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 was a reduction to asset write-offs, impairments, and related charges. 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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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-recovery 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.
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)
COVID-19 Orders
See the Form 10-K for discussion of APSC orders issued in light of the COVID-19 pandemic. As of March 31, 2022, Entergy Arkansas had a regulatory asset of $34.4 million for costs associated with the COVID-19 pandemic.
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Filings with the LPSC (Entergy Louisiana)
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 March 31, 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)
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, subject to refund, pending a final MPSC order. A final order is expected in the second quarter 2022, with the resulting final rates, including amounts above the 2% cap of 2021 retail revenues, effective July 2022.
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. As of March 31, 2022, Entergy Mississippi had a regulatory asset of $14.1 million for costs associated with the COVID-19 pandemic.
Filings with the City Council (Entergy New Orleans)
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 produced an earned return on equity of 6.88% compared to the authorized return on equity of 9.35%. Entergy New Orleans seeks approval of a $40.2 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 $32.3 million and an increase in authorized gas revenues of $3.2 million. Entergy New Orleans also seeks to commence collecting $4.7 million in electric revenues that were previously approved by the City Council for collection through the formula rate plan. The filing is subject to review by the City Council and other parties over a 75-day review period, followed by a 25-day period to resolve any disputes among the parties. Resulting rates will be effective with the first billing cycle of September 2022 pursuant to the formula rate plan
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tariff. For any disputed rate adjustments, however, the City Council would set a procedural schedule that would extend the process for City Council approval of disputed rate adjustments.
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 March 31, 2022, Entergy New Orleans had a regulatory asset of $14.5 million for costs associated with the COVID-19 pandemic.
Filings with the PUCT and Texas Cities (Entergy Texas)
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 proposed rider is 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 currently 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.
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 PUCT staff filed a joint proposed order that supports approval of Entergy Texas’s as-filed request.
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
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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.
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 March 31, 2022, Entergy Texas had a regulatory asset of $10.4 million for costs associated with the COVID-19 pandemic.
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.
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.
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, 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 $61 million, which includes interest through March 31, 2022, and the estimated resulting annual rate reduction would be approximately $50 million. The estimated refund will continue to accrue interest until a final FERC decision is issued. Based on the course of the proceeding to date, System Energy has recorded a provision of $38 million, including interest, as of March 31, 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. In April 2021, System Energy filed its brief on
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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.
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 March 31, 2022, is approximately $422 million, plus interest, which is approximately $135 million through March 31, 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 $19 million, which includes interest through March 31, 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 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 Authorization of 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
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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, APSC, and 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 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.
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In March 2022 the FERC trial staff filed direct and answering testimony in response to the LPSC, APSC, and 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, APSC, and City Council, the FERC trial staff recommends either no refunds or no modification to the Unit Power Sales Agreement.
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; 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.
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
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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 was seeking an LPSC determination that $2.11 billion was prudently incurred and, therefore, was eligible for recovery from customers. Additionally, Entergy Louisiana was requesting 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.
After filing of testimony by 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, in first quarter 2022, Entergy Louisiana reclassified $1.339 billion from utility plant to other regulatory assets. The securitization process is expected to be completed in second quarter 2022.
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 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 restoration 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 that can be withdrawn to finance costs associated with Hurricane Ida restoration. Entergy Louisiana expects to supplement the April 2022 application with a request that the LPSC authorize Entergy Louisiana to finance the remaining storm restoration costs included in the April 2022 application,
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currently expected to be through the securitization process authorized by Louisiana Act 55, as supplemented by Act 293 of the Louisiana Legislature’s Regular Session of 2021.
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 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 and Entergy Louisiana)
Common Stock
Earnings per Share
The following table presents Entergy’s basic and diluted earnings per share calculations included on the consolidated income statements:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended March 31, |
| 2022 | | 2021 |
| (In Millions, Except Per Share Data) |
| Income | | Shares | | $/share | | Income | | Shares | | $/share |
| Basic earnings per share | | | | | | | | | | | |
| Net income attributable to Entergy Corporation | $276.4 | | | 202.9 | | | $1.36 | | | $334.6 | | | 200.5 | | | $1.67 | |
| Average dilutive effect of: | | | | | | | | | | | |
| Stock options | | | 0.5 | | | — | | | | | 0.4 | | | (0.01) | |
| Other equity plans | | | 0.4 | | | — | | | | | 0.2 | | | — | |
| Equity forwards | | | 0.1 | | | — | | | | | — | | | — | |
| Diluted earnings per share | $276.4 | | | 203.9 | | | $1.36 | | | $334.6 | | | 201.1 | | | $1.66 | |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
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 March 31, 2022 and approximately 1 million for the three months ended March 31, 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 March 31, 2022 and $0.95 for the three months ended March 31, 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. The aggregate number of shares of common stock sold under this sales agreement and under any forward sale agreement may not exceed an aggregate gross sales price of $1 billion, of which an aggregate gross sales price of approximately $633 million has been sold through March 31, 2022. 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. For the three months ended March 31, 2022, there were no shares of common stock issued under the at the market equity distribution program.
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.
Until settlement of the forward sale agreement, 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 three months ended March 31, 2022, 1,775,251 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 three months ended March 31, 2022, Entergy Corporation issued 503,538 shares of its previously repurchased common stock to satisfy stock option exercises, vesting of shares of restricted stock, and other stock-based awards. Entergy Corporation did not repurchase any of its common stock during the three months ended March 31, 2022.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Retained Earnings
On April 11, 2022, Entergy Corporation’s Board of Directors declared a common stock dividend of $1.01 per share, payable on June 1, 2022 to holders of record as of May 5, 2022.
Comprehensive Income
Accumulated other comprehensive income (loss) is included in the equity section of the balance sheets of Entergy and Entergy Louisiana. The following table presents changes in accumulated other comprehensive income (loss) for Entergy for the three months ended March 31, 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 | (14) | | | — | | | (15,875) | | | | | (15,889) | |
| Amounts reclassified from accumulated other comprehensive income (loss) | 38 | | | 8,328 | | | 3,473 | | | | | 11,839 | |
| Net other comprehensive income (loss) for the period | 24 | | | 8,328 | | | (12,402) | | | | | (4,050) | |
| | | | | | | | | |
| Ending balance, March 31, 2022 | ($1,011) | | | ($330,319) | | | ($5,248) | | | | | ($336,578) | |
The following table presents changes in accumulated other comprehensive income (loss) for Entergy for the three months ended March 31, 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 | 1,482 | | | — | | | (45,301) | | | | | (43,819) | |
| Amounts reclassified from accumulated other comprehensive income (loss) | (31,062) | | | 22,967 | | | 614 | | | | | (7,481) | |
| Net other comprehensive income (loss) for the period | (29,580) | | | 22,967 | | | (44,687) | | | | | (51,300) | |
| | | | | | | | | |
| Ending balance, March 31, 2021 | ($861) | | | ($511,609) | | | $11,963 | | | | | ($500,507) | |
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 March 31, 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) | | (613) | | | (407) | |
| Net other comprehensive income (loss) for the period | | (613) | | | (407) | |
| | | | |
| | | | |
| | | | |
| Ending balance, March 31, | | $7,665 | | | $3,920 | |
Total reclassifications out of accumulated other comprehensive income (loss) (AOCI) into income for Entergy for the three months ended March 31, 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 | $— | | | $39,367 | | | Competitive business operating revenues |
| Interest rate swaps | (48) | | | (48) | | | Miscellaneous - net |
| Total realized gain (loss) on cash flow hedges | (48) | | | 39,319 | | | |
| Income taxes | 10 | | | (8,257) | | | Income taxes |
| Total realized gain (loss) on cash flow hedges (net of tax) | ($38) | | | $31,062 | | | |
| | | | | |
| Pension and other postretirement liabilities | | | | | |
| Amortization of prior-service credit | $3,837 | | | $5,248 | | | (a) |
| Amortization of loss | (13,925) | | | (34,529) | | | (a) |
| | | | | |
| Settlement loss | (782) | | | — | | | (a) |
| Total amortization | (10,870) | | | (29,281) | | | |
| Income taxes | 2,542 | | | 6,314 | | | Income taxes |
| Total amortization (net of tax) | ($8,328) | | | ($22,967) | | | |
| | | | | |
| Net unrealized investment gain (loss) | | | | | |
| Realized gain (loss) | ($5,495) | | | ($972) | | | Interest and investment income |
| Income taxes | 2,022 | | | 358 | | | Income taxes |
| Total realized investment gain (loss) (net of tax) | ($3,473) | | | ($614) | | | |
| | | | | |
| Total reclassifications for the period (net of tax) | ($11,839) | | | $7,481 | | | |
(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 March 31, 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 | | (319) | | | (679) | | | (a) |
| | | | | | |
| Total amortization | | 839 | | | 551 | | | |
| Income taxes | | (226) | | | (144) | | | Income taxes |
| Total amortization (net of tax) | | 613 | | | 407 | | | |
| | | | | | |
| Total reclassifications for the period (net of tax) | | $613 | | | $407 | | | |
(a)These accumulated other comprehensive income (loss) components were included in the computation of net periodic pension and other postretirement cost. See Note 6 to the financial statements herein for additional details.
NOTE 4. REVOLVING CREDIT FACILITIES, LINES OF CREDIT, SHORT-TERM BORROWINGS, AND LONG-TERM DEBT (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)
Entergy Corporation has in place a credit facility that has a borrowing capacity of $3.5 billion and expires in June 2026. The facility includes fronting commitments for the issuance of letters of credit against $20 million of the total borrowing capacity of the credit facility. The commitment fee is currently 0.225% of the undrawn commitment amount. Commitment fees and interest rates on loans under the credit facility can fluctuate depending on the senior unsecured debt ratings of Entergy Corporation. The weighted average interest rate for the three months ended March 31, 2022 was 1.81% on the drawn portion of the facility. As of March 31, 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 March 31, 2022, Entergy Corporation had $1.343 billion of commercial paper outstanding. The weighted-average interest rate for the three months ended March 31, 2022 was 0.48%.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and Entergy Texas each had credit facilities available as of March 31, 2022 as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Company | | Expiration
Date | | Amount of
Facility | | Interest Rate
(a) | | Amount Drawn
as of
March 31, 2022 | | Letters of Credit
Outstanding as of
March 31, 2022 |
| Entergy Arkansas | | April 2022 (e) | | $25 million (b) | | 3.00% | | $— | | $— |
| Entergy Arkansas | | June 2026 | | $150 million (c) | | 1.58% | | $— | | $— |
| Entergy Louisiana | | June 2026 | | $350 million (c) | | 1.71% | | $— | | $— |
| Entergy Mississippi | | April 2022 (f) | | $37.5 million (d) | | 1.96% | | $— | | $— |
| Entergy Mississippi | | April 2022 (f) | | $35 million (d) | | 1.96% | | $— | | $— |
| Entergy Mississippi | | April 2022 (f) | | $10 million (d) | | 1.96% | | $— | | $— |
| Entergy New Orleans | | June 2024 | | $25 million (c) | | 2.08% | | $— | | $— |
| Entergy Texas | | June 2026 | | $150 million (c) | | 1.71% | | $— | | $1.3 million |
(a)The interest rate is the estimated interest rate as of March 31, 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 Entergy Mississippi credit facilities may be secured by a security interest in its accounts receivable at Entergy Mississippi’s option.
(e)In April 2022, Entergy Arkansas extended the expiration of the credit facility to July 2022.
(f)In April 2022, Entergy Mississippi renewed its three existing short-term credit facilities, increased the aggregate amount available under the facilities to $95 million, and extended the expiration date of each credit facility to April 2023. Also in April 2022, Entergy Mississippi entered into a long-term credit facility in the amount of $150 million with an expiration date of July 2024. The interest rates for these facilities will be based on the Secured Overnight Financing Rate.
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 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
Entergy Corporation and Subsidiaries
Notes to Financial Statements
obligations to MISO. Following is a summary of the uncommitted standby letter of credit facilities as of March 31, 2022:
| | | | | | | | | | | | | | | | | | | | |
| Company | | Amount of
Uncommitted Facility | | Letter of Credit Fee | | Letters of Credit
Issued as of
March 31, 2022
(a) (b) |
| Entergy Arkansas | | $25 million | | 0.78% | | $7.5 million |
| Entergy Louisiana | | $125 million | | 0.78% | | $11.0 million |
| Entergy Mississippi | | $65 million | | 0.78% | | $2.3 million |
| Entergy New Orleans | | $15 million | | 1.00% | | $1.0 million |
| Entergy Texas | | $80 million | | 0.875% | | $79.6 million |
(a)As of March 31, 2022, letters of credit posted with MISO covered financial transmission right exposure of $0.3 million for Entergy Arkansas and $0.4 million for Entergy Mississippi. See Note 8 to the financial statements herein for discussion of financial transmission rights.
(b)As of March 31, 2022, in addition to the $2.3 million MISO letter of credit, Entergy Mississippi has $1 million of 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 March 31, 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 | | $22 |
| Entergy New Orleans | $150 | | $— |
| Entergy Texas | $200 | | $171 |
| 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 2022. The commitment fee is currently 0.20% of the undrawn commitment amount. As of March 31, 2022, $139 million in cash borrowings were outstanding under the credit facility. The weighted average interest rate for the three months ended March 31, 2022 was 1.72% 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.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
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 March 31, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Company | | Expiration
Date | | Amount
of
Facility | | Weighted
Average Interest
Rate on
Borrowings (a) | | Amount
Outstanding as of
March 31, 2022 |
| | | | (Dollars in Millions) |
| Entergy Arkansas VIE | | June 2024 | | $80 | | 1.10% | | $— |
| Entergy Louisiana River Bend VIE | | June 2024 | | $105 | | 1.14% | | $30.8 |
| Entergy Louisiana Waterford VIE | | June 2024 | | $105 | | 1.15% | | $82.1 |
| System Energy VIE | | June 2024 | | $120 | | 1.17% | | $100 |
(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 March 31, 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.
Debt Issuances
(Entergy Arkansas)
In March 2022, Entergy Arkansas issued $200 million of 4.20% Series mortgage bonds due April 2049. Entergy Arkansas expects to use the proceeds for general corporate purposes, including the repayment of borrowings from the Entergy System money pool.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
(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 for the three months ended March 31, 2022 was 0.976%. 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 Texas Securitization Bonds
In January 2022, the PUCT authorized the issuance of securitization bonds to recover $242.9 million of Entergy Texas’ Hurricanes Laura and Delta and Winter Storm Uri restoration costs, plus carrying costs, plus $13.3 million relating to a system restoration regulatory asset, 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.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Fair Value
The book value and the fair value of long-term debt for Entergy Corporation and the Registrant Subsidiaries as of March 31, 2022 were as follows:
| | | | | | | | | | | |
| Book Value
of Long-Term Debt | | Fair Value
of Long-Term Debt (a) |
| (In Thousands) |
| Entergy | $27,215,784 | | | $26,731,277 | |
| Entergy Arkansas | $4,163,602 | | | $4,101,516 | |
| Entergy Louisiana | $12,022,131 | | | $11,959,123 | |
| Entergy Mississippi | $2,180,197 | | | $2,152,275 | |
| Entergy New Orleans | $788,501 | | | $775,566 | |
| Entergy Texas | $2,325,371 | | | $2,254,487 | |
| System Energy | $805,353 | | | $769,552 | |
(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 March 31, 2022, there were options on 3,128,304 shares of common stock outstanding with a weighted-average exercise price of $94.35. The intrinsic value, which has no effect on net income, of the outstanding stock options is calculated by the positive difference
Entergy Corporation and Subsidiaries
Notes to Financial Statements
between the weighted average exercise price of the stock options granted and Entergy Corporation’s common stock price as of March 31, 2022. The aggregate intrinsic value of the stock options outstanding as of March 31, 2022 was $77.6 million.
The following table includes financial information for outstanding stock options for the three months ended March 31, 2022 and 2021:
| | | | | | | | | | | |
| 2022 | | 2021 |
| (In Millions) |
| Compensation expense included in Entergy’s consolidated net income | $1.1 | | | $1.0 | |
| Tax benefit recognized in Entergy’s consolidated net income | $0.3 | | | $0.3 | |
| Compensation cost capitalized as part of fixed assets and materials and supplies | $0.4 | | | $0.4 | |
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 March 31, 2022 and 2021:
| | | | | | | | | | | |
| 2022 | | 2021 |
| (In Millions) |
| Compensation expense included in Entergy’s consolidated net income | $11.4 | | | $10.8 | |
| Tax benefit recognized in Entergy’s consolidated net income | $2.9 | | | $2.7 | |
| Compensation cost capitalized as part of fixed assets and materials and supplies | $4.4 | | | $4.0 | |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
NOTE 6. RETIREMENT AND OTHER POSTRETIREMENT BENEFITS (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)
Components of Qualified Net Pension Cost
Entergy’s qualified pension costs, including amounts capitalized, for the first quarters of 2022 and 2021, included the following components:
| | | | | | | | | | | |
| 2022 | | 2021 |
| (In Thousands) |
| Service cost - benefits earned during the period | $37,660 | | | $45,241 | |
| Interest cost on projected benefit obligation | 51,119 | | | 46,099 | |
| Expected return on assets | (103,607) | | | (105,713) | |
| | | |
| Amortization of net loss | 60,579 | | | 104,392 | |
| | | |
| | | |
| Net pension costs | $45,751 | | | $90,019 | |
The Registrant Subsidiaries’ qualified pension costs, including amounts capitalized, for their employees for the first 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 | | $6,858 | | | $9,137 | | | $2,130 | | | $752 | | | $1,632 | | | $2,045 | |
| Interest cost on projected benefit obligation | | 9,317 | | | 10,499 | | | 2,678 | | | 1,139 | | | 2,175 | | | 2,338 | |
| Expected return on assets | | (19,247) | | | (21,133) | | | (5,203) | | | (2,515) | | | (4,937) | | | (4,623) | |
| | | | | | | | | | | | |
| Amortization of net loss | | 13,426 | | | 12,597 | | | 3,810 | | | 1,368 | | | 2,555 | | | 3,266 | |
| | | | | | | | | | | | |
| Net pension cost | | $10,354 | | | $11,100 | | | $3,415 | | | $744 | | | $1,425 | | | $3,026 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2021 | | Entergy
Arkansas | | Entergy
Louisiana | | Entergy
Mississippi | | Entergy
New Orleans | | Entergy
Texas | | System
Energy |
| | (In Thousands) |
| Service cost - benefits earned during the period | | $7,418 | | | $10,043 | | | $2,364 | | | $796 | | | $1,801 | | | $2,314 | |
| Interest cost on projected benefit obligation | | 8,341 | | | 9,562 | | | 2,462 | | | 1,029 | | | 1,949 | | | 2,142 | |
| Expected return on assets | | (19,670) | | | (22,538) | | | (5,587) | | | (2,622) | | | (5,237) | | | (4,778) | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Amortization of net loss | | 19,303 | | | 19,204 | | | 5,668 | | | 2,270 | | | 3,711 | | | 5,326 | |
| | | | | | | | | | | | |
| Net pension cost | | $15,392 | | | $16,271 | | | $4,907 | | | $1,473 | | | $2,224 | | | $5,004 | |
Non-Qualified Net Pension Cost
Entergy recognized $10.2 million and $4.6 million in pension cost for its non-qualified pension plans in the first quarters of 2022 and 2021, respectively. Reflected in the pension cost for non-qualified pension plans in the first quarter of 2022 were settlement charges of $5.3 million related to the payment of lump sum benefits out of the plan. In the first quarter of 2021 there were no settlement charges related to the payment of lump sum benefits out of the plan.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The Registrant Subsidiaries recognized the following pension cost for their employees for their non-qualified pension plans for first quarters of 2022 and 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Entergy
Arkansas | | Entergy
Louisiana | | Entergy
Mississippi | | Entergy
New Orleans | | Entergy
Texas |
| (In Thousands) |
| 2022 | $72 | | | $27 | | | $80 | | | $29 | | | $215 | |
| 2021 | $90 | | | $44 | | | $96 | | | $8 | | | $115 | |
Reflected in Entergy Texas’ non-qualified pension costs in the first quarter of 2022 were settlement charges of $119 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 first 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) | |
The Registrant Subsidiaries’ other postretirement benefit cost (income), including amounts capitalized, for their employees for the first 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 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) | |
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 | | $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) | |
Reclassification out of Accumulated Other Comprehensive Income (Loss)
Entergy and Entergy Louisiana reclassified the following costs out of accumulated other comprehensive income (loss) (before taxes and including amounts capitalized) for the first quarters of 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 | | (12,910) | | | (596) | | | (419) | | | (13,925) | |
| | | | | | | | |
| Settlement loss | | — | | | — | | | (782) | | | (782) | |
| | ($12,910) | | | $3,418 | | | ($1,378) | | | ($10,870) | |
| Entergy Louisiana | | | | | | | | |
| Amortization of prior service credit | | $— | | | $1,158 | | | $— | | | $1,158 | |
| Amortization of net gain (loss) | | (504) | | | 186 | | | (1) | | | (319) | |
| | | | | | | | |
| | ($504) | | | $1,344 | | | ($1) | | | $839 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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 | | (33,439) | | | (495) | | | (595) | | | (34,529) | |
| | | | | | | | |
| | | | | | | | |
| | ($33,439) | | | $4,793 | | | ($635) | | | ($29,281) | |
| Entergy Louisiana | | | | | | | | |
| Amortization of prior service credit | | $— | | | $1,230 | | | $— | | | $1,230 | |
| Amortization of net gain (loss) | | (769) | | | 91 | | | (1) | | | (679) | |
| | | | | | | | |
| | ($769) | | | $1,321 | | | ($1) | | | $551 | |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Accounting for Pension and Other Postretirement Benefits
In accordance with ASU No. 2017-07, “Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost,” the other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations and are presented by Entergy in miscellaneous - net in other income.
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 next scheduled PUCT rate case and a reasonable amortization period will be determined by the PUCT at that time. At March 31, 2022, the balance in this reserve was approximately $14.5 million.
Employer Contributions
Based on current assumptions, Entergy expects to contribute $200 million to its qualified pension plans in 2022. As of March 31, 2022, Entergy had contributed $67.9 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 | $40,840 | | | $22,917 | | | $12,852 | | | $922 | | | $1,924 | | | $12,760 | |
| Pension contributions made through March 2022 | $15,096 | | | $10,241 | | | $2,972 | | | $922 | | | $1,340 | | | $3,996 | |
| Remaining estimated pension contributions to be made in 2022 | $25,744 | | | $12,676 | | | $9,880 | | | $— | | | $584 | | | $8,764 | |
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 March 31, 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 for discussion of the planned shutdown and sale of each of the Entergy Wholesale Commodities nuclear power plants, including the planned shutdown and sale of Palisades, the only remaining operating plant in Entergy Wholesale Commodities’ merchant nuclear fleet as of March 31, 2022. “All Other” includes the parent company, Entergy Corporation, and other business activity.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Entergy’s segment financial information for the first quarters of 2022 and 2021 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Utility | | Entergy
Wholesale
Commodities | | All Other | | Eliminations | | Consolidated |
| | (In Thousands) |
| 2022 | | | | | | | | | | |
| Operating revenues | | $2,728,156 | | | $149,777 | | | $— | | | ($8) | | | $2,877,925 | |
| Income taxes | | $75,359 | | | $2,854 | | | ($11,716) | | | $— | | | $66,497 | |
| Consolidated net income (loss) | | $343,156 | | | $7,859 | | | ($39,476) | | | ($31,946) | | | $279,593 | |
| Total assets as of March 31, 2022 | | $61,684,609 | | | $1,137,843 | | | $601,479 | | | ($3,590,405) | | | $59,833,526 | |
| 2021 | | | | | | | | | | |
| Operating revenues | | $2,596,616 | | | $248,219 | | | $23 | | | ($20) | | | $2,844,838 | |
| Income taxes | | $59,734 | | | $15,560 | | | ($9,352) | | | $— | | | $65,942 | |
| Consolidated net income (loss) | | $360,600 | | | $38,124 | | | ($27,680) | | | ($31,899) | | | $339,145 | |
| 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 has undertaken a strategy to manage and reduce the risk of the Entergy Wholesale Commodities business, which includes taking actions to shut down and sell all of its plants in the merchant nuclear fleet resulting in the cessation of merchant power generation at all Entergy Wholesale Commodities nuclear power plants owned and operated by Entergy by mid-2022. 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 first 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 January 1, | $37 | | | $— | | | $37 | | | $145 | | | $14 | | | $159 | |
| Restructuring costs accrued | 4 | | | — | | | 4 | | | 13 | | | — | | | 13 | |
| Cash paid out | — | | | — | | | — | | | 1 | | | — | | | 1 | |
| Balance as of March 31, | $41 | | | $— | | | $41 | | | $157 | | | $14 | | | $171 | |
In addition, Entergy Wholesale Commodities incurred $1 million in the first quarter 2022 and $3 million in the first quarter 2021 of impairment and other related charges associated with these strategic decisions and transactions.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Entergy expects to incur employee retention and severance expenses associated with management’s strategy to exit the Entergy Wholesale Commodities merchant power business of approximately $5 million in 2022, of which $4 million has been incurred as of March 31, 2022.
Registrant Subsidiaries
Each of the Registrant Subsidiaries has one reportable segment, which is an integrated utility business, except for System Energy, which is an electricity generation business. Each of the Registrant Subsidiaries’ operations is managed on an integrated basis by that company because of the substantial effect of cost-based rates and regulatory oversight on the business process, cost structures, and operating results.
NOTE 8. RISK MANAGEMENT AND FAIR VALUES (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)
Market Risk
In the normal course of business, Entergy is exposed to a number of market risks. Market risk is the potential loss that Entergy may incur as a result of changes in the market or fair value of a particular commodity or instrument. All financial and commodity-related instruments, including derivatives, are subject to market risk including commodity price risk, equity price, and interest rate risk. Entergy uses derivatives primarily to mitigate commodity price risk, particularly power price and fuel price risk.
The Utility has limited exposure to the effects of market risk because it operates primarily under cost-based rate regulation. To the extent approved by their retail regulators, the Utility operating companies use derivative instruments to hedge the exposure to price volatility inherent in their purchased power, fuel, and gas purchased for resale costs, that are recovered from customers.
As a wholesale generator, Entergy Wholesale Commodities’ core business is selling energy, measured in MWh, to its customers. Entergy Wholesale Commodities 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 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
Entergy Corporation and Subsidiaries
Notes to Financial Statements
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. Planned generation currently under contract from Entergy Wholesale Commodities nuclear power plants is 99% for the balance of 2022, all of which is sold under normal purchase/normal sale contracts. Total planned generation for the balance of 2022 is 1.1 TWh.
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 March 31, 2022 and December 31, 2021. As of March 31, 2022, $8 million in cash collateral was required to be posted by the Entergy subsidiary to its counterparties. As of December 31, 2021, $8 million in cash collateral was required to be posted by the Entergy subsidiary to its counterparties.
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 March 31, 2022 is 2 years for Entergy Louisiana and the maximum length of time over which Entergy has executed natural gas swaps as of March 31, 2022 is 7 months for Entergy Mississippi. The total volume of natural gas swaps and options outstanding as of March 31, 2022 is 37,339,100 MMBtu for Entergy, including 14,620,000 MMBtu for Entergy Louisiana and 22,719,100 MMBtu for Entergy Mississippi. Credit support for these natural gas swaps and options is covered by master agreements that do not require Entergy to provide collateral based on mark-to-market value, but do carry adequate assurance language that may lead to requests for collateral.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
During the second quarter 2021, Entergy participated in the annual financial transmission rights auction process for the MISO planning year of June 1, 2021 through May 31, 2022. Financial transmission rights are derivative instruments that represent economic hedges of future congestion charges that will be incurred in serving Entergy’s customer load. They are not designated as hedging instruments. Entergy initially records financial transmission rights at their estimated fair value and subsequently adjusts the carrying value to their estimated fair value at the end of each accounting period prior to settlement. Unrealized gains or losses on financial transmission rights held by Entergy Wholesale Commodities are included in operating revenues. The Utility operating companies recognize regulatory liabilities or assets for unrealized gains or losses on financial transmission rights. The total volume of financial transmission rights outstanding as of March 31, 2022 is 23,303 GWh for Entergy, including 4,969 GWh for Entergy Arkansas, 10,681 GWh for Entergy Louisiana, 2,529 GWh for Entergy Mississippi, 1,070 GWh for Entergy New Orleans, and 3,959 GWh for Entergy Texas. Credit support for financial transmission rights held by the Utility operating companies is covered by cash and/or letters of credit issued by each Utility operating company as required by MISO. Credit support for financial transmission rights held by Entergy Wholesale Commodities is covered by cash. No cash or letters of credit were required to be posted for financial transmission rights exposure for Entergy Wholesale Commodities as of March 31, 2022 and December 31, 2021. Letters of credit posted with MISO covered the financial transmission rights exposure for Entergy Arkansas and Entergy Mississippi as of March 31, 2022 and for Entergy Mississippi and Entergy Texas as of December 31, 2021.
The fair values of Entergy’s derivative instruments in the consolidated balance sheet as of March 31, 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 | | $54 | | $— | | $54 | | Utility |
| Natural gas swaps and options | | Other deferred debits and other assets | | $8 | | $— | | $8 | | Utility |
| Financial transmission rights | | Prepayments and other | | $2 | | ($1) | | $1 | | Utility and Entergy Wholesale Commodities |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The fair values of Entergy’s derivative instruments in the consolidated balance sheet as of December 31, 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 March 31, 2022 and $8 million posted as of December 31, 2021. Also excludes letters of credit in the amount of $1 million posted as of March 31, 2022.
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. The effects of Entergy’s derivative instruments designated as cash flow hedges on the consolidated income statements for the three months ended March 31, 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 | | $39 |
(a)Before taxes of $8 million for the three months ended March 31, 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
Entergy Corporation and Subsidiaries
Notes to Financial Statements
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 March 31, 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) | $55 |
| Financial transmission rights | | Purchased power | (b) | $23 |
| | | | |
| | | | |
| 2021 | | | | |
| Natural gas swaps and options | | Fuel, fuel-related expenses, and gas purchased for resale | (a) | $7 |
| Financial transmission rights | | Purchased power | (b) | $128 |
| 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 March 31, 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 | | $19.3 | | $— | | $19.3 | | Entergy Louisiana |
| Natural gas swaps and options | | Other deferred debits and other assets | | $8.3 | | $— | | $8.3 | | Entergy Louisiana |
| Natural gas swaps | | Prepayments and other | | $35.0 | | $— | | $35.0 | | Entergy Mississippi |
| | | | | | | | | | |
| | | | | | | | | | |
| Financial transmission rights | | Prepayments and other | | $0.6 | | ($0.2) | | $0.4 | | Entergy Arkansas |
| Financial transmission rights | | Prepayments and other | | $0.3 | | $— | | $0.3 | | Entergy Louisiana |
| Financial transmission rights | | Prepayments and other | | $0.2 | | $— | | $0.2 | | Entergy Mississippi |
| Financial transmission rights | | Prepayments and other | | $0.1 | | $— | | $0.1 | | Entergy New Orleans |
| Financial transmission rights | | Prepayments and other | | $0.5 | | $— | | $0.5 | | 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 March 31, 2022, letters of credit posted with MISO covered financial transmission rights exposure of $0.3 million for Entergy Arkansas and $0.4 million for Entergy Mississippi. 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 March 31, 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 | | $11.1 | (a) | Entergy Louisiana |
| Natural gas swaps | | Fuel, fuel-related expenses, and gas purchased for resale | | $42.8 | (a) | Entergy Mississippi |
| Natural gas swaps | | Fuel, fuel-related expenses, and gas purchased for resale | | $1.1 | (a) | Entergy New Orleans |
| | | | | | |
| Financial transmission rights | | Purchased power | | $7.5 | (b) | Entergy Arkansas |
| Financial transmission rights | | Purchased power | | $9.4 | (b) | Entergy Louisiana |
| Financial transmission rights | | Purchased power | | $1.0 | (b) | Entergy Mississippi |
| Financial transmission rights | | Purchased power | | $0.8 | (b) | Entergy New Orleans |
| Financial transmission rights | | Purchased power | | $3.8 | (b) | Entergy Texas |
| | | | | | |
| 2021 | | | | | | |
| Natural gas swaps and options | | Fuel, fuel-related expenses, and gas purchased for resale | | $1.8 | (a) | Entergy Louisiana |
| Natural gas swaps | | Fuel, fuel-related expenses, and gas purchased for resale | | $5.2 | (a) | Entergy Mississippi |
| Natural gas swaps | | Fuel, fuel-related expenses, and gas purchased for resale | | ($0.1) | (a) | Entergy New Orleans |
| | | | | | |
| Financial transmission rights | | Purchased power | | $26.1 | (b) | Entergy Arkansas |
| Financial transmission rights | | Purchased power | | $12.3 | (b) | Entergy Louisiana |
| Financial transmission rights | | Purchased power | | $7.2 | (b) | Entergy Mississippi |
| Financial transmission rights | | Purchased power | | $1.3 | (b) | Entergy New Orleans |
| Financial transmission rights | | Purchased power | | $77.9 | (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 March 31, 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 | | $625 | | | $— | | | $— | | | $625 | |
| | | | | | | | |
| Decommissioning trust funds (a): | | | | | | | | |
| Equity securities | | 103 | | | — | | | — | | | 103 | |
| Debt securities (b) | | 736 | | | 1,334 | | | — | | | 2,070 | |
| Common trusts (c) | | | | | | | | 3,040 | |
| | | | | | | | |
| Securitization recovery trust account | | 15 | | | — | | | — | | | 15 | |
| Escrow accounts | | 49 | | | — | | | — | | | 49 | |
| Gas hedge contracts | | 54 | | | 8 | | | — | | | 62 | |
| Financial transmission rights | | — | | | — | | | 1 | | | 1 | |
| | $1,582 | | | $1,342 | | | $1 | | | $5,965 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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 $3.2 million as of March 31, 2022 and $0.4 million as
Entergy Corporation and Subsidiaries
Notes to Financial Statements
of December 31, 2021 on debt 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 March 31, 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 (a) | | | | | | | |
| Included in earnings | | | — | | | (2) | | | 4 | |
| Included in other comprehensive income | | | — | | | 2 | | | — | |
| Included as a regulatory liability/asset | | | 20 | | | — | | | 119 | |
| | | | | | | |
| | | | | | | |
| Settlements | | | (23) | | | (38) | | | (128) | |
| Balance as of March 31, | | | $1 | | | $— | | | $4 | |
(a)Change in unrealized gains or losses for the period included in earnings for derivatives held at the end of the reporting period was $0.7 million for the three months ended March 31, 2021.
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) |
| | | | | | | | |
| | | | | | | | |
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 March 31, 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 Corporation and Subsidiaries
Notes to Financial Statements
Entergy Arkansas
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | (In Millions) |
| Assets: | | | | | | | | |
| Temporary cash investments | | $107.2 | | | $— | | | $— | | | $107.2 | |
| Decommissioning trust funds (a): | | | | | | | | |
| Equity securities | | 2.7 | | | — | | | — | | | 2.7 | |
| Debt securities | | 132.4 | | | 376.9 | | | — | | | 509.3 | |
| Common trusts (b) | | | | | | | | 848.6 | |
| | | | | | | | |
| | | | | | | | |
| Financial transmission rights | | — | | | — | | | 0.4 | | | 0.4 | |
| | $242.3 | | | $376.9 | | | $0.4 | | | $1,468.2 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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 | | $140.7 | | | $— | | | $— | | | $140.7 | |
| | | | | | | | |
| Decommissioning trust funds (a): | | | | | | | | |
| Equity securities | | 22.8 | | | — | | | — | | | 22.8 | |
| Debt securities | | 230.0 | | | 517.5 | | | — | | | 747.5 | |
| Common trusts (b) | | | | | | | | 1,235.1 | |
| | | | | | | | |
| | | | | | | | |
| Gas hedge contracts | | 19.3 | | | 8.3 | | | — | | | 27.6 | |
| Financial transmission rights | | — | | | — | | | 0.3 | | | 0.3 | |
| | $412.8 | | | $525.8 | | | $0.3 | | | $2,174.0 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
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 | | $48.9 | | | $— | | | $— | | | $48.9 | |
| Gas hedge contracts | | 35.0 | | | — | | | — | | | 35.0 | |
| Financial transmission rights | | — | | | — | | | 0.2 | | | 0.2 | |
| | $83.9 | | | $— | | | $0.2 | | | $84.1 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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 | | $31.1 | | | $— | | | $— | | | $31.1 | |
| Securitization recovery trust account | | 5.1 | | | — | | | — | | | 5.1 | |
| | | | | | | | |
| | | | | | | | |
| Financial transmission rights | | — | | | — | | | 0.1 | | | 0.1 | |
| | $36.2 | | | $— | | | $0.1 | | | $36.3 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
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: | | | | | | | | |
| | | | | | | | |
| Securitization recovery trust account | | $10.0 | | | $— | | | $— | | | $10.0 | |
| Financial transmission rights | | — | | | — | | | 0.5 | | | 0.5 | |
| | $10.0 | | | $— | | | $0.5 | | | $10.5 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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 | | $98.2 | | | $— | | | $— | | | $98.2 | |
| Decommissioning trust funds (a): | | | | | | | | |
| Equity securities | | 4.9 | | | — | | | — | | | 4.9 | |
| Debt Securities | | 251.5 | | | 248.1 | | | — | | | 499.6 | |
| Common trusts (b) | | | | | | | | 803.7 | |
| | $354.6 | | | $248.1 | | | $— | | | $1,406.4 | |
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 March 31, 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 | |
| | | | | | | | | |
| Gains (losses) included as a regulatory liability/asset | 5.6 | | | 9.1 | | | 0.9 | | | 0.8 | | | 3.5 | |
| Settlements | (7.5) | | | (9.4) | | | (1.0) | | | (0.8) | | | (3.8) | |
| Balance as of March 31, | $0.4 | | | $0.3 | | | $0.2 | | | $0.1 | | | $0.5 | |
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 March 31, 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 | |
| | | | | | | | | |
| Gains (losses) included as a regulatory liability/asset | 24.8 | | | 9.3 | | | 6.9 | | | 1.2 | | | 76.8 | |
| Settlements | (26.1) | | | (12.3) | | | (7.2) | | | (1.2) | | | (77.9) | |
| Balance as of March 31, | $1.4 | | | $1.2 | | | $0.3 | | | $0.1 | | | $0.5 | |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
NOTE 9. DECOMMISSIONING TRUST FUNDS (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, and System Energy)
The NRC requires Entergy subsidiaries to maintain nuclear decommissioning trusts to fund the costs of decommissioning ANO 1, ANO 2, River Bend, Waterford 3, Grand Gulf, and Palisades. Entergy’s nuclear decommissioning trust funds invest in equity securities, fixed-rate debt securities, and cash and cash equivalents.
Entergy records decommissioning trust funds on the balance sheet at their fair value. Because of the ability of the Registrant Subsidiaries to recover decommissioning costs in rates and in accordance with the regulatory treatment for decommissioning trust funds, the Registrant Subsidiaries have recorded an offsetting amount of unrealized gains/(losses) on investment securities in other regulatory liabilities/assets. For the 30% interest in River Bend formerly owned by Cajun, Entergy Louisiana records an offsetting amount in other deferred credits for the unrealized trust earnings not currently expected to be needed to decommission the plant. Decommissioning trust funds for the Entergy Wholesale Commodities nuclear plants do not meet the criteria for regulatory accounting treatment. Accordingly, unrealized gains/(losses) recorded on the equity securities in the trust funds are recognized in earnings. Unrealized gains recorded on the available-for-sale debt securities in the trust funds are recognized in the accumulated other comprehensive income component of shareholders’ equity. Unrealized losses (where cost exceeds fair market value) on the available-for-sale debt securities in the trust funds are also recorded in the accumulated other comprehensive income component of shareholders’ equity unless the unrealized loss is other than temporary and therefore recorded in earnings. Generally, Entergy records gains and losses on its debt and equity securities using the specific identification method to determine the cost basis of its securities.
The unrealized gains/(losses) recognized during the three months ended March 31, 2022 on equity securities still held as of March 31, 2022 were ($175) million. The equity securities are generally held in funds that are designed to approximate or somewhat exceed the return of the Standard & Poor’s 500 Index. A relatively small percentage of the equity securities are held in funds intended to replicate the return of the Wilshire 4500 Index or the Russell 3000 Index. The debt securities are generally held in individual government and credit issuances.
The available-for-sale securities held as of March 31, 2022 and December 31, 2021 are summarized as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Fair
Value | | Total
Unrealized
Gains | | Total
Unrealized
Losses |
| | (In Millions) |
| 2022 | | | | | | |
| Debt Securities | | $2,070 | | | $15 | | | $99 | |
| | | | | | |
| 2021 | | | | | | |
| Debt Securities | | $2,177 | | | $65 | | | $12 | |
The unrealized gains/(losses) above are reported before deferred taxes of ($5) million as of March 31, 2022 and $2 million as of December 31, 2021 for debt securities. The amortized cost of available-for-sale debt securities was $2,153 million as of March 31, 2022 and $2,125 million as of December 31, 2021. As of March 31, 2022, available-for-sale debt securities had an average coupon rate of approximately 2.77%, an average duration of approximately 6.63 years, and an average maturity of approximately 10.40 years.
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 March 31, 2022 and December 31, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2022 | | December 31, 2021 |
| | Fair
Value | | Gross
Unrealized
Losses | | Fair
Value | | Gross
Unrealized
Losses |
| | (In Millions) |
| Less than 12 months | | $1,419 | | | $83 | | | $770 | | | $8 | |
| More than 12 months | | 119 | | | 16 | | | 99 | | | 4 | |
| Total | | $1,538 | | | $99 | | | $869 | | | $12 | |
The fair value of available-for-sale debt securities, summarized by contractual maturities, as of March 31, 2022 and December 31, 2021 were as follows:
| | | | | | | | | | | |
| 2022 | | 2021 |
| (In Millions) |
| Less than 1 year | $76 | | | $— | |
| 1 year - 5 years | 692 | | | 473 | |
| 5 years - 10 years | 600 | | | 655 | |
| 10 years - 15 years | 150 | | | 389 | |
| 15 years - 20 years | 158 | | | 130 | |
| 20 years+ | 394 | | | 530 | |
| Total | $2,070 | | | $2,177 | |
During the three months ended March 31, 2022 and 2021, proceeds from the dispositions of available-for-sale securities amounted to $303 million and $524 million, respectively. During the three months ended March 31, 2022 and 2021, gross gains of $1 million and $11 million, respectively, and gross losses of $12 million and $11 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 decommissioning trust funds related to the Entergy Wholesale Commodities nuclear plant as of March 31, 2022 and December 31, 2021 was $539 million and $576 million, respectively, for Palisades. The fair values of the decommissioning trust funds for the Registrant Subsidiaries’ nuclear plants are detailed below.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Entergy Arkansas
Entergy Arkansas holds equity securities and available-for-sale debt securities in nuclear decommissioning trust accounts. The available-for-sale securities held as of March 31, 2022 and December 31, 2021 are summarized as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Fair
Value | | Total
Unrealized
Gains | | Total
Unrealized
Losses |
| | (In Millions) |
| 2022 | | | | | | |
| Debt Securities | | $509.3 | | | $1.4 | | | $28.3 | |
| | | | | | |
| 2021 | | | | | | |
| Debt Securities | | $526.3 | | | $11.4 | | | $4.7 | |
The amortized cost of available-for-sale debt securities was $536.2 million as of March 31, 2022 and $519.6 million as of December 31, 2021. As of March 31, 2022, the available-for-sale debt securities had an average coupon rate of approximately 2.28%, an average duration of approximately 6.49 years, and an average maturity of approximately 7.74 years.
The unrealized gains/(losses) recognized during the three months ended March 31, 2022 on equity securities still held as of March 31, 2022 were ($50.5) million. The equity securities are generally held in funds that are designed to approximate the return of the Standard & Poor’s 500 Index. A relatively small percentage of the equity securities are held in funds intended to replicate the return of the Wilshire 4500 Index.
The fair value and gross unrealized losses of available-for-sale debt securities, summarized by length of time that the securities had been in a continuous loss position, were as follows as of March 31, 2022 and December 31, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2022 | | December 31, 2021 |
| | Fair
Value | | Gross
Unrealized
Losses | | Fair
Value | | Gross
Unrealized
Losses |
| | (In Millions) |
| Less than 12 months | | $332.9 | | | $21.3 | | | $183.8 | | | $2.9 | |
| More than 12 months | | 55.8 | | | 7.0 | | | 39.5 | | | 1.8 | |
| Total | | $388.7 | | | $28.3 | | | $223.3 | | | $4.7 | |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The fair value of available-for-sale debt securities, summarized by contractual maturities, as of March 31, 2022 and December 31, 2021 were as follows:
| | | | | | | | | | | |
| | 2022 | | 2021 |
| | (In Millions) |
| Less than 1 year | $33.8 | | | $— | |
| 1 year - 5 years | 153.6 | | | 91.7 | |
| 5 years - 10 years | 220.8 | | | 217.4 | |
| 10 years - 15 years | 47.9 | | | 146.0 | |
| 15 years - 20 years | 27.3 | | | 35.7 | |
| 20 years+ | 25.9 | | | 35.5 | |
| Total | $509.3 | | | $526.3 | |
During the three months ended March 31, 2022 and 2021, proceeds from the dispositions of available-for-sale securities amounted to $7.2 million and $13.8 million, respectively. During the three months ended March 31, 2022 and 2021, gross gains of $0.03 million and $0.8 million, respectively, and gross losses of $0.2 million and $0.1 million, respectively, related to available-for-sale securities were reclassified out of other regulatory liabilities/assets into earnings.
Entergy Louisiana
Entergy Louisiana holds equity securities and available-for-sale debt securities in nuclear decommissioning trust accounts. The available-for-sale securities held as of March 31, 2022 and December 31, 2021 are summarized as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Fair
Value | | Total
Unrealized
Gains | | Total
Unrealized
Losses |
| | (In Millions) |
| 2022 | | | | | | |
| Debt Securities | | $747.5 | | | $9.7 | | | $30.2 | |
| | | | | | |
| 2021 | | | | | | |
| Debt Securities | | $794.2 | | | $31.3 | | | $3.3 | |
The amortized cost of available-for-sale debt securities was $767.9 million as of March 31, 2022 and $766.3 million as of December 31, 2021. As of March 31, 2022, the available-for-sale debt securities had an average coupon rate of approximately 3.37%, an average duration of approximately 6.36 years, and an average maturity of approximately 12.16 years.
The unrealized gains/(losses) recognized during the three months ended March 31, 2022 on equity securities still held as of March 31, 2022 were ($70) million. The equity securities are generally held in funds that are designed to approximate the return of the Standard & Poor’s 500 Index. A relatively small percentage of the equity securities are held in funds intended to replicate the return of the Wilshire 4500 Index.
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 March 31, 2022 and December 31, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2022 | | December 31, 2021 |
| | Fair
Value | | Gross
Unrealized
Losses | | Fair
Value | | Gross
Unrealized
Losses |
| | (In Millions) |
| Less than 12 months | | $427.4 | | | $25.1 | | | $206.9 | | | $1.4 | |
| More than 12 months | | 41.2 | | | 5.1 | | | 42.9 | | | 1.9 | |
| Total | | $468.6 | | | $30.2 | | | $249.8 | | | $3.3 | |
The fair value of available-for-sale debt securities, summarized by contractual maturities, as of March 31, 2022 and December 31, 2021 were as follows:
| | | | | | | | | | | |
| 2022 | | 2021 |
| (In Millions) |
| Less than 1 year | $29.2 | | | $— | |
| 1 year - 5 years | 193.9 | | | 157.8 | |
| 5 years - 10 years | 170.0 | | | 173.0 | |
| 10 years - 15 years | 68.5 | | | 123.0 | |
| 15 years - 20 years | 82.9 | | | 80.2 | |
| 20 years+ | 203.0 | | | 260.2 | |
| Total | $747.5 | | | $794.2 | |
During the three months ended March 31, 2022 and 2021, proceeds from the dispositions of available-for-sale securities amounted to $120.5 million and $108.4 million, respectively. During the three months ended March 31, 2022 and 2021, gross gains of $0.9 million and $3.3 million, respectively, and gross losses of $5.5 million and $3.2 million, respectively, related to available-for-sale securities were reclassified out of other regulatory liabilities/assets into earnings.
System Energy
System Energy holds equity securities and available-for-sale debt securities in nuclear decommissioning trust accounts. The available-for-sale securities held as of March 31, 2022 and December 31, 2021 are summarized as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Fair
Value | | Total
Unrealized
Gains | | Total
Unrealized
Losses |
| | (In Millions) |
| 2022 | | | | | | |
| Debt Securities | | $499.6 | | | $1.9 | | | $27.6 | |
| | | | | | |
| 2021 | | | | | | |
| Debt Securities | | $524.5 | | | $11.8 | | | $2.9 | |
The amortized cost of available-for-sale debt securities was $525.3 million as of March 31, 2022 and $515.6 million as of December 31, 2021. As of March 31, 2022, the available-for-sale debt securities had an
Entergy Corporation and Subsidiaries
Notes to Financial Statements
average coupon rate of approximately 2.38%, an average duration of approximately 6.97 years, and an average maturity of approximately 9.87 years.
The unrealized gains/(losses) recognized during the three months ended March 31, 2022 on equity securities still held as of March 31, 2022 were ($47.7) million. The equity securities are generally held in funds that are designed to approximate the return of the Standard & Poor’s 500 Index. A relatively small percentage of the equity securities are held in funds intended to replicate the return of the Wilshire 4500 Index.
The fair value and gross unrealized losses of available-for-sale debt securities, summarized by length of time that the securities had been in a continuous loss position, were as follows as of March 31, 2022 and December 31, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2022 | | December 31, 2021 |
| | Fair
Value | | Gross
Unrealized
Losses | | Fair
Value | | Gross
Unrealized
Losses |
| (In Millions) |
| Less than 12 months | | $418.4 | | | $25.5 | | | $276.6 | | | $2.3 | |
| More than 12 months | | 13.3 | | | 2.1 | | | 11.3 | | | 0.6 | |
| Total | | $431.7 | | | $27.6 | | | $287.9 | | | $2.9 | |
The fair value of available-for-sale debt securities, summarized by contractual maturities, as of March 31, 2022 and December 31, 2021 were as follows:
| | | | | | | | | | | |
| 2022 | | 2021 |
| (In Millions) |
| Less than 1 year | $6.9 | | | $— | |
| 1 year - 5 years | 217.3 | | | 156.8 | |
| 5 years - 10 years | 136.1 | | | 161.8 | |
| 10 years - 15 years | 9.5 | | | 58.6 | |
| 15 years - 20 years | 31.1 | | | 1.9 | |
| 20 years+ | 98.7 | | | 145.4 | |
| Total | $499.6 | | | $524.5 | |
During the three months ended March 31, 2022 and 2021, proceeds from the dispositions of available-for-sale securities amounted to $36.2 million and $74.1 million, respectively. During the three months ended March 31, 2022 and 2021, gross gains of $0.1 million and $1.2 million, respectively, and gross losses of $0.7 million and $1.6 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 March 31, 2022 and December 31, 2021, Entergy’s allowance for expected credit losses related to available-for-sale securities were $3.2 million and $0.4 million, respectively. Entergy recorded $1.5 million in impairments of available-for-sale debt securities for the three months ended March 31, 2022.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Entergy did not record any impairments of available-for-sale debt securities for the three months ended March 31, 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 March 31, | | |
| 2022 | | 2021 | | | | |
| (In Millions) |
| Entergy | $17 | | | $41 | | | | | |
| Entergy Arkansas | $— | | | $8 | | | | | |
| Entergy Louisiana | $9 | | | $8 | | | | | |
| | | | | | | |
| Entergy New Orleans | $1 | | | $— | | | | | |
| Entergy Texas | $7 | | | $7 | | | | | |
| System Energy | $— | | | $18 | | | | | |
NOTE 11. PROPERTY, PLANT, AND EQUIPMENT (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)
Construction Expenditures in Accounts Payable
Construction expenditures included in accounts payable at March 31, 2022 were $402 million for Entergy, $33.5 million for Entergy Arkansas, $239.7 million for Entergy Louisiana, $13.8 million for Entergy Mississippi, $4 million for Entergy New Orleans, $35.1 million for Entergy Texas, and $34.5 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.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
NOTE 12. VARIABLE INTEREST ENTITIES (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)
See Note 17 to the financial statements in the Form 10-K for a discussion of variable interest entities. See Note 4 to the financial statements herein for details of the nuclear fuel companies’ credit facilities, commercial paper borrowings, and long-term debt.
System Energy is considered to hold a variable interest in the lessor from which it leases an undivided interest representing approximately 11.5% of the Grand Gulf nuclear plant. System Energy is the lessee under this arrangement, which is described in more detail in Note 5 to the financial statements in the Form 10-K. System Energy made payments under this arrangement, including interest, of $8.6 million in each of the three months ended March 31, 2022 and the three months ended March 31, 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 further discussion on the presentation of the third party tax equity partner’s noncontrolling interest and the HLBV method of accounting used to account for Entergy Arkansas’s investment in AR Searcy Partnership, LLC. As of March 31, 2022, AR Searcy Partnership, LLC recorded assets equal to $142 million, primarily consisting of property, plant, and equipment and the carrying value of Entergy Arkansas’s ownership interest in the partnership was approximately $113 million.
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 March 31, 2022 and 2021 were as follows:
| | | | | | | | | | | | | | | | | |
| | 2022 | | 2021 | | | |
| | | | | | | |
| | (In Thousands) | | | |
| Utility: | | | | | | | |
| Residential | | $986,023 | | | $966,855 | | | | |
| Commercial | | 634,626 | | | 572,676 | | | | |
| Industrial | | 743,634 | | | 597,652 | | | | |
| Governmental | | 57,292 | | | 56,798 | | | | |
| Total billed retail | | 2,421,575 | | | 2,193,981 | | | | |
| | | | | | | |
| Sales for resale (a) | | 128,959 | | | 205,075 | | | | |
| Other electric revenues (b) | | 93,880 | | | 80,261 | | | | |
| Revenues from contracts with customers | | 2,644,414 | | | 2,479,317 | | | | |
| Other revenues (c) | | 11,362 | | | 59,103 | | | | |
| Total electric revenues | | 2,655,776 | | | 2,538,420 | | | | |
| | | | | | | |
| Natural gas | | 72,361 | | | 58,168 | | | | |
| | | | | | | |
| Entergy Wholesale Commodities: | | | | | | | |
| Competitive businesses sales from contracts with customers (a) | | 144,823 | | | 232,113 | | | | |
| Other revenues (c) | | 4,965 | | | 16,137 | | | | |
| Total competitive businesses revenues | | 149,788 | | | 248,250 | | | | |
| | | | | | | |
| Total operating revenues | | $2,877,925 | | | $2,844,838 | | | | |
r 30, 2021 and 2020 were as follows:
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The Utility operating companies’ total revenues for the three months ended March 31, 2022 and 2021 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | Entergy
Arkansas | | Entergy
Louisiana | | Entergy
Mississippi | | Entergy
New
Orleans | | Entergy
Texas |
| | (In Thousands) |
| | | | | | | | | | |
| Residential | | $227,786 | | | $353,567 | | | $152,939 | | | $58,658 | | | $193,073 | |
| Commercial | | 113,238 | | | 257,591 | | | 110,661 | | | 45,572 | | | 107,564 | |
| Industrial | | 109,675 | | | 451,954 | | | 39,157 | | | 6,272 | | | 136,576 | |
| Governmental | | 4,460 | | | 19,016 | | | 12,000 | | | 15,033 | | | 6,783 | |
| Total billed retail | | 455,159 | | | 1,082,128 | | | 314,757 | | | 125,535 | | | 443,996 | |
| Sales for resale (a) | | 70,414 | | | 107,701 | | | 21,641 | | | 26,540 | | | 17,644 | |
| Other electric revenues (b) | | 30,572 | | | 41,482 | | | 10,337 | | | 1,393 | | | 11,449 | |
| Revenues from contracts with customers | | 556,145 | | | 1,231,311 | | | 346,735 | | | 153,468 | | | 473,089 | |
| Other revenues (c) | | 2,811 | | | 5,926 | | | 2,294 | | | 1,178 | | | (607) | |
| Total electric revenues | | 558,956 | | | 1,237,237 | | | 349,029 | | | 154,646 | | | 472,482 | |
| Natural gas | | — | | | 28,735 | | | — | | | 43,626 | | | — | |
| Total operating revenues | | $558,956 | | | $1,265,972 | | | $349,029 | | | $198,272 | | | $472,482 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2021 | | Entergy
Arkansas | | Entergy
Louisiana | | Entergy
Mississippi | | Entergy
New
Orleans | | Entergy
Texas |
| | (In Thousands) |
| | | | | | | | | | |
| Residential | | $237,182 | | | $335,760 | | | $147,636 | | | $66,427 | | | $179,850 | |
| Commercial | | 106,416 | | | 224,649 | | | 97,936 | | | 47,799 | | | 95,876 | |
| Industrial | | 103,412 | | | 347,009 | | | 33,980 | | | 6,789 | | | 106,462 | |
| Governmental | | 4,256 | | | 18,616 | | | 10,543 | | | 16,380 | | | 7,003 | |
| Total billed retail | | 451,266 | | | 926,034 | | | 290,095 | | | 137,395 | | | 389,191 | |
| Sales for resale (a) | | 110,085 | | | 80,428 | | | 40,311 | | | 4,696 | | | 74,073 | |
| Other electric revenues (b) | | 19,583 | | | 43,910 | | | 3,950 | | | (3,359) | | | 17,529 | |
| Revenues from contracts with customers | | 580,934 | | | 1,050,372 | | | 334,356 | | | 138,732 | | | 480,793 | |
| Other revenues (c) | | 2,452 | | | 29,291 | | | 2,263 | | | 416 | | | (573) | |
| Total electric revenues | | 583,386 | | | 1,079,663 | | | 336,619 | | | 139,148 | | | 480,220 | |
| Natural gas | | — | | | 27,981 | | | — | | | 30,187 | | | — | |
| Total operating revenues | | $583,386 | | | $1,107,644 | | | $336,619 | | | $169,335 | | | $480,220 | |
(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.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
(b)Other electric revenues consist primarily of transmission and ancillary services provided to participants of an ISO-administered market and unbilled revenue.
(c)Other revenues include the settlement of financial hedges, occasional sales of inventory, alternative revenue programs, provisions for revenue subject to refund, and late fees.
Allowance for doubtful accounts
The allowance for doubtful accounts reflects Entergy’s best estimate of expected losses on 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 three months ended March 31, 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 | (5.9) | | | 3.7 | | | (6.1) | | | (0.9) | | | (2.4) | | | (0.2) | |
| Write-offs | (45.3) | | | (14.4) | | | (17.5) | | | (4.1) | | | (5.4) | | | (3.9) | |
| Recoveries | 14.1 | | | 4.1 | | | 5.5 | | | 1.2 | | | 2.2 | | | 1.1 | |
| Balance as of March 31, 2022 | $31.5 | | | $6.5 | | | $11.1 | | | $3.4 | | | $7.7 | | | $2.8 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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 | 3.2 | | | 2.4 | | | 2.3 | | | (2.2) | | | 1.8 | | | (1.1) | |
| Write-offs | (3.8) | | | (0.1) | | | (2.1) | | | (0.8) | | | — | | | (0.8) | |
| Recoveries | 1.9 | | | 0.6 | | | 0.7 | | | 0.3 | | | 0.2 | | | 0.1 | |
| Balance as of March 31, 2021 | $119.0 | | | $21.2 | | | $46.6 | | | $16.8 | | | $19.4 | | | $15.0 | |
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.
________________
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.
