Jobs Act.

The increase was partially offset by:

the timing of recovery of fuel and purchased power costs; and
an increase of $9.7 million in pension contributions in 2020. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Critical Accounting Estimates” in the Form 10-K and Note 6 to the financial statements herein for a discussion of qualified pension and other postretirement benefits funding.


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Investing Activities

Net cash flow used in investing activities increased $29.6 million for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 primarily due to:

an increase of $57.6 million as a result of fluctuations in nuclear fuel activity because of variations from year to year in the timing and pricing of fuel reload requirements in the Utility business, material and service deliveries, and the timing of cash payments during the nuclear fuel cycle;
an increase of $18.9 million in nuclear construction expenditures primarily as a result of work performed in 2020 on various ANO 2 outage projects;
an increase of $12.2 million in storm spending; and
an increase of $8.4 million in distribution construction expenditures primarily due to investment in the reliability and infrastructure of Entergy Arkansas’s distribution system, including increased spending on advanced metering infrastructure.

The increase was partially offset by $55 million in proceeds received from the DOE in 2020 resulting from litigation regarding spent nuclear fuel storage costs that were previously capitalized and a decrease of $17.8 million in transmission construction expenditures primarily due to a lower scope of work performed in 2020 on various projects. See Note 8 to the financial statements in the Form 10-K for discussion of the spent nuclear fuel litigation.

Financing Activities

Net cash flow provided by financing activities decreased $29.8 million for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 primarily due to the issuance of $350 million of 4.20% Series mortgage bonds in March 2019. The decrease was partially offset by:

money pool activity;
the issuance of $100 million of 4.00% Series mortgage bonds in March 2020; and
net long-term borrowings of $28.7 million in 2020 compared to net repayments of long-term borrowings of $17 million in 2019 on the Entergy Arkansas nuclear fuel company variable interest entity credit facility.

Decreases in Entergy Arkansas’s payable to the money pool are a use of cash flow, and Entergy Arkansas’s payable to the money pool decreased by $21.6 million for the three months ended March 31, 2020 compared to decreasing by $182.7 million for the three months ended March 31, 2019. The money pool is an inter-company borrowing arrangement designed to reduce the Utility subsidiaries’ need for external short-term borrowings.

See Note 4 to the financial statements herein and Note 5 to the financial statements in the Form 10-K for more details on long-term debt.

Capital Structure

Entergy Arkansas’s debt to capital ratio is shown in the following table:
 
March 31,
2020
 
December 31,
2019
Debt to capital
53.6
%
 
53.0
%
Effect of excluding the securitization bonds
%
 
%
Debt to capital, excluding securitization bonds (a)
53.6
%
 
53.0
%
Effect of subtracting cash
(1.0
%)
 
%
Net debt to net capital, excluding securitization bonds (a)
52.6
%
 
53.0
%

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

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

Uses and Sources of Capital

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

Although the effect in the first quarter 2020 was minimal, Entergy Arkansas expects negative changes during 2020 to its customer payment patterns and its cash flow activity due to the COVID-19 pandemic. See “The COVID-19 Pandemic” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for discussion of the COVID-19 pandemic. Despite the effects of the pandemic on financial markets Entergy Arkansas issued $100 million of long-term mortgage bonds in March 2020 and renewed its short-term credit facility. Additional discussion of Entergy Arkansas’s liquidity and capital resources follows.

Entergy Arkansas’s receivables from or (payables to) the money pool were as follows:
March 31,
 2020
 
December 31,
2019
 
March 31,
 2019
 
December 31,
2018
(In Thousands)
$24,935
 
($21,634)
 
$30,521
 
($182,738)

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

Entergy Arkansas has a credit facility in the amount of $150 million scheduled to expire in September 2024. Entergy Arkansas also has a $20 million credit facility scheduled to expire in April 2021. The $150 million credit facility includes fronting commitments for the issuance of letters of credit against $5 million of the borrowing capacity of the facility. As of March 31, 2020, no cash borrowings and no letters of credit were outstanding under the credit facilities. In addition, Entergy Arkansas is a party to an uncommitted letter of credit facility as a means to post collateral to support its obligations to MISO. As of March 31, 2020, a $1 million letter of credit was outstanding under Entergy Arkansas’s uncommitted letter of credit facility. See Note 4 to the financial statements herein for additional discussion of the credit facilities.

The Entergy Arkansas nuclear fuel company variable interest entity has a credit facility in the amount of $80 million scheduled to expire in September 2021.  As of March 31, 2020, $43.8 million in loans were outstanding under the credit facility for the Entergy Arkansas nuclear fuel company variable interest entity. See Note 4 to the financial statements herein for additional discussion of the nuclear fuel company variable interest entity credit facility.


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

Searcy Solar Facility

As discussed in the Form 10-K, in May 2019, Entergy Arkansas filed a petition with the APSC seeking a finding that the purchase of the Searcy Solar Facility was in the public interest. In April 2020 the APSC issued an order approving Entergy Arkansas’s acquisition of the Searcy Solar facility as being in the public interest, but declined to approve Entergy Arkansas’s preferred cost recovery rider mechanism, finding instead, based on the particular facts and circumstances presented, that the formula rate plan rider was a sufficient recovery mechanism.

State and Local Rate Regulation and Fuel-Cost Recovery

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

Energy Cost Recovery Rider

In March 2020, Entergy Arkansas filed its annual redetermination of its energy cost rate pursuant to the energy cost recovery rider, which reflected a decrease from $0.01462 per kWh to $0.01052 per kWh. The redetermined rate became effective with the first billing cycle in April 2020 through the normal operation of the tariff.

Opportunity Sales Proceeding

As discussed in the Form 10-K, the FERC’s opportunity sales orders have been appealed to the D.C. Circuit by Entergy, the LPSC, and the APSC. In February 2020 all of the appeals were consolidated and in April 2020 the D.C. Circuit established a briefing schedule. Briefing will occur in May 2020 through September 2020.    

Also as discussed in the Form 10-K, in May 2019, Entergy Arkansas filed an application with the APSC requesting approval of a special rider tariff to recover the costs of its opportunity sales payments from its retail customers over a 24-month period. In January 2020 the Attorney General and Arkansas Electric Energy Consumers, Inc. filed testimony opposing the recovery by Entergy Arkansas of the opportunity sales payment but also claiming that certain components of the payment should be segregated and refunded to customers. In March 2020, Entergy Arkansas filed rebuttal testimony. Also in March 2020, Entergy Arkansas, the APSC staff, and the Arkansas Electric Energy Consumers, Inc. filed a joint motion asking the APSC to issue a final decision based on the record in the proceeding and cancel the April 2020 evidentiary hearing. The Arkansas Attorney General did not oppose the request, which was granted by the APSC in March 2020. A final decision is expected in July 2020.

COVID-19 Order

In April 2020, in light of the COVID-19 public health emergency, the APSC issued an order requiring utilities, to the extent they had not already done so, to suspend service disconnections during the remaining pendency of the Arkansas Governor’s emergency declaration or until the APSC rescinds the directive. The order also authorizes utilities to establish a regulatory asset to record costs resulting from the suspension of service disconnections, directs that in future proceedings the APSC will consider whether the request for recovery of these regulatory assets is reasonable and necessary, and requires utilities to track and report the costs and any savings directly attributable to suspension of disconnects. In May 2020, Entergy Arkansas filed a request with the APSC requesting the same regulatory asset treatment for additional initiatives such as waiving late payment charges and expanding delayed payment arrangements, which are intended to assist customers during the public health emergency.

Federal Regulation

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

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Management's Financial Discussion and Analysis


Nuclear Matters

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

Environmental Risks

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

Critical Accounting Estimates

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

Other Postretirement Benefits
As described in Note 6 to the financial statements herein, in March 2020, Entergy announced changes to its other postretirement benefits. As a result, Entergy Arkansas now expects 2020 other postretirement health care and life insurance benefit income, including amounts capitalized, of $10.1 million.

New Accounting Pronouncements

See “New Accounting Pronouncements” section of Note 1 to the financial statements in the Form 10-K for a discussion of new accounting pronouncements.


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ENTERGY ARKANSAS, LLC AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
For the Three Months Ended March 31, 2020 and 2019
(Unaudited)
 
 
 
 
 
2020
 
2019
 
 
(In Thousands)
OPERATING REVENUES
 
 
 
 
Electric
 

$481,912

 

$545,812

 
 
 
 
 
OPERATING EXPENSES
 
 
 
 
Operation and Maintenance:
 
 
 
 
Fuel, fuel-related expenses, and gas purchased for resale
 
87,411

 
152,159

Purchased power
 
46,041

 
47,058

Nuclear refueling outage expenses
 
16,247

 
17,248

Other operation and maintenance
 
151,857

 
166,460

Decommissioning
 
17,941

 
15,761

Taxes other than income taxes
 
31,060

 
28,363

Depreciation and amortization
 
83,521

 
75,847

Other regulatory charges (credits) - net
 
(20,001
)
 
445

TOTAL
 
414,077

 
503,341

 
 
 
 
 
OPERATING INCOME
 
67,835

 
42,471

 
 
 
 
 
OTHER INCOME
 
 
 
 
Allowance for equity funds used during construction
 
2,917

 
3,428

Interest and investment income
 
7,938

 
6,183

Miscellaneous - net
 
(6,436
)
 
(3,690
)
TOTAL
 
4,419

 
5,921

 
 
 
 
 
INTEREST EXPENSE
 
 
 
 
Interest expense
 
35,623

 
33,383

Allowance for borrowed funds used during construction
 
(1,281
)
 
(1,414
)
TOTAL
 
34,342

 
31,969

 
 
 
 
 
INCOME BEFORE INCOME TAXES
 
37,912

 
16,423

 
 
 
 
 
Income taxes
 
(6,683
)
 
(22,698
)
 
 
 
 
 
NET INCOME
 

$44,595

 

$39,121

 
 
 
 
 
See Notes to Financial Statements.
 
 
 
 





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ENTERGY ARKANSAS, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2020 and 2019
(Unaudited)
 
 
2020
 
2019
 
 
(In Thousands)
OPERATING ACTIVITIES
 
 
 
 
Net income
 

$44,595

 

$39,121

Adjustments to reconcile net income to net cash flow provided by operating activities:
 
 
 
 
Depreciation, amortization, and decommissioning, including nuclear fuel amortization
 
123,160

 
117,255

Deferred income taxes, investment tax credits, and non-current taxes accrued
 
8,251

 
30,756

Changes in assets and liabilities:
 
 
 
 
Receivables
 
32,820

 
22,194

Fuel inventory
 
(9,419
)
 
260

Accounts payable
 
(42,694
)
 
(56,432
)
Taxes accrued
 
9,302

 
(10,616
)
Interest accrued
 
16,839

 
12,661

Deferred fuel costs
 
23,594

 
44,926

Other working capital accounts
 
(2,691
)
 
1,599

Provisions for estimated losses
 
4,695

 
9,930

Other regulatory assets
 
(13,187
)
 
(56,263
)
Other regulatory liabilities
 
(161,989
)
 
53,386

Pension and other postretirement liabilities
 
11,704

 
(910
)
Other assets and liabilities
 
164,694

 
(1,400
)
Net cash flow provided by operating activities
 
209,674

 
206,467

 
 
 
 
 
INVESTING ACTIVITIES
 
 
 
 
Construction expenditures
 
(179,117
)
 
(147,214
)
Allowance for equity funds used during construction
 
2,917

 
3,506

Nuclear fuel purchases
 
(52,211
)
 
(214
)
Proceeds from sale of nuclear fuel
 
17,210

 
22,834

Proceeds from nuclear decommissioning trust fund sales
 
115,030

 
34,423

Investment in nuclear decommissioning trust funds
 
(121,003
)
 
(40,223
)
Change in money pool receivable - net
 
(24,935
)
 
(30,521
)
Changes in securitization account
 
(3,443
)
 
(3,553
)
Litigation proceeds for reimbursement of spent nuclear fuel storage costs
 
55,001

 

Other
 

 
1

Net cash flow used in investing activities
 
(190,551
)
 
(160,961
)
 
 
 
 
 
FINANCING ACTIVITIES
 
 
 
 
Proceeds from the issuance of long-term debt
 
264,505

 
603,655

Retirement of long-term debt
 
(127,203
)
 
(275,904
)
Changes in money pool payable - net
 
(21,634
)
 
(182,738
)
Other
 
(818
)
 
(397
)
Net cash flow provided by financing activities
 
114,850

 
144,616

 
 
 
 
 
Net increase in cash and cash equivalents
 
133,973

 
190,122

Cash and cash equivalents at beginning of period
 
3,519

 
119

Cash and cash equivalents at end of period
 

$137,492

 

$190,241

 
 
 
 
 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
 
 
 
 

Cash paid during the period for:
 
 
 
 
Interest - net of amount capitalized
 

$17,578

 

$19,458

 
 
 
 
 
See Notes to Financial Statements.
 
 
 
 

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ENTERGY ARKANSAS, LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, 2020 and December 31, 2019
(Unaudited)
 
 
2020
 
2019
 
 
(In Thousands)
CURRENT ASSETS
 
 
 
 
Cash and cash equivalents:
 
 
 
 
Cash
 

$628

 

$3,519

Temporary cash investments
 
136,864

 

Total cash and cash equivalents
 
137,492

 
3,519

Securitization recovery trust account
 
7,480

 
4,036

Accounts receivable:
 
 
 
 
Customer
 
134,111

 
117,679

Allowance for doubtful accounts
 
(1,515
)
 
(1,169
)
Associated companies
 
56,787

 
29,178

Other
 
35,171

 
117,653

Accrued unbilled revenues
 
84,390

 
108,489

Total accounts receivable
 
308,944

 
371,830

Fuel inventory - at average cost
 
43,164

 
33,745

Materials and supplies - at average cost
 
211,165

 
211,320

Deferred nuclear refueling outage costs
 
54,837

 
48,875

Prepayments and other
 
11,809

 
14,096

TOTAL
 
774,891

 
687,421

 
 
 
 
 
OTHER PROPERTY AND INVESTMENTS
 
 
 
 
Decommissioning trust funds
 
974,026

 
1,101,283

Other
 
344

 
345

TOTAL
 
974,370

 
1,101,628

 
 
 
 
 
UTILITY PLANT
 
 
 
 
Electric
 
12,357,569

 
12,293,483

Construction work in progress
 
283,324

 
197,775

Nuclear fuel
 
175,884

 
195,547

TOTAL UTILITY PLANT
 
12,816,777

 
12,686,805

Less - accumulated depreciation and amortization
 
5,079,545

 
5,019,826

UTILITY PLANT - NET
 
7,737,232

 
7,666,979

 
 
 
 
 
DEFERRED DEBITS AND OTHER ASSETS
 
 
 
 
Regulatory assets:
 
 
 
 
Other regulatory assets (includes securitization property of $- as of March 31, 2020 and $1,706 as of December 31, 2019)
 
1,680,037

 
1,666,850

Deferred fuel costs
 
67,822

 
67,690

Other
 
21,451

 
15,065

TOTAL
 
1,769,310

 
1,749,605

 
 
 
 
 
TOTAL ASSETS
 

$11,255,803

 

$11,205,633

 
 
 
 
 
See Notes to Financial Statements.
 
 
 
 

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ENTERGY ARKANSAS, LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND EQUITY
March 31, 2020 and December 31, 2019
(Unaudited)
 
 
2020
 
2019
 
 
(In Thousands)
CURRENT LIABILITIES
 
 
 
 
Currently maturing long-term debt
 

$395,000

 

$

Accounts payable:
 
 
 
 
Associated companies
 
38,534

 
111,785

Other
 
199,451

 
202,201

Customer deposits
 
101,371

 
101,411

Taxes accrued
 
91,133

 
81,831

Interest accrued
 
39,627

 
22,788

Deferred fuel costs
 
77,447

 
53,721

Current portion of unprotected excess accumulated deferred income taxes
 

 
9,296

Other
 
40,049

 
38,760

TOTAL
 
982,612

 
621,793

 
 
 
 
 
NON-CURRENT LIABILITIES
 
 
 
 
Accumulated deferred income taxes and taxes accrued
 
1,200,932

 
1,183,126

Accumulated deferred investment tax credits
 
31,401

 
31,701

Regulatory liability for income taxes - net
 
469,439

 
478,174

Other regulatory liabilities
 
415,597

 
559,555

Decommissioning
 
1,260,556

 
1,242,616

Accumulated provisions
 
68,575

 
63,880

Pension and other postretirement liabilities
 
330,772

 
319,075

Long-term debt (includes securitization bonds of $6,849 as of March 31, 2020 and $6,772 as of December 31, 2019)
 
3,260,723

 
3,517,208

Other
 
64,664

 
62,568

TOTAL
 
7,102,659

 
7,457,903

 
 
 
 
 
EQUITY
 
 
 
 
Member's equity
 
3,170,532

 
3,125,937

TOTAL
 
3,170,532

 
3,125,937

 
 
 
 
 
TOTAL LIABILITIES AND EQUITY
 

$11,255,803

 

$11,205,633

 
 
 
 
 
See Notes to Financial Statements.
 
 
 
 


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ENTERGY ARKANSAS, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBER'S EQUITY
For the Three Months Ended March 31, 2020 and 2019
(Unaudited)
 
 
 
 
 
 
 
 
Member's Equity
 
 
(In Thousands)
 
 
 
Balance at December 31, 2018
 

$2,983,103

 
 
 
Net income
 
39,121

Balance at March 31, 2019
 

$3,022,224

 
 
 
 
 
 
Balance at December 31, 2019
 

$3,125,937

 
 
 
Net income
 
44,595

Balance at March 31, 2020
 

$3,170,532

 
 
 
See Notes to Financial Statements.
 
 


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ENTERGY ARKANSAS, LLC AND SUBSIDIARIES
SELECTED OPERATING RESULTS
For the Three Months Ended March 31, 2020 and 2019
(Unaudited)
 
 
 
 
 
 
 
 
 
Nine Months Ended
 
Increase/
 
 

 
2020
 
2019
 
(Decrease)
 
%
 
 
(Dollars In Millions)
 
 
Electric Operating Revenues:
 
 
 
 
 
 
Residential
 

$220

 

$210

 

$10

 
5

Commercial
 
111

 
125

 
(14
)
 
(11
)
Industrial
 
101

 
122

 
(21
)
 
(17
)
Governmental
 
4

 
5

 
(1
)
 
(20
)
Total billed retail
 
436

 
462

 
(26
)
 
(6
)
Sales for resale:
 
 
 
 
 
 
 
 
Associated companies
 
25

 
29

 
(4
)
 
(14
)
Non-associated companies
 
16

 
50

 
(34
)
 
(68
)
Other
 
5

 
5

 

 

Total
 

$482

 

$546

 

($64
)
 
(12
)
 
 
 
 
 
 
 
 
 
Billed Electric Energy Sales (GWh):
 
 
 
 
 
 
 
 
Residential
 
2,075

 
2,205

 
(130
)
 
(6
)
Commercial
 
1,284

 
1,326

 
(42
)
 
(3
)
Industrial
 
1,811

 
1,845

 
(34
)
 
(2
)
Governmental
 
54

 
57

 
(3
)
 
(5
)
Total retail
 
5,224

 
5,433

 
(209
)
 
(4
)
Sales for resale:
 
 
 
 
 
 
 
 
Associated companies
 
403

 
597

 
(194
)
 
(32
)
Non-associated companies
 
1,146

 
2,519

 
(1,373
)
 
(55
)
Total
 
6,773

 
8,549

 
(1,776
)
 
(21
)

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ENTERGY LOUISIANA, LLC AND SUBSIDIARIES

MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS

The COVID-19 Pandemic

See “The COVID-19 Pandemic” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for a discussion of the COVID-19 pandemic.

Results of Operations

Net Income

Net income increased $61.8 million primarily due to the $58 million reduction in income tax expense resulting from an IRS settlement in the first quarter 2020 related to the uncertain tax position regarding the Hurricane Isaac Louisiana Act 55 financing, which also resulted in a $29 million ($21 million net-of-tax) regulatory charge to reflect Entergy Louisiana’s agreement to share the savings with customers. Also contributing to the increase was higher retail electric price and a lower effective income tax rate. The increase was partially offset by higher depreciation and amortization expenses, higher interest expense, and lower other income. See Note 10 to the financial statements herein for further discussion of the tax settlement.

Operating Revenues

Following is an analysis of the change in operating revenues comparing the first quarter 2020 to the first quarter 2019:
 
Amount
 
(In Millions)
2019 operating revenues

$959.3

Fuel, rider, and other revenues that do not significantly affect net income
(67.4
)
Return of unprotected excess accumulated deferred income taxes to customers
(0.8
)
Volume/weather
4.1

Retail electric price
35.4

2020 operating revenues

$930.6


Entergy Louisiana’s results include revenues from rate mechanisms designed to recover fuel, purchased power, and other costs such that the revenues and expenses associated with these items generally offset and do not affect net income. “Fuel, rider, and other revenues that do not significantly affect net income” includes the revenue variance associated with these items.

The return of unprotected excess accumulated deferred income taxes to customers resulted from the return of unprotected excess accumulated deferred income taxes through changes in the formula rate plan effective May 2018. In first quarter 2020, $7.8 million was returned to customers as compared to $7 million in first quarter 2019. There is no effect on net income as the reduction in operating revenues was offset by a reduction in income tax expense. See Note 2 to the financial statements in the Form 10-K for further discussion of regulatory activity regarding the Tax Cuts and Jobs Act.

    

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Management's Financial Discussion and Analysis

The volume/weather variance is primarily due to an increase in usage during the unbilled sales period, partially offset by a decrease of 165 GWh, or 3%, in billed electricity usage for residential and commercial customers, including the effect of less favorable weather on residential sales.

The retail electric price variance is primarily due to an interim increase in formula rate plan revenues effective June 2019 due to the inclusion of the first-year revenue requirement for the J. Wayne Leonard Power Station (formerly St. Charles Power Station), as approved by the LPSC. See Note 2 to the financial statements herein and in the Form 10-K for further discussion of the formula rate plan proceedings.

Although the effect in the first quarter 2020 was minimal, Entergy Louisiana expects a decline in sales volume during 2020 due to the COVID-19 pandemic, especially in the commercial and industrial customer classes. See “The COVID-19 Pandemic” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for discussion of the COVID-19 pandemic.

Other Income Statement Variances

Other operation and maintenance expenses decreased primarily due to:

a decrease of $5.9 million in nuclear generation expenses primarily due to a lower scope of work performed in 2020 as compared to the same period in 2019;
higher nuclear insurance refunds of $5.7 million; and
a decrease of $3.7 million in fossil-fueled generation expenses primarily due to a lower scope of work performed during plant outages in 2020 as compared to the same period in 2019.

The decrease was partially offset by an increase of $3.6 million in compensation and benefits costs primarily due to an increase in net periodic pension and other postretirement benefits costs as a result of a decrease in the discount rate used to value the benefit liabilities and an increase in employee health benefits costs and an increase of $2.6 million in energy efficiency costs due to the timing of recovery from customers. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Critical Accounting Estimates” in the Form 10-K, Note 6 to the financial statements herein, and Note 11 to the financial statements in the Form 10-K for further discussion of pension and other postretirement benefit costs.

Depreciation and amortization expenses increased primarily due to additions to plant in service, including the J. Wayne Leonard Power Station (formerly St. Charles Power Station), which was placed in service in May 2019.

Other income decreased primarily due to a decrease in the allowance for equity funds used during construction due to higher construction work in progress in 2019, including the J. Wayne Leonard Power Station (formerly St. Charles Power Station) project.

Other regulatory charges (credits) include regulatory charges of $29 million recorded in first quarter 2020 due to a settlement with the IRS related to the uncertain tax position regarding Hurricane Isaac Louisiana Act 55 financing because the savings will be shared with customers. See Note 10 to the financial statements herein for further discussion of the settlement and savings obligation.

Interest expense increased primarily due to the issuance of $525 million of 4.20% Series mortgage bonds in March 2019.

Income Taxes

The effective income tax rate was (36.0%) for the first quarter 2020. The difference in the effective income tax rate for the first quarter 2020 versus the federal statutory rate of 21% was primarily due to the settlement with the IRS on the treatment of funds received in conjunction with the Act 55 financing of Hurricane Isaac storm costs,

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Management's Financial Discussion and Analysis

permanent differences related to income tax deductions for stock-based compensation, book and tax differences related to the non-taxable income distributions earned on preferred membership interests, certain book and tax differences related to utility plant items, book and tax differences related to the allowance for equity funds used during construction, and the amortization of excess accumulated deferred income taxes, partially offset by state income taxes. See Note 10 to the financial statements herein for discussion of the IRS settlement and the income tax deductions for stock-based compensation. See Note 10 to the financial statements herein and Notes 2 and 3 to the financial statements in the Form 10-K for a discussion of the effects and regulatory activity regarding the Tax Cuts and Jobs Act.

The effective income tax rate was 11.5% for the first quarter 2019. The difference in the effective income tax rate for the first quarter 2019 versus the federal statutory rate of 21% was primarily due to book and tax differences related to the non-taxable income distributions earned on preferred membership interests, the amortization of excess accumulated deferred income taxes, and book and tax differences related to the allowance for equity funds used during construction, partially offset by state income taxes. See Note 10 to the financial statements herein and Notes 2 and 3 to the financial statements in the Form 10-K for a discussion of the effects and regulatory activity regarding the Tax Cuts and Jobs Act.

Income Tax Legislation

See the “Income Tax Legislation” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis in the Form 10-K for discussion of the Tax Cuts and Jobs Act, the federal income tax legislation enacted in December 2017. Note 3 to the financial statements in the Form 10-K contains additional discussion of the effect of the Tax Act on 2019, 2018, and 2017 results of operations and financial position, the provisions of the Tax Act, and the uncertainties associated with accounting for the Tax Act, and Note 10 to the financial statements herein contains updates to that discussion. Note 2 to the financial statements in the Form 10-K contains a discussion of the regulatory proceedings that have considered the effects of the Tax Act.

Liquidity and Capital Resources

Cash Flow

Cash flows for the three months ended March 31, 2020 and 2019 were as follows:
 
2020
 
2019
 
(In Thousands)
Cash and cash equivalents at beginning of period

$2,006

 

$43,364

 
 
 
 
Cash flow provided by (used in):
 
 
 
    Operating activities
313,799

 
179,583

    Investing activities
(373,239
)
 
(441,392
)
    Financing activities
522,828

 
523,608

Net increase in cash and cash equivalents
463,388

 
261,799

 
 
 
 
Cash and cash equivalents at end of period

$465,394

 

$305,163


Operating Activities

Net cash flow provided by operating activities increased $134.2 million for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 primarily due to:

the timing of recovery of fuel and purchased power costs;
a decrease of $28.8 million in spending on nuclear refueling outages;
the timing of collection of receivables from customers; and

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Management's Financial Discussion and Analysis

income tax refunds of $20.7 million in 2020. Entergy Louisiana had income tax receipts in 2020 as a result of a refund of an overpayment on a prior year state income tax return.

The increase was partially offset by the timing of payments to vendors.

Investing Activities

Net cash flow used in investing activities decreased $68.2 million for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 primarily due to:

a decrease of $75.3 million as a result of fluctuations in nuclear fuel activity because of variations from year to year in the timing and pricing of fuel reload requirements in the Utility business, material and service deliveries, and the timing of cash payments during the nuclear fuel cycle;
a decrease of $63.3 million in nuclear construction expenditures primarily due to decreased spending on various projects in 2020;
a decrease of $33.7 million in construction expenditures due to higher spending in 2019 on the Lake Charles Power Station and J. Wayne Leonard Power Station (formerly St. Charles Power Station) projects; and
an increase of $41.1 million in net receipts from storm reserve escrow accounts.

The decrease was partially offset by:

money pool activity;
an increase of $16.3 million in storm spending in 2020;
an increase of $12.5 million in distribution construction expenditures primarily due to investment in the reliability and infrastructure of Entergy Louisiana’s distribution system, including increased spending on advanced metering infrastructure; and
several individually insignificant items.

Increases in Entergy Louisiana’s receivable from the money pool are a use of cash flow, and Entergy Louisiana’s receivable from the money pool increased by $84.5 million for the three months ended March 31, 2020 compared to decreasing by $8.9 million for the three months ended March 31, 2019. The money pool is an inter-company borrowing arrangement designed to reduce the Utility subsidiaries’ need for external short-term borrowings.

Financing Activities

Net cash flow provided by financing activities decreased $0.1 million for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 primarily due to:

the issuance of $525 million of 4.20% Series mortgage bonds in March 2019;
money pool activity; and
net repayments of long-term borrowings of $28.5 million in 2020 compared to net long-term borrowings of $54.3 million in 2019 on the nuclear fuel company variable interest entities’ credit facilities.

The decrease was substantially offset by the issuance of $350 million of 2.90% Series mortgage bonds and $300 million of 4.20% Series mortgage bonds in March 2020 and a decrease of $37.5 million in common equity distributions in 2020 primarily to maintain Entergy Louisiana’s capital structure.

Decreases in Entergy Louisiana’s payable to the money pool are a use of cash flow, and Entergy Louisiana’s payable to the money pool decreased by $82.8 million for the three months ended March 31, 2020.

See Note 4 to the financial statements herein and Note 5 to the financial statements in the Form 10-K for more details on long-term debt.

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Management's Financial Discussion and Analysis


Capital Structure

Entergy Louisiana’s debt to capital ratio is shown in the following table. The increase in the debt to capital ratio is primarily due to the issuance of $650 million of mortgage bonds in March 2020.
 
 
March 31,
2020
 
December 31,
2019
Debt to capital
54.7
%
 
53.4
%
Effect of excluding securitization bonds
(0.1
%)
 
(0.1
%)
Debt to capital, excluding securitization bonds (a)
54.6
%
 
53.3
%
Effect of subtracting cash
(1.5
%)
 
(0.1
%)
Net debt to net capital, excluding securitization bonds (a)
53.1
%
 
53.2
%
(a)
Calculation excludes the securitization bonds, which are non-recourse to Entergy Louisiana.

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

Uses and Sources of Capital

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

Although the effect in the first quarter 2020 was minimal, Entergy Louisiana expects negative changes during 2020 to its customer payment patterns and its cash flow activity due to the COVID-19 pandemic. See “The COVID-19 Pandemic” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for discussion of the COVID-19 pandemic. Despite the effects of the pandemic on financial markets Entergy Louisiana issued $650 million of long-term mortgage bonds in March 2020. Additional discussion of Entergy Louisiana’s liquidity and capital resources follows.

Entergy Louisiana’s receivables from or (payables to) the money pool were as follows:
March 31,
2020
 
December 31, 2019
 
March 31,
2019
 
December 31,
2018
(In Thousands)
$84,466
 
($82,826)
 
$37,965
 
$46,843

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

Entergy Louisiana has a credit facility in the amount of $350 million scheduled to expire in September 2024.  The credit facility includes fronting commitments for the issuance of letters of credit against $15 million of the borrowing capacity of the facility. As of March 31, 2020, there were no cash borrowings and no letters of credit outstanding under the credit facility.  In addition, Entergy Louisiana is a party to an uncommitted letter of credit facility as a means to post collateral to support its obligations to MISO. As of March 31, 2020, a $25.6 million letter of credit

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Management's Financial Discussion and Analysis

was outstanding under Entergy Louisiana’s uncommitted letter of credit facility. See Note 4 to the financial statements herein for additional discussion of the credit facilities.

The Entergy Louisiana nuclear fuel company variable interest entities have two separate credit facilities, each in the amount of $105 million and scheduled to expire in September 2021.  As of March 31, 2020, $58.4 million in loans were outstanding under the credit facility for the Entergy Louisiana River Bend nuclear fuel company variable interest entity. As of March 31, 2020, $33.3 million in loans were outstanding under the credit facility for the Entergy Louisiana Waterford nuclear fuel company variable interest entity. See Note 4 to the financial statements herein for additional discussion of the nuclear fuel company variable interest entity credit facilities.

Entergy Louisiana has $256 million in its storm reserve escrow account at March 31, 2020.

Lake Charles Power Station

As discussed in the Form 10-K, the LPSC issued an order in July 2017 approving certification that the public necessity and convenience would be served by the construction of the Lake Charles Power Station. The plant commenced commercial operation in March 2020.

State and Local Rate Regulation and Fuel-Cost Recovery

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

Retail Rates - Electric

2018 Formula Rate Plan Filing

Commercial operation at Lake Charles Power Station commenced in March 2020. In March 2020, Entergy Louisiana filed an update to its 2018 formula rate plan evaluation report to include the estimated first-year revenue requirement of $108 million associated with the Lake Charles Power Station. The resulting interim adjustment to rates became effective with the first billing cycle of April 2020.

Fuel and purchased power recovery

In March 2020 the LPSC staff provided notice of an audit of Entergy Louisiana’s fuel adjustment clause filings. The audit includes a review of the reasonableness of charges flowed through Entergy Louisiana’s fuel adjustment clause for the period from 2016 through 2019. Discovery has not yet commenced.

COVID-19 Order

In April 2020 the LPSC issued an order authorizing utilities to record as a regulatory asset expenses incurred from the suspension of disconnections and collection of late fees imposed by LPSC orders associated with the COVID-19 pandemic. In addition, utilities may seek future recovery, subject to LPSC review and approval, of losses and expenses incurred due to compliance with the LPSC’s COVID-19 orders.

Industrial and Commercial Customers

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


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Management's Financial Discussion and Analysis

Federal Regulation

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

Nuclear Matters

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

Environmental Risks

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

Critical Accounting Estimates

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

Other Postretirement Benefits
As described in Note 6 to the financial statements herein, in March 2020, Entergy announced changes to its other postretirement benefits. As a result, Entergy Louisiana now expects 2020 other postretirement health care and life insurance benefit cost, including amounts capitalized, of $5.6 million.

New Accounting Pronouncements

See “New Accounting Pronouncements” section of Note 1 to the financial statements in the Form 10-K for a discussion of new accounting pronouncements.

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ENTERGY LOUISIANA, LLC AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
For the Three Months Ended March 31, 2020 and 2019
(Unaudited)
 
 
 
 
 
2020
 
2019
 
 
(In Thousands)
OPERATING REVENUES
 
 
 
 
Electric
 

$912,541

 

$936,693

Natural gas
 
18,106

 
22,637

TOTAL
 
930,647

 
959,330

 
 
 
 
 
OPERATING EXPENSES
 
 
 
 
Operation and Maintenance:
 
 
 
 
Fuel, fuel-related expenses, and gas purchased for resale
 
144,492

 
147,349

Purchased power
 
160,743

 
257,306

Nuclear refueling outage expenses
 
13,630

 
12,808

Other operation and maintenance
 
222,658

 
225,888

Decommissioning
 
16,001

 
13,879

Taxes other than income taxes
 
50,077

 
49,682

Depreciation and amortization
 
145,135

 
126,134

Other regulatory charges (credits) - net
 
11,132

 
(27,660
)
TOTAL
 
763,868

 
805,386

 
 
 
 
 
OPERATING INCOME
 
166,779

 
153,944

 
 
 
 
 
OTHER INCOME
 
 
 
 
Allowance for equity funds used during construction
 
14,887

 
23,914

Interest and investment income (loss)
 
(19,669
)
 
71,986

Miscellaneous - net
 
49,601

 
(42,344
)
TOTAL
 
44,819

 
53,556

 
 
 
 
 
INTEREST EXPENSE
 
 
 
 
Interest expense
 
79,517

 
74,703

Allowance for borrowed funds used during construction
 
(7,132
)
 
(11,367
)
TOTAL
 
72,385

 
63,336

 
 
 
 
 
INCOME BEFORE INCOME TAXES
 
139,213

 
144,164

 
 
 
 
 
Income taxes
 
(50,183
)
 
16,531

 
 
 
 
 
NET INCOME
 

$189,396

 

$127,633

 
 
 
 
 
See Notes to Financial Statements.
 
 
 
 





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ENTERGY LOUISIANA, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Three Months Ended March 31, 2020 and 2019
(Unaudited)
 
 
 
2020
 
2019
 
(In Thousands)
 
 
 
 
Net Income

$189,396

 

$127,633

Other comprehensive income (loss)
 
 
 
Pension and other postretirement liabilities (net of tax expense (benefit) of $3,340 and ($342))
9,467

 
(969
)
Other comprehensive income (loss)
9,467

 
(969
)
Comprehensive Income

$198,863

 

$126,664

 
 
 
 
See Notes to Financial Statements.
 
 
 

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ENTERGY LOUISIANA, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2020 and 2019
(Unaudited)
 
 
 
 
 
 
 
2020
 
2019
 
 
(In Thousands)
OPERATING ACTIVITIES
 
 
 
 
Net income
 

$189,396

 

$127,633

Adjustments to reconcile net income to net cash flow provided by operating activities:
 
 
 
 
Depreciation, amortization, and decommissioning, including nuclear fuel amortization
 
191,447

 
153,368

Deferred income taxes, investment tax credits, and non-current taxes accrued
 
(39,681
)
 
49,041

Changes in working capital:
 
 
 
 
Receivables
 
23,004

 
(849
)
Fuel inventory
 
(456
)
 
31

Accounts payable
 
(86,317
)
 
(26,475
)
Prepaid taxes and taxes accrued
 
48,840

 
16,311

Interest accrued
 
(2,384
)
 
(9,300
)
Deferred fuel costs
 
(18,280
)
 
(50,620
)
Other working capital accounts
 
(3,156
)
 
(41,481
)
Changes in provisions for estimated losses
 
(41,113
)
 
2,962

Changes in other regulatory assets
 
55,539

 
(91,490
)
Changes in other regulatory liabilities
 
(129,370
)
 
49,352

Changes in pension and other postretirement liabilities
 
(22,806
)
 
(1,954
)
Other
 
149,136

 
3,054

Net cash flow provided by operating activities
 
313,799

 
179,583

 
 
 
 
 
INVESTING ACTIVITIES
 
 
 
 
Construction expenditures
 
(344,522
)
 
(401,573
)
Allowance for equity funds used during construction
 
14,887

 
23,914

Nuclear fuel purchases
 
(18,052
)
 
(59,422
)
Proceeds from the sale of nuclear fuel
 
33,889

 

Receipts from storm reserve escrow account
 
40,589

 

Payments to storm reserve escrow account
 
(1,113
)
 
(1,651
)
Changes to securitization account
 
(5,348
)
 
(5,405
)
Proceeds from nuclear decommissioning trust fund sales
 
144,962

 
101,555

Investment in nuclear decommissioning trust funds
 
(154,065
)
 
(107,690
)
Changes in money pool receivable - net
 
(84,466
)
 
8,880

Net cash flow used in investing activities
 
(373,239
)
 
(441,392
)
 
 
 
 
 
FINANCING ACTIVITIES
 
 
 
 
Proceeds from the issuance of long-term debt
 
1,221,900

 
1,212,989

Retirement of long-term debt
 
(603,607
)
 
(642,307
)
Change in money pool payable - net
 
(82,826
)
 

Distributions paid:
 
 
 
 
Common equity
 
(11,500
)
 
(49,000
)
Other
 
(1,139
)
 
1,926

Net cash flow provided by financing activities
 
522,828

 
523,608

 
 
 
 
 
Net increase in cash and cash equivalents
 
463,388

 
261,799

Cash and cash equivalents at beginning of period
 
2,006

 
43,364

Cash and cash equivalents at end of period
 

$465,394

 

$305,163

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

$79,794

 

$81,940

Income taxes
 

($20,684
)
 

$

 
 
 
 
 
See Notes to Financial Statements.
 
 
 
 

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ENTERGY LOUISIANA, LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, 2020 and December 31, 2019
(Unaudited)
 
 
 
 
 
 
 
2020
 
2019
 
 
(In Thousands)
CURRENT ASSETS
 
 
 
 
Cash and cash equivalents:
 
 
 
 
Cash
 

$188

 

$488

Temporary cash investments
 
465,206

 
1,518

Total cash and cash equivalents
 
465,394

 
2,006

Accounts receivable:
 
 
 
 
Customer
 
200,410

 
194,869

Allowance for doubtful accounts
 
(2,452
)
 
(1,902
)
Associated companies
 
142,549

 
77,212

Other
 
36,989

 
42,179

Accrued unbilled revenues
 
165,525

 
169,201

Total accounts receivable
 
543,021

 
481,559

Fuel inventory
 
42,069

 
41,613

Materials and supplies - at average cost
 
371,123

 
354,020

Deferred nuclear refueling outage costs
 
43,960

 
56,743

Prepaid taxes
 

 
7,959

Prepayments and other
 
37,778

 
37,837

TOTAL
 
1,503,345

 
981,737

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

 
1,390,587

Decommissioning trust funds
 
1,377,881

 
1,563,812

Storm reserve escrow account
 
256,402

 
295,875

Non-utility property - at cost (less accumulated depreciation)
 
315,027

 
312,896

Other
 
12,944

 
13,476

TOTAL
 
3,352,841

 
3,576,646

 
 
 
 
 
UTILITY PLANT
 
 
 
 
Electric
 
23,617,789

 
22,620,365

Natural gas
 
239,779

 
235,678

Construction work in progress
 
689,399

 
1,383,603

Nuclear fuel
 
221,397

 
267,779

TOTAL UTILITY PLANT
 
24,768,364

 
24,507,425

Less - accumulated depreciation and amortization
 
9,226,377

 
9,118,524

UTILITY PLANT - NET
 
15,541,987

 
15,388,901

 
 
 
 
 
DEFERRED DEBITS AND OTHER ASSETS
 
 
 
 
Regulatory assets:
 
 
 
 
Other regulatory assets (includes securitization property of $22,545 as of March 31, 2020 and $27,596 as of December 31, 2019)
 
1,259,672

 
1,315,211

Deferred fuel costs
 
168,122

 
168,122

Other
 
37,122

 
33,491

TOTAL
 
1,464,916

 
1,516,824

 
 
 
 
 
TOTAL ASSETS
 

$21,863,089

 

$21,464,108

 
 
 
 
 
See Notes to Financial Statements.
 
 
 
 

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ENTERGY LOUISIANA, LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND EQUITY
March 31, 2020 and December 31, 2019
(Unaudited)
 
 
 
 
 
 
 
2020
 
2019
 
 
(In Thousands)
CURRENT LIABILITIES
 
 
 
 
Currently maturing long-term debt
 

$360,002

 

$320,002

Accounts payable:
 
 
 
 
Associated companies
 
49,566

 
187,615

Other
 
486,241

 
357,206

Customer deposits
 
153,051

 
153,097

Taxes accrued
 
40,881

 

Interest accrued
 
85,360

 
87,744

Deferred fuel costs
 
37,365

 
55,645

Current portion of unprotected excess accumulated deferred income taxes
 
31,138

 
31,138

Other
 
60,365

 
64,668

TOTAL
 
1,303,969

 
1,257,115

 
 
 
 
 
NON-CURRENT LIABILITIES
 
 
 
 
Accumulated deferred income taxes and taxes accrued
 
2,440,159

 
2,464,513

Accumulated deferred investment tax credits
 
110,926

 
112,128

Regulatory liability for income taxes - net
 
491,694

 
500,083

Other regulatory liabilities
 
673,159

 
794,140

Decommissioning
 
1,515,981

 
1,497,349

Accumulated provisions
 
279,306

 
320,419

Pension and other postretirement liabilities
 
655,324

 
677,619

Long-term debt (includes securitization bonds of $33,286 as of March 31, 2020 and $33,220 as of December 31, 2019)
 
7,563,379

 
6,983,667

Other
 
244,721

 
459,957

TOTAL
 
13,974,649

 
13,809,875

 
 
 
 
 
Commitments and Contingencies
 
 
 
 
 
 
 
 
 
EQUITY
 
 
 
 
Member's equity
 
6,570,442

 
6,392,556

Accumulated other comprehensive loss
 
14,029

 
4,562

TOTAL
 
6,584,471

 
6,397,118

 
 
 
 
 
TOTAL LIABILITIES AND EQUITY
 

$21,863,089

 

$21,464,108

 
 
 
 
 
See Notes to Financial Statements.
 
 
 
 


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ENTERGY LOUISIANA, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the Three Months Ended March 31, 2020 and 2019
(Unaudited)
 
 
 
 
 
Common Equity
 
 
 
Member’s
Equity
 
Accumulated
Other
Comprehensive
Loss
 
Total
 
(In Thousands)
 
 
 
 
 
 
Balance at December 31, 2018

$5,909,071

 

($6,153
)
 

$5,902,918

 
 
 
 
 
 
Net income
127,633

 

 
127,633

Other comprehensive loss

 
(969
)
 
(969
)
Distributions declared on common equity
(49,000
)
 

 
(49,000
)
Other
(11
)
 

 
(11
)
Balance at March 31, 2019

$5,987,693

 

($7,122
)
 

$5,980,571

 
 
 
 
 
 
Balance at December 31, 2019

$6,392,556

 

$4,562

 

$6,397,118

 
 
 
 
 
 
Net income
189,396

 

 
189,396

Other comprehensive income

 
9,467

 
9,467

Distributions declared on common equity
(11,500
)
 

 
(11,500
)
Other
(10
)
 

 
(10
)
Balance at March 31, 2020

$6,570,442

 

$14,029

 

$6,584,471

 
 
 
 
 
 
See Notes to Financial Statements.
 
 
 
 
 


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ENTERGY LOUISIANA, LLC AND SUBSIDIARIES
SELECTED OPERATING RESULTS
For the Three Months Ended March 31, 2020 and 2019
(Unaudited)
 
 
 
 
 
 
 
 
 
Nine Months Ended
 
Increase/
 
 
 
 
2020
 
2019
 
(Decrease)
 
%
 
 
(Dollars In Millions)
 
 
Electric Operating Revenues:
 
 
 
 
 
 
 
 
Residential
 

$260

 

$264

 

($4
)
 
(2
)
Commercial
 
202

 
207

 
(5
)
 
(2
)
Industrial
 
322

 
347

 
(25
)
 
(7
)
Governmental
 
17

 
17

 

 

Total billed retail
 
801

 
835

 
(34
)
 
(4
)
Sales for resale:
 
 
 
 
 
 
 
 
Associated companies
 
66

 
68

 
(2
)
 
(3
)
Non-associated companies
 
13

 
16

 
(3
)
 
(19
)
Other
 
33

 
18

 
15

 
83

Total
 

$913

 

$937

 

($24
)
 
(3
)
 
 
 
 
 
 
 
 
 
Billed Electric Energy Sales (GWh):
 
 
 
 
 
 
 
 
Residential
 
2,975

 
3,080

 
(105
)
 
(3
)
Commercial
 
2,459

 
2,519

 
(60
)
 
(2
)
Industrial
 
7,450

 
7,343

 
107

 
1

Governmental
 
199

 
203

 
(4
)
 
(2
)
Total retail
 
13,083

 
13,145

 
(62
)
 

Sales for resale:
 
 
 
 
 
 
 
 
Associated companies
 
1,341

 
1,080

 
261

 
24

Non-associated companies
 
457

 
505

 
(48
)
 
(10
)
Total
 
14,881

 
14,730

 
151

 
1

 
 
 
 
 
 
 
 
 

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ENTERGY MISSISSIPPI, LLC

MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS

The COVID-19 Pandemic

See “The COVID-19 Pandemic” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for a discussion of the COVID-19 pandemic.

Results of Operations

Net Income

Net income increased $7.1 million primarily due to higher retail electric price and a lower effective income tax rate, partially offset by higher depreciation and amortization expenses.

Operating Revenues

Following is an analysis of the change in operating revenues comparing the first quarter 2020 to the first quarter 2019:
 
Amount
 
(In Millions)
2019 operating revenues

$282.2

Fuel, rider, and other revenues that do not significantly affect net income
(7.6
)
Retail electric price
19.4

Volume/weather
(0.1
)
2020 operating revenues

$293.9


Entergy Mississippi’s results include revenues from rate mechanisms designed to recover fuel, purchased power, and other costs such that the revenues and expenses associated with these items generally offset and do not affect net income. “Fuel, rider, and other revenues that do not significantly affect net income” includes the revenue variance associated with these items.

The retail electric price variance is primarily due to an interim capacity rate adjustment to the formula rate plan to recover non-fuel related costs of acquiring and operating the Choctaw Generating Station and an increase in formula rate plan rates effective with the first billing cycle of July 2019, each as approved by the MPSC. See Note 2 to the financial statements in the Form 10-K for further discussion of the formula rate plan filing.

The volume/weather variance is primarily due to a decrease of 113 GWh, or 4%, in billed electricity usage, including the effect of less favorable weather on residential sales. The decrease was substantially offset by increased usage during the unbilled sales period.

Although the effect in the first quarter 2020 was minimal, Entergy Mississippi expects a decline in sales volume during 2020 due to the COVID-19 pandemic, especially in the commercial and industrial customer classes. See “The COVID-19 Pandemic” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for discussion of the COVID-19 pandemic.

 
 

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Other Income Statement Variances

Other operation and maintenance expenses increased primarily due to:

an increase of $4.5 million in storm damage provisions. See Note 2 to the financial statements in the Form 10-K for a discussion of storm cost recovery; and
an increase of $1.2 million in compensation and benefits costs primarily due to an increase in net periodic pension and other postretirement benefits costs as a result of a decrease in the discount rate used to value the benefit liabilities and an increase in employee health benefits costs. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Critical Accounting Estimates” in the Form 10-K, Note 6 to the financial statements herein, and Note 11 to the financial statements in the Form 10-K for further discussion of pension and other postretirement benefit costs.

The increase was partially offset by:

a decrease of $1.8 million in vegetation maintenance costs; and
a decrease of $1.8 million in fossil-fueled generation expenses primarily due to a lower scope of work done during plant outages in 2020 as compared to the same period in 2019 and lower long-term service agreement expenses.

Depreciation and amortization expenses increased primarily as a result of higher depreciation rates, as approved by the MPSC, and additions to plant in service.

Interest expense increased primarily due to the issuances of $300 million in June 2019 and $135 million in November 2019 of 3.85% Series mortgage bonds, partially offset by the repayment, at maturity, of $150 million of 6.64% Series mortgage bonds in July 2019. See Note 4 to the financial statements herein and Note 5 to the financial statements in the Form 10-K for details on long-term debt.

Income Taxes

The effective income tax rate was 7.7% for the first quarter 2020. The difference in the effective income tax rate for the first quarter 2020 versus the federal statutory rate of 21% was primarily due to certain book and tax differences related to utility plant items and permanent differences related to income tax deductions for stock-based compensation, partially offset by state income taxes. See Note 10 to the financial statements herein for discussion of the income tax deductions for stock-based compensation.

The effective income tax rate was 18.3% for the first quarter 2019. The difference in the effective income tax rate for the first quarter 2019 versus the federal statutory rate of 21% was primarily due to book and tax differences related to utility plant items and book and tax differences related to the allowance for equity funds during construction, partially offset by state income taxes and the provision for uncertain tax positions.

Income Tax Legislation

See the “Income Tax Legislation” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis in the Form 10-K for discussion of the Tax Cuts and Jobs Act, the federal income tax legislation enacted in December 2017. Note 3 to the financial statements in the Form 10-K contains additional discussion of the effect of the Tax Act on 2019, 2018, and 2017 results of operations and financial position, the provisions of the Tax Act, and the uncertainties associated with accounting for the Tax Act, and Note 10 to the financial statements herein contains updates to that discussion. Note 2 to the financial statements in the Form 10-K contains a discussion of the regulatory proceedings that have considered the effects of the Tax Act.


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Entergy Mississippi, LLC
Management's Financial Discussion and Analysis

Liquidity and Capital Resources

Cash Flow

Cash flows for the three months ended March 31, 2020 and 2019 were as follows:
 
2020
 
2019
 
(In Thousands)
Cash and cash equivalents at beginning of period

$51,601

 

$36,954

 
 
 
 
Cash flow provided by (used in):
 
 
 
Operating activities
33,261

 
9,992

Investing activities
(103,615
)
 
(54,376
)
Financing activities
18,772

 
8,315

Net decrease in cash and cash equivalents
(51,582
)
 
(36,069
)
 
 
 
 
Cash and cash equivalents at end of period

$19

 

$885


Operating Activities

Net cash flow provided by operating activities increased $23.3 million for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 primarily due to the timing of collections of receivables from customers and payments to vendors and an increase of $4.4 million in interest payments. The increase was partially offset by the timing of recovery of fuel and purchased power costs and an increase of $4 million in storm spending in 2020.

Investing Activities

Net cash flow used in investing activities increased $49.2 million for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 primarily due to $24.6 million in plant upgrades for the Choctaw Generating Station in March 2020 and an increase of $20.2 million in storm spending in 2020.

Financing Activities

Net cash flow provided by financing activities increased $10.5 million for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 primarily due to money pool activity.

Increases in Entergy Mississippi’s payable to the money pool are a source of cash flow, and Entergy Mississippi’s payable to the money pool increased by $19 million for the three months ended March 31, 2020 compared to increasing by $10.9 million for the three months ended March 31, 2019. The money pool is an inter-company borrowing arrangement designed to reduce the Utility subsidiaries’ need for external short-term borrowings.

Capital Structure

Entergy Mississippi’s debt to capital ratio is shown in the following table.
 
March 31,
2020
 
December 31, 2019
Debt to capital
50.9
%
 
51.2
%
Effect of subtracting cash
%
 
(0.8
%)
Net debt to net capital
50.9
%
 
50.4
%


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Entergy Mississippi, LLC
Management's Financial Discussion and Analysis

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

Uses and Sources of Capital

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

Although the effect in the first quarter 2020 was minimal, Entergy Mississippi expects negative changes during 2020 to its customer payment patterns and its cash flow activity due to the COVID-19 pandemic. See “The COVID-19 Pandemic” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for discussion of the COVID-19 pandemic. Despite the effects of the pandemic on financial markets Entergy Mississippi renewed its short-term credit facilities in April 2020. Additional discussion of Entergy Mississippi’s liquidity and capital resources follows.

Entergy Mississippi’s receivables from or (payables to) the money pool were as follows:
March 31,
2020
 
December 31, 2019
 
March 31,
 2019
 
December 31, 2018
(In Thousands)
($19,006)
 
$44,693
 
($10,925)
 
$41,380

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

Entergy Mississippi has three separate credit facilities in the aggregate amount of $82.5 million scheduled to expire in April 2021. No borrowings were outstanding under the credit facilities as of March 31, 2020.  In addition, Entergy Mississippi is a party to an uncommitted letter of credit facility as a means to post collateral to support its obligations to MISO. As of March 31, 2020, $1.8 million of letters of credit were outstanding under Entergy Mississippi’s uncommitted letter of credit facility. See Note 4 to the financial statements herein for additional discussion of the credit facilities.

Entergy Mississippi has $33 million in its storm reserve escrow account at March 31, 2020.

Sunflower Solar Facility

    In November 2018, Entergy Mississippi announced that it signed an agreement for the purchase of an approximately 100 MW to-be-constructed solar photovoltaic facility that will be sited on approximately 1,000 acres in Sunflower County, Mississippi.  The estimated base purchase price is approximately $138.4 million.  The estimated total investment, including the base purchase price and other related costs, for Entergy Mississippi to acquire the Sunflower Solar Facility is approximately $153.2 million. The purchase is contingent upon, among other things, obtaining necessary approvals, including full cost recovery, from applicable federal and state regulatory and permitting agencies.  The project will be built by Sunflower County Solar Project, LLC, an indirect subsidiary of Recurrent Energy, LLC. Entergy Mississippi will purchase the facility upon mechanical completion and after the other purchase contingencies have been met.  In December 2018, Entergy Mississippi filed a joint petition with Sunflower Solar Project at the MPSC for Sunflower Solar Project to construct and for Entergy Mississippi to acquire and thereafter own, operate,

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Management's Financial Discussion and Analysis

improve, and maintain the solar facility.  Entergy Mississippi has proposed revisions to its formula rate plan that would provide for a mechanism, the interim capacity rate adjustment mechanism, in the formula rate plan to recover the non-fuel related costs of additional owned capacity acquired by Entergy Mississippi, including the annual ownership costs of the Sunflower Solar Facility. In December 2019 the MPSC approved Entergy Mississippi’s proposed revisions to its formula rate plan to provide for an interim capacity rate adjustment mechanism. Recovery through the interim capacity rate adjustment requires MPSC approval for each new resource. In August 2019 consultants retained by the Mississippi Public Utilities Staff filed a report expressing concerns regarding the project economics. In March 2020, Entergy Mississippi filed supplemental testimony addressing questions and observations raised by the consultants retained by the Mississippi Public Utilities Staff. A hearing before the MPSC was held in March 2020. In April 2020 the MPSC issued an order approving certification of the Sunflower Solar Facility and its recovery through the interim capacity rate adjustment mechanism, subject to certain conditions including: (i) that Entergy Mississippi pursue a partnership structure through which the partnership would acquire and own the facility under the build-own-transfer agreement and (ii) that if Entergy Mississippi does not consummate the partnership structure under the terms of the order, there will be a cap on the level of recoverable costs. Closing is targeted to occur by the end of 2021.

State and Local Rate Regulation and Fuel-Cost Recovery

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

Formula Rate Plan Filing

In March 2020, Entergy Mississippi submitted its formula rate plan 2020 test year filing and 2019 look-back filing showing Entergy Mississippi’s earned return for the historical 2019 calendar year to be below the formula rate plan bandwidth and projected earned return for the 2020 calendar year to be below the formula rate plan bandwidth. The 2020 test year filing shows a $24.6 million rate increase is necessary to reset Entergy Mississippi’s earned return on common equity to the specified point of adjustment of 6.51% return on rate base, within the formula rate plan bandwidth. The 2019 look-back filing compares actual 2019 results to the approved benchmark return on rate base and reflects the need for a $7.3 million interim increase in formula rate plan revenues. In accordance with the MPSC-approved revisions to the formula rate plan, Entergy Mississippi implemented a $24.3 million interim rate increase, reflecting a cap equal to 2% of 2019 retail revenues, effective with the April 2020 billing cycle, subject to refund, pending a final MPSC order. A final order is expected in the second quarter 2020, with the resulting final rates, including amounts above the 2% cap of 2019 retail revenues, effective July 2020.

COVID-19 Order

In April 2020 the MPSC issued an order authorizing utilities to defer incremental costs and expenses associated with COVID-19 compliance and to seek future recovery through rates of the prudently incurred incremental costs and expenses.

Federal Regulation

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

Nuclear Matters

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


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Entergy Mississippi, LLC
Management's Financial Discussion and Analysis

Environmental Risks

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

Critical Accounting Estimates

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

Other Postretirement Benefits
As described in Note 6 to the financial statements herein, in March 2020, Entergy announced changes to its other postretirement benefits. As a result, Entergy Mississippi now expects 2020 other postretirement health care and life insurance benefit income, including amounts capitalized, of $3.6 million.

New Accounting Pronouncements

See “New Accounting Pronouncements” section of Note 1 to the financial statements in the Form 10-K for a discussion of new accounting pronouncements.


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ENTERGY MISSISSIPPI, LLC
INCOME STATEMENTS
For the Three Months Ended March 31, 2020 and 2019
(Unaudited)
 
 
 
 
 
2020
 
2019
 
 
(In Thousands)
OPERATING REVENUES
 
 
 
 
Electric
 

$293,922

 

$282,244

 
 
 
 
 
OPERATING EXPENSES
 
 
 
 
Operation and Maintenance:
 
 
 
 
Fuel, fuel-related expenses, and gas purchased for resale
 
63,297

 
53,229

Purchased power
 
52,643

 
71,455

Other operation and maintenance
 
62,337

 
59,183

Taxes other than income taxes
 
27,190

 
26,127

Depreciation and amortization
 
51,155

 
39,088

Other regulatory charges (credits) - net
 
(3,881
)
 
2,370

TOTAL
 
252,741

 
251,452

 
 
 
 
 
OPERATING INCOME
 
41,181

 
30,792

 
 
 
 
 
OTHER INCOME (DEDUCTIONS)
 
 
 
 
Allowance for equity funds used during construction
 
1,439

 
1,913

Interest and investment income
 
120

 
152

Miscellaneous - net
 
(2,296
)
 
(263
)
TOTAL
 
(737
)
 
1,802

 
 
 
 
 
INTEREST EXPENSE
 
 
 
 
Interest expense
 
16,583

 
14,540

Allowance for borrowed funds used during construction
 
(551
)
 
(785
)
TOTAL
 
16,032

 
13,755

 
 
 
 
 
INCOME BEFORE INCOME TAXES
 
24,412

 
18,839

 
 
 
 
 
Income taxes
 
1,886

 
3,441

 
 
 
 
 
NET INCOME
 

$22,526

 

$15,398

 
 
 
 
 
See Notes to Financial Statements.
 
 
 
 



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ENTERGY MISSISSIPPI, LLC
STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2020 and 2019
(Unaudited)
 
 
2020
 
2019
 
 
(In Thousands)
OPERATING ACTIVITIES
 
 
 
 
Net income
 

$22,526

 

$15,398

Adjustments to reconcile net income to net cash flow provided by operating activities:
 
 
 
 
Depreciation and amortization
 
51,155

 
39,088

Deferred income taxes, investment tax credits, and non-current taxes accrued
 
2,762

 
12,072

Changes in assets and liabilities:
 
 
 
 
Receivables
 
17,971

 
18,364

Fuel inventory
 
(3,266
)
 
(4,267
)
Accounts payable
 
(8,125
)
 
(5,722
)
Taxes accrued
 
(58,651
)
 
(66,445
)
Interest accrued
 
6,201

 
(293
)
Deferred fuel costs
 
13,406

 
17,635

Other working capital accounts
 
7,849

 
3,444

Provisions for estimated losses
 
(47
)
 
(846
)
Other regulatory assets
 
(8,484
)
 
(3,478
)
Other regulatory liabilities
 
(5,532
)
 
(9,301
)
Pension and other postretirement liabilities
 
(2,482
)
 
269

Other assets and liabilities
 
(2,022
)
 
(5,926
)
Net cash flow provided by operating activities
 
33,261

 
9,992

 
 
 
 
 
INVESTING ACTIVITIES
 
 
 
 
Construction expenditures
 
(124,986
)
 
(97,487
)
Allowance for equity funds used during construction
 
1,439

 
1,913

Changes in money pool receivable - net
 
44,693

 
41,380

Payment for purchase of plant
 
(24,633
)
 

Other
 
(128
)
 
(182
)
Net cash flow used in investing activities
 
(103,615
)
 
(54,376
)
 
 
 
 
 
FINANCING ACTIVITIES
 
 
 
 
Changes in money pool payable - net
 
19,006

 
10,925

Distributions paid:
 
 
 
 
Common equity
 
(2,500
)
 

Other
 
2,266

 
(2,610
)
Net cash flow provided by financing activities
 
18,772

 
8,315

 
 
 
 
 
Net decrease in cash and cash equivalents
 
(51,582
)
 
(36,069
)
Cash and cash equivalents at beginning of period
 
51,601

 
36,954

Cash and cash equivalents at end of period
 

$19

 

$885

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

$9,800

 

$14,193

 
 
 
 
 
See Notes to Financial Statements.
 
 
 
 


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ENTERGY MISSISSIPPI, LLC
BALANCE SHEETS
ASSETS
March 31, 2020 and December 31, 2019
(Unaudited)
 
 
2020
 
2019
 
 
(In Thousands)
CURRENT ASSETS
 
 
 
 
Cash and cash equivalents:
 
 
 
 
Cash
 

$12

 

$11

Temporary cash investments
 
7

 
51,590

Total cash and cash equivalents
 
19

 
51,601

Accounts receivable:
 
 

 
 

Customer
 
84,644

 
92,050

Allowance for doubtful accounts
 
(554
)
 
(636
)
Associated companies
 
4,415

 
49,257

Other
 
7,951

 
14,986

Accrued unbilled revenues
 
43,964

 
47,426

Total accounts receivable
 
140,420

 
203,083

Fuel inventory - at average cost
 
18,405

 
15,139

Materials and supplies - at average cost
 
52,563

 
57,972

Prepayments and other
 
6,147

 
7,149

TOTAL
 
217,554

 
334,944

 
 
 
 
 
OTHER PROPERTY AND INVESTMENTS
 
 

 
 

Non-utility property - at cost (less accumulated depreciation)
 
4,556

 
4,560

Escrow accounts
 
80,328

 
80,201

TOTAL
 
84,884

 
84,761

 
 
 
 
 
UTILITY PLANT
 
 

 
 

Electric
 
5,751,292

 
5,672,589

Construction work in progress
 
113,864

 
88,373

TOTAL UTILITY PLANT
 
5,865,156

 
5,760,962

Less - accumulated depreciation and amortization
 
1,911,652

 
1,894,000

UTILITY PLANT - NET
 
3,953,504

 
3,866,962

 
 
 
 
 
DEFERRED DEBITS AND OTHER ASSETS
 
 

 
 

Regulatory assets:
 
 

 
 

Other regulatory assets
 
386,456

 
377,972

Other
 
15,615

 
10,105

TOTAL
 
402,071

 
388,077

 
 
 
 
 
TOTAL ASSETS
 

$4,658,013

 

$4,674,744

 
 
 
 
 
See Notes to Financial Statements.
 
 

 
 


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ENTERGY MISSISSIPPI, LLC
BALANCE SHEETS
LIABILITIES AND EQUITY
March 31, 2020 and December 31, 2019
(Unaudited)
 
 
2020
 
2019
 
 
(In Thousands)
CURRENT LIABILITIES
 
 

 
 

Accounts payable:
 
 

 
 

Associated companies
 

$52,735

 

$48,090

Other
 
90,853

 
94,729

Customer deposits
 
85,976

 
85,938

Taxes accrued
 
32,010

 
90,661

Interest accrued
 
25,101

 
18,900

Deferred fuel costs
 
83,807

 
70,402

Other
 
33,976

 
32,667

TOTAL
 
404,458

 
441,387

 
 
 
 
 
NON-CURRENT LIABILITIES
 
 

 
 

Accumulated deferred income taxes and taxes accrued
 
602,881

 
594,832

Accumulated deferred investment tax credits
 
9,562

 
9,602

Regulatory liability for income taxes - net
 
234,557

 
236,988

Other regulatory liabilities
 
18,411

 
21,512

Asset retirement cost liabilities
 
9,862

 
9,727

Accumulated provisions
 
49,974

 
50,021

Pension and other postretirement liabilities
 
96,930

 
99,406

Long-term debt
 
1,614,156

 
1,614,129

Other
 
55,045

 
54,989

TOTAL
 
2,691,378

 
2,691,206

 
 
 
 
 
Commitments and Contingencies
 
 

 
 

 
 
 
 
 
EQUITY
 
 

 
 

Member's equity
 
1,562,177

 
1,542,151

TOTAL
 
1,562,177

 
1,542,151

 
 
 
 
 
TOTAL LIABILITIES AND EQUITY
 

$4,658,013

 

$4,674,744

 
 
 
 
 
See Notes to Financial Statements.
 
 

 
 



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ENTERGY MISSISSIPPI, LLC
STATEMENTS OF CHANGES IN MEMBER'S EQUITY
For the Three Months Ended March 31, 2020 and 2019
(Unaudited)
 
 
 
 
 
 
 
 
Member's Equity
 
 
(In Thousands)
 
 
 
Balance at December 31, 2018
 

$1,292,226

 
 
 
Net income
 
15,398

Balance at March 31, 2019
 

$1,307,624

 
 
 
Balance at December 31, 2019
 

$1,542,151

 
 
 
Net income
 
22,526

Common equity distributions
 
(2,500
)
Balance at March 31, 2020
 

$1,562,177

 
 
 
See Notes to Financial Statements.
 
 


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ENTERGY MISSISSIPPI, LLC
SELECTED OPERATING RESULTS
For the Three Months Ended March 31, 2020 and 2019
(Unaudited)
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Increase/
 
 


 
2020
 
2019
 
(Decrease)
 
%
 
 
(Dollars In Millions)
 
 

Electric Operating Revenues:
 
 

 
 

 
 

 
 

Residential
 

$127

 

$129

 

($2
)
 
(2
)
Commercial
 
97

 
98

 
(1
)
 
(1
)
Industrial
 
36

 
38

 
(2
)
 
(5
)
Governmental
 
10

 
10

 

 

Total billed retail
 
270

 
275

 
(5
)
 
(2
)
Sales for resale:
 
 

 
 

 
 

 
 

Non-associated companies
 
14

 
5

 
9

 
180

Other
 
10

 
2

 
8

 
400

Total
 

$294

 

$282

 

$12

 
4

 
 
 

 
 

 
 

 
 

Billed Electric Energy Sales (GWh):
 
 
 
 
 
 
 
 
Residential
 
1,250

 
1,315

 
(65
)
 
(5
)
Commercial
 
1,006

 
1,040

 
(34
)
 
(3
)
Industrial
 
556

 
566

 
(10
)
 
(2
)
Governmental
 
94

 
98

 
(4
)
 
(4
)
Total retail
 
2,906

 
3,019

 
(113
)
 
(4
)
Sales for resale:
 
 

 
 

 
 

 
 

Non-associated companies
 
827

 
166

 
661

 
398

Total
 
3,733

 
3,185

 
548

 
17



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ENTERGY NEW ORLEANS, LLC AND SUBSIDIARIES

MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS

The COVID-19 Pandemic

See “The COVID-19 Pandemic” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for a discussion of the COVID-19 pandemic.

Results of Operations

Net Income

Net income increased $2.2 million primarily due to a lower effective income tax rate, partially offset by lower retail electric price.

Operating Revenues

Following is an analysis of the change in operating revenues comparing the first quarter 2020 to the first quarter 2019:
 
Amount
 
(In Millions)
2019 operating revenues

$163.2

Fuel, rider, and other revenues that do not significantly affect net income
(7.2
)
Retail electric price
(6.6
)
Volume/weather
(0.1
)
2020 operating revenues

$149.3


Entergy New Orleans’s results include revenues from rate mechanisms designed to recover fuel, purchased power, and other costs such that the revenues and expenses associated with these items generally offset and do not affect net income. “Fuel, rider, and other revenues that do not significantly affect net income” includes the revenue variance associated with these items.

The retail electric price variance is primarily due to provisions recorded in first quarter 2020 for the revenue collected in 2020 that will be refunded to customers through new rates implemented in April 2020 based on an August 2019 effective date for the rate decrease. See Note 2 to the financial statements herein and in the Form 10-K for discussion of the rate case resolution.     

The volume/weather variance for first quarter 2020 as compared to first quarter 2019 is insignificant.
    
Although the effect in the first quarter 2020 was minimal, Entergy New Orleans expects a decline in sales volume during 2020 due to the COVID-19 pandemic, especially in the commercial and industrial customer classes. See “The COVID-19 Pandemic” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for discussion of the COVID-19 pandemic.



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Entergy New Orleans, LLC and Subsidiaries
Management's Financial Discussion and Analysis

Other Income Statement Variances

Other regulatory credits include regulatory credits recorded in first quarter 2020 to reflect compliance with terms of the 2018 combined rate case resolution approved by the City Council in February 2020. See Note 2 to the financial statements herein and in the Form 10-K for discussion of the rate case resolution.

Income Taxes

The effective income tax rate was (32.4%) for the first quarter 2020. The difference in the effective income tax rate for the first quarter 2020 versus the federal statutory rate of 21% was primarily due to the amortization of excess accumulated deferred income taxes, permanent differences related to income tax deductions for stock-based compensation, certain book and tax differences related to utility plant items, and book and tax differences related to the allowance for equity funds used during construction, partially offset by the provision for uncertain tax positions. See Note 10 to the financial statements herein and Notes 2 and 3 to the financial statements in the Form 10-K for a discussion of the effects and regulatory activity regarding the Tax Cuts and Jobs Act. See Note 10 to the financial statements herein for discussion of the income tax deductions for stock-based compensation.

The effective income tax rate was 25.3% for the first quarter 2019. The difference in the effective income tax rate for the first quarter 2019 versus the federal statutory rate of 21% was primarily due to permanent book and tax differences, state income taxes, and the provision for uncertain tax positions, partially offset by flow-through tax accounting, certain book and tax differences related to utility plant items, and book and tax differences related to the allowance for equity funds used during construction.

Income Tax Legislation

See the “Income Tax Legislation” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis in the Form 10-K for discussion of the Tax Cuts and Jobs Act, the federal income tax legislation enacted in December 2017.  Note 3 to the financial statements in the Form 10-K contains additional discussion of the effect of the Tax Act on 2019, 2018, and 2017 results of operations and financial position, the provisions of the Tax Act, and the uncertainties associated with accounting for the Tax Act, and Note 10 to the financial statements herein contains updates to that discussion.  Note 2 to the financial statements in the Form 10-K contains a discussion of the regulatory proceedings that have considered the effects of the Tax Act.

Liquidity and Capital Resources

Cash Flow

Cash flows for the three months ended March 31, 2020 and 2019 were as follows:
 
2020
 
2019
 
(In Thousands)
Cash and cash equivalents at beginning of period

$6,017

 

$19,677

 
 
 
 
Cash flow provided by (used in):
 
 
 
Operating activities
17,318

 
16,522

Investing activities
(68,691
)
 
(36,783
)
Financing activities
118,671

 
1,378

Net increase (decrease) in cash and cash equivalents
67,298

 
(18,883
)
 
 
 
 
Cash and cash equivalents at end of period

$73,315

 

$794



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Entergy New Orleans, LLC and Subsidiaries
Management's Financial Discussion and Analysis


Operating Activities

Net cash flow provided by operating activities remained relatively unchanged, increasing by $0.8 million, for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 primarily due to the timing of recovery of fuel and purchased power costs, partially offset by an increase of $2.2 million in interest paid in 2020.

Investing Activities

Net cash flow used in investing activities increased $31.9 million for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 primarily due to money pool activity and an increase of $7.2 million in distribution construction expenditures primarily due to investment in the reliability and infrastructure of Entergy New Orleans’s distribution system, including increased spending on advanced metering infrastructure. The increase was partially offset by a decrease of $6.2 million in construction expenditures primarily due to lower spending on the New Orleans Power Station project in 2020 as compared to the same period in 2019.

Increases in Entergy New Orleans’s receivable from the money pool are a use of cash flow, and Entergy New Orleans’s receivable from the money pool increased $8 million for the three months ended March 31, 2020 compared to decreasing $22 million for the three months ended March 31, 2019. The money pool is an inter-company borrowing arrangement designed to reduce the Utility subsidiaries’ need for external short-term borrowings.

Financing Activities

Net cash flow provided by financing activities increased $117.3 million for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 primarily due to the issuance of $78 million of 3.00% Series mortgage bonds and the issuance of $62 million of 3.75% Series mortgage bonds, each in March 2020, partially offset by repayments of $20 million on long-term credit borrowings in 2020.

Capital Structure

Entergy New Orleans’s debt to capital ratio is shown in the following table. The increase in the debt to capital ratio is primarily due to the issuance of $140 million of mortgage bonds in March 2020.
 
March 31,
2020
 
December 31,
2019
Debt to capital
57.3
%
 
53.1
%
Effect of excluding securitization bonds
(1.9
%)
 
(2.4
%)
Debt to capital, excluding securitization bonds (a)
55.4
%
 
50.7
%
Effect of subtracting cash
(3.1
%)
 
(0.3
%)
Net debt to net capital, excluding securitization bonds (a)
52.3
%
 
50.4
%

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

Net debt consists of debt less cash and cash equivalents.  Debt consists of short-term borrowings, finance lease obligations, long-term debt, including the currently maturing portion, and the long-term payable due to an associated company.  Capital consists of debt and equity.  Net capital consists of capital less cash and cash equivalents.  Entergy New Orleans uses the debt to capital ratios excluding securitization bonds in analyzing its financial condition and believes they provide useful information to its investors and creditors in evaluating Entergy New Orleans’s financial condition because the securitization bonds are non-recourse to Entergy New Orleans, as more fully described in Note 5 to the financial statements in the Form 10-K. Entergy New Orleans also uses the net debt to net capital ratio excluding securitization bonds in analyzing its financial condition and believes it provides useful information to its investors and

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creditors in evaluating Entergy New Orleans’s financial condition because net debt indicates Entergy New Orleans’s outstanding debt position that could not be readily satisfied by cash and cash equivalents on hand.

Uses and Sources of Capital

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

Although the effect in the first quarter 2020 was minimal, Entergy New Orleans expects negative changes during 2020 to its customer payment patterns and its cash flow activity due to the COVID-19 pandemic. See “The COVID-19 Pandemic” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for discussion of the COVID-19 pandemic. Despite the effects of the pandemic on financial markets Entergy New Orleans issued $140 million of long-term mortgage bonds in March 2020. Additional discussion of Entergy New Orleans’s liquidity and capital resources follows.

Entergy New Orleans’s receivables from or (payables to) the money pool were as follows:
March 31,
2020
 
December 31,
2019
 
March 31,
2019
 
December 31,
2018
(In Thousands)
$13,170
 
$5,191
 
($1,877)
 
$22,016

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

Entergy New Orleans has a credit facility in the amount of $25 million scheduled to expire in November 2021. The credit facility includes fronting commitments for the issuance of letters of credit against $10 million of the borrowing capacity of the facility. As of March 31, 2020, there were no cash borrowings and an $0.8 million letter of credit outstanding under the facility. In addition, Entergy New Orleans is a party to an uncommitted letter of credit facility as a means to post collateral to support its obligations to MISO. As of March 31, 2020, a $1 million letter of credit was outstanding under Entergy New Orleans’s uncommitted letter of credit facility. See Note 4 to the financial statements herein for additional discussion of the credit facilities.

Entergy New Orleans has $83 million in its storm reserve escrow account at March 31, 2020.

New Orleans Power Station

As discussed in the Form 10-K, in June 2019, a state court judge in New Orleans affirmed the City Council’s approval of the New Orleans Power Station and dismissed the petition for judicial review of that decision that had been filed in April 2018. The petitioners have filed an appeal of that ruling. Also in June 2019, with regard to the lawsuit challenging the City Council’s decision on the basis of a violation of the open meetings law, the same state court judge in New Orleans ruled that there was a violation of the open meetings law at the February 2018 meeting of the City Council’s Utility Committee at which that Committee considered the New Orleans Power Station approval, and further ruled that, although there was no violation of the open meetings law at the March 2018 full City Council meeting at which the New Orleans Power Station was approved, both the approval of the Utility Committee and the approval of the full City Council were void. The City Council and Entergy New Orleans each filed a suspensive appeal of the open meetings law ruling. A suspensive appeal suspends the effect of the judgment in the open meetings law proceeding while the appeal is being taken. The petitioners sought in the state appellate court, and then at the Louisiana Supreme Court, to terminate the suspension of the effect of the judgment, but both courts declined to do so. Appellate briefing on the merits both in the open meetings law appeal and in the judicial review appeal occurred in November and December 2019 and oral argument in both cases was heard in January 2020. In February 2020 the state appellate court reversed the lower court’s ruling that the City Council’s approval of the New Orleans Power Station was void due to a violation of the open meetings law at the City Council’s Utility Committee meeting in February 2018.  The

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state appellate court ruled that there was no violation of the open meetings law at the City Council meeting in March 2018 and that the lower court erred in voiding the City Council resolution approving the New Orleans Power Station.  In March 2020, the appellees in that proceeding filed a writ application with the Louisiana Supreme Court seeking review of the appellate court’s decision and several New Orleans-based organizations filed an amicus brief in support of the appellees’ writ application. Briefs from Entergy New Orleans and the City Council in opposition to the writ application are due in May 2020. In April 2020 the state appellate court affirmed the district court’s judicial review decision that affirmed the City Council’s approval of the New Orleans Power Station as in the public interest. Construction of the plant is on schedule, with commercial operation expected in mid-2020.

Gas Infrastructure Rebuild Plan

As discussed in the Form 10-K, in September 2016, Entergy New Orleans submitted to the City Council a request for authorization for Entergy New Orleans to proceed with annual incremental capital funding of $12.5 million for its gas infrastructure rebuild plan, which would replace all of Entergy New Orleans’s low pressure cast iron, steel, and vintage plastic pipe over a ten-year period commencing in 2017.  Entergy New Orleans also proposed that recovery of the investment to fund its gas infrastructure replacement plan be determined in connection with its next base rate case.  As a result of the rate case, the City Council approved the planned gas rebuild expenditures through 2019, but rejected Entergy New Orleans’s proposed gas infrastructure rider. In April 2020, Entergy New Orleans submitted its gas infrastructure rebuild plan to the City Council, which maintained the previously proposed timeline and cost estimates, but included measures to spread out the cost impact to customers of the program.

State and Local Rate Regulation

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

Retail Rates

Energy Efficiency

As discussed in the Form 10-K, in December 2019, Entergy New Orleans filed an application with the City Council seeking approval of an implementation plan for the Energy Smart energy efficiency program from April 2020 through December 2022. Entergy New Orleans proposed to recover the costs of the program through mechanisms previously approved by the City Council or through the energy efficiency cost recovery rider, which was approved in the 2018 combined rate case resolution. In February 2020 the City Council approved Entergy New Orleans’s application.

2018 Base Rate Case Filing

See the Form 10-K for discussion of the electric and gas base rate case filed in September 2018. In response to the City Council’s November 2019 resolution in the rate case, Entergy New Orleans made a compliance filing in December 2019 and also filed timely a petition for appeal and judicial review and for stay of or injunctive relief alleging that the resolution is unlawful in failing to produce just and reasonable rates. A hearing on the requested injunction was scheduled in Civil District Court for February 2020, but by joint motion of the City Council and Entergy New Orleans, the Civil District Court issued an order for a limited remand to the City Council to consider a potential agreement in principle/stipulation at its February 20, 2020 meeting. On February 17, 2020, Entergy New Orleans filed with the City Council an agreement in principle between Entergy New Orleans and the City Council’s advisors. On February 20, 2020, the City Council voted to approve the proposed agreement in principle and issued a resolution modifying the required treatment of certain accumulated deferred income taxes. As a result of the agreement in principle, the total annual revenue requirement reduction will be approximately $45 million ($42 million electric, including $29 million in rider reductions; and $3 million gas). As a result, Entergy New Orleans fully implemented the new rates

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in April 2020. The merits of the appeal will be subject to a separate procedural schedule issued by the Civil District Court.

2020 Formula Rate Plan Filing

In April 2020, Entergy New Orleans filed a motion with the City Council to delay its formula rate plan filing until June 2020. In May 2020 the City Council issued an order extending the filing deadline for Entergy New Orleans’s formula rate plan filing to June 29, 2020.

Renewable Portfolio Standard Rulemaking    

As discussed in the Form 10-K, in March 2019 the City Council initiated a rulemaking proceeding to consider whether to establish a renewable portfolio standard. In March 2020 the City Council’s Utility Committee recommended a resolution for approval by the City Council that directed the City Council advisors to work toward development of a rule for enacting a Renewable and Clean Portfolio Standard. The four components of the Renewable and Clean Portfolio Standard that the City Council expressed a desire to implement are: (1) a mandatory requirement that Entergy New Orleans achieve 100% net zero carbon emissions by 2040; (2) reliance on renewable energy credits purchased without the associated energy for compliance with the standard being phased out over the ten-year period from 2040 to 2050; (3) no carbon-emitting resources in the portfolio of resources Entergy New Orleans uses to serve New Orleans by 2050; and (4) a mechanism to limit costs in any one plan year to no more than one percent of plan year total utility retail sales revenues. The City Council adopted the Utility Committee resolution in April 2020. The first technical meeting of the parties will occur in June 2020 followed by the City Council advisors’ publication of a draft rule in July 2020, which draft will be the subject of written comments and further technical meetings before final rules are proposed for consideration by the parties and the City Council.

Federal Regulation

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

Nuclear Matters

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

Environmental Risks

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

Critical Accounting Estimates

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

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Other Postretirement Benefits

As described in Note 6 to the financial statements herein, Entergy announced changes to its other postretirement benefits. As a result, Entergy New Orleans now expects 2020 other postretirement health care and life insurance benefit income, including amounts capitalized, of $4.9 million.

New Accounting Pronouncements

See “New Accounting Pronouncements” section of Note 1 to the financial statements in the Form 10-K for a discussion of new accounting pronouncements.


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ENTERGY NEW ORLEANS, LLC AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
For the Three Months Ended March 31, 2020 and 2019
(Unaudited)
 
 
 
 
 
2020
 
2019
 
 
(In Thousands)
OPERATING REVENUES
 
 
 
 
Electric
 

$123,431

 

$130,883

Natural gas
 
25,871

 
32,311

TOTAL
 
149,302

 
163,194

 
 
 
 
 
OPERATING EXPENSES
 
 
 
 
Operation and Maintenance:
 
 
 
 
Fuel, fuel-related expenses, and gas purchased for resale
 
27,495

 
30,760

Purchased power
 
56,467

 
60,649

Other operation and maintenance
 
30,704

 
30,298

Taxes other than income taxes
 
13,206

 
13,542

Depreciation and amortization
 
15,075

 
14,164

Other regulatory credits - net
 
(5,736
)
 
(2,355
)
TOTAL
 
137,211

 
147,058

 
 
 
 
 
OPERATING INCOME
 
12,091

 
16,136

 
 
 
 
 
OTHER INCOME
 
 
 
 
Allowance for equity funds used during construction
 
2,485

 
2,290

Interest and investment income
 
53

 
179

Miscellaneous - net
 
(738
)
 
(1,506
)
TOTAL
 
1,800

 
963

 
 
 
 
 
INTEREST EXPENSE
 
 
 
 
Interest expense
 
6,640

 
5,936

Allowance for borrowed funds used during construction
 
(1,195
)
 
(914
)
TOTAL
 
5,445

 
5,022

 
 
 
 
 
INCOME BEFORE INCOME TAXES
 
8,446

 
12,077

 
 
 
 
 
Income taxes
 
(2,740
)
 
3,054

 
 
 
 
 
NET INCOME
 

$11,186

 

$9,023

 
 
 
 
 
See Notes to Financial Statements.
 
 
 
 


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ENTERGY NEW ORLEANS, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2020 and 2019
(Unaudited)
 
 
2020
 
2019
 
 
(In Thousands)
OPERATING ACTIVITIES
 
 
 
 
Net income
 

$11,186

 

$9,023

Adjustments to reconcile net income to net cash flow provided by operating activities:
 
 
 
 
Depreciation and amortization
 
15,075

 
14,164

Deferred income taxes, investment tax credits, and non-current taxes accrued
 
1,339

 
9,743

Changes in assets and liabilities:
 
 
 
 
Receivables
 
4,039

 
(20
)
Fuel inventory
 
(25
)
 
1,529

Accounts payable
 
(5,291
)
 
8,298

Taxes accrued
 
122

 
(4,443
)
Interest accrued
 
(929
)
 
650

Deferred fuel costs
 
3,702

 
(71
)
Other working capital accounts
 
(10,795
)
 
(15,144
)
Provisions for estimated losses
 
923

 
454

Other regulatory assets
 
1,867

 
(16,528
)
Other regulatory liabilities
 
(9,599
)
 
(8,634
)
Pension and other postretirement liabilities
 
(4,878
)
 
(1,706
)
Other assets and liabilities
 
10,582

 
19,207

Net cash flow provided by operating activities
 
17,318

 
16,522

 
 
 
 
 
INVESTING ACTIVITIES
 
 
 
 
Construction expenditures
 
(60,001
)
 
(57,788
)
Allowance for equity funds used during construction
 
2,485

 
2,290

Changes in money pool receivable - net
 
(7,979
)
 
22,016

Payments to storm reserve escrow account
 
(314
)
 
(451
)
Changes in securitization account
 
(2,882
)
 
(2,850
)
Net cash flow used in investing activities
 
(68,691
)
 
(36,783
)
 
 
 
 
 
FINANCING ACTIVITIES
 
 
 
 
Proceeds from the issuance of long-term debt
 
139,116

 

Retirement of long-term debt
 
(20,000
)
 

Change in money pool payable - net
 

 
1,877

Other
 
(445
)
 
(499
)
Net cash flow provided by financing activities
 
118,671

 
1,378

 
 
 
 
 
Net increase (decrease) in cash and cash equivalents
 
67,298

 
(18,883
)
Cash and cash equivalents at beginning of period
 
6,017

 
19,677

Cash and cash equivalents at end of period
 

$73,315

 

$794

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

$7,275

 

$5,027

 
 
 
 
 
See Notes to Financial Statements.
 
 
 
 


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ENTERGY NEW ORLEANS, LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, 2020 and December 31, 2019
(Unaudited)
 
 
2020
 
2019
 
 
(In Thousands)
CURRENT ASSETS
 
 
 
 
Cash and cash equivalents
 
 
 
 
Cash
 

$1,026

 

$26

Temporary cash investments
 
72,289

 
5,991

Total cash and cash equivalents
 
73,315

 
6,017

Securitization recovery trust account
 
4,871

 
1,989

Accounts receivable:
 
 
 
 

Customer
 
48,544

 
48,265

Allowance for doubtful accounts
 
(3,387
)
 
(3,226
)
Associated companies
 
14,876

 
6,280

Other
 
4,982

 
7,378

Accrued unbilled revenues
 
23,075

 
25,453

Total accounts receivable
 
88,090

 
84,150

Fuel inventory - at average cost
 
1,945

 
1,920

Materials and supplies - at average cost
 
13,861

 
13,522

Prepayments and other
 
15,167

 
4,846

TOTAL
 
197,249

 
112,444

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

 
1,016

Storm reserve escrow account
 
82,919

 
82,605

TOTAL
 
83,935

 
83,621

 
 
 
 
 
UTILITY PLANT
 
 
 
 
Electric
 
1,475,260

 
1,467,215

Natural gas
 
313,544

 
311,432

Construction work in progress
 
226,714

 
201,829

TOTAL UTILITY PLANT
 
2,015,518

 
1,980,476

Less - accumulated depreciation and amortization
 
718,461

 
715,406

UTILITY PLANT - NET
 
1,297,057

 
1,265,070

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

 
4,080

Other regulatory assets (includes securitization property of $46,980 as of March 31, 2020 and $49,542 as of December 31, 2019)
 
257,496

 
259,363

Other
 
16,063

 
10,720

TOTAL
 
277,639

 
274,163

 
 
 
 
 
TOTAL ASSETS
 

$1,855,880

 

$1,735,298

 
 
 
 
 
See Notes to Financial Statements.
 
 
 
 

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ENTERGY NEW ORLEANS, LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND EQUITY
March 31, 2020 and December 31, 2019
(Unaudited)
 
 
2020
 
2019
 
 
(In Thousands)
CURRENT LIABILITIES
 
 
 
 
Currently maturing long-term debt
 

$25,000

 

$25,000

Payable due to associated company
 
1,838

 
1,838

Accounts payable:
 
 
 
 
Associated companies
 
34,787

 
43,222

Other
 
36,811

 
43,963

Customer deposits
 
28,631

 
28,493

Taxes accrued
 
4,424

 
4,302

Interest accrued
 
5,987

 
6,916

Deferred fuel costs
 
8,620

 
4,918

Current portion of unprotected excess accumulated deferred income taxes
 
5,957

 
9,470

Other
 
15,494

 
15,827

TOTAL CURRENT LIABILITIES
 
167,549

 
183,949

 
 
 
 
 
NON-CURRENT LIABILITIES
 
 
 
 
Accumulated deferred income taxes and taxes accrued
 
357,097

 
354,536

Accumulated deferred investment tax credits
 
2,110

 
2,131

Regulatory liability for income taxes - net
 
49,419

 
49,090

Asset retirement cost liabilities
 
3,582

 
3,522

Accumulated provisions
 
89,465

 
88,542

Long-term debt (includes securitization bonds of $52,702 as of March 31, 2020 and $52,641 as of December 31, 2019)
 
640,821

 
521,539

Long-term payable due to associated company
 
12,529

 
12,529

Other
 
24,543

 
21,881

TOTAL NON-CURRENT LIABILITIES
 
1,179,566

 
1,053,770

 
 
 
 
 
Commitments and Contingencies
 
 
 
 
 
 
 
 
 
EQUITY
 
 
 
 
Member's equity
 
508,765

 
497,579

TOTAL
 
508,765

 
497,579

 
 
 
 
 
TOTAL LIABILITIES AND EQUITY
 

$1,855,880

 

$1,735,298

 
 
 
 
 
See Notes to Financial Statements.
 
 
 
 


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ENTERGY NEW ORLEANS, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBER'S EQUITY
For the Three Months Ended March 31, 2020 and 2019
(Unaudited)
 
 
 
 
 
Member's Equity
 
(In Thousands)
 
 
Balance at December 31, 2018

$444,950

 
 
Net income
9,023

Balance at March 31, 2019

$453,973

 
 
 
 
Balance at December 31, 2019

$497,579

 
 
Net income
11,186

Balance at March 31, 2020

$508,765

 
 
See Notes to Financial Statements.
 



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ENTERGY NEW ORLEANS, LLC AND SUBSIDIARIES
SELECTED OPERATING RESULTS
For the Three Months Ended March 31, 2020 and 2019
(Unaudited)
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Increase/
 
 

 
 
2020
 
2019
 
(Decrease)
 
%
 
 
(Dollars In Millions)
 
 

Electric Operating Revenues:
 
 
 
 

 
 

 
 

Residential
 

$51

 

$52

 

($1
)
 
(2
)
Commercial
 
45

 
46

 
(1
)
 
(2
)
Industrial
 
7

 
7

 

 

Governmental
 
16

 
16

 

 

Total billed retail
 
119

 
121

 
(2
)
 
(2
)
Sales for resale:
 
 

 
 

 
 

 
 

  Non-associated companies
 
10

 
10

 

 

Other
 
(6
)
 

 
(6
)
 

Total
 

$123

 

$131

 

($8
)
 
(6
)
 
 
 
 
 
 
 
 
 
Billed Electric Energy Sales (GWh):
 
 

 
 

 
 

 
 

Residential
 
501

 
511

 
(10
)
 
(2
)
Commercial
 
496

 
492

 
4

 
1

Industrial
 
102

 
97

 
5

 
5

Governmental
 
184

 
181

 
3

 
2

Total retail
 
1,283

 
1,281

 
2

 

Sales for resale:
 
 

 
 

 
 

 
 

Non-associated companies
 
601

 
528

 
73

 
14

Total
 
1,884

 
1,809

 
75

 
4

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

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ENTERGY TEXAS, INC. AND SUBSIDIARIES

MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS

The COVID-19 Pandemic

See “The COVID-19 Pandemic” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for a discussion of the COVID-19 pandemic.

Results of Operations

Net Income

Net income increased $11.4 million primarily due to higher retail electric price, higher volume/weather, higher other income, and a lower effective income tax rate, after excluding the effect of the return of unprotected excess accumulated deferred income taxes which is offset in operating revenues, partially offset by higher depreciation and amortization expenses.

Operating Revenues

Following is an analysis of the change in operating revenues comparing the first quarter 2020 to the first quarter 2019:
 
Amount
 
(In Millions)
2019 operating revenues

$340.5

Fuel, rider, and other revenues that do not significantly affect net income
(28.7
)
Volume/weather
5.4

Retail electric price
5.5

Return of unprotected excess accumulated deferred income taxes to customers
16.6

2020 operating revenues

$339.3


Entergy Texas’s results include revenues from rate mechanisms designed to recover fuel, purchased power, and other costs such that the revenues and expenses associated with these items generally offset and do not affect net income. “Fuel, rider, and other revenues that do not significantly affect net income” includes the revenue variance associated with these items.

The volume/weather variance is primarily due to an increase in usage during the unbilled sales period, partially offset by the effect of less favorable weather on billed residential sales.

The retail electric price variance is primarily due to an increase in the transmission cost recovery factor rider effective January 2020, as approved by the PUCT. See Note 2 to the financial statements herein and in the Form 10-K for further discussion of the transmission cost recovery factor rider filing.

The return of unprotected excess accumulated deferred income taxes to customers resulted from the return of unprotected excess accumulated deferred income taxes through a rider effective October 2018. In 2020, $5.7 million was returned to customers as compared to $22.3 million in 2019. There is no effect on net income as the reduction in operating revenues is offset by a reduction in income tax expense. See Note 2 to the financial statements in the Form 10-K for further discussion of regulatory activity regarding the Tax Cuts and Jobs Act.

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Although the effect in the first quarter 2020 was minimal, Entergy Texas expects a decline in sales volume during 2020 due to the COVID-19 pandemic, especially in the commercial and industrial customer classes. See “The COVID-19 Pandemic” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for discussion of the COVID-19 pandemic.

Other Income Statement Variances

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

Other income increased primarily due to an increase in the allowance for equity funds used during construction due to higher construction work in progress in 2020, including the Montgomery County Power Station project.

Income Taxes

The effective income tax rate was (14.8%) for the first quarter 2020. The difference in the effective income tax rate for the first quarter 2020 versus the federal statutory rate of 21% was primarily due to the amortization of excess accumulated deferred income taxes, permanent differences related to income tax deductions for stock-based compensation, book and tax differences related to the allowance for equity funds used during construction, and certain book and tax differences related to utility plant items. See Note 10 to the financial statements herein and Notes 2 and 3 to the financial statements in the Form 10-K for a discussion of the effects and regulatory activity regarding the Tax Cuts and Jobs Act. See Note 10 to the financial statements herein for discussion of the income tax deductions for stock-based compensation.

The effective income tax rate was (554.5%) for the first quarter 2019. The difference in the effective income tax rate for the first quarter 2019 versus the federal statutory rate of 21% was primarily due to the amortization of excess accumulated deferred income taxes. See Note 10 to the financial statements herein and Notes 2 and 3 to the financial statements in the Form 10-K for a discussion of the effects and regulatory activity regarding the Tax Cuts and Jobs Act.

Income Tax Legislation

See the “Income Tax Legislation” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis in the Form 10-K for discussion of the Tax Cuts and Jobs Act, the federal income tax legislation enacted in December 2017. Note 3 to the financial statements in the Form 10-K contains additional discussion of the effect of the Tax Act on 2019, 2018, and 2017 results of operations and financial position, the provisions of the Tax Act, and the uncertainties associated with accounting for the Tax Act, and Note 10 to the financial statements herein contains updates to that discussion. Note 2 to the financial statements in the Form 10-K contains a discussion of the regulatory proceedings that have considered the effects of the Tax Act.


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Liquidity and Capital Resources

Cash Flow

Cash flows for the three months ended March 31, 2020 and 2019 were as follows:
 
2020
 
2019
 
(In Thousands)
Cash and cash equivalents at beginning of period

$12,929

 

$56

 
 
 
 
Cash flow provided by (used in):
 
 
 
Operating activities
37,114

 
42,651

Investing activities
(232,650
)
 
(163,922
)
Financing activities
342,320

 
143,444

Net increase in cash and cash equivalents
146,784

 
22,173

 
 
 
 
Cash and cash equivalents at end of period

$159,713

 

$22,229


Operating Activities

Net cash flow provided by operating activities decreased $5.5 million for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 primarily due to the timing of collection of receivables from customers. The decrease was partially offset by a decrease in the return of unprotected excess accumulated deferred income taxes to customers. See Note 2 to the financial statements in the Form 10-K and Note 10 to the financial statements herein for a discussion of the effects and the regulatory activity regarding the Tax Cuts and Jobs Act.

Investing Activities

Net cash flow used in investing activities increased $68.7 million for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 primarily due to:

an increase of $26.2 million in distribution construction expenditures primarily due to investment in the reliability and infrastructure of Entergy Texas’s distribution system, including increased spending on advanced metering infrastructure;
an increase of $25.4 million in construction expenditures related to the Port Arthur project and Montgomery County Power Station project; and
money pool activity.

Increases in Entergy Texas’s receivable from the money pool are a use of cash flow, and Entergy Texas’s receivable from the money pool increased by $17.9 million for the three months ended March 31, 2020 compared to increasing $3.6 million for the three months ended March 31, 2019. The money pool is an inter-company borrowing arrangement designed to reduce the Utility subsidiaries’ need for external short-term borrowings.


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

Financing Activities

Net cash flow provided by financing activities increased $198.9 million for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 primarily due to:

a capital contribution of $175 million received from Entergy Corporation in March 2020 in anticipation of upcoming expenditures, including Montgomery County Power Station;
the repayment, at maturity, of $500 million of 7.125% Series mortgage bonds in February 2019;
the issuance of $175 million of 3.55% Series mortgage bonds in 2020; and
money pool activity.

The increase was partially offset by the issuance of $300 million of 4.0% Series first mortgage bonds and $400 million of 4.5% Series first mortgage bonds in January 2019. See Note 4 to the financial statements herein and Note 5 to the financial statements in the Form 10-K for more details on long-term debt.

Decreases in Entergy Texas’s payable to the money pool are a use of cash flow, and Entergy Texas’s payable to the money pool decreased by $22.4 million for the three months ended March 31, 2019.

Capital Structure

Entergy Texas’s debt to capital ratio is shown in the following table. The decrease in the debt to capital ratio for Entergy Texas is primarily due to the $175 million capital contribution from received in 2020.
 
March 31,
2020
 
December 31, 2019
Debt to capital
50.7
%
 
51.7
%
Effect of excluding the securitization bonds
(2.3
%)
 
(2.8
%)
Debt to capital, excluding securitization bonds (a)
48.4
%
 
48.9
%
Effect of subtracting cash
(2.1
%)
 
(0.2
%)
Net debt to net capital, excluding securitization bonds (a)
46.3
%
 
48.7
%

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

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

Uses and Sources of Capital

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


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

Although the effect in the first quarter 2020 was minimal, Entergy Texas expects negative changes during 2020 to its customer payment patterns and its cash flow activity due to the COVID-19 pandemic. See “The COVID-19 Pandemic” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for discussion of the COVID-19 pandemic. Despite the effects of the pandemic on financial markets Entergy Texas issued $175 million of long-term mortgage bonds in March 2020. Additional discussion of Entergy Texas’s liquidity and capital resources follows.

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

March 31,
2020
 
December 31,
2019
 
March 31,
2019
 
December 31,
2018
(In Thousands)
$29,092
 
$11,181
 
$3,571
 
($22,389)

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

Entergy Texas has a credit facility in the amount of $150 million scheduled to expire in September 2024.  The credit facility includes fronting commitments for the issuance of letters of credit against $30 million of the borrowing capacity of the facility. As of March 31, 2020, there were no cash borrowings and $1.3 million of letters of credit outstanding under the credit facility.  In addition, Entergy Texas is a party to an uncommitted letter of credit facility as a means to post collateral to support its obligations to MISO. As of March 31, 2020, a $10.4 million letter of credit was outstanding under Entergy Texas’s uncommitted letter of credit facility. See Note 4 to the financial statements herein for additional discussion of the credit facilities.

State and Local Rate Regulation and Fuel-Cost Recovery

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

Distribution Cost Recovery Factor (DCRF) Rider

In March 2020, Entergy Texas filed with the PUCT a request to amend its DCRF rider. The proposed rider is designed to collect approximately $23.6 million annually, or $20.4 million in incremental annual DCRF revenue beyond Entergy Texas’s currently effective DCRF rider from Entergy Texas’s retail customers based on its capital invested in distribution between January 1, 2019 and December 31, 2019.

Transmission Cost Recovery Factor (TCRF) Rider

As discussed in the Form 10-K, in August 2019, Entergy Texas filed with the PUCT a request to amend its TCRF rider. The new TCRF rider is designed to collect approximately $19.4 million annually from Entergy Texas’s retail customers based on its capital invested in transmission between January 1, 2018 and June 30, 2019. In January 2020 the PUCT issued an order approving an unopposed settlement providing for recovery of the requested revenue requirement. Entergy Texas implemented the amended rider beginning with bills covering usage on and after January 23, 2020.

Fuel and purchased power recovery

In September 2019, Entergy Texas filed an application to reconcile its fuel and purchased power costs for the period from April 2016 through March 2019. During the reconciliation period, Entergy Texas incurred approximately $1.6 billion in Texas jurisdictional eligible fuel and purchased power expenses, net of certain revenues credited to such expenses and other adjustments. Entergy Texas estimated an under-recovery balance of approximately $25.8 million,

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

including interest, which Entergy Texas requested authority to carry over as the beginning balance for the subsequent reconciliation period beginning April 2019. In March 2020 an intervenor filed testimony proposing that the PUCT disallow: (1) $2 million in replacement power costs associated with generation outages during the reconciliation period; and (2) $24.4 million associated with the operation of the Spindletop natural gas storage facility during the reconciliation period.  In April 2020, Entergy Texas filed rebuttal testimony refuting all points raised by the intervenor.  A hearing on the merits is currently set for May 2020.

COVID-19 Order

In March 2020 the PUCT authorized electric utilities to record as a regulatory asset expenses resulting from the effects of COVID-19. In future proceedings the PUCT will consider whether each utility's request for recovery of these regulatory assets is reasonable and necessary, the appropriate period of recovery, and any amount of carrying costs thereon.

Federal Regulation

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

Industrial and Commercial Customers

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

Nuclear Matters

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

Environmental Risks

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

Critical Accounting Estimates

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

Other Postretirement Benefits
As described in Note 6 to the financial statements herein, in March 2020, Entergy announced changes to its other postretirement benefits. As a result, Entergy Texas now expects 2020 other postretirement health care and life insurance benefit income, including amounts capitalized, of $8.9 million.

New Accounting Pronouncements

See “New Accounting Pronouncements” section of Note 1 to the financial statements in the Form 10-K for a discussion of new accounting pronouncements.

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ENTERGY TEXAS, INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
For the Three Months Ended March 31, 2020 and 2019
(Unaudited)
 
 
 
 
 
2020
 
2019
 
 
(In Thousands)
OPERATING REVENUES
 
 
 
 
Electric
 

$339,336

 

$340,474

 
 
 
 
 
OPERATING EXPENSES
 
 
 
 
Operation and Maintenance:
 
 
 
 
Fuel, fuel-related expenses, and gas purchased for resale
 
41,346

 
48,103

Purchased power
 
119,791

 
140,868

Other operation and maintenance
 
58,933

 
59,626

Taxes other than income taxes
 
19,272

 
18,640

Depreciation and amortization
 
42,566

 
37,037

Other regulatory charges - net
 
21,368

 
19,459

TOTAL
 
303,276

 
323,733

 
 
 
 
 
OPERATING INCOME
 
36,060

 
16,741

 
 
 
 
 
OTHER INCOME
 
 
 
 
Allowance for equity funds used during construction
 
10,641

 
5,081

Interest and investment income
 
429

 
1,682

Miscellaneous - net
 
(346
)
 
(363
)
TOTAL
 
10,724

 
6,400

 
 
 
 
 
INTEREST EXPENSE
 
 
 
 
Interest expense
 
22,858

 
22,460

Allowance for borrowed funds used during construction
 
(4,573
)
 
(2,580
)
TOTAL
 
18,285

 
19,880

 
 
 
 
 
INCOME BEFORE INCOME TAXES
 
28,499

 
3,261

 
 
 
 
 
Income taxes
 
(4,208
)
 
(18,081
)
 
 
 
 
 
NET INCOME
 
32,707

 
21,342

 
 
 
 
 
Preferred dividend requirements
 
470

 

 
 
 
 
 
EARNINGS APPLICABLE TO COMMON STOCK
 

$32,237

 

$21,342

 
 
 
 
 
See Notes to Financial Statements.
 
 
 
 




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ENTERGY TEXAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2020 and 2019
(Unaudited)
 
 
2020
 
2019
 
 
(In Thousands)
OPERATING ACTIVITIES
 
 
 
 
Net income
 

$32,707

 

$21,342

Adjustments to reconcile net income to net cash flow provided by operating activities:
 
 
 
 
Depreciation and amortization
 
42,566

 
37,037

Deferred income taxes, investment tax credits, and non-current taxes accrued
 
3,921

 
(10,123
)
Changes in assets and liabilities:
 
 
 
 
Receivables
 
1,221

 
65,394

Fuel inventory
 
(1,127
)
 
(173
)
Accounts payable
 
(35,288
)
 
(57,447
)
Taxes accrued
 
(20,597
)
 
(9,465
)
Interest accrued
 
(7,380
)
 
(4,638
)
Deferred fuel costs
 
8,138

 
8,331

Other working capital accounts
 
5,004

 
(913
)
Provisions for estimated losses
 
5

 
1,074

Other regulatory assets
 
34,309

 
1,358

Other regulatory liabilities
 
(8,854
)
 
(24,365
)
Pension and other postretirement liabilities
 
(9,086
)
 
(1,120
)
Other assets and liabilities
 
(8,425
)
 
16,359

Net cash flow provided by operating activities
 
37,114

 
42,651

 
 
 
 
 
INVESTING ACTIVITIES
 
 
 
 
Construction expenditures
 
(236,984
)
 
(176,186
)
Allowance for equity funds used during construction
 
10,641

 
5,111

Changes in money pool receivable - net
 
(17,911
)
 
(3,571
)
Changes in securitization account
 
11,604

 
10,724

Net cash flow used in investing activities
 
(232,650
)
 
(163,922
)
 
 
 
 
 
FINANCING ACTIVITIES
 
 
 
 
Proceeds from the issuance of long-term debt
 
194,631

 
692,633

Retirement of long-term debt
 
(26,864
)
 
(525,841
)
Capital contribution from parent
 
175,000

 

Change in money pool payable - net
 

 
(22,389
)
Dividends paid:
 
 
 
 
Preferred stock
 
(653
)
 

Other
 
206

 
(959
)
Net cash flow provided by financing activities
 
342,320

 
143,444

 
 
 
 
 
Net increase in cash and cash equivalents
 
146,784

 
22,173

Cash and cash equivalents at beginning of period
 
12,929

 
56

Cash and cash equivalents at end of period
 

$159,713

 

$22,229

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

$29,699

 

$26,002

Income taxes
 

($2,358
)
 

$

 
 
 
 
 
See Notes to Financial Statements.
 
 
 
 


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ENTERGY TEXAS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, 2020 and December 31, 2019
(Unaudited)
 
 
2020
 
2019
 
 
(In Thousands)
CURRENT ASSETS
 
 
 
 
Cash and cash equivalents:
 
 
 
 
Cash
 

$30

 

$25

Temporary cash investments
 
159,683

 
12,904

Total cash and cash equivalents
 
159,713

 
12,929

Securitization recovery trust account
 
26,116

 
37,720

Accounts receivable:
 
 
 
 
Customer
 
64,497

 
59,365

Allowance for doubtful accounts
 
(613
)
 
(471
)
Associated companies
 
42,628

 
24,001

Other
 
7,177

 
17,050

Accrued unbilled revenues
 
52,994

 
50,048

Total accounts receivable
 
166,683

 
149,993

Fuel inventory - at average cost
 
48,720

 
47,593

Materials and supplies - at average cost
 
45,647

 
46,056

Prepayments and other
 
15,481

 
21,012

TOTAL
 
462,360

 
315,303

 
 
 
 
 
OTHER PROPERTY AND INVESTMENTS
 
 
 
 
Investments in affiliates - at equity
 
384

 
396

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

 
376

Other
 
20,299

 
20,077

TOTAL
 
21,059

 
20,849

 
 
 
 
 
UTILITY PLANT
 
 
 
 
Electric
 
5,274,289

 
5,199,027

Construction work in progress
 
897,690

 
760,354

TOTAL UTILITY PLANT
 
6,171,979

 
5,959,381

Less - accumulated depreciation and amortization
 
1,796,382

 
1,770,852

UTILITY PLANT - NET
 
4,375,597

 
4,188,529

 
 
 
 
 
DEFERRED DEBITS AND OTHER ASSETS
 
 
 
 
Regulatory assets:
 
 
 
 
Other regulatory assets (includes securitization property of $143,883 as of March 31, 2020 and $160,375 as of December 31, 2019)
 
478,339

 
512,648

Other
 
45,926

 
33,393

TOTAL
 
524,265

 
546,041

 
 
 
 
 
TOTAL ASSETS
 

$5,383,281

 

$5,070,722

 
 
 
 
 
See Notes to Financial Statements.
 
 

 
 


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ENTERGY TEXAS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND EQUITY
March 31, 2020 and December 31, 2019
(Unaudited)
 
 
2020
 
2019
 
 
(In Thousands)
CURRENT LIABILITIES
 
 
 
 
Accounts payable:
 
 
 
 
Associated companies
 

$44,446

 

$58,055

Other
 
156,817

 
188,460

Customer deposits
 
39,774

 
40,232

Taxes accrued
 
29,111

 
49,708

Interest accrued
 
11,612

 
18,992

Current portion of unprotected excess accumulated deferred income taxes
 
27,244

 
26,552

Deferred fuel costs
 
21,139

 
13,001

Other
 
10,223

 
10,521

TOTAL
 
340,366

 
405,521

 
 
 
 
 
NON-CURRENT LIABILITIES
 
 
 
 
Accumulated deferred income taxes and taxes accrued
 
594,102

 
585,413

Accumulated deferred investment tax credits
 
10,405

 
10,559

Regulatory liability for income taxes - net
 
215,551

 
225,980

Other regulatory liabilities
 
42,968

 
42,085

Asset retirement cost liabilities
 
7,736

 
7,631

Accumulated provisions
 
8,113

 
8,108

Long-term debt (includes securitization bonds of $178,555 as of March 31, 2020 and $205,349 as of December 31, 2019)
 
2,091,130

 
1,922,956

Other
 
66,266

 
63,062

TOTAL
 
3,036,271

 
2,865,794

 
 
 
 
 
Commitments and Contingencies
 
 
 
 
 
 
 
 
 
EQUITY
 
 
 
 
Common stock, no par value, authorized 200,000,000 shares; issued and outstanding 46,525,000 shares in 2020 and 2019
 
49,452

 
49,452

Paid-in capital
 
955,182

 
780,182

Retained earnings
 
967,010

 
934,773

Total common shareholder's equity
 
1,971,644

 
1,764,407

Preferred stock without sinking fund
 
35,000

 
35,000

TOTAL
 
2,006,644

 
1,799,407

 
 
 
 
 
TOTAL LIABILITIES AND EQUITY
 

$5,383,281

 

$5,070,722

 
 
 
 
 
See Notes to Financial Statements.
 
 
 
 


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ENTERGY TEXAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the Three Months Ended March 31, 2020 and 2019
(Unaudited)
 
 
 
 
 
 
 
 
 
Common Equity
 
 
 
Preferred Stock
 
Common
Stock
 
Paid-in
Capital
 
Retained
Earnings
 
Total
 
(In Thousands)
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2018

$

 

$49,452

 

$596,994

 

$775,956

 

$1,422,402

 
 
 
 
 
 
 
 
 
 
Net income

 

 

 
21,342

 
21,342

Balance at March 31, 2019

$

 

$49,452

 

$596,994

 

$797,298

 

$1,443,744

 
 
 
 
 
 
 
 
 
 



 


 


 


 


Balance at December 31, 2019

$35,000

 

$49,452

 

$780,182

 

$934,773

 

$1,799,407

 
 
 
 
 
 
 
 
 
 
Net income

 

 

 
32,707

 
32,707

Capital contribution from parent

 

 
175,000

 

 
175,000

Preferred stock dividends

 

 

 
(470
)
 
(470
)
Balance at March 31, 2020

$35,000

 

$49,452

 

$955,182

 

$967,010

 

$2,006,644

 
 
 
 
 
 
 
 
 
 
See Notes to Financial Statements.
 
 
 
 
 
 
 
 
 


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ENTERGY TEXAS, INC. AND SUBSIDIARIES
SELECTED OPERATING RESULTS
For the Three Months Ended March 31, 2020 and 2019
(Unaudited)
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Increase/
 
 
 
 
2020
 
2019
 
(Decrease)
 
%
 
 
(Dollars In Millions)
 
 
Electric Operating Revenues:
 
 
 
 
 
 
 
 
Residential
 

$140

 

$148

 

($8
)
 
(5
)
Commercial
 
83

 
79

 
4

 
5

Industrial
 
90

 
88

 
2

 
2

Governmental
 
6

 
5

 
1

 
20

Total billed retail
 
319

 
320

 
(1
)
 

Sales for resale:
 
 
 
 
 
 
 
 
Associated companies
 
7

 
14

 
(7
)
 
(50
)
Non-associated companies
 
1

 
3

 
(2
)
 
(67
)
Other
 
12

 
3

 
9

 
300

Total
 

$339

 

$340

 

($1
)
 

 
 
 
 
 
 
 
 
 
Billed Electric Energy Sales (GWh):
 
 
 
 
 
 
 
 
Residential
 
1,326

 
1,360

 
(34
)
 
(3
)
Commercial
 
1,000

 
1,046

 
(46
)
 
(4
)
Industrial
 
1,897

 
1,831

 
66

 
4

Governmental
 
64

 
62

 
2

 
3

Total retail
 
4,287

 
4,299

 
(12
)
 

Sales for resale:
 
 
 
 
 
 
 
 
Associated companies
 
244

 
402

 
(158
)
 
(39
)
Non-associated companies
 
85

 
96

 
(11
)
 
(11
)
Total
 
4,616

 
4,797

 
(181
)
 
(4
)

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SYSTEM ENERGY RESOURCES, INC.

MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS


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

Results of Operations

Net Income

Net income increased $4.9 million primarily due to provisions against revenue recorded in 2019 in connection with the complaint against System Energy’s return on equity. Also contributing to the increase was an increase in the allowance for equity funds used during construction resulting from spending on Grand Gulf outages and upgrades in 2020. See Note 2 to the financial statements herein and in the Form 10-K for further discussion of the return on equity complaint against System Energy.

Income Taxes

The effective income tax rate was 16% for the first quarter 2020. The difference in the effective income tax rate for the first quarter 2020 versus the federal statutory rate of 21% was primarily due to certain book and tax differences related to utility plant items, permanent differences related to income tax deductions for stock-based compensation, and book and tax differences related to the allowance for equity funds used during construction, partially offset by state income taxes. See Note 10 to the financial statements herein for discussion of the income tax deductions for stock-based compensation.

The effective income tax rate was 20.6% for the first quarter 2019. The difference in the effective income tax rate for the first quarter 2019 versus the federal statutory rate of 21% was primarily due to certain book and tax differences related to utility plant items and book and tax differences related to the allowance for equity funds used during construction, partially offset by state income taxes and the provision for uncertain tax positions.

Income Tax Legislation

See the “Income Tax Legislation” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis in the Form 10-K for discussion of the Tax Cuts and Jobs Act, the federal income tax legislation enacted in December 2017. Note 3 to the financial statements in the Form 10-K contains additional discussion of the effect of the Tax Act on 2019, 2018, and 2017 results of operations and financial position, the provisions of the Tax Act, and the uncertainties associated with accounting for the Tax Act, and Note 10 to the financial statements herein contains updates to that discussion. Note 2 to the financial statements in the Form 10-K contains a discussion of the regulatory proceedings that have considered the effects of the Tax Act.


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

Liquidity and Capital Resources

Cash Flow

Cash flows for the three months ended March 31, 2020 and 2019 were as follows:
 
2020
 
2019
 
(In Thousands)
Cash and cash equivalents at beginning of period

$68,534

 

$95,685

 
 
 
 
Cash flow provided by (used in):
 
 
 
Operating activities
60,442

 
57,717

Investing activities
(79,532
)
 
70,709

Financing activities
43,002

 
(65,810
)
Net increase in cash and cash equivalents
23,912

 
62,616

 
 
 
 
Cash and cash equivalents at end of period

$92,446

 

$158,301


Operating Activities

Net cash flow provided by operating activities increased by $2.7 million for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 primarily due to the timing of payments to vendors, partially offset by an increase in spending of $17.7 million on nuclear refueling outages in 2020 as compared to the same period in 2019.

Investing Activities

System Energy’s investing activities used $79.5 million of cash for the three months ended March 31, 2020 compared to providing $70.7 million of cash for the three months ended March 31, 2019 primarily due to the following activity:

a decrease of $77.8 million as a result of fluctuations in nuclear fuel activity because of variations from year to year in the timing and pricing of fuel reload requirements in the Utility business, material and services deliveries, and the timing of cash payments during the nuclear fuel cycle;
money pool activity; and
an increase of $35.5 million in nuclear construction expenditures as a result of spending in 2020 on Grand Gulf outage projects and upgrades.

Decreases in System Energy’s receivable from the money pool are a source of cash flow and System Energy’s receivable from the money pool decreased by $42.5 million for the three months ended March 31, 2020 compared to decreasing by $81.6 million for the three months ended March 31, 2019. The money pool is an inter-company borrowing arrangement designed to reduce the Utility subsidiaries’ need for external short-term borrowings.

Financing Activities

System Energy’s financing activities provided $43 million of cash for the three months ended March 31, 2020 compared to using $65.8 million of cash for the three months ended March 31, 2019 primarily due to the following activity:

net borrowings of $56.7 million of long-term borrowings in 2020 compared to net repayments of $19.8 million of long-term borrowings in 2019 on the nuclear fuel company variable interest entity’s credit facility; and

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

a decrease of $31.8 million in common stock dividends and distributions in 2020 in order to maintain System Energy’s capital structure.

Capital Structure

System Energy’s debt to capital ratio is shown in the following table. The increase in the debt to capital ratio is primarily due to an increase in long-term debt outstanding.
 
March 31,
2020
 
December 31, 2019
Debt to capital
45.4
%
 
43.5
%
Effect of subtracting cash
(4.1
%)
 
(3.3
%)
Net debt to net capital
41.3
%
 
40.2
%

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

Uses and Sources of Capital

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

System Energy’s receivables from the money pool were as follows:
March 31,
2020
 
December 31,
2019
 
March 31,
2019
 
December 31,
2018
(In Thousands)
$16,819
 
$59,298
 
$25,487
 
$107,122

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

The System Energy nuclear fuel company variable interest entity has a credit facility in the amount of $120 million scheduled to expire in September 2021. As of March 31, 2020, $88.3 million in loans were outstanding under the System Energy nuclear fuel company variable interest entity credit facility. See Note 4 to the financial statements herein for additional discussion of the variable interest entity credit facility.

Federal Regulation

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


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Management's Financial Discussion and Analysis

Complaints Against System Energy

Return on Equity and Capital Structure Complaints

As discussed in the Form 10-K, in November 2019, in a proceeding that did not involve Entergy, the FERC issued an order addressing the methodology for determining the return on equity applicable to transmission owners in MISO. Thereafter, the participants in the System Energy proceeding agreed to amend the procedural schedule to allow the participants to file supplemental testimony addressing the order in the MISO transmission owner proceeding (Opinion No. 569).

In February 2020 the LPSC, the MPSC and APSC, and the FERC trial staff filed supplemental testimony addressing Opinion No. 569 and how it would affect the return on equity evaluation for the two complaint periods concerning System Energy. For the first refund period, based on their respective interpretations and applications of the Opinion No. 569 methodology, the LPSC argues for an authorized return on equity for System Energy of 8.44%; the MPSC and APSC argue for an authorized return on equity of 8.41%; and the FERC trial staff argues for an authorized return on equity of 9.22%. For the second refund period and on a prospective basis, based on their respective interpretations and applications of the Opinion No. 569 methodology, the LPSC argues for an authorized return on equity for System Energy of 7.89%; the MPSC and APSC argue that an authorized return on equity of 8.01% may be appropriate; and the FERC trial staff argues for an authorized return on equity of 8.66%.

In April 2020, System Energy filed supplemental answering testimony addressing Opinion No. 569. System Energy argues that the Opinion No. 569 methodology is conceptually and analytically defective for purposes of establishing just and reasonable authorized return on equity determinations and proposes an alternative approach. As its primary recommendation, System Energy continues to support the return on equity determinations in its March 2019 testimony for the first refund period and its June 2019 testimony for the second refund period. Under the Opinion No. 569 methodology, System Energy calculates a “presumptively just and reasonable range” for the authorized return on equity for the first refund period of 8.57% to 9.52%, and for the second refund period of 8.28% to 9.11%. System Energy argues that these ranges are not just and reasonable results. Under its proposed alternative methodology, System Energy calculates an authorized return on equity of 10.26% for the first refund period, which also falls within the presumptively just and reasonable range calculated for the second refund period and prospectively.

The schedule was further revised in March 2020, and rebuttal testimony addressing Opinion No. 569 is due in June 2020; the hearing in the System Energy proceeding will commence in August 2020; and the initial decision will be due in December 2020.

Grand Gulf Sale-leaseback Renewal Complaint

As discussed in the Form 10-K, in May 2018 the LPSC filed a complaint against System Energy and Entergy Services related to System Energy’s renewal of a sale-leaseback transaction originally entered into in December 1988 for an 11.5% undivided interest in Grand Gulf Unit 1. In February 2019 the presiding ALJ ruled that the hearing ordered by the FERC includes the issue of whether specific subcategories of accumulated deferred income tax should be included in, or excluded from, System Energy’s formula rate. In March 2019 the LPSC, MPSC, APSC, and City Council filed direct testimony. The LPSC testimony sought refunds that include the renewal lease payments (approximately $17.2 million per year since July 2015), rate base reductions for accumulated deferred income taxes associated with uncertain tax positions, and the cost of capital additions associated with the sale-leaseback interest, as well as interest on those amounts.

In June 2019 System Energy filed answering testimony arguing that the FERC should reject all claims for refunds.  Among other things, System Energy argued that claims for refunds of the costs of lease renewal payments and capital additions should be rejected because those costs were recovered consistent with the Unit Power Sales Agreement formula rate, System Energy was not over or double recovering any costs, and customers will save costs over the initial and renewal terms of the leases.  System Energy argued that claims for refunds associated with liabilities

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Management's Financial Discussion and Analysis

arising from uncertain tax positions should be rejected because the liabilities do not provide cost-free capital, the repayment timing of the liabilities is uncertain, and the outcome of the underlying tax positions is uncertain.  System Energy’s testimony also challenged the refund calculations supplied by the other parties.

In August 2019 the FERC trial staff filed direct and answering testimony seeking refunds for rate base reductions for the liabilities associated with uncertain tax positions. The FERC trial staff also argued that System Energy recovered $32 million more than it should have in depreciation expense for capital additions. In September 2019, System Energy filed cross-answering testimony disputing the FERC trial staff’s arguments for refunds, stating that the FERC trial staff’s position regarding depreciation rates for capital additions is not unreasonable, but explaining that any change in depreciation expense is only one element of a Unit Power Sales Agreement re-billing calculation. Adjustments to depreciation expense in any re-billing under the Unit Power Sales Agreement formula rate will also involve changes to accumulated depreciation, accumulated deferred income taxes, and other formula elements as needed. In October 2019 the LPSC filed rebuttal testimony increasing the amount of refunds sought for the liabilities associated with uncertain tax positions.  The LPSC now seeks approximately $512 million, plus interest, which is approximately $170 million through March 31, 2020.  The FERC trial staff also filed rebuttal testimony in which it seeks refunds of a similar amount as the LPSC for the liabilities associated with uncertain tax positions.  The LPSC testimony also argued that adjustments to depreciation rates should affect rate base on a prospective basis only.

A hearing was held before a FERC ALJ in November 2019. In April 2020 the ALJ issued the initial decision. Among other things, the ALJ determined that refunds were due on three main issues. First, with regard to the lease renewal payments, the ALJ determined that System Energy is recovering an unjust acquisition premium through the lease renewal payments, and that System Energy’s recovery from customers through rates should be limited to the cost of service based on the remaining net book value of the leased assets, which is approximately $70 million. The ALJ found that the remedy for this issue should be the refund of lease payments (approximately $17.2 million per year since July 2015) with interest determined at the FERC quarterly interest rate, which would be offset by the addition of the net book value of the leased assets in the cost of service. The ALJ did not calculate a value for the refund expected as a result of this remedy. In addition, System Energy would no longer recover the lease payments in rates prospectively. Second, with regard to the liabilities associated with uncertain tax positions, the ALJ determined that the liabilities are accumulated deferred income taxes and System Energy’s rate base should have been reduced for those liabilities. If the ALJ’s initial decision is upheld, the estimated refund for this issue through March 31, 2020, is approximately $397 million, plus interest, which is approximately $96 million through March 31, 2020. The ALJ also found that System Energy should include liabilities associated with uncertain tax positions as a rate base reduction going forward. Third, with regard to the depreciation expense adjustments, the ALJ found that System Energy should correct for the error in re-billings retroactively and prospectively, but that System Energy should not be permitted to recover interest on any retroactive return on enhanced rate base resulting from such corrections. If the initial decision is affirmed on this issue, System Energy estimates refunds of approximately $18 million, which includes interest through March 31, 2020.

The ALJ initial decision is an interim step in the FERC litigation process, and an ALJ’s determinations made in an initial decision are not controlling on the FERC. System Energy plans to file briefs on exceptions to the FERC, re-urging its positions and requesting the reversal of many of the findings in the ALJ’s initial decision, including the lease renewal and uncertain tax position issues. The ALJ in the initial decision acknowledges that these are issues of first impression before the FERC. Briefs on exceptions from all parties are scheduled for June 2020, and briefs opposing exceptions are scheduled for September 2020. The FERC will then review the case and issue an order on the proceeding, and the FERC may accept, reject, or modify the ALJ’s initial decision in whole or in part. Refunds, if any, that might be required will only become due after the FERC issues its order reviewing the initial decision.

Nuclear Matters

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


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Management's Financial Discussion and Analysis

Environmental Risks

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

Critical Accounting Estimates

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

Other Postretirement Benefits
As described in Note 6 to the financial statements herein, in March 2020, Entergy announced changes to its other postretirement benefits. As a result, System Energy now expects 2020 other postretirement health care and life insurance benefit income, including amounts capitalized, of $1.5 million.

New Accounting Pronouncements

See “New Accounting Pronouncements” section of Note 1 to the financial statements in the Form 10-K for a discussion of new accounting pronouncements.

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SYSTEM ENERGY RESOURCES, INC.
INCOME STATEMENTS
For the Three Months Ended March 31, 2020 and 2019
(Unaudited)
 
 
 
 
 
2020
 
2019
 
 
(In Thousands)
OPERATING REVENUES
 
 
 
 
Electric
 

$130,664

 

$140,104

 
 
 
 
 
OPERATING EXPENSES
 
 
 
 
Operation and Maintenance:
 
 
 
 
Fuel, fuel-related expenses, and gas purchased for resale
 
13,143

 
21,561

Nuclear refueling outage expenses
 
8,272

 
8,186

Other operation and maintenance
 
40,471

 
45,282

Decommissioning
 
9,157

 
8,799

Taxes other than income taxes
 
7,973

 
7,539

Depreciation and amortization
 
26,899

 
26,574

Other regulatory credits - net
 
(10,560
)
 
(9,205
)
TOTAL
 
95,355

 
108,736

 
 
 
 
 
OPERATING INCOME
 
35,309

 
31,368

 
 
 
 
 
OTHER INCOME
 
 
 
 
Allowance for equity funds used during construction
 
3,584

 
1,589

Interest and investment income
 
5,338

 
6,991

Miscellaneous - net
 
(2,460
)
 
(1,228
)
TOTAL
 
6,462

 
7,352

 
 
 
 
 
INTEREST EXPENSE
 
 
 
 
Interest expense
 
8,540

 
9,397

Allowance for borrowed funds used during construction
 
(711
)
 
(389
)
TOTAL
 
7,829

 
9,008

 
 
 
 
 
INCOME BEFORE INCOME TAXES
 
33,942

 
29,712

 
 
 
 
 
Income taxes
 
5,429

 
6,134

 
 
 
 
 
NET INCOME
 

$28,513

 

$23,578

 
 
 
 
 
See Notes to Financial Statements.
 
 
 
 



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SYSTEM ENERGY RESOURCES, INC.
STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2020 and 2019
(Unaudited)
 
 
2020
 
2019
 
 
(In Thousands)
OPERATING ACTIVITIES
 
 
 
 
Net income
 

$28,513

 

$23,578

Adjustments to reconcile net income to net cash flow provided by operating activities:
 
 
 
 
Depreciation, amortization, and decommissioning, including nuclear fuel amortization
 
47,041

 
53,731

Deferred income taxes, investment tax credits, and non-current taxes accrued
 
(5,764
)
 
4,975

Changes in assets and liabilities:
 
 
 
 
Receivables
 
22,292

 
(7,613
)
Accounts payable
 
15,049

 
(5,182
)
Prepaid taxes and taxes accrued
 
(3,590
)
 
(13,575
)
Interest accrued
 
(201
)
 
(3,150
)
Other working capital accounts
 
(30,385
)
 
3,635

Other regulatory assets
 
(3,893
)
 
(3,730
)
Other regulatory liabilities
 
(135,561
)
 
70,486

Pension and other postretirement liabilities
 
(2,587
)
 
319

Other assets and liabilities
 
129,528

 
(65,757
)
Net cash flow provided by operating activities
 
60,442

 
57,717

 
 
 
 
 
INVESTING ACTIVITIES
 
 
 
 
Construction expenditures
 
(60,551
)
 
(25,557
)
Allowance for equity funds used during construction
 
3,584

 
1,589

Nuclear fuel purchases
 
(69,022
)
 
(3
)
Proceeds from the sale of nuclear fuel
 
9,503

 
18,280

Proceeds from nuclear decommissioning trust fund sales
 
132,661

 
56,988

Investment in nuclear decommissioning trust funds
 
(138,186
)
 
(62,223
)
Changes in money pool receivable - net
 
42,479

 
81,635

Net cash flow provided by (used in) investing activities
 
(79,532
)
 
70,709

 
 
 
 
 
FINANCING ACTIVITIES
 
 
 
 
Proceeds from the issuance of long-term debt
 
243,559

 
529,493

Retirement of long-term debt
 
(186,904
)
 
(549,803
)
Common stock dividends and distributions
 
(13,653
)
 
(45,500
)
Net cash flow provided by (used in) financing activities
 
43,002

 
(65,810
)
 
 
 
 
 
Net increase in cash and cash equivalents
 
23,912

 
62,616

Cash and cash equivalents at beginning of period
 
68,534

 
95,685

Cash and cash equivalents at end of period
 

$92,446

 

$158,301

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

$8,598

 

$12,461

 
 
 
 
 
See Notes to Financial Statements.
 
 
 
 


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SYSTEM ENERGY RESOURCES, INC.
BALANCE SHEETS
ASSETS
March 31, 2020 and December 31, 2019
(Unaudited)
 
 
2020
 
2019
 
 
(In Thousands)
CURRENT ASSETS
 
 
 
 
Cash and cash equivalents:
 
 
 
 
Cash
 

$124

 

$93

Temporary cash investments
 
92,322

 
68,441

Total cash and cash equivalents
 
92,446

 
68,534

Accounts receivable:
 
 
 
 
Associated companies
 
54,693

 
121,972

Other
 
10,055

 
7,547

Total accounts receivable
 
64,748

 
129,519

Materials and supplies - at average cost
 
111,251

 
108,766

Deferred nuclear refueling outage costs
 
41,878

 
14,493

Prepayments and other
 
6,562

 
6,045

TOTAL
 
316,885

 
327,357

 
 
 
 
 
OTHER PROPERTY AND INVESTMENTS
 
 
 
 
Decommissioning trust funds
 
928,434

 
1,054,098

TOTAL
 
928,434

 
1,054,098

 
 
 
 
 
UTILITY PLANT
 
 
 
 
Electric
 
5,095,622

 
5,070,859

Construction work in progress
 
227,519

 
164,996

Nuclear fuel
 
197,955

 
149,574

TOTAL UTILITY PLANT
 
5,521,096

 
5,385,429

Less - accumulated depreciation and amortization
 
3,308,560

 
3,285,487

UTILITY PLANT - NET
 
2,212,536

 
2,099,942

 
 
 
 
 
DEFERRED DEBITS AND OTHER ASSETS
 
 
 
 
Regulatory assets:
 
 
 
 
Other regulatory assets
 
493,976

 
490,083

Accumulated deferred income tax
 

 
8,023

Other
 
3,170

 
3,192

TOTAL
 
497,146

 
501,298

 
 
 
 
 
TOTAL ASSETS
 

$3,955,001

 

$3,982,695

 
 
 
 
 
See Notes to Financial Statements.
 
 
 
 

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SYSTEM ENERGY RESOURCES, INC.
BALANCE SHEETS
LIABILITIES AND EQUITY
March 31, 2020 and December 31, 2019
(Unaudited)
 
 
2020
 
2019
 
 
(In Thousands)
CURRENT LIABILITIES
 
 
 
 
Currently maturing long-term debt
 

$12

 

$10

Accounts payable:
 
 
 
 
Associated companies
 
9,683

 
14,619

Other
 
112,284

 
64,144

Taxes accrued
 
10,242

 
13,832

Interest accrued
 
11,792

 
11,993

Other
 
3,383

 
3,381

TOTAL
 
147,396

 
107,979

 
 
 
 
 
NON-CURRENT LIABILITIES
 
 
 
 
Accumulated deferred income taxes and taxes accrued
 
812,055

 
821,963

Accumulated deferred investment tax credits
 
39,862

 
40,181

Regulatory liability for income taxes - net
 
139,529

 
142,845

Other regulatory liabilities
 
401,170

 
533,415

Decommissioning
 
940,886

 
931,729

Pension and other postretirement liabilities
 
107,229

 
109,816

Long-term debt
 
604,913

 
548,097

Other
 
35,033

 
34,602

TOTAL
 
3,080,677

 
3,162,648

 
 
 
 
 
Commitments and Contingencies
 
 
 
 
 
 
 
 
 
COMMON EQUITY
 
 
 
 
Common stock, no par value, authorized 1,000,000 shares; issued and outstanding 789,350 shares in 2020 and 2019
 
601,850

 
601,850

Retained earnings
 
125,078

 
110,218

TOTAL
 
726,928

 
712,068

 
 
 
 
 
TOTAL LIABILITIES AND EQUITY
 

$3,955,001

 

$3,982,695

 
 
 
 
 
See Notes to Financial Statements.
 
 
 
 


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SYSTEM ENERGY RESOURCES, INC.
STATEMENTS OF CHANGES IN COMMON EQUITY
For the Three Months Ended March 31, 2020 and 2019
(Unaudited)
 
 
 
 
 
Common Equity
 
 
 
Common
Stock
 
Retained
Earnings
 
Total
 
(In Thousands)
 
 
 
 
 
 
Balance at December 31, 2018

$601,850

 

$135,348

 

$737,198

 
 
 
 
 
 
Net income

 
23,578

 
23,578

Common stock dividends and distributions

 
(45,500
)
 
(45,500
)
Balance at March 31, 2019

$601,850

 

$113,426

 

$715,276

 
 
 
 
 
 
Balance at December 31, 2019

$601,850

 

$110,218

 

$712,068

 
 
 
 
 
 
Net income

 
28,513

 
28,513

Common stock dividends and distributions

 
(13,653
)
 
(13,653
)
Balance at March 31, 2020

$601,850

 

$125,078

 

$726,928

 
 
 
 
 
 
See Notes to Financial Statements.
 
 
 
 
 



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ENTERGY CORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION

Item 1.  Legal Proceedings

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

Item 1A.  Risk Factors

See the risk factors discussed in “Part I, Item 1A. Risk Factors” in the Form 10-K, which could materially affect Entergy’s and its Registrant Subsidiaries’ business, financial condition, or future results. The information set forth in this report, including the risk factor presented below, updates and should be read in conjunction with the risk factors and information disclosed in the Form 10-K. In addition, because Entergy cannot predict the ultimate impacts of COVID-19, the actual impacts may also exacerbate other risks discussed in “Item 1A. Risk Factors” in the Form 10-K, any of which could have a material effect on Entergy and its Registrant Subsidiaries. The situation remains fluid and while Entergy and its Utility operating companies have not incurred significant disruptions thus far from the COVID-19 global pandemic, the likelihood of an adverse impact could increase the longer the global pandemic persists.

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

The impacts of the COVID-19 outbreak and responsive measures taken on Entergy’s and its Utility operating companies’ business, results of operations, and financial condition are highly uncertain and cannot be predicted.

In December 2019, a novel strain of coronavirus was reported to have surfaced in Wuhan, China. Since then, COVID-19 has spread throughout most countries in the world, including the United States.  Public health officials in the United States have both recommended and mandated precautions to mitigate the spread of COVID-19, including prohibitions on congregating in heavily-populated areas, mandated closure of non-essential business, and shelter-in-place orders or similar measures, including throughout Entergy’s service areas. It is unclear how long these mitigation measures will remain in place, whether they will be reinstated in the future, and how they will impact the general economy, Entergy’s customers, and its operations.

Entergy and its Utility operating companies expect to experience a decline in commercial and industrial sales, the extent and duration of which management cannot predict.  The Utility operating companies have temporarily suspended disconnecting customers for non-payment of bills and while they are working with regulators to ensure ultimate recovery for those and other COVID-19 related costs, such recovery cannot be guaranteed.  Entergy and its Registrant Subsidiaries also could experience, among other challenges, supply chain, vendor, and contractor disruptions, delays in completion of capital or other construction projects, maintenance, and other operations activities, including prolonged outages, delays in regulatory proceedings, workforce availability, health or safety issues, increased cybersecurity risks as a result of many employees telecommuting, increased late or uncollectible customer payments, volatility in the credit or capital markets (and any related increased cost of capital or any inability to access the capital markets or draw on available credit facilities), or other adverse impacts on their ability to execute on business strategies and initiatives.
A sustained or further economic decline could adversely impact Entergy’s and the Utility operating companies’ liquidity and cash flows, including through declining sales, reduced revenues, delays in receipts of customer payments, or increased bad debt expense. In addition, if the pandemic continues to create disruptions or turmoil in the credit or financial markets, or adversely impacts Entergy’s credit metrics or ratings, such developments could adversely affect its ability to access capital on favorable terms and continue to meet its liquidity needs, or cause a decrease in the value of its defined benefit pension trust funds, as well as its nuclear decommissioning trust funds, all of which are highly uncertain and cannot be predicted.


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The situation continues to rapidly evolve, and Entergy cannot predict the extent or duration of the outbreak, governmental responsive measures, or the extent of the effects or ultimate impacts on the global, national or local economy, the capital markets, or its customers, suppliers, operations, financial condition, results of operations, or cash flows.

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

Issuer Purchases of Equity Securities (a)
Period
 
Total Number of
Shares Purchased
 
Average Price Paid
per Share
 
Total Number of
Shares Purchased
as Part of a
Publicly
Announced Plan
 
Maximum $
Amount
of Shares that May
Yet be Purchased
Under a Plan (b)
 
 
 
 
 
 
 
 
 
1/01/2020-1/31/2020
 

 

$—

 

 

$350,052,918

2/01/2020-2/29/2020
 

 

$—

 

 

$350,052,918

3/01/2020-3/31/2020
 

 

$—

 

 

$350,052,918

Total
 

 

$—

 

 
 

In accordance with Entergy’s stock-based compensation plans, Entergy periodically grants stock options to key employees, which may be exercised to obtain shares of Entergy’s common stock.  According to the plans, these shares can be newly issued shares, treasury stock, or shares purchased on the open market.  Entergy’s management has been authorized by the Board to repurchase on the open market shares up to an amount sufficient to fund the exercise of grants under the plans.  In addition to this authority, the Board has authorized share repurchase programs to enable opportunistic purchases in response to market conditions. In October 2010 the Board granted authority for a $500 million share repurchase program. The amount of share repurchases under these programs may vary as a result of material changes in business results or capital spending or new investment opportunities.  In addition, in the first quarter 2020, Entergy withheld 151,159 shares of its common stock at $126.31 per share, 79,153 shares of its common stock at $129.55 per share, 41,167 shares of its common stock at $131.52 per share, 2,269 shares of its common stock at $124.28 per share, 1,331 shares of its common stock at $123.74 per share, 1,088 shares of its common stock at $102.93 per share, 441 shares of its common stock at $132.19 per share, 71 shares of its common stock at $86.51 per share, 31 shares of its common stock at $115.90 per share, and 19 shares of its common stock at $86.74 per share to pay income taxes due upon vesting of restricted stock granted and payout of performance units as part of its long-term incentive program.

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

Item 5.  Other Information

Regulation of the Nuclear Power Industry

Following is an update to the “Regulation of the Nuclear Power Industry” section of Part I, Item 1 of the Form 10-K.


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Nuclear Waste Policy Act of 1982

Nuclear Plant Decommissioning

In March 2020 filings with the NRC were made reporting on decommissioning funding for all of Entergy subsidiaries’ nuclear plants.  Those reports showed that decommissioning funding for each of the nuclear plants met the NRC’s financial assurance requirements.

Environmental Regulation

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

Regional Haze

As discussed in the Form 10-K, in Louisiana, Entergy has worked with the Louisiana Department of Environmental Quality (LDEQ) and the EPA to revise the Louisiana state implementation plan (SIP) for regional haze, which had been disapproved in part in 2012. The LDEQ submitted a revised SIP in February 2017. In May 2017 the EPA proposed to approve a majority of the revisions. In September 2017 the EPA issued a proposed SIP approval for the Nelson plant, requiring an emission limitation consistent with the use of low-sulfur coal, with a compliance date of January 22, 2021. The EPA issued final approval in December 2017. The EPA approval was appealed to the U.S. Court of Appeals for the Fifth Circuit. In October 2019 the Fifth Circuit affirmed EPA’s SIP approval. A petition for rehearing filed by plaintiffs was denied by the Fifth Circuit. Plaintiffs did not petition for further review by the Supreme Court.

The second planning period (2018-2028) for the regional haze program requires states to examine sources for impacts on visibility and to prepare SIPs by 2021. Entergy has received information collection requests from Arkansas and Louisiana requesting an evaluation of technical and economic feasibility of various NOx and SO2 control technologies for Independence, Nelson 6, and Ninemile. Responses are due the second and third quarters of 2020.

New and Existing Source Performance Standards for Greenhouse Gas Emissions

In July 2019 the EPA released the Affordable Clean Energy Rule (ACE), which applies only to existing coal-fired electric generating units. The ACE determines that heat rate improvements are the best system of emission reductions and lists six candidate technologies for consideration by states at each coal unit. The rule and associated rulemakings by the EPA replace the Obama administration’s Clean Power Plan rule. The ACE rule provides states discretion in determining how the best system for emission reductions applies to individual units, including through the consideration of technical feasibility and the remaining useful life of the facility. Arkansas and Louisiana have issued information collection requests to Entergy facilities to help the states collect the information needed to determine the best system of emission reductions for each facility. Entergy will respond as required and will continue to monitor litigation challenging the rule. The EPA also has proposed a revision to the new source performance standard on greenhouse gas emissions that primarily impacts new coal units and, therefore, should not impact Entergy.


Item 6.  Exhibits
 
4(a) -
 
 
 
 
4(b) -
 
 
 
 
4(c) -
 
 
 

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4(d) -
 
 
 
 
4(e) -
 
 
 
 
*31(a) -
 
 
 
 
*31(b) -
 
 
 
 
*31(c) -
 
 
 
 
*31(d) -
 
 
 
 
*31(e) -
 
 
 
 
*31(f) -
 
 
 
 
*31(g) -
 
 
 
 
*31(h) -
 
 
 
 
*31(i) -
 
 
 
 
*31(j) -
 
 
 
 
*31(k) -
 
 
 
 
*31(l) -
 
 
 
 
*31(m) -
 
 
 
 
*31(n) -
 
 
 
 
**32(a) -
 
 
 
 
**32(b) -
 
 
 
 
**32(c) -
 
 
 
 
**32(d) -
 
 
 
 
**32(e) -
 
 
 
 
**32(f) -
 
 
 
 
**32(g) -
 
 
 
 
**32(h) -
 
 
 
 
**32(i) -
 
 
 
 
**32(j) -
 
 
 
 
**32(k) -
 
 
 
 
**32(l) -
 
 
 
 
**32(m) -
 
 
 
 
**32(n) -
 
 
 
 
*101 INS -
Inline XBRL Instance Document - The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
 
 
 
 
*101 SCH -
Inline XBRL Schema Document.
 
 
 
 
*101 PRE -
Inline XBRL Presentation Linkbase Document.

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*101 LAB -
Inline XBRL Label Linkbase Document.
 
 
 
 
*101 CAL -
Inline XBRL Calculation Linkbase Document.
 
 
 
 
*101 DEF -
Inline XBRL Definition Linkbase Document.
 
 
 
 
*104 -
Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibits 101).
___________________________
Pursuant to Item 601(b)(4)(iii) of Regulation S-K, Entergy Corporation agrees to furnish to the Commission upon request any instrument with respect to long-term debt that is not registered or listed herein as an Exhibit because the total amount of securities authorized under such agreement does not exceed ten percent of the total assets of Entergy Corporation and its subsidiaries on a consolidated basis.
*
Filed herewith.
**
Furnished, not filed, herewith.

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SIGNATURE

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

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


Date:    May 11, 2020


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