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 authorities, 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.
In October 2021 the U.S. Court of Federal Claims issued a final judgment in the amount of $83 million in favor of Entergy Nuclear Indian Point 2, LLC and Entergy Nuclear Indian Point 3, LLC against the DOE in the Indian Point Unit 2 third round and Unit 3 second round combined damages case. Entergy received payment from the U.S. Treasury in January 2022. The effect of recording the judgment in October 2021 was a reduction to asset write-offs, impairments, and related charges (credits). The damages awarded included $32 million related to costs previously recorded as plant, $47 million related to costs previously recorded as other operation and maintenance expenses, and $4 million related to costs previously recorded as taxes other than income taxes.
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.
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Notes to Financial Statements
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.
NOTE 2. RATE AND REGULATORY MATTERS (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)
Regulatory Assets and Regulatory Liabilities
See Note 2 to the financial statements in the Form 10-K for information regarding regulatory assets and regulatory liabilities in the Utility business presented on the balance sheets of Entergy and the Registrant Subsidiaries. The following are updates to that discussion.
Fuel and purchased power cost recovery
Entergy Arkansas
Energy Cost Recovery Rider
In March 2022, Entergy Arkansas filed its annual redetermination of its energy cost rate pursuant to the energy cost recovery rider, which reflected an increase from $0.00959 per kWh to $0.01785 per kWh. The primary reason for the rate increase is a large under-recovered balance as a result of higher natural gas prices in 2021, particularly in the fourth quarter 2021. At the request of the APSC general staff, Entergy Arkansas deferred its request for recovery of $32 million from the under-recovery related to the 2021 February winter storms until the 2023 energy cost rate redetermination, unless a request for an interim adjustment to the energy cost recovery rider is necessary. This resulted in a redetermined rate of $0.016390 per kWh, which became effective with the first billing cycle in April 2022 through the normal operation of the tariff.
Entergy Louisiana
As discussed in the Form 10-K, in February 2021, Entergy Louisiana incurred extraordinary fuel costs associated with the February 2021 winter storms. To mitigate the effect of these costs on customer bills, in March 2021, Entergy Louisiana requested and the LPSC approved the deferral and recovery of $166 million in incremental fuel costs over five months beginning in April 2021. In April 2022 the LPSC staff issued a draft audit report regarding Entergy Louisiana’s fuel adjustment clause charges in February 2021 that did not recommend any financial disallowances, but included several prospective recommendations. Responsive testimony was filed by one intervenor and the parties agreed to suspend any procedural schedule and move toward settlement discussions to close the matter.
In May 2022 the LPSC staff issued an audit report regarding Entergy Louisiana’s purchased gas adjustment charges in February 2021 that did not propose any financial disallowances. The LPSC staff and Entergy Louisiana
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submitted a joint report on the audit report and draft order to the LPSC concluding that Entergy Louisiana’s gas distribution operations and fuel costs were not significantly adversely affected by the February 2021 winter storms and the resulting increase in natural gas prices. The LPSC issued an order approving the joint report in October 2022.
To mitigate high electric bills, primarily driven by high summer usage and elevated gas prices, Entergy Louisiana has deferred approximately $225 million of fuel expense incurred in April, May, June, July, August, and September 2022 (as reflected on June, July, August, September, October, and November 2022 bills). These deferrals were included in the over/under calculation of the fuel adjustment clause, which is intended to recover the full amount of the costs included on a rolling twelve-month basis.
Entergy Mississippi
See “Complaints Against System Energy - System Energy Settlement with the MPSC” below for discussion of the partial settlement agreement filed with the FERC in June 2022. The settlement, which is contingent upon FERC approval, provides for a refund of $235 million from System Energy to Entergy Mississippi. In July 2022 the MPSC directed the disbursement of settlement proceeds, ordering Entergy Mississippi to provide a one-time $80 bill credit to each of its approximately 460,000 retail customers to be effective during the September 2022 billing cycle, and to apply the remaining proceeds to Entergy Mississippi’s under-recovered deferred fuel balance. System Energy requested an order from the FERC by November 2022.
Entergy Mississippi had a deferred fuel balance of approximately $291.7 million under the energy cost recovery rider as of July 31, 2022, along with an over-recovery balance of $51.1 million under the power management rider. Without further action, Entergy Mississippi anticipated a year-end deferred fuel balance of approximately $200 million after application of a portion of the System Energy settlement proceeds, as discussed above. In September 2022, Entergy Mississippi filed for interim adjustments under both the energy cost recovery rider and the power management rider. Entergy Mississippi proposed five monthly incremental adjustments to the net energy cost factor designed to collect the under-recovered fuel balance as of July 31, 2022 and to reflect the recovery of a higher natural gas price. Entergy Mississippi also proposed five monthly incremental adjustments to the power management adjustment factor designed to flow through to customers the over-recovered power management rider balance as of July 31, 2022. In October 2022 the MPSC approved modified interim adjustments to Entergy Mississippi’s energy cost recovery rider and power management rider. The MPSC approved dividing the energy cost recovery rider interim adjustment into two components that would allow Entergy Mississippi to 1) recover a natural gas fuel rate that is better aligned with current prices and 2) recover the estimated under-recovered deferred fuel balance as of September 30, 2022 over a period of 20 months. The MPSC approved six monthly incremental adjustments to the net energy cost factor designed to reflect the recovery of a higher natural gas price. The MPSC also approved six monthly incremental adjustments to the power management adjustment factor designed to flow through to customers the over-recovered power management rider balance. Entergy Mississippi will not file its annual redetermination of the energy cost recovery rider or the power management rider in November 2022. Entergy Mississippi’s November 2023 annual redetermination will not reflect any part of the estimated under-recovered deferred fuel balance as of September 30, 2022; it will only reflect any over/under recovery that accumulates after September 2022. The November 2024 annual redetermination will include the total deferred fuel balance, including any over- or under-recovery of the deferred fuel balance as of September 30, 2022.
Entergy Texas
In May 2022, Entergy Texas filed an application with the PUCT to implement an interim fuel surcharge to collect the cumulative under-recovery of approximately $51.7 million, including interest, of fuel and purchased power costs incurred from May 1, 2020 through December 31, 2021. The under-recovery balance is primarily attributable to the impacts of Winter Storm Uri, including historically high natural gas prices, partially offset by settlements received by Entergy Texas from MISO related to Hurricane Laura. Entergy Texas proposed that the interim fuel surcharge be assessed over a period of six months beginning with the first billing cycle after the PUCT
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issues a final order, but no later than the first billing cycle of September 2022. Also in May 2022, the PUCT referred the proceeding to the State Office of Administrative Hearings. In July 2022, Entergy Texas filed on behalf of the parties an unopposed settlement resolving all issues in the proceeding. In addition, Entergy Texas filed on behalf of the parties a motion to admit evidence, to approve interim rates as requested in the initial application, and to remand the proceeding to the PUCT to consider the unopposed settlement. In August 2022 the ALJ with the State Office of Administrative Hearings issued an order granting Entergy Texas’s motion, approving interim rates effective with the first billing cycle of September 2022, and remanding the case to the PUCT for final approval.
In September 2022, Entergy Texas filed an application with the PUCT to reconcile its fuel and purchased power costs for the period from April 2019 through March 2022. During the reconciliation period, Entergy Texas incurred approximately $1.7 billion in eligible fuel and purchased power expenses, net of certain revenues credited to such expenses and other adjustments. As of the end of the reconciliation period, Entergy Texas’s cumulative under-recovery balance was approximately $103.1 million, including interest, which Entergy Texas requested authority to carry over as the beginning balance for the subsequent reconciliation period beginning April 2022, pending future surcharges or refunds as approved by the PUCT. A PUCT decision is expected in September 2023.
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 APSC (Entergy Arkansas)
Retail Rates
2022 Formula Rate Plan Filing
In July 2022, Entergy Arkansas filed with the APSC its 2022 formula rate plan filing to set its formula rate for the 2023 calendar year. The filing contained an evaluation of Entergy Arkansas’s earnings for the projected year 2023 and a netting adjustment for the historical year 2021. The filing showed that Entergy Arkansas’s earned rate of return on common equity for the 2023 projected year is 7.40% resulting in a revenue deficiency of $104.8 million. The earned rate of return on common equity for the 2021 historical year was 8.38% resulting in a $15.2 million netting adjustment. The total proposed revenue change for the 2023 projected year and 2021 historical year netting adjustment is $119.9 million. By operation of the formula rate plan, Entergy Arkansas’s recovery of the revenue requirement is subject to a four percent annual revenue constraint. Because Entergy Arkansas’s revenue requirement in this filing exceeded the constraint, the resulting increase is limited to $79.3 million. In October 2022 other parties filed their testimony recommending various adjustments to Entergy Arkansas’s overall proposed revenue deficiency, and Entergy Arkansas filed a response including an update to actual revenues through August 2022, which raised the constraint to $79.8 million. In November 2022, Entergy Arkansas filed with the APSC a settlement agreement reached with other parties resolving all issues in the proceeding. As a result of the settlement agreement, the total proposed revenue change is $102.8 million, including a $87.7 million increase for the 2023 projected year and a $15.2 million netting adjustment. Because Entergy Arkansas’s revenue requirement exceeded the constraint, the resulting increase is limited to $79.8 million. The APSC will rule on the settlement at a later date. A hearing is currently scheduled for November 2022.
COVID-19 Orders
See the Form 10-K for discussion of APSC orders issued in light of the COVID-19 pandemic. As of September 30, 2022, Entergy Arkansas had a regulatory asset of $39 million for costs associated with the COVID-19 pandemic.
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Filings with the LPSC (Entergy Louisiana)
Retail Rates - Electric
2021 Formula Rate Plan Filing
In May 2022, Entergy Louisiana filed its formula rate plan evaluation report for its 2021 calendar year operations. The 2021 test year evaluation report produced an earned return on common equity of 8.33%, with a base formula rate plan revenue increase of $65.3 million. Other increases in formula rate plan revenue driven by reductions in Tax Cut and Jobs Act credits and additions to transmission and distribution plant in service reflected through the transmission recovery mechanism and distribution recovery mechanism are partly offset by an increase in net MISO revenues, leading to a net increase in formula rate plan revenue of $152.9 million. The effects of the changes to total formula rate plan revenue are different for each legacy company, primarily due to differences in the legacy companies’ capacity cost changes, including the effect of true-ups. Legacy Entergy Louisiana formula rate plan revenues will increase by $86 million and legacy Entergy Gulf States Louisiana formula rate plan revenues will increase by $66.9 million. In August 2022 the LPSC staff filed a list of objections/reservations, including outstanding issues from the test years 2017-2020 formula rate plan filings, utilizing the extraordinary cost mechanism to address one-time changes such as state tax rate changes, and failing to include an adjustment for revenues not received as a result of Hurricane Ida. Subject to refund and LPSC review, the resulting changes to formula rate plan revenues became effective for bills rendered during the first billing cycle of September 2022.
COVID-19 Orders
As discussed in the Form 10-K, 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. Utilities seeking to recover the regulatory asset must formally petition the LPSC to do so, identifying the direct and indirect costs for which recovery is sought. Any such request is subject to LPSC review and approval. As of September 30, 2022, Entergy Louisiana had a regulatory asset of $47.8 million for costs associated with the COVID-19 pandemic.
Filings with the MPSC (Entergy Mississippi)
Retail Rates
2022 Formula Rate Plan Filing
In March 2022, Entergy Mississippi submitted its formula rate plan 2022 test year filing and 2021 look-back filing showing Entergy Mississippi’s earned return for the historical 2021 calendar year to be below the formula rate plan bandwidth and projected earned return for the 2022 calendar year to be below the formula rate plan bandwidth. The 2022 test year filing shows a $69 million rate increase is necessary to reset Entergy Mississippi’s earned return on common equity to the specified point of adjustment of 6.70% return on rate base, within the formula rate plan bandwidth. The change in formula rate plan revenues, however, is capped at 4% of retail revenues, which equates to a revenue change of $48.6 million. The 2021 look-back filing compares actual 2021 results to the approved benchmark return on rate base and reflects the need for a $34.5 million interim increase in formula rate plan revenues. In fourth quarter 2021, Entergy Mississippi recorded a regulatory asset of $19 million to reflect the then-current estimate in connection with the look-back feature of the formula rate plan. In accordance with the provisions of the formula rate plan, Entergy Mississippi implemented a $24.3 million interim rate increase, reflecting a cap equal to 2% of 2021 retail revenues, effective in April 2022.
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Notes to Financial Statements
In June 2022, Entergy Mississippi and the Mississippi Public Utilities Staff entered into a joint stipulation that confirmed the 2022 test year filing that resulted in a total rate increase of $48.6 million. Pursuant to the joint stipulation, Entergy Mississippi’s 2021 look-back filing reflected an earned return on rate base of 5.99% in calendar year 2021, which is below the look-back bandwidth, resulting in a $34.3 million increase in the formula rate plan revenues on an interim basis through June 2023. In July 2022 the MPSC approved the joint stipulation with rates effective in August 2022. In July 2022, Entergy Mississippi recorded regulatory credits of $22.6 million to reflect the effects of the joint stipulation. In August 2022 an intervenor filed a statutorily-authorized direct appeal to the Mississippi Supreme Court seeking review of the MPSC’s July 2022 order approving the joint stipulation confirming Entergy Mississippi’s 2022 formula rate plan filing. The rates that went into effect in August 2022 are not stayed or otherwise impacted while the appeal is pending.
In July 2022 the MPSC directed Entergy Mississippi to flow $14.1 million of the power management rider over-recovery balance to customers beginning in August 2022 through December 2022 to mitigate the bill impact of the increase in formula rate plan revenues.
Sunflower Solar
As discussed in the Form 10-K, 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. In July 2022, pursuant to the MPSC’s April 2020 order, Entergy Mississippi submitted a compliance filing to the MPSC with updated calculations of the impact of the Sunflower Solar facility on rate base and revenue requirement for the Sunflower Solar facility and benefits of the tax equity partnership. In November 2022 the MPSC approved Entergy Mississippi’s July 2022 compliance filing and authorized the recovery of the costs of the Sunflower Solar facility through the interim capacity rate adjustment mechanism in the formula rate plan with rates effective in December 2022. See Note 14 to the financial statements herein for discussion of Entergy Mississippi’s purchase of the Sunflower Solar facility.
COVID-19 Orders
As discussed in the Form 10-K, 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. Entergy Mississippi began recovery of the bad debt expense deferral resulting from the COVID-19 pandemic over a three-year period with implementation of the interim formula rate plan rates in April 2022. As of September 30, 2022, Entergy Mississippi had a remaining regulatory asset of $10.9 million for costs associated with the COVID-19 pandemic.
Filings with the City Council (Entergy New Orleans)
Retail Rates
2022 Formula Rate Plan Filing
In April 2022, Entergy New Orleans submitted to the City Council its formula rate plan 2021 test year filing. The 2021 test year evaluation report, subsequently updated in a July 2022 filing, produced an earned return on equity of 6.88% compared to the authorized return on equity of 9.35%. Entergy New Orleans sought approval of a $42.1 million rate increase based on the formula set by the City Council in the 2018 rate case. The formula results in an increase in authorized electric revenues of $34.1 million and an increase in authorized gas revenues of $3.3 million. Entergy New Orleans also sought to commence collecting $4.7 million in electric revenues that were previously approved by the City Council for collection through the formula rate plan. In July 2022 the City Council’s advisors issued a report seeking a reduction to Entergy New Orleans’s proposed increase of approximately $17.1 million in total for electric and gas revenues. Effective with the first billing cycle of September 2022, Entergy New Orleans implemented rates reflecting an amount agreed upon by Entergy New
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Orleans and the City Council including adjustments filed in the City Council’s advisors’ report, per the approved process for formula rate plan implementation. The total formula rate plan increase implemented was $24.7 million, which includes an increase of $18.2 million in electric revenues, $4.7 million in previously approved electric revenues, and an increase of $1.8 million in gas revenues. Additionally, credits of $13.9 million funded by certain regulatory liabilities currently held by Entergy New Orleans for customers will be issued over an eight-month period beginning September 2022.
COVID-19 Orders
As discussed in the Form 10-K, in May 2020 the City Council issued an accounting order authorizing Entergy New Orleans to establish a regulatory asset for incremental COVID-19-related expenses. As of September 30, 2022, Entergy New Orleans had a regulatory asset of $13.9 million for costs associated with the COVID-19 pandemic. As part of the agreed-upon terms of its 2022 formula rate plan filing, Entergy New Orleans will recover this regulatory asset over a five-year period beginning September 2023.
Filings with the PUCT and Texas Cities (Entergy Texas)
Retail Rates
2022 Base Rate Case
In July 2022, Entergy Texas filed a base rate case with the PUCT seeking a net increase in base rates of approximately $131.4 million. The base rate case was based on a 12-month test year ending December 31, 2021. Key drivers of the requested increase are changes in depreciation rates as the result of a depreciation study and an increase in the return on equity. In addition, Entergy Texas included capital additions placed into service for the period of January 1, 2018 through December 31, 2021, including those additions currently reflected in the distribution and transmission cost recovery factor riders and the generation cost recovery rider, all of which would be reset to zero as a result of this proceeding. In July 2022 the PUCT referred the proceeding to the State Office of Administrative Hearings. In October 2022 intervenors filed direct testimony challenging and supporting various aspects of Entergy Texas’s rate case application. The key issues addressed included the appropriate return on equity, generation plant deactivations, depreciation rates, and proposed tariffs related to electric vehicles. In November 2022 the PUCT staff filed direct testimony addressing a similar set of issues and recommending a reduction of $50.7 million to Entergy Texas’s overall cost of service associated with the requested net increase in base rates of approximately $131.4 million. Entergy Texas will file rebuttal testimony in November 2022. A hearing on the merits is scheduled for December 2022. If a settlement is not reached, a final decision by the PUCT is expected in second quarter 2023.
Distribution Cost Recovery Factor (DCRF) Rider
As discussed in the Form 10-K, in August 2021, Entergy Texas filed with the PUCT a request to amend its DCRF rider. The amended rider was designed to collect from Entergy Texas’s retail customers approximately $40.2 million annually, or $13.9 million in incremental annual revenues beyond Entergy Texas’s then-effective DCRF rider based on its capital invested in distribution between September 1, 2020 and June 30, 2021. In September 2021 the PUCT referred the proceeding to the State Office of Administrative Hearings. A procedural schedule was established with a hearing scheduled in December 2021. In December 2021 the parties filed an unopposed settlement recommending that Entergy Texas be allowed to collect its full requested DCRF revenue requirement and resolving all issues in the proceeding, including a motion for interim rates to take effect for usage on and after January 24, 2022. Also, in December 2021, the ALJ with the State Office of Administrative Hearings issued an order granting the motion for interim rates, which went into effect in January 2022, admitting evidence, and remanding the proceeding to the PUCT to consider the settlement. In March 2022 the PUCT issued an order approving the settlement.
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Transmission Cost Recovery Factor (TCRF) Rider
As discussed in the Form 10-K, in October 2021, Entergy Texas filed with the PUCT a request to amend its TCRF rider. The amended rider was designed to collect from Entergy Texas’s retail customers approximately $66.1 million annually, or $15.1 million in incremental annual revenues beyond Energy Texas’s then-effective TCRF rider based on its capital invested in transmission between September 1, 2020 and July 31, 2021 and changes in approved transmission charges. In January 2022 the PUCT referred the proceeding to the State Office of Administrative Hearings. In February 2022 the parties filed an unopposed settlement recommending that Entergy Texas be allowed to collect its full requested TCRF revenue requirement with interim rates effective March 2022. In February 2022 the ALJ granted the motion for interim rates, admitted evidence, and remanded the case to the PUCT for consideration of a final order at a future open meeting. In June 2022 the PUCT issued an order approving the settlement.
Generation Cost Recovery Rider
As discussed in the Form 10-K, in October 2020, Entergy Texas filed an application to establish a generation cost recovery rider to begin recovering a return of and on its generation capital investment in the Montgomery County Power Station through August 31, 2020, which was approved by the PUCT on an interim basis in January 2021. In March 2021, Entergy Texas filed to update its generation cost recovery rider to include its generation capital investment in Montgomery County Power Station after August 31, 2020 and an unopposed settlement agreement filed on behalf of the parties by Entergy Texas in October 2021 was approved by the PUCT in January 2022. In February 2022, Entergy Texas filed a relate-back rider to collect over five months an additional approximately $5 million, which is the difference between the interim revenue requirement approved in January 2021 and the revenue requirement approved in January 2022 that reflects Entergy Texas’s full generation capital investment and ownership in Montgomery County Power Station on January 1, 2021, plus carrying costs from January 2021 through January 2022 when the updated revenue requirement took effect. In April 2022, Entergy Texas and the PUCT staff filed a joint proposed order that supports approval of Entergy Texas’s as-filed request. The PUCT approved the relate-back rider consistent with Entergy Texas’s as-filed request, and rates became effective over a five month period, in August 2022.
In December 2020, Entergy Texas also filed an application to amend its generation cost recovery rider to reflect its acquisition of the Hardin County Peaking Facility, which closed in June 2021. Because Hardin was to be acquired in the future, the initial generation cost recovery rider rates proposed in the application represented no change from the generation cost recovery rider rates established in Entergy Texas’s previous generation cost recovery rider proceeding. In July 2021 the PUCT issued an order approving the application. In August 2021, Entergy Texas filed an update application to recover its actual investment in the acquisition of the Hardin County Peaking Facility. In September 2021 the PUCT referred the proceeding to the State Office of Administrative Hearings. A procedural schedule was established with a hearing scheduled in April 2022. In January 2022, Entergy Texas filed an update to its application to align the requested revenue requirement with the terms of the generation cost recovery rider settlement approved by the PUCT in January 2022. In March 2022, Entergy Texas filed on behalf of the parties an unopposed motion, which motion was granted by the ALJ with the State Office of Administrative Hearings, to abate the procedural schedule indicating that the parties had reached an agreement in principle. In April 2022, Entergy Texas filed on behalf of the parties a unanimous settlement agreement that would adjust its generation cost recovery rider to recover an annual revenue requirement of approximately $92.8 million, which is $4.5 million in incremental annual revenue above the $88.3 million approved in January 2022, related to Entergy Texas’s actual investment in the acquisition of the Hardin County Peaking Facility. Concurrently with filing of the unanimous settlement agreement, Entergy Texas submitted an agreed motion to admit evidence and remand the case to the PUCT for review and consideration of the settlement agreement, which motion was granted by the ALJ with the State Office of Administrative Hearings. The PUCT approved the settlement agreement and rates became effective in August 2022. In September 2022, Entergy Texas filed a relate-back rider designed to collect over three months an additional approximately $5.7 million, which is the revenue requirement, plus carrying
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costs, associated with Entergy Texas’s acquisition of Hardin County Peaking Facility from June 2021 through August 2022 when the updated revenue requirement took effect.
COVID-19 Orders
As discussed in the Form 10-K, in March 2020 the PUCT authorized electric utilities to record as a regulatory asset expenses resulting from the effects of the COVID-19 pandemic. 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. As of September 30, 2022, Entergy Texas had a regulatory asset of $10.4 million for costs associated with the COVID-19 pandemic. As part of its 2022 base rate case filing, Entergy Texas requested recovery of its regulatory asset over a three-year period beginning December 2022.
Entergy Arkansas Opportunity Sales Proceeding
See Note 2 to the financial statements in the Form 10-K for discussion of the Entergy Arkansas opportunity sales proceeding. As discussed in the Form 10-K, in September 2020, Entergy Arkansas filed a complaint in the U.S. District Court for the Eastern District of Arkansas challenging the APSC’s order denying Entergy Arkansas’s request to recover the costs of the opportunity sales payments made to the other Utility operating companies. In October 2020 the APSC filed a motion to dismiss Entergy Arkansas’s complaint. In March 2022 the court denied the APSC’s motion to dismiss and, in April 2022, issued a scheduling order including a trial date in February 2023. In June 2022, Entergy Arkansas filed a motion asserting that it is entitled to summary judgment because Entergy Arkansas’s position that the APSC’s order is pre-empted by the filed rate doctrine and violates the Dormant Commerce Clause is premised on facts that are not subject to genuine dispute. In July 2022, Arkansas Electric Energy Consumers, Inc., an industrial customer association, filed a motion to intervene and to hold Entergy Arkansas’s motion for summary judgment in abeyance pending a ruling on the motion to intervene. Entergy Arkansas filed a consolidated opposition to both motions. In August 2022 the APSC filed a motion for summary judgment arguing that there is no genuine issue as to any material fact and the APSC is entitled to judgment as a matter of law. In September 2022, Entergy Arkansas filed an opposition to the motion. In October 2022 the APSC filed a motion asking the court to hold further proceedings in abeyance pending a decision on the motions for summary judgment filed by Entergy Arkansas and the APSC. Also in October 2022, Entergy Arkansas filed an opposition to the motion, and the APSC filed a reply in support of its motion for summary judgment.
Complaints Against System Energy
See Note 2 to the financial statements in the Form 10-K for information regarding pending complaints against System Energy. The following are updates to that discussion. See “System Energy Settlement with the MPSC” below for discussion of a partial settlement agreement and offer of settlement related to the pending proceedings before the FERC.
Return on Equity and Capital Structure Complaints
As discussed in the Form 10-K, in March 2021 the FERC ALJ issued an initial decision in the proceeding against System Energy regarding the return on equity component of the Unit Power Sales Agreement. With regard to System Energy’s authorized return on equity, the ALJ determined that the existing return on equity of 10.94% is no longer just and reasonable, and that the replacement authorized return on equity, based on application of the Opinion No. 569-A methodology, should be 9.32%. The ALJ further determined that System Energy should pay refunds for a fifteen-month refund period (January 2017-April 2018) based on the difference between the current return on equity and the replacement authorized return on equity. The ALJ determined that the April 2018 complaint concerning the authorized return on equity should be dismissed, and that no refunds for a second fifteen-month refund period should be due. With regard to System Energy’s capital structure, the ALJ determined that System Energy’s actual equity ratio is excessive and that the just and reasonable equity ratio is 48.15% equity,
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based on the average equity ratio of the proxy group used to evaluate the return on equity for the second complaint. The ALJ further determined that System Energy should pay refunds for a fifteen-month refund period (September 2018-December 2019) based on the difference between the actual equity ratio and the 48.15% equity ratio. If the ALJ’s initial decision is upheld, the estimated refund for this proceeding is approximately $62 million, which includes interest through September 30, 2022, and the estimated resulting annual rate reduction would be approximately $34 million. The estimated refund will continue to accrue interest until a final FERC decision is issued.
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. In April 2021, System Energy filed its brief on exceptions, in which it challenged the initial decision’s findings on both the return on equity and capital structure issues. Also in April 2021 the LPSC, APSC, MPSC, City Council, and the FERC trial staff filed briefs on exceptions. Reply briefs opposing exceptions were filed in May 2021 by System Energy, the FERC trial staff, the LPSC, APSC, MPSC, and the City Council. Refunds, if any, that might be required will only become due after the FERC issues its order reviewing the initial decision.
In August 2022 the D.C. Circuit Court of Appeals issued an order addressing appeals of FERC’s Opinion No. 569 and 569-A, which established the methodology applied in the ALJ’s initial decision in the proceeding against System Energy discussed above. The appellate order addressed the methodology for determining the return on equity applicable to transmission owners in MISO. The D.C. Circuit found FERC’s use of the Risk Premium model as part of the methodology to be arbitrary and capricious, and remanded the case back to FERC. The remanded case is pending FERC action.
Grand Gulf Sale-leaseback Renewal Complaint and Uncertain Tax Position Rate Base Issue
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. 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 that 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 September 30, 2022 is approximately $422 million, plus interest, which is approximately $144 million through September 30, 2022. 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 $20 million, which includes interest through September 30, 2022.
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. The ALJ in the initial decision acknowledges that these are issues of first impression before the FERC. The case is pending before the FERC, which will review the case and issue an order on the proceeding, and the FERC may accept, reject, or modify the ALJ’s initial decision in
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Notes to Financial Statements
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.
LPSC Additional Complaints
As discussed in the Form 10-K, in May 2020 the LPSC authorized its staff to file additional complaints at the FERC related to the rates charged by System Energy for Grand Gulf energy and capacity supplied to Entergy Louisiana under the Unit Power Sales Agreement.
Unit Power Sales Agreement Complaint
The first of the additional complaints was filed by the LPSC, the APSC, the MPSC, and the City Council in September 2020. The first complaint raises two sets of rate allegations: violations of the filed rate and a corresponding request for refunds for prior periods; and elements of the Unit Power Sales Agreement are unjust and unreasonable and a corresponding request for refunds for the 15-month refund period and changes to the Unit Power Sales Agreement prospectively. In May 2021 the FERC issued an order addressing the complaint, establishing a refund effective date of September 21, 2020, establishing hearing procedures, and holding those procedures in abeyance pending the FERC’s review of the initial decision in the Grand Gulf sale-leaseback renewal complaint discussed above. System Energy agreed that the hearing should be held in abeyance but sought rehearing of the FERC’s decision as related to matters set for hearing that were beyond the scope of the FERC’s jurisdiction or authority. The complainants sought rehearing of the FERC’s decision to hold the hearing in abeyance and filed a motion to proceed, which motion System Energy subsequently opposed. In June 2021, System Energy’s request for rehearing was denied by operation of law, and System Energy filed an appeal of the FERC’s orders in the Court of Appeals for the Fifth Circuit. The appeal was initially stayed for a period of 90 days, but the stay expired. In November 2021 the Fifth Circuit dismissed the appeal as premature.
In November 2021 the LPSC, the APSC, and the City Council filed direct testimony and requested the FERC to order refunds for prior periods and prospective amendments to the Unit Power Sales Agreement. The LPSC’s refund claims include, among other things, allegations that: (1) System Energy should not have included certain sale-leaseback transaction costs in prepayments; (2) System Energy should have credited rate base to reflect the time value of money associated with the advance collection of lease payments; (3) System Energy incorrectly included refueling outage costs that were recorded in account 174 in rate base; and (4) System Energy should have excluded several accumulated deferred income tax balances in account 190 from rate base. The LPSC is also seeking a retroactive adjustment to retained earnings and capital structure in conjunction with the implementation of its proposed refunds. In addition, the LPSC seeks amendments to the Unit Power Sales Agreement going forward to address below-the-line costs, incentive compensation, the working capital allowance, litigation expenses, and the 2019 termination of the capital funds agreement. The APSC argues that: (1) System Energy should have included borrowings from the Entergy System money pool in its determination of short-term debt in its cost of capital; and (2) System Energy should credit customers with System Energy’s allocation of earnings on money pool investments. The City Council alleges that System Energy has maintained excess cash on hand in the money pool and that retention of excess cash was imprudent. Based on this allegation, the City Council’s witness recommends a refund of approximately $98.8 million for the period 2004-September 2021 or other alternative relief. The City Council further recommends that the FERC impose a hypothetical equity ratio such as 48.15% equity to capital on a prospective basis.
In January 2022, System Energy filed answering testimony arguing that the FERC should not order refunds for prior periods or any prospective amendments to the Unit Power Sales Agreement. In response to the LPSC’s refund claims, System Energy argues, among other things, that: (1) the inclusion of sale-leaseback transaction costs in prepayments was correct; (2) the filed rate doctrine bars the request for a retroactive credit to rate base for the time value of money associated with the advance collection of lease payments; (3) an accounting misclassification for deferred refueling outage costs has been corrected, caused no harm to customers, and requires no refunds; and (4) its accounting and ratemaking treatment of specified accumulated deferred income tax balances in account 190
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Notes to Financial Statements
has been correct. System Energy further responds that no retroactive adjustment to retained earnings or capital structure should be ordered because there is no general policy requiring such a remedy and there was no showing that the retained earnings element of the capital structure was incorrectly implemented. Further, System Energy presented evidence that all of the costs that are being challenged were long known to the retail regulators and were approved by them for inclusion in retail rates, and the attempt to retroactively challenge these costs, some of which have been included in rates for decades, is unjust and unreasonable. In response to the LPSC’s proposed going-forward adjustments, System Energy presents evidence to show that none of the proposed adjustments are needed. On the issue of below-the-line expenses, during discovery procedures, System Energy identified a historical allocation error in certain months and agreed to provide a bill credit to customers to correct the error. In response to the APSC’s claims, System Energy argues that the Unit Power Sales Agreement does not include System Energy’s borrowings from the Entergy System money pool or earnings on deposits to the Entergy System money pool in the determination of the cost of capital; and accordingly, no refunds are appropriate on those issues. In response to the City Council’s claims, System Energy argues that it has reasonably managed its cash and that the City Council’s theory of cash management is defective because it fails to adequately consider the relevant cash needs of System Energy and it makes faulty presumptions about the operation of the Entergy System money pool. System Energy further points out that the issue of its capital structure is already subject to pending FERC litigation.
In March 2022 the FERC trial staff filed direct and answering testimony in response to the LPSC, the APSC, and the City Council’s direct testimony. In its testimony, the FERC trial staff recommends refunds for two primary reasons: (1) it concluded that System Energy should have excluded specified accumulated deferred income tax balances in account 190 associated with rate refunds; and (2) it concluded that System Energy should have excluded specified accumulated deferred income tax balances in account 190 associated with a deemed contract satisfaction and reissuance that occurred in 2005. The FERC trial staff recommends refunds of $84.1 million, exclusive of any tax gross-up or FERC interest. In addition, the FERC trial staff recommends the following prospective modifications to the Unit Power Sales Agreement: (1) inclusion of a rate base credit to recognize the time value of money associated with the advance collection of lease payments; (2) exclusion of executive incentive compensation costs for members of the Office of the Chief Executive and long-term performance unit costs where awards are based solely or primarily on financial metrics; and (3) exclusion of unvested, accrued amounts for stock options, performance units, and restricted stock awards. With respect to issues that ultimately concern the reasonableness of System Energy’s rate of return, the FERC trial staff states that it is unnecessary to consider such issues in this proceeding, in light of the pending case concerning System Energy’s return on equity and capital structure. On all other material issues raised by the LPSC, the APSC, and the City Council, the FERC trial staff recommends either no refunds or no modification to the Unit Power Sales Agreement.
In April 2022, System Energy filed cross-answering testimony in response to the FERC trial staff’s recommendations of refunds for the accumulated deferred income taxes issues and proposed modifications to the Unit Power Sales Agreement for the executive incentive compensation issues. In June 2022 the FERC trial staff submitted revised answering testimony, in which it recommended additional refunds associated with the accumulated deferred income tax balances in account 190 associated with a deemed contract satisfaction and reissuance that occurred in 2005. Based on the testimony revisions, the FERC trial staff’s recommended refunds total $106.6 million, exclusive of any tax gross-up or FERC awarded interest. Also in June 2022, System Energy filed revised and supplemental cross-answering testimony to respond to the changes in the FERC trial staff’s testimony and oppose its revised recommendation.
In May 2022 the LPSC, the APSC, and the City Council filed rebuttal testimony. The LPSC’s testimony asserts new claims, including that: (1) certain of the sale-leaseback transaction costs may have been imprudently incurred; (2) accumulated deferred income taxes associated with sale-leaseback transaction costs should have been included in rate base; (3) accumulated deferred income taxes associated with federal investment tax credits should have been excluded from rate base; (4) monthly net operating loss accumulated deferred income taxes should have been excluded from rate base; and (5) several categories of proposed rate changes, including executive incentive compensation, air travel, industry dues, and legal costs, also warrant historical refunds. The LPSC’s rebuttal testimony argues that refunds for the alleged tariff violations and other claims must be calculated by rerunning the
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Unit Power Sales Agreement formula rate; however, it includes estimates of refunds associated with some, but not all, of its claims, totaling $286 million without interest. The City Council’s rebuttal testimony also proposes a new, alternate theory and claim for relief regarding System Energy’s participation in the Entergy System money pool, under which it calculates estimated refunds of approximately $51.7 million. The APSC’s rebuttal testimony agrees with the LPSC’s direct testimony that retained earnings should be adjusted in a comprehensive refund calculation. The testimony quantifies the estimated impacts of three issues: (1) a $1.5 million reduction in the revenue requirement under the Unit Power Sales Agreement if System Energy’s borrowings from the money pool are included in short-term debt; (2) a $1.9 million reduction in the revenue requirement if System Energy’s allocated share of money pool earnings are credited through the Unit Power Sales Agreement; and (3) a $1.9 million reduction in the revenue requirement for every $50 million of refunds ordered in a given year, without interest.
In June 2022 a new procedural schedule was adopted, providing for additional rounds of testimony, for the hearing to begin in September 2022, and for the initial decision to be issued in March 2023. In July 2022, System Energy filed responsive rebuttal testimony responding to the new claims in the LPSC’s and the City Council’s rebuttal testimony. Also in July 2022 the LPSC filed supplemental rebuttal testimony responding to System Energy’s revised cross-answering testimony, and System Energy filed responsive rebuttal testimony responding to that testimony. In August 2022 the LPSC filed responsive rebuttal testimony to System Energy’s responsive rebuttal testimony. The hearing commenced in September 2022.
LPSC Petition for Writ of Mandamus
In August 2022 the LPSC filed a petition for a writ of mandamus asking the Fifth Circuit Court of Appeals to order the FERC to act within ninety days on certain pending proceedings, including the Grand Gulf prudence complaint, the return on equity and capital structure complaints, and the Grand Gulf sale-leaseback renewal complaint. In September 2022 the FERC and System Energy filed oppositions to the LPSC’s petition, and the APSC and the City Council filed interventions in support of the petition. See Note 2 to the financial statements in the Form 10-K for further discussion of the complaints.
System Energy Formula Rate Annual Protocols Formal Challenge Concerning 2020 Calendar Year Bills
System Energy’s Unit Power Sales Agreement includes formula rate protocols that provide for the disclosure of cost inputs, an opportunity for informal discovery procedures, and a challenge process. In February 2022, pursuant to the protocols procedures, the LPSC, the APSC, the MPSC, the City Council, and the Mississippi Public Utilities Staff filed with the FERC a formal challenge to System Energy’s implementation of the formula rate during calendar year 2020. The formal challenge alleges: (1) that it was imprudent for System Energy to accept the IRS’s partial acceptance of a previously uncertain tax position; (2) that System Energy should have delayed recording the result of the IRS’s partial acceptance of the previously uncertain tax position until after internal tax allocation payments were made; (3) that the equity ratio charged in rates was excessive; (4) that sale-leaseback rental payments should have been excluded from rates; and (5) that all issues in the ongoing Unit Power Sales Agreement complaint proceeding should also be reflected in calendar year 2020 bills. While System Energy disagrees that any refunds are owed for the 2020 calendar year bills, the formal challenge estimates that the financial impact of the first through fourth allegations is approximately $53 million in refunds, excluding interest which will be calculated after a FERC order is issued; it does not provide an estimate of the financial impact of the fifth allegation.
In March 2022, System Energy filed an answer to the formal challenge in which it requested that the FERC deny the formal challenge as a matter of law, or else hold the proceeding in abeyance pending the resolution of related dockets.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
System Energy Settlement with the MPSC
In June 2022, System Energy, Entergy Mississippi, and additional named Entergy parties involved in thirteen docketed proceedings before the FERC filed with the FERC a partial settlement agreement and offer of settlement. The settlement memorializes the Entergy parties’ agreement with the MPSC to globally resolve all actual and potential claims between the Entergy parties and the MPSC associated with those FERC proceedings and with System Energy’s past implementation of the Unit Power Sales Agreement. The Unit Power Sales Agreement is a FERC-jurisdictional formula rate tariff for sales of energy and capacity from System Energy’s owned and leased share of Grand Gulf to Entergy Mississippi, Entergy Arkansas, Entergy Louisiana, and Entergy New Orleans. Entergy Mississippi purchases the greatest single amount, nearly 40% of System Energy’s share of Grand Gulf, after its additional purchases from affiliates are considered. The settlement therefore limits System Energy’s overall refund exposure associated with the identified proceedings because they will be resolved completely as between the Entergy parties and the MPSC.
The FERC proceedings that are resolved as between the Entergy parties and the MPSC include the return on equity and capital structure complaints, the Grand Gulf sale-leaseback renewal complaint and uncertain tax position rate base issue, the Unit Power Sales Agreement complaint, and the Grand Gulf prudence complaint, all of which are discussed in Note 2 to the financial statements in the Form 10-K, and updated above. They also include the proceedings concerning System Energy’s return of excess accumulated deferred income taxes after the Tax Cuts and Jobs Act and the proceedings established to address System Energy’s October 2020 and December 2020 Federal Power Act section 205 filings to provide credits to customers related to the IRS’s decision as to the uncertain decommissioning tax position, also as all discussed in Note 2 to the financial statements in the Form 10-K. The settlement also resolves the MPSC’s involvement in the formal challenge filed by the retail regulators of System Energy’s customers in connection with the implementation of the Unit Power Sales Agreement annual formula rate protocols for the 2020 test year, which is discussed above.
The settlement provides for a black-box refund of $235 million from System Energy to Entergy Mississippi, which will be paid within 120 days of the settlement’s effective date (either the date of the FERC approval of the settlement without material modification, or the date that all settling parties agree to accept modifications or otherwise modify the settlement in response to a proposed material modification by the FERC). In addition, beginning with the July 2022 service month, the settlement provides for Entergy Mississippi’s bills from System Energy to be adjusted to reflect: an authorized rate of return on equity of 9.65%, a capital structure not to exceed 52% equity, a rate base reduction for the advance collection of sale-leaseback rental costs, and the exclusion of certain long-term incentive plan performance unit costs from rates.
The settlement is expressly contingent upon the approval of the FERC and the MPSC. It was approved by the MPSC in June 2022. The remaining retail regulators of Entergy’s utility operating company purchasers under the Unit Power Sales Agreement (the APSC, the LPSC, and the City Council) may elect to join the settlement. If all of them elect to do so under the terms of the settlement, then the total black-box refund payment by System Energy would be $588.25 million, and the prospective rate adjustments would apply to all purchasers under the Unit Power Sales Agreement.
If the FERC approves the settlement in accordance with its terms, then it will become binding upon the Entergy parties and the MPSC even if no additional retail regulators elect to join the settlement. The settlement will have no effect on the rights of non-settling parties to the identified FERC proceedings.
System Energy previously recorded a provision and associated liability of $37 million for elements of the applicable litigation. In June 2022, System Energy recorded a regulatory charge of $551 million ($413 million net-of-tax), increasing the regulatory liability to $588 million, which consists of $235 million for the settlement with the MPSC and $353 million for potential future refunds to Entergy Arkansas, Entergy Louisiana, and Entergy New Orleans. In August 2022 comments on the settlement were filed by the APSC, the LPSC, the City Council, and the FERC trial staff. The APSC, the LPSC, and the City Council do not intend to join the settlement, but they do not
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Notes to Financial Statements
oppose its approval as between the MPSC and the Entergy parties. The FERC trial staff concludes that the settlement is fair, reasonable, and in the public interest. Reply comments were filed in August 2022. System Energy requested an order from the FERC by November 2022.
Storm Cost Recovery Filings with Retail Regulators
See Note 2 to the financial statements in the Form 10-K for discussion regarding storm cost recovery filings. The following are updates to that discussion.
Entergy Louisiana
Hurricane Laura, Hurricane Delta, Hurricane Zeta, Winter Storm Uri, and Hurricane Ida
As discussed in the Form 10-K, in August 2020 and October 2020, Hurricane Laura, Hurricane Delta, and Hurricane Zeta caused significant damage to portions of Entergy Louisiana’s service area. The storms resulted in widespread outages, significant damage to distribution and transmission infrastructure, and the loss of sales during the outages. Additionally, as a result of Hurricane Laura’s extensive damage to the grid infrastructure serving the impacted area, large portions of the underlying transmission system required nearly a complete rebuild. In February 2021 two winter storms (collectively, Winter Storm Uri) brought freezing rain and ice to Louisiana. Ice accumulation sagged or downed trees, limbs, and power lines, causing damage to Entergy Louisiana’s transmission and distribution systems. The additional weight of ice caused trees and limbs to fall into power lines and other electric equipment. When the ice melted, it affected vegetation and electrical equipment, causing additional outages.
In April 2021, Entergy Louisiana filed an application with the LPSC relating to Hurricane Laura, Hurricane Delta, Hurricane Zeta, and Winter Storm Uri restoration costs and in July 2021, Entergy Louisiana made a supplemental filing updating the total restoration costs. Total restoration costs for the repair and/or replacement of Entergy Louisiana’s electric facilities damaged by these storms were estimated to be approximately $2.06 billion, including approximately $1.68 billion in capital costs and approximately $380 million in non-capital costs. Including carrying costs through January 2022, Entergy Louisiana sought an LPSC determination that $2.11 billion was prudently incurred and, therefore, was eligible for recovery from customers. Additionally, Entergy Louisiana requested that the LPSC determine that re-establishment of a storm escrow account to the previously authorized amount of $290 million was appropriate. In July 2021, Entergy Louisiana supplemented the application with a request regarding the financing and recovery of the recoverable storm restoration costs. Specifically, Entergy Louisiana requested approval to securitize its restoration costs pursuant to Louisiana Act 55 financing, as supplemented by Act 293 of the Louisiana Legislature’s Regular Session of 2021.
In August 2021, Hurricane Ida caused extensive damage to Entergy Louisiana’s distribution and, to a lesser extent, transmission systems resulting in widespread power outages. In September 2021, Entergy Louisiana filed an application at the LPSC seeking approval of certain ratemaking adjustments in connection with the issuance of approximately $1 billion of shorter-term mortgage bonds to provide interim financing for restoration costs associated with Hurricane Ida, which bonds were issued in October 2021. Also in September 2021, Entergy Louisiana sought approval for the creation and funding of a $1 billion restricted escrow account for Hurricane Ida restoration costs, subject to a subsequent prudence review.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
After filing of testimony by the LPSC staff and intervenors, which generally supported or did not oppose Entergy Louisiana’s requests in regard to Hurricane Laura, Hurricane Delta, Hurricane Zeta, Winter Storm Uri, and Hurricane Ida, the parties negotiated and executed an uncontested stipulated settlement which was filed with the LPSC in February 2022. The settlement agreement contained the following key terms: $2.1 billion of restoration costs from Hurricane Laura, Hurricane Delta, Hurricane Zeta, and Winter Storm Uri were prudently incurred and were eligible for recovery; carrying costs of $51 million were recoverable; a $290 million cash storm reserve should be re-established; a $1 billion reserve should be established to partially pay for Hurricane Ida restoration costs; and Entergy Louisiana was authorized to finance $3.186 billion utilizing the securitization process authorized by Act 55, as supplemented by Act 293. The LPSC issued an order approving the settlement in March 2022. As a result of the financing order, Entergy Louisiana reclassified $1.942 billion from utility plant to other regulatory assets.
In May 2022 the securitization financing closed, resulting in the issuance of $3.194 billion principal amount of bonds by Louisiana Local Government Environmental Facilities and Community Development Authority (LCDA), a political subdivision of the State of Louisiana. The securitization was authorized pursuant to the Louisiana Utilities Restoration Corporation Act, Part VIII of Chapter 9 of Title 45 of the Louisiana Revised Statutes, as supplemented by Act 293 of the Louisiana legislature approved in 2021. The LCDA loaned the proceeds to the LURC. Pursuant to Act 293, the LURC contributed the net bond proceeds to a State legislatively authorized and LURC-sponsored trust, Restoration Law Trust I (the storm trust).
Pursuant to Act 293, the net proceeds of the bonds were used by the storm trust to purchase 31,635,718.7221 Class A preferred, non-voting membership interest units (the preferred interests) issued by Entergy Finance Company, LLC, a majority-owned indirect subsidiary of Entergy. Entergy Finance Company is required to make annual distributions (dividends) commencing on December 15, 2022 on the preferred interests issued to the storm trust. These annual dividends received by the storm trust will be distributed to Entergy Louisiana and the LURC, as beneficiaries of the storm trust. Specifically, 1% of the annual dividends received by the storm trust will be distributed to the LURC, for the benefit of customers, and 99% will be distributed to Entergy Louisiana, net of storm trust expenses. The preferred interests have a stated annual cumulative cash dividend rate of 7% and a liquidation price of $100 per unit. The terms of the preferred interests include certain financial covenants to which Entergy Finance Company is subject.
Entergy and Entergy Louisiana do not report the bonds issued by the LCDA on their balance sheets because the bonds are the obligation of the LCDA. The bonds are secured by system restoration property, which is the right granted by law to the LURC to collect a system restoration charge from customers. The system restoration charge is adjusted at least semi-annually to ensure that it is sufficient to service the bonds. Entergy Louisiana collects the system restoration charge on behalf of the LURC and remits the collections to the bond indenture trustee. Entergy Louisiana began collecting the system restoration charge effective with the first billing cycle of June 2022 and the system restoration charge is expected to remain in place up to 15 years. Entergy and Entergy Louisiana do not report the collections as revenue because Entergy Louisiana is merely acting as a billing and collection agent for the LCDA and the LURC. In the remote possibility that the system restoration charge, as well as any funds in the excess subaccount and funds in the debt service reserve account, are insufficient to service the bonds resulting in a payment default, the storm trust is required to liquidate Entergy Finance Company preferred interests in an amount equal to what would be required to cure the default. The estimated value of this indirect guarantee is immaterial.
From the proceeds from the issuance of the preferred membership interests, Entergy Finance Company distributed $1.4 billion to its parent, Entergy Holdings Company, LLC. Subsequently, Entergy Holdings Company liquidated, distributing the $1.4 billion it received from Entergy Finance Company to Entergy Louisiana as holder of 6,843,780.24 units of Class A, 4,126,940.15 units of Class B, and 2,935,152.69 units of Class C preferred membership interests. Entergy Louisiana had acquired these preferred membership interests with proceeds from previous securitizations of storm restoration costs. Entergy Finance Company loaned the remaining $1.7 billion from the preferred membership interests proceeds to Entergy which used the cash to redeem $650 million of 4.00% Series senior notes due July 2022 and indirectly contributed $1 billion to Entergy Louisiana as a capital contribution.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Entergy Louisiana used the $1 billion capital contribution to fund its Hurricane Ida escrow account and subsequently withdrew the $1 billion from the escrow account. With a portion of the $1 billion withdrawn from the escrow account and the $1.4 billion from the Entergy Holdings Company liquidation, Entergy Louisiana deposited $290 million in a restricted escrow account as a storm damage reserve for future storms, used $1.2 billion to repay its unsecured term loan due June 2023, and used $435 million to redeem a portion of its 0.62% Series mortgage bonds due November 2023.
As discussed in Note 10 to the financial statements herein, the securitization resulted in recognition of a reduction of income tax expense of approximately $290 million by Entergy Louisiana. Entergy’s recognition of reduced income tax expense was partially offset by other tax charges resulting in a net reduction of income tax expense of $283 million. In recognition of obligations related to an LPSC ancillary order issued as part of the securitization regulatory proceeding, Entergy Louisiana recorded a $224 million ($165 million net-of-tax) regulatory charge and a corresponding regulatory liability to reflect its obligation to share the benefits of the securitization with customers.
As discussed in Note 12 to the financial statements herein, Entergy Louisiana consolidates the storm trust as a variable interest entity and the LURC’s 1% beneficial interest is shown as noncontrolling interest in the financial statements. In second quarter 2022, Entergy Louisiana recorded a charge of $31.6 million in other income to reflect the LURC’s beneficial interest in the trust.
In April 2022, Entergy Louisiana filed an application with the LPSC relating to Hurricane Ida restoration costs. Total restoration costs for the repair and/or replacement of Entergy Louisiana’s electric facilities damaged by Hurricane Ida currently are estimated to be approximately $2.54 billion, including approximately $1.96 billion in capital costs and approximately $586 million in non-capital costs. Including carrying costs of $57 million through December 2022, Entergy Louisiana is seeking an LPSC determination that $2.60 billion was prudently incurred and, therefore, is eligible for recovery from customers. As part of this filing, Entergy Louisiana also is seeking an LPSC determination that an additional $32 million in costs associated with the restoration of Entergy Louisiana’s electric facilities damaged by Hurricane Laura, Hurricane Delta, and Hurricane Zeta as well as Winter Storm Uri was prudently incurred. This amount is exclusive of the requested $3 million in carrying costs through December 2022. In total, Entergy Louisiana is requesting an LPSC determination that $2.64 billion was prudently incurred and, therefore, is eligible for recovery from customers. As discussed above, in March 2022 the LPSC approved financing of a $1 billion storm escrow account from which funds were withdrawn to finance costs associated with Hurricane Ida restoration. In June 2022, Entergy Louisiana supplemented the application with a request regarding the financing and recovery of the recoverable storm restoration costs. Specifically, Entergy Louisiana requested approval to securitize its restoration costs pursuant to Louisiana Act 55 financing, as supplemented by Act 293 of the Louisiana Legislature’s Regular Session of 2021. In October 2022 the LPSC staff recommended a finding that the requested storm restoration costs of $2.64 billion, including associated carrying costs of $59.1 million, were prudently incurred and are eligible for recovery from customers. The LPSC staff further recommended approval of Entergy Louisiana’s plans to securitize these costs, net of the $1 billion in funds withdrawn from the storm escrow account described above. A procedural schedule has been established with a hearing in December 2022.
Entergy New Orleans
Hurricane Zeta
As discussed in the Form 10-K, in October 2020, Hurricane Zeta caused significant damage to Entergy New Orleans’s service area. The storm resulted in widespread power outages, significant damage to distribution and transmission infrastructure, and the loss of sales during the power outages. In March 2021, Entergy New Orleans withdrew $44 million from its funded storm reserves. In May 2021, Entergy New Orleans filed an application with the City Council requesting approval and certification that its system restoration costs associated with Hurricane Zeta of approximately $36 million, which included $7 million in estimated costs, were reasonable and necessary to
Entergy Corporation and Subsidiaries
Notes to Financial Statements
enable Entergy New Orleans to restore electric service to its customers and Entergy New Orleans’s electric utility infrastructure. In May 2022 the City Council advisors issued a report recommending that the City Council find that Entergy New Orleans acted prudently in restoring service following Hurricane Zeta and approximately $33 million in storm restoration costs were prudently incurred and recoverable. Additionally, the advisors concluded that approximately $7 million of the $44 million withdrawn from its funded storm reserve was in excess of Entergy New Orleans’s costs and should be considered in Entergy New Orleans’s application for certification of costs related to Hurricane Ida. In September 2022 the City Council issued a resolution finding that Entergy New Orleans’s system restoration costs were reasonable and necessary, and that Entergy New Orleans acted prudently in restoring electricity following Hurricane Zeta. The City Council also found that approximately $33 million in storm costs were recoverable.
Hurricane Ida
As discussed in the Form 10-K, in August 2021, Hurricane Ida caused significant damage to Entergy New Orleans’s service area, including Entergy’s electrical grid. The storm resulted in widespread power outages, including the loss of 100% of Entergy New Orleans’s load and damage to distribution and transmission infrastructure, including the loss of connectivity to the eastern interconnection. In September 2021, Entergy New Orleans withdrew $39 million from its funded storm reserves. In June 2022, Entergy New Orleans filed an application with the City Council requesting approval and certification that storm restoration costs associated with Hurricane Ida of approximately $170 million, which included $11 million in estimated costs, were reasonable, necessary, and prudently incurred to enable Entergy New Orleans to restore electric service to its customers and to repair Entergy New Orleans’s electric utility infrastructure. In addition, estimated carrying costs through December 2022 related to Hurricane Ida restoration costs were $9 million. Also, Entergy New Orleans is requesting approval that the $39 million withdrawal from its funded storm reserve in September 2021 and $7 million in excess storm reserve escrow withdrawals related to Hurricane Zeta and prior miscellaneous storms are properly applied to Hurricane Ida storm restoration costs, the application of which reduces the amount to be recovered from Entergy New Orleans customers by $46 million.
Additionally, as discussed in the Form 10-K, in February 2022, Entergy New Orleans filed with the City Council a securitization application requesting that the City Council review Entergy New Orleans’s storm reserve and increase the storm reserve funding level to $150 million, to be funded through securitization. In August 2022 the City Council’s advisors recommended that the City Council authorize a single securitization bond issuance to fund Entergy New Orleans’s storm recovery reserves to an amount sufficient to: (1) allow recovery of all of Entergy New Orleans’s unrecovered storm recovery costs following Hurricane Ida, subject to City Council review and certification; (2) provide initial funding of storm recovery reserves for future storms to a level of $75 million; and (3) fund the storm recovery bonds’ upfront financing costs. In September 2022, Entergy New Orleans and the City Council’s advisors entered into an agreement in principle, which was approved by the City Council along with a financing order in October 2022, authorizing Entergy New Orleans to proceed with a single securitization bond issuance of $206 million, with $125 million interim recovery, subject to City Council review and certification, to be allocated to unrecovered Hurricane Ida storm recovery costs; $75 million to provide for a storm recovery reserve for future storms; and the remainder to fund the recovery of storm recovery bonds’ upfront financing costs. In November 2022 the City Council adopted a procedural schedule regarding the certification of the Hurricane Ida storm restoration costs in which the hearing officer shall certify the record for City Council consideration no later than August 2023.
Entergy Texas
Hurricane Laura, Hurricane Delta, and Winter Storm Uri
As discussed in the Form 10-K, in August 2020 and October 2020, Hurricane Laura and Hurricane Delta caused extensive damage to Entergy Texas’s service area. In February 2021, Winter Storm Uri also caused damage to Entergy Texas’s service area. The storms resulted in widespread power outages, significant damage primarily to
Entergy Corporation and Subsidiaries
Notes to Financial Statements
distribution and transmission infrastructure, and the loss of sales during the power outages. In July 2021, Entergy Texas filed with the PUCT an application for a financing order to approve the securitization of certain system restoration costs, which were approved by the PUCT as eligible for securitization in December 2021. In November 2021 the parties filed an unopposed settlement agreement supporting the issuance of a financing order consistent with Entergy Texas’s application and with minor adjustments to certain upfront and ongoing costs to be incurred to facilitate the issuance and serving of system restoration bonds. In January 2022 the PUCT issued a financing order consistent with the unopposed settlement. As a result of the financing order, in first quarter 2022, Entergy Texas reclassified $153 million from utility plant to other regulatory assets.
In April 2022, Entergy Texas Restoration Funding II, LLC, a company wholly-owned and consolidated by Entergy Texas, issued $290.85 million of senior secured system restoration bonds (securitization bonds). With the proceeds, Entergy Texas Restoration Funding II purchased from Entergy Texas the transition property, which is the right to recover from customers through a system restoration charge amounts sufficient to service the securitization bonds. Entergy Texas began cost recovery through the system restoration charge effective with the first billing cycle of May 2022 and the system restoration charge is expected to remain in place up to 15 years. See Note 4 to the financial statements herein for a discussion of the April 2022 issuance of the securitization bonds.
NOTE 3. EQUITY (Entergy Corporation, Entergy Louisiana, and Entergy Mississippi)
Common Stock
Earnings per Share
The following table presents Entergy’s basic and diluted earnings per share calculations included on the consolidated income statements:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| For the Three Months Ended September 30, |
| 2022 | | 2021 |
| (In Millions, Except Per Share Data) |
| Income | | Shares | | $/share | | Income | | Shares | | $/share |
| Basic earnings per share | | | | | | | | | | | |
| Net income attributable to Entergy Corporation | $560.6 | | | 203.4 | | | $2.76 | | | $531.0 | | | 201.0 | | | $2.64 | |
| Average dilutive effect of: | | | | | | | | | | | |
| Stock options | | | 0.5 | | | (0.01) | | | | | 0.4 | | | — | |
| Other equity plans | | | 0.6 | | | (0.01) | | | | | 0.6 | | | (0.01) | |
| Equity Forwards | | | 0.1 | | | — | | | | | — | | | — | |
| Diluted earnings per share | $560.6 | | | 204.6 | | | $2.74 | | | $531.0 | | | 202.0 | | | $2.63 | |
The number of stock options not included in the calculation of diluted common shares outstanding due to their antidilutive effect was approximately 0.9 million for the three months ended September 30, 2022 and approximately 1 million for the three months ended September 30, 2021.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The following table presents Entergy’s basic and diluted earnings per share calculations included on the consolidated income statements:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Nine Months Ended September 30, |
| 2022 | | 2021 |
| (In Millions, Except Per Share Data) |
| Income | | Shares | | $/share | | Income | | Shares | | $/share |
| Basic earnings per share | | | | | | | | | | | |
| Net income attributable to Entergy Corporation | $996.7 | | | 203.3 | | | $4.90 | | | $859.6 | | | 200.8 | | | $4.28 | |
| Average dilutive effect of: | | | | | | | | | | | |
| Stock options | | | 0.5 | | | (0.01) | | | | | 0.4 | | | (0.01) | |
| Other equity plans | | | 0.5 | | | (0.01) | | | | | 0.4 | | | (0.01) | |
| Equity forwards | | | 0.1 | | | — | | | | | — | | | — | |
| Diluted earnings per share | $996.7 | | | 204.4 | | | $4.88 | | | $859.6 | | | 201.6 | | | $4.26 | |
The number of stock options not included in the calculation of diluted common shares outstanding due to their antidilutive effect was approximately 0.9 million for the nine months ended September 30, 2022 and approximately 1 million for the nine months ended September 30, 2021.
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 $1.01 for the three months ended September 30, 2022 and $0.95 for the three months ended September 30, 2021. Dividends declared per common share were $3.03 for the nine months ended September 30, 2022 and $2.85 for the nine months ended September 30, 2021.
Equity Distribution Program
In January 2021, Entergy entered into an equity distribution sales agreement with several counterparties establishing an at the market equity distribution program, pursuant to which Entergy may offer and sell from time to time shares of its common stock. The sales agreement provides that, in addition to the issuance and sale of shares of Entergy common stock, Entergy may enter into forward sale agreements for the sale of its common stock. Initially, the aggregate number of shares of common stock sold under this sales agreement and under any forward sale agreement could not exceed an aggregate gross sales price of $1 billion. In May 2022, Entergy increased the aggregate gross sales price authorized under the at the market equity distribution program by $1 billion. As of September 30, 2022, an aggregate gross sales price of approximately $1,077.8 million has been sold under the at the market equity distribution program. See Note 7 to the financial statements in the Form 10-K for discussion of the common stock issued and unsettled forward sale agreements entered into during 2021.
During the nine months ended September 30, 2022, there were no shares of common stock issued under the at the market equity distribution program. During the nine months ended September 30, 2021, Entergy Corporation issued 265,468 shares of common stock under the at the market equity distribution program. The net sales proceeds from these shares totaled $26.8 million, which includes the gross sales price of $28.2 million received by Entergy Corporation less $1.1 million of general issuance costs and $0.3 million of aggregate compensation to the agents with respect to such sales.
In June 2021, Entergy entered into a forward sale agreement for 416,853 shares of common stock. The forward sale agreement was amended in August 2022 to extend the duration of the forward sale agreement by one year. No amounts have or will be recorded on Entergy’s balance sheet with respect to the equity offering until settlements of the equity forward sale agreement occur. The forward sale agreement requires Entergy to, at its election prior to September 30, 2023, either (i) physically settle the transactions by issuing the total of 416,853
Entergy Corporation and Subsidiaries
Notes to Financial Statements
shares of its common stock to the investment bank in exchange for net proceeds at the then-applicable forward sale price specified by the agreement (initially $106.87 per share) or (ii) net settle the transaction in whole or in part through the delivery or receipt of cash or shares. The forward sale price is subject to adjustment on a daily basis based on a floating interest rate factor and will decrease by other fixed amounts specified in the agreement. In connection with the forward sale agreement, the forward seller, or its affiliates, borrowed from third parties and sold 416,853 shares of Entergy Corporation’s common stock. The gross sales price of these shares totaled $45 million. In connection with the sale of these shares, Entergy paid the forward sellers fees of approximately $0.5 million, which have not been deducted from the gross sales price. Entergy Corporation did not receive any proceeds from such sales of borrowed shares.
In August and October 2021, Entergy entered into forward sale agreements for 1,692,555 and 250,743 shares of common stock, respectively. The forward sale agreements were amended in August 2022 to extend the duration of the forward sale agreements by one year. No amounts have or will be recorded on Entergy’s balance sheet with respect to the equity offering until settlements of the equity forward sale agreements occur. In each case, the forward sale agreement requires Entergy to, at its election prior to September 30, 2023, either (i) physically settle the transactions by issuing the total of 1,692,555 and 250,743 shares, respectively, of its common stock to the forward counterparty in exchange for net proceeds at the then-applicable forward sale price specified by the respective forward sale agreement (initially approximately $111.16 and $100.35 per share, respectively) or (ii) net settle the transaction in whole or in part through the delivery or receipt of cash or shares. The forward sale price is subject to adjustment on a daily basis based on a floating interest rate factor and will decrease by other fixed amounts specified in the respective forward sale agreement. In connection with the forward sale agreements, the forward seller, or its affiliates, borrowed from third parties and sold 1,692,555 and 250,743 shares, respectively, of Entergy Corporation’s common stock. The gross sales price of these shares totaled $190.1 million and $25.4 million, respectively. In connection with the sales of these shares, Entergy paid the forward sellers fees of $1.9 million and $0.3 million, respectively, which have not been deducted from the gross sales prices. Entergy did not receive any proceeds from such sales of borrowed shares.
In March 2022, Entergy entered into a forward sale agreement for 1,538,010 shares of common stock. No amounts have or will be recorded on Entergy’s balance sheet with respect to the equity offering until settlements of the equity forward sale agreement occur. The forward sale agreement requires Entergy to, at its election prior to September 29, 2023, either (i) physically settle the transactions by issuing the total of 1,538,010 shares of its common stock to the forward counterparty in exchange for net proceeds at the then-applicable forward sale price specified by the agreement (initially approximately $108.14 per share) or (ii) net settle the transaction in whole or in part through the delivery or receipt of cash or shares. The forward sale price is subject to adjustment on a daily basis based on a floating interest rate factor and will decrease by other fixed amounts specified in the agreement. In connection with the forward sale agreement, the forward seller, or its affiliates, borrowed from third parties and sold 1,538,010 shares of Entergy Corporation’s common stock. The gross sales price of these shares totaled approximately $168 million. In connection with the sale of these shares, Entergy paid the forward sellers fees of approximately $1.7 million, which have not been deducted from the gross sales price. Entergy did not receive any proceeds from such sales of borrowed shares.
In June 2022, Entergy entered into a forward sale agreement for 2,124,086 shares of common stock. No amounts have or will be recorded on Entergy’s balance sheet with respect to the equity offering until settlements of the equity forward sale agreement occur. The forward sale agreement requires Entergy to, at its election prior to December 29, 2023, either (i) physically settle the transactions by issuing the total of 2,124,086 shares of its common stock to the forward counterparty in exchange for net proceeds at the then-applicable forward sale price specified by the agreement (initially approximately $116.94 per share) or (ii) net settle the transaction in whole or in part through the delivery or receipt of cash or shares. The forward sale price is subject to adjustment on a daily basis based on a floating interest rate factor and will decrease by other fixed amounts specified in the agreement. In connection with the forward sale agreement, the forward seller, or its affiliates, borrowed from third parties and sold 2,124,086 shares of Entergy Corporation’s common stock. The gross sales price of these shares totaled approximately $250.9 million. In connection with the sale of these shares, Entergy paid the forward sellers fees of
Entergy Corporation and Subsidiaries
Notes to Financial Statements
approximately $2.5 million, which have not been deducted from the gross sales price. Entergy did not receive any proceeds from such sales of borrowed shares.
In September 2022, Entergy entered into a forward sale agreement for 1,666,172 shares of common stock. No amounts have or will be recorded on Entergy’s balance sheet with respect to the equity offering until settlements of the equity forward sale agreement occur. The forward sale agreement requires Entergy to, at its election prior to December 29, 2023, either (i) physically settle the transactions by issuing the total of 1,666,172 shares of its common stock to the forward counterparty in exchange for net proceeds at the then-applicable forward sale price specified by the agreement (initially approximately $115.46 per share) or (ii) net settle the transaction in whole or in part through the delivery or receipt of cash or shares. The forward sale price is subject to adjustment on a daily basis based on a floating interest rate factor and will decrease by other fixed amounts specified in the agreement. In connection with the forward sale agreement, the forward seller, or its affiliates, borrowed from third parties and sold 1,666,172 shares of Entergy Corporation’s common stock. The gross sales price of these shares totaled approximately $194.2 million. In connection with the sale of these shares, Entergy paid the forward sellers fees of approximately $1.9 million, which have not been deducted from the gross sales price. Entergy did not receive any proceeds from such sales of borrowed shares.
Until settlement of the forward sale agreements, earnings per share dilution resulting from the agreement, if any, will be determined under the treasury stock method. Share dilution occurs when the average market price of Entergy’s common stock is higher than the average forward sales price. For the nine months ended September 30, 2022, approximately 4.8 million shares under the forward sale agreements were not included in the calculation of diluted earnings per share because their effect would have been antidilutive.
Treasury Stock
During the nine months ended September 30, 2022, Entergy Corporation issued 829,048 shares of its previously repurchased common stock to satisfy stock option exercises, vesting of shares of restricted stock, and other stock-based awards. Entergy Corporation did not repurchase any of its common stock during the nine months ended September 30, 2022.
Retained Earnings
On October 28, 2022, Entergy Corporation’s Board of Directors declared a common stock dividend of $1.07 per share, payable on December 1, 2022 to holders of record as of November 14, 2022.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Comprehensive Income
Accumulated other comprehensive income (loss) is included in the equity section of the balance sheets of Entergy and Entergy Louisiana. The following table presents changes in accumulated other comprehensive income (loss) for Entergy for the three months ended September 30, 2022 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, July 1, 2022 | ($987) | | | ($324,274) | | | $1,223 | | | ($324,038) | |
| | | | | | | |
| Other comprehensive income (loss) before reclassifications | (14) | | | — | | | (1,223) | | | (1,237) | |
| Amounts reclassified from accumulated other comprehensive income (loss) | 38 | | | 11,867 | | | — | | | 11,905 | |
| Net other comprehensive income (loss) for the period | 24 | | | 11,867 | | | (1,223) | | | 10,668 | |
| | | | | | | |
| Ending balance, September 30, 2022 | ($963) | | | ($312,407) | | | $— | | | ($313,370) | |
The following table presents changes in accumulated other comprehensive income (loss) for Entergy for the
three months ended September 30, 2021 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, July 1, 2021 | ($1,083) | | | ($489,511) | | | $11,855 | | | | | ($478,739) | |
| | | | | | | | | |
| Other comprehensive income (loss) before reclassifications | (14) | | | — | | | (2,173) | | | | | (2,187) | |
| Amounts reclassified from accumulated other comprehensive income (loss) | 38 | | | 8,838 | | | 11 | | | | | 8,887 | |
| Net other comprehensive income (loss) for the period | 24 | | | 8,838 | | | (2,162) | | | | | 6,700 | |
| | | | | | | | | |
| Ending balance, September 30, 2021 | ($1,059) | | | ($480,673) | | | $9,693 | | | | | ($472,039) | |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The following table presents changes in accumulated other comprehensive income (loss) for Entergy for the nine months ended September 30, 2022 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, January 1, 2022 | ($1,035) | | | ($338,647) | | | $7,154 | | | ($332,528) | |
| | | | | | | |
| Other comprehensive income (loss) before reclassifications | (42) | | | — | | | (12,997) | | | (13,039) | |
| Amounts reclassified from accumulated other comprehensive income (loss) | 114 | | | 26,240 | | | 5,843 | | | 32,197 | |
| Net other comprehensive income (loss) for the period | 72 | | | 26,240 | | | (7,154) | | | 19,158 | |
| | | | | | | |
| Ending balance, September 30, 2022 | ($963) | | | ($312,407) | | | $— | | | ($313,370) | |
The following table presents changes in accumulated other comprehensive income (loss) for Entergy for the nine months ended September 30, 2021 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, January 1, 2021 | $28,719 | | | ($534,576) | | | $56,650 | | | | | ($449,207) | |
| | | | | | | | | |
| Other comprehensive income (loss) before reclassifications | 1,454 | | | — | | | (46,826) | | | | | (45,372) | |
| Amounts reclassified from accumulated other comprehensive income (loss) | (31,232) | | | 53,903 | | | (131) | | | | | 22,540 | |
| Net other comprehensive income (loss) for the period | (29,778) | | | 53,903 | | | (46,957) | | | | | (22,832) | |
| | | | | | | | | |
| Ending balance, September 30, 2021 | ($1,059) | | | ($480,673) | | | $9,693 | | | | | ($472,039) | |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The following table presents changes in accumulated other comprehensive income (loss) for Entergy Louisiana for the three months ended September 30, 2022 and 2021:
| | | | | | | | | | | | | | |
| | Pension and Other
Postretirement Liabilities |
| | 2022 | | 2021 |
| | (In Thousands) |
| Beginning balance, July 1, | | $7,174 | | | $4,508 | |
| | | | |
| Amounts reclassified from accumulated other comprehensive income (loss) | | 295 | | | (131) | |
| Net other comprehensive income (loss) for the period | | 295 | | | (131) | |
| | | | |
| Ending balance, September 30, | | $7,469 | | | $4,377 | |
The following table presents changes in accumulated other comprehensive income (loss) for Entergy Louisiana for the nine months ended September 30, 2022 and 2021:
| | | | | | | | | | | | | | |
| | Pension and Other
Postretirement Liabilities |
| | 2022 | | 2021 |
| | (In Thousands) |
| Beginning balance, January 1, | | $8,278 | | | $4,327 | |
| | | | |
| | | | |
| Amounts reclassified from accumulated other comprehensive income (loss) | | (809) | | | 50 | |
| Net other comprehensive income (loss) for the period | | (809) | | | 50 | |
| | | | |
| | | | |
| | | | |
| Ending balance, September 30, | | $7,469 | | | $4,377 | |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Total reclassifications out of accumulated other comprehensive income (loss) (AOCI) into income for Entergy for the three months ended September 30, 2022 and 2021 were as follows:
| | | | | | | | | | | | | | | | | |
| Amounts reclassified
from AOCI | | Income Statement Location |
| 2022 | | 2021 | | |
| (In Thousands) | | |
| Cash flow hedges net unrealized gain (loss) | | | | | |
| Power contracts | $— | | | $— | | | Competitive business operating revenues |
| Interest rate swaps | (48) | | | (48) | | | Miscellaneous - net |
| Total realized gain (loss) on cash flow hedges | (48) | | | (48) | | | |
| Income taxes | 10 | | | 10 | | | Income taxes |
| Total realized gain (loss) on cash flow hedges (net of tax) | ($38) | | | ($38) | | | |
| | | | | |
| Pension and other postretirement liabilities | | | | | |
| Amortization of prior-service credit | $3,837 | | | $5,248 | | | (a) |
| Amortization of loss | (4,870) | | | (13,490) | | | (a) |
| | | | | |
| Settlement loss | (14,339) | | | (3,192) | | | (a) |
| Total amortization | (15,372) | | | (11,434) | | | |
| Income taxes | 3,505 | | | 2,596 | | | Income taxes |
| Total amortization (net of tax) | ($11,867) | | | ($8,838) | | | |
| | | | | |
| Net unrealized investment gain (loss) | | | | | |
| Realized gain (loss) | $— | | | ($17) | | | Interest and investment income |
| Income taxes | — | | | 6 | | | Income taxes |
| Total realized investment gain (loss) (net of tax) | $— | | | ($11) | | | |
| | | | | |
| Total reclassifications for the period (net of tax) | ($11,905) | | | ($8,887) | | | |
(a)These accumulated other comprehensive income (loss) components were included in the computation of net periodic pension and other postretirement cost. See Note 6 to the financial statements herein for additional details.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Total reclassifications out of accumulated other comprehensive income (loss) (AOCI) into income for Entergy for the nine months ended September 30, 2022 and 2021 were as follows:
| | | | | | | | | | | | | | | | | |
| Amounts reclassified
from AOCI | | Income Statement Location |
| 2022 | | 2021 | | |
| (In Thousands) | | |
| Cash flow hedges net unrealized gain (loss) | | | | | |
| Power contracts | $— | | | $39,679 | | | Competitive business operating revenues |
| Interest rate swaps | (145) | | | (145) | | | Miscellaneous - net |
| Total realized gain (loss) on cash flow hedges | (145) | | | 39,534 | | | |
| Income taxes | 31 | | | (8,302) | | | Income taxes |
| Total realized gain (loss) on cash flow hedges (net of tax) | ($114) | | | $31,232 | | | |
| | | | | |
| Pension and other postretirement liabilities | | | | | |
| Amortization of prior-service credit | $11,511 | | | $15,744 | | | (a) |
| Amortization of loss | (29,774) | | | (75,553) | | | (a) |
| | | | | |
| Settlement loss | (15,666) | | | (9,235) | | | (a) |
| Total amortization | (33,929) | | | (69,044) | | | |
| Income taxes | 7,689 | | | 15,141 | | | Income taxes |
| Total amortization (net of tax) | ($26,240) | | | ($53,903) | | | |
| | | | | |
| Net unrealized investment gain (loss) | | | | | |
| Realized gain (loss) | ($9,245) | | | $207 | | | Interest and investment income |
| Income taxes | 3,402 | | | (76) | | | Income taxes |
| Total realized investment gain (loss) (net of tax) | ($5,843) | | | $131 | | | |
| | | | | |
| Total reclassifications for the period (net of tax) | ($32,197) | | | ($22,540) | | | |
(a)These accumulated other comprehensive income (loss) components were included in the computation of net periodic pension and other postretirement cost. See Note 6 to the financial statements herein for additional details.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Total reclassifications out of accumulated other comprehensive income (loss) (AOCI) into income for Entergy Louisiana for the three months ended September 30, 2022 and 2021 were as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Amounts reclassified
from AOCI | | Income Statement Location |
| | 2022 | | 2021 | | |
| | (In Thousands) | | |
| Pension and other postretirement liabilities | | | | | | |
| Amortization of prior-service credit | | $1,158 | | | $1,230 | | | (a) |
| Amortization of loss | | (222) | | | (519) | | | (a) |
| Settlement loss | | (1,340) | | | (534) | | | (a) |
| Total amortization | | (404) | | | 177 | | | |
| Income taxes | | 109 | | | (46) | | | Income taxes |
| Total amortization (net of tax) | | (295) | | | 131 | | | |
| | | | | | |
| Total reclassifications for the period (net of tax) | | ($295) | | | $131 | | | |
(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.
Total reclassifications out of accumulated other comprehensive income (loss) (AOCI) into income for Entergy Louisiana for the nine months ended September 30, 2022 and 2021 were as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Amounts reclassified
from AOCI | | Income Statement Location |
| | 2022 | | 2021 | | |
| | (In Thousands) | | |
| Pension and other postretirement liabilities | | | | | | |
| Amortization of prior-service credit | | $3,474 | | | $3,690 | | | (a) |
| Amortization of loss | | (849) | | | (1,824) | | | (a) |
| Settlement loss | | (1,518) | | | (1,934) | | | (a) |
| Total amortization | | 1,107 | | | (68) | | | |
| Income taxes | | (298) | | | 18 | | | Income taxes |
| Total amortization (net of tax) | | 809 | | | (50) | | | |
| | | | | | |
| Total reclassifications for the period (net of tax) | | $809 | | | ($50) | | | |
(a)These accumulated other comprehensive income (loss) components were included in the computation of net periodic pension and other postretirement cost. See Note 6 to the financial statements herein for additional details.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Noncontrolling Interest
The dollar value of noncontrolling interest for Entergy Louisiana as of September 30, 2022 and December 31, 2021 is presented below:
| | | | | | | | | | | |
| 2022 | | 2021 |
| (In Thousands) |
| Entergy Louisiana Noncontrolling Interest | | | |
Restoration Law Trust I (a) | $32,448 | | | $— | |
| Total Noncontrolling Interest | $32,448 | | | $— | |
(a)Restoration Law Trust I was established as part of the Act 293 securitization of Entergy Louisiana’s Hurricane Laura, Hurricane Delta, Hurricane Zeta, and Winter Storm Uri restoration costs, as well as to establish a storm reserve to fund a portion of Hurricane Ida storm restoration costs. Restoration Law Trust I holds preferred membership interests issued by Entergy Finance Company, and Entergy Finance Company is required to make annual distributions (dividends) on the preferred membership interests. These annual dividends paid on the Entergy Finance Company preferred membership interests will be distributed 1% to the LURC and 99% to Entergy Louisiana. Entergy Louisiana, as the primary beneficiary, consolidates Restoration Law Trust I and the LURC’s 1% beneficial interest is shown as noncontrolling interest in the consolidated financial statements for Entergy Louisiana and Entergy. See Note 2 to the financial statements herein for a discussion of the Entergy Louisiana securitization.
The dollar value of noncontrolling interest for Entergy Mississippi as of September 30, 2022 and December 31, 2021 is presented below:
| | | | | | | | | | | |
| 2022 | | 2021 |
| (In Thousands) |
| Entergy Mississippi Noncontrolling Interest | | | |
MS Sunflower Partnership, LLC (a) | $478 | | | $— | |
| Total Noncontrolling Interest | $478 | | | $— | |
(a)In May 2022, MS Sunflower Partnership, LLC, a tax equity partnership between Entergy Mississippi and a tax equity investor, made the initial payment for the purchase of the Sunflower Solar facility. Substantial completion of the Sunflower Solar facility was accepted by Entergy Mississippi in September 2022. A final payment of the purchase price is currently expected in fourth quarter 2022. Entergy Mississippi, as the managing member, consolidates MS Sunflower Partnership, LLC and the tax equity investor’s interest is shown as noncontrolling interest in the consolidated financial statements for Entergy Mississippi and Entergy. Entergy Mississippi uses the HLBV method of accounting for income or loss allocation to the tax equity investor’s noncontrolling interest. See Note 1 to the financial statements in the Form 10-K for discussion of the HLBV method of accounting used to account for Entergy Arkansas’s investment in AR Searcy Partnership, LLC which is the basis for treatment of Entergy Mississippi’s investment in MS Sunflower Partnership, LLC.
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 June 2027. 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
Entergy Corporation and Subsidiaries
Notes to Financial Statements
on the senior unsecured debt ratings of Entergy Corporation. The weighted average interest rate for the nine months ended September 30, 2022 was 2.39% on the drawn portion of the facility. As of September 30, 2022, amounts outstanding and capacity available under the $3.5 billion credit facility are:
| | | | | | | | | | | | | | | | | | | | |
| Capacity | | Borrowings | | Letters
of Credit | | Capacity
Available |
| (In Millions) |
| $3,500 | | $150 | | $3 | | $3,347 |
Entergy Corporation’s credit facility requires Entergy to maintain a consolidated debt ratio, as defined, of 65% or less of its total capitalization. Entergy is in compliance with this covenant. If Entergy fails to meet this ratio, or if Entergy Corporation or one of the Utility operating companies (except Entergy New Orleans) defaults on other indebtedness or is in bankruptcy or insolvency proceedings, an acceleration of the Entergy Corporation credit facility’s maturity date may occur.
Entergy Corporation has a commercial paper program with a Board-approved program limit of up to $2 billion. As of September 30, 2022, Entergy Corporation had $1.387 billion of commercial paper outstanding. The weighted-average interest rate for the nine months ended September 30, 2022 was 1.52%.
Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and Entergy Texas each had credit facilities available as of September 30, 2022 as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Company | | Expiration
Date | | Amount of
Facility | | Interest Rate
(a) | | Amount Drawn
as of
September 30, 2022 | | Letters of Credit
Outstanding as of
September 30, 2022 |
| Entergy Arkansas | | April 2023 | | $25 million (b) | | 4.37% | | $— | | $— |
| Entergy Arkansas | | June 2027 | | $150 million (c) | | 4.26% | | $— | | $— |
| Entergy Louisiana | | June 2027 | | $350 million (c) | | 4.38% | | $— | | $— |
| Entergy Mississippi | | April 2023 | | $45 million (d) | | 4.63% | | $— | | $— |
| Entergy Mississippi | | April 2023 | | $40 million (d) | | 4.63% | | $— | | $— |
| Entergy Mississippi | | April 2023 | | $10 million (d) | | 4.63% | | $— | | $— |
| Entergy Mississippi | | July 2024 | | $150 million | | 3.97% | | $100 million | | $— |
| Entergy New Orleans | | June 2024 | | $25 million (c) | | 4.74% | | $— | | $— |
| Entergy Texas | | June 2027 | | $150 million (c) | | 4.38% | | $— | | $1.1 million |
(a)The interest rate is the estimated interest rate as of September 30, 2022 that would have been applied to outstanding borrowings under the facility.
(b)Borrowings under this 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 short-term 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 0.375% of the undrawn commitment amount for Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy Texas, and of the entire facility amount for Entergy New Orleans. Each of the credit facilities requires the Registrant Subsidiary borrower to maintain a debt
Entergy Corporation and Subsidiaries
Notes to Financial Statements
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 an uncommitted standby letter of credit facility as a means to post collateral to support its obligations to MISO. Following is a summary of the uncommitted standby letter of credit facilities as of September 30, 2022:
| | | | | | | | | | | | | | | | | | | | |
| Company | | Amount of
Uncommitted Facility | | Letter of Credit Fee | | Letters of Credit
Issued as of
September 30, 2022
(a) (b) |
| Entergy Arkansas | | $25 million | | 0.78% | | $5.6 million |
| Entergy Louisiana | | $125 million | | 0.78% | | $21.0 million |
| Entergy Mississippi | | $65 million | | 0.78% | | $9.7 million |
| Entergy New Orleans | | $15 million | | 1.625% | | $1.0 million |
| Entergy Texas | | $80 million | | 0.875% | | $9.7 million |
(a)As of September 30, 2022, letters of credit posted with MISO covered financial transmission right exposure of $0.9 million for Entergy Louisiana, $0.8 million for Entergy Mississippi, $0.1 million for Entergy New Orleans, and $0.8 million for Entergy Texas. See Note 8 to the financial statements herein for discussion of financial transmission rights.
(b)As of September 30, 2022, in addition to the $9.7 million MISO letters of credit, Entergy Mississippi had $1.0 million in non-MISO letters of credit outstanding under this facility.
The short-term borrowings of the Registrant Subsidiaries are limited to amounts authorized by the FERC. The current FERC-authorized short-term borrowing limits for Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy are effective through October 2023. In addition to borrowings from commercial banks, these companies may also borrow from the Entergy System money pool and from other internal short-term borrowing arrangements. The money pool and the other internal borrowing arrangements are inter-company borrowing arrangements designed to reduce the Utility subsidiaries’ dependence on external short-term borrowings. Borrowings from internal and external short-term borrowings combined may not exceed the FERC-authorized limits. The following were the FERC-authorized limits for short-term borrowings and the outstanding short-term borrowings as of September 30, 2022 (aggregating both internal and external short-term borrowings) for the Registrant Subsidiaries:
| | | | | | | | | | | |
| | Authorized | | Borrowings |
| | (In Millions) |
| Entergy Arkansas | $250 | | $— |
| Entergy Louisiana | $450 | | $— |
| Entergy Mississippi | $200 | | $19 |
| Entergy New Orleans | $150 | | $— |
| Entergy Texas | $200 | | $— |
| System Energy | $200 | | $— |
Vermont Yankee Credit Facility (Entergy Corporation)
In January 2019, Entergy Nuclear Vermont Yankee was transferred to NorthStar and its credit facility was assumed by Entergy Assets Management Operations, LLC (formerly Vermont Yankee Asset Retirement, LLC), Entergy Nuclear Vermont Yankee’s parent company that remains an Entergy subsidiary after the transfer. The credit facility has a borrowing capacity of $139 million and expires in December 2023. The commitment fee is
Entergy Corporation and Subsidiaries
Notes to Financial Statements
currently 0.20% of the undrawn commitment amount. As of September 30, 2022, $139 million in cash borrowings were outstanding under the credit facility. The weighted average interest rate for the nine months ended September 30, 2022 was 2.54% on the drawn portion of the facility. See Note 14 to the financial statements in the Form 10-K for discussion of the transfer of Entergy Nuclear Vermont Yankee to NorthStar.
Variable Interest Entities (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, and System Energy)
See Note 17 to the financial statements in the Form 10-K for a discussion of the consolidation of the nuclear fuel company variable interest entities (VIEs). To finance the acquisition and ownership of nuclear fuel, the nuclear fuel company VIEs have credit facilities and three of the four VIEs also issue commercial paper, details of which follow as of September 30, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Company | | Expiration
Date | | Amount
of
Facility | | Weighted
Average Interest
Rate on
Borrowings (a) | | Amount
Outstanding as of
September 30, 2022 |
| | | | (Dollars in Millions) |
| Entergy Arkansas VIE | | June 2025 | | $80 | | 2.21% | | $— |
| Entergy Louisiana River Bend VIE | | June 2025 | | $105 | | 1.75% | | $15.1 |
| Entergy Louisiana Waterford VIE | | June 2025 | | $105 | | 2.12% | | $72.2 |
| System Energy VIE | | June 2025 | | $120 | | 2.15% | | $83.9 |
(a)Includes letter of credit fees and bank fronting fees on commercial paper issuances by the nuclear fuel company variable interest entities for Entergy Arkansas, Entergy Louisiana, and System Energy. The nuclear fuel company variable interest entity for Entergy Louisiana River Bend does not issue commercial paper, but borrows directly on its bank credit facility.
The commitment fees on the credit facilities are 0.100% 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. Each lessee is in compliance with this covenant.
The nuclear fuel company variable interest entities had notes payable that were included in debt on the respective balance sheets as of September 30, 2022 as follows:
| | | | | | | | | | | | | | |
| Company | | Description | | Amount |
| Entergy Arkansas VIE | | 3.17% Series M due December 2023 | | $40 million |
| Entergy Arkansas VIE | | 1.84% Series N due July 2026 | | $90 million |
| Entergy Louisiana River Bend VIE | | 2.51% Series V due June 2027 | | $70 million |
| Entergy Louisiana Waterford VIE | | 3.22% Series I due December 2023 | | $20 million |
| System Energy VIE | | 2.05% Series K due September 2027 | | $90 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.
Entergy Arkansas, Entergy Louisiana, and System Energy each has obtained financing authorization from the FERC that extends through October 2023 for issuances by its nuclear fuel company variable interest entities.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Debt Issuances and Retirements
(Entergy Corporation)
In June 2022, Entergy Corporation redeemed $650 million of 4.00% Series senior notes due July 2022.
(Entergy Arkansas)
In March 2022, Entergy Arkansas issued $200 million of 4.20% Series mortgage bonds due April 2049. Entergy Arkansas used the proceeds for general corporate purposes, including the repayment of borrowings from the Entergy System money pool.
(Entergy Louisiana)
In December 2021, Entergy Louisiana entered into a term loan credit agreement providing a $1.2 billion unsecured term loan due June 2023. The term loan bears interest at a variable interest rate based on an adjusted term Secured Overnight Financing Rate plus the applicable margin. The weighted average interest rate over the life of the loan was 1.18%. Entergy Louisiana received the funds in January 2022 and used the proceeds for general corporate purposes, including storm restoration costs related to Hurricane Ida. Entergy Louisiana repaid the full amount of the loan in June 2022.
In May 2022, Entergy Louisiana redeemed, prior to maturity, a portion of its 0.62% Series mortgage bonds due November 2023. Entergy Louisiana redeemed $435 million in aggregate principal amount of the bonds, leaving $665 million in aggregate principal amount outstanding.
In August 2022, Entergy Louisiana issued $500 million of 4.75% Series mortgage bonds due September 2052. Entergy Louisiana expects to use the proceeds, together with other funds, to repay on or prior to maturity its $200 million of 3.30% Series mortgage bonds due December 2022, to repay on or prior to maturity a portion of its $665 million of 0.62% Series mortgage bonds due November 2023, to repay a portion of the debt outstanding under its $350 million long-term revolving credit facility, and for general corporate purposes. Entergy Louisiana intends to allocate an amount equal to the net proceeds from the issuance to finance and/or refinance, in whole or in part, existing or new eligible green projects.
(Entergy Mississippi)
In June 2022, Entergy Mississippi entered into a term loan credit agreement providing a $150 million unsecured term loan due December 2023. The term loan bears interest at a variable interest rate based on an adjusted term Secured Overnight Financing Rate plus the applicable margin. The weighted average interest rate for the nine months ended September 30, 2022 was 3.30%. Entergy Mississippi used the funds for general corporate purposes.
(Entergy Texas)
In August 2022, Entergy Texas issued $325 million of 5.00% Series mortgage bonds due September 2052. Entergy Texas expects to use the proceeds for general corporate purposes.
(System Energy)
In May 2022, System Energy entered into a term loan credit agreement providing a $50 million term loan due November 2023. The term loan is secured by a series of first mortgage bonds and bears interest at a variable interest rate based on an adjusted term Secured Overnight Financing Rate plus the applicable margin. The weighted
Entergy Corporation and Subsidiaries
Notes to Financial Statements
average interest rate for the nine months ended September 30, 2022 was 2.97%. System Energy used the funds for general corporate purposes.
Entergy Texas Securitization Bonds
In January 2022 the PUCT authorized the issuance of securitization bonds to recover $242.9 million of Entergy Texas’s Hurricane Laura, Hurricane Delta, and Winter Storm Uri restoration costs, plus carrying costs, plus approximately $13.3 million relating to a system restoration regulatory asset related to Hurricane Harvey, plus up-front qualified costs. In April 2022, Entergy Texas Restoration Funding II, LLC, a company wholly-owned and consolidated by Entergy Texas, issued $290.85 million of senior secured restoration bonds (securitization bonds), as follows:
| | | | | |
| Amount |
| (In Thousands) |
| Senior Secured Restoration Bonds: | |
Tranche A-1 (3.051%) due December 2028 | $100,000 | |
Tranche A-2 (3.697%) due December 2036 | 190,850 | |
| Total senior secured restoration bonds | $290,850 | |
Although the principal amount of each tranche is not due until the dates given above, Entergy Texas Restoration Funding II expects to make principal payments on the securitization bonds over the next five years in the amounts of $12.3 million for 2022, $17.8 million for 2023, $18.3 million for 2024, $18.8 million for 2025, and $19.4 million for 2026. All of the expected principal payments for 2022-2026 are for Tranche A-1.
With the proceeds, Entergy Texas Restoration Funding II purchased from Entergy Texas the transition property, which is the right to recover from customers through a system restoration charge amounts sufficient to service the securitization bonds. Entergy Texas expects to use the proceeds to reduce its outstanding debt. The creditors of Entergy Texas do not have recourse to the assets or revenues of Entergy Texas Restoration Funding II, including the transition property, and the creditors of Entergy Texas Restoration Funding II do not have recourse to the assets or revenues of Entergy Texas. Entergy Texas has no payment obligations to Entergy Texas Restoration Funding II except to remit system restoration charge collections.
Fair Value
The book value and the fair value of long-term debt for Entergy Corporation and the Registrant Subsidiaries as of September 30, 2022 were as follows:
| | | | | | | | | | | |
| Book Value
of Long-Term Debt | | Fair Value
of Long-Term Debt (a) |
| (In Thousands) |
| Entergy | $26,219,979 | | | $22,567,380 | |
| Entergy Arkansas | $4,164,866 | | | $3,570,817 | |
| Entergy Louisiana | $10,860,595 | | | $9,509,010 | |
| Entergy Mississippi | $2,430,783 | | | $1,998,266 | |
| Entergy New Orleans | $783,034 | | | $709,965 | |
| Entergy Texas | $2,907,947 | | | $2,445,550 | |
| System Energy | $788,961 | | | $710,771 | |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
(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, 2021 were as follows:
| | | | | | | | | | | |
| Book Value
of Long-Term Debt | | Fair Value
of Long-Term Debt (a) |
| (In Thousands) |
| Entergy | $25,880,901 | | | $27,061,171 | |
| Entergy Arkansas | $3,958,862 | | | $4,176,577 | |
| Entergy Louisiana | $10,914,346 | | | $11,492,650 | |
| Entergy Mississippi | $2,179,989 | | | $2,346,230 | |
| Entergy New Orleans | $788,165 | | | $765,538 | |
| Entergy Texas | $2,354,148 | | | $2,483,995 | |
| System Energy | $741,296 | | | $743,040 | |
(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.
Stock Options
Entergy granted options on 444,028 shares of its common stock under the 2019 Omnibus Incentive Plan during the first quarter 2022 with a fair value of $16.25 per option. As of September 30, 2022, there were options on 2,789,088 shares of common stock outstanding with a weighted-average exercise price of $96.37. The intrinsic value, which has no effect on net income, of the outstanding stock options is calculated by the positive difference between the weighted average exercise price of the stock options granted and Entergy Corporation’s common stock price as of September 30, 2022. The aggregate intrinsic value of the stock options outstanding as of September 30, 2022 was $30.9 million.
The following table includes financial information for outstanding stock options for the three months ended September 30, 2022 and 2021:
| | | | | | | | | | | |
| 2022 | | 2021 |
| (In Millions) |
| Compensation expense included in Entergy’s consolidated net income | $0.9 | | | $1.2 | |
| Tax benefit recognized in Entergy’s consolidated net income | $0.2 | | | $0.3 | |
| Compensation cost capitalized as part of fixed assets and materials and supplies | $0.4 | | | $0.4 | |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The following table includes financial information for outstanding stock options for the nine months ended September 30, 2022 and 2021:
| | | | | | | | | | | |
| 2022 | | 2021 |
| (In Millions) |
| Compensation expense included in Entergy’s consolidated net income | $3.2 | | | $3.2 | |
| Tax benefit recognized in Entergy’s consolidated net income | $0.8 | | | $0.8 | |
| Compensation cost capitalized as part of fixed assets and materials and supplies | $1.2 | | | $1.2 | |
Other Equity Awards
In January 2022 the Board approved and Entergy granted 328,849 restricted stock awards and 170,966 long-term incentive awards under the 2019 Omnibus Incentive Plan. The restricted stock awards were made effective on January 27, 2022 and were valued at $109.59 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. To emphasize the importance of strong cash generation for the long-term health of its business, a credit measure – adjusted funds from operations/debt ratio – was selected for the 2022-2024 performance period. Performance will be measured based eighty percent on relative total shareholder return and twenty percent on the credit measure. The performance units were granted on January 27, 2022 and eighty percent were valued at $138.99 per share based on various factors, primarily market conditions; and twenty percent were valued at $109.59 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 September 30, 2022 and 2021:
| | | | | | | | | | | |
| 2022 | | 2021 |
| (In Millions) |
| Compensation expense included in Entergy’s consolidated net income | $9.1 | | | $10.6 | |
| Tax benefit recognized in Entergy’s consolidated net income | $2.3 | | | $2.7 | |
| Compensation cost capitalized as part of fixed assets and materials and supplies | $3.9 | | | $4.1 | |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The following table includes financial information for other outstanding equity awards for the nine months ended September 30, 2022 and 2021:
| | | | | | | | | | | |
| 2022 | | 2021 |
| (In Millions) |
| Compensation expense included in Entergy’s consolidated net income | $31.1 | | | $31.1 | |
| Tax benefit recognized in Entergy’s consolidated net income | $7.9 | | | $7.9 | |
| Compensation cost capitalized as part of fixed assets and materials and supplies | $12.6 | | | $12.1 | |
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 costs, including amounts capitalized, for the third quarters of 2022 and 2021, included the following components:
| | | | | | | | | | | |
| 2022 | | 2021 |
| (In Thousands) |
| Service cost - benefits earned during the period | $33,845 | | | $38,531 | |
| Interest cost on projected benefit obligation | 60,734 | | | 49,222 | |
| Expected return on assets | (100,203) | | | (106,684) | |
| | | |
| Amortization of net loss | 42,367 | | | 69,386 | |
| Settlement charges | 125,548 | | | 44,718 | |
| Net pension costs | $162,291 | | | $95,173 | |
Entergy’s qualified pension costs, including amounts capitalized, for the nine months ended September 30, 2022 and 2021, included the following components:
| | | | | | | | | | | |
| 2022 | | 2021 |
| (In Thousands) |
| Service cost - benefits earned during the period | $108,482 | | | $126,722 | |
| Interest cost on projected benefit obligation | 164,529 | | | 142,702 | |
| Expected return on assets | (306,895) | | | (318,437) | |
| | | |
| Amortization of net loss | 159,359 | | | 266,576 | |
| Settlement charges | 148,201 | | | 156,266 | |
| | | |
| Net pension costs | $273,676 | | | $373,829 | |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The Registrant Subsidiaries’ qualified pension costs, including amounts capitalized, for their employees for the third quarters of 2022 and 2021, included the following components:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | Entergy
Arkansas | | Entergy
Louisiana | | Entergy
Mississippi | | Entergy
New Orleans | | Entergy
Texas | | System
Energy |
| | (In Thousands) |
| Service cost - benefits earned during the period | | $6,138 | | | $8,261 | | | $1,953 | | | $690 | | | $1,441 | | | $1,891 | |
| Interest cost on projected benefit obligation | | 11,866 | | | 12,523 | | | 3,383 | | | 1,368 | | | 2,795 | | | 2,882 | |
| Expected return on assets | | (18,731) | | | (20,586) | | | (5,006) | | | (2,487) | | | (4,551) | | | (4,509) | |
| | | | | | | | | | | | |
| Amortization of net loss | | 10,283 | | | 10,156 | | | 2,941 | | | 1,208 | | | 2,130 | | | 2,641 | |
| Settlement charges | | 11,477 | | | 33,507 | | | 6,853 | | | 4,402 | | | 13,082 | | | 4,593 | |
| Net pension cost | | $21,033 | | | $43,861 | | | $10,124 | | | $5,181 | | | $14,897 | | | $7,498 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2021 | | Entergy
Arkansas | | Entergy
Louisiana | | Entergy
Mississippi | | Entergy
New Orleans | | Entergy
Texas | | System
Energy |
| | (In Thousands) |
| Service cost - benefits earned during the period | | $6,966 | | | $9,230 | | | $2,197 | | | $735 | | | $1,680 | | | $2,141 | |
| Interest cost on projected benefit obligation | | 9,396 | | | 10,270 | | | 2,735 | | | 1,156 | | | 2,213 | | | 2,379 | |
| Expected return on assets | | (19,585) | | | (22,466) | | | (5,629) | | | (2,678) | | | (5,341) | | | (4,853) | |
| | | | | | | | | | | | |
| Amortization of net loss | | 16,100 | | | 15,201 | | | 4,580 | | | 1,656 | | | 2,815 | | | 4,135 | |
| Settlement charges | | 7,238 | | | 13,209 | | | 3,685 | | | 1,107 | | | 1,634 | | | 4,086 | |
| Net pension cost | | $20,115 | | | $25,444 | | | $7,568 | | | $1,976 | | | $3,001 | | | $7,888 | |
The Registrant Subsidiaries’ qualified pension costs, including amounts capitalized, for their employees for the nine months ended September 30, 2022 and 2021, included the following components:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | Entergy
Arkansas | | Entergy
Louisiana | | Entergy
Mississippi | | Entergy
New Orleans | | Entergy
Texas | | System
Energy |
| | (In Thousands) |
| Service cost - benefits earned during the period | | $19,695 | | | $26,405 | | | $6,158 | | | $2,194 | | | $4,652 | | | $5,937 | |
| Interest cost on projected benefit obligation | | 30,944 | | | 33,706 | | | 8,857 | | | 3,646 | | | 7,242 | | | 7,614 | |
| Expected return on assets | | (57,009) | | | (62,779) | | | (15,373) | | | (7,517) | | | (14,393) | | | (13,718) | |
| | | | | | | | | | | | |
| Amortization of net loss | | 36,557 | | | 35,055 | | | 10,371 | | | 3,944 | | | 7,124 | | | 9,078 | |
| Settlement charges | | 22,973 | | | 37,968 | | | 9,061 | | | 4,402 | | | 15,547 | | | 6,616 | |
| Net pension cost | | $53,160 | | | $70,355 | | | $19,074 | | | $6,669 | | | $20,172 | | | $15,527 | |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2021 | | Entergy
Arkansas | | Entergy
Louisiana | | Entergy
Mississippi | | Entergy
New Orleans | | Entergy
Texas | | System
Energy |
| | (In Thousands) |
| Service cost - benefits earned during the period | | $21,640 | | | $29,033 | | | $6,865 | | | $2,304 | | | $5,237 | | | $6,707 | |
| Interest cost on projected benefit obligation | | 26,488 | | | 29,695 | | | 7,769 | | | 3,264 | | | 6,215 | | | 6,757 | |
| Expected return on assets | | (58,896) | | | (67,521) | | | (16,815) | | | (7,941) | | | (15,851) | | | (14,436) | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Amortization of net loss | | 53,652 | | | 52,294 | | | 15,556 | | | 5,996 | | | 9,941 | | | 14,393 | |
| Settlement charges | | 31,624 | | | 48,201 | | | 11,447 | | | 4,691 | | | 8,261 | | | 8,725 | |
| Net pension cost | | $74,508 | | | $91,702 | | | $24,822 | | | $8,314 | | | $13,803 | | | $22,146 | |
Non-Qualified Net Pension Cost
Entergy recognized $5.9 million and $6.9 million in pension cost for its non-qualified pension plans in the third quarters of 2022 and 2021, respectively. Reflected in the pension cost for non-qualified pension plans in the third quarters of 2022 and 2021 were settlement charges of $1.4 million and $2.5 million, respectively, related to the payment of lump sum benefits out of the plan. Entergy recognized $23.3 million and $16 million in pension cost for its non-qualified pension plans for the nine months ended September 30, 2022 and 2021, respectively. Reflected in the pension cost for non-qualified pension plans for the nine months ended September 30, 2022 and 2021 were settlement charges of $9.2 million and $2.5 million, respectively, related to the payment of lump sum benefits out of the plan.
The Registrant Subsidiaries recognized the following pension cost for their employees for their non-qualified pension plans for the third quarters of 2022 and 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Entergy
Arkansas | | Entergy
Louisiana | | Entergy
Mississippi | | Entergy
New Orleans | | Entergy
Texas |
| (In Thousands) |
| 2022 | $69 | | | $24 | | | $80 | | | $28 | | | $961 | |
| 2021 | $86 | | | $192 | | | $91 | | | $7 | | | $115 | |
Reflected in Entergy Texas’ non-qualified pension costs in the third quarter of 2022 were settlement charges of $886 thousand related to the payment of lump sum benefits out of the plan. Reflected in Entergy Louisiana’s non-qualified pension costs in the third quarter of 2021 were settlement charges of $155 thousand related to the payment of lump sum benefits out of the plan. Reflected in Entergy Texas’s non-qualified pension costs in the third quarter of 2021 were settlement charges of $3 thousand related to the payment of lump sum benefits out of the plan.
The Registrant Subsidiaries recognized the following pension cost for their employees for their non-qualified pension plans for the nine months ended September 30, 2022 and 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Entergy
Arkansas | | Entergy
Louisiana | | Entergy
Mississippi | | Entergy
New Orleans | | Entergy
Texas |
| (In Thousands) |
| 2022 | $212 | | | $77 | | | $241 | | | $84 | | | $1,264 | |
| 2021 | $266 | | | $280 | | | $283 | | | $23 | | | $345 | |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Reflected in Entergy Mississippi’s non-qualified pension costs for the nine months ended September 30, 2022 were settlement charges of $2 thousand related to the payment of lump sum benefits out of the plan. Reflected in Entergy Texas’ non-qualified pension costs for the nine months ended September 30, 2022 were settlement charges of $1 million related to the payment of lump sum benefits out of the plan. Reflected in Entergy Louisiana’s non-qualified pension costs for the nine months ended September 30, 2021 were settlement charges of $155 thousand related to the payment of lump sum benefits out of the plan. Reflected in Entergy Texas’s non-qualified pension costs for the nine months ended September 30, 2021 were settlement charges of $3 thousand related to the payment of lump sum benefits out of the plan.
Components of Net Other Postretirement Benefit Cost (Income)
Entergy’s other postretirement benefit income, including amounts capitalized, for the third quarters of 2022 and 2021, included the following components:
| | | | | | | | | | | |
| 2022 | | 2021 |
| (In Thousands) |
| Service cost - benefits earned during the period | $6,184 | | | $6,645 | |
| Interest cost on accumulated postretirement benefit obligation (APBO) | 6,827 | | | 5,320 | |
| Expected return on assets | (10,855) | | | (10,805) | |
| | | |
| Amortization of prior service credit | (6,388) | | | (8,267) | |
| Amortization of net loss | 1,083 | | | 713 | |
| Net other postretirement benefit income | ($3,149) | | | ($6,394) | |
Entergy’s other postretirement benefit income, including amounts capitalized, for the nine months ended September 30, 2022 and 2021, included the following components:
| | | | | | | | | | | |
| | 2022 | | 2021 |
| | (In Thousands) |
| Service cost - benefits earned during the period | $18,552 | | | $19,935 | |
| Interest cost on accumulated postretirement benefit obligation (APBO) | 20,481 | | | 15,960 | |
| Expected return on assets | (32,565) | | | (32,415) | |
| | | |
| Amortization of prior service credit | (19,164) | | | (24,801) | |
| Amortization of net loss | 3,249 | | | 2,139 | |
| Net other postretirement benefit income | ($9,447) | | | ($19,182) | |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The Registrant Subsidiaries’ other postretirement benefit cost (income), including amounts capitalized, for their employees for the third quarters of 2022 and 2021, included the following components:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | Entergy
Arkansas | | Entergy
Louisiana | | Entergy
Mississippi | | Entergy
New Orleans | | Entergy
Texas | | System
Energy |
| | (In Thousands) |
| Service cost - benefits earned during the period | | $1,114 | | | $1,408 | | | $339 | | | $99 | | | $331 | | | $310 | |
| Interest cost on APBO | | 1,263 | | | 1,443 | | | 350 | | | 174 | | | 399 | | | 279 | |
| Expected return on assets | | (4,483) | | | — | | | (1,394) | | | (1,499) | | | (2,568) | | | (791) | |
| | | | | | | | | | | | |
| Amortization of prior service cost/(credit) | | 471 | | | (1,158) | | | (443) | | | (229) | | | (1,093) | | | (80) | |
| Amortization of net (gain) loss | | 218 | | | (186) | | | 56 | | | (225) | | | 162 | | | 30 | |
| Net other postretirement benefit cost (income) | | ($1,417) | | | $1,507 | | | ($1,092) | | | ($1,680) | | | ($2,769) | | | ($252) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2021 | | Entergy
Arkansas | | Entergy
Louisiana | | Entergy
Mississippi | | Entergy
New Orleans | | Entergy
Texas | | System
Energy |
| | (In Thousands) |
| Service cost - benefits earned during the period | | $1,034 | | | $1,544 | | | $362 | | | $109 | | | $346 | | | $335 | |
| Interest cost on APBO | | 932 | | | 1,130 | | | 278 | | | 130 | | | 317 | | | 220 | |
| Expected return on assets | | (4,505) | | | — | | | (1,384) | | | (1,438) | | | (2,548) | | | (789) | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Amortization of prior service credit | | (280) | | | (1,230) | | | (444) | | | (229) | | | (936) | | | (109) | |
| Amortization of net (gain) loss | | 49 | | | (91) | | | 19 | | | (178) | | | 100 | | | 15 | |
| Net other postretirement benefit cost (income) | | ($2,770) | | | $1,353 | | | ($1,169) | | | ($1,606) | | | ($2,721) | | | ($328) | |
The Registrant Subsidiaries’ other postretirement benefit cost (income), including amounts capitalized, for their employees for the nine months ended September 30, 2022 and 2021, included the following components:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | Entergy
Arkansas | | Entergy
Louisiana | | Entergy
Mississippi | | Entergy
New Orleans | | Entergy
Texas | | System
Energy |
| | (In Thousands) |
| Service cost - benefits earned during the period | | $3,342 | | | $4,224 | | | $1,017 | | | $297 | | | $993 | | | $930 | |
| Interest cost on APBO | | 3,789 | | | 4,329 | | | 1,050 | | | 522 | | | 1,197 | | | 837 | |
| Expected return on assets | | (13,449) | | | — | | | (4,182) | | | (4,497) | | | (7,704) | | | (2,373) | |
| Amortization of prior service cost/(credit) | | 1,413 | | | (3,474) | | | (1,329) | | | (687) | | | (3,279) | | | (240) | |
| Amortization of net (gain) loss | | 654 | | | (558) | | | 168 | | | (675) | | | 486 | | | 90 | |
| Net other postretirement benefit cost (income) | | ($4,251) | | | $4,521 | | | ($3,276) | | | ($5,040) | | | ($8,307) | | | ($756) | |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2021 | | Entergy
Arkansas | | Entergy
Louisiana | | Entergy
Mississippi | | Entergy
New Orleans | | Entergy
Texas | | System
Energy |
| | (In Thousands) |
| Service cost - benefits earned during the period | | $3,102 | | | $4,632 | | | $1,086 | | | $327 | | | $1,038 | | | $1,005 | |
| Interest cost on APBO | | 2,796 | | | 3,390 | | | 834 | | | 390 | | | 951 | | | 660 | |
| Expected return on assets | | (13,515) | | | — | | | (4,152) | | | (4,314) | | | (7,644) | | | (2,367) | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Amortization of prior service credit | | (840) | | | (3,690) | | | (1,332) | | | (687) | | | (2,808) | | | (327) | |
| Amortization of net (gain) loss | | 147 | | | (273) | | | 57 | | | (534) | | | 300 | | | 45 | |
| Net other postretirement benefit cost (income) | | ($8,310) | | | $4,059 | | | ($3,507) | | | ($4,818) | | | ($8,163) | | | ($984) | |
Reclassification out of Accumulated Other Comprehensive Income (Loss)
Entergy and Entergy Louisiana reclassified the following costs out of accumulated other comprehensive income (loss) (before taxes and including amounts capitalized) for the third quarters of 2022 and 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | Qualified
Pension
Costs | | Other
Postretirement
Costs | | Non-Qualified
Pension Costs | | Total |
| | (In Thousands) | | |
| Entergy | | | | | | | | |
| Amortization of prior service (cost) credit | | $— | | | $4,014 | | | ($177) | | | $3,837 | |
| Amortization of net loss | | (3,976) | | | (596) | | | (298) | | | (4,870) | |
| | | | | | | | |
| Settlement loss | | (14,263) | | | — | | | (76) | | | (14,339) | |
| | ($18,239) | | | $3,418 | | | ($551) | | | ($15,372) | |
| Entergy Louisiana | | | | | | | | |
| Amortization of prior service credit | | $— | | | $1,158 | | | $— | | | $1,158 | |
| Amortization of net gain (loss) | | (407) | | | 186 | | | (1) | | | (222) | |
| Settlement loss | | (1,340) | | | — | | | — | | | (1,340) | |
| | ($1,747) | | | $1,344 | | | ($1) | | | ($404) | |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2021 | | Qualified
Pension
Costs | | Other
Postretirement
Costs | | Non-Qualified
Pension Costs | | Total |
| | (In Thousands) | | |
| Entergy | | | | | | | | |
| Amortization of prior service (cost) credit | | $— | | | $5,288 | | | ($40) | | | $5,248 | |
| Amortization of net loss | | (12,439) | | | (496) | | | (555) | | | (13,490) | |
| | | | | | | | |
| Settlement loss | | (2,731) | | | — | | | (461) | | | (3,192) | |
| | ($15,170) | | | $4,792 | | | ($1,056) | | | ($11,434) | |
| Entergy Louisiana | | | | | | | | |
| Amortization of prior service credit | | $— | | | $1,230 | | | $— | | | $1,230 | |
| Amortization of net gain (loss) | | (609) | | | 91 | | | (1) | | | (519) | |
| Settlement loss | | (528) | | | — | | | (6) | | | (534) | |
| | ($1,137) | | | $1,321 | | | ($7) | | | $177 | |
Entergy and Entergy Louisiana reclassified the following costs out of accumulated other comprehensive income (loss) (before taxes and including amounts capitalized) for the nine months ended September 30, 2022 and 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | Qualified
Pension
Costs | | Other
Postretirement
Costs | | Non-Qualified
Pension Costs | | Total |
| | (In Thousands) | | |
| Entergy | | | | | | | | |
| Amortization of prior service (cost) credit | | $— | | | $12,042 | | | ($531) | | | $11,511 | |
| Amortization of net loss | | (26,921) | | | (1,788) | | | (1,065) | | | (29,774) | |
| | | | | | | | |
| Settlement loss | | (14,441) | | | — | | | (1,225) | | | (15,666) | |
| | ($41,362) | | | $10,254 | | | ($2,821) | | | ($33,929) | |
| Entergy Louisiana | | | | | | | | |
| Amortization of prior service credit | | $— | | | $3,474 | | | $— | | | $3,474 | |
| Amortization of net gain (loss) | | (1,404) | | | 558 | | | (3) | | | (849) | |
| Settlement loss | | (1,518) | | | — | | | — | | | (1,518) | |
| | ($2,922) | | | $4,032 | | | ($3) | | | $1,107 | |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2021 | | Qualified
Pension
Costs | | Other
Postretirement
Costs | | Non-Qualified
Pension Costs | | Total |
| | (In Thousands) | | |
| Entergy | | | | | | | | |
| Amortization of prior service (cost) credit | | $— | | | $15,864 | | | ($120) | | | $15,744 | |
| Amortization of net loss | | (72,322) | | | (1,486) | | | (1,745) | | | (75,553) | |
| | | | | | | | |
| Settlement loss | | (8,774) | | | — | | | (461) | | | (9,235) | |
| | ($81,096) | | | $14,378 | | | ($2,326) | | | ($69,044) | |
| Entergy Louisiana | | | | | | | | |
| Amortization of prior service credit | | $— | | | $3,690 | | | $— | | | $3,690 | |
| Amortization of net gain (loss) | | (2,093) | | | 273 | | | (4) | | | (1,824) | |
| Settlement loss | | (1,928) | | | — | | | (6) | | | (1,934) | |
| | ($4,021) | | | $3,963 | | | ($10) | | | ($68) | |
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.
Qualified Pension Settlement Cost
Year-to-date lump sum benefit payments from the Entergy Corporation Retirement Plan for Bargaining Employees, the Entergy Corporation Retirement Plan for Non-Bargaining Employees, the Entergy Corporation Retirement Plan II for Bargaining Employees, and the Entergy Corporation Retirement Plan II for Non-Bargaining Employees exceeded the sum of the Plan’s 2022 service and interest cost, resulting in settlement costs. In accordance with accounting standards, settlement accounting requires immediate recognition of the portion of previously unrecognized losses associated with the settled portion of the plan’s pension liability. Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy each participate in one or both of the Entergy Corporation Retirement Plan for Bargaining Employees and the Entergy Corporation Retirement Plan for Non-Bargaining Employees and incurred settlement costs. Similar to other pension costs, the settlement costs were included with employee labor costs and charged to expense and capital in the same manner that labor costs were charged. Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans each received regulatory approval to defer the expense portion of the settlement costs, with future amortization of the deferred settlement expense over the period in which the expense otherwise would be recorded had the immediate recognition not occurred.
Entergy Texas Reserve
In September 2020, Entergy Texas elected to establish a reserve, in accordance with PUCT regulations, for the difference between the amount recorded for pension and other postretirement benefits expense under generally accepted accounting principles during 2019, the first year that rates from Entergy Texas’s last general rate proceeding were in effect, and the annual amount of actuarially determined pension and other postretirement benefits chargeable to Entergy Texas’s expense. The reserve amount will be evaluated in the base rate case that was filed with the PUCT in July 2022 and a reasonable amortization period will be determined by the PUCT. At September 30, 2022, the balance in this reserve was approximately $25.4 million.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Employer Contributions
Based on current assumptions, Entergy expects to contribute $400 million to its qualified pension plans in 2022. As of September 30, 2022, Entergy had contributed $170 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 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Entergy
Arkansas | | Entergy
Louisiana | | Entergy
Mississippi | | Entergy
New Orleans | | Entergy
Texas | | System
Energy |
| (In Thousands) |
| Expected 2022 pension contributions | $78,605 | | | $41,641 | | | $27,716 | | | $922 | | | $1,924 | | | $26,376 | |
| Pension contributions made through September 2022 | $44,300 | | | $24,319 | | | $15,685 | | | $922 | | | $1,632 | | | $12,754 | |
| Remaining estimated pension contributions to be made in 2022 | $34,305 | | | $17,322 | | | $12,031 | | | $— | | | $292 | | | $13,622 | |
NOTE 7. BUSINESS SEGMENT INFORMATION (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)
Entergy’s reportable segments as of September 30, 2022 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. See Note 13 to the financial statements in the Form 10-K and Note 14 to the financial statements herein for discussion of the shutdown and sale of each of the Entergy Wholesale Commodities nuclear power plants. With the sale of Palisades in June 2022, Entergy completed its multi-year strategy to exit the merchant nuclear power business. “All Other” includes the parent company, Entergy Corporation, and other business activity.
Entergy’s segment financial information for the third quarters of 2022 and 2021 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Utility | | Entergy
Wholesale
Commodities | | All Other | | Eliminations | | Consolidated |
| | (In Thousands) |
| 2022 | | | | | | | | | | |
| Operating revenues | | $4,156,616 | | | $62,009 | | | $— | | | ($10) | | | $4,218,615 | |
| Income taxes | | $178,088 | | | $18,252 | | | ($12,228) | | | $— | | | $184,112 | |
| Consolidated net income (loss) | | $667,162 | | | ($18,745) | | | ($37,125) | | | ($55,410) | | | $555,882 | |
| | | | | | | | | | |
| 2021 | | | | | | | | | | |
| Operating revenues | | $3,191,240 | | | $162,275 | | | $24 | | | ($7) | | | $3,353,532 | |
| Income taxes | | $159,472 | | | $8,836 | | | ($10,026) | | | $— | | | $158,282 | |
| Consolidated net income (loss) | | $574,399 | | | $26,064 | | | ($32,982) | | | ($31,898) | | | $535,583 | |
| | | | | | | | | | |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Entergy’s segment financial information for the nine months ended September 30, 2022 and 2021 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Utility | | Entergy
Wholesale
Commodities | | All Other | | Eliminations | | Consolidated |
| | (In Thousands) |
| 2022 | | | | | | | | | | |
| Operating revenues | | $10,191,041 | | | $300,720 | | | $— | | | ($24) | | | $10,491,737 | |
| Income taxes | | ($118,257) | | | $46,340 | | | ($37,117) | | | $— | | | ($109,034) | |
| Consolidated net income (loss) | | $1,166,866 | | | $76,501 | | | ($113,273) | | | ($130,608) | | | $999,486 | |
| Total assets as of September 30, 2022 | | $61,784,169 | | | $465,865 | | | $603,672 | | | ($3,878,411) | | | $58,975,295 | |
| 2021 | | | | | | | | | | |
| Operating revenues | | $8,461,241 | | | $559,150 | | | $77 | | | ($28) | | | $9,020,440 | |
| Income taxes | | $290,566 | | | ($47,299) | | | ($37,459) | | | $— | | | $205,808 | |
| Consolidated net income (loss) | | $1,264,933 | | | ($210,460) | | | ($85,445) | | | ($95,695) | | | $873,333 | |
| Total assets as of December 31, 2021 | | $59,733,625 | | | $1,242,675 | | | $561,168 | | | ($2,083,226) | | | $59,454,242 | |
The Entergy Wholesale Commodities business is sometimes referred to as the “competitive businesses.” Eliminations are primarily intersegment activity. Almost all of Entergy’s goodwill is related to the Utility segment.
As discussed in Note 13 to the financial statements in the Form 10-K, Entergy management implemented a strategy to manage and reduce the risk of the Entergy Wholesale Commodities business, which included the shutdown and sale of all plants in its merchant nuclear fleet. With the sale of Palisades in June 2022, Entergy has exited the merchant nuclear power business. The decisions to shut down these plants and the related 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 third quarters of 2022 and 2021 were comprised of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | 2021 |
| 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 July 1, | $40 | | | $— | | | $40 | | | $33 | | | $— | | | $33 | |
| Restructuring costs accrued | — | | | — | | | — | | | 2 | | | — | | | 2 | |
| | | | | | | | | | | |
| Cash paid out | 40 | | | — | | | 40 | | | — | | | — | | | — | |
| Balance as of September 30, | $— | | | $— | | | $— | | | $35 | | | $— | | | $35 | |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Total restructuring charges for the nine months ended September 30, 2022 and 2021 were comprised of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | 2021 |
| 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, | $37 | | | $— | | | $37 | | | $145 | | | $14 | | | $159 | |
| Restructuring costs accrued | 3 | | | — | | | 3 | | | 9 | | | 1 | | | 10 | |
| Cash paid out | 40 | | | — | | | 40 | | | 119 | | | 15 | | | 134 | |
| Balance as of September 30, | $— | | | $— | | | $— | | | $35 | | | $— | | | $35 | |
In addition, Entergy Wholesale Commodities recorded a gain of $166 million in the nine months ended September 30, 2022 as a result of the sale of the Palisades plant, as well as $1 million of impairment and other related charges, and $345 million in the nine months ended September 30, 2021 of impairment and other related charges, including a $340 million loss as a result of the sale of the Indian Point Energy Center, associated with these strategic decisions and transactions.
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 was selling energy, measured in MWh, to its customers. Entergy Wholesale Commodities entered into forward contracts with its customers and also sold energy and capacity in the day ahead or spot markets. In addition to its forward physical power and gas
Entergy Corporation and Subsidiaries
Notes to Financial Statements
contracts, Entergy Wholesale Commodities used a combination of financial contracts, including swaps, collars, and options, to mitigate commodity price risk. When the market price fell, the combination of financial contracts was expected to settle in gains that offset lower revenue from generation, which resulted in a more predictable cash flow.
Consistent with management’s strategy to shut down and sell all plants in the Entergy Wholesale Commodities merchant fleet, the Entergy Wholesale Commodities portfolio of derivative instruments expired in April 2021, which was the settlement date for the last financial derivative contracts in the Entergy Wholesale Commodities portfolio.
Entergy’s exposure to market risk is determined by a number of factors, including the size, term, composition, and diversification of positions held, as well as market volatility and liquidity. For instruments such as options, the time period during which the option may be exercised and the relationship between the current market price of the underlying instrument and the option’s contractual strike or exercise price also affects the level of market risk. A significant factor influencing the overall level of market risk to which Entergy is exposed is its use of hedging techniques to mitigate such risk. Hedging instruments and volumes are chosen based on ability to mitigate risk associated with future energy and capacity prices; however, other considerations are factored into hedge product and volume decisions including corporate liquidity, corporate credit ratings, counterparty credit risk, hedging costs, firm settlement risk, and product availability in the marketplace. Entergy manages market risk by actively monitoring compliance with stated risk management policies as well as monitoring the effectiveness of its hedging policies and strategies. Entergy’s risk management policies limit the amount of total net exposure and rolling net exposure during the stated periods. These policies, including related risk limits, are regularly assessed to ensure their appropriateness given Entergy’s objectives.
Derivatives
Some derivative instruments are classified as cash flow hedges due to their financial settlement provisions while others are classified as normal purchase/normal sale transactions due to their physical settlement provisions. Normal purchase/normal sale risk management tools include power purchase and sales agreements, fuel purchase agreements, capacity contracts, and tolling agreements. Financially-settled cash flow hedges can include natural gas and electricity swaps and options. 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 entered 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 settled against day-ahead power pool prices were used to manage price exposure for Entergy Wholesale Commodities generation.
Entergy used standardized master netting agreements to help mitigate the credit risk of derivative instruments. These master agreements facilitated the netting of cash flows associated with a single counterparty and may have included collateral requirements. Cash, letters of credit, and parental/affiliate guarantees were obtained as security from counterparties in order to mitigate credit risk. The collateral agreements required a counterparty to post cash or letters of credit in the event an exposure exceeded an established threshold. The threshold represented an unsecured credit limit, which may have been supported by a parental/affiliate guarantee, as determined in accordance with Entergy’s credit policy. In addition, collateral agreements allowed 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 contained provisions that required 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 was an Entergy Corporation guarantee. If the Entergy Corporation credit rating fell below investment grade, Entergy would have had to post collateral equal to the estimated outstanding liability under the contract at the applicable date. There were no outstanding derivative contracts held by Entergy Wholesale Commodities as of
Entergy Corporation and Subsidiaries
Notes to Financial Statements
September 30, 2022 and December 31, 2021. Cash collateral of $8 million was required to be posted by the Entergy subsidiary to its counterparties as of September 30, 2022 and December 31, 2021.
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 has executed natural gas swaps and options as of September 30, 2022 is 1.5 years for Entergy Louisiana and the maximum length of time over which Entergy has executed natural gas swaps as of September 30, 2022 is 6 months, each, for Entergy Mississippi and Entergy New Orleans. The total volume of natural gas swaps and options outstanding as of September 30, 2022 is 22,880,037 MMBtu for Entergy, including 10,960,000 MMBtu for Entergy Louisiana, 10,701,000 MMBtu for Entergy Mississippi, and 1,219,037 MMBtu for Entergy New Orleans. 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.
During the second quarter 2022, Entergy participated in the annual financial transmission rights auction process for the MISO planning year of June 1, 2022 through May 31, 2023. 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 September 30, 2022 is 96,835 GWh for Entergy, including 22,176 GWh for Entergy Arkansas, 43,396 GWh for Entergy Louisiana, 10,515 GWh for Entergy Mississippi, 4,153 GWh for Entergy New Orleans, and 16,473 GWh for Entergy Texas. Credit support for financial transmission rights held by the Utility operating companies is covered by cash and/or letters of credit issued by each Utility operating company as required by MISO. Credit support for financial transmission rights held by Entergy Wholesale Commodities is covered by cash. No cash or letters of credit were required to be posted for financial transmission rights exposure for Entergy Wholesale Commodities as of September 30, 2022 and December 31, 2021. Letters of credit posted with MISO covered the financial transmission rights exposure for Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and Entergy Texas as of September 30, 2022 and for Entergy Mississippi and Entergy Texas as of December 31, 2021.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The fair values of Entergy’s derivative instruments in the consolidated balance sheet as of September 30, 2022 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 not designated as hedging instruments | | | | | | | | | | |
| Assets: | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| Natural gas swaps and options | | Prepayments and other | | $22 | | $— | | $22 | | Utility |
| Natural gas swaps and options | | Other deferred debits and other assets | | $8 | | $— | | $8 | | Utility |
| Financial transmission rights | | Prepayments and other | | $23 | | ($2) | | $21 | | Utility and Entergy Wholesale Commodities |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
The fair values of Entergy’s derivative instruments in the consolidated balance sheet as of December 31, 2021 are shown in the table below.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Instrument | | Balance Sheet Location | | Gross Fair Value (a) | | Offsetting Position (b) | | Net Fair Value (c) (d) | | Business |
| | | | (In Millions) | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| Derivatives not designated as hedging instruments | | | | | | | | | | |
| Assets: | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| Natural gas swaps and options | | Prepayments and other | | $6 | | $— | | $6 | | Utility |
| Natural gas swaps and options | | Other deferred debits and other assets | | $5 | | $— | | $5 | | Utility |
| Financial transmission rights | | Prepayments and other | | $4 | | $— | | $4 | | Utility and Entergy Wholesale Commodities |
| | | | | | | | | | |
| Liabilities: | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| Natural gas swaps and options | | Other current liabilities | | $7 | | $— | | $7 | | 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 $8 million posted as of September 30, 2022 and December 31, 2021. Also excludes letters of credit in the amount of $3 million posted as of September 30, 2022.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
As discussed above, the Entergy Wholesale Commodities portfolio of derivative instruments expired in April 2021, which was the settlement date for the last financial derivative contracts in the Entergy Wholesale Commodities portfolio. For the three months ended September 30, 2021, there were no effects resulting from Entergy’s derivative instruments designated as cash flow hedges on the consolidated income statements.
The effects of Entergy’s derivative instruments designated as cash flow hedges on the consolidated income statements for the nine months ended September 30, 2021 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) |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Electricity swaps and options | | $2 | | Competitive businesses operating revenues | | $40 |
(a) Before taxes of $8 million for the nine months ended September 30, 2021
Prior to the expiration of the Entergy Wholesale Commodities portfolio of derivative instruments, Entergy may have effectively liquidated 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 would have continued to be deferred in other comprehensive income until they were included in income as the original hedged transaction occurred. From the point of de-designation, the gains or losses on the original hedge and the offsetting contract were recorded as assets or liabilities on the balance sheet and offset as they flowed through to earnings.
The effects of Entergy’s derivative instruments not designated as hedging instruments on the consolidated income statements for the three months ended September 30, 2022 and 2021 were as follows:
| | | | | | | | | | | | | | |
| | | | |
| Instrument | | Income Statement
location | | Amount of gain (loss)
recorded in the income statement |
| | | | (In Millions) |
| 2022 | | | | |
| Natural gas swaps | | Fuel, fuel-related expenses, and gas purchased for resale | (a) | $42 |
| Financial transmission rights | | Purchased power expense | (b) | $30 |
| | | | |
| | | | |
| 2021 | | | | |
| Natural gas swaps | | Fuel, fuel-related expenses, and gas purchased for resale | (a) | $37 |
| Financial transmission rights | | Purchased power expense | (b) | $18 |
| Electricity swaps and options (c) | | Competitive business operating revenues | | $— |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The effects of Entergy’s derivative instruments not designated as hedging instruments on the consolidated income statements for the nine months ended September 30, 2022 and 2021 were as follows:
| | | | | | | | | | | | | | |
| Instrument | | Income Statement
location | | Amount of gain (loss)
recorded in the income statement |
| | | | (In Millions) |
| 2022 | | | | |
| Natural gas swaps and options | | Fuel, fuel-related expenses, and gas purchased for resale | (a) | $120 |
| Financial transmission rights | | Purchased power expense | (b) | $90 |
| | | | |
| | | | |
| 2021 | | | | |
| Natural gas swaps and options | | Fuel, fuel-related expenses, and gas purchased for resale | (a) | $62 |
| Financial transmission rights | | Purchased power expense | (b) | $162 |
| Electricity swaps and options (c) | | Competitive business operating revenues | | ($2) |
(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 prior to the expiration of the Entergy Wholesale Commodities portfolio of derivative instruments in April 2021.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The fair values of the Registrant Subsidiaries’ derivative instruments not designated as hedging instruments on their balance sheets as of September 30, 2022 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 | | $20.1 | | $— | | $20.1 | | Entergy Louisiana |
| Natural gas swaps and options | | Other deferred debits and other assets | | $8.0 | | $— | | $8.0 | | Entergy Louisiana |
| Natural gas swaps | | Prepayments and other | | $2.0 | | $— | | $2.0 | | Entergy Mississippi |
| | | | | | | | | | |
| | | | | | | | | | |
| Financial transmission rights | | Prepayments and other | | $9.6 | | $— | | $9.6 | | Entergy Arkansas |
| Financial transmission rights | | Prepayments and other | | $10.0 | | ($0.6) | | $9.4 | | Entergy Louisiana |
| Financial transmission rights | | Prepayments and other | | $1.5 | | $— | | $1.5 | | Entergy Mississippi |
| Financial transmission rights | | Prepayments and other | | $1.1 | | $— | | $1.1 | | Entergy New Orleans |
| | | | | | | | | | |
| | | | | | | | | | |
| Liabilities: | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| Natural gas swaps | | Other current liabilities | | $0.4 | | $— | | $0.4 | | Entergy New Orleans |
| | | | | | | | | | |
| Financial transmission rights | | Other current liabilities | | $0.9 | | ($1.3) | | ($0.4) | | Entergy Texas |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The fair values of the Registrant Subsidiaries’ derivative instruments not designated as hedging instruments on their balance sheets as of December 31, 2021 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 | | Prepayments and other | | $5.7 | | $— | | $5.7 | | Entergy Louisiana |
| Natural gas swaps and options | | Other deferred debits and other assets | | $5.3 | | $— | | $5.3 | | Entergy Louisiana |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| Financial transmission rights | | Prepayments and other | | $2.3 | | $— | | $2.3 | | Entergy Arkansas |
| Financial transmission rights | | Prepayments and other | | $0.6 | | $— | | $0.6 | | Entergy Louisiana |
| Financial transmission rights | | Prepayments and other | | $0.3 | | $— | | $0.3 | | Entergy Mississippi |
| Financial transmission rights | | Prepayments and other | | $0.1 | | $— | | $0.1 | | Entergy New Orleans |
| Financial transmission rights | | Prepayments and other | | $0.8 | | $— | | $0.8 | | Entergy Texas |
| | | | | | | | | | |
| Liabilities: | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| Natural gas swaps | | Other current liabilities | | $6.7 | | $— | | $6.7 | | Entergy Mississippi |
| Natural gas swaps | | Other current liabilities | | $0.5 | | $— | | $0.5 | | 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 September 30, 2022, letters of credit posted with MISO covered financial transmission rights exposure of $0.9 million for Entergy Louisiana, $0.8 million for Entergy Mississippi, $0.1 million for Entergy New Orleans, and $0.8 million for Entergy Texas. As of December 31, 2021, letters of credit posted with MISO covered financial transmission rights exposure of $0.2 million for Entergy Mississippi and $0.1 million for Entergy Texas.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The effects of the Registrant Subsidiaries’ derivative instruments not designated as hedging instruments on their income statements for the three months ended September 30, 2022 and 2021 were as follows:
| | | | | | | | | | | | | | | | | | | | |
| | | | | | |
| Instrument | | Income Statement Location | | Amount of gain
(loss) recorded
in the income statement | | Registrant |
| | | | (In Millions) | | |
| 2022 | | | | | | |
| Natural gas swaps and options | | Fuel, fuel-related expenses, and gas purchased for resale | | $17.9 | (a) | Entergy Louisiana |
| Natural gas swaps | | Fuel, fuel-related expenses, and gas purchased for resale | | $24.4 | (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 | | $12.4 | (b) | Entergy Arkansas |
| Financial transmission rights | | Purchased power expense | | $10.2 | (b) | Entergy Louisiana |
| Financial transmission rights | | Purchased power expense | | $4.8 | (b) | Entergy Mississippi |
| Financial transmission rights | | Purchased power expense | | $0.6 | (b) | Entergy New Orleans |
| Financial transmission rights | | Purchased power expense | | $2.3 | (b) | Entergy Texas |
| | | | | | |
| 2021 | | | | | | |
| Natural gas swaps and options | | Fuel, fuel-related expenses, and gas purchased for resale | | $9.4 | (a) | Entergy Louisiana |
| Natural gas swaps | | Fuel, fuel-related expenses, and gas purchased for resale | | $25.6 | (a) | Entergy Mississippi |
| Natural gas swaps | | Fuel, fuel-related expenses, and gas purchased for resale | | $2.2 | (a) | Entergy New Orleans |
| | | | | | |
| Financial transmission rights | | Purchased power expense | | $4.5 | (b) | Entergy Arkansas |
| Financial transmission rights | | Purchased power expense | | $8.7 | (b) | Entergy Louisiana |
| Financial transmission rights | | Purchased power expense | | $1.5 | (b) | Entergy Mississippi |
| Financial transmission rights | | Purchased power expense | | $0.6 | (b) | Entergy New Orleans |
| Financial transmission rights | | Purchased power expense | | $2.6 | (b) | Entergy Texas |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The effects of the Registrant Subsidiaries’ derivative instruments not designated as hedging instruments on their income statements for the nine months ended September 30, 2022 and 2021 were as follows:
| | | | | | | | | | | | | | | | | | | | |
| Instrument | | Income Statement Location | | Amount of gain
(loss) recorded
in the income statement | | Registrant |
| | | | (In Millions) | | |
| 2022 | | | | | | |
| Natural gas swaps and options | | Fuel, fuel-related expenses, and gas purchased for resale | | $37.7 | (a) | Entergy Louisiana |
| Natural gas swaps | | Fuel, fuel-related expenses, and gas purchased for resale | | $81.9 | (a) | Entergy Mississippi |
| Natural gas swaps | | Fuel, fuel-related expenses, and gas purchased for resale | | $0.7 | (a) | Entergy New Orleans |
| | | | | | |
| Financial transmission rights | | Purchased power expense | | $35.8 | (b) | Entergy Arkansas |
| Financial transmission rights | | Purchased power expense | | $35.7 | (b) | Entergy Louisiana |
| Financial transmission rights | | Purchased power expense | | $8.0 | (b) | Entergy Mississippi |
| Financial transmission rights | | Purchased power expense | | $3.0 | (b) | Entergy New Orleans |
| Financial transmission rights | | Purchased power expense | | $7.2 | (b) | Entergy Texas |
| | | | | | |
| 2021 | | | | | | |
| Natural gas swaps and options | | Fuel, fuel-related expenses, and gas purchased for resale | | $16.1 | (a) | Entergy Louisiana |
| Natural gas swaps | | Fuel, fuel-related expenses, and gas purchased for resale | | $44 | (a) | Entergy Mississippi |
| Natural gas swaps | | Fuel, fuel-related expenses, and gas purchased for resale | | $2.2 | (a) | Entergy New Orleans |
| | | | | | |
| Financial transmission rights | | Purchased power expense | | $34 | (b) | Entergy Arkansas |
| Financial transmission rights | | Purchased power expense | | $26.8 | (b) | Entergy Louisiana |
| Financial transmission rights | | Purchased power expense | | $9.4 | (b) | Entergy Mississippi |
| Financial transmission rights | | Purchased power expense | | $2.6 | (b) | Entergy New Orleans |
| Financial transmission rights | | Purchased power expense | | $85.3 | (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.
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
Entergy Corporation and Subsidiaries
Notes to Financial Statements
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 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.
Consistent with management’s strategy to shut down and sell all plants in the Entergy Wholesale Commodities merchant fleet, the Entergy Wholesale Commodities portfolio of derivative instruments expired in
Entergy Corporation and Subsidiaries
Notes to Financial Statements
April 2021, which was the settlement date for the last financial derivative contracts in the Entergy Wholesale Commodities portfolio.
The values for power contract assets or liabilities prior to expiration in April 2021 were 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 were classified as Level 3 assets and liabilities. The valuations of these assets and liabilities were 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 included: 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 was also responsible for managing the energy trading and risk management system, forecasting revenues, forward positions and analysis. The Entergy Wholesale Commodities Accounting group performed 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 were based on the estimated amount that the contracts were 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 equaled the estimated amount receivable to or payable by Entergy if the contracts were settled at that date. These derivative contracts included cash flow hedges that swapped fixed for floating cash flows for sales of the output from the Entergy Wholesale Commodities business. The fair values were 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 were recorded as derivative contract assets or liabilities. For contracts that had unit contingent terms, a further discount was 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 were valued based on a Black Scholes model, and were calculated at the end of each month for accounting purposes. Inputs to the valuation included end of day forward market prices for the period when the transactions settled, 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 were reviewed and could be adjusted if it was determined that there was a better representation of fair value.
On a daily basis, the Office of Corporate Risk Oversight calculated the mark-to-market for electricity swaps and options. The Office of Corporate Risk Oversight also validated forward market prices by comparing them to other sources of forward market prices or to settlement prices of actual market transactions. Significant differences were 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 were 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 confirmed the mark-to-market calculations and prepared price scenarios and credit downgrade scenario analysis. The scenario analysis was communicated to senior management within Entergy and within Entergy Wholesale Commodities. Finally, for all proposed derivative transactions, an analysis was completed to assess the risk of adding the proposed derivative to Entergy Wholesale Commodities’ portfolio. In particular, the credit and liquidity effects were calculated for this analysis. This analysis was communicated to senior management within Entergy and Entergy Wholesale Commodities.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
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 reviews these valuations for reasonableness, with the assistance of others within the organization with knowledge of the various inputs and assumptions used in the valuation. The 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 are accounted for at fair value on a recurring basis as of September 30, 2022 and December 31, 2021. 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.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | (In Millions) |
| Assets: | | | | | | | | |
| Temporary cash investments | | $923 | | | $— | | | $— | | | $923 | |
| | | | | | | | |
| Decommissioning trust funds (a): | | | | | | | | |
| Equity securities | | 15 | | | — | | | — | | | 15 | |
| Debt securities (b) | | 553 | | | 1,073 | | | — | | | 1,626 | |
| Common trusts (c) | | | | | | | | 2,269 | |
| | | | | | | | |
| Securitization recovery trust account | | 27 | | | — | | | — | | | 27 | |
| Escrow accounts | | 332 | | | — | | | — | | | 332 | |
| Gas hedge contracts | | 22 | | | 8 | | | — | | | 30 | |
| Financial transmission rights | | — | | | — | | | 21 | | | 21 | |
| | $1,872 | | | $1,081 | | | $21 | | | $5,243 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2021 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | (In Millions) |
| Assets: | | | | | | | | |
| Temporary cash investments | | $398 | | | $— | | | $— | | | $398 | |
| Decommissioning trust funds (a): | | | | | | | | |
| Equity securities | | 132 | | | — | | | — | | | 132 | |
| Debt securities (b) | | 770 | | | 1,407 | | | — | | | 2,177 | |
| Common trusts (c) | | | | | | | | 3,205 | |
| | | | | | | | |
| Securitization recovery trust account | | 29 | | | — | | | — | | | 29 | |
| Escrow accounts | | 49 | | | — | | | — | | | 49 | |
| Gas hedge contracts | | 6 | | | 5 | | | — | | | 11 | |
| Financial transmission rights | | — | | | — | | | 4 | | | 4 | |
| | | $1,384 | | | $1,412 | | | $4 | | | $6,005 | |
| Liabilities: | | | | | | | | |
| | | | | | | | |
| Gas hedge contracts | | $7 | | | $— | | | $— | | | $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 pursuant to ASU 2016-13 of a credit loss valuation allowance of $0.4 million as of December 31, 2021 on debt
Entergy Corporation and Subsidiaries
Notes to Financial Statements
securities. See Note 9 to the financial statements herein for additional information on the allowance for expected credit losses.
(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 September 30, 2022 and 2021:
| | | | | | | | | | | | | | | | | | | |
| | 2022 | | | 2021 |
| | | Financial transmission rights | | | | Financial transmission rights |
| | (In Millions) |
| Balance as of July 1, | | | $12 | | | | | $15 | |
| Total gains (losses) for the period | | | | | | | |
| | | | | | | |
| | | | | | | |
| Included as a regulatory liability/asset | | | 39 | | | | | 11 | |
| | | | | | | |
| | | | | | | |
| Settlements | | | (30) | | | | | (18) | |
| Balance as of September 30, | | | $21 | | | | | $8 | |
The following table sets forth a reconciliation of changes in the net assets (liabilities) for the fair value of derivatives classified as Level 3 in the fair value hierarchy for the nine months ended September 30, 2022 and 2021:
| | | | | | | | | | | | | | | | | | | |
| | | 2022 | | 2021 |
| | | Financial transmission rights | | Power Contracts | | Financial transmission rights |
| | | (In Millions) |
| Balance as of January 1, | | | $4 | | | $38 | | | $9 | |
| Total gains (losses) for the period | | | | | | | |
| Included in earnings | | | — | | | (2) | | | — | |
| Included in other comprehensive income | | | — | | | 2 | | | — | |
| Included as a regulatory liability/asset | | | 91 | | | — | | | 149 | |
| Issuances of financial transmission rights | | | 16 | | | — | | | 12 | |
| | | | | | | |
| Settlements | | | (90) | | | (38) | | | (162) | |
| Balance as of September 30, | | | $21 | | | $— | | | $8 | |
The fair values of the Level 3 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) |
| | | | | | | | |
| | | | | | | | |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The following table sets forth, by level within the fair value hierarchy, the Registrant Subsidiaries’ assets and liabilities that are accounted for at fair value on a recurring basis as of September 30, 2022 and December 31, 2021. The assessment of the significance of a particular input to a fair value measurement requires judgment and may affect its placement within the fair value hierarchy levels.
Entergy Arkansas
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | (In Millions) |
| Assets: | | | | | | | | |
| Temporary cash investments | | $76.9 | | | $— | | | $— | | | $76.9 | |
| Decommissioning trust funds (a): | | | | | | | | |
| Equity securities | | 6.7 | | | — | | | — | | | 6.7 | |
| Debt securities | | 134.4 | | | 326.7 | | | — | | | 461.1 | |
| Common trusts (b) | | | | | | | | 673.9 | |
| | | | | | | | |
| | | | | | | | |
| Financial transmission rights | | — | | | — | | | 9.6 | | | 9.6 | |
| | $218.0 | | | $326.7 | | | $9.6 | | | $1,228.2 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2021 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | (In Millions) |
| Assets: | | | | | | | | |
| Temporary cash investments | | $4.8 | | | $— | | | $— | | | $4.8 | |
| Decommissioning trust funds (a): | | | | | | | | |
| Equity securities | | 16.7 | | | — | | | — | | | 16.7 | |
| Debt securities | | 119.5 | | | 406.8 | | | — | | | 526.3 | |
| Common trusts (b) | | | | | | | | 895.4 | |
| | | | | | | | |
| | | | | | | | |
| Financial transmission rights | | — | | | — | | | 2.3 | | | 2.3 | |
| | $141.0 | | | $406.8 | | | $2.3 | | | $1,445.5 | |
Entergy Louisiana
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | (In Millions) |
| Assets: | | | | | | | | |
| Temporary cash investments | | $195.3 | | | $— | | | $— | | | $195.3 | |
| | | | | | | | |
| Decommissioning trust funds (a): | | | | | | | | |
| Equity securities | | 5.4 | | | — | | | — | | | 5.4 | |
| Debt securities | | 210.5 | | | 504.2 | | | — | | | 714.7 | |
| Common trusts (b) | | | | | | | | 962.4 | |
| Escrow accounts | | 291.2 | | | — | | | — | | | 291.2 | |
| | | | | | | | |
| Gas hedge contracts | | 20.1 | | | 8.0 | | | — | | | 28.1 | |
| Financial transmission rights | | — | | | — | | | 9.4 | | | 9.4 | |
| | $722.5 | | | $512.2 | | | $9.4 | | | $2,206.5 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2021 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | | (In Millions) |
| Assets: | | | | | | | | |
| Temporary cash investments | | $18.4 | | | $— | | | $— | | | $18.4 | |
| Decommissioning trust funds (a): | | | | | | | | |
| Equity securities | | 20.2 | | | — | | | — | | | 20.2 | |
| Debt securities | | 262.6 | | | 531.6 | | | — | | | 794.2 | |
| Common trusts (b) | | | | | | | | 1,300.1 | |
| | | | | | | | |
| | | | | | | | |
| Gas hedge contracts | | 5.7 | | | 5.3 | | | — | | | 11.0 | |
| Financial transmission rights | | — | | | — | | | 0.6 | | | 0.6 | |
| | | $306.9 | | | $536.9 | | | $0.6 | | | $2,144.5 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Entergy Mississippi
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | (In Millions) |
| Assets: | | | | | | | | |
| | | | | | | | |
| Escrow accounts | | $41.1 | | | $— | | | $— | | | $41.1 | |
| Gas hedge contracts | | 2.0 | | | — | | | — | | | 2.0 | |
| Financial transmission rights | | — | | | — | | | 1.5 | | | 1.5 | |
| | $43.1 | | | $— | | | $1.5 | | | $44.6 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2021 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | (In Millions) |
| Assets: | | | | | | | | |
| Temporary cash investments | | $47.6 | | | $— | | | $— | | | $47.6 | |
| Escrow accounts | | 48.9 | | | — | | | — | | | 48.9 | |
| | | | | | | | |
| Financial transmission rights | | — | | | — | | | 0.3 | | | 0.3 | |
| | | $96.5 | | | $— | | | $0.3 | | | $96.8 | |
| | | | | | | | |
| Liabilities: | | | | | | | | |
| Gas hedge contracts | | $6.7 | | | $— | | | $— | | | $6.7 | |
Entergy New Orleans
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | (In Millions) |
| Assets: | | | | | | | | |
| Temporary cash investments | | $17.6 | | | $— | | | $— | | | $17.6 | |
| Securitization recovery trust account | | 5.5 | | | — | | | — | | | 5.5 | |
| | | | | | | | |
| | | | | | | | |
| Financial transmission rights | | — | | | — | | | 1.1 | | | 1.1 | |
| | $23.1 | | | $— | | | $1.1 | | | $24.2 | |
| | | | | | | | |
| Liabilities: | | | | | | | | |
| Gas hedge contracts | | $0.4 | | | $— | | | $— | | | $0.4 | |
| | | | | | | | |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2021 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | (In Millions) |
| Assets: | | | | | | | | |
| Temporary cash investments | | $42.8 | | | $— | | | $— | | | $42.8 | |
| Securitization recovery trust account | | 2.0 | | | — | | | — | | | 2.0 | |
| | | | | | | | |
| | | | | | | | |
| Financial transmission rights | | — | | | — | | | 0.1 | | | 0.1 | |
| | $44.8 | | | $— | | | $0.1 | | | $44.9 | |
| | | | | | | | |
| Liabilities: | | | | | | | | |
| Gas hedge contracts | | $0.5 | | | $— | | | $— | | | $0.5 | |
Entergy Texas
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | (In Millions) |
Assets: | | | | | | | | |
| Temporary cash investments | | $208.8 | | | $— | | | $— | | | $208.8 | |
| Securitization recovery trust account | | 21.9 | | | — | | | — | | | 21.9 | |
| | | | | | | | |
| | $230.7 | | | $— | | | $— | | | $230.7 | |
| | | | | | | | |
| Liabilities: | | | | | | | | |
| Financial transmission rights | | $— | | | $— | | | $0.4 | | | $0.4 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2021 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | (In Millions) |
Assets: | | | | | | | | |
| | | | | | | | |
| Securitization recovery trust account | | $26.6 | | | $— | | | $— | | | $26.6 | |
| Financial transmission rights | | — | | | — | | | 0.8 | | | 0.8 | |
| | $26.6 | | | $— | | | $0.8 | | | $27.4 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
System Energy
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | (In Millions) |
| Assets: | | | | | | | | |
| Temporary cash investments | | $194.9 | | | $— | | | $— | | | $194.9 | |
| Decommissioning trust funds (a): | | | | | | | | |
| Equity securities | | 2.9 | | | — | | | — | | | 2.9 | |
| Debt Securities | | 208.5 | | | 242.2 | | | — | | | 450.7 | |
| Common trusts (b) | | | | | | | | 632.7 | |
| | $406.3 | | | $242.2 | | | $— | | | $1,281.2 | |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2021 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | (In Millions) |
| Assets: | | | | | | | | |
| Temporary cash investments | | $89.1 | | | $— | | | $— | | | $89.1 | |
| Decommissioning trust funds (a): | | | | | | | | |
| Equity securities | | 12.9 | | | — | | | — | | | 12.9 | |
| Debt securities | | 273.0 | | | 251.5 | | | — | | | 524.5 | |
| Common trusts (b) | | | | | | | | 847.9 | |
| | $375.0 | | | $251.5 | | | $— | | | $1,474.4 | |
(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 for the fair value of derivatives classified as Level 3 in the fair value hierarchy for the three months ended September 30, 2022.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Entergy
Arkansas | | Entergy
Louisiana | | Entergy
Mississippi | | Entergy
New
Orleans | | Entergy
Texas |
| | (In Millions) |
| Balance as of July 1, | $4.4 | | | $4.7 | | | $0.5 | | | $0.6 | | | $1.5 | |
| | | | | | | | | |
| Gains (losses) included as a regulatory liability/asset | 17.6 | | | 14.9 | | | 5.8 | | | 1.1 | | | 0.4 | |
| Settlements | (12.4) | | | (10.2) | | | (4.8) | | | (0.6) | | | (2.3) | |
| Balance as of September 30, | $9.6 | | | $9.4 | | | $1.5 | | | $1.1 | | | ($0.4) | |
The following table sets forth a reconciliation of changes in the net assets for the fair value of derivatives classified as Level 3 in the fair value hierarchy for the three months ended September 30, 2021.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Entergy
Arkansas | | Entergy
Louisiana | | Entergy
Mississippi | | Entergy
New
Orleans | | Entergy
Texas |
| | (In Millions) |
| Balance as of July 1, | $3.8 | | | $4.8 | | | $2.1 | | | $0.6 | | | $3.8 | |
| | | | | | | | | |
| Gains (losses) included as a regulatory liability/asset | 3.1 | | | 6.5 | | | — | | | 0.3 | | | 0.5 | |
| Settlements | (4.5) | | | (8.7) | | | (1.5) | | | (0.6) | | | (2.6) | |
| Balance as of September 30, | $2.4 | | | $2.6 | | | $0.6 | | | $0.3 | | | $1.7 | |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The following table sets forth a reconciliation of changes in the net assets for the fair value of derivatives classified as Level 3 in the fair value hierarchy for the nine months ended September 30, 2022.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Entergy
Arkansas | | Entergy
Louisiana | | Entergy
Mississippi | | Entergy
New
Orleans | | Entergy
Texas |
| | (In Millions) |
| Balance as of January 1, | $2.3 | | | $0.6 | | | $0.3 | | | $0.1 | | | $0.8 | |
| Issuances of financial transmission rights | 5.4 | | | 5.3 | | | 0.8 | | | 0.8 | | | 3.9 | |
| Gains (losses) included as a regulatory liability/asset | 37.7 | | | 39.2 | | | 8.4 | | | 3.2 | | | 2.1 | |
| Settlements | (35.8) | | | (35.7) | | | (8.0) | | | (3.0) | | | (7.2) | |
| Balance as of September 30, | $9.6 | | | $9.4 | | | $1.5 | | | $1.1 | | | ($0.4) | |
The following table sets forth a reconciliation of changes in the net assets for the fair value of derivatives classified as Level 3 in the fair value hierarchy for the nine months ended September 30, 2021.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Entergy
Arkansas | | Entergy
Louisiana | | Entergy
Mississippi | | Entergy
New
Orleans | | Entergy
Texas |
| | (In Millions) |
| Balance as of January 1, | $2.7 | | | $4.2 | | | $0.6 | | | $0.1 | | | $1.6 | |
| Issuances of financial transmission rights | 2.8 | | | 4.1 | | | 1.7 | | | 0.4 | | | 2.7 | |
| Gains (losses) included as a regulatory liability/asset | 30.9 | | | 21.1 | | | 7.7 | | | 2.4 | | | 82.7 | |
| Settlements | (34.0) | | | (26.8) | | | (9.4) | | | (2.6) | | | (85.3) | |
| Balance as of September 30, | $2.4 | | | $2.6 | | | $0.6 | | | $0.3 | | | $1.7 | |
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, and Grand Gulf. Entergy’s nuclear decommissioning trust funds invest in equity securities, fixed-rate debt securities, and cash and cash equivalents.
As discussed in Note 14 to the financial statements herein, in June 2022, Entergy completed the sale of Palisades to Holtec. As part of the transaction, Entergy transferred the Palisades decommissioning trust fund to Holtec. The disposition-date fair value of the decommissioning trust fund was approximately $552 million.
Entergy records decommissioning trust funds on the balance sheet at their fair value. Because of the ability of the Registrant Subsidiaries to recover decommissioning costs in rates and in accordance with the regulatory treatment for decommissioning trust funds, the Registrant Subsidiaries have recorded an offsetting amount of unrealized gains/(losses) on investment securities in other regulatory liabilities/assets. For the 30% interest in River Bend formerly owned by Cajun, Entergy Louisiana records an offsetting amount in other deferred credits for the unrealized trust earnings not currently expected to be needed to decommission the plant. Decommissioning trust funds for the Entergy Wholesale Commodities nuclear plants did not meet the criteria for regulatory accounting treatment. Accordingly, unrealized gains/(losses) recorded on the equity securities in the trust funds were 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
Entergy Corporation and Subsidiaries
Notes to Financial Statements
the accumulated other comprehensive income component of shareholders’ equity unless the unrealized loss is other than temporary and therefore recorded in earnings. Generally, Entergy records 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 and nine months ended September 30, 2022 on equity securities still held as of September 30, 2022 were ($120) million and ($767) million, respectively. 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 September 30, 2022 and December 31, 2021 are summarized as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Fair
Value | | Total
Unrealized
Gains | | Total
Unrealized
Losses |
| | (In Millions) |
| 2022 | | | | | | |
| Debt Securities | | $1,626 | | | $2 | | | $232 | |
| | | | | | |
| 2021 | | | | | | |
| Debt Securities | | $2,177 | | | $65 | | | $12 | |
The unrealized gains/(losses) above are reported before deferred taxes of $2 million as of December 31, 2021 for debt securities. As of September 30, 2022, there were no deferred taxes on unrealized gains/(losses). The amortized cost of available-for-sale debt securities was $1,856 million as of September 30, 2022 and $2,125 million as of December 31, 2021. As of September 30, 2022, available-for-sale debt securities had an average coupon rate of approximately 2.98%, an average duration of approximately 6.31 years, and an average maturity of approximately 10.38 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 September 30, 2022 and December 31, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2022 | | December 31, 2021 |
| | Fair
Value | | Gross
Unrealized
Losses | | Fair
Value | | Gross
Unrealized
Losses |
| | (In Millions) |
| Less than 12 months | | $1,211 | | | $165 | | | $770 | | | $8 | |
| More than 12 months | | 339 | | | 67 | | | 99 | | | 4 | |
| Total | | $1,550 | | | $232 | | | $869 | | | $12 | |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The fair value of available-for-sale debt securities, summarized by contractual maturities, as of September 30, 2022 and December 31, 2021 were as follows:
| | | | | | | | | | | |
| 2022 | | 2021 |
| (In Millions) |
| Less than 1 year | $77 | | | $— | |
| 1 year - 5 years | 526 | | | 473 | |
| 5 years - 10 years | 456 | | | 655 | |
| 10 years - 15 years | 111 | | | 389 | |
| 15 years - 20 years | 139 | | | 130 | |
| 20 years+ | 317 | | | 530 | |
| Total | $1,626 | | | $2,177 | |
During the three months ended September 30, 2022 and 2021, proceeds from the dispositions of available-for-sale securities amounted to $119 million and $354 million, respectively. During the three months ended September 30, 2022 and 2021, gross gains of $0.2 million and $8 million, respectively, and gross losses of $8 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.
During the nine months ended September 30, 2022 and 2021, proceeds from the dispositions of available-for-sale securities amounted to $755 million and $1,151 million, respectively. During the nine months ended September 30, 2022 and 2021, gross gains of $2 million and $24 million, respectively, and gross losses of $36 million and $15 million, respectively, related to available-for-sale securities were reclassified out of other comprehensive income or other regulatory liabilities/assets into earnings.
The fair value of the Palisades decommissioning trust fund as of December 31, 2021 was $576 million. The fair values of the decommissioning trust funds for the Registrant Subsidiaries’ nuclear plants are detailed below.
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 September 30, 2022 and December 31, 2021 are summarized as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Fair
Value | | Total
Unrealized
Gains | | Total
Unrealized
Losses |
| | (In Millions) |
| 2022 | | | | | | |
| Debt Securities | | $461.1 | | | $— | | | $73.7 | |
| | | | | | |
| 2021 | | | | | | |
| Debt Securities | | $526.3 | | | $11.4 | | | $4.7 | |
The amortized cost of available-for-sale debt securities was $534.8 million as of September 30, 2022 and $519.6 million as of December 31, 2021. As of September 30, 2022, the available-for-sale debt securities had an average coupon rate of approximately 2.22%, an average duration of approximately 5.81 years, and an average maturity of approximately 7.16 years.
The unrealized gains/(losses) recognized during the three and nine months ended September 30, 2022 on equity securities still held as of September 30, 2022 were ($35.3) million and ($229.2) million, respectively. The
Entergy Corporation and Subsidiaries
Notes to Financial Statements
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 September 30, 2022 and December 31, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2022 | | December 31, 2021 |
| | Fair
Value | | Gross
Unrealized
Losses | | Fair
Value | | Gross
Unrealized
Losses |
| | (In Millions) |
| Less than 12 months | | $288.3 | | | $40.5 | | | $183.8 | | | $2.9 | |
| More than 12 months | | 159.8 | | | 33.2 | | | 39.5 | | | 1.8 | |
| Total | | $448.1 | | | $73.7 | | | $223.3 | | | $4.7 | |
The fair value of available-for-sale debt securities, summarized by contractual maturities, as of September 30, 2022 and December 31, 2021 were as follows:
| | | | | | | | | | | |
| | 2022 | | 2021 |
| | (In Millions) |
| Less than 1 year | $40.5 | | | $— | |
| 1 year - 5 years | 156.7 | | | 91.7 | |
| 5 years - 10 years | 180.1 | | | 217.4 | |
| 10 years - 15 years | 34.5 | | | 146.0 | |
| 15 years - 20 years | 30.8 | | | 35.7 | |
| 20 years+ | 18.5 | | | 35.5 | |
| Total | $461.1 | | | $526.3 | |
During the three months ended September 30, 2022 and 2021, proceeds from the dispositions of available-for-sale securities amounted to $17.2 million and $20.6 million, respectively. During the three months ended September 30, 2022, there were no gross gains related to available-for-sale securities reclassified out of other regulatory liabilities/assets into earnings. During the three months ended September 30, 2021, gross gains of $0.7 million related to available-for-sale securities were reclassified out of other regulatory liabilities/assets into earnings. During the three months ended September 30, 2022 and 2021, gross losses of $2 million and $0.2 million, respectively, related to available-for-sale securities were reclassified out of other regulatory liabilities/assets into earnings.
During the nine months ended September 30, 2022 and 2021, proceeds from the dispositions of available-for-sale securities amounted to $33.1 million and $46.7 million, respectively. During the nine months ended September 30, 2022 and 2021, gross gains of $0.1 million and $2.3 million, respectively, and gross losses of $2.5 million and $0.3 million, respectively, related to available-for-sale securities were reclassified out of other regulatory liabilities/assets into earnings.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
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 September 30, 2022 and December 31, 2021 are summarized as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Fair
Value | | Total
Unrealized
Gains | | Total
Unrealized
Losses |
| | (In Millions) |
| 2022 | | | | | | |
| Debt Securities | | $714.7 | | | $1.8 | | | $86.6 | |
| | | | | | |
| 2021 | | | | | | |
| Debt Securities | | $794.2 | | | $31.3 | | | $3.3 | |
The amortized cost of available-for-sale debt securities was $799.5 million as of September 30, 2022 and $766.3 million as of December 31, 2021. As of September 30, 2022, the available-for-sale debt securities had an average coupon rate of approximately 3.67%, an average duration of approximately 6.65 years, and an average maturity of approximately 12.57 years.
The unrealized gains/(losses) recognized during the three and nine months ended September 30, 2022 on equity securities still held as of September 30, 2022 were ($51.6) million and ($322.9) million, respectively. 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 September 30, 2022 and December 31, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2022 | | December 31, 2021 |
| | Fair
Value | | Gross
Unrealized
Losses | | Fair
Value | | Gross
Unrealized
Losses |
| | (In Millions) |
| Less than 12 months | | $579.8 | | | $68.8 | | | $206.9 | | | $1.4 | |
| More than 12 months | | 76.5 | | | 17.8 | | | 42.9 | | | 1.9 | |
| Total | | $656.3 | | | $86.6 | | | $249.8 | | | $3.3 | |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The fair value of available-for-sale debt securities, summarized by contractual maturities, as of September 30, 2022 and December 31, 2021 were as follows:
| | | | | | | | | | | |
| 2022 | | 2021 |
| (In Millions) |
| Less than 1 year | $29.3 | | | $— | |
| 1 year - 5 years | 184.7 | | | 157.8 | |
| 5 years - 10 years | 152.6 | | | 173.0 | |
| 10 years - 15 years | 67.9 | | | 123.0 | |
| 15 years - 20 years | 80.5 | | | 80.2 | |
| 20 years+ | 199.7 | | | 260.2 | |
| Total | $714.7 | | | $794.2 | |
During the three months ended September 30, 2022 and 2021, proceeds from the dispositions of available-for-sale securities amounted to $47.6 million and $20.5 million, respectively. During the three months ended September 30, 2022 and 2021, gross gains of $0.2 million and $0.9 million, respectively, and gross losses of $2.8 million and $23.5 thousand, respectively, related to available-for-sale securities were reclassified out of other regulatory liabilities/assets into earnings.
During the nine months ended September 30, 2022 and 2021, proceeds from the dispositions of available-for-sale securities amounted to $288.5 million and $191.4 million, respectively. During the nine months ended September 30, 2022 and 2021, gross gains of $1.3 million and $5.6 million, respectively, and gross losses of $15 million and $3.4 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 September 30, 2022 and December 31, 2021 are summarized as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Fair
Value | | Total
Unrealized
Gains | | Total
Unrealized
Losses |
| | (In Millions) |
| 2022 | | | | | | |
| Debt Securities | | $450.7 | | | $0.1 | | | $71.2 | |
| | | | | | |
| 2021 | | | | | | |
| Debt Securities | | $524.5 | | | $11.8 | | | $2.9 | |
The amortized cost of available-for-sale debt securities was $521.8 million as of September 30, 2022 and $515.6 million as of December 31, 2021. As of September 30, 2022, the available-for-sale debt securities had an average coupon rate of approximately 2.67%, an average duration of approximately 6.30 years, and an average maturity of approximately 10.22 years.
The unrealized gains/(losses) recognized during the three and nine months ended September 30, 2022 on equity securities still held as of September 30, 2022 were ($33.2) million and ($215) million, respectively. The equity securities are generally held in funds that are designed to approximate the return of the Standard & Poor’s 500 Index. A relatively small percentage of the equity securities are held in funds intended to replicate the return of the Wilshire 4500 Index.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The fair value and gross unrealized losses of available-for-sale debt securities, summarized by length of time that the securities had been in a continuous loss position, were as follows as of September 30, 2022 and December 31, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2022 | | December 31, 2021 |
| | Fair
Value | | Gross
Unrealized
Losses | | Fair
Value | | Gross
Unrealized
Losses |
| (In Millions) |
| Less than 12 months | | $342.7 | | | $55.2 | | | $276.6 | | | $2.3 | |
| More than 12 months | | 102.2 | | | 16.0 | | | 11.3 | | | 0.6 | |
| Total | | $444.9 | | | $71.2 | | | $287.9 | | | $2.9 | |
The fair value of available-for-sale debt securities, summarized by contractual maturities, as of September 30, 2022 and December 31, 2021 were as follows:
| | | | | | | | | | | |
| 2022 | | 2021 |
| (In Millions) |
| Less than 1 year | $7.7 | | | $— | |
| 1 year - 5 years | 184.4 | | | 156.8 | |
| 5 years - 10 years | 123.6 | | | 161.8 | |
| 10 years - 15 years | 9.0 | | | 58.6 | |
| 15 years - 20 years | 27.6 | | | 1.9 | |
| 20 years+ | 98.4 | | | 145.4 | |
| Total | $450.7 | | | $524.5 | |
During the three months ended September 30, 2022 and 2021, proceeds from the dispositions of available-for-sale securities amounted to $54.6 million and $292.8 million, respectively. During the three months ended September 30, 2022 and 2021, gross gains of $0.02 million and $5.9 million, respectively, and gross losses of $3 million and $2 million, respectively, related to available-for-sale securities were reclassified out of other regulatory liabilities/assets into earnings.
During the nine months ended September 30, 2022 and 2021, proceeds from the dispositions of available-for-sale securities amounted to $158.6 million and $468.5 million, respectively. During the nine months ended September 30, 2022 and 2021, gross gains of $0.2 million and $9 million, respectively, and gross losses of $8.3 million and $3.8 million, respectively, related to available-for-sale securities were reclassified out of other regulatory liabilities/assets into earnings.
Allowance for expected credit losses
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 September 30, 2022, Entergy did not have an allowance for expected credit losses related to available-for-sale securities. As of December 31, 2021, Entergy’s allowance for expected credit losses related to available-for-sale securities was $0.4 million. Entergy did not record any impairments of available-for-sale debt securities for the three months ended September 30, 2022. Entergy recorded $1.5 million in impairments
Entergy Corporation and Subsidiaries
Notes to Financial Statements
of available-for-sale debt securities for the nine months ended September 30, 2022. Entergy did not record any impairments of available-for-sale debt securities for the three and nine months ended September 30, 2021.
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, the 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 authorities. 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 affects 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 September 30, | | Nine Months
Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| (In Millions) |
| Entergy | $16 | | | $17 | | | $50 | | | $72 | |
| Entergy Arkansas | $— | | | $— | | | $— | | | $8 | |
| Entergy Louisiana | $6 | | | $8 | | | $25 | | | $24 | |
| | | | | | | |
| Entergy New Orleans | $— | | | $— | | | $1 | | | $— | |
| Entergy Texas | $10 | | | $9 | | | $24 | | | $22 | |
| System Energy | $— | | | $— | | | $— | | | $18 | |
Income Tax Audits
As a result of income tax audit adjustments proposed by the Arkansas Department of Finance and Administration, an Entergy Wholesale Commodities subsidiary recorded a provision in third quarter 2022 for uncertain tax positions of approximately $21 million, which includes interest expense.
Other Tax Matters
As described in Note 2 to the financial statements herein, Entergy Louisiana implemented a securitization authorized under Act 293 of the Louisiana legislature. Act 293 provides that the LURC contribute the net bond proceeds to a LURC-sponsored trust. Over the 15-year term of the Act 293 bonds, the storm trust will make distributions to Entergy Louisiana, a beneficiary of the storm trust, that will not be taxable to Entergy Louisiana. Additionally, Entergy Louisiana will not include the receipt of the system restoration charges in taxable income because the right to receive the system restoration charges has been granted directly to the LURC, and Entergy Louisiana only acts as an agent to collect those charges on behalf of the LURC.
Accordingly, the securitization provides for a tax accounting permanent difference resulting in a net reduction of income tax expense in second quarter 2022 of approximately $290 million, after taking into account a
Entergy Corporation and Subsidiaries
Notes to Financial Statements
provision for uncertain tax positions, by Entergy Louisiana. Entergy’s recognition of reduced income tax expense was offset by other tax charges resulting in a net reduction of income tax expense of $283 million, after taking into account a provision for uncertain tax positions.
In recognition of its obligations related to an LPSC ancillary order issued as part of the securitization regulatory proceeding, Entergy Louisiana recorded in second quarter 2022 a $224 million ($165 million net-of-tax) regulatory charge and a corresponding regulatory liability to reflect its obligation to share the benefits of the securitization with customers. See Note 2 to the financial statements herein for discussion of the Entergy Louisiana securitization.
NOTE 11. PROPERTY, PLANT, AND EQUIPMENT (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)
Construction Expenditures in Accounts Payable
Construction expenditures included in accounts payable at September 30, 2022 were $354 million for Entergy, $62.2 million for Entergy Arkansas, $155.6 million for Entergy Louisiana, $22.6 million for Entergy Mississippi, $6.7 million for Entergy New Orleans, $37.8 million for Entergy Texas, and $29.9 million for System Energy. Construction expenditures included in accounts payable at December 31, 2021 were $723 million for Entergy, $35.6 million for Entergy Arkansas, $507.9 million for Entergy Louisiana, $26.5 million for Entergy Mississippi, $73.1 million for Entergy Texas, and $23.4 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.
Entergy Texas Restoration Funding II, LLC, a company wholly-owned and consolidated by Entergy Texas, is a variable interest entity and Entergy Texas is the primary beneficiary. In April 2022, Entergy Texas Restoration Funding II issued senior secured system restoration bonds (securitization bonds) to finance Entergy Texas’s Hurricane Laura, Hurricane Delta, and Winter Storm Uri restoration costs. With the proceeds, Entergy Texas Restoration Funding II purchased from Entergy Texas the transition property, which is the right to recover from customers through a system restoration charge amounts sufficient to service the securitization bonds. The transition property is reflected as a regulatory asset on the consolidated Entergy Texas balance sheet. The creditors of Entergy Texas do not have recourse to the assets or revenues of Entergy Texas Restoration Funding II, including the transition property, and the creditors of Entergy Texas Restoration Funding II do not have recourse to the assets or revenues of Entergy Texas. Entergy Texas has no payment obligations to Entergy Texas Restoration Funding II except to remit system restoration charges. See Note 4 to the financial statements herein for additional details regarding the securitization bonds.
Restoration Law Trust I (the storm trust), a trust consolidated by Entergy Louisiana, is a variable interest entity and Entergy Louisiana is the primary beneficiary. The storm trust was established as part of the Act 293 securitization of Entergy Louisiana’s Hurricane Laura, Hurricane Delta, Hurricane Zeta, and Winter Storm Uri restoration costs, as well as to establish a storm reserve to fund a portion of Hurricane Ida storm restoration costs. Entergy Louisiana is the primary beneficiary of the storm trust because it was created to facilitate the financing of Entergy Louisiana’s storm restoration costs and Entergy Louisiana is entitled to receive a majority of the proceeds received by the storm trust. As of September 30, 2022, the primary asset held by the storm trust is the $3.2 billion of outstanding Entergy Finance Company preferred membership interests, which is reflected as an investment in
Entergy Corporation and Subsidiaries
Notes to Financial Statements
affiliate preferred membership interests on the consolidated balance sheet of Entergy Louisiana. The holders of the securitization bonds do not have recourse to the assets or revenues of the trust or to any Entergy affiliate and the bonds are not reflected in the consolidated balance sheets of Entergy or Entergy Louisiana. The LURC’s 1% beneficial interest in the storm trust is presented as noncontrolling interest in the consolidated balance sheets of Entergy and Entergy Louisiana. See Note 2 to the financial statements herein for additional discussion of the securitization bonds and the preferred membership interests.
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 $17.2 million in each of the nine months ended September 30, 2022 and the nine months ended September 30, 2021.
AR Searcy Partnership, LLC, is a tax equity partnership that qualifies as a variable interest entity, which Entergy Arkansas is required to consolidate as it is the primary beneficiary. See Note 14 to the financial statements in the Form 10-K for additional discussion on the establishment of AR Searcy Partnership, LLC and the acquisition of the Searcy Solar facility. The entity is a VIE because the membership interests do not give Entergy Arkansas or the third party tax equity investor substantive kick out rights typical of equity owners. Entergy Arkansas is the primary beneficiary of the partnership because it is the managing member and has the right to a majority of the operating income of the partnership. See Note 1 to the financial statements in the Form 10-K for discussion on the HLBV method of accounting used to account for Entergy Arkansas’s investment in AR Searcy Partnership, LLC. As of September 30, 2022, AR Searcy Partnership, LLC recorded assets equal to $136 million, primarily consisting of property, plant, and equipment, and the carrying value of Entergy Arkansas’s ownership interest in the partnership was approximately $108.8 million. The tax equity investor’s ownership interest is recorded as noncontrolling interest.
MS Sunflower Partnership, LLC, is a tax equity partnership that qualifies as a variable interest entity, which Entergy Mississippi is required to consolidate as it is the primary beneficiary. See Note 14 to the financial statements herein for additional discussion on the establishment of MS Sunflower Partnership, LLC and the acquisition of the Sunflower Solar facility. The entity is a VIE because the membership interests do not give Entergy Mississippi or the third party tax equity investor substantive kick out rights typical of equity owners. Entergy Mississippi is the primary beneficiary of the partnership because it is the managing member and has the right to a majority of the operating income of the partnership. See Note 1 to the financial statements in the Form 10-K for discussion of the HLBV method of accounting used to account for Entergy Arkansas’s investment in AR Searcy Partnership, LLC which is the basis for treatment of Entergy Mississippi’s investment in MS Sunflower Partnership, LLC. As of September 30, 2022, MS Sunflower Partnership, LLC recorded assets equal to $105.2 million, primarily consisting of property, plant, and equipment, and the carrying value of Entergy Mississippi’s ownership interest in the partnership was approximately $104.9 million. The tax equity investor’s ownership interest is recorded as noncontrolling interest.
Entergy Corporation and Subsidiaries
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 September 30, 2022 and 2021 were as follows:
| | | | | | | | | | | | | | | | | |
| | 2022 | | 2021 | | | |
| | | | | | | |
| | (In Thousands) | | | |
| Utility: | | | | | | | |
| Residential | | $1,570,940 | | | $1,291,645 | | | | |
| Commercial | | 940,604 | | | 756,903 | | | | |
| Industrial | | 1,109,245 | | | 814,685 | | | | |
| Governmental | | 84,649 | | | 66,167 | | | | |
| Total billed retail | | 3,705,438 | | | 2,929,400 | | | | |
| | | | | | | |
| Sales for resale (a) | | 311,479 | | | 135,220 | | | | |
| Other electric revenues (b) | | 83,679 | | | 81,343 | | | | |
| Revenues from contracts with customers | | 4,100,596 | | | 3,145,963 | | | | |
| Other revenues (c) | | 9,462 | | | 14,006 | | | | |
| Total electric revenues | | 4,110,058 | | | 3,159,969 | | | | |
| | | | | | | |
| Natural gas | | 46,548 | | | 31,254 | | | | |
| | | | | | | |
| Entergy Wholesale Commodities: | | | | | | | |
| Competitive businesses sales from contracts with customers (a) | | 61,898 | | | 158,608 | | | | |
| Other revenues (c) | | 111 | | | 3,701 | | | | |
| Total competitive businesses revenues | | 62,009 | | | 162,309 | | | | |
| | | | | | | |
| Total operating revenues | | $4,218,615 | | | $3,353,532 | | | | |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Entergy’s total revenues for the nine months ended September 30, 2022 and 2021 were as follows:
| | | | | | | | | | | | | | |
| | 2022 | | 2021 |
| | (In Thousands) |
| Utility: | | | | |
| Residential | | $3,592,025 | | | $3,114,084 | |
| Commercial | | 2,290,893 | | | 1,958,284 | |
| Industrial | | 2,731,075 | | | 2,169,295 | |
| Governmental | | 209,044 | | | 184,576 | |
| Total billed retail | | 8,823,037 | | | 7,426,239 | |
| | | | |
| Sales for resale (a) | | 689,473 | | | 459,425 | |
| Other electric revenues (b) | | 420,710 | | | 348,683 | |
| Revenues from contracts with customers | | 9,933,220 | | | 8,234,347 | |
| Other revenues (c) | | 90,869 | | | 105,417 | |
| Total electric revenues | | 10,024,089 | | | 8,339,764 | |
| | | | |
| Natural gas | | 166,917 | | | 121,420 | |
| | | | |
| Entergy Wholesale Commodities: | | | | |
| Competitive businesses sales from contracts with customers (a) | | 294,432 | | | 537,402 | |
| Other revenues (c) | | 6,299 | | | 21,854 | |
| Total competitive businesses revenues | | 300,731 | | | 559,256 | |
| | | | |
| Total operating revenues | | $10,491,737 | | | $9,020,440 | |
The Utility operating companies’ total revenues for the three months ended September 30, 2022 and 2021 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | Entergy
Arkansas | | Entergy
Louisiana | | Entergy
Mississippi | | Entergy
New
Orleans | | Entergy
Texas |
| | (In Thousands) |
| | | | | | | | | | |
| Residential | | $323,767 | | | $618,056 | | | $206,708 | | | $116,968 | | | $305,441 | |
| Commercial | | 165,609 | | | 402,027 | | | 150,137 | | | 75,083 | | | 147,748 | |
| Industrial | | 175,304 | | | 693,445 | | | 50,931 | | | 10,973 | | | 178,592 | |
| Governmental | | 6,104 | | | 28,022 | | | 14,837 | | | 27,406 | | | 8,280 | |
| Total billed retail | | 670,784 | | | 1,741,550 | | | 422,613 | | | 230,430 | | | 640,061 | |
| Sales for resale (a) | | 157,008 | | | 191,664 | | | 56,162 | | | 33,158 | | | 9,149 | |
| Other electric revenues (b) | | 35,478 | | | 61,549 | | | (21,997) | | | (900) | | | 10,895 | |
| Revenues from contracts with customers | | 863,270 | | | 1,994,763 | | | 456,778 | | | 262,688 | | | 660,105 | |
| Other revenues (c) | | 1,232 | | | 8,246 | | | 2,354 | | | 216 | | | (549) | |
| Total electric revenues | | 864,502 | | | 2,003,009 | | | 459,132 | | | 262,904 | | | 659,556 | |
| Natural gas | | — | | | 17,789 | | | — | | | 28,759 | | | — | |
| Total operating revenues | | $864,502 | | | $2,020,798 | | | $459,132 | | | $291,663 | | | $659,556 | |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2021 | | Entergy
Arkansas | | Entergy
Louisiana | | Entergy
Mississippi | | Entergy
New
Orleans | | Entergy
Texas |
| | (In Thousands) |
| | | | | | | | | | |
| Residential | | $294,797 | | | $477,025 | | | $184,479 | | | $85,974 | | | $249,370 | |
| Commercial | | 149,952 | | | 300,255 | | | 131,472 | | | 57,563 | | | 117,661 | |
| Industrial | | 155,714 | | | 477,439 | | | 40,671 | | | 8,574 | | | 132,287 | |
| Governmental | | 5,747 | | | 21,448 | | | 13,110 | | | 20,016 | | | 5,846 | |
| Total billed retail | | 606,210 | | | 1,276,167 | | | 369,732 | | | 172,127 | | | 505,164 | |
| Sales for resale (a) | | 76,576 | | | 98,830 | | | 35,199 | | | 23,290 | | | 25,329 | |
| Other electric revenues (b) | | 33,120 | | | 27,790 | | | 13,689 | | | (3,258) | | | 11,355 | |
| Revenues from contracts with customers | | 715,906 | | | 1,402,787 | | | 418,620 | | | 192,159 | | | 541,848 | |
| Other revenues (c) | | 6,777 | | | 4,950 | | | 1,699 | | | 787 | | | (216) | |
| Total electric revenues | | 722,683 | | | 1,407,737 | | | 420,319 | | | 192,946 | | | 541,632 | |
| Natural gas | | — | | | 12,971 | | | — | | | 18,283 | | | — | |
| Total operating revenues | | $722,683 | | | $1,420,708 | | | $420,319 | | | $211,229 | | | $541,632 | |
The Utility operating companies’ total revenues for the nine months ended September 30, 2022 and 2021 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | Entergy
Arkansas | | Entergy
Louisiana | | Entergy
Mississippi | | Entergy
New
Orleans | | Entergy
Texas |
| | (In Thousands) |
| | | | | | | | | | |
| Residential | | $750,762 | | | $1,372,538 | | | $503,351 | | | $256,110 | | | $709,264 | |
| Commercial | | 406,078 | | | 949,680 | | | 379,075 | | | 179,456 | | | 376,604 | |
| Industrial | | 420,788 | | | 1,681,628 | | | 133,826 | | | 26,462 | | | 468,371 | |
| Governmental | | 15,702 | | | 68,880 | | | 39,449 | | | 62,617 | | | 22,396 | |
| Total billed retail | | 1,593,330 | | | 4,072,726 | | | 1,055,701 | | | 524,645 | | | 1,576,635 | |
| Sales for resale (a) | | 384,175 | | | 422,596 | | | 121,328 | | | 96,523 | | | 44,927 | |
| Other electric revenues (b) | | 136,870 | | | 185,405 | | | 29,665 | | | 17,936 | | | 54,874 | |
| Revenues from contracts with customers | | 2,114,375 | | | 4,680,727 | | | 1,206,694 | | | 639,104 | | | 1,676,436 | |
| Other revenues (c) | | 6,022 | | | 57,461 | | | 6,926 | | | 2,530 | | | 20,193 | |
| Total electric revenues | | 2,120,397 | | | 4,738,188 | | | 1,213,620 | | | 641,634 | | | 1,696,629 | |
| Natural gas | | — | | | 64,367 | | | — | | | 102,550 | | | — | |
| Total operating revenues | | $2,120,397 | | | $4,802,555 | | | $1,213,620 | | | $744,184 | | | $1,696,629 | |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2021 | | Entergy
Arkansas | | Entergy
Louisiana | | Entergy
Mississippi | | Entergy
New
Orleans | | Entergy
Texas |
| | (In Thousands) |
| | | | | | | | | | |
| Residential | | $703,081 | | | $1,153,428 | | | $449,576 | | | $212,586 | | | $595,413 | |
| Commercial | | 367,556 | | | 787,255 | | | 331,052 | | | 156,454 | | | 315,967 | |
| Industrial | | 373,410 | | | 1,299,633 | | | 111,195 | | | 23,391 | | | 361,666 | |
| Governmental | | 14,538 | | | 61,611 | | | 34,526 | | | 54,708 | | | 19,193 | |
| Total billed retail | | 1,458,585 | | | 3,301,927 | | | 926,349 | | | 447,139 | | | 1,292,239 | |
| Sales for resale (a) | | 256,411 | | | 253,600 | | | 119,559 | | | 40,796 | | | 118,944 | |
| Other electric revenues (b) | | 125,912 | | | 127,444 | | | 54,029 | | | 2,894 | | | 42,461 | |
| Revenues from contracts with customers | | 1,840,908 | | | 3,682,971 | | | 1,099,937 | | | 490,829 | | | 1,453,644 | |
| Other revenues (c) | | 15,435 | | | 59,008 | | | 6,041 | | | 1,026 | | | (1,358) | |
| Total electric revenues | | 1,856,343 | | | 3,741,979 | | | 1,105,978 | | | 491,855 | | | 1,452,286 | |
| Natural gas | | — | | | 53,971 | | | — | | | 67,449 | | | — | |
| Total operating revenues | | $1,856,343 | | | $3,795,950 | | | $1,105,978 | | | $559,304 | | | $1,452,286 | |
(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.
(b)Other electric revenues consist primarily of transmission and ancillary services provided to participants of an ISO-administered market, unbilled revenue, and certain customer credits as directed by regulators.
(c)Other revenues include the equity component of carrying costs related to securitization, 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 its accounts receivable balances. Due to the essential nature of utility services, Entergy has historically experienced a low rate of default on its accounts receivables. Due to the effect of the COVID-19 pandemic on customer receivables, however, Entergy recorded an increase in 2020 in its allowance for doubtful accounts. The following tables set forth a reconciliation of changes in the allowance for doubtful accounts for the nine months ended September 30, 2022 and 2021.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Entergy | | Entergy
Arkansas | | Entergy
Louisiana | | Entergy
Mississippi | | Entergy
New
Orleans | | Entergy
Texas |
| | (In Millions) |
| Balance as of December 31, 2021 | $68.6 | | | $13.1 | | | $29.2 | | | $7.2 | | | $13.3 | | | $5.8 | |
| Provisions (a) | 28.8 | | | 12.1 | | | 8.3 | | | 1.5 | | | 4.0 | | | 2.9 | |
| Write-offs | (95.1) | | | (27.3) | | | (38.1) | | | (9.8) | | | (11.7) | | | (8.2) | |
| Recoveries | 28.4 | | | 8.4 | | | 10.5 | | | 3.2 | | | 3.8 | | | 2.5 | |
| Balance as of September 30, 2022 | $30.7 | | | $6.3 | | | $9.9 | | | $2.1 | | | $9.4 | | | $3.0 | |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Entergy | | Entergy
Arkansas | | Entergy
Louisiana | | Entergy
Mississippi | | Entergy
New
Orleans | | Entergy
Texas |
| | (In Millions) |
| Balance as of December 31, 2020 | $117.7 | | | $18.3 | | | $45.7 | | | $19.5 | | | $17.4 | | | $16.8 | |
| Provisions (b) | 43.4 | | | 20.0 | | | 17.7 | | | 2.1 | | | 2.0 | | | 1.6 | |
| Write-offs | (72.5) | | | (21.4) | | | (28.3) | | | (11.8) | | | (1.3) | | | (9.7) | |
| Recoveries | 7.5 | | | 2.1 | | | 3.0 | | | 1.6 | | | 0.5 | | | 0.3 | |
| Balance as of September 30, 2021 | $96.1 | | | $19.0 | | | $38.1 | | | $11.4 | | | $18.6 | | | $9.0 | |
(a)Provisions include estimated incremental bad debt expenses, and revisions to those estimates, resulting from the COVID-19 pandemic of ($6.4) million for Entergy, $6.4 million for Entergy Arkansas, ($8.5) million for Entergy Louisiana, ($3.0) million for Entergy New Orleans, and ($1.3) million for Entergy Texas that have been deferred as regulatory assets. See Note 2 to the financial statements herein and in the Form 10-K for discussion of the COVID-19 orders issued by retail regulators.
(b)Provisions include estimated incremental bad debt expenses, and revisions to those estimates, resulting from the COVID-19 pandemic of $23.8 million for Entergy, $14.0 million for Entergy Arkansas, $10.4 million for Entergy Louisiana, ($0.1) million for Entergy Mississippi, and ($0.5) million for Entergy New Orleans that have been deferred as regulatory assets. See Note 2 to the financial statements herein and in the Form 10-K for discussion of the COVID-19 orders issued by retail regulators.
The allowance for currently expected credit losses is calculated as the historical rate of customer write-offs multiplied by the current accounts receivable balance, taking into account the length of time the receivable balances have been outstanding. Although the rate of customer write-offs has historically experienced minimal variation, there were increases in customer write-offs beginning in second quarter 2021 primarily resulting from the effects of the COVID-19 pandemic. Management monitors the current condition of individual customer accounts to manage collections and ensure bad debt expense is recorded in a timely manner.
NOTE 14. ACQUISITIONS AND DISPOSITIONS (Entergy Corporation and Entergy Mississippi)
Acquisitions
Sunflower Solar
In November 2018, Entergy Mississippi entered into an agreement for the purchase of an approximately 100 MW solar photovoltaic facility to be sited on approximately 1,000 acres in Sunflower County, Mississippi. The project, Sunflower Solar facility, was being built by Sunflower County Solar Project, LLC, an indirect subsidiary of Recurrent Energy, LLC. In December 2018, Entergy Mississippi filed a joint petition with Sunflower County Solar Project with the MPSC for Sunflower County Solar Project to construct and for Entergy Mississippi to acquire and thereafter own, operate, improve, and maintain the solar facility. In March 2020, Entergy Mississippi filed supplemental testimony addressing questions and observations raised in August 2019 by consultants retained by the Mississippi Public Utilities Staff and proposing an alternative structure for the transaction that would reduce its cost. In April 2020 the MPSC issued an order approving certification of the Sunflower Solar facility, subject to certain conditions, including: (i) that Entergy Mississippi pursue a tax equity 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 of $136 million on the level of recoverable costs. In April 2022, Entergy Mississippi confirmed mechanical completion of the Sunflower Solar facility. Pursuant to the MPSC’s April 2020 order, MS Sunflower Partnership, LLC was formed for the tax equity partnership with Entergy Mississippi as its managing member. In May 2022 both Entergy Mississippi and the tax equity investor made capital contributions to the tax equity partnership that
Entergy Corporation and Subsidiaries
Notes to Financial Statements
were then used to make an initial payment of $105 million for acquisition of the facility. Substantial completion of the Sunflower Solar facility was accepted by Entergy Mississippi in September 2022. A final payment is currently expected in fourth quarter 2022. Commercial operation at the Sunflower Solar facility commenced in September 2022.
Dispositions
Palisades
In July 2018, Entergy entered into a purchase and sale agreement with Holtec International to sell to a Holtec subsidiary 100% of the equity interests in the subsidiary that owns Palisades and the Big Rock Point Site. In December 2020, Entergy and Holtec submitted a license transfer application to the NRC requesting approval to transfer the Palisades and Big Rock Point licenses from Entergy to Holtec. The NRC issued an order approving the application in December 2021. Palisades was shut down in May 2022 and defueled in June 2022. The Palisades transaction closed in June 2022 for a purchase price of $1,000 (subject to adjustment for net liabilities and other amounts). The sale included the transfer of the Palisades nuclear decommissioning trust and the asset retirement obligation for spent fuel management and plant decommissioning. The transaction resulted in a gain of $166 million ($130 million net-of-tax) in the second quarter 2022. The disposition-date fair value of the nuclear decommissioning trust fund was approximately $552 million and the disposition-date fair value of the asset retirement obligation was approximately $708 million. The transaction also included property, plant, and equipment with a net book value of zero and materials and supplies.
NOTE 15. ASSET RETIREMENT OBLIGATIONS (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)
See Note 9 to the financial statements in the Form 10-K for a discussion of asset retirement obligations. The following are updates to that discussion.
Nuclear Plant Decommissioning
In the third quarter 2022, System Energy recorded a revision to its estimated decommissioning cost liability for Grand Gulf as a result of a revised decommissioning cost study. The revised estimate resulted in a $5.4 million reduction in its decommissioning cost liability, along with a corresponding reduction in the related asset retirement obligation cost asset that will be depreciated over the remaining life of the unit.
Coal Combustion Residuals
In the third quarter 2022, revisions to the Big Cajun 2 coal combustion residuals asset retirement obligations were made as a result of revised closure and post-closure cost estimates. The revised estimates resulted in increases of $2.8 million at Entergy Louisiana and $2.1 million at Entergy Texas in decommissioning cost liabilities, along with corresponding increases in related asset retirement obligations cost assets that will be depreciated over the remaining useful life of the unit.
________________
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
Entergy Corporation and Subsidiaries
Notes to Financial Statements
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.